When High-Income Agents or Investors Should Start a Second Business

0:00And so we kind of we missed that jumping in the day. And I think one of the challenges of a content creator that actually really does the thing. COOK Well, I think what makes me a little different is it's actually hard for me to film like, you had enough waiting for me, I think 4 hours to film today's episode. And it's not me being a jerk guy, so I don't get lit up in the comments. Nicole was locked in here. He had other things he was doing, but I'm actually like, really running businesses. Like I don't play an actor on TV that's like, Gosh, if I had a business, this is how I think I would do it and how I would tell other people to run a business if I had one. Here's how I might think about it. And that's what most content creators are today, right? They are actually not business people. They are professional content creators. Welcome back to be Wealthy with Brett Tanner. It is episode 0012. Cole We're way past the 1% Mark 1% of people get the ten, so they say, and how many get to 100? We don't know who's even tracking that. How would you even get that data? It's impossible. But we're back with episode 12. Today is about evaluating opportunities. So in our life, there's many different opportunities that are going to come to us. I'm going to talk about two different types and how to think about them. The main idea being you make all your money off what you say no to. And so before we jump into the day, I just came back from Kabul call it was spring break. My kids go to two different schools. We have two different spring breaks, so it's kind of cool. I get to go, I'm going to Kabul. I'm actually going to diving in Roatan next week. But I went to Cabo Cool, and I stayed at the place that had the best service of anywhere I've been in the world, anywhere.

1:27Now, here's what's crazy. Call where the Ritz-Carlton Zadun. It's a Ritz-Carlton reserve. I didn't know what that meant. Full disclosure to everybody. And we had a butler. So call this room. I actually would never feel comfortable spending this amount of money. And I think it's interesting on how we grow our wealth, what we spend money on. And I have this marker, I think all of us do a marker around how much a hotel room should cost and call. I think back to when I was in my twenties when I was 24, like you, a hotel room. This is going to blow your mind cause we were still going a thousand years old called, You know what your hotel room was when I was 24 years old. So this is 20 years ago, 150. Like a nice room like. Like for 50. If someone said $300, you're like, what? It's $300. Well, what is it? I mean, you would, but there was a lot of rooms. You would stay in would be 100 or $200. I mean, it's sort of like a world. I know it sounds impossible. So like, when I see this room is 30 $500 a night, I go, Yeah, I'm out. I'm just not doing it. I don't care if dolphins fly out of the ocean, into my room, into the bathtub and we get to pet them. That's cool. But no, I wouldn't do it. So I actually stayed on points cause I'm a big points guy. Our companies have a lot of spend, and so it was a way that I use those points and it was unbelievable. Unbelievable. The craziest part is it's packed 30 $500 a night, $4,000 and night drinks are insane. Breakfast call. This is kind of this is where I blew my mind. How much you think breakfast is to adults, to kids. The kids are eating like a kid's meal. Pancake type situation. What do you think? Breakfast cost in Cabo at the Ritz-Carlton?

3:03If it was if it was $250, I'd be like, Whoa, okay, well, like 100 and, you know, 25, 25. The kids prepare to get your mind blown to 25 to do that every day. That's that feels insane. But that's feel like it's a nice place. It's like that's what a nice place would be. You know, the place had a beautiful view, but I wouldn't say I mean, it's a pancake, so I don't know how nice the pancakes can be. It's like there wasn't anything. There was nothing magic in the pancake called pancake. No gold flakes or a country. That would have been cool. But I came back from there. I am a I went fishing. I cut the biggest marlin. I didn't catch it. My ten year old cod 110 inches, which is 400 ish pounds. We didn't measure, but I got we could draw a picture up actually, or drop the shorts, but unbelievable. I love fishing Cabo. It was amazing. And last episode we talked about Dave Ramsey, so I did two episodes on Dave Ramsey and what I think if you didn't watch them go watch both Episode ten and 11 on number ten, I discuss what I thought about Dave Ramsey. There was a lot of people said I missed it. Call. I was off the mark. I was totally out of touch. I didn't have his all of his true teachings. And I took the time on episode 11 to actually go to his actual website. So unless he was hacked, which I don't know, we will confirm that was hacked or not, or if someone hacked all the writing in those books he wrote.

4:20If they didn't, I feel like I nailed it on episode 11 where I really walk through some of Dave and where he and I disagree on the wealth building journey. So go back and check that out in today. Again, I want to dig in, call everything about opportunity. I built this selfishly as a serial entrepreneur who wants to start a company every single day. And I had to have a way that when I think about starting a business or I think about an entrepreneurial endeavor, how do I how do I think about it methodically and how can I say yes to the right things and say no to the wrong things because it's all about saying no to the right things. You can say yes to what you really, really want. And it took me a long time to understand that I think is your younger you're more prone to say yes to everything. And maybe that's pressure from your friends or your parents or your family. Hey, come along. Let's go do this. We're going to do all going to do this thing. And there's this. I don't want to say obligation, but there's just this pull to always say yes. And I was one of those people, too. And as I went down the business arena, the more things I said no to, the more available time resource capital that I had by saying no freed me up to say yes to the best investment, to say yes to the best business, to say yes to hiring the best staff. And for me, that made absolutely all the difference in my life. And so ultimately, I created a criteria and I want you to go do the same thing. And so as I jump into today, I got a few pointers here to keep me going and I want to jump in there. So when we think about opportunity, call the first thing we think about what is an opportunity cost, right? Opportunity cost represents the potential benefits that an individual investor or business misses out on when choosing one alternate over another.

5:53Because opportunity costs are unseen by definition, they can easily be overlooked understanding the potential missed opportunities when a business or individual chooses one investment over another allows for better decision making. And so we filmed an episode we'll link in the show notes that was all about soft costs and the soft costs in life. We talked about that and so what I want to want to talk about here is just all about how do you evaluate opportunity. All right. Today's sponsor is, I believe, the best education in the whole life industry. So we've got a lot of questions that are come on the website about whole life. And we're going to film an episode in the future about whole life. For those that are looking for more information, go to save like a bank dot com and start your education. You can sign up for their free education. Honestly, they should charge a fortune. It's so good. Go watch the education and get knowledgeable. So when I film the podcast you can ask the question of is whole life insurance right for me? So there's two types of opportunities we talk about today. What if you're going to buy a business and how do you evaluate it? How should you think about it and not due diligence, but how should you think about it mentally if this is something you should do or not? And second, we'll talk about how to have a real estate asset. We'll just use simple real estate asset and it would apply to a building or apartment building or commercial building. We'll really talk about what I think about when you when you're looking at how to evaluate those opportunities. So right now, I would have you go plot a plot, a sheet of notes, plot a page and write down three potential businesses you're thinking about starting or you have interest in or might start right. Just dream a little, write down three and then I want you to circle and pick the one that you could start the soonest.

7:21This is the one that if you were most likely to do something tomorrow, if something changed in your life, this is the business you would start. Or if you own a business right now, this is when you would think about starting in addition to the one you have. So when you have that business and I want you to think about your current criteria that you have to evaluate a business, what would you normally be thinking? And then I want you to ask yourself these questions. And so we'll will link all the questions in the show notes, but I'm going to ask you the questions and kind of give you my feedback on them. So, number one, the first question I ask, what is the upside of this business when you think three years out in the future and things are meeting your expectations, you're not living your wildest fantasy call. This isn't like you're going to the Ritz-Carlton and having $225 breakfast everyday type money call. But three years from now, this business is performing exactly like you want it to, okay? It's doing everything you wanted to. You're happy, you're pleased. What's that dollar figure? And boil it down to an annual dollar figure. When I first started playing this game, I would start a company. If I could make an extra $100,000 per year, I was willing to start that business and made a lot of sense. It would grow my income. You know, that was a very critical number to me at that time. Today, the way we think about it, right, if we're going to start a company within three years of we cannot get it to $1,000,000 net. It is not a venture that we would start. It would make more sense to spend time on our current companies that we already have. And so we kind of we missed that jumping in today. And I think one of the challenges of a content creator that actually really does the thing. Cook I think what makes me a little different is it's actually hard for me to film like you had an app waiting for me, I think 4 hours to film today's episode.

8:50And it's not me being a jerk guy, so I don't to get lit up in the comments. A call was locked in here. He had other things he was doing, but I'm actually like really running businesses. Like I don't play an actor on TV that's like, Gosh, if I had a business, this is how I think I would do it and how I would tell other people to run a business if I had one. Here's how I might think about it. And that's what most content creators are today, right? They are actually not business people. They are professional content creators. So code we're not professional content creators. I mean, you are, but I'm not is Why is it so hard? You're actually you're running a business and we can't create the content about it, about running the business. It is a weird thing, right? It's being a teacher. Presenter. I think it's more cool if you make it up cool because it sounds really awesome, right? Like, I could really make some of these business. We have some real cool if I made it up or like, what if I talked about what I think it would be to have it. Like, you know, think how cool of a business you could make up if you weren't going to do it. Guided by Crush Online, what would be your all of your business if you could make up something by something related to Mars of the Moon? Astronaut, Cowboy, insanely astronaut, cowboy out of the gates. Are we doing this? All right. Podcast. Next week, the astronaut Cowboy Fine is everywhere, so. All right, so we're back. Oh, there was a tangent, but you actually got to think it's not an astronaut cowboy business call, but three years out, what could this business make? What's your number? It has to be worth your time. Hey, if you like what you heard so far, hit the subscribe and give us a review on Apple Podcasts.

10:13It helps the show a bunch. It keeps Cole and I going. We do read your reviews. First one from Bubba 12 K very tactical down to earth wisdom. Bret and others alike are what is needed in my life to stay the course and be disciplined. Building can be such a lonely struggle at times. So I can see. So I can appreciate how Brett delivers content in the blunt way it should be delivered. His beliefs at home to me and are spot on in how I see the world. Years ago we did meet at a Keller Weems event. That's cool. That's awesome, Bubba. I appreciate that. I try to be a truth teller. Cole in a what I believe is largely a fake world, and that's a very hard thing to do. It's a very hard thing to do. I'm going to go with Bird, Man. Deuce Oh, first of all, greatest, greatest name ever. Burt Mendez with Social media, anyone can become an influencer and get people to start to fall in and take advice from people that have no business giving it Brett's the real deal, and the only share is what he's personally doing in his business. People have been around the world for a while, have paid thousands of dollars to see innovation. This is pure gold, I'm sure, to my team, my friends, my family. Thanks, Brett, for all you do to keep up the right content. It is our pleasure to be here and serve you. So please tape us. Go out there and get us a review. Cole, Do it. Do the right thing. Give us. Give us five stars. If you feel like today was solid, I feel like we nailed a five star. All right, Number two, what are the dangers or challenges? Right. So when you start this business and you think about it, what are the dangers? Are challenges in that business? What are you missing?

11:43This is where you want to think about all the blind spots of things that could go wrong. And if you read that book, The Six Thinking Hats, this is where you're thinking about the blackout. Like, where are the problems? The challenges? What have I overlooked? What are my obstacles? What can go wrong in this business is I go to hit my goal that I defined in number one, right? If I'm like $100,000 in three years from this business, what are the challenges or barriers or competitive things that are get in my way. All right. Number three, third question I ask, do I have the right jockey for this business? That is not me, because businesses are going to require management, people, time, effort and things in a you already likely have a job. All of us have a day job. So again, this was a business that you are starting that you were not in the we're assuming if you have a day job, you're keeping it for the time being for the sake of this exercise, If you have a business, you're staying running in your current role in that business. So you need to find the jockey, someone that's in that industry. It's either proven someone you want to bet on that's got the energy, the ambition to go do this thing. Do you have the jockey for this business? I will not start a business without the jockey that can drive it. That is not me. All right, Colt number four people never been a harder time to manage. People never been a time where folks didn't want to work in the last. It's a fascinating thing called the last three weeks. We're interviewing for some different positions in our companies and the amount of time someone said, Oh, is this a like it? This is a clear like an ad for an in-office position. Like they're going to come in to our office and work here. And one of the first things like, oh, is this going to be like, give me like a full 40 hours a week in your office like that?

13:14It's kind of like on the air, like in office, right? You know, 8 to 5. And you're like, how is it? How flexible is it? It's like it was a front desk position. So like, you're going to literally be at the front desk and you look in the door, it's a front desk. Well, can I work from home? Can you work the front desk from home of call? So this is why number four so important, how many people are going to be in this business? Because you only can have some of those conversations and then your hair just goes straight white. I'm in the edge call. I think I'm two clicks away from just straight white, like to be wealthy, but so I try to stay away from companies that have large amounts of human capital, not anti-human. I just the businesses that take lots of people to run, I find they're complex. I'd rather leverage technology or some other efficiency. And so I try to stay away from large people. Business is just something for me. That's part of my criteria. All right. Number five. Number five, you need to do a little self-reflection and ask yourself what you're bringing to the table. What are you bringing to the table? There's three resources in life, money, talent and time. Most of us in the beginning are blessed with limited money, limited talent, and lots of time. That was the gift I had. I just had trim. I had time, like just you can't even imagine all of it. I didn't have any money and I had very limited talent. So when I think about this business I'm investing in, what are you bringing to the table? You would always prefer once you're established and going, you would prefer to invest money, right? You prefer to make your money, not invest your time. Your time is very finite. Your money can be infinite as you go and grow it in. So I always want to be the guy putting in time.

14:39I'm happy to use influence but prefer all time. So define this business. What are you bringing to the table? All right, number six I measure noise and I think about noise a lot. What is noise called again? That's how your white hair noise is just this. You've got this business going, and on Friday night, you're going home. You're driving to date night with your lady friend. So I'll be driving a date, like with the lovely, lovely Taylor Tanner, and I get a phone calls, I'm driving the date and I call and it's like I see the call. Come in. You're going, Oh. Oh, man, That's noise, right? That is a noisy business. So how many of those calls will I get again? I just. I ask myself. I didn't see an example is a noisy business. Maybe construction. I love, love, love what people do in construction. We have a number of trades that work on all of our flips, but that business is is noisy, right? There's a lot of people in it You're counting on others, and so there's a lot of noise that can get created. So I try to stay out of noisy businesses. All right. Number seven, I want to look, is there anything special or proprietary in that business or anything unique? What's the moat around that business? One of the reasons I love hard money is I feel like that there is a moat, right? You have to have enough cash to do one loan, Right. So that might be 2 to $3000. Want to play in the hard money game? And so that is a relative moat. Also, certain states require licensing. There is a number of issues that can come up. It's a little more complicated in terms of the paperwork you're drawing, loan docs, you've got a promissory note. And so that gives you some sort of moat around that business.

16:07And so I love business where you've got some competitive advantage. All right. Number eight, Number eight is probably the most important. It would be the most important factor in determining will you have initial success in the business is do you already have the customers for this product or service? I can't tell you the businesses I've started where I already have. The customers are a thousand times easier call than the ones that I start where I don't have them. I sort of a cryotherapy franchise and call that didn't link to any of our other businesses. I just went and froze myself once and said, I got to be a part of this. This guy is touching a button, putting some cold gas on people in charge in $85. This is a business I want to be a part of to freeze People in cryo can tell you we flipped that business. We sold it. We're going to we were actually going to create a franchise with a franchise or call. We only got to store 1.5 and we call it we called it Trap sold that. But we already we didn't have the customers in our existing companies for that. It made it a made a lot harder. And so any time you start a company where you already have a customer or a link to that customer, that's a logical path for them. Again, if you're in a real estate transaction, the things that touch that business right from mortgage title insurance, those kinds of things make sense to play in that game. What is that? Is there another vendor product or service that's kind of in the line of your particular business? All right. Number nine, does it require travel call? Again, I mentioned I love to travel for fun, big travel fun guy traveling for work is not my favorite. It's just it's absolutely some people love it. A lot of you love to travel is not my dream.

17:37And so for business things that if I'm going to start a company, it requires lots and lots of travel. I want to know about the front end so I can think about that and prioritize my time accordingly. All right. And last thing, how passionate on a scale of 1 to 5 where four is not an option, how passionate are you about this opportunity? And I'm going to give you two ways to think about it. Maybe your passion for the business. So scale of 1 to 5, you can't pick four. Where are you in your passion for the business? The other thing I think about, I have businesses where I'm not that passionate, but the jockey, the person that I have in there running that business for us, I am a five out of five passion for them. I do not believe you should start any business that you're not a five out of five passion for free to the business or the person. Because when things get hardcore and when you're out there crushing it because it's not all roses and sunsets, cool. It'll be a blast when you start a new business like the first the first month or two months or three months of any new business is like the best because it's like it's all fresh, There's no residual problems. It's all new. You're figuring it out, learning it, give that a decade. Okay? And so that's where if your passion isn't there, sometimes you're going to flame out and you've got to have the passion. Want to stay in it when it's hard and you got to believe in a bigger cause and know where you're going and get a tribe of people to want to rally around. And can you create a world big enough that they want to be a part of it? And so you having that level of passion is what's going to drive your organization and let other people want to be a part of your vision. And it's so important that passion, passion trumps almost anything, right? Passion creates momentum. And it might be the most important question is how passionate are you about the business?

19:09So I'd have you go back and I would I would think about adding any other questions to it. Now, I want to give you I have a really good friend of mine who added on to the questions called This is a person much smarter than me. Actually. People know Roland Frazier, a buddy of mine, the guy we taught together, Roland Frazier, great dude, another great content creator also doing the thing. Here's the thing about Roland. Here's his problem with this content problem. He's got one incredible content. He actually does the thing like real guy actually doing stuff, you know, So you're not buying a camera all day to say. And I wonder, would it be like if I actually did something? No, he's a guy that does it. So love Roland. Here were some of his criteria, so I'll speak a little to him. He said, number one, do I like the people covering this business? I like the industry like the people I interface with in that space. I do. I might actually have to change my crazy. Haven't seen you in a minute. Does it look fun? I think it is important. There are certain businesses that look fun that are fun to be involved with. You've got great people. You're doing things that are enjoyable. Like, I don't know if I could have a if I could have a charter boat business school where I somehow get to fish with the customers. That seems fun. Like my Jim. He asks the question, Is it already profitable? I guess a good one. Is it already making money? Right? Can I buy it? A multiple is already actually making money. He asks. Can it be worth $10 million or more to him in the next six years? So pick your number. How he uses six years out and really got there. But is it worth X dollars to you in that period of time?

20:42What's that number? Let's define that number. Does it already have trends? I'm sorry? Does it have traction slash product market fit and they already nailed their customer. I mean, a larger organization and they've got a working product. It's it's got a sales funnel, it's got operations, it's got repeat customers. It's on the wheel. That business is moving. Is it already earning over $1,000,000 in topline? That's a really interesting question. And the reason I think that's interesting is it's actually it's ten times harder, in my opinion, to get the first million in top line than it is to add the next million to go from 1 to 2 million. It's ten times harder to get that first million. So getting a company, it's already got there, right? You're taking that initial kind of rocket call when the rocket's taken off. A lot of call, a lot of forces needed, a lot of force is needed to get there. But once it gets other call, it's easy to go. Think about that call. Think about that for a minute. I don't know what the graphic would be around that, but give me some incredible. And so does the model scale easily without a large capital expense or investment, Does it scale easily or is it some businesses as they grow, they start lighting a lot of money on fire. I got to keep buying more equipment, more inventory or something like that, and it could shoot up a ton of capital. So does the business scale easily without a large capital investment over time? Is it any long term proven market that is not simply hot because it's new or trendy or cool? Because the NFT game, you know, goes to all the kind of eclectic things we hear about the influencers on the right now? You don't have to go very far to hear about all that's going on with Bitcoin. Well, there goes my business idea, you know, it's just like, I just like that.

22:14Well, that's why you can't be in the trendy things. Like our friend Roland says, All right. And is it free of a lot of regulatory regulators, free oversight? Is it free of a lot of regulatory oversight? I think those are great questions. Add to the list. So what I'd have everyone do, go back and create your take my questions, take my friend Roland's questions and what are the questions that matter to you? Pick the top ten. Take my list equals add on your own and pick your opportunity creator, because no matter what happens, you're going to have an opportunity come to you. You're going to have something hit you in the next 30, 60, 90 days, and you're going to want to have an ability and a method to work through it. I keep it right at Apple Notes. When I think of a business, I pull it up and I run through my questions. I start asking, okay, what is my upside? What is this worth My time? All right. Second thing courts talk about, let's go off. We're going off business. I want to talk about a hard asset. So we're going to go we've got our businesses crushing it. We want to make an investment. And so how should we think about valuing a hard asset? And for this, I think a stick of it. Let's do a single family home. So what do you want to look at when you're looking at buying a single family home for investment purposes? First thing I do is I pull the cap rate. I want to know the cap rate of the property, which is the capitalization rate that assumes you paid all cash. There is a point to this, and some people say, well, lose the cap rate. They only look at absolutely not. I look at a number of things, but I think the cap rate tells me in about 30 seconds whether I want to move forward, I'm evaluate the deal.

23:31So the first thing I'm gonna look at, I'm going to plot and I will will drop a link call to these calculators that were it's a basic just excel that'll show you how we think about a cap rate. It is on BLT Broadcom slash resources doing a bunch of good stuff there if you go to B wealthy Brett dot com slash resources not only do this calculator change your life change your life, change what you think. Change you change the way you look at things. Call the things you look at change. That's what's on the website. Write that down for a minute. Let's think about them. So you Google this calculator, plug in the annualize rent, and then you're to put in the actual insurance of what that would be. You can estimate it, but hopefully you get other rental property, you get a quick quote online, pop that in there, get your annual taxes. If there's an HRA, put that in there you're going to go through what's the management fee? What are you paying most? Even if you are going to self services, probably you're going to manage yourself. You need to put in a 10% management fee. Why? If you make more money, I'm sure you'll be cool with that. But I want a budget for you that if you were to pay a management fee, you're already accustomed to it, you've got a built in and you're buying the property, assuming you didn't have to do all the work yourself you choose to do. So that's great. We want a budget for it. Without that, then we want to go. I want to take I want to assume that whatever the rent is, if a property's renting for 20 $500 a month, I want to assume that out of every single year I'm going to spend one month's rent on repairs throughout the year. So if it's 20 $500 per month in rent, I'm going to spend 20 $500 per year is my target goal. Now. Cool. That is very hard to do. There's some tricks you've got to do. You've got to landlord really, really well when you have returns. I tried all my first turn. Get rid of the carpet if I'm going to go all tile or wood plank throughout and I'm trying to reduce future turns and carpet because I don't care how good you are.

25:06All tenants, trash, carpet, all they do, they just it's a constant, ongoing thing. So the more things like that that I can invest in to drive down cost landscaping, having more desert landscaping, less plants, all those things, I'm trying to drive down my cost. All right. Vacancy. I assume that out of it's going to the tenant going to rent a11 year lease and it's gonna be vacant for one month following that. So I similarly vacant one month every single year or so. I estimated 20 $500 per month. It's going to be like in one month, cost me 20 $500. And then when I'm looking at the cap rate again, the net return divided by my my purchase price gives you the cap rate, the capitalization rate on my money. What is the rate of return I'm earning? And so if I bought a 250,000 or house like the one you can see on the screen here, and I had $30,000 in annual rent and those are all my expenses. And what I would land is a 7.18% cap rate. So people the thing they don't think about when a value of a hard asset is, is that cap rate good or bad? Well, it depends. So if you were to put me in a time machine and you were just all of a sudden close your eyes, call And I was I was a jump back to January of two years ago, 2022 and I could if I saw this property call and it's a 7.18% cap rate in Chandler. Gilbert Do you think I would buy it? I'd say yeah, okay. I would now today call same property sitting right in Chandler Gilbert Would I buy it just a tad harder? Ted Harder. Why is it harder though? Interest rates a little bit higher. So I refinanced the bulk of my portfolio in January of 2022. There was important reason you'll note that a minute in my bank, my local bank had said there was they were offering some offer where you could buy down the points.

26:48And I had a three. They could I could get it with 3.5% interest rate on a 30 year fixed mortgage on an investment property. I'd never seen a rate that low and I to pay points again for all the critics that'll come online. I had to pay points to do that. But and everyone said, I don't know why you're doing that. Rates have been low for so long. I'm like, I've never seen a 3% 30 year fixed mortgage and if I can refinance with cash out, call, it makes sense to me to take that cash. I'll put it in hard money lending and I'll do other things with them and I did that now. So all of I can go buy a 7.18% cap rate and I'm borrowing money at three and a half. I'm getting over three and a half percent spread. So every dollar I borrowed, every single dollar I'm making three and a half percent on the money I borrowed call Like that's it's insane because a license to print money now today if I'm borrowing money NRF percent and I'm only getting 7.18 now call you. It's not a trick. You can't make it up in volume like it doesn't work. I'm losing over a percent on every dollar that I borrowed. Like it's a simple idea. You have to have the positive spread when you buy property, there's three types of spread. You've got a positive spread. So I'm earning more in my cap rate than my long term debt cost. I've got a neutral spread, so if I'm borrowing money at 7.18% and I have a 7.18% cap rate now that's a neutral spread. A negative spread would be my interest rates eight and a half or 8.18%, and I'm only able to get a cap rate of 7.18. So I'm going to -1% spread. Will I still buy a property that that my interest rates higher than the cap rate? Yes. I just have to put a tremendous amount of cash down to get that to cash flow at the level that I need to hit my my monthly cash flow requirement.

28:26So the cap rates a great place to start. Hey, does this make sense? Where's it at in terms of the spread? What will my spread be and how much additional capital I need to put in to make this investment potentially make sense before evaluating else sorting starts with the math. Right. Number one, what is the raw math? What is the cap rate in it? Is a is a recovering deal junkie when it comes to real estate. I want to buy every deal I see and I will see a deal. And I'm like, oh my gosh, this thing's going to rent oh two. This thing's going to rent for 29 under a month. And I start going in, I try to talk myself in and I'm like, Well, no, but it's not 2900, 2500. And then I walk myself. I'm like, Man, this is a this is a 5% cap rate on it, on a house to buy with eight now percent debt. It doesn't make any sense. So first thing you've got to look at the cap rate. It's got to make sense. Next thing you want, you want to value your properties or rental properties out of it. You want to put them all and you want get all the data that we're going to give you on our rental tracker here. Again, it's what is our are going to be wealthy. Brett Dotcom duck, lamb slash resources kaboom, kaboom and go get this rental tracker. You should put all of your data in here and you look at a couple key numbers which we'll walk through in a minute. All right. So we're gonna give you a spreadsheet. You put all of your rental properties in here and you put all the data and there's a bunch there's a lot of data to put in here, but we're looking at a few key numbers. Number one, we talked about the cap rate off your purchase price, so we want to enter that.

29:44That'll never change the cap rate when you bought it, we'll never change. We just did them there sheet. We're going to end here. The next thing we want to look is your cash on cash returns. If you're going to put leverage on the property, you need the net income that you're going to make and we divide it by the amount of money you put down. Right? That's going to be your cash on cash returns. You want to calculate that? I love seeing 10% or more cash on cash cold, love a 20. Of course, who doesn't? But 10% is good. One of my rules on cash. On cash returns, I have to put I always put 20 to 30% down every single time when I'm buying something. Now it's a lending requirement. Even it wasn't a requirement. So I'm going to put a that's my look. I've got to be there to hit my numbers. After that, I still have to cash will $500 per month. So if I have to put 46% down to get to my $5 per month, that's what I'm going to do. And so you should not look at the cash on cash return if you're not putting that down, because cash on cash returns incentivize you, you have the potential for a higher return if you put the least amount down. If I only put 100,000 or if I only put $1,000 down, call and I can make $1,000 per year. Some alpha property. I'm making 100% return on my money. So the cash on cash reserve, but I could be taking exponential risk. So you've got to look at your cash on cash returns in terms of the risk profile, the last number to look at, you need to go all the way in the spreadsheet. When you get all in and you want to look at your expense ratio. And when it comes to rental properties, people don't talk about this, they all talk about maturity and rent. But rent is something you can't really control. In other words, there's market rent. If I have a property is $25 a month and I'm like, Oh, I'm going to rent for 30 $200 a month, call it, put it everywhere.

31:14I'm going to have open houses for tenants. I'm going to have a guerrilla jumping around outside. I'm going to win those dancy guys, right? I mean, I'm all that cool. You can't rent it. A 25 year old house call. You're not going to pay $32 a month. They're not going to do it. Doesn't make any sense. Right. But what I can I controls my expenses. Right. So if I'm if I landlord better and I can decrease the repairs, if I can lease it faster, I can reduce vacancy. Right. The opportunity if I can look at make sure my taxes are being correctly, I'm not being overcharged for tax. I might appeal my tax rate on certain properties where I think it's too high. And so it's all the win that occurs in rental properties occurs on the expense side of things. And look at that number for you that you like to have in there. I need to be at 35% or less to make money, right. To make the kind of returns I want 35% or less. So when I analyze this, I sought by it and if I see something that's say, 42, I go, Look what's driving that? And the best example I could give you call out these two rental properties, the two across the street from each other. And I was in a different city. The city ran down the street line. And so this city's taxes were $150 more per month than the city taxes, the tenants. These were two kind of 2000 square foot homes. Well, the tenants on this side of the street, they pay the exact same amount. So all I've chosen by owning a rental property here versus there was to make $150 a month less indefinitely. Long term, that it's not the most logical thing, cause that doesn't make a tremendous amount of sense. So I would just if I want to be in that neighborhood and keep that investment, I would do I would I would just sell the house and buy the other one. But or I could just have a spreadsheet like this and do it on the front end and know that ahead of time and go, Oh, wow, this is going to really affect my cap rate in my expense loads.

32:46Give me over 35%. This isn't me. This is going to be a hard property. Make make sense of properties with high houses very like low priced properties with very high archways, which we're blessed with that in Arizona call you can find a you know, you can find a $250,000 condo with somehow an eight in it or month away. And that's going to be really hard to pencil. You're going to need a different calculator call to do those calculations. It's very complicated. When get them to go in there, you need to do a cap rate what your and then you want your cap rate off purchase. The last calculation you want to do is over time, you want to keep adjusting your value. Once a year I'll go in and update the values in the spreadsheet. What is the cap rate of today's value? So you got net income today, but value's gone up. So you might have by I'll give you an example, if you bought a property for $100,000 and you got a fact check my math here, let me do my head of a property for $100,000 and that's $10,000 per year. That's a 10% cap rate. Now, that property, let's say it went to $400,000. Cool. And now the property's making $20,000 a year. Net. So the property went up for X, but rents doubled. So now call my cap rate. I just went to 5%. Fact check my math. 20,000 divided by 4000. I'm pretty sure it can be 5%. I think that's the results will be on the screen right now and boom, boom screen. So I believe that's right. So again, because rents didn't climb at the same rate as a property, so now I'm only getting a 5% cap rate. So every day I keep that property that for 2000 our house is netting me $20,000 per year every year. I keep it. I'm choosing to buy it at that price. Sam Zell wrote an amazing book called Am I Being Too Subtle?

34:19And in the book you just realize, Hey, if I choose to keep something because I could sell it and put that money somewhere else, I'm really buying it. Today's value. It doesn't mean run out and sell everything you have, but it means it's an important place to go. Look at it. So that example, if I could sell that property, even though my cap rates insane because I bought $100, I'm getting a 20% cap rate off purchase, I'm all you to 5% cap rate off today's value. So what I would do in that scenario, I had an investment where I get a 1031 exchange that invests that and so they get an 8% cap rate or 10%. Cool. That was possible. That would make a ton of sense from you sell that property and reallocate. I actually did this last week. I closed on a property and it was in Huntsville, Alabama, which you guys know I love. I'm selling my portfolio was it was outside of the Starbucks deal. I sold it and I sold it because I wanted to move that house into. I had basically the same scenario. I have a 5% cap rate and I actually in the middle of doing a 1031 exchange to a natural gas royalty college, you'll pay 10 to 13% returns. It's got there are some some white spaces there might draw more wells. But the point is I'm taking a lower cap rate by always trying to transition, in my mind a more efficient and better corporate property. So that's the other way I think, about rental properties. Hey, thanks for everyone that reached out about our upcoming mastermind. We are absolutely sold out. We are sold out for the May event. We are going to go to a waitlist. If you want to get on the waitlist for our Be Wealthy mastermind, go to the link in the show notes and we'll get on the waitlist in case someone can't make it. We'll reach out. But as of right now we are sold out and if it doesn't work, we would invite you to I think it's the September or I think our next event is September.

35:50So we've got the link there. If you want to join the waitlist for that. So call is we give you two things to think about here. But before we go further call, we've got questions from our listeners. But before we go to that, if you are enjoying what you're hearing, do us a favor, will you? Number one, subscribe. Don't miss out anything you do not want to miss what we're doing. Number two, give us a rating. But now we're going go to our questions. You can submit additional questions about wealthy Brett dot com. I mean you really there's so many ways to get there when you focus on what's possible. And so first question I flip houses I currently have three in two more under contract. I am leaving my 9 to 5 job to flip houses full time and receiving roughly $225,000 from my pension. Can I roll it over? Can I roll it over into my IRA to use the more flips? What would you do? You should be? Or the answer? That is most likely yes. That's what the expert says. Most likely, yes. I would say I would get my friends at Horizon Trust. I can roll it over my IRA or used to buy more flips. What would you do? So the answer to that question is maybe, maybe. Will you be able to do that? Possibly. I would go to Maxed out Retirement dot.com. We'll have a link in the show notes to who could actually give you the answer there, who we work with all the time. They are the best at what they do. Reach out to them and see if you can hit some plans. Most company plans will allow you if you're no longer there. So I don't think you'll be able to do it until you leave. But typically when you leave you are able to self-correct. Some you allow you do it when you're there, some will not allow you to do it at all.

37:15But the majority, when you leave, you would be able to, I believe, take that pension. Most likely move that to an IRA and you could self direct that and you could do flips now. Cool. Here's a critical part. You cannot go do 50 flips the kind of the guidance we're seeing for a transaction like that inside of a self-directed Please go get advice from your counsel, enter custodian and go check all this out and make sure it's legit because we're I don't carry license on my lawyer comment. A rocket scientist. I don't have any financial idea of the banking license. I just want to keep, you know everything legit mobile home one hate to brag on. Am I going? I'm going to be all my licenses but you I was all I even point that call by real estate flips you could do 3 to 5. So the answer is you could do 3 to 5 flips per year inside of your self-directed retirement account. If that's a Roth, you would pay no tax when you pull it out. If it is regular, you would pull tax out when you start distributing it later. So I'm the biggest fan of self-directed retirement accounts. I believe your money should be in your control where you invest and have an unfair advantage in. So I would absolutely do that. But check, I bet you're going to need to quit that job first before you can do that. Our next question is Lisa Stone with Keller Williams. And she said been thinking about the flows of money. Where do your business expenses come from? So the expenses just come right out of the business itself. The money that's beyond what is needed to run that business every month flows out of the business around and down into that wealth coordination account that is then used for your personal resources.

38:41So think about on your business, you're sweeping out all the overage and kind of getting it into one account so you can see your total available capital in. Is that growing every single month or is it going down? And so, you know, when to put more pressure on yourself to invest your money. And we can have a link to the YouTube video we just filmed that. I think I'll answer that question a little better. And so we can directly there. And so, Lisa, the other thing to think about, so when I point to those businesses on the right side of that video that are going to link to in the show notes, there's all the businesses are to the right of that graph. The expenses are coming out of that business itself. So that business account is getting the income and the expense, the overage, the extra money gets getting swept over into your personal world. I hope that makes sense. Last question from Brother Andrew. Derek, do you have any thoughts on a lend to live? I actually call. I was shocked. I have not read that book, but because I'm a voracious reader, I'm going to get the book. And Andrew, I can't answer that question that I want to. But if they want to do I going to read the book in to remind me, call on our next episode or the next one, maybe one or two. Somebody the a minute I got a whole reading list. I will nail that. And so with that, it is a wrap. I want to remind you of two things. The number one, two things I want to do that I want you to go back and I want you to write your opportunity criteria. Do not let this get away from you. Go to notes on your phone, go to your sheet of paper, go in your journal, Write out the ten criteria that are going to define what you say yes to and what you say no to.

40:03And then I want you to go. If you've got a rental property, go run those calculations, get that rental tracker, go to our website and grab that and start using it. It is something that will be of immense value to and it gets all of the information organized so that you can make better decisions. As always, call what our goal were to give you the final thought today. Final thought call. What do you got before we wrap? Got a lot on the spot. Your final thought is if there's anything you need, go to be healthy. Bread Dog council has resources. What do we not have? Well, we have a long way to go, but we're going to do a final thought from you. Final thought, just take any final thought as the business you might not be as excited about as you thought you are. If you when you do the you have to choose 1 to 5 and you can't pick four. Yeah, that should qualify. Most of the opinions and whether it's it actually go for not that'll eliminate 99% of them. I've tried it myself and I don't even bring them to you now. So just nine. If I'm a four, it's not even worth it. Well you can't pick four call. You didn't because the hard part, it goes down to three. And then I was like, whoa! And that was really far from five. And now and now is in the trashcan and just like that. Cool. That was a very good final thought. You nailed it with that. It's it's always a great time here at B Wealthy. I will see you next time on our podcast. I'll see you next time. Go out and be wealthy.