250 - Real Estate Investing: 3 Rules I Wish I Knew Before Starting with Robert Leonard

0:00I've talked to people before who were like, unless I can have 10 rental properties, I don't want to have just one rental property. 100 % agree. I've been selling off my portfolio. I've been kind of getting out of it because of ****. I think a great way is to house hack because if you can reduce your margins expense, that gives you more money that you can invest into starting a business or growing your existing business.

0:22All right, welcome back to Nikonomics. I've got Robert Leonard with me, who is a real estate entrepreneur. He's done over a dozen real estate transactions. He's had a podcast with over 15 million downloads teaching people the stuff that we're about to talk about today, which is getting into real estate as entrepreneurs. I think there's this funny thing in entrepreneurship where we as entrepreneurs look at guys like you who are like, man, it must be freaking nice to have just a portfolio of real estate assets just collecting that passive income, bro. I want to do that. but then I've known guys like you who are on the other end of the coin.

0:54They're like, oh man, it must be nice to have an SMB with no capped upside where I'm like, I got cashflow and I'm building real asset value in this enterprise. So there's kind of like a grass is greener on both sides of the equation, having been on both sides of it. Which grass do you think is greener? It depends where you are in the journey. I think if you're early on in the journey, the SMB path is greener. If you're a little bit further along, I think the real estate path is greener. Why? Talk about that. It takes money. It just, it does. It can be done. I'm not saying it can't be done, but ultimately you'll just have a lot better experience in real estate if you do have some capital.

1:33I agree with you. Like down the road, when you have some cash, it's nicer to funnel money into real estate. Whereas in the beginning, you don't have cash. You're just trying to get in the game. So starting a small business doesn't really require you to go out and raise$100 million. You can start a small business with 100 bucks or for nothing if you know what you're doing. That said, there is a strategy that you can do early on that does not take a lot of money. I just don't know if I'd say it's like real estate investing and that's house hacking. And I do think that that is great when you're just starting without a lot of money.

2:05But when it comes to just general real estate, yeah. I've seen people try to get into the real estate game with things like wholesaling, with things like, what did you say, section two or like loan assumption, subject to, thank you. Can you talk about what those are? Yeah, I'm definitely not an expert on the subject to piece, but the wholesale is basically, say you see a house for sale, they're listing it, it's super rundown, needs a lot of work, and they're selling it for say$100 ,000. You go to them and you say, hey, I'll buy this for$100 ,000 because you think it's worth, let's just say$120 ,000, but they're selling it for less than they should be for whatever reason.

2:44I mean, there's an infinite number of reasons why they're listening for less, right? So you go to them, you get it under contract for$100 ,000. And then you don't actually close on it. You just get it under contract. You go find somebody else, most likely a slipper, who will buy that house, will pay you$120 ,000. So what you do is you take that contract that you signed with the original seller and you assign that to the flipper. And the flipper pays you$120 ,000. You give$100 ,000 to the seller and you keep the difference of$20 ,000. That's wholesaling. You could do that without any capital. So, well, and like the crazy thing about wholesaling is it's just a business.

3:17Like literally you just started a business and you're a broker between the buyer and the seller. So back to our original point, it's more like an SMB that it is real estate. Totally. Okay. You've got a small business or you've got some income and some cash. You don't have$500 ,000, but maybe you got 50 grand or maybe you have$75 ,000 and you want to just start getting into real estate. What's the best way to get into real estate? if you are that person who has some extra cash, a good job or a good business that's kicking off cashflow, what would you do? When you're just getting started in that exact situation that you just mentioned, there's two things you could do.

3:50And I've done them both successfully. The first one is you can house hack. We can dive into that very common strategy. A lot of people know it, but we could dive into that. And then you can invest long distance in real estate. A lot of people live in expensive markets, especially if you have a good paying job, you're able to save up some capital. Not to say that that can't be done in the Midwest or some lower cost of living places, because obviously it can. But just generally speaking, a lot of people have these higher incomes on the coast. And what they could do is take that money and invest it long distance in real estate in lower cost areas where you could buy a property that you might not be able to buy where you are.

4:27Talk about house hacking. What is that? Are you stealing someone's house? Yeah. Yeah, basically. I think it's the best when you're first getting started. You just you buy a property in the simplest form. What you do is you buy a property and you rent out any space on that property or in that property that you don't need. Traditionally, when house hacking was originally created, it was buying a multi-unit and renting out one of the units. You live in one, you rent out the other, you reduce your mortgage. So you're buying a duplex or a triplex. Duplex, triplex, fourplex. But it's expanded from there.

5:00That's how it started. That was the like original what house hacking is, but now it's kind of expanded. You could do it with a single family house and rent out some bedrooms. I go as far as saying it's still house hacking. If you buy a house with the intention of renting out some of the yard space, because you know that that's valuable and you could rent it out to people who need to store RVs or boats or whatever. In my eyes, that's still house hacking because - What? People rent out yard space? Oh yeah, for sure. For sure. I think if you buy any property that has additional space, whether it's inside or outside, with the intention of renting it out to reduce your housing costs, that's house hacking.

5:39Totally agree. Tell me more about this renting your yard space. Is this somebody who has like five acres and they're like, oh, I'm going to let someone use two of those? It could be, or it could also be my previous house. I actually just moved a couple months ago, but my previous house, I didn't have a lot of land. I had like a 10th of an acre. So I barely had any and it was almost all driveway. Like I lived in the city, but a lot of places in the city, they don't even have off street parking. But I had a very large parking lot driveway. So people could either park their cars there, they could park RVs there, they could put boats in the yard and they'd pay me, you know, whatever, 50, 100, 200 bucks a month to park that stuff there.

6:16But then also, again, this is just where I live, but it happens across the whole US really is like you could have people who live in the city don't really have, you know, land, but they might have suburbs that are 10 15 20 minutes away and people have a little bit more land and you could just rent a space for leaving your rvs your boats or anything like that out there dude so you were you were renting some of your driveway yeah yeah i've done that no i was in a family so the main focus was yeah renting out one of the units but yeah you could definitely do that for sure there are platforms that will do that like i don't know if you've seen this but like you could rent out your pool now.

6:51Like there's Uber. I have seen that. Yeah. Yeah. Yeah. You could rent tools from your neighbors. You do all kinds of stuff. There's platforms that actually facilitate this now, but yeah, you're basically just turning your yard or garage space or sheds into like a self-storage facility. Kind of. If house hacking is your strategy into real estate, what's the next, like, how do you snowball into the next step? Well, so there's a couple of things. One, the reason why it's the initial step is because it teaches you. You're not going to really learn about real estate if you're renting out your yard space.

7:20If you're having actual tenants, whether it's a bedroom or an additional unit, you learn all of what goes into actually having rental property. You learn how to screen tenants, find tenants, list rentals, cleanup, utilities, just unit turnovers. Everything that goes into having rental properties, you learn. And I basically say it's like real estate investing with training wheels because you're learning it on a very small, simple scale. So there's that aspect of it. You just get to learn from a really simple strategy, I guess, or a little without a lot of risk. And then the other piece from an economic perspective, you'll generally generate equity in that property, depending on how long you've lived there.

8:00And you can tap into that equity through a home equity line of credit or a home equity loan. And then you could use that to purchase another property. Or you could just take the money that you've saved by offsetting your housing costs, save that while you live there, and then use that money to buy another one, whether that be a rental property or another house hack because you only have to live in the house hack for 12 months so one year and then you can move so like if you really wanted to hit this hard but wait why i don't understand that's what the loan loan requirements when you signed on the note you basically agree that you live there for a year okay because i couldn't go get a loan on a place that i'm not well i could get a loan on a place i'm not living in but you could but that's a rental got it that would just be a rental property you just get a 20 down so that's the difference right you're getting this loan, but you only have to put sometimes 0 % down if you're a VA or a veteran, you know, but, or 3 % down, 5 % down for these home owner occupied loans versus if you just go and get a loan and you're not going to live there, you have to put 20, 25%.

8:59Oh, okay. So that's why house hacking makes less. That's way less money down, gets you in the game. Way less money. You start, you know, you start learning some things and then you can, you can move on to that. So you take that, those 12 months, like that next year and you're just learning. Same up or tap into the equity and then buy another one in month 13 and then kind of keep doing that over and over. So let's say month 13, you move out and it becomes a rental property. Are you then like depreciating the cost of that real estate? You know what I mean? Like can you go there? You're depreciating it the whole time though.

9:28You depreciate it while you live there and while you don't, you're just depreciating a different percentage. Yeah. Yeah. So if you have a duplex, both units are, let's just assume both units are the same. You live in one, you rent out the other. You can essentially depreciate 50 % of that property per year. And you can Austin write off 50 % of your landscaping costs or just other costs you have that keep up the property. And consult with a tax professional and make sure that this is all closer for your situation. Let's talk about the other end of the spectrum. I've talked to people before who were like, unless I have 10 rental properties, I don't want to have just one rental property.

10:03100 % agree. Why? It's just not worth it. Say more. That's where I'm at right now, actually. You had mentioned at the beginning I had a podcast. And if you go back and you listen, And my philosophy has changed a lot from back then to now. I was always a believer that even just a couple of units was great. But I think as you start to maybe learn a little bit more, maybe have a little bit more income, maybe work on some other projects, you start to realize that there's a lot of risk in rental properties. Even if you're insured, if somebody slips and falls or whatever happens, you have a lot of risk.

10:38So is the$250 to$500 a month in cash flow that you may or may not get if there's repairs or whatever, is that worth the massive risk? And then also when I was a bit younger, not that I'm old now, but when I was younger, I was very accepting of debt. I was very happy to just buy a property, let it appreciate a little bit, take out as much equity as I could, put it into another one, take out as much equity as I could, put it into another one, just keep having tons of debt as long as it's being serviced by of the properties. But I don't personally have that philosophy anymore. I'm much more debt adverse now.

11:13I used to not really like Dave Ramsey at all. And I like Dave Ramsey a lot now, and I'm much more into having no debt. So that has changed my philosophy a lot. So basically, to your point is it just a couple of units, one, two, three units, you're going to make 250 to 300 bucks a unit in profit on average. That's if nothing breaks and you're doing it appropriately by setting aside, you know, things that you need to for repairs and maintenance and things like that. So with the risk, and then you're probably putting, you know, 50,$75 ,000 into it, you could just make a lot more money. Just put that money in the stock market, put it in the index fund, not financial advice, and you'll just do much better.

11:51So it really just doesn't start to make a lot of sense until then. So you like 10, 20, 30 units. Did you get burned? Like, have you been burned on like any particular deals? No. All of my deals have been great. that's so interesting honestly kind of feel like i was like enlightened as weird as that sounds yeah like i've been selling off my portfolio i've been kind of getting out of it because of all those reasons i just said i think i just don't think it's a great way when you're first getting started so is it because the economics have changed now like is it because the asset value right the real estate underlying asset value is skyrocketed and said the returns just, they're not 15, 20 % annualized returns anymore.

12:32They've regressed pretty significantly or has your appetite changed? My appetite has changed. Well, both are true. Both of those things can be true and are true. So my appetite has changed, but also the market has changed. Asset values are way higher and also interest rates are much higher, which are making the debt much more expensive. So it's definitely not as attractive of an environment right now. But also that said, my whole portfolio, I had fixed debt. I wasn't paying more for the assets. My debt costs were fixed. So I wasn't really at the mercy of the market. And I'm still exiting all of mine just because even though they were fairly profitable, I just didn't find it was worth it.

13:15I would rather take that money in time, put it into a side hustle or SMB and then put that money maybe into a bigger property in the future. Hey, I don't know if you remember this, but when we started this podcast, we entered into a social contract. I would spend time, energy, and money producing this podcast, interviewing these individuals and giving you insights into how to build, buy, start, grow your business. And you would like, subscribe, and leave me five-star review. Now, out of that, we both get to talk to really cool people and hear really cool insights. We both get a ton of value, but I just want to help you keep your word.

13:53So would you do me a favor? Will you go leave a five-star review for me on Apple or Spotify? It would really help. And if you want, even share this with a friend. Dude, this is funny because I was like all into, okay, cool. We're going to talk about how as an entrepreneur, you can funnel money into real estate, which I still think is something you should do. That's the way to do it. The house hacking? Well, house hacking is great, period. Oh, anybody. But what you just said is entrepreneur follow the money into real estate. That I think is great, but I wouldn't do it if you're just, if you just have an entrepreneur that has like enough money to buy one or two, I wouldn't do it.

14:29But if you could buy a 30 unit apartment or 15 unit apartment building that I would definitely consider. What about syndicated deals where it's like, okay, I can't buy a 30 unit apartment building, but there's this fund, or I know this person who's running a deal and they have me as an LP in that fund. Does that make sense at this point? Or are you like, nah, it can't make sense. A lot of times you'll have to be accredited for that. So depending on your income and financial situation, you might not be able to invest in those anyway because you have to be accredited. But let's assume you can. Your returns are probably going to be lower.

15:04You have to make sure that you do your due diligence on the syndicator. Make sure you know who you're investing with. But it can make sense. I have some syndication investments and they've been fine, but you get that extra alpha by doing the work yourself, finding the deal, sourcing the deal, managing the deal, finding the debt, securing the debt. So you definitely are going to have lower returns, but it can be a way to do it passively for sure. That's funny. So like I outlined in the beginning of the episode, you're definitely swinging from the all-in on real estate to like, I think I could probably get better returns in the SMB space.

15:37Whereas many of these SMB owners are like, maybe I could put some money into the real estate, but it's not an all or nothing proposition. It doesn't have to be. Do both. Yeah. Do both. Yeah. Let me ask you this. All right. You've owned lots of properties. You've obviously been in this space for a long time. Let's give the people what they want. Let's give them some red meat. What are your favorite home services businesses? You've seen all the headaches. You've had to freaking manage tenants and plumbing and HVAC and whatever else. What are the home services businesses that you love? maybe you're starting or you're like, yeah, if I was an entrepreneur starting out, demand is always going to be there.

16:12I love these types of businesses. Well, to caveat that, I was a CFO for a plumbing and HVAC company for five years. Oh, hello. Okay. I know the trades decently well. I was not actually doing the work, but I know the trades fairly well. It was fractional and it was helping out a friend of mine who started his company. But so I think that those are the best. Anything that you can, that is needed. So like, There are great businesses that are not needs. But the problem with that, in my opinion, is that if it's a want, you might have some significant economic risk versus if your heat goes out, you've got to get it replaced.

16:49Whether you can really afford it or not, you're going to find a way. Or if your toilet stops working, your shower stops working, your plumbing is not working, you have to do that. And you'll find a way to get the money for it some way or another. But if you don't like the paint color in your house or your house is a little dirty on the outside, you might just wait to pressure wash it or get it painted or something like that. You might just do it yourself even. So those are the things. I do think they are good businesses, painting, pressure washing, all that kind of stuff. I think it's great, but it's a want, not a need.

17:18The caveat there is HVAC plumbing, a lot of states require a license. So it's not like you or I can just hop in and create a plumbing and HVAC company. So let's do this. I'm going to name a business, a home services business. You tell me needed or not needed. Okay. Plumbing. Need. Need. Electra. Need. HVAC. Need. House cleaning. Not need. Not needed. Definitely not needed. Carpet cleaning. Not needed. Really? Yeah, definitely not. On the same level as house cleaning? Yeah. Yeah, that's true. Yeah. You could clean your carpet yourself. You go to Walmart and get a vacuum, a pretty decent one, and some soap for fairly little money and get that done yourself, really.

18:00Like, if times are tough, you know what I'm saying? Yeah, yeah, yeah, yeah, yeah. Is it a recession-proof business? Recessionary time. So yeah, exactly. Window cleaning and gutter cleaning. Definitely wants. Definitely wants, right? I mean, you're not getting granny. Granny's not getting up on a ladder and cleaning her gutters, but granny's got kids or grandkids or uncle or whatever, and they can get up there and do it. So it's definitely a want. All right. These next three, I think, are very interesting. Landscaping and lawn care. It's also a want. it's got to be a want for sure this one out there and bow yourself push it tree trimming and and removals water oh really yes and i told you before this i just bought tyler's stump grinding playbook so like i'm interested in that business but i think it's a want for the most part and that's my one of my biggest hesitations with this business is that i think it's mostly a want are there situations where it is indeed sure you have tree problems the tree falls down, it's dead, it's going to fall and land on your house or the roots are growing into your septic tank or into something.

19:06Those are needs. But I think generally speaking, it's probably mostly wants. I don't like this tree. I want it gone. I want to put a fence there. I want to do this. But if the tree has to stay there because I don't have any money, it could wait till next year or the year after. It kind of depends on what part of the country you're in. It definitely depends on the reasoning. I definitely wouldn't put it in the same category as house cleaning or carpet cleaning. No, primarily because similar to HVAC, which is not always the case, but there can be an insurance component that will pay for that. So if a tree, if there's a storm and a tree falls, you can have an insurance claim that will pay for it.

19:44So it's not just somebody coming out of their pocket, but there are these instances obviously where insurance will pay for something. but I do think it is more of a need because of the potential of harm. That was an interesting one. But I think you're probably right. I think it is more of a want. See, I think it's more of a want, but I think the piece that you have is that it's not as DIY friendly. So like cleaning, somebody can go and get cleaning supplies, do it themselves, painting, gutters, whatever. They could do it themselves. Even if it's a need, they could do those things and you could do stump grinding or tree trimming yourself if you really wanted to if you felt comfortable you could go with the equipment and do so but i think a lot of people wouldn't feel comfortable renting that equipment and running it themselves i thought but a lot wouldn't but that would be the same of like hvac or plumbing or electric it's like i i could figure this out i could get chachi something like yeah it's the d i'm saying it's it's it's a similar it's a similar type of approach that you could run into but all of those things have the same risk profile like if my toilets clog that's that's an existential risk to my family if a tree trip of tree limb is looking pretty precarious like that could fall and kill somebody you're gonna get your tree tree turn anyways okay that was that was an interesting one all right here's my favorite you ready yep pest control theoretically it is a want because you can live with bugs you can live with the roaches but that could be dangerous i understand why you would really want that gone because you're not going to want to live with roaches or maui wow okay that one surprised me that you were like even hesitant i would have thought for sure you're like what this is we're eating crickets tonight yeah no i think that borderline i don't know roofing that's a need fence building and repair that's a want here's one pool cleaning and maintenance those are two different things in my opinion.

21:38They're two different things. Why? Yeah. Well, in my opinion, because cleaning is a want, maintenance or like repair is a, is a need. If your pool breaks and needs actual maintenance, like repairs, well, maybe, I guess maybe maintenance is clean. It is the same as cleaning. I guess maybe those two are the same. Those are, those are wants, but did you could do the maintenance yourself? You can clean it yourself. The repairs are probably more of a need. All right. Last two. Okay. Last two garage door repair. That's a need. It's got to be a need. Yeah. For the same reasons that HVAC, electric are going to be needs, right?

22:12Like, you're just going to figure out, like, how do I put this spring? How do I reload this spring on my garage door? It's just not going to happen. But at the same time, one quick pushback on that is if it was economic times, 2007, 2008, like, you're really struggling, you're just going to use a different door, and you're not going to go in the garage for a little while. That's true. Or you're just going to open it manually. Yeah, exactly. Exactly. So. Okay. Fair. I know this one septic tank services. That's a need. You're not diving in there yourself. If anybody has a septic tank, you know you're not diving in there.

22:44We just moved into this place with a septic tank. My brother and sister-in-law used to live here. Long story. But they have a septic tank and he's like, all right, well, here's where the septic tank is. Just make sure your kids aren't throwing in, you know, gobs of toilet paper and paper towels because you're going to have to get in there and clean it out. I'm like, wait, what? He's like, yeah, I've had to get in there a few times. okay friend yeah my cousin my cousin swims in those for a living what the what do you mean swims in them well that's what they do they do septic repairs they do stuff's clogged and you're not going in there yourself he you pay his company and he goes and does it does he own the company or does he work no he gets paid like 22 bucks an hour and goes swims and poop all day what are you serious i swear to god oh my gosh he's just swimming around and like declogging crap literally all day yeah yeah swimming in those septic tanks i won't go down a huge rabbit hole here but it's jobs like that where i'm like that's why men live not as long as women they're the ones doing freaking cleaning out septic tanks getting giardia just as a occupational hazard oh my gosh that's insane you could have made me enough for that job no although i would own that business that'd be a great business to own i would too but i would not uh wouldn't do it if i can manage it pressure washing definitely a warrant definitely a want you could easily go around and pressure washer but yeah basically if you're evaluating these businesses it's like all right in a downturn is this a need or a want if it's a need i'm all in if it's a want i don't know like the stump grinding why why even entertain it if it's if it's a want business well just because it's a want doesn't mean it's not a good business it doesn't mean you shouldn't consider it it's just something you have to consider like what in my opinion you have to think about like what am i going to do in a downturn?

24:32How am I going to overcome this? What am I going to offer? How am I going to make an income? What is going to be the solution here? Think about that before you go into it. For you, you're rotating out of your real estate, like a lot of your real estate holdings. What are you rotating into? Cash, paying down some debt. That's really it. Cash for what? Like you're just sitting in cash in case there's a crash, you're trying to buy a business, you want to just... I guess I shouldn't say cash. I invest a lot of it in the equity markets. That's like a lot of my background is stock investing as well.

24:58Stock, traditional equities and crypto. I'm a believer in crypto. You just dabble. You're a dabbler. Yeah, I guess. But I don't like day trade or anything along those lines. I just put some in Bitcoin. And I guess you would say I'm a Bitcoiner. I was going to say, are you a full corner? Yeah, I would say I actually like Bitcoin. I like Bitcoin. The dollar's not doing so hot. Yeah, Chris and I had a company that sold crypto mining rigs, so like crypto mining hardware. but I don't have, I like my crypto holdings are not massive relative to the rest of my hold. I have some crypto, but not. That's how I am too.

25:38It's not my, it's definitely not the majority of my holdings by any means. Dude. Okay. What do you think is like the one piece of advice you would give to somebody who is an entrepreneur trying to get into real estate that is like wanting to make the jump either this year or they're like, it's going to be their new year's resolution for 2026 to get into real estate. What would you say? Hey, you're new, you're a rookie. This is my one piece of advice for you. Well, if you're a rookie real estate, there's two different ways. One, if you're looking to start a business where your business is doing okay and you just need more income, I think a great way is to house hack.

26:11Because if you can reduce your margins expense, that gives you more money that you can invest into starting a business or growing your existing business. So I think house hacking is great for people that are new entrepreneurs or want to become entrepreneurs. You can reduce your housing costs to put more money into your actual like general money. You have to live somewhere anyways. You got to live somewhere. Yeah. Yep. So if you can, instead of spending 2000 on rent or a mortgage, and you can get that down to a thousand by offsetting your cost through house hacking, that gives you an extra thousand bucks a month that you can put into your business or marketing or whatever.