Disclaimer: Transcripts were generated automatically and may contain inaccuracies and errors.
There’s no other investment out there. Stocks, bonds, insurance products, there’s nothing else that the banks feel so secure with that they will lend up to 80% and so that if a home that appreciates at, let’s say 5%, you buy a $200,000 home. And you put 20 plus percent down on it. If you put a hundred percent down on it and it goes up 5%, you made $10,000 or 5%.
But if you use leverage, even factoring in the fees and everything else that you pay to get help with that leverage you make, typically it’s three to three and a half times the return. What would your life look like if you could replace all of your working? With simple and conservative investments that could do it for you.
Over the last 13 years, we’ve helped thousands of clients transact over half a billion dollars in simple and conservative real estate transactions, allowing them to begin replacing their work income with real estate investment income. Each week we’ll be pulling back the curtain on the ins and outs of real time retirement based real estate transactions that will transform your financial future even if you have no real estate experience.
This is Replace your Income with me, Kevin Clayson and Steve Earl. All right, well, hello everybody and welcome to Replace Your Income with Kevin Ann. Steve, how are you guys doing? So what you don’t know if you were behind the scenes? You would know that I just swung the microphone over to Steve. Normally, we’re on our own microphone, but we have a special guest in with us today.
We’ve got the one, the only, the recently turned 50. Mike Chamberlain. What’s up buddy? I’ve heard so many other guests say, you really know how to make him feel good, Kevin. But, uh, that, that, I’m not gonna be repeating that today, man. Okay, well then lemme try again. I’m officially old. How about this? I have never seen 50 look better than you.
Okay. We’ll go with that. Feeling great. Happy to be here. We are so excited to have Mike here. And what’s. Super awesome is Steve and I, we were gonna do an episode today just all about the numbers, right? And we’ll, we’ll still get into some of that is you’ll see today we were gonna talk real estate by the numbers and as we were kind of planning for the episode, Steve said, You know what, we should just have Mike come in and go through a recent property and market review so we’re not just talking about projected numbers, but we’re talking about actual numbers, like what we’re actually seeing clients accomplish.
Yeah. In, in our last episode, if you remember, uh, we were talking about, uh, how numbers look on paper, how oftentimes the actual numbers don’t work out as well as the initial numbers that you, you know, you kind of plan out and so on. And so one of the things, one of the services that we offer in this company is on an annual basis we do a property and market review.
It’s called a pmr. And um, Mike is one of the individuals who does a lot of these PMRs with our clients on an annual basis. He is just expert at it. He looks at the numbers, he analyzes them, and in fact, Mike is not only a great looking 50 year old, but he’s probably one of the smartest guys that I know when it comes to financial matters.
He has more than 15 years in background in financial planning and uh, he knows how to look at the big picture. He knows how to not only look at the big picture, but he also knows how to look at the details. He typically dives deep into the weeds with our clients. To help them see and to understand really what’s going on with their properties and helps them truly understand the numbers.
So as we were talking, uh, earlier Kevin, and planning this episode, I thought it’d be a, a great idea to bring in. Really, you know, the, the detail and the, the, the knowledge and the ability to explain that, that Mike brings to the table. And so, super grateful to have you here with us, Mike. Uh, super excited to have you go through the numbers and kind of go through some actual case studies where we can see here’s what the projection looked like on the proforma when these people bought the properties back several years ago.
But also look at the numbers today, you. 4, 5, 6, 7 years later to see how did this property actually work out. And so super excited to jump into that. Kev, that’s one of my favorite things in doing this with our clients. It’s something we kind of formalized and added some numbers and in insights to it a couple years ago, but, but helping the clients see all the ways.
That they benefit with through real estate so that they’re more likely to stick with it. They don’t give up on the long term benefits of real estate. And that’s something we’ve heard from a lot of clients is just how helpful that is to remind, be reminded of all the ways that they’re benefiting, not just the cash flow, which is so important with the model we have with our clients that this house pays for itself and pays you a little bit more along the way.
But it does it in a way that you can stick with it and be there for the long term benefit. So, So we’ll, we’ll give some examples of that today. No, that’s awesome. I’m So, I gotta tell you, if you guys, while Steve was kind of talking and going through his monologue, I was kind of smirking and I don’t know if you guys saw me smirking, but Steve, it was because I was looking over at your Apple watch and everything you were saying, Siri thought you were trying to send a text or something.
And so I was watching all the words animate on your Apple watch as you were talking. I thought that was, I thought that was awesome. Theory just got an earful. Well, and I don’t know if everybody on the other side of this microphone heard it, but then Siri gave me an Erie and Earful and told me that she couldn’t do what I was asking her to do.
Obviously. Hey, come on. I thought Sir could do anything. Come on, Siri, come on, get it together. Siri, obviously, uh, needs a little bit of help with her real estate investing, you know, uh, repertoire, language skills, that kind of thing. Give. Yeah. Should we need to do? Well, let’s, uh, let’s call, Was it Tim? Tim Cook?
Is he the guy that’s, uh, in charge of Apple? And then we’ll give him a call. We’ll, we’ll see if he can work on that. Well, no. Anyway, that is awesome. So we are so excited that you’re here. Mike, thank you so much. And like what Mike said, I love Mike. I love what you just said because you help our clients.
Maintain the long term perspective of what their real estate portfolio is doing. And because on this podcast we preach all the time about don’t swing for the fences and let’s go hit singles. But that’s a long term game. That is not a get rich quick, that’s not a get rich overnight sort of situation.
Real estate takes time and what we’re gonna talk about today is not only does it, can it take time, but the time that it takes creates phenomenal. Outcomes when it’s done the right way. Isn’t that generally what you would say you see as you do these property reviews? Yeah, absolutely. This, I might get in trouble by my boss over here.
But you real estate just works , whether it’s with our help or not. Real estate works. We help people mitigate that. We help them do it in markets where it makes sense, where the numbers add up. We help them do it in a way that we stay cognizant of what’s going on and and can help point out when it’s time to make changes or ways that they can expand their portfolio quicker.
We added all kinds of value, mainly helping people kind of. The bench and up to baton on base where so many people have told me they wouldn’t have done it without our help, without our little extra confidence or handholding that we do. But the reality is real estate works whether you get our help or not.
It’s dynamic what it does over time. And what you can see with this is that if somebody sticks with real estate long enough, uh, you can’t lose money on it. You can do better than what you would’ve done without professionals holding your hand with, with professionals holding your hand. But it, with time, real estate just works out.
So, and, and these will show that. I just have to make a quick little disclaimer where, uh, Mike just said, You cannot lose money in real estate. You can lose money in real estate if you sell at the wrong time with time. That’s why I emphasize with time, with time. There’s a, I remember one time I had come home from a trip.
I was speaking somewhere and I was on the shuttle from the airport to my car. I, I don’t remember what I was listening to or if I read a tweet or something, I just know. I remember being on the shuttle and reading a tweet or hearing something on a podcast, and it was a Robert Kiyosaki, you know, Rich Dad, Poor Dad quote, and it was something like, I can’t remember how we articulate it, but it was this, This was the general point.
There are no bad real estate deals if you hang onto it long enough to make it a good deal, right? Yes. Like that was kind of the idea. Yeah. That where it’s bad is the idea of you get out at the wrong time, maybe you get in too far over your head and you can’t get out. But the concept, whatever the tweet was, is it was the best way to make a, Oh, maybe it was something like the best way to make a bad real estate investment.
Good. Is to wait until it becomes good over time or something like that. Yeah. It was just indicating that if you do it the right way and if you take the time and you put apply, uh, some pressure with a strategy over time, you usually could turn the ship if, if you give it enough time. And I’ll quantify the comment I made to, to help us feel safe here and, and, and I’m just looking at the experience that our clients have had.
Good could happen. I need safe space by the way. I almost need to safe space. I almost had to. Into my cry closet. Uh, cuz I was feeling incredibly unsafely. Thank you. Well hopefully this helps you feel even safer. So I would tell people with the kind of conservative, more dependable type of real estate that we help people do with single family homes two years into it, you may just barely be getting to break even two years into it cuz of the fees you paid, if you’re using leverage fees that you paid to get the banks help with a loan, you know, to get a titled background and insurance to just cross all the T’s and I so that you’re protected.
And then the future fees that will be part of selling a home, 6% to a realtor, one and a half per perhaps in concession. You may not have to give it, but we factor it in cuz more often you, you do than not. Some kind of concessions. The the fees in and fees out. It may take a couple years to break even.
Every client that I’ve ever done, and I’ve done hundreds of these reviews with our clients that has held their property for five years or more, even when there have been some surprises that have come up some, some real expenses on rare occasion that have come up and surprised them, they’ve always would’ve made more Having done real estate.
Even with the extra expenses, then anything I ever help somebody do as a financial advisor, that’s awesome. I worked for Edward Jones and Fidelity Investments for most of the last 15 years. I helped people with stocks and bonds, mutual funds, insurance products, all of that, and across the board, everything.
When you look at the broad base indexes and what people could be doing with the diversified portfolio, outside of what we’ve helped ’em do with real. They’ve made more. Usually it’s double or triple the amount of anything I ever help them do. It’s always been at least as much or more if, if they’ve held onto it for five years or more.
So that’s, that’s the time issue is give a time and it works out sometimes better than others, usually quite good. Well, and let’s, so let’s talk to this case study. So I know that this was a recent property market review that we put together for a client, and I know you’ve got some real properties and some real numbers, and.
Remember, right? This particular client didn’t just buy it like one home in one market, but they’ve bought properties across multiple markets, which also speaks to the point that you’ve heard Steve and I talk about on here, which is, to be totally honest, e every market that, at least that we do at done for real estate, has its benefits.
Uh, but they all kind of work, right? That’s part of the key is you gotta pick the right market. That’s what makes a purchasable property is being in the right market. With the right set of conditions, so, So talk us through this case study across multiple markets for a client. Cuz these are, this is reality, this is real numbers, this isn’t speculation and oh, we think it’s gonna work out.
This is a real client and their real story. Yeah. Great. So the client started with this years ago. We’ve got some examples of homes that they still own from. Plus years ago when they started purchase, when back when we were helping people purchase in Arizona, we don’t help people purchase there anymore because home prices appreciated so much and the rents didn’t keep up with it.
So it no longer fit that mold, that filter, that most important filter in my mind that we have, that the home pays for itself and pays our clients a little bit of money along the way. You know that four to 8% positive cash flow, that cash on cash. So once Phoenix no longer fit that one, we, we help people start to invest in other markets.
And so we, but we have some examples here in Phoenix, but it also shows our Memphis market, our Orlando, Florida market in our Indianapolis market and, and across the board, just like you said, Kevin, it depends on what somebody’s trying to do. You have areas. That can be more focused on somebody who’s in the accumulation phase of, of building a portfolio that they want to benefit them later in life.
More so they get a little better appreciation, but still positive cash flow. Or they can get, uh, a market that’s gonna help supplement their income, help improve their lifestyle a little bit more today. While still getting appreciation better than average appreciation, that includes the portfolio for the future that way as well.
So, so with this example, you have Arizona. It was very much a growth market where seven and a half years from the time this report was run, uh, seven and a half years previous, they had purchased a property for 117,000. Uh, they took advantage of leverage with this. They didn’t have to have 117. This is one of the great benefits of real estate, which you all realize being on the podcast now listening to.
But it’s just dramatic to me every time I see it. The difference that leverage can make in getting a multiple on appreciation. There’s no other investment out there. Stocks, bonds, insurance products, there’s nothing else that the banks feel so secure with that they will lend up to 80% and so that if a home that appreciates at, let’s say 5%, you buy a $200,000 home.
And you put 20 plus percent down on it. If you put a hundred percent down on it and it goes up 5%, you made $10,000 or 5%. But if you use leverage, even factoring in the fees and everything else that you pay to get help with that leverage you make, typically it’s three to three and a half times the return in that multiple.
So instead of 5% return, You’re making a 15 plus percent return on that equity, return on investment. And so what you see with time when somebody’s had appreciation, which has been good, this home’s appreciated about eight and a third percent a year since they’ve owned it. But because they use leverage, the actual return on their investment, and this is net of fees, this is net of those fees getting in and the future fees getting out look more like about a 25% a year equity return on investment.
You know, it’s the kind of thing that 8%, if you paid cash on it, that’s a great return, but boy, when you look at the return with equity, Uh, in leverage. It’s dramatic what that does. I mean, that’s huge when you think of those numbers, right? And now here and again, Here’s the deal by sharing this with you, we are not saying every property you ever buy is guaranteed to generate this kind of a return and this kind of an income.
But this frankly, guys, if you go onto the website today, right, and you were to go look at our property examples, you’re gonna see projections. That are very similar to the projections that these clients saw when they purchased a home seven and a half years ago. And now what Mike is sharing is what in reality has happened.
So of course, past performance is no guarantee of future performance, but I think we absolutely have to look and say, What has the reality been, and if the reality has been using leverage with real estate this way in that market that was timed just perfectly with the done for your real estate team’s help, they’ve been able to do that kind of a return and see, I mean, what else does that with the same consistency and hedge against inflation and ability to use leverage.
It’s why we love real estate for all of the reasons you just. Great. And just to quickly jump and give you a shorter example, I started with the oldest one cuz I, I think it’s important to emphasize like we, we’ve been saying that time in the market is so important for your success in real estate and sticking with occasionally there could be 11 out there that makes more sense to get rid of and move on to another one.
That’s the rare exception. Most often it just needs more time and so I started with the one that was the oldest seven and a half years. Here’s one that’s just over six years old and this one was in our Memphis market. So market we, the numbers still work really well for clients today to get. Expect better than average appreciation, but then also get more cashflow.
This is more of that cashflow play. So, so again, as a, as a stock broker in my past or as a financial advisor, you kind of think about stocks for growth for the future, and you think about income for paying your bills now without growth. You know, Memphis is, is an area that really gives you both, it gives you income that’s competitive that that actually smashes.
Anything else out there that somebody could do today is they look at alternatives for income stocks. Bonds, sox, dividends, bonds, interest payments, uh, fixed annuities. The highest rate of return out there, out of all of those right now for an income play is about 3%. That’s for a 30 year AAA rate to bond.
You’re getting 3.4%. Compared to the kind of income that our clients would get right now, that starts above that about 4% and goes up to about 8% in the different markets that we’re in, considering the current home prices and, and what’s available for people out there. But here’s an example again, of somebody that bought just over six years ago, $130,000 home.
They used 36,000 to get into it. Total out of pocket was 36,000 cuz of. Now we’re estimating it’s worth about 195. We get that number simply by looking at three different resources. They’re looking at our client’s home, estimating the value of that home, mainly based on its size and the price per foot.
The other homes that sold for recently, so it’s not an exact estimate, but, but we try to beat it up a little bit. We try to be, help it be a conservative number. In that we don’t take the high of those three, we take an average of those estimated values and then we discount that average estimated price by about four or $5,000 usually, so that, you know, this is not a surprise.
If anything, it’s usually worth more, could be worth less. But if, if 1 95 is the estimated value, that’d be equivalent of this home appreciated in the Memphis market, about 7.8% a year. And again, because they’ve been in it over six years and they’ve used leverage, their equity return on investment, ignoring cash for just a moment here is about 22% a year return.
Well, and what’s so cool about that, and Steve and I were kind of talking about this, right, with appreciation just to re, I think everybody listening knows, but when we talk appreciation, you could break it down and look at like what an annual appreciation would be, just. I guess in a, in a vacuum, you know, from January to to December of name your year, what’s the appreciation?
But remember, appreciation. It, it has kind of this compounding factor, right? Where if it’s, if you are going to do a market that’s anticipated to appreciate at 5% a year or whatever, It’s gonna appreciate 5% this year, and then it’s gonna continue 5% on top of that original 5% in year two. It’s kind of that compound effect that a lot of people, you know, will assign to stock performance, et cetera, but with appreciation.
Now that’s not necessarily gonna be the case with cash flow because rental will increase a little bit, you know, a fixed kind of percentage annually. But when it comes to appreciation, you get some. Compounding benefit, right? That’s right. Yeah. Compounding benefit with the appreciation. And then when you start to think about total returns, so here we’re thinking about appreciation.
And appreciation’s often overlooked when somebody’s looking at their real estate and they’re seeing that monthly cash flow coming in and seeing some of it going back out to fix a repair or to cover a month, one that was in between tenants or whatever the case might be. But to realize that that appreciation is building up behind the scenes.
Technically it’s accessible within a month or two’s time, you can refinance cash out money. If you want to use that appreciation instead of just having it as equity in the home, you can put that to work for whatever purpose you want, including trips around the world. Most often it’s to get it working harder for you to buy other real estate to expand your portfolio that way, but, but that appreciation is very real and very tangible even though it’s happening behind the scenes.
On top of that, though, with the same property in Memphis, Tennessee, for this client, there is about a $1,375 rent by the time you take out of it. The principle and interest tax and insurance payment, that mortgage payment. You take out of it, the property management fee to have it done for you. So they’re not taking the middle of the night call.
You know, they’re, they’re not lining up the plumber. It, it’s literally done for them, which is weird cuz that’s so fun. , I love those calls. They’re the best. But by the time you pay for somebody else to do that, so that real estate doesn’t take over your life, you know, very much you focus on you and, and what you’re good at.
To let real estate, just you position yourself to benefit from long term benefits to real estate by having it be very passive by the time you factor in those kind of expense. This client without any known repairs on the home or possible vacancies, just the known expenses coming out would be making about $500 a month, uh, off of their $36,000 initial investment.
Now that $500 a month we know is not reality. Real estate’s messy in the short run, and so there’s money going back into the home. The, the number I often like to say to clients is, if it was $500 a month, that would be about a 16% cash on cash return for this. But let’s cut that number in half. Let’s say half of your money goes back into your home and half of it, hopefully you keep in your bank account to build up or do something else with, You know, even if that number’s half, that’s a 8% cash on cash return.
For this client that’s been in real estate for a while now it’s just over six years. Add 6% to the 22% return on on equity investment. That’s a 28% return. Not to mention somebody else is gonna keep paying off that mortgage. Not to mention the dramatic tax benefits that have helped them keep more of that money, more so than any other investment vehicle out there.
That tax benefits dramatic what it does for a client’s lifestyle. Not to mention the bragging rights of when you’re at a dinner party telling everybody about the real estate that you own. It is fun. Yeah, enjoy that. They do. No, that’s awesome. I mean, that’s unbelievable. And again, guys, these are real numbers.
This is a real. Set a re, you know, financials of, of what’s actually happened on these properties. This is not just kind of made up or non-tangible. This is what they’ve actually seen. So you’re saying that effectively if we were to take everything into account, and that was on the Memphis property that you were talking, that was Memphis.
That’s right. So, so between the cash flow and the appreciation return, al. They were seen somewhere around a 28%. Now, was that an annualized return? That’s annualized return, annualized 28% annualized return, and, and you know better than anybody because you, you were a financial planner for a long, long, long time.
How often does your average 401k do? About 28% in a year. So I was talking to a buddy of mine over this weekend who he and I got into investing in stocks back in college. And we swung for the fences time and time again. I mean, so many companies he and I put money into where we lost every dime. Uh, literally 5,000 here, 10,000 there.
Lost it all. He actually hit a home run this last year with a couple investments that he did, but it was only after literally dozens of swing and misses. It happens on rare occasion with individual companies. It’s so rare though that you gotta go to indexes to kind of measure and compare it. So you look at the s and b 500, it’s the largest index out.
It’s considered the best index of what the overall markets doing. The 500 largest companies here in the US over the last 94 year history since 1926, before the Great Depression through World Wars and terrorist attacks and pandemics, it’s averaged about 10% a year. So 10% is what the s and p five hundred’s done, but it’s done it in a roller coaster ride that most people don’t stay on board for.
It’s done it in a way in the last two decades, it’s had 50% drops. A year ago this month had a 34% drop in one month’s time, and so, you know when you lose half of your money, I was across the desk from clients back after the great recession and, and I would work with clients who were losing money. It wasn’t part of the plan to have this big dramatic.
And one of my worst, uh, feelings about that experience was a handful, literally three or four people that didn’t stay with it, and they sold out and, and locked in those losses because when it looks like you’ve lost half of your money, you wonder, am I gonna lose the other half? You know? And, and so you don’t stick around for the rebound.
That, that, that’s the reality. The, the average index, the SB 500 is average 10%. The average investor has made 5.6. Because of that rollercoaster ride, because of them getting out in, in at the wrong times because of fear and greed. You know, those emotions that so affect that stock market play that you’re being reminded of.
You know, every time you flip on the evening news they’re talking about that dos up so many points or down 2%, you’re reminded on your phones now or see nbc. You know, it’s just so much more of a stressful experience that it’s less likely that people stick with it. If they do, they’re gonna get a good return.
10% is a good. But compared to real estate that you’re not being reminded of all the time, that’s building up behind the scenes, that’s given you all these other ways that you benefit having a 22% return and this, uh, example, it’s just dramatic. There’s nothing else to answer your question. Nothing else that I ever help people do that did anywhere close to what real estate’s doing with time for our clients.
And I would just add this, Mike, that that, that 20 plus percent return that you just described, that this client has enjoyed. On, Well, one of the properties was 22, the other one was 28, the other one was 20 something. Right? Yeah. These are three different properties and three different markets across six to eight years.
So that’s an annualized return, which means they made three separate investments and their annual re return was plus. 20%. Yep. Over the course of eight years. So you might have a stock or something that shoots up and it makes 28% in a year or something. Right. But then like you say, it’s a rollercoaster ride and it goes down and goes up and that kind of a thing.
So like this is consistent. This is so pretty consistent like. Just the thought that it’s like, did they just luck out? Did they just happen to buy the right property? Did they, you know, what were the circumstances? And the circumstances that I would describe is this is just kind of our normal day to day operation and, and what a person can come to.
Expect when you buy real estate in the right market under the right conditions, kind of with, uh, the description that Kevin and I described in the last episode that we shared with you last week. So it, it’s a pretty exciting kind of a concept and. Here’s what I would describe as the most difficult part of this whole process, and that it, it’s pretty exciting to purchase that property and to go through that process, but then it’s kind of this hurry up and wait.
And so during the time that you own the property and your cash flowing, and guess what? We talk about the pain of owning real estate, having an ownership in. You’ve gotta deal with some tenants, you gotta deal with the property manager, you gotta deal with some repairs. And this, this kind of a thing. The nice thing is that the property manager is taking care of a lot of that pain for you, but you still have to write the checks for those repairs and for the mortgage if it doesn’t get covered by rent.
And so along the way, there are inevitably some painful moments. But what you’re saying then to us, Mike, is that if you stick with it, if you, if you take our advice and you plan accordingly and you have some reserve. Such that you can take care of issues as they may come up, that in the long run you can expect to have a successful experience.
out of hundreds of clients, and I’m sure people have other horror stories outside of what we’ve helped them do in D fy. One thought that came up as you were describing, that you’ve had one time period in history where you’ve had real estate either go flat or dramatically go down in certain markets, and that was the great recession where it was very different than today in ex all kinds of speculative buying and building, uh, all kinds of external factors that aren’t applicable today where we have a shortage of these kind of.
Every other time when real estate’s had a drop, it’s been, in certain markets, it’s been in certain parts of the country, areas would go down, but not all areas. And so the research that we do to look at the strength of an economy, how diversified it is to look at the economic and demographic factors, the average wages, you know, all the things that will go into whether a home will likely go up or down in a market.
Just helps reduce that. And in real estate is very geographic in the areas. You have areas of the country right now that are going down San Francisco, being the tech hub of the world, and all these tech companies are realizing that their employees can work at home and be as effective, if not more so. And have a better work life balance, and they can save the millions of dollars that they’ve been paying on their downtown sky rise building.
By not expanding, you know, is, is affecting the price of real estate in San Francisco, in New York, in urban areas around the country, you have home prices or condo prices that have gone flat or down a little bit. You have estates like Nevada and Hawaii, the two highest unemployment states in the country where home prices have gone flat are down a couple three.
But, but those are select areas and the research that we do to help clients do it at the right place at the right time. We’re not helping clients buy it in all the markets we’ve helped them buy in the past because it doesn’t make sense anymore. You know, having that extra effort and research so that you’re going to, where the numbers just simply make sense, it makes it so that you don’t have that same kind of risk that you have in, in alternative investments, other kinds of investments.
Yep. Well said. I, I have to say this, Kip, so. Five minutes before we started this episode, we literally walked over to Mike’s office and said, Hey, Mike, would you come be a guest on the podcast because you could share, you know, a case study or two with us. And we didn’t prep you, we didn’t give you talking points.
We didn’t say, Hey, here’s some of the things that we’ve been talking about in our other podcasts. These are the things that we share. What I find really interesting about this is you pretty much recapped, uh, the last couple of podcasts that we did in terms of how we operate, what we do, how we choose markets.
All of that. So I don’t know. I, I just think that it’s, it’s, it’s a real great case and point that across the board that the individuals who work here, like they are vested in real estate in what we’re doing. They understand it, and we could probably knock on the door of almost anybody here at this company.
And they would, they could come in and without us even saying, Hey, don’t say this. Don’t say that. Make sure you say this. They would just say all the exact same things that we’re. Are we really that predictable, Kevin? Really that boring? We’re that boring? That’s the way I think that vanilla and that boring is the right is the right word.
Yeah. Well, look, this is why we wanted you to come in and, and to Steve’s point, you know, I, I know, Mike, you’ve got an appointment coming up, so we’re gonna let you go. But thank you for coming in because to Steve’s point, We did not prep you. Uh, you just got back from a trip for your 50th birthday. We didn’t give you a week lead time and say, Hey, pick the best one you could come up with.
This is the stuff you’re doing and seeing on a regular basis. And here’s the other thing that I think is super interesting. Steve, before we went into Mike’s office, you and I took a look at a cross section of 20 recent proper. And we looked at what the average cash on cash returns have been, what or are projected to be, what the average annualized returns are projected to be on properties that were all recently transacted by our clients.
We looked at some performance, and guess what? The numbers that we were predicting were almost on par, frankly, a little bit more conservative than what Mike just shared about what has actually happen. What I love about that is we always preach predictability and consistency. Well, if you want something that’s predictable you, it’s gotta be systematized.
It’s got it’s predictable because you’ve got a system. Systems reduce risk and increase predictability. So when we go do this kind of real estate in this market, these types of markets where we’re doing single family residences, where when we talk about a 14 year track record, we’re not blowing smoke.
This is why we can say, we know that this works because we’ve seen it time and time again. So that when we go in and we talk to Mike, he pulls up a recent property and market review, and we could go through these numbers. And the reason why we didn’t have to prep Mike and why he can come in and share this is because, look, Coca-Cola has some sort of secret formula locked in a vault somewhere.
The difference between Koch and us is we don’t have polar bears to advertise with, and also we don’t lock our formula in a vault. The formula is simple and conservative real estate in some of the best markets in the country, single family residential real estate where you’re hitting singles, where you’re attempting to get a little bit of cash flow, where you’re seeing fairly conservative appreciation, but doing it in a systematized approach where the vast majority of the work could be done for you so you don’t have to worry.
Is this gonna work? Am I gonna swing and miss? We’re generally speaking, you could stand up there, you can bunt, you can get a single, and it’s gonna work for you in the long run. Mike, any last closing thoughts before we let you go? Yeah, I just wanna emphasize again, the time in the market, time in real estate, given a chance to work out, you owe to yourself as as real estate investors, if you paid the price to get.
Stick around to realize the long term benefits. Cuz I just had this other example from the same client’s annual review that we did at home that they had, they purchased in Indiana where we did a review about two and a half years after they purchased it and the numbers didn’t look great. It was looking like a few percent average annual return, two and a half years into it when you factored in the sales price to get in and out.
When he factored in the fees, uh, they were literally at a break even. They literally would not have made money had they chose to sell it at that time. So if they sold after two, two and a half years, they would’ve been at a breakeven. Yeah, And, and that’s a little bit longer than usual, but I’m purposely trying to find a, an example that was kind of beat up.
It was kind of ugly. That’s great. Not as good as typical two and a half years into it. Their most recent review, a little bit a year or so later, 3.8 years after the previous year or so, a year and a quarter after that previous review, exact same home, had appreciated about 7% a year on average. The return on their investment just a year and a quarter later was a net of fees.
In and out was a 14% a year. Not to mention the cash flow. That easily bumps that up over into that, closer to that 25% average annual return, just holding onto it for one extra year. We never would’ve recommended that client get into it for two years. We recommend get into it for five to 10 years. See where it is.
It’s not a set time, it’s, it’s what are you trying to do and what does the economy and the markets and everything look like later? And the power of doing that. I, I just gotta share, you mentioned I was outta town over in Denver this last weekend. I was able to get together with one of the clients. I’d love to talk with the DACs and, and spent time with, I’ve referenced them before on a podcast.
Ron and his wife Sally, and their great son Mike. Uh, I went in, I told him I had 20 or 30 minutes and over two hours later, after we spent two hours just is chatting and, and making sense of some things. It got to leave and, and see just the impact that real estate had had on their life. I shared this before where Ron had said that before he got into real estate with our help, and he’d think about the future, he’d have nightmares and, and he got started with the idea of I’ll give this a try and if, if it works, after trying once, I’ll do it again.
And now, 10 years, 11, 12 years later, he’s got a 10 properties. And when he thinks about the future, he doesn’t have nightmares. And to meet that family and spend some time with them after talking to him, uh, for the last couple years and seeing the impact of real estate in life is just dramatic. You gotta stick with it.
It’s better to have more than one if possible, but one alone could be dramatic for a financial future and what it can do for, for a legacy play down the line. And so it’s fun to see that with our clients. I love it so much. And guys, look, I. I hope you see, can you imagine how cool it would be to be sitting across the desk from Mike and, and have him say, Look at what your real estate has done.
And Mike, you’ve got such a brilliant mind, and the way you boil down and share principles and concepts is incredible. And I know. I am so thankful for you, for your friendship, for your expertise, and for the amazing work that you do. And guys, just imagine what it would be like to be sitting across from Mike and looking at your real estate portfolio and him saying, Here’s what it’s done.
Imagine where you would be if you had got started just a few years earlier, or whatever the case may be. So end of the story, it’s what Steve and I always say, When’s the right time to invest in real estate? 20 years. Second best time today, and if you are in the middle of your portfolio, you should be getting a property and market annual review.
If you’re a DFY client and you haven’t had the chance to sit down with Mike, make sure that you do that. We can make that happen. But for everybody else, Take Mike’s advice. If you’re going to do real estate, do it for the long run. Do it in the long run and for the long term. That time, look at that difference.
It made that one year from the two and a half years owned on that Indianapolis property. That last one you shared to, you know, when they’d owned it for three and a half, four years. What a difference that year can make. So Mike, thank you so much for stopping by. I hope this was beneficial for everybody.
Thank you for listening. We love to talk real numbers cuz now this is where the rubber meets the road. It’s not philosophical, it’s. Life. And so Mike, thank you so much for joining us and hope everybody, uh, appreciated this episode and we’re signing off for now. And we’ll see you next week. Take care.
Thanks for joining us on Replace Your Income with Kevin and Steve. Do you wanna learn more about our company done for you real estate? And to see if you qualify right now today to begin replacing your. Simple and conservative real estate investing done for you. Visit DFY intro.com. Click the orange button, watch our super quick webinar, and fill out the little form on the right side of the page.
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