Why You Don’t Need a Big Real Estate Empire to Live the Life of Your Dreams

[00:00]

I know a lot of entrepreneurs and real estate investors. The ones with the most money have big businesses, there’s no doubt about it. But the ones that I know with the most free time, the most flexibility, and the least stress have smaller, simpler businesses and portfolios. And interestingly, I don’t see these small investors worrying that they have a smaller net worth than the big investors. It seems that they’re too busy enjoying life.

[00:33]

Welcome to the Real Estate and Financial Independence Podcast. I’m your host, Chad Carson. You can also call me Coach. And this is a show all about helping you get out of the financial grind so you can do more of what matters. Whether you’re a brand new listener or a long time listener, it’s always an honor to have you back for another episode.

[00:48]

The title of today’s episode is Why you don’t need a Big real estate empire to live the life of your dreams. So this is another in my series of Best of Coach Carson podcast. This is actually one of my first three podcast episodes back in January 2019, and has since become the fourth most downloaded episode of all time. And if you’ve been listening to this podcast at all, you know a theme that has emerged even since then is the idea of a small and mighty investor, an investor who maintains a small portfolio, whether that’s one, two, three properties, maybe 1020, 30 properties, but they have enough. They’re not necessarily going for the most properties, they’re going for the most life.

[01:27]

And that’s what this episode is all about, is working it backwards from what kind of lifestyle you want and then figuring out what kind of properties, what kind of portfolio you need to make that happen. And just a side note for those of you watching on YouTube, you see I’m in a different location here. My family and I moved to Spain for twelve months. These best of episodes will continue for the next month or so while I’m making the transition to living here. But don’t worry, I am going to make some new content for the podcast.

[01:51]

It’s coming out soon and I always appreciate your feedback. If you have any episodes you’d like to see in the future, send me an email to [email protected]. I would love to hear from you. Enjoy the episode. I’m going to share a lot of my sort of mission behind real estate investing, really behind financial independence and what I’m here to try to help you with as well.

[02:12]

And I think the motivation for this has been, have you ever heard of a lot of the other education or other hype kind of around real estate investing, online in particular? The thing I typically hear, maybe you’ve heard this too, is something like think big, accumulate hundreds or even thousands of units. You need to use economies of scale, you need to syndicate, benefit from maximum leverage. In other words, you need to go big or go home. So these are the messages we’re sort of bombarded with as the, quote, successful way to invest in real estate.

[02:48]

It basically tells you that the biggest ones and the best investors, the ones with the most cash flow, the most flips, and the most rental units are the best. Well, this episode is here, and I’m here to tell you that bigger is not always better in real estate investing. In fact, I plan to show you that a smaller and a simpler business is actually better for many of us. So I’m trying to start a new movement. I hope you’ll join me with this.

[03:17]

The motto is Go small or go home. I want to kind of start off with a little bit of a disclaimer, just something to be said about this, that big is not necessarily bad. Life is too complex to say that, hey, the big business is bad, the small business is good. That’s not what I’m here to say. We all have different motivations for getting into real estate, for getting into business, for trying to achieve financial independence.

[03:43]

So you aren’t wrong. If you are listening to this and you have a big, large scale real estate aspiration in your future, the only thing I would say is wrong is if you think getting big is the only way to live a rich, amazing life, there are other simpler investing options that honestly don’t get enough publicity because I guess they’re just too simple. You don’t have to get big to accomplish incredible financial and life goals. Small scale real estate investing with even a few properties can do that. And these many real estate models can give you plenty of money, plenty of free time, and most importantly, plenty of flexibility.

[04:23]

And they can help you avoid a lot of the hassle and the risk that comes with growing a really big business. And isn’t that really what most of us wanted in the first place? Unfortunately, smaller real estate investing businesses do have their downsides. You may not get famous and write a best selling book about all of your accolades, and I’m sorry to tell you that you probably won’t get an HGTV show contract either. But as a consolation prize, you can get a life of financial security, simplicity, and freedom that most people can only dream of.

[04:58]

So to begin exploring this point, let’s look at an interesting story of three investors. And this is actually a story I heard about ten years ago from one of my mentors and investing. I think it was the person who told me this is a guy named Jack Miller. This is the story of three real estate investors in one summer. These three investors, they were actually couples.

[05:18]

They traveled together to Europe and the three couples originally met each other kind of at a real estate meet up locally. And they liked each other and they helped each other grow their businesses as they were new investors, and along the way they became friends. So 15 years later, they’ve each experienced a good bit of success with their real estate businesses and they all want to enjoy the fruits of their efforts together. So they spend 14 days visiting the Mediterranean coast in Europe. First, they explore ancient sites in Italy.

[05:49]

They enjoy amazing food and wine. And then they continue with a high quality Mediterranean cruise that goes all along the coast in places like Croatia and Greece. So the question is, could these investors afford a nice trip like that? Let’s take a look. Let’s kind of unpeel back the curtain and see what the money situations might look like for these three investors.

[06:13]

What’s the financial scoreboard look like? So, couple number one in the story, I’m going to call them Liz and Tom. They’re in their fifty s and they invest. They live and they invest and they self manage their properties in Missouri. Over the last 15 years, they’ve bought ten single family houses.

[06:31]

They bought them one by one. So no big rush, but let’s say just one every year or two, and they bought them in good neighborhoods. I’ll call them if you listen to some of my other episodes about quality of neighborhoods, these are like B to B plus, maybe even A minus neighborhoods. Liz and Tom, they searched hard for these houses as fixer uppers and they bought them below value. And they use techniques like the Bird technique, which if you don’t know what that means, we’re going to get to that in some other episodes.

[06:58]

But it’s a financing technique where you use some cash or hard money or private money to buy a fixer upper house. You get it rented out, you remodel it, you get it rent it out, and then you refinance it with a long term mortgage to pull out of your money back out. So that’s how they bought most of their properties. And then once they got those properties bought, they use the debt snowball technique to pay off their mortgages early. Which basically just means they took all of their cash flow from the rentals, everything they were saving outside of their rental properties from their businesses or their jobs.

[07:29]

And they used it to concentrate and pay down each property one by one until they were all owned free and clear. So those ten houses, they have now produced $7,000 per month or $84,000 per year in positive cash flow. All right, so let’s look at a couple of number two. Their names are Tiffany and Darius, and they are in their early 40s. They live in New York and they invest in North Carolina using an on the ground property manager.

[07:58]

So 15 years after they started, they now own 150 unit apartment building. Tiffany and Darius began with smaller properties and then they kind of worked their way up. They used a technique called 1031 tax Free Exchanges, which I’ll certainly talk a lot more about in the future. They use that technique to trade up tax free to bigger units. So they grew and grew without having to drag of taxes until they had enough equity for a down payment on this 50 unit building.

[08:26]

So they now have a solid fixed interest rate, 25 year mortgage on the building, and the property produces about $10,000 per month or $120,000 per year, and positive cash flow that they can live off of. Couple number three, we’ll call them, Mike and Lauren are in their late forties and they live in Nevada and they own properties all over the country. 15 years after starting, they now own 500 units. Mike and Lauren began with their own rentals, but because of their ability to put together great deals, they also began doing what’s called syndicating deals by pulling money from others. And they put the deal together and pulled money from other people.

[09:07]

Went through all the legal processes to do that. And because they did that, though, they made a lot more money. And their portion of their rental income from all of these deals equals over $30,000 per month or $360,000 per year. Their portfolio produces the most money out of the three couples. So it’s clear to see that all three couples can easily afford to pay for this nice European vacation.

[09:32]

And this is exactly why all of them began investing in the first place, right? But the story gets a little more interesting as they approach the end of the trip. So let’s say at this point they all decide that what happens if we could extend the trip? So they’re all having a great time, all three couples. It’s been so great that, in fact, couple number one, Liz and Tom, proposed that they all stay a few weeks longer to start exploring some different areas.

[09:58]

Liz and Tom’s rentals are full of self reliant tenants who automatically deposit their rent each month. And the tenants can email or leave a voicemail with any maintenance emergencies. But because this is only ten properties and there are solid long term tenants, this rarely happens. With no debt or immediate plans to buy more properties, their business schedule is amazingly flexible. Couple number two, Tiffany and Darius, check their calendars.

[10:24]

They have a few community and church functions, but those can be put off. Their property manager is competent and in control of the day to day issues at the 50 unit building. And because no major financing or remodel projects are looming, they happily agree to stay on as well. Couple number three mike and Lauren. Remember, the ones who have the most money, they have some challenges, they want to stay, and they can easily afford the expense of extending the trip.

[10:49]

But there are some projects looming. Back at home, remodeling contractors are waiting for their guidance on a recent value add apartment purchase that they made. A new property manager needs to be found to replace an underperforming one on one of their properties. And their corporate bookkeeper and administrator need help. And finally, some of their equity investors, the people who put their money with them, want to meet with them to discuss some past and future projects.

[11:14]

As a result, Mike and Lauren regretfully declined the vacation extension. So this point, I want to talk about the myth of the passive big business. Mike and Lauren do not have a bad business. They’re the ones with the most units. In fact, it is financially the most successful business of the three investors.

[11:35]

But here are the questions I always ask the Mike and Lauren’s of the world did your investment business meet your true goals? Are you spending your time doing what’s most important to you right now? Or would alternative approaches have met your goals just as well? With less hassle and less risk along the way, it’s possible that Mike and Lauren answer that, hey, we’re happy with our current situation. If so, I’m happy for them.

[12:02]

I’m not trying to change their situation, but my experience has shown that many people in their situation are less than happy with where they are. Their extra money has come at a cost. And I’m sure I’ll get responses to this podcast episode just like I have when I wrote this article on bigger pockets back in the day. I’m sure I’ll get examples about the Shark Tank hosts and there’s famous entrepreneurs and there are people on bigger pockets and other really good real estate investors who built big businesses that also check all of these goals that I’m talking about, these lifestyle goals. My response is fine to provide successful examples, but the bottom line is, all of you who are listening to this, what are your goals and what’s the best way to achieve them?

[12:48]

Are you a Shark Tank host or are you a regular person just trying to free yourself from the nine to five grind so that you can live an extraordinary life? I know a lot of entrepreneurs and real estate investors. The ones with the most money have big businesses. There’s no doubt about it. If that’s your number one metric, then go for it.

[13:08]

But the ones that I know with the most free time, the most flexibility, and the least stress have smaller, simpler businesses and portfolios. And interestingly, I don’t see these small investors worrying that they have a smaller net worth than the big investors. It seems that they’re too busy enjoying life.

[13:34]

So let’s talk about controlling Frankenstein, and I’ll explain what I mean by that in a second. So far, it might seem that I’ve been beating up on these big real estate investing business models. But you know what? I’ll readily admit that it’s not impossible for you, as the owner of a bigger business, to have it all. You can create systems and teams of people that produce a lot of money and allow you to be relatively passive and flexible.

[14:00]

I know it does happen, but very importantly, it’s a lot harder and more time intensive to manage these bigger, more complicated businesses. There are more people involved, there’s more moving parts, and there are more things to pay attention to, I think about this business growth and this business issue, like Frankenstein’s monster. Without extreme focus, a business can become a scary, out of control creature that takes a life of its own. And yes, it can even get hungry and eat your money, eat your free time and eat your life. The Frankenstein business monster becomes scary during the business’s growth spurts.

[14:42]

So these are the times when you’re growing the most. When I’m writing this article in person, I show a graph of sort of looks like a roller coaster where he goes up in a really steep curve and then goes back down to kind of a valley, basically a flat spot, and then it goes up a steep curve again and then back down to a valley. And I circle those really steep parts of the curve, because those are the points when you are growing a lot, you’re earning more money, for sure, but it’s a huge increase in personal hassle, time and risk with a relatively small amount of new money earned. But once you get over that curve and you go back down, you have less time and money and hassle invested, and you’re actually making more money. But those places I circle are called the growth danger zones.

[15:25]

That’s where it’s really difficult to get over the hump, and that’s where a lot of Frankenstein monsters attack in your business growth. These growth spurts are the steep inclines, as I just said, and they’re dangerous zones. And this is where the business owners are the most susceptible to cash crunches, dramatic market changes like 2008 to 2010 during the Great Recession. This is where you’re susceptible to personnel problems. Having the people you thought were managing your business the way they were supposed to didn’t.

[15:54]

Or maybe they even do extreme things like stealing money, for example. You got to go fix that, put that fire out, and even that’s even the time when a lot of personal burnout happens as the entrepreneur. So these are the danger zones where Frankenstein’s monster rears his ugly head. You can win against the monster, but just be prepared for a tough battle. So that leads me to thinking about finding your business and investing sweet spot.

[16:22]

You, as an entrepreneur, have to decide where on the business lifecycle graph you want to end up. You have virtually an endless choice of plateaus that you can aim for. The sky is really the limit in our economic system. It’s one of the things I love about investing in the United States or Canada or other kind of Western countries where the system is really stable. And as entrepreneurs, we have very fertile soil to do what we want to do.

[16:47]

But again, your choice will depend on your personal financial goals, and your choice will also depend on your willingness to take on the risk and the hassle of that perilous climb up to higher economic ground. The reward at the top of that mountain better be worth the sacrifice of the climb and the fights with Frankensteinstein’s monster along the way. Unfortunately, and I’ve seen this happen, plenty of people have arrived at the top of the financial mountain to realize they lost everything that they really wanted along the way. The key is to find your personal business sweet spot. Do you remember the graph I explained earlier where it went really steep up kind of like a roller coaster, and then it would come back down to, like, a valley after those danger zones?

[17:34]

Well, thinking about that graph, the valley you get to after you go through the danger zone and after you get over the hump, those are your sweet spots. And if you can think about it, there’s an infinite number of these sweet spots you can hit. But think about it like you could go through the big first steep incline and get to that first time, over that first time and come to that first sweet spot that has a certain amount of risk, a certain amount of hassle, and then you can kind of relax a little bit. Or you could keep climbing and go up another curve, which is steep again and has its own dangers. But you get to a higher point where there’s more money, there’s more rewards at the end of the rainbow, and you get to another sweet spot.

[18:11]

That’s really the question of sweet spots as I look at it. Do you want one of the smaller sweet spots, or do you want to keep pushing and keep pushing and keep pushing? And it doesn’t have to be an either or necessarily. It might be this. At this point in my life, what do I want to do?

[18:27]

Do I want to wait another five or ten years to another point in my life to start climbing again? Do I want to just take it slower? And so there’s lots of choices there. But the choice you have to make is what is the sweet spot for me? How many assets?

[18:39]

How many employees do I want to have? What kind of team members? Because all of those things are associated with making more money and growing bigger, and they can all be beautiful, level places where you’ve done well, you’ve increased your income and gained efficiency and freed up your personal time. But nothing comes without a cost. You have to make the choice if bigger is worth it for you at this point in your life.

[19:04]

And that choice may come down to a concept that I really love called Enough.

[19:17]

So let’s talk about something called the fulfillment curve in a place called Enough, one of my favorite personal finance books ever is a book called Your Money or Your Life by Vicky Robin, who’s an amazing woman, and Joe Dominguez, who’s been passed away since writing the book. But both amazing people and in the book, they share a graph called the fulfillment curve. Let me try to explain what that fulfillment curve looks like. So on the vertical access axis, so the one going up and down is the higher you go, the more fulfillment in life you have. You could think about this as happiness, perhaps on the other X axis, as you get bigger and bigger, you spend more money or you have a bigger business.

[20:02]

And so the curve works like this. You go up the curve and for every dollar you make or your business gets a little bit bigger, you kind of go through these points like survival and getting some basic comforts, and you’re getting happier and happier. Each dollar you make, each little bit of growth you get in your business, makes you more fulfilled. It has a lot of rewards for those first initial kind of growth times. But as you get towards the top, here’s where the curve happens.

[20:28]

It kind of flattens off and eventually starts going back down. And at the top of that curve is this point where you have enough, and it’s different for every single person. But the point of that you have enough is that ultimate sweet spot spot personally for us, because if you keep going down the other side of the curve, you will make more money. You can get bigger, but you also increase your clutter, your complexity and the hassle in your life. And so that’s really what this article is all about, is understanding for ourselves what is enough.

[20:59]

And while the authors in that book shared it as a personal finance concept, I think it also applies very well to real estate investing. And the main point of this article is that smaller, simpler businesses can do a very good job of taking us to this place called enough. And going past the peak of the fulfillment curve by getting bigger and more complex can just clutter our lives. I want to pause here for a moment because I’m sure some of you are with me right now, and others of you might be completely turned off by what I’m saying here. And that’s fine.

[21:34]

That’s kind of what I expected. But some of you might still be on the fence, perhaps you know that you’ve got enough financially, but you’re thinking something like this. You might be saying, Chad, I like working. I enjoy being busy. If I weren’t continually buying more deals and building a bigger business, I don’t know what I would do with myself.

[21:53]

I’d rather stick with a pattern that satisfies me than risk an unknown, unknown void in my life. What if I get bored? So my point is that I feel your pain. I’m a model member for the club of recovering type A job, identifying workaholics anonymous. The truth is, though, that of course work is fulfilling.

[22:14]

It really can provide a wonderful sense of purpose and growth and challenge. I personally enjoy it, and there’s no reason to give up that outlet in your life if you like work. But with your work and your work projects be different, if you knew you had enough financially, would that allow you to negotiate a different approach to work, a different approach to your investing, into your schedule? You could even keep doing the same exact basic activities, but could you do it completely on your terms? Sometimes this leap that I’m talking about here requires a little bit of imagination.

[22:51]

It kind of goes back to the time when you were a little kid thinking about what do you want to be or what do I want to be when I grow up, because the reality is that a lot of us have been working hard for years. Even if you just graduated from college right now and you’re listening to this, you’ve still been through years of schooling, which conditions you to constantly perform and check off endless to do list and kind of keep moving up the ladder. I found for myself that this hard working nine to five grind for many years causes me to lose something. That something is the creativity and imagination of a child. It’s that inner force that caused you to stare off into space as a little kid and said, you know what I want to be insert whatever your passion is, a teacher, a firefighter, somebody who works in gardens or whatever it is.

[23:40]

When I grow up, adulthood kind of has a way of squashing those childhood dreams with a hammer of practicality, and the disguise for that hammer is called money. In 2009, I want to tell you a story about kind of how I experienced that same situation. Back in 2009, my wife and I took a sabbatical trip for four months to Spain and then eventually also to South America. And during that trip, I finally got a glimpse into my own forgotten imagination. It was about six weeks in, and my uptight ambitious Type A self finally let go a little bit.

[24:18]

It happened after several magical hours, just sitting outside with my wife and watching a little bay, a little Mediterranean fishing village called Kataka in Spain. And first we just sat there and watched the sunset. And then after the sunset, we watched the arrival of a beautiful star filled sky, not a cloud in the sky. And finally, at the end of this kind of natural progression, we saw the biggest shooting star we’d ever seen streaking in green across half the sky. And during the entire experience, I could physically feel myself relaxed.

[24:55]

It was like a big knot untied itself in my chest. I didn’t have any specific, like, epiphanies at that moment, didn’t realize anything. But I was stunned when I realized how one tracked and focused my life had been up to that point. I was 29, 30 years old at that point. Without that trip, without that space, and without that slowing down, I may have talked myself into thinking that I needed to continue growing and pushing for another couple of decades.

[25:26]

It was like I had woken up to a brand new childlike possibility for the rest of my life. Bringing things back to the topic of this whole episode of going small and doing what matters in your life. The story I shared with my specific experience. But I’ve become convinced that we can all regain our own unique imaginations if we just give ourselves the space. And to create that kind of space, it helps to have a particular kind of real estate investing business.

[25:58]

It’s big enough to give you enough financially, but it’s also small enough to give you free time and space to think, to explore, and to do what matters in your life. What matters. That’s an interesting concept, isn’t it? On my personal website and if you’ve listened to the other episode called The Money Life Manifesto, you’ve heard me talk about this a little bit. But I want to repeat some words that I shared in the Money life manifesto.

[26:25]

Everyone’s life’s priorities are different, but perhaps this excerpt from my manifesto help resonate with you. Sleep more, relax in the morning, sit in a rocking chair, learn something new. Be impractical, explore, visit amazing places, go on adventures, hike trails, ride a bike again, unplug from The Matrix. Do work you love. Buck the system.

[26:53]

Say shove it to the man. Raise your own kids. Play silly games. Help with homework. Spoil your grandchildren.

[27:01]

Plant a garden. Grow your own food. Eat healthy. Exercise. Slow down.

[27:08]

Take a deep breath. Pursue your passions. Volunteer. Listen to people. Make an impact.

[27:16]

Advance your calls. Create your art. Write your story. Get off the nine to five treadmill. Stop selling out and do what matters.

[27:29]

Henry David Thoreau once wrote to quote live deliberately. Our businesses, I think, should work the same way. Because real estate investing isn’t just about real estate, is it? It’s about what matters to you. I wish you best of luck in your own real estate investing and financial independence journey to discover what’s enough financially to find your own investing sweet spot, and to start doing more of what matters, whatever that means for you.

[27:59]

If you like the show, I’d like to invite you to subscribe to my free email newsletter at coachcarson.com/reitoolkit. In addition to weekly updates, articles, and behind the scenes tips from me, my email newsletter subscribers get my real estate investing toolkit, which includes a property closing checklist that I actually use when I buy properties, a real estate deal worksheet, a tenant screening criteria checklist, and other spreadsheets and goodies that will help you on your journey to financial independence. Using real estate, you can. Get it all for free at coachcarson.com/reitoolkit.

[28:32]

I also want to take this time to thank the people behind the scenes who make this podcast possible each and every week. This includes my podcast editor extraordinaire, Michael Nguyen, my amazing virtual assistant, Megan Thompson, my wife, Kari, who helps me behind the scenes and is my partner here at Coach Carson. And of course, thank you to all of you, the listeners of the show who make everything possible. This show exists for you. It exists because of you.

[28:52]

And I really appreciate you being here for another episode. Everything I’ve shared with you in this episode has been for general education purposes. I have not considered your specific situation or risk. Before buying your own investments, be sure to consult a financial, real estate or a legal professional. Until next time, I’m Chad Carson.

[29:08]

You can also call me Coach. And this is a show all about helping you get out of the financial grind so you can do more of what matters. See you next time. Bye.