Guest: When you do find yourself in this position, um, not being overleveraged is so, so key because I have private money investor money about 120,000 worth of it, right? Um, I never fall below in my savings account less than a year of expenses in all the capital that I borrowed from my private money investors, period. So, we stay relatively liquid just on the base of like, I don’t know what’s going to happen. I always think of the worst case scenario and if you’re prepared for that, everything else is gravy.
Mindy: Hello, hello, hello. My name is Mindy Jensen and joining me today is the military millionaire, David Pere.
Speaker 1: Howdy. Always a pleasure, Mindy.
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Mindy: David, it’s so nice to see you again and I’m super excited to talk to Anthony today. He has a very interesting story of being not so great with his finances and then hearing how you could invest in real estate and the stock market and deciding, you know what? I want to do that and I want to invest from a position of strength, so I am going to fix my financial situation so that I can start investing in real estate, which is kind of how this whole podcast got started in the first place. So it’s nice to see somebody who has taken the lessons that he’s learned, applied them to real life and now has a whopping 80% savings rate.
Speaker 1: Yeah, Tony’s, Anthony has done really well and uh, he’s just a good dude, right? And he’s been able to do this while serving in the Coast Guard and while uh not even living in the area that he’s doing a lot of these um real estate projects and so he’s gotten to partner with people. He’s got some experience with that. He’s gotten to dabble in a bunch of different side hustles and he’s done the right move, which is to earn income through a side hustle and then not spend it on stuff you shouldn’t spend it on, which unfortunately, a lot of people, you know, um I see people get sucked into driving for Uber and then they spend the money on from Uber on fun stuff rather than on you know, increasing your investment portfolio and and then you’re you’re kind of trapped in this perpetual cycle.
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Guest: Anthony Michael is an active duty Coast Guardsman flight mechanic who saves 80% of his income. You heard me right, 80% of his income. He has created two businesses while serving in the military and is on track to become financially free this year. Anthony, welcome to the Bigger Pockets Money podcast. I’m so excited to talk to you today.
Guest: Thank you so much for having me. I appreciate the opportunity.
Mindy: So, 80% of your income, that is, um, you know, that’s okay. That’s a that’s a decent savings rate.
Guest: It’s a little bit. Not much. We’ll get. It’s it’s good.
Mindy: Let’s talk about your money story. Were you always an 80% saver?
Guest: Absolutely not. I was a paycheck to paycheckker. Um, starting off my first job was Long John Silvers, which I got fired from. Uh, went across the street to Wendy’s, uh, quit, then got rehired. Um, but growing up, uh in a small town, I didn’t really have that many expenses until I moved away to the military. And uh, I wasn’t really good at managing money from the beginning. Um, until I moved to the military in to New Jersey where I you know, um, had met my wife and we got married. And, um, from there, I think we were on vacation. We were actually listen to the Bigger Pockets podcast and uh, they were talking about, you know, investing in real estate and all this other stuff. and I was like, man, this is crazy. Like light bulbs are going off like crazy and I was like, man, we got to get into this. And then they were talking about like the money that you need and all this other stuff. I’m like, oh my god, we’re not even close to to, you know, being in a in the realm of real estate investors if you will. Um, so education was key at that point. So we started reading books and listening more podcasts and then the uh the icing on the cake was rich dad for that for us.
Mindy: So Rich Dad, poor dad is the number one most recommended book on the original Bigger Pockets real estate podcast. Um, I wasn’t a fan. I misunderstood the book. So I’ll just stop there. Um, but it’s interesting that so many people are so inspired by that book. What was it about that book that made you say, I just have to invest in real estate?
Guest: Oh boy. Um, so originally I didn’t, I didn’t read the whole thing through. Um, he had so many great lessons to to kind of take, you know, stuff to to kind of take away from in the first 60, I think 68 pages is where I stopped reading. And basically what I told my wife was like, we need to get our our finances in check first. We can’t invest if we don’t have any money, right? And I told my wife, I said, I said, what are we spending money on? Are we eating out, are we buying too much stuff? Are we living above our means? Do we we have, you know, car payments that we don’t need. What are we what are we spending money on? Because we were making a pretty decent amount of money. I think my wife was making, uh, it wasn’t a mask, but it was like $48,000 a year and then I was making, um, 70, which 40 of that wasn’t tax from the military. So we weren’t really, you know, we we were making decent money, you know, right out of 100,000 a year and our our living expenses weren’t even close to being on par with that. So we were throwing money out the window on on just frivolous stuff. So we we locked that in, went through, got rid of, you know, the subscription base stuff and and instead of a eating out, you know, two, three times a week, we ate out once or none. Um, we started car pooling to different places or just not going to different places, like really lock down mode for for the first like two years. Um, we went to from saving uh around $200, $300 a month to saving like 2,000 a month. Um, and that’s when the light bulb kind of kicked in for me and I I kind of went back to the book and was like, all right, cool, we got this done now. Now we’re saving money. What do we do with this money? Or how can I make more money to save to then invest or do I invest in application? Whatever. So once we got to that point, I started looking for, um, little side hustle type stuff. And it kind of just fell into my lap because I had a, uh, uh a passion for mountain biking. I was up in New Jersey, there was, you know, a bunch of amazing trails and and mountain biking up there. There’s a huge mountain bike scene. Um, so I started off buying a mountain bike, um, off of Craigslist while I was in, um, school to become an aviator. and I actually had the bike shipped to the schoolhouse and I built it up in my room uh with my my uh my roommate who was also in my class. and I was taking pictures of it and all a sudden he’s like, dude, what are you doing with this bike? He’s like, you you just bought a bike you’re not going to ride. I was like, no, dude, I can make 400 bucks selling this. So I built it up, took pictures, put it online, had it sold like two days later, made 400 bucks. And I was like, okay, this is pretty cool. So and I told my wife at the time too, the mountain bike was $2,000. And I think we had five or 60 I maybe eight, I can’t remember. Probably $8,000 saved. And she’s like, babe, you’re gonna take a quarter of our life savings and spend it on a freaking mountain bike. Are you kidding me? And I was like, baby, trust me, trust me, please. I I I know what I’m doing. I got this. So I sold the bike, put the $400 in in the bank account. I said, hey, look at the account. and she’s like, where can you buy more? Let’s keep doing this, right? Um, so we ended up flipping, I think 13 bikes that year, um, and we made, like, I think we netted like $5,600. But it was such a it was an amazing side hustle for me because I could ride these crazy high-end upper echelon bikes that I never normally would buy, especially in my my income bracket, right? And I can make money doing it. So that was the start of the little side hustle adventure that that now grew into me owning two real estate companies while active duty.
Mindy: I love this because you didn’t look for a side hustle you could do. You looked for things that you already knew how to do that could generate income. And that’s the kind of side hustle that’s A, going to be fun to do and not feel like a slog, you’re not gonna have to force yourself to do it. And B, you don’t have to learn anything. Like it sounds to me you already knew how to put a bounce bike together, right?
Guest: Yeah, and and the the better part of the whole thing was not the money that I was making but the skills that I was learning doing it, supply and demand, have a product that people want, right? And then negotiation skills on the front and back side where I would have to negotiate with the seller of the bike. I would target ads specifically that look like crap for lack of a better term. They had one sentence right up, they didn’t have a component spec sheet on the on the bike, they didn’t tell, you know, what kind of wear and tear it had. They had a a flip phone photo of a a pixelated bike on there. I knew what the bike was worth from extensive research and being on the platform that I was selling on, but they didn’t know what they had because they they weren’t getting traffic to their ad because it looked like crap, right? So I would specifically target those people. They would have the bike listed for the market value of the bike. I would just negotiate my profit margin. So whatever I can negotiate them down off of their current asking price is what I knew I could make. So that was, that was like another uh hidden skill that I that I learned while I was flipping mountain bikes is negotiation tactics.
Speaker 1: I’m going to take that sound byte and I’m just going to throw it out there to the entire audience that you heard that and you should take that and you should know when you work with a real estate agent, this is exactly why you you always get professional photos, you never do cell phone photos, you always have a really detailed listing, you need buzz words and keywords and I mean, there is a reason that people who are looking for off-market deals hunt down fizzbos and hunt down or for sale by owners for those who don’t know, fizbos and hunt down crappy listings where someone took a cell phone and was like, click, click, click or even a nice camera and did it without lighting and without wide angle and whatever and like a one or two sentence like, look at this cute house or this is a fixer upper. and we target the heck out of them because they’re not getting other attention so they are willing to drop the price. So if you’re going to list a property or anything else you’re selling, the money’s in the details. You got to make it look good.
Mindy: Absolutely. And as you’re saying this, I’m thinking the same thing. Oh, this is going to be just like real estate. You did, you’re making, I’m hoping, I really hope you make more than $400 on a deal in your real estate deal.
Guest: For flipping a bike, that’s I mean, that’s really good. How long did it take you to build the bike?
Guest: It wasn’t even that. you know, I I got to a point where I would have them. So he was the crazy thing was when I when I asked him about the bike, I said, hey, do you have any other pictures that you can send me? They had the photos. They just didn’t take the time and effort to put them up, right? So I would literally, here’s a crazy part, I would take their photos, I would make a new ad as the bike is being shipped to me, I would put up all the components, make a beautiful write up, post the pictures that they sent me and have it sold before it even got to my house. I would print a new shipping label. I’d slap it on the side of the bike and I’d send it right out. The UPS driver wouldn’t leave because I would put the new label on it and just put it right back in his truck. And he could scan it in from there. And I already made the profit. That was the crazy part. They did the work for me, but they didn’t do the work initially. That was the problem.
Mindy: That there you go. They didn’t do the work initially. You can make a lot of money off of somebody else’s laziness.
Guest: Yes, correct.
Mindy: Okay. So, let’s talk about your, you you alluded to and I alluded to, you have started two businesses while active duty. What are these two businesses?
Guest: So one is a uh real estate fix and flip company, actually let me, let me pull that back. One is a real estate investing company out of Pinellas County, which which includes Tampa, St. Petersburg and Clearwater, Florida. Excuse me. And then the second one is a hard money/commercial lending company that is based nationwide.
Mindy: Oh, a nationwide?
Guest: Yes.
Mindy: Interesting. Okay. And you said the real estate investing company, is this mainly flips? is this mainly rentals?
Guest: So as the wise person, Jay Scott said, um, you should change your real estate investing strategy due to what the market is calling for at the time.
Mindy: Oh, oh, oh, louder for the people in the back.
Guest: You should change your investing strategy for what the market calls for, right? So initially, yes, this started off as a fix and flip company. Um, it still is majority uh fix and flip primarily just because of the the capital. Uh, it’s hard to say no on a multi-six figure exit on a on a real estate transaction. It doesn’t really matter what kind of cash flow you have at that point. If you kept it, it would take you infinitely long to get the the gains and what I can put into, you know, 10 other properties. So the ones that make sense to flip, I’m flipping. The ones that makes sense to hold, I’m holding for real for Reynolds. and then the one I’m starting to dabble into the Air Bnb market as well now.
Speaker 1: Which in Florida Airbnbs are generally, you know, I mean, there’s there’s a lot of market there for it. so that’s awesome.
Guest: Absolutely. Yep.
Mindy: You just said something I thought was very interesting. The ones that make sense to flip, I flip, the ones that make sense to hold, I hold. So you’re not targeting How are you finding your deals? because it doesn’t sound like you’re targeting deals that are on the MLS and trying to figure out how they fit into your strategy.
Guest: No. So we we’re still we’re still targeting, uh we’re targeting off-market and direct seller via a direct mail campaign that we that we have right now. We pull our data from prop stream. Um, we send the list over to our marketing friends. They print up the mailers, they send them to my house, I send them out. I have a program and a and a lead capture system, RE simply, I don’t know if I can plug that, but um, and then, uh, and then and there’s a team that takes my calls for me because remember, I’m still active duty, right? So I can’t be on a helicopter taking a call with a seller that wants to sell me their house. so they they take the preliminary call, intake specialist, they take all the information down and then I call them close. So, in in the interesting part of that is you don’t know what you’re gonna get, right? You can put uh buying characteristics in in the data source and it’ll pump you out whatever you want to buy, but there’s so many different variables with real estate investing and buying somebody’s house that, you know, the price may may make sense to be a flip, the price may not make sense to make an offer on because they want too much. And then you go into reverse negotiation tactics because everyone wants Zillow or Zestimate. Um, so we get into, yeah, reversing what they think they they should get for their house and telling them why they don’t deserve that. And then, uh, and then we allocate whatever projects that we get into the different categories of real estate investing, whether it be buying hold, uh, fix and flip and and Airbnbs.
Mindy: You just said the ones that make sense to flip, I flip. What makes sense to flip for you and like how do you tell the difference between flipping and holding and all the other things that you’re doing?
Guest: It’s all a numbers game for us. Um, if the numbers work, they work. So our our flipping criteria, um, is based on us making $60,000 net. Um, that’s enough margin for us to to be able to to work with the sways in the market or any kind of, you know, uh, inspection criteria that might come up that they want to negotiate off of. Um, but we we like to to net the $60,000. Anything under that, we look to wholesale or keep as a rental if the numbers make sense. Obviously, you know, uh the zip code and the area that the property resides in too plays a factor in whether or not we hold or or flip as well. so.
Mindy: So what is what kind of work are you doing to make $60,000 net?
Guest: Some of them to believe it or not, it just depends on the property, obviously, but some of them are lipsticks. So I like call them lipsticks. you go on there, paint carpet, uh clean out the place, make it nice. Um, you don’t have to bring it all the way up to to current market readiness. Um, it’s kind of stuck in between the middle age of like the early 2000s, which people still buy, right? Because a lot of people want to put their own personal touch on um if they can get a discount off of the, you know, the normal market value of something. So if we if we stand to to net what we want um in the beginning and we don’t have to put a ton of work into it, then we’ll just do that. Um, others are, and those are mind you, those are very few and far between. Um, the majority of the properties are full guts. So down to the studs, rewiring the house because the majority of the houses, um that we target in St. Petersburg and Clearwater were built before 1970, um which is when ROMex wiring came out and cloth wiring is something that insurance companies no longer want to insure. So we have to change out the wiring, which means we have to go to the studs for that. But yeah, basic full full runnings. 60 to $80,000 is what we normally um see as a renovation budget.
Speaker 1: What’s your average like if you’re if you’re netting 60, your average uh like purchase price? Like is 60 is that 60 on like a $100,000 home or is that 60 on like a $3 million home, right? Because that that plays a difference in how much money that actually is.
Guest: Yeah, so great question, Dave. I don’t go above, I I try to stay right at the national average for home pricing. Um, I believe it’s in the 400s now, which is kind of crazy. Um, maybe maybe I’m wrong. Maybe that’s maybe that’s Florida average, but um, we like to stay like median home value for the market that we’re that we’re operating in. Um, so it’s usually 60 on anywhere between an 8Ok purchase price and a 200k purchase price. We don’t really typically go over those amounts. The majority of the properties that we have in the pipe now are anywhere from a 80k purchase to um a $200,000 purchase.
Speaker 1: I’m just going to just stop and derail because I Googled and holy crap, you’re right. Yeah, according to May 10th, this is May 10, 2022, uh statistista.com, according to St. Louis Fed, median prices for US homes rose from approximately 323 at the beginning of the pandemic to around 429,000 in Q1 of 2022.
Guest: Wow is right. Which makes our buying pool a lot bigger now, which which is great.
Mindy: So, I like that you’re looking for properties that have a bigger spread. Uh minimum of $60,000 net for your profit. And the reason I bring this up is because I saw a post, I can’t even remember what group it was in where somebody posted their numbers and they were projecting to make approximately $30,000 and their friends were telling them, oh, I wouldn’t do that, I wouldn’t touch that. And they’re like, who’s who turns down $30,000? And I’m thinking to myself, well, on the surface for somebody who is newer to investing, $30,000 seems great because you’re doing a month’s worth of work. Well, that month is going to turn into three at least if you’re a new flipper or six or 12 because flipping is not like the shows on TV. God, that makes me so angry. Things do go wrong. Things will go wrong. You can count on it. Things will go wrong because drywall is not see through. As soon as you pull down the drywall, you’re like, oh, I didn’t realize it had knob and tube wiring or that’s where the smell is coming from. the sewer pipe is broken in the wall or the pipes are broken and now I’ve got to, you know, way more stuff to do. There’s always something that’s unexpected that pops up during the flip. So your $30,000 with one unexpected $10,000 expense, now you’re making $20,000. and instead of flipping it in a month, you’re flipping it in three months if you are extremely lucky. And your $5,000 a month in holding costs just ate up another $10,000. and now it’s been sitting on the market because you listed it at 320, but it’s actually more like a 310 property and nobody’s buying it. So you have to reduce your price to 310. you’re break even before you’ve even done anything. We haven’t had our home inspection yet. Maybe there’s something wrong with the roof that you were really kind of hoping would be okay a month ago or three months ago if you tried to sell it, that would be fine. But now the market has changed so much even just in a couple of months that people are now asking for inspection concessions and getting them because they’ll walk if they don’t. They aren’t they’re not bidding with 57 other people on your house. So the market can change in a heartbeat and you can have completely different marking conditions than when you initially bought it and your ARV needs to be super conservative and your rehab costs needs to be super extravagant. Like I think it’s going to cost 10,000. Well, then budget 20. If you can’t make money with a 20,000 flip or rehab budget then, you know, you’re not going to do it in 10 either.
Guest: I’m so happy you brought up that, uh, that 10% contingency because I also have a a hard money lending company and the majority of the errors that we see from our people coming to us is they neglect that cushion in their rehab budget, right? And then they have to come out of their personal capital for any expenditures above and beyond what their rehab budget was set to. I had this mistake early on in my my career when a on my first flip where we budget 25 and it ended up being 37 and I had to come out of pocket as the business partner on the deal an extra $7,000 to dig up the foundation of the front of the home. This is in New Jersey by the way. Um the crawl space was leaking. We had a snow, the snow was melting. The water went through the foundation into the crawl space and was leaking literal like two inches of water in a place where the gas heater was. So that was a $7,000 expense that we didn’t foresee happening. Had we added that to the budget as an old crap expense, I wouldn’t have had to come out of my my pocket, my personal capital, which was scary at the time because I only had, I think 15 grand to my name because I gave 15 grand for the gap funding for the loan. if if you don’t know what gap funding is, it means you’re you’re basically putting the down payment uh of the property on the for the loan, 20%, 15%, 10% depending on how many deals you have done. Um so I was already out $15,000 and I we only had, you know, so much to work with and we had to come out of pocket another seven. That’s scary. That’s very scary. So I wouldn’t want to be in that position and you ain’t gonna pay an excavator to come dig up the front of your house with a credit card, I’m sorry. That doesn’t happen.
Mindy: If you’ve had a really long relationship with them, you might be able to pay them at clothing. But even then you have to have a really good relationship with them. You can’t just call up somebody and I was going to say out of the phone book.
Guest: No phone books exist anymore.
Mindy: showing my age like always. But you can’t just call up somebody and say, hey, can you come do this work on my house? and by the way, I’ll pay you when I sell it. They’re going to be like, click. Hello, hello, hello. Yeah, so no, I love that because you’ve you have to build that in. And if you’re new, you should build in a 15 or even 20% cushion because if you don’t use it, you don’t have to pay anybody that money. It’s just there in case you need it. And I think another Murphy’s law of Mindy’s law of flips and uh investment properties in general is something will break as soon as you close on the house. And if you’re planning a gut rehab, it’s not such a big deal, but if you are planning a a rental property, something’s going to break as soon as you close. and the cost of that repair is inversely proportionate to how much money you have in the bank. That is a true statement. A any body who has ever bought a rental property with no money and they’re like, oh, the next day the air conditioner broke or the furnace or like whatever, it was a huge expense because they didn’t have any money to cover it. Sorry, I could go on these diet tribes forever.
Guest: Yeah. No, no worries. It’s a good point though. It really is.
Mindy: Okay. So, let’s say that you have just bought a house in the last month or so and you’re in the process of rehabbing it and maybe the market flips because the Fed raises the interest rates by a half percent and people freak out. what do you do with your flip if you can’t sell it?
Guest: So, I’m glad you brought this up because another rookie mistake is just thinking of one exit. The deal has to make sense on a multiple exit uh base, right? For me, it has to at least cash flow $300 an net, that’s after capital expenditures as a rental for my all-in costs and then a cash out of 75% LTV. Um, if it doesn’t do that, then it fails that one portion, but it may make up for that portion in another way or the risk in another way for the profit made on the flip side, right? So if I’m gonna make $150,000 net on a flip, it’s really hard for a market to sway that much in in a in a one direction for me to to go negative, right? So if it doesn’t play in the cash flow category, but it plays in the net income category for the flip side, then it’s still a deal for me. But I am still looking at each project as a multiple exit type project, right? So for instance, the one that we have now, it’s a Burr BNB, it was initially going to be a flip which we were going to make $130,000 ish dollars on. Well, it makes $170,000 gross as an Airbnb according to Air DNA. So even if it made half of that, half of my net income from the flip is made up in Airbnb cash flow after the first year, I’m going to keep it as an Airbnb and not flip it.
Speaker 1: So, all right, you’re doing all this. You said you’ve got like seven projects going on right now. And correct me if I’m wrong, but you don’t actually live in Clearwater, right? You live.
Guest: I do not.
Speaker 1: a little bit of further I mean, you’re not too far away, but a few hours.
Guest: Fort Lauderdale.
Speaker 1: Um how are you how in the world are you managing seven projects remotely while active duty? and I and I ask that with the underlying question being the excuse that most people make for themselves, which is that they don’t have time to do XYZ. So I’m curious how you’re building a team, how you’re managing those projects and how you’re finding said time.
Guest: Yeah, great question. Um this originally started back uh in 2019. Um when I was, I wanted in, I had done I had just done my first slip in New Jersey. This is going to be a little long-winded, but there’s context here. Um, we had just done my first slip in in New Jersey and we were trying to find another property, but there wasn’t really anything that fit our our fit our criteria up there. So I started looking south because I’m from Florida originally and I got on Facebook one day and I typed in uh Florida real estate investors group or whatever. Um, and then I found Pinellas County uh real estate investor group. So I I got in and one of the first posts that I saw while I was at work was looking for private money investors for my my fix and flip company. I’ve done over 400 flips and whatever. And this guy was posting this. I’m like, oh my god. So I reached out, I was like, hey man, I got, I got 50 grand. This is after we sold our first flip and we had some actual money. Um, he’s like, oh, I can’t take an investor under 250. You need to have 250 uh minimum. Text me when you have 250. And I’m like, man, that’s going to freaking be forever, especially if I can’t flip now, right? Um cuz that I don’t think I was doing hard money at this point. Um so two weeks went by and messaged him back and I said, hey, um I don’t have 250,000. it’s going to take me a long time to get there. but we could borrow hard money. And he’s like, okay, I’ve never done that before, but let’s do that because he buys all his stuff cash, he’s old school, right? He doesn’t like leverage or whatever. Um, so long story short, I ended up partnering with this gentleman who is now my business partner. Um, we’ve done 19 transactions together, uh, in in the last three years. and basically our partnership structure is I bring the capital to close a property, i.e, the down payment in the hard money and then I manage the renovation expenses on my my credit cards, um, throughout the entire process. We both find the property, he manages the flipping portion or renovation portion of the property, and then we share profits on the exit. That’s the partnership that we have. He already had an established uh relation with within the county and he already has all his subs and everything figured out ready to go. We’re ready to pounce. like when we find a property, we’re in that day after closing, we’re in, we’re already demoing, right? So instead of building that entire team out from New Jersey, I basically stepped into it for a a a partnership. Um, he had, I had something that he wanted, which was more money to expand his flipping company, and he had something that I wanted, which was making money off of flipping properties. Um, so that’s my current, uh, current partnership with my my business partner. He handles the renovation aspect, we both find the property, and I hand handle and manage all the expenses.
Mindy: That’s awesome. and that’s nice that you were able to find somebody who brought what you weren’t bringing to the table and he was able to find somebody who brought what he wasn’t able to bring to the table. I think that’s where some people kind of get a little hung up, like, let’s say David and I both have money. Hey, let’s partner. Well, great. Now we’ve pulled together two piles of money with nothing to put it towards. Like you don’t partner with somebody who does the same thing as you, you partner with somebody who can bring what you can’t. So David has the deals, I have the money, now we have a partnership.
Guest: Yep, and I I’m kind of his go-to guy now because him and I talk on a daily basis and he doesn’t have time like I do, well, not so much anymore, but I have more time than him. He’s managing, I think he’s flipping 30 properties, seven of mine with him and then, you know, 23 others with other investors. So he’s kind of skimped on time. So he’ll throw me a property and say, hey, what do you think about this deal. I’ll analyze the deal for him because he doesn’t have time, he trusts and understand that I know the market now and then I shoot him back and answer, hey, that’s a deal or it’s not a deal and whether I want in or I don’t. So that’s the kind of relationship that we’ve we’ve developed now.
Speaker 1: All right, Tony, so here’s the question of the hour. When we first started, we were talking about you saving 80% of your income, right? You have this massive savings gap to get started. You’re obviously making a lot more money now. So one would think like, oh, wow, you know, if you were saving 80% of 100 grand, then surely he’s saving, you know, 10 times more money now that he’s making whatever. The question is, how have you have you noticed the lifestyle creep? Have you had to how have you had to deal with that? Like, do you think it’s still 80% or has that maybe backed off a bit, but you’re still saving more money? like, you know, how how does that kind of waiver as you grow?
Guest: Yeah, I mean, great question. So the 80% uh, you know, is is a is a like a median calculation, I guess you could say because some months we, you know, we sell a property, the next month we don’t sell a property, but over the over the course of a year, it works itself out to about 80%. Some months are 90%, you know, some months are 60%. Um, we with the influx of money, um, my wife and I still act like we’re broke. Um, we still question whether or not we should go out to eat or, um, hey, do we need this? We still buy at marshals and and look for sales. I don’t buy, you know, name brand stuff. I have, I drive my 2014 paid off truck. Um, my wife was going to get a uh uh a new uh Mercedes SUV and we have a we have equity, believe it or not, we have equity in her Grand charity that she has. So she’s keeping that because the market value is insane. I think she owes 27 on it and it’s worth almost 40. So we decided against that because that would have added another, you know, $1,100 a month payment to us. It just doesn’t make sense because um, I don’t want to say fear is the driver, but really you’re your income sources can’t go away. um, depending on what the market does. I mean, it would have to be a a rainy day. But I act like my income sources could disappear. Um, we still haven’t we still haven’t increased our living expenses above and beyond before I got real got into real estate. Um, I would be living the same lifestyle now if I was just working for the coast guard and my wife was just working as an administrator at a school. Um, besides the the real estate income. Now, the one thing I will splurge on is experiences and creating memories. Um, and I know that sounds cliche, but that really is ultimately like what my driver and what what what a part of my why is as to why I’m doing this, right? It’s to create time, to spend time with family, travel, and make, you know, life experiences happen. I did buy a boat cash, um because nobody would finance me, which is pretty dang crazy. Um, so I ended up buying the boat cash, but the boat provided value to me because um my my getting out of jail free card is basically me taking time for myself, um because we can all get wrapped up in our our side hustles and and go, go, go, go, go, and and and burnout is a real thing, especially when you have a W2 and you’re running all this different stuff. Um and and the majority of what I do is sales space. so it takes a lot out of me to have these phone calls and lock in these deals and and have commit that that brain power to particular conversations that have to happen, right? So the boat for me was my get, my getaway, like, hey, we can take out the boat and just have the data ourselves. We don’t have to think about anything. We’re out on the water, nobody’s there to bother us. But what I didn’t see and what I didn’t know when I first bought the boat was the opportunity and value it provided other people that don’t have a boat or have the opportunity to get away, right? So now I’ve provided value to other people, i.e, our friends that can come out with us and make it an experience.
Speaker 1: And the Corvette, I told you I was going to call you out on when I ask this question.
Guest: That was a dumb move though.
Speaker 1: Yeah, but you sold it. So, you know, it worked out in the end.
Guest: That $1,200 a month car payment was not fun.
Mindy: Oh, you didn’t pay cash for it. Okay. I was about to stick up for you and say, look, you’re generating income over and well over and above what you need, it’s okay to buy something that makes you happy even if there’s no financial benefit behind it.
Guest: Yeah. So I sold the Corvette and bought the boat. That’s what I did.
Mindy: If you like the Corvette, if it makes you happy to drive, you can keep it. But if you decide that it’s better to have a boat, then go that route.
Guest: Yeah.
Mindy: Um when you say you save 80%, what does that mean? Where does you? Where do you put this money? Are you just reinvesting it back into real estate? Are you taking advantage of tax deferred accounts? Are you uh, you know, after tax brokerage accounts? You do anything in the stock market?
Guest: What’s crazy to me is, um, the the the the the course at with my companies are growing over the last, I would say year and a half, I never really had to think about tax sheltering, right? because we didn’t make an opulent amount of money to to have to worry about doing stuff like that. I think my last year’s tax bill was like $3,400 bucks. That’s what I had to pay out, right? Um, this year is like multi five figures. So now I have to figure out where to put money. So yes, those are coming. syndications, I IRAs, wherever I could, I actually have a strategy call with my CPA tonight to talk about where we’re allocating funds to this year to get rid of this stuff.
Mindy: Do you have full-time employees or part-time employees or any employees?
Guest: Um, so I’ve been pretty lucky. Um, my business partner handles the the the full-time subs and stuff that work for for the company. Um, so they’re not my personal employees because he has his own fix and flip company that they’re branded under. I guess my company really doesn’t have employees if you if you will because they’re subbed under him. and then we have all those workers sign hold harmless anyways before they come work for us on the on the properties and I got a liability policy on my LLC and all that’s taken care of. Um, I don’t personally have employees, but what I do have is strategic partners in the spaces that I need them, right? So on my hard money side, um, I don’t do the the handling of document collecting, right? Um, my partner handles that. So basically I’m a sales guy. I collect the lead, I convert the lead, I get the application submitted and then I swipe right. Um, and it and it goes to my partner and he he takes care of the rest of the stuff and then I get paid out. Um, and that happens the same way on the the transactional side for the fix and flip company. I hand the transaction, once the transaction is closed, he steps in and does the, quote-unquote dirty work.
Mindy: Okay, I asked if you had employees for tax purposes because.
Guest: My wife is an employee of the company.
Mindy: Oh good, then that she doesn’t count, which is the best part of this. Okay, so I want you, this is a research opportunity. I want you to talk to your CPA tonight about a self-directed solo for 1k.
Guest: Perfect. That was actually, that’s actually literally on my sticky note that’s on my monitor. Yes.
Mindy: Not a self-directed IRA. And if you’re CPA cannot tell the difference or cannot explain to you the difference then you shouldn’t hire them. Um, but the the difference short term is that your self-directed solo 401k does not have unrelated business income tax. So when you when you are investing within your self-directed solo 401k, you don’t have to pay this tax. Anything you invest in is just an investment. So, let’s say you bought low and sold high and bought something else, that growth is just gains in your account. whereas with um the self-directed IRA, you may be required to pay taxes on some of those gains. I don’t have a self-directed IRA on purpose, so I never really dove into what the uh what the differences are. I just know that if you have self-employment income with no other employees other than your spouse, no full-time employees other than your spouse, the self-directed IRA, I’m sorry, the self-directed solo for 1k is a fantastic option because you can put in the you can make your personal contributions, the limit is 20,500 for 2022. and then your company can match your salary up to 25% with a cap at, I think $54,000.
Guest: Wow, okay.
Mindy: So you could have $54,000 in your retirement account every single year. And I believe if your wife is an employee of this company, she can do the same thing. So that’s do the math real quick, $108,000 that you can put in there. and it’s not all tax sheltered. Um, but think of it this way. So you made $20,000 because your company had to pay that to you so you could contribute it to your 401k. now that $20,000 is your salary, 25% of that automatically can go in. So 25,000, I think, just automatically based on your initial contributions. So, and then you can start like thinking of other things. So this is super oversimplified just to introduce it to you so you can then talk to your CPA and they can be like, well, she’s sort of right, but she’s sort of wrong. Here’s a real.
Guest: No, I appreciate that.
Mindy: But yes, since you’re already talking to them, talk to them about that. Um, talk to them about the, you know, are you qualified can you qualify to contribute to a Rath IRA. There are income limits to contribute to a Rath IRA. Um, contributing to your 401k reduces your taxable income and therefore you can make more and still contribute to your Rath IRA. So.
Guest: Got you.
Mindy: Roth IRA grows tax-free. So when you pull money out afterwards, you’re not paying taxes on it. You already paid taxes when you put it in. So that’s not really a tax savings now, but that’s a growth strategy for the future. So talk to them about that, but again, you have to make I think it’s under 140 combined annual income.
Guest: I don’t think I’m gonna qualify for that one.
Mindy: Well, I mean and that in itself is a good problem to have, right?
Guest: Yeah. Exactly.
Speaker 1: It’s like the conversation I had with someone the other day who, um, I will leave nameless for the recording, but um, they were they’re at like the they’re they’re desperately trying to stay below the $5 million net worth bubble because of, you know, uh the tax implications of when you pass away and he’s like, I’m spending money that I’ve never spent before and the market is not helping me. It’s still going up.
Guest: Oh boy.
Speaker 1: It’s like, yeah, but realistically, like if you’ve got to pay tax because you broached $5 million, like there are worse problems out there. If you’re not able to contribute to this deal because you’re making a quarter million dollars a year, you could be in a worse spot.
Guest: Yeah.
Mindy: Okay, I think this has been a really fun episode. We’ve kind of focused on real estate, which is still my favorite thing. And it’s hard to get me to stop talking about it. but I really appreciate the ideas that you have. They reinforce what I keep preaching, you know, know your numbers, be conservative, don’t just jump in on a deal that’s going to give you a really low potential payout because there’s so many ways that that deal can go sideways. You have multiple six figure payouts on these flips and I think that that’s fantastic. I can’t really tell you to, you know, change what you’re doing because you’re doing such a great job.
Guest: One more thing I’d I’d real quick I’d like to touch on is is when you do find yourself in this position, um, not being overleveraged is so, so key because I have private money investor money, about 120,000 worth of it, right? I never fall below in my savings account less than a year of expenses in all the capital that I borrowed from my private money investors, period. So we stay relatively liquid just on the base of like, I don’t know what’s going to happen. I always think of the worst case scenario and if you’re prepared for that, everything else is gravy.
Mindy: I love that.
Speaker 1: Yes.
Mindy: I love that. that I want to, ah, I just want to say those words to everybody who’s like, well, if it’s sitting there saving and it’s not working for me then I’m losing money. No, you’re gaining peace of mind. You’re gaining the ability to pay back your investors even if something catastrophic happens. Now, if something catastrophic happens at one property, it’s probably not going to happen to all the properties. But even if it does, you are covered. and that is that is what investing is all about. You make smart, safe decisions. You don’t leverage yourself to the hilt and then just hope that everything works out. I can’t imagine how it must have felt to the people that like right when Covid shut down America in March of 2020, people were on the Bigger Pockets forums saying, how am I going to pay my April rent?
Guest: You should have already had that in the bank along with May and June and probably even July. What do you mean? How are you going to pay April rent? Like it’s March?
Guest: That’s why establishing those those financial, those core financial principles and in your house first, in your personal finances first, then you can start setting you shouldn’t be investing if you don’t have a nest stake set up.
Speaker 1: So, I I’ll I’ll give the the opposite side of the coin here because while I agree wholeheartedly, you know, I didn’t have anything when I was starting and so, uh, while I’m now transitioning more to paying off any debt and and planning to pay off the primary residence, not the actual investments, but the primary for peace of mind and, you know, being much more conservative and having more liquid and I have those emergency funds and everything else while growing, I didn’t have that option because it was like, well, I could either save for the next 10 years and have this money or I could start making things happen and have to find a way to to kind of do both. And so what I did was I, the one thing I’d have I’d done right was I’d invested in my my TSP, my 401k. And so I’ve just kind of always known like, hey, if everything else fails, I can pay a 10% penalty tax and that’ll bail me out. uh which is not necessarily the right way to do it, but I’ve also never had to touch it. Um but, you know, so so people, so like so the idea that it’s only liquid if it’s in savings, the savings is a great peace of mind, but there’s nothing stopping you from putting some of that into an index fund and being able to tap into it or putting some of that into, you know, CDs and rolling like there are ways to combat inflation and still have money if things go wrong. And so, um, you know, it doesn’t have to be either or, it can be a winwin.
Guest: Yeah, no, I love it. And my my mindset on the whole thing is if I can if I can use other people’s money to make 100% returns for my company, then that seven or 8% inflation loss that I had in my bank account is negligible based on the fact that I had 100% ROI turnout. So, that’s how I think of it, but those are those are all great points.
Mindy: Okay, I think we have reached the point in our show where it is time for the famous four.
Guest: Anthony, are you ready? I am ready.
Mindy: Okay, what is your favorite finance book?
Guest: Um, I think we got to hit it off with the old Robert Kiyosaki, Rich Dad Poor Dad. I I I I really do think it is the the foundation of what I built upon that and bigger pockets, but bigger pockets isn’t a book. I guess they have books, but the podcast and stuff is what helped me um, obtain that mindset of like, hey, let’s jump in, let’s get let’s get our feet wet, uh no more uh what what do you stay on the sidelines? Oh, overanalyzing or.
Mindy: analysis paralysis.
Guest: Yeah, analysis that’s what it is. analysis paralysis. So helped me combat that pretty good too. But yeah, I have to say Richard for that.
Speaker 1: It’s a good one.
Mindy: All right, what was your biggest money mistake?
Guest: Um, legal protection. Um, so I, I think this was my second deal. I’ll keep this very brief. I was supposed to be partnering with an individual I met from Craigslist. Don’t go to Craigslist to find your business partners, ladies and gentlemen, please. Um, I went to Craigslist. I contacted this quote unquote real estate investor. Um, he was selling a duplex on the Delaware River that was supposed to be causly whatever. I ran my numbers it didn’t come out right. So he’s like, oh, don’t worry about it. we have, I have another opportunity you could invest with me. He had a lease to buy option that we were getting ready to do with North Carolina. Whether or not this property ever existed, I’m not sure, but he drove from Maryland to DC, um to or North Carolina to to Washington DC to meet me on deployment. We talked at a Burger Cafe for about an hour and a half. I thought I had vetted this guy as much as I knew how. Reminder, mind you, it was only my second deal in. So I was still a a a really new investor that didn’t know a lot of stuff. This guy was the he had, he had, he was the he’s probably the best salesman I’ve ever like the way he structured everything, the conversation, I gave him $6,000 as soon as I got back to my room. Uh I wired it to his uh checking account uh via a picture of a check that he gave me. I didn’t even have a promissory note in place. I told him to send me the promissory note, he sent it to me. It was, I didn’t have it looked at by a lawyer. I lost six grand. And that was a hit. Six grand is still a hit.
Mindy: Six grand is six grand.
Guest: Yeah, so my business partner lost a million dollar in a weight and he told me, you are the luckiest real estate investor for learning that mistake early in your investing game because it is just $6,000 and not $600,000. Um, I went to the school of hard knocks for six grand.
Speaker 1: Yeah, that that brings up a really interesting point and a conundrum that I see with a lot of flippers. So this is actually an Alex Felice point. I’ll give him the credit even though it’s Alex, so I probably shouldn’t give him anything. Um, a lot of flippers, they do their first flip and they lose money and they get super disheartened. Myself included. I lost 30 grand on my first flip. Um that is a loss that pays off so well because unfortunately, what I see a lot of times and this doesn’t get talked about as much, is the person who wins on their first one, whether it’s because the market bailed them out or whatever, and then they get cocky. and they will lose so much more money in some deal down the road because they overlook whatever, than the guy who got burned on the first one and lost some money and is now cautious. And so, not that you want to lose money, but your business partner’s right. a $6,000 hit on deal number two where you’re like, oh crap, I need to figure that out. That is so much better than what could happen if you hadn’t learned that lesson and someone came and robbed you, you know, down the road.
Guest: The worst part is it wasn’t the six grand that was lost. It was the time. this had happened over the course of seven months. I didn’t have enough money to make another real estate transaction and I had found others. I waited seven months to the date. I was already pre-celebrating with my wife in Clearwater. We were on the beach having a freaking glass of wine. We had some bang bang shrimp or whatever. and I’m like, all right, the wire is going to hit any any time now. and I kept texting this guy and he never answered me back. And finally I called the lawyer and he’s like, what are you talking about? We don’t have this property on on to close today. We don’t even have this property in our system. And I’m like, oh man. You know, babe, I’m sorry but we just lost six grand. And it and it was hard because I wanted to be I wanted that to work for me because that was my that was my button that I could press for my wife to trust me going further into, you know, into future investments. Um, when you lose six Grand and you only have 18 in the bank, it’s a big hit.
Mindy: Wow.
Guest: Yeah, protect yourself legally. That is the moral of the story. and don’t don’t get your your uh business I can’t even say anything because I got my business partner off a Facebook, but it worked out for me. It’s not it might not work out for you.
Mindy: I hope he stuffs his toe every day for the rest of his life.
Guest: It turns out, and here’s another thing, real quick to plug. Do a background check on your business partner. If I had done a background check on this guy, I would have saw the 11 misdemeanors and four felonies that he had and I wouldn’t have done business with him. Do a background check.
Mindy: Anybody who needs money right now, we got to do this. No, you don’t have time to do your research. Okay, if you need an answer right now, the answer is no.
Speaker 1: Always, absolutely.
Guest: It costs $5, public, public crime search or whatever the heck.com, five bucks, you pull up a report on them and you get to see everything that they’re about.
Mindy: Okay, let’s switch gears and say what is your best piece of advice for people who are just starting out, besides do a $5 background search on your partners.
Guest: Those are two good nuggets. Um, I would say, uh, don’t stop educating yourself. There’s always room to grow, um, especially in knowledge building base. like the the solo for when K that you just dropped on me, I didn’t even know about it. So thank you for that. Um, never stop growing. and get out there and start meeting people, get around the people that you you idolize. like replace your your your group of people you hang out with with the people that you want to be. And I promise you things are going to happen.
Mindy: I love it.
Speaker 1: Yeah, I absolutely agree with that.
Mindy: All right, what’s your uh you’re the life of the party? What’s your favorite joke to tell it parties?
Guest: I think Mindy’s got me on this one.
Mindy: You know, I’m looking for Coast Guard jokes but I don’t understand any of them.
Speaker 1: I got, I got it for you then. The reason there’s no Coast Guard jokes is because the Coast guard is the joke.
Mindy: You stop that.
Speaker 1: I told you before we recorded, I love the Coast Guard but I got to do it.
Guest: That’s great.
Speaker 1: I usually use that with army. I’m like, man, there’s no the Marines don’t really talk smack about the army much because they don’t really need to. but it goes the other way.
Guest: The Navy says that uh we’re we’re puddle jumpers. It’s not really a job, but it’s just something that they call us because we don’t really go overseas.
Speaker 1: Puddle pirates.
Guest: Puddle pirates, puddle jumpers.
Speaker 1: I’ve heard that one. But you know though, as much flack as the Coast Guard gets, like you guys have some really cool, so they’re the only ones that roll around in ice breakers in the Artic, like there’s some in lame helicopters on ice and stuff. Yeah, there’s some really cool stuff that the Coast Guard does and you know, there’s a lot of border places, you know, a lot of lives saved and a lot of, uh, drug busts and a lot of good stuff that the Coast Guard does. In fact, I would imagine that on the day today, they probably engaged in more uh action than the other branches, unless we’re actually engaged in a conflict.
Guest: Yeah, absolutely.
Mindy: Okay, here’s a helicopter joke in in uh honor of Scott who is not here. A man walks into a bar and asks the bartender, do you have any helicopter flavored chips? The bartender says, no, we only have plane. I didn’t think that was a good joke. but it was a helicopter joke. I didn’t understand the Coast Guard jokes. They were either really mean or really foul, so we’re not going to tell any of us.
Guest: It’s probably because the other people are from other branches that are running those.
Speaker 1: Yeah, that’s that’s typical. That’s how they roll.
Guest: We don’t have filters.
Mind- The David.
Mindy: Oh he’s a marine, he’s different.
Mindy: Okay, Anthony, where can people find out more about you?
Guest: I am really active on Instagram. Uh Tony Michael REI uh m i c H a e l. you can find me. I’m I’m always on there. People jump in my DMs all the time asking me about different stuff and I’m I’m willing and able to help. Um secondly, uh on bigger pockets at Anthony Michael, um you could find me on there.
Mindy: Awesome. We will include these links in our show notes which can be found at biggerpockets.com/show321.
Guest: Anthony, thank you so much for your time today. This is a lot of fun. I always enjoy talking about real estate.
Guest: Thank you so much for having me, guys.
Speaker 1: Yeah, and thanks for being uh, able to work on a short fuse. So it’s probably worth noting here that this morning, I or maybe it was last night, I texted Mindy and was like, do we are we recording tomorrow? Uh oh, we couldn’t we didn’t have a guest and I was like, hang on, let’s see if we can find someone. And.
Guest: Yeah, I saw your post and you responded this morning and locked me in, so.
Speaker 1: I was like, all right, cool, are you good for like three hours from now?
Guest: Double note, I actually have single lung pneumonia right now. So I’m flying through that. I’m going to take a nap as soon as we uh unair.
Speaker 1: Well, we appreciate you.
Guest: Of course. Thanks for having me again.
Mindy: Wonderful. We’ll talk to you soon. Bye Anthony.
Guest: Bye.
Mindy: Okay, David, that was Anthony. That was super fun. What did you think of his story?
Speaker 1: Yeah, it was a good, good story. He’s uh, he’s a, he’s doing some good things. He’s helping a lot of people uh on both, you know, obviously providing housing for people when he’s flipping houses and Airbnb, but also, you know, he, he does some hard money stuff for other investors, which helps them make ends meet on their deals. So, a lot of good, a lot of good information in the show today.
Mindy: The biggest money mistake really broke my heart, but I’m glad that it didn’t crush him and destroy him and dip wipe out his desire to continue investing. but wow, that guy is a horrible person. The guy who took his money and I hope that he gets diarrhea every day too. That’s my new, that’s my new curse. I hope you get diarrhea and stub your toe every day for the rest of your life. But really, there are so many ways to make money in real estate through investing. You don’t have to be a skeezy scammer to steal somebody else’s money. That was awful. But I’m glad he learned from it. This is Anthony’s story. We’re not going to dwell on that other guy anymore. This is Anthony’s story. H learned from it, he moved on and now like you said, that has made him a better investor because he’s, he knows what to look for and I don’t want to, you know, belittle his loss. $6,000 is $6,000, but it was only $6,000. It wasn’t $20,000, it wasn’t $50,000. and you know, so my advice to people who are listening, if you want to start investing in real estate and you get an idea to have a partnership, vet that partner. Don’t be afraid to walk away because if somebody needs an answer right away, it’s usually not for good.
Speaker 1: Absolutely.
Mindy: Okay, David, should we get out of here?
Speaker 1: Yeah.
Mindy: From episode 321 of the Bigger Pockets Money podcast. He is David Pere.
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Mindy: hey and I am Mindy Jensen saying out there at chat hot shot.
