This guy knows everything about 1031 exchanges - Scott Saunders

Hey Winston here I'm with my good friend Scott Sanders and um Scott tell the people who you are. Scott Sanders I'm from Colorado I'm an expert on 1031 exchanges and I also do real estate investing and I'm growing and scaling a portfolio. So we are we are here on the Powered Investor cruise with Jason Hartman on board the Epic Apex the Apex. Apex. The Apex is an X class ship which has these cool windows in the back got a blind that comes down shuts it off that window comes down and gives

you a full balcony so it's kind of cool kind of cool. So we were talking earlier about a lot of different things with um with some 1031s and and maybe maybe doing a cost segregation. Before we get into that I just want to tell the people so what is what does your portfolio look like right

now? Right now it's single family rentals almost all single family. I've got 77 assets in total and I'm in about 11 different states so diversified probably overly diversified actually if I had to be honest and I'm just continuing to kind of grow and scale that portfolio. I love single family as an asset class I know some people like to progress to other things.

I think single families are just a great investment great return under supplied and they just provide a lot of opportunity for investors and it's kind of easy if you really focus to build a portfolio you pick up one asset you pick up another and you kind of build it together slowly over time and if you do it enough it becomes something fairly significant. So all of the people or a lot of the people that that watch my videos are fairly new they're they're trying to get involved with it.

The conferences that we put on are really at a at a level to help people that don't own any properties get in on people to have maybe five properties and want to scale up to 10 it'll it'll teach them how to do that pretty easy and stuff like that. So you have 77 assets across more than 20 states. Ten more than 10 states. Or more than 10 states. How did you find them? How did you buy them? Do

you manage them yourself? You know I do a lot of mine or what are called turnkey investments so I'll work with the company that will buy an undervalued asset they will fix it up and update it so they'll do a renovation on it put in new mechanicals freshen up the bathrooms the kitchens freshen up the landscaping so now there's a nicer quality asset I'll purchase it from them at retail so they're making a little money on doing that that's part of their business but I'm getting an asset

that's in really good shape so it's easier to get a better quality tenant somebody wants to move into a little nicer house hopefully they'll stay there for a while and take good care of the property. So that's the type that I'm going with and then most of those companies will offer property management locally. So I'm in Colorado but I only have one property in Colorado that I manage all the other assets are out of state so I like working with out of state companies that

really take care of that hassle for me. So are those people providing the houses that you're buying from them kind of like Jason Hartman's network does where they're selling houses? Very very similar to that exactly so they're just in different markets. So I like that concept but I'm a little bit confused on the return okay so when you walk into the door to buy a property from a company like that how do you what is the numbers you're looking for how do you decide

what's a good deal what's not another deal what's the goal? Yeah the goal for me if I were to make it really simple is that whole concept that you're familiar with of the one percent rule right so if you buy an asset for a hundred thousand you like it to rent for about a thousand that's kind of a benchmark and it doesn't apply to everything but that's just kind of what I look for. I'll tell you we're sitting here today beginning of May 2024 it's harder in this market with financing to hit the

one percent rule it's just harder to do that when you're looking at assets. You and I talked about when I just purchased a recent one paid a hundred and forty one thousand for it in Memphis Tennessee and the rent on it's 1350 so it's a little less than the one percent rule but here's the beauty of it that 1350 rent this year next year that'll go up to 14 or 14 and a quarter so I'll be at the one percent rule I just got to wait a year. It takes you a year 12 to 24 months to get there. Yeah

yeah that's what it is so I'll be there so what I'm doing is I'm buying an asset today. So can you go a little bit more in detail for that because I'm sure several people that are watching did not

understand what you just said. Yeah. So maybe break it down how did you get to the one percent rule after that and yeah so that particular asset let's just say it was a hundred and forty thousand the one percent rule for that asset would have been rent coming in at fourteen hundred dollars a month so if I had fourteen hundred a month I'd be right at the one percent rule and that's going to be a good investment it's not a home run it's not a bad investment it's just a good solid base investment

that particular one I'm now getting 1350 so I'm just under that in 2024. Most rents will keep up with inflation roughly in most markets so you could assume if I'm getting at 1350 I can renew with that tenant it may be a 50 maybe a 75 dollar rent bump next year so it'll release next year they call it fourteen hundred then I'm getting the one percent rule in 2025 even though I didn't get it today but here's the one thing I did pick up with that right now with interest rates higher

in the market a lot of investors are kind of sitting on the sidelines they're not doing a lot so I've got the pick of properties I'm in a great position to be a buyer and to pick up that asset today right and so I'm willing to be patient and I can wait a year even if it takes two years I can wait to get that ideal return because there's the beauty of it you know this Winston it's 50 bucks the next year but it'll go up another 50 75 and the next year and in real estate we tend to see

that happen year after year and there might be a season where maybe rents are flat for a yearish but real estate will just pick back up and you can kind of count on the rate of inflation pushing rents up at about that rate consistently over a 10-year time window so that's what I'm looking for is the long-term investment not what it's going to do you know just in year one but what it's going to do over the long term so are you putting big down payments down are you paying for it 100% or

now I'm getting bank finance they get a loan that particular one I put down 25% so I'll put down 20 to maybe 30 or 40 percent on a property you know so sometimes I'll do the bare minimum so if you're putting 25% down you know when I'm coming across right now with the 1% rule if if you're doing a commercial on at 8% you're you're barely cash flowing and and probably very fortunate to make just a few hundred dollars a year with that but if you're putting 25% down that's gonna that's

gonna fix that problem and give you a little bit more cash for maybe a little more room to maneuver and that was something that was discussed during the class today that any property of cash flow just put more money down with it right that's yeah which was funny to listen to them say that but that's true totally true and you know sometimes people think I gotta put down the bare minimum it's a lever that you can pull right so why not use that lever to your advantage you

still take advantage of leverage leverage if I put a leverage if I put down 25 or 30% I'm still getting some of the bank's money that I'm leveraging you don't always have to have maximum leverage to get the benefit of leverage I think sometimes people think I've always got to be as fully leveraged I can well maybe make sense on one deal maybe it doesn't and I agree with you in today's environment I am I like that boost the cash flow get that pushed up but maximum leverage

right now I mean I think there's too many variables in the market and our country right now they could go south and turn that barely making it house into a you losing your losing your ass in it yeah and you can't get ahead and you can't catch up and too many people go in that are strapped with money and they really can't take that hit right they start taking big hits and the next thing you know they are they're in a lot of trouble yeah well just didn't do their due diligence probably yeah

you do your due diligence or you're not savvy enough to plan ahead and have sufficient reserves so like a first-time investor I would say and I don't know what your feeling is but I'd say minimum three to six months in reserves to help carry you through maybe a tenant turn that costs a little bit more or it's vacant so I think the key for especially for first-time investors it's not fully leveraged it's the opposite it's have adequate reserves behind you so when you buy

that asset you can hold on to it because as you probably know in real estate over time you make a lot of money you build wealth the key is not getting bumped out of the game because you made some bad investments and you don't have adequate reserves getting bumped out wipes out more real estate investors and anything else time will fix any problem with real estate if you can just hang on to it I agree and so many people just have one bad experience and they never they never pick it

up again and never do real estate again or so like we even know they went into it with great intentions they didn't put enough money down they didn't they didn't do their numbers right they missed some mark of it and then they figured well you can't ever make money in real estate it's just not possible but they just didn't do something right they didn't get you know education isn't free and you will pay for it through a class like what we're attending right

now right or you're going to pay for it through experience but you're going to pay for it is coming there will be a fee yeah and that's what so many people look at and they think well you know I just go I'm just gonna go do it when you screw up in real estate and you're dealing with a couple hundred thousand dollar project or 150 thousand dollar project and you screw up that's a big deal if you're only making 60,000 a year right you know if you're making 250,000 you're okay you can wing

it I mean I've won that's how I started out I was making enough money I could wing it I failed and failed and failed and I said okay I can still cash flow I'm good and I was just moving with it but

you know if I had it all over again it would have been the education first. Well do you think that's what you do on your channel you're educating people with how to buy properly and how to do renovations I mean that's the value you add as you're bringing real life experience in and you're showing people what it looks like in real life right you're walking properties you're like this is what it looks like to do a renovation and you're walking through that you're showing a piece of

dirt and you're showing maybe here's the potential here's how I optimize that so how do you how do you do that when you're looking at real estate how do you decide for you what's what's your

optimal investment or is it going to change depending on the asset? So I'm very concerned about appreciation okay I like a market that appreciates now do I want a market that appreciates at 10 percent a year absolutely do I get it no what I do is I find a market that's and and I want a linear market so I want a market that's going to steadily move up it ain't got to move up fast but it's got to steadily move up all the time and there's not a whole lot of craziness in it where

one day one year it does great and the next year it loses twice what it just gained I don't want that kind of market but I also want you know if you I can pull up Nashville in that area and over the last 50 years the average appreciation for 50 years is five percent so if I if it's if it's and this is my philosophy you can tell me whether you disagree and I but my attitude is if it is appreciated 55 percent a year for the last 50 years I think I can pretty much count on five

percent and that's my attitude so when I run my numbers and I'm trying to dissect that deal down and decide what I want to do it I'm going to throw that five percent appreciation there now I won't throw more I won't throw more I'll only throw five percent even though I think because of the mass printing of currency and the dollar keeps devaluing the more we print and the government keeps giving money to other countries and it just keeps going down the dollar does so our

appreciation is going up faster if I google and and pull up the appreciation in Nashville for the last 10 years it's about nine percent okay so almost double yeah historically and I'm very comfortable personally to to look at it and say this is what I'm expecting I'm if the numbers make sense at the five percent I'm okay but but I'm expecting nine percent I'm not expecting five percent and and we'll I know you know when you talk with Ken and listen to Ken's podcast Ken

McElroy he'll say I never consider appreciation I don't know how you can't consider appreciation I mean it is a real thing and it is very consistent I mean it goes as the as the dollar devalues I mean it has to keep up with that number right right absolutely has to I think every real estate investor they consider appreciation yeah you have put you have to put in the equation you got four levels levers to pull you got appreciation you got cash flow probably the most important in the

beginning it gets the cash flow you got appreciation you got tax advantages you got leverage you probably have that fifth one I guess of what I call debt debasement right you got inflation making your property go up in value but it's actually reducing the cost of your debt oh yeah because that dollar if you get a fixed rate mortgage you'll be writing a check 20 years from now but it's not going to hurt as much I need an algorithm for that what's an algorithm

like what do you mean so I need I need so so a lot of times I used to I used to go in and I would say okay my break even number whenever I buy a house is 0.006 okay if I if I can hit 0.006 whatever the cost of that house was if it was in decent shape I can cash for that house and I could cash for a house about five hundred dollars a month positive okay so that was my algorithm so I would find out what the cost of the house is going to be I would look at it running at 0.006 if the numbers

worked out okay now I'm going to dissect it down and we're going to work with the numbers if the numbers didn't work out I would walk away from that deal and I would go somewhere else but it was a very simple math thing I could do in just a few seconds not a one percent rule a lot of people use that's what I need to do to make money I think I think once you get the one percent now you dissect it down and make sure okay what am I buying because a lot of people go with the one percent

rule and they got all these maintenance costs and okay now you make 0.05 you know you didn't right you made half a percent not one because you didn't take into consideration everything but so so my on that right there Jason was talking about inflation induced debt destruction and and that's what I told him this morning I said I need an algorithm for that what's the algorithm and he said I don't know I said I need a multiplier I don't multiply and get that number

yeah you know why it's hard to multiply you know we can't give you the number because inflation inflation is not consistent and we also have the other thing when we look at the inflation number everybody looks at the CPI right that's the government index that index was created in the early 1980s they manipulated I don't know exactly how many eight or nine different times so they adjust that index so what we call the official inflation number isn't really the rate of

inflation and we all know that we all go to get groceries and gas and we know what stuff you I got a thing of deodorant we know it's not 950 950 for a little stick of deodorant I used to buy it for three bucks and that's in the last few years so we all know that's that's bogus that's not a real number so I don't know how you take a number where it's bogus and then it changes right so if inflation by the government is nine percent I'm going to say the real inflation is double it's

probably 18 so how do you put that in an algorithm I agree I agree with that number I mean you know I don't know I'm gonna work on that I if you get if you get one if you get one let me if you get one let me know or let Jason know because we could all use actually if you can come up with one maybe you figure one out that's a good number for the algorithm that would be something we could all use maybe we come in at seven eight percent on what it looks like at seven eight percent

right inflation and say okay this is we can and I don't think I don't think we're going to get less than that as long as the government's going to keep printing money I mean the more they print money I mean and we've got to print more money next year than we print this year because our debt keeps going up right and now we can't even service our debt so we're printing money to service the debt right and it's it's just a very rhetorical I mean you'll keep on happening it's going to

happen and accelerate so here you know for the people that are watching your channel I think one thing they can benefit from we're all getting pummeled with inflation right whether it's groceries or other costs to service inflation the beauty of real estate is that it gives everybody a chance to use inflation to our advantage it's one of the few mechanisms where we can do that we buy an asset right we buy that asset and now if we do it we can buy it all cash we can buy it with

some bank money with financing now we've got a tangible asset and that asset is going to track with inflation but if we use some financing with it now we're using good business debt which means inflation instead of hurting us coming at us as a headwind it's a tailwind that's going to help us build wealth and so to me that's a real big advantage of using inflation and using it as a tool so rather than bitching and screaming about it because it sucks we all hate it go ahead and

turn that around and say hey how can I take advantage of what's going to be what the fed's going to be doing and how can I turn that into a positive for me and my family and I invest in so I think that's important so when you're buying the houses from these companies how do you what kind of performer do they give you what are they giving you as numbers you know you got to be really careful look at a performer from the companies they all vary and a lot of them are a little bogus in

my opinion they're going to throw in overly aggressive rates of appreciation they're going to put a number there for their expense ratio that I think is a little bit too low so I think every investor has to do their own due diligence you can't just trust it the company is selling product and what they're going to do is they're going to sprinkle the performer with a little fairy dust to make it look good and glowing and come out with a really nice number at the bottom what kind of

number do they typically come out with you know for example a lot of my suit put a vacancy they'll put three or four percent vacancy in there I don't do anything with less than seven and seven you know seven percent tells me it's going to go vacant one time every 14 months and so that that is a real consistent number I use and I can hedge that because we've got enough properties that we can probably go with a little bit lower number but I still don't I mean it has to meet the seven

percent in order to buy the deal yeah if it doesn't it doesn't I know on Jason's performers they're typically in between 30 and 33 percent of a throw off and what he's including on that is he's including he does not he does not include the depreciation number so he doesn't give you a depreciation number but he but he is including principal reduction okay and he is including the appreciation I think he uses like four percent on appreciation and that's reasonable that's a

conservative number and then your cash flow okay and so those are the three three that he uses but his numbers on his on his houses always seem to come in right in there at between 30 33 percent and and I and I and I don't notice I haven't had an opportunity to ask him but I don't know maybe he's basing the price on the house off of whether it yields that 30 return you know 30 return is what I'm wanting to offer my clients as a throw off number that might might be yielding you're

very minimal on cash flow yeah that could be it's because appreciation is a huge thing whenever you start looking at I mean you're getting five percent appreciation that's a big number if you're putting twenty thousand dollars down on it yeah you know 25 000 down it's a big number yeah absolutely I know some turnkey providers do use that formula to back into the pricing for the asset so some do that I don't know what Jason does with this so is that something you would suggest because

on on my channel I do push every aspect of that of how to how to buy and and I try to encourage people when I said that today during the class I said just go build one house right just try it just try one house for the experience if you you won't lose any money but if you make just a little bit that's good if but you might make a lot right but the experience is worth his weight in gold right really is and I'm so so I'm always pushing people for that and I do have people that have

done it and and I haven't had anybody that's done it that hasn't been successful with it well that's that speaks for itself so it's kind of it's kind of cool I think it depends on what you invest in they depend upon what you do for job how much capacity do you have so if you're working full time you may not have the hours in the day it might be tough to try and build a property so something like a turnkey even though it's not going to get you necessarily the best return

right it's a good solid return when you're building a place you get a control what goes into it and now you're going to get the markup on that finished product you'll get a better ROI by building it you know paying for the dirt and controlling the cost you're going to get a much you're going to praise here you can pull a lot of cash out of it with the turnkey you're going to get a good return you know it's what I call a base hit it's not going to be a home run yeah but add up four base hits

it's better around the bases it's better than a foul ball right yeah exactly well we all have a few of those too so so that's kind of my philosophy investing stack up a base hit buy an asset stack up another one another base a lot of base hits moves the needle you know so it's one way to get there I think doing the new construction you probably get there you probably learn a whole hell of a lot more you got to do one we got the partner on one one day I I should give it a shot

it ain't a ton of money talking about a ton of money would do something you know I'm not I'm not talking about apartment complex now I do have one if you want to partner on apartment complex we'll see I'm the I'm the single family guy I love so so we're gonna we're gonna talk we will kill this video a couple of times and and talk about stuff but one of the segments we're going to talk about is an apartment complex the apartment complex I got to build okay and how

before you and I talked earlier day before yesterday I didn't see an avenue that I could build it myself but now I do what changed well that's a different segment okay talk about all right different that's the hook so so for a beginner investor you have any specific advice you think just to just to be able to get a property and how they how they can progress forward and and have a positive experience yeah a few a few things I think first of all you got to set a goal

you got to decide what it is you're going after you want to be in real estate you got to set a goal and you got to put a time deadline on that whatever that is I like 90 day goals that's how I measure mine but let's say you're beginning investor you say this year I'm going to buy investment property fair time what does it take number one takes capital you're going to come up with a down payment so let's say you're going to need 25 to 30 grand to buy a starter single family

home in a lot of you know what I call linear markets kind of a midwest market similar to Texas you know I buy in Memphis 25 to 30 grand so I need capital a do I have that b can I get it easily do I have a 401k that I can borrow against maybe pull out that cash can I generate that cash quickly do I have stuff around that I can sell can I ditch a ski boat can I get rid of some motorcycles if I'm a gun guy can I unload I got 10 guns can I load nine of them keep one so if you really

motivate you want to get after it you got to get the cash so you can generate your own cash the other way do it as your partner with somebody do you have a family member that's got some money to invest you say hey I'll bring the deal into you you bring the cash right because there are different components to a deal and you bring out a lot of value by bringing a good deal a lot of people can't find a good deal people that are beginning investors they at least know what to start looking

for they know how to start to run a performer and how to do that so get the capital and then the first thing to do which is probably the most important is to go buy your first deal if there's anything where people screw up it's that analysis paralysis thing they're always looking for the perfect deal they want to home they want to kill it right Winston they want to knock the ball out of the park and kill it just go out and buy a good solid deal solid b it's going to get your return

going to make you some money and just do that get the deal I was part of rich dad education for about eight years okay so my contract with them was a three-year contract and I made I made their hall of fame in three years so if you're a hall of fame recipient with them then you can come forever to any of their classes that they do for free okay so I continued to go to the classes for another four years and I went to the classes and I would sit there in the afternoons and evenings and I would

talk to people about how they could do it because there's a lot of there's a lot of doom and gloom out there I just can't do it I can't make the numbers work this doesn't do this but the biggest problem I had was the amount of people that would go there and they were nice hotels so you're paying 400 a night at a hotel to attend a class right you're paying for your food you're paying for your travel because it was never where you lived you know you're paying for all this other crazy

stuff and the same people year after not month at the month I mean every single month they're there year after year after year saying I just need to learn a little bit more I just need to learn a little bit no you need to drop that freaking hammer is what you need to do and get on with it but but they never would and they would they would they would finish up their three-year contract and never bought a property never done anything and say they're still trying to get education and they

wasted all that money so much money going and spending on hotels you could have got your down payment just right there yeah absolutely if I didn't you know and I'll tell you someone I'm seeing now would be the first one to do it I bought some bad properties I've done some bad deals but I'd rather make 10 purchases and have one of them be a crappy deal that I need to unload and I can always fix that later I can always do a 1031 roll out of that deal whatever I need to do

but just go out and buy solid deals because nobody you hit a home run every single time I don't either nobody nobody does we know we know Ken McElroy and others nobody kills it on every single deal but if you if you have enough deals that you do you're going to get ahead and now you're harnessing all those economic forces you got to get into the game so if I say the one thing two words take action make something happen get it done get after it and do it and then all

of a sudden you're going to learn so much more by having that deal that you're not going to you're not going to learn that on a spreadsheet by reading a book but when you have an actual deal because guess what if something's going wrong I'm going to call a guy like Winston go I bought this what's going wrong and you're like oh you need to fix this this and that so investors like to help other investors out they but they want to do when you got something moving you can't do it unless you're

in the game with some momentum and then they can kind of take that momentum it's like this boat we're on right now this boat's cruising along it's really easy to move the boat a little bit a few degrees but it's really hard to take this boat right and create the momentum and get it going the propellers crank sitting still you got to and then it finally gets on a plane now now we're cruising along because we got momentum it's the exact same thing with real estate you got to have

some momentum I agree well um we're going to stop this now and then we're going to come back we're going to talk about some some cost segregations and 1031 for a few minutes and and we'll go from there sounds good so we're back and we're going to talk to Scott about a 1031 exchange and what that is and before it we go there his future soon-to-be wife has a question for the for the group and we were just doing something else talking about some land development stuff so

what was your question Nicole so my question is on your architectural and engineering what do those costs look like do you use the same floor plan so you're not incurring that expense over and over again what does that look like okay so she so she's asking about engineering are we using the same floor plan are we using the same architectural drawings what are we doing so when when i'm doing a land development deal so the first thing we'll do is we'll start off with a civil engineer okay

so we're going to hire a civil engineer he's going to come in and he's going to do the topography in the area he's going to find out what the dirt looks like he is going to i hire an engineer that does everything turnkey so he will meet with the city he will get it rezoned he will get it platted he will get everything done and the cost is usually probably so i got a 10 unit development that we're doing right now and i think i have about 20 000 in engineering fees with him

okay and that's for 10 units it'll be about 20 000 so on a typical unit i just had him do something for me for one duplex and i think he charged me about three thousand dollars i mean that wasn't much more than just a survey but he did that so so that's the civil engineer so then from there most of what i build i don't use an architectural engineer what i will do is i will grab a set of blueprints i used i do build the same footprint often you know i got a great footprint that's a

that's a very inexpensive build it's it's using you know basically just stock lumber where i ain't got a lot of waste in it you know if i buy a 16 foot board i'm using all 16 feet of it i may lose a couple inches but that's all i'm losing and and we pay attention to stuff like that but but like the town homes i'm building i had an i had an architect come in and draw the townhomes because i wanted a very specific townhome and it needed to fit i had topography issues where

i'm building i wanted a certain size i wanted it to look a certain way i changed it and i was going to go with two-bedroom two and a half baths and i wanted two master suites on it so that i could rent it to two adults that may not be together that are living separately but they can split the rent because rents keep going up and more and more people need to get roommates so i wondered if they're going to get roommates then i wanted to be able to bring a roommate in both

the people in the home have the same quality of bedroom bathroom walk-in closets and so it's a little bit bigger than i would like to build a two-bedroom home but i think the way it's going to win i think it'll be better so i'm very very confident i think my price on that was about fifteen thousand dollars so what he will do is he draws it all out actually so so my price on that was seventy five hundred dollars and he was charging me fifteen thousand but i backed him off on not

doing the sprinkler systems and i told him i didn't want to lay down the sprinkler systems the mechanical or the electrical for me and the reason i didn't want that because my planning zoning department doesn't require that um when i get ready to do the sprinkler system the sprinkler company that i'm going to use i will have the sprinkler company come out and lay it out the way he wants to lay it out and then i will give that to the city to approve they will approve it at

that time and as far as electrical mechanical drawings go our city doesn't require that so i use the same electrician every time and he lays my houses out anyway and even if the architect gave me something i would probably still have him lay them out because he knows how i like them and then um the air conditioning is the same thing a lot of times i will do air conditioning different than what they want to lay it out because i i don't want anything in my attic

i don't i want to i want to air handle it downstairs a lot of them will put it in the attic and then you have water issues whenever your your drain stops up and i just don't want to deal with that kind of stuff yes yes so i didn't have so he didn't have to do the drawing on the other one and he don't do the mechanical drawings or the or the sprinkler drawings he subbed that out to somebody else so he's got to pay another engineer to do that that's why i was

15 000 but if you know your area that you're building in what did it really require and get what they need and and don't go do a bunch of stuff that they don't need because your tradesman can probably lay that stuff out for you okay and so if you use the same template you're not incurring those costs no on future no i don't nothing i don't i don't the plans i got them on i own them and i and i can build them as many times i want to build investors that are

first-time investors maybe they got three four five units still within w2 job can they do a cost segregation and what is what is a cost segregation yeah let's talk about what cost segregation is it's a fancy term all the cost segregation means is you're going to look at a piece of real estate which on a residential property you depreciated over 27 and a half years so every year you get a little depreciation in a cost segregation study you look at that property but you begin to

reclassify parts of that real estate as personal property and the shorter depreciable lives which basically and it sounds like technical mumbo jumbo it just means you get more tax benefits now rather than spread over time so something like a ceiling fan is not going to last 27 years so that is a shorter life because it's going to wear out other parts of the property going to wear out so things like a wooden fence you're probably going to have to replace it somewhere along the way so

there's a whole list of those components in a cost segregation study you go in and it used to be really complex used to go in to have somebody fly out on site look at your specific property and it would cost a lot of money so it was done on commercial properties that's called an engineering based study what i do and what a lot of investors do that buy smaller properties is they do a software based study so there's now software where you can plug in the square footage of the property

what type of you know what do you have on the side is it brick is it you know whatever it is all the different components and that software will then break out based upon the information you put in the software it will then break out a study that will show you on your specific property how much of it you can get more depreciation on up front today so that's what a cost segregation study does now why do you do it because you can get a tax benefit if i can take more depreciation

today based upon the time value of money i'm going to get a better benefit than stretching that out out over 27 and a half years we know with inflation that benefit in 27 years is going to be worth what it is right now today so that's what a study is and what it does it gets a little more complex there's certain people that benefit a little bit more people that are considered a real estate professional can get some other benefits but a lot of people can benefit from doing this because

when we analyze our property right what are we looking at we're looking at cash flow we're looking at the rents that it kicks off but we're also going to look at our after-tax return so if i get more depreciation right now today that's going to boost my return on investment gets complex because the way the tax law is today this benefit of a cost segregation study there's something called bonus depreciation which just means you get to take a little more depreciation

now a few years ago you could take what was called 100 bonus depreciation last year it was 80 percent this year it's 60 percent and it's going to down to 40 and then 20 and then it may drop off under current law but there's some good news they're redoing the tax code next year and they're going to look at all the different tax cuts that were going on and say what are the things that help small businesses what are the things that help real estate hopefully we're going to get something

like 100 bonus depreciation back in the code a lot of people think there's a pretty good chance we'll get that cool what um so any investor can can use depreciation or do you have to be a real estate professional a real estate professional gets the benefit of using this loss against ordinary income so there are different buckets of income that are out there so only somebody that's considered a real estate professional can use a loss here on an investment property and use it to

offset ordinary or earned income but you still get a loss that that's a benefit to everybody so if i get a tax when we talk about a tax loss it doesn't mean you're losing money it's just on paper with depreciation so that's the beauty of it sometimes people will call that you know a phantom benefit right it's really on paper because i'm still getting cash flow on my investment but that cash flow you're not paying taxes on because you can't use it on your ordinary income but you can

use it against that cash flow of that property correct correct that's tax free basically yeah or you can use it later on if you sell a property and you don't do a 1031 exchange which i think everybody should be doing 1031s but if you don't i still have that loss that i've generated that can offset the capital gain on the property down the road so there are a lot of different ways to kind of use that i think it's always good to try and get that tax loss harvest it now and you can

use it right now or you carry it forward in the future years so when he said 27 and a half years so you're just taking the total amount of of the of the home you buy deduct the price of the land out of it because you can't depreciate land and then you take whatever's left over you divide that by 27.5 and you get to write that month that number off against your top if you're a real estate professional against your top tier incomes if you're in a 35 bracket 35 percent bracket you

got a nine thousand dollar number you can take the first nine thousand off at the top of your bracket and it drops it down and you don't pay any tax on our desk so if you're in a 30 tax bracket you know you're saving almost three grand yeah and and taxes that you will pay so so it is a great benefit i mean it's a great benefit to be able to to use if you're a real estate professional you can do it against your ordinary income at any time right exactly and just to clarify it's

27.5 years on a single-family home if you're doing any commercial property you now got a 39 years so to me that's a benefit of having single-family or residential real estate is to get in that shorter depreciation yep yep so the 1031 so we do the cost segregation okay to try and save some money now i have an issue so so let's let's explain the 1031 then we're going to talk about my issue okay okay so do we need to hit more on cost segregation or now we're good on

that so so the cost segregation if you if you go in and you do regular depreciation that's over the 27.5 years on a residential 39 on commercial if you do a cost seg then what it's going to do is it's going to break it down component by component by component so your air condition is worth x amount of years your your plumbing is worth x amount of years your lighting is worth x amount of years and they and they allow you to depreciate a lot of it off a lot faster so you can use that

money a lot quicker as to not doing a cost segregation so a cost segregation allows you to do it all at once yeah and just to kind of piggyback on that cost segregation doesn't change your depreciation benefit it just pulls it forward to where you can use it now so you're not getting more depreciation you're just getting the benefit of it sooner yeah just to clarify that so so that's that's the depreciation and cost segregation now we're going to talk about what a

1031 exchange is a 1031 exchange been in the tax code since 1921 been around a long time in the most simplistic terms if you look what a 1031 is i take any property that i hold for investment or i use in my business and i exchange it for another like-kind property that i hold for investment or use my business it to give you a simple you know contrast that with a sale if i do a sale i take a property i sell it and i get cash that's a taxable sale 1031 exchange i have a property held for

investment i give it up and i receive back another property that i hold for investment the benefit is the tax code gives a preferential tax break to real estate i can do this with real estate where i can defer paying my capital gain taxes and i could do it right now and then i could do it in five years when i sell the asset and then i can exchange it again so we have this provision in the code that allows a real estate investor to defer paying those capital gain taxes over and

over and over and over again and at the end of their lifetime they've now built up a larger portfolio when they pass away their heirs get it with what's called a full step up and basis meaning you're not paying capital gain taxes throughout your entire lifetime your heirs are not going to pay capital gain taxes either it is the tax is forgiven is that correct at that point the government forgives that tax the the tax you don't have it because the basis what your cost

basis is the cost basis of the value so so basically it washes out your your basis is exactly the value you inherit the property at so it's it's the best deal for real estate investors so so many people don't use it but they they give the government 20 25 percent of what they're making off of the property when they sell it 25 percent or more right you've got four different taxes you'll pay if you don't do an exchange your depreciations tax to 25 remaining gain is either

15 or 20 percent you got state taxes so you don't have that in tennessee but if you're in california 14.4 percent is the maximum state tax rate it was this pesky little tax that came about to pay k for health care reform yeah obamacare it's an additional 3.8 percent you pay on any income over 200 000 if you're single and over 250 000 if you're married so you got all four levels of taxes so people out let's say in the state of california or new york or high state tax areas they're paying

40 to 50 percent of their profit in taxes if they don't do an exchange it's crazy if you want to build a real estate portfolio the way to do it is to do this thing called the 1031 exchange redeploy because you get to keep all of your equity that gross equity pre-tax you get to reinvest it into another property or what savvy investors do is they'll take one property and they'll go into two and then you go from two into four and four into eight and then

you'll scale up and so you don't have to just sell one property one you take that and now that you've got that larger equity you leverage it up and now you scale your portfolio using the 1031 exchange it's the tool it's the way that people they get into commercial real estate they started with a little piece of land they wanted a little single family home and they got two of those and a duplex and maybe a small apex and before you know it they're now big players with commercial real estate

and it all started with that first little piece of dirt they got that they just rolled it over in a 1031 and they kept doing it wow so one thing he said the other day was that if you had a something that you was going to 1031 let's say it would turn into a million dollar piece of property when you were selling it was a million dollars that you could break that up into four you could break it up into numerous things like four different pieces of property recognize four

different pieces of property and put the 20 down maybe 250,000 down on each one of them and and then run with that and now you got five properties or four properties making your appreciation depreciation cash flow instead of just one all your eggs aren't in that one basket of one property yeah i tell you one of the things i did i had a piece of dirt i had two and a half acre lot i bought it for 90,000 i exchanged out of it 265,000 so that lot was cost to me money in

fact that was right before the downturn i had to pay property taxes on that cost me money it was negative cash flow i went from that one lot into five single-family homes so three in tennessee two out in kansas i got brand new single-family homes and now i was able to take depreciation i got positive cash flow and i diversified instead of having a lot near where i lived i went into two good markets right so now all of a sudden i got more units more going that put

just those five are worth 1.4 million out of a 90,000 dollar investment right that's what that's what people do with exchanges over and over so people that sell and pay taxes they're moving ahead a little bit people that exchange these are the people that 10 20 years down the road have a massive portfolio and everybody's like how did you get all those assets well because i didn't pay my taxes when i sold i just reinvested the money into more property a lot of times you'll

add a little bit of leverage right so you add the bank's financing to scale it up a little bit and you can massively grow a real estate portfolio by doing the 10 31 exchange so if you was going to do a 10 31 you could even roll it into it buy the whole property with it and then afterwards you could pull the money back out and a loan and now you got all that money back in your pocket but you own an asset keep it where it can't where it cash flows you you basically pull the rest of the

money out and do go do another deal with it go make more money with it produce more houses so another thing he was talking about was so i got this piece of property was talking about a minute ago where i got a piece of property where i can put 10 townhomes on but i already own it i only own one of my llcs so i already own that property right and you know i got some property i can sell but if i sell a property i'm gonna pay 30% tax on or whatever right and i'm like i don't

want to sell that property lose 30% of the value of that property and go put it over here right and you made a comment that there's ways that i could do that and possibly be able to 10 31 exchange that into my new construction project that i already have yeah so when you look at exchanges 97 percent of all exchanges are something called a delayed exchange sell a property when they close on it i have 45 days to identify a new property and then a maximum of 180 days to actually close on what i

identified call that a delayed or deferred exchange but we've got these more creative variations they're called parking arrangements we got guidance from the government on this back in a year 2000 so a revenue procedure came out that provided guidance to you can do things called a reverse exchange buy something before you the new property before you sell it what you're talking about is what we call a leasehold improvement exchange so the irs says you cannot exchange

into property that winston owns can't do it that's just the tax law but due to some creative people doing some planning you can create a new interest on your property your dirt create a new leasehold interest that's 30 years or greater sell a property over here take that money and then we make improvements on your leasehold interest and then within 180 days so we still have that same time parameter we transfer the leasehold with the improvements that we put on it back to you to

complete your exchange so your piece of dirt we can do what's called a leasehold improvement exchange that meets those requirements completely valid under the code and it's a creative way for you to build on dirt that you already want to build on anyway that the tax code said previously well you can't build on your own dirt but we're going to create this new leasehold interest on your dirt put the improvements there and get it done so does that change the way i do my bookkeeping does it

change the way i manage your property does it change anything like that nothing like that at all but i got to pay a certain amount of money to for the lease every year or you you do for a period of time so you have to do the leasehold normally keep in place for a couple years and then it kind of gets extinguished down the road and we've got and just so we've got guidance for that so in five years from now if i wanted to sell it i can still sell the property sell the property with all the

improvements on it it's just one sale to somebody so the cool thing about the tax code is you know those that came out of some commercial investors wanted to do something a little bit creative and they went to the irs and approached them and said hey these we'd like to accomplish this can we do it and the irc yeah we you could do that that'll qualify and then another investor did it so we got some tax guidance so one of the cool things about the tax code is

the tax code evolves over time but it provides all these tools and mechanisms for real estate investors particularly right it opens up some planning opportunities the tax code encourages investment into real estate right the government wants you to buy real estate and develop good quality housing and to provide quality housing to people in tennessee so there's certain activities that just on the big picture the tax codes encourage reinvesting into real estate i just

got back from dc a couple weeks ago meeting with people and explaining to them the economic benefits you know with the 1031 exchange it contributes annually 97 billion dollars to the economy just by annual basis of doing exchange and something like 980 000 jobs are created just from 1031 exchanges well the government wants to encourage more of that right that creates jobs redevelop things improves housing a lot of the stuff that you see going on in a lot of cities

where people are doing redevelopment those are exchanges happening where people come in and they'll buy a saggy area they redevelop it with a good anchor tenant and all of a sudden you got a neighborhood that was on the downhill slide being completely turned around because somebody didn't exchange in put a good anchor tenant in started developing some pad sites around there and now you got a hub what was kind of dumpy and undesirable becomes the exact opposite

and what does that do it improves the value of the community more people want to move there more people want to live there so at the basic level you know exchanges are a tool but on the more macro picture it helps with redevelopment and really turning around neighborhoods and improving communities and i'm seeing the same thing happening happening now on on opportunity zones and stuff like that because i bought an opportunity zones where we come in and we we tear tear down a piece

of crap man and put in a beautiful apartment complex or something like that and it improves the whole entire area so so can you explain what you explain to people they're watching what is an op i mean i know what an opportunity is but what is it fundamentally so so i don't know the the salary i know whenever i think it was like 35 000 needed to be the median income it's it's in the 30 000 range it might change year to year i'm not sure but when i bought an app that opportunity

zone what the government did they came in and they said we need to entice people to invest in this particular area so it's not an area that's trashy it's just an area where the people don't make a lot of money the people can't afford a lot of stuff and everybody overlooks that area because investors don't come in because there's not enough money there so what the government says is if you sell this and i sold a company and they said i could invest into an opportunity zone with the

money that i had and i would have to pay my taxes with a 15 discount after seven years so then seven years from then i got paid taxes and then if i hold that property for 10 years i don't pay any capital gains that i want to sell it right so that was the incentive with the opportunity zone just that you go and invest there so the government created this cool tax incentive to bring capital in and if you hold on to it after 10 years any gain beyond that is completely tax

free and that'll be about a nine million dollar project by that time by the time we hit that thing it'll be worth about nine million so we're talking nine million dollars that you don't pay a penny of taxes on yourself right and what incentive do i have to sell that right now none zero and i'm stupid if i do so think about it you got you made a great investment but think about the community you took a community that people were overlooking that really wasn't getting capital you infused capital

in you put it created a better building right so you added value to that community which when other people are doing that now you have this whole segment that was a little underserved let's get the benefit of all the capital and what's going to happen it's going to become more desirable it's going to add a lot of economic benefits so nationally i can tell you that opportunity zone legislation has helped revitalize lots and lots of communities around the country so it's been a

powerful economic incentive for an investor like you to come in and do it get a tax benefit but then it helps the whole community so i that's what i love about the tax code tax code helps transform communities create jobs and it does a lot of positive things so their apartment complex was an extremely rough apartment complex it was the absolute worst property in the whole entire city it was horrible okay when i did what i did to it they were able to they lost as they lost cops they

didn't replace four the cops they had in the city and they didn't do that because of the area i had they had people at that 50 unit apartment complex two and three four times a day they had cops there working it was that bad then i bought the neighborhood behind it which cleaned up everything within about a five mile radius of that when i did that because those were two bad properties in the whole entire area so i bought the neighborhood behind it i did the same exact thing on the

neighborhood behind it in a five mile radius yeah everything else is everything else is just a city and it's a beautiful it's an old city it is a beautiful city got tons of character to it got a lot of history with it that's so cool and um and but it is a really really thing and the you know the people were mad when we evicted the people in the apartment complex they were mad i mean i mean when they kill you man but i can tell you a year later afterwards we had people coming up to

us and thanking us for for evicting them out of department companies said we we had no idea how bad our living conditions really were you know the rents were so cheap when and and the reason everybody got evicted is because it was such a crap hole of a piece of property i needed to do millions of dollars worth of repairs to it and i couldn't do it with people living there and i just could not let them stay in a property like that it was just for me ethically i could not allow myself

to rent a piece of property like that to people because i think it it destroys people but you know so we we did we changed the whole dynamics of the city and that is a really really cool thing see and people look at real estate development and they they look at kind of you know how people develop and look all the money they made they forget that whole other social benefit that goes on that is a big aspect of it you transform the community there that's spread out right think about the multiplier

impact of that and people have little coffee shops and all the stuff around just because you have all that crime going on you can change entire communities that's what development does that's what the tax code incentivizes cool job and we got 99 doors right there so that's 99 different families that we're helping because we're helping these people with housing they wouldn't have housing if it wasn't for us to get my house to go buy one right you have to go live somewhere

else and we got good quality housing and and i can tell you man we we'll buy these areas up and you can go talk to the people six months after we're there and i said we've never had landlords that come in there and do the kind of work these people do and you know you call them this afternoon about a work order they're there to fix it this afternoon they don't tell me wait three days to come over there and fix it we go fix it yeah and and it's just it's for me that's

a pride thing i've i'll pride myself on on providing extremely good housing that's awesome so any any other so do you have the yours your company or do you or do you have know of anybody that does just really in-depth classes so we you and i are talking about this and i can comprehend but i've listened to you talk from a stage and i didn't comprehend everything you're saying because you're going fast you got you got your scripture going through and talking about it in

your slides and i don't get it like that i get it better on this little small one-to-one conversation how do people that that learn like i learn how are they how are they able to go out there and get the education to learn and sometimes you know for me some classes i have to take two three four times to to understand it and get it yeah you know it's easy with technology i've got all sorts of videos where i teach classes for an hour two hours they're all recorded i would say because

of a 1031 it's not difficult but there are some technical aspects there's some buzzwords there's some terminology there's some rules you got to understand i think the best way to get up to speed on it is go and watch a couple of these classes that i do can you give them your information yeah yeah i'm scott saunders with asset preservation and you can google and find me you can find i've got all sorts of videos and classes that are out there on that we've got a website api exchange

dot com where i've got a whole bunch of recorded videos the main thing i would do would be a couple things one get some information watch some classes and then number two talk to your cpa your tax professional and then number three talk to what is called a qualified intermediary we haven't talked about that term but in the middle of an exchange is this company and that company is going to prepare some legal documents and they're going to physically hold the money from the sale because

it's they've got to hold it you can't sell it receive the money they have to hold it call a reputable qualified intermediary tell them what you're looking to accomplish you know i'm selling a property for this value here's how i hold title a good qualified intermediary and there are dozens of them out there your company that's what we do yeah and that's what i do we we do an intake with people where we kind of go through what are you selling was a help for investment how long did

you hold it how do you have title what's your equity your debt we kind of have a checklist of things we'll go through do that with a good qualified intermediary and then run it by your cpa because everybody's got a little bit of different situation doing that will give you the education and then you've got the two main people your cpa your tax advisor and a good qualified intermediary to kind of help you navigate through the process and i just say this if you

haven't done an exchange because it sounds daunting and sounds kind of technical mumbo jumbo the process is really pretty straightforward a qualified intermediary walk you through that day zero they'll walk you through the identification rules they'll walk you through the whole process and you'll find once you do an exchange it's really pretty simple it looks to you just like a normal transaction with a little bit of additional paperwork it's not going to hold up your closing

it's not going to hold up anything it just puts a requirement on you as the investor to go out in the market and start looking for properties you want to reinvest in right away yeah number one you can't close on that property and you can that money can never touch your hand so everything else had not been done before that you once that money touches your hand you're done so yeah absolutely and you do that all over the country right yeah it's yeah you don't look him up look him up show

him some love give him some business this man need look he can't even afford pants got shorts on so we got to get him some clothes we got to help him out look kink he had a toupee earlier but it looked horrible so we took it off of him he's not wearing that now but we got to help out scott i appreciate you brother that's funny thank you all right well i'm here at a real estate conference here and um got a few days to hang out with a whole bunch of real estate investors but here's

my good friend uh winston and uh winston is a probably one of the smartest real estate investors i know somebody that knows how to take action build a portfolio and and build deal after deal and do it so uh winston great to visit with you and have some time hanging together i probably wouldn't agree with that one of the smallest guys you know i know you know a lot of small people i get a participation award i'm happy with that whatever whatever anyway he's practical he's

practical to get stuff done so winston you know you've you're in nashville tennessee um so you're you're in a part of the market where everybody's fleeing everybody's going to nashville right everybody's relocating there you work in that if i understand you work in that whole tennessee market right yeah so my investments are about 15 miles north of nashville okay i got about a third of my portfolio all right then i have a third of my portfolio about 45 50 miles kind of east of

nashville okay and then i have another third of my portfolio about maybe uh 90 miles past nashville okay so i'm in three different areas all in tennessee so one of them's outside of chattanooga okay and the other one is in between chattanooga and nashville and then the one is right where i live okay cool that gives a good idea a little bit a little bit of diversification but they're they're all bedroom communities so i'm not i'm not investing in a metropolitan area because i don't

like dealing with the the higher taxes and i like dealing with the garbage that comes with the big cities and stuff i'd rather i want it simple i want it to i want it to always just be fluid and flow uh-huh i don't want a bunch of hiccups in it i want to um i want to find tenants that are going to stay for three years or so hopefully whenever we put them in there is going to be a tenant that's going to stay a little while and and prevent a little bit of a turnover okay and we're just

looking for the right people and we find that i find that is better in the bedroom communities and i don't have to charge four thousand dollars a month rent so the people in nashville if i bought a condo in nashville and rent it out you have to spend at least four thousand dollars a month to rent it out or you go into kind of a little bit maybe a c-minus area and you pick up something there and then you just deal with a lot of roof rafts and stuff and i prefer i did that at first

but then i got to a point in life i said i just don't want to deal with that anymore i wanted i want tenants that they pay their bills so what what type of assets your ideal asset what type of class what do you look so like you most of my stuff is single family okay okay so i we talked about i own a couple of neighborhoods so i own every house in the neighborhood in two different areas but it's still single family houses you know 1300 square foot house with one car garage or two

car garage on it those would they those neighborhoods one of the neighborhoods would be a b-minus area okay and probably the homes themselves would probably be a b-minus also and the reason i say b minus is because that that particular area i bought that neighborhood a little bit over 12 months ago tons and tons and tons of deferred maintenance in it and i have been pumping money into it pumping money into it and i'm expecting probably at least another three months before i

finish everything i need to be done but once i finish it and have everything stabilized exactly like it needs to be then the next term with rents i'm going to bring the rents up another two to three hundred dollars a month and i'm probably going to lose a third of the tenants again okay so when i lose that second third of the tenants i mean we lost almost every single tenant when i bought it when i because i went up 500 a month when i bought the neighborhood because

the guy was renting a neighborhood at 700 a month i mean you can't cash flow and i'm talking these particular houses are all built in 2006 all brick homes nice homes okay and he's renting them for 700 a month so i bumped them up to 1250 and you know we had at least a third of them quit i gave them i said i'm going up on a rent in 90 days right and if you don't want to do it then let's let me know and let me know you're moving out and you got 90 days to find a place to live it's not

anything you got to get out right now but but that nobody was under a contract so we didn't have any leases okay and um so we we got them out we upped the rents and now there i don't have a single house i got some more we still got some we're rehabbing but i don't have a single house in that neighborhood available for rent right now that i can't fill i mean i don't have anything and um so my thought is once i get all of them done then whenever it starts coming out now i need

to get the rents on that in that neighborhood should be close to 2000 is where they ought to be and what are you at right now i'm at 1250 so you're way under the market so let me ask then are you comfortable in terms of your portfolio bumping somebody out to jack up the rent and get a close to fair market is that typically the way you approach well so so i've i bought an apartment complex one time okay and i had to evict everybody in the apartment complex on day one i filed eviction

on everyone apartment complex on day one nobody not one person had a thing but it was such a piece of crap property that i wasn't willing to put my name on it that i owned it for people to live in okay and i put about 2.4 2.5 million into a rehab on that apartment complex okay and then we we brought it back on the market and rented it out okay so i did that and then another neighborhood i bought that was the same as this this neighborhood was just talking about they were they were just so

far under rents okay and i had to i had to raise the rent because you pay the money for it and they don't cash well i can't do that i'd rather and we put it in our i put it in my my numbers one of my numbers i'm gonna lose a third of the people at least and that's what i told my my wife when we bought that neighborhood i said we're gonna lose a third at least and she said we can't afford that i said but if we go up on it they're charging 700 a month and we lose one third of the people

i said we're still making more money than we're making if we leave the rents where they are right we're just two-thirds paying yeah we're two-thirds rent pop yeah so so and we lost about a third okay and then we rehabbed all those and brought them up to a nicer houses and then and then throughout the year people were drifting off and about and it was it went about the rate we would finish rehabbing a house and one of them would become vacant we'd finish rehabbing and one

of them becoming vacant and it was a steady thing so it's been that neighborhood we bought it we've had it probably bought it in july two years ago so we've had it a little bit over almost a almost two years okay a couple more months it'd be two years but it's a it's 100 occupied and it's a it's a great it is a i would put it i would say it's an a-class area it is a beautiful area sits in a you know between a big bunch of mountains and it's just got a beautiful view it's just a

beautiful property and and the homes those homes on that particular neighborhood is is 2011 it was built so they're not it's the same homes as the other neighborhood but they were built in 2011 and it's a it's a good asset so we're we're i got a little bit of hud money tied to that right there okay and i got three more years with a hud contract that i can't jack the rents up anymore they let me jack them up 167 this year so we did bring them up 167 this year and um that

you know what is that what does that what does 167 mean to you on value i'm me as a investor well yeah what would it mean to you as an investor now now i would never sell the neighborhood as a neighborhood i would break it up and sell it as individual houses right for money but if you was going to sell it as a neighborhood everything's about cash flow right so 167 bucks if it if it penciled out and when i bought it another 167 just makes the deal that much sweeter for me

so it means everything so i haven't i have no calculator with me but if you if you took the 167 and you multiplied it by 12 yeah and that neighborhood has 41 houses and you multiply it times 41 then you find out this is the this is the no i i mean our expenses are already factored in before we even get there so expenses aren't going up anymore right so now you take that number and divide let's say you bought it at a six cap you would divide whatever that number is about 0.06

and that's how much more that that neighborhood is worth than what it was just because they let us go up 167 dollars right your value oh it's millions it goes up millions whenever you do that because you got scaled that with that many units yeah it really functions just like an apartment complex and single family homes that pencils out like an apartment the numbers are figured the same and and you know for me i'm still running a huge cost on those so my you know i'm my you know on

an apartment complex out when i rehabbed my apartment complex my bank looked at and they said it's going to be a pretty inexpensive apartment complex to manage but they said we're still not going to come under 30 on on expenses so they still figured in 30 so even on a new construction project we always put at least 30 30 expenses in there if we run our numbers that way we got a good well good solid number it's not working cool we are all over the board again yeah so hey so so

winston you know what what some of that you've got all these different units and experience with different types of things you know single family and multi-family and whole neighborhoods when you look at somebody that is maybe an intermediate level investor they got a few assets let's say they own five six seven eight homes their goal was to maybe get to 20 or 30 assets right that's a that's a number i think a lot of people can have a pretty good quality of life if you got 20 30

assets it'll it'll cover a lot of expenses it'll get a lot of things working for you how do you what do you think are the keys to go from six seven eight to tripling that you know to 20 30 or more if you um if you if you're counting those assets are you counting per door let's say you had a duplex or a quad is that i call an asset i don't look at them as much by door i know a lot of people count it that way because because my my duplex right i'm going to get a duplex that's

probably going to be a lot of times it's going to be maybe a c plus where my single family is going to be a b so i just consider that an asset so so i'm looking at things right now and i think with the market prices where they are you you go to many auctions trying to buy something auction at a door courtroom court step off now oh my goodness they're retail they're paying retail or more than retail because you're getting this bidding war and everybody's got this hype about

they got to win so they they're trying to outbid the next guy you know i quit i wanted to go to one i'm like i ain't going to that crap like you can buy cheaper through mls right but but as i'm looking and trying to find houses that i can buy and and do a quick maybe a a little bit of of a burr we're gonna fix it up do a cash out refi pull some money out of it they're just not there they're few and far i'm not saying they're not there but they're they're just few and far between

they're so small and your returns are horrible because the costs went up so much right and i look at that you know houses are more money the materials are more money the labor's more money the taxes are more money our taxes just went up 38 percent of our city i mean and that's going on everywhere i mean everybody's sure this is up everything is right everything insurance was 38 percent too yeah and um so we started looking at that and and and i couldn't make my numbers work

okay so i told my wife and this was in 2017 i told her i said find me find me a piece of land we'll build a house okay she said we don't build houses i said we don't build houses yet but we're fixing to so she reluctantly starts looking for a lot okay and she finds out it's a it's a last lot in a neighborhood that was built 20 years ago and it's seven thousand dollars so how crappy of a piece of lot do you think i just that i'm going to look at that's

not that's not top of the line no so i don't look at this lot and you can go about eight feet off the road and it just drops off tennessee is is mountainous okay so i look at the lot and i say i can do something with that okay so i went and talked to the city and i said would y'all be willing to give me a variance on that because i can't meet my setbacks the topography is too bad and the city agreed to that they would do a variance on it okay so i bought the lot

for seven grand for seven grand okay both neighbors on east side was pissed they were both saying no nobody can build there right i said no i already got a building permit i'm building they said they told us nobody could build there i said somebody could build it you just got to think outside the box right so then this is my first house to build okay and um my wife my wife asked me she said what's the goal i said the goal is experience i said that's what i want to want to experience

i said i don't want to lose any money but i don't really care if i make any money if i don't make a penny i don't care if i don't want to lose any money and i want the experience to build it i want to see what i can do okay so we built that house for with the land included about a hundred and fifteen thousand dollars or so okay with everything included and we built the 14 1400 square foot two-story house okay and um no garage just two-story house and what we did it was it

dropped off so much the front of the house we we backfilled and filled up where we were at the front which we got about 20 feet off the road and the house was like 25 foot wide and at 25 foot it dropped down 18 blocks wow so it dropped down about 12 feet 13 feet right that we had and the house was a beautiful building it was a fun build i had a great time doing it yeah and we sold that house for 225 so almost almost so i almost doubled that you know i had a hundred thousand

thousand dollars profit in it first house i ever built okay so that's good out of the starting gauge yeah yeah and then i told her find something find another thing and she found two lots that we bought for 25 000 for both lots okay and then i built two houses next to that i changed the footprint a little bit something i could build better and i didn't want to sell now i wanted to hold okay and um so i built little 1170 square foot houses on on slab and we built them for about

90 000 a piece and when we finished they appraised for two and a quarter right now they're paid they're praised for almost 350 wow and i built those in in um 2019 okay i built them so that's not that far it's not that no not that far away right and and they have been renter rentals every since then okay both of those both of those all right and then we started getting into to land development so i reached that education i did land development classes with rich dad and um so

it started now you can teach them yeah now i do teach them now okay um but with that i like to go out and find a piece of land i can buy at a reasonable price and i want to be able to put four or five units on it okay so i bought i went and bought two lots or three lots total and it had five units on the three last old raggedy trailers okay so i tore all the trailers down got rid of them i went to the city i subdivided it into five lots and i had four one acre lots

in the front and i had a six acre lot in the back okay and i built four houses in the front and we did about the same it was the exact same house as the other two we built them for about 90 000 dollars 95 000 and um i took the land cost which i had a hundred thousand in land costs and i split that land cost between five units okay so now i got now i got roughly 20 000 dollars per unit in land cost okay my land cost is not bad right and then we went in and built and they appraised

a little bit better than the other ones appraised and i stuck a tenant in it right away and we're renting those houses now those houses were built in you know 2020 or so what did they rent for when you first got when i first started they were renting for like 1400 a month okay now they rent for 2000 so we're renting them for two thousand dollars a month right now okay and you know but i i build with cash but then once i build it those houses i went and i pulled 100 of my money back out so

i don't have a penny invested in the deals you get an infinite return no matter what but i was still making i kept it where i was getting a minimum of 500 a month cash flow per house okay so i was still getting two thousand dollars worth of cash flow okay so then when i i sat on it for a year deciding what i wanted to do in the last six acre lot and it had some topography issues so i decided i was going to build five duplexes on it and i brought my dirt guy over there and he said i can

fix the top to topography so he actually dug down it cost me about 10 000 dollars and he came in and dug down and he made it two different tiers where it wasn't a hill and the driveway just went down a little bit and we built those five duplexes and with the duplexes i was into it for right at a million dollars and they appraised for like 2.2 so more than double yeah more than double and so we pulled the million dollars i think i pulled like a million four a million five out of there so i'm

so i put between four and five i don't remember the numbers exactly i put between four and five hundred thousand in my pocket that's what that's what i call alchemy so you actually ran it for a million you pulled more out than he actually had ended the deal so you went it wasn't just an infinite return you actually pulled yeah and that took all the money one invest somewhere else so so i hear you talking about this from the first one you got there was a challenging one that was the learning

experience yeah which you learned but you actually made 100 grand on it and then you progressed right you did two more and now you're doing duplexes in different lots if i'm trying to translate that maybe you could explain it you're finding adding value by doing the development by actually being the one there that has a vision seeing how you can maximize a piece of dirt and get the most value out of that is that a secret to really growing and scaling is i think it is i think

i think the secret is you know even in everything else buy right right right we want to buy right and when we buy right it makes it makes a world of difference so we buy that land right then we make that land you know could i build one house at a hundred thousand dollars and still make money yeah you can make a small amount of money you're not going to make tremendous amounts like we're making but if you can subdivide it and make more lots out of it now we've got a whole

different story you know right you know i bought a fifty thousand dollar lot that i got rezoned for for um 10 town homes right so now we got permits pulled for 10 town homes that we're building on a lot right so now you're multiplying a lot you're the multiplier yeah and and and for for those of you that are watching and say well i don't know how to build you don't have to know how to build i don't whereas i am a builder i don't build my own houses i use a subcontractor for everything

and i don't even manage all my projects there's very in the last four years there's only been one project i've managed in the last four years because i got a general contract that it does a lot of work for me and he says let me manage the project for five percent he said he said i won't charge you anything on what i do but i'll manage the whole project you just give me five percent so we're talking i want to give him five thousand dollars on a hundred thousand dollar bill i don't care

about that five thousand dollars go do the do the job right and and contractors are relational so so build that relationship get to know them they're gonna have you know i can tell you this guy uses subs that i can't get these subs to work for me like he can get them to work for me he won't work at the same price so he beats me i give him five grand but it you know he beats my prices and anything i'm trying to get somebody else to do for me so it's you know so you figured out how to

build a team around you that can get the job done even better so you bring them on board give them a little incentive and then they go ahead and they're driving the cost down to get the you're into it for the littlest amount you can be and you're going to get a value up here and then you're going to pull the cash back out of that and i bet you're going to take that cash and do what go buy another lot and do it all over again that's my problem i keep myself broke because anything i make i go

reinvest it i don't i don't ever spend on anything other than that i just reinvest all right well the right isn't that a secret right there you always you're always reinvesting isn't that just a little tip right there you're always reinvest you keep yourself broke all the time that usually puts a little stress on your marriage and stuff like that so and not that we're broke i mean we're not even remotely broke we just spend i just i just spend everything because i don't i'm not going to put a

bunch of money in my checking account and go buy something stupid right and i just don't i don't trust me enough not to do that right so i'm just protecting myself from myself yeah yeah you might be but for someone that's for someone that's trying to scale a portfolio i think one of the lessons you have right there is you always take your profit you redeploy it and you just go back and you do it over again so hearing your story of starting with one going to two houses and now

you're doing you know five units you know you're taking it and you're scaling it yourself by reinvesting back in the business everything we're doing is is is five and ten units now we're really not doing a whole lot of one unit things i i told you i think i told you just said i bought a another five acre track for fifty thousand dollars right that was that was a little problematic lot the lot is a good lot but i i got some issues with my city right now so they're not doing a

bunch of favors for me so for me to build one unit on that lot i couldn't go less than five acres he didn't want to sell but one acre okay and i told him i said you got to get it rezoned i can't get it rezoned i said i'm going to struggle with that until november so you had him as a seller get a rezoned before he sold it okay he said he didn't want to do that okay so then they told me i got to have five acres minimum to build a house with three acres i got to go in front of the bza

and um get there's a building is only appeals i got to go in front of them and i got to get them to approve it i said i don't want that i want a straight-up deal so we went with five acres he did not want to go to five to five acres okay and i told him i said look i'm building duplexes i said i want to be at 12,500 a door on my builds i said so my intention on this five acres is i'm gonna put five i'm gonna put two units on it and that's gonna cover my 50,000 i'm paying you for

the units i said but i really think that i can put 10 units on it or 10 20 total doors on the on the unit on the line okay i said i will buy buy it from you for 50 that's that's what you wanted for the the part anyway i said and if i can put after i put the two units on it anything after that even though we've closed this deal and everything i will still give you 12,500 for every other door i pull in that property i said if i can put 20 on it then you're gonna get you know 16 more times

12,500 okay and i think that's fair i'm not trying to and and and i would suggest anybody out there be fair with whomever you're dealing with don't try and rip people off and you know don't ever leave he's got a lot more land in that right there and i don't want to leave a bad taste in his mouth i want to know hey you want to go to relationships this is what he's going to do you want to come back to him later on if there's another purchase you want to know hey winston was a stand-up guy

did it fair gotcha and that's that's the that's the end goal and i just think business ought to be done that way anyway we ought to you know absolutely i want to look at myself in the mirror when i shave and i want to cut my own throat because i feel like i'm a piece of crap that rips people off i don't want to do that i want to be fair and balanced and yeah and you know what you're people like i want to be your reputation you're in the market of tennessee people know you

your reputation that's all you got that's all you so people know you and once you're ruining you're ruining it yeah absolutely you know hey any any final thoughts on um for investors that are part way through trying to get up where they get some more momentum any other tips suggestions i think you got to knock on a lot of doors you got to look at a lot of properties you drive around and look at high grass that maybe the meter is not in the meter based on the house find out who owns

it it's so easy to find out who owns a piece of property nowadays look on uh look on facebook and see if you can find them if you can just reach out to them on facebook find their phone number call them up and just say i just wonder if you'd be interested in selling it and you would be shocked how many times i buy land like that build a build a good relationship with your planning zoning department with the with the the city manager in your city build a good relationship

with these people and they will come across properties that they have that they just need somebody to buy and and they'll sell them to you i've also bought properties from my city that they've been sitting on for 20 years because they had a thought 20 years ago what they were going to do with it they never did it so i'm looking i'm seeing the city's got all this land so i'm i'm buying the land you know will you sell it yeah make us an offer tell us what you should give us for us

so it's don't give up look at you know if you read your book rich dad poor dad you'll see he's with that just about 100 houses before he bought a house right you may have to do it 100 times it's just time and it's practice and you get better and better and better the more people you talk to about that kind of stuff and you know people will know how sincere you are and you know and it's amazing how many people will actually work with you yeah that's cool hey so winston

kind of wrapping things up we're on the ship somebody came up to you a stranger and they said hey are you winston right they've been following you they've been following you i heard the cruise director i heard that so to find people right so how do people find you so you've got you know stuff on tiktok and instagram if people want to follow you learn more about your hands-on approach where they find you how do they how do they follow you so you can find me through real estate template

t m p l e t so that's my last name so we came up jason hartman actually came up with that name really yeah real estate template and we're on tiktok we're on youtube we're on instagram and he's on a couple other places and we just we just go out and show what we do for a living and have fun i'm a little bit out of the box in my character with than most people are i like to have fun i'm like if i can't have fun what i want to do it i love watching your stuff it's you keep it

real yeah i was watching the one with the the door you brought you brought your the the guy and doing you're like what's wrong with the doors here i showed that one to nicole and i'm like all right this is classic so if you want to watch a hands-on approach and see somebody who's in the trenches doing deals from dirt to build into construction and management a to z you gotta follow winston he's got just the best stuff out there because he keeps it real and he brings practical common sense

so love hanging out with you thanks so much winston i appreciate that all right appreciate your time