[00:03:07] Chad Carson: And my, I like to tell people, like the real estate part of it takes me an hour or two a week typically, but I’m in a much more kind of stabilized, mature phase of my rental property business, where most of what I do is bookkeeping and checking in with property managers or talking to my long-term tenants by text here and there.

[00:03:24] Chad Carson: So it’s sort of a cool place to be, something I always hoped to be at kinda where we are right now. 

[00:03:30] Robert Leonard: How’d you end up in Granada? Like why there specifically? We didn’t talk about that offline. 

[00:03:34] Chad Carson: Granada is a very sunny place, very warm. It’s on the me near the Mediterranean Ocean, about an hour from the coast.

[00:03:41] Chad Carson: And I also, I have a personal preference for smaller cities. And so we wanted to be in Spain. We wanted to be in a Spanish speaking country. That was kinda our first and foremost. We love lots of places in South America as well, but Spain was just attracted for us being in Europe and that we could go to other countries and this is some really close to Germany and Italy and England.

[00:04:00] Chad Carson: So Spain in general, but then southern Spain, the very sunny, lots of outdoor activities, lots of hiking. And Granada is just, it’s the perfect size city for us. Got a couple hundred thousand people. It’s very historic. There’s a big castle kind of fortress on the hill called the Lara, which is one of the most visited places in Spain.

[00:04:18] Chad Carson: So it’s just interesting place to be very walkable. I, one of my favorite hobbies is just walking these little small side streets and Granada, they’re like 12-foot wide old cobblestone streets and just getting lost in and walking around in the city and just exploring the history is just really fun.

[00:04:34] Robert Leonard: Sounds like a pretty cool place. But one downside is that well, who knows, maybe it’s not a downside, but you have to use Starlink because the buildings you’re in are so old. You’re talking about that before, you know, you can’t get great wifi there, so you have to ha have Elon Musk and Starlink come in.

[00:04:47] Chad Carson: I am thankful for that. Yes. I thought it would be more like a, you’re in the middle of the desert somewhere and you had to use Starlink, but it turns out that there’s not good fiber in the these old buildings. So, you know, I also use satellite internet. 

[00:04:59] Robert Leonard: It’s kind of cool to talk to somebody that’s actually used it.

[00:05:01] Robert Leonard: I, I’ve researched it a bit myself. You know, Chad, I, I race motocross and so sometimes we don’t have the best internet. And with my RV and stuff, there were times where I’d go out and because I work remote, you know, podcasts, everything goes remote that I could stay at the track for a week or so, and sometimes we don’t have service.

[00:05:15] Robert Leonard: So I looked into getting Starlink, but I was a little hesitant. So it’s cool to, to talk to somebody that’s actually used it. 

[00:05:21] Chad Carson: It’s worked well. I just, it’s kind of blown me away. Just I look up in the sky and say where are these satellites that are sending these beams down to me? I guess any technology is pretty mysterious, but I’m impressed by the business model.

[00:05:32] Chad Carson: Of course, you and I like to talk business and just the fact that I didn’t see that coming when that pivot happened where like, but it made a hundred percent sense. All right, yeah, we’re good at putting satellites into space. Let’s get into the satellite internet business that could basically deliver to anywhere in the world fast internet.

[00:05:46] Chad Carson: Like, wow, that’s a pretty cool value proposition. And I pay 70 euros a month. I don’t know what that a little bit more in dollars, but. It’s been a little bit more premium than what I could have paid here for fiber, like 30 or $40 per month if we had fiber. But hey when you’re in the business of needing to connect that’s not a big deal.

[00:06:01] Chad Carson: To pay $70 a month. 

[00:06:04] Robert Leonard: I’m in the US and my internet is a lot more than $70 a month. So, and these days with Musk and everything he’s doing I would say I’m more impressed these days than I am surprised. I think I’ve passed the point of being surprised by him. I think everything he does is just kind of to be expected for me.

[00:06:18] Robert Leonard: But let’s talk about your book. I’m excited to talk about it today because of the topic of it, and that is being a small real estate investor. And the way I see it is that there are two choices when you get into real estate. You can go big, you can raise money, buy hundreds of units, thousands of units, or you can stay small.

[00:06:37] Robert Leonard: You could buy a handful of properties that you mostly do with your own money. Maybe you raise a little bit of money from friends or your family, but not really raising like a big fund. And then you just pay them off over time. And you have a small but strong real estate portfolio. I’ve personally chosen that second option to stay small, kind of own it myself, not raising money and just really, yeah, just doing it myself doesn’t mean I’ll never change my mind.

[00:07:00] Robert Leonard: I always caveat this because, yeah, I might change my mind five years from now, but for now, that’s the approach I’m going and it’s a conscious decision that I’ve made. What have you chosen to do with your portfolio and your approach and what do you see as the pros and cons of each approach? 

[00:07:14] Chad Carson: I’ve chosen to be on the biggest side of small, so I’m a full-time investor, or at least I have been for the last 21 years, that’s my real estate history and as a full-time investor with a business partner, so 50 50 business partner, we got pretty big, pretty fast and we faced that fork in the road pretty early on.

[00:07:32] Chad Carson: And the thing I f I always found, Robert, was that all the advice I got, a lot of the, at that time when I first started up kind of dating myself, it was less internet information. It’s like you go to a class in a hotel and you know, it was rah, go big 10 x, let’s do this thing. You’re not successful if you stay small.

[00:07:47] Chad Carson: And you’re not successful if you go slowly. In fact that’s like the derogatory term to be a small investor. And the fork of the road for me was like we we could have kept growing, we could have scaled and we could have had a big business structure and raised a lot of outside money. We did still grow to a point.

[00:08:04] Chad Carson: So my business partner and I today have 33 properties together. 99, well just bought one property. So we have a hundred units. So if you divide that between the two of us, that’s like 16 properties for me. 16, 17 properties for me, 50 units. And I consider that kind of the high side of a small investor because I didn’t have to go raise funds.

[00:08:21] Chad Carson: I used private money seller financing, in some cases, bank loans. And I was able to use debt early on leverage. But then over time, what’s kind of differentiated and kind of got into the topic of the book as well, about being a small and mighty investor, there’s a choice you make about what you want to be when you grow up.

[00:08:39] Chad Carson: And I decided that getting bigger than where I already am is not what I want to be. I would like to be more effective with what I already have. I want to have a portfolio that pays for my bills and pays for my lifestyles. That’s first and foremost. Of course, this, that’s financial success, but I feel like we only focus on the financial success.

[00:08:58] Chad Carson: And this is the lesson I learned from about reading the four hour work week back in 2006 or ‘07. Was there also these other currencies? There’s your time, there’s your flexibility, and we can even add in your risk. You know, what happens if things go really bad? And I feel like not only is a smaller investor, not a derogatory term, I feel like for most of us who want a lifestyle business, who want to spend more time with their kids or.

[00:09:20] Chad Carson: Racing motocross or doing learning Spanish or doing some other hobby or contributing to your community, like just all those things are possible that having a small, simple business is actually the goal. Like that should be the goal. And the way I define small mighty in the book is that it’s not a certain number of properties.

[00:09:39] Chad Carson: It could be one property, it could be 50 properties, but the differentiator between a small mighty investor is somebody who tries to scale for the moon. Is that the goal is to have the least number of properties possible that still accomplishes your financial goals. The least number, the most elegant solution, the most simple solution as opposed to let’s go the biggest we can.

[00:10:00] Robert Leonard: And do you focus on, and piece of this is number of properties, but it all can also be units and it can be also different even if somebody has the same goal. Like let’s say somebody has a goal of 5,000 a month that they need to replace for person A and person B. If one person can find rentals at a cashflow of 200 a month, they need a certain number of units or properties versus somebody else who can buy a deal at 500 or a thousand dollars a month in net cashflow.

[00:10:26] Robert Leonard: They need a different number. So what’s interesting here is that it’s really hard to give anybody listening or really anybody any advice in terms of like how many units they need, because it really depends on what kind of deals you’re buying, what the cashflow looks like, what your goals are, et cetera.

[00:10:40] Robert Leonard: So you can have really such a small number of properties if you can really juice the cash flow from them. 

[00:10:47] Chad Carson: Exactly. Yeah. It depends on the strategy, like short-term rental versus long-term rental of course has a different kind of profile. And also like I, just to give my example just for everybody, the average rent on my units is about $750 per month.

[00:10:59] Chad Carson: So a lot of those are one bedroom studios, and I’m in a small southern college town. So, you know, if you looked at most parts of the country, the average rent for a single family house might be like a coup, 1,800 bucks, 2,000 bucks. And then if you’re in the West coast, east coast, big cities, it’s like 2,500 bucks, 3,000 bucks.

[00:11:15] Chad Carson: So yeah it’s a very, you can be very successful three properties and have a lot more income than somebody who has 20 properties. It just depends on how you arrange that. And I think we’ll probably get into debt structure and capital structure. That also has a lot to do with it. And the kind of default most people think about is, early in your career, you’ve gotta scale by having a lot of leverage.

[00:11:36] Chad Carson: And I’m a fan, like, I like using debt. I’m a smart debt fan. But at some point, what my own experience has been is that having a more resilient structure where I actually pay off some properties and have some free and clear properties, actually it increases my cash flow, reduces my risk. It allows me to simplify it and I don’t have to get to that, you know, twice, two or three times bigger.

[00:11:57] Chad Carson: And I have a similar amount of cashflow just by changing the way I structure my debt and my capital. And think about it a little bit outside the box. 

[00:12:05] Robert Leonard: I know in your book you outline that you have seven rules for a small and mighty real estate investor. Take me through those seven rules. 

[00:12:13] Chad Carson: I sort of thought about it like a superhero.

[00:12:15] Chad Carson: You know, like if you had Spider-Man, spider-Man’s kind of got a code of conduct that so does Superman, or you know what wonder Woman or whoever. So I thought it’d be kind of fun just to take out some of the principles that really that worked for me as a small Mighty Investor and other people I’ve studied.

[00:12:28] Chad Carson: And Robert, by the way, I see you as one of the people I modeled when I wrote this book as well. The first one is just keeping life first and Business second. It’s not that business isn’t important, but I made the mistake early in my career of borrowing goals from someone else, and I borrowed business goals.

[00:12:44] Chad Carson: Somebody was flipping 50 houses per year and she was a super successful investor in my mind. And she was doing really well and she was very impressive. But I didn’t look at the goals, the life goals behind that flipping business or that real estate investment business. I didn’t look at the life goals behind that and say, what would that look like to be a successful 50 property per year business?

[00:13:04] Chad Carson: And I had started trying to emulate the business itself, and I realized three or four years later that we had, we were pretty successful in our business, but we were working a ton. We had a ton of risk. We had to get a certain amount of debt. We had to get a certain amount of, number of employees to fulfill that successful, quote, successful business.

[00:13:20] Chad Carson: So my I think rule number one is start with the life you want. We actually made a list of like, what are the activities you want to do in your life For my business partner and I, like for me, it was like hiking in the middle of the day for two hours, traveling to Spain and living with my family. Once I had family.

[00:13:34] Chad Carson: Just doing hobbies that are fun and fulfilling or a business that’s fun and fulfilling but doesn’t make any money. Like, I’d like to be able to do that. And so those life goals are first, and then now let’s build a real estate business around that. And it turns out that my real estate business looked a lot different.

[00:13:49] Chad Carson: It turned into this small and mighty business model. Cause I put the life first. And that’s a really important court principle to keep in mind. I just read 

[00:13:59] Robert Leonard: this quote on Twitter the other day and I think you’ll appreciate it. It said something, I’m going to kind of butcher it a little bit, but along the lines, it said, the person that owns the fancy beach house is often the person that can enjoy it the least.

[00:14:11] Robert Leonard: And I was like, wow. You know, that like really hits because it gets so true. And when you really think about it, it’s, it is really, is true. And I wonder though, do you think there’s a point, like what if somebody listening wants to make a significant amount of money per month, like let’s say 20, 30, $50,000 a month?

[00:14:30] Robert Leonard: Do you think that’s attainable with the small and mighty approach, or do you think you have to have like a smaller income goal, like maybe 10,000 or 15,000? 

[00:14:39] Chad Carson: I found the average is about 10,000. That’s kind of like a good goal for a lot of people having 10 properties, 12 properties having 10,000 a month.

[00:14:45] Chad Carson: But no, nothing like this is a philosophy and this is a style of investing. And so it was really just a math equation at that point. So if somebody wanted $30,000 per month, you just have to have a bigger capital base. That’s just, it’s just it’s just a, it’s a function of how much capital, how much wealth you have, and then what vehicle you use to produce that capital and that wealth or the income from that wealth.

[00:15:07] Chad Carson: And, you know, I’m a fan of real estate. I also like index funds. I also like other styles of investing, but I feel like a real estate first approach at least, has some big benefits. And one of those benefits is you could produce a large amount of income relative to the wealth you’ve built. And you still have some inflation protection.

[00:15:24] Chad Carson: You still have, especially when you pay off a lot of your debt, you have some deflation, depression protection as well. So it’s just a really resilient, flexible type investment. And most people, especially when they’re, they have a lot of capital. So for somebody to make 330,000 a month, 360,000 a year from their investments, they probably make a lot of active income as well.

[00:15:41] Chad Carson: They’re probably really busy. And so usually the objection with real estate is that the time, like I’m at the tenants calling me and doing all that. So that’s really the fork in the road, I think. For most people is small and mighty approaches. I do. It is more about direct investment and there is an upfront time investment that just, you can’t sugarcoat that.

[00:15:59] Chad Carson: It’s like a down payment, like you have to make a down payment of knowledge building relationships team. But what I found is it’s almost like paying your dues and if you pay your dues on that upfront, I work an hour or two per week and I have a hundred units, right? So it’s like somebody who wanted to make 360,000 per year, they’re going to have to figure out a way to le to get over that initial hump.

[00:16:19] Chad Carson: But if they got a lot of capital, they can use their capital instead of their time. And they, I’ll just give you some personal examples. I’ve had family members who are doctors, my mom’s a dentist growing up, uncles who are medical professionals. That’s sort of the perfect example. If, especially if you had a spouse who’s willing to be the real estate investor, you know, one of the other spouses, maybe the high end earning professional.

[00:16:38] Chad Carson: Then you could use the high income set aside a bunch of income to buy, you know, very safe, solid real estate that could quickly turn into a 30,000 per month income if you apply the same principles. 

[00:16:50] Robert Leonard: I’ve done this exercise before, but I actually just did it again maybe two days ago where I basically outlined a few of the major things that I wanted, how much I thought it would cost per month, et cetera, and then basically backed into what my number was per month that I needed for income.

[00:17:08] Robert Leonard: And then I said, okay, how can I get there? I need this many rental properties, or I need to build a business that does this much in revenue because then I could sell it for this multiple and then after taxes, this is how much I get. And then I could do a 3% withdrawal rate from there. So this is how I can back into this.

[00:17:22] Robert Leonard: So I’ve done that before, but it’s been a few years. And so I literally just two days ago did exactly what you were talking about. I did that like life planning exercise where I backed into what kind of business I want to build based on the life goals and just making sure I’m still aligned with that.

[00:17:37] Chad Carson: It’s a great exercise to do regularly. Like I, I do the same thing. Our minds change. So if you wrote goals two or three years ago, like update them, look at them and sometimes there’s assumptions you’re making. I know I’ve made them that I think I need to do this thing or I think I need to have this many properties.

[00:17:51] Chad Carson: And maybe that’s not true. Maybe you need less, maybe you need more. But yeah it’s you don’t have to do it every day, but it’s good to do it every couple years. I agree a hundred percent. 

[00:17:59] Robert Leonard: Take us through the rest of your rules. We got through one, take us through two, through seven, or at least the big ones.

[00:18:04] Chad Carson: Yeah, I’ll be brief on that one. The second one is the tortoise, not the hair. And so it’s similar to the fact that going big is not always the best. Sometimes going slowly can actually be the best approach. And so I think the tortoise is still beating the hair in real estate investing. I think in these choppy, chaotic mar markets, we sort of see that.

[00:18:20] Chad Carson: And I feel that emotionally when I hear so many people asking, well, what do you do in 2023 differently than you do in 2022? And I say, Nothing like the fundamentals. Or the fundamentals. Yes, the interest rates are higher. Yes, I have to adjust my strategy if I’m borrowing money. But tho those are kinda like, it’s kinda like a builder who’s building a house picks up different tools at different times.

[00:18:41] Chad Carson: Oh, okay, well, with this type of wood, I need to use this or this type of material, I need to use this type of screw. And with this type of material, I’ll need to use this tool. But it’s like the principles don’t change. Like the principles of real estate investing, when you’re the tortoise, they stay the same.

[00:18:53] Chad Carson: You’re looking for income properties that can cover your expenses, have some positive cash flow. You’re looking for quality locations, quality properties. So I think a tortoise mentality is actually very peaceful. It’s very nice, especially during the choppy time. So that’s, I think that’s from principle number two.

[00:19:10] Chad Carson: Principle number three, I can be real brief on, is start with four properties if you’re a beginner, yes, shoot for 10 properties if that’s what you want to do. Yes, shoot for 50th, that’s what you want to do. But just start with four. It’s hard being a beginner. It’s hard to get your head around all this stuff.

[00:19:23] Chad Carson: Four properties is PR is not a magical number, but it’s pretty practical because a lot of the financing out there is easier. Up to four properties. Just get those for four, pro four properties. Reassess your financing, reassess your goals, reassess whether you want to do more or not. It could be that four is plenty for you, that’s fine.

[00:19:39] Chad Carson: I just, I like to validate those new investors and say, that’s your goal. Just stick with four. And once you get there you’ll be able to kind of think about the next level. Principle number four of this small and mighty investor is to be a craftsman, a craftswoman to be someone who cares about the craft of what you do.

[00:19:56] Chad Carson: This is one that I feel so underrated with real estate investing because real estate investing. Especially when you talk about scaling, it’s usually like, well, eventually you’re not going to be the one fixing up the house, or eventually you’re not going to be the one who’s negotiating because you’re going to outsource everything.

[00:20:10] Chad Carson: You’re going to hire other people to do it. You’re going to manage the people. And that’s sort of the ideal of a business owner in a lot of circles. And what I say is like, why does it have to be the ideal? Like if you love refinishing floors and if you love installing cabinets, which I don’t, by the way, I don’t like doing any of that work.

[00:20:24] Chad Carson: But I enjoy negotiating. I enjoy the spreadsheets, I enjoy the bookkeeping. Actually, kind of really weird to say that, but that’s the thing I’ve kept, because I feel like that’s the control mechanism where I can see everything else. Like the matrix, I can see everything in numbers through my bookkeeping.

[00:20:38] Chad Carson: So I still do that. And the point though, being that a small mighty investor, I think is more oriented towards caring about their tenant, caring about having some pride about their property, having some pride that whether their property is a good place to live or not. Think about the Wall Street investor, the typical, you know, hey, we’re a hedge fund, who owns 10,000 properties?

[00:20:58] Chad Carson: Like how much do they really care about the color of the cabinets or whether the finish in the bathroom is this or that they could care less. It’s a number because it produces a property or it does or not. I think communities need more small and mighty investors because we actually care about our community.

[00:21:12] Chad Carson: Like me personally, I got involved in my community, I volunteered for my planning commission. I started a nonprofit because as a local business owner, I noticed that all the transportation in town was oriented around cars. And we didn’t, it was hard to walk, it was hard to bike. And so that’s just a passion of mine.

[00:21:26] Chad Carson: It, since 2014, I’ve been raising money and building volunteering my time like 20, 30 hours a week sometimes to build something helpful, my community. And that’s the small and mighty kind of investor thing to do because we’re craftspeople, we care about. What we do, we care about. Yes, money’s important, but it’s more than money.

[00:21:44] Chad Carson: It’s about what kind of impact we make and what kind of legacy we leave, and just who we are as people because we see the people around our town and even if we invest long distance, we know the people in the town. We know that they’re a person just like us. And so I just, I think this is such a critical piece of making what makes real estate investing satisfying beyond just making money.

[00:22:05] Chad Carson: So number five, which I think we should probably dig into a little bit more is debt as a tool? It’s not a religion and there’s a lot to say there, but I think there’s nothing wrong with using debt. I’m a fan of leverage. But again, just like somebody building a house, it’s a tool. And at some point, I put the tool back in the toolbox and said, you know what?

[00:22:21] Chad Carson: Leveraging up as much as I can is not the tool for me once I’m trying to live off my income once I’m trying to reduce my risk. And so just knowing the time and place and not getting caught up in the mania of saying debt is so good that we should keep using it forever. That’s the main principle.

[00:22:37] Chad Carson: The number six is don’t defer life. This is, I’m living in Spain for a year, and so it, but I did this earlier in my career too. Like I, I found little ways to, whether it’s a week, two weeks, a month, but if you wait till 10 years from now to enjoy financial independence or wait till 30 years from now to enjoy retirement, then you’re missing a lot.

[00:22:56] Chad Carson: We’re all really ambitious financial people. If you’re listening to this podcast you’re motivated to be a successful person and be successful financially. We’re the people who are most susceptible to putting our head down and just grinding it away for the next 20 years instead of trying to enjoy right now.

[00:23:12] Chad Carson: And so there’s, it’s just a balance balancing act. This is a lesson for me more than anybody. My wife helps me out with this by, you know, remind me, Hey, let’s go to Spain, let’s do this. Let’s go enjoy this. And every time I do it, I’m like, oh my gosh, I can’t believe I almost didn’t do that. Like, almost didn’t enjoy the fruits of my labor along the way.

[00:23:29] Chad Carson: And I look at it kinda like you’re climbing a mountain. Ultimate financial independence at the peak of the mountain. There’s a bunch of plateaus along the way that naturally happen sometimes every three to five years where you can take a break, you can press pause or maybe slow down the growth a little bit and find little ways and big ways to enjoy the process, to enjoy your kids, your wife, your husband, your partner, your friends, family.

[00:23:51] Chad Carson: Cause on your deathbed, you’re not going to be saying how great was it that I got to financial independence three years faster than I could have? Like, is it that great if you missed out on some of that other stuff. Then number seven is very closely related. I think small and mighty investors measure success a little differently.

[00:24:06] Chad Carson: I talked about hedge funds and big real estate investors. It comes down to the numbers, comes down to return on investment. Those are great, like those are tools in our toolbox, but ultimately this is about our individual success, and it’s usually about intrinsic success. So those things about being a crafts person because you’re a successful craftsperson, you feel.

[00:24:24] Chad Carson: Fulfilled that you’re a real estate investor and because you are contributing to your community, you feel connected. And so I just like to emphasize that we can measure external, like looking on social media, how many units somebody has all the time, and they may or may not be successful. Like, who knows, they could be miserable behind, behind the scenes.

[00:24:42] Chad Carson: And so just being easy on yourself, know that it’s the most important metric is whether you are meeting your definition of success. And that takes a lot of, it’s tough like I have a hard time with this as well. Like there’s, FOMO is real. I get competitive when I see other people buying a lot of properties and I’m like, ah, I can do that.

[00:24:58] Chad Carson: In fact, I could probably do that better than they can. But making the conscious choice to stick with your guns, to stick with your principles, stick with what’s important to you, I think is a very small and mighty thing to do. 

[00:25:09] Robert Leonard: There are two specific pieces here I want to dive into and the first one is about putting life before business, and the second one is the debt piece.

[00:25:19] Robert Leonard: But let’s first dive into the life before business. And this is something I struggle with really bad. I try not to, but it’s partially because one, like you said, I’m competitive, you’re competitive, et cetera. But even more than that is like, I enjoy the game so much. Like when I, I do have other hobbies, but like, there are very few things in terms of like hobbies that I enjoy more than being in the trenches, building a business, building a podcast, building whatever I’m building a real estate portfolio.

[00:25:50] Robert Leonard: Like I just love it. And like when I have, it’s rare, but when I have extra time, like let’s say I have an extra one to three hours in a day, I’m like, okay, I can do anything I want right now. I can go ride my dirt bike, I can go to the beach, I can play video games. I can watch a movie. Like the first thing that comes to my head is like, I need my computer.

[00:26:08] Robert Leonard: Like I want to work, like I want to work on this stuff. And so, I really struggle with that. And I went on a walk for about an hour yesterday with my girlfriend and we were talking about this and I’m like, it’s tough because there’s, that’s just the way I am and I don’t necessarily always want that be. And I guess like, I started to ask myself why, like, okay, why am I like that?

[00:26:26] Robert Leonard: Is it because, like, do I enjoy the game? Am I trying to make more money, et cetera? And I’m like, it’s not really money because, you know, I’m not rich, but I can more or less do anything I want other than like, you know, I’m not going to fly private or buy a mansion or anything like that. But there’s very few things that like I truly want to do that I can’t do, but I’m just choosing not to do them because I’m building the business.

[00:26:46] Robert Leonard: And so this is like something that’s very timely and very difficult for me personally. 

[00:26:53] Chad Carson: I’m just going to put my arm around you and say, I’m with you buddy. I love work, I love working. Like, and so this is the interesting thing. The first book I wrote was Retire Early. And it’s sort of a bad word, you know, retiring is a, it’s a loaded word.

[00:27:05] Chad Carson: It means too much to too many people. It’s a connotative doing nothing. And so I think the first thing, the first therapy session I would give to myself and maybe to you is that stopping working as a non-starter for, especially if you’re wired that way. Like I, I do know that not everybody’s wired that way.

[00:27:20] Chad Carson: I do like I some of my Spanish friends here, like, and cool thing for me is that we had this conversation in Spanish. I love that. That they would say, yeah, I think the difference between Americans and Spaniards is that we work to live and that’s the priority. We don’t live to work. Like it seems like you Americans live to work and it’s like, huh, I like, that’s interesting.

[00:27:40] Chad Carson: Yeah. Like, because I enjoy working like I like to do it, but it is also, there’s a, who knows why that is. And buying the states, I’d have a hard time unpacking, but it’s just an interesting contrast, right? There’s different people who have different, even within the US there’s different people who have different priorities.

[00:27:53] Chad Carson: But the thing I would separate, like try to tease out instead of like business first life a life first, business second. Is to say, let’s like isolate the motivations for that. Like I think work to me is the fulfillment of using your craft. Like going back to that craftsman work. Like you have skills, you have these talents that you were born with, and it’s like a gift for you not to use those and for you not to use those in a way that’s helpful to other people.

[00:28:18] Chad Carson: Kind of a travesty that would be horrible. Right. And that’s, so I think not working is the non-factor because of that. Because you personally, I personally have talents and gifts to help people and it just feels good to do that. The thing I would separate though is the financial aspect of that. So to me, financial independence in every little stair step of in independence and freedom separates the need to make work decisions based on money.

[00:28:41] Chad Carson: That’s the separation. And so putting life first and business second is just saying like, what do I want with my life? And it might be for you and me, it is, I think it’s that I want to work on projects that are fun. And when I’m done with them though, I want to set them aside. I don’t want to lock myself to some trajectory where I’m obligated to do something.

[00:28:59] Chad Carson: So for me, for example, going out and buying a syndication or building a syndication where I have 150, 200 investors of each investor who invested 50 to a hundred thousand dollars with me sounds like a nightmare because now I’ve attached myself to their success for the next 10, 15 years maybe. And also the failures like, like I can handle my own failure, but have to handle their failure for them as well.

[00:29:23] Chad Carson: And so that, that stressed to me that like, that craft of doing that just is too tightly intertwined. So I think the small and mighty investor was so interesting about it is that the small craftsperson can really focus on their craft more. Like if you enjoy, like I, I know a lot of people work like working with their hands.

[00:29:39] Chad Carson: I know real estate investors who love going out and cutting their grass on their rental property. Like, I know real estate investors who are really good at woodworking, are really good at design. Like they love buying this remodel property and just changing the design around. Like, they love that they would do it for fun.

[00:29:53] Chad Carson: They would pay to do it. Right. And so I think if you could find work, whether it’s real estate or unrelated, and a lot of people don’t love real estate, by the way. Like, I like real estate, but I don’t, it’s not the, it’s not the thing that moves me. Like I’m more of a teacher. I like online media that this is my passion, my craft.

[00:30:08] Chad Carson: But I like real estate too. And so I think having yourself, giving yourself the freedom to follow your nose wherever work may lead you is the ultimate flex. Like, that’s pretty cool. I’m still trying to figure out what I want to do when I grow up, but it’s definitely, even with this media business that I do, the Coach Carson business, I’ve been able to be really patient with it and really deliberate about it sometimes to my own detriment.

[00:30:29] Chad Carson: I don’t grow as quickly, but I’m very tortoise like with that too. But I can’t, I can afford to do it. I can, I didn’t teach a class. I didn’t make much money at all last fall in my Coach Carson business. And cool. Like I had other priorities. That’s the difference I think between a person who loves work, who has financial dependence and freedom, and doesn’t have those huge networks and obligations, and this big machine, this, I call it a Frankenstein machine in the book.

[00:30:53] Chad Carson: Like it’s when you go big and have this big machine of a business, it eats your time. It’s it’s in control. Like the story of Frankenstein is a horror story because the scientist created Frankenstein, who originally in the story was supposed to be like a beautiful, helpful creature, and he used his science and technology to create this helpful thing that as soon as it woke up and he saw how horrible it was, he just, he, this scientist ran away and Frankenstein throughout the book, chased him around and in this wreaked havoc in this guy’s life.

[00:31:22] Chad Carson: That’s to me what a lot of big businesses actually are for most people. There are some success stories and exceptions, but I find the happiest, like least stressed people I know are small business owners who have systems that have processes who treat it kinda like a big business, but they keep it small for on purpose.

[00:31:39] Chad Carson: And that’s just been my experience. 

[00:31:42] Robert Leonard: I was going through, I was like kind of at the fork in the road maybe a year and a half ago where I was like, okay, do you know I have an audience with the podcast and you know, I have some experience with real estate now. Do I want to raise money? You know, I could probably raise a fund pretty easily to scale.

[00:31:57] Robert Leonard: I was really, and I bought like three or four or five syndication books and because of the podcast to talk to some of the biggest like syndicators, like influencer syndicators that I could to like get that, pick their mind and learn about it and felt like I had a good grasp on it. And I almost went down that path.

[00:32:12] Robert Leonard: And then I was just thinking about it more. And I’m like, you know what you said is every time you take money from those investors, now you’re responsible for their success. And that makes you their, that makes them your boss. And I said, well, for me, I’m buying real estate so that I don’t have to have a boss.

[00:32:26] Robert Leonard: So if I’m going to bring in bosses to buy real estate, like that doesn’t make sense. And also, I spoke at a fairly large real estate conference, and it was four syndicators. And so when I was there, the guys that were there and like the guys that put it on were super, super successful. Like really rich and like really wealthy.

[00:32:44] Robert Leonard: And They had the, they just don’t have the time, you know, they’re working a full-time job in a business. And I’m like, that’s just, it was a good timing for me because it wasn’t really, didn’t align with what I want. And I’m like, okay, this is like clarifying for me. I need to go down this other path.

[00:32:58] Robert Leonard: I don’t want to raise money from other people because I’m trying to buy real estate to not have bosses. So it’s just doesn’t make sense to me. 

[00:33:04] Chad Carson: Yeah. I think we had a similar conclusion. I touched that, you know, you have to touch the fire sometimes and see how it feels and again, there’s nothing, I’m glad there’s, it’s indicators out there.

[00:33:12] Chad Carson: I’m glad there’s people who take companies public, like, great, this is a wonderful country where we have all these diverse ways of doing things. My mission with the book though, was I think it’s a little one-sided in the information departments. I think the successful people are usually portrayed as the biggest, who’ve already climbed that ladder.

[00:33:27] Chad Carson: I just want to validate the people. Even a person who has one property and they rent their garage out of their house, like that’s successful. If it covers your expenses. If you followed Robert’s advice in the house, hacking his house hacking book, like if you did, you house hacked and you have one or two properties.

[00:33:40] Chad Carson: Good for you. Like what a, what an amazing leap forward you took and that just that one or two properties can make a big difference. And so I just, I want to validate that path and I want to make, and not only validate it, I want to give sort of a guidebook to say, here’s some steps you might want to think about to make that small approach even as successful as it can be.

[00:34:00] Robert Leonard: I suspect that you probably don’t struggle with this too much now, given that you’ve taken more or less a year off in Spain, but correct me if I’m wrong, but in the earlier days of when you were building your real estate portfolio, did you, because you have a inclination to work more than maybe other things, because it’s a passion of yours, it’s a hobby, it’s something you enjoy.

[00:34:18] Robert Leonard: Like I was saying before for myself, did you feel anxious doing other things? Even if it was something you enjoyed? Like, I don’t know, name anything, like hanging out with your children and like just not being able to fully focus and be there because you like kind of feel anxious, like, I should be working or I want to be working.

[00:34:35] Robert Leonard: Or like, did you go through that? 

[00:34:38] Chad Carson: A hundred percent. Yeah. Still, I still struggle with it. Part of it is kind of releasing the steam a little bit. So for me I have a goal. I’ve actually been this is a kind of a tangent, but it’s part of my kind of personal development process for me. I, there’s a guy named Brian Johnson who has a platform called Heroic, and he’s been a, I’ve been a fan of his for a long time, and he has this kind of framework of looking.

[00:34:59] Chad Carson: There’s three, kind of three areas of your life you try to focus on. One is energy, one is work, one is love. And so actually setting little daily habits in each one of those. And I actually have a, his app, so the heroic app, and I just like, I just swipe it, swipe, you know, so, so every day, for example, with work, I try to have a goal of having two hours of deep work every day.

[00:35:18] Chad Carson: And I try to, when I wrote the book, I try to do that in the morning if I can for at least an hour, maybe two. And so then I feel like, okay, I’ve planted that seed. I’ve swiped that on my app with Brian, and then I have other things I want to check off my list with family. So I want to have at least, like, I call them like micro moments.

[00:35:35] Chad Carson: With family members or having a slow meal with a family member where you’re just patient and my phone is in the room somewhere. Like I, I’d actually put them in closets, put my phone in the drawer. Cause I associate the phone with work. So it’s not like being totally deprived of things, but just try, it’s really a practice of a dance, of a rhythm.

[00:35:52] Chad Carson: So every day there’s a rhythm, there’s a time for work, there’s a time for eating, there’s a time for exercising, there’s a time for play. And it’s always a dynamic thing. But I think that works on a daily basis. I think it works on a weekly basis. I think it works on a yearly, a five year basis.

[00:36:06] Chad Carson: Like we have these seasons, we have these rhythms, and so we’re actually like our, we’re hire hardwired with our biology test, circadian rhythms and sleep rhythms. And so I really got into that idea of rhythms and not trying to fight that urge. Like if you have a strong urge to work and contribute, then like build that into your life.

[00:36:23] Chad Carson: Like, that’s part of it. But for me these days, work is writing, it’s podcasting, it’s creating, it’s thinking like I’m just, I love ideas and so I try to figure out ways I can fit that in. And still, but still, like the struggle I have is I’m sitting at the, my, my daughter’s violin concert the other night, and that’s the thing to focus on, right?

[00:36:43] Chad Carson: And I happen to have my phone with me at that point. A message comes in, it’s about something in a, you know, a kind of a mastermind group I’m in. My mind goes to that. That’s interesting to me. Like, wow, that’s an interesting idea. I didn’t think about that. I’m just, my mind’s distracted. So it’s a, I think it’s a form of meditation.

[00:36:59] Chad Carson: It’s a form of discipline, but it’s not something I think I’m going to be perfect at. But I do feel better when I have those three separate buckets of my life that I can then try to focus on and measure my success. Just like I would measure the success of my real estate property, the return on investment, the cash flow, try to find little microwaves, like atomic Habits, like a James Clear type approach of measuring on a daily basis, whether you’re balancing your life out.

[00:37:24] Chad Carson: And at the end of the day, I look at that little app and say, yep, I did all my work, did all my love, I did all my energy, I worked out, I ran whatever I did. And some days though, we’re off. Like right now I’m in a little bit of a dip where it’s been like four days in a row where the thing that fell off for me was actually work I was doing where we’re, this is our last week in Spain with a lot of friends.

[00:37:43] Chad Carson: I’ve just put it all on the love community side. And I’ve not done as much work. I’ve not done as much sleep as well. I don’t know. It’s, I don’t, I’m trying not to beat myself up too much, but it is my aspiration, like the goal is to have a little bit more balance. And I think I’ve gotten better at it little bit by little bit.

[00:37:59] Robert Leonard: Yeah. I’m glad I appreciate hearing that because it makes me feel a little bit better about myself, so that’s good. And the second thing I mentioned that I wanted to talk about was the debt. I just had one, one specific question. It’s probably really tactical and we’ll get into more of a debt conversation later, most likely.

[00:38:13] Robert Leonard: But how do you, I know you said you have a 50-50 partner. I have the same thing. So how do you manage paying down debt on your properties? Like what if you have cap, you personally have capital to put down or pay down a property, but they may not, like, how do you handle that? 

[00:38:31] Chad Carson: I love that tactical question.

[00:38:32] Chad Carson: I’ve never gotten it before, but it’s been a big part of our business. And so I have a 50 B 50 business partner. We own an LLC together, and so we’re equal partners. But there have been times where my other, my business partner’s been much more successful earlier on in another business he had, so he had extra capital.

[00:38:49] Chad Carson: And so a big part of our strategy, first of all, we didn’t decide to pay off debt for a while. Like in the book I talk about, there’s three kind of core phases of a real estate investor. There’s the starter phase where you’re just doing those first couple deals. You’re learning, you’re getting the knowledge.

[00:39:01] Chad Carson: Then you move into the wealth builder stage where you’re trying to turn that a hundred thousand bucks into a million bucks. Like it’s just grow, focus, focus, focus. So in those two phases, we weren’t paying off debt, we were leveraged, let’s go. But we started going through some old mini.

[00:39:14] Chad Carson: Kind of third stages, which I call the ender phase in the book. So you’re ending the growth of the, of wealth and it sort of shifts your mindset around what game you’re playing. So instead of just growing, you’re trying to take some chips off the table, like a poker, you’re trying to not cash in some of your winnings.

[00:39:31] Chad Carson: So quote Warren Buffett, like Warren Buffett says, you know, why risk everything you’ve already have or something you don’t need? In the next phase. And so that’s the mantra of somebody in the ender phase is like, don’t go sliding back down the mountain. Like take some chips off the table, take some risk off the table, and you could do it all at once, like 10 years later you could do it in little pieces.

[00:39:49] Chad Carson: And so we started doing it a little bit in 2007 and eight where we overbought, we were too aggressive before the great recession, so we just had to first of all just try to survive. We did luckily, but it was, you know, not easy. But then once we started getting some more capital flow and doing a little bit better, we started paying off some of our riskier debt first with refinancing.

[00:40:09] Chad Carson: But also my business partner had started doing pretty well a few years later on his online business. And so he would loan money to our L C. And so he was just a private lender. And there’s different ways to do that. Like he could have bought more equity in the company and it could get pretty complicated with that.

[00:40:26] Chad Carson: We just did a simple loan. We did a market rate loan. Typically he would pay six, we’d pay him 6% interest. Sometimes we’d pay less if we’re, you know, his interest rates went down 5%. Sometimes he’d do a little bit better than market rate, but it had to be, you know, something reasonable. And his company makes interest.

[00:40:40] Chad Carson: We get a very friendly lender, because my business partner is the lender. He’s about as friendly as it gets. If the everything hits the fan, like he’s going to be the la, if he had to defer some payments for us, if he had to reduce payments, he’d be the most likely one to do it. So I would rather owe money to him then I would to the bank or even to another private lender.

[00:41:00] Chad Carson: So we started slowly chipping away at the most risky debt we had with our internal private loans. Either our own money that we retained as profits, which we also did, or through private loans. I also made some loans to the business eventually as well. And so that was a way to sort of, when you had a disproportionate amount of capital from one partner or the other, that was just our simple way of doing it.

[00:41:20] Chad Carson: He had to pay income tax on his interests. That’s kind of a negative for him, but for him it’s also a way of increasing his wealth. It’s a very passive interest, 6% interest for him. So it was kind of a, it was a pretty good partnership in that way. 

[00:41:32] Robert Leonard: Yeah, that theoretically makes sense to me, but I’m going to, I’m going to have to look into that a little bit more.

[00:41:36] Robert Leonard: And it’s interesting because lately I used to hate Dave Ramsey. Like, I’ll just be honest, I hated not him personally. I hated his philosophy around finances and money and debt, and I don’t know why, but the last six months to a year, I’ve like kind of been fading towards Dave Ramsey, and it’s kind of weird.

[00:41:55] Robert Leonard: Because I was always like, if you listen to the early episodes of this podcast, I was always like, okay, let’s say you have some money to buy a property. Like it makes way more sense to me to buy a property, get cashflow from that, and then use that to pay debt. You know what I mean? Versus using that money that you put as a down payment on another property to pay off a different one.

[00:42:14] Robert Leonard: And today, maybe it’s because I’m trending towards Dave Ramsey, maybe it’s because of market conditions, I don’t know. But like I have a property that owe, I owe like 50,000 on it with a business partner and the mortgage is like, I don’t know, roughly $500 a month. So I’m thinking to myself, okay, we pay this off.

[00:42:31] Robert Leonard: We could take that 50k and we could buy another property or two as using those as down payment, and we could probably generate $500 in cashflow and we could go that route. But now I’m concerned about the risk of the tenants not paying and that’s like a much, much riskier proposition or path to go. Or we could take that 50k pay off the property that we own.

[00:42:54] Robert Leonard: Now it’s essentially, you know, risk-free from a debt perspective, and then we get $500 more a month in cashflow. That’s 500 times 12, 6,000, right? So now 6,000 on 50,000, you’re getting a 12% almost guaranteed return per year. So I’m like, oh man, you know, it’s something that I’m kind of battling here myself.

[00:43:11] Robert Leonard: But then the other piece, and the reason I asked you that question is because he might not be ready to pay off that property and we own it 50 50. So I don’t want to put 50,000 into that. You know, I, so I’m like battling a few philosophical things and also the partnership thing. 

[00:43:27] Chad Carson: Yeah, the partnership part is a little tricky.

[00:43:28] Chad Carson: We, we didn’t, this is fortunate for us that we were, we had some debates back and forth on when we paid off. We still, to this day, I think I’m in a mode right now where I’m a little more Dave Ramsey ish in my debt aversion and that. But it’s interesting. The good thing about having a partnership is you have some really good debates and fun debates and helpful debates with two, as long as that you’re kind of on the same trajectory, long run.

[00:43:48] Chad Carson: It’s, that’s a healthy thing to have. And for us it was sort of a, it was a happy medium that he had more capital where he was able to increase his income and we were able to pay off debt. And we also though, even we now have very little debt owed to outside people because we’ve also retained a lot of our profits inside of our business and use that to pay off debt.

[00:44:07] Chad Carson: And my, the reason I’ve done that, like this is not a beginner thing to do. This is not even a wealth builder thing to do. This is something when you’ve arrived at a certain location where you prioritize lower risk, higher income and peace of mind and simplicity more than you do growth, then it’s time to start paying off debt, in my opinion.

[00:44:26] Chad Carson: I think it’s a really underrated strategy because I, I was just like you, I started looking at it. I kind of accidentally looked at some of our debt on our properties. We had a property with a thousand dollars principal and interest payment, a hundred thousand dollars loan, but it used to be a 200,000 loan.

[00:44:38] Chad Carson: We had paid it down a lot. And I started looking at that. I was like, wait a minute. All right, so we paid that property off a hundred thousand bucks. We saved that money up. That’s $12,000 per year. Where could I get $12,000 in free cash flow from a no effort with zero risk? I’ve actually reduced my risk.

[00:44:56] Chad Carson: Like I’ve basically, I’ve already owned the property, so I have all the property risk no matter what, but by taking the debt off the property, I’ve significantly reduced my risk, made a 12% cash return. I’ve not had to go buy another property that has heating and airs and new tenants that, that could move out.

[00:45:11] Chad Carson: And so it’s a really underrated strategy because most people don’t use it. It’s not a tool to be used early in your career, although it could be like Dave Ramsey uses it from the very beginning, but I think it’s not, it’s looked down upon because the return on equity or, you know, if you’re trying to maximize your growth, which is the hedge fund, the Wall Street, that’s the almighty metric.

[00:45:30] Chad Carson: Let’s get down on the altar of return on investment. And that’s the only thing we’re going to look at. But here, we’re not trying to optimize for in invest investment return. We’re trying to optimize for our life. And if you’re trying to optimize for your life, it’s not just one variable in the math equation, return on investment.

[00:45:45] Chad Carson: It’s return on investment, return on time. How well do I sleep at night? How much flexibility do I have? And so when you start looking at all of that together, it starts to be a no-brainer. At least it was for me to consider that. Now, I’m not saying paying off all your properties, we still have some debt on our properties.

[00:46:01] Chad Carson: There’s still could be a healthy balance and attention there. But I’ve, when I start studying like S&P 500 companies that are really profitable, really mature, not outside the real estate business. And also REITs that are really long-run REITs, they have very little debt. They’re not 70% beavered, they’re 25% or 15% or 0%.

[00:46:22] Chad Carson: I think there’s a, there’s something to be said for that and to kind of find a balance point and not worship at the r altar of having debt forever and saying that it just, because it’s a good tool, that it’s always a good tool. 

[00:46:34] Robert Leonard: The other caveat for me is that even if all of our properties were completely paid off, it wouldn’t be enough income to hit my goal.

[00:46:41] Robert Leonard: I’m like, okay, well I have to buy more properties kind of regardless if that’s going to be the only way that I have income. Do I focus on that first? You know, it’s a really challenging thing that I’ve been facing the last couple of months and been thinking about. I’m curious, how do you plan on dealing with people not paying rent?

[00:46:58] Robert Leonard: I’m assuming you probably have reserves, but like, when you’re living, like, I don’t live off of my rental income right now. Like I don’t really do anything with it other than maybe reinvest in the properties or like, I don’t even, I don’t think I even take distributions from the properties, so like, it doesn’t really have a material impact on me.

[00:47:13] Robert Leonard: If somebody doesn’t pay rent, it doesn’t impact my personal life yet. So I’m curious, like for somebody who is entirely living off of their rental portfolio, how do you deal with, especially like if you’re being, if you’re a massive portfolio, you own 50, a hundred units, like, so maybe for you, it’s not as big of a deal at this point, but like maybe early on when you were starting, I.

[00:47:31] Robert Leonard: You have a hundred units, though, one, two people missing is not really probably that big of a deal, but when you only have 4, 5, 6 properties and somebody and you’re living off of that and one person stops paying you rent, like how do you handle that? 

[00:47:44] Chad Carson: Reserves, first and foremost I’m a big fan of having cash reserves and I think, but that 

[00:47:49] Robert Leonard: just covers the mortgage, right?

[00:47:50] Robert Leonard: That doesn’t pay you to live. Yeah. 

[00:47:52] Chad Carson: Yeah. Sometimes you have like, you have to draw on your reserves potentially. Like ideally you would not, you would have more properties to diversify that a little bit. So that’s where having like one property if you were just going to live off your income, like I would say have like five units, 10 units would be a little bit more diversified or, you know, have, I think somebody who has one property probably has some dividends from stocks.

[00:48:12] Chad Carson: They probably have another business over here, so you need to have a diversity of income. I think that’s a huge principle. But then even with that, having reserves is something that, I’ll give you a practical example. It’s not only losing your rent, but it’s also capital expenses and other like real estate, is that the cash flow from real estate, if you graph it over a 10 year period, it looks like a straight line.

[00:48:32] Chad Carson: Like, okay, the income went up, the expenses were here. And you might even say, oh, well expenses on average are 40%. My operating expenses are average 40% of my rent. Well that’s just an average though. Like one month it might be that the expenses were 80% of your rent and it might be that your rent was 70% or 50% of what the average is in that one month.

[00:48:53] Chad Carson: And so to me, a reserves are so critical and having big reserves are critical because they allow you to stop gap. Those weird kind of outlying cash flow situations. 

[00:49:04] Robert Leonard: What do you define as big What? What’s a big reserve? 

[00:49:07] Chad Carson: I would say minimum, well if you have three properties, I’d say 5,000 per property, it would be just a minimum.

[00:49:12] Chad Carson: So like 15,000 bucks. If you have three properties, 15,000 bucks, it’s kinda like starting point. 

[00:49:17] Robert Leonard: So that it’s not based on the mortgage or anything, it’s just per property? 

[00:49:21] Chad Carson: For me, it is like, so once you grow, like I, with my units, I look at how much I look at it like personal finance, if I have all of my expenses, operating expenses, mortgage payment, everything, what’s at least three months of that, preferably six months of that would be set aside just in a rainy day fund.

[00:49:36] Chad Carson: And I’ve only had to touch that one time in my career and I had to touch it in 2000 7, 8, 9, when we had a lot of vacancies. And I needed it, like we had months where revenue was negative or the net income was negative compared to revenue. And then we’d have another month, three months were positive, then we had another two months that were negative.

[00:49:53] Chad Carson: Like it was a rollercoaster. And if I would not have had those reserves, like I was living off of real estate, like I, I’ve been doing that for years. And the role, the early, especially early on, especially when you have a lot of leverage, it’s a much bigger rollercoaster. And so reserves are something that you, it’s almost like a line of a personal line of credit.

[00:50:12] Chad Carson: You gotta draw on it. You gotta fill it back up, draw on it, fill it back up. Eventually though, it’s very rarely used. And I sort of, I learned from Warren Buffett on some of this, like he, how often has he had to use his reserves? Probably not, you know? Right. But it’s, he’s an insurance company. So you sort of look at yourselves like I’m a crisis insurance company for my own portfolio and I want to, the cost of that is what I could have the return, I could have got on those ca on that cash sitting there.

[00:50:36] Chad Carson: But the peace of mind I get, and the worst case scenario where I kind of cover the worst situations with that cashflow has, is what got me through 2007, eight, and nine. And it’s also what allows me to have the confidence to live off my income, knowing that I’ve got some padding there to kind of cover some of those situations.

[00:50:53] Robert Leonard: So as for each property, you put three months of mortgage costs aside and then 5,000 on top of it? Or is it just three months of mortgage expenses? 

[00:51:03] Chad Carson: I’d say either or. I think 5,000 is a minimum because if you just use the operating expenses with one property, it probably wouldn’t be 5,000 bucks. It would be so early on, I think five hit some, hit a certain number, 5,000 bucks, 3000, whatever your number is.

[00:51:16] Chad Carson: But I’d say you get up to a threshold of like 15,000 bucks, 20,000 bucks. Just have that in the bank. And then once you get above a certain number of properties, then you can start using more like a just an operating expenses plus mortgage type number. And so let’s just say you had like 30, 50 properties, then maybe you’re spending 15, 20 grand a month.

[00:51:35] Chad Carson: You’d want to have 60 grand in the bank. If you were spending 50,000 per month, you’d want to have 150,000 bucks in the bank. And that’s sort of where we’ve been. You know, we’ve had, we’ve gone between a hundred, 175,000 in cash for years. And maybe we should add, maybe we could have invested that money, but it’s felt pretty good to have it.

[00:51:53] Robert Leonard: Yeah, I think I’m sitting at about just three times all of the mortgages combined, basically. So if I took all the monthly payments, Multiply it by three. That’s roughly what we have sitting reserves. I’m thinking maybe I should probably keep some aside to just pad that a little bit, but also they’re single family homes.

[00:52:11] Robert Leonard: We renovated them when we first bought them, so I don’t think there’s going to be any major CapEx to come. But as I start to get kind of more towards Dave Ramsey, again, I’m thinking of like, and I also recently read the Psychology of Money, and in that book he just talks about basically not dying from like a financial perspective, like just.

[00:52:30] Robert Leonard: Not letting anything kill you financially. Like don’t just stay in the game is like the part where that’s how you win, is just stay in the game and don’t get knocked out. Don’t get killed financially. And so I think that partially, I always knew that, but it just rereading that book at this time in my life really spoke to me and it pushed me towards Dave Ramsey a little bit more.

[00:52:49] Robert Leonard: And now I’m really starting to think about things these way. I’m like, okay, like where am I in my financial plan? Where am I weak? Like, where could I potentially be attacked or, you know, knocked down? And so I’m trying to like fill in all those gaps the best I can. 

[00:53:03] Chad Carson: A hundred percent. I think you have the right mindset.

[00:53:05] Chad Carson: There’s no a hundred percent right answer, but I think the Nassim Talib idea of being anti-fragile has always been very impactful on me in that you try to mitigate you, imagine the worst case scenarios and try to mitigate those to the best of your ability. Nothing’s perfect, right?

[00:53:19] Chad Carson: And. For real estate investors who are leveraged, having a bunch of cash in the bank is the king mitigation. Like, that’s what gives you flexibility. But the other thing I would say even more than cash in the bank is also relationships with other people who have money. Like in, in the depths of the recession, I had relationships with private lenders who were willing to loan me money to invest with me.

[00:53:37] Chad Carson: That was just as important as the cash in the bank. And then the third kind of pillar of that anti-fragile, this is your own ability to generate income. So you’re an entrepreneur, like, you know, you have the ability to go out multiple ways, make money. That’s for those of you who just work at W2 job and that’s your only source of income, that’s pretty risky.

[00:53:53] Chad Carson: Like, that’s not anti-fragile. So I know you’re big into multiple sources of income. As I am. The more skills you can have that generate income, that gives, that helps me sleep at night. It’s just like cash in the bank that gives me the ability to say, Hey, I could go make money as a bookkeeper. I can make money as a real estate agent.

[00:54:07] Chad Carson: I can make money as a podcaster. I can make money as a, you know, flipping houses. Like if I have a list of 10 things that I know I can make money at real realistically. That is a big deal. And so that’s, those are the, all these are ways of kind of psyching yourself up. I love that book psychology of Money because ultimately you have to survive and to stay in the game by practicing, you know, these types of principles and in real life.

[00:54:31] Robert Leonard: And the quote that you mentioned earlier, I didn’t touch on it enough, but that quote you mentioned about Buffett earlier is more or less along the lines of like, why would you give up what you have now for something in the future that you don’t even really want? You know, like that’s kind of where I’m at is like, yeah, I could buy more rentals, but it’s not like I don’t really need anything more and it could only make me more fragile and it could only like knock me back from more of where I’m at now.

[00:54:55] Robert Leonard: So I’m like, I don’t know. Is that the right choice? It’s yeah, as you can tell, probably it’s been a dilemma on my mind for the last six to 12 months or so. But I’m curious. I do, as we get towards the end of the show, I want to ask you a couple questions. How are you thinking about the current market?

[00:55:08] Robert Leonard: I know you said it, it really just comes down to fundamentals, but are you buying right now? What are you thinking about? How are you approaching interest rates, et cetera? 

[00:55:17] Chad Carson: Yeah, we just bought a single family house a couple weeks ago. Bought it from Spain while I was over here, so I hadn’t seen it, but it was right next door to another rental we had.

[00:55:24] Chad Carson: And I planted the seed with the owner many years ago that, Hey, if you sell, get me in mind. And so I’m just, I’ve always been planting seeds for buying houses and this just happens to be one of my favorite locations near the local elementary school. I really liked the house. It was a brick single family, one story on a crawl space in my location, so I have a very tight buy box.

[00:55:42] Chad Carson: That’s my number one recommendation for everybody is like, no matter what market you’re in, have a really clear idea of what it is for a good deal for you. What’s the most ideal location? What’s the most ideal type of property? What’s the most ideal tenant you would have? And so my single family house is going to attract somebody who likely is going to stay for five, 10 years.

[00:55:59] Chad Carson: That’s great. That’s easier to manage. And so that, that property fit into my buy box. Therefore, I was very interested in it. But the key, I think the key to the puzzle for 2023, and also it was the same in 2008, nine. It’s the same in any market as the financing on your real estate. And so it’s a little simpler for us right now because we’re paying cash or we’re using our internal cash to buy a property.

[00:56:20] Chad Carson: That’s what we did on this one, but let’s use our combination of our cash plus private money from one of the partners. So that’s a little simpler. But if you’re buying properties with bank loans and you’re early in your career, it’s a little more challenging now because interest rates are higher.

[00:56:33] Chad Carson: They’re at six or seven or 8% when they used to be at three, four, 5%. And so what’s what, how do you make that work? Well, you’re going to have to buy better deals, first and foremost. Like it was a little bit of an anomaly that you could pay retail price for a property and get a 3% loan and still make a cash flow.

[00:56:49] Chad Carson: That was pretty weird. We just need to call it like what it was. That’s not a normal market. Like in the seventies, eighties, nineties, even when I started in 2002 and three, like you had to get good deals. Like you had to buy properties below value. You had to add, you had to add value to them by fixing them up.

[00:57:04] Chad Carson: You had to negotiate seller financing at lower interest rates, which is a big favorite thing for me to do. Like I like to look for landlords and property owners who’ve owned properties for a long time and try to buy their property and maybe get a little bit of a price discount, but try to really work the terms, like try to get a 3% 30 year interest seller financing loan with 5% down or 10% down or something from a seller instead of just going to the bank and just always being dependent on the bank.

[00:57:30] Chad Carson: That was something that I was very fortunate early in my career that I couldn’t go get a bank loan cause I just graduated from college and I was just buying properties. So I had to work the muscles of seller financing, private money, lease options, buying subject to the mortgage, all these creative terms you’ve probably heard today because they’re coming back into vogue because just going to the bank, paying retail price, getting a seven 8% loan is not as easy to make work.

[00:57:54] Chad Carson: So the keyword here is financing. If you want to educate yourself on financing, creative financing, seller financing, those types of things. And but still stick to the fundamentals, like the properties have not changed. The fact that you still have a buy box, single family house, whatever, multi-unit property, whatever it is that you, those fundamentals are the same and you just want to be more conservative on the price.

[00:58:14] Chad Carson: You pay conservative on the terms you pay, and you need to think, just like Warren Buffett says, you need to think if the market were to close down for the next 10 years, would this be a good rental property? If I couldn’t sell it next year, if I couldn’t sell it five years from now, could I make money on this property for the next 10 years?

[00:58:30] Chad Carson: That’s what Buffet does with stocks and with companies, and that’s what I try to do with real estate. But people who are always looking at the ups and downs of the market get fearful because their price on their real estate changed. By 10%, like big deal, like I’m not going to sell it. It’s still producing cash flow, still got good growth potential over the long run.

[00:58:48] Chad Carson: So buy it based on fundamentals and buy it with financing that allows you to hold it through all these storms, which could come, like we could have a recession. I don’t know, probably the smarter people that I am that are evaluating all that, but I’m going to buy a property that’s going to be resilient to withstand whatever happens, and I’m going to have cash reserves to help me be resilient with whatever happens.

[00:59:08] Chad Carson: And I’m going to have a team of people around me to help me operate that property really well. So those are the fundamentals. 

[00:59:15] Robert Leonard: How diversified are you in terms of location? 

[00:59:18] Chad Carson: Very concentrated. That’s probably one of my bigger risks. So investing in the stock market is my way of geographically diversifying.

[00:59:26] Chad Carson: And also, we actually just did a deal, I haven’t talked about it on a podcast before, but we recently did a deal with a friend who has a property out in another state in Montana. And so we, we are a limited partner directly, so not a syndication. We just, this person o operates and owns the property, found the deal.

[00:59:42] Chad Carson: My business partner and I put up the money for the deal and we’re partnering with this other person at another state on a rental property. So we’re kind of dabbling in that a little bit. That’s, I looked into syndications a bunch as well, and I never could get my head around, and I know people are better at this than I am having 150 partners and I couldn’t evaluate this big stack of, you know, a hundred pieces of paper that tell me how risky this deal is.

[01:00:04] Chad Carson: And I didn’t understand a lot of those risks, to be honest. And so I understand real estate, I understand relationships. I had this one person that I know I like and I trust. They’re a good operator. They’re a small mighty investor, and I understand the property they brought me. I can evaluate the market just like I did on my own properties.

[01:00:22] Chad Carson: And so I found that as a better way to geographically scale a little bit is to conservatively invest with what you know, other small and mighty investors instead of trying to go out and find other big deals that I could try to be a part of. 

[01:00:35] Robert Leonard: That’s another thing that I’ve been kind of thinking about is the properties that I own are all in one market.

[01:00:40] Robert Leonard: And it’s been great. I’ve had a great experience. I want to keep buying there. All the prop, like the properties, there’s plenty of deal flow. They’re all in my buy box, like, like you said, I want to keep buying there. But then also in the back of my mind I’m like, okay, I have no lo location diversification here.

[01:00:55] Robert Leonard: I have no, I asset class diversification, they’re all single family houses. They’re all within one zip code. So like, they’re like really tight knit, like almost all on the same street. I dunno, there’s pros and cons to that. I mean, I have operational efficiencies and it’s done really well. I’ve just been thinking also, again, I guess from that perspective of not being fragile is how diversified do I need to be? Something I’ve been thinking about. 

[01:01:19] Chad Carson: Just to wrap up that part of the conversation I had a mentor mine, John Shaw lives out, down in Sarasota, Florida. He wrote the book Building Wealth One House at a Time, and I asked him the same question. I was like, Hey, you know you have all your properties in Sarasota, Florida?

[01:01:30] Chad Carson: And he’s like, yeah, at one point I invested all over the country and tried to do stuff in other places. But he has felt comfortable being at one location, not because he doesn’t have that geographic risk, but because he reduces his risk in other ways. So paying off a lot of debt is reducing his financial risk, his debt risk.

[01:01:46] Chad Carson: And then he’s also, I don’t know his personal portfolio, but he probably has some investments at other asset classes. So you’re never going to completely eliminate all the risk, but if you can, the choice we made was, yes, we want to do geo diversify, geographic risk, but we try to take care of some of the other risks first.

[01:02:04] Chad Carson: And it’s always a bet, right? You’re, as an entrepreneur, some of the wealthiest people in the world had to make a concentrated bet on something. And so I’m making a concentrated bet on Clemon, South Carolina, and I study it like crazy and I pay attention to it. And I’m a little nervous about universities over the next 50 years, but I’m, you know, it’s, I’m going to keep an eye on it.

[01:02:20] Chad Carson: If the internet outsources all of the university education, it’s going to start getting less. Valuable, but that’s a slow moving glacier. You know, you can pay attention to that, and I feel like it’s not the most urgent risk that I’m worried about, although it is a risk. Now that I’ve covered some of the other risks, I’m like, eh, we need to think about that and start diversifying a little bit.

[01:02:38] Robert Leonard: So after people hear this awesome conversation we’ve had, they go and buy your book. What’s, and they read it. What’s the number one takeaway you want people to have from your book? What if they can just go take action on one specific thing from the book? What do you want that to be? 

[01:02:52] Chad Carson: Just do this one deal at a time.

[01:02:55] Chad Carson: You can try to complicate the real estate business. You can try to complicate any investing really. But if you, I’ve said fundamentals a lot. I’ve said, you know, the tortoise a lot, these slow-moving, very focused words. And I think that’s a, it’s a competitive advantage in the fast-moving world we’re in right now where news cycles are like five seconds and things are happening fast on Twitter.

[01:03:15] Chad Carson: If you can. Write on a piece of paper, here are my principles. Like here’s my investment principle, here’s my strategy. You can borrow it from my book or somebody else’s book. But like, that’s my book has some investment principles in there. It has how to buy properties. It has how to build a buy box. It has I have seven safe debt rules that you want to follow.

[01:03:31] Chad Carson: You want to borrow money safely. So like, look for people who’ve done what you’re trying to do. Borrow some of their principles and focus on a principle oriented investing approach, whatever it is. And then just stick with it. Just do one step at a time. Then the next step, and then the next step. And the biggest challenge you’re going to have is the boredom.

[01:03:51] Chad Carson: You’re going to think, oh, that’s bored. I’d rather have something exciting. And my recommendation there is like, find other things that are exciting and keep your investments really boring. You’re the perfect example, right? You’re much more like, brave than I am to do some of the sports you do and some of the cool stuff you do, and.

[01:04:05] Chad Carson: But you know, for us traveling and speaking a foreign language and living in a foreign country, that’s exciting. Like, that’s new. That’s different. So separate your excitement and your investments. Keep your investments steady, keep them small, keep them boring. And I find that to be part of the recipe for success.

[01:04:22] Chad Carson: And it’s worked pretty well for me. I’ve studied a lot of people. I wrote about them and share their stories in the book. Lots and lots of people have done a similar approach. They just don’t get as much press. It’s not as sexy to say on a podcast host, and I’m a podcast host, but it’s not as sexy to say this person owns three properties or five properties, and they’re living the life of their dreams.

[01:04:40] Chad Carson: Like, sounds better to say this person bought 20 properties in one year. And, but there’s a ton of people. There’s a ton of small and mighty investors who are quietly living their dreams, who are doing it slowly, methodically. And I just want to validate that for all of you listening, if that’s your approach, and say, good for you.

[01:04:57] Chad Carson: And let’s keep listening to Robert Roberts another one who’s teaching those principles. And hopefully, we can together help you make some progress for yourself. 

[01:05:05] Robert Leonard: Where can people go to pick up the book? Where can they go to find your content, your podcast website? Where do you want people to find you?

[01:05:13] Chad Carson: Yeah, so I’m sure we’ll have a link in the show notes, but BiggerPockets is my publisher, and if you buy it through BiggerPockets, eventually it’ll be on Amazon as well later in August. But if you go through BiggerPockets, have some pretty cool bonuses there that I worked really hard on, like a bonus chapter of How to be a Small Mighty Investor in 2023 at a changing market.

[01:05:29] Chad Carson: That’s something we talked a little bit about today. I also have a pretty cool, it’s like an agenda schedule showing how I spend my time, how, what are those two hours per week I spend on real estate, like what things I do and what I do with the rest of my time. And have an exercise you can do. To try to build your ideal week for yourself and try to start first with your life, and then work it backwards to a business you love.

[01:05:50] Chad Carson: So if you go to BiggerPockets and that and buy my book there that’s where you can get some of those bonuses. And then just in terms of following up with me, I have a, if you search for Coach Carson or Coach Chad Carson on any social media, I have a podcast that comes out once a week and I focus on real estate investing, the small and mighty type of a real estate investing and the tactical side, the financing, the finding deals, the managing properties, bookkeeping, all those little things that are, how you do it, how you actually do it.

[01:06:14] Chad Carson: That’s what I love to talk about on my podcast and my YouTube channel and my website. So lo, love to have you follow me there as well and stay in touch. 

[01:06:22] Robert Leonard: Awesome. I’ll put a link to all those different resources, of course, in the show notes below, like you mentioned. Chad, thanks so much. I know you’re enjoying the, you’re dwindling down in your days in Spain, but you took time out of those, that, that pressure time to spend it with me and chat with me and the audience.

[01:06:38] Robert Leonard: So I appreciate it. Thanks so much. 

[01:06:39] Chad Carson: It was a pleasure. I always enjoyed talking Robert, and look forward to connecting again soon. 

[01:06:44] Robert Leonard: All right, guys. That’s all I had for this week’s episode of Millennial Investing. I’ll see you again next week. 

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