18 Houses in the First 18 Months with Paul Thompson

Brandon: This is the BiggerPockets podcast Show 283.

“I was 37 years old. I had a job. I had savings. I knew I was bankable. I knew I could ReFi. I had already checked that out. And $30,000 and $10,000 of my own money was not going to make or break me, that one deal. But I waited for 15 years to do that deal and so no matter how badly it went, it was the best deal you could have ever done because I did it”.

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.

Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online.

Brandon: What is going on, everyone? This is Brandon Turner, today’s host of the BiggerPockets podcast, here with my co-host, Mr. David—what was that? The Man TM1 Greene. How are you doing, David?

David: David asked me what my own nickname is. Anyone who picks their own nickname, I’ve already determined, is not a person I can trust.

Brandon: That’s why they call me Brandon “Nickname Picker” Turner. Anyway, what’s up? What’s new in your life? I know you were working on some refinances. Did it go through yet?

David: I got my refinance finished. I have money again and after listening to today’s guest, I am pumped to get in there and start buying properties. I am feeling better than I’ve felt in a long time.

Brandon: Yeah, today’s show is probably, I would say, the most if not one of the most actionable shows we’ve ever done, in terms of like, try this. Here’s what this did. Here’s what my process is. Here’s my system. This, this, this. And you guys are going to love it.

So before we get to that, though, we’ve got to take care of some housecleaning—housekeeping—okay. First of all, let’s get to today’s Quick Tip. All right, Quick Tip today is very simple. Follow David Greene, Brandon Turner, and BiggerPockets over on Instagram and Twitter. So David is @DavidGreene24, BiggerPockets is @BiggerPockets at all those places and then mine is @BeardyBrandon at Instagram, and @BrandonatBP over on Twitter.

So follow us. We put a lot of our real estate deal stuff going on there on the BiggerPockets channel. We’re constantly sharing good things and stories of our users. So make sure you guys follow us there and tweet us or whatever and kind of get involved in the community. Sound good?

Brandon: David, are you following me?

David: Oh, I’m following everything you do. Brandon actually posts really, really good stuff, in spite of the fact that his face looks so weird. Those Instagram posts are really, really good. He’ll post books that he’s reading. He’ll post other investors that you should be following. I recently reached out to one of them. I think it was InvestorGirlBritt.

Brittany, if you’re listening to this, shout-out for you. She’s doing some awesome stuff. She’s like flipping her own houses and she does live-in flips and this is somebody who’s like what, 24, 25, maybe 26 years old and she’s out there making it happen. And every time I meet a new person that someone like Brandon has vouched for, my business gets better because I’m learning from what they’re doing. My confidence grows. That’s how you do it.

And our guest today is going to talk about very similar things. How he started going to Meetups and meeting other investors and learning about what they did and you guys are going to be amazed when you realize what he did in the first 18 months of real estate investing.

Brandon: That is true. So with that, let’s hear from today’s sponsor.

Here’s why I’m a big fan of SimpliSafe Home Security. SimpliSafe is ready for anything that gets thrown at it. If a storm takes out your power, SimpliSafe is ready. An intruder cuts your phone line, SimpliSafe is ready. Say they destroy your keypad or siren, SimpliSafe will still get you the help you need. And here’s what I love about that. Sure, maybe it’s overkill and maybe you don’t need to be ready for every worst-case scenario but that’s what makes SimpliSafe so great, because it’s always ready. Now, SimpliSafe could cost an arm and a leg. It should but it doesn’t. That’s because they’re good people over there at SimpliSafe. They charge you what’s fair. $14.99 a month. No contracts. No hidden fees. I recommend SimpliSafe to everyone I know. You’ve got to check it out. Go today to SimpliSafePockets.com. Again, that’s SimpliSafePockets.com.

All right, thank you to our sponsors, as always. And now we’ve got to get to the show but I want to ask one thing. I learned something this week. So I learned that—iTunes doesn’t tell everybody what their—how they determine what shows get ranked well and what shows don’t. But I read an article that said pretty much they’re sure now that the way they base their rankings is off of people who subscribe to a show.

So I’m asking for a favor, everybody listening to the show, make sure you are subscribed to this. Even if you listen to this on YouTube or on something else, go to iTunes and subscribe to our show. I want to see if that actually bumps us up in the rankings for podcasts so we can reach more people. So that’s it. That’s the second Quick Tip of the day. And with that, I want to jump into the show real quick because it is an amazing show, like we said.

So today’s guest is Paul Thompson. Now, Paul is a guy that David, you actually met at a conference one time. You were blown away by him. I had some other people I knew who were blown away by him. I met him today, here at this podcast, and I am blown away by him. You guys are going to love it.

He is a real estate investor who went from nothing real estate wise to financial freedom in a very short amount of time, while working a full-time job. It’s fantastic. 18 deals in eight months plus he’s done a whole lot more since then. So without further ado, let’s get to the interview with Paul Thompson.

All right, Mr. Paul Thompson, welcome to the BiggerPockets podcast. How are you doing?

Paul: I’m doing awesome. Thanks for having me.

Brandon: Yeah, this is going to be a lot of fun. Today we are talking about your story. I know you used to have a job and you no longer have a job because of real estate. That sounds like the summary of your story, right?

Paul: That’s right.

Brandon: That’s all we need then. All right, thanks guys for watching the BiggerPockets podcast, for listening today. Just kidding. All right, let’s go through it. Let’s talk about how you got started. Your very first deal. What did you do before that and how did you get into it?

Paul: So first off, I was a computer engineer. I was kind of by day, I was an engineer and I would do investing in the evening but first, it was always stock investing. It was solo 401K and everything sort of thing.

Brandon: The dark side of investing.

Paul: Yeah.

Brandon: The empire, right?

Paul: You become a Jedi or something, right?

Brandon: Jedis are the real estate investors. That’s how I look at it. Anyway.

Paul: So it took me 15 years. I was a sideline investor working real estate. I read some books and I was an agent for a short while because I thought that would be something good if I could learn how to become an agent or a real estate investor.

And then 2008 happened and everything crashed. I wasn’t an investor at the time. A real estate investor. But I knew it was the opportunity of a lifetime and I did not know how to capitalize on it. So I spent several years of that, kind of figuring out how to become a better manager, how to become a better thinker. And I finished an MBA program and I became a manager in corporate America.

And I really poured myself into corporate America. At the end of it, I just found that I was just unfulfilled by it. And there was one, three years ago, there was one summer I was driving back from Gulf Shores which is kind of where we go to the beach here in the southern part of the States. And I just felt empty because I just don’t know, I couldn’t figure it out.

I had a ten-hour drive so me and my wife hashed it out and I finally came to the realization that I couldn’t stay another week. And the reason I couldn’t stay another week was because I had the money. My kids are out of school. My wife doesn’t work. I had to go back to work. And I worked for a telecommunications company. I couldn’t have asked and gotten to get off or to work remotely even though they make the very technology that makes that possible.

No, that was against policy. So at that point, I realized that I had to engineer a way out of corporate America. I was vulnerable. I could have been laid off at any moment. You’ll find out about three years later, I was laid off and thankfully I had spent those three years working and replacing my income.

Brandon: That’s awesome. So let’s talk about, what was your very first deal? What did that look like?

Paul: My very first deal was I got it from my wholesaler. It was $30,000. It was in a working class area of north Little Rock, which was across the river from Little Rock where I live, and it was about $10,000 worth of work of repair and it was a three-bedroom, one bath, which rented for about $650. So kind of like that standard moderate, low-income type house that you see in the southeast and the Midwest.

And I funded it with a private money investor that I found through BiggerPockets. And yeah, I did the BRRRR method. I had done the study for it and I had figured out what that was, the BRRRR method. I rented it for $650 after doing some repairs. I did very little of the work myself. I did it with a partner that I met on BiggerPockets that was local. I met through the local REIA in BiggerPockets, a combination of the two. We did a joint venture—he was a handy guy and I knew that I wasn’t and I didn’t want to be. So he did the work and then we ReFi’d it.

Brandon: That’s awesome. All right, let me just jump in real quick. There’s like five things you said there that newbies aren’t supposed to do on your first deal. Your first deal, you’re not supposed to buy from a wholesaler. Nobody does that. Your first deal, you’re not supposed to find private money. Like your first deal, you can’t BRRRR a deal until you’re experienced.

That’s what everyone kind of feels like. These are a little bit more advanced strategies, so to speak, and you did it on your first one. I don’t know, how did you get the knowledge to do that, the guts to do that? I mean, what was that mentality like when you’re putting that together?

Paul: Sure, the reason, and actually I do oftentimes would suggest to many newbies to not do some of those steps, depending on where they are in life. I was 37 years old. I had a job. I had savings. I knew I was bankable. I knew I could ReFi out of it. I had already checked that out. And $30,000 and $10,000 of my own money into it was not going to make or break me, that one deal. But I waited for 15 years to do that deal, so no matter how badly it went, it was the best deal you could have ever done because I did it.

Brandon: Yeah, that’s so true. We talk about that a lot here, right? It was the first deal, whether or not it’s a homerun, it doesn’t really matter. It’s not going to make you rich. It gets that train moving that gets that momentum going.

Paul: It’s momentum. Right. Which I talk about a lot is you want to create an escape velocity, whether or not you want to quit your job or not, you want to build enough momentum so that you can kind of get out of the gravity orbit. And kind of get into the stratosphere so you can actually really build momentum. And that’s exactly what I did. It’s just every deal I did subsequently, I just decided to reach escape velocity.

Brandon: Escape velocity. I have not heard that. David Greene, are you listening to this guy? This guy has got more knowledge than you. This is impressive.

David: I don’t know if I’m ready to crown him quite yet. We might have to have an analogy face-off or something before.

Paul: We’re going to have to measure those guys again. We’re talking about—

David: Yeah, I keep my analogies way over here—

Brandon: I always think of Zoolander the dance-off. Remember that? The dance-off. All right, so let’s—escape velocity, I love that. Can you define that a little bit more? What do you mean by escape velocity? And what does it look like?

Paul: In rocket science, you have to expend, I don’t know the exact number but it’s like 80 or 95% of your fuel to get out of the earth’s orbit. So anytime you start our bootstrap, and it doesn’t matter if it’s real estate or not, is it requires a lot of effort on the front end and I wanted to created enough of that moment, enough streams of income to replace my one stream of income which was my day job.

And that’s why I considered this escape velocity out of this kind of lifestyle by default, that so maybe of us are told to do in our society in America, is to go to school and get a job. And then consumer lifestyle inflation kicks in and it’s hard to escape.

David: So you’ve got to be the first person I’ve ever heard on BiggerPockets that has said, in rocket science, and then followed that with something related to real estate investing. That was very cool. It reminds me of something Brandon talks about a lot, which is his lift philosophy where he talks about a plane getting out the runway. Brandon, can you kind of go into that a little bit and relate it to what Paul was talking about with escape velocity and using up 90% of your fuel to get out of the atmosphere?

Brandon: What are you talking about, David? Okay, no. So I started working on a book a while back and I’ll pick it back up again but basically the idea being yeah, it’s like a lot of people give up, they fail, or they never get started, right? The question we ask in every podcast. And I say it’s kind of like a plane.

A lot of people will build a plane and it never takes off and they try to take off and it crashes. They just—those people who actually achieve lift, they do take off and it’s easier at that point because you’re in the air and like you said, you don’t use much fuel. The hard part is over. Yet, I would say 90% of people, even those listening to this podcast right now, will not achieve that initial lift. Or liftoff, if you want to use the rocket analogy.

So yeah, I think that’s true and a lot of people really struggle with getting that first deal, which is the best deal, the most important deal is the first deal because that will lead to the second which will lead to the third.

Paul: Even if it goes poorly, right?

Brandon: Yeah.

Paul: Even if it goes poorly because you’re going to learn a ton of stuff. It either goes poorly or it goes well. Not everything went to plan but it had some problems that popped up. But you just learn from it. I look at it as every problem you come across is some sort of a trial. It’s a trial and tribulation. You’re like okay, I approach things very scientifically and when you’re doing some sort of science experiment, you try something—oh, that didn’t work. That was a case study. That was a trial. Now you iterate and you keep repeating.

Brandon: Yeah.

David: Thomas Edison needed so many tries to make the lightbulb, right? Because he tried to make it a thousand ways and it wouldn’t work. And then I figured out where it would. So we haven’t really done you justice. We haven’t told people where you actually are in your investing career. We’ve talked about your first deal and we’re going to dig into that in a minute. Can you just—let’s jump ahead real quick. Tell me how many deals did you do in your first 18 months?

Paul: The first 18 months, I bought 18 single-family houses overall and I probably did about I don’t know, 25 or 30 deals, whether it be in my IRA or solo 401K or wholesales. A couple of flips.

David: Wow, you are like a rocket. You just came in blazing, right? This is incredible. And that’s what I want people to realize is that first deal, if you do it right, not if the deal goes right but if you learn enough in it, can lead into a rocket leaving the atmosphere.

And that’s what I want to dig into, Paul. I kind of want you to give us your blueprint for how you got started and what you built, what you learned, what tools you added to your toolbelt that allowed you to get to the point where now, you are a full-time real estate. You are kicking A-S-S when it comes to this job. I mean like when I talk to you, you’re one of the most humble people, one of the smartest people I have met of all investors that I know—you’re absolutely one of my favorite ones.

Help people who are thinking, I want to get started in real estate but I just don’t have the confidence. I don’t know what I need to be doing. Lay out the blueprint of what you did so we can all follow it.

Paul: My blueprint is I like single-family because I think that’s what people tend to understand the best, not—if you choose to go into real estate and be investing in real estate, I want you to invest in something that you understand the best. For most of us, single-family is where that is. Most of us live in houses or have lived in houses and we kind of understand the needs of them. It’s not that complicated. So you reduce the complexity by doing that versus some of the other choices.

You can do mobile homes. I’m still not sure I understand mobile homes that much. But right now I don’t want to. I want to do single-families. It’s a whole different dynamic. So a whole deal, just do one deal at a time. Build wealth with little deals by buying one house at a time and I’m always a little bit reluctant to talk about how many deals I did in a certain time because I think to somebody who is new who is just getting started, that can be a little bit intimidating-sounding and there’s lots of people on BiggerPockets that have done so many more than that.

But it’s just overwhelming. And you don’t have to do that many deals. I actually think how many deals or how many units do you have is the wrong question to ask. It’s how much cash flow you generating? You need to start with how much income do you need to replace your day job or gain the goal that you want to get to? And for me, it’s PILE. Passive income has to be greater than your living expenses—PILE. The recipe that you want to follow.

So if your number for me was $5,000, I had to have $5,000 a month and I live in central Arkansas where the cost of living is low. I had to have enough income from rentals that I could safely withdraw income from there to replace that $5,000. Once you hit that, that’s what I call lean financial independence. I can’t live an exotic life but I’m done. I can walk away when that happens.

Brandon: Yeah, I call that level one financial freedom which is like that baseline I can pay my bills. Yep. I hit that when I was 27 and then I was like, I don’t want to live this way. My original number was $3,000. If I had $3,000, I can pay all my official bills. I didn’t have any car payments. I didn’t have anything crazy.

But then as you get older you’re like, well I’d like to have a little bit nicer stuff. So now all of a sudden, it went to $5,000. And it’ll creep up over time but that level one though is so important because once you have that, then you can get out of the rat race. You can get out of the rat race and have time and mental energy to work on getting to level two or to level three or however you want to define that, right?

Paul: True. Yeah, it’s the margin. The margin in life, when you don’t have to go into this idea where you’re exchanging time for money anymore and you’re now financially independent. It’s very lame but now you have the freedom of time and you’re actually making money while you sleep. And that’s the key to wealth. You’ve got to get there. Even if it’s $5,000 or $2,000 in your case.

Brandon: So were you, during this time—you rocketed out to begin. You started the first deal. You bought 18 houses in the first 18 months, which is amazing. Were you working a full-time job during this time and if you were, how were you managing that? How do you do that?

Paul: I was working a full-time job and actually, well I didn’t do—of all the houses I’ve purchased to date, I’ve only done work on one of the houses and it was a house that needed literally nothing. It was so next to nothing, I mean less than $1,000 worth of work. One of the things was replacing the oven door and after two orders of the wrong hinge and putting the wrong thing in twice and spending $500, which I could have replaced an entire oven for that—I was like, okay. Never again.

And I kind of knew that going into it but I kind of wanted to test this theory. I wanted to test this theory. And let’s just get into it and figure out how much time it is in hot and sweaty mess in the summer of Arkansas in the south. That is not the way you’re going to be an investor. I need to confirm that for myself.

I talk to landlords all the time. They talk about saving $150 here and there to go do a callout for a plumbing issue. I would never spend—I ask you this. How much do you think your time is actually worth? And most of us discount our time. We have no idea. I’ve come to the point where I think the power of my time is probably worth $3500 and it will only get higher over time.

David: That’s incredible. Paul, tell me, when you first started, you were working corporate jobs. Were you doing all of this while you were working?

Paul: I did it on the nights and weekends and during lunch I would run over and look at a house or something. But then I learned very quickly how to, after you look at enough houses, you’ve seen enough houses. I don’t have to see a whole bunch of houses anymore.

In fact, I have done a deal now using your method from your book, David, that here in Arkansas, it’s 12 miles from here. I still haven’t seen it. I used all the same principles. Because it scales, right? It doesn’t matter. I don’t need to see a house to know. Now, people I trust, it’s part of my core four, if you call it, have gone to see it and I have pictures and I have videos and I’ve been through the neighborhood before but I’ve never actually seen the house.

Brandon: That’s amazing. I love that.

David: That book was Long Distance Real Estate Investing for those who haven’t heard of it. I think that it’s a method that will work whether it’s long distance or a short distance like Paul just said. It’s really just about streamlining your business and your system so that you, too, can be making $3500 an hour, much like Paul.

Now, you mentioned, Paul, you bought your first deal with private money you found from somebody on BiggerPockets. That is awesome. Tell me how did that come about? How did you make that connection?

Paul: So we all kind of understand this principle that when you are first starting, you want to provide value to somebody else. You don’t want to just be that annoying little person that’s always asking, need, need, need. I wanted to find a way to provide value and so I went and studied everything I could. I read BiggerPockets. I went to tons of courses. I spent some money on courses. I’ve read tons of books.

So I would go into those forums on BiggerPockets and I would just add whatever value and I would say I’m not sure this is what I’ve read. This is what this book had said, so this person’s recommendation, I wouldn’t say I already know this until I’ve done it but then I would just add value. And then after talking to somebody on there, and she lives in Hot Springs just about an hour from here and she had recently relocated here and she retired and she was well-to-do and she wanted to get into lending.

So I went with her and we started chatting and she was figuring out how to lend but I had done all the research already on how to do notes an mortgages. So I was very comfortable with the paperwork. So we just kind of hit it off and she funded it.

She came and looked at the house with me and she said, what kind of repairs are you going to do? And then I kind of learned together on that process but it was through the forum and the channels, so to speak, that BiggerPockets offers. I don’t know how I would have found her otherwise.

Brandon: Yeah, that’s awesome. And that’s something we talk about a lot out here on the show and on the webinars that I do and on the podcasts that we do. Like, we connect to people in your local area. So much of what we do on BiggerPockets, if you are somebody who listens to the show—not you, but Paul, but like if you listeners are, you listen to the show maybe or maybe you’re watching this on YouTube or you’re listening to it on your iPhone or whatever. That’s great. That’s great to get information but nothing replaces interacting with the real-life people who are doing it.

So I would just encourage you guys, get into the forums, talk to people. I mean, even if you don’t think you have any experience, do exactly what Paul said here or maybe even just go to the new member introduction forum and welcome people. Hey, glad you’re here. Welcome to the forum. Like little things like that just build relationships and add tremendous value. So I really like that a lot. You know, you’ve built a relationship. You figured something out together because people on BiggerPockets want to do real estate. It’s like they want to do this stuff. You’re not trying to convince some like neighbor who’s afraid and never even heard of what a rental house is. You’re not convincing that guy. You’re talking to people who already want to do real estate and a lot of people have money and they’re nervous about the market and they would be very willing to partner.

So again, it’s not impossible to get private money or to partner with somebody or whatever on the first deal. It’s doable and you had the confidence to do it. So just nice work there. That’s cool.

Paul: Thank you. Subsequently I would say the deals I have now only use banks, I think, on ten properties altogether. I’m very much a big believer in private financing and working deals out with other people and bringing like a third party catalyst. That’s a human being that you can negotiate with.

Scott: On that note, here’s a question I get all the time from people—they ask, well, why would somebody just lend me money, private money, when they can just go do the deal themselves? What’s your answer to that?

Paul: Not everybody wants to be a landlord. So don’t ever assume that what is important to you is important to the other party. There are a lot of aspects of a real estate transaction. There’s all these bundles of rights and you can split them up in any—that’s why I like real estate so much. Because it’s so variable. And a value is subjective. Don’t ever assume that what you want is what somebody else wants.

David: That’s really good. It’s a lot of good stuff you’re giving us here, Paul. Tell me a little bit of specifics on how you’re finding deals. Like in order to buy 18 deals in 18 months, you’re doing a lot of deal-finding and you’re doing a lot of fundraising. Let’s focus on how you’re finding deals, what your strategies are, why you think it’s working for you.

Paul: Okay, so first off, the first ten deals, which I bought within two or three months when I started, I bought all three wholesalers. And I was networking. I was going to the local REIA and at the time, I was kind of lucky the local lucky REIA was kind of being reinvigorated by a seasoned investor at the time.

So I started making a lot of connections and I would do this thing called microphone marketing and so every time I would go to it, I would go in front of the desk and I would grab it and I would talk about a deal I was working on or a deal that someone who you partnered with wanted and then just, I was making it clear that I was in the room to do deals. I wasn’t a Looky Lou. I was serious.

And that kind of stuff, it’s a long-term in play but it’s very successful. You want to deal this extensive network of people and so I just didn’t find it that difficult to raise private money so the way I found deals going in after that was I didn’t want to always be relying on wholesalers. I wanted to be able to control the deal myself. And that’s really the key is you want to be able to control it.

If you want to do this as a onesie, twosie and get a few in here and there, that’s fine. Just buy it from wholesalers. But if you want to be in business and replace your day job, you want to control the deals. That’s the key. So I’ve done all the traditional things. Bandit signs where it’s legal to do so. I’ve done direct mail.

They’re very different categories. I’ve done door knocking. I almost got arrested so there’s a true story. You’ve got to be aware of the local ordinances where you can actually legally door-knock. And then how I did, driving for dollars. And then I also do this thing called pharming off of Zillow and Craigslist which isn’t really all that revolutionary but there is a deal of every 40 deals on Zillow or Craigslist policing my market. I suspect in other markets, too. There’s a deal. You just have to go hustle and do it.

So I would automate some of that. I hired some VAs after I started scaling up and I had them just sending offers and I got to the point to where I don’t go and look at a property unless I can get the person on the phone that’s a motivated seller. They have to show motivation and they have to come off 15-85% of what they’re asking for or what I think it’s worth before I go look at a property.

David: That’s good. Tell us a little bit about what you have your VA doing.

Paul: Okay, I don’t have that one anymore. But the idea that I was running was that I hired a VA. I hired through Upwork.com and I recorded everything I did on Screenomatic so all of this is free except for actually going through Upwork and hiring them. I mean, it was like $3.50 an hour. Super cheap. And all they do is just replicate what I would.

And I had this three-letter option intent calculator and I used Podio and I used Zapier and I would just have them go through this calculator and just plug in a value and then every house needs at least $5,000 of repair, no matter what. No matter how perfect the pictures look. And then based on picture quality then you would run some numbers that if it’s a light rehab, it’s $10.00 a square foot. If it’s medium, it’s $15.00. If it’s heavy, it’s $20.00.

And then you just take off that percentage of repairs and you make a cash offer. And then I do two owner financing offers. I don’t care if they have a mortgage or not. I don’t know. I don’t care. I’m just going to make an offer that has cash, which is low. It’s like 50% low. And then there’s owner financing of completely principal only or only financing interest only. With no interest. So they basically click a button on Podio and an offer gets e-mail to them or mailed to them physically.

David: Okay, let me make sure I’ve got this right. You’ve got your VA that’s calling a list of property that you’ve given them that you bought from a title company or wherever you buy your list from. They’re giving this script that you made—hi, I’m calling to see if you want to sell your house. We’re looking for motivated sellers. When they get someone that says, yeah, I might be interested in it, they go to Podio and they send a letter to this person either in the mail or e-mail or whatever they have, and that letter is actually a three-option letter of intent. Where you’re saying, look, I want to buy your house. I can give you this price in one of three ways. A) Here’s my cash offer. And I believe you were saying it’s about 50% of what you think the property would be worth. Right?

Paul: Yeah, depending on costs but yeah, typically it’s like that. Around the 50% number, right? So it’s a very low number. And Brandon talks about this all the time that he likes to give people options when he writes low offers so that they’re not as offended.

Option two will be I will buy your house for this price, which is significantly higher but it’s owner-financing. A principal, or a loan, at an interest rate of whatever. I can pay you this much. Or I can give you this much, which is much closer to the higher amount possible if it’s owner financing at a zero percent interest rate or something like that. If they’re motivated, have three different options if they can look at it and decide which of the three of these is best for them rather than a yes-no option.

Oh, you’re giving me 50% of what my house is worth, forget it. And the beauty of this is you can do this at a huge scale because you’ve got a virtual assistant making the phone calls and they’re just sending a letter that you’ve already designed to all these people. When I first heard you talking about doing this, I just thought it was genius. So simple and it is effective because you’re not wasting your $3500 time making these phone calls. You’ve got a VA who does it for $3.50, which actually is a nice, round number. It’s like half of a One Percent or something like that attempt of One Percent.

You’re paying for this work and you’re going to get people that say, yeah, I want to buy my house. And then even if they don’t go for the three-option letter of intent, you now started a dialogue with them and you can see how motivated they are. That is a very simple plan anybody can put in place that will get you results if you’re willing to put in the time.

Brandon: I love that you know, we talk about at BiggerPockets all the time—at least I push it because I think that’s what it is the whole time because I think this is what it is but everything is a funnel, right? Like if you want to buy more real estate deals, you’ve got make more offers.

Which is what you’ve built the system to basically automate that process, right? Right, offer-making. You’ve got to analyze more deals. You built the system to automate that. And then lead generation. And so you were buying a list. Where did you get your list from, or how did you get that?

Paul: This was from—there’s two different ways. One is by scraping Zillow and Craigslist. I have a different VA—I would pay them less and they would just follow this simple recorded video instructions on how to go in and scrape this data onto this spreadsheet and then somebody else, a VA, would come behind them and make these—and actually they would use text intentionally.

I would use this system called Call Rail where I can send a text and say hey, I saw your pictures on Zillow, is the property still available? If they say yes, then you go through this if analysis. And they say oh, based on the pictures, I’m ready to make an offer. And you’ll be surprised, 9 times out of 10, people are okay with that.

They’re like, oh don’t you want to see the house first? Oh no, I’m a local investor. I’m familiar with that area. I was just seeing if we were in the same ballpark. I’ll shoot you up an e-mail I could send it to. 40 offers, sometimes a day, but usually I would offer about 40 offers a week doing that. In my market, you run out of Zillow and Craigslist leads if you do that very much.

But then, what’s cool is you come back around with a different personality, a different person, and you make 85% offers on some of those same properties to see if they’re motivated. So you then do a side-by-side test to see if the cash or owner-financing offers didn’t stick for some reason. Two weeks later, they get an 85% all-cash offer. That’s interesting. Yeah, I would like for you to come. I’ll accept that or I’m interested. Come look to see the house. There is motivation. Trial one didn’t work. Trial two did.

Brandon: Interesting. So you’re saying basically if you get rejected the first time, that’s what you said, right? And you go back and follow up with a, so instead of like the 50% number you were thinking you were getting, more like closer to the 85%.

Paul: From a different person. They don’t know it’s me. Yeah, that’s the whole point. I wait two weeks to see if anything changed and then I send the 85%. They might be motivated. I’m probably not going to pay 85% loan to value of it. But they’re at least motivated. They came off 15%. Some of the best deals I’ve found using creative means and then finding anything subsequently have been using that method.

Brandon: Fascinating. So when you say Craigslist and Zillow leads, are you talking about people listing their homes for sale by owner on those sites or are they rentals that are for rent?

Paul: Both. The spreadsheet says for rent or for sale. And it actually says it that way. And you approach the questionnaire that they go through on the text, it’s a little bit different, if it says for sale or for rent. The for rents are harder to confirm or are harder to convert but you get potential for a landlord that wants to sell all their properties in a big lump sum later on.

Brandon: Yep, I talk about this a lot—I host a live webinar every single week on BiggerPockets which you all should come to. BiggerPockets.com/webinar. Anyways, one of the topics we cover every couple of months is how to find deals in a competitive market. And I tell people all the time, most landlords I know would be willing to sell at a certain price and on Craigslist, like there’s a list of landlords every day. New landlords are saying hey, I’m a landlord. Look at me, here’s my phone number.

It doesn’t get a lot easier in terms of lead generation. But nobody does it because you know what? It requires either hustle and hard work or the intelligence to create a system that other people can work for you. And I love that you kind of used both, that you built the system yourself and that’s the key to all systems. You built it yourself and you know how it works. You make the videos. Then you hand it off to somebody else. And then your job becomes managing the process, which is just fantastic.

Paul: And then we can take it to the next level, if you don’t mind. Because if you run out of deals even doing that, the next level is you go to property management websites and those are nice properties that are for rent. And you do the same thing. You scrape off all the big property managers and you run the same process and that’s where you get big portfolio potentials for big portfolios. I don’t like to buy big portfolios at once but I like to find sellers who are willing to sell all the portfolio and I pick and choose the best deal. The best properties out of their portfolio.

Brandon: That’s fantastic. I really like that a lot.

David: How are you getting the phone numbers of those landlords that are advertising their properties for their property manager?

Paul: Oh, good question. I’m mailing to where their billing address is from the county records.

Brandon: Fascinating. You know this reminds me—this is a video that was out on, I think I saw it on Facebook. It was basically Google. Google Assistant is getting so advanced that did you guys see this video? It can like call and make you a hair appointment and like get you reservations. And it sounds like a real person saying, with ums and ahs, and they were like, can I do 6:00 o’clock? My client is looking for something for 6:00 o’clock and the person is like, we don’t have 6:00. And they’re like okay, how long is the wait usually or did they already go at 5:00? Anyways, amazing technology that Google is coming out with. Imagine hooking that up with LeadGen for real estate investing.

David: Was it Google Duplex? Was that what it’s called?

Brandon: Yeah, yeah. Google Duplex.

David: My buddy Kyle Ranke told me about that. And I didn’t believe him. I was like somebody lied to you. And he sent me the link and I’m like oh, my God. It’s like there’s ohs and ums and yep, that time will work for me. What about this time?

Brandon: It’s amazing. So somebody is going to figure out a way. So someone who’s listening to this podcast is going to figure out a way to hook up Google Duplex to LeadGen. You’re going to figure it out, Paul. Because you’re actually that guy. And like, you’re going to have an automated guy just calling sellers and negotiating on your behalf without a real person involved. That’s the future of LeadGen right there.

Paul: Never split the difference and have all these rubrics into it, built in.

Brandon: Exactly.

Paul: If you say you’ve got 75% loan to value, I accept. Done.

David: Yep. If you’re listening to this, you need to make sure you’re taking action because Paul is going to buy every stinking house in this country. Like, you can start a webinar about getting your stuff together. Paul, one thing I know that you do that I’ve always respected about you and I love to pick your brain about is that Brandon has a philosophy that the more tools you have, the more in your toolbelt, the more things you can tackle.

There’s this saying that to a man with a hammer everything’s a nail. When you have a certain mindset, every problem you come across, you try to fix it one way. If all you know how to do is fight every time there’s a disagreement, you look to punch the other person. Right?

You are very, very smart and I know that you understand real estate investing because you’ve attended what, 30 conferences and you started this a couple of years ago. Tell me about some of the ways that you will use different techniques on one deal to make a deal out of something that another investor might not have been able to do.

Paul: Yeah, so I don’t like to be technique driven. I don’t go into think Sub 2 for this one. I have no preconceived ideas. I go into it try to figure out what the seller’s problem is and I have questions that are open-ended. What do you like to have happened? Why would you sell such a nice house like this anyway? And I want them to start talking.

Most sellers just chew your ear off and they’ll tell you—they’ll divulge way too much. You would not think that people would do that but every new investor that I’ve worked with has always been surprised. I’ve had people—I had somebody actually offer me a Sub 2 the other day. That’s the first that the seller themselves actually knew the terms and was offering it to me. And this was not a sophisticated landlord guy. She somehow knew but so I have kind of hierarchy. I call it the Marteen Method.

And I start off as like always wanting to buy owner-financing first. If I can’t do that, then I go down to Sub 2. If I can’t Sub 2, I do a wraparound mortgage. If I can’t do that, I’ll think about these options. If I can’t do that, I’ll think about this. And I go down to, the last thing on that last is wholesaling.

If I could only get it for wholesaling, I guess really, the very last is wholesaling and lease option which I don’t really do that much anymore because it just gets really complicated and I don’t want to get in the middle of it but you can actually monetize scenarios where there’s no cash flow or equity. I’m looking for three things. I’m looking for motivation, cash flow, and/or equity.

And if I can get two of those things—motivation first and then the other two, then I have a deal. I can do a transaction engineering service where I can find a way to monetize that so that they’d get what they need and I’d get what I want.

Brandon: Oh, I love that. This is why a lot of people say, I’ve had a hundred phone calls from motivated sellers and I can’t get a single deal out of it. And that’s true. You might just be marketing to the wrong people but I think chances are, you just don’t understand all the different ways a person could put together a deal.

Again, people, if all they have is a hammer, and they’re presented with a screw, what do they do? They start hitting the screw and they just snap, right? But if you have a lot of tools in your toolbox, you can start taking things off. I think—think that’s super cool. Sorry, what were you going to say?

David: You mentioned a lot of really good techniques that a lot of people are hearing and they might not understand exactly what they mean. Can you give me a hypothetical example of a deal that comes your way that you’re like okay, I look at it from this angle and that didn’t work so I say, well this might work, and kind of walk us through what that bobpress looks like in your brain?

Paul: Okay so let’s just use, which is very common in the Midwest and the Southeast is an example of a house that is kind of a lot. It’s $100,000 house. It’s worth that much but it probably will rent for about $1000, which is kind of standard One Percent Deal that somebody from California or someplace else would buy it in a heartbeat, right? They’d do it happily.

But to us local guys, we’re not from the land of milk and honey. We’re just raining capital. So we have to come up with a little more creative ways so we look at those kind of deals and we have to get it $70,000 somehow or something that makes sense. Not everyone wants to walk away from $75,000. So okay, you can get them down to say $80,000 but it still can’t buy it for $80,000.

If I can buy it for $80,000 but gives them $50,000 down, you find out that they need $50,000 to pay off their debt and to buy an RV as a random example because they want to go around the world. I’ve actually had seven. And they wanted money for their RV. I said, okay, if you need money for your RV and you need to your $30,000 debt, would $20,000 cover you for your RV? Yes. Okay.

Well how are you going to pay for your gas on your RV and your insurance? Could I pay you $300 a month for the next ten years to cover that? Yes. Well then I just created a deal where it’s kind of a combination of two deals. You can even get more complicated. You could buy that Sub 2. Also do an owner-financing and give them some cash to walk. And the house is in such good shape for $80,000.

If you net all of that out, you’re probably only buying it for $65,000 is you factor in the time value of your money and the interest rate paying mainly only 3%. I can’t go and get a loan for 3%. I can’t go in and get a loan for 3%. No one can get a loan for 3% from the owner. That’s an example of stacking three or four different options, cash, Sub 2, and owner-financing that I might turn around and lease option because I don’t want to hold a Sub 2 forever so I do a lease option and agree that I’ll pay them off in five years.

David: Do you find yourself having to explain this to your sellers because they don’t understand some of these terms and so you kind of have to walk them through what this means and how you’re able to give them more money?

Paul: I love that question. I never use the terms “owner financing”. I never use the term “Sub 2” to sellers. It will blow their minds. And even when I’m talking to new investors, I don’t try and throw those terms at people all the time.

What I’m trying to get people to understand is the concepts. I’ll say, wouldn’t you like to have some payments? Wouldn’t you like some walk-in money? Walk-in money is cash, if you want to have payments. And I try to attach those payments to something I know they totally admitted that they need.

Where you don’t get all the money for the insurance and the gas, for example, of the RV. You just find their scenario and you’re walking through it. And lease options are officially hard because nobody understands what a lease option is. Even investors get confused what that is. I don’t use the word “option” with investors too much. I use the right to buy instead.

Brandon: Nice, nice. Do people tend to overwhelm—it’s almost like people will go to a motivated seller and try to impress them with how much they know and their knowledge. But in reality, you want to be like, you want to make them feel comfortable. If they get scared, nervous, or overwhelmed, they’re going to say no. I mean, everything is always no. So how would you explain because we don’t talk about Subject 2 hardly ever here on the BiggerPockets podcast. It’s been years since we really did a show on that. Can you explain to the listeners maybe the same way you would explain to a seller what is Subject 2 and how does that work? What are the pros? What are the cons? And what are the benefits and risks?

Paul: Okay. And there are lots of—it can be very complicated. I think it’s thrown around by gurus way too much as an easy way for people to get in without a lot of cash. So first off, if you’re doing Subject To, the term you’re hearing referring to, Sub to, or Subject to investing, I kind of don’t like that because that’s vernacular for one particular use of the concept of Subject to.

All of the terms Subject to in legal speaking is just exception to title. I can buy a house subject to an easement that is there. When it comes to investors, when we talk about ways of getting financing using somebody else’s financing that’s already in place. You do Subject to the existing mortgage.

In a way, I tell people this—I’ll agree to make your payments for you. I’ll own the property but it’s my responsibility to make the payments from now on. And I’ve had mortgage brokers that I’ve worked with that have agreed that they are the seller and they were mortgage brokers and they said sure, that’s fine. You never know until you ask. I was nervous. I knew he was a mortgage broker and he said, sure. I’ll accept that.

Brandon: Funny. So tell us about what is the Due on Sale Clause and how does that play into this?

Paul: And he did not ask anything for the Due on Sale Clause. I had to say that now you are aware, you’re a mortgage broker. Let me explain. So most modern—practically every modern traditional bank note these days or a mortgage these days has a Due on Sales or an Acceleration Clause.

It gives them the bank, the note holder, the right to accelerate the clause if title exchanges require the title of transfers. It doesn’t mean they have the right, or it doesn’t mean they will or it’s illegal. You have the right to accelerate. So it is a potential risk. So I don’t like to take on Subject tos unless I know there’s a lot of equity in the deal or a ton of cash flow that makes it worth the risk.

Because I am so careful with Subject to investing that somebody is putting a lot of faith in me and it is not a technique to be used lightly. Just because you can. And sometimes, somebody will offer Subject to the existing mortgage and you’re like, they did it. They want to do a Sub-to. But you don’t want that deal because there’s no cash flow in it and there’s no equity. Don’t do it just because they agreed to it.

David: So what I want to make sure we highlight for everybody is that when someone is giving a loan to someone else, a bank to a borrower or like me, if I’m the lender, I would say hey, I’m willing to let you borrow this money from me, Paul, because I know your credit score and I know your debt to income. I trust that you’re going to pay me back. But if you’re going to go give titles to someone else so now he’s got to make the payments, and you go, I don’t know that guy, right?

So I have the right if I don’t like that you’re transferring titles to someone else to say no, now you have to pay off the loan in full because I don’t want to get payments from this person because I can’t trust that they’re going to pay it back. That’s called the Due on Sale Clause that all the money that I let you borrow is due on the transfer of the title from you to someone else. And it’s very important that you recognize, most banks don’t care. If that check’s coming in, they don’t care where it’s coming from, right?

But there are—excuse me, scenarios where that might change, right? We might see a spike in interest rates. Right now, you’re getting loans at 3, 4, 5%. Well if interest rates go up and you’re getting loans at 15%, the bank might say I want my money back because I want to go lend it to someone at 15%, not the 4-5. And if they have the opportunity to take it back with a Due on Sale Clause, they will.

So you’re very wise to be careful using it. It doesn’t mean you should avoid it. It doesn’t mean that like Subject to is bad and you shouldn’t look at them. You need to understand what you’re getting into. That’s one of the things that I really respect about the way that you’re investing is that you’re not just saying oh, well this is what I do. I’m a Subject to investor. I go by sub subject to and you just blindly follow this path because it’s always here before.

You’re looking at every single different angle from this and finding the piece that works the best. One thing that you mentioned that I don’t want to get overlooked is that you’re actually speaking to the sellers at length when you first talk to them and getting their story so that you know which of these tools is going to work better, right?

You’re like a contractor that’s going and looking over the whole house and seeing exactly what tools you’re going to need to bring to this thing to the job site, rather than showing up with my hammer and my saw because that’s all I have and I’m just going to hammer and saw whatever I can.

By asking questions and listening to people’s situations and then understanding real estate investing at a deep level, you can come up with the solution that will work best for them and is a by-product of that. It will work for you and you will be building your wealth. That’s how the best investors make things happen. Brandon and I always say, when you’re finding an investment property, you’re looking for some form of distress. What you’re describing right now, Paul, is a personal distress most likely. They need to sell this house and they don’t want it.

That means you’re solving a problem. You’re not just finding a great deal, like there’s nobody out there who’s just Johnny Appleseed throwing out great deals because there’s this nice benevolent person that wants to give things away. You’re solving someone else’s problem that they can’t solve. So the more tools you have, the more likely you’re going to be able to solve it. That’s why you’ve been so successful. Brandon, what are your thoughts on this?

Brandon: I love how you asked that. You’re thinking man, I’ve been talking for a while now. I better give Brandon a chance.

David: Yeah, that’s exactly what it was. I don’t want to eclipse your greatness.

Brandon: My thought is this. I don’t do Subject to because it makes me nervous. There’s nothing wrong with it. I just haven’t done it. I actually wrote a whole chapter—when I wrote the book on Investing in Real Estate with Little to No Money Down, I wrote a whole chapter on it. Then I took it out of the book and when we published it, I didn’t include it in there because I was like, I don’t actually do it. I did every strategy in the book. I didn’t do that one. There are a lot of things to be nervous about. So I guess my bottom line is this, don’t be afraid of it but if you’re going to do it, learn how to do it. It’s complicated maybe a little bit. So even if you’re listening to it right now—

Paul: It is complicated and there’s a lot of stuff in the back end with the insurance and figuring out how if you go and try to obfuscate the fact that the title was transferred using land trust and it can get complicated pretty quickly. It’s probably way too deep than where I’m going to here.

But if you decide that you want to use that sort of technique, then it is simply something that you want to go find a book on, Subject to. Or you want to go to a conference that is talking about the nuances of it. Or there is a lot of content and it’s very mixed on BiggerPockets forums about the pros and cons of it.

I actually used it oftentimes when it’s not even institution involved. I’ll do Sub-to among friends. And a lot of people don’t realize it. I like to invest in little posses. We invest with each other in like this kind of gaggling group of people that are doing investments over loaning money to each other. I’m happy to have somebody do a Subject to of my mortgage that I’ve lent to somebody else on, so long as I know the collateral—it is good and I know who the new pair is.

That’s all the lenders typically want to know is the person that is going to pay—are they reliable? So it’s actually, if you talk to lawyers that blows their mind at the Subject to exists unless they realize that it’s actually often done amongst interested parties that didn’t know each other already. It’s not that uncommon when it’s on like a random seller if you don’t already have a relationship with, that’s where it’s uncommon amongst the legal people you talk to.

Brandon: Fantastic. Yeah, that’s just really good advice again. Yeah. With anything, just get the right knowledge. Get the right information. Get all that good stuff. And speaking of like knowledge and gaining that stuff, I was reading the notes on kind of what we had talked to about ahead of time, a pre-interview. And in there, it says, “I L.I.E. every day. I want to know what you mean by that. I L.I.E. every day. What does that mean?

Paul: Okay. It’s an acronym and for me, this is kind of my own personal philosophy and just kind of a funny way to remember it when I talk to people is that I learn every day and so what I do is make myself better. The way I became an investor and did the amount of deals I did in the short real estate time considering my experience level, was that I poured myself into investing my inner game.

Or improving my inner game up there such that I can transform myself to become something else so that I could get where I want to be. I want to always learn. I spend probably two to four hours a day investing and earning or learning somehow, improving myself. So the next is Invest. Learn. Invest. So I invest—can be apply or even if you have a day job and you don’t want to quit it, you should always be investing.

Investing monetarily or investing what you’ve learned and applying what you’ve learned for the future to do these little test cases, these trials. How am I going to get a little bit better every day? And that’s what I call investing. And last, and probably the most important one, is Enrich somebody else. Constantly, I always want to find somehow to basically take what I’ve learned, take what I’ve invested in, take what I’ve applied, and how can I share that with somebody else?

How can I enrich and make somebody else better because I believe in the giver’s game principal of the more I help somebody else, the more I empower other people and make them better. It will come back to me somehow. I don’t even know when or how but it always comes back somehow.

Brandon: That’s true. I think I mentioned a few weeks ago, but I’ll say it again now. I was doing for a potential book that I’m working on, in there, I found the stat and it was something—I’m going to get it wrong because it’s not perfect good. Basically, for every dollar a person gives, they’ve earned back $1.83 or something like that. It was like, this like principal.

They did this study about people who gave versus didn’t give and they found out that people who are more generous with their money or whatever, especially if we’re talking about money but in general, generosity, you receive back even more than that.

I’m not guaranteeing it’s kind of like the TV preacher’s role—just send in your seed of faith and you’ll be rich. It’s not like that but like, there is this thing when people give, when we release our grasp, that money is this finite thing that we have to hold onto and it’s scarce.

When we release that into the world and say hey, I’m going to be generous with my money and with my time. Then just something happens. Have you found that in your own life as well?

Paul: Absolutely. I think you guys are both a part of Go Abundance and I’m not but I live up to the same kind of concept to this life in air concept that there is plenty of money for all the things you truly want. If you want them badly enough. I believe in an abundance mindset that I was raised, and probably most everybody listening, maybe you guys were raised in a scarcity mindset. There’s more money out there and there’s plenty of time for anything you want to do if you want to do it badly enough. So I absolutely believe that.

Brandon: Yeah, that’s so true. All right, so speaking of money, I want to talk a little bit more about your kind of concept for money again. I have some notes here that I want to make sure that we cover. One of the things that you had written, you had sent us some e-mails that said, we all think we want money, but that’s not really true. What do you mean by that?

Paul: That’s right. So I’m going to give you a scenario for both of you. Would you rather have $100,000 house that pays you $1,000 a month in rent or would you rather have a note that you’ve invested in that pays you 6% returns on $100,000 or would you rather have a promissory note that’s worth $100,000 that did not increase in value, had no return, and actually decreased in value? Which of those three would you rather have?

Brandon: If I understand the question right, I think I’d want the rental house that would give me the $100,000.

David: So it was a promissory note or a rental house and what was your other option?

Paul: And the third option was another promissory note that had no return and it was appreciating in value every day?

David: I would probably go with the rental house.

Paul: Okay, the third option is $100,000 cash.

Brandon: Oh.

Paul: Do you want cash? Really? You know what cash can do for you, right? So you’re going to take that cash and you’re going to take the cash and go invest it into a $100,000 house, right? Because that’s what you do. Or if you’d prefer to do notes, then you’re going to go investing notes that gives you 6% return. And you don’t have all the headaches, right?

So you don’t actually want cash. You just want what cash can give you. It’s flexible and you can spend it on whatever you want. That’s why it’s nice. But it’s a terrible investment. You would not want to hang onto cash. You don’t want money. You want what money can do for you. And I definitely want more money and I love money and I’m proud to say I love money. But I love what money can do for me.

Brandon: Yeah. That’s so true. And I think keeping that in mind as people get into real estate is so important because a lot of the times, you think about numbers like I want to be a millionaire or I want to have $10 million dollars in the bank, but I like to kind of challenge with, what do you really want? What is the purpose of that? Well, I want to be able to quit my job and travel the world. Okay well, that’s different. Keep that in mind. You want to build a life that enables you to do that, right?

How many investors do we know that are like, they get into real estate because they want the mythical financial freedom and then they work 100 hours a week, even when they’re financially free. Right? So their whole goal was to get out of work and not have to work so much, spend more time travelling and hanging with family and working hobbies. And then they don’t actually do that. It’s like they just traded on rat race for another one.

Paul: You guys have to be very careful if you go buy yourself another job.

Brandon: Yeah, it’s very true. So how do you balance that in terms of you want investments that pay you passive income but you also need to potentially flipping houses or wholesaling. Did you do any of that stuff? Like how do you balance that?

Paul: I do all three. So the way my business is set up is, my end game is to have seven streams of income. Each one of them can stand on their own because wealthy people have set streams of income. It could be five, it could be eight. It doesn’t matter. Now, the idea is that I don’t depend on this one. So rentals is kind of the foundation of what I have now, so I’m about 25—probably add about six or so this year, give or take. There’s no magic number to it if I could find the right deal. There’s no magic number to it. But if I can find the right deal, and once I hit about 40, then I don’t want anymore. And that’s one pillar, so to speak. And I’ll also do note investing. So I do that out of my IRA and my solo 401K and I lend money hard or I buy other notes that are nonperforming or performing, depending on your preference. And then I also have a stock portfolio from my previous days when I was investing and I’ll just kind of keep that and so that’s why it’s third pillar.

So I’m working on pillar number four and pillar number four is kind of doing more wholesaling and more flips because I’m doing this marketing. I’ve gotten good at marketing. So that is a way to make money and I do layups when it comes to this stuff. I don’t demand the work. I already have the contractor signed up. I used my network effectively to get stuff done. I will do a flip for which I have no money in it and I have nothing. And all I did was brought the deal.

Or I brought the buyer from a buyers’ list. How to do effectively what they call wholetailing where you take a property to title and you take title to property and then you slow down trying to sell the property and you want to get as much out of it in its current condition or with very light rehab. I’m not getting it retail ready. I don’t really like selling to retail buyers because of all the complexities and the lawsuit potential. I like to wholetail to other investors instead.

But instead of having to get a $5,000 or $10,000 assignment, I can get sometimes 10, 20, $30,000 deal off of doing a wholetail. It’s the same house with little to not work. The additional work is getting utilities on a ticking title.

David: I mean, I don’t even know what to say because I’m speechless. You’ve got this down to a science where you’re getting all the benefits of real estate investing without most of the headaches. You’re just doing the layups, right? But you didn’t start off that way. You had to start off getting your teeth kicked in like everybody else, seeing what works and what didn’t work, doing more of what worked, doing less of what didn’t work, building up your confidence to get other people involved.

You mentioned something earlier—the third party catalyst you looked for to kind of make a deal happen. And what you’re just describing, I can see. I brought the flip, I didn’t do anything else. Well they end up with the money and none of the work. Can you tell me about some of the ways you recognize a third party catalyst that you think would help you and what you look for them to accomplish in your deals?

Paul: Sure. It always starts with a deal. So you have a deal that someone brings to you and they ask about it. Hey, I have a deal and it’s a good flip and they tell you all the details about it. I don’t care, I don’t care. It’s a house. Whatever. Everything’s fixable. I want to know, what’s the random number of pairs? Well, it’s 17…no, no, no. Is it 15 or 20? Just tell me. No, it’s 20. I round up. $20,000. Okay, you need acquisition, you need $20,000 to purchase it and you think the ARV is $100,000. I’ll work with that. What do you need to make that happen? You need $70,000. Well, do you know anybody with $70,000? Go find somebody. It’s the third party that brings it. Maybe I have it. Maybe I don’t.

Sometimes, what I do is I’ll say okay, well how about this? I’ll do that deal with you. I’ll bring $70,000 to the table and do your flip. And then I turn around and I go find somebody that I know who has the money that’s been around looking for an investment. And then I will buy it and wrap the mortgage around it or I’ll lend on it and wrap the mortgage and now I’ll have two into it and somebody else will bring $68K.

So my $2,000 is all I have right now in my solo 401K that’s tapped out. But I have the interest that’s come in. I want to put that back to work. I want the interest to come penniless so then I just have that $2,000 wrapped around and I’m in the middle of the deal so I’m not brokering money.

I’m still a principle involved and I’m kind of senior guy involved, somebody who is a new flipper. I’ve seen the house. I’m comfortable with it. And that person who lends money to me at 68 at say 8% but I’m getting 15% on my $2,000 and I’m fine with that. And they know that’s happening.

David: What makes that possible is that people come to you as the expert. They trust you because you’re an honest person. And they trust you because you know what you are doing and you made it happen. You’ve got this like aura about you that’s like hey, Paul is a calming influence that can make this happen. And that’s why you’re able to be involved in a deal with $2,000 that somebody else wouldn’t be able to be. And that was a result of you studying real estate and getting a job involved and taking action for it long enough and be developing into this person.

Because I can already hear a lot of the objections coming. Nobody would ever let me be on a deal for $2,000. But that’s because you’re not Paul. But what’s stopping you from becoming him? What’s stopping you from learning enough about real estate that you’re the guy that has all the answers that someone says hey, I found a good deal. I don’t know what to do with it.

Well, you know enough about real estate that you process it down every single option to your brain and you’re like, yep we’ll use this, we’ll use this, we’ll use this. Because you’re like the general contractor that puts it all together. The general contractors don’t swing the hammers. They don’t pull the cabinet stuff. They don’t get the splinters. They don’t work hard, right?

They have the vision. They put the thing together and they benefit from their knowledge and their relationships they have with their subcontractors. It’s the same thing that you’re doing. You’re playing the role of GC, General Contractor, with these deals. You’re bringing it all the pieces that are needed. And that’s how you’re able to make $3500 an hour with your time. It’s why you’re able to make deals work that other people can’t.

It’s why you’re sitting in the captain’s seat, because you learned. You paid the price. You didn’t try to take the easy way out. You didn’t try to get involved in real estate investing without ever feeling anxiety. I mean, you just said everything right and now you’re benefiting and that’s what I want everyone to hear, is that there is a—there’s a summit to this mountain that we’re all climbing in.

When you get there and you’re sitting in the captain’s seat. It’s pretty nice. Can you us an example, Paul, or maybe advice for what you did to get here so that someone else taking the same journey but you can get there faster or better.

Paul: Well it’s back to that line, I L.I.E. every day. That’s exactly. I think that there’s myself. Today I didn’t learn anything. How can I be a little better? And to be successful is a choice, not a destination. I choose to be successful but I have to transform into something else to become that.

And that transformation is what makes it possible. And like you said, it takes three to five years. That does not happen overnight. The pace is—personally I like it. Step number one is learn. So it’s not that hard for me to then apply it, test, it, and then share it. People come to me quite a bit asking for help and I’m an open book and I help out whenever I can.

David: For the people who have read my article on how I bought and analyze a deal in five minutes, without ever seeing it, this was the guy that I was talking to. I met Paul, I talked to Paul, I can immediately tell knows what he’s doing. Everyone that was there at the conference that I met you at spoke very well about you. I did a little bit of research and I knew he’s an honest guy. I feel safe with him, right?

So I was fine buying a deal that you provided me the information on. Five minutes into hearing about and putting it under contract. There’s still due diligence that is involved. It’s not like I jumped off a cliff and this parachute Paul gave me is going to open, right? There’s no reason not to buy it. That’s what I want people to understand.

When you become that guy who everybody looks to, opportunities come up that aren’t there for other people. And you’re doing everything right, Paul. And I love that. Brandon, you’ve been quiet for a while.

Brandon: I have been a little quiet. No, you’ve been covering this. It’s good. Tell me, Paul, one last question before we move on—I’m wondering, it took you 15 years to get into this game. You know, it took you 15 years sitting on the sideline, right? Why does it take people so long and what advice do you have for others who are listening to this going you know what, I don’t want to be sitting here 15 years from now thinking I still want to get into real estate, so what advice do you have for those people?

Paul: I had to find the pain. I kind of floundered for a while. I mean, I poured myself into work and then you kind of come out of it and realize, oh my gosh, I’m in what I call the real world matrix. I am exchanging my time for money. I am jacked into the cubicle just like Neo was and I’m there and when you realize that your eyes are opened and you finally take the right pill, and that’s what I actually would harness that pain like, I will not accept it. Once you have to find that pain. That deep-seeded emotional outcome.

But using that emotional pain to drive you towards the summit like you used a while ago David, to actually get where you want to go. Until you find that for you. And that’s going to be the same for everybody. Some people really like their jobs but what happens when your dad has cancer and you can’t go spend time with him because you have to spend time at work? That might change.

If you don’t have the freedom to say I have the income stream to walk away or go into back order demand, it’s amazing when you have what’s called “Screw you” money and you have streams of income and you’re not working for money anymore. Then the power struggle, the power shift is entirely on your side of the venture and you can basically dictate to your employer and dictate to life what you’re going to do. You make—I want the control. And if you want control, if you need control, and you realize you’re not actually happy, that’s what you need to find.

Brandon: That’s super, super insightful. Again, you might not hate your job right now. You might have a great job but like you said, what if all of a sudden, something changes? A family member gets sick or you need more time off or you have another kid. Or whatever. So by setting ourselves up now, knowing that the future is uncertain, like let’s get ourselves the best opportunity of having an amazing life for the next 80 years rather than living reactively to oh crap, something bad happened, now I better—oh, I don’t have any rentals so yeah.

Fill the pain point and also know that the future is going to be uncertain. It’s super, super good. All right, so we could probably talk for 100 hours here but you know, we’ve been doing this for an hour so I want to be respectful for your time today. Paul as well. So let’s shift gears here and head over to the world famous Fire Round.

It’s time for the Fire Round.

Are you tired of missing out on deals because you don’t have money? You can partner your personal money with your IRA or 401K on deals. Your IRA can also partner with other IRAs or other personal money on the same deal. Tens of thousands of investors at Equity Trust Company use IRAs in real estate deals every year. Just last year their clients invested and closed 15,000 properties with IRAs. Equity Trust has actually put together a new checklist for real estate investors called Ten Ways to Partner on a Deal with an IRA. It is available now for BP podcast listeners. So visit TrustETC.com/BP3. That’s TrustETC.com/BP3 to claim your free Ten Ways to Partner on a Deal with an IRA checklist.

All right, let’s get to the Fire Round. These questions come direct out of the BiggerPockets forums, which I know Paul, you’re active in. So you might have seen the forum. If not, they’re going to be fresh and new for you.

Number one, overnight, the ceiling in the main floor bathroom of our fourplex collapsed due to a water leak. We tried to enter the unit above to shut the water off and there’s an angry pitbull inside. The lease says no pets. I can’t get a hold of the tenant. Now what do I do? That’s a really unique question that’s not that absurd.

Paul: It’s a very specific problem. First of all, you turn off the water. Number one. The only tool that I ever carry around at all ever is a T-bar from Home Depot for $7.00. I cannot tell you how many people including contractors, including plumbers that don’t have one. And my house is flooding.

So next, they have a pitbull? Call animal shelters that someone is certainly not supposed to be there. They’re illegal. They’re gone. I have taken too much grief from tenants if they break the leases and they’ll do things that are causing problems. I prefer to do things like cash for keys and in this case, you’d probably file an insurance report and they had to move anyways. So the problem will probably solve itself. But I don’t like to leave people in that are not cooperative enough on the rules.

Brandon: There you go.

Paul: But I would do it with cash for keys. I would do it with cash for keys before an eviction.

David: What’s cash for keys, Paul?

Paul: Cash for keys is when you offer to a tenant to move. If they won’t move, first off, by themselves and they’re being uncooperative, you say well how about I give you $300 on Friday and when your stuff’s out and I have the keys, I can give you $300 and you’re moving to the next place. First is the potential $1000 or more of costs where you happen to live for an eviction.

Brandon: There you go. There you go.

David: All right, Paul, next question. Right now my wife and I are looking for a property to buy. A lot of the ones I have seen—

Brandon: You’re married? You didn’t tell me, David? Come on.

David: Okay. This is why Brandon’s a podcaster, not a comedian. All right, out of the ones I’ve seen are already renovated and have tenants. Is it worth it to invest in one of those or should I buy a nasty one and fix it?

Paul: And they’re looking for an investment, I presume?

David: Yes.

Paul: Are they going to turn it into a house-hack or what?

David: They just say they’re looking for a property to buy. They’re basically saying should I buy a turnkey house that’s in really good shape or should I go for a fixer upper?

Paul: It would end up depending on what they want. If they just want to live in it themselves and they’re not looking for an investment, just buy the most convenient one like a typical retail buyer would be. I assume since they’re on the forums they’re looking for an investment.

I always like to be able to buy equity and put sweat equity into it which you’re doing a house-hack especially, if you have the potential to do house-hacking and you’re willing to do with it additional headaches that it takes, how can you not do house-hacking? It is probably the single greatest lever available to somebody trying to reach financial independence.

Brandon: Yeah, totally agree. Delegate. All right, number three here. This is kind of a long question but I think it’s a really good one that a lot of people are struggling with. I’m actually going to summarize it because it’s a really long question. But basically this guy before he got into financial freedom, real estate, this whole idea of early retirement, he was living like everybody else. And so he says—he bought a brand new 2013 Chrysler 300 because he thought he deserved it, to have this amazing thing so he worked hard.

But now he’s got those massive car payment that’s like more than a mortgage payment. And he still owes $15,000 left on it. So he’s wondering should I just sell the car, maybe even though I can’t sell it for the same amount. Should I just pay it off as quick as possible? What’s your advice to someone like that who is stuck with that huge massive payment?

Paul: If you can find a way to—have you ever heard of this car service that to where it’s like Uber but you can actually rent your car on the weekends?

Brandon: Turo. Yeah.

Paul: Yeah, Turo, that’s it. I considered doing it but then I’m just too lazy. If you are in a pinch, you have to make your whatever you have available to you, whether it be a house or house-hacking or a car for car hacking. Make that thing useful. Start doing Uber. If it’s a nice car, turn that asset or turn the liability into an asset, even if it doesn’t actually break even. I assume he needs a car so if he sells it, he’s going to lose money.

So why not think a little bit differently and try to figure out a way to make money? Go to a clown store—there’s no way that you’re not going to find a way to make money if you wanted to. It’s just you don’t have the desire to. You just want a way out. You made a mistake to get into it that much. Find a way out. Think outside the box. There is no box. Figure out a way.

Brandon: I like it. That’s awesome.

David: Very good, Paul. All right, last question. I read the book Long Distance Real Estate Investing. Which sidenote, Paul actually helped edit. Cool thing. All right—yeah, Paul was the guy that—so many spelling errors we can blame Paul. So I read the book and will be completing my first book in two months. With the profits, I would want to reinvest in a rental in a more affordable market and all my research has led me to the Midwest and the Southeast. The research has included the buy-to-rent ratios on Zillow and has given me some cities to look into. What more would you do to determine which market you would want to focus on to build your Core Four?

Paul: I love that question and it has almost nothing to do about the market itself. It’s where you have connections. Invest where you know or invest where you know people. Then figure it out if it fits the numbers that you’re looking for. The numbers for an investment for a rental that’s for cash flow are going to work.

You can pick anywhere from Tultz to Oklahoma over to Savannah, Georgia and up to Cleveland and between that area is a place, a metropolitan area that cash flows. Somewhere somehow. And they all have their pros and cons and you can stack rank them. It doesn’t matter. Find somewhere where you know a property manager, you know a good area. That’s where you start. Then you find that in the house.

David: I could not agree more and that’s pretty much exactly what I said in the book, so nice. Thank you for confirming that.

Paul: Maybe I read it

Brandon: All right, well let’s shift gears one last time and head over to the world famous Famous Four. Now, these are the same four questions we ask every guest every week but before I throw them at you, Paul, let’s hear from Mindy on what is going on this week over on the BiggerPockets Money podcast.

Mindy: Thanks for asking, Brandon. This week on the BiggerPockets Money podcast, we talk to Chris and Debbie Emick, a couple with two daughters who are working towards financial independence. A combination of local and long distance real estate investing coupled with frugality and conscious spending have them very close to financial freedom. All right, now it’s time for the Famous Four.

Brandon: All righty so let’s get to the Famous Four. Question number one, Paul, what is your favorite or current favorite real estate related book?

Paul: Okay, so I really like the Building Wealth One House at a Time. It was written by a guy named John Schaub but I’ve actually been to his conferences and that’s where I learned the door knock. I’ve actually been to his house. Super nice guy. He is just a sage for real estate and his principle is build wealth buying one house at a time.

So if you’re just getting started, you’ve never invested, that is just the greatest way to start. The numbers are nice and round and are a little too convenient but the concept is how to approach it. It’s perfect. If you want to learn how to actually run the numbers to figure out your NOI—The ABCs of Real Estate is still the best one I’ve found for the average mortal to actually understand and it talks about apartments or multi-family but actually it works the same principle for single-family. I still use that today on my single-family investments. I do the same numbers. I use the same due diligence process that he uses for multi-family.

David: Well you are anything but an average mortal. That’s why I thought that was funny. You’re a big of a God among the men.

Brandon: Oh, gotcha. Tell me what is your favorite business book.

Paul: If you’re not really good at finances yet, I really like The Richest Man in Babylon just to get your head on straight about finances. It’s just super simple to quick read. If you’re going to take the next step. If you’re talking about a business and how to make it perform better, whether it’s real estate or not, The Pumpkin Plan by Mike Michalowicz—

Brandon: That was a good book.

Paul: It’s a brilliant book. A lot of things with the one thing and then The Pumpkin Plan is very similar but it gives you specifics on how to do it with a business. And you want to, the summary is the niches are in the riches. And fire your worst clients and in our case, tenants.

So the next book that I would recommend is by the same author, Mike Michalowicz and it is Profit First and it is how to remove the psychology of big balance budgeting this. So many small business owners do. You look at that checking account and you think oh, I have $10,000 whatever is in there. I have a lot of money and you make decisions based on your expenses.

When in fact, you should have had in your books or however you run things, that you should actually have $5,000 allocated for business or for taxes or you always pay yourself first. So profit first. So it reduces that operating account that you’re actually buying decisions out of to a very small number that you make rational.

And the one that I’m crazy about now is The Big Leap. Have you guys read The Big Leap by Gay Hendricks?

Brandon: No.

Paul: I think you guys should read it. You would love it. I know, Brandon, you’re a big reader. It basically teaches you how to break through the upper limit problem that he says so many of us have when you gain success. We sabotage ourselves because we’ve kind of gone beyond our comfort level and it triggers us to kind of sabotage ourselves and our thermostat has gone too high and we are uncomfortable. And it walks you through how to kind of work your way around that, kind of find your zone of genius. And ironically, real estate is not my zone of genius.

Brandon: What is your zone of genius?

Paul: My zone of genius is actually helping other people have mindset shifts on how to attack life and actually find their own personal zone of genius. I empower them. So I never knew it but actually they were saying, people trust me naturally. I don’t try to do that. People trust me and I’m trustworthy. So people open up to me about things that I didn’t know. So I mean, I should be a therapist or some sort of a coach or something.

Brandon: That’s funny. Have you ever been told that you look like a young Steve Jobs? Because you look like a young Steve Jobs. It’s kind of weirding me out a little bit. Yeah, I’m going to find his picture and put it side by side with you right now.

Paul: Now I’m weirded out.

Brandon: Anyway, let’s move on.

David: Mindy Jensen is always saying that Brandon looks like the lead singer of The Spin Doctors.

Brandon: I want to know what the Spin Doctors is.

David: It was a band when we were really little that you probably knew that was one I listened to.

Brandon: Sing one of their songs, David. What are their songs?

David: I don’t know. I wasn’t allowed to listen to them. Paul, you got anything?

Paul: I wouldn’t be able to either, no.

David All right well, we want to know does Brandon look more like the lead singer of The Spin Doctors or does Paul look more like a young Steve Jobs? I don’t think I look like anybody. I get left out of these conversations. Yeah, I’m an original.

Brandon: Just ugly.

David: Nobody famous is as ugly as me. All right, Paul, what are some of your hobbies?

Paul: So hobbies right now are I’ve started a podcast and I’m trying to get better at public speaking. I find that’s something I’m going into more, is like I have these ideas and I want to be able to more effectively share those and then I’m getting into a lot of fitness and dieting and I’m like going all eggplant-based and everything, getting all granola. I’m going to live to 123. I’m going to make it 100.

David: Brandon, he lives in Washington and that’s how everybody there is very granola. That’s a good way to put it.

Paul: I would fit right in.

Brandon: You would fit right in so should the beard. It’s very worthy of the Pacific Northwest.

Paul: Yeah, the beard’s in for sure.

Brandon: All right, last question from me. What do you believe sets apart successful real estate investors from those who give up, fail, or never get started?

Paul: It’s kind of restating what I said before but it is absolutely finding that deep-seeded inner fire and what’s crazy is it doesn’t have to be about real estate. Real estate is a vehicle tool to get you where you want to go.

And if you want to escape the rat race or you’re tired of being on the hamster wheel and like the word I use, you’re in the real-world matrix and you want and you just see the realization and you want out, I bet that helped picture that and actually, there’s a formula and it’s called TEAR.

Thoughts plus Emotions plus Actions equals Results. You have to have the thoughts in order to think about it but the emotions are what’s clear and once you harness those emotions, your actions kind of come subsequently as a result. And then you get your results.

David: Fantastic. Will real estate also get you out of the rate rac or just the rat race?

Paul: rate rac is what they’re called. Right. Big market.

David: On a serious note, The Matrix is an incredibly good movie to watch if you’re looking to change your life in any way. Whatever your struggle is that you’re trying to get out of, I love, love, love that movie just for the mindset that it gives.

Brandon: The idea that you can shoot your way out of anything.

Paul: Or you can just learn, like there’s a slip in your eyes.

Brandon: Yeah, exactly. Isn’t that the theme of The Matrix, like you just shoot enough people and you can get out of anything?

David: You just plug that thing into the back of your head and I can fly a helicopter. I mean, it’s worked for me so far so I can only support it.

Brandon: Anyway.

David: All right, Paul. I so appreciate your sharing so wisdom with us that you have and so many of these really good concepts. I can probably talk to you all day long and I hope that everyone who listens to this goes back and listens again because I guarantee that you will find more if you listen to this a second time. Tell me for the people who want to learn more about you, where can they find out more about you?

Paul: Okay, yeah. I’m on BiggerPockets. I’m pretty active there and I have a website that’s called LevelUpMastermind.info. That’s .info not .com and that will take you over to my website and I actually have a free offer to anybody who is on BiggerPockets if you’re interested, if you’re hitting that upper limit and you have a struggle on that page—there’s a questionnaire. Fill that out. I will answer you personally on what is the struggle that you have that is keeping you from branching out or taking yourself to the next level to level up your life. Send it in there and I will get it out to you personally.

Brandon: Awesome. All right, good deal. Well thank you, Paul. This was fun. I learned a ton. A ton of good ideas that I had never even heard of. So I love that. I love the new stuff so thank you so much for sharing and I’m sure we’ll see you around the BiggerPockets community.

Paul: Thanks for having me.

David: Thank you, bro.

Brandon: And that was our show with Paul Thompson. Fantastic. I loved all the actionable stuff that was in that episode. Like I loved just hearing how he’s getting deals and how that system works with the Virtual Assistants and the phone calls and all that. I’m totally inspired.

David: Yeah, that three-option letter of intent that he put together, that alone is worth his weight in gold. I’m going to start doing that immediately.

Brandon: Yeah, very very cool. So yeah. If you guys find your mind wandering throughout that show or anything like that, which would be tough because he was so good at giving good raw information, go back and listen to it again. Grab a notebook. Listen on your drive home from work or whatever. And apply those things to your life.

Don’t just listen and go, oh, that was cool. But figure out what are you going to apply today in your life that he talked about today? What was one thing that you can do today, right now, in your business and if you don’t know what that is, go listen again and you’ll find lots of gold. So very cool. Very cool. Nice pick there, David Greene, on choosing Paul for the show.

Paul: I am happy to contribute. The more listeners that we have subscribing, the better guests that we can get on here, the more value we can bring, and the more money we can make everyone. So you better get some bigger pockets.

Brandon: There you go. If you are interested in becoming a guest on the BiggerPockets podcast, we do have a system in process in place for dealing with that. Lots of people want to come on the show and we would love to have you, if you are awesome, have done at least a dozen or ten deals you’ve put together and you have a great personality, go to BiggerPockets.com/guest.

And that kind of starts the process. We can’t guarantee anything. We get lots and lots of submissions but we want to hear from you and I’ll give you a hint. If you want to increase your chances of getting on the show, submit a video with your application. There is a spot you can link to for video. You can record something on your phone. It shows our producer kind of a little bit of who you are. So with that, we’ve got to get out of here. David Greene, do you want to add anything or take us out?

David: This is David Greene for Brandon “Rate Rac” Turner, signing off.

Brandon: I knew you were going to do that.

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.

Be sure to join the millions of others who have benefited from BiggerPockets.com, your home for real estate investing online.