PODCAST EDUCATION

Finding Your Why

Episode 027

John Larson and the Real Estate Cowboys talk passive income real estate investing.

Hear new episodes every Sunday morning at 8 a.m. The Cowboys ask the question, “Do you know your ‘why’?” What are you in real estate investing for or what is your end goal? Do you know?

Keep the #CowboyCoffee hot while listening to John, and the Cowboys talk about how to #BeACowboy and earn passive income in real estate.

Episode Transcript

Announcer: Have you thought about becoming financially free through real estate investing, but don’t have the time or knowledge to get started? Welcome to the Real Estate Cowboys podcast. Each week we discuss passive income investment opportunities in the red-hot Texas market. John Larson and the Real Estate Cowboys will show you how to leverage their team to build wealth in real estate through passive investment opportunities. And now here’s John. 

John Larson: Hello and welcome to another episode of the Real Estate Cowboys. It’s your host and head cowboy, John Larson. This week we’re going to talk about finding your why. So anytime you’re investing in real estate or investing in general, you know, there’s obviously got to be a reason why you’re doing it. You know, why do you invest, why are you looking to create passive income for you and your family? And I think it’s really important to find out exactly what your why is because a lot of times that can tell you what investment direction to go or what investment opportunities are best for you. For example, you know, myself, I’m not necessarily looking for cash flow at this period in my life. I’m a young, young man, still early thirties. I just had a baby and you know, I don’t necessarily need the cash flow because I’m an active real estate investor as well and that’s what’s bringing in my income right now.  

But I am investing in opportunities to set up for my future. And so, although many of my properties right now that I own are not necessarily big cash flow generators, they’re properties in good neighborhoods and in good markets that I believe will continue to appreciate in value or at least hold value in the years to come. And they’re also positioned in neighborhoods where I’m consistently attracting good business professional responsible tenants who live out the duration of their lease, many times resign. But even if they don’t, uh the properties are located in neighborhoods that attract tenants just like the previous tenant that I have, someone that’s a business professional tenant that’s got a good job, a salary position and are able to pay rent, uh, you know, on time. And it’s very low maintenance for me. And so I have loans on all these properties right now that I’ve invested in and, you know, many of them I started purchasing when I was in my mid to late twenties, um, and now into my early thirties and I have 30-year loans on all these properties.  

So when I become 55 to 65, these properties are all going to be paid off. And I’ll own them free and clear, and at that point, they will be generating a lot of cash flow for me because I don’t have a principal and interest payment involved with the income. Um, so, you know, at that point I could either sell some of these properties and just, you know, bring in the money back in to me and my family or I could just hold them, continue to hold them and they’ll cash flow at their highest and best at that point and you know, maybe leave them to my children and my grandchildren at one time. They’re homes that are owned free and clear that are in good neighborhoods that should consistently attract good tenants. So you know, they should be very successful investments for not only myself but my children and grandchildren.  

And you know, I’m leaving a legacy investment to my family. So, you know, I would say my life for investing right now, is just a setup for retirement, setup for longterm wealth. Put me in a position that when I’m ready to retire and not necessarily retire early, I like working. I like doing real estate. I like real estate investments. I’m passionate about it, so I don’t know if I’ll ever really retire, but it’d be nice to be able to have a portfolio of properties that could bring in a solid amount of cash flow for me and my family and then one day leave them to my children and grandchildren to where they can continue to provide that passive income stream. And if you listen to my podcast, you know that I really talk about buying properties, you know, at the median home value or very close to the median home value in the markets that you’re investing in.  

Because just like I said, they continue to attract the good middle class type of tenant who’s responsible, treats your property with respect while they’re living in the property. And you know, they pay rent consistently and on time. And that’s what I’m looking for with my tenants. And so the only way to really position yourself in that type of situation is to buy at or very close to the median value in any market that you invest in. So you can really attract those good business professional tenants. And they also set you up for the best exit strategy, which we talk about that a lot as well. You know, everyone’s so excited to invest and they think they’re just thinking about buying. But you know, you have to think about, what do I need? What would my exit strategy be if I had to sell this property one day?  

What if life happens? You know, my wife loses her job. I lose my job, the economy, you know, makes a change. I lose money in the stock market, whatever it may be, and I need to sell this property and get my money back out of it. The last thing you want to do is position yourself in a market or a property that is going to be very, very tough to sell and your only exit strategy is to sell to another investor. And we all know that investors are going to want to discount some properties. And so when you buy in these lower class neighborhoods and lower class areas, you’re going to have a hard time trying to exit out of the property and getting your money back out of the home. And so that’s why I like to position myself in these middle-class neighborhoods as well because there’s strong retail demand for these properties also.  

So really quick, I mean, going back to your why, you know, I think before you invest, you really need to ask yourself these questions and like I said, it’ll help you determine on what path to go for my investors who want cash flow and a consistent cash flow stream. You know, I really recommend our private lending model because you know what you’re going to make every month to the penny. You can account for that money. It’s not gonna be a situation where each month you don’t know what you’re going to see on your property management statement. Was there maintenance, uh, did my property go vacant this month. You know, am I going through an eviction where I’m not gonna collect any money during that period of time. You know, with private lending, you need cash flow right now, you need to supplement income, you need to replace income, then that’s a great route to go, private lending. It’s a truly passive income stream, a fixed rate of return. You know, just like you would pay a bank, we pay our investors. And so I think that that route, if you want truly passive income, private money lending is a great opportunity. So here’s an example of some of the why’s that I’ve heard from some of my clients. When myself or my investment coordinators on my team at American Real Estate Investments and at the Real Estate Cowboys here, when we’re talking with our clients, number one, we want to find out what their why is, why do you want to invest, what is your reason? And so many of the common things I hear are supplementing income or replacing a spouse’s income so your spouse can stay at home with the kids. That’s a big one. You know, we don’t like putting our kids in daycare. My kid’s in daycare, you know, and it’s uh, I would prefer if my wife was at home with my daughter every day. But um, you know, we have her in daycare and I don’t mind daycare. I mean, my child, she, my daughter Mila, she seems to like it a lot. She has friends there and they do things with her, but you know, some families, they prefer to have their wife at home with the children. So investing in real estate and building a passive income stream, supplementing income, replacing income, real estate can help you get there. And so, you know, that’s one way. Um, another thing I’ve heard is, or another reason. Another why is, you know, live a better life instead of living paycheck to paycheck, which many families in America are doing. And I believe that many Americans are doing that because they extend themselves too far or they stretch themselves too thin.  

It’s expensive to live in America at this point. You want to live a good life, and, you know, have all the amenities and things like that. It’s expensive. It costs a lot. And so, you know, by putting your money into investments and getting your money to work for you is a great way that, you know, you can get out of living paycheck to paycheck, you know, have more income coming in. Give you an opportunity to go on vacations with your family. Um, you know, things of that nature. And you can never discount your return on life, which we talk a lot about here on the Real Estate Cowboys. Another one I’ve heard is, you know, helping pay for children’s college tuition. It’s getting more and more expensive year over year. Um, sending your children to college is not cheap. So positioning yourself in investments that can build cash flow for you or you know, build appreciation, equity growth in years to come.  

Um, doing a private lending opportunity where $100,000, can make you $16,000 over 18 months. That’s a great way to help try and pay for college and college tuition. Um, saving for retirement is a big one. Uh, you can help grow your retirement account, diversify your retirement funds into real estate. A lot of people like to do that. And I’m not saying pull all of your money out of the market. We’ve seen in 2017 that the market was doing really well. And then now in 2018 we’ve had some shaky times. And so I think it’s a great move for people who have, you know, the majority or all of their retirement funds tied up in the market and tied up in the traditional investments out there to self direct some of that money and get it into real estate or get it into a private money lending opportunity and private money lending program to where you’re earning a fixed rate of return on your money. You know, what you’re going to make each month. There’s, with the stock market, there’s no guarantee with anything. With any investment, there’s really no guarantee. But with the private lending model that we do, it’s a fixed rate of return. You know what you’re going to make each month. And if the borrower defaults, if we were to default on any of our opportunities, which I don’t think we will, being in the Dallas market and the Houston market and just the state of Texas itself is the twelfth largest economy in the world. Um, and you know, we have such a diverse economy here in so many people moving here that demand for development, you know new homes, new office space. I don’t see that going anywhere, anytime soon, and so I think that, you know, it’s a very risk-averse opportunity and also a chance to earn fixed double-digit returns.  

Uh, that’s a great way to grow your retirement account. And so I’m a really big advocate for investors who have money tied up just solely in stocks, bonds, mutual funds, annuities, life insurance to diversify some of that money and experience what you can get on the other side, on the self-directed side, uh, by lending money out. I just, I just truly believe it’s one of the best investment options out there if done with the right team and invested in the right market, you can make a lot of money doing private lending and you can make a lot of money in a truly passive manner to where really your money is strictly doing all the heavy leg work for you. Um, I’m a really, really big advocate for that program.  

Retire early, you know, I mean, not everybody wants to work a nine to five until they’re sixty years old. Um, you know, if you want to be able to retire early in your late forties, early fifties, whatever it may be, you know, get your money working for you. And so I hear that that’s a big why for a lot of my investors that come to come to us looking for passive income coming to us looking for know real estate investment opportunities. I think that you know, there’s great options in real estate, great options in the private money lending model to where you can supplement income, replace income, grow your retirement plan to where you can retire early. Another one I hear is leave a legacy for their children. A legacy investment. Real estate is a big legacy investment opportunity because it’s tangible. It’s something that you own. You can own it for years, and you can pass it onto your children and grandchildren, and if invested in the right markets and done right, these properties can produce income for your family for years to come.  

And then another one I hear is tax benefits. You know, I do believe right now in today’s market, you’re buying properties kind of at the height of the market. You know, we’re back to pre-recession pricing from ’08. Um, you know, I feel like the values are back where they were back in 2006 where the market was really, really hot. And so, you know, I’m not saying it’s a bad time to invest in single-family homes. It depends on what your why is. If your why is the tax benefits that real estate can provide to you. Uh, we all know about, well maybe not everybody knows that’s listening to this show, but you know that President Trump made some adjustments to the tax regulations out there and one of the things he allowed was bonus depreciation. Bonus depreciation used to only qualify for new construction properties. Now it doesn’t matter what age the property is, you can apply for the bonus depreciation when you purchase single-family homes as an investment. And that will essentially give you the entire write-off of the 27 and a half years. It’s accelerated depreciation. So when you put a down payment on a property, you can go ahead and accelerate the depreciation right there in that tax year and that can help save you money on taxes. You know, some of our investors that come to us, it just makes a lot of money, you know, they’re in a high tax bracket and that means that each year they’re paying a lot of money out in taxes. And so a great way to help offset some of that tax liability is to invest in single-family properties or just cash-producing properties in general, multifamily apartment buildings, whatever it may be.  

Um, private money lending isn’t really going to be able to help you in that circumstance. Private money lending, is just strictly for building a cash flow stream. And if done through an IRA or 401k, uh, the dividends that are going to be paid to you monthly go back into the account tax free, which is great. But for the investors out there that are just strictly looking for tax benefits, real estate is one of the best ways to offset tax liability. And that’s why, you know, when Trump first got an office, he made a lot of these tax changes and tax reforms to benefit real estate investors. So now on a personal residence, you can only write off up to $10,000 on your property taxes each year. Whereas if you own an investment property, you can write off the exact amount. There is no cap. So tax benefits is a big one. And that’s one that I hear from a lot of investors, that’s a lot of investors’ why. I want the tax benefits that are associated with real estate. Well, single family homes can help you with that.  

And so, you know, as I said, people have many different reasons for investing. And like I said, my investment philosophy right now is not really cash flow driven. I’m really looking for properties that I believe I can hold long-term, that are going to consistently attract the tenants that will pay down my mortgages. Um, so when I am in my early fifties, mid-fifties, early sixties, my properties are all paid off, free and clear. And you know, at that point, right when I come into retirement or I want to slow down with working in my day to day investments. I can rely on a, you know, pretty substantial real estate portfolio that I’ve built that’s cash flowing without any principal and interest payment each month.  

And those properties in good neighborhoods that attract good tenants consistently are gonna be some really solid moneymakers. One example, one rule of thumb I give as many of my investors is, you know, I do a high B to A class property, which means I’m buying at or very near the median home value here in the Dallas Fort Worth market. These properties are renting on average $1600 per month, $1700 per month. After all the expenses are paid, they’re all generating at least a thousand dollars a month without a principal and interest payment included. That means they’re paid off. Um, you know, I’m making about $5,000 a month in passive income, $60,000 a year just on five properties. So imagine that’s ten properties. You’re making $120,000 a year. So it’s really, really good money and it’s consistent, and it’s more stable because you own the properties in better areas, better neighborhoods, better markets, markets that are growing with population year over year, growing with jobs year over year.  

And that’s why I moved to the DFW market. That’s why I started the Real Estate Cowboys radio show because I want to talk about passive income ways that real estate can help you supplement or replace income ways to grow your retirement funds. Um, you know, ways to set yourself up for retirement ways to get your children through college. Uh, but doing it in the right markets, doing it in the markets that I believe are going to hold strong for years to come. Investing in markets that I believe in the next, you know, year or two, where I do feel a recession is looming, are going to hold strong during that recession. And history has proven that the Dallas Fort Worth market can withstand a recession. We did it last time in 2008. You know, the oil bust back in late 2014, 2015 when oil dropped.  

Like I said many times before on this show, 30 years ago that would have depressed the entire state of Texas. Yet here we are, we’re chugging along, we’re doing great. It’s because the economy has become so diverse here. We are not just reliant on oil and gas. Oil and gas plays a big role in the economy here, which makes Texas the twelfth largest economy in the world and it obviously helps big time with that, but we are not just solely reliant on that source of business. The Dallas Fort Worth is now home to the most corporate headquarters in America. That makes me feel really good as an investor putting money into this market. That makes me feel that even in a down economic time, even in a market shift, Dallas Fort Worth is going to hold strong. The state of Texas is going to hold strong.  

It’s just such a business-friendly climate. No state tax, tax breaks for businesses that want to move into the market, lots of land to develop. The real estate market is still affordable. The cost of living here still affordable. All those things are playing into a very business-friendly climate, which is the reason why more and more businesses can continue to move here and more and more people can follow suit and as long as people are here. That means there’s going to be demand for property and that means that office space and single-family homes and multifamily are going to be in demand. There’s a reason why Dallas Fort Worth was second in the nation in 2017 for building new apartments, just only behind New York City. There’s a reason for that. There are so many people moving here. The demand was there. Okay, so we’re gonna take a quick commercial break. When we come back, we’re going to talk more and more about finding your why in, in real estate investing. Why do you want to get into investment? You need to find your why first before you can really put a plan in place. And so stay tuned, we’ll be right back. 

And we’re back. We’re talking about finding you’re why when it comes to investing in real estate. And so there’s a lot of reasons why you would want to invest in real estate. I think it’s very important to find that reason before tailoring a plan or jumping into an investment opportunity because your ‘why’ is really going to affect what you should invest in. And so for me, as I said right now, I’m not really looking for cash flow, I don’t need the cash flow and that make a good income. Obviously, I’m an active real estate investor and so cash flow isn’t super important to me, but it will be in the future.  

So right now I’m just really focused on buying properties that are in good neighborhoods that are going to consistently attract good tenants because I just want these tenants to pay down my principal and interest payments on my house until it’s paid off. So the majority of my properties that I bought, you know, in my mid to late twenties and early thirties here, you know, they’re mainly just properties that really don’t cash flow that much after taxes are paid, insurance is paid, property management fee is paid, principal and interest payments are paid. They don’t leave much left. Um, honestly the money that I make on the property is, the little bit of money I make. I just set, you know, in a bank account because I know there’s going to be vacancies and I know there’s going to be maintenance and so on and so forth. So I’m basically just saving that money for a rainy day, so to speak.  

But you know, once the properties get paid off like I said, I want to position myself in markets where there’s a substantial amount of population growth so I know I can consistently keep my property’s leased. I want to position the properties in neighborhoods that are going to consistently attract the tenants that have salary positions that pay their bills consistently and are not risk to get evicted. And when they do get evicted or if a property goes vacant, I’m not worried about it getting broken into and vandalized and things stolen from the property. You know, I just want a relatively passive experience while I’m holding this real estate right now. And then when I do need the cash flow, hopefully, the properties will be paid off or almost paid off. And then at that point, I own the property free and clear and now I’m not paying a principal and interest payment, or my tenant’s not paying a principal and interest payment each month, and I’m cash flowing, you know at my highest and best. And so I think that that’s the best route for me, you know?  

But that’s my why. My why is to set up for, you know, longterm play where, you know, I own the property and it’s owned free and clear when I’m in my fifties or early sixties. And then I can leave these properties to my children and grandchildren one day, where these properties are completely paid off and my daughter’s making, you know, solid income. You know, like I said, for example, five properties in Dallas without a principal and interest payment involved are going to cash flow at least a thousand dollars a month and that would make $60,000 a year. Ten would make $120,000 a year. So that’s a great income on only 10 properties that are in great neighborhoods. And guess what, if my daughter decides to sell those properties, she could easily sell them on the retail market to a home buyer that does not care what the cap rate on the property is, does not care what the property rents for. They just want to live in the house because it’s in a good neighborhood, with low crime, with good schools, you know, and it’s a good area; it’s a good middle class area. So that sets you up with a solid exit strategy.  

Um, but if you’re somebody that’s looking for cash flow immediately, um, I don’t think you’re going to find that in today’s market, especially if you’re leveraging properties. You’re not gonna find a substantial amount of cash flow in owning single-family homes. It’s just not going to happen. Even multifamily, the cap rates are becoming really compressed. We’re back at the height of the markets. Um, we’re back to the last, pre-recession pricing. ’06 prices. Here we are 12 years later after the ’08 recession and we’re back at those prices. And so I feel that the market is going to shift. I feel like you’re going to see some properties devalued in a lot of markets across America. I don’t see that happening in Texas, being the twelfth largest economy in the world, uh 400 people a day moving to DFW, uh, 1200 people a day moving to the state of Texas.  

I just don’t see that slowing down anytime soon because we have such a business-friendly climate here. No state tax, tax incentives for new businesses to move here, affordable real estate, lots of land to grow. Uh, all those things play a factor into Texas getting through a recession unscathed. We did last time in 2008. You didn’t see the recession affect Texas. And I believe that that will hold true again this time around. You know the most corporate headquarters in America are here in DFW. That tells me that we have a very diverse economy that should be able to withstand a recession. The oil bust of 2014, 2015 when oil prices tanked, we lost some jobs in the oil and gas sector, but we were not depressed here in Texas. Thirty years ago we would have been. That shows you how far Texas has come, and that’s why we like to position our investors, even on the private money lending side, not only on the single-family rental side, but the private money lending side, we like to position their money in investments in markets like DFW and Houston because these economies are so diverse; because people keep moving here, and as long as people keep moving here, demand for new development is going to always be, it’s going to be there, right? You know, new single-family homes are going to be in demand, which is why our biggest clients Lennar, David Weekley, so the largest national builders in the country are our biggest clients for our lot developments down in Houston, and the same goes for Dallas. When we develop a new office park, we’re selling the lot even before the land is completely developed because there’s so much demand for office space in this market and so we like to position our investors and not only, you know, good opportunities where I could get you a double-digit fixed rate return on a private lending model, but I also want the opportunity to be, you know, risk-averse. And so first lien position is great. Just like any bank, you would have first lien position. But you know, it’s not my intention to ever lose my investors’ money.  

So yes, you have first lien position. If we were to default as the borrower if the market shifted or whatever, and that development was no longer, you know, sought after, it was no longer in demand; you still have first lien position, you could foreclose. But I’m still positioning you in markets where foreclosure would be, you know, a very, uh, low-risk situation. Right? I want to put you in markets, and development opportunities that I believe are going to be in demand for years to come even in a down economy. Even in a market correction. And so you know, I had a member of my team today speak with somebody on the phone about a private lending opportunity, and she said that you know, these returns that we were offering, which were double-digit, by the way, were not good enough. She’s getting higher somewhere else. And you know, then we asked her, well, where are these opportunities? She didn’t want to tell us. I’ll tell you; they’re not going to be in Dallas. They’re not going to be in fast-growing markets like we’re in right now. She might be getting more on her money somewhere else, but it’s in a much riskier market where the chance for foreclosure is probably way higher. And the last thing you want to do is have to foreclose on one of these opportunities. But you know, neither here nor there. There’s other markets across America where you could see a higher rate of return on a spreadsheet, and we talk about this many times, and they’re going to be on properties that are in lower class neighborhoods that do not provide you with multiple exit strategies. Only one exit strategy, which would be to sell to another investor, and so we all know that investors want discounts, right?  

That’s why I’ve positioned myself in markets that are fast growing. That’s why I buy property at or very close to the median value so I know I could easily exit out of the property if I ever needed to. We never know when life’s going to happen. Job loss, you know the economic downturn, money loss in the stock market, whatever it may be, and you need to pull your money out of these assets. Don’t position yourself in a property that you’re not going to be able to sell or you’re going to have to sell at a discount to get out of it. Don’t do that, right? You want a passive income stream. Think about private lending. You have an IRA or 401K that you can self-direct those funds, get some of those funds out of the market, diversify some of those funds because the stock market’s not doing that great. And I don’t expect it to to be doing very good in the next year or two. So, get some of that money self-directed. Lend some of that money out. Just make sure you’re lending it to the right people, credible people; not crooks. And make sure you’re lending on developments in the right market where development is going to be in demand even in a recession. Alright, so if you like what you heard today, please feel free to visit our website RealEstateCowboysDFW.com. Put your information in. We have plenty of information on our website. We have all of our past episodes you can listen to. You can also subscribe for our podcast right on your phone through iTunes and many other podcast outlets that are out there. iTunes is just the one that I use the most. I’m a big podcast listener. Um, but go to RealEstateCowboysDFW.com if you’d like to learn more about single family rental ownership. If you’d like to learn more about how to self-direct your retirement funds and start lending through your retirement account so the money that you’re making on your loan, your interest payments, go back to you tax-free. Or if you just want to lend you know, cash savings, you can do that as well. There’s going to be tax implications. Obviously, you’re going to have to pay taxes on that money. But it’s a great way, like I said, to earn a passive income stream. If you’d like to learn more about that, go to our website RealEstateCowboysDFW.com or AREIUSA.com. Both of those sites have a ton of information on there. You can also get my Passive Income Guide, which talks in great detail about how to get started earning passive income in real estate. Uh, I definitely recommend checking out both of those sites and if you’re interested in moving forward, I have a whole team here at American Real estate Investments and Real Estate Cowboys that can speak to you by phone, find out what your why is, find out what your goals are and tailor a plan to make you money. I love making other people money. So contact us today. Uh, this is another episode of the Real Estate Cowboys talking about finding out what you’re why is. We’ll be back next week with another episode. Thank you all for tuning in. And once again, don’t forget what is your return on life. This is John Larson signing off. Have a great week. 

Announcer: All opinions expressed by the host of the show are the opinions of American Real Estate Investments LLC and do not reflect the opinions of guests or sponsors. No personal or professional advice on this program should be considered an endorsement to follow a real estate financing or investment strategy. Before acting on any information, seek advice from your financial tax, mortgage or real estate advisor, as the information is not guaranteed and investment strategies have the potential for profit or loss.