Brett Tanner walks through trading 21 single-family rentals in Huntsville, Alabama for one Starbucks building. He bought the houses for $1.3 million, sold them for $2.55 million, and used a 1031 exchange to move into a triple net lease that cuts five LLCs down to one and 63 utility accounts down to zero.
Brett TannerHost, founder of Be WealthyAt an event, Brett met an investor who buys homes near big employers before they finish breaking ground, the way he had near a BMW plant in Greenville, South Carolina. Brett used the same idea on a Mazda Toyota plant going into Huntsville, Alabama, buying 41 houses there for $35,000 to $50,000 each, renting for about $850 a month.
Jump to 11:30Brett bought the 21 houses he sold, the weakest in his Alabama portfolio, for $1.3 million and sold them for $2.55 million after holding them nearly four years. Counting more than $450,000 in cash flow after debt service, his all-in profit was about $1.6 million, plus tax savings.
Jump to 16:11One of his houses went from $50,000 to $150,000 in value while the rent only moved from $850 to about $1,300 a month. Across the 21 houses he sold, the average cap rate on today's value had fallen to 4.92%, down from roughly 10% at the price he paid.
Jump to 20:39Once the houses sold, the money went to a qualified intermediary that Brett cannot touch directly. He had 45 days to name the replacement property and six months to close, and he used the window to move the sale proceeds into a Starbucks building worth about $2.5 million to $2.6 million, on a triple net lease.
Jump to 22:00The 21 Alabama houses sat inside five separate LLCs, each with its own bookkeeping, insurance policy and tax return. The Starbucks building needs one LLC and one tax return, cutting 21 insurance policies down to one.
Jump to 23:27Brett figures the bookkeeping on 21 single-family rentals took about 8 hours a month, partly from tracking 63 separate rental utility accounts and filing five tax returns at roughly $1,500 each. On the Starbucks building, he logs one deposit and files one return near $2,000, a job he puts at about 30 minutes a month.
Jump to 25:02Brett budgets one month of vacancy a year on every single-family rental, even though his average Alabama tenant stayed 32 months. The Starbucks lease runs 10 years with options that can extend it, plus a 10% rent increase built in every five years, so he does not expect a vacancy for 20 or 30 years unless the tenant goes under.
Jump to 26:31I would argue that I'm much more secure with Starbucks than I am with the 21 tenants that were in my properties in Alabama.Brett Tanner · at 27:53
The side-by-side math Brett ran before trading his rentals for one commercial building.
| What he's counting | 21 Alabama houses | The Starbucks building |
|---|---|---|
| LLCs needed | 5 | 1 |
| Rental utility accounts | 63 | 0, the tenant pays its own |
| Accounting time each month | About 8 hours | About 30 minutes |
| Tax return cost | About $1,500 per return, times 5 | About $2,000, one return |
| Vacancy budgeted | 1 month a year per house | None expected for the length of the lease |
Tap any chapter and the video starts right there.
“That might as well be a Treasury bill. I mean, the US government and Starbucks, I put them toe to toe.”
Brett Tanner at 27:53See the full numbers behind the exact Starbucks deal Brett breaks down in this episode.
You have 45 days from the sale to name the property you are buying, and six months total to close on it. Brett's sale proceeds go straight to a qualified intermediary and he never touches the cash, which is what keeps the exchange valid.
Yes. Brett sold 21 single-family houses in Alabama and used a 1031 exchange to buy a Starbucks building instead, moving about $2.55 million from the houses into the new property.
In a triple net lease the tenant pays the taxes, insurance and repairs, so the rent Brett collects is what he actually keeps. His Starbucks lease also has a 10% rent increase built in every five years.
The cap rate on today's value of his 21 houses had dropped to an average of 4.92%, even though the 21 homes had nearly doubled in value. Managing five LLCs, 63 utility accounts and separate tax returns was also costing him real time and money each month.
Cost segregation lets you take depreciation on parts of a property faster than the standard 27.5-year schedule, which can lower your tax bill. Brett had it done on every house in his Alabama portfolio before selling, and recommends checking with your CPA first to confirm you can use the extra depreciation.
0:00Into my presentation. I was tired from the day I spent most the day and I wanted to go to hot tub. And so I go to the hot tub cold. And like any reasonable person having a hot tub and a guy in his wife run there. And this story doesn't go where you think it's going in the studio to prove to people that they don't always wear the same outfit. We don't film all these in a single day. So when you come in and they said, I don't I believe he only has one shirt and I all do. So I decided to buy a second shirt and it was white. The few people this office, namely Sabrina, love Starbucks in my fundamental belief, is 20 years from now, I think people are going to want to meet at Starbucks and drink coffee. I know it's a bold idea. Welcome back to Be Wealthy with Brett Tanner. It is episode 0011 Call. And there actually can't be two number ones because that would be 11. And that's where we're at today. It's Little Ricky, Bobby, a little Talladega Nights. If you're not first, your last call, I call 24 years old. Have you seen Talladega Nights? That one I have seen I've seen a lot of comedy stuff. I haven't seen the Lampoon and favorite line from Talladega Nights. I think it's when there's a cougar in his backseat. That is it. You don't have a specific line. I just like the scene. I'm going to come at you like a spider monkey. I mean, come on, call. You got to I you can you've watched some of the more recent than I have and you can't do Well, I like I like when they're prepping for the dinner and they have I've been working for hours for this, and then it's just Powerade and delivered pizza. Well, that was pretty good. This is a probably getting in trouble on social media.
1:24But if they want to say something like, you know, I basically I wake up in the morning, I basically piss excellence. I mean, it's just Ricky Bobby is a greatest character. There's just not a lot of great lines for. Well, actually, movies have changed. Well, it's definitely you can say that today. And I said, as Ricky Bobby said of Brett, to say, Ricky Bobby said it. I didn't see it. So you get closer to things. Cool. Now, by the way, I am actually here in the studio to prove to people that I don't always wear the same name. So we don't film all of these in a single day. I am wearing a watch only due to the comments. So when you come in and they said, I don't. I believe he only has one shirt and I all do. So I decided to buy a second shirt and it was white. I'm probably never going to wear it again. Cool. But I wanted to prove that we listen to your comments, so put comments in the chat. I'm back. Are we had our episode last time. It was Dave Ramsey Part two, Part one, which was episode zero nine. Many of the detractors and haters said there wouldn't be an episode ten would be canceled. That did not happen. And why did that not happen? Cool, because you can't cancel yourself. And when we have our own podcast studio call and it's just you and me, unless you quit being over there and pushing record, we aren't going to be canceled. And so I did it ever episode on Dave Ramsey, which is episode ten. Again, they said there wouldn't be ten, and I wanted to clarify it. And so I took the time to go to Dave Ramsey's actual website. Now, where we've checked, we were wondering who was hacked because many of the things on there, some of the followers get very confused about exactly the words he uses.
2:52And so I explained the difference between my views and his using his website because call people said I had it wrong. It might be because it was on the website and it wasn't on Dave Ramsey's audible cash to get me some things. It's very challenging. That's a very, very good point. And so we talked about Tony Robbins, three things I learned at our convention, and we talked about why being a boat captain and owning a boat business might be the greatest unlock in your happiness. And that was all in our last episode. So do not forget as you're watching your day to subscribe. And we're going to jump in today and talk about something that I think people overlook in all of their investments. Call. I have this idea, and the idea is that there's an there's a hidden cost in all of your investments. Call every single investment you're going to make. There's a hidden cost. And people talked about opportunity cost, but I like to call it something different because it encompasses more and I call it soft costs. Life has soft costs. What does that mean? Call? Well, it means that if you look at a particular investment and we'll use Airbnb because I think it's one of those ones that the trendsetters love call in. So if I take a home, there was a long term rental and I was renting it for $2,000 a month and I had a property manager and this was an investment, it was passive, relatively speaking. I had someone, a property manager managing it, and I'm getting a rate of return on my money that I enjoy. Take all these soft costs in this are how much time does it take me to oversee my manager because it hard costs are things that go in a spreadsheet.
4:23We can see them. Their line items are actual raw expenses that we can see. We can measure them. Hard costs are very visible, we all understand. But those are taxes. Insurance Property manager, airway repairs. Those are facts. Call. We can see them. What are the soft costs? What are the soft costs? Okay, well, time. So if I turn that same property. Well, if I'm in the long term basis, what is my time spent while I'm overseeing the property manager? I'm dealing with financials, I'm doing a tax return. I've got a business license of some sort to run a property. And so those are all the time around that it might be another soft cost call that's hard to grab is what about if I have an assistant kind of helping me out with this? How much time is you spending on the rentals? It's really hard to say the exact amount of time unless you're monitoring your emails and saying, oh, seven and a half minutes to solve the rental problem there. So some of we have these other costs that are kind of hard. They're hard costs, meaning they're real dollars, but it's really hard to measure increments of time when you're sitting in the shower thinking about it because the tenant drove his car through the front door. Right. So that is a soft cost, right? There are soft costs in time in a motion, and then you're kind of wrapping in things. It's just hard to break apart. Right? You've got other if you and your wife are working on it together. Right. Like, how much time are we spending on this? His life has soft costs, so the hidden costs in labor, soft costs.
5:40How can we get better at understanding the soft cost? I'm going to give you an a great example in my own life of how I took an investment that had a tremendous amount of soft costs in it. Let me tell you, why did the investment and why ultimately sold it to eliminate the soft costs and to make it easier to manage and create more enjoyment in my life. So I want to jump into today's episode, which is all about the soft costs. And so I got to start with a story that I have told before. But before we jump in, I wanted to read some of our reviews off of Apple Podcasts. Wherever you watch, please, There's a review. If you're on Apple, do me a favor and stop right now. If you've got value this, please leave a review. We read them, tell us what we're doing. Great. Tell us what you like to hear. We want to know. Please write a review and I want to read you a couple comes from Andrew Dunn. Three Brett will challenge the way you view the financial world and your personal investing philosophy. My partner and I join the Be Wealthy mastermind group, close group close to two years ago, and it changed everything for us. When we joined the group, we both had day jobs looking to grow our side hustle. With Brett's help, we were able to scale to a team of 15 and over $1,000,000 in revenue over a year. We credit all of this to what we learned in the group. And in addition to the business, we've learned investing philosophies that are starting to allow us to remove the time variable from our returns would highly recommend his podcast Mastermind and Brett's coaching to anyone. Brother Andrew thank you for that very, very kind. Ah, I love getting to see people do that, right. These guys at Jobs, I got to be a part of a small part in that journey of watching them go to that to the business guys, and they're crushing it today.
7:19Thank you. Thank you. Thank you. Appreciate you guys. And I want to grab one more from podcast 2019, which is Brett is a master at what he does. He delivers his podcast in a simplified and relatable way. If you want to learn from the best in the ability to change your life and wealth trajectory forever, listen often and listen closely. And that is podcast 2019. Very, very kind. Thank you guys. I love what I do. And the only reason call that I'm on this side of the podcast talking about wealth is because I have failed more than everyone watching this in the wealth area. I really have like I have done more things wrong. Trust me, if we were doing a podcast call of all the stupid things that I did with money and the things that didn't work, it's much longer. We would get those episodes of the links. You'd love to have them call me five hour episodes all of the time, because every time I failed, it taught me something and I was able to learn and use all of those experiences to share with you. What I actually believe in is relatable today. And I do that in a way that I hope is transparent. I'm not poking fun at anyone, but I do try to tell jokes cause I think that I'm a I am a semi-pro comedian. And by that means you have no rankings at all. There's no basis to say that. But I'm I'm thinking about becoming a professional can mean. Side note before we jump and call you a I don't want to say the guy's last name, you a neighbor Gazza Boy, your favorite. Your favorite guy. I am. And I don't even know you say his last name. Probably just like, what do you think? Last. What do you think it is? And you guys, I forgot it was Forget about it. So, neighbor guys, I guess his special. We got a link. This is the show notes because this is a kind of value we're bringing basically sponsoring us at this point.
8:53Oh well, you got he's got to go on there. We got to go link him to that episode he did on Amazon. It's unbelievable. Guys, great to call. We're jumping today. We're talking about soft costs and I want to get right to it. So I was speaking at a buddy Minds event and today I only speak usually at my own events is because of time. And I have a really, really close friend in the rules of investing space. And at the end of my presentation I was tired from the day I spent most the day and I wanted to grab a hot tub. And so I go to the hot tub. Cool. And like any reasonable person having in the hot tub and a guy and his wife are in there and this story doesn't go where you think it's going, does it turn into getting canceled? And then the weird happen, I got to know what you're trying to get there. And the guys that came in. Were you one of the speakers today? I said I was, Man, I hope you got some value and hope that was helpful. And he's like, Hey, I yeah, kind of got a lot going on. I'm moving back to San Diego from Greenville, South Carolina, and he told me a story where he moved his family from San Diego to Greenville, South Carolina, because the BMW plant was going in there and he knew that BMW was going have a certain amount of jobs, 3000 jobs or whatever it was. And so he said is the plant started getting closer to going in. They put in these plants and they're billions and billions of dollars may take years to do. But as soon as the pads go in and they're committed to doing it, there's cranes out there and they're building it. You know, they're about 12 to 18 months from being completed.
10:12And he said, What I do from there is I go figure out exactly what that jobs pay. So how much is that BMW, the average employee going to make at that job? And based on that, I know the amount of home they can afford, based on the amount of money they're making their job, he said. I then drive as close as I can get to the factory and I locate the right neighborhoods, like where would people actually want to live? So I have a job here and I'm making $75,000 a year and I'm in Greenville, South Carolina. Back when they did this at Wynwood, where would people live? And so he drives around, finds a places and he started buying up all the homes and he went and waited. He said it over a period of years. I knew they would double because there's going to be as these jobs go in, there is now all these you want to buy homes, right? So homes don't get built overnight. It's a lagging indicator. Homes don't get built later. And so all of that, there would be so much demand, people buying homes, there won't be enough supply and prices will rise and I can double my money. And so he bought a couple hundred homes, did it, sold them and made a fortune. So I'm like, whoa, like, so let me get this straight. I have a thousand questions. Let's get a round of drinks and let's run through them. And so I am now drilling this guy, ask a question like, Hey, man, what about this? What are the markets? What are the jobs? How do you track it? How do you find the information? And I ask the question of cool, what are the five markets I should look at next year?
11:30One of them happened to be Huntsville, Alabama. And so I looked at Mazda Toyota. You can look this up online and we could probably find a link in the notes. Is it Mazda two of their initial announcement? They were going in there. It's about 2018. I think they made the announcement is 2019 and so I flew out there. The paths were going in. 4000 jobs were quoted. Now, what I didn't understand back then is when they quote 4000 jobs, what happens is many of the parts manufacturers, their competitors, there's way more jobs that go in there than whatever they actually quote that Toyota is putting in 4000, but it might be 5 to 10 times that amount. But the times you get every time you get everyone else that's going to have a job, go in there. And so my goal was if I bought these houses, hopefully over the next five years, they would double in value. That was my investment thesis that there would be all these all this demand for housing, there would be enough housing and they would go up in value. And so a lot of the homes I think I bought my first home out there. Cool. And this will this is why if you go back to the Dave Ramsey episode where he says, never invest out of your own market, stay local forever. Cool. I'm in Arizona, invest in Alabama. Are there some things you to learn? Yes, but I was buying $35,000 homes that rented for $850 a month. So cool as a 24 year old dude who spends a lot of time in rooms that I'm teaching in, in our programs and all around our clients call If you could buy homes for $33,000 that rent for 850, would you be interested in any of these types of homes? I might even have a couple already of that. Yet you would be.
12:58I mean, like you'd go do this makes a lot of sense. I go out there now, by the way, the homes in Alabama and when I showed up there, people thought I was a crazy person. And in In fear is cool. I am a little crazy. But so they're like this home, you know, in 2000, five, six, seven, eight in Arizona, when values went like this, you know, we didn't Alabama, we were like this, you know, 2079 ten. We're we're like this in Arizona. It's like, oh, yeah, I remember like, we kind of did this. And she's like, that home, It's you're going to buy for 35 or $50,000 in 20 years will be worth 35 or $50,000. I said, Well, that's actually not true. When those jobs go in, things are going to change, like it's going to be totally different. And so I was buying homes my first home, which is the last probably home I've ever bought off the MLS. Everything else we do is direct to seller. We have a very specific mail piece that we send out. We're happy to link the company we use. We'll put in the show notes, but we sent a very specific mail piece or an actual check to buy someone's home that says, Hey, you want to make this check? We'll give us a call. I went specifically to those neighborhoods and bought houses, so I'm buying homes for 35 to $50000. I ultimately acquired 41 of these homes called Commercial building, and that was in from 2019 to probably 2022. And as of yesterday, I sold 21 of those homes. They didn't double in value. Cool. That's the frustrating part. So I bought all these homes. They did not double in value. They about 3 to 4, accept some of their values. And I made a tremendous cash flow. Prices skyrocketed and it's the best investment ever in my entire life. So I sold 21 of them and I sold them due to the soft and hidden cost. So I love rentals, but these are already did what they need to do.
14:32They went from, you know, $50000 to $150000 or 50000 to 130, or they they always more than doubled and it came a time where I looked at managing those and can you do it had soft cost right. I get calls from the property manager I've got roofs I've got X all the things I'm great with, but I did the investment to do specific things and it did it. So I wanted to find a better way. It's like if all things were equal and I could have a better investment, would I rather have? CO one home or one building or 21? And so I want to walk you through kind of what I thought about. And so as you watch this, if you go, you click the show notes. We've got a couple tools we're going to reference here that are on our website. And one of them is just this what I call our rental tracker, a fair market value on all investments, but it's a rental tracker. And if you put all of this data in there and then you sort it, you're going to look at different types of return and try to see where's the opportunity in my portfolio. I believe you should be looking at all your investments and every year you should have a goal for every investment. You should be asking the question, did it perform like I expected? Is there a better place to allocate this capital to right as investors were always looking, can I get a better return with either less off costs? Can I get it easier, more efficiently with less noise? Right. That's always what we're asking. So net sum game I spent $1.3 million, 1.1 million $336,200 in these 21 properties. By the way, which of my my portfolio do you think I sold? First call? So I've got 41 houses and I'm going to sell 21. Do you think I sold the best? 21 I probably didn't. I sold the one that had the greatest repairs and were delivering the least returns to me.
16:11Right? So I had a way to measure that, which is that rental tracker that I gave you. So I bought these for 1.3 million. It closed yesterday. The the final sales price was 2.55 million. So increase in equity just shy of double. Now, the reason I say that all the investments again this is the worst portion the other side of is way more than double this section right just shy of double on the equity increase alone. Now what else is included in that, though? That's the equity. So I also cash flowed and I believe the real numbers here over $450,000 after debt service is what I made in the nearly four years I had these. So my profit all in is about $1.6 million. Plus I saved a bunch of money in taxes. And so I'm sitting there and the question I'm asking is, if I continue to manage these, how much soft costs will I have in my life, my staff and emotion and all that things thinking about these investments. So I look at where else can I go Now, mind you, there's a couple of calculations as you go look at your your historical performance of investments. I'm looking at my cap rate of purchase. So what's the rate of return off the money that's actually invested? But you also want to look at all of your investments value today. Sam Zell wrote a really great book called Am I Being Too Subtle? We lost one of our investing legends. We lost two last year, Charlie Munger and Sam Zell. But Sam Zell in his book Am I Being Too Subtle, talks about any day you choose not to sell your investments, you're choosing to buy them at the same price at today's value.
17:40Now, it doesn't mean you should always sell your investments. I believe you should buy real estate to hold it forever. I also believe that certain investments, as you grow them, you're going to want to roll those up in a larger investments that become easier to manage and make more money in a more efficient way. So I started buying a lot of single family investments. I'm still doing that. My goal is to rolls up into buildings, which I'll explain here in a minute. And so I looked at that and I said, Hey, these investments do what they need to do their cash flowing. But if I had the choice and I could take 21 assets and move that into one, in all, the math was the same. Would I do that? And so the answer I landed at was yes. And so I'm also in our in our investing world, in addition to the returns every year, I've got these rituals. I know rituals throughout my life. I've got things I do every day, the things they do every week, and things that every month, both on a personal on a health, on a relationship, on an investment side where I've got all these rituals in my life. And so at the end of every year, from an investment standpoint, one of the rituals I do is I look at all our investments. I say, Do I need to look at restructuring any debt? So if I did shorter term loans, like a lot of the properties I bought in Alabama, 1a5 year fixed mortgage, and then they would adjust the rate would adjust to market value. I was getting debt, though, at three and a half percent. Interest is what I paying on the money I borrowed very conservatively from a bank in Alabama. So I started paying down some of that debt because I knew that debt was going to mature and I had a plan for that. Again, debt's not risky. This is where I differ from Dave.
19:01I could see the debt expiring and I chose to use cash a lot. I had and had a plan. I knew when it was going to mature. So as rates rose and I knew my three and a half percent interest rate was going to adjust to say, seven or eight, I chose to pay that down out of the cash flow the investments created. I also look at what were my expenses last year because in rental properties, right, your market rent is fairly capped. I cannot take a $2,000 home in rent for $3,000 a month. Cool. That won't work. If I take it to a home that should rent for $2,000 a month and I price it at $3,000. Cool was going to happen. The potential tenants are gonna look at other homes for $2,000 and rent those so I can only my income is capped. My expenses though are the opportunity that exists in rental properties. Right. How can I lower the repairs and expenses throughout the year? I look at what if I were to sell that property and seller finance it become the bank in the transaction. Instead of being the landlord, I become the bank and it'll improve. It'll improve my returns. I also might look at, Hey, can I take this investment and transition it? Can I disposition it to a better an alternative investment or a different market that would have higher returns. So those are the things I looked at. And when I got all the way in there, I analyzed these 21 properties and looked at all the rates of return. Here's the thing based on today's value. So again, if I bought a property call for $50,000, the rents rate 50, the cap rate might be 10% per year. However, when that home $450,000 so I'm netting they bought a property for $50,000 corp and I net $5,000 a year. After all expenses, everything that is it, 10% cap rate. Now cause that property went from 50000 to 150000.
20:39The rent went from, say, $850 a month to 1300 dollars a month. Values, nearly values tripled, but rents did not triple. So my return my cap rate now on today's value on average for these 21 properties was 4.92%. I actually had properties in a given year that actually had a negative. CABOT How's that happen? Cool. I had a property that in AC unit and a roof and so that you're at a put in whatever, $25,000 now property wealth, the rent's only 18,000 gross. I'm going to lose money on that property for that year. The average cap rate on all 21 of these, I sold off today's values 4.92% based on the money I got. And so I looked at my best, the properties that were the best, the best of the worst. I looked at everything and I decided to sell these 21 houses. What I want to do is sell those 21 houses and I want to do what's a 1031 exchange. So you can if I sell it on a 1031 exchange, what happens when I sell the property? That money will go to what's called a qualified exchange intermediary, intermediary call, qualified exchange or media. So when from title the title company, they'll actually send in the money. So I won't text, I won't touch any of the money. It all goes to this third party and a third party. There's a couple of rules. I have 45 days to identify the properties I want to buy. There are some rules that you have to follow. There's one of three rules when you get to on another podcast. They could hold the money.
22:00I've got 45 days to identify the things I want to buy. I've got six months to close on them. So effective yesterday started my 45 day period. Well, I'd already started looking for deals. Why? Because 45 days goes like that. And I also want to get through inspection period to make sure everything goes out of the 45 days. I'm committed to closing and I can't add other properties to it. So then I started asking the question, What are the businesses that I believe in? I want instead of go to houses, I want to go to commercial and I want to go to ideally retail businesses that I believe are durable in everything. And so I thought of the one that co everyone does and no one more than a few people as office namely Sabrina love Starbucks in my fundamental belief is 20 years from now I think people are going to want to meet at Starbucks and drink coffee. I know it's a bold idea. I don't do it personally. I have a coffee machine in my house. Are things just wonderful? But people are going, I believe the Starbucks is a real thing. I think it's going to survive. This is going to make it. So I'm going to I am in the process of likely exchanging 21 rental houses for 2.5 or $2.6 million. I sold for four $2.6 million in a Starbucks call them numbers line up actually perfectly. And here's what's fascinating about the math. The math is actually going to be higher on the Starbucks than it was the 21. Reynolds is. And by the way, the difference in Starbucks is what's known as a triple net lease, which is net of repairs, expenses, tax insurance, every expense that you have as a landlord, all those are paid.
23:27It's called triple net. And all those expenses are paid depending on your lease. But in this case all are paid. So my net rental income is my net real income. I don't have to manage the building. I don't have to do anything. All I have to do is look at the lease. Did they pay? It's guaranteed by Starbucks corporate. It's got a ten year lease built into it. It's and they can have options to extend up to 20. So I am at the start of a ten year lease call the next ten years, I'm not going to have the soft costs. And so the point of this episode is isolating the soft costs in your investments. I also we think about the soft costs in your life. And so what are the costs? So let's compare Alabama portfolio to Starbucks lease call. So first thing, how many assets are we managing? How many different things are we thinking about? We got 21 versus one. Cool. What are you thinking? Is your manager 21 or one? I'm I'm going to go with one. Boom. Call two subscribers. Right? Answer Cool. Next thing, how many LLC is that? I have over 21 because you want to asset protection. The way I think about it is how much equity do I want to expose in each LLC that I have, how much equity exposure. So I had I believe five different LLC that owned those 21. Those 21 assets call on the new building. I'm going to have one LLC that's only in all the building. So now what's easier, call five or one. Keep in mind of those five call, each of those has a panel, each of those has a separate set of bookkeeping. Each of those has a tax return. You've got insurance policies. You got 21 different insurance policies as opposed to one.
25:02I mean, but all these things add up and we all look at it like, oh, it's totally doable now. Brett It's all the same. It absolutely is not the same. So we'll get there. And so now accounting to account for 21 rental properties, if when they go vacant throughout the year. Right, you can have probably three utilities per rental property times 21. So it's 63 rental utilities you're paying. So I would say it takes about 8 hours a month to do the accounting on 21 rentals. Now, how much accounting does it take? Call when you have one deposit, they call Oh, wait a minute, let me get it by QuickBooks and I'm done. So I think that's going to be 5 minutes or less. We'll call it 30. So you got 8 hours a month, 30 minutes call, go to tax returns. When you had five different lessees, your find five tax returns. It is more complicated. How many? And by the way, the amount of money to do those tax returns again, one asset, bam, one set of income expense is done 21 different lines on your tax return. Have you seen how it's done? And so what's it going to cost? It's not just five returns. I would argue that those five returns probably are cost 1500 dollars per verse. The one returns are going to be $2,000, maybe 50 bucks. How about renewals? I've got to change 21 different renewal extensions that are all annual on Single-Family rentals. One of the renewals come up every single year. We've got to get the 10% on. They can move out every year as opposed to what it is now, but they're to get a ten year lease code. We're not talking about renewals, by the way. The rules are already predetermined. Then they can go out another ten years beyond the initial term.
26:31By the way, every five years, automatically 10% rental increase automatically built in. I got to go to my tenants every year and try to get that increase. Now let's talk about vacancy, all of my single-family rentals. What's the question you're asking? Cole It is I budget. It'll be vacant one month per year. Is that true? No hope on my average single family rental property, my average tenant stays for 32 months, but I have to budget. They're going to move out every year because that does happen and if they do, it will be vacant for like 30 days as opposed to my vacancy call for the next ten years. Unless Starbucks goes out of business, they go bankrupt. I'm not going to have a vacancy. I might not have vacancy for 20 or 30 years. That's possible as opposed to one month per year. All right. Let me go down to rent collection again. Is it easier to collect 21 properties or one? It's going to be easier. I'm going to take it. By the way, Starbucks, corporate boom, drop your count, especially Alabama. Sometimes it might rain. Things get a little tricky, I got to tell you. So the eviction laws as you deal with rental property and states eviction laws are radically different. And I will tell you a story that in Alabama they are Arizona is very landlord friendly, non rental property. They believe that you pay your rent. No. If you didn't pay it out Alabama, they do a little differently. And I am from the country so I can do this accent. But the judge like, hey, we go Vick nobody because it's going to rain coming up Tuesday and weighing on Vick.
27:53Nobody in the ring like him. And I get up, this guy's in pain 60 days and I get it's raining, but we'll bring him an umbrella. I'm not anti tenant. I'm just pro getting paid. I had investments in there living in the house. And we actually I'll be willing to fix anything. We'll do any repairs. We need our tenants to pay rent. It's a real thing. Yeah. They know what to pay rent. They just can't be there. And it is the courts and municipalities, rules and laws that should move the tenants out that aren't paying rent. That's a very logical thing. We have to have this occur because we need landlords. We need people that want to provide. Housing is a necessary need. We need investors to want to do it and many jurisdictions are against it. And so because it could rain call and that can really knock things down for a minute managing all of that. So what are the soft costs? And I gave it to either what do you think it costs? Here's another way to think about it. Call If we have a thousand rental properties with property management, how much staff and labor and time and energies that take to manage as opposed to. We had one building that was the same price as a thousand rental properties. Now be a huge building. I get it. What's going to be easier to manage now? The question is, do you have the right building now? The risk all become would you rather have your diversified in this group of a thousand? I would argue that I'm much more secure with Starbucks than I am with the 21 tenants that were in my properties in Alabama. I think that's a better credit. That might as well be a Treasury bill. I mean, the US government and Starbucks, I put them toe to toe. I got to tell you, no safer investment. I will tell you what, unless something changes where they determine that coffee is bad for you, unless they come out on a rampage. But even then, all even even the good thing then wipe out Krispy Kreme.
29:28Cool. Okay, cool. I know you can't go propounding like 25 donuts. Okay, on a gluten basis for you, but I'm telling you, you could be could really be something. But even that fiasco didn't knock out Krispy Kreme. I'm sure they had a tough time. But Starbucks isn't going. It's never gonna happen. And so I just want to go back and think about soft costs now, think about soft costs as they relate to your life. What are the soft costs when someone invites you to go to do something you don't want to do and you do it because you feel like, Well, they invited me, I have to go. I've got to go to this party. Cool. On Saturday night because they have to go. I view that soft cost is very significant because I don't want to be there. Why do I need to go to a party that I don't want to be at As a 43 adult male club? I've decided that I only want to do things that bring tremendous joy. I want to spend more time with the people that I care about and figure that out. So I think as you make decisions, evaluate the soft costs around anything you're going to buy in every decision you make, because life does have soft cost. They're not only invest, but they're here. And the point of this episode was to anchor at a point that there's a better way to make more money, more efficiently, there's a better way to have the experiences you have more efficiently. There's a better way to have epic vacations more efficiently, more effectively, right? Every area of your life can be improved in every area can be measured and managed to create the most happiness you can enjoy in every single moment. So I want to tie all that out is we're wrapping up here today. Call with covered the soft cost one of the concepts that I think has fundamentally changed the way I think about time we're about investing money and that no two things are ever equal and anything you say. Yes to, you are saying notice something else and be aware as you go out there.
31:09You absolutely have to be aware of the soft cost. Before we wrap up today, I do want to talk about today's sponsor, who was a part of that deal. I did a cost segregation on every single rental property in that portfolio. What does cost segregation is a way to take the normal depreciation. And instead of taking over 27 and a half years on a house, you take it a lot sooner, which, if you are a professional real estate investor, will save you money on taxes. Get a free proposal from our sponsor today, which is SingleFamilyCostSeg.com Go to SingleFamilyCostSeg.com There'll be a link in the show notes and they will give you a free proposal. You do want to make sure you check that with your CPA prior to it. It is free. Check with your CPA and make sure that you could use the extra depreciation and then it would save you money. With that, we are here to close out Episode 0011. What are life soft costs? How can you be aware of them? I hope to see you on our next episode. 0012. It's got to be wild. See there.
One day in the room with Brett on your real numbers. You leave with a 5-year plan.
