Creating Significant Wealth One Rental at a Time

0:00Yeah there's a couple of things about a buy box that I've only come to appreciate after the fact as I've tried to help people move forward and the first one is a buybox is permission to focus it actually demands it and equally it demands you to ignore everything else so here are the keys to a buy box and this is for new investors right I think new investors are the ones that get distracted or all over the map and they're not learning the skill my my core belief for having a buy box is real estate investing is a skill and because it's a skill it must be practiced and it must be practiced it must be practice and by the time you've learned the skill you could take that skill anywhere in the country so here was my buy box in that I shared on Grahams ice coffee hour

0:49And I share all the time right it was 9373 and let let's set this up we have time so I live in the Bay Area the Silicon Valley very expensive no cash flow I wasted a year looking for cash flow here doesn't exist so I ultimately found Fresno California which is 2 and 1 half hours away never lived there didn't know anybody no roots no nothing it's it it might as well have been Alaska as far as I was concerned I knew nothing so we went to Fresno and we started asking around and networking like where do people where do people have rentals where do people have rentals and when when we had those conversations there was a part of town called the Mayfair District AKA 9373 where where it seemed like middle you know Middle America and I'm like great I'm going to look there means

1:37I'm going to ignore everything else second I had to figure out what I'm going to look at is it D multif family is it condos is it Town Homes is it mobile homes is it single family homes is it for plexes what what am I going to look at again this is 2002 I knew nothing so I said hey I live in a house let's look at a house okay back then that would probably produce you know a couple hundred listings again remember I'm a full-time employee I'm traveling the world I'm raising a daughter I've got family responsibilities I don't have time to look at the entire active listings so I have to put a filter on 93703 that allows me to produce somewhere between 20 and 40 active listings why because that's how much I can get through in about 15 minutes so my un

2:25Ral buy box was a three or four bedroom two bath two-car garage single story I think between 1,200 and 2,000 square feet so that routinely produced a list of 25 to 30 active listings I looked at that list every day to try to figure out what an average deal was and ultimately because I looked at it routinely and ignored everything else I was able to find great deals because that's all I looked at that's what most investors get wrong right most investors would be like okay great I looked at 93703 but what about 704 and 728 and 705 you can't you can't learn doing that it's you you just fill your head with too many data points and you don't get any compounding

3:14So my superpower of being laser focused and and willing to look I mean I looked at that one buy box for three freaking years there's a million people in Fresno and I looked at like you know one tenth of 1% but that's why I was really really good I could find the deal faster than anybody else I knew that buy box better than any other human on the planet and it allowed me to get great deals for three years before I expanded my buy box and from a management perspective was it a huge Advantage in that regard as well well when you say management you mean operational management I I had a property manager since day one okay right we outsourced that so it I'm sure it was better for them because they could see all of them within a couple of blocks

4:03But as far as Olivia and I it didn't impact us at all got it okay interesting yeah and I think I I probably subconsciously took some of those lessons away as I was building my portfolio which is more affordable short-term rental units but I same same thought process like I just put blinders on and got super clear on one market and it allowed me to find deals quicker know the rules in that area know the inspectors in that area area I do self-manage so I've got you know all the same cleaners and handyman and all that the economy is a scale just it it led to to Financial Freedom so much quicker than had I tried to buy one in each market that I was interested in so love it I mean it is it is a it's a cheat code yeah because again anybody could

4:51Do a bad deal anybody could do an average deal but when you get laser focused and you look every day you're going to start to see ways to create value you're going to see ways that other people Miss you're going to find that listing with the horrible pictures that's been on and off the market three different times and you're going to you're G to write a disrespectful offer and the seller's going to be okay I'll take it because it's the only one that's going to go it's it's it's an unfair advantage that most new investors poo poo because they just insist on I I got to do more no you don't you got to be laser focused on a on a on a buy box absolutely absolutely yeah I've seen a lot of YouTube influencers recently kind of debate the whole Cash Flow versus Equity standpoint and it's I

5:39Don't know if it's stemming right now from the fact that interest rates are higher price points are higher so it's harder to get cash flow so you know maybe justifying buying for Equity more what's your take on this what you know I certainly am my opinion but I'd love to hear your so I've been doing this a long time long enough I mean I started before the GFC and I have seen people play the appreciation game in fact I live in a market that's the appreciation game because cash flow doesn't exist it feels really really good until it doesn't and then you go bankrupt so anybody preaching appreciation bet on appreciation screw cash flow negative cash flow who cares you got a great job yada yada yada I I mean I I wrote about it in my first book I walked into an executive's office one

6:28Time and he was all gung-ho about New Orleans right after Katrina yes I'm that old the federal government or state government I forget who did it but they basically created some incentives to build new homes in and around New Orleans and it had these tax advantages and you know this that and the other and this executive basically said hey Michael I see what you and Olivia are doing I'm going to do it but I'm going to do it different I'm going to go to New Orleans and he showed me his whiteboard and it had at the end of the at the end of the Whiteboard it had a negative $1,000 so of course I jumped to the bottom line and going so the each of these four houses you're buying is going to cost you 250 bucks a month that's what before Property Management before

7:17Repairs before this before you're losing $250 a month on purpose he's like yeah I'm like you think that's a good idea he goes ah Michael you don't know I make all this money I can afford to lose a, bucks look at all this appreciation that's coming blah blah blah lost his ass lost all four had them foreclosed don't do it now if you want to step back and say how did it work for you Michael yeah there's no question when you're 25 years in this most of your wealth is because of appreciation but cash flow is like the blood or the oxygen that keeps the portfolio alive and if the portfolio is not alive doesn't matter right so I I I don't play that game I

8:05Would never bet on appreciation I would never tell people a bet on appreciation it's cash flow cash flow cash flow or don't do the deal because I have seen I saw a guy worth 10 million bucks who was flipping for appreciation in the last cycle lose it all go bankrupt lose his net worth loses his his wife left him you know he's out of the game and you know he's probably an alcoholic I mean it's don't do it I it's it's not even a question anybody preaching appreciation doesn't know the pain that comes from being wrong yeah and I have personally never met a person who is able to quit their job because of the appreciation or feels comfortable with it you know like even even people who have a huge net worth if if they don't have the income coming in

8:54Like you know for you as an example like you know you you're being paid several hundred, in your job you know if you just had the net worth which you probably had a significant net worth at the time but you said had way more than that coming in in cash flow I'm assuming you probably wouldn't have felt comfortable walking into your boss I mean what is I mean yeah I would have had to get a job I mean because if you just have appreciation a net worth and you're going to live off that it's like going up to a fruit tree like an orange tree that's in full bloom and every couple of years you got to cut off a branch entally that thing's going to be a stick yeah right that's just not the way to do it appreciation is great appreciation is awesome if you do this game long enough most of your wealth will be appreciation I'm not it's not lost on me but

9:43You need the oxygen you need you need the cash flow to keep this thing alive else it can't grow right absolutely it so for for my listeners who who don't know so Michael has a daily YouTube show that's under it's sort of a sub Channel I guess underneath your main living off or your one rental at a time Channel and so it's called daily it's it's daily Financial daily financial news Okay so you've kind of become a a market expert a financial Market expert by doing this I mean you you're in it every day and you know I think my focus I I tend not to be in the The Daily News that much and and I've had sort of this 5 to 10 year I'm curious on your perspective

10:32You know having to be in the financial news every day having to teach it also which makes you understand it at even a deeper level what's your perspective I'm curious like what's what's been the biggest takeaway or less and learned since starting this Daily Show when it comes to your investing philosophy so there's a lot there so I I you know one of the things that's really great about the daily Financial show is it's actually something been doing for 30 years oh really wow realize that no well the Habit so okay I have been waking up I wake up without an alarm clock somewhere between 5:30 and 6:00 a.m.

11:10Every day my wife is a night owl so typically what that means is I get up I take care of the dogs in the morning and then I get about an hour to read and drink my coffee and you know do all of that and so I've been doing that for the better part of 30 years after I retired and I started doing this YouTube game about a year or so into that game birthed the daily financial news cuz I was already doing it so like I did it this morning right and I just have two pages of notes and you know I just run through what I read so again I I've been doing this daily activity for for 30 years I've been talking to a camera for five years so what have I learned I I think there's a couple of things that I have I take as

12:00Takeaways first and foremost a lot of folks get wrapped in emotional decisions right and in the finance World emotion is not not something to leverage right it it typically when emotion is involved you make bad decisions so that's the first thing second our economy is driven by consumers so I have an econ degree went back to school and got an MBA I have been studying the consumer specifically for 30 years and the consumer is predictable right we do the same things in different eras what do I mean well let me give you an example let's talk about the GFC and then let's talk about what's happening to commercial real estate today

12:49The global financial crisis was caused by a series of events and then we paid the price what were those events well we went from an environment where real estate was funded with 30-year or 15year fixed rate debt to an environment in 2006 where 51% of loans were arms so we did something different people were betting on appreciation to your point earlier I don't care that the interest rate goes from 2% to 10% I'll refire sell I mean that was an attitude and if you look at the loan originations the numbers show show short-term adjustable rate some teaser loans I think 12% of loans were these you know neg am loans which are now illegal

13:37But were very common then next what you saw is you saw the masses you saw some people make quick money and then the masses just kept coming and people were saying real estate never goes down real estate never goes down real like it was just this belief that real estate would go to the heavens and ultimately what happened is the short-term debt try started to reset and we realized that not everybody was in a position to pay the higher mortgage and thus started the snowball of foreclosures and short sales so what happened here recently well we are suffering the same stupidity in a different asset class in the commercial real estate market and again I've been doing this for years and I've called it and it's now happening so you know nailed it we

14:26Saw in 21 22 and 2 three again shortterm AKA Bridge debt variable rate bad assumptions and we saw the masses come in so in my like real numbers in my market a cap rate for a cclass building usually is like an eight cap I sold a building at a five and a half cap wow it went down to a 4 and a half cap it should have never been there but what happened the masses kept throwing money at it syndications were taking foolish money and making bad deals it's the same thing short-term debt variable rate debt you know the masses came running in so what did I do I got out of the way I sold some of my

15:15Bad Assets for stupid prices and waited on the sidelines and you know we're gonna we're gonna we're going to pick up the pieces so if you can study the consumer you can figure it out and then the last thing I've learned which really pisses people off is inflation is a feature not a bug now I'm not talking 9.1 inflation is a feature I'm talking 2% two and a half per. If you think inflation if you understand that inflation is a feature not a bug you invest different you go buy assets that are indexed with inflation you go get fixed rate debt so your cost of capital doesn't change and you just let in 30 years of inflation make those payoffs lower and lower and lower so there's a lot of things you could take away by by being in the in the masses every

16:03Day yeah that's super interesting and with the commercial to your to your point of on Commercial what do you think is going to happen as a result of I mean you said it's kind of falling apart what where do you think that it all shakes out well it's so when you think about commercial real estate there's Class A Class B and Class C Class A stuff again Big Stuff Rich guys play with is already trading at a 30% discount Ken maroy Grant cardo own you know these big players they're already gobbling up deals at 30% off so that stuff's already ret trading what isn't ret trading what is still broken because we don't have price Discovery is Class B and Class C I believe if Class A is trading at a 30% discount Class B should be 40 and Class C might be 50 wow so that's coming the question is when

16:53I think it's mid 2025 maybe 2026 so it's you can only extend in so long you can only hold these operators so long and again I say this as somebody who's been in this before part of the GFC was commercial real estate right single family homes get the noise because they they collapse the most but you know we bought apartment buildings for 50% off last time there was an apartment building we still own today that was listed for 1.44 we bought for 700 Grand wow it's going to happen again it just takes time for the pain to be recognized and prices to reset so it's coming