Side Hustle Showdown: Buying a Business vs. Investing in Real Estate (Greatest Hits)

0:00:05 Here’s an oldie but a goodie from the archives, from the Side Hustle Show Greatest Hits Collection.
0:00:12 What’s up, what’s up, Nick Loper here. Welcome to the Side Hustle Show because you are the CEO of your own life.
0:00:23 The Side Hustle Showdown series returns today with another friendly debate style episode pitting two popular side hustles against each other so you can decide the best path for you.
0:00:28 On the table today is investing in real estate, one of the oldest side hustles in the book, right?
0:00:45 And buying a small business, something that may or may not be on your radar but I think should be because somebody else, in this case, has already done the heavy zero-to-one lifting to get that business up and running in a more affordable way to buy some cash flow potentially.
0:00:49 So I think both are viable options to insert some, call it time leveraged cash flow.
0:00:55 I don’t necessarily want to say passive income but some time leveraged cash flow into your financial picture.
0:01:04 And to help out with this debate, I’ve invited back two Side Hustle Show alumni, two Side Hustle Show favorites, representing the real estate side.
0:01:13 He’s the owner of over 100 properties and he’s the author of “Retire Early with Real Estate” from coachcarson.com.
0:01:16 It’s Mr. Chad Carson. Chad, welcome back to the show.
0:01:18 Yes, great to be here, Nick. Thanks for having me.
0:01:31 And in the other corner, representing the business buying side of the debate, she’s the owner of several what she calls “boring businesses” including Laundromat and a podcast production service.
0:01:40 She’s the author of “Main Street Millionaire” from Contrarian Thinking and Contrarian Cash Flow is Cody Sanchez. Cody, welcome back.
0:01:42 Thanks for having me. Stuck to do this.
0:02:04 Let’s do this. Maybe we’ll start off with your portfolio at a glance as it exists today and the cash flow or lifestyle that that affords you because it didn’t happen overnight but I think it’s helpful to maybe start with what is possible through 5, 10, 15 in Chad’s case, consistent years of dedicated effort and maybe Chad, you can kick us off.
0:02:21 Yeah, sure. So I have been doing this for about 18 years and I started right after college just flipping houses. So it was a business of a little bit different what I’m doing today. We have rental properties today. I have a business partner when I say “we” and we’ve been working together from the beginning and we’re in the niche of student housing.
0:02:35 Actually, I live in Clemson, South Carolina. So anybody heard of the Clemson football team. That’s kind of the notable brand out there but it’s a big state university in South Carolina. That’s where I went to school and I moved back here and really just started buying single family houses.
0:03:01 So there’s a lot of different niches within real estate but I bought houses, then kind of grew into the small multi-unit space and so I have also mobile homes. I’ve done some land investing and some note investing where we loan money to other people. So a lot of variety within real estate but sort of our bread and butter over half of what we do here in Clemson are these student rentals and even within the student rental niche, we’re kind of the lower price student rentals.
0:03:09 We’re trying to get the affordable grad students who are going to the university, paying their own way, getting a scholarship. That’s sort of the approach we take to real estate investing.
0:03:25 And when I think about some of the places that I lived in college and in the surrounding neighborhoods, it seems like you have a stomach for some potential problems going on in the student housing but it’s steady demand at least I guess is always the flip side of that.
0:03:44 Exactly. Yeah, I mean you watch Animal House and this old school college movies and it would probably drive you away from that business but I think like any business, right? If there’s some kind of barrier to entry, that’s usually a good thing and you can operate more efficiently and we screen our tenants and we’ve had very few problems and I have property managers who do most of the day-to-day work.
0:04:13 So just sort of from a lifestyle standpoint, I’ve done most of the work myself in the past other than the repair work. I’m not handy at all but I’ve done the leasing, I’ve done the management, I’ve done the acquisitions and so it’s more at the stage I’m at right now, it’s more of a I have property managers doing most of the day-to-day stuff, the maintenance calls, those sorts of things and I manage it from a higher level and probably spend 30 minutes to a few hours a week doing that just depending on the time of year and that’s sort of my day-to-day, week-to-week kind of operation.
0:04:31 And despite it being on the surface, a very localized kind of hands-on type of business, you’ve been able to do it remotely. I know you were in Ecuador for a year, year and a half, couple years back and have set this up in such a way where you’re not the guy getting called in the middle of the night to come fix a toilet and stuff like that.
0:05:01 Exactly, yeah, real estate, I always compare it to, it’s like a startup in the beginning and it’s a true investment in the end. So when you first start, I mean, especially when you have direct ownership like what I do, you’re going to be in the person evaluating the market, you’re going to be looking at properties, you’re going to be building a team and so there’s some intensity to that and there’s some time involved but once you have the properties, a stabilized rental property that has good financing, a good cash flow, it could be a very, very passive investment. It’s less of a business, more of an investment at that point.
0:05:23 And so, especially when you hire property managers and you have a good team of people to fix stuff, we lived in Ecuador for 17 months and it was really literally 30 minutes a week, I would do a little bit of bookkeeping, just kind of checking on things, talking, you know, text with people here and there and I was in across the world, another hemisphere and things went probably better than what I was local. So it was a good test exercise for us.
0:05:44 I like that. Somebody referenced what they called the laptop test on the show earlier this year was like, if you close your laptop, how long does the business last before something breaks or causes irreparable harm? And I think that’s an interesting one. Like, yeah, I can manage this thing remotely. Cody, tell me about your boring business portfolio as it exists today.
0:06:13 Sure. Well, I mean, I started with one, so there’s no need to be, you know, intimidated by anything, but I have about 15 businesses we own now. Those vary from, you know, making a couple hundred K to millions of dollars. My first deal was certainly not that. Prior to investing direct in SMBs, small and medium businesses, I just invested in varying types of businesses for a long time. So we had a cannabis business fund that we invested about, I don’t know, $250, $300 million and about 68 companies.
0:06:34 And then prior to that, we bought asset management firms, so a finance type of business in Latin America. So the common thread through all of this is just looking for where’s the arbitrage opportunity where the market still is underpricing an asset. So underpricing something like real estate or underpricing something like cannabis or underpricing something like a small business.
0:06:56 And thus, I have an opportunity to not have to be better than everybody else. I don’t have to be the best at running something. I just have an opportunity to get in at a really good level and then run with that. And so the SMB space, this small and medium business space, is something that I’ve been really interested in for. I started investing in this space probably 10 years ago and did some early deals with partners.
0:07:15 But the part that I find fascinating is these are businesses that do $5 million or less in revenue. They’re the businesses that all of us use every day, the cleaning service that comes to your house, the landscaping service that does your yard, the accounting professional that you utilize, the plumber that you have to call when stuff’s broken, the laundromat or the HVAC company that comes and fixes your air conditioning.
0:07:29 So we have owned or do own pretty much all those types of businesses, totally different sectors and niches. And what I like about them is this model of investing and buying boring businesses has existed forever. It’s called private equity.
0:07:45 The difference is that these big, huge firms like Blackstone, Carlisle, KKR, they went out and used OPM, other people’s money, to buy these businesses with bank loans, leverage, debt, right? And it is just like when you purchase a house, right?
0:08:01 Nobody really, I mean, people buy cash, buy houses with cash, but usually refinances into a mortgage. That’s what you do with small and medium businesses. So you use something called the SBA loan. So, you know, SBA is just a government allowed loan to buy a majority of a small business up to 90%.
0:08:17 So you only have to put 10% down, very similar to a mortgage, except the terms are usually anywhere from five to seven to 10 years. And usually my deals, I can pay off the whole business within three to five years. So at the end of three to five years, I own the business outright and have a cash flowing asset.
0:08:27 Maybe sounds a little intimidating, but I keep trying to push on people. In my opinion, doing a startup is really hard. It doesn’t always work. And so if you could buy profit from day one, I think it’s interesting.
0:08:41 It absolutely is interesting. In fact, it was Ace Chapman on the show years ago when I need cash flow, I go buy it, which was something I never heard of, never considered before, but it was interesting. He was talking specifically about online businesses to go and do that.
0:08:57 But there’s plenty of opportunity, maybe in your hometown in the next townover for these, maybe people just want to get out of the operation and maybe there’s an opportunity. If you don’t have the expertise to be the expert plumber, hire an operator or keep the existing team in place.
0:09:14 I think it’s an interesting way to go, kind of get into some of that management fundamentals and other stuff too. But let’s say I like this call to find undervalued assets. Where’s the arbitrage opportunity? Where is the market not cut up to what these things may actually be worth?
0:09:25 And so you mentioned I want to find businesses that are doing under $5 million in annual revenue. If you have a little bit less of your own capital to put at risk, just keep ticking that number down a little bit.
0:09:33 But Cody, talk to me about I’m in the market for this, that you make this sound pretty compelling. Where do I even start shopping?
0:09:46 There’s two ways to play this. Let’s say you have $25,000, $50,000 that you could put to work. Maybe that’s too much and you have $0 to put to work, but you could raise from some friends and families around you, right? So let’s say 25K to 100K.
0:10:03 What I would do is first, if I’m looking to buy a business, you got to learn how to do it. We can talk about the nine steps and how you go through that process. But let’s keep using the real estate similarity because it’s very similar. I mean, I would say that, and it’s Chad, right? I keep wanting to call you Carson because…
0:10:22 Either way, that’s the last name. Okay. I like the double iterations. Anyway, Chad’s actually bought what I believe are actually businesses in a way too, mobile homes, right? Mobile homes are real estate, real estate heavy business, but cash flowing asset with a different profile, let’s say, than a lot of real estate.
0:10:35 And historically, you could technically not own the land in some of those instances and you could be a property management company in this space. Anyway, so there’s lots of ways to do this. But if I had a small amount of capital, what I would go do today is I’d first learn how to do it.
0:10:47 There’s lots of resources online. We have something called unconventional acquisitions. You can sign up for the free newsletter. There’s also a great book. I actually have it right here. It’s called Buy, Then Builds, Walker Diebel. It costs you $10 to go buy his book. So I would start there.
0:11:04 But then the next step is look around to your biggest costs or any costs you have. One of the first companies, well, one of the early companies we bought is my landscaping guy. The guy wouldn’t take credit cards, didn’t have automated software, couldn’t do subscriptions.
0:11:17 And I kept having to chase him down with a check or cash, right? This is just the guy that was coming to do my lawn. And so finally, I started talking to him and I’m like, what’s the deal? Like, could we get something subscription going on or whatever? And I started talking to him about his business.
0:11:30 And he’s like, yeah, man, I mean, we do about a million dollars a year. We take home about $300,000 of that million dollars, like we meaning he and his son who works for him. And we’re like overwhelmed. We don’t know how to operationalize it, right?
0:11:43 And I said, well, hey, what if I invested in this business? What if I gave you 100K? And I show you how to connect subscriptions, connect automated payments to it. And you give me a cash flowing percentage of your business continuously.
0:11:54 And so if you don’t know how to hire an operator or run a business yourself, I would start with something like that. Find an operator or a business that you can own a percentage of it as a cash flowing asset.
0:12:03 And then you would go to the next step. I like to talk about laundromats because they’re easy quarters in, you know, quarters out and wash and dry clothes.
0:12:19 And so the other type of business you can look at are laundromats, you know, vending machines. These are lower cost businesses, businesses you can buy for $200 to $500 to $600,000. You only put down 10% of that because you use an SBA loan and you find them on sites like Bizbuysel, for instance.
0:12:26 Just taking some notes here, we’ve got a full episode actually on the laundromat buying operation with Jordan Berry from earlier in the year.
0:12:27 Love that.
0:12:45 Is there a criteria that you’re looking for in terms of free cash flow, in terms of like you mentioned with the landscaping business, like there are some obvious inefficiencies here where if we could just make these small tweaks to the operations, like the business would be worth a lot more, or does that not even matter?
0:13:01 When I go to invest in a business, I personally like to see additional upside. So like I was joking with some other investors in the space, like every time I see a fax machine or that they have like paper ledgers, I’m like, yes, this is great.
0:13:13 We are going to be able to change this so easily. So those things that are painful for customers can actually be places where you remove friction and thus increase money in and potentially your average order size.
0:13:28 So I like that. But if you were just starting, I wouldn’t do a turnaround. Like you don’t want to take Louise’s Lonscaping business. It’s a mess and like terrible and try to fix it and invest it and turn it around typically because that takes a little bit more sophistication.
0:13:32 But you could take a business like his and apply one little small differential.
0:13:43 So the first thing I usually talk to people about is first you want clarity of vision for yourself. So like your friend said, when I need cash flow, I go buy it. I would say, okay, I want to make $100,000 on a small business.
0:13:52 That’s my clarity. I want 100K and I want to do it in San Diego, right? I need a business in San Diego that does 100K free cash flow.
0:14:02 And then I would go out and I would start looking on sites like Bizbuysel and say, okay, can I screen for businesses that make at least $100,000 in cash flow that are located in my geographic area?
0:14:09 Let’s see what kind of businesses there are that are out there. And what you’ll quickly find is they’ll be like, I don’t know, a doctor’s practice.
0:14:16 Well, maybe that won’t work because you’re not a doctor. So you can’t run that business or you could hire somebody else to do it. Or maybe that doesn’t interest you.
0:14:27 But maybe there’s a business that you’re a graphic designer and there’s a graphic design agency that’s located in the town that you live in for sale and you want to go buy that.
0:14:32 Or maybe you’re a real estate investor like Chad and he has a bunch of property, but right now real estate is way too expensive.
0:14:39 And so what he would prefer is to go buy a property management agency or a landscaping business that could service his sites.
0:14:44 Or maybe you would buy a brokerage business that could service his sites. And that’s how I would start thinking about it.
0:14:57 How much money do you want to make? Where is it located? Where could you either understand a business easily or have it tied already in what we call ancillary services to skills or businesses that you already have?
0:14:58 Does that make sense?
0:15:13 Yeah, that’s helpful too. Not just go shopping through the catalog and say, “Well, what is out there?” Like, you know, look where you may be able to lend some specific expertise or have some area of interest in versus just help the numbers look good on this one.
0:15:24 Chad, is it a similar process for you kind of starting with the end in mind? Like Cody mentioned, well, I want to make this X amount of cash flow every month from this property. Or is it just like, well, here’s the inventory that’s available?
0:15:34 Yeah, I’m actually hearing a lot of similarities. It’s interesting. Some of Cody’s process and some of what she looks at. One of the benefits that I heard Cody mention is that going with something you understand.
0:15:43 Like, I always quote Warren Buffett who said, you know, he only buys simple and understandable businesses for himself. And that meant for a long time he didn’t buy high-tech businesses.
0:15:52 He eventually bought Apple or somebody worked for him bought Apple. But, you know, he would buy these boring big companies. You know, he bought Geico and did insurance forever and he did all sorts of other things.
0:16:03 And so I think real estate is a very similar approach. And I think one of the biggest advantages of real estate because it is a form of business is that it is one of the most simple and most understandable businesses.
0:16:13 We all live in places. We live in an apartment. Even if you own property, you’ve lived in an apartment. You’ve lived in a house and it’s so intuitive what makes a good real estate business or not.
0:16:18 And a lot of it is revolving around location. So you don’t have to live next to the real estate that you buy.
0:16:30 But it sure makes a lot of sense if you can buy in your backyard because there’s so many little opportunities street by street neighborhood by neighborhood where you can find these arbitrages where one neighborhood maybe is on fire and it’s really amazing.
0:16:38 And people are bidding up properties. But there’s another neighborhood a half a mile away or a mile away as some of the similar properties to that neighborhood.
0:16:51 Maybe it’s on a similar bus line. Maybe it’s got a little park that doesn’t have quite as much love as this other location does. And so you can find these locations first and foremost where there’s opportunity that you understand.
0:16:59 And then, of course, you still also go searching for cash flow. And there’s a big variety of how much cash flow certain properties will give you.
0:17:05 And I always look at it. There’s kind of an inverse relationship between risk and the amount of reward you can get right now.
0:17:09 So some of the properties that do have more risk, there’s more things that can go wrong.
0:17:22 You can either turn around projects kind of like the businesses Cody was talking about if you find a fixer upper house or fixer apartment building where 50% of the units are vacant where there’s drugs going on where lots of lots of things are need to be fixed in that building.
0:17:27 They’re using fax machines to get people applications, you know, that’s a really big opportunity.
0:17:36 That’s what actually what we have typically bought those kinds of properties where they’re under rented, they’re under managed, there’s vacancies, and then we’ll buy those and turn them around.
0:17:53 And in that case, you’re making some cash flow today. And maybe like we use something called a cap rate a lot in real estate, which is just when you look at a price that you’re paying and you assumed you had no debt on the property, even if you’re going to use debt, it’s the unleveraged rental yield that you would produce by buying that property.
0:18:01 And a typical unleveraged yield like on a multi unit in my town right now might be 6 to 7%. And that’s lower than what it used to be.
0:18:10 But if you buy a property that needs work, it’s a turnaround project, we often see some that we can get on our unleveraged yield might be like 9, 10, 11%.
0:18:15 Those are kind of typical numbers that I’m looking for from a cash flow standpoint.
0:18:25 But then there’s also appreciation. There’s also using leverage where you can amortize your loan. So there’s a lot of other profit centers beyond that core kind of cash flow analysis.
0:18:35 But cash flows, the kind of starting point from the financial standpoint and then location and desirability for your tenants or your buyers, that’s really what drives everything.
0:18:41 And that’s why I think it’s such an intuitive business, because we don’t have to go to school to figure out what’s a good real estate location.
0:18:46 We just need to walk out our back door and start walking around the neighborhood and figure out where people want to live.
0:18:53 Yeah, it’s funny that it’s called cap rate, because it’s like different industries just have to come up with different names for the same things.
0:19:01 Like, oh, on a boat, we’re going to call the left side port for some reason, just for no other reason than just we want to make up new words.
0:19:13 Okay, so 6 to 7% unleveraged yield, essentially cash flow yield on an annual basis, a little bit higher if the project is going to require a little more love and fixing up before it’s suitable for rent.
0:19:20 Is the return on investment math similar for small businesses? We’ll find out from Cody right after this.
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0:21:39 Is the math similar, Cody, for small businesses, or do you see kind of like penciled out, you know, the equivalent cap rates a little bit higher or lower?
0:21:48 Yeah, we look at it different. Well, first of all, I would say on an apples-to-apples comparison, let’s use like cash-on-cash return, right, which is very standard in real estate.
0:21:56 So if I put a dollar down, what is my return on that dollar? And you can use that same thing in business, buying businesses, or buying real estate.
0:22:04 If I was to ask you what would be an average cash-on-cash return you would get right now, Chad, in real estate and maybe give me like a few asset classes or something.
0:22:08 What would that be? And maybe not just you, but like the market because maybe you’re better than the market.
0:22:16 Yeah, I mean, students, people that I work with who are buying right now, if they weren’t getting 8% to 10%, that would be probably a good thing to shoot for.
0:22:26 But I would say as you get into mobile homes, for example, or some of these more, you know, you kind of niche down to student rentals, you know, some of the non-vanilla kind of areas of real estate,
0:22:32 you’re going to get demand higher returns for those because not quite as big a demand for the resale part of that market.
0:22:35 So I think that’s, it kind of goes up and down depending on that.
0:22:44 Right. And so it might be, let’s call it like 8 to 15, maybe 20 if you find some crazy property, right? Like that would be pretty amazing right now.
0:22:55 The interesting part about buying a small business is, let me caveat what this is saying, there’s more risk in some ways because, you know, you have a hard asset with real estate, right?
0:23:02 And that hard asset is pretty easy to sell typically one way or the other. And there’s a general marketplace for them.
0:23:06 There’s usually not a lot of differentiation in the type of person that can buy them.
0:23:12 Like there’s a lot of people that can buy single-family homes. There’s a lot of people that can buy multi-family homes, right?
0:23:23 So there’s the flip side. But the positive side is, most of my deals have high double-digit to high or middling triple-digit cash on cash returns.
0:23:32 So, you know, I’m not doing a deal unless I’m making usually like about 100% from a cash on cash return perspective.
0:23:42 A lot of my deals have 600% cash on cash returns. And the reason why is because I can have a small amount down, let’s say 10% using the government loans that they give you.
0:23:50 Or I can use seller financing and also have something like usually they’ll want to be a little bit more 20%, 30% down depending on what the business is.
0:23:55 And the way that you value these properties or these businesses is two to three times their profit.
0:24:03 So if I have a business that makes $100,000, that business has worked two to three times the $100,000 on average, right?
0:24:11 So I can break even entirely on my business purchase inside of two or three years if nothing goes wrong.
0:24:22 If nothing goes wrong is a big asterisk for sure. But that means that in buying businesses, I don’t have a 30-year period that, you know, may take me to actually pay off my entire business.
0:24:28 I have a two to three-year period if I don’t add additional operations and CAPEX or expenditures on top of it.
0:24:35 So that’s the sexy part about buying businesses. And that is why real estate makes more millionaires than any other asset class out there.
0:24:40 But private equity makes more billionaires than any other asset class out there.
0:24:51 Because there’s an asymmetric risk return or a much higher risk return ratio in buying businesses and doing private equity than there is in straight real estate.
0:25:01 And then there’s some like molding of the two, which is like the other thing that you can do is the cool part about Chad’s business, I’m sure he’ll talk about this, is like there’s great tax incentives.
0:25:05 There’s good tax incentives for businesses too, but there’s incredible tax incentives for real estate.
0:25:13 We’ll see if they’ll stick around with this administration, but there’s really great tax incentives so you can have all of this depreciation and you can have a ton of write-offs.
0:25:19 And so a lot of times I will own a strip mall and then the laundromat and underlying businesses in it.
0:25:26 Because owning the strip mall itself isn’t profitable enough from a cash flow perspective. I don’t make enough money. 8% is not enough for me.
0:25:40 So if I want the real estate so I can have long-term appreciation of the asset, then I can have the business on top of it that gives me that immediate cash flow, which is 100% or maybe 200% higher than real estate.
0:25:47 If I may, I was going to add on to this. I think it’s really good conversation. I think real estate and businesses have always been complementary.
0:26:01 If you think about every commercial piece of real estate has a business inside of it, right? And so like you were just mentioning, Cody, the owning the strip mall businesses and the real estate under it, this is the McDonald’s business model, right?
0:26:09 McDonald’s makes burgers, they flip burgers, and they made a lot of money on that business. And there was this real estate business behind it as well.
0:26:20 And I think about my own business evolution as a real estate investor. Like I started businesses inside of real estate first. And I had a very low startup cost businesses where I flipped houses.
0:26:28 So like I, you know, for 100 bucks, I can go to get a contract on a property, flip it to somebody else for five or 10 grand. That was my first kind of startup business.
0:26:34 I evolved into a property management business where I managed my own properties. I chose not to manage them for everybody else.
0:26:42 I kind of made a deliberate choice to kind of keep it a little bit simpler. But I could, I have the systems, I have the processes, I had the people, I could have, you know, turned that into a bigger business.
0:26:56 Or if I taught the Cody, I could have bought another property management business, you know, the cool thing about real estate, I think if you think about like there’s a whole spectrum in the investment world of like from the least risky assets, the most boring of like a US Treasury bond, right?
0:27:03 You’re going to get like one or 2%. And there’s virtually no risk that you’re going to lose your money on that. You’re going to get inflation is going to inflate it away, right?
0:27:12 But it’s that’s kind of one end of the spectrum. And then businesses, startups, local startup businesses have huge returns. And they’re on the other end of the spectrum.
0:27:18 And if you know what you’re doing, you can eliminate a lot of the risks that people talk about. And that’s why you get educated. That’s why you learn about them.
0:27:26 And then real estate is kind of in between. It’s this and in between, or it’s not the Treasury bond, but it’s definitely more on that side of things and the better real estate you get.
0:27:35 If you buy a skyscraper in Manhattan, you know, you’re going to get like a 2% or 3% cap rate, like that’s very low. It’s like almost like a Treasury bond and some in the investors world.
0:27:44 And so with real estate, what I like to do is like, I try to get both, you know, so if you wanted to leave your job, for example, then you would want to start a business and own real estate.
0:27:53 If you’re a doctor making a half a million dollars a year, you have no time really, you’re either going to buy a piece of real estate to build wealth because you really need some tax benefits.
0:27:59 Like you don’t want a ton of cash flow right now. You want the long term return. And that’s something I didn’t mention earlier.
0:28:07 We do look at cash flow today, but there’s, I often, my number one metric when I’m buying our property is an internal rate of return or at discounted cash flow analysis.
0:28:16 I’m going to look at like all of the cash flow for the history of my investment and kind of bring it back to today and say, you know, what is that return today?
0:28:24 And typical, like an unleveraged internal rate of return for me might be like a 15 to 20% kind of total return.
0:28:28 And if you have some leverage on there, then you can add, you can double that, you can get even higher.
0:28:35 So the more leverage you use in real estate, that’s one of the bigger benefits is that there’s a lot of leverage, there’s a variety of leverage.
0:28:44 I’ve used seller financing, lease options, options, all sorts of creative ways to control these really big properties that have all those benefits we talked about.
0:28:50 But then you can leverage them safely and at low interest rates or no interest rates or using options.
0:28:55 There’s a lot of kind of variety you can add to that kind of core base asset of real estate.
0:29:02 Yeah, let’s talk about the leverage option for a little bit and I guess the financing options in the broader sense for both of these asset classes.
0:29:15 Because in both cases, you know, banks and some types of federal government will lend you money to invest in this asset class, which I guess is a positive sign that they see this as an activity worth incentivizing in a way.
0:29:21 I mean, there’s not SBA loans, but there’s all sorts of first time home buyer stuff.
0:29:24 Does the math get a little bit different on the investor side for financing options?
0:29:34 There’s a whole spectrum, but I would say like just an example of a perfect startup for people on real estate investing is doing a house hack, for example, where you move into a fourplex or a duplex.
0:29:40 And you have to have a place to live, but you get an owner occupant loan that’s subsidized by the government or insured by the government.
0:29:46 Therefore, you can get like a three and a half percent down payment or a five percent down payment and a three and a half percent 30 year loan.
0:29:52 I mean, that’s cheap money, long term fixed interest and a three and a half or five percent down payment.
0:29:58 So you could buy a two or 300,000 hour property with a really, really small amount of capital getting in.
0:30:00 And so that’s one end of the spectrum.
0:30:05 The other end of the spectrum is commercial financing, hard money loans.
0:30:10 So these are usually a little bit higher interest and/or kind of the terms aren’t quite as attractive.
0:30:14 You might have a five year loan or a three year loan or adjustable interest rates.
0:30:15 There’s a lot more risk in those.
0:30:23 And if you sign a loan document, there’s like a 50 or 100 page loan package written by a high powered attorney who is going to screw you over somehow.
0:30:25 Like that’s the way I look at bank loans.
0:30:31 So I try to play either in that kind of conventional world, which is for people who are just starting.
0:30:44 For me, I do a lot of seller financing, private financing, try to find individuals who might be happy with a four percent return or a six percent return and then borrow that money from them and then have a property that produces a 10 or 12 percent return.
0:30:50 And then my arbitrage is between those that cost the money and then the amount of return I can get on the property.
0:30:51 Okay.
0:30:57 And then long term, you’re building equity and you’re taking advantage of tax write offs and all this other stuff.
0:31:03 We do have full episodes on house hacking and creative financing for real estate in the archives.
0:31:05 I can link those up in the show notes.
0:31:07 Actually, we did a creative financing one.
0:31:11 We did an episode called Free Houses with Austin Miller, I think he was in Missouri.
0:31:14 And this was fascinating all the different ways.
0:31:16 He built this portfolio.
0:31:22 I think he had 15, 16, 17 properties, nothing out of pocket of his own money at the onset for there.
0:31:24 So tons of different ways to go about that.
0:31:30 And Cody, it sounds like similar options here where maybe you get the seller to finance this thing over a period of years.
0:31:32 There’s this SBA option.
0:31:34 And I don’t know, what else have you seen work?
0:31:35 Yeah.
0:31:36 So I was just looking on here.
0:31:42 So if we go to, so the place where you look to buy small businesses, typically our sites like biz buy sell or loop net.
0:31:54 So if I’m on here right now, like I’m looking at the stats right now, about 66% of small businesses are sold with seller financing that now you technically could get seller financing in real estate.
0:31:57 But my understanding is that’s very, it’s hard to do these days.
0:32:04 Like with all the demand out there for it, not as easy, very normal and small business, very typical.
0:32:14 The interesting part I think about it is the way that you get loans for small businesses is much less about your credit than it is about the business.
0:32:24 So whereas you might not be, say you’ve had a couple of bankruptcies even, and you know, you don’t make a lot of money and you should not be able to buy a million dollar house.
0:32:31 You can, and I’m not saying you should, you know, you have to be competent, but you can buy a million dollar business most often.
0:32:34 And the reason why is because they’re underwriting the business.
0:32:37 They’re not underwriting your personal credit.
0:32:47 So it’s actually a really good way for people who don’t have huge salaries and incomes and who have had, you know, maybe they’ve just taken some risks in businesses before and it has a panned out or whatever the case may be.
0:32:50 You can actually go to the SBA, talk about them upfront.
0:32:54 They’ll tell you that they want to underwrite the business more than they want to underwrite you.
0:32:56 Seller financing is the same.
0:33:03 Now, the caveats to that are when you buy a business with financing, with debt, you do have to have a personal guarantee.
0:33:10 So you don’t get to go buy a million dollar business and then walk away from it with nothing if you take out $900,000 in debt.
0:33:13 So, you know, when people are always like, oh my gosh, there’s a personal guarantee.
0:33:15 It’s like, yes, you’re getting $900,000.
0:33:17 Like, yes, there is a personal guarantee.
0:33:18 That is how that works.
0:33:25 But what’s interesting is like, for instance, like I’m looking at a couple of companies in Arizona and there’s one here that’s like, one’s a laundromat.
0:33:28 The laundromat is for sale for $175,000.
0:33:31 It includes the real estate and a cash flow of $30,000.
0:33:37 In order for you to buy a piece of real estate for $175,000, it does $30,000 in cash flow.
0:33:42 So profit in your hand, not total revenue is really, really hard right now.
0:33:45 It’s not hard to do in buying a small business.
0:33:48 Now, the difference is you got to have somebody go pick up the quarters.
0:33:52 You have to, you know, have like some vendors underneath you that take care of the business and the cleaning.
0:33:58 And that you probably don’t have to do if you buy a property and immediately rent it out to somebody.
0:34:03 The one area of real estate that I’ve like actually had some fun with lately is buying properties for Airbnb.
0:34:09 I’m slightly worried about government changes in, you know, how they allow Airbnb’s in varying areas.
0:34:16 But it’s the only section of real estate that I have seen where the cash flow can match the cash flow that I can get in buying a small business.
0:34:22 Because if you buy at the upper end of the tier in the Airbnb space, you can actually charge quite a premium.
0:34:28 And in lots of the markets we’re in, like we have them in Utah and California and Austin, et cetera.
0:34:29 But that’s how you buy it.
0:34:30 And there’s lots of different options.
0:34:34 Like you could go and, I don’t know, I’m looking at some other of these right now.
0:34:39 And there’s an agency in here that’s basically, well, there’s a lot, there’s a lot of practice for sale.
0:34:42 And this also happens in businesses when people are sick, they need to retire.
0:34:48 Because with a property, you as the owner of the property don’t have to do as much theoretically.
0:34:53 In owning a small business, most small business owners aren’t great operators.
0:34:56 They don’t know how to place other operators in.
0:34:58 They’re not incredibly business savvy all the time.
0:35:00 And so there’s a law practice for sale in Arizona.
0:35:02 So if you’re an attorney, maybe this is interesting.
0:35:06 The law’s practice is for sale for $3.2 million.
0:35:10 And the law practice nets $5 million.
0:35:15 So you net $5 million in a year and it is for sale for $3.2 million.
0:35:17 And you’re like, why would anybody sell that business?
0:35:20 That sounds like that’s a dumb decision.
0:35:30 But often what happens is the main attorney has cancer or is getting divorced and has to divest their assets or died.
0:35:37 And his wife’s selling the business or there’s a partnership dispute and they have to sell off this one particular type of asset.
0:35:42 And so for those reasons, businesses come on sale under the market all the time.
0:35:46 Now, I wouldn’t want to go buy a law practice because I’m not an attorney.
0:35:47 I don’t know how to run that.
0:35:51 I would need an operator to partner with me on it in order to do that business.
0:35:54 But there are businesses like that for sale all the time.
0:35:58 And then if you want to do starter ones too, like if you’re a teenager or like you have really little money,
0:36:05 like there are these pool cleaning routes that I wouldn’t want to run because it’s hard to make a lot of money off of them and scale.
0:36:10 But there’s a lot of those that are for sale for less than the profit they make inside of one year.
0:36:16 So if you want to buy a job, like if you hate your boss and you want to replace the $75,000 that you make today,
0:36:19 you could go buy a pool cleaning route.
0:36:29 You could take $75,000 from that pool cleaning route and you could hire somebody to do part of the pool cleaning for like $30,000, $35,000, $40,000 a year.
0:36:37 You keep the other $35,000 for yourself. You buy another pool route. All of a sudden you have $150,000 in total revenue.
0:36:41 And maybe you hire another person or that same person can service the whole thing.
0:36:47 And then all of a sudden you can get up to $75,000 to you as the owner without being the underlying operator.
0:36:49 So that’s what we call roll-ups.
0:36:52 Okay. And that’s always part of the due diligence process, I imagine.
0:37:04 Well, it’s like, well, this business is doing $100,000 in profit per year, but then you find out that the owner/operator of the business works 60 hours a week on site
0:37:15 and doesn’t have anybody who’s like, “Well, that changes the equation a little bit because now I need to hire somebody to basically replace him or her and do all that stuff.”
0:37:21 Totally. Yeah. I mean, due diligence is really important. Just like when you’re buying real estate, you have a due diligence checklist, right?
0:37:26 You’re like, “All right, I have somebody come out and actually inspect the property, right? I have a property inspector.”
0:37:34 If you were buying something like a laundromat, you would have one of the equipment providers come out and look at all the SKUs and do an analysis of what the equipment’s worth.
0:37:37 So they do that for you for free because they want to sell you more equipment.
0:37:41 And so you have this same sort of idea of due diligence.
0:37:47 You just have, in my opinion, a little bit more because you’re dealing with people and humans. And humans were messy.
0:37:51 And so you need to make sure the financials are clean. And usually they’re not.
0:37:55 And because the financials aren’t clean, you need to get your hands in the business a little bit more.
0:38:02 With real estate, it’s like, do the tenants pay? Have they paid historically? Is the property actually viable?
0:38:07 And then, I don’t know, Chad, whatever else you think there is. But those seem to be the three main ones for me.
0:38:15 And then, of course, market, location, competitive analysis. But for the business, it’s competitive analysis, location.
0:38:19 What are the underlying employees do? What about the financials of the business?
0:38:22 What are these things actually? Like, what are the pain points that we could have?
0:38:24 What are the liabilities of this type of underlying business?
0:38:30 So there’s a checklist about, like, there’s seven sections that we have for almost every business that we look at.
0:38:38 And you can process it out once you — it’s like, you know, it’s that Mark Twain quote that, “History doesn’t always repeat, but it rhymes.
0:38:40 Due diligence doesn’t always repeat, but it rhymes.”
0:38:43 Okay. This is @conturiancashlow.com?
0:38:47 Yeah. Conturianthinking.co is our newsletter. That’s free. You can get on it. We talk about all of that.
0:38:54 And then, if you want to talk only about buying boring businesses, unconventionalacquisitions.com, there’s a newsletter and a course and all of that.
0:38:58 But the course has a cost, so take that for what it’s worth. Conturianthinking is free.
0:39:04 More with Chad and Cody in just a moment, including what they might do differently if they had the chance to start over.
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0:40:19 Okay, fair enough. What do you guys want to go from here?
0:40:23 So we talked a little bit about the financing stuff, the tax stuff, the due diligence stuff,
0:40:26 the potential time required to manage after the fact.
0:40:36 Maybe some surprises, mistakes, headaches that come up that people maybe can learn from you guys and hopefully avoid on their own,
0:40:41 although mistakes and failures are probably the best teacher to chat anything that you wish.
0:40:43 If you can turn back the clock, anything you do differently.
0:40:47 Yeah, I actually do have a couple. I was going to add on to the prior conversation a little bit.
0:40:52 Just one thing that I love owning businesses, by the way. I think this is not an either/or conversation.
0:40:56 But I do think a big part of when I wrote the book, “Retire Early with Real Estate,”
0:41:00 was about being in a place in your life where you are really passive,
0:41:04 where you actually can do other things other than the thing that’s producing your income.
0:41:10 And for me, at least, the businesses that I’ve owned, and this part of this is how you operate the business and which one it is,
0:41:16 versus the real estate I own, particularly certain kinds of real estate, single-family houses, really easy to rent, multi-units,
0:41:21 are very, very lean businesses where the tenant almost runs the business themselves.
0:41:25 You have a property manager, but if you have a tenant who stays in a house for five or ten years,
0:41:30 they cut their own lawn, he and the air might break, you know, and you have a property manager fix that.
0:41:34 So, I just want to add, like, that element of what do you want your life to look like?
0:41:36 Like, I think I mentioned that spectrum earlier.
0:41:39 Like, buying a business makes a lot of sense. Having cash flow makes a lot of sense.
0:41:43 But there’s also that spectrum of, like, how much involvement do you want?
0:41:47 How much risk do you want to have that you have to get back involved if somebody leaves,
0:41:51 you know, in a business and that person gets out, I’m just thinking about the lawn care guy, for example.
0:41:54 You know, it’s very dependent on that lawn care person.
0:41:58 And if that partnerships human beings, we all have complications, right?
0:42:04 We have emotions. I like that it’s the super, super boringness of some of these residential properties I have.
0:42:06 You know, it got a little exciting during COVID.
0:42:09 Like, I’m in a college town, you know, is the university going to shut down?
0:42:12 Like, are people going to go back to school? Like, that was interesting.
0:42:17 But I also had houses where people have social security income and they pay me four or five hundred bucks a month.
0:42:23 Like, that was not going away. Like, there’s section eight rentals so you can diversify within the real estate world.
0:42:28 And there’s some really, really stable, no hassle, not a lot of change over a long period of time.
0:42:32 So, like, that cash flow is consistent and it tends to go up.
0:42:41 It’s not quite as dramatic early on, but it’s just kind of like that little engine, you know, just keeps getting bigger, keeps getting bigger, keeps getting bigger, doesn’t go anywhere, doesn’t involve as much of your time.
0:42:48 And so I think I just wanted to add that element into, and that’s some of the mistakes I’ve made have been related to that, buying properties that were not like that.
0:42:51 Like, that needed a lot of my time, needed a lot of my extra money.
0:43:00 For example, I think some of the biggest mistakes I’ve made have been underestimating the location and overestimating the cash flow on a property.
0:43:08 I would be enamored by the numbers and say, “Wow, that’s going to like a huge cash on cash return. Those numbers are amazing. I’m getting in really low.
0:43:12 The seller is going to finance 95% of it. What an amazing deal.”
0:43:17 And then there’s a drug dealer next door who I can’t control, who’s, you know, scaring off of my tenants.
0:43:20 And I’ve got zero cash flow now because I can’t rent this property.
0:43:32 I guess there’s some qualitative things that I, early on in my business, I got so enamored with the spreadsheet and the numbers that I forgot that the value of your business is the desirability of that place to live.
0:43:39 And so you really, your due diligence checklist, a lot of your core business fundamentals have to be like your customer, your tenant.
0:43:41 Do they like to live there? Is it going to get better for them?
0:43:45 And if it’s got problems that you can’t control, pass.
0:43:52 Like, go to the next property and maybe it’s not quite as good on the numbers, but it’ll probably be a better deal for you in the end.
0:43:54 Yeah, better long term for your insanity.
0:44:00 Cody, what about you? Any mistakes or surprises from some of these boring businesses that you’re involved with?
0:44:05 Oh, yeah. I think the first couple of things are one, two sides of a coin.
0:44:11 Don’t buy off a bigger first deal than you could chew and simultaneously be careful about buying a job, not a business.
0:44:14 And so there’s a little middle ground that you want.
0:44:25 You want something where you have enough cushion where you can afford an operator and maybe some redundancies like other people inside of the business who could take over if your operator doesn’t, doesn’t work out.
0:44:29 Or have your operator be somebody who can’t just bail on you.
0:44:34 Your husband, your dad, you know, I think a lot of times people do their first business.
0:44:40 They hold pretty close to the vest, which you don’t want to have happen either in real estate or buying businesses is have your first deal be a terrible one.
0:44:48 Because you won’t do it again and you’ll think that the strategy doesn’t work and you’ll be missing out on a huge opportunity, in my opinion.
0:44:53 So you actually want to play your first deal a little bit conservative because then you get confidence.
0:44:59 You start to see those echoes and rhymes we talked about. And then you can scale up and do more and bigger deals.
0:45:03 But don’t have your first one be able to ruin you. That’s what you don’t want to do.
0:45:07 Or have your first deal be buying a house in a neighborhood that’s super sketchy.
0:45:10 And you’re like, no, but it’s going to appreciate whatever. No, you’re going to have all these issues beforehand.
0:45:13 Go boring in your business and your real estate to start with.
0:45:18 And listen, there’s plenty of people that did the flip side that are like, I love risk. I don’t care. I’m going to go big.
0:45:22 And that’s great. I just don’t think that’s the norm. So I would be careful about that.
0:45:27 The mistakes I’ve made are plentiful. Thankfully, in small and medium businesses we’ve bought.
0:45:32 We’ve never had a business go knock on wood. We’ve never had a business go under.
0:45:36 We’ve never had a business lose money. But here’s what we have had.
0:45:41 I’ve had two businesses that were just too small. They’re annoying. They just bothered me all the time.
0:45:45 The cash flow wasn’t worth my time suck, even just in overseeing the operator.
0:45:48 And so we divested out of those businesses.
0:45:54 And actually, it’s pretty easy to divest out of the businesses. Also, when you can get all your money back so quickly like you do in small businesses,
0:45:59 you’re like, I understand why people sell at a discount because I had one business.
0:46:03 It was making money. It was profitable every month, but the operator just would bother me all the time.
0:46:08 Could it make decisions by himself? And I was too young and naive to set boundaries and just say, send me the check.
0:46:13 And that’s it. And so you have to know some of that stuff early on.
0:46:21 And that business, we ended up selling for less than we bought it for, but we ended up making money because we cash flowed for a few years on it.
0:46:29 So there’s that. And then honestly, I think the biggest mistake that I’ve made in this space is not executing.
0:46:36 It’s hard to buy businesses. It’s not difficult. It’s not brain surgery, but you have to do a lot of diligence.
0:46:40 You’ve got to find the business. You’ve got to follow up with the owner of the business.
0:46:45 And they’re not that sophisticated. They don’t have the right documents. You’ve got to chase them down so it can be annoying.
0:46:54 Upfront can be super annoying. It is not like you go on MLS and you can click and you’re like, awesome, reload or connect, everything goes by.
0:46:59 But anytime there’s that friction, that’s where the arbitrage is. That’s where all the money is made.
0:47:02 So I think my biggest mistake was actually, I should have done this earlier.
0:47:08 I made a bunch of other dudes a ton of money, billions of dollars doing this in private equity, and I wish I would have started before.
0:47:15 And I think if you talk to almost any real estate investor, they’ll say the same thing, take conservative bets, but like start now.
0:47:26 Because even in like a market at all time highs, if you play it conservative within what you are able to control and with what you are able to finance in the event that stuff goes wrong for a while,
0:47:34 over the long term with buying businesses and buying real estate, it’s hard when you can diversify to regret those decisions.
0:47:38 It’s very similar to building an audience. It’s like you should build an audience today.
0:47:43 You should think about investing in cash flowing businesses today and you should think about investing in real estate probably today.
0:47:45 Just make sure that you do it all in the right way.
0:47:50 One quote that I’ve been pondering for the last year or two is, this came from Ramit Sethi’s book.
0:47:54 He said, “If you’ve already won the game, why take additional risk?”
0:47:58 And the rephrase on that is like, what motivates you to keep going?
0:48:01 It sounds like, you know, things are going very well for both of you.
0:48:05 And it’s like, do I really need another property? Do I really need another business?
0:48:07 Like, why do I keep growing for the sake of growth?
0:48:09 Or are you kind of like coasting at this point?
0:48:12 I totally disagree with Ramit and I like him a lot.
0:48:19 I hear he’s a great guy, but I disagree with him on a lot of stuff because I think it’s not just about money.
0:48:22 Like, I know that that’s his frame. His frame is money, right?
0:48:24 That’s what he thinks about all day and making money.
0:48:28 But I think about financial freedom as a mechanism to bigger things.
0:48:31 I want financial freedom because then I want personal freedom.
0:48:34 Like, I get to choose. If I want to hang out with you guys for three hours,
0:48:37 I’ll just cancel everything and I’ll just do it because I can with my schedule now.
0:48:41 If I don’t want to talk to anybody for three months and I want to go live in Ecuador,
0:48:43 like, all this go do it. It doesn’t matter.
0:48:46 And then beyond personal freedom, I want philosophical freedom.
0:48:52 The ability for me to say, think exactly what I want without concern of what other people are going to say
0:48:56 and it being able to impact my financial freedom and ability to feed my family.
0:49:00 And then beyond philosophical freedom, I want to enable more people’s freedom.
0:49:05 So, like, I love talking to people about buying businesses because I think that we kind of have
0:49:07 a purpose and a reason to be here on earth.
0:49:12 And I think mine might be creating more owners and getting more people to think that they are capable
0:49:15 and they don’t need somebody else. They’re not victims.
0:49:17 Like, nobody has to give you the right to do this.
0:49:22 Like, just about anybody can do the things that I’ve done in my career because I’m not a rocket scientist.
0:49:25 So, I think for me, it’s like, yeah, I have plenty of money.
0:49:28 Like, I could retire comfortably, but probably not crazily, you know?
0:49:33 And so, for me, it’s like, no, it’s because I want more people to have freedom.
0:49:37 And I think there’s a purpose to money and it’s not just flashy cars and big houses.
0:49:40 So, that’s my take and I get a little fired up.
0:49:41 No, I appreciate that.
0:49:45 It’s interesting and probably telling that both of you have gone down the path
0:49:48 and this is not uncommon amongst guests on the show.
0:49:51 It’s like, I did the thing. I saw some success in doing the thing.
0:49:55 Now, I kind of want to teach other people the thing because this was really cool
0:49:58 and this was impactful in my life. But Chad, your take on that one.
0:50:01 I have some agreement and disagreement with Ramid on that one.
0:50:04 And I think the agreement for me, I’ve really struggled with this,
0:50:06 was I went through different periods in my business.
0:50:10 Like, 2007, we had a huge growth phase in our business.
0:50:12 Too much. It was one of my mistakes I had mentioned.
0:50:15 We just overgrew at that point right before the Great Recession
0:50:17 and had to kind of hang on for dear life.
0:50:20 And so, like, we’ve had our really push it hard phases.
0:50:23 We’ve gotten a stable phases where, all right, we’re making plenty of cash flow
0:50:25 and I’ve had that conversation with myself.
0:50:26 It’s like, all right, we’re fine.
0:50:31 I could pay for our bills and I plan on this cash flow continuing for a long time.
0:50:35 What do I do now? We moved Ecuador. We went for 17 months.
0:50:38 I just kind of tied things up, built some systems.
0:50:41 And yet, like, there’s a part of me that said, all right, well, we’re done.
0:50:45 And so, I started trying to take some chips off the table, let’s pay off some debt.
0:50:47 Like, I’m not taking as many risks.
0:50:49 Like, I’m not going to do some deals that have aggressive debt.
0:50:53 I’m not going to do deals that have all the commercial notes to have balloons
0:50:54 five or 10 years from now.
0:50:55 Like, I’m not going to mess with that.
0:50:58 I don’t even like dealing with banks really because it’s a pain in the neck.
0:51:00 They make me show my net worth statement.
0:51:02 They make me wear a suit.
0:51:03 Like, I wear t-shirts.
0:51:05 Like, I don’t wear that crap, you know?
0:51:07 And so, that stuff I’m not doing anymore.
0:51:10 But at the same time, there’s a part of me when we’re sitting around,
0:51:12 I’m like, I have talents. I have gifts.
0:51:14 I have something to give.
0:51:17 And it could be that, you know, part of those gifts are,
0:51:19 have nothing to do with making money.
0:51:22 Like, I started a nonprofit with some people locally where we’re trying to build
0:51:24 a network of walking and biking trails in our community,
0:51:26 because it just annoyed the crap out of me.
0:51:27 And I’m like, who’s fixing this?
0:51:30 Like, how come I can’t cross the road and push my kid in a stroller?
0:51:32 Why do we build everything for cars around here?
0:51:34 And so, I’ve been for five years, like,
0:51:37 entrepreneurially trying to fix this problem through a nonprofit.
0:51:41 But then I also, I think it’s fun to grow businesses.
0:51:45 So, like, my, like an online business for me has been much more fun
0:51:47 than going out and buying more real estate.
0:51:49 And the way I’ve looked at it is I can leverage this.
0:51:52 I had opportunities to syndicate and start, you know,
0:51:55 $100 million syndications and go buy college towns all over the country.
0:51:58 You know, why just Clemson? Why don’t I do Blacksburg, Virginia?
0:51:59 And why don’t I do this?
0:52:01 Like, that had no appeal to me at all.
0:52:04 It wasn’t fun, even though I’d make a lot of money.
0:52:08 And I really enjoyed, like, sounds like Cody and sounds like you as well, Nick,
0:52:10 that, like, sharing with other people.
0:52:14 I like the idea of, like, 10,000 people owning five or 10 properties,
0:52:16 having financial independence.
0:52:18 And I like the idea of making money as well with that.
0:52:20 Like, I don’t want to, that’s not a charitable business.
0:52:23 I’m using that money to give away.
0:52:25 Like, I give away half of the profits in my business,
0:52:27 but I use the money to have fun as well.
0:52:30 And so, you know, there’s an ambivalence for me, kind of a back and forth
0:52:32 about making money.
0:52:34 And I go through phases where I’m like, let’s go, let’s get it.
0:52:37 Let’s sell other phases where I’m like, eh, whatever.
0:52:40 Let’s go to Ecuador and hang out on the beach and chill out.
0:52:43 And, you know, somewhere in between, probably right now.
0:52:45 Yeah, very good. Thanks for sharing that.
0:52:49 Let’s do some closing arguments, parting thoughts, if you will.
0:52:52 Cody, your case for the business side of things.
0:52:55 Here’s my biggest case, is pick yourself.
0:52:58 So, in whatever you’re going to do, if it’s going to be buying a business
0:53:01 or real estate or building an audience or whatever the case may be,
0:53:03 like, just keep picking yourself.
0:53:05 I think that’s, like, one of the reasons I love this show,
0:53:08 is because it’s telling people that they have the ability
0:53:10 to do the right to do so.
0:53:13 And my concern for people and why I think they should go get ownership,
0:53:16 I like to get ownership by buying small, boring businesses,
0:53:19 because I think they have the best valuation today
0:53:23 at the lowest price level with the most leverage allowable.
0:53:25 Those are the three things I look for.
0:53:30 But I would say that the biggest concern is if you are in a nine to five
0:53:34 and if you are working for somebody else without diversified income streams,
0:53:36 it’s just going to get worse.
0:53:37 It’s not going to get better.
0:53:41 And I have employees and I get my employees to invest in our deals.
0:53:44 And I get my employees to have diversified income streams too,
0:53:49 because I think one of the worst places you could be is in a nine to five
0:53:51 with no additional income streams.
0:53:54 And as we can see, your business can be shut down.
0:53:56 It can move out of stand.
0:53:58 You know, the business tide can change completely.
0:54:01 And I think everybody has a moral imperative right now
0:54:04 to figure out financial freedom first to get to the next steps.
0:54:06 When it comes to buying a boring business,
0:54:08 what I would just say is just start learning,
0:54:09 learning about real estate,
0:54:10 learning about buying a boring business,
0:54:13 because you’re never going to regret figuring out how to structure deals.
0:54:15 You’re never going to regret negotiating.
0:54:18 You’re never going to regret figuring out what does it mean
0:54:22 to get in an equity position as opposed to an employment position.
0:54:24 And that’s what you’re really learning.
0:54:25 When you learn about buying a business,
0:54:27 even if you never execute on one,
0:54:30 you will negotiate your salary different every time.
0:54:32 You will negotiate contracts differently every time.
0:54:36 And you will have the frame of mind of an owner, not an employee.
0:54:40 And so whether you go and actually make the purchase matter so much less
0:54:42 than that you go actually learn how to do this stuff.
0:54:45 Because I think once you realize, like you said, Nick,
0:54:47 that when I want cash flow, I go buy it.
0:54:51 Once you realize that there’s that reframe available in your life,
0:54:52 it just won’t ever be the same.
0:54:53 Well said.
0:54:56 I’m very fortunate to have had my first taste, really,
0:55:00 of working for profits and not wages at a relatively early age.
0:55:03 I like these calls to get yourself some ownership,
0:55:06 invest in assets, find some income streams
0:55:09 that you have a little bit more control over
0:55:12 than maybe you do in your nine to five Chad, your take.
0:55:14 So Cody and I are in agreement on the main debate,
0:55:16 which is you got to own something.
0:55:17 You got to get a business.
0:55:18 You got to get a piece of real estate.
0:55:19 You got to get both.
0:55:22 So I think that’s the most important one, as she says.
0:55:24 If real estate calls to you,
0:55:27 I think, again, the benefits are so easy to understand.
0:55:29 The most important thing about real estate
0:55:31 is the intuitive stuff that you already get.
0:55:33 Find a good location.
0:55:35 Find a place where population is growing.
0:55:38 Find a place that I had a mentor one time who used to say,
0:55:40 “Find a neighbor that has romance.”
0:55:43 You want to have something that pulls at you emotionally,
0:55:44 and real estate’s got that.
0:55:46 And so you start with that,
0:55:48 and then you got to run the numbers as well,
0:55:51 and you got to figure out a financing angle that makes sense.
0:55:53 And so not every piece of real estate makes sense.
0:55:55 Not all the numbers make sense,
0:55:57 especially if you’re looking for cashflow.
0:55:59 There’s a whole spectrum of different types of investments
0:56:00 you can make.
0:56:02 If you just want something long-term growth,
0:56:04 really boring and a quality location,
0:56:06 cashflow is not going to be quite as good today,
0:56:08 but the long-term tax-free growth is going to be really,
0:56:10 probably be pretty good.
0:56:13 If somebody wants to get out of your job sooner than later,
0:56:16 you can gravitate towards more cashflow-centric properties,
0:56:18 maybe even a business built on top of a piece of real estate.
0:56:20 I think at mobile homes is that way.
0:56:21 You can make a ton.
0:56:23 You can get your money back in two or three years
0:56:24 on a mobile home, for sure.
0:56:25 And we’ve done a lot of that.
0:56:27 We own the dirt underneath it, though, right?
0:56:29 But if you needed us to get started with a few thousand bucks,
0:56:31 that’s the kind of thing you could go buy a mobile home
0:56:33 on somebody else’s land,
0:56:35 and then eventually get an option to buy the land or something.
0:56:38 So there’s so many creative ways with financing and options
0:56:41 and creative financing that there’s really no excuse
0:56:43 not to get started.
0:56:46 The hard thing with a business or real estate is figuring out
0:56:49 how is my situation going to fit into this path
0:56:51 to financial independence?
0:56:54 And I think just getting started with something is the key.
0:56:55 Don’t wait.
0:56:56 Don’t be afraid to make mistakes.
0:56:58 Get out there, make some offers.
0:57:01 Do something that if you take care of the big risk,
0:57:04 the financing’s a big risk, the location’s a big risk.
0:57:06 If you take care of those two things with real estate,
0:57:07 then go for it.
0:57:10 You can probably recover from the other mistakes you’ll make.
0:57:11 All right.
0:57:13 Protect your downside, but go and get started
0:57:16 because a year from now, you’re going to wish you started today.
0:57:19 I guess on the show said, you know, I was like,
0:57:21 “Well, weren’t you nervous about making that move?”
0:57:23 And he’s like, “Nick, at a certain point you got to do something
0:57:25 or tomorrow is going to look like today.”
0:57:27 And so if you’re in that standpoint, you know,
0:57:30 go get yourself educated and take some action on this stuff.
0:57:32 Cody, Chad, you guys are awesome.
0:57:35 Thank you so much for sharing your insights here.
0:57:36 It’s been an awesome conversation.
0:57:38 You can find Chad at coachcarson.com.
0:57:42 He’s got a podcast over there, tons of resources for you.
0:57:44 Cody’s at contrarianthinking.co.
0:57:46 Excellent thought-provoking newsletters.
0:57:48 That’ll link you up to everything that she’s got going on.
0:57:50 Make sure to grab your copy of Cody’s new book,
0:57:52 “Main Street Millionaire.”
0:57:53 That is it for me.
0:57:55 Thank you so much for tuning in.
0:57:57 Until next time, let’s go out there and make something happen.
0:58:01 And I’ll catch you in the next edition of The Side Hustle Show.
0:58:02 Hustle on.