I completed a triathlon, 70.3 miles up in Lake Tahoe. It was about 6,000 feet of elevation, in a lake, up a mountain, down a mountain, bike, run and swim, all of it.
I’ve got to ask because I'm a little green in this area. Triathlon versus an Ironman.
Ironman is a brand. Ironman puts on certain races and is a big brand of triathlons. They definitely put on great races. This was an unsupported Ironman. The reason I heard is that this was previously called The World's Toughest. Ironman came to town and put on the race for a couple of years, but it's too tough. It couldn't sell enough tickets so it's for the ones crazy enough to do it.
I am not yet a runner. Although, if you put a ball in front of me, I will chase a tennis ball, a football, I will probably run many miles. How did you get into what I call punishing yourself?
I was talking to one of my good friends that I’ve been friends with since New York City. I talked to him and he said, “I'm running these Ironmans, I’m running these triathlons,” and I said, “You're not in better shape than me. How are you doing triathlons?” My ego kicks in. I said, “If you can do a triathlon, I can do a triathlon.” I was definitely at a stage where the previous year I was not moving the body enough, focusing too much at work, and sitting on the little stationery at my desk. I said, “I can do this. If you can do it, I can do it,” which is a great testament to who you surround yourself with. Make sure people are pushing you.
I signed up knowing what I was getting into but not really. The first thing I said, “I’ve got to swim. I’ve got to bike. I’ve got to run.” While I’ve definitely run before, no problem there, I’ve done marathons. I’ve never been on a bike in terms of a race and I’ve never swam at all in terms of a race. I can swim and I can bike but that's it, recreation. I said, “I’ve got to get a coach.” I enrolled a coach. I got a swim coach. Tuesday, Thursday every 6:00 in the morning, the first time I went to the pool he said, “Let me see you swim.” He said, “Go back and forth.” I jumped in, put my goggles on. I put the earbuds in my ear for water and a swim cap, all the stuff I don't swim with now. I was geared up. I literally swam back and forth, thought I was going to drown, and thought my heart was going to come out of my chest. I was like, “How am I going to swim 1.2 miles when I can barely do a back and forth lap?”
I had that experience in being a student of education, self-development, being a coach myself. It wasn't within a week and a half that having a coach watch me, correct me, give me direction, I was all of a sudden comfortable in the pool. I had to train my muscles, my heart, and all that. It was a strong reminder that I was thinking if I didn't enroll a coach, I would have literally gutted it out for six or eight months, probably not getting any better. It’s such a reminder to enroll people that have been where you want to go to help you get where you're going.
Is that a natural thing for me? The stereotypical guy, I have to hit my head against the wall for a while and then I'm like, “I can go get a coach in this new area that I'm doing.”
It's definitely a natural thing to ask for a coach.
For you like, “I'm doing this new activity,” and you go out and you swim a lot of laps and you’re like, “I'm sucking wind. I need to go get a coach,” or do you say like, “I'm going to go swim. I don't know how to swim well. I'm going to get a coach right off the bat?”
Over time, and with wisdom, it’s why would you do anything new? Start a business, do a 70.3 miles triathlon and not enroll people that have literally done it 100 times before you, can give you the answers to the test. Over time and many years having success and failures, it's more automatic now than it was a decade ago like, “I'm a dude. I can figure it out. I can keep swimming every day and I’ll get better.” To answer your question, it's stupid not to. I am at this stage like, “I'm going to do something. I'm going to enroll a coach. I'm going to ask people for help. I'm going to get advice so that my time and learning curve can literally be cut in more than half.” That's exactly what I did.
For those of you who are just getting to know Paul, he has an incredible success in real estate. Before you got to real estate, I imagine you didn't go to school seeking a real estate degree. What were you doing before real estate?
I love to share my pre-real estate experience, which was nothing in real estate. My mom was a dental hygienist. She cleaned teeth for a living. My dad's with old wheels and tires. I didn't come from a real estate family. I went to school. I studied economics and business at an agricultural school. The examples were with bales of hay and corn versus oil and anything else. From my education to real estate, I had a gap of a couple of years where I ended up in New York City. I didn't work in real estate or any traditional job trajectory.
I remember my last year at the university and then different employers come on campus for interviews. It was Pepsi and it was a sales position. You drive around and sell their products, sell sugared water. I was like, “I better get a job. I better go like everyone else. They're coming to campus. I’ll just get in line here.” I remember, it was Thursday and it was college. The night before I had a friend come in from out of town, we had a fun time. I got my cheap suit on. I was walking across campus early in the morning. It was spring in Northern California, I went to UC Davis. I went into this campus office and there was the guy interviewing. He was in a small office and there was one window and the window behind him. I was waiting in line with the other kids and I got called in for the interview. He was sitting on one side and I was sitting here. There was one window in the office and I saw the water tower and the interview was ongoing.
Out this window, there was the water tower, there was the spring dew off the trees. A bird flew by and all of a sudden, I heard this guy said, “Are you listening to me?” That's when I realized in the middle of that interview I had no interest. I didn't want the job. I didn’t know why I was there because the whole time walking to that interview. For now, not just months but for a period of time, I couldn't align what society, what my normal track, and this university was telling you, “Graduate, get a job. Get $30,000 job. Next year, you're at $35,000 or maybe $30,000 to $35,000. Work five years, ten years, a promotion and then when you're at 60, you can retire and then you can do what you want, maybe.’”
None of it lined up. It didn't make sense to me. I walked out of that interview knowing I didn't get it. Thank goodness that I didn't want it. I didn't know exactly what I wanted to do, but in life what I’ve realized is sometimes you’re certain what you don't want to do and you have to shut one door at a time. From there, I ended up going back home to Fresno for a year. I did some substitute teaching not that much, but realized I could shut that door. Then a friend called me up that I went to college with and he said, “I'm moving to New York City,” and we'd talked about New York City. No other reason than love in one of that life experience.
This was August 2001. Back then, it was cheaper to buy a round-trip ticket. You buy a round trip ticket and don't come back. I literally packed my life in a duffel bag and shipped myself across the country. It couldn't be two farther ends. I got to New York City. I was waiting on the stoop of this pretty beat up building in what is the corner of Chinatown, Little Italy, SoHo, Kenmare and Mulberry. My apartment was a 500-square foot with two bedrooms. My share of the rent was $1,000. If I didn't realize it then, I realized it now. That was another testament to why you wanted to be the landlord, not the renter. You rent a 500-square foot rise for $2,000 a month.
I get there and again I had my economics degree. When you're at different stages of your life and specifically younger, sometimes you lose your conviction. I was like, "Let me put on my suit. Let me go to the job hunter. Let me do the interviews and try to get something with this economics degree.” I hadn't been on the East Coast in the summer. It was August on the East Coast. In Fresno, we have 110 dry heat, by that time. Here I put on my cheap black suit. I walked outside, and I was soaking wet. I was miserable, it was hot, and I was pounding the streets with all the other miserable people going to work in the city. I was sitting in front of people in these interviews and I realized, “I don't want to come to work in this building and sit in this cube on how many floors.” I had to re-support that thought and shortly thereafter I said, “Let me get a job and pay for the rent.”
In New York City, you don't have a car. I walked around, and I went to the sandwich shops, a cash register needed, literally two blocks away. I was like, “Let me get a job.” I’ve got $1,000 coming up at the end of the month. I was interviewed and she was like, “Come in, do a half day run on the cash register,” and I was good with that cash register. If there was any one thing I was good at, it was working the cash register. I did that for a couple of hours. The manager pulled me in the back and said, “You did great. It’s awesome. You're going to work out great here. Tell me a little bit more about your goals.” I said, “I want to get this job, so I have money to pay for the rent and I can find a better job.” This is a country boy from Fresno, his first lesson in the Big Apple. She looks at me and she goes, “I don't want to invest all this time for you to leave, so you're not hired.” All I could think of was, “Invest all this time. I'm working the cash register.”
I learned my lesson. I'm a quick learner. I kept walking around the retail and I’ve never worked in a restaurant before. There was a bigger restaurant about two and a half blocks away. I was like, “I’d like to interview for a job.” He was like, “Come back Thursday,” as they had multiple positions. I came back on Thursday and I got the application. I went sitting with a group of other people who were applying for jobs. I checked literally every position at the restaurant because I needed a job and I didn't know what they were anyhow. I came and I finally got called. I can remember it's a French restaurant. I was sitting in the bar area, a little round table, and she looks me up and down as I’m sitting down and she goes, “Can you lift boxes?” I said, “Yes, I can lift boxes.” I’m pretty fit. I can do that as a former wrestler. She looked at my application a little awkwardly with all the check boxes. She goes, “We just had a barback leave and go on vacation. We need a barback.” I don't know what a barback is, but I learned my lesson from the last interview. I looked her dead in the eye and said, “I’ve been wanting to be a barback at this restaurant since the day I was born. It is my dream to fulfill,” and I got the job. That was my first job in New York City.
To your point, this was my experience before real estate. I was working at a bar. Pivotal moments, we all have them. I can remember I’ve got my apron on. I learned that a barback to the bar is a busboy to a waiter in the front of the house, but even worse. You're bringing ice, you're bringing cases of beer, cases of wine and you’re restocking glassware. Even the waiter and waitresses are yelling at you. It was a pretty rough job. I remember at one point, a couple weeks in, maybe a month or so in, I was stacking glassware. It's a popular bar. People were having a good time. Here I was and I started having a pity party. I got my apron on. I was putting the glassware up and I was like, “What am I doing? I’ve got an education.” I started going there. “This is beneath me. I shouldn't be doing this.”
Some of us are more prone or have had exposure to self-development or positive thinking and subscribing to education. I caught myself and I said, “What are you doing? You made the choice to move to New York. You made the choice to take this job. If you don't like it, you can make the choice to leave.” What you can't do and what would be the one thing up to that point, don't be somewhere and do something where you're half-ass. Where you're less than a representation of what you should be. I said, “I'm going to go all in. I'm going to set my goals here,” so I set my goals for the next corporate step, which was to become a bartender.
Is your vision now cocktails and dreams?
Absolutely. I saw Tom Cruise. If I can go from barback to bartender, it's progress. Now I don't feel bad. Now I'm in progress. Everybody wants to progress. It’s like if you run a mile, you want to run two miles, run around four miles. That was quickly about six months into it. I end up learning and becoming a bartender. Before real estate, the only thing I flipped before houses were drinks. I'm in love with real estate. I'm in love with the business. I'm in love with education, self-development. When we got started, we started to study real estate. The initial thought was, what are we going to do that will provide the lifestyle, the experience, our choice of who we want to work with, and have no limit on what we can earn?
It was the real estate of the two simple statements of a lot of people have made all their money in real estate or people who have made a lot of money now parking in real estate. From there, we started to fill in all the other details but that's what motivated us. That was my experience before real estate. I love to share it because I don't think it's easy if someone hasn't been where you’ve been. That's our story. There is no real estate background. There's no special privilege. We picked up the same books, everyone else, only we did something. I remember the first book I was reading when I was deciding to leave the bar. It was under my arm and it was Bill Barnett’s Are You Dumb Enough To Be Rich?
My coworkers loved that title.
It's easy to be negative. It's easy to be a naysayer. It's easy to point at someone in the arena and say, “You're losing. Why are you doing that? You can't win.” I remember walking with that book in conviction. This was two years into it. This tide you have to go against like, “I'm making money, but I know I’ve got to do something different.” It's these different stages where I call them like stepping through the threshold. There are doorways and it's hard. You're looking through that door and there are a lot of people. Sometimes people that care about you the most are making it hard. I remember calling my mom, “Mom, Than and I are going to do real estate business. I’m going to quit my job in New York City.” My mom is in Fresno 3,000 miles away and means well. She's definitely supportive. She goes, “Honey, you have such a good job.” That's when I knew I couldn't listen to anyone. Sometimes only you know what's best for yourself. That's a little bit of the background.
Talk to me about that first deal. You’re a bartender. You decided to make that thing. You studied and you learned. At some point, you took that action to now do your first deal, which I believe cemented things. When you tangibly do something, you learn, you get it. Take us back to that moment when you did that first deal.
This is 2000. I moved to New York City in August of 2001. The next month was September 11th, which is a story in and of itself. In 2003 December, to say, “Quit the job.” January 1 is when I moved to New Haven. I packed my life in a duffel bag, pivotal moment. Before that, in 2004, we started researching the market. I was going back and forth on the Metro-North, from Grand Central to New Haven. The first two deals that we bought were two, three family rentals. We read the book. Everyone reads the book. Buy rentals, kick your feet up, retire. It's easy.
Right out of the gate, these two, three family rentals, 79-81 Blake Street and 876 Elm Street in New Haven, Connecticut, we bought them with conventional financing. Clearly, we didn't have all the education we have now. We didn't think to look about deferred maintenance, what was going on in the building, and how much energy and effort some of those tenants would take. I had my spreadsheet. I penciled it in. We're going to be making $1,000 cashflow a month on each house. These were no-brainers. They were cheap. The problem was my spreadsheets and my tenants didn't agree. The tenants were paying rent and my spreadsheets were a big difference.
Immediately, those we bought with the little money we had right out of the gate that I had and Than had saved, we found ourselves like, “We’ve got to create money.” One of the first things that happened on old Blake Street is the tenant called me and he’s like, “It's raining in my apartment.” We had to replace the roof. There’s a three-story, 1,000-square-foot each apartment. Three-story, three-floor, 3,000 square foot building will test you and everyone else. What do you think the cost to replace that roof was?
I'm going to say $15,000.
You’re pretty close. It was about $12,000. I was going to make cashflow at $1,000 per house for the year. All of my cashflows went to the roof in the first two months. Lots of lessons you learn along the way. We were always planning on rehabbing houses. This motivated us even quicker to get in the game. In New Haven, Connecticut, this was 2004, we did auctions. On Saturday morning, you go to the house with a bank check per the drive-by appraisal, and you bid on it with everyone else. What we would do is we’d do our research a couple of days before because they'd be posted publicly in the newspaper. Look up the property, get your best idea of what do you think it’s worth. What might you have to put into it? Some are lived in, some are vacant. Than and I would split up Saturday morning and have our life savings and two bank checks and see if we were going to get a property.
I went through my properties that Saturday morning and didn't get any. I called Than late afternoon. I called him, “How did it go?” He was like, “I got the property.” He was excited and then I got excited. I was like, “Awesome.” Now, it's like a party on the phone. I said the next logical question, “How much did you get it for?” He was like, “$75,000,” I was like, “It’s amazing,” because he sounded like he thought it was amazing. I asked the next logical question, “How are we going to pay for it?” He goes, “I don't know.” That's when the reality set in. This first property, 32 Mead Street, we had the bank check which was probably $7,000.
At an auction, do they give you your money back if you can't come up with the money in 30 days? No, so that kicked us off with literally dialing for dollars, calling all of our friends and family. Still came up short $20,000 something plus and we were back in our four-story walk-up apartment. We've gotten as far as we can go. The first person I got was my older brother, JD. I got him for $10,000. We were chipping away at it but literally, we've gone through every number in our phone. I was sitting in my room and Than was sitting in his room. There was this paper-thin wall. It was this beat-up apartment loft. We were right next to each other. It got slow and quiet because we ran out. We gave it the old college try but we were $25,000 plus short. All of a sudden, he ran over to my room and he was like, “Dude,” and he got this huge George Costanza wallet. Literally, like any card collected and it was all there. He was like, “I just called my credit card. They gave me advanced $8,000,” and so I got excited. I was like, “That's awesome.”
He looked at me. When your family or friend that you've known for a long time, they can talk without talking. He looked at me like, “It's your turn,” as he was holding his George Costanza wallet. At this point, make no mistake. The doubt of it all is getting loud. Did I do the right thing? Was my mom right? How are we going to do this? I was like, “Than, no.” The one thing I’ve protected, I have good is my credit. I'm not going to touch my credit. I told him because that's how I’ve been programmed from an Armenian family, “Save your money under the mattress, have good credit because that's apparently what you need.” I said, “No way. I am not touching my credit. I’m not going that route. I’ve sacrificed everything. I’ve quit my job and I’ve moved from New York City.” I was sitting here in this room that I was in. There was a mattress on the floor. There was a bucket of compound. There was some plastic. We were trying to paint and rehab this. It was not a pretty scene. I said this and Than looked around the room, which isn't very big, with his eyes and he said, “How's that working out for you?” You know when they talk about your life flashing before your eyes.
At that moment, I was sitting on the mattress on the floor with the plastic draped. I played out going back to New York City, asking for my job back, being made fun of, everyone saying, “You're right.” In split seconds I played this out. It's true what they say. If you haven't exhausted everything, you haven't exhausted everything. If this is a tool and I need to use it, now is the time. Burn the boats, as they say. Burn the ships. That is exactly what we did. We bridged the gap, I'm not saying everyone needs to or we'll do this, but the message here is if you're not willing to do whatever it takes, then you weren't that passionate about it. It wasn't a real goal for you. If I set a goal to run that triathlon but gave up after the first lap in the pool, then it clearly wasn't a goal that I wanted to achieve.
That was that first property how we got into it. I like to share that story because I learned many lessons at that moment. Certainly, looking back, it was pivotal where if I didn't surround myself with other people like a buddy who was pushing and pushing each other. That's why I'm such a proponent of enrolling other people. We could have stopped on that first deal, but in any case, we closed on that deal. Now we were way in debt. We’ve got two multifamily that was sucking up money. We’ve got this rehab. We’ve borrowed everybody, family and friends. All our credit was in this house, good old 32 Mead Street in New Haven. As soon as we went to this house, it was vacant. People had been squatting in it and all this. We started cleaning it out and this thing took probably twelve 30-yard dumpsters because there was garbage upon garbage. It was like someone upped and walked away.
As we were cleaning this out, the first layer of stuff is King Cobra bottles because all the people were squatting in there, drinking, hanging out and the drug paraphernalia. The layers got to where people upped and left, dressers full of clothes and all this stuff. We’ve got the story pieced together from the neighborhood as we were cleaning this out and it was not a pretty story. There were different things that happened to the house where they just abandoned the house. We pieced all this together and it was a bit of a rollercoaster ride like, “I don’t know. Did we buy the right house? It comes with a little bit of a story stigma.” We were like, “We’ll keep pushing forward, one foot in front of the other.” When we finally cleaned out everything, we were standing in the living room. It was like we were standing on a mountain, meaning the floor is so warped and the settling of this house, the foundation, it settled. Where if you drop the marble in the middle of the floor, it didn't roll to the baseboard, it raised, literally. We were like, “This is not right. This can’t be good.”
In the New England, you have basements. We didn't know much as the first rehab. We said, “We’ve got to get someone to take a look at it and confirm that this is okay. We're going to rehab this house and sell it, what do we need to do? If it's okay, good. If we need to do something, let's do it because we're going to sell it. We don't know much, but I'm pretty sure someone's going to want to confirm this is safe.” I called some of the contractors, I was going through the Yellow Pages at the time. It was not so much the internet as much back then. I called this structural engineer and I said, “Will you come by this house that we're rehabbing and let us know if there's anything that needs to be done. Give us a site visit and confirm that everything is safe and sound.” He said, “Yes, no problem.” It was $100 and a change to do a site visit. I said, “That's fine. I don't mind paying that.” If I'm going to spend money, I’ve got to get something else and then, “As long as when you go and if everything checks out, you write a letter with your structural engineer stamp that everything's good, fit to live and we're good.” He was like, “Sure, there will be no problem. That's another $250.”
We're not splitting atoms. We’re not necessarily the smartest people, but I did know that that's what I would need. That guy came out and he started our education in that area. Most foundation problems and settling have to do with water management. For so long, that property didn't have any gutters. This is New England, so you had snow, rain. It settles and sits on the foundation then it settles. The house wasn't falling apart. It was just many years of bad water management. It had settled pretty well. We got it clean and we started rehabbing. This property bought for 75,000. We assumed the ARV, after repair value, itself for $140,000, $145,000 or something. We figured we’d put $30,000 into it, good deal. Question is how did we estimate $30,000? The answer is I have no idea. It was like, “$30,000, that should do it. You can’t fix a house for $30,000,” completely no science, nothing to it. The long and the short of it are many lessons.
We ended up spending a little over $50,000 on the rehab. Definitely did as many things wrong as you could. For example, for first time rehabbers, you're doing your house and you want to get finished the first time so much quicker than you are. You rush the appliances. It’s like, “There's still work going on, but I’ll buy the appliances.” As soon as you put the appliance in, it looks like a new house. I put the appliance in, but it wasn't ready for the appliances. I came the next day and the neighborhood watch the gal came over and she goes, “I want to tell you, your contractors are amazing. They work so late all the time. They're here early.” I said, “Why do you say that?” “Last night they were moving appliances.” I go in the house. I realized someone broke a window in the back, unlocked the door in the front, and rolled the appliances right out the front door. That's what I call the buy two appliances lesson. Always wait. That's the last thing you do. Lots of lessons there.
We closed on it in January and we ended up putting it under contract. This is what I call the Wild Wild West of real estate when mortgages were stated. Anyone could get a house, which is good and bad, clearly worse than it was good as we saw from the adjustment that happened in 2008. We sold that house for around $150,000. We made about $27,000 on our first rehab and that was the a-ha. We did one house, spent about four months, and we made $27,000. Now we're hooked. How do we create a system? How do we do a Henry Ford assembly line? The McDonaldization of the house after house, so we don't do one house in four months? Have two, three, four, five or six houses going at a time and we're getting six checks of 27,000 each month. That's what we set out to do and that's what our residential redevelopment business looks like now. A lot of lessons learned in the first house. That story's not going to be unique to me. That's going to be anyone’s story.
What I always try to share with people is give yourselves the liberty to make mistakes. There's one thing I can guarantee you as you set out to conquer the world and do your goals is you're going to F it up. That's okay. It's this whole process of unlearning what traditional education has programmed us, which is traditional education is they look at our tests and they say the one question you got wrong, you get a red mark. Business and entrepreneurs, the things you get wrong is what you get to learn from. That's your next opportunity. That's where you're going to spend your time.
In business and as entrepreneurs, it is about getting things wrong or breaking things. The more preparation you have, the easier it is to clean up the mess you break, smaller mistakes. I'm definitely not saying you don't go into any business without preparation, without investment in yourself and systems. I can tell you stories upon that, but once you've done those steps. Whether it's business or other goals, take the tariff on. If I properly prepared, there's nothing to worry about on race day. It's doing it. Maybe I finish fast, maybe I don't finish fast, but at least I'm prepared and I’ll get through it.
One of the big distinctions you shared is something that I'm still learning, which is you did that first house and you had that thought of creating systems and making it like a McDonald's. Whereas for me, in the past, it's been like, “That's my identity.” I get great enjoyment out of building the house or contributing to it. I'm the real estate investor, which Rich Dad tells us I'm essentially running the business. I do not own the business at that point. I want to echo that distinction that you shared there. For everyone else out there that sees themselves as the business and that's okay, that's great if you're personally fulfilled by that. You ought to look for opportunities to systemize so that you can leave it, exit it, franchise it or build more leverage.
On that first rehab, I went to Lowe’s. I walked the aisles of Lowe’s. I picked out those oak cabinets and the Formica countertop, which I would never do now, but it worked then. I’d picked the hardware, I picked the kitchen light, and I picked the dishwasher. I was writing it down on my clipboard. I probably spent two hours at Lowe’s putting on this kitchen. The concept of how you move from technician to business owner, the entrepreneur is what it took me two hours now. That doesn't include driving there back and forth, so now three hours. What took me three hours now, how do I create a system and a process that if I do the same single-family rehab tomorrow, it doesn't take three hours of my time? It takes me or anyone 30 minutes. It was called working in the business and on our business. When I was at Lowe’s, I was working in the business. This is what we did every day for the last decade. All of our businesses where we do something, we're working in it during the day, and then every day we allocate hours to work on our business. What systems can we create? What processes can we create? What technology can we leverage? I want to point out it's not like we were smarter than anyone else.
We were exposing ourselves to education and information early on. For example, reading that book and saying, “The whole goal of starting a business is to do something and then fire yourself in that position, then you do something and then fire yourself again.” Until literally, you get to the point where you fired yourself out of this business that operates without you. We spend time together, Dustin, and you're in our San Diego office. You know where our CT Homes
team is. CT Homes, our residential redevelopment business, they're doing anywhere from 40 properties plus or minus at any given time. How often do you see me at CT Homes?
I don't think ever.
That's the point. That's the end game of starting a business. It's great to have an identity tied to something. What's even greater is spending all day with your kids if you choose and properties are still selling and you're still making money.
Paul, what do you think the biggest thing holding people back from being successful in real estate is?
It's pretty universal. What holds everyone back from things that they want to do is fear. There are specifics and particulars in every case when we talk about real estate. The thing about real estate in my experience, to my knowledge and having traveled all over teaching, talking, training, speaking on real estate is at some point. I can say this even beyond the United States, at some point, everyone in the world has some interest in real estate. Learn it, do it at a couple rentals, own a building, this, that or the other. At some point, everybody has some piqued interest in real estate. When that comes along, there are different reasons. Maybe they want to do it full-time. Maybe they want to supplement their job that they like by holding properties. Maybe they want to be unlimited investor and opportunities. Ultimately, I want to do real estate and then someone stops. It's fear.
Fear is not a stop sign. That's the first thing that I recognized, I learned and I repeated to myself and everyone around me. Fear is not a stop sign. Fear is a pay attention to what you don't know yet and what you need to seek out and learn so that the fear goes down and the momentum goes forward. That's all fear is. When you don't know something, it's fear of the unknown. If you have a playbook, if you have a roadmap, if you’re sitting alongside someone who's had success in what you want to do, the fear goes away. It might sound like a generic answer but in real estate, it first starts with fear. There are two types of people that overcome fear. They diligently go through a process or they're stupid and crazy like we are and you don't know any better. It's like, “I'm going to buy this house in the ghetto and it will be good.” You realize, “I bought a house in the ghetto.” Now I’ve got to deal with all the lessons I'm learning. That point of fear first. Once you get past fear in real estate, if my best-educated guess, is people think, “I don't have the money. I don't have the tools and resources that you need to buy a $200,000 single-family home.”
Early on, I know in my simpleton mind many years ago, it's like, “How do you buy a house for $200,000 when I got $5,000 in my checking account?” Money and the lack of understanding of how money works quickly take out a whole group of people like, “I don't have money, I can't do real estate,” which is BS. When you start to learn that money wants you. If someone who's going to work to pay them a return backed by a hard asset with security has insurance and all that, which is what real estate provides, there's more money that is available. In our current state, people are throwing money at real estate investors because that's the environment.
I'm sitting on the sidelines, I’ve thought about doing real estate. I'm not a realtor. I don't have any credentials like you. I'm inspired by your story. I'm green essentially as a real estate investor. Why is somebody with means? Why is somebody with money going to give me, who I'm unproven, never done a deal? Why are they going to give me money to go take down this $200,000 house?
The first thing is everyone has to realize this, every master was once a disaster. We’ve got T.R. Becker and Blair Singer. I remember learning that from them. If you come to me and you've got no track record, then we're going to go to, “How have you prepared? What’s your system?” We're going to look at that. If you say, “I don't have a system, I have no preparation.” There are no boxes to check, but if there are boxes to check, you've never done a deal. You come to me, you ask for money to do this first $200,000 property and you tell me, “I’ll pay you 12%,” which I like 12% because 12%’s about 11.5% more than my savings account.
If you can prove when I ask those questions and you say, “I’ve been studying and training on a system that has worked for thousands of investors across the country over the last decade,” our system for example. “I’ve gone to these trainings. I’ve got this system. I’ve got this checklist. I’ve leveraged this. Here's my scope of work.” If you can point those things out to me, I'm getting over the fact that you haven't done it yet, but everybody likes to be in on a success. If I can start to, not by false excitement, but by proof, “This person's in a position. They've put in the work. They're prepared. I think they’re going to be good.” It comes down to do I trust and like you ultimately? When you're talking about individual private lenders, it comes down to that if you can check the other boxes. Rehab lenders or hard money lenders, which are private groups of people that are in the business to literally find you. They want to give you money. They just need you to have the scope of work and the numbers right.
If you can check a few boxes for them, they're going to finance 70%, 80% and in today's world, sometimes more than that of your purchase and rehab. Now you're just filling the gap of 5%, 10%, 20%. That's the process. If you're brand new, you've never done a deal, it's what have you done? I teach this and train on this at one of our Money Academy events at FortuneBuilders
. Where you have other experience, I guarantee you that you probably should share that lends itself to the business of what you're about to do. Did you manage people before in a previous job? Were you an engineer? Were you this? Were you that or whatever? All the different experiences people come. It can translate to at least a storyline that makes sense. You do that first deal. You pay me my money back. Now, who's asking who? I'm saying, “Dustin, I don't want this money. Go put it to work again for 12% while I sit and do nothing. You run around doing the work. That's how it goes down.
Paul, it's obvious you love real estate. Here at WealthFit, that's one awesome investment vehicle. I'm curious about some of your other investments. What outside of real estate do you invest in? Do you have anything that you prefer, maybe second to real estate?
I love to study business. Understanding business and providing a service to a problem. To that point, I do like to find opportunities or create new businesses that, in my world, we stick to our knitting. It continues to get broader but in and around real estate, solving problems with businesses. I like investing in other businesses that I understand and know. I'd love to have been an investor on some of the first tech companies, but that wasn't my wheelhouse when they started then and even now I’ve got knowledge. When I say analyzing businesses, it's within a realm of what I know. I like that. When you're younger, in our case there are different stages, you’ve got to focus on one thing, get good at it, and that's going to make your money. At some point, you do have to come up and say, “I'm too heavily invested in one asset class.” I and my partner were like, “All of our money, all of our wealth is in one basket and they're all tied together.”
Diversifying into the stock market, it's not that I don't like it or love it. When you do it with sound principles, you should diversify into that. Stocks, bonds, those are assets that we carry to balance our portfolio, which is before then, all real estate-driven and opportunities such as that. There are some great things to learn about insurance. I'm not just saying traditional insurance, which is good and meets a couple different purposes. There are other insurance products that someone can research and learn as a business owner. Captive insurance, those are interesting. These are all things that if they catch your ear, you can start to look them up and see all the benefits of them.
Outside of yourself, it's obvious you invested yourself, for sure. Educate yourself. Outside of that, what's been your most worthwhile investment?
As Warren Buffett says, “Your best investment is in yourself.” I’ll just go to real estate. The sooner you can start to put some money in good assets, like rentals or multifamily, that is always going to have people living in them and always going to be in a location that people want to live in them. The sooner you do that, the smarter you're going to look over time. Time clips off and you're still getting paid to the point where at some point you get sometimes all your investment back, but you're still getting cashflow. What's the economics when you have your entire principal out and you're still getting paid? What's that return? It's infinite. You get depreciation on long-term assets.
I can say that we did a lot of buying and selling, flipping properties. With a crystal ball looking backward, you should have bought and held a lot more at the same time as creating that income. I love all real estate, but when you talk multifamily, in a bad economy, people still need a place to live. If you buy at the right price, I get it. Rents go down. If you buy at the right price called basis, your rents can go down but you're still making money. Bad economy and people still need to live. Assets such as those are something I'd encourage people to start looking at sooner than later. Even if you don't have a lot, start placing money. The one thing that triggers setting up, I'm going to take this one step one step further and you can do not just real estate but other investments, but setting up self-directed retirement accounts.
Self-directed retirement accounts, for those in our audience and has never heard of it, whether you know this or not, you can have a Roth IRA. It's not at Merrill Lynch but it's at another custodian. Think Merrill Lynch, Charles Schwab, those are custodians. Instead of Merrill Lynch to Charles Schwab, let's say you take your Roth IRA or traditional IRA and move it to what we call self-directed custodian. You move it there and you have these retirement dollars that you can invest in real estate. You can invest in other alternative things. You can also invest in stocks and bonds. I call this working smarter, not harder. The whole game is to have more of your money invested where you have tax benefits and tax advantages, legal ones that the IRS promotes. Learning early on, because it was new to us until we learned it.
To our audience, if you have a 401(k) at a company, there are two components that make up that contribution. There's the employee elective piece. In 2018, $18,000 is the employee elected, maybe $18,500. You can double check that on the IRS website
. The employee elective piece is what it sounds like. If you make up to that amount this year at your job, you could elect personally. That's your decision to put that in your 401(k). The other piece is the profit-sharing piece, match piece, sometimes made up of safe harbor and all this, and your employer decides that. Here's the thing. If you have a 401(k), it's typically with a pretax dollar. You put money in and then it grows tax-deferred. The profits you make don't get taxed. On the way out, you pay ordinary income because you pretax dollar, gross tax. The IRS is always going to take a bite out of your dollar at least once, sometimes twice.
Think about that. If you can invest in real estate without paying any taxes on your profits versus the same amount of money outside of a self-directed retirement and you are paying taxes, you can see how much harder it is to get to this end amount and how much longer it takes. I call that the tools of wealth. There's literally information and there's legal motivation by the IRS that's in place for you to invest your money through retirement accounts, through real estate, into other businesses and whatnot. That's the one thing I could tell people who are at any stage of their investing careers, you need to learn that. Let me drive it home with this last question to you. A couple of elections ago, it was Mitt Romney. He’s a very successful businessperson. He probably makes hundreds of millions of dollars a year from his businesses, from his funds, from all these investments that he's made. There was a conversation where everyone said they were up in arms on his tax rate and what his personal tax rate, what he was paying in taxes. Do you remember at all what tax rate he was paying?
No, but I’ve got to imagine it was less than the highest.
It was something around somewhere 10%, plus or minus. He has a tax rate hovering at 12%, 10%, whatever it was. Think about that. Do you pay 12% in taxes? No. They're paying 35% if you're in California and states you're up to 45%. If you're hitting all the thresholds, you're paying half your money to taxes. As we've heard, it's not how much money you make, it's how much money you keep. Do you think that wealthy people, people with money, know more of the legal tax code than you and I? That's our job. That self-directed and retirement accounts, everyone in our audience should be studying that. Why? That's how you get to the Mitt Romney pay only 10% in taxes because you're investing with legal incentives by the IRS to keep more of the money you're making.
What's that investment you don't want to talk about? The one that you learned a lot from.
You don't invest, or at least we don't, for over fifteen years and not make mistakes that you learned from. There are plenty of investments that we learned lessons from. There is one that was bitter, that took a bite. What I want to share isn't so much the specific investment because this specific investment, I can tell you what I did wrong, how it put me and my partners in jeopardy, and we lost money on it. What I’ve recognized from coaching, teaching and training investors for over a decade is that we all go through this bell curve of confidence in an activity.
You get into real estate, you learn. Even if you’re a coach, you do a deal and you're like, “Just like I said $27,000.” You're starting to think that your poop doesn’t stink. It's like, “I made $27,000 on a property and I’m great.” Even when you're trying not to let that take over, you start to believe that, “I'm great.” Sometimes you don't recognize it or realize it. It could be the market helping you a lot. It could be other factors that fell into place. Investors, and me included, go through this curve of cautious, no confidence to all of a sudden too much confidence. You throw away a bit more caution and stop doing all the details that are prudent. Now you’re like, “If I can do one, I can do ten.”
You learn these lessons where because your confidence is so high, and you don't pace yourself, you bite off more than you can chew you. You do a different type of transaction than what you came from. “I did a single-family. Now I can do a mixed-use,” not recognizing or respecting that you’ve got to educate. You’ve got to have a system for a different sector, different that. That's what I try to help people prevent. Do what you're doing. Get incrementally better. Until you get to the point where you finish a deal and you know exactly how you produced $30,000 and you know exactly where you could have taken a wrong turn to lose some of that money. It’s down to the science, that's when you've done it the right way and you can start incrementally going to more or different scenarios. It's a process.
To your question, I remember it was the first year or sixteen months starting in 2004, which is our first full year. We bought this 10,000 square foot house. We went from 32 Mead Street was probably 1,500 square feet maybe, something like that. That was April 2004. By April of 2005, we had closed on a 10,000 square foot house. If we can do a 1,500 one, we can do 10,000 square feet and it's more. That thing almost killed me. It was in West Hartford. I was driving back and forth. I was learning all these nuances and lessons. It was an example where I learned a ton. You're going to accelerate your learning curve by being willing to do things and move forward, but it has to be done with a prudent approach, with a good education. Don't swing for the fence even though you don't have a batting coach. You can make a ton of money in real estate like one deal but you can also lose a lot of money. When we're at the beginning of our careers, one bad deal sometimes is our last deal. That's what we try to help people understand, prevent and stay away from. Even when you're feeling good, be cautious.
Paul, you’re incredibly smart. You’re street smart. You’ve got the degree, economics. I’ve got to think that for you and from the looks of things, rather large company, you know how to invest your money, you know how to place it. You don't have to work, I would assume.
At this stage, that's a true statement.
What keeps you going? Why not just go to the beach and lay in the hammock with the family? What drives you?
This helps all the folks who are at different stages, specifically beginning, setting out to do a goal, setting out to get into real estate or have a successful business. If you're focused on this end, you're missing the best part, which is who you become in the process. I wouldn't trade all the checks in the world that real estate has provided for the personal growth, the lessons I’ve learned, the character it's built. If I had to choose who I am now and all the money that real estate's given me, I would give up the money and keep the character, the lessons, the road, the journey, the friends, the relationships. You and I are an awesome example. I got to meet you at 2005, 2006, 2007, or something like that. It's been awesome to continue to get to know each other and then weave our personal and work lives together. Throw away all the money if that were the choice. With what I have, I can do it again. It's a good example to bring in like, “Why don't you do a triathlon?” You don't do a triathlon to cross the finish line, but for the journey, you're going to go put yourself through, the spiritual challenge, the mental challenge, the physical challenge and all the improvements you get in that challenge.
When we started, there weren’t podcasts and it wasn't webinars, it was teleconference calls. You dial in. I have the visual of my partners and I in that four-story walk-up apartment, listening to the teleconference call, huddled around one phone. That's how we learned. I can imagine myself at that point though, listening to me like, “That's such BS. I'm going to pick the money and all that,” but it's not true. If individuals lived the life that they want, not what their parents want, not what their coworker thinks, not what their neighbor thinks. If they choose the life that's right for them, what you're going to appreciate the most is who you become through the process and that journey.
Everything else is going to be a bonus. You'll make money, you lose money. The idea is to make more money than you lose. It's who you become. You and I are both parents of young kids. I’ve got a six and eight-year-old. Giving them money is not going to do it for them. Giving them the opportunity to go through a process of learning, a process of sports, a process of, “I want to have success in business.” “Go try something.” That's our responsibility to not bypass and be naive. That's what's most important to try to facilitate.
Tony Robbins says this. We subscribe to this, CANI, Constant and Never-Ending Improvement. If you take that approach to your life like, “How do I get better now versus what I did yesterday? How do I run a little faster now than what I did yesterday? How do I become a better manager now versus yesterday? A better dad, a better husband, a better neighbor, a better citizen? It's about getting better.” You subscribe to that, everything else falls in place.
I’ve seen you in action and you've got a unique sense of humor. You've had amazing success. You ran large teams, a large organization. How do you stay humble? How do you keep that ego in check?
I have a couple of shares here, but the first one is pretty straightforward. To me, there are two types of people. There are people who can laugh at themselves and people who can't. It's not always their fault when they can't laugh at themselves. It could be the environment they grew up in, their exposure and experience, but you have to be able to laugh at yourself. You can't take yourself too seriously. That's certainly my approach. I love to laugh. It releases tension. More times than not, I'm the one in the business meeting forcing something to be funny versus everyone's trying to be serious. You have to be able to laugh at yourself. Here's my motto. We take what we do very seriously. Real estate, educating other people, impacting lives, having an impact on our community, giving back, that's 110%. We're serious about that.
When we make a mistake, when we trip on stage, when I jump up and down and my pants split and my butt’s hanging out, that's funny. What am I going to feel bad? Am I going to lose sleep over it? It ties in a little bit to allow you to make mistakes. Allow yourself to laugh at yourself. That's to me critical because you can worry about the wrong things. This is a fundamental problem. I work on it now. You can spend energy in areas that are worthless, “I'm worried about what this person's thinking about me and my new business.” They're not in your business.
To drive that point home, I only have one story so you're going to keep hearing it over and over again. When I was leaving the bar, some are friends and coworkers, some are just coworkers. At that point, this was 2003. I remember people telling me, “Why are you doing real estate? It's such a bad time to do real estate. You're crazy. You're stupid.” It's easy to say, “This is why you shouldn't do it. This is the wrong time. It’s wrong.” All those same people, fast forward four years into it, we've successfully done real estate, having been picked up by the TV show. There's awareness, we’re on TV. I remember going back to my old restaurant and those same people who were like, “You're crazy. You shouldn't do it. It's the wrong time, bad time. It’s not going to work.” Now that same person’s saying, “Of course, you did well because if I would have started when you started the market,” everything but me is the reason it worked, but that's that mindset. They're always going to take that mindset.
You’ve got to laugh at yourself and not take yourself too seriously. You used the word humble, to me that is important. There are some people that aren't and I don't hold it against them. I grew up with parents and grandparents. My grandpa came through Ellis Island. He's literally the American story where he fled a country where they were trying to kill him and his family. They killed a few of his family members. He made it through Ellis Island. He was grateful to be here. He worked hard, but my grandparents, my parents, they wouldn't allow us to be jerks. To this day, it's simple. I am certainly not better than anyone else because it's simple. You’ve got to be a good person. You’ve got to contribute. You’ve got to try to lead your own self. Then through that lead by example that's what we subscribe to and my business partners and everyone within our company. You attract what you are and who you are. It's not by coincidence.
If you're reading this right now, we're alike. The people reading this right now, I have more in common with some of these readers than some of my own family and friends that I go to on Thanksgiving. I start talking about this and their eyes gloss over. They want to talk about the Los Angeles Lakers, Lindsay Lohan or something, and I’ve got nothing. All of you in the audience, it's not by chance we're connected. You attract who you are. I just watched this, I don't watch much TV. Every once in a while though, I’ll try to find something or if someone tells me. Someone said, “You’ve got to watch the Mr. Rogers documentary.” I bring that up. If you haven't watched it, watch it. It's simply a story about one person following his passion, Mr. Rogers, and his message is about loving other people, specifically children. It's an awesome story. He was watching television and it’s was a new thing. He's a minister. He said, “There's nothing that's serving young kids now on TV. In fact, it's the opposite.” That's what he set out to do. It was pretty impactful, but it goes to I don't think to be a good person is that hard. That's what you should do but you need to surround yourself with other people that find that to be their principle as well.
Paul, definitely I’m thinking I’ve got to get you back on the show; so much wisdom, so much to get into. Thanks for being on the show. I appreciate it. Where can people find more about what you're up to? How can they find FortuneBuilders Real Estate and all the stuff that you're up to?
We love what we do. We have been teaching and training for over a decade. We have coaching programs, we have events, curriculum. FortuneBuilders.com
, you can learn about what we do in that arena. I’d start there and keep doing what you're doing. Keep learning, keep subscribing to more education. WealthFit, FortuneBuilders.com
, and any other self-development. It's a state of being, of self-development.