Founded a Private Equity Firm to Buy Thousands of Properties

Steve Trang: Shout out to Steve Trane. Jump on the Steve Trane. We've real estate disruptors.

Steve: Hey, everybody. Thank you for joining us for today's episode of Real Estate Disruptors. Today, we've got John Burley with Burley and Associates. And John is another operator in the Phoenix market, and we're gonna be talking about how you founded a private equity fund to acquire thousands of properties. Now I am on a mission to create 100 millionaires, and the information on this podcast alone isn't enough to help you become a millionaire in the next five to seven years.

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And this is a live show, so please ask your questions for John to answer. You ready? Alright. So first question is what got you into real estate?

John Burley: You know, I started, real estate in 1979. You know, did my first deal. I've got 5,000 upfront, paid to close. I mean, so I didn't put up any money. Sold for $14.09 profit.

Worked so good I didn't do it for two and a half years again. So I kinda put put in the pool, and it worked. And then I ran away. And then I did a, another one. I made $26.

And my third deal, I made over a $100,000, and that was it. I had a very successful boutique financial planning firm. I come out of securities background, and I decided that what I wanted to be was a real estate investor since I was very young, and so I was gonna do it. So I kinda burned all the bridges. I sold the practice, and I started private equity company in 1989.

And what I wanted to do was different than anybody else had ever done at that time. So I knew a lot of fund operators, but they all did the same thing. They did multi units, and all but two of them that I'd ever met, they all worked basically for the fees. And I'd met one guy in particular who did a for profit model where he took a huge chunk of the profit. Uh-huh.

But he had to generate profits. And most operators wouldn't do it because they weren't confident they could generate the profits. So we decided and we all knew at the time that single family homes made more money than commercial building long term. I get you to look at the cap rate. I mean, you know, you know, commercial building, people are fighting to get three, four, 5% depending where you live in single family homes.

I mean, anybody could buy and make 10 plus percent. So we knew the single family make more. It was just a matter of setting up the model and doing it. So we just started buying.

Steve: And this was back when?

John: '89.

Steve: '89.

John: So I've been doing this a little while.

Steve: A little while. Yeah. So you starting '89, you bought your first house, as a flip.

John: Yeah. Well, we we've done I've done the four deals prior, '89. Yeah. First three months, we did 42 houses.

Steve: Okay. So when did you start buying? When did you buy your very first property?

John: Very first property I bought, my personal residence was in '79. First investment property was in '81.

Steve: Okay.

John: I started selling really, really young. I owned a company when I was in high school with 25 employees and was making really good money. So I didn't do the traditional route. I didn't go to college and all that normal stuff.

Steve: Didn't go to college?

John: No. Well, I,

Steve: That was a time where it wasn't you had to go to college?

John: You yeah. You did. Yeah. I didn't even take the SAT test in high school, although I was a straight a student

Steve: because Got it.

John: I had very strict family, so you kinda had to get straight a's in my house where your life didn't exist. Right. And, you know, I I went back later and did nights, cool, and stuff, but never finished.

Steve: So you didn't go to college, but you worked in securities. Yeah. So how which was which was before real estate?

John: Yeah. I was the only person, where I originally was hired. There was a little over a 100 agents, and I was the only one without a college degree. Mhmm. You technically needed a college degree to get the interview.

And so my dad gave me what turned out to be very good advice. Say you have a degree and then when you walk in, tell them you don't and lay down your tax return for the last couple years on the table.

Steve: And when

John: they see what you make in in sales Mhmm. The degree won't matter anymore. And it it certainly did not.

Steve: What did, what were you selling before you got securities?

John: I started out at six selling fruit door to door.

Steve: Mhmm.

John: I then sold soap. I then sold brushes. I then in high school, I've sold vacuum cleaners, and was literally in high school making $10 a month, which was a big part of the decision not to go to college.

Steve: $10 a month in high school.

John: Yeah. I didn't wanna be poor, so college didn't sound good. Right. I am you know, I did later do night school and stuff, and I got to 18 units away from a degree. My mom, god bless her, has a PhD.

She's still alive. She's waiting for me to get a college degree so I can become somebody. I I kinda let her know I have a book that sold over a million copies, but that wasn't enough. And then, I was still in the energy conservation, equipment, and I worked for the Harris Corporation because everybody said you need to work for a company, not own your company. So I, you know, I worked for a big computer company, and, they rewarded me for overproduction by cutting my pay plan three times.

Steve: Well, it's one of those things, you know, we talked about sales management, and we're talking about last week. And one of the best ways to deflate yourself, we will make sure they leave you, especially the performers, is to mess with their money, is to modify the comp plan.

John: It it yeah. And I went I went to work for a literature distribution, and the whole thing was understood because I was headhunted over. Don't cut my plate plan. And and the guy nine months later cut my pay plan. I walked out.

I went into the securities industry after that because they had a completely different attitude. Their attitude was, securities industry after that because they had a completely different attitude. Their attitude was the more you make, the higher the percentage will pay you.

Steve: Yeah. So we're gonna spend a lot of time on the show. We're talking about how how John founded a private equity firm, but, I think this part is important because a lot of your practices in real estate came from your securities background.

John: Absolutely.

Steve: Okay. So explain to me again. So the more you sold, the more money you made.

John: The higher the percentage.

Steve: Okay.

John: So they did the opposite of what mo so most business owners, they get pissed because they're paying you too much. And it just goes over the heads like, but you make a good cut out of every dollar I make. So Right. Yeah. You're paying me a bigger check than you ever paid anybody else.

Maybe more than you're paying yourself, but that's because you choose not to pay you more. Right. I'm making you more money to literally this this one company. They did 40,000,000 a year, and I signed a five year $42,000,000 deal with Intel. So more than the company did in a year, I signed for the next five years.

And his decision was to then cut my pay plan because I was gonna make too much money. It it's just bad.

Steve: Though it's gonna make the owner more money?

John: Oh, yeah. Yeah. And and then, you know, after I left, they rode the contract to the end and then didn't renew, and he's like, why not? And it's like, well, you fired the guy we did business with. It it just yeah.

I mean so I was blessed when I was younger to work for some companies that, like, here's the number and more you sell, the more it is, and we'll give you bonuses. But I love the security because I've been been screwed over by two companies, the Harris Corporation and then by the the one smaller company. And the security is like, no. Here's what it is. Here's the numbers, and this is your bonuses.

And the more you make, the higher your percentage.

Steve: Got it. So what was the first thing you did when you got in the securities?

John: The training, etcetera. But, basically, it was, you know, your friends and family. They had all kinds of training you were supposed to do. In two weeks in, the general manager, walked in. John, come here.

And he's like, you don't need any of this training. So we just want you to sell Mhmm. And work. And then, like, three months later, the sales manager came and is like, John, you're not very good at underwriting in the paperwork, so I'm gonna take care of it for you from now on. I work for you.

Because he got 10% of every dollar I brought in.

Steve: Right.

John: So all they wanted to do was their very top producers, go sell. Mhmm. Just make money, make money, and keep stretching, keep going higher, doing more ask and bigger asks. You know, you you train salespeople, and the work you do is amazing.

Steve: Thank you.

John: You're welcome. And most salespeople, they really sometimes I think they should call it prospecting, not selling.

Steve: Mhmm.

John: Because if you don't prospect, you can't sell.

Steve: Right.

John: And so I was consistent in that era every single week, 10 to 14 closing appointments per week where, you know, we had done twenty to a couple hundred hours worth of of my staff time, prepare the presentation. We were meeting. You knew that the purpose of our meeting was for me to give you the final presentation, and you just say yes or no. And you were pretty sure it was gonna be yes until you were prepared to write me a check.

Steve: Yeah.

John: And I'd run 10 to 14 of those every week, and most people in my office ran a couple of month, and they wondered why they weren't on top of the board.

Steve: And And you were selling, like, retirement plans, stock trading?

John: We, what we would do is we would go in and we would redo the company financially. So I would come in, and the initial meeting was half of what your accountant and CPA agree I savor made you by restructuring your company, restructuring how you pay your taxes, and you're investing, you would give me. So if I save you $200, you put a 100 doll 100,000 into the investment. We did have a lot of insurance products, different era. Taxes were almost 50%, and there was big, big, big estate death taxes.

And so for a lot of those guys, it made sense to fund the death taxes, which they had to pay Right. Through insurance products, which were also higher commissions. But we let them know that it's a mediocre investment, but and the commissions are really good. However, it will solve your problem. And I just made you $200,

Steve: so 100 goes in. So that's how they saw the death tax back then. Yeah. So if the death tax comes back, which is always kinda in the air

John: Then that comes back in

Steve: That product comes back where you can buy insurance. It's like a life insurance policy Goes to fund. Goes towards your taxes. Yeah. Interesting.

Yeah. It was I had no idea this product existed.

John: It was the cheap way to fund it. Now too many people from mediocre insurance salespeople and planners buy life insurance that they don't need, or they buy life insurance that is not an effective way to do it. So most people should just regular people, middle class people, upper middle class people, should just have a term insurance policy to take care of the death needs if one of the parents dies.

Steve: Right. But they

John: don't need the investment insurance. And there was and it's just different rules. We also had, modified endowment contract, which was guys could single pay. Retained earnings were being taxed back then, so we could strip the retained earnings out of the corporation then backdoor them to the person legally seven to ten years later.

Steve: Retained earnings were taxable? Yeah. Got it. Yep. Okay.

So

John: So the the laws, I love our government because they change the rules and the laws all the time midstream. And every time they do, the small percentage that goes and does the research, we will find a way to profit immensely from it. Yeah. And the rest of the people just complain.

Steve: Well, actually, I was having conversations about this last night with some family members, and we're talking about, like, what's gonna happen with the stock market, real estate market, this and that. I was like, well, how much of this depends on, like, the election results? And, we were talking about, like, you know, what what they want as far as elections. I was like, well, what I want is a broken government. Like, what does that mean?

It's like, I'll either want, like, Republicans in Congress and the Democrat president or Democrats in Congress and Republican president. Because if that happens, now they can't do anything and break anything. And then John and I and everyone else can play by the same rules for the next four

John: Right.

Steve: Six years.

John: And and I think it's actually profound. I think our founders were so divinely inspired and so profound that hundreds of years later, we still sometimes shake our head in amazement they did it. Because the model was designed that when they don't get along, they can't do much.

Steve: Which is great.

John: Which is great.

Steve: Right.

John: Yeah. It's great. And and then they're they're constantly gonna change the rules. And, hey. Look.

The the day my legal team can't outthink the government's legal team, we should just slash our risk to make

Steve: our progress. Is every time there's one party in power, then they get their hands on there, and then they make all the rules for themselves. Yes. And the rest of us have to pay for that.

John: Yeah.

Steve: So alright. So you're in private equity, and you found your own firm. Right.

John: We did the real estate. And and so there's a couple things that I had learned. First of all, I made a lot of money Mhmm. And spent a lot of it. Because I'm, you know, I'm no different than everybody out there, man.

When you make money, you spend it. Yeah. And I didn't have anything that was ongoing. So when I became a real estate investor, it's like most people that are listening right now. We didn't become real estate investors to become flippers.

We didn't become real estate investors for a lot of reasons. The main reason almost all of us here today became a a real estate investors. We wanted freedom. Right. And to me, at that point in my life and I was ahead of my time.

I know that. But it was so clear that freedom was passive income. And, you know, back then, people really mailed the rent in, so we called it mailbox money. Now we still get some that do, but not many.

Steve: Right.

John: Is the idea was I wanted the money to come in every month so I could be financially free for the rest of my life. And I wanted to be free by 30 '2. And I made it. And, you know, in the early days, I mean, wow. I mean, rents were super low in those days.

Interest rates were high.

Steve: I mean Interest rates were we talking about back then?

John: Well, they it was really, really exciting when they dropped down to 10. When I started real estate investing, it was 18%.

Steve: So Credit card.

John: Yeah. I cut my teeth on creative financing from day one. Yeah. Because you had to. I mean, nothing cash flows at 18%.

And it and at 10%, we were doing an owner financing model to get a higher income stream, and I was making a $144 per month per property. So I had to buy the good piece of that is I had to buy a lot of properties. Yeah. Because a $144 isn't much. I mean, you know, now you make 600 to $1,000 on a regular deal.

Steve: Right.

John: And so we just you know, we really refined the system. I knew that I had to modify things. I couldn't do traditional landlording. I had to change the model, which we did. The other thing we did that nobody had ever done in residential back then is we do lots and lots of raises, as you know, Steve.

We raise money

Steve: Let's, before we get into all that. Right? So you made a decision to leave Wall Street.

John: Yes. What

Steve: was the reason for leaving Wall Street? Because there's there's the there there's the upside of chasing real estate, but you're also running away from something, which most of us are usually, like like, leaving boredom or, like, a boss, but you had other

John: It it it didn't set in my heart and my consciousness how I wanted. We were re the my firm, we were not doing what traditional Wall Street did. We were really working at giving our clients actual benefit, but that's not what the street was. You know? And you and I have talked about some of the movies.

People are like, wow. Is that real? It's like, no. They tamed it they tamed it way, way down for the movie. I mean Yeah.

Those big people in the movie, they know they're very evil human beings, and they're cool. Mhmm. And I just I met a lot of people who had given up a piece of their soul. And I didn't wanna do that. And it just at the end of the day, it wasn't my passion.

It wasn't what I wanted to do. The money was amazing.

Steve: You're saying those movies where people were throwing midgets at Target and stuff like that. That was an understatement.

John: Yes. Massive. Because, obviously, inherently, they make it a fun comedy movie.

Steve: Yeah.

John: Yep. But, obviously, inherently, at some point, long before they got caught, these people knew they were inherently evil human beings Mhmm. Who were stealing hundreds of millions of dollars, 10 to $50,000 at a time from regular people. I mean, they knew what they were. There was no question.

Yeah. There's no doubt in their minds, and, you know, and that's

Steve: And so if you stayed there

John: I knew a lot of people that went down that path. We weren't, you know, we weren't throwing midgets in my office or anything like that. But, I mean, that stuff was out there. Mhmm. And a lot of the guys who did the raises, I mean, they just would compromise their integrity and compromise their integrity.

So you're

Steve: saying they're selling their souls in in the process?

John: That was the that was how we looked at it. Yeah.

Steve: Yeah. Yeah. Okay. So you got into real estate. Tell me about your first deal after you left Wall Street.

John: So all I wanted to do is I just wanted to make him a cookie cutter. And so I was buying three and four bedroom, single family homes in middle class neighborhoods, solid, solid class b. I did some class c, so I know never to do that again. I did some class a, so I know never to do that again. It's like I needed to get a model that

Steve: was with class c?

John: Wrong with class c? Have you been there? The c the c stands for crap. I know Wall Street today is made up class d, like class c wasn't bad enough. I didn't want the culture.

Mhmm. I didn't want I didn't want regular renters, let alone class c. And it it's it's entirely about the culture. Mhmm. I didn't want it to be an antagonistic relationship.

The culture between Wall Street and investors is not a good one.

Steve: Mhmm.

John: I wanted to change the model to where the resident won first. So we reverse engineered. This was about giving somebody a homeownership. And we have thousands of families who own homes free and clear, who none of them would have ever been able to buy without us providing the financing. Yeah.

So the first thing is resident wins. We don't even call them tenants. They're residents. The resident wins. You give them a good solid family home.

You give them the American dream. You give them a fair go to buy it, and you don't screw with them. So, like, you know, seminars, you know, they they teach lease options, but they basically most of them, they teach you how to screw the person out of the deposit with no chance of them winning.

Steve: Are you setting them up to fail?

John: Yeah. Setting them to fail. And so we had to set them up to win. We had to do underwriting. Everybody was freaking out when Dodd Frank came out.

The underwriting I had in place in 1990 is still today superior to what the government law requires for a mortgage broker to do.

Steve: Yeah. So then what's wrong with class a?

John: Class a, again, you culture bias. First of all, the problem is the numbers don't work well because the properties are too nice.

Steve: Mhmm.

John: When they turn, the cost is exorbitant to put it back together. And at class a, you don't need my help for owner financing. You should be able to get a loan. If you're class a and you can't qualify for a loan, there's really good reasons. And I understand the mindset.

They think, well, because I make a bunch of money. The world owes me something. The world know owes nobody anything. He's a harsh, harsh teacher.

Steve: Very much so. So I I'm asking this because, like, I see these class a buildings. They're still going up Yeah. To this day. And I've never understood class a buildings because they don't seem to cash flow at all.

They're only just for parking capital.

John: Yeah. It it the multi units class a stuff is primarily an ego sale Mhmm. With extraordinarily mediocre return, with very low management, and most operators can understand from a Wall Street point of view, almost all of those are fee based transactions only. They do not believe there's a back end. They do not believe they're gonna make a profit.

It's not a

Steve: product they believe in.

John: They don't attempt to make a profit because making a profit cost you money.

Steve: Got it.

John: Yeah. I think in one of the movies, there's somebody who's like, yo, win win. It's like, no. Don't confuse yourself. And that's true.

It's like, no. You're not trying to win. You're trying to generate fees. So our model was unique in that I split the profits, and I split the losses equally. So if I don't generate profits, my family doesn't eat.

And it's interesting since I only get paid on profits, for thirty three years, we've made money every year for all the clients.

Steve: Right.

John: Funny how that works out.

Steve: Well, profit versus fee based. So one thing we were talking about, like, you have a or the I guess, the common fee structure was two points and eighty twenty. Yeah. Right? Which, I learned we we started our own crypto fund.

Right? Like, that that's a whole another thing. And we learned, okay. Well, I mean, this is what everybody wants.

John: Right. Like,

Steve: it's not standard for Wall Street. It appears to be this is just a standard for, like

John: Wall Street invented it. Everybody else does it.

Steve: So Yeah. So we just copied it. So it's two points in 8020. But you decided two points in 8020 was not satisfactory.

John: Not enough for me and not enough for my clients. So the 2.802, this is why people go all the time. It's like, well, how come that that office building has been vacant for ten years? Well, because it's managed by a fund. And they set the rent, just to grab a number, at $50 a foot.

But the fair market's 20. If they rent it for 20 and actually bring in income, they devalued the building by 60%. And their fee is based on the valuation off of pro form a rent.

Steve: Really? It's

John: just a con game. It's a shell game.

Steve: See, that was, like, one of the reasons why I never got into commercial real estate. Like, you know, read the books. Hey. You know, Rich Dad Poor Dad. Let's talk about leverage and this and that.

It's like, okay. One of these days, I'm gonna buy a commercial

John: property. Right.

Steve: Right? And then I get into real estate, and I'm leasing these buildings. And I'm looking at all this empty space. Right. And I'm wondering, like, how I mean, maybe just because they're REITs and they have so much money, like, they don't care.

But, really, what it is is that the the managers get their two points no matter what.

John: Right. And it and which is easier to manage yeah. Which is easier to manage? A vacant building or a vacant with resident tenants who have needs?

Steve: A vacant is much easier.

John: Yeah. And at vacant, we get to pretend the pro form a rent is the real rent. Right. So that's why they don't they don't drop them. And then go, well, what happens in five or ten years when it's over?

They sell it to another fund. Yeah. Just move from REIT to REIT the same.

Steve: Someone else's problem.

John: Someone else's problem. But they would but it's never a problem to the operators because they're always making their money.

Steve: Yeah.

John: So and that all sounds great, but the reality is if you took the asset and you make it work, like you know how to do in your business like I do in mine,

Steve: you make have to run a profit.

John: Way more money than 2%.

Steve: Yeah.

John: 2% is like crud.

Steve: Mhmm.

John: And so what we do is we just like so I had to take the adversarial out. I had to figure out in how we did it was to reverse engineer it. Not that I knew what to do the first day. This is just by doing it, and it's not working right. So if I could make the resident win, if I could take relieve their pain in not owning a home and give them the American dream, homeownership, they would stay longer and longer.

So when I first started, we were just doing regular rent, and no one moved in. It's like, oh my gosh. Here it is. Our rental home for the next thirty years.

Steve: Mhmm.

John: Like, many would go like, hey. We're just here for a year or two until we can save up the money to buy. Like, why don't I just give them homes? And so we we did a moderate down. We do underwriting.

We discount the FICO score, the measure that the mortgage business gives it because the FICO model is extraordinarily flawed. So So we found a bit more common sense model. We still run the credit, but more common sense model. And then we took care of the resident. Then I took care of the capital investor.

The capital investor, they put up the money. I give them the main things they want, which isn't return. It's safety and security of principle with a good return, but not losing money ever. They don't want the market bumps. They don't want the stock market.

They don't want that stuff.

Steve: Right.

John: And so when I gave the resident what they wanted, gave the capital investor what they wanted, Zig Ziglar was right. There was plenty left over for me because there's lots of Zig isms, and you and I have talked to I've been blessed to know some really cool people over the years. My favorite Zig ism was always, you know, if you give enough people what they want, you'll get everything you want.

Steve: Absolutely.

John: And Zig was right.

Steve: Well, that's one of my favorite quotes. So you decided to go fifty fifty on the model versus eighty twenty in two points. Mhmm. Because that way, you could demonstrate, that's a partnership. Yeah.

Which makes a lot of sense when you say it. But there you're saying there's not a lot of other private equity funds out there like that.

John: Very few. There was, when I was young in the securities industry, there was a couple individuals who were running they still did points for cost, but they were running, like, 40% equity positions for them. So, basically, it was like, I'm gonna allow you to come into my personal fund.

Steve: Yeah.

John: But I get 30% of your capital. So if you drop a million in, 300,000 belongs to me. 700,000 is yours.

Steve: Right.

John: And what we did is profits and losses, split fifty fifty right down the middle. And, obviously, I need to show them return then. You you had mentioned earlier rich dad, Robert Kiyosaki. He was one of my capital investors, him and Kim, for years and years and years. And and here's what he would say on stages all across the world.

Half of what Burley makes is more than what I make on my own. Because, basically, our our we were completely aligned with the capital investor. Capital investor, you don't wanna lose money, and you want as much as possible. Yeah. You just hired me to do that for you.

Steve: And I

John: only get paid what I create, so I'm gonna create as much as I can.

Steve: So one thing that's, you kinda touched on here, I think, is important. Like, a lot of people are thinking that if I'm gonna go raise money, like, the investor wants to make as much as possible. Right? Which is true in the early parts of your career. But once you get to a certain point, there's also Warren Buffett's thing, which is don't lose money.

John: My experience has been you know? And and and, look, starting out, if you had money for a down payment on a house, can qualify for a loan, we were partners.

Steve: Mhmm.

John: Not today. The more money my capital investors have, the greater the concern about losing money. Yeah. It is far greater that people like and and people go, I don't understand this. Well, the only part that's true there is you don't understand because you don't have that kind of money.

Right. You know? When some when you're dropping $1,000,000,000 in, your main concern is not making as much money as I can. You worked for years or decades to create that $10,000,000. The most important thing is that money doesn't get lost.

And what they love in our model and what we teach is that now I'm not just the Wall Street guy doing a fee, not caring if you make money. Only way I get paid is if I make you a bunch of money. So my emphasis is on sustainability and profitability. And people go like, you know, John, you do all this creative real estate and all this stuff. You know, it's about it's like, look.

It's how I view it, how I was trained. As the founder and CEO of a private equity company, my sole job is to reduce and mitigate risk. The exact opposite of what most people would think, which if you think about, that makes a lot of sense because most people don't understand the game Yeah. At a high level.

Steve: So in starting your fund, this is in '89 when you decided to leave Yes. Wall Street. So in '89, you started buying so you started raising capital

John: Mhmm.

Steve: To buy real estate.

John: Yes.

Steve: So money first, then real estate.

John: Yeah. The, you and I have talked about this many times, Steve. I started going to real estate trainings in the seventies and eighties. Mhmm. And, essentially, the training today I'm sorry.

It hasn't changed at all. It's the exact same regurgitated information over and over again. And almost all real estate education is, like, let's pretend that the money isn't the problem, and let's figure out all these ways we can do real estate without money, which is cool Mhmm. But that's not how it works.

Steve: It gets the eyeballs.

John: It gets well, it what they're doing is they since they can't fulfill the need button, they try and push the greed button, the get rich quick. And Yeah. And then you notice and you teach this. Look. Real estate investing is work.

Hard work. Always has been, always will be like anything that's substantial.

Steve: Mhmm. You have

John: to work.

Steve: If it's worth it, you're gonna have to work for it.

John: Yeah. You gotta have your model that works, you know, and and do that. And so and look. Subject to existing financing, mirror wraps, cool tools. The problem is, in a normal decade, they only work for two or three years.

So, obviously, there's exceptions, but we're gonna look at the overall market. Obviously, the last three, four years, why wouldn't anybody sell to you on a subject to take over my financing and walk away when they could just call any I buyer who'd write them a check?

Steve: Yeah. I

John: mean, it it not a very viable technique during those markets. You know, the and it's unfortunate just so many bad apples were in the barrel. But, I mean, the whole wholesaling and the assignment industry has been massively affected by all this legislation that's now going from state to state, and it's just gonna come more and more and more because they were so abusive, and their record of performance was so horrid because they were being taught you don't need money to do real estate, which is why. You do. So what what I did with my company and the education that we do today is, like, look.

Instead of pretending and lying to everybody, why don't we just tell the truth? The most important component to real estate is capital and the ability to borrow. Uh-huh. You can do it without those. It is extraordinarily difficult and hard.

And to build a sustainable portfolio without money, you can do it, but it's ridiculous.

Steve: It's gonna be it's particularly I mean, right now, at this exact moment, it's a lot harder right now to do real estate without money.

John: Oh, yes.

Steve: Than it was a few months ago. Because a few months ago, you didn't need money. You had a buyer.

John: Right. Now you don't. Now Right

Steve: now, you're you're in a precarious situation if you don't have access to capital.

John: Yeah. Now we're in a in a more normal market, which, you know, has a couple ways it could go. But right now, we're in more normal. You know, in the run that was, you know, the last few years, those happen every fifteen to twenty years. They're ludicrous.

They're insane. If you own a bunch, you just smile and go, wow. Our net worth went up millions of dollars. Isn't that nice?

Steve: Right.

John: And we didn't do anything. But it's not how you build a portfolio.

Steve: No. It's not.

John: So And so what we focus on is, look, understanding how to raise money is the most important skill set, the gift that you can give yourself. Because if you know how to raise money, whether you wanna do real estate or businesses or whatever you wanna do, if you know how to raise money, you can always get money to do what you want. If you don't know how to raise money, every time the market hiccups, you're there. And look. If your model requires the market to go up, you don't have a freaking model.

Yeah. You have a model that will fail every single time because the market's always gonna stop going up, and then you're stuck.

Steve: Right.

John: And so what we're seeing just in the beginning of and you and I have talked about this. We're gonna see this over the next couple years. All so many operators who thought they knew what they were doing are going to fail one after another like Domino's, like they do every single time the market downturns.

Steve: We're already seeing it. Oh, yeah. In our in our operations, you know, we're at a point where there's consistently seven or eight potential buyers we're competing against. Right now is two or three or nobody. Yeah.

John: Because they're out of money. They're gone.

Steve: It's very fascinating how quickly

John: And it

Steve: it changed.

John: Oh, it's instant. Yeah. And then now, I mean and this is this is fun because, coincidentally, at the same time see, Wall Street's got a lot of good qualities. I don't wanna just say bad things about I mean, let's face it. They are the greatest money raisers in the history of the world.

Mhmm. I mean, they are unbelievable at raising capital. And there are many great operators. And and I think it's like anything else. There was the Pareto principle, you know, the eighty twenty, the idea that 20%.

And to me, I refined it to it's it's too eighteen and eighty. 2% are extraordinary at what they do in their craft. 18% are very, very to really, really good. And 80%, not so good. Right.

And a lot of them, they just suck. And it is what it is. The model for raising money is really, really important. Where Wall Street often falls off is because their models are primarily based on fees only. I don't blame them.

I get it. They don't worry about the performance because the performance can hurt the fees. Mhmm. You know, I'm going the the classic one, you know, the multi unit building. Well, if we rent it out, I devalue my fee by 60%.

I ain't renting it. Yeah. And so what we've what we focus on is just not being susceptible to the market. Market risk, I cannot manage. No one can.

But I can design a model that works through all markets. So it's like people ask me all the time about education people, you know, is so and so good? It's like, well, I don't really know. Most of them I don't follow. And they're like, why?

And I go, if the man or woman didn't have a model that thrived through a downturn, we don't know if they know what they're doing until the market goes down. That's when you find out if somebody knows what they're doing when the market goes down. So with ours, residents live in the properties. They pay every month. They have skin in the game because they're going to own it or they're an owner now, depending on the model they're in.

It's their own home. People go like, yeah. But everybody lost their homes when it crashed. Completely untrue. In 02/1011, that that whole crash period, we had higher retention of residents in their homes than at any other time.

Because when times are bad, if it's your home and you own it and you didn't overextend, you hunker down.

Steve: Uh-huh.

John: Now in that era, most of my residents were about 45 points away from a $500,000 loan, and I put them into a $200,000 home they could afford, good or bad.

Steve: Yeah.

John: And so very we'd like, you know, when the markets shift, most of our residents do nothing but stay and pay. And so I don't have to take on the market risk. And I don't care what the value of the real estate is because all I care about is the income stream. It doesn't matter to me if the house is worth 100 or 400. It's irrelevant.

Actually, you're not selling it. I'm getting my $2 a month. What do I care?

Steve: Yeah.

John: And quite frankly, long run, it's better when it's down because then you get to buy and, like, you're already discovering competition's all dries up and goes away because

Steve: Very quickly. Because

John: they never had any money.

Steve: What, so what is the first step then in raising private capital? I mean, obviously, you had a leg up because you came from Wall Street, but, like, you know Yeah.

John: So so we you can do it as a security or nonsecurity. Most of my students, and we literally have thousands of Century Club members. Those would be people who have over a 100 houses in portfolio.

Steve: Nice.

John: Thousands of them. You know, here, you know, we work with AZRIA, which is the local RIA here in Arizona. They've identified thousands of millionaires from our model.

Steve: That's incredible.

John: It it is. It's amazing. And so what we do is starting out, most people do it as a non security. We have very specific docs. You form a business.

There's rules you have to follow. But you can do it as a non security because it's a business partnership. And the simple model, you and I would go into business together. You would be the capital investor. I'd be the managing investor.

And the business is we have options, but we're gonna choose to invest in real estate as a business, not as an investment. There's very specific rules and securities. And then what I do is we develop the presentation. It's on talking points. Now I developed this presentation following Black Monday in 1987.

I owned a brokerage. It was a rather devastating day. In those two days, the market fell more than they fell in the crash of twenty nine.

Steve: I mean, that's, that's the book we saw in social studies when I was growing up.

John: Yeah. I mean, it was it was bad. I mean, I knew people who committed suicide. I knew people who literally, you know it was like a movie. Wow.

Yesterday, you were driving a Bentley and your kids were in at Harvard. And today, they're going to a community college, and you're driving a five year old truck. It's like, what happened?

Steve: Really? Like, overnight?

John: Well, it's gone. And we were just beginning to computerize the market. So most trades were not happening in a computerized fashion yet because it's only 87. So even if you had a stop order in, and if you don't know what a stop order is, then you shouldn't trade stocks. Period.

Right. Market fell 60% across the board. I mean, your positions were just and if you were in speculative positions, you were just wiped out. And then, of course, bunch of people, you know, with not knowing what they were doing, were using margin, which would be leveraged, and they didn't understand. And we're seeing it right now today already.

A lot of people don't understand leverage is a sword with two edges.

Steve: Yeah.

John: And you need to stay on the good side of leverage always.

Steve: Right.

John: And they didn't. And, so the weekend before in fact, the Saturday before, I had the largest case of my life signed off on that day. It was a greed sale. It was about how we're gonna get rich. By Wednesday, my presentation no longer worked, and I had to adapt and change.

And I was fortunate. I had some mentors very, very, very successful, and they're like, back to the old talk. And, like, what do you mean the old talk? Read's done, son. Safety, security, long term, cash flow.

That's what people want. They don't wanna lose. So then it shifted.

Steve: So So your presentation changed.

John: Had to or you're And it yeah. You're gone. And and what amazes me is that whenever it goes down, most of Wall Street misses it. Because when it goes down, that's the biggest opportunities.

Steve: Mhmm.

John: That's the best.

Steve: Right. Logically, we know that, but no one acts that way.

John: Oh, yeah. It's like everybody goes, well, I'm waiting for the mark you know, since 1819 of it. Well, I'm gonna wait for the market to go down. And I'll just kinda like, okay. Can I ask you an honest question?

It's like, yeah. Did you go full in in 2010? You bet the ranch. Did you hawk everything you owned to buy? Nope.

Why would you do it next time? And, obviously, people who didn't get in 1819, the market almost doubled in this town. Mhmm. And they missed all of it. Right.

So we you know, I learned from my Wall Street days. We buy for return, not price, which most people don't get. I mean,

Steve: you you most don't. Can you elaborate for everyone that's listening?

John: Yeah. So it doesn't if it's a stock, it doesn't matter if it's a dollar or a share or a thousand dollars a share. It's what the return. If it's a house, it doesn't matter if it's $50 or $500. It's my return.

Mhmm. You know, and we just came through an era where prices were ridiculously high. Most markets are overvalued currently. However, we had a perfect combination of extraordinarily low interest rates and extraordinarily high rent. When you put those together, the monthly spreads were incredible.

Yeah. The last couple years, we've been making 800 to $1,100 per month per house. The exact same neighborhood where I used to make a $144 a month. And I bought them for $50. But different different things.

And so the presentation is around I look at this two ways. Most salespeople only talk to the surface conscious needs. Yet any bit of study, you know that the conscious mind only processes a fraction of the information that goes in. The subconscious mind is where we make most of our large decisions, most of our emotional decisions, and most of our important decisions that almost everybody in sales never ever speaks to the subconscious mind. So they just try and overwhelm the client with facts and information and details, wondering why the client just digs in more and more obstinately against what they're selling.

And And they end up having arguments with their clients. And they walk out, well, he was stupid. It's like, well, you're the one who was trying to raise money and you didn't get any. Yeah. So we know that I'll I'll walk in a client and they're like, oh, what?

It needs to be this type of asset, and I need this sort of return, and I need this. And they'll have this laundry list of items. Yet in having the conversation, we know that they have a large portion of money that isn't placed. Well, up until six months ago, if you had any significant amount of capital not placed, that was entirely subconscious and emotional, not conscious. Because consciously, you should have been in something.

Yeah. I mean, you know, in, you know, in before the crash of eighty seven, I was moving your assets out of that mutual fund with fleas and that Credit Fourplex in Albuquerque. You were trading your assets to buy my perceived better assets. Mhmm. And we had a good chunk of that in, you know, that three, four, five era before we closed the fund where people were moving their assets to ours.

And people go, why'd you close? Because I work for a return, and I couldn't place the money safely for a return that was acceptable, so we closed a new money. We closed shop three times just because it made sense.

Steve: The market no longer made sense.

John: Market no longer made sense, and it's at a high scale. Mhmm. And so what we focus on is meeting those subconscious emotional needs and the core base need around money that people have. Almost everybody who has money and so you don't you can ask your broke friend, but who really cares what their opinion is? They're not a client.

They're not potential. The number one need most people have, other than you and I and people who are serial entrepreneurs, the number one need most people have is safety. Yeah. The other thing the next thing is security. This is interesting.

In 90% of the cases when I'm raising money, the word that I need to hit on a subconscious level with you and your emotion and your psyche is 75% of the time, the word is safety. 25%, the word is security. I have no idea what the difference is because you make up your own definition.

Steve: I was about to ask you.

John: And, you know, what what I the the analogy I use that's close is like, look, the difference between honesty and integrity. You know, you can look them up in the dictionary. They're synonyms. They're very similar. You know, for most people, honesty is like, hey.

I don't tell a direct lie. Now with salesmen, you may omit some some pretty material facts. You may exaggerate your positions, etcetera, etcetera, where, you know, my grandfather was an admiral. He did forty nine years in the Navy. He lived what to me was the definition of integrity.

And integrity was doing the right thing for the right reasons every single time whether it's good for you or not. Right. That's a huge difference between safety. Yeah. Between honesty rather.

So most people inside, they have a definition of safety or security on a subconscious level that they're usually not consciously in touch with.

Steve: Mhmm.

John: If I can as a present in my presentation as a salesperson, if I can meet that highest biggest emotional need, about 90% of the placement. Got it. Because if I took care of your safety need for your million dollars that wasn't currently in the market and we took care of that need, we don't really need to do much more. We don't need to do our dog and pony show. So we literally, you know and so most salespeople use presentation aids as crutch, which what they do is they demonstrate their inflexibility and their incompetency.

When I first started, it was flip books, which now will be a PowerPoint presentation. So what I do is if it's a board meeting and I'm talking to a family officer in Wall Street, I'm I'm up on the whiteboard, and I write out safety, and we talk about it. We write out security. And how I lead into safety, this is an important one. If you if you wanna know how to raise money, this is the most important line to remember.

Gee, Steve, when I talk to others to other people who have successfully invested in real estate, they tell me that safety is really it's paramount that the money is safe. Would you agree safety is important? Anybody who has money is gonna say what every single time?

Steve: Yes.

John: Yes. Because you're a fool if you say no. So then I write safety on the board or the yellow pad. Now most of your clients are gonna 60 to 80 years old because bigger, younger people don't usually have the kind of money I want.

Steve: Right.

John: And so I write it double spaced because they can't read and men are more vain than women on readers. Women are moving them on, men won't. They can't read it. The answer is no. Mhmm.

And then we talk about why safety is important. You know? And then we ask the hard questions. You know, has there been a time, Steve, where you've lost money? Traditional sales say don't go negative.

Therefore, I go negative as soon as I possibly can.

Steve: Yeah.

John: Because I want you to relive the negative emotions. And for, you know, we've got an entire generation just like from the 87 generation. We've got an entire generation that in 10 lost a third of everything they own. They've never most of them, the majority of them, 85, 90% never went back in. Because they're too afraid on a subconscious level of losing.

We did have a bunch, it was called the Trump effect that went in for a while there when Trump was doing it, but they're always scared to death because they're afraid of losing. We then do the same thing with security. You know? And if you take care of safety, security, it's 90% of the need. That doesn't work on your broke friends, but who cares?

Right. Yeah. Because people have the money, I want 25%. Well, other people's like, 25%, if it's a passive investment, they don't pay 25%. That would be me founding and building a company.

I already did that. That's why I have giving the money to you. I've already done it. Yeah. I want to enjoy life now.

You And then the next thing they want and this was so clear as a financial planner when I look back at it. Clients wanted long term. They didn't want in and out. But if you're doing wholesale type deals, if you're doing short term deals, for god's sakes, come up with a better term than flipping. Most people are afraid to flip an egg because they will break, and you want them to flip their life portion with you.

Come up with better names.

Steve: Yeah. What would you call it?

John: Yeah. Strategically placing your money for the short term. But I don't do short term because it doesn't meet my name. Now, I mean, I've done hundreds of short terms transaction in my career. You do thousands and thousands.

Sometimes in the old days, you'd buy portfolios, and there'd be a bunch of gunk in it. So you knew the price was good enough. You knew you were purging out 15% of the portfolio because it was class c or class a or horrible it was never gonna work, but you had buy those

Steve: dogs. Together.

John: You had to buy it to get the portfolio. Yep. And in those days, there weren't very many guys that bought portfolios. I was one of the few in the country who had the coin to buy portfolios because Wall Street didn't do houses yet. Mhmm.

And so we would then, you know, go through the long term. Most people wanna make when it comes to the bulk of their money that they're gonna invest, they wanna make what they believe to be a good decision, which is safe and or secure. And they want it to be for the long term. They're busy with the rest of their lives. So most of my clients work sixty, eighty hours a week.

Like most people who are rich, they work a long time. They know what they're worth per hour, and they have excess capital. That either they're an employee, so they can't place it, or they're at the capacity that their business could do, which we just defined a family office. Yeah. And so they have excess capital.

It's not usually diversification play because they didn't get rich diversified. They got rich doing one thing really, really well and washing that basket really, really close. But it's the excess capital. So they'll give it to me because it's safe, it's secure, and it's the long term. So we're gonna put in your money's gonna be here for seven, ten, fifteen years, making money every month.

And then my capital investors are no different than you and I, Steve. They wanna be able to have that choice to retire earlier and better than their current plan, which we just defined residential real estate.

Steve: Yeah.

John: And so we we give that to them.

Steve: So there are some other things. You know, you're talking about, like, lots of money is running for safety at this exact moment. Right? This environment. Yeah.

So there's other, you get seven talking points.

John: Yeah. What

Steve: are the other talking points?

John: Yeah. We do safety first.

Steve: Mhmm.

John: Then security. Don't put them together because I don't know. Most people, 75%, it's safety. But 25%, it's security. I don't wanna shortchange security people.

And I don't know which one yours is because and it's and the thing that's really interesting is most of my capital investors, millionaires, decamillionaires, some of them century millionaires, a couple of billionaires, they don't know either usually, most of them.

Steve: Mhmm.

John: Some do, but most don't. They're just like, wow. What's the difference? And it's like, well, you know, I lead you with questions, the great sales techniques that you take sales disruptors. But it's like, basically, that's between you and your subconscious.

I can I can facilitate this conversation briefly so we can get an answer and move on? We're gonna do that. Then, you know, again, we're gonna safety security. We're gonna do long term. We're gonna do cash flow.

And one of the main reason we do cash flows was, first of all, it's what I wanted. Mhmm. And the second thing is Wall Street incompetently does that. Wall Street has never competently done cash flow, and certainly not in no comparison to what we can do with it.

Steve: No. Their dividends are laughable.

John: Pathetic. And and the thing is to retire earlier, you know, it it you know, your your million dollars, you know, even today with things up, well, it's gonna kick out $3,040,000 dollars a year. Well, we can kick out way more than that. Usually, it's, you know, 5,000 to 20,000 a year. And so then we go into the cash flow segment, which is like, okay.

Wow. I'm I'm safe. I'm secure. It's for the long term, meaning I don't have to keep revisiting this. I don't need to worry about when the market goes down.

I'm just good. Mhmm. And I'm gonna get cash flow every month. This is good. The next thing is wealthy people overall have an awareness of tax benefits, and they like that real estate gives tax benefits.

And when you're new, just say real estate does tax benefits. Don't start to explain what you don't know. Yeah. But there are significant and, yeah, and there's things like what we do. Section one seventy nine, which Trump revamped his administration from a the gift to to investors, that was the biggest one we received.

It's, you know, a single family home, you know, I can easily take 10 to 20% of the purchase price and do a first year one time section 179 deduction. Mhmm. You know, there are events. You know, we go through that in detail because it's a couple hour module. But there's really good tax benefit.

There's long term depreciation. Real estate is one of the best tax benefited, investments that's out there. Residential more than commercial because of section one seventy nine. Section one seventy nine doesn't apply to commercial nor units above five. Yeah.

And so we we give them the tax benefits. You know, the next thing is they wanna rate a return. This is where so many people raising money lose because they give a number that's inappropriate and not realistic. Well, what is your stock portfolio? Oh, we do 20% a year.

No. You don't. You did it for two and a half years. The previous decade, you made 2%. You know, tell the truth.

Yeah. And, you know, and for most of our investors, seriously, you can over deliver, but don't overpromise. So so we go like, oh, we make 10%, 15%, 20%. Well, the moment you start going above 10% for most people who have worked an entire lifetime to get their money, you're a liar. Because they don't believe you can do it.

Mhmm. And it doesn't matter even if you can, they don't believe it.

Steve: Right. It's outside their belief system.

John: Yeah. And so why are you trying to force? So we'll tell people it'll vary with the area. You know, most areas will tell people, look, it's four to 6%. And then later, I'll show them a drawing of the house.

I'll do our spreadsheet, but I draw it out visually rather than do columns and numbers in a traditional spreadsheet. And they'll see, like, well, John, that's like 14, not four to six. And I tell them what I learned as a little boy. I was taught when it comes to money, you over always underestimate your earnings. You always overestimate your expenses.

That way, when it comes to money, your surprises will always be good. They're like, cool. So you said four to six, but you just showed me 14. Yeah. So which is it?

Four to six. And they're not gonna lose any money. Four to six, even with the interest rates moving stuff today, that's still better than what they're getting. In many cases, all we're redoing is we're replacing in their mind treasuries, plus giving all the other good stuff.

Steve: Right.

John: And the four to six, that's the cash on cash, which is higher than that, but it's very conservative. So we just do rate of return. And then the other thing, and this is important, again, to understand the the true psychology on a subconscious level. Wall Street teaches you when the market crashes that it's not Wall Street's fault. It's yours because you were too greedy, even though they did it.

And so what we do is, like, I don't even call it appreciation because the English commonwealth, the other English speaking companies don't call it appreciation. They call it capital growth. Now they know it's the same, but they use a different word. So when I'm in Australia That

Steve: sounds a lot fancier.

John: When I'm in Australia, I don't say capital growth. I say appreciation because that's the cool American word. Word. Mhmm. And it doesn't have the negative society connotation because, basically, appreciation in America means you got greedy and you got bit.

And most everybody who's got money was over positioned into an equity market, primarily the stock market. Those there are various games, and they got caught when the market downturned. And rather than the planner going, oh, by the way, I was trading naked without stops, without covered calls, with all the skill sets that basically you should have learned your second week of trading, I, as a ten year professional, know none of them, and you just lost 30 or 40% because I'm incompetent. I can't say that. It's like, well, you were awful greedy in that position.

Maybe we should be more conservative next time. And people just buy it.

Steve: Right.

John: The other thing is is, when I was still in security business, I was at the high, high level. So I got to go to the very, very advanced trainings, which were almost entirely about psychology and emotions of our clients. And they would do these. The book The Millionaire Next Door is the result of the of a study done by securities business. I actually participated in in that test when they were doing they were telling me what my clients want.

It's like, my clients don't wanna be in the ballroom at the Fairmont. My clients do not want Dom Perignon. They do not want Caviar. Like, what do they want? Well, we're West Coast.

They want Coors Light and the little pigs in a blanket and maybe some shrimp cocktails and some white wine for the wife. They're like, oh, no. These are rich people. They want these things. It's like and then and what the book talks about is they were completely wrong.

Steve: Right.

John: And the book was like, wow. Guys like me actually knew what they wanted and what they thought was the exact opposite. They thought the TV movie version of rich people, not the regular people.

Steve: Or the what the the Hollywood or the Wall Street version.

John: Yeah. And and so the last one we do, the seventh one is the appreciation. And what I always tell people, be very, very mindful. The era we're in the era we're in, you know, if you are sixty to ninety years old, 60 to 80 years, Colin, which is where the bulk of the wealth in America sits. If you're sixty to eighty years old, twelve years ago, you lost the third of everything you owned in the downturn.

So your subconscious predep deposition disposition is that going for too high a return is risky. It violates your internal safety or security mechanism, and so you say no. So the vast majority of people I've talked to the last five or six years when we're doing the placement, if they're not institutional, They have a large amount of their capital sitting in a cash account looking for the next deal, but never being able to pull the trigger and never understanding. So the biggest thing we do is we relieve their pain. We put them back into something and they feel better because very few people have millions of dollars by accident.

I mean, they were good stewards for Yeah. Decades to build that money. It's just the loss is so catastrophic that people can't imagine, and many of them can't imagine it. I mean, I many, many times, I'll have the husband crying, not the wife, because he's just finally coming to terms with the the loss and the grief. And probably an overemphasis, but it's just reality.

For many of them, it it is like the loss of a loved one.

Steve: Well, it was a double whammy because they lost their money, and then they missed on all the growth too.

John: Yes. Yeah. Because then they missed the run. Yeah. Yeah.

I mean, most most would have been better off never having soul just sitting there, especially if they were just in mutual funds. Which, you know, hey. Mutual funds are great if you're not willing to study or do anything. There there's not a whole lot of people that are gonna be watching this to wanna do mutual funds. But if you're not doing anything, mutual funds are a hell of a lot better than nothing.

Yeah. But they have their limits.

Steve: So we talked about how to have the conversation as far as the private money. We haven't talked about how to find the people for the private money.

John: Yeah. So finding them. So most of us will start out with our sphere of influence, which is a fancy way people of saying our friends and family. And the reason we do that, if you leave your sphere of influence, you probably just created a security. And you probably didn't do security docs, and you're not licensed.

Yeah. So you gotta be careful. And and look, like you, I'm sure. I've been to seminars where literally the guy on the stage, the gal on stage is talking about money, and they are just literally doing a seminar on security violations one zero one. I mean, everything they're teaching is a security violation.

And it's always been interesting to me about this industry, see. Where I come from is securities. You could be the cleanest operator in the world, and it would be normal, Steve, completely normal, every three to five years, having nothing wrong, no complaints, no allegations, nothing. You are squeaky clean, good play good player. It will be normal every three to five years to have someone from a government agency come into your organization, have a piece of paper, and require documents that are gonna cost you 50 to 100,000 in legal accounting to comply.

It's just normal. And you do it because that's part of the game. So What's

Steve: the doing business?

John: I came from this extreme compliance game into real estate, which people call them cowboys. No. No. No. Cowboys don't run around breaking the law all day long.

Because I we see real estate investors that meet well, you know, these days, if you're not disclosing, not only are you and you're trying to do short term print, trying to assign congress not only are you, in violation of disclosure, but you probably are committing criminal fraud as well. Because if you represent yourself to have money and don't have money, then not likely they're gonna come after you, but they sure can't. To where I came from, you had to comply. Mhmm. Or you went to jail, and they took your firm away.

Steve: Yeah. FCC was very serious. It is very serious.

John: Very. Yeah. This is a whole different set of cowboys. This is not the, you know, Arizona Corporation Commission, which is little teeny boys and girls compared to the SEC. I mean, they got they got meat.

I mean, you know, all of us in this series, if you own your own firm and you've been around for a while, we all have on speed dial one of three guys in The United States who defend you if something goes wrong. And they're very expensive, but you need that number because if they walk in, this is who you call. And so we just really, really looked at you know, we gotta dot the i's, gotta cross the t's, gotta have compliance. So sphere of influence. I can go into business with somebody I know

Steve: Mhmm.

John: As long as it's not a security. And we form an an LLC. It's a normal model. Foreign nationals, we do usually, we go right into the limited partnership rather than the LLC There's different reasons because of how they recognize things. But we form a business.

You're the capital investor. You have material obligations in the paperwork. There's a lot of stuff embedded in the paperwork when people are new, like, they just do the forms. You know how that is. Yeah.

And then later, if they study and usually, it's, you know, when they get 8,100, 120 houses, they start to really get serious about their profession. And they really like, wow. So all this stuff has a purpose. Like, oh, yeah. This is what's keeping you safe if you're ever checked.

Like, why didn't know that was embedded in the document? You didn't need to know. You just need to buy some houses. Right. And so you and I can go into business.

We know each other. We've known each other for a while. And, hey. This is what it is, Steve. You know, you're gonna put up this amount of money.

You're gonna sign for loans, not sign for loans, whatever you wanna do. You'll be involved in major decisions. I do the day to day, week to week, month to month. We form the business. You know me.

There's no guarantee implied or otherwise. There's no fixed rate. There's no return. So the things that we could get you in trouble with the SEC, we're not. So we start out friends or family.

I I will some of you are like, I don't know anybody rich. Well, we tell ourselves lots of stories. Everybody listening and watching right now has been to a dentist once. You do know a rich person. I didn't say they were your best friend or gonna just give you money.

And then many, many of us without knowing it, we know that millionaire next door from the book The Millionaire Next Door. We just don't know they're millionaires because they don't look like what society says millionaires.

Steve: They're private.

John: Yeah. Yep. Most people who are I I live in a street filled with deck of millionaires and and people who are worth over a $100,000,000, and it just looks like a normal upper middle class neighborhood. Yeah. During the last crash, there was one house that got foreclosed because nobody had a mortgage.

I mean, we that's that we didn't bitch that our house went down, but we're not gonna do anything. It's where we live.

Steve: Yeah.

John: But, you know, most people who are wealthy live well well within their means. That's part of the long term getting wealthy and staying wealthy. You know? Just because you have money doesn't mean you should drive a Ferrari. Doesn't mean you should live in a $5,000,000,000 house on a hill.

Yeah. You pick and choose the larger purchases wisely. So we people go out. They present. We let them know that, look, you follow the model that we teach at the training.

You follow the model, and it takes about 20 presentations to become competent and confident. So you, on purpose, start out on your friends that you're pretty sure are broke. Some will surprise you and write you a check, but don't plan on it. And then you start going into the people that you know in your sphere of influence who are more likely to say yes. Most of us do most of our business with a few people and their friends.

Because, you know, I meet with Steve. You love it. You've got some money. You put a million dollars in, and then you introduce me to your brother. Mhmm.

And then you introduce me to your best friend. And birds of a feather, as you know, flock together. Absolutely. Yeah. And and everybody says it, but it's true.

Jim Rohn used to talk about all the time. I was blessed to have met him, and had a private dinner with him one night. You know, he was always, you know, he birds of a feather flock together, and it's like true, man. If you're hanging out with five broke people, it's hard for you not to be broke. It just is.

And they're just and even if you are successful, they're just gonna try and drain the money out of you. So we do we do the presentations. We learn the presentation. We learn the model. We then go raise from friends and family.

Most of us have a few people in our sphere of influence who will say yes, who have money, and then they will lead you to more people. We can we can and then we teach people to expand your sphere of influence. The easiest place, join a lunch community service club. Join a rotary. Join a Kiwanis.

Join a lunch club. Why the lunch club and not the morning or dinner? The lunch club has senior management and business owners.

Steve: Got it. Because they're doing it during work hours.

John: And they're doing it different than a BNI or or a Chamber of Commerce. All good organizations. They are there together intentionally and deliberately to make the community a better place as the first priority, not to raise money and make money because they already have money.

Steve: Got it.

John: That's why they're at the club. They're fulfilling. Totally different sphere. And then you change your people you hang out with. And then you meet we teach you how to raise and make more flimp.

I had one guy, Doug Solman. He was, in Maine at the time. He's a Century Club member. Doug loves to fly fish. And he, like, every three to five years would go on these trips that are a couple thousand dollars a day for a week.

Well, he decided that him and I talked about it. It's like, well, look. Why don't you just start going on a trip every couple months that cost 10 or $15,000? Because at those lodges, you may talk to somebody broke, but they're there with somebody rich. Because somebody rich paid for this trip.

And he would go to these lodges, and he'd he'd have these vacations of a lifetime. These huge, super expensive the most expensive lodges in the world. And he would raise money. He'd meet somebody. They'd fish together.

They now are together. The sphere of influence is there. And then they would invest with him. And he literally got over half of his capital came from fishing lodges.

Steve: Wow.

John: Yep. You know, people I know that you you love to golf, you love to tennis, join a good, affluent club. There's lots of money there that hasn't changed over the decades. There's still a lot of money at clubs. I'm a member of a couple of clubs and raised lots of money from the clubs over the years.

And and just yeah. But you're doing it's like, you know, John, you know, what do you do? Private equity company. Well, what's that like? Well, Steve, tell me more about what you do.

Wow. You're an accountant. That's amazing. So interesting. It's not.

And so we then get together, and you share more about what you do. I share what I do. Before you know it, we're sitting together, you know, you and your spouse, and we're sitting together, and I'm going through the talking points. And you're like, oh, this sounds pretty good. And meeting or two, you're writing a large check, and we're placing it for you.

Steve: So, I want to talk about, the what we've talked about as far as Zillow and Opendoor. But before we do that, we're gonna take a quick commercial break, and then we'll talk about Zillow and Opendoor. Hey. Steve Trang here. A lot of you have been asking me for sales management training.

I didn't feel quite right teaching it, but I found the perfect guy to teach it for us. So, Wren, tell us about it.

Speaker 3: Steve, we're gonna be introducing some really intense fundamentals and philosophy behind the management of sales teams. Have a ton of experience building really high performance sales teams and really taken a little bit of this and a little bit of that management practices and theories from all over the place and brought them together to create a unique whole person perspective that drives low performers to high performers and elite caliber salespeople into sales champions. And couldn't be more excited to partner with you on it and the sales disruptors brand.

Steve: For sure. So go to disruptors.com/success, and we'll see you at

Steve: the next event.

Steve: Hey. Steve Trang here. A lot of you Alright. So before we go to Zillow and Opendoor, so we talked about how you're able to buy thousands of properties. But, really, once you get the money, how hard was it to acquire all these properties?

John: Well, you bought real estate when you had money in the bank. Mhmm. Even in very vibrant markets that we just came out of, you could still buy real estate every week.

Steve: Yeah.

John: Right?

Steve: Right.

John: When you have money to buy real estate, it's not very hard at all. Yeah. You you know what your model is. You know, we know the things that get a higher return. I mean, so for example, thirty years ago, it was three bedroom houses and occasional two.

Now it's mainly four bedroom houses with some threes because people want bigger homes. I know here if I'm in the city of Phoenix and you're a truck driver, and we have three of the largest trucking companies Americans are here. So this is the kind of stuff you do learn your knowledge based on your niche. Yeah. You are not allowed to park your cab on the street.

So if you own your own cab and you haul off one of the three long haul truckers and midterm truckers here in Phoenix, you have to when you get in town, you pull your truck into a storage place where you're paying 5 or $600 a month for your truck cab, which is there for maybe five nights a week five nights a month rather. And then you have to call home to your husband or wife. They have to get up, put the kids in the car, drive down, and pick you up at three or four in the morning. Your welcome home is already screwed. If I have a house that's got an RV gate it's not an RV gate anymore.

It's cab access. They can park the cab off the street. Those men or women will pay me 2 to $300 more a month for the exact same house because I have that.

Steve: Convenience.

John: Yeah. And, one of the guys who the general manager of one of the trucking companies used to be my next door neighbor. So with him and the other ones, I have access when I have a property come up that's got that cab price, I will go down and put it up on their bolt and board, and my phone rings off the hook. They'll pay me 2 to $2.50 a month more for the exact same house. Yeah.

If I've got an oversized yard, I can get 152 a month. And in Phoenix maybe Phoenix and Vegas, the only two cities in the world where you want a swimming pool and a long term hold because the swimming pool's worth a 175 to $200 more a month. People like, well, John, if it's got an oversized yard and the RV parking and the swimming pool, do you get more for everything? Usually. But I gotta make sure I'm selling it to a trucker.

Steve: Yeah.

John: So it's knowing knowing the end game, you know, where I can maximize the income streams. Does that make sense?

Steve: Of course. And this is part where, you know, you being, interested in the profit Well,

John: because I get paid on the profit. So so, you know, and the other thing is, like, so we're always pushing for the high fair rent. I will say one of the nice things this was one of the really good things that the institutional buyers did. Not the national property managers, but the big national things, they looked at the rent and said these are really undervalued, especially in cities like Phoenix. I mean, we were just you know?

We literally had properties that from 1998, '99 all the way into 2018 had gone from $1,000 to 12 or $1,300 a month. We were so far behind the rate of inflation in this town. It was it was ridiculous. And we were always pushing that envelope because we were providing homeownership. You know, we were getting more.

And and I get it from a a normal property manager point of view. If you get $200 or more a month, that would be a 100 for my partner, Steve, and a 100 for me. $100 a month. Property manager's like, you know, I'm getting 8%. That's that's, you know, $200 a month.

That's it's $16. It's like it doesn't matter. Yeah.

Steve: You

John: know, on average, I get fired in in thirty months, so that's $480. Why would I show the house five more times, seven more times to get that? Where for us, it's like, I think money in minimum ten year increment. So if I get $200 a month more, that's $2,400 a year. That's $24,000 in ten years.

12 is yours. 12 is mine. For $12,000, you bet my team's gonna show that house five more times, and we're gonna get the better resident. We're gonna get the better return because that's a huge portion of our return.

Steve: Again, the profit.

John: The profit. And in the beginning,

Steve: it wasn't Two points eighty twenty. You're not showing it five more times.

John: Yeah. It it it's like, you know, we made a 144 a month, and we were we were working hard for that 144 a month. And the back end spreads were much smaller because everything we did, everybody was sure that what I did wouldn't work was crazy and would never happen. Mhmm. I mean, when I left securities to go into the walk into the real estate, every single human being I knew on the face of the earth, except for my dad and my girlfriend who became my fiancee, my wife, and mother of my children, and on Friday, we celebrate thirty two years of marriage.

Every other human being in the world except for those two thought I was crazy. Yeah. Why would you do something so stupid? Why would you leave a job that pays so much money? I don't like it.

Steve: That was my answer too. So

John: I know.

Steve: So you and I, we talked about this, and it seems like there's a lot of people that just refuse to understand it, how Zillow and Opendoor are valued. Right? And, obviously, they've tanked quite a bit. Yes. But even last year.

Right? Everyone's like, how can they make money if they don't run a profit? Or how can they have this stock value? Or, like, why would anyone buy this? Or ex can you just explain for someone that's real estate oriented?

John: Yeah. The first thing is, you know and this is not to be mean. It's just real quick to get to the point. People are like, you know, they do x y z blah blah blah blah. I don't understand.

It's like, okay. The one piece that was true is you don't understand. And we can explain it to you, but you have to open your mind and listen. Mhmm. So I believe firmly.

Zillow was never ever ever ever ever about real estate. It was entirely a stock play a 100%, and the stock went up tens of billions of dollars. And they had a paper write off of $780,000,000. Sounds like a pretty good trade off to me.

Steve: Yeah.

John: And, coincidentally, some of the very senior management, their hold on their ability to sell their stocks or exercise their options was lifted during the period of time when that happened. How convenient. Yeah. It was a stock play. And the stock still today, after tanking, is worth more than before they went in.

So it's a good play for the company. It's a good play because they don't think like we do. So there's I always look like, look. They work on economics we don't work on. I work on checkbook economics, meaning if there's money in the checkbook, it's a good thing.

Mhmm. That's not how they're working. Their their ability and capacity to raise funds is so extraordinary. People can't comprehend it. They bring that money in, and they get paid to bring the money in one side of the house.

The other side gets paid the place. There is no who makes the money? It's not there. They don't spend the time on an eighty twenty. I mean and they usually have a threshold.

So I mean, that means they get two points us that's under management. So if you got a if you got a million dollars under management, you get 2%. If you got a 100,000,000 under management, you get 2%. So, obviously, the more you have under management, the more you make. And then they split the profits to eighty twenty.

And people like, well, 2% fee, that seems pretty fair. In many cases, they only make four or 5%. If you make 5% and I'm taking two guaranteed, I'm taking 40% guaranteed upfront. It's Wall Street. They ain't here for your help.

It's just like when they have a TV commercial and they tell you to borrow money. It ain't for your benefit. It's for theirs. And so their thought processes are not ours, nor should they be. It's good to understand where they are because you can make a lot of money on their trough.

But, it's like, you know, years ago when they in the twenty years ago I'm I'm sorry. About fifteen years ago when Wall Street started getting in 09/1011, about twenty years after us. Actually, five of the big firms hired me as a consultant, paid me a whole bunch of money, and none of them did what they were told. Three of them rehired me and then listened. I love Wall Street.

They just throw money at the problems. Yeah. Is, what they're doing isn't what we should do, but it's nice to understand. I can't remember all kinds of well, I would never sell them. Why wouldn't you?

You're you're a short term player. Why wouldn't you just sell to the biggest bank in town? What are you? Crazy? In the last couple years, a lot of people got on board with them.

Of course, now they're in big trouble because that buyer went away.

Steve: Right.

John: Is, they're throwing so much money at it, and they've added so many zeros in the modern securities game. So many zeros have been at each generation. It's just adding zeros. I mean, I remember when, you know, billion was a number that was so huge. And now to Wall Street, it's like they just skipped billion.

Yeah. We went from a couple 100,000,000 to, 50,000,000,000. Mhmm. I mean, they just jumped. They just create zeros.

And so most of what they do is about generating fees or jacking stock value up almost always at a strategic time when the senior people in the company want to sell a bunch of stock.

Steve: Yeah.

John: And that's what they're doing. It is not about what we as a normal real estate investor would understand about generating return. It's not the objective.

Steve: We require profit.

John: We or we did. They're not. They just raised more money.

Steve: So but if we were to do, like, an equivalent of Zillow Opendoor, you and I, we started companies, a new company. We're gonna make all these promises. Right? And then we're gonna get a valuation of a billion dollars or multiple tens of billions of dollars.

John: Right.

Steve: And we sell a good chunk of our stock. We never had to be profitable.

John: Right.

Steve: And that's their model. And a lot of people just don't get it.

John: It it and when you say you don't understand, the first the first piece to growth is acceptance. You don't understand. So stop trying to put our common sense logical has to be or we don't eat Mhmm. Into it because it's not how they're thinking.

Steve: Right.

John: It's they're they're either massively they feel like, well, if they work for fees, why would they overpay for houses? Hello? If I get 2%, I'd rather pay 400 instead of 300 for the house. I make more money. I place it faster.

I do less work. It's why, traditionally, they would always, you know, buy those $50,100,000,000 dollar office buildings and leave them vacant for ten years. It's way easier to buy a $50,000,000 building and not have it make money than it is to go buy a portfolio of houses.

Steve: Or that you have to manage.

John: That you have to manage and make a profit off before you don't eat. So they just look at it way different than we do. And it it's, you know, Well, it's one of the reasons why I don't do it. I mean, I can't I just couldn't go to bed knowing that I was doing that every night to people. And I was never part of that, but I saw it.

Yeah. It's just it's not not who it's not who you are. It's not who I am.

Steve: Well, that's those are the movies we're talking about. Yeah. So on YouTube, Bob Plea, I'm probably butchering that name. What's the best book for private equity?

John: Oh, wow. I've never read one that was exceptional from our point of view. The one thing we do is I do four events a year, three that are public here in Arizona, and we teach the private equity model. I have people who come in from all over the country and all over the world, and I teach the model step by step by step. We have a lot of manuals and a lot of audios on that.

I've never read a, or even the family office books are off. I've never read a, Wall Street type book that looked at it from our point of view. It was all about how we jack up how we create and manufacture false PE ratios, how we raise raise raise raise raise. And to give you guys just an example of really how bad it is. In 2009, it was Deutsche Bank.

The man who was running the fund, he had $86,000,000,000 under management in '9. And we're going through it, and he's like, okay. I love it. And he goes, you understand? I was only asking for 10,000,000, which back then, that was the ask.

He goes, you do understand, John, that, you know, in these turbulent times, it was just before ten, it was the end of nine. You asking me for $10,000,000 is literally like me asking my valet, who was standing in the room, to go down to my private parking lot on Wall Street and have my chauffeur, who's sitting in my Rolls Royce, which was really happening, and ask him to take a dime out of the ashtray and give it to my valet and bring it up. He goes, here's the thing, John. You need to tell me that you're going to make 10, and then pay me 5 and don't lose any effing money. Like, why?

I can't. You need to say 10. You don't need to ever pay it, John, but we are guys who raves the money told the clients 10. So you need to say 10. And then just give me five and we're good forever.

10. And and that literally, I didn't say I'd pay 10. I said 10. He's like, good enough. And then he got up, and and the bean counters, I wanna go through it.

Because all he wanted to hear was the story. He we I'd if you look, what did you do? Safety, security, long term cash flow. Tell me ten, John, and we'll write we'll get a check wired for $10,000,000 right away. And we did, because they had all this money they'd raised, and they didn't have anywhere to put it.

Yeah. And so it's like, this is the games that they play. And and 10,000,000 in in December '9, $10,000,000 would literally probably be, like, a $100,000,000 today. They've added that many heroes to the game already.

Steve: Yeah. You wrote a book, though.

John: Yeah. Money's Secret to the Rich. Over a million copies sold, and that was the book that was designed for everybody. Now there is the last third of the book. It's pretty advanced and a lot of real estate.

But the first two thirds are all the great stuff about how, you know, we live within our means, how we properly budget money, how we properly do spreadsheets, how we do our asset allocation, how we pay off our debt. There's good debt and bad debt. All personal debt is bad, always has been, always will be. I always feel like, well, you know, I wanna use a home equity loan to buy real estate. Okay.

Do you have money on credit cards that you can't pay off? Well, yes. But I wanna do the, arbitrage interest arbitrage with my home equity loan. Like, okay, mister Spock. You've already proven you're incapable of managing debt.

Why do you wanna lose your home? And if we get a bit of a downturn, 20%, how many people that you and I know that we've met are gonna lose their homes in the next year? And a 10 to 20% downturn would be normal. Mhmm. Normal?

Steve: Yeah. Yeah.

John: You know, to be successful as a long term real estate investor, you cannot be susceptible to market risk.

Steve: Yeah. It's absolutely

John: I mean, interest rates going up and the market slowing down, this is the greatest thing that can possibly happen if you know what you're doing. Yeah. But most don't.

Steve: Well, most of us started in a good market.

John: Right. The my blessing in hindsight was when I started interest rates for eighteen percent. So it's kinda like even the even the worst real estate agent knew that you had to do subject to and owner financing.

Steve: I, I got the opportunity to learn real estate in 2007. Right?

John: There you go.

Steve: So got to see a lot of that then. Sharad wants to know what type of down payment do you collect from the resident prior to them moving in?

John: Great question. Really, really important. So here's what we need to do. We need to make it as conforming to normal as possible. We need to have a fixed straight strike price.

I know all these seminars as well. You do a sliding scale, and you do all these different things. The question is, would your brother or sister, family, or you buy a house like that? Then why were you trying to sell it to somebody? So we fixed the it's high, but we fixed the end price.

The upfront money, I'm competing with government programs in their knowledge, but their FICO score won't get them into the government programs because the FICO model is extraordinarily flawed and discriminatory against middle class and lower middle class. Against middle class. It's very discriminatory. Because to have a high FICO score, you have to have large lines of credit access through unaccessed, not small amounts. We actually prefer small amounts because you can't go deep in debt.

I need to get two and a half percent, Ballpark $1,000 either way depending on the marketplace. So if I'm in a $400,000 house, I need to get $910,000 upfront. If they don't have some skin in the game, they fall out over and over again. And I learned the hard way years and years ago. Every house in my portfolio is always better vacant for another month than put the wrong family in.

Now to offset this, here's what we do. First of all, I give a realistic expectation to my investor. They're used to real estate and normal real estate markets. Sixty, ninety days to move a house is a very fair period of time. We have to do minor minor renovations, minor fix up, clean it up, put somebody in.

So I tell them it's ninety days, which, I mean yeah. Every few years, we have one that actually gets that long, but almost always, they're gone within thirty days. So I'm a hero. It's it's kinda like I always call this the Star Trek, the Scottie solution. So, you know, I think it was the Star Trek five, the movie with the original cast.

Mhmm. You know, he's in in engineering, teaching engineering at Starfleet. And, you know, he's a deity to these students. And they've got this girl, Scotty, Scotty, captain Scotty, how did you always do it? How did you always save the Enterprise?

He goes, ah, it was easy, Lassie. Here's what you do. If it's gonna take you three hours to fix it, you always tell the captain nine. You make it three times longer. That way, when it takes you twice as long as it should, you'll come out a blooming hero.

And then, of course, they had them stereotyping in a bad way. Take out a flask of scotch, take a drink, and then hit a wall and pass out.

Steve: Yeah.

John: But the idea is we always make it much longer. So with the resident moving in, it's gonna be, a, a security deposit like a normal renter. A lot of guys who do lease options and owner financing don't have a security deposit. If they legal up, which is more and more today, it's not so a lot of these stories you hear at seminars, it's like they're literally stories that were told primarily by Nick Coon or Nicholson back in the sixties or seventies, which in the sixties or seventies, if you were the richest white man in your town, in the middle of the country or the South, you could get away with almost anything. Evictions were and waving a sheriff over and giving them 20 to $50 to take the people's stuff and throw it in the street.

I saw it done. That doesn't fly in 2022 in America anymore. You can't do that stuff, and that's good that you can't. So I need them to have hurt money in. We do, usually about a thousand dollar security deposit the first month, and then a 4,900 to $6,900, option fee.

Because at Dodd Frank, most of the time today, we do a long term, a ten year option with the lease that on performance automatically renews each year. Some of our residents, we do a a straight fully amortizing thirty year installment contract under Dodd Frank compliance. I understand that those of you who are watching right now, if you live in the Midwest or the South, you guys like to pretend that rules like Dodd Frank don't apply to you. They apply to everybody. But that part of the country just has a tendency when I speak there to act like this stuff doesn't count.

And it doesn't until they put you up against the wall and take your entire portfolio and put you in jail.

Steve: Yeah. I was having a conversation with someone over the weekend. And, one thing about if you're going to war with the government is they don't fight fair.

John: They don't have to. They don't

Steve: have to. Assets.

John: And they make the rules. So you

Steve: They seize your assets. You can't afford a good attorney, and good luck then.

John: It's just so much easier to comply.

Steve: Yeah. It is. Caleb on YouTube. If you're solely focused on return, are you willing to buy above market if return justifies the buy?

John: Wow. Caleb, phenomenal question. And the answer is absolutely. So, again so, Caleb, I'm I've spent over $1,000,000 of my own money, not counting the last ten years on continuing education, not traditional college. All the courses, all the people, all the stuff, I went and went and went.

And I used to be stuck on the price too much, even with my my background. And then I started realizing it's like, wow. I need wholesale price or wholesale terms, and I can make a lot of money with either. Mhmm. Up until a couple months ago, we'd had gone through an era where the banks was offering wholesale terms.

Yeah. So unlike most investors who were avoiding the bank like a plague and figuring out every way not to use the bank, we completely, totally, and absolutely embraced the banks to the full extent we could, primarily community banks, invest capital investors. We're putting 25% down and signing for, in essence, unlimited amount of loans at 3%, three and a half percent, four, you know, whatever it was. So classic example. Lady is in, house in Fayetteville, North Carolina.

We had a large portfolio there at the time. Met this lady. Her name was missus Reagan. No relation to the president. And she's like, I need 80,000.

And it's like, the house was worth 60 top, and it had about 15,000, including foundation problems. She had, like, 15,000 deferred work. Her husband passed away four years before. The house had been vacant for about five. And she was adamant.

He told her never ever ever ever sell it for less than 80,000. Free and clear. It had been sitting and rotten for five years. And, yeah, I would have my rep with me, you know, who who's my my manager for that market. And he's like, like, 80,000, missus Reagan?

And she goes, yes. And I said, well, missus Reagan, if I can give you $80,000 for your house, can you help with the financing? She's like I I could see she's processing. He didn't say don't carry. She goes, yes.

I think so. And I said, well, then fine. The word you wanna hear, I'm gonna speak right now. Missus Reagan, the house is sold. I will pay you $80,000, and it was worth 60.

Yeah. She's just like and it was very fair. I gave her 10% down, and she carried it 2%. Mhmm. My payment was wholesale.

My price was above market, and it's not relevant. Look. I'd like to tell you that everybody gives me a house at zero to 2%. They're they don't. Have I bought a lot of houses at zero to 2%?

Yes. And many at zero. I've had times where I paid 50% more. We had one not too long you know, been a few years now, but not too long ago, where literally I paid the guy 40% more than the house would work. He was willing to carry it 1% interest.

Mhmm. And I amortize it. Payment I want. They amortized it. So I had it, like, in fourteen years, it's free and clear.

Well, if it's free and clear in fourteen years, what do I care what I paid for? It doesn't matter. So It

Steve: really doesn't.

John: We're back to the return, you know. And and if I'm paying cash, I mean, there's no way around it. I gotta go low. It's like when I meet with people in their home, I I always let them know, look. We acquire homes in one or two ways.

The first one is, and I do it just like this, we acquired the property for a, and I look at my fingers, and I go steep discount. There's no ifs, ands, or buts. What I'm saying we're gonna do here. Or and that's I've done the research. I know there's a loan.

Or we take over the the loan for the rest of its life. Would either of those work for you? And they usually go, well, John, I don't have equity. I couldn't give a steep discount. Means they probably just sold the house to me with me taking over the existing loan or them doing the under financing.

Right. But I need one or the other, but not both. In a dream world, I get both, but they rarely align.

Steve: Yeah.

John: Usually, interest rates are low, prices go through the roof, interest rates are high, prices come down.

Steve: Right. And if you get both then

John: Oh, and those are dreams.

Steve: And you

John: get them, but just not often.

Steve: Brandon Simmons, a a mutual friend, asks about your ministry with Nick Vujicic.

John: Vujicic. Thank you, Brandon. It's, really near and dear to me. Nick Vujicic, b u j I c I c. Google him.

He, him and team Tim Tebow, great guy, are the two biggest, quote, unquote, draws in Christianity today. Nick was born without arms and legs. I bet met Nick when he was 17 years old back in 1999. He actually is, about a decamillionaire off of investments in our model. He's very, very active with it.

And his dad and uncle his his dad passed away a few years ago. His uncle just passed, about three weeks ago. And that was really his surrogate father. I'm next in line. Sometimes I'm like a brother.

Sometimes I'm like an uncle. He's he's an amazing guy. And he grew up without arms and legs. I would never speak out of turn. He tried to commit suicide.

But every time he did, he didn't have any arms and legs. We can't blow his brains out. He can't drive his car over a cliff. He literally was like First time he was 12 years old, and he's gonna drown himself in the tub. And he went under to do it, and then just before he, you know, was about to pass out, he realized mom's gonna find me.

I can't do this to my mom. And they were a middle class, middle lower class family. His father was a pastor. His mother was a nurse. They weren't very well off.

And his father told him, you know, you're gonna need to figure out how to make money, son, because I can't take care of this. We can't your family, we can't sustain this. And so he read my book, Money Secrets of the Rich. At the time, it was one of three books he'd ever read. He read it cover to cover.

It was dog eared and marked up. And when he writes, he doesn't have arms and legs. He's gotta put the pen in his mouth. He's an amazing guy. If people look at me and go, his hand he god.

This poor guy. He's disabled in handicapped. He looked at the audience. He goes, you poor people. You're all disabled up here and in here.

You don't have faith. You don't take action. He's fearless. And so he goes through we've been, doing some stuff together for years and years. We're gonna continue to do some more stuff together.

And there's some stuff that that, will be coming out in the next year or two that Nick and I are gonna be doing together. I'm actually Friday, on my wedding anniversary, with my wife's blessing, my son and I are actually flying out, to aid Nick on a project he's doing in East Texas. He's got some land and some some property there, and he's looking at different things he can do to do mentorship and housing and fellowship and help people. So there's some really cool stuff. Thanks for the, for the request and just, yeah, follow it along and and feel free, you know, go to our Facebook page and feel free to, to reach out.

But, yeah, it's very near and dear to me, and and, Nick's amazing. And he literally he was he took our our big training in our program in Phoenix from Australia. He was 18 years old, and he went home with no arms and legs and raised money and became a multimillionaire in real estate investing. So Wow. Kinda like when I say that, I then look somebody in the eye who's giving me a bunch of excuses, and it's like, what's your story again?

You know? Because your story may be real, but it's not true. Because if anybody on the planet should have been able to pull the I'm a handicap card out and not do it Mhmm. It was Nick. Yeah.

And he crushed the business Yeah. And still does.

Steve: Camilla Tatis wants to know what is the name of your book again?

John: Money Secrets of the Rich.

Steve: And then Lotto wants to know, what traits do you personally look for in a partner?

John: Integrity. Integrity is the most important trait that a man or woman possesses. And the higher the level of the relationship they have with me, the more importance. I look for that in in a low level employee, but I'm not expecting them to be a walking pillar of integrity when they meet me. We're gonna try and turn them into one.

And most of my employees most people who work at my company, it's their last job. Seriously. I've retired out several people who spent ten to twenty years in my firm. I mainly hire people who are older because it when they're older, they've learned to manage their personal problems.

Steve: Yeah.

John: And people are like, well, why would you hire somebody who's 50? I mean, how long are you gonna stay? How long are those 25 year olds staying? You know? So I hire people who are 40, 50 years old, and and then they meet the other management at the company.

And they're like, oh, just so you know, if you haven't figured out yet, this is your last job. Yeah. John's gonna help you get wealthy. He's gonna teach you to invest in real estate. He's gonna show you how to maximize out your retirement plan.

And in ten to fifteen years, you're gonna walk out of here free financially for the rest of your life and leave him early.

Steve: Yeah.

John: And with all my senior people, we have standing a written agreement where literally they must give me six month notice because it won't take that line long for them to find their replacement because they're that good.

Steve: Wow. What is your why?

John: You know, why is a big, big question. And I think for most people, it's a moving instrument it should be. So, certainly, younger in my life when I formed it, the big, big piece of the why was I really, really liked the idea of providing homeownership to people who couldn't get a loan. And that became a huge piece of what we did. You know, I really, really like changing my capital investors' lives because in many times, you know, I'm catching them in a 2012 or 13 era where they just literally, you know, they went from, you know, 1,400,000.0 to 800,000.

Steve: If you're

John: listening going, oh, if I had 800,000 life, it'd be great. That's probably why God didn't give you 1,400,000. You're not a very good steward. I mean, they're they're in a lot of pain Mhmm. And relieving that pain and helping them.

You know, a the biggest why is as for us now, it's legacy is the wrong word, but it's what we leave behind. So, you know, we have an event in November, and it'd be normal at our event. I'll have five or six living, walking, breathing current Century Club members in the Burley Mile. Century Club member means they have over a 100 houses, which means they made over $1,000,000 in placement fees. And their share is probably somewhere between $40,000 to $80,000 a month every single month for the rest of their life.

And they're at the event just assisting the facilitation because we have literally our generations are ten years, not twenty, at the events. So we literally have multiple generations. Well, you'll meet Dave who's been around for twenty three years, and Dave will go like, oh, yeah. The guy John was just talking about, he's real. I know him.

He helped me. And and so part of things that we always pass on is that they have an obligation, and they come back for three reasons. And I think it's the biggest separation between ours. I mean, I go to seminars, and last time, there's 5% of the people in the room who are doing anything. And ours will have them standing.

You'll have 40 to 60% of the audience is a significant player. So the bonding at lunch and morning and the evening is sometimes better than this than what happens on the stage. And, you know, they come back for three reasons. And these are very important and endearing to my wife and I. I mean, the first reason they come back because they believe what I taught them.

If you want something, give it. You want your children to love you more? Love your children way more. Make sure they're clear on that. And I know you I see it at social media, and you and I talk.

You're a great dad that and getting better all the time. Time is what your children want, not stuff. So it's first thing, they come back because they believe that giving gets you more of what you want. Second reason they come back, I I usually get emotional during this, is profound gratitude. I mean, you know, most of those Century Club members that you'd meet are decamillionaires, and they had met me two, three, five years before and were just regular people trying real estate.

And now they have lifetime income that they can never spend. The profound gratitude. And not just us, but the generation before them had helped them so much that it just kind of a combination of that sense of profound gratitude and a debt they cannot repay. Yeah. And they come back to do that.

And then the third reason is entirely self serving. They wanna hang out. They wanna have dinner at my house. They wanna be there at seven in the morning, 06:30 in the morning before the event starts hanging out with me for two hours when we're just, you know, hanging out, having fun, being family.

Steve: It's a community.

John: The community. And they call it the Burley family. And there are literally thousands and thousands and thousands of Century Club members. And I hear that not a month has gone by, Steve, in the last thirty years when someone that I didn't even know I had impacted reached out and go, hey. We never said anything.

I live in Arkansas. I saw you were in Atlanta. I was gonna come down, but I missed it. I have 245 houses, and I didn't even know who they were. And it's like, because you're modeling what you do.

Because see, the whole problem with real estate is the big lie is that most education tries to avoid the truth. And I came from Wall Street, so I knew the truth. It takes money. It has always taken money, and it will always take money. And we can try and avoid it.

And, you know, when the markets are low, and we may get one here in the next year or two, you can pop in and buy some sub twos and, you know, buy some stuff. And you got these little tricks that you can use in some markets, but they're not replicable for the long term and it's not how you build wealth in a portfolio.

Steve: Yeah.

John: And so what we do is we just completely take the shackles off. It's like so and I tell people when they're new, if you don't know real estate, quite frankly, this may be a good thing. I don't have to unlearn all the stuff that's not working for you that you think you know. But all we're gonna focus on is raising money, learning how to raise capital. Because I see people it's like, they spent ten, twenty hours a week looking at houses online that they have no money to buy, wondering why they end up divorced and their children hate their guts.

But you're not working. You're pretending you're working. Learn to raise the money, handle the capital, and then the real estate game's easy.

Steve: What is your biggest struggle right now?

John: Biggest what?

Steve: Struggle right now.

John: Wow. It would be continuing to enhance and improve already great relationships with my children and my spouse, which is what it should be. Yeah. Your number one priority should be those closest to you. My mom's not she's old, and she's not much there.

She's in a home now, which, you know, it just it is what it is. So so I think really that is, the business side, very little. And and, you know, we've been doing this so long with so many properties that, you know, students call all the time. Hey, John. This just happened.

And and and, seriously, John, you know, the the John Burley Real Estate Facebook page, you can DM me. I mean, you can reach out to me. I'm a human being. I respond. It may be a little while, but I'll get back to you.

Is, you know, our number one problem and thing we're working on should be the relationships with the people around us. And it's not really a problem. It's a blessing. But it takes work. I mean, a great marriage is a lot of work.

Being a great dad, as you know, is a lot of work.

Steve: It's a lot of intention.

John: A lot. And that's where I put it. The business is like, you know, look, anything that can happen has already happened so many times. It's like, you know, students will call like, oh my god. A house burned down.

And we're like, well, welcome to Tuesday morning. I mean, that's just regular. If you have a big portfolio, stuff goes wrong every day.

Steve: Yeah. I have a a mentor, Gary Harper. He's he's made the comment, like, you know, he appreciates how many people, you know, invest in coaching and growing their business. And one thing he laments, he wishes people would put as much effort and focus into their marriage and their family.

John: I mean and and, yeah, I mean, marriage is super important. We have, like, the new buzzword is a life coach. She's not a life coach. She's a counselor. She's a therapist, and she's worked with us for twenty plus years.

Sometimes I go. Sometimes my wife goes. Sometimes we both go. Yeah. And if the other one doesn't wanna go, then the one that that wants to go should go for sure.

Because no matter what happened, you have participation in it. It's not a 100 the other way.

Steve: Yeah.

John: And and so, yeah, the business, it was about in the early years, figuring out the model, putting systems in place that previously had never existed because what we do is not street rentals. It's it's unique. But once we had those in place and refined them, I mean, now I mean, we we you know, in our office, if I got a a newer employee and she's like, well, John, I'm having problems. Like, okay. Well, hang on.

You know? Is there a system for this? Yes. Were you trained in the system? Yes.

Does the system still work? Yes. Were you adequately trained? Yes. K.

So the problem is then you. What do you what do you need to do, and how can I help you to fix this? Because I'd like you to stay here for another ten or fifteen years.

Steve: Yeah.

John: And then and during the whole thing, is there a system in place? Well, no. We have system for everything now, obviously. So no. So in the beginning, you know, years ago, well, we have to develop a system with this.

We hadn't thought of this one. Because a lot of the stuff that goes wrong, you don't know it goes wrong until it goes wrong.

Steve: What happens?

John: You know? Because if you haven't done thousands and thousands of transactions, you don't know what can go wrong yet. Yeah. You're gonna figure it out, and then we just go through it. So that normal stuff's not there.

And, you know, I'm not really the whole legacy thing that people talk about in a way, it's not something that I really am profoundly impacted or think about. You know, I am who I am. I know who I am, and something that I really learned from my dad and grandfather, they didn't say it directly, but this is how they lived their lives and implied. What you think of me is none of my business. And then my daughter would clarify that, and I don't care, which is a very freeing way to live.

Steve: And it's a very much freeing way to live.

John: Because it's like, you know, people are gonna talk. Who cares?

Steve: You have a a seminar coming up?

John: Yeah. We the last one we're doing is November. It's in Phoenix, Arizona. I know you have a a link you're gonna put up for them.

Steve: Mhmm.

John: It's john burley dot yeah. John burley dot com slash disruptors. It's very, very reasonable we have for you guys. I think it's $2.97. It's three full days.

We, register at 08:30. We start at nine. We go till six, and often we go till nine or 10:00. And we highly recommend we're at a very reasonable hotel on purpose. We highly recommend you stay at the hotel because meetings start about seven in the morning and they end about midnight.

And unlike most events, there will be many Century Club members and lots of people who've got twenty, thirty, forty, fifty properties doing the model. So I always tell people, look. Don't ask me if it works. Ask them.

Steve: Yeah.

John: Because that's the that's the real testimonial. Yeah. You know? And it it is fun when you're you're not in this environment and you get, like, let me see if I got this straight. You make 10,000 a month, and you basically think you're almost just doo doo around here because you make so little.

And in most rooms, you'd be a freaking deity

Steve: Yeah.

John: Walking around. And ours is, like, at a 100 that you get elevated and it changes. So it's a very, very intentional and deliberate model. I get asked all time people, would you mean that? And, you know, let me be clear.

You know me, Steve. But today and at every event I I teach, every single thing I state is intentional and deliberate, and I mean it. Yeah. I take this business incredibly serious. I know I was blessed with two tool sets that most people don't get.

I was blessed to be able to become an incredible investor and also a very, very strong educator, and those tools usually don't intermix. Most great investors I know are horrible educators and never do it. And most educators I know can't invest their way out of anything. They're poor, unfortunately.

Steve: You know, it's funny. You and I were having coffee one day, and you're talking about the circuit. Right? Because you got to be on the circuit with Jim Rohn with Zig Ziglar, which I imagine was an incredible blessing.

John: Oh, beyond comprehension. Yes.

Steve: But you one thing you said to me was you were not allowed on the circuit unless you'd done some number of transactions.

John: Oh, when when I started teaching, no one would have ever thought of ever having anybody speak who hadn't done at least a 100 properties verified. And the expectation was a portfolio, not flips. Because Yeah. In those errors, in those circuits, it's like flips. They don't really count as full deals to them.

Because they're not. I mean, it it you know, our placement fee so so we have a placement fee. So we get half the profits, but we have a placement fee, which is just the cost of doing business. The placement fee is $10,000 per property. For most of my students who come November, you learn how to do it.

For most of you, that 10,000 is gonna do two things. Number one, it's gonna take care of your bad debt from your past. Number two, it's gonna give you eating money to transition out of a job that you probably don't like. Now if you're looking to come to a seminar that's too good to be true miracles, I'm the wrong guy. This is work.

Always has been, always will be like anything of, of accomplishment. And for those of you who haven't been here, I'm here at Steve's offices today, and it was very impressed, the team and the time they took and showed me around. Very, very impressive. And he's worked hard. Really, really hard.

All of this is work. Yeah. Difference is we teach you how to work really smart. Starting out, all I want students to do is assuming we don't have a real estate mess that we have to clean up, which we often do, but if you don't have a mess coming in I just went about four hours a week. Four hours a week.

I'm gonna have you make five phone calls to your sphere of influence. I'm gonna have you run two appointments and run the presentation. On average, after running 20 presentations, someone says yes and you have money.

Steve: Yeah.

John: And then you just made if it's one house, you made $10. Then we will go look at buying real estate because now you have a placement fee of $10 in your pocket, starting to take the pressure off of you. And you now have a capital investor who's either buying all cash or cash and a loan. But the money's a nonissue. Buying houses, as you know, Steve, most people who are listening right now, if you have money in the bank, buying a house is easy.

That's not hard to do.

Steve: Right. And deals will find you.

John: And we don't need to steal it. We just need to buy a reasonable deal. Yeah. Most people start out buying their deals off the MLS for just right around market. Because the deal of a lifetime, that's not the first deal.

Those happen down the road when you built experiences and networks and people are calling you. Those aren't your early deals. Your early deals are retail.

Steve: Yeah.

John: We just take care of the money. And then as people go and they start doing two, three, four, five, six, I mean, obviously, in the short term, you're making $40.50, $60,000. People think that's the money. The reality is and and you've seen our numbers. When we break our numbers out, we look at what we make over ten years.

It is a normal experience for a $100,000 house in ten years to make a $100, for a $200,000 house to make $200, and for a $300,000 house to make 300, and a 400 to make 400, until you move into the upper middle class, class a, and then the numbers don't carry through.

Steve: Right.

John: So the little money is the placement fee. And then for most people, we teach you, look. If you've got 15 to 20 properties and you wanna grow your business and you don't have a full time employee, the owner's a fool, which like I was. And then, you know, then you give back some of your fee money because you start hiring and training staff and all the stuff that's under 50 or under a 100 or under 25, whatever your number is, per hour. All that stuff, you train within our system for your team to do so you can go two things.

Most importantly, do you like what you're doing? Be a great dad.

Steve: Yeah.

John: Spend time with your wife. Be a good man. And then go do the business things that pay $502.50, 1,000, 1,500, $2,000 an hour. Go negotiate deals, go do raises, and let your staff, your team take care of the day to day, week to week, month to month crap that most of us don't wanna do.

Steve: No. We don't. So I want you to think about something I wanna leave those with while I make a couple of quick announcements. Guys, if you get value today, please like, subscribe, share, comment. It helps us, basically, I don't know, beat the algorithms, manipulate the algorithms.

That's the word I wanna use. And then we do have our sales management course, something that, we partnered up with Rem Bartlett. If you guys didn't see that, be sure to check that out, check that out. And we got part of the disruption tomorrow, so we are continuing on. And next week, we got Paul Hersco and Willie Goldberg on talking about how they're doing 1,500 transactions per year.

A pretty crazy number all in all. So what are some last thoughts you'd like to leave the listeners with?

John: Yeah. We all have, a story. And our stories are usually about what we can't do. And our stories are real, but they're not true. Two people that we talk about, one, we talked about earlier, and thank you for asking about the question about Nick.

Nick Vujicic has got about as big a physical handicaps as you can have, yet is the number one evangelist on the world, the second biggest male Christian draw on the world, demands huge, huge fees, and then spends about four months a year traveling the world doing evangelism and charitable work for free. So he makes money in his other businesses so he can do that, and his family lives a great life. You know, when I met him, his story was, I'll always be alone. I will never have love. I will never have a family.

I will always be dependent on other people and be a burden. And today, you know, he makes a 7 figure income. He's a millionaire many times over. He has an incredible wife, beautiful children and family. I was just, a couple months ago fishing with him and his son down to Florida Keys with my son.

His story was, I can do it. I'm gonna find someone like John, and I'm gonna do what I'm told. And I'm not gonna listen to the rest of Will, and I'm gonna do it. And the other guy that we talk about a lot is a guy named John. He was born and don't get all upset.

When he was born, he was told he was mentally retarded. I know that's not politically correct word. I wouldn't use it, you know, especially. You're handing they get different words now. But that's how he was born.

He came to the event. He went through the training. We were actually in Texas at the time, and there were 17 people from NASA that were literally rocket scientists. To my knowledge, none of them ever did a deal. We did have a NASA astronaut later who who built a portfolio in in a private equity company as a center club member.

That was extra work because he was an engineer and an astronaut. You can't get harder than that. John has very, very, very limited intellect. Always did. To the point where literally the owner financing was too hard for him.

He just does straight rentals. He learned how to raise money, And we had to get him out of class c rehabs into class b that don't need a bunch of rehab property. That was the learning experience for him because he wasn't comfortable being a class b neighbor. He made $18,000 a year when I met him. In his own words, he was fifth generation white trailer trash.

And it was the most money he made was than any man in his family had ever made. Today, he has over 600 houses in the Texas area, in Dallas, Texas area. Such a sweet, simple man. Because he's still I mean, he's a decamillionaire, but he's still very limited intelligence. That's how God made him.

And his story was, if he was here, what he would say and he's been to many of our events, and he just goes, hey, look. This is real easy. You just need to do what I need to do. You need to do exactly what mister Burley tells you, and you need to be stupid enough to believe. So our stories are real, but they're not true.

You and I, like everybody watching right now, deal with stories every day, and we make choices about them. I would urge you on the important things in your life to really evaluate your story. And if it needs to be shifted, shift it. Because stories are real, but they're not true. Because the world would tell us that so many people that I've trained and worked with, they can't make it, but they did.

Yeah. That's

Steve: powerful. If someone wants to get a hold of you, how would they reach you?

John: Yeah. You can call my office at (623) 561-8246. You can go to johnburley.com. And I I know the links are there, but, Facebook, we have, John Burley Real Estate Investing.

Steve: You can

John: reel it pop in. And and, guys, I'm a regular guy. I, respond. You can reach out, talk to us. You know?

And you got problems, you got challenges, you need help with, you think we could help you? Call. I mean, because I've been on the air side of the fence a long time, not knowing what to do. That was one of my big struggles when I started in real estate investing. I I've invested in all these courses, and they all made it sound like they could answer it.

And usually, they made it sound like you were gonna meet the man. Man was never coming. He He was never gonna be there. He was never gonna coach you. He was never gonna train you.

So what we do, my primary business is my private equity company, not the education. When we do the education, which for us is very part time, we dedicate time that we work in in the high end group that we work with, and they get the attention. And with that said, if you got somebody who's watching right now, you got questions, you need help, you got something that's blown up, you got problems, reach out, and we'll help you. And then down the road, you'll have to pay it back.

Steve: There you go. There you go. Awesome. Thank you very much, John.

John: Hey. My pleasure. This is awesome. Thank you

Steve: guys all for watching. See you guys all tomorrow. Thank you

Steve: all. Shout out to Steve Trane. Jump on the Steve Trane. We real estate disrupt us.