Robert Leonard 1:17
For those listening that may not know who you are already, walk us through your story, and how you got to where you are today.

Chad Carson 1:23
Well, I’m 39 years old. I’m actually about to have a birthday this month and turn 40. So that’s about halfway to 80 here. But I started investing in real estate right after college. I went to Clemson University, Go Tigers, and I played football there and biology majors. I kind of have this path I was going down where I thought I would go into medical school and sort of go that route. I was interested in medicine, and biology, and science, but I was kind of tired from playing football and just want to take a break. And so, I decided for a year or two, I’d start reading some books on my dad’s shelf. My dad has rental properties, and I started reading some books on a shelf and said, you know what, I think, I just wanna try something for a year or two. I’m going to go back in the real world after that. I’m going to try to see if I can get into real estate investing, learn a little bit, maybe I’ll make a little bit of money. And, but then I can use that the rest of my life when I go back to a real job. I kind of got, opened up Pandora’s box. And I never went back in to the real world.

I’ve been investing with all sorts of different types. When I first started, I was just basically trying to make money by flipping houses, and finding deals for other people, because I didn’t have a lot of capital and had a lot of knowledge, to be honest with you. I was just hustling and finding deals for other people. And my business has evolved over time. I have a business partner, we’ve been investing together for about 17 years. We got into flipping houses a lot, doing a lot of short sales and foreclosures, and we eventually kind of survived the great recession and went into owning more rental properties. That’s more what I am today. We have a portfolio of primarily student rentals or an account small college town in the south and Clemson. And so that’s kind of our core product, or those kind of older multi-unit, small multi-unit with student rentals. But then we also have some single family houses. Got some, some other things we do as well on the side.

Robert Leonard 3:08
You mentioned that your portfolio is mainly rentals. But are you still doing any flipping?

Chad Carson 3:13
Occasionally, we’re more opportunistic flippers now. I always thought flipping was a fun business. But I would give myself like a B+ in flipping. I was good at it. We made money on it. I was really good at finding the deals. That was always my strength, negotiating–kind of picking out the gems that other people hadn’t found; sitting down and talking with the seller; and get it working out a win-win arrangement with them. The actual remodel and fixing up and flipping was just sort of a means to it. We just had to put food on the table. We needed cash to build wealth. But I always saw like the long term game is, buy and hold income properties. Let’s get income coming in over, and over, and over again. Instead of having to keep going back to a job, which I saw flipping as, is more of a job. It was a good job. You know, paid money was flexible. But this is something that we do now if it’s a property that either for example, we buy a big property or a lot, and we carve off the lot and sell the house, and flip the house, and then they have to keep the lot or keep, or maybe sell part of the property and flip part of it in order to generate some capital to keep the rest of it or something. That’s more where I would use flips today.

Robert Leonard 4:20
Yeah, that’s exactly what I was gonna say there, is that, flipping can be a great source of capital. But a lot of times it’s more of a job, whereas rentals can provide that nice passive income. You mentioned that you you made it through the Great Recession, but it sounded like there might have been a little bit more story to that. So, talk to me a little bit about that. And I’m thinking maybe it has something to do with flipping. So what what happened during that time period for you?

Chad Carson 4:42
Yeah, so it was good and bad. We, we learned a lot about ourselves during 2008, 9, and 10. And for a history lesson, most people probably know this, but the great recession was in many ways started by the real estate market. And it was not one real estate market. The mortgage market overall crashed and there was a liquidity crisis–not enough money out there. So the way it affected us in 2007, we started in 2003, and then kind of started growing. We were very young in the business in 2007, but we just sort of hit our stride where I was out there buying properties and making offers. And we had really good relationships with people who are loaning money to us like private money lenders, and that was going pretty well. So in large part, we had our best year in terms of buying volume in 2007. And a lot of those, probably two thirds of them are flips though–where we buy and sell it, you know, made some $50,000 to $60,000 foot profits, you know, some deals.

But then we also bought some buy and hold properties, and we got more aggressive with those as well. And the challenge was that we grew fastp; we had like 33 closings that year. Whereas years before that we’d had, you know, five, or ten, or fifteen closings, and so that growth getting kind of growing really fast. The challenge of that was we made some mistakes on some of the properties. We underestimated repair costs when we bought a property. Am I the only one who’s ever done that in the real estate business? Probably not. But you know, when you start doing things at scale, and you make some mistakes on not one property, but like five or six properties, and you’re $5,000 or $10,000 under budget or over budget on five or six properties, that starts hurting a little bit.

And so that I think that the story was we transition from the flip investor to, all right, we got to buy and hold a lot of these properties, some of them by necessity, because we just never paid for them. Some of them just the market wasn’t bearing what we wanted to sell them for. So it was a transition point where we had to learn about capital allocation and the fact that we, I was really glad we had a lot of savings, we live very frugally, and still do. So we made a lot of money in years up to that, but we didn’t spend a lot of it either. We had to eat into some of our reserves, and we learned why cash reserves are a nice thing to have. And then we just also learned about pivoting. You know, real estate is very entrepreneurial. We had to pivot strategies for a year or two there. We owner-financed a lot of properties instead of flipping them, where we would find a tenant and get a down payment from them, and come to bank our tenants, and that worked out pretty well. Then we transitioned again and pivoted to more student rentals because that was a good niche and the rents were going up. We learned a lot, and also were able to, because we were able to survive and go through the market, there weren’t as much competition after that. So there’s some really good deals to be had 2008, 2009, and 2010.

Robert Leonard 7:26
With the talk about that market crash that we experienced, then I’m curious to get your opinion, where do you think we are in the current real estate cycle and how is that impacting your business? Are you thinking back to the last recession and trying to slow down your flipping now because we might be towards the peak or, or what are your thoughts around that?

Chad Carson 7:43
Yeah, I’ll preface this by saying I’m really bad at predicting, obviously. You look back at 2007. You and I were, we chatted briefly before the call about how we’re both big Warren Buffett fans, and this is one of those lessons, wisdom that I really take to heart from Warren Buffett, is it people who try to predict things are you know, so often wrong that we all do this. It’s just kind of entertainment. So everybody’s listening to this just take this as entertainment, for me. I feel like, just, some of the things I noticed in the market are that we feel like we’re at a peak or, you know, we’re not at the bottom of the market. That seems pretty obvious to me. But like, how long this will last? When it’ll change? When the next recession comes? What that recession will look like? My uneducated opinion is that, it doesn’t seem like people are getting as many crazy loans as they did in 2005, 2006, and 2007. So, you know, typically, disasters don’t strike twice the same exact way in the financial markets. So, I just don’t know what it’ll look like.

We always have to take that uncertainty and add a strategy. And so my strategy and our strategy is dictated more really about where we are in our career at this point. And so we are deleveraging a good bit. We’re taking cash that we generate and save. We’re paying off debt, even though it’s low interest that even though it’s, you know, we pay off 6% mortgages or 5% mortgages, and we’ve been doing that for about five, six years because we paid off the worst debt first, you know–the ones that had balloons on them where we had to pay off the whole balance a couple years or something, or they had a big adjustable rate mortgages. So we feel very comfortable with our debt structure. Now, we still do have some debt. And so that’s been, because we just been cleaning up our balance sheet and making sure things felt safer and we’re solid. And that’s partly because of where we are in the market, but it’s also just more where we are, we felt like we’ve grown enough to where growing and buying more, and more, and more, and more, would not, would get us some more money. Yes, it’s more growth, but we, we sacrifice, stability, and kind of our resilience in case we, whatever we tend to face in the future.

Robert Leonard 9:40
As a real estate coach who works with a lot of new investors, what type of investment strategy would you recommend for a new investor to jump into, given where we are right now?

Chad Carson 9:50
My go-to, there’s so many different situations for different people, right? And so, one of the questions I would ask somebody if they’re just getting started, I would say like, Why are you getting into real estate? What is real estate? What are you hoping it’ll do for you? And some people are going to answer, like, I want a side job. Like, I want a side hustle that’s going to make some extra income right now. And that, the answer for that person is very different. For the person who says, I have a full time job, I’m making good money, I’m saving a lot of money, I just want this to be a side wealth builder. Like I want, I want to put my money into real estate and wake up 10 years later and have a lot more money than I do right now. And so depending on what that person said. If they answer a, where they’re trying to make a side hustle, my recommendation would be to get your real estate license. And that’s not actually what I did when I first started. I wish I would have though. I wish I would have got my license earlier.

But I’d become a professional. I try to be the most knowledgeable real estate person you could be, and get you get your license, you get in the market, you learn about sales, you learn about rental prices, just become the expert and one little slice of your local real estate market, and know it better than anybody else. And by doing that, you’re going to be able to add value to whoever the clients are that you work with. You might choose to do what I did, like go out and find deals for other investors. And in that case, you’ll make some really nice commissions, or you’ll make some nice partnership deals with other people because you’re that expert. And so that’s, that’s my recommendation where getting started for somebody who just wants to make a career out of it. But for someone who just wants to get, invest in the market, one of my favorites is always going and looking at your residence. So if you’re, especially if you’re younger, 20s, 30s but even people who are in the retirement age, you can look at your residence where you are right now and you have to live somewhere.

I love the house hacking strategy, where you look at instead of moving into some big huge house, it’s just a drain on your money. It’s not really an asset. It’s just, it’s a liability. Look at your house like an investment, and say how can I generate income from this property that I live in? And the classic way to do that, like I moved into a fourplex building when I was 24 years old, and I lived in unit number two, rented out number one, number three, and number four, and I had 1200 bucks a month coming in. These are low rents, even by South Carolina standards. But I had 1200 bucks coming in, I had about 1100 bucks going out, all-in, including repairs, taxes, insurance, vacancy, my mortgage payments. I was living for positive hundred dollars per month living in a property. And I had a property that’s appreciating, and a property that has equity in it. And I had friends that were out there paying 1200 bucks a month, to live in some dream house when they’re 25 years old. And the difference between those two paths is just enormous. Like, you start looking at the time, value of money, and compounding and everything else, by making a choice for like five years of your life house hack, or at least just to live more reasonably with your housing. It’s that one choice, is just enormous. So I would recommend people start with that. Start thinking about it.

Robert Leonard 12:45
What do you think the most common hurdle is for those new investors that are just trying to get started and how can they overcome it?

Chad Carson 12:52
I think a lot of us overwhelmed. I’ve talked to a lot of people who, I think they know a lot of the facts–they know how to analyze a deal, they know some of the basic type things, but they just don’t know where to start. And I have found that’s less about their intelligence or ability to understand these concepts. They’re probably listening to your podcast, they’re getting a lot of good information, it’s more about like, what, what’s the next step for them? And I go back to, I was a sports, I played sports and football, and love basketball, play pickup basketball. And when you play sports, a coach would tell you to just go back to the fundamentals. You’re going to, one of my favorite coaches of all time was a guy named John Wooden who coached basketball UCLA, and I got a little book by Wooden, it’s just like a gym. It’s just got a little one, one page chapters that said like, just little nuggets of wisdom.

And some of his wisdom was though that, he would tell us teams who are championship teams, like 10 National Championships in a row kind of teams, he would tell them, “You know what, the goal here is not to score the most points. The goal here is not to beat the other team even. The goal here is for you to be the best you can today, in today’s practice”. That’s it. Then he would say even more than that, your goal right now is to tie your shoes before you go to practice the best you can. And he would actually spend like an hour, showing his brand new players, how to tie their shoes, and how to roll their socks up, they don’t get blisters. And you imagine these guys like Kareem Abdul Jabbar and Bill Walton, sitting there for an hour doing something as mundane as learning how to tie your shoes. He would get them frustrated, where they’re about, what is this? What is this old guy talking about, like tying my shoes?

He would say, you know what the lesson here is, is that if you tie your shoes incorrectly, if you don’t put your socks on correctly, you’re going to get a blister when you go to practice. You get a blister, you’re going to miss a practice or two. And if you miss a practice or two, you’re not going to play as well, and you’re in the game as you could. If you don’t play as well in the game as you could, we’re going to lose a game or not gonna win a championship. You want to win a championship, right? Therefore, I want you to learn how to tie your shoes. And so my recommendation to people who get overwhelmed by the championship of real estate investing, I want to go get a deal, and I want to get financial independence, is just go tie your shoes like this. Actually like physically put your shoes on, go out in the neighborhood and start walking around. Spend two hours, walk around the neighborhood find a ‘for rent’ sign, find a ‘for sale’ sign, find a house that’s vacant, and start talking to people. Call the realtor who has that sign or call the owner who has a for sale by owner sign. Start digging around ask the neighbors why that house is vacant. Who is that? Do they want to sell? You know, we could call that something, they call that driving for dollars or walking for dollars, it’s a strategy to find deals. But I’ve just found that physical movement of getting in the market, getting something done, making some progress will let all of the other stuff kind of take care of itself.

Robert Leonard 15:36
Yeah, I mean, learning from the books and the podcasts and the courses, and all of those different materials is great. And you can learn a lot, certainly learn a lot of really good information. But really, I mean, like you said, getting out there, taking action, that’s really going to be where you’re going to learn the most important, valuable information. I mean, I learned a lot from books, and BiggerPockets, and other podcasts, but I learned so much more when I just took the leap and did my first deal. You know, you learned so much from that. So, yeah, I completely agree.

Chad Carson 16:04
We learned how to make mistakes too, right? I mean, I’m sure you didn’t do everything perfectly. Like I just, I didn’t do everything perfectly. And I think that’s the hurdle that most of us get. We are entrepreneurs, and entrepreneurs are just people who fail very fast. And they fail in ways that don’t risk everything. And so if you can go out in there and talk to a seller, and the seller rejects you, what, you make him an offer, and they rejected it, like that’s a failure, right? But it’s a small failure, it’s not the end of the world. You’re going to be embarrassed. You’re going to feel awkward. But like, you need to start failing like that, like 20 times in a row, so that you get used to failing a little bit. And then you get it under contract. You get one property under contract with the due diligence and maybe you fail on that. Maybe you spend 1000 bucks on inspection and the deal doesn’t work out. You have to walk away from 1000 bucks. You know, that’s not great, but that’s not the end of the world. And I think that kind of habit, that muscle of risk, and losing a little bit of money, and losing a little bit of face when you try to talk to people and negotiate, that’s, that’s the entrepreneurial muscle that a lot of us haven’t exercised. And so that’s why getting out there in the market, which is really important.

Robert Leonard 17:07
You’ll read in the books that you’re going to get offers declined, and you know going in that that’s going to be a piece of it. But it’s so hard to really internalize that and feel it until you actually go out there and have an offer, you know, declined. And that’s psychologically is so much different when you’re actually taking action than it is when you’re just reading it in a book. So walk us through how you run the numbers on a rental property using your back of the envelope analysis.

Chad Carson 17:32
These are all things I learned from like, Warren Buffett and other people, right? And I often quote him whenever I talk about the fact that when you’re buying a property, you don’t need to have a fancy calculator or a fancy spreadsheet. And I’m a spreadsheet nerd. So like, maybe a recovering spreadsheet nerd, like I still use them. The quote, I’m gonna paraphrase from Warren Buffett was, he said, “If you need to use a calculator or a computer, to buy an investment, you shouldn’t have to buy it. It’s not a good deal.” The point he’s making is, like, you can try to be really precise with your numbers. You can try to be really exact. But like, the best deals, even the multi billion dollar deals that he buys, they look good on the back of a napkin with approximate numbers. He’s like, okay, because because he’s estimating, he’s using an estimate. He can’t tell exactly how much this company is going to be worth, you know, with their income for the next 20 years. He’s running approximate number and yes, the bigger the company, the more complicated, you’re buying a big multi unit property, you might have three napkins instead of one napkin or three envelopes.

But the point is, let’s let’s just figure out a few kind of basic analysis tools. They’ll help us kind of look at this property and know roughly, is a good deal or not, so that I can spend more time pulling out the spreadsheet and doing all that. So that with that said, the kinds of things I like to look at, I like to look at it from two different lenses–I like to look at the income and I like to look at the price. And I often call the price the equity as well. So I want to see how good this property is at producing income. And I want to see how much equity am I buying day one. You know, in an ideal world, I would buy a lot of income today. Like I would, you know, I would be able to pay 100,000 bucks and get $10,000 coming back to me every single year. It’d be a 10% return. For every hundred thousand bucks I invest, 10,000 comes back, 10% cash on cash return, that’d be great. That would be ideal, but in the ideal world with equity was, if I pay 100,000 bucks, I would like to have it be worth 150,000 bucks today. That’d be really nice to have it buy at a discount. And so that’s the basic strategy. And then the formulas themselves are just different ways of measuring that income and measuring that equity. So on the income side, I really like cap rates. I like to look at a property and say, you know, if I had no leverage on this property if I didn’t use any debt, and I just bought this property and paid cash for it, what’s the ratio at today’s income to the price I’m paying for it all-in. And I have a goal for that.

If if it doesn’t meet my goal, then, I’m going to pass I’m going to make a lower offer. I also like to look at net income after financing so I don’t always pay cash for properties. So I also bring debt into the equation. Say, all right, give him my debt assumptions. Here’s my debt payment. Here’s how my expenses, how much cash, cash flow am I going to have, net, net, net, after paying all those expenses, you know, on a monthly basis. So I’ll have a goal but on that. So for on a, buying a fourplex, I might want to make sure I have, you know, at least $150 per door or something, that’d be a number I look at. And so if I had 150 times four, that’d be 600 bucks coming in on that property. So those are two examples on the income side, on the equity side it’s pretty simple. Now I want to ideally I would, I would buy at a discount. You know, when I was buying and selling a lot, I would always try to have like a 20 or 30% discount from the full value today. I was buying really good deals I’ve learned and this is another Buffet lesson over time–that some of the best deals are some of the best locations, you can’t always buy at a super big discount. The really high quality locations, you might pay full price, you might pay 10% below value, but you get a really quality rare property, that over time is going to make you much more money than buying over you know in a D neighborhood and buying it at 50 cents on the dollar. So the price is kind of a in relation to your quality location to the amount of income you’re getting and I just look at both of those on each deal.

Robert Leonard 21:17
That reminds me of the Buffett quote where he talks about he’d rather buy a great company at a good price than a good company at a great price.

Chad Carson 21:28
Exactly. That’s the quote I was trying to remember. He’d rather buy a great company at a fair price. So maybe that’s 80% or 90%, you know, this kind of my interpretation of it. He’d rather buy that than by a poor company at a great price. And he used to always look for poor companies at great prices. He used to call those, he called it like if you were a smoker, I’m a smoker as well. You were walking down the street and somebody threw like a cigar and it had like four puffs on it, and you got it for free, he was picked it up and you get like the last four puffs on that cigar, that’s like the best return on investment, right? You didn’t pay anything and you got four puffs. That was kind of like the companies he used to buy. He used to buy these companies that were spiraling down. And, but he would figure out that they had, you know, a bunch of silos of corn still that he could like, liquidate the corn and make a bunch of money or something. I don’t, he just, he would look at the assets of the company and figure out that I liquidated the company, I still make money because the price is so low.

That would be like, you know, buying some of these really cheap properties and the neighborhoods were so cheap, you know, smize, almost giving you this a lot like can’t lose on that, right? Well, actually, you can’t, because you know, maybe you can’t collect that rent. Maybe, you burn out. Maybe, things change in the neighborhood, and next door landlord doesn’t manage their property, well, there’s drug dealers like dealing drugs next to you. So I think the equivalent in real estate is people might be familiar with like A properties, B properties, C properties, and D properties. You know, it’s hard to make money on A properties. Those are like the best locations and the best towns, you know, and you’re making like 2% cap rates or 3% cap rates. And there’s some really big money people who might play those games, but I found for us, smaller investors, A properties are kind of tough. But we can buy in B neighborhoods and C neighborhoods. And I define for myself B neighborhoods as the type of places where they are more owners than renters. So you might have like 80% owners, 20% renters in a B neighborhood. And then an a C neighborhood might have like 50/50, like 50% owners, 50% renters, but it’s still blue collar. It’s a, it’s a good place. it’s safe. When you get into D, D plus, there’s still good people living there, but it’s mostly renters, might have public housing, and it’s just a different game. And so like, I’m not knocking those, or saying that I should invest there. But for you, if you’re learning the business, and you’re just getting into it, going with a solid C+ B-, is probably the place to play. And you might not get the huge discount like you would on a C-, A+ property, but you’ll also be more comfortable being at in the business as well.

Robert Leonard 23:49
Yeah, I generally find my sweet spot in that C, C+ B- range, just like you said, and it’s tough for new investors. I know when I was getting started, I was very drawn to those D+, D level markets because you look at the numbers on paper, and you just look at the prices of the properties, and they’re very, very tempting. The numbers look really good. But what you need to take into consideration is the high risk that you’re taking, and just like you said, you might not collect your rents or something else might happen. And it’s just not going to end up being those returns that you’re expecting. So you can get high returns there, but it’s also super high risk.

Chad Carson 24:25
And it’s super high hassle too. Like, the risk is one thing, but just the hassle, like I found one of the biggest reasons people get out of the business is they just burn out. You know, I bought a lot of properties from burned out landlords. And why did they burn out? Like they burned out because they bought the wrong property in the wrong location, or the deals I usually buy or they bought a decent location, but they never fixed up the property because they overpaid for it. They just got worse and worse tenants. They never treated, treated it right. And they never just ran it like a business and so they, they didn’t have systems. They didn’t hire other people to manage their properties. And so I like to sometimes, I’m thinking about, like, why are these people getting out of the business to make sure I don’t do what they’re doing. So I want to have systems, I want to hire good management, or buy a little bit better properties. And if you do all that, I mean, this can be a very passive business. There could still be hiccups here and there, right, but I was in Ecuador, with my family for 17 months. And we had properties back at home, you know, 90 plus properties. And I would pay bills for an hour every Thursday, and occasionally, I get a text here and there. But I had really good, competent people who are helping me on the ground. And I was taking Spanish classes, and I was writing a book, and I was hanging out, I was taking siestas, so it’s that’s possible to do if you, if you buy the right properties, build a good team.

Robert Leonard 25:39
Yeah, that’s a really good point about those lower class properties, and neighborhoods, and locations that I hadn’t really considered, I hadn’t really thought about the hassle part of it. But you’re absolutely right. I mean, if you’re getting into the rental property business, you’re likely doing it because you want some sort of passive income. And if you’re dealing with those low end markets, probably not going to be very passive with all the hassle you have. For me, my market is like I said C, C plus, B minus, maybe two hours a month total on all of that. if that so, if you’re buying in good markets, you can definitely get some, some passive properties. So what is, what is a common piece of advice that you often hear other experts giving about real estate investing that you think maybe misleading? Or you just think it’s just not true?

Chad Carson 26:22
I’m glad you asked this question. This is a good one. I think of someone specifically I’ll say what they say, and then people can kind of infer what it is. But a phrase that kind of rubs me the wrong way that some real estate investor teachers say online is this, you should go big, or go home. Like 10x, 10x your business, right? And the thing is, like, that’s cool, and that’s motivational. I’ve tried to take like kind of the opposite mantra. That actually I want to tell people like go small or go home. And what I mean by that is, that doesn’t mean you shouldn’t get big. Like I’m not saying like, those big businesses aren’t great. What I’m saying is that you should have the smallest business possible that accomplishes the goals that you set out for yourself. And if you get any bigger than that, so if the smallest is that you can buy 10 properties, you can get those 10 properties paid off, and that pays all of your life expenses and you have, and then some, you have a nice cushion, you’re making $100,000 a year of these 10 properties that are paid off. Very low risk, low hassle.

Now, it’s paying for your lifestyle and you have free time now, why take the next step? Why buy that extra property? And you might have a good reason. It might be because it’s fun, might be because you, hundred thousand dollars isn’t enough, you want to buy a Tesla truck, and that’s going to cost some extra money so you need to buy another one, right? But those are good, those are fine, but what I find is that people sell it as, you gotta go big or go home because that’s how you get this lifestyle. That’s how you’d be like, you’re going to be like me and (*inaudible*) fly around on this jet and drive this big car like I drive. I find that kind of stuff cheesy first of all, but also find it misleading because the people I know that had the most freedom, the most lifestyle, the most flexibility, have very simple businesses. They don’t have these big, huge moving part, lots of moving parts. And I found they have a lot less freedom. They talk about it, but I would challenge people to show me your big business and show me how much freedom you really have compared to my little friend who has 10 properties paid off–who can do whatever they want, because they have this nice little simple, simple portfolio.

Robert Leonard 28:20
Yeah, I mean, like I said, if you’re getting into real estate, a lot of times you’re doing it because you want that passive income. And if you grow to that size, if you’re starting to syndicate and you’re buying multi hundred unit apartment complexes, you’re not going to be a passive. And sure you can grow your business really big but, are you really accomplishing the goals that you really wanted to achieve in the first place? Is that really getting you to where you want to be? So it’s something you really need to consider when you start to look at building your real estate business. And like you said, I mean, I’ve talked to people who have three or four properties, and that’s all they want. That gives them everything they need in life and everything they could want, and they’re very happy with that. So, now I definitely think that’s a really good, misleading piece of advice that people give. So what has been your biggest mistake in your real estate investing career? What would you do differently if you could go back and do it over?

Chad Carson 29:07
Yeah, I actually think it’s related to that go big or go home idea and rewinding back to 2007 when I was talking about how we bought a lot of properties. I think my mistake was borrowing goals from other people. And I think it’s a natural thing to do. Like, I think about how I had two young kids. And you watch how we all learn, like how kids learn, you basically copy other people. They’re little copycats. Like kids, just like they, like everything you do, and they just copy you, copy you, copy you. So it’s kind of natural that I was a new investor and I started copying other people. The, the issue is, you got to copy hell, you got to copy the techniques, you got to copy the tools in their toolbox. I might tell you about seller financing, and how that’s a really good technique. Like copy me, like use the language I’m using to try to negotiate it. Try to do it first. But then when you step back and think about your goals and your, “Why are you doing real estate?” and “What does your business look like?”. that’s the part you got to be careful you don’t copy other people on. So I was, I heard a lady who was really impressive. And she talked about how she was flipping 50 houses per year. And as my first or second year in business, I’m like, that sounds great. Like I understood everything, she just said. I think I got her business model, it’s just a matter of us scaling, and doing what she’s doing, we could do that. And we borrowed that goal of just flipping a bunch of houses. And that’s okay.

But like, Why? Why are we doing that? Like, so we actually, my business partner is probably got a better intuition for this than I did in 2007, when we had this moment, where we’re flipping a bunch of houses, and we kind of overstressed ourselves a little bit, he’s the one who said, Hey, we need to just take a pause and let’s, let’s reflect on this, and let’s talk about it. And we actually did it. We did that. We actually sat with both of us, wrote down on a piece of paper, Why are we investing in real estate? Why do we have this business? Yes, it’s kind of fun to be flipping and doing all that, but the fun part of that kind of wears off quickly. You need to have even bigger motivation. And it was really interesting.

I wrote down some of the things I wanted to do in my life, and it was things like travel. I wanted to go hiking in the woods a lot. I love playing basketball, pick up basketball in the middle of the day. I still do. A lot of these things I was writing down some of them cost money, others didn’t, but almost every one of them required a lot of free time and flexibility. And that was an ‘Aha!’ moment for me because I was like, why am I trying to work towards flipping 50 houses a year, when what I’m trying to accomplish is to have these big quantities of time, where I can do whatever I want to do with my life. Could be flipping, could be traveling, could be hiking, it could be changing every year and doing something different. And so that encouraged me, that mistake that I made of borrowing other people’s goals allowed me to pivot and say, all right, I’m going to build a business that prioritizes first the reason I actually got in the business, and does give me some free time and flexibility. And then if I do grow, I’m going to do it more organically, or do it slower over time, in a way that allows me to kind of balance those two.

Robert Leonard 31:46
I really like that response. I’ve talked to quite a few successful people about their mistakes and because they think that’s a really good way to learn. And I think that’s the first time that I’ve heard that one. And I think that was really good. I’m going to need to go revisit that myself. And I recommend everybody listening goes and thinks about that themselves as well. Are you really working towards your goals? Are you working towards somebody else’s goals? You mentioned seller financing. And I personally really liked that strategy as well. So I want to dive into that a little bit. What exactly is seller financing?

Chad Carson 32:16
So seller financing just means that instead of getting the money for this property, the financing for this property from a third party, from either a bank or some other person who is not involved with the property, they’re basically handing you over money at closing, that’s what typically happens. Well, the seller financing, you’re taking that third party out of the equation, and you’re negotiating with the seller of the property and letting them basically take all or part of their purchase price in installments over time. It’s something that people have been doing for thousands of years. Like, I can imagine like some person you know, a goat herder somewhere in the Middle East two, 3000 years ago had, he had 10 goats and somebody else had, you know, some, don’t know, some wheat or something, and they were going to trade with each other and one was worth more than the other. So they had to like, balance it out. And they said, All right, I’ll pay you in a goat a month for the next six months, you know. And that was essentially seller financing, you know, that. That’s just how transactions happen. This is how commerce happens.

I find it interesting now in the modern world, we just assume financing always comes from a bank. That’s very new. That’s very rare in the historical context. And so seller financing is something I had to sort of learn by necessity because when I first started my business, I was flipping and I was, I was not a W2 employee. Like when I walked into a bank, I was not the best loan that they were looking for–I didn’t have a steady income, I didn’t have a lot of history, I was a 23, 24 year old kid. And so I could get a couple bank loans, commercial loans, but I was not going to build my business on commercial bank loans. So instead, I had to get creative. But I learned how to by, just by learning from other people, how to negotiate with sellers and how to find, for example, a landlord who’s owned a property for 30 years, and he’s ready or she’s ready to get out of the business. And I sit down and talk to that landlord and they might not be expecting or wanting to sell to me with owner financing at first, but when we sit down and talk about it, I might make them a cash offer for the property at a 20 or 30% discount, because that’s just what I need to get, in that case. Or because I’m going to get private money at 10% or 8%, you know, a higher interest rate.

But if they were willing to finance it to me at 4%, or 5%, and let me pay them over a 20 year period, that, for me would allow me to hold that property, and had a long term hold, and not have to flip it, or not have to do something else with it. And so it allowed me to pay them a little bit more than I would just paying cash for. So maybe I can pay a 90% of the price or maybe even 100% and so it was a win for them–they get a little bit more than I would pay them cash. They are, there’s some tax benefits often for the seller. So if they, if especially if it is a really big property, like a million dollar property or half a million dollar property, that one of the biggest issues that sellers realize when they go to sell a property is how big of a tax hit they’re going to take. And so by seller financing, it doesn’t solve the problem completely. They start to recapture some depreciation and some things like that. But they could defer a lot of their capital gain that they have on a property that they bought for 100,000, that’s now worth a million, they can defer that gain over time. They take a little bit at a time a little bit at a time, so they’re not getting this huge gain in one year that puts them into another tax bracket sort of, turns their whole tax world upside down.

So from a seller standpoint, it’s got some tax benefits, got some benefits of not having to put that million dollars in the stock market or something else when they’ve been a real estate person for a long time, and for me, as a buyer, it’s a really attractive way to buy a property–to get perhaps better terms, to maybe a lower down payment, and to be able to have a relationship with a real person as the kind of hidden benefit of seller financing. I talked to one of my seller financing people last night, we were at a local Christmas parade in my hometown it’s a guy who financed to me years ago, and I’m about to pay him off, actually. That’s what I talked to him about on the on the break I was like, “I’m gonna think we’re gonna pay your loan off, or we’re kind of got some cash and I just want to start paying some stuff off”. And we had it, we’ve been talking for years, we could have a beer every once in a while. And he would, he probably loaned me more money. I needed to do another deal, he trusts me. I’ve been making payments to him for years, sending them a Christmas gift, and that relationship with real people, I found is a game changer. When you want to be able to use money to go acquire more deals, you have this long term relationship with people. That’s a business foundation of a good business.

Robert Leonard 36:26
How are you finding these people or these properties that are open and available to this type of strategy?

Chad Carson 36:32
Yeah, it’s more of, I found like a slow, a slow negotiation, a slow dance. It’s, they’re not going to advertise in the MLS or advertise even with a sign that says I’m going to seller finance. If they do, I’d probably not be as interested in that one. They’re probably just trying to sell retail and do something different. There, there’s a couple categories of sellers that tend to be more likely to owner finance, that doesn’t mean they will do it. But the first and foremost is a landlord who’s owned this property as a rental property for a long period of time. And one of the, I discussed that a little bit and the, some of the benefits, but because they’ve owned it for so long, they’ve gotten used to getting that income coming in every single month, it’s a good thing for them. The challenge, the reason they’re probably selling is because the management of the property, or just the risk of having to do it, this hassle of doing it anymore, is not interesting. But if, assuming they trusted you, and they felt like you were a competent person who they could trust, was credible, they would probably like getting interest and like continuing to get some income.

So theoretically, them taking their million dollars and going and putting into something else that they don’t really understand, compared to having their money, their equity sitting on in this property that they do know and they do understand with a credible person and making a 5% interest rate instead of a 1% interest rate in the CD in the bank, that’s actually a really interesting proposition for those kinds of sellers. And when you add in the tax, potential tax benefits, they’re more predisposed to having self financing be makes sense. The thing I’ll say though, is that it’s, the reason it’s a slow negotiation is that the people who had financed to me that was not their first choice. Like that wasn’t, I didn’t ask them over the phone, Hey, will you seller finance this property to me? It was more about, let me just listen to them. Let me understand their situation. Why are they selling? What are they trying to accomplish? And I see myself sort of like a puzzle solver, like and I tell them that too. Like, if you allow me, if you’ll put all your puzzle pieces on the table, I know real estate pretty well, I know the market pretty well, I’m a pretty creative guy, you have nothing to lose. But if you’ll put your puzzle pieces on the table and if I can arrange those puzzle pieces in a way that makes sense for you, and you accomplish exactly what you want, and if it also accomplishes what I want, then we can make a transaction happen, we can help each other out. If it doesn’t work, if I make you an offer, and you say it’s no good, then you know, we just lost some time. That’s it.

So well, I’ll have that conversation with them and then I’ll make them those offers, and then I’ll discuss those offers. And say here’s how it would work. Here’s what that seller financing would look like. And if I had made that seller financing right off the bat, without getting to know them, without listening to them, without understanding the context of what they’re trying to accomplish, they would have said no right off the bat. But because I’ve listened because, I’ve kind of earned the right to make that offer, and I understand what they’re trying to do, then they might say, you know what, I didn’t think about that originally, but let me talk to my CPA and kinda understand the tax situation. Let me think about that a little bit longer. And now I’ve opened the door to the possibility of them saying yes.

Robert Leonard 39:25
Do you always have to offer two different types of offers? Do you always have to give a cash offer as well as the seller finance? or can you make just that seller finance offer?

Chad Carson 39:34
I mean, you could. I have never made just the seller financing offer. The reason I don’t is I don’t think you ever really know what the seller is thinking. Everybody kind of holds the cards a little bit close to the chest, one way or the other, until you make that offer. And so I actually like to make three offers, sometimes. I will make an all cash offer. I’ll make a, you know, 5% down seller financing offer with really good seller financing terms for 30 years at a low interest rate. Then I might make a middle offer, which is also seller financing with a larger down payment, and with a shorter timeframe, because I know one of the objections they’re going to give me like a 30 year loan is like, I’m 70 years old, I’ll be 100 years old when you pay me off. Like, I’m not going to do that. That’s usually the first objection I get. And that, saying that though, I’ve had 84 year old gentleman financed to me for 25 years. So that’s the conversation we can have. But I try to give them three different offers that accomplish three different things for them as a seller. that by noticing the response, I want to be face to face with them as possible, I’m gonna have a conversation about it. And by, they’re going to tell me like why that one doesn’t work, why this one doesn’t. And, or why this might, and the negotiation is more about, which one am I going to take, as opposed to saying yes or no to one offer. And I found that they are really powerful strategy to open up the conversation and talk about it.

Robert Leonard 40:52
And one of those great parts about seller financing is you’re not stuck with any given terms, or structure, or anything like that. I mean, seller financing It’s between you and the seller. You can structure that deal however you want, however you need to, to get that deal to work. Whereas, when you walk into your local bank, I mean, you’re, you’re giving your terms and you can’t really mess around with the structure much. They know what they’ll lend, specifically, if it’s a government backed loan, you know, they’re very strict with that. So seller financing, I mean, it’s great. There’s so many different opportunities there.

Chad Carson 41:20
It’s fun. It’s actually very creative. I think when I first tell people it’s, it might be a little more advanced with the strategy, but it’ll just tell people like, show people how cool you can get if you really learn seller finance. But I had a couple who were actually moving from South Carolina to Delaware, they’re in late 70s. And they had these two houses in Clemson. And I sent him a letter, I talked to them, long story short, I made them my three offers and they had an amount of money they wanted to get out of their houses because they were going to go build a retirement house in Delaware, where they’re moving to. And we worked it out where I paid them a really big down payment, but half of the purchase price, these are expensive properties. The rest of it, they financed at a really low interest rate, it was like 3% for a long period of time. So they got a big chunk of cash from me. And these were expensive property, so it was like, you know, 250, $300,000, maybe, that they still financed, and another $300,000 in cash that had come up with.

But the cool thing was, a point I’m telling here is that I was able to acquire these really good terms on these two houses, but I acquired one, I got one clause in there called a substitution of security clause. And I was very open with them about this. And what I told them was, I don’t want to keep your houses these are expensive, big houses. I’m a rental investor. But what I do want to do is I want to work with you on this financing. And so I showed them I said I have three rental properties over here–property A, property b, property C. They are worth a lot more than this $300,000 you’re loaning me. Let’s just, let’s just call it $500,000. My three rental properties are worth $500,000 and I’m seller finance, you’re seller financing $300,000. What I want to do is I want to sell your houses and I want to use your financing, and keep your financing over here on my three rental properties. So by using what’s called a substitution security clause, and this is the kind of more advanced part of it, I was able to basically do a deal where I negotiated seller financing on one property, I was able to sell those properties, and basically changed the security of their notes, I still owed them $300,000. But instead of having that, keep those two properties I didn’t really want to keep, I paid off the mortgages on these other properties, these rental properties. I have now have 3% 30-year money or 25-year money on my long term hold properties, all from a negotiation with a seller and getting one clause called a substitution of security. That’s, that’s a long story short, the type of things you can do with seller financing that you can never do nothing never. There might be a bank who do a substitution security, a commercial bank, but you can get very creative to your benefit and to the sellers benefit.

Robert Leonard 43:56
Yeah, that’s exactly what I was gonna say, your traditional lenders are not going to do that. You might probably get something commercial from a portfolio lender, or something like that. But again, that’s not your typical residential rental property loan. So now just to wrap up on the seller financing conversation, for somebody who has not ever done this or heard of it, they might be thinking that this seems super risky for the person offering the seller financing. How is the risk D leverage for them? Or how is it not as risky as it might seem for somebody offering seller financing?

Chad Carson 44:27
Well, the first time when the seller is talking to me about it, I’m going to say, wherever you put your money, you want to make sure you understand it, you know about it, and you’re comfortable with it, right? Well, you already own this property. you own this house here on this such, and such street, and if anything happens to me, and this is I call this like my Chad-gets-run-over-by-the-bus conversation, and I say if you know if I get run over by a bus, I hope we’ve had a good relationship. I hope you shed a tear to my funeral, that’d be great. But, let’s get down like, let’s talk turkey here. Like, you’re also going to be worried about what’s going to happen to this property–if Chad gets run over by a bus or if he goes AWOL and just doesn’t do what he says he’s gonna do. I hope you trust me, but you shouldn’t have to trust me. You have this property here and you can pick an attorney, like have your attorney review it, make sure that you feel comfortable, but you are going to have security through a mortgage, a deed of trust, as on the state you’re in.

But you know, I owe you this money. But you have this real house–sticks and bricks. you have a mortgage against it. If I don’t pay you, if I get run over by a bus, you call your attorney up, you pay them a few thousand bucks, they foreclose on me, and they take this property back. And so the question you need to ask yourself, Mr/Mrs. seller, is, are you okay, taking this property back after I’ve paid you 10% down, or 20% down, or very often I put 30, 40,000 bucks in repairs into this property? So are you better off Mr./Mrs. seller, taking this property back after I have done all these repairs to it? You tell me like. If you’re not comfortable with that, like don’t do the deal because that’s the bottom line. Be sure to compare that to the riskiness of doing something else with it like so. What if you sold your property, you got your cash, and you put it into the stock market. You’re an 80 year old retired couple, and you put all your money in the stock market, and you know. I like stock investing, I buy index funds, so I’m not like knocking that, but for an 80 year old couple to put all their money in the stock market and I did all those roller coasters, there’s gonna be a lot of them who will be terrified of that concept.

And that’s much more risky feeling than I have been having a mortgage against this property that they’ve owned 30 years, and they know it well. And so that’s, I think that’s the conversation you have. It’s, there’s risk, there’s things they’re not familiar with. So what’s probably happened is they’re not familiar with us. They’ve never heard of that, they haven’t done that before, that’s why I take it very slowly. Like this isn’t like come in and you know, slick, use *inaudible* kind of person. This is like, I’m trying to be authentic, I’m trying to be real I want them to know me, I’m out when I was 25 years old and doing this kind of stuff. I would come in with a credibility package with letters from my football coach that I played for at college, with letters from and pictures of me with other sellers, who have done the same kind of deals with me, and I’ve developed great relationships with these people who financed properties to me. To the point where, believe it or not like there’s one couple, they were a Methodist ministers, they were the first people who financed the property to me when I was 24 years old. I became such good friends with them. They’re such wise, awesome people, that they were the ministers in my wedding, when I got married, like three or four years later. They were just awesome people. So, I tell that story to people later on. And I said, that’s the kind, you know, you’re not a minister, maybe I’ve already married, so that’s not gonna happen. But that’s the kind of relationship I want to build here. I want this aslong term. I want to be transparent, we’re gonna help each other. And if you trust me, I trust you. We make a transaction that works together.

Robert Leonard 47:40
To your point. I mean, I think those are the two big things about seller financing that new investors need to understand is that one, it’s an asset that they are familiar with, and they’ve likely owned it for a long time because a lot of times when you’re doing seller financing, they’ve paid the property off, which means they’ve owned it for a long time. And two, like you said, they have a mortgage and they have a lien against a deed. And essentially, they have that collateral against your mortgage for the property. And so if things were to go south, they are able to take back the property and they’re in the same position that they were previously, and they collected all the downpayment and everything else you’ve given them throughout the time. So they’re really not in a poor situation if, if everything were to go bad. So you provide a lot of resources that are free and content on your website, through your podcasts, your newsletter, blog posts, things like that. Do you think it’s important for real estate investors to do something similar in an attempt to grow their personal brand and, you know, in turn grow their real estate business? Or are you doing it more as a stand-alone business outside of your real estate business?

Chad Carson 48:41
For me, it is an outside business. It’s a secondary thing. It was more of a passion project. Like I used to, I’ve always been a real estate investor, I’m still a real estate investor, I plan to be 130 years from now, you know. And so that’s my core, foundational money-making business. But I always, was a student. Like I just love learning. So when I first started investing in real estate, I would like be giddy to like, go to classes, and like take notes, and to read a book. And I mean, my superstars, I used to play football, like I love sports stars. I’m not that, like, starstruck about sports stars, or singers, or rock stars, but like you took, you took me to like a seminar, or a class where like, my favorite author, like real estate author was, I was like, you know, giddy, I’m excited, because I just, I love learning, and I love going deep on a subject.

And so when I had the opportunity, in about four or five years after I started investing to like, start, a local real estate group asked me to come talk, I think, and I taught a class and, and it sort of just resonated, just teaching. And I think teaching is more my vocation even than real estate investing. And I just feel like if I learned something, and I’ve absorbed that, it sort of goes full circle when I write about it, when I podcast about it, when I share about it, and it helps me become a better learner, helps me become a better investor. And so that’s why I’ve always done it. It’s just an it’s just recently in the last couple years. Sort of by accident, but it’s become more of a business too, because I started realizing I’ve got a lot of subscribers on my email list, and that’s actually costing me like $1500 a year. Like, wait a minute, this hobby that I started is costing me money. And so I had to treat little bit more like a business and also found that, you know, free content is always great, and I’m always going to keep doing that. But there’s sometimes people wanted to go deeper, they want a little more help from me, and so my business model with, with my coach Carson brand, is to sell education. So I have like a, kind of a course that people take with me twice a year. It’s sort of like a coaching, coaching groups like group coaching, where they can get involved with me, they can ask me more questions, we have office hours, accountability as a group, and also turned it into a business now, but half of my profits I want to, I am donating to charities. I’m trying to make this become like a social business where I can use education and the money I make from this or if I have affiliate ads or anything else to build up, kind of more chest to donate, and kind of make some, make some things happen socially that are important to me and my wife.

Robert Leonard 51:07
Yeah, that’s, that’s really awesome. I know I get a lot of value out of reviewing your resources that you provide on your website. So I definitely recommend everyone listening right now goes and checks that out. For those looking to connect further with you, where can people find out your resources and maybe connect with you on social media?

Chad Carson 51:23
People go to coachcarson.com, you’ll pretty much find all that stuff. Or you just search on YouTube, search Coach Carson or whatever your podcast player is, search The Real Estate Financial Independence Podcast, and hopefully I pop up.

Robert Leonard 51:36
Awesome. And I’ll be sure to put links to all of those resources in the show notes so you guys can go check it out. Chad, thanks so much for your time. I really appreciate it.

Chad Carson 51:44
As pleasure, Robert. You asked great questions. Thanks for having me.

Robert Leonard 51:47
All right, guys. That’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro 51:54
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