“Because of These 3 Simple Rules, I’ve Bought Over 600 Units and Never Lost Money” with Paul Morris

Brandon: This is the BiggerPockets podcast. Show 274.

Paul: I had a metaphor. I was living in New York City. In Alphabet City, back in the day was, you walk there, you get killed. Police didn’t take a call to come to Alphabet City, like, ‘Oh, forget it.’

Then one day I drove through Alphabet City, and all through as bad as it was, I saw this young guy coming out with a cello strapped to his back. When the cello is coming out of the plates, that’s when you know to buy. That place was still a dump. It was 10 to 15% turned. Now, you couldn’t buy in Alphabet City no matter what.

There are these little indicators, but I wait for it to turn. Here’s the tricky part about waiting for it to turn.

You’re listening to BiggerPockets radio. Simplifying real estate for investors, large and small. If you’re here looking to learn about real estate investing without all the hype, you’re in the right place. Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online.

Brandon: What is going on everyone? This is Brandon Turner, today’s host of the BiggerPockets podcast. Here with our co-host of the day, Mr. David Green. How’re you doing, buddy?

David: I am great. I just got back from Hawaii. I am refreshed. I had an amazing time having my mind blown, spending time with Brandon Turner. I am currently nursing some sore ribs from nursing, and some sore legs from hiking.

Brandon: Wait. Sore ribs from surfing. Okay, that’s right. You did surf with me. It was fun. The waves and crap.

David: Oh, I paddled.

Brandon: We paddled a lot.

David: I paddled in the ocean, and pretended to surf, and got some sore ribs from it. Surfing sounds cooler than, ‘I went Hawaii to a paddle.’

Brandon: This is true. Now, we had a good time. I’m going to go right into today’s quick tip. Today’s quick tip is very simple. If there’s somebody in your life who is, you guys are on the same wavelength, and you enjoy spending time with them, take a retreat together. Go do something that’s out in the world, like David and I went surfing.

While we were out in the water, we’re masterminding, and talking, and having a really great time for a week. We came up with probably a hundred thousand ideas over the past week of just things we want to do in life, and real estate, and business, and a lot of stuff.

That’s my quick tip. Find somebody that you just jive with, and go out and do something amazing with them. Go enjoy life with them for a little bit. I’m not talking about a one hour a week call. Those are great, but go out and enjoy life with them, doing some activity whether it’s a vacation, a trip. Go hunting, if you’re in the midwest. Go surfing, if you’re in Hawaii.

David: One of the best things that today’s guest shares is that, it’s not hard work if you enjoy doing it. I went to Hawaii and everyone said, ‘What was it for business, or was it for fun?’ It was both. Even though we talked about business the whole time, I had a blast the whole time I was doing it. It doesn’t feel like work when you’re around people that you really like and you’re talking about something you enjoy. That mindset shift. I tricked myself working for a week and had the most fun I’ve ever had while doing it. I love, love, love, that way of thinking.

Brandon: I did too. I did too. We’re going to do that today. You guys are going to love this show. I told the guest just after we hung up from recording it, this is probably one of my favorite shows we’ve ever done. I think you guys are going to love it. Before we get into it, let’s hear quick word from today’s show sponsor.

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Brandon: Alright. Thanks for our sponsors always. Now, I think we could probably just jump into this. We did quick tip, right? That’s really all we got. Today’s guest is Mr. Paul Morris. Funny thing actually, this is the second time we recorded with him because I lost the recordings from the first time. I had a computer crash on me. Anyway, got to learn to back things up apparently.

Paul Morris, is an incredibly high level, entrepreneur, business owner, and a real estate investor, has over 600 apartment units right now. He’s got this thing. He’s never lost money on a deal ever, which is amazing. He’s also co-author of the book, Wealth Can’t Wait, which he co-wrote with David Osborn, another guest that we had on the show a while back. He just got so much to say.

Make sure you guys pay attention again, obviously to the three rules. That’s what the show is titled, ‘The Three Rules.’ Pay attention to that. Life changing. Simple yet profound. The way he talks about emerging markets and defining where you invest, that could change your entire investing future forever. Lastly, we end this conversation talking about how to succeed without hard work and sacrifice. Yes, that is possible. Wait till you hear how he talks about that.

Without further ado, why don’t we just jump into the interview? Let’s get to it.

Brandon: Alright, Mr. Paul Morris. Welcome to the BiggerPockets podcast. It’s awesome to have you here.

Paul: Yes. Thank you. Thanks for having me. I really appreciate it.

Brandon: Yeah, this should be a lot of fun today. I know a bit about your story. In fact, this is our second time recording this podcast because the first time, somebody here, myself, lost some of the recordings from my computer crash. We’re going to go in a little bit different direction today, slightly than when we do it even last time. Now I know some cool stuff about you.

I want to start though, at the very beginning. What was your first real estate investment? How did you get into this investing game? What did that look like?

Paul: It was a little bit of a Rich Dad, Poor Dad thing. I had an uncle, really my dad’s first cousin. My dad and his first cousin grew up during the Great Depression. He was really the only person that I knew in my whole awareness who was very wealthy. He did it through real estate. It took a while. I watched how folks did it, and then eventually with a partner I bought a duplex. I fixed that duplex up. We bought it at auction. It was in terrible shape. We fixed it up. We rented it out for a while. We eventually sold it to a friend who still lives in it.

Most of the real estate that I’ve done is not fix and flip, but it’s always been value add. That was the first deal I did. It was 25 years ago.

David: Okay. What came next after that?

Paul: Then I just began. I saw how it could work. My business partner and I looked at that particular deal. It was very inexpensive and yet, we had used every dime that we had saved to do that. It was in the process of looking for more deals like that, without really having any money to do them that then got me into something which seems to be a lot more sophisticated, and that’s syndication. Syndication is really just using other people’s money to invest in real estate. We found some more great deals. We used friends and family money to get us into it.

David: Paul, is that what you’re doing now? Are you basically doing mostly syndication type deals?

Paul: Interestingly and it’s not that uncommon of a course, but I used other people’s money when I had no money. Then I kept doing that, investing slowly over time. As soon as I started earning enough money, where I was actually making quite a bit more than I was spending, I had more money to invest. I would find great deals and like, ‘Why do I want to put investors in this?’ I went for a long period of time doing it on my own.

In addition that, one of the things that I found was, it’s the reason why people don’t do syndication is that there’s a lot of paperwork, there’s a lot of accountability. When I invest my own money, I do things a little differently than when I invest other people’s money, because I have such a higher standard. It’s a higher standard to attention to detail. The deals that I’ve done on my own, I’ve made just as much money but I haven’t crossed all the t’s and dotted all the i’s like I would if I were investing somebody else’s money. I went through a long period of time where I had my own money. I’m like, ‘Oh, I’ll just do my own thing.’

Now I’ve gotten to a point where, again I look back. I try learn lessons from all these things. I’m like, ‘Wow, you know if I would have kept using syndication, my portfolio would be five or 10 times larger.’ I’m back at it because now I have even more deals through my network of 4,500 realtors that work in the offices that I own. 10,000 realtors that work in the offices that I oversee as a brokerage owner. That gives me a lot of access to deals. I’m doing the, ‘Okay. Well, hey this is a great deal.’ Certainly, one I’d like to do on my own, but can’t do them all on my own. I’m back to syndication.

Brandon: Okay. Let me go back to that. You mentioned brokerages you own. You’re not an agent, though? You’re not out there selling real estate. How’s that work?

Paul: Yeah. That’s correct. I was a lawyer. It’s by most people’s estimation a great gig. I went to a fancy law school. I did well there. I got the golden ring. It’s a big firm job and that lifestyle for me is really awful. You can make a lot of money. You’re married to your chair. It’s not entrepreneurial at all. You’re just giving you advice while other people do things. I got out of that, and then started investing in things that were in alignment with my core business.

My core business, where I really wanted to go was real estate investing. Little bit of a lesson in that for sure. When I look at other opportunities right now, I know great investors invest in all different sorts of things, for me I stay very close to my core competence. As I was always interested in real estate, real estate sales and brokerage really is different than real estate investing, but you can see it’s the same subject matter. I said no to lots of really interesting, cool things. When I had the opportunity to invest in a brokerage, I was like, ‘Huh, okay. This really makes sense with what I’m doing.’

David: Fascinating. I didn’t even know that. I didn’t even know that you could invest in a brokerage without [inaudible][00:10:24]. It’s a weird concept. You’re just going to buy a brokerage. Basically, you’re just buying a business that generates profit. Very cool.

Paul: That’s correct. Recently, very recently, I bought a piece of a dental practice, as random as that sounds. My nephew and his fiance moved to LA, and bought a dental practice. I helped them through the process. Another thing that’s very cool, because we talked a lot about education or I’ve had a lot of education.

Some folks have had great educations like mine. Other folks are out there with no education. I will tell you this. Just going through that process again recently, it reminded me that there is no educational process that will teach you more about understanding a business than what my nephew and I went through in buying this dental practice.

My nephew- very well educated dentist. He doesn’t know anything about business. I have lots of business education. When we went through the process of buying that dental practice, it was a total education. I’ll tell you one funny thing. There’s a book that I didn’t read. That could be our theme. Lots of books I don’t read. The title gave it all away. It was, You Cannot Learn How To Ride A Bicycle In A Seminar.

You can really teach a lot of the concepts. Until you get on that bike and start pedaling, and trying to figure things out, and how did this work and how did that work, you can even do a case study on buying a business, it’s still not the same as the midnight hour, my nephew calling me and going, ‘Oh, wait a minute. What about this thing, and that thing?’ I didn’t know all the answers to it and I’ve been doing this a long time.

Brandon: I love that. I love that philosophy.

David: You’re clearly one of the most brilliant and talented business minds that’s probably ever been the BiggerPockets podcast. Can you tell us a little bit about what kind of properties you’re buying, and how you’re arranging your syndications? Are you doing houses, apartment, commercial? What are you into?

Paul: That’s a great question. Thanks for the preface with that. I think you say that to all your guests, but that’s okay. One of the things I do is I really do stick with what I know. I’ve been doing this a long time. People will pitch things to me. I literally don’t understand them. When I get the pitch, I’m like, ‘Yeah, I don’t get it.’ I have to remind myself like, ‘Wow, I’m well educated. I’ve been doing this for 25 years. It doesn’t mean I know everything.’ That’s for sure.

There is this Warren Buffett thing. He is a very smart guy. Ten times, thousand times more experienced. Ten times smarter, perhaps. He doesn’t invest in stuff that he doesn’t understand. If I don’t understand it, I’m just like, ‘Okay this might be great. Generally it’s not, but I stick with what I know.’

Brandon: Paul, everybody’s making money in Bitcoin right now. I should go invest in Bitcoin, right?

Paul: Funny you should say that. I waited till the Bitcoin crashed. Then my nephew and I, we each put five grand in Bitcoin. I can assure you that it could go up a thousand, or whatever. It goes up or down. It’s not going to make any difference in our lives. We just didn’t want to be left, five grand, so I can say I wasn’t left out of the party.

Brandon: There you go. There you go.

Paul: Let me directly answer your question. I look at deals where I really understand what I’m getting into, what I’m going to add to the deal, and what it’s going to be worth at the other side. Any deal that I do, I can literally analyze, they say, on an envelope or a napkin, and that’s really true. I use what I call buck slips, which is a little piece of paper. It’s just very basic. What’s the cost now? What’s the return? What value am I going to add? How long is it? How much is it going to cost to add that value? How long is it going to take? What do I end up with on the other side?

Obviously, I’m very experienced at this. I’ll give you a counterexample, so that hopefully it will assist your listeners on what to stay away from. I’m always looking for deals. That’s one of the practices. It’s look, look, look, look. One of my key players brought me a deal. It’s a development deal. He goes, ‘Okay. The guy owns the land. It’s really probably worth six and a half million. He wants about eight. You put another 15 million into it and on the other side, it’s worth like $40 million.’

I’m like, ‘That cancels out.’ It’s like, ‘Here we go. Okay. How long does it take?’ 18 months. That’s a very complicated development deal. It’s outside of what I do. Under normal circumstances, I would say, ‘Huh, that’s very interesting. I’m just going to pass,’ but I didn’t want to pass, because there was so much upside in it. Trust me, I have a lot of years experience. I really went through this deal. There were a few variables that I knew I would have to check a lot deeper for sure, which would have saved me.

I said, ‘You know, I am interested.’ I don’t want to just say no to this. I went to a guy who’s a friend of mine, who’s a massive developer. I brought the landowner in and all of his stacks of paper, and all that stuff. We sat down.

Within 10 minutes, the developer was like, ‘Okay, this is a terrible deal.’ It’s saved me. I would not have ended up doing the deal. I probably would have wasted three or four weeks. I could have wasted up to 10 to $20,000 in due diligence, determining the things that were incorrect in that plan. I stick with what I know.

When you buy a stock, and I’m very biased against it so I’ll just let you know that, I believe that we are too small a player to understand all of the market forces. You can read all the stuff you want to. It’s just not going to do it for you. On the other hand, when you buy a property, if you do incredible due diligence, it would be you take the $300 property inspection guy and you go, ‘You know, I want the property inspection lady on steroids. I’m going to pay her 500 instead of 300,’ and before you know it, that’s real due diligence. You really know what you’re getting into. It’s very different.

Also, the cycle of stocks. When I grew up, it was General Electric. It was United States Steel. I’m from Pittsburgh. United States Steel tried to shift their business into USX. Where are they now? Where is Apple going to be 50 years from now? Where are these these now blue chip firms going to be 50 years from now? I don’t know. I do know that property in Beverly Hills, property in West Hollywood, or property where I live in Santa Monica, is going to be worth a lot. Something really different would have to happen for that to go down in value.

David: I love how you share that you really, really wanted to get in this deal. The numbers were appealing. It had that spreadsheet magic that you’re just drawn to it. ‘Oh, I want to do this,’ but you knew, ‘I don’t understand this, and I don’t want to put the time that it would take to learn what I’m actually investing, in order to know if this is a good decision.’ You didn’t just quit on it. You didn’t just walk away. What you did is you went and found an expert, the developer, and said, ‘Does this look good?’

His experience, he was able to analyze it immediately and tell you, ‘No, don’t get involved in it.’ I just think that too many people think they have to learn everything about everything or they can’t get into it. It’s true. I agree with you. 100%. One of the principles in my favorite book, Richest Man In Babylon, is you never invest in something that you don’t understand.

You may have friends that do that you could trust. You could go to those people. You could find the right people and surround yourself with them. They can give you good opportunities that can keep you from making some big mistakes.

Now, one of the things you mentioned is that you’ve never lost money on a deal. I can see why with some advice like what you’re giving us right now. Can you tell us how on Earth you have been able to avoid never losing or losing money on a deal, when you’ve been in real estate as long as you have and own as much as you do?

Paul: Okay. The headline sounds amazing. I use three rules. I’ve told really smart, amazing real estate investors and they’re like, ‘Oh my gosh, how’s that possible that you haven’t lost any money in 25 years?’ When I tell them the three rules, they say, ‘Oh. Well, of course, if you follow those three rules.’ Let me throw them at you.

Number one. You buy where you know. What that means for me specifically is, I grew up in Pittsburgh, spent a lot of time in Pittsburgh, spent some time in Washington DC, seven years in Washington DC. I’ve lived in LA for 18 years. The only property that I own right now is in Pittsburgh where I’ve stopped buying, and Los Angeles. I had some property in DC but I sold it. I really, truly am buying only where I know.

The reason for that is, there are market forces and things that we can experience, and understand, and learn about that we just won’t know, if we don’t live nearby. There is that local knowledge. Now really, really sophisticated investors, I’ve got lots of friends that are institutional investors. They fly all over the country and invest. Good for them. I can tell you they have lost money on deals before. It may even be a limiting belief, but I’m telling you for where I am, I can still find deals in very expensive cities like Los Angeles. I’m not quitting on that until I run out of deals. I haven’t even come close, sticking with that first rule.

The second rule is, it has to cash flow. Now, as obvious as that is, you might say, ‘Hey Paul, you told me you’re buying in Los Angeles. Can I really buy something that cash flows?’ Well, in most instances, you can. When I marry rule two, which is cash flow, with rule three, you’ll see a little bit of an exception. I’ll go right into that. That is, I always buy value-add.

What value-add means in the most exaggerated form, is you buy the worst house in the best neighborhood. Now, it doesn’t have to be the worst house, doesn’t have to be the best neighborhood. What it is, is it’s pretty close to the worst building or house, in a good or better or emerging neighborhood. Nice neighborhood- crappy building.

When you do that, by the way, your cash flow will go zero or negative. I will buy something that does not cash flow so long as I have a very short plan to turn it around. Do a modest turn around in a short amount of time that will generate that positive cash flow. I’m never sitting with a building that’s in a negative cash flow.

Brandon: I love that. I love that. I don’t know. Everyone tells me they can’t find deals. Everyone’s complaining all the time. ‘I can’t find any deals. I can’t find any deals.’

David, actually you said this the other day. When people used to tell you that and you asked them what they’re looking at, and it’s usually, ‘We’re looking at this really nice three-bedroom, two-bath beautiful house that my wife would absolutely love.’ Well, that’s why you can’t find any deals. You’re not looking for the value-add.

I think that’s cool. I think those three rules are, they’re so simple, but they are so profound. If you just follow those, you’re probably going to be alright. If you’re smart about it, and you follow those. Again, it doesn’t mean you can’t invest in another location. David’s a big guy investing out of state. People might say, ‘Well, David does it.’ Well, no. David understands a few markets really, really well. He buys where he knows. He buys cash flow. He buys value-add.

I buy in a few markets. I buy where I know. I buy things that value-add. I’ve all the same rules. The times that I’ve lost money, which was technically twice in my entire life. I bought stuff that I didn’t know, in an area I didn’t know. It didn’t cash flow. I tried to flip some stupid house.

Actually, both examples where I’ve-. One of them you could say, I broke even over 10 years. The other one I tried to flip a house, I didn’t know the area. I didn’t know the market. It didn’t cash flow. I knew it wouldn’t cash flow if I had to turn into a rental. I did it anyway. Screwed up. I think that’s amazing.

Paul: I’m always learning. I went to see a multi-billionaire, real estate investor named Sam Zell. I went to see him speak. Then afterwards, I went up and talked to him. He made all of his money in the suburbs. Now he’s sold out. It was equity. Equity was his funds. Several billion dollars. Sold out. He’s still in the game. I said, ‘Where are you looking now?’

He said, ‘Only 24 hour cities.’ He believes that millennials want to live close to where they work, in a vibrant city. They’ll pay a lot more for smaller space.

I’m like, ‘Huh, okay. So, LA. 24 hour city. Pittsburgh. Not a 24 hour city.’ There was a lot of places around that I’ve looked at. Even inside of LA, where do I look? I asked him another question. I asked him about a few other cities. Like San Diego.

He said, ‘No, no, no. That’s not a 24 hour city.’

I said, ‘Let me ask you this.’ One of the other things that I do, is I will look near an economic engine. An economic engine to me are, good examples of them are schools, and hospitals. Now, if you’re in San Diego, which Sam Zell says is not a 24 hour city, and I asked him this. I said, ‘Wouldn’t it be true if I bought right near a major hospital and school, wouldn’t that be like a 24 hour city?’

He was like, ‘Absolutely.’ Interesting. One of the recent properties I bought in LA, this will give you an idea of how can you still buy in a very expensive area. One of the property investments that I just bought recently was five units, total dump. It’s sort of underneath the highway. It’s not where you would want to be. The public storage is nearby.

I talked to an investor about it. I sent him all the numbers. He knows LA, and he’s like, ‘I’m in.’

I’m like, ‘Okay. Great.’ I make the offer.

He drove by and he goes, ‘I’m out.’ He’s like, ‘No way.’

My assistant who helps me a lot with the small renovations, she was like, ‘Buy anything. You cannot buy this one.’ I still bought it. It’s rent control. It was directly across the street from a hospital. It’s a total dump neighborhood in LA. Complete dump. The place itself, pretty much of a dump and across the street from the hospital, I just know that that economic engine, that hospital’s not closing down. Doesn’t matter what the economy does.

David: People often say you should never buy in real estate where there is rent control. I’ve heard a lot of people say that. That’s just one of the rules. You just did that. How do you deal with that? Why do you like rent control, if you do?

Paul: Okay. All things being equal, I would say I don’t like rent control. When you get a little further into it, and now you have to start sourcing deals, I buy rent control all the time. Here’s the reason why. I get in the book, in our book, Wealth Can’t Wait, there are seven pillars of how to build a business that builds wealth. One of the pillars is, barriers of entry. These seven pillars work for any business. I’m trying to make them work for my own business. I’m like, “Geez, I can apply them everywhere, but I can’t figure out how to apply them in real estate.’

Well, a barrier of entry, it must be, what do you need to buy real estate. I guess you need money. That’s a barrier of entry, but that’s never a barrier of entry. Do an amazing deal, and the money rushes to it, so what’s the barrier of entry? I will tell you, rent control is an example of a barrier of entry.

Cap rates are a very fancy word. Your listeners are way above this, but I’m going to tell you I’m barely way above this. A cap rate is just simply, what rate of return are you going to get on this particular building? The building costs a million dollars. Then you pay all of your expenses and then your net on the amount of money that you put into it, or an all-cash deal would be, let’s say, would be 3%, like in Beverly Hills, 2.5%.

As the price increases the return stays the same, but as a percentage it gets pushed down. That question, by the way, brings out exactly why the three rules work. When I go into something, and it’s a really nice shiny building, it’s a really nice building in an okay neighborhood. It’s fully rented. It’s beautiful. It doesn’t need any work. These are things that people like to buy. Let’s say that returns even in LA at 5% cap rate, where the market might be 4.5. ‘Wow, that’s a deal. Let’s grab that,’

When I see that deal, I go, ‘No way. Not interested.’ I’m not interesting in 5% return. I’ve got to find something, now I look at this and I can use just that building that I bought, across the street from the hospital, it was literally on the market for two years. Every investor in the world looked at it and they go, ‘Oh, I’ll pass. I’ll pass.’ They look at the rent roll.

First of all, it’s a dump. It’s in a dumpy area. They look at the rent roll. ‘Oh, and there’s this guy that’s been in there for 20 years, and he’s paying $600. We could probably get 1500. How do we get him out of there?’ That is the barrier. Here’s a way of looking at it. All things being equal, I would like to walk down the street and have people hand me money. That hasn’t worked for me. Instead, what I do is I try and find things that have barriers of entry that I can manage. Rent control happens to be one of them. I find that the market overestimates the cost of getting people out of a rent control apartment, or overestimates the amount of time they will stay in before they move.

Some people have a business plan, where you have the 80 year old man in the apartment and he pays his rent four days late. I’m tacking the thing on his door to try and get him out. That’s not the kind of karma I want in my life. I do not need that. I’ll give that guy extra time. Even in rent control, I don’t have to be a jerk to turn the property around. You can buy them out. You can say, ‘Hey, what would it take for me to relocate you?’

Maybe they say, ‘I’m staying put.’ That’s okay. There’s a lot of things you can do to mitigate an obstacle like rent control. Rent control is what chases away the easy money. That’s what

happens.

Brandon: I love that.

David: One of the things Brandon talks about all the time is that in today’s market, you’re probably not going to find a deal. You need to make a deal. That’s exactly what you are describing. You’re looking for barriers to entry because it’s going to weed out all the people that just want the easy, quick score. It’s going to give you less competition basically.

I do the same thing when I go look for homes that are serious rehab projects. The people who are looking to get vested in real estate, and they want to use a loan, they’re not going to be able to do it because they’ve got to pay cash if you want to get this deal. I eliminate 90% of my competition.

It sounds like you’ve taken these business principles that you’ve understood and applied them to real estate. You’ve figured out, ‘I want to find a place that’s harder to get into because there’s less competition. I can use more creative ideas to make this work.’ Can you tell us a little bit about the numbers on this last when you bought? Just really quickly, what you paid, what the rent is? How it cash flows? What you’re going to turn it into?

Paul: Sure, okay. It’s great. It’s like a politician. You ask me question and I’ll just answer a different one. I’ll pivot from that only because I would really need the spreadsheet in front of me. That will tell you a little bit about the way I do my business. I really focus on the deal that I’m doing, and then rehabbing it, and then I forget about it. With the 600 units that I have, I know very little about, and have not even visited many, many of these places.

In fact, one funny story is that I bought that five unit, and I actually thought that I had bought the place next door. I would drive by every once in a while, and be like, ‘Oh wow.’ My assistant knew which one because she was rehab. She wasn’t rehabbing somebody else’s building. She was rehabbing mine.

I took my business partner, childhood friend Eddie Krifcher who I’ve been doing real estate with for a long time. I took him into the deal because he wanted to be in it. I kept showing him the other property, which was a four unit. He’s like, ‘Huh, I can only count four garages.’

I’m like, ‘Well, I don’t know where the other one is.’ That just gives you an idea about that. I’ll pivot, but I’ll answer your question directly. I’ll just do it on a deal that is more recent. Those numbers are in my head. This one in particular was not rent control building. It was in an emerging neighborhood. What I mean by an emerging neighborhood is, I’ll give you a rule of thumb on the emerging neighborhood. It’s a neighborhood that’s turning.

Here’s an important rule of thumb for that neighborhood that’s turning. When the whole neighborhood is bad, you can go in and buy things very inexpensively, but now I’ve got to predict when it might turn. What I do is I wait until 20, 25% of the neighborhood has turned. Think about that. That’s actually a lot. Let’s say 20%. One of every five buildings is already being turned. That means the the lousy restaurant has been turned into the fancy restaurant. There’s now a cool pub.

I had a metaphor. I was living in New York City. In Alphabet City, back in the day was, you walk there, you get killed. Police didn’t take a call to come to Alphabet City, like, ‘Oh, forget it.’ Then one day I drove through Alphabet City, and all through as bad as it was, I saw this young guy coming out with a cello strapped to his back. When the cello is coming out of the plates, that’s when you know to buy. That place was still a dump. It was 10 to 15% turned. Now, you couldn’t buy in Alphabet City no matter what.

There are these little indicators, but I wait for it to turn. Here’s the tricky part about waiting for it to turn. Before it’s turned at all, you can buy stuff very inexpensively. Once it’s one out of every five or six houses of turn plus a couple of cool restaurants, now you go to buy a place. Guess what happened to the prices?

David: They went up.

Paul: They’ve gone up. They’ve gone up enough that all of the neighbors are like, ‘Did you see what they sold that place?’ Like, ‘Are they crazy?’ There is already the talk of, ‘You’re nuts. They’re nuts,’ but now I know that thing is turning. Now, when you get to a place it’s 60, 70, 80% turned, then all the people that are selling have already built in so much into the price that there’s barely any upside.

On the street that I live on in Santa Monica, it’s this cool street that has great views, and they’re sort of all these dumpy houses 10 years ago, when I bought it. It was 25% turned. One every five or six houses, you get these gorgeous houses and then all these little dumpy houses. Right now, they’re building a house across the street from me for, actually just sold before it finished, right across the street from me for $8.1 million. Absolutely unheard of the time. The house right next door to me is being turned.

We’re way into the 75% at this point. There are two houses for sale on my street. There’s no way that you can go in and make a safe and phenomenally great profit. The market has to stay good or get better. You’ve got to be an expert at building. You got to do everything right to make a decent return. That’s the rule that I use about when to get into something. I’ll give you this particular deal.

It’s in Long Beach, California. It’s a neighborhood where one out of every five houses or buildings has turned. It is six blocks, because it’s on 6th Street from the ocean. Now from where you guys are sitting, you’d be like, ‘Huh. California. Southern California. Six blocks from the ocean. How is that not a good deal?’

If you went there a year ago, it’s like Venice, California right now. I tried to buy a house in Venice, California. I got knocked out of it in escrow. While I was in escrow with somebody else, because I missed it, I missed the deal, people were shot on the street in front of the house. I was like, ‘Wow, I’m glad I didn’t get that one.’ That house is now worth a fortune. That’s California, near the ocean.

I’m trying to get to the mindset. The mindset’s very simply that when it’s starting to turn, now’s the time. 6th Street, Long Beach. I’m watching the other buildings turn. It’s very simple. I can do an analysis of what needs to get done for the building to be turned totally around. I can figure out how long that will take, and how much I’ll get on the other side. I was thinking about using other people’s money, I would have just done it, period. I did, by the way, I just bought it. I’m like, ‘Oh, I think I’m going to syndicate this one,’ so I had to really go way deeper into the analysis of it.

I talked to three property managers in the area, and said, ‘What would a redone apartment like this rent for?’

They go, ‘Oh, 1400. Wow. Okay.’ Then I looked at comps myself. I had realtors look at comps for me, and then because I wanted to be absolutely certain, I mocked up an apartment like it, and I actually ran a Craigslist ad. ‘Hey, here’s an apartment. Here’s the size of it.’ When the phone’s ringing off the hook, I’m like, ‘Okay, I’m certain that this six months project will yield something at $1,400.’

The math on that is very simple. I buy the property. It’s 24 units. I buy it at $3.2 million. You go, ‘Okay.’ I bought it at about a four or five caps. It was currently turning about a 4.5% return. When I dug into that, they were leaving some of the expenses off which they always do. It would really be like a two caps. Essentially, I’m over paying for it. I still buy it anyway. I know that it’s going to cost $500,000 to turn around, so I budget in 600,000. Now I’m at $3.8. I redo all the rent rolls at $1,400 instead of $600 or $700. It’s through the roof. There is well more than a million dollars sitting inside of that property. I’m in the middle of that deal right now.

Brandon: I love that.

David: What I love about what you’re saying is you understand the numbers. You know that they need to work. I’m sure in the beginning of your investing career, you’re much more focused on the details of every property you bought. In doing this for long enough and being successful, what you found is that there are rules of thumb, that if I meet this criteria I don’t need to stare at these numbers over, and over, and over to make sure they work.

They’re going to work. You focused on principles that you follow it will lead to success. You don’t get caught up in the details, so you’re not burning out from this analyzing property, after property all the time. Can you share with us some of these principles or life lessons that you used to guide your day-to-day life?

Paul: One of them is, I’m just not a detail person. I don’t lost in the details. I will tell you a very good friend of mine, and I was always sort of jealous of the amount of due diligence that he did. He hired somebody who runs this massive spreadsheet the likes of which I don’t even own, in terms of analyzing deals. I think that’s great. The pros do that. I’m not opposed to employing that.

However, I don’t get lost in those details. He found one that all the spreadsheet showed him that that was going to work, and yet lost money on it. I was like, ‘Wow, how did that happen?’ Really, it was because he bought in a place that was near where he lived, but he didn’t know the area. Then they changed some local ordinances, and before you know it, he had to get out of that deal to protect his money, and lost a bunch of money. That’s a piece of it.

I do think that one of the life lessons for me is understanding your strengths and weaknesses. Not even strengths and weaknesses, but the things you’re really passionate about, the things you really care about, and get more into the things that you’re passionate about. I’m good with numbers, but I get bored with the details. I have a partner that’s no smarter or dumber than me, but he has more patience and he can look at those details. That’s what helps me do that.

The thing that stops people from taking action is the fear of loss. The old adage of how hard would you work to earn $20,000 versus how hard would you work to keep somebody from stealing $20,000 from you. It’s just human nature. I do a pretty quick analysis of the deal and get into it, and just do it. One of the guiding principles is get off your rear end and do some deals. It ties back to what I said before, which is you can read as many books. You can watch as many podcasts. I really think you should. I really do, but there’s nothing like doing a deal to teach you.

Brandon: That’s so true.

David: I want everyone who’s listening to pay attention to that. There’s things that hold us back from getting started and going forward. You really need to identify what yours are. Like what Paul said, understanding himself. He knows he’s a vision guy. He’s a big picture guy. He’s a principal guy. He can build this outline of exactly how he wants his project to go, but he’s not a detail guy. He doesn’t want to have to go fill in all the blanks and color it all in.

There are detail guys in the world who are just looking for something to build an outline from so that they can jump in and they can color it in. Find people who are good at what you’re not good at, and focus on what your strengths are. Find partners who are going to work well with, just like what you said Paul, and all the sudden real estate investing becomes fun. It doesn’t become as scary, or as intimidating or bring all this anxiety because you’re not trying to do it all on your own. That’s how you’re going to be successful. If you’re trying to tackle this and doing all the stuff you’re not good at it, it’ll just drain you so fast.

Paul: Absolutely. For sure.

David: Speaking of life lessons, I heard that you recently did a keynote speech called How To Succeed Without Hard Work or Sacrifice. You did this at UCLA’s MBA school, talking to this graduates. Is that true? Did this happen?

Paul: Yeah. Yeah. It happened and for a moment before I gave that talk, I was wishing that I could disappear from the planet for a minute. I was invited by somebody who is really cool and I didn’t want to let them down. It was a dinner, and I was the keynote speaker. We were out in the courtyard, and there’s couple hundred people out in the courtyard. The person that invited me introduce me to the Dean. The Dean was like, “Oh, so you know, what’s your talk going to be about today?’

I said, ‘Well, how to succeed without hard work or success.’

He just gave this belly laugh. Then he looked at me and he goes, ‘Oh, you’re serious.’

I said, ‘Yeah, I am serious.’ I felt like saying, ‘Well, I was serious until just now, but now I could quickly change my speech.’

He’s like, ‘Oh, this will be interesting. I’m going to make sure I sit up front and take notes.’

Then when we walked away, the guy who invited me said, ‘Oh, do you know so and so?’

I was like, ‘No.’

‘Oh, he gave the keynote last year. He made 500 million in some sort of PayPal type of electronic transaction platform. Moved to Vegas. Made $500 million. He gave his speech last year. His three takeaways were, or his takeaway was, there are three things in life. You’ve got business. You’ve got family, and you’ve got friends. Now, pick two.’

I was like ‘Wow.’ It’s kind of the opposite. I was thinking also, I could really help him out with that because after I heard that, I didn’t want to be his friend. He could already have his two. It’s really a mindset thing. The key to that was, I grew up with a Dad that believed in the value of hard work. There is this thing about grit. I have a 14 year old daughter, so I think a lot about what we want to teach our kids. It used to be self worth. What that is, is your self-confidence thing where you believe you can do something.

I have the natural belief that I’ll succeed. Then I’m a little kid, and they’re throwing the fast balls at me and I strike out. I’m like, ‘What happened?’ I thought I could succeed but life doesn’t work that way. What we found out is it’s really grit. It’s saying like, ‘Hey, I know I can get to the plate. I know I can face this picture. I know I can take a great big swing.’ What happens? Not sure. We have gotten away from that thing. It’s a little bit back to the hard work piece.

However, what I found is that I define hard work as things that I don’t enjoy doing. I just did a management retreat with my top managers and top people. We had an absolute blast. When we were totally done, We had my house in Palm Springs, and we rented a couple of houses. The guys that were staying with me, we were up till four o’clock in the morning talking about business. We would have gotten to bed at 12:30 if it were boring or it wasn’t what we wanted to do. We love this. The magic zone is where passion meets ability.

When I was a lawyer, I had the ability. I really did. I didn’t have the passion. You’ll never create these amazing these things and you’ll never love life if you’re not doing what you’re passionate about. I look at hard work as only things that you don’t enjoy. You might say to me, ‘Well, what happens if you choose this position, and maybe you love 50% of it. You’re okay with 30% of it. You hate 20% of it.’

Well, what I do is I look at it as a package and I go, ‘Okay, do I want to do this or not?’ Yes, I choose this. As soon as I choose this, now the 20% that I really don’t like, I will either outsource it, or create a system around it, or just do it until I can outsource or create a system around it. When I get to those things, I don’t say I have to. ‘Oh, I have to do this.’ It’s the, choose to.

If I’m in a business meeting and I’m very purposeful about words. It creates our reality. I’m in a business meeting. Maybe a business meeting I’m enjoying. I look at my watch and I’m like, ‘Oh my gosh. Hey, I got to get out of here. I’ve to go pick my daughter up at the bus.’ I work toward never saying that.

I’m like, ‘Hey, I’m really enjoying this. I could go on and on. However, isn’t it cool? I get to go pick my daughter up at the bus at 3:20 in the afternoon.’ I could never do that if I was at a law firm, so that’s the hard work part.

Another thing that’s interesting is, I’m a world-class procrastinator. There really, truly is no such thing as procrastination because you don’t procrastinate the things you love. Think about the thing you love to do the most. Does somebody have to say, ‘David, Brandon, get out of bed. You have to go do this thing you love.’

You’re like, ‘Are you kidding?’ You jump out of bed. Create in your world. It doesn’t require that every part of what you choose you love, but you just change that mindset around it. That’s the, have to. That’s the hard work piece. In a way when people look at me they go, ‘Wow, you work hard.’

I’m like, ‘Yeah, I do the stuff that I love to do, with a lot of passion, a lot of intensity and I’d be bummed if I had to stop doing it.’

Then the sacrifice pieces this is. I define a sacrifice as giving up something vital to have something else. That’s what sacrifice means. If I have to give up something vital to have well, of course I don’t want wealth. I do a lot of talks with realtors. One of the things that I do, it’s a piece in the book too. It’s to 10 times your goal. I say, ‘Hey, I want everybody to write down how much gross commission income they want to have in two years or one year.’ That’s a great cheat, because it’s a here-and-now time frame. They’ll generally 20 or 30% up their gross commission income.

If they’re making a 100 grand, they’ll go, ‘Well, in a year and half, I’d like to make a 130.’ They can wrap their brain around that.

I go, ‘Okay, great.’ I say, ‘What will stand in your way?’ Most of the time they say nothing. Well, a few little things. I go, ‘Okay, great. Now what I’d like you to do is take your goal,’ which is $130,000 in that instance and I go, ‘add a zero.’

They go, ‘Ooh. Wow.’ Now I’ve got a person that’s earning and used to earning, and probably working pretty hard to pull in a 100, that has this vision of “I’m going to have a 130.”

‘Now, what would it take for you to do a million three, and what would get in your way?’ I was trying to get at the obstacles. When they plussed it 20, 30%, I wasn’t getting many obstacles to work with. When I do the 10x, the class exploded. I couldn’t write as fast as the reasons why they weren’t going to make it. I said, ‘What will stand in your way?’

One person even said, ‘God.’

I’m like, ‘Wow.’ If you’re a real, strong faith based person, and you think that God will stand in the way of you making a million three, how are you ever going to do that?

Another person said, ‘Oh well, hey, I like money, but not so much I’m going to miss my kids’ sporting games.’

I’m like, ‘Whoever said you have to miss your kids sporting games?’ There’s somebody in the room, actually there was, that wasn’t in a million three, but they were in a million one that goes to all their kids soccer games. Now they may be selling at their kids soccer games. They may be using that as networking, but they don’t miss their kids soccer game. People are really, literally, setting it up so that it is sacrifice.

Here’s a real quick add-in. I hope that this will be takeaway. One of the things I love about your podcast and I really want to stay within it is, ‘Hey, let’s share some great ideas, some great thought stuff,’ but I really want to give people things to do, so that, ‘Oh, if I make this one tweak, I can really change.’

One of the things I’ve done is with any goal that I have, I’ve changed the word goal, by the way to commitment. That makes me like, ‘Oh,’ because if I have a goal to lose weight, ‘I’ll still eat that chocolate croissant. I’ll work it off harder later.’ If it’s a commitment, I’ll feel differently about it.

The other thing I do is, I add “with ease” at the end. My next monetary goal is to hit a hundred million dollars in net worth. The brain looks for hard work and sacrifice. What do I need to do or be different in order to earn, in order to accumulate a hundred million dollar net worth with ease? That’s the question.

I may not even have the answer to that question, but see what I’m doing right now and who I’m being right now has taken me to this level that some people think is pretty cool. If I think it’s pretty cool, that’s okay. Just keep doing and being what we are right now, and it will lead us right back to where we are. There’s no judgement in that. That’s fine. Stay the same.

If you want a quantum change, then it’s really what do I need to do or be different in order to whatever it is you want, and at the end I just throw on, with ease. Your brain will search for answers to any questions you ask, so therefore why not ask magnificent questions? That’s a great question for your folks, should they choose to want that one.

Brandon: I love that. I think every single person listen to show should rewind the last 10 minutes or five minutes and listen to that all again. There’s so much good stuff in there. If you’re not sure why you should go back listen to that again, you need to listen to that like three or four times. There’s so much in there. We’ll be here for an hour if we unpack it all. Just go back and listen to that because I think it was so good.

I really like the changing your goal, from goal to commitment with ease. I love that. I love all that stuff. I love that when you love what you’re doing, it’s not hard work and sacrifice. It’s what you love to do. The second thing I’ll point out, or maybe third thing is this whole, limiting belief of, ‘Well, I can’t do that because-.’ People love to do that. ‘I don’t want to be rich because then I would have to lose my family.’ Who said that? Who made that rule up? Where’s that written? So many good things.

Paul: ‘I don’t want to be a jerk.’

Brandon: Yeah. Exactly. ‘I don’t want to be rich because I don’t want to be a jerk.’

Paul: [inaudible][00:53:48] super rich or jerks. Some of them are. I’ll throw another one out there that folks love. That is, your net worth will never exceed your self-worth. People go like, ‘Oh, wow. That’s cool.’ Then again, in keeping with what I just said. Okay, well wow, that sounds cool and that makes sense. What do we do about it? There’s a lot of things we can do about it now.

I’ll just throw a few at you. One of them is changing the outside world a little bit. That’s just the folks who are around you. It’s sort of a cliche almost that your net worth is the average of the five people closest to you. I have a great mentor. I’m still learning. Again, people on the podcast might think, ‘Oh wow, you’re in such a cool position.’ Well, I want to grow. That’s where I am right now. I want to grow.

Sorry to say it, but taking responsibility, you were talking about the 15 life lessons, taking responsibility is definitely one of them. I will say that everything great that’s happened to me is a result, sure there’s luck involved, everything that’s great that has happened to me where I am right now I’m responsible for, and therefore can take credit for.

The flip side is everything bad that has happened to me and I have to again, take responsibility for that. Now you could have bad luck. I’m just saying, the good and the bad, we are where we are because it’s who we’re being and what we’re doing. When I want to change that, it’s another adage of “what got us here, will not get us there.”

That’s hard for me. That’s hard for me right now to let go of. I enjoy what I’m doing. I want to keep the same people around me. I want to do the same things and to expect that I’m going to get much bigger doing that, I think it’s just the folly that I was able to get through to get where I am. The five people around you. Just think about, are they positive?

There’s so much evidence for it. I have some funny ones. I used to say what I taught and people would love it. I always used the fitness and weight thing. When I go on a diet, my girlfriend loses weight. Yeah. People- there you go. I love it. There’s where you’re supposed to laugh. When I do it in front of a crowd, people, they love that.

The crazy thing is, it’s true because when I’m not on a diet I’m like, ‘Oh, I’ve had a hard day. What’s my favorite thing? I’m going to call the Chinese delivery with the Chang P. chicken.’ It’s deep fried, candied chicken that I eat over rice. It taste so good. I eat globs of it. Guess what? She would never order in a million years, but I order it. She eats it. When I’m on a diet, now I’m eating salads, she’s eating salads. She loses weight. The people that surround you make a big difference. That’s the outside thing.

On the inside, I will say that people overestimate their ability to change others. They overestimate it. They underestimate their ability to change themselves. If you need change in your world, work on yourself. The rest will happen. That’s pretty basic. I’ve said- take responsibility. It’s super important. Just practice it. Every bad thing that happens, just go, ‘Yeah, that’s on me.’ Then try and figure out what you had to do with it. That’s how you change it. You’re not going to change it by changing somebody else.

Negative self-talk is another one. I talked about all these great things. What happens when we’re on the diet, like I’m on the diet and then I eat the croissant anyway? What do I say? ‘I can’t believe I did that. I’m such a jerk. I never follow through.’ It’s just like, ‘Oh my gosh.’

Forget the croissant. You’re ruining your life with those statements.

Let’s just take the, eat the croissant. I didn’t stop myself from doing. I ate the croissant anyway. There is a part in the book called, “First thought, second thought.” My mind goes to, ‘I’m such an idiot,’ or ‘I can’t believe-.’ Allow for that. Sometimes you can’t control that. Then the second thought you can control. You’re like, ‘wow.’

Then I’ll give you another tool on judgement. Rather than judging yourself and judging other people, here’s a way out of it. That is, use the word interesting. I talk to gurus and they’re showing how to be non judgmental. I wonder, are they being judgmental of me being judgmental? The work around on that is, just say interesting.

Whenever you made a mistake in your past, you look back- first of all, I think you probably did as well as you could with the information you had at that time. You can just say, instead of saying that’s a terrible choice, you go, ‘Hey, that was an interesting choice.’ Interesting is a light and powerful word. It’s always true. It’s very difficult. You can say take responsibility for everything, and the thing that stops people from taking responsibility is the judgment.

People who judge others harshly actually judge themselves most harshly. Start with yourself. Be light on yourself when you make a mistake. Just go, ‘Hey, that was an interesting choice.’ Any words that follow I am are the most powerful words in human language. ‘I am magnificent.’ That’s going to change the way I feel about myself. ‘I am an idiot.’ It’s horrible.

Have kids, it’s poison to kids. ‘You’re a brat.’ One of the things is a very simple change. If my kid is being a brat and I lose my temper, on a scale of one to 10 in terms of harmful, it’s probably only a two for me to say, ‘Hey, you’re being a brat.’

‘You are a brat,’ is a nine out of a 10, or an eight out of a 10 in terms of harmful. Treat yourself the same way. Stop victimizing yourself. You’ll be able to take that first step. People don’t take the first step because they’re so judgmental. ‘What if I screw up? How am I going to feel about myself? It’s going to be awful.’ I go like, ‘That was an interesting choice.’ I make mistakes all the time. Get used to it. Move forward.

Brandon: I love that. I love that, the limit your negative self talk by saying interesting. I think that’s super powerful. I heard you say that once before. I’ve been trying to put that into practice the last few months in my life. Like, ‘that’s an interesting choice.’

My last question before we move on to the fire round, is simply when you die someday, this is going to be a deep question, when you die someday, what do you want written on your tombstone? In other words, what do you want your grandkids to remember about you? What do you want people to remember? What do you want on your tombstone?

Paul: I wish I had a fancier thing to say. I guess not having a fancier thing, it’ll just be more authentic and that is, a life fully lived. The reason why that’s what I would put on my gravestone is, it handles a fear that I have. The fear that I personally have is that I don’t play a game big enough, that I could be playing a bigger game, and that all the advice I just gave folks on your amazing podcast that helps so many people, that the advice that I’ve really, truly given is advice that I need to hear.

Don’t talk negatively to yourself. Play a bigger game. What do I need to do or be different to have everything that I want with ease? When I get up to that point where really diving forward is going to most help me, I’m afraid of missing the tackle, landing on my face, getting up with mud my face, and that the runner just scored a touchdown where I could have made that amazing tackle. I was a star in seventh grade.

Brandon: I think we all think we’re stars in seventh grade.

Paul: I’ll give you another question too. I talk to as many people as I can. I’m always having a life of learning. As soon as you stop learning, you’re frozen. I talked to a person who was a psychologist, and then a sports performance psychologist, and now executive performance psychologist. That was in this room of very smart, talented people. She said, ‘You climb a mountain top. You get all the way to the mountain top, and you stand at the mountain top, and what do you scream, what do you shout out to the world? Just tell me right off the bat what you would say.’ That’s similar to that.

My answer, I’m practicing right now with you in front of all these amazing listeners, because I was embarrassed to give my answer to that group of people. My answer was, love me. It was a little too weird and raw. I talked to her about it afterwards. I think we all kind of maybe change our answer, because we were embarrassed. She said, ‘Do you know that the thing that most executives say, that I work with are, the less nice version of, screw you?’

I’m like, ‘Wow, really?’

She’s like, ‘Yeah.’ I think maybe the drive that’s taken them to that mountain top is they have felt like, somebody said they couldn’t do it, people were holding them down. It’s just good information. There’s no judgement in it. I’d probably say love me, because the youngest of five kids, I’m seeking attention. It’s just good to know that.

Knowing that helps me in business because one of the things that I do is, I tend to hire people who will love me, where people who I like to spend time with, instead of that hardcore analyst that’s not that warm and fuzzy. In the analyst position, I need the woman that’s like spreadsheet only. Comes in, does her spreadsheet and leaves. She doesn’t have to say, ‘Paul, you’re so cool.’ That what I want to hire.

Brandon: We went deep. This is deep podcast. This is awesome. I want to transition this to the next segment of the show, which is lovingly referred to as our fire round.

It’s time for the fire round.

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Brandon: Alright. Let’s get into the fire round. These questions come directly out of our BiggerPockets forums. They’re short, quick answers to the questions that people are actually asking.

Number one. I just bought my first deal. How long do I have to wait to buy a second deal? Is there a waiting period.

Paul: There is not a waiting. It would be when you can next comfortably, without risking the first, without risking the nest egg, or without risking the first deal. I would buy a deal when the first deal can stand alone.

Brandon: I love that. Next question.

David: Alright Second question. Where can I find a private lender to fund my real estate deals?

Paul: Okay. Private lenders are easy to find. They have certain criteria, which is they generally want to be in first position. They’re going to appraise the deal. There’s a lot more hard money out there, than there are good deals. The question makes me nervous because if you need hard money to fund the deal, it’s sort of goes back to the first listener’s question. If I did deal one, and it was going to take hard money for me to do deal two, I’d wait a little bit. It just makes me nervous when people are using so much- the more leverage you use, the higher you can crank up the return, but also the faster people fall. I believe in leverage, but I believe in smart leverage. Hard money scares me and I’ve never taken a hard money loan.

David: Number three. What is your favorite real estate investment? What’s the one single, your favorite thing?

Paul: Multifamily in an emerging area, or next to a school or hospital. It would have to be a dump. In multifamily, dumps are very easy and inexpensive to change. You carpet. You light. You take the door that’s halfway off the hinges. You put a good, solid door on. You put the camera in, security system. Before you know it, you have the nicest, cleanest, safest unit in an area where people want to go. That’s my favorite.

You know what I’m going to do, because I didn’t do it already in the podcast, I’m going to give answer two on that. It’s a question that I always get, I often get, and that’s, ‘What’s the first deal I should do because I can’t afford a deal? I live in LA and everything is so expensive. I’m trying to follow your rules.’

My next question then is- do you own a house? If their answer is no, then I take all those lessons I go to an emerging area. When it’s 25% renovated, I buy a house because the lending criteria unlike hard money, the lending criteria for your own home that you’re going to live in, you’re going to get the best rate. You’re going to get the most money. It’s going to be the simplest to do. Now, you can probably afford the down payment because you need so much less to put in, or you borrow it from a friend. Now maybe you have a hard time affording the payments per month, you fill it with friends.

That’s exactly what I did. I lived in DC. I worked for the government as a lawyer. I did not have enough money to support this beautiful, hundred year old townhouse that I bought. I could afford the down payment, and then I filled it with three friends that paid rent. Before you know it, I’m living for free, and I own this magnificent piece of property. First one is, do you own your own home? If not, go buy your own home. It’s the easiest. Then second, go with what I said before.

Brandon: Love it.

David: Brandon, if people want to learn more about how to do what Paul just described, did you have anything you could recommend for them?

Brandon: Well, there is a lot of books and resources on it, but type in the BiggerPockets, over in the search bar, type in “house hackings.” We call that house hacking. In the nav bar type in “house hackings.” Also pick up a copy of Scott Trenches book, Set For Life. It’s fantastic. A lot of them in there that has house hackings.

Alright. Last question.

David: Absolutely.

Brandon: David, you want to ask it?

David: Alright, Paul. How do you think the new Trump tax plan will affect real estate investors and do you even care?

Paul: The short answer is I don’t know, and probably I don’t care. Maybe if I knew I would care. Consistent with everything I’ve just said, I’m not trying to time the market. I don’t run around trying to figure out how all these different things work. I know that if you go back one or two questions before, and I buy that four unit. By the way, you could do the four unit `that you live in one of the units too. You buy the four unit dump next to the hospital, in a pretty good, emerging neighborhood. It does not matter what the rest of the world is doing. You will do great with that particular property, for sure.

Brandon: I love it. Love that mentality. I love that.

Well, cool alright. The last segment of the show is called our Famous Four, but before we get to it, let’s hear a quick word from Mindy on what’s coming up this week on the BiggerPockets Money podcast.

Mindy: Hi Brandon. Hi David. This week on the BiggerPockets Money podcast, we speak with Joel [inaudible][01:11:21] from Pour Not Poor. As a kid, Joel watched his parents work jobs they didn’t like to pay for things they didn’t need. They missed out on some of the priceless moments that life has to offer. Their filing for bankruptcy when he was 12 permanently altered his view about money. We discuss how that unfortunate event shaped his entire future, and let him to pursue multiple passive income streams, so he never has to go through this again.

Okay, I’m going to let you guys get back to the Famous Four. Bye.

Brandon: Alright. Make sure you guys check out the Money podcast. It’s awesome. Now let’s get to the Famous Four. These are the same four questions we ask every guest, every week.

Number one, Paul, do you have a favorite real estate specific book? I know you wrote a book, besides your own, which we’ll get to, but it’s not a really a real estate one. Do you have any real estate related books yet?

Paul: One of the things is, I don’t really read a lot because I find it super boring. I listen to podcasts. I listen to your podcast. I learn from going to seminars mostly. I will say I’m reading a book now called The War of Art, not the Art of War.

Brandon: I love that book.

Paul: Oh yeah. It’s all about resistance and breaking through resistance. It’s super cool. I love the mindset books, for sure. The Power of The Influential Mind is one that I just bought and didn’t read. I read the forward and it talks about how we really influence not through statistics, but we really influence through emotions, so that helps me with what I do.

David: Alright. Very good. I know you’re not a big book reader. Normal we ask what your favorite business book is. Would you like to share maybe a business leader that you look up to, someone that inspires you, you like to follow what they teach?

Paul: Sure. One of the things in my own book, there’s again in one of my favorite sections, the Seven Pillars that help you to build a business that builds wealth, is there is something called modeling. In modeling, what you can do to accelerate your thing right now, faster than almost anything else is find someone who’s doing what you want to be doing at a higher level and learn from them. I’m going to give you a “how to do that.”

One of the things, and I’ve asked some really important, busy people, ‘Hey, I’d like to spend some time with you, and ask some questions.’ They’re going to hear that from thousands of people. I say, ‘What do I need to do to earn the right to have an hour with you?’

Brandon: I love that.

Paul: Using that script, I make sure I’m really prepared. I also come from contribution and figure out they love. What kind of coffee do they drink? Some cool, little present that shows that I care. You generally will earn yourself an hour on that. It works for everything. I mentioned buying a business that I know very little about. You can easily find dentists that’s crushing it, in a different area, blah, blah, blah.

Most these people don’t get a chance to really to share their vision, like you guys have given me the opportunity to do. I would go with with modeling. Whatever it is, find somebody and they’ll give you 20 years of insight.

Brandon: Very cool. Is there anyone in particular that you look, like a famous, that you are like, ‘Yeah, that’s the guy I’d like to follow?’

Paul: Again, it depends on what I’m doing at the time. Sam Zell was very important at the time. I know this because I hear somebody speak, I’m like, ‘Oh, I have to go run and talk to them.’ I joined a mastermind called Tiger 21 which has a very high bar. It’s very expensive to join. I go toward the people that are doing things that I want to do at a higher level. I take them out to lunch. It’s a great networking piece, for sure.

Brandon: Perfect. Perfect

David: Awesome, Paul. Can you tell us a little bit about what some of your hobbies are? What do you like to do in your spare time for fun?

Paul: Right now, I’m working on becoming a nationally ranked table tennis player.

Brandon: Really? That’s awesome.

Paul: Yeah. Really, really. Yeah. People think like Forrest Gump or whatever, and make a lot of fun of me. I get that. I do these things really because I love it. I was a lousy intermediate skier forever. I had this dream in my mind that I would become an expert, expert enough to go heli-skiing. It took me 20 years to be a lousy, intermediate skier. It took me probably five or six purposeful years, going with an instructor all the time, feeling every turn that I do to get to the point where I did go heli-skiing with my buddies, and was absolutely terrifying. I have no interest in doing that again. It was a great experience.

I might wear out on the table tennis too, but one of the things I love about it, is that it takes my brain totally away. I have a busy cluttered brain. It takes my brain away from everything else. If you don’t have a 1000% focus, I will lose, and have lost to the 65 year old Japanese lady that I play with it that just crushes me off the court. I’m like, ‘How is that possible?’

If I absolutely focus, I get a few points from her.

That’s the sort of thing. I always keep it light in what I love. I’ve been doing yoga really adamantly for two years. One of the things I have heard, I recently I saw Tim Ferriss on your podcast. It was fabulous. It lead me to some more of his stuff. He did this thing where he interviewed all these smart people. One of the things that the billionaires or the most successful people in their area, all had in common was meditating. Meditating is very hard for me. I’m working toward doing that, so there you go.

Brandon: Awesome. Awesome. I love the, finding an activity in your life that you can just devote a 100% attention to. That’s why I love surfing. That’s like the one. I love it because I just have to just be in the moment. You’re present. It’s good for people that are busy and stuff.

Paul: I love it.

Brandon: Awesome. Alright. Last question of the day from me. What do you think sets apart successful real estate investors from all those who give up, they fail, or they just never get started in the first place?

Paul: I so appreciate the opportunity to spend time with you guys again. One of the things we talked about before was, the shortest answer is the stick-to-itiveness. Take the action. Whether you succeed, or fail, or succeed but not as much as you thought you would, you learn a lesson. Pay attention to that.

One big thing for me is, there’s this thing called a vicious cycle, which we’ve all heard. What’s a vicious cycle. It’s like, ‘Oh, I make one bad decision, and make another bad decision….’ You may have heard the quote, ‘How did you go bankrupt?’ They say, ‘Gradually, then suddenly.’ That’s the vicious cycle.

The opposite is there’s something that I call a virtuous cycle. As you take a couple of little steps every day and before you know it, you create something really magnificent. I own 600 apartments. I did not do it in a day. I did it overtime. It was a gradual, stay with it, stay with it, stay with it. I think especially in real estate, if you have the billion dollar idea, you have the grand slam go for it, but don’t let it take you off that day to day game of the virtuous cycle. Inside a virtuous cycle by the way, would be doing something really nice for yourself. Be kind to yourself and it will help you grow.

Brandon: I love it. I love it. Alright David. Take us out. Last question.

David: Alright Paul. Where can more people find out about you?

Paul: First of all, I did this thing with Facebook. When I was early on Facebook, I took every Facebook friend that requested me, and now I don’t know most of them. I’m at 5000. It’s taken a lot to cull it back a little bit. On Instagram and Twitter, I’m @PaulMarkMorris- m, a, r, k, m, o, r, r, i, s. You can find me. If you want some more materials, I have my 15 life lessons and you could send an email to www.morrisx.com, so [email protected]. I’d be happy to send any and all of your listeners my 15 life lessons for sure.

On Facebook, I think it was Facebook is Paul Mark Morris also, or @PaulMorrisX. Then what I would do is just in the little note write BiggerPockets, so that I’ll know that we’re really kindred spirits. I’m like, ‘Oh, who’s this?’ It says, ‘Hey, heard you on BiggerPockets,’ or just write BiggerPockets and I’ll be like, ‘Okay. Cool.’ I’ll literally go in and take somebody out that I don’t know and fill them in because I’d love to be in touch with folks that are like-minded.

Part of my goal used to be to help all of these people. ‘Hey, I want to have a big impact on all of these people.’ It just wore me out. My new focus is helping the willing. If you’re a personal trainer, you cannot do the push-ups for the people. I’m interested in being a personal trainer or a wealth personal trainer for somebody who’s actually going to do the push-ups. If you’re listening to this is podcast and you’re a big fan of BiggerPockets, then I know you’re willing and I would love to be in touch with you.

Brandon: I love it. You also have a book out there called, Wealth Can’t Wait. You wrote that with David Osborn.

Paul: Yes. Wealth Can’t Wait. You can find it on Amazon. If you read it and love it, and give me five stars, that would be amazing. Again, send me a note. Send your five stars and I’ll send you some other cool stuff, if you like it.

Brandon: I liked it a lot. I’m going to actually go leave you a five star review right after this. Good deal.

Paul: I love it. I’ll hold you to it.

Brandon: Alright, David. Take us out.

David: Before I do, David Osborn was actually also a guest on the BiggerPockets podcasts. We can put which show that was in the show notes if you want to go listen to him. You’ll find that there’s a lot of similarities between what he and Paul say. They spend a lot of time around each other. They build each other up. You become like the 5 people you hang around the most.

As you talk, I hear a lot of what David says coming out your mouth. You guys are both so incredibly successful, that just listening to this podcast more is going to be like being Paul’s friend and getting to hear him around. It’s going to have a big shift in your mindset, which is going to lead to success. That’s what so cool about listening to people that have been so successful for so long. They really just whittle down the parts of what made them successful and they know what the secret sauce is, and they only spend their time in that. They don’t have to go through all the trial and error trying to figure it out. The more that we can get into the mindset they have and the advice that Paul’s giving, the quicker we’re going to find success ourselves.

This has been an awesome episode. My mind is blown right now. I’m going to take some time to just go over what you said, and listen to it a few times. There are so many good nuggets in here. I think that anybody who’s listening to this episode right now, listen to it again. Write down the things that affected you the most. Then go find a friend. Send it to them and have them listen to it, and compare notes.

Get yourself an accountability partner. ‘Hey, I know that I have a problem with negative self-talk. I need you to let me know when you see me doing it,, and call me on it. Hold me accountable on that because that needs to stop.’ Then ask your friend, ‘What’s holding you back the most and how can I hold you accountable?’ That’s how you’re going to grow as a business person.

Paul: Yeah. I love it. One of the things I’ll do too is, your questions were so great. I’ve got some more stuff to add to it. I’ll send it to you for your show notes. There’s an article I just read on Harvard Business Review about self awareness which I think is so important. I’ll send that to you for your show notes so that your folks can find out as well. It’s been such a pleasure. It’s the second time we’ve done it. I think we did an even better job. If you lose the tape this time, I think that the third go around will be even better.

Brandon: I will not lose this tape this time. Paul, this has been awesome. Thank you so much.

David: Very, very nice, Paul.

Paul: Thanks so much.

Brandon: Thank you very much.

Paul: Okay.

Brandon: Alright guys. That was our show with Paul Morris. Man, again one of my favorite shows we’ve ever recorded. So many actionable things like mindset changes in my life. Again, like you said at the end of that show, I feel like I just need to go reflect for awhile and be like, ‘How could I put all of this into practice in my life?’ I love that.

David: Yep. I’m going to start taking every single idea that comes through my head that I want to go accomplish and throw in at ease.

Brandon: Yeah. I love that. That was so good. At ease. I’m going to go out and buy a mobile home park. I can do that. I can get down and go, ‘I’m going to go buy an apartment complex.’ Those are some goals I got, but do I just go and put my head down, and work harder and trudge through the dirt to get them? What if we come at it from that approach, at ease? I’m committed to buying an apartment complex, have at least a hundred units and I’m going to do it at ease. Now it just changes everything.

David: I’m going to force my subconscious to come up with ways to help me achieve that goal without just working myself to the bone. I don’t get drained. I don’t get too much anxiety. I don’t beat myself up. I enjoy life while I’m accomplishing my goals. That was one of the coolest things I heard someone say.

Brandon: I love that. One of the things we just glossed over, we didn’t have time to really dive into it, but he mentions this idea that, we were talking about, if you love what you do, if you really what you doing, it’s not hard work. It’s not sacrifices. It’s work. It’s fun. It’s enjoyable. Then, in that he said something super profound. He said, obviously no event is going to be perfect you’re going to love a 100% of it. I might love buying an apartment complex, but I don’t want every single aspect of it.

He said you look at this as a whole, to love it as a whole, and then you take the parts that are in there that you don’t love and outsource it, or systematize it. You might do it for a short while, but you don’t have to do it forever. Find the things you do love. Do the whole thing until you can get somebody else to do that part for you. Then you’re only doing things that you love, all day long everyday. That’s where I want to get to more of in my life.

David: That’s where everyone is going to be more successful. Like I said, find someone to send this show. Tell them I want you to listen to it and pick out the things that you learned from it. Find the things that are draining you. Mastermind with that person. Get together. Say, ‘I need you to hold me accountable so that I don’t keep,’ whatever it is. Negative self-talk. Ending up in a vicious cycle. Doing parts of my job that I don’t love. Have them tell you the things that they want. Hold each other accountable and you’ll grow together.

Brandon: So good. So good. With that, we got to get out of here. Mr. David Green, anything you want end the show with? Any words of wisdom? You always got lots of words of wisdom.

David: Yeah, but I think there’s so much words of wisdom floating around after that show. I don’t know what more I can say. That was so, so good. We basically get to stand on the shoulders of a giant and see from someone who’s already done it, and shorten our learning curve.

With that said, thank you guys very much for listening. This is David Green for Brandon, the focus surfer Turner, signing off.

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