MI282: The Small & Mighty Real Estate Investor w/ Chad Carson

23:26We're all really ambitious financial people. If you're listening to this podcast, you're motivated to be a successful person and be successful financially. We're the people who are most susceptible to putting our head down and just grinding it away for the next 20 years instead of trying to enjoy right now. And so it's just a balancing act. This is a lesson for me more than anybody. My wife helps me out with this by reminding, hey, let's go to Spain. Let's do this. Let's enjoy this. And every time I do it, I'm like, oh my gosh, I can't believe I almost didn't do that. I almost didn't enjoy the fruits of my labor along the way.

24:00And I look at it kind of like you're climbing a mountain, ultimate financial independence, the peak of the mountain. And there's a bunch of plateaus along the way that naturally happen, sometimes every three to five years, where you can take a break, you can press pause or maybe slow down the growth a little bit and find little ways and big ways to enjoy the process, to enjoy your kids, your wife, your husband, your partner, your friends, family. Because on your deathbed, you're not going to be saying, how great was it that I got to financial independence three years faster than I could have? Is it that great if you missed out on some of that other stuff?

24:32Then number seven is very closely related. I think small and mighty investors measure success a little differently. I talked about hedge funds and big funds and big real estate investors. It comes down to the numbers, it comes down to return on investment. Those are great. Those are tools in our toolbox. But ultimately, this is about our individual success. And it's usually about intrinsic success. So those things about being a craftsperson, because you're a successful craftsperson, you feel fulfilled that you're a real estate investor. And because you are contributing to your community, you feel connected.

25:03And so I just like to emphasize that we can measure external, looking on social media, how many units somebody has all the time. And they may or may not be successful. Who knows? They could be miserable behind the scenes. And so just be easy on yourself. Know that it's the most important metric is whether you are meeting your definition of success. And that takes a lot of... It's tough. I have a hard time with this as well. FOMO is real. I get competitive when I see other people buying a lot of properties. And I'm like, I can do that. In fact, I could probably do that better than they can. But making the conscious choice to stick with your guns, to stick with your principles, stick with what's important to you, I think is a very small and mighty thing to do.

25:42Let's take a quick break and hear from today's sponsors.

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27:23That's public.com slash T-I-V-P. Paid for by public investing, full disclosures in the podcast description. Just like everybody else, there was a time when I was a beginner investor, and I have to say, investing is particularly filled with jargon that can just make it so difficult for new investors to understand what is going on. But it's never too late to get smarter about stock investing from the ground up. At The Investors Podcast Network, we've made a habit of studying the world's best investors. And now I'm distilling those learnings into a simple course for you or for anyone in your life who you might want to share the gift of knowledge with.

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28:33And for a limited time, you can use code stocks15 for a 15 % discount at checkout. All right, back to the show. There are two specific pieces here I want to dive into. And the first one is about putting life before business. And the second one is the debt piece. but let's first dive into the life before business. And this is something I struggle with really bad. I try not to, but it's partially because one, like you said, I'm competitive, you're competitive, et cetera. But even more than that is I enjoy the game so much. I do have other hobbies, but there are very few things in terms of hobbies that I enjoy more than And being in the trenches, building a business, building a podcast, building whatever I'm building, building a real estate portfolio, I just love it.

29:25And when I have... It's rare, but when I have extra time, let's say I have an extra one to three hours in a day, I'm like, okay, I can do anything I want right now. I can go ride my dirt bike. I can go to the beach. I can play video games. I can watch a movie. The first thing that comes to my head is like, I need my computer. I want to work. I want to work on this stuff. And so I really struggle with that. And I went on a walk for about an hour yesterday with my girlfriend and we were talking about this. And I'm like, it's tough because that's just the way I am. And I don't necessarily always want that to be.

29:57And I guess I started to ask myself why. Like, okay, why am I like that? Is it because do I enjoy the game? Am I trying to make more money, etc.? And I'm like, it's not really money because I'm not rich, but I can more or less do anything I want other than like, I'm not going to fly private or buy a mansion or anything like that. But there's very few things that I truly want to do that I can't do, but I'm just choosing not to do them because I'm building the business. And so this is something that's very timely and very difficult for me personally. I'm just going to put my arm around you and say, I'm with you, buddy.

30:30I love working. And so this is the interesting thing. The first book I wrote was Retire Early. And it's sort of a bad word. Retiring is a loaded word. It means too much to too many people. It's a connotation of doing nothing. And so I think the first thing, the first therapy session I would give to myself and maybe to you is that stopping working is a non-starter, especially if you're wired that way. Like I do know that not everybody's wired that way. I do. Like some of my Spanish friends here, like a cool thing for me is that we had this conversation in Spanish. I love that. That they would say, yeah, I think the difference between Americans and Spaniards is that we work to live and that's the priority.

31:10We don't live to work. It seems like you Americans live to work. And it's like, huh, that's interesting. Yeah, because I enjoy working. I like to do it. But it's also, there's a, who knows why that is. And by the way, I'd have a hard time unpacking, but it's just an interesting contrast, right? There's different people who have different, even within the US, there's different people who have different priorities. But the thing I would separate, like try to tease out instead of like business first, life first, business second, is to say, let's isolate the motivations for that. I think work to me is the fulfillment of using your craft.

31:43going back to that craftsman work, you have skills, you have these talents that you were born with, and it's like a gift. For you not to use those and for you not to use those in a way that's helpful to other people is kind of a travesty. That would be horrible, right? So I think not working is the non-factor because of that. Because I personally have talents and gifts to help people, and it just feels good to do that. The thing I would separate, though, is the financial aspect of that. So to me, financial independence and every little stair step of independence and freedom separates the need to make work decisions based on money.

32:19That's the separation. And so putting life first and business second is just saying, like, what do I want with my life? And it might be for you and me, it is, I think it's that I want to work on projects that are fun. And when I'm done with them, though, I want to set them aside. I don't want to lock myself to some trajectory where I'm obligated to do something. So for me, for example, going out and buying a syndication or building a syndication where I have 150, 200 investors who invested$50 ,000 to$100 ,000 with me sounds like a nightmare because now I've attached myself to their success for the next 10, 15 years maybe.

32:55And also the failures. I can handle my own failure, but have to handle their failure for them as well. And so that stressed to me that craft of doing that just is too tightly intertwined. So I think the small and mighty investor was so interesting about it is that the small craftsperson can really focus on their craft more. If you enjoy, I know a lot of people like working with their hands. I know real estate investors who love going out and cutting their grass on their rental property. I know real estate investors who are really good at woodworking, are really good at design. They love buying this remodeled property and just changing the design around.

33:29They love that. They would do it for fun. They would pay to do it, right? And so I think if you could find work, whether it's real estate or unrelated, and a lot of people don't love real estate, by the way. I like real estate, but it's not the thing that moves me. I'm more of a teacher. I like online media. This is my passion, craft, but I like real estate too. And so I think giving yourself the freedom to follow your nose wherever work may lead you is the ultimate flex. That's pretty cool. I'm still trying to figure out what I want to do when I grow up, but it's definitely, even with this media business that I do, the Coach Carson business, I've been able to be really patient with it and really deliberate about it.

34:06Sometimes to my own detriment, I don't grow as quickly, but I'm very tortoise-like with that too. But I can afford to do it. I didn't teach a class. I didn't make much money at all last fall. and my Coach Carson business and cool. I had other priorities. That's the difference, I think, between a person who loves work, who has financial dependence and freedom and doesn't have those huge networks and obligations and this big machine. I call it a Frankenstein machine in the book. When you go big and have this big machine of a business, it eats your time. It's in control. The story of Frankenstein is a horror story because the scientist created Frankenstein, who originally in the story was supposed to be like a beautiful, helpful creature.

34:47And he used his science and technology to create this helpful thing that as soon as it woke up and he saw how horrible it was, the scientist ran away. And Frankenstein throughout the book chased him around and just wreaked havoc in this guy's life. That's to me what a lot of big businesses actually are for most people. There are some success stories and exceptions, but But I find the happiest, least stressed people I know are small business owners who have systems, who have processes, who treat it like a big business, but they keep it small on purpose. And that's just been my experience. I was going through...

35:23I was at the fork in the road maybe a year and a half ago, where I was like, okay, I have an audience with the podcast. And I have some experience with real estate now. Do I want to raise money? I could probably raise a fund pretty easily to scale. And I bought like three or four or five syndication books. And because of the podcast, I talked to some of the biggest syndicators, influencer syndicators that I could to pick their mind and learn about it. And I felt like I had a good grasp on it. And I almost went down that path. And then I was just thinking about it more. And I'm like, you know what?

35:55What you said is every time you take money from those investors, now you're responsible for their success. And that makes them your boss. And I said, well, for me, I'm buying real estate so that I don't have to have a boss. So if I'm going to bring in bosses to buy real estate, that doesn't make sense. And also, I spoke at a fairly large real estate conference and it was for syndicators. And so when I was there, the guys that were there and the guys that put it on were super, super successful, really, really, really, really rich and really wealthy. But they just don't have the time. They're working a full-time job in a business.

36:32And I'm like, it was a good timing for me because it wasn't really, didn't align with what I want. And I'm like, okay, this is clarifying for me. I need to go down this other path. I don't want to raise money from other people because I'm trying to buy real estate to not have bosses. So it just doesn't make sense to me. Yeah. I think we had a similar conclusion. I touched that. You have to touch the fire sometimes and see how it feels. And again, there's nothing... I'm glad there's indicators out there. I'm glad there's people who take companies public. Great. This is a wonderful country where we have all these diverse ways of doing things.

37:02My mission with the book though, was I think it's a little one-sided in the information departments. I think the successful people are usually portrayed as the biggest who've already climbed that ladder. I just want to validate the people. Even a person who has one property and they rent their garage out of their house, that's successful if it covers your expenses. If you followed Robert's advice in his house hacking book, if you house hacked and you have one or two properties, good for you. What an amazing leap forward you took and just that one or two properties can make a big difference. And so I want to validate that path.

37:34And not only validate, I want to give sort of a guidebook to say, here's some steps that you might want to think about to make that small approach even as successful as it can be. I suspect that you probably don't struggle with this too, too much now, given that you've taken more or less a year off in Spain, but correct me if I'm wrong. But in the earlier days of when you were building your real estate portfolio, did you, because you have a inclination to work more than maybe other things because it's a passion of yours. It's a hobby. It's something you enjoy. Like I was saying before for myself, did you feel anxious doing other things, even if it was something you enjoyed?

38:12I don't know, name anything, like hanging out with your children and just not being able to fully focus and be there because you kind of feel anxious, like I should be working or I want to be working. Did you go through that? 100%. Yeah, I still struggle with it. part of it is kind of releasing the steam a little bit. So for me, I have a goal. I've actually been, this is a kind of a tangent, but it's part of my kind of personal development process for me. There's a guy named Brian Johnson who has a platform called Heroic. And he's been a, I've been a fan of his for a long time. And he has this kind of framework of looking, there's three kind of three areas of your life you try to focus on.

38:48One is energy, one is work, one is love. And so actually setting little daily habits in each one of those. And I actually have his app. So the heroic app. And I just like, I just swipe it, swipe it, swipe it. So every day, for example, with work, I try to have a goal of having two hours of deep work every day. And I tried it when I wrote the book, I tried to do that in the morning if I can for at least an hour, maybe two. And so then I feel like, okay, I've planted that seed. I've swiped that on my app with Brian. And then I have other things I want to check off my list with family. So I want to have at least, I call them micro moments with family members or having a slow meal with a family member where you're just patient.

39:27And my phone is in the room somewhere. I actually put them in closets, put my phone in the drawer because I associate the phone with work. So it's not like being totally deprived of things, but just try it. It's really a practice of a dance, of a rhythm. Every day there's a rhythm. There's a time for work. There's a time for eating. There's a time for exercising. There's time for play. And it's always a dynamic thing. But I think that works on a daily basis. I think it works on a weekly basis. I think it works on a yearly, a five-year basis. We have these seasons. We have these rhythms. And so, we're actually hardwired with our biology to have circadian rhythms and sleep rhythms.

40:04And so, I really got into that idea of rhythms and not trying to fight that urge. If you have a strong urge to work and contribute, then build that into your life. That's part of it. But for me, these days, work is writing, it's podcasting, it's creating, it's thinking. I love ideas. And so I try to figure out ways I can fit that in. But still, the struggle I have is I'm sitting at my daughter's violin concert the other night. And that's the thing to focus on, right? And I happen to have my phone with me at that point. A message comes in. It's about something in a mastermind group I'm in. My mind goes to that.

40:40That's interesting to me. Like, wow, that's an interesting idea. I didn't think about that. My mind's distracted. So I think it's a form of meditation, it's a form of discipline, but it's not something I think I'm going to be perfect at. But I do feel better when I have those three separate buckets of my life that I can then try to focus on and measure my success, just like I would measure the success of my real estate property, the return on investment, the cash flow. Try to find little microwaves, like atomic habits, like a James Clear type approach of measuring on a daily basis, whether you're balancing your life out.

41:14And at the end of the day, I look at that little app and say, yep, I did all my work, did all my love, I did all my energy, I worked out, I ran, whatever I did. And some days though, we're off, like right now, I'm in a little bit of a dip where it's been like four days in a row where the thing that fell off for me was actually work. I was doing, this is our last week in Spain with a lot of friends. I've just put it all on the love community side and I've not done as much work. I've not done as much sleep as well. I don't know. So I'm trying not to beat myself up too much, but it is my aspiration.

41:44The goal is to have a little bit more balance. And I think I've gotten better at it a little bit by a little bit by a little bit. Yeah, I'm glad. I appreciate hearing that because it makes me feel a little bit better about myself. So that's good. And the second thing I mentioned that I wanted to talk about was the debt. I just have one specific question. It's probably really tactical. And we'll get into more of a debt conversation later, most likely. But how do you... I know you said you have a 50-50 partner. I have the same thing. So how do you manage paying down debt on your properties? What if you personally have capital to put down or pay down a property, but they may not?

42:21How do you handle that? I love that tactical question. I've never gotten it before, but it's been a big part of our business. And so I have a 50 business partner. We own an LLC together. And so we're equal partners. But there have been times where my business partner has been much more successful earlier on in another business he had. So he had extra capital. And so a big part of our strategy, first of all, we didn't decide to pay off debt for a while. In the book I talk about, there's three core phases of a real estate investor. There's the starter phase where you're just doing those first couple of deals.

42:53You're learning, you're getting the knowledge. Then you move into the wealth builder stage where you're trying to turn that 100 ,000 bucks into a million bucks. It's just grow, grow, grow, grow, focus, focus, focus. So in those two phases, we weren't paying off debt. We were leveraged. Let's go. But we started going through some old many kind of third stages, which I call the ender phase in the book. So you're ending the growth of wealth and it sort of shifts your mindset around what game you're playing. So instead of just growing, you're trying to take some chips off the table, like in poker, you're trying to cash in some of your winnings.

43:25To quote Warren Buffett, Warren Buffett says, why risk everything you've already had for something you don't need in the next phase? And so that's the mantra of somebody in the ender phase. It's like, don't go sliding back down the mountain, take some trips off the table, take some risk off the table. And you could do it all at once, like 10 years later, you could do it in little pieces. And so we started doing it a little bit in 2007 and eight, where we overbought. We were too aggressive before the great recession. So we just had to, first of all, just try to survive. We did luckily, but it was not easy.

43:57But then once we started to get some more capital flow and doing a little bit better, we started paying off some of our riskier debt first with refinancing, but also my business partner, started doing pretty well a few years later on his online business. And so he would loan money to our LLC. And so he was just a private lender. And there's different ways to do that. He could have bought more equity in the company and it could get pretty complicated with that. We just did a simple loan. We did a market rate loan. Typically, we'd pay him 6 % interest. Sometimes we'd pay less if his interest rates went down, 5%.

44:29Sometimes he'd do a little bit better than market rate, but it had to be something reasonable. And his company makes interest. We get a very, very friendly lender because my business partner is the lender. He's about as friendly as it gets if everything hits the fan. If he had to defer some payments for us, if he had to reduce payments, he'd be the most likely one to do it. So I would rather owe money to him than I would to the bank or even to another private lender. And so we started slowly chipping away at the most risky debt we had with our internal private loans, either our own money that we retained as profits, which we also did, or through private loans.

45:06I also made some loans to the business eventually as well. And so that was a way to sort of, when you had a disproportionate amount of capital for one partner or the other, that was just our simple way of doing it. He had to pay income tax on his interests. That's kind of a negative for him. But for him, it's also a way of increasing his wealth. It's a very passive 6 % interest for him. So it was a pretty good partnership in that way. Yeah, that theoretically makes sense to me, but I'm going to have to look into that a little bit more. And it's interesting because lately I used to hate Dave Ramsey.

45:37I'll just be honest. I hated not him personally. I hated his philosophy around finances and money and debt. And I don't know why, but the last six months to a year, I've kind of been fading towards Dave Ramsey. And it's kind of weird because I was always like, if you listen to the early episodes of this podcast, I was always like, okay, let's say you have some money to buy a property. It makes way more sense to me to buy a property, get cashflow from that, and then use that to pay debt. You know what I mean? Versus using that money that you put as a down payment on another property to pay off a different one.

46:10And today, maybe it's because I'm trending towards Dave Ramsey. Maybe it's because of market conditions. I don't know. But I have a property that I owe like 50 ,000 on it with a business partner. And the mortgage is like, I don't know, roughly$500 a month. So I'm thinking to myself, okay, we pay this off. We could take that 50K and we could buy another property or two as using those as down payment. And we could probably generate$500 in cashflow and we could go that route. But now I'm concerned about the risk of the tenants not paying. And that's like a much riskier proposition or path to go. Or we could take that 50K, pay off the property that we own.

46:49Now it's essentially risk-free from a debt perspective. And then we get$500 more a month in cashflow. That's 500 times 12, 6 ,000, right? So now 6 ,000 on 50 ,000, you're getting a 12 % almost guaranteed return per year. So I'm like, oh man, it's something that I'm battling here myself. But then the other piece, and the reason I asked you that question is because he might not be ready to pay off that property and we own it 50, 50. So I don't want to put 50 ,000 into that. And so I'm battling a few philosophical things and also the partnership thing. Yeah, the partnership part is a little tricky.

47:26This is fortunate for us that we had some debates back and forth on when we paid off. We still, to this day, I think I'm in a mode right now where I'm a little more Dave Ramsey-ish in my debt aversion. But the good thing about having a partnership is you have some really good debates and fun debates and helpful debates. As long as you're on the same trajectory long run, that's a healthy thing to have. And for us, it was a happy medium that he had more capital where he was able to increase his income and we were able to pay off debt. And we also though, even we now have very little debt owed to outside people because we've also retained a lot of our profits inside of our business and use that to pay off debt.

48:04And the reason I've done that, this is not a beginner thing to do. This is not even a wealth builder thing to do. This is something when you've arrived at a certain location where you prioritize lower risk, higher income, and peace of mind and simplicity more than you do growth, then it's time to start paying off debt, in my opinion. I think it's a really underrated strategy because I was just like you. I started looking at it, kind of accidentally looked at some of our debt on our properties. We had a property with$1 ,000 principal and interest payment,$100 ,000 loan, but it used to be a$200 ,000 loan.

48:36We had paid it down a lot. And I started looking at that. I was like, wait a minute. All right. So we pay that property off a hundred thousand bucks. We save that money up. That's$12 ,000 per year. Where could I get$12 ,000 in free cashflow from a no effort with zero risk? I've actually reduced my risk. Like I've basically, I already own the property. So I have all the property risks no matter what, but by taking the debt off the property, I've significantly reduced my risk, made a 12 % cash return. I've not had to go buy another property that has heating and airs and new tenants that could move out.

49:09And so it's a really underrated strategy because most people don't use it. It's not a tool to be used early in your career, although it could be like Dave Ramsey uses it from the very beginning. But I think it's not, it's looked down upon because the return on equity, or if you're trying to maximize your growth, which is the hedge fund, the Wall Street, that's the almighty metric. Let's get down on the altar of return on investment. And that's the only thing we're going to look at. But here, we're not trying to optimize for investment return, we're trying to optimize for our life. And if you're trying to optimize for your life, there's not just one variable in the math equation, return on investment.

49:43It's return on investment, return on time, how well do I sleep at night? How much flexibility do I have? And so when you start looking at all of that together, it starts to be a no-brainer, at least it was for me, to consider that. Now, I'm not saying paying off all your properties, we still have some debt on our properties. There still can be a healthy balance and attention there. But when I start studying S &P 500 companies that are really profitable, really mature, outside the real estate business, and also REITs that are really long-run REITs, they have very little debt. They're not 70 % fevered.

50:17They're 25 % or 15 % or 0%. I think there's something to be said for that and to find a balance point and not worship at the our altar of having debt forever and saying that just because it's a good tool, that it's always a good tool. Let's take a quick break and hear from today's sponsors. Hey, it's Sean O'Malley, just popping in with a quick message. If you like this podcast, well, I've got great news for you. We've got a handful of other shows for you to explore, from learning about Bitcoin to embracing a richer, wiser, happier lifestyle. Just go into your podcast app and type in We Study Billionaires to find our collection of shows.

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51:29Bonus points if you show your support for our work by clicking follow. If something piques your interest, just start listening. No hard feelings. I'll be waiting for you back here. Just like everybody else, there was a time when I was a beginner investor, and I have to say, investing is particularly filled with jargon that can just make it so difficult for new investors to understand what is going on, but it's never too late to get smarter about stock investing from the ground up. At The Investors Podcast Network, we've made a habit of studying the world's best investors, and now I'm distilling those learnings into a simple course for you or for anyone in your life who you might want to share the gift of knowledge with.

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53:23You can get started by creating an account for free. Who knows, maybe TIP Finance will help you find your next 100-to-1 investment. Between the screener and Legend Investment portfolios to reference, I've gotten a ton of ideas from TIP Finance. What are you waiting for? Take the next step in your investment journey today with the right tools at your fingertips. Grab your device and type into your browser theinvestorspodcast.com slash TIP-finance to get started. That's theinvestorspodcast.com slash TIP-finance. All right, back to the show. So the other caveat for me is that even if all of our properties were completely paid off, it wouldn't be enough income to hit my goal.

54:06I'm like, okay, well, I have to buy more properties regardless if that's going to be the only way that I have income. Do I focus on that first? It's a really challenging thing that I've been facing the last couple of months and been thinking about. I'm curious, how do you plan on dealing with people not paying rent? I'm assuming you probably have reserves. But I don't live off of my rental income right now. I don't really do anything with it other than maybe reinvest in the properties. I don't think I even take distributions from the properties. So it doesn't really have a material impact on me.

54:40If somebody doesn't pay rent, it doesn't impact my personal life yet. So I'm curious, for somebody who is entirely living off of their rental portfolio, how do you deal with... Especially if you're a massive polio, you own 50, 100 units. So maybe for you, it's not as big of a deal at this point, but maybe early on when you were starting, you have 100 units. So one, two people missing is not really probably that big of a deal. But when you only have four, five, six properties and you're living off of that and one person stops paying you rent, how do you handle that? Reserves, first and foremost.

55:13I'm a big fan of having cash reserves. But that just covers the mortgage, right? That doesn't pay you to live. Yeah. Sometimes you have to draw on your reserves potentially. Ideally, you would have more properties to diversify that a little bit. So that's where having one property, if you were just going to live off your income, I would say have five units, 10 units would be a little bit more diversified. Or I think somebody who has one property probably has some dividends from stocks. They probably have another business over here. So you need to have a diversity of income. I think that's a huge principle.

55:46But then even with that, having reserves is something that I'll give you a practical example. It's not only losing your rent, but it's also capital expenses and other... Real estate is the cash flow from real estate. If you graph it over a 10-year period, it looks like a straight line. Like, okay, the income went up, the expenses were here. And you might even say, oh, well, expenses on average are 40%. My operating expenses are average 40 % of my rent. Well, that's just an average though. One month, it might be that the expenses were 80 % of your rent. And it might be that your rent was 70 % or 50 % of what the average is in that one month.

56:21And so to me, reserves are so critical and having big reserves are critical because they allow you to stopgap those weird outlying cashflow situations. What do you define as big? What's big reserve? I would say minimum. Well, if you have three properties, I'd say 5 ,000 per property would be just a minimum. So like 15 ,000 bucks. If you have three properties, 15 ,000 bucks is kind of like starting point. So it's not based on the mortgage or anything? It's just per property? For me, it is. So once you grow, like with my units, I look at how much... I look at it like personal finance. If I have all of my expenses, operating expenses, mortgage payment, everything, what's at least three months of that, preferably six months of that would be set aside just in a rainy day fund.

57:05And I've only had to touch that one time in my career. And I had to touch it in 2007, 8, and 9 when we had a lot of vacancies. And I needed it. We had months where revenue was negative or the net income was negative compared to revenue. And then we'd have another month, three months were positive. Then we had another two months that were negative. It was a rollercoaster. And if I would not have had those reserves, I was living off of real estate. I've been doing that for years. And especially early on, especially when you have a lot of leverage, It's a much bigger roller coaster. And so reserves are something that you...

57:39It's almost like a personal line of credit. You got to draw on it. You got to fill it back up. Draw on it, fill it back up. Eventually, though, it's very rarely used. And I learned from Warren Buffett on some of this. How often has he had to use his reserves? Probably not, right? But he's an insurance company. So you sort of look at yourselves like, I'm a crisis insurance company for my own portfolio. and the cost of that is what I could have, the return I could have got on that cash sitting there, but the peace of mind I get and the worst case scenario where I kind of cover the worst situations with that cashflow is what got me through 2007, eight, nine.

58:14And it's also what allows me to have the confidence to live off my income, knowing that I've got some padding there to kind of cover some of those situations. So is for each property, you put three months of mortgage costs aside and then 5 ,000 on top of it, or is it just three months of mortgage expenses? I'd say either or. I think 5 ,000 is a minimum because if you just use the operating expenses with one property, it probably wouldn't be 5 ,000 bucks. So early on, I think hit a certain number, 5 ,000 bucks, 3 ,000, whatever your number is. But I'd say get up to a threshold of like 15 ,000 bucks, 20 ,000 bucks, just have that in the bank.

58:52And then once you get above a certain number of properties, then you can start using more like just an operating expenses plus mortgage type number. And so let's just say you had 50 properties, then maybe you're spending 15, 20 grand a month. You'd want to have 60 grand in the bank. If you were spending 50 ,000 per month, you'd want to have 150 ,000 bucks in the bank. And that's sort of where we've been. We've gone between 100, 175 ,000 in cash for years. And maybe we could have invested that money, but it's felt pretty good to have it. Yeah, I think I'm sitting at about just three times all of the mortgages combined, basically.

59:30So if I took all the monthly payments, multiplied it by three, that's roughly what we have sitting reserves. I'm thinking maybe I should probably keep some aside to just pad that a little bit. But also there are single family homes. We renovated them when we first bought them. So I don't think there's going to be any major capex to come. But as I start to get more towards Dave Ramsey again, I'm thinking of like, and I also recently read The Psychology of Money. And in that book, he just talks about basically not dying from a financial perspective, just not letting anything kill you financially.

1:00:05Just stay in the game is the part where that's how you win. It's just stay in the game and don't get knocked out. Don't get killed financially. And so I think that partially, I always knew that, but it's just rereading that book at this time in my life really spoke to me and it pushed me towards Dave Ramsey a little bit more. And now I'm really starting to think about things these way. I'm like, okay, where am I in my financial plan? Where am I weak? Where could I potentially be attacked or knocked down? And so I'm trying to fill in all those gaps the best I can. 100%. I think you have the right mindset.

1:00:37There's no 100 % right answer, but I think the Nassim Talib idea of being anti-fragile has always been very impactful on me in that you try to mitigate, imagine the worst case scenarios and try to mitigate those to the best of your ability. Nothing's perfect, right? And for real estate investors who are leveraged, having a bunch of cash in the bank is the king mitigation. That's what gives you flexibility. But the other thing I would say, even more than cash in the bank, is also relationships with other people who have money. In the depths of the recession, I had relationships with private lenders who were willing to loan me money to invest with me.

1:01:11that was just as important as the cash in the bank. And then the third kind of pillar of that anti-fragileness is your own ability to generate income. So you're an entrepreneur, like you know you have the ability to go out multiple ways, make money. For those of you who just work a W-2 job and that's your only source of income, that's pretty risky. That's not anti-fragile. So I know you're big into multiple sources of income as I am. The more skills you can have that generate income, that helps me sleep at night. It's just like cash in the bank. That gives me the ability to say, hey, I could go make money as a bookkeeper.

1:01:41I can make money as a real estate agent. I can make money as a podcaster. I can make money as a flipping houses. If I have a list of 10 things that I know I can make money at, realistically, that is a big deal. And so all these are ways of kind of psyching yourself up. I love that book, Psychology of Money, because ultimately you have to survive and to stay in the game by practicing these types of principles in real life. And the quote that you mentioned earlier, I didn't touch on it enough, but that quote you mentioned about Buffett earlier is more or less along the lines of like, why would you give up what you have now for something in the future that you don't even really want?

1:02:21That's kind of where I'm at is like, yeah, I could buy more rentals, but I don't really need anything more and it could only make me more fragile and it could only knock me back from more of where I'm at now. So I'm like, I don't know. Is that the right choice? As you can tell, probably it's been a dilemma on my mind for the last six to 12 months or so. But I'm curious, as we get towards the end of the show, I want to ask you a couple of questions. How are you thinking about the current market? I know you said it really just comes down to fundamentals, but are you buying right now? What are you thinking about?

1:02:54How are you approaching interest rates, et cetera? Yeah. We just bought a single family house a couple of weeks ago. Bought it from Spain while I was over here, so I hadn't seen it, but it was right next door to another rental we had. And I planted the seed with the owner many, many years ago that, hey, if you sell, keep me in mind. And so I've always been planting seeds for buying houses. And this just happens to be one of my favorite locations near the local elementary school. I really liked the house. It was a brick, single family, one story on a crawl space in my location. So I have a very tight buy box.

1:03:23That's my number one recommendation for everybody. It's like, no matter what market you're in, have a really clear idea of what it is for a good deal for you. What's the most ideal location? What's the most ideal type of property? What's the most ideal tenant you would have? And so my single family house is going to attract somebody who likely is going to stay for 5, 10 years. That's great. That's easier to manage. And so that property fit into my buy box. Therefore, I was very interested in it. But I think the key to the puzzle for 2023, and also it was the same in 2008-9, it's the same in any market.

1:03:53It's the financing on your real estate. And so it's a little simpler for us right now because we're paying cash or we're using our internal cash to buy a property. That's what we did on this one. Let's use our combination of our cash plus private money from one of the partners. So that's a little simpler. But if you're buying properties with bank loans early in your career, it's a little more challenging now because interest rates are higher. They're at 6 % or 7 % or 8 % when they used to be at 3%, 4%, 5%. And so how do you make that work? Well, you're going to have to buy better deals first and foremost.

1:04:23It was a little bit of an anomaly that you could pay retail price for a property and get a 3 % loan and still make a cash flow. That was pretty weird. We just need to call it what it was. That's not a normal market. In the 70s, 80s, 90s, even when I started in 2002 and 2003, you had to get good deals. You had to buy properties below value. You had to add value to them by fixing them up. You had to negotiate seller financing at lower interest rates, which is a big favorite thing for me to do. I like to look for landlords and property owners who've owned properties for a long time and try to buy their property and maybe get a little bit of a price discount to try to really work the terms.

1:04:59I try to get a 3 % 30-year interest seller financing loan with 5 % down or 10 % down or something from a seller instead of just going to the bank and just always being dependent on the bank. That was something that I was very fortunate early in my career that I couldn't go get a bank loan because I just graduated from college and I was just buying properties. So I had to work the muscles of seller financing, private money, lease options, buying subject to the mortgage, all these creative terms you've probably heard today because they're coming back into vogue because just going to the bank, paying retail price, getting a 7%, 8 % loan is not as easy to make work.

1:05:35So the key word here is financing. If you want to educate yourself on financing, creative financing, seller financing, those types of things, but still stick to the fundamentals. The properties have not changed. The fact that you still have a buy box, single family house, whatever, multi-unit property, whatever it is that you, those fundamentals are the same. And you just want to be more conservative on the price you pay, conservative on the terms you pay. And you need to think, just like Warren Buffett says, you need to think if the market were to close down for the next 10 years, would this be a good rental property?

1:06:05If I couldn't sell it next year, if I couldn't sell it five years from now, could I make money on this property for the next 10 years? That's what Buffett does with stocks and with companies. And that's what I try to do with real estate. But people who are always looking at the ups and downs of the market get fearful because their price on their real estate changed by 10%. Big deal. I'm not going to sell it. It's still producing cash flow. It's still got good growth potential over the long run. So buy it based on fundamentals and buy it with financing that allows you to hold it through all these storms, which could come.

1:06:37We could have a recession. I don't know. probably the smarter people that I am that are evaluating all that, but I'm going to buy a property that's going to be resilient to withstand whatever happens. And I'm going to have cash reserves to help me be resilient with whatever happens. And I'm going to have a team of people around me to help me operate that property really well. So those are the fundamentals. How diversified are you in terms of location? Very concentrated. That's probably one of my bigger risks. So investing in the stock market is my way of geographically diversifying. And also, we actually just did a deal.

1:07:09I haven't talked about it on a podcast before, but we recently did a deal with a friend who has a property out in another state in Montana. And so we are a limited partner directly. So not a syndication. This person operates and owns the property, found the deal. My business partner and I put up the money for the deal and we're partnering with this other person at another state on a rental property. So we're kind of dabbling in that a little bit. I looked into the syndication is a bunch as well. And I never could get my head around, and I know people are better at this than I am, having 150 partners.

1:07:40And I couldn't evaluate this big stack of 100 pieces of paper that tell me how risky this deal is. And I didn't understand a lot of those risks, to be honest. And so I understand real estate. I understand relationships. I have this one person that I know I like and I trust. They're a good operator. They're a small and mighty investor. And I understand the property they brought me. I can evaluate the market just like I did on my own properties. And so I found that as a better way to geographically scale a little bit is to conservatively invest with other small and mighty investors instead of trying to go out and find other big deals that I could try to be a part of.

1:08:17That's another thing that I've been thinking about is the properties that I own are all in one market. And it's been great. I've had a great experience. I want to keep buying there. All the properties, there's plenty of deal flow. So they're all in my buy box. Like you said, I want to keep buying there. But then also in the back of my mind, I'm like, okay, I have no location diversification here. I have no asset class diversification. They're all single family houses. They're all within one zip code. So they're really, really tight knit, almost all on the same street. I don't know. There's pros and cons to that.

1:08:50I mean, I have operational efficiencies and it's done really well. I've just been thinking also, again, I guess from that perspective of not being fragile is how diversified do I need to be? Something I've been thinking about. Just to wrap up that part of the conversation, I had a mentor of mine, John Schaub, lives out down in Sarasota, Florida. He wrote the book, Building Wealth, One House at a Time. And I asked him the same question. I was like, hey, you have all your properties in Sarasota, Florida. And he's like, yeah, at one point, I invested all over the country and tried to do stuff in other places.

1:09:19But he has felt comfortable being at one location, not because he doesn't have that geographic risk, but because he reduces is his risk in other ways. So paying off a lot of debt is reducing his financial risk, his debt risk. And then he's also, I don't know his personal portfolio, but he probably has some investments in other asset classes. So you're never going to completely eliminate all the risk. But if you can, the choice we made was, yes, we want to diversify geographic risk, but we try to take care of some of the other risks first. And it's always a bet, right? As an entrepreneur, some of the wealthiest people in the world had to make a concentrated bet on something.

1:09:55And so I'm making a concentrated bet on Clemson, South Carolina, and I study it like crazy and I pay attention to it. And I'm a little nervous about universities over the next 50 years, but I'm going to keep an eye on it. If the internet outsources all of the university education, it's going to start getting less valuable, but that's a slow moving glacier. You can pay attention to that. And I feel like it's not the most urgent risk that I'm worried about. Although it is a risk now that I've covered some of the other risks. I'm like, yeah, we need to think about that and start diversifying a little bit.

1:10:25So after people hear this awesome conversation we've had, they go and buy your book and they read it. What's the number one takeaway you want people to have from your book? If they can just go take action on one specific thing from the book, what do you want that to be? Just do this one deal at a time. You can try to complicate the real estate business. You can try to complicate any investing really. But I've said fundamentals a lot. I've said the tortoise a lot. These slow moving, very focused words. And I think that's a competitive advantage in the fast moving world we're in right now where news cycles are like five seconds and things are happening fast on Twitter.

1:11:02If you can write on a piece of paper, here are my principles. Here's my investment principle. Here's my strategy. You can borrow it from my book or somebody else's book, but my book has some investment principles in there. It has how to buy properties. It has how to build a buy box. I have seven safe debt rules that you want to follow if you want to borrow money safely. So look for people who've done what you're trying to do, borrow some of their principles, and focus on a principle-oriented investing approach, whatever it is. And then just stick with it. Just do one step at a time, then the next step, and then the next step.

1:11:36And the biggest challenge you're going to have is the boredom. You're going to think, oh, that's boring. I'd rather have something exciting. And my recommendation there is find other things that are exciting and keep your investments really boring. You're the perfect example, right? You're much more brave than I am to do some of the sports you do and some of the cool stuff you do. But for us traveling and speaking a foreign language and living in a foreign country, that's exciting. That's new. That's different. So separate your excitement and your investments. Keep your investments steady. Keep them small.

1:12:08Keep them boring. And I find that to be part of the recipe for success. And it's worked pretty well for me. I've studied a lot of people. I wrote about them and shared their stories in the book. Lots and lots of people have done a similar approach. They just don't get as much press. It's not as sexy to say on a podcast host, and I'm a podcast host, but it's not as sexy to say, this person owns three properties or five properties and they're living the life of their dreams. It sounds better to say, this person bought 20 properties in one year. But there's a ton of people. There's a ton of small and mighty investors who are quietly living their dreams, who are doing it slowly, methodically.

1:12:44And I just want to validate that for all of you listening, if that's your approach, and say, good for you. and let's keep listening to Robert. Robert's another one who's teaching those principles and hopefully we can together help you make some progress for yourself. Where can people go to pick up the book? Where can they go to find your content, your podcast, website? Where do you want people to find you? Yeah, so I'm sure we'll have a link in the show notes, but BiggerPockets is my publisher. And if you buy it through BiggerPockets, eventually it'll be on Amazon as well later in August. But if you go through BiggerPockets, I have some pretty cool bonuses there that I worked really hard on, like a bonus chapter of how to be a small and mighty investor in 2023 and a changing market.

1:13:21That's something we talked a little bit about today. I also have a pretty cool, it's like an agenda schedule showing how I spend my time. What are those two hours per week I spend on real estate? What things I do and what I do with the rest of my time. I have an exercise you can do to try to build your ideal week for yourself and try to start first with your life and then work it backwards to a business you love. So if you go to BiggerPockets and buy my book there, that's where you can get some of those bonuses. And then just in terms of following up with me, I have a... If you search for Coach Carson or Coach Chad Carson on any social media, I have a podcast that comes out once a week and I focus on real estate investing, the small and mighty type of a real estate investing and the tactical side, the financing, the finding deals, the managing properties, bookkeeping, all those little things that are how you do it, how you actually do it.

1:14:07That's what I love to talk about on my podcast, my YouTube channel, and my website. So I'd love to have you follow me there as well and stay in touch. Awesome. I'll put a link to all those different resources, of course, in the show notes below, like you mentioned. Chad, thanks so much. I know you're enjoying the... You're dwindling down in your days in Spain, but you took time out of that pressure time to spend it with me and chat with me and the audience. I appreciate it. Thanks so much. It was a pleasure. I always enjoyed talking, Robert, and look forward to connecting again soon. All right, guys.

1:14:38That's all I had for this week's episode of Millennial Investing. I'll see you again next week. to TIP. Make sure to subscribe to We Study Billionaires by the Investors Podcast Network. Every Wednesday, we teach you about Bitcoin and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.