Leveraging Your Cash, Equity and Time – Keith Weinhold | PREI 040
On today’s episode our guest is Keith Weinhold. Keith is the founder of Get Rich Education and is a popular podcaster, active real estate investor, business owner, and good friend.
Keith shares his story of how he started in real estate and became an “accidental millionaire”. Many of you may want to copy that same formula.
We discuss the differences between compounding and leverage. Which one is better?
We explore the concept of return on time – one of my personal favorites.
And Keith shares some tips and advice for new investors looking to build a portfolio, and for seasoned investors wanting to get to the next level.
Keith’s website can be found at www.GetRichEducation.com.
Enjoy the show!
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Leveraging Your Cash, Equity and Time – Keith Weinhold
It’s my pleasure to welcome Keith Weinhold to the show. Keith is the founder of Get Rich Education and is a popular podcaster. He’s an active real estate investor, a business owner and a good friend. Keith, welcome to the show.
Thank you so much for having me today, Marco.
It’s great having you on. How’s the weather up there in Anchorage, Alaska?
It is a gray, rainy, windy day here, but it didn’t stop me. I just got back from going on a run about an hour ago anyway. I’m feeling invigorated.
You like to mountain climb, if I remember right?
Yes, that is right. I wasn’t born and raised in Anchorage but I moved here because this place just fits me. I do a lot of mountaineering and skiing here in this city of 300,000, Anchorage Alaska.
Only 300,000. It’s a beautiful place. I’ve seen many pictures of Alaska and Anchorage and it’s gorgeous. The lakes are just beautiful. One of these days, maybe I’ll have to fly up and go out for dinner with you.
Yes, you sure will at some point. Only 300,000. This is the big city here. Almost half the population lives in this one city. A lot of old time sourdough Alaskans, they frown on urban Alaska and urban Anchorage. They make jokes. They say, “From Anchorage, you can see Alaska.”
That’s a good one. All real estate is local. I have that saying, live where you want, invest where it makes sense. This segues into your story. Let’s get into your story here. You remind me of the “accidental” millionaire because of how you got started in real estate. Tell our listeners your story of how you discovered real estate investing.
It was a little bit accidental. I was born and raised in Pennsylvania. I did not come from an entrepreneurial or a real estate family at all. In 1999, I moved to a place I dreamed of living, Anchorage, Alaska because I had vacationed here four times previously. I was really young when I moved here, I was coming of age. When it’s about time for me to buy my first home, I was hanging out with some friends that were, I guess productive-minded friends, aspirational. Like they say, you are the average of the five people that you spend most time with.
Two of my friends, what they had done is they had bought their first home not as a single family home but what they did is they bought a fourplex building. They lived in one unit and rented out the other three. Now, one of my friends really had his act together, and the other was kind of a screw off. I knew if the screw off could do it, I could do it. In 2002, I started my real estate investing career, I didn’t know it was going to turn in to any sort of career, by buying an Anchorage, Alaska fourplex building for $295,000. Between having some friends that were doing it and reading the influential book Rich Dad, Poor Dad around 2001, I had some context there. What I was doing just did not feel that much out of the norm because I was surrounding myself with good people and good educational resources.
That concept is referred to by some people as house hacking, where you live in one unit and rent out the others and often you’re living rent free, but you took it to another level.
Yes, I did. That first building, I really didn’t have any positive cash flow. The income only met the expenses. The income did not exceed the expenses on that fourplex building, but I was basically living for free. I was young. I was into travelling and having a good time. I wasn’t into focusing on being an investor. It wasn’t until a couple of years later that I was reading some books at Barnes and Noble, and I started to understand concepts like leveraging cash flow. I didn’t even know what those things meant and I had already owned a fourplex building for a couple years. That’s why this was a little bit accidental. I didn’t quite buy a fourplex by accident, but I got into being a passionate investor a little bit by accident.
Where did you go from there? You had this fourplex, what was your next property?
Buying that fourplex in 2002, we were in the days where in the United States, the prices were running up terrifically. What I did in about 2006 or so is I did a cashout refinance of that first fourplex. I had bought it for $295,000 and it appraised for $425,000 by 2005. I took some cash out of the first property and went ahead and put that into another fourplex, a 10% down payment on a second fourplex.
Let’s back up here with what I’ve done and how I benefitted. When I bought the first fourplex, I only made a 3.5% down payment on it. You need to live there for twelve months in order to qualify for it and get the financing. You only need to have a minimum credit score of 580, and that loan program still exists today. It’s a great spring board to wealth. It’s a great way for a new listener to start, potentially, if they’re in the right market. I only had 3.5% down payment on that, but I didn’t really have any of my own money put in into the second fourplex because I did a cashout refinance from appreciated equity on the first building. Now, I own two buildings, which have appreciated to almost a million dollars’ worth of real estate and I only have about a $12,000 down payment into that first building. That’s my only money out of pocket.
Wow. That’s incredible leverage and a huge spread. Let’s just pause for a moment, Keith. We want to make sure our listeners are not confused or scratching their head wondering how did you do that. First of all, explain why your down payment was so low, because it’s very unusual for a real estate investor to have a 10% or, as you’ll probably explained here in a minute, a 3.5% down payment. Because normally it’s 20%, sometimes 25% for conforming loans. Tell everybody how you actually achieved that.
Yes, that is right because lending environment is not as favorable today as when I started. You can still do a lot of this. You can still do that 3.5% down payment FHA program I described, as long as you live in one of the units yourself for twelve months. A fourplex building is the largest building that you can do that with. You cannot do that with a property of five units plus. Now, the second fourplex building I bought with the 10% down payment, I never lived in it at all. That will be called non-owner occupied financing. The owner never occupied it and the loan terms are worst. However, today, with the duplex, triplex or fourplex, if you do not live in it, you typically need to put a 25% down payment on it with Fannie Mae Conventional Financing. The terms aren’t as quite as favorable today.
That financing on the second one, the 10% down, was that a state specific Alaska type of subsidized program or was that something different?
It was something different. That was early 2007, that’s right when we were just starting to descend into the mortgage meltdown and that program soon went away. That was a 10% program with no mortgage insurance for non-owner occupants. That’s long gone.
Where did you go from there to get you to where you are today?
From there, what I did is, at one point, equity had appreciated in both of those fourplexes such that I had about a million dollars in value in those two fourplex buildings. I was getting up to 35 to 40% equity in those two buildings, and I did a 10/31 exchange, again using none of my own money, Marco. A 10/31 exchange to go ahead and trade away those two fourplexes and replace them with two larger buildings, just here in Anchorage, in this part of my portfolio, an eleven-unit building and a nine-unit building. I still own those today.
Just so everybody’s clear, the 10/31 exchange is a tax deferred exchange of taking the equity out of one property and moving it into the purchase of additional real estate in other markets. It doesn’t even have to be on another market. Often we see that with investors in the coastal states like California, even Hawaii, where they’re coming out of expensive properties and moving into less expensive properties. You basically took a 10/31 tax deferred exchange out of your existing properties and leveraged up into more properties, increasing your cash flow and enlarging your portfolio.
Yes, that’s right. I enlarged my portfolio going ahead and relinquishing $1 billion worth of buildings. We’re only generating about $1500 of monthly cashflow in exchanging them for about $1.7 million worth of real estate. They’ve since appreciated to about $1.9 million and they cashflow about $4,000 a month just with that part of my portfolio. Now, I threw out a lot of action items there and there’s a few numbers there.
We can just back up a little here. What’s my compelling why for doing this? What’s the architecture for this type of behavior? Because some people would look at this, Marco, and say, “Dude, what are you doing? You’re taking on more than a million dollars’ worth of debt. You’re in more debt that you’ve ever been before because you just keep borrowing and you just keep forwarding your equity on into more and larger properties. You’re taking on more debt, dude. What are you doing?” No. Look, as real estate investors, we have the ability to outsource every bit of our debt to tenants.
This is something very specific and strategic such that prior to me buying a building, I put together an APOD, an Annual Property Operating Data Statement, that shows that the income are projected to conservatively exceed the expenses on a monthly basis, prior to buying the building. I’ve comfortably outsourced every bit of that debt to others. When you do a 10/31 exchange, you don’t lose any equity. The equity is still yours. You’re just leveraging more property with that same amount of equity. One needs to remember that the return from equity is zero. Now, I said that very carefully, the return from equity is zero. Return on equity is a different calculation. The presence or absence of equity on a property has nothing to do with the amount that it appreciates. It’s completely unrelated.
That’s how you’re able to do more with less. It’s $1.9 million worth of property and still only 12k. That was the amount of the seed originally planted and additionally I’m paid every month that the money comes in. I talked about a few things here. I think one really important theme here with doing all this and what the compelling why for investing in real estate is, in a sense Marco, it comes down to who can be the most bold. Who can be the most bold? It’s not necessarily who has the most intelligence or who works the hardest. It’s about who does the right things and who’s bold. Some saw moving to Alaska is bold. Some saw making your first home a fourplex building is bold. Getting rid of two profitable fourplex buildings, most people would be complacent to sit on that, and exchanging those into two larger properties. They saw it as something bold. Oftentimes, the most successful investors, they’re not the smartest or even the most hardworking. They’re doing the right things and they’re being bold.
That’s like the concept of whether you’re doing things right or doing the right things.
That’s right. I can tell you’re a Get Rich Education listener. Doing the right thing is more important than doing things right. I love that you brought that up, Marco. I’m sure a lot of the Passive Real Estate Investing podcast listeners have day jobs. When you have a day job as an engineer or as an accountant, you can be doing everything right in your job, but are you doing the right thing by being in that job at all? Learn about something that’s really going to propel your life ahead, like real estate investing. Something that’s created more millionaires and billionaires out of ordinary people than anything else, but most just don’t know how. Once you know how, you’ll be doing the right thing in real estate investing, which trumps doing things right.
Your story is an incredible example of taking a small amount of capital, in your case it was $12,000 and change, and leveraging that over time, building a net worth, taking that equity and multiplying or leveraging up into more cashflowing properties. I know you invested out of state, it’s not just in Anchorage, Alaska that you invested but in other places too. It’s an incredible story and an astronomical rate of return if you calculate your $12,000 initial investment into the net worth that you have today.
Second point I want to make is that, you’re right, there’s a huge difference between return on equity and return from equity. A lot of people don’t understand that. We get a lot of calls from people that say, “Hey, I’ve got a property or I’ve got several properties and there’s hundreds of thousands of dollars of equity in those properties, what should I do?”
The first thing is I of step back, scratch my head and realize that you’re completely under-utilizing your position. You could take that equity, you can build up a portfolio in the right markets with income producing real estate that increases your monthly cashflow. You’re not spending or losing anything, because as you alluded to, you’re moving your equity from one property to another. You’re not spending it, you’re just moving it and allowing it to acquire additional real estate for you. That’s a key concept.
That’s a key concept. Typically, once cashflow increases when they do that, just like it did for me, the total amount of real estate they own increases, just like they did for me. In my example of relinquishing the two fourplex buildings and trading up for a local 11-plex and a local 8-plex. I also went from eight units to nineteen units, so I’ve gone ahead and made my cashflow more stable as well. If I only own eight units, two vacancies mean I have a 25% vacancy rate. If I have nineteen units, two vacancies mean that my vacancy rate is only about 10%. I’ve made things more stable and I’m leveraging a greater amount.
We’ve used the word leverage quite a bit. I’m sure not everyone has their head around leverage and going ahead and trading up and just what that does for somebody. I’ll just give a quick numeric example. I’ve got to say, Marco, when I was a new real estate investor, I was often having people tell me, “You need a 10/31 exchange, you need to trade up.” I didn’t know why and I just thought, “Wait, maybe I’m just taking on more debt.” I was actually afraid that real estate agents and mortgage loans officers, they’re very transaction-based sales people basically, and I thought they just wanted me to transact. They just wanted me to sell one property and buy another because their motivation was just in the commission. I learned that they’re actually right. You really do want to exchange more.
You mentioned the rate of returns. To make it simple, let’s just go back to that original fourplex for $295,000. I put only a $12,000 down payment to control that property. That was 3.5% down and a little bit for some closing cost. That $295,000 building appreciates just 5%, that means it increased in value about 15,000 in one year. I just let you know that I only put 12,000 into the building. I put 12,000 into the building, after one year, I have an additional return of 15,000, so my 12,000 went to 27,000 after one year. That’s a rate of return of over 100%. That stomps some people. They’re like, “Wait, how did that happen? How could you really get a return of over 100%?”
That’s because the down payment that I put on the building and the money I borrowed from the bank, both of those things earned a return because I was leveraging a great deal of money, and that’s what makes one’s return go through the roof. One comes from a traditional stock and bond investor mentality, they have a hard time getting their mind around that because it almost doesn’t seem real, but that’s part of the power of leverage.
There are so many facets to real estate. What you’re illustrating there is effectively the return on your appreciation, and you’re not factoring in the cashflow that you received from that property, back then when you were living in it. When you do have cashflow, because you eventually moved out, you’ve got the return from your cashflow, you’ve got the return on amortization of the loan, you’ve got the return on your appreciation. That’s not even counting in potential tax savings from the depreciation on this property.
There’s a lot there. That’s one of only five ways that you’re paid with real estate investing in the way that you and I do it, Marco. That leverage appreciation that I just mentioned is one of only five ways that you’re paid. I can talk about that in a moment. What we’re talking about here, leverage and the power of leverage, that is quick. That’s what builds wealth. We’re not just talking about what’s going to maybe build a secured retirement for you when you hang it up at age 67 or something like that. This is what builds wealth so you can live better than you ever thought you could when you’re young, in middle age and in old age.
A lot of people from an old fashion traditional way of investing think compound interest is beautiful. What could be better than compound interest? Compound interest is where not only does your principle go ahead and give you return, your interest goes ahead and gives you a return at the same time. As interest continues to accrue, you get both your principle and your interest, giving you a return over time. Compound interest is lame. Compound interest is slow. It’s not going to build wealth, it’s only going to build security.
When you use leverage, you basically leveraged your compound interest. You’re using leverage and compound interest at the same time. Leverage is what builds wealth. You might have heard me talk over at the Get Rich Education podcast about how even Albert Einstein reportedly, I don’t know whether he really said it or not, reportedly said that compound interest is the eighth wonder of the world. I don’t know if Einstein ever knew about leverage. Einstein is wrong in this quote.
That was a good episode. I encourage listeners to listen to that episode because you went into a fair amount of detail comparing leverage to compounding. We’re all in indoctrinated, we hear from our parents and our schools that compounding is this magical thing. There’s the example of I give you a penny and I double it everyday form one to two, two to four, four to eight and so on. How long is it going to take until you have a million dollars? I believe you get there before the 30th day. People are taken back by, “Wow, I have a million dollars if you double my penny every day for 30 days.” That alone is mind boggling.
You make the argument, and it’s a sound argument, that leverage is far more powerful than compounding. If that’s true, and real estate is the only asset class that allows you to take advantage of leveraging in every level of the investment, from the management on up, then why would you invest in anything else other than income producing real estate? There is no answer to that question. It’s rhetorical.
Its availability is great. I think you and I both know, there’s significantly lower leverage ratios available if you’re a stock investor, but you need to be pretty savvy. You can’t leverage at nearly the same ratio that you can with real estate. If you go under water, if you go ahead and don’t have appreciation, you have loss in capital value. A margin call can be made and you can be wiped out. That can’t happen with real estate.
Someone that’s listening to this discussion about leverage, we’re really talking about the appreciation side. I know you know this, Marco, and I’m just talking to your listeners now. You need to be careful because what if the property goes ahead and loses value? Leverage works the other way and you will massively deflate your portfolio rather than inflate it the other direction. You can hedge against that. Because a lot of people in real estate, they get all excited about the property, the chase for the property. The property is only the fourth most important thing. Number one is what works for you. Number two is the geographic and economic market that your property is located in. The third most important thing is the team, especially your property manager.
The property is only the fourth most important thing. When you put market selection first and you invest in a geographic market that has in-migration that exceeds out-migration where job growth is projected, where you have diverse economic sectors, you’ve hedged yourself against a lost of value in the property. You have not completely eliminated the risk, but you’ve hedged yourself.
Now, I had this happened to me. I had properties begin to lose value around 2007, including those first couple fourplex buildings. Here’s what I can tell you, that when my properties lost value, I made out better than I ever had previously. Here’s why. When my properties began to lose value in 2007, 2008, 2009, we were in a financial crisis. We’re in the mortgage meltdown. What happened, my properties were worth a little bit less than what I had owed on them, at least one of them. What happened is I couldn’t get loans for anymore properties, it was getting difficult. You know what else? Tenants could not go get loans for properties. They couldn’t leave my fourplex building and go get a first time starter condo like they had previously.
The demand for rent increased because people couldn’t get mortgages. It was very difficult to get a loan back then. What happened when the demand for my product, my rental units, increased is my income went up. My cashflow was greater than ever. Let me ask, how badly do you want to sell an asset when it’s paying you better than ever to hold on to it?
Never. That’s because I always invested in the right market with job growth. I continued to have a tenant there. I was basically hedged. It would have been difficult for me to sell the property but I sure wouldn’t want to because I’m getting paid on a monthly basis better than ever.
That’s a great example. There’s another thing too that happens in situations where you are at or below the original market value, should that ever happen in the slower, more “boring” linear markets that we operate in. That doesn’t tend to happen very often. There are situations where you invest in a property and for whatever reason, there’s an economic downturn, there’s a hardship there and the property value drops down. What a lot of investors don’t think about that they can do and probably should do is contest or appeal their property taxes. Because if property values in that neighborhood have come down, there are companies in most markets that will do this for you for free, and they will split the difference or some sort of split on the difference that they saved you, if that made any sense.
If there is a downturn like you’re talking about, Keith, maybe there’s a chance you can get your property taxes lower, then that will stay down for several years until the market comes back. You can save yourself on a line item there.
That’s right. As long as your municipality hasn’t tinkered with the mill rate or something, you might get a little bit of relief that way. One other constraint, if the value of the property ever does fall below the mortgage balance, of course it makes it difficult to sell and then also it makes it difficult to refinance the property. A lot of lenders want to see you have 20% to 25% equity in the property before you refinance it. My point here at this time is mortgage interest rates are still about as low as they’re possibly going to be. There’s very little reason that you’d want to try to refinance it to get a little lower rates. You’ve already locked in your property at a really low rate right now. In a sense, you’re almost completely hedged both ways as soon as you put market identification about property in your priority list.
Exactly. Having said that, what I’d like to do is move on to my next question. Touch on your concept of return on time, which is something that most people don’t hear much about, if ever.
That’s great. In fact, I even put a little acronym on my favorite investor metric, the ROTI. What’s your return on time invested? Because as real estate investors, we have all these metrics that we’re used to calculating. A lot of these calculations are very easy, it’s addition, subtraction, multiplication and division. There aren’t any exponents or calculus in real estate investing. We have all these things like, what’s the cap rate? What’s your monthly cashflow? What’s your return on investment? What’s your cash on cash return? Or some’s favorite is the internal rate of return because it’s all encompassing in going ahead and factoring in where all your returns come from. Probably the number one metric that you’ll never see on a Microsoft Excel spreadsheet at all is, what is your return on time invested?
Marco, in a sense, I hope this isn’t blasphemy to say in the Passive Real Estate Investing show, but just in a sense, strictly I’m not that passionate about real estate. I’m passionate about what real estate can do for me. Give me a great financial return with very little of my own time invested.
It’s the concept that real estate is not the end goal, it’s just the vehicle to get you to where you want to be. You’re fulfilling your goals through the vehicle of real estate investing.
It’s more about what it can do for you. I think a lot of people get their time and their quality of time interrupted when they try to self-manage, when they have that DIY mentality. To most of my students, I recommend, if you can, self-manage for one to two years. You don’t have to. It’s not mandatory, but if you can it might be worth doing because down the road you’ll be able to evaluate a property manager’s statement, but you don’t actually have to self-manage.
People ask me what my biggest mistakes in real estate investing are, if I can go back over and do it over again. I’ve got three. I think my first two are ones that most people have. Number one, I would have bought more. Number two, I would have bought sooner. Number three, this relates to the return on time invested, is I would not have self-managed my own properties for too long, Marco. I’ve managed my own properties, those fourplexes for five and a half years. The thing that kept me from outsourcing my management, and I’m so glad I since did, is that old time real estate investors will tell me, “Keith, no one is going to manage your properties as well as you do. No one’s going to care as much.”
Those old time real estate investors, they were right, but I since found out it is not worth my time and the disruption from tenants just to get that last 2% to 3% of perfection of doing it myself. My return on time went through the roof. Who cares about the leverage numbers in a sense if my time is being interrupted? I’m doing this because I want a better life. I think a lot of real estate investors get infatuated with, “Can I get more doors? I don’t really just want more doors, I want more cashflow.” And you keep asking why. They might say, “Because I want more time,” and you keep asking why do you want more time. It really comes down to us all wanting a return on time to convert into touchy feeling things. We all want time so we can experience things like peace, joy, happiness, freedom, love. That’s ultimately what we all want. Real estate brings us those things ultimately. That’s what one can get passionate about.
It’s what you call the highest and best use of your time. That’s the heart of it. You’re right, a lot of people don’t talk about this return on time concept. That’s inherent and probably at the top of the list of what passive real estate investing is all about. A lot of real estate investors take the active role, roll up their sleeves , they want to do everything from beginning to end. Even if they don’t, sometimes they buy what I call a rent-ready property off the MLS, but they’re the ones managing it because it happens to be in their city. That’s all well and fine, but is it really the best use of your time? Are you better off maybe spending that time with your career, your family, your friends, Johnny’s soccer game on the weekend, or better yet, looking for some more investment property that you could leverage and build in your portfolio.
I totally agree with the return on time concept. I think more people should talk about it more often because they’re too focused on the numbers and they don’t realize there’s a lifestyle behind all these, there’s a freedom element that this all brings to you. I actually talked about this in a recent podcast. I made it public that my father had recently passed away. I consider it fortunate that I was able to continually fly out of town, weeks at a time, to spend time with him in the hospital and at the nursing home. If I had a [9:00] to [5:00] job, Keith, I wouldn’t be able to do that. It would just be crushing on me to not be able to be there for him. Time is very important.
That’s right. That’s because you created that time to make that peace and that freedom for yourself.
On that note, what do you recommend to new real estate investors looking to either get started or to just start building out a portfolio so they can have that time, freedom, the financial freedom, etc. What are your top two recommendations there?
Number one, it starts with educating one’s self. Educating one’s self about the right things. One can master the Groupon app on their phone and let that dictate what restaurants they and their spouse or their girlfriend are going to eat at this weekend. How much mastery of online coupon services do you need to create wealth for yourself or to send your child to a college of your choice? None. It’s about educating one’s self and doing it about the right things.
Talk to your mortgage loan officer, learn how to get your debt to income ratio to where it needs to be so that you can qualify for a loan. It’s more about educating yourself on the right things. That’s one way to do it in a virtual sense, and there’s more resources out there for doing that than never. The second thing is, it can be really helpful to go to your local real estate investing meeting. Even if you don’t want to invest in your local market, whether you do or you don’t, there’s a lot of value to doing things in person. I’m a big user of technology. I’ve had my own podcast for a long time. I attend webinars, I do a lot of things on social media and all that.
But you know what that experience does not provide me with? It doesn’t really give me the ability to network with others. If I’m attending a webinar, I don’t really get to meet the participants, and there’s a lot of value in again, leveraging my time and leveraging my network and growing my network that way. When you go ahead and get in person, you’ll learn on a face to face basis which property manager has treated your peers’ properties well and who the people are to know in the market. It’s about building your network. Even in this increasingly virtual world, there’s still a lot of value to doing that in person.
It’s not just what you know, it’s also who you know. Even if someone is someone you think that doesn’t know much at all, even if they’re in a different industry, they’re not in real estate investing, they’re a business owner and they’re in apparel or whatever it may be. You’ll never know what you can learn from that person. Some concepts, systems, procedures, new ways that allow you to look at your real estate investing business in a different light that will allow you to accelerate what you’re doing, or do it better or smarter or faster. Never discount the people you meet and always try and learn from them. There’s that saying, “Listen twice as much as you talk.”
That’s right. Treating everyone as equally as you possibly can really helps too. Oftentimes, it’s that unlikely person that connects you to someone that they know that end up being a great part of your network.
That’s huge. I’m going to ask you the same question but in a slightly different way. Let’s just say we’re talking to seasoned real estate investors, people who have been investing for years and they want to take their real estate investing to another level. This is a very open ended question, Keith. What would you tell those people as far as taking their business to another level from what you’ve learned in your experience?
Taking your business to another level, I guess there’s really two things. Number one, taking it to another level is aspiring to your best and highest use. We’re here in the era of the VA, the virtual assistant. You can outsource more and more of your tasks to more people that are willing to do it for you. It’s not just someone that’s overseas that maybe doesn’t know English that well. There are resources like Upwork.com and Fiverr.com where you can find virtual assistants to outsource your life to. For GetRichEducation.com I used Upwork for my website person. I also used them for my podcast sound engineer.
There’s also US based Virtual Assistants like FancyHands.com, HireMyMom.com. If you want someone to go call the cable company on your behalf to negotiate a better deal or something, you could use a resource like those. Outsourcing, finding what your best and highest uses are. A lot of times it comes down to just making a list of the 50 things that you do every week and outsourcing the bottom least desirable ten.
For those tasks, you want to go ahead and make a list of every step that it takes to complete those tasks, whether that’s online or in the real world, and go ahead and make that as a resource available to your Virtual Assistant so they know exactly what to do for you. Just write down what you do step by step, which is going to seem a little bit painstaking in the beginning, but it will increase your return on time invested over time when you do that. You don’t necessarily want to shoot a video of the things you want to have done because videos are hard to edit, so make a list and use virtual assistants.
The second thing is, and it comes back to a very real estate investing centric thing, is be careful of sitting on too much equity. Since the return from equity is zero, 10/31 exchanges can have a great deal of power in one’s life. We’ve talked about the benefits a little bit already. As soon as you reach an equity position of maybe 35 to 40%, you want to look into moving that equity along with more and larger properties.
I want to add to what you’re saying about time. You’re familiar with the Pareto principle, the 80-20 rule that 80% of your results comes from 20% of your efforts. 80% of your business comes from 20% of your clients and so on and so on. That’s Alfredo Pareto’s principle. If you use that formula and apply that to your friends, your work, and your real estate investing, you could really start to pare down what really makes sense and where you should be spending your time.
I’ve taken that concept one step further. I applied the 80-20 rule to the 20%. I look at what is the 20% most effective things that I do, the most important things? I break that 20% down into 80-20 again, which is 4%. That means that 4% of that 20% will give you, mathematically, 64 times the results of what you get from that initial 20%. What happens if you do that one more time? You take that 4% and you break it down into 80-20, that’s 1%. That 1% mathematically is 200 times the number of units of results you have from that original 20%. You can see it grows geometrically. When you take everything you do and you pare it down, this is my formula on how to figure out what are those most important things and rank them in order. Does that make sense?
Yes. That’s totally right. What are you basically doing there? You’re just leveraging more and more people in their expertise, in their network. To think differently, you have to do something differently than what most people do. You don’t want to invest in your 401K, you don’t want to necessarily mow your lawn every time yourself. I’ve never mowed my own lawn. My wife and I lived in this home three and a half years. Some people get so busy being a human doing that they forget to be a human being and they really miss out on a lot of things. They really miss out on the context of life. That’s why a lot of people wake up and they’re like, “My gosh, I’m age 43 already?” or they say something like that, “Where did all the time go?” It went to being a human doing rather than being a human being. Don’t let that happen to you. That’s too bad when it does. You’ll never get that time back. That’s our one irreplaceable, irreplenishable resource.
So true. Let’s wrap up, Keith. Just throw it out there. What’s your favorite real estate book?
It’s not a very original answer but it is that Robert Kiyosaki, that quotable guy and his book, Rich Dad Poor Dad. He started off that book with the sentence, “The rich don’t work for money” and that really compels people. Maybe a second one that you haven’t heard of and you’re not so familiar with is Garrett Sutton’s, Loopholes of Real Estate. He really gets in to the numbers and he digs a little bit, numbers-wise at least, into the compelling why for real estate.
Great book. I know you have a popular saying, we can’t finish this episode without you saying your famous quote. You know what I’m talking about, right?
Yes. Most people say jokingly, “Don’t quit your day job when you get all excited about doing something else.” I sign off every episode of the Get Rich Education podcast with, “Don’t quit your daydream.”
I love it. That’s great.
You had to let me say it.
What a great saying. You need to trademark that.
I know, I need to. Someone else is going to take that.
Keith, it’s been great having you on the show. Lots of great information that we covered. Please tell our listeners how they can find you.
They can find me at GetRichEducation.com or the Get Rich Education podcast. This is an audio medium and I was voted as the most quiet and shy kid in my high school class years ago. Every week we’ve had most of the Rich Dad advisors on and we really have been able to get a great quality of guests. I still can’t believe it in a sense that I’m in Alaska, I’m in real estate and I have a popular investing audio show. It just floors me.
Anything is possible, Keith.
Great. Thanks for your time today.
It was fun to be on. Thanks for having me.
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