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Josh: This is the BiggerPockets Podcast, Show 113.
Jay: We interviewed about 120 people like you to write "The Millionaire Real Estate Investor" and I started to see a pattern.
You’re listening to BiggerPockets Radio -- simplifying real estate for investors large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place.
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Josh: What's going on, everybody? This is Josh Dorkin, host to the BiggerPockets Podcast here with my co-host, Mr. Brandon Turner. What's up, Brandon?
Brandon: Literally, you are here with your co-host. We are only ten feet away.
Josh: We are. You are right in the cubicle next to mine. I love it. I love it. It's been fun having you here, man.
Brandon: Yes. I don't like this cubicle idea. This is kind of creepy in here.
Josh: Life wasn't meant to be lived in a cubicle.
Brandon: Life was not meant to be lived...that's why I work at home normally.
Josh: There you go.
Brandon: I'm here in the office hanging out with you because I like you.
Josh: By the way, we do have BiggerPockets t-shirts...
Brandon: Yes, we do.
Josh: That bear that exact slogan, don't they?
Brandon: They do. They do and they're kind of cool so if you want to check them out, head over to BiggerPockets.com/tshirt.
Josh: Right on. Right on. Get your copy today. All right, guys. Today is kind of an exciting day. We've got a really, really amazing guest. He's such a cool guy and he's one of the biggest authors that are in the business. He really is one of the biggest authors in the business and we'll get to that in a second. Before we get there, let's really quickly get to our Quick Tip.
Today's Quick Tip, guys: we have been working on this idea for a little while. We thought BiggerPockets users come on to the site. They interact in the forums. They find people they like. They find people they want to connect with. They connect with them. They want to work with them, do business. Then, they go and leave BiggerPockets and they go to other websites and they start chatting with them on Skype and other places.
We're like, "That's crazy." You guys want to interact with these people, these colleagues. Why don't we help you do that and facilitate that on BiggerPockets? Either at the time of this podcast or at some point in the very, very near future, we're going to be launching BiggerPockets Chat. You'll know it's launched because you'll see it at the bottom of your screen. BiggerPockets Chat is like a little IM.
Brandon: BigggerChockets Pat?
Josh: What did you say?
Brandon: You were like, "BiggerChockets..."
Josh: It's a tongue twister. It's like "rural."
Brandon: BiggerPockets Chat.
Josh: Yes. Anyway, look for BiggerPockets Chat coming soon on the bottom right corner of your screen. You can start IM-ing with your colleagues and getting work done with them and interacting and it's going to be great. You’re going to love it. That is today's Quick Tip, which leads us to our...
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Josh: All right. Awesome guys. Awesome. Let's get to this thing. Today's guest is Jay Papasan. Jay is best known to our audience as the co-author of "The Millionaire Real Estate Investor" alongside Gary Keller which has been our top recommended real estate book here on the BiggerPockets Podcast by our guests. It really was an honor to have him.
He also co-authored "The Millionaire Real Estate Agent" and collaborated on the bestselling book "FLIP." Most recently, Jay is the co-author of "The One Thing," which Brandon recently featured as the number one book on his list of business books that changed his life in 2014. He doesn't stop talking about it. The book has some amazing, amazing wisdom.
We're going to talk with Jay about that. We're going to talk with him about his own personal real estate investing, building wealth. It's a fantastic show. Get a pen out. Get ready to listen and listen again and again and again. Show 113 on the BiggerPockets Podcast; let's get Jay on the air.
All right. Jay, welcome to the show, man. It's great to have you here.
Jay: Thanks for having me. I'm super excited to be here.
Brandon: Oh, no. The honor is ours. This is going to be fun. I've been reading your stuff for a long time. It's kind of cool to be able to actually talk to the guy who wrote some of the stuff that I've been kind of obsessed with for years.
Josh: You're obsessed about a lot of stuff, man.
Brandon: I know. I really am.
Josh: He's obsessed with cats. It's weird.
Brandon: I do. I do like the cats and my little dog, Charlie. This is not about me, Josh. Let's bring it back to Jay, shall we?
Josh: Oh, Jay's here just like as a window dressing. Come on.
Brandon: Jay, what's your story? How did you get involved in this whole real estate thing, this whole niche of real estate?
Jay: Oh, wow. The quick elevator version of that is I always wanted to be a writer since age 12. I think I tried to rip off "The Hobbit" on my mom's typewriter on the card table.
Josh: What's a typewriter?
Jay: I actually wrote for three or four...oh, yes. Typewriter. That ages me, doesn't it? Went on through life, went to graduate school at NYU and got in to publishing. Married my wife and she's this amazing lady.
She said, "Let's backpack for five months and while we're doing that, let's decide where we're going to live." We quit our jobs. She kept saying, "Austin, Texas. Austin, Texas." We came here in February and it's 80 degrees. New York was all slush.
We moved here without jobs and I end up interviewing at this little sleepy company called Keller Williams Realty. When I joined Keller Williams, there were 6,700 agents. Today, there are 113,000; I think that as of today, the largest in the world. There were 27 employees.
I'm literally working in the tech department. I see one of our designers working on clearly a book cover. I thought he was freelancing. I just called him, "Are you freelancing at work?” He goes, "No. You didn't hear that Gary and our then writing partner, Dave Jenks, didn't you hear they're writing a book?" I was like, "No."
This is where my wife cracks up. I see Gary Keller in the bathroom. Glass ceiling, glass ceiling, right? I just said, "Hey, Gary. I don't know if you remember when you hired me but I came from publishing. I hear you're trying to write a book." He gave me that look like no he didn't remember that. He said, "Come in my office." He was between consulting calls.
He laid out a vision to write 13 books, which is interesting. We’ve written 12 together so far. He laid out five books that he and Dave Jenks had gone to Barnes and Noble and picked out five of their favorite business how-to books. It was "Good to Great," "The Millionaire Next Door," a book I can never remember and then...
Josh: Is that the title?
Jay: I know. I wish. That would be great. "Body for Life" by Bill Phillips and Mia Hamm's "Go for the Goal." He started talking to me through why he loved these books. I was like, "I edited those two." "Body for Life" by Bill Phillips and Mia Hamm were books that I've worked on. I showed him my name in the book and the conversation changed.
Jay: He basically called my then boss and said, "Good news or bad news?" The guy said, "Bad news." He goes, "You just lost an employee. Good news is he's working with me."
The next week, I was sitting outside of his office and it took us three and a half months from start to finish to write our first book "The Millionaire Real Estate Agent." From there, we worked on "The Millionaire Real Estate Investor," which I presume we'll talk about today and all the way through to our last book "The ONE Thing."
Josh: That's great.
Brandon: That's awesome. I love that. You and your wife also have a brokerage of your own. Is that true? I read something about that online.
Jay: Right. We have the Papasan Properties Group. It's a team. It's its own business within the Keller Williams structure. Last year, in our fifth full year, we sold 141 homes in Austin, Texas.
Brandon: Okay. Cool.
Jay: It's a nice little business.
Josh: That came afterwards, right? I'm assuming you started as a tech. You became the writer and then as you kind of moved along, eventually you've got your own team and so on and so forth.
Jay: I never dreamed I would own real estate much less invest in it. Living in New York and Paris, I was a renter. We started by buying our first house. We thought we terribly overpaid. We still own that house and it's our best rental property.
Then, we had our kids. Wendy left her job in marketing and she started taking care...we had I think four rental properties. She started managing those. We did a few flips. When we were writing the book "FLIP," we were practicing at home. She was really good at it.
When it came time for her to get back to work, I was like, "What are you going to do?" She's like, "Well, maybe real estate." I was really happy about that. I write books about real estate. She launched a team five years ago and has built it in to a $36 million-business.
Josh: That's great. That's great.
Brandon: That's awesome.
Josh: Hey, Jay I've got a question. This wasn't something I planned on asking but why do you think more...because we got agents who are lessors. We got investors. Why do you think more agents don't become investors?
When I was an agent, it was like this dream that was untouchable. "Oh, man. Maybe one day I could become an investor." It's not that complicated. It's not that much harder than being an agent. In fact, it might be easier. Why would you say more agents don't go on to actually invest themselves?
Jay: The brutal truth is there are a lot of agents who don't own themselves. I see people with real estate signage on their car parked in apartment buildings and I presume they don't own the complex. They live there. [Inaudible][10:00]. The top 10% sells more than half of all the real estate.
I think if you look at that group, there's a sizable percentage of them that invest in real estate. I think that you've got to be making enough money to one, cover your means. You're making more than you need every month or are able to set aside because the biggest challenge for most people to invest is saving up the down payment.
I don't believe in nothing down investing personally. That's not what we teach. It took my wife and I two years. I was working a part-time job to save the money so we could get a down payment, buy the house, live in the house, move out, rent the house, buy the next house. That was our original plan.
Josh: You and Brandon are going to have a fistfight because his books, which compete with your books is "The Book on Investing in Real Estate with No (and Low) Money Down."
Brandon: That's why I added "low" in there because...
Brandon: There's low because you can do...there are strategies obviously like low down payment and FHA loans and all those things.
Josh: I'm not picking a fight here.
Brandon: I'm just saying, I'm just saying I think me and Jay probably will be pretty similar.
Josh: I agree.
Jay: At the end of the day, I want you to have an equity position in the home. You can get that through putting cash down or getting it on a discount. If you're a real estate agent, getting back to your point, Josh, you can use your commission to do that. You are investing with very little but you're not having to come out of pocket.
You can charge yourself on those deals. It depends on the state so don't quote me. I've heard of people charging 13% commissions. They're closing the deal and almost all of their down payment is their commission itself.
Josh: That is interesting. To follow-up on the previous question, what advice would you have for that group of 90% to get them to transition, to become more active as investors? One of our goals is we want to educate people on real estate investing. It's such a ripe market.
There are a million agents out there. These guys have the knowledge mostly. They've got the experience. They understand real estate probably as good as most. To get that group kind of thinking about it, getting them over the edge, what advice would you give them?
Jay: I think what's awesome about our industry if you work in it is that you're in your inventory everyday. If you just adopt an investor mindset and start looking for something that feels like undervalued property and we see it.
You talk to realtors and like, "Oh, I remember when that house went for sale. I wish I'd bought it." There's a lot of regret out there. Just adopt the mindset whether I can do this alone or I have to have a partner. If you can find a deal, you'll find the money. That's been the reality for me. You find a great deal. You could partner with your clients.
Jay: "I'll contribute my commission to this deal and my expertise for a minority position," but now you're starting down the journey. I think it's taking the first step, mindset, start looking at the world as an opportunity.
People told us we could not find investment properties in my neighborhood. It was done. It was done. Most expensive neighborhood near downtown. We own three properties there. We didn't find them overnight. We were patient. I think it's a mindset thing and just start somewhere. Even if you're buying your first house, just buy it like an investment so you can move out in a few years and rent it.
Josh: That's good advice.
Brandon: Terrific advice. I tell people all the time, they want to know should they buy a house. Maybe, maybe not but if you buy it like an investment then you're probably going to be okay no matter what even if you don't plan on staying for 20 years in that house. I love that.
I have a question about Keller Williams. I'm not an agent. I've never been an agent though I hear Keller Williams' name all the time. I got friends like my buddy, Darren Sager. He's a Keller Williams agent. He just sings your praises every time I talk to him. What do you think sets apart Keller Williams and why did you become the powerhouse that Keller Williams is? What could you say to that?
Jay: I think it's got a different culture. I've worked for HarperCollins. I worked in Rupert Murdoch's organization. Super successful. Great achievement atmosphere. I didn't love culture.
I think that Keller Williams, all the chief executives have been top real estate agents. They've all owned their own real estate brokerages and all of them have actually run regions in our own company. Chris Heller, our new CEO, he still has one of our top, maybe five or six real estate teams in San Diego. He's still a real estate agent.
Josh: Got you.
Brandon: That's cool.
Jay: I think everyday they wake up and they ask the question, "How do we stay in business with the agent? How do we champion their cause?" Because that's where they came from. Everybody's kind of looking at the same problems from the same perspective. It might be a weakness that we're too agent-centric but I think that's the main thing is we're speaking their language and they can tell that we're genuine.
Josh: That's great. Back to investing, what kind of habits should a real estate investor have?
Jay: Oh. I love that you said the "habit" word.
Jay: Oh, yes. With our last book "The ONE Thing," my big a-ha that the most successful thing you can do is learn how to make habits in your life. If I want something to happen on a regular basis, what's the habit that would drive that thing? I think pretty early...I can't quote my own books. I'm not a grouper that way.
I think it was called "Tuesdays with Michael." It was like a play on "Tuesdays with Morrie," whatever but Gary had a financial advisor that was his mentor, made him read all of the great financial books. He said, "You need to start knowing your net worth."
It became evident to Gary that that was the number that if you measured it, you would want to know how much cash you had, how much debt you had. It's the wolf number. He got in the habit like every week he gets his net worth updated. That's not an easy feat to do but I've seen the sheet. His admins will come together and they'll report it. He reviews where his money is. He counseled me to do the same thing.
My wife and I pretty early on we set a goal. We want to be millionaires. We thought it would take us ten years. It took us six. I think that habit of every month...back then we didn't have things like Mint. We didn't have Quicken. I had to literally call every home loan. We had three or four properties and get the current balance. How much do we owe?
We'd call a realtor friend because we weren't in the business and say, "I hate to do this to you but is that neighborhood appreciating?" Once a quarter or so, we get them to update what they thought the value of our properties were and we'd figure out our net worth. Then, that became a game for us.
That drove a lot of really good habits. That led to for like three years we lived on about 50-70% of our income and we invested the difference. That one habit triggered a lot. That to me is a big one. Do you know your net worth?
Jay: That question answers a lot of questions.
Brandon: I love that. I love that. I don't know. It was 35 days ago or something like that, I started this 100-day challenge where I'm going to write a book. I'm writing a rental property book, which I don't think we've ever talked about that on the show. Anyway, I'm writing a new book.
Josh: Too-too! Buy today. Pre-order.
Brandon: That was the word today. I set five goals for myself -- three of them financial, two of them personal. Every single morning, I review them. Every week, I sit down and review how far I've gotten total. Once every month, I sit down and it's unbelievable what it's done for my life.
Just setting that habit, I haven't missed a day yet. I haven't had one hiccup at all because it's that habit of every single day just explosively of tracking my net worth every single week. It's amazing. I'm glad you brought that up because it's something that's just right on my mind right now and I love it. It's amazing.
Jay: Let me ask you. When do you do that, Brandon?
Brandon: I do it every morning when I wake up, first thing.
Jay: See? That's huge, just that alone. I just taught a class and the whole point was to get people waking up earlier.
Josh: Yes. I love that.
Jay: I read a book and I think it was called "Rich Habits" and this guy was an accountant. He surveyed all of his clients. He noticed that all of the millionaires were getting up on average three hours before they had to get to work. For me, that was 5:30 am. I've just put that up on the screen and it's weird.
My wife and I, not everyday but three days a week, we have to get up at 5:10 am to work out because we started understanding that if we wanted to get stuff done before work started and the kids were up and we had to get them to school and feed them, walk the dog, we had to get up before everybody else was awake. I think that wealthy people do their most important things, a lot of times, before the rest of the world's up.
Josh: Yes, I agree.
Jay: Big a-ha for me.
Brandon: Yes. I try to have my thousand words written before 7:00 am. That's my goal so I have to get up usually between 5:30 and 6:00 to make sure that that hit gets done everyday. Same thing with working out, if I want to do that in the morning, got to get it in that time, too. Yes. Love that.
Jay: There's nothing on TV. There's nobody on Facebook. There's nothing to distract you.
Brandon: No one's calling my phone. Yes. My phone rings all day long. Not at 5:00 or 6:00 in the morning. It's great.
Jay: That's a big habit. I love that.
Brandon: Yes. Me, too. Cool. Any other habits you want to throw out there as things that a real estate investor should be good at?
Jay: I think that when I was starting down the journey, since we're kind of taking this from the beginning versus the advanced version, the first thing I did was I started analyzing deals. We make a big deal out of "I want to know what our terms are and our criteria are." I had a great network. I worked with Gary Keller. I had a really good group of people around to advise me. That's obviously important, too.
I think Wendy and I before we really pulled the trigger on our first we're-not-living-in investment, I bet we had done the numbers on a hundred homes. If you do that, just kind of methodically, "All right. I'm just going to go through and call a few places and say, 'What would this house rent for? I'm thinking of renting this house on such and such street.'"
You start getting quotes. You start seeing what would actually cash flow versus what wouldn't. After a little while, when the deal shows up, you just know it. You're like, "Wow! That's the deal. We got to call our realtor right now and make an offer on that." It's just a little habit of running the numbers. Then, all of a sudden, it just happens up here. It's magic.
Josh: Yes. That's definitely something that comes with practice, with time. We love telling new investors to get out, drive the neighborhood, get to know your farm, get to understand it. You should see every house that's available, that's open so you can at least understand values of a property.
One further is actually doing the analysis and then understanding the fundamentals that go in, the expenses that go with a rental property, so on and so forth. We actually built analysis tools on BiggerPockets. We've got a calculator for buy-and-hole. We've got a calculator for people who want to flip houses. These things are at BiggerPockets.com/calc for those of you who are listening and want to check them out.
It forces somebody to go in and take the numbers and think about everything. Most people say, "Hey..." I blame a lot of this on agents and this is not picking on you or anything but a lot of agents think, "Hey, if I could find you a rental property where you're making more money than your mortgage," you're just full of positive and you're kicking butt. It's such a misnomer.
Our goal is to educate people. "Hey, listen. There's a whole heck of a lot more. There's capex and there's maintenance and there's vacancy and there's yada-yada-yada-yada." The tools help people to kind of see what's out there and kind of punch the numbers and analyze those things. More agents should use it, frankly.
Jay: Each house has a surprise. Every house has a surprise. Shame on you if you didn't find the five other ones that were just right out in the open. No matter how much due diligence, there's always a nasty. You just want it to be small and hopefully not structural.
Josh: Exactly. That's why as an investor, you have to find that discount. Paying retail, paying market is...it works in some cases but you've got to find those properties that are at a discount because...and you've got to prepare and plan for that nasty, as you call it, which I love. Have that little extra budget whether it’s on a flip, no flip every goes smoothly. Whether it's a buy-and-hold, there's always kind of some little thing in there. That's fantastic.
Jay: You just work through it and sooner or later your instincts will be pretty strong. You still do the math. I was going to say that earlier. Just because you know it's a deal, you might have earned the right to "blink on it;" before the ink is dry on the offer, you have done all the math again or you’ve walked through it. I'd always rather miss five or six good ones than buy one bad one.
Brandon: Hands down. That's going to be a quote right there for the show. That's so true. I have been doing this for eight, nine years now or something like that and still I'll find a deal that I'm positive it's an amazing deal. I go look at it. I run the numbers in my head. It's perfect.
Then, I actually sit down and plug in every number the way that I should and I realize that it's actually not a very good deal at all, maybe even a bad deal just because there's so much swimming up there that it's hard to do unless you really sit down and do it. Yes, no matter how experienced you are, do the numbers anyway.
Josh: It's always better to walk. You got nothing to lose if you walk.
Jay: It can get complicated and start talking about when people don't do the numbers, the opportunity cost of their money. I don't know about you all. I don't walk around with ten down payments in my back pocket. I might, any given year be able to add one property to my portfolio. That's kind of where we are right now.
I want to do that wisely. I'd like to get one. I'd love to get a 20, 25 rate of return on all of the money on it, not just the cash flow. I want to see it appreciating. I want to see my dollars working really hard. I don't want to get the minimum because I still have to rent this thing out. Once, maybe twice a year, I might have to handle maintenance on it. I want it to feel like a really good investment. Doing the math really helps you make the best ones.
Brandon: Let me ask you that thing. When you're finding a property, when you're looking for property for yourself, what do you look for? You're in Austin you said, right?
Brandon: Austin's one of the craziest real estate markets I hear in the country in terms of prices and how difficult it is to find good stuff. What are you looking for? Are you looking for junker houses that you can fix up a little? Or are you looking for a high-end stuff? What are you buying?
Jay: We made the decision because we made one mistake. It was really about...we ended up buying a great cash flow property that we just didn't enjoy owning. It was too far away. Just going there to show it was kind of a hassle.
I just felt like we're going to be...we had a lot of wealth tied up in that house so we're going to be neglecting it because we didn't want to go there. We didn’t particularly love hanging out with the kind of people who were going to be renting it. That's not just where our life was.
We knew that by narrowing our criteria to Central Austin, we were going to be fighting two battles. We just got clear about what we would really enjoy owning. A lot of the places that we rent now, they used to be starter homes. We've got them on a bargain. Now they're kind of mid-tier but they rent to professionals.
I remember the first two times we rented our first house and the people who were renting our home made more money than we did. We just kind of giggled with delight. I said, "Great. They won't miss a payment." They're also the kind of people that we felt really comfortable. My wife's pregnant. We had two kids and she's showing houses. We could have easily had these people to dinner with us.
We made a choice. Our properties don't cash flow a lot and we're okay with that. We just have to look in Austin. We don't have income tax in Texas. We have property taxes. If your house were going up in value, our books look really good, our net worth but you'd end up fighting property taxes every year.
The real gift is to find, if you're buying single family and that's most of ours other than a couple of duplexes, you're generally fighting those to be cash flow positive. Our first house, we bought it for 175. It's probably worth 410 now and it's been less than ten years.
It's a crazy hot market but if we weren't managing it right, we'd be writing checks to own it and I don't ever want to do that. That's kind of the trick for us. Our criteria is can we keep it cash flow positive while it continues to appreciate?
At some point, we're going to pay off that first house this quarter. Boom! Now you have no debt against it, you've turned into a really nice cash flow property. That's been our strategy. We want to pay off a few of them and it's kind of our safe haven against all bad storms of life.
Josh: That's great. That's great. The beauty of real estate investing is there is no one strategy.
Josh: What works for you, what works for your goals, your family value, you guys want to rent to people that you can have at the dinner table, so to speak, that's great.
Whatever works for you, the listener, people listening to the show, you've got to figure that out because if you end up buying those properties that don't work and don't fill within that, it's going to be a struggle. It's going to become work. You’re going to hate it and you're going to be out of the game.
Jay: When people blame the real estate, it's their fault. They are the ones that picked the real estate. There's enough room to succeed to pick things that match really your personality and your criteria.
I got a good friend. He loves four-plexes. I would hate that because of all the maintenance. He likes to work on stuff and he likes to talk to handymen. He loves cash flow. That’s what he wants. That's a great investment property for him. It is very personal. It just has functionally, it needs to be a good investment. That to me is cash flow positive and hopefully it's consistently appreciating.
Brandon: I find that changes a lot throughout a career. When I started, all I wanted was small multi-families. I still like them because they're great cash flow. It got me out of my job. I was able to kind of retire-ish by 27. I was like, "This is great. I don't have to work a job anymore."
Then, things change; your life changes. I don't want that cash flow anymore. What I want is I want to become a multimillionaire through prices going up. I'm not going to go and gamble this thing away but at the same time I'm looking to adopt your strategy much more than I am where I've been.
Jay: We interviewed about 120 people like you to write "The Millionaire Real Estate Investor" and I started to see a pattern. A lot of people in the beginning were trying to get cash flow so they didn't have to work for a living. They can do whatever they wanted. Once they hit that threshold...we had a real estate business that had cash flow. We weren't looking for that. They tend to go to net worth.
I love duplexes. They get a little bit of both worlds. You can buy it on terms of cash flow but sell it to someone who's going to live in half of it as a first home so you can kind of max value. I see people moving up to larger multi-family and commercial. We bought a warehouse three years ago, four years ago. We paid cash. It threw off 450,000 in cash flow a year.
Brandon: Wow. Wow.
Jay: We made $1.7 million on it two years later.
Jay: I still hate that we sold it.
Josh: I want that property.
Jay: Yes. I still want that property. We ended up buying another warehouse. It turns out that warehouse space near downtown is totally un-sexy. It's very boring. It's literally like a Goodwill type place. There is kind of a cool brewery that's in one of them but nobody knows that those businesses are occupying those stalls but it's very consistent and it's near downtown. It started appreciating value. I said, "Oh, wow."
There are highly leveraged ways to make your wealth grow as you...they call it the property ladder. I hate to be cheesy but we've been kind of going up that line. I'd rather have fewer roofs to manage but have more net worth and more cash flow over time.
Josh: Makes sense. Makes sense.
Brandon: Yes. I love it.
Josh: The thing that you talked about earlier, the duplex, we call that house hacking. It's a great way...we love talking about it on BiggerPockets. It's such a phenomenal way for a new investor to experience being an owner, being a landlord. It's a great way to kind of move up.
You buy the duplex. You live in half. You get the experience. You move on to the next. Now you've got the full rental property and you can either keep doing it. The nice thing is you can get the FHA, 3 and 1/2% loan. It's a beautiful thing.
Jay: If I have a regret and I don't have a lot about my investing career, I wish I could go back in time and coach that couple that bought their first house as a house. We didn't buy it. We got lucky. It turned into a great rental property, but if I could go back, we would have bought a duplex every 18 months as fast as we could and looked up four or five years later and had nine or ten streams of income behind us.
Because after about six years of us living in Austin, there was so much competition on the duplexes. It's a little bit harder to get value there. I was like, "Oh! That was it. That was the perfect investment vehicle. You could be a homeowner and an investor your first purchase." Love that house hacking. I'm going to steal that.
Josh: You got to cite BiggerPockets any time you use that though.
Brandon: That's not the book I'm writing but that is on my agenda at some point so we'll see. Speaking of books, you mentioned real estate...
Jay: I won't steal the book from you.
Brandon: Yes, don't steal the book title.
Josh: We've got this now recorded here for all to hear.
Brandon: It's live. We'll work together on that one. All right. It's been ten years since "The Millionaire Real Estate Investor" was released. We ask on the end of the show, we're going to ask you later on, we always ask at the end what is your favorite real estate book. Now "Rich Man Poor Dad" is mentioned a lot but you can't really necessarily call that a real estate book.
The number one real estate book that all of our 110 -some guests we've had is the number one most popular choice is "The Millionaire Real Estate Investor." Good job on that, by the way. The number one real estate book people recommend.
I want to know why do you think that is? Before we move on and talk about "The ONE Thing," I want to know why is that book having such staying power? Why is it so powerful for investors today?
Jay: I think it's a really good argument for why real estate investing is accessible to everyone. It shows them...Gary is really good at making complex things simple. I think it helps make it simple for people and feel less threatening.
One of the things a lot of people don't know is that when he was writing that book, his father was nearing the end of his life. He was very reflective of his role as a father for his son. About the first 120 pages of that is kind of Gary's thoughts on money.
Here's a guy who's built incredible wealth. Unlike a conventional investing book, here's a very fundamental take. I usually tell people, "If you want to know about money, go read the first 120 pages of that book," because that was like a letter from Gary to his son who wasn't old enough yet to receive that information.
There's a lot of heart and soul in that book. I think that was part of the magic. I think the information's great. It wasn't our thoughts on real estate. We interviewed 120 millionaires and we asked what did they do in common which I think is a very different way to approach the problem.
Josh: Yes. That's great. That's great. I want to shift gears a little bit and talk about "The ONE Thing," another book. "Hi. I'm Jay. I've authored all these books. Yadda-yadda-yadda."
Jay: It's my one thing.
Josh: Oh my goodness. "The ONE Thing," you co-authored it with Gary. Brandon talks about this constantly. It's a little annoying by now. What's funny is whenever we get these authors on, authors like yourself, successful people who write really great books, he's always just crazy enthusiastic which we love.
He said it was the best book he read last year. We've heard other people say that. He's always, "Josh, what's one thing that you're doing right now?" Busting my chops. I love it. It's amazing.
What was the reasoning behind the book and then we'd love to talk really what is "The ONE Thing" about?
Jay: The book came out of an essay. Gary and I and some other team members were finishing up a course on Lead Generation for Real Estate Agents. That's their one thing is that if you want to serve these businesses you got to have more customers. If you don't have customers, you have nothing to deliver. The course was great.
He took it home for the weekend. He said, "I just want to have a little weekend to tinker. I might just change a word here. It just doesn't feel exciting to me." He wrote a ten-page essay called "The Power of One." It blew everybody's socks off because he really eloquently, for the first time I'd heard, stated that achievers work from a clear sense of priority. As a publishing guy, I thought, "This is it."
Gary's really smart. He's really hardworking. He's not the smartest guy in the room. He doesn't let his ego get in the way. He'll hire people a lot smarter than him. He doesn't work long hours. He knows that's now how you make money. He always figures out what matters most. That's his thing. That's his one thing.
I got really excited. We actually worked on the book for five years because I feel like more than anything else I believed it. He believed it. We felt like almost no one we knew was living it because today and you know this; it's easy to multitask. It's easy to get distracted. We've felt like not only did we have something to share on the subject but there was a real need out there for it. That's kind of the genesis.
Josh: That's great. That's great. Why is the concept of "The ONE Thing" so important then?
Jay: It's simple. It's nothing new. We're not the first people to say it. I think that we tackled it from a pragmatic "how do I take action now." A lot of people will say simplify. Avoid distractions. Those are really trite without anything behind them. We really sat down. We found a great publisher. He only does one book a year. Imagine that that we'd end up with him.
We worked really hard at trying to say what do people need to understand in order to implement this. We identified six lies. There's stuff that we think ties up to success that's really getting us in the way. People don't understand the 80-20 principle, not on a deep level. Most of what we get comes from a very small minority of what we do and the people who get the farthest in life stop to identify it. We get caught up in multitasking.
I could go down that road and we will if you want to. I just felt like we tried to tie it together in a way that people could set down the book and say, "I'm going to ask this question and I'm going to identify the one thing I need to start doing." Let's start there.
Josh: How do you do that if you don't know what that one thing should be? Presumably, we're talking about both in my personal and in my professional lives, correct?
Jay: Actually, there's a page. 114. I know that page where we identify seven areas, yes, I know, seven areas in your life where we think that it's worthwhile to apply the book -- your spiritual life, your physical life, your personal life, your key relationships, your job, your business, and your finances.
If you ask the focusing question and I'll just say it. I sound like Brandon's been saying it for you. What's the one thing I can do such that by doing it everything else will be easier and necessary? That's the question. People are really good at identifying I think the one thing that's their biggest lever right now. It's not could, would or should do. It's what they can do right now that gets them in to action.
Josh: That's great. Action is the key to success, right?
Jay: Yes. That's how you learn. You go out. You mess up. You fail a little bit. You see you're just off course and you fix it. Action is how you make progress in life.
Brandon: I love that. One of the things you mentioned in the book early on, he goes early on in the book but the domino analogy where one domino can knock over 150% larger and the exponential growth. I probably have told, I don't know, 500 people in the past three months that analogy. I go, "You got to read this book."
It just made so much sense to me. Again, there are certain books in my life that have hit me at certain points. First, it was "Rich Dad Poor Dad." There's "The 4-Hour Workweek" in there. There was "The Lean Startup." There was "The ONE Thing." It hit me at that exact perfect point where...
Jay: That's great company.
Brandon: Yes. It just blew my mind because it hit me at that point. I would attribute that to most of the success I've had in the past six months have been from that book alone. Can you maybe talk about what is that analogy, that domino thing?
Jay: The domino effect. Basically, we wanted a metaphor for what we were trying to achieve. The first objection people have is it's never one thing. I just told you there are seven areas. There's never just one thing. Our life isn't that simple. I'm not Howard Hughes with the platillion of servants to go do everything else for me.
Josh: Oh, come on.
Jay: I've got...
Josh: One day. One day.
Jay: Yes. I wish. Without the fingernails. You look up and you say, "Okay. What's the metaphor?" Everybody at some point in their lives has lined up dominos. If you line them up right, you knock over one and they all fall down. That became a reality.
We found that crazy article by a physicist from 1982. Lorne Whitehead that said one domino can knock over one that's 50% larger. A two-inch domino can knock over a three-inch domino can knock over a four and a half-inch domino and my math breaks down.
Josh: What's next? Come on. Come on. Keep going.
Jay: I'm an English Lit major. Don't do that. What's cool is by, I can't remember all the numbers here but I think the 18th domino, if you grow them at that rate, it will be taller than the Tower of Pisa. By the 23rd, it would be higher than the Eiffel Tower.
What kind of blew my mind, you start with a two-inch domino and you just start them running. You just knock that one over. By the 33rd, it would knock over a domino 3,000 feet higher than Everest. By the 57th, if you could build it, it would knock over a domino that would reach all the way from the Earth to the moon.
You get this sense that...there's not just this sense that a lot of stuff happens but you're gaining momentum. If you remember, Brandon, when you look at that line, we graphed it in Excel, all those numbers and then we drew little dominos to show it; it looks like a hockey stick on its side. That graph is the graph of a geometric progression.
Anything that compounds exponentially over time, it looks like nothing's happening and then it just explodes. That is the shape of big success. You're doing something really awesome really consistently.
Think about Apple. They were innovating and innovating and highly focused and then boom! They came out of nowhere and then they had a good decade. For the tech industry, that's huge. Great people, great companies do that. That's the metaphor.
I love it. My kids got that. They say, "What's the first domino, Dad?" I'm like, "Ah!" If I just teach them one thing, where do I begin that has the most impactful way for me to line up my life?
Josh: You guys did that, too at KW. I remember. Listen, I don't know how old you guys are but I remember when I was an agent 15 years ago, you were starting to spread little by little. Nobody outside Texas knew who you were and then it was just really quickly, you guys exploded on the scene. Suddenly, KW now is the biggest brokerage on the planet.
It's amazing. I guess you guys have the right to use that analogy because you've lived it. You've experienced it. That's phenomenal.
Jay: We can graph it out. It would be crazy. I haven't actually done that.
Josh: You should.
Jay: It's 31 years old.
Josh: The company.
Jay: 15 years ago, there were 6,700 agents at mid-point. This year, there's 113,000.
Brandon: Yes. Crazy.
Jay: Yes, it totally is the hockey stick. It's just been growing at an exponential rate. You think that can't be sustainable but every year we kind of keep growing. I hope it keeps growing for a long time. You do the right thing and for us, we focus on the agents. I've said that before. You figure out what your focus should be and act that way all the time. Big stuff happens.
Brandon: Maybe you can take this back to the real estate investors that are listening. I'm kind of wondering. Let's say somebody's listening to this show. Maybe they own their own house but they don't have any investments yet. They want to do that. How do they figure out what their next one thing is in terms of building a real estate empire? How does that person start?
Jay: For me, the first domino always is go to your net worth. Hopefully, it's a positive number. I then tell people the next domino is where do I want to be and how long do I have to get there. If you're asking this question about real estate investing and you're 65 years old, it's very different than when you're 23. You've got a lot more time and one equation to work with.
When I sit down with people, I usually work it out. How much do you want? What's your goal? What that does look like? Then, we work backwards. That's something that we describe in "The ONE Thing."
My wife and I, we've set a goal and our most recent goal is eight million. We wanted to have a net worth of eight million because it was something that Gary said just offhandedly. He goes, "At a really conservative yield, you got about half a million dollars off of eight million." He goes, "Who can spend a half million dollars a year?"
Josh: You can try.
Jay: I said, "Keeping tigers as pets if you actually live a normal life. Drive a Toyota." That's a ton of money.
Josh: You can't drive a Toyota, man. You're a millionaire. Hold on. Millionaires are out shining their bling. Come on, man. That's nonsense.
Jay: You know the truth, right?
Josh: The truth is Warren Buffet drives a Toyota.
Jay: When his chair people finally convinced him to buy a plane, he called it "The Indefensible" because he knew there was no way to justify it from an investment standpoint but his shareholders said, "No. Your time is worth too much money to be riding in coach." Yes, yes. We live thrifty. Those habits didn't go away.
Usually when people figure out where they want to be and where they are today, that gap, you can then work out a plan. For a lot of people, it's like they only need to own four or five properties to get where they want to go. It's actually often less than they think they needed to do. I love that little exercise.
Josh: Yes. That's great. I think one of my favorite shows...oh, I can't tell you which was my favorite show but we did a show with Ophelia and I forget what show number that was, Brandon. There's this woman. She came from overseas, had absolutely nothing, and found a way to get that first property and then built it and built it and built it and built it.
So many people think, "I've got to be rich to be a real estate investor." So many people just say, "You landlords are rich (beep)." Hey, that's not true. Anybody can do it. You said it. Be thrifty. If you're smart, if you're wise, it's real easy to go and buy some big houses and all of a sudden you've got nothing left.
If you’re smart with your money and you build it little by little and you're thrifty and you're not blowing it on stupid stuff, there's no stopping you and there's no end. Anybody, anybody can become a millionaire through real estate.
Jay: I love that. It's the most democratic of all investment vehicles.
Jay: If I want to add value to one of our houses, I'm like, "Kids, we're going to paint this weekend." We can go and prove the value. I love Apple computers and I own Apple stock but I can't do anything to influence their value. I love it. It gives me control. It's accessible.
Wendy and I, I think we own three or four properties before we had $100,000 in household income. We were just saving a lot of money. We're scrapping to get the money to buy another down payment to get another house.
Josh: Yes. That's good.
Brandon: Just to add on to that and kind of tie back in the analogy you used, we talked about the dominos and the exponential growth that that makes.
People listening can kind of think of it this way, too: if that exponential growth, to hit that point is going to take you ten years, if you wait until you think you are financially at the point like you're a millionaire, you're going to wait till you're a millionaire to start that domino, it's going to take you ten years further.
Why not hit the first domino today? Do something even if it's the smallest thing. "I'm going to buy a property," whatever that is, find your one thing. Knock that domino over today and just take action on whatever that is. I don't know. I hope I leave somebody with some motivation.
Jay: Yes. Did you ever read "The Automatic Millionaire?"
Josh: A long time ago, yes.
Jay: What I loved about that is, I tell that story sometimes, he called it "the latte factor." People think they can't afford to buy a house or be a millionaire but everyday they go in to Starbucks and drop five bucks on something that costs five cents.
He showed the opportunity cost that if you just took that $5 a day and instead saved it and invested it how much money you could make. A really humble, a really small domino, if you just keep whacking away at it, $5 a day, $5 a day; instead of a pack of cigarettes, keep that instead; it can add up to a lot of wealth later in life.
Josh: My wife's going to hate me but I'll just call her right now. She used to be on the Starbucks habit. No offense to Starbucks. It's great, delicious, down the block. Feel free to sponsor us, Starbucks. I'm shameless, right?
She was buying this Starbucks everyday. I'm like, "My God! You're buying $5 cup of coffee. Let's get a coffee pot and do it." It's not a ton of money but every five bucks count. If we can knock out five bucks a year, if we can knock out an extra dinner here, if we can knock out this year, all of a sudden we've got all that more money.
We like to take chunks of money and I forget, blanking out now where we learned this but you put it away, auto-withdrawal and put it into another account and we don't touch it. We do it for each of our kids. I think it was "Richest Man in Babylon" or something like that, one of these things.
We don't ever touch it. We don't even count that as money that we have. That's not ours. We plow that stuff away. We plow it. We make sure we save for our self and for the goals that we've got first. Then, everything else is our spending leftover money.
If you can do that and kind or requisition cash for certain purposes and then minimize the other crazy stuff, anybody and I do really mean anybody can become wealthy. You just have to be methodical and smart about it.
Jay: I love that technique. I didn't know it came from "The Richest Man in Babylon." I didn't remember that.
Josh: I don't remember.
Jay: We wrote about it. I loved it because I hate budgeting. I don't want to save receipts. We set a goal of I think in the beginning was could we put $1,500 in our money market every month. For us to do that, I went in to our payroll and I said, "I know I'm already getting money that goes straight in to my 401K. Will you pay my paycheck in to two accounts?" They said, "Sure. How much do you want?" I say, "Can you put $400?" in the beginning.
I knew we couldn't do it in the beginning but you could do X amount. My wife did the same. Then, we were playing the game how do we make up the difference. That's when I had to get a second job. I got a little freelance gig that I did for two straight years and we made up the difference and that's how we bought the properties.
Once the $400 was gone from our paycheck, it was just like the 401K. It was like it had never been there to begin with. It was just mounting in this other account that's slightly out of your perspective.
Josh: Right. That's great.
Brandon: Yes. Love it. Cool. Moving on, why don't we wrap this thing up with our world-famous...
Brandon: All right. All right. Today's Famous For and I guess Fire Round since we didn't really have one is sponsored by 99designs where you can get professionally-designed work for your real estate business and it is exceptionally fast and affordable. You can get dozens of designers to compete and deliver you the best design plus it's 100% guaranteed that you'll love it.
From logos to websites to car wraps and more, definitely head over to 99designs.com/BiggerPockets to get a $99 upgrade of services for free. Again, check them out on 99designs.com/BiggerPockets.
With that, let's get to the Famous For. These are questions we ask every single guest every week. I'm going to alter them a little bit for you. The first question is: what is your favorite real estate-related book?
Josh: Hold on. Hold on. Hold on. I'm going to amend that. What is your favorite book that you've written?
Brandon: That's a good question, too.
Jay: The most impactful for me are really...I always cite them in this order. It used to be "The Millionaire Real Estate Investor." Now it's "The ONE Thing" and "The Millionaire Real Estate Investor." We've written a lot of good books but "The Investor" changed the way I looked at our whole world. We built most of our wealth from the wisdom in that.
"The ONE Thing" has helped me be a better parent and a better husband. I just love it. I'm being a better person because we're living that book. Thank you. Writing a book, you have to live it. The best way to learn something is to teach it. It's that magnified. I'm sure, Brandon, you know this. You just have to write about it.
Brandon: Yes, it definitely does. Definitely. Besides that, do you have any other books that you'd recommend that you've read in your past?
Jay: Gosh! The first thing that comes to mind, I throw it out all the time. Oh, yes. There we go. Right there on the screen. "CASHFLOW Quadrant" was not necessarily real estate but it was a business. I understood that I could work for money. I could be self-employed and still work for my money but if I stop, I could own a business where other people earn me money and then invest my money.
It worked for me. Distinguishing between what owning a business and being self-employed was a really a big deal for me. It helped shape even our investing business. Are we self-employed here or is this a business? Marching through those quadrants was really seminal for us in terms of how we move forward.
Josh: That's great. What about business books? What are your favorite business books, not your own?
Jay: I give away books all the time. All I can say is the book I probably gave away more than any other last year which is indicative of what's in favor right now was a real tiny book called "Managing Oneself" by Peter Drucker.
Brandon: Okay. Haven't read that.
Jay: Yes. It's real short. It was an essay he wrote. It was in the Harvard Review. It's full of a lot of wisdom about how to understand what you're good at, be okay with what you're not good at, and manage that in your career. I've given it to a lot of young people as a way to force myself to relive it because every time I had to give it I'll...I have it on audio book on my phone and I listen to it all the time.
Jay: It's just good timeless wisdom. Peter Drucker. If you only read one business author, read Peter Drucker. The guy is smart.
Brandon: It's cool.
Josh: That's great. Awesome. What do you do for fun? You got a family. You got kids. What do you guys like to do outside of work?
Jay: Okay. We just bought a ranch just last year. It's kind of like buying a yacht in investment terms. You get the land jobs.
Jay: I love being outdoors.
Josh: Is it like a yacht in that like the best day is the day you buy it and the next best day is the day you sell it?
Jay: No. It's "The Undefensible." It's an expense with no revenue. I hope that it will appreciate and we'll recoup it. We have an ostrich.
Jay: We have to feed this ostrich. It doesn't cost us as much as we thought but it is an ongoing expense. My son is ten years old. I love to be outdoors. I like to hunt and fish. This is Texas. There's no public land. To me, anything outdoors...we changed our lifestyle and our investing to make that happen because if I can be on the water or out watching animals, I'm a really happy guy. That's my happy spot.
Josh: I want a video of you riding your ostrich.
Jay: Oh, gosh. No way, man. Is there a clause on this thing?
Josh: Come on. You can do it.
Jay: I've got video of me feeding it by hand, which took a fair amount of guts because that beak comes at you. It's tame. She'll lie down and let you pet her but she still scares me a little bit.
Brandon: My final question of the day: what do you believe sets apart successful real estate investors from those who give up, fail or never get started?
Jay: Oh, gosh. That's a great question. I think fundamentally the people who succeed the longest are the ones that are absolutely clear and true to their criteria. It's so easy to cheat. It's so easy. The people who get drawn to investing tend to be kind of optimistic. At your heart, you need to be a little skeptical. We went over that before.
The one time we violated our criteria, we wrote a big check. Thank goodness it was an education we could afford and it didn't knock us out of the game because we already owned eight houses when we made our first big mistake.
Never let your ego...everyone is vulnerable. Look at the Giants. They go bankrupt because...you can, too. Know your criteria and never violate them. I think that's the key.
Brandon: Love it.
Jay: It's simple. It's boring but it's very hard to do.
Josh: That's great. That's great. All right. Jay, before we let you go, where can people find you? Where can they connect with you and find all your books? We're going to link with all of it in our show notes; your books so feel free to let them know.
Jay: Right now, kind of my home base is www.the1thing.com.
Josh: Right on.
Jay: It's our one thing right now. It's the book that we've just released and it's still being really successful and I teach and support that book. You can link to all the rest of our world from there.
Josh: Perfect. Perfect. Thank you so much for coming on the show. It is an honor and lots of great wisdom imparted here on the show I'm sure for our listeners. We really do appreciate it. Keep putting out great books and thanks so much.
Jay: Thanks for making it fun, too. It was really fun talking to you. I appreciate it.
Brandon: Thank you. We'll talk to you soon.
Jay: All right.
Josh: All right, everybody. That was Jay Papasan from Keller Williams, author of so many books I can't even think. It's amazing. Again, a great honor to have him and I know Brandon is still glowing from his chance to talk about "The ONE Thing."
Brandon: I'm pretty obsessed with that book. Don't underestimate how much I talk about that book. Really, every single conversation generally revolves around in my life and in BiggerPockets life and in my investing, what is the one thing? What's the one thing that's going to get us there? Yes, it was very cool being able to talk with Jay kind of [Inaudible][57:08] today.
Josh: Yes and adapting that in to your life, you, the listener, I definitely recommend it. I have found that since Brandon started preaching this to me, it's definitely been helpful. It helps you keep that focus. Focus is the key to success. Get out there and make it happen.
With that said, really again, we very much appreciate Jay and everything that he brought to us and everything that he's doing for real estate investors, agents, and others in our industry. He and the KW team are doing great.
With that, again, thank you for joining us. If you're not already a user of BiggerPockets, get out there. Jump on the platform. Start interacting. Start learning. Start making things happen. Figure out what your one thing is and really spend your time and energy and focus on it and be successful. Make it happen. We'll leave you with that. Get out of here. Figure it out. We'll chat with you next week.
I am Josh Dorkin signing off.
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