In this episode of The Tactical Empire, Jeff Smith and Shawn discuss overcoming early challenges in real estate investing and building long-term wealth through the BRRR strategy (Buy, Rehab, Rent, Refinance, Repeat). They highlight the psychological resilience needed for new investors, strategies for handling initial expenses, and the importance of maintaining cash reserves. The discussion also covers long-term growth plans, including scaling to larger asset classes for better returns. They emphasize the significance of balancing short, mid, and long-term financial strategies to achieve sustained success in real estate investing.
In this episode of The Tactical Empire, Jeff Smith and his guest Shawn discuss strategies to build a life of abundance, discipline, and high achievement by investing in real estate. They explore the BRRR (Buy, Rehab, Rent, Refinance, Repeat) method and long-term rentals (LTRs), offering insights on how to maintain motivation and keep momentum in the early stages of investing. Jeff shares his experiences and advice on managing real estate portfolios, scaling up investments, and balancing short-term cash flow with long-term gains. They also delve into the psychological aspects of investing and emphasize the importance of having a long-term perspective. Join their Tactical Empire community for more discussions on real estate, infinite banking, and business investments.
00:00 Introduction to The Tactical Empire
00:30 Casual Catch-Up and Travel Plans
01:37 Real Estate Investment Strategies
03:51 The Psychology of Long-Term Rentals
06:22 Case Study: Transitioning to Full-Time Real Estate
07:47 Balancing Short-Term and Long-Term Investments
10:47 Scaling Up: From Single Family Homes to Larger Assets
21:40 Handling Unexpected Expenses and Capital Reserves
27:14 Final Thoughts and Community Invitation
EPISODE 191
[00:00:00] How do you find the will to fight back against a world that wants to keep you sedated? Average Stucks, join us for the tools and strategies you need to create a life of abundance, discipline, and high achievement. This business, this is The Tactical Empire with Jeff Smith.
Jeff Smith: Welcome to another episode of The Tactical Empire. What is up? Sean? How are you man? I
Shawn Rider: am good. I'm ready to rock. Uh. Wearing all black today. If I sit just right, it looks like I'm a floating head. Cause the wall behind me is black. So where are you guys at? You guys actually went back to Houston, didn't you?
For Christmas? Oh yeah.
Jeff Smith: Yeah. We're doing a month in Houston. We are, I think two weeks into it. And we were talking last night. Um, we kind of think that two weeks is [00:01:00] kind of our sweet spot to stay places. Um, cause like now I'm already getting antsy. I feel like we've been here forever and I'm like, it's forever until we leave.
So like, when are we traveling again? Cause we're, we're pulling out of here.
Shawn Rider: I'm tired of getting groceries from the same grocery store. I want to try a different grocery store.
Jeff Smith: You could never live this life, dude, ever.
Shawn Rider: I think when I'm old, I might be one of those guys, but I definitely wouldn't be in an RV.
I'm just going to rent the nicest Airbnb in every major city that I want to go to in small town. So that that's my style. I like to find the really nice Airbnbs and stay in those for a few days. So, uh, we just wrapped up, we just wrapped up some good episodes ending this year. Uh, for, for me personally, I mentioned on the last one that, uh, we cash out refi the first two burr properties and, uh, you, you made a few comments about that, uh, you know, directed at me saying, Hey, the burr strategy that we implemented this year is, is probably the best change that I made this year for [00:02:00] long term wealth, even though it was a different strategy and isn't really cash flowing.
Right now, so we, we've talked and we talk to the men in the group about this, but you have way more experience in it than I was like burrs, LTRs, long term rentals. They're not a get rich quick scheme. They take time. You have to let them marinate. And I'm, I'm feeling that full transparency to the people.
All right. Like. Okay, six months, we got our first two properties, we're going to cycle the money, we're going to get two more. So how, how do people need to go about when they're in the early stages of investing in LTRs or BRRs, how do they get past the, the monotony, the slow process? How do they not, burnout's probably not the right term, but you've said on other podcasts, the, the normal real estate investor owns less than 10 properties.
Okay. So, so what you've said on other guys, Oh, sorry, three, sorry. Okay. So [00:03:00] let me correct the average real estate investor owns three properties, right? So it's
Jeff Smith: 95%, 95 percent
Shawn Rider: of three or properties or less. Okay. It's kind of like podcasts, right? Everyone starts a podcast, but if you can get the, maybe it's podcast episodes.
If you can get the 10 episodes, you're in the top, like half a percent of podcast episodes, right? It doesn't mean anyone's listening to it, but you've done the work. So with real estate, like. It doesn't take much to win, but it certainly takes time and you've got to get more than three properties, especially if you're in the LTR.
So, how do you go about talking to someone like me, that's super early in the process, that hasn't cycled the money yet? And, and, and it may not be like the detailed tactical side of the investing. You need to talk to the psychology of the person now as a new LTR investor.
Jeff Smith: The psychology of it is, is 99. 9 percent of it, 100%.
Like, I mean, it's, it's everything when you're starting, [00:04:00] because like I say, like that three properties to 10 properties is like the no man's land. It's kind of like where it's not fun yet. Everything still feels like an expense. It's slow. You don't see how it's gonna fucking ever pay off. I, I tell this story all the time because it like, you, maybe, Excuse me, sorry.
Maybe you're sitting there having this conversation with your wife and you're like, Hey, let's get into real estate investing. And everybody's going ho about it. They're like, yeah, let's do it. And you go identify your first property. You get the whole, you get the first one done. And, uh, at the end of the cycle, you, you end up cash flowing 250 bucks.
So like you you're popping champagne bottles and shit at the title company when you're, when you buy your first property and then you get your first check and it's 200 and you're like, wah, wah, wah. And, and, and so it really is a game of attrition as far as making sure that [00:05:00] you're still working the product.
Cause you have to understand the five ways that you make money in real estate. Because it's not all, it's, it's not all cash that comes into your bank. Like that's obvious. And that's, that's front external validation, front loaded dopamine response. Money went into my account. I get it. The other ways you make money are in a lot of the phantom gains through depreciation, through tax advantages, through cost segregation, like all this different shit that we teach people, but.
You have to really understand that you're playing the long game. I tell everybody that's investing in long term rentals. You have to understand that there's no reason to do it. If you're going to buy two of them and there's no reason to do it. If you're not going to stay in the game, like you need to go in with like a long term perspective that we're going to do this for the next three years, and we're going to double our doors every year.
So even if you buy one, the first year, you're going to, you're going to buy two, the second year, which puts you at three, you're going to buy. For the third year, which puts you at [00:06:00] seven. So now you're almost there. So like If you buy eight the fourth year, now you're, you've got 15 properties and now things are starting to get fun.
Like there's actual real money in the bank account. There's a couple thousand dollars getting stacked every month. Um, and so it's really just a, like, understanding that it's a long term game. Like, we have a guy in our inner circle who quit his fucking job, uh, this year, in like two, two months ago or something.
And he's like, I'm going to be a full time real estate investor. And I had numerous conversations with him before he did that, because he made good money. He made it mid six figures, not mid six figures, over like 150 grand to 200 grand. And so like, it was, it's not nothing to replace that salary. So I got on the phone with him and I gave him like, cold, hard advice, like.
He's like, I've got this much money saved. I hate my job. And I'm like, okay, I support it. But [00:07:00] here's the reality of what you're doing. You're not going to go out and buy 10 single family homes and that's going to replace your salary. That's not going to happen. There's no fucking way. I'm not going to sugarcoat this.
Like this is a long term gain. So what we did was we put together a plan for him based on his savings, based on what he wanted to do. And so he's like flipping one house out of every three for cashflow. And so he, he's doing, he's doing the damn thing. He's working his ass off and he's doing great. But you always need a balance on like short term money, midterm money, long term money type thing.
You, you need
Shawn Rider: never unfinish your comments. Sorry to cut you off.
Jeff Smith: You, you need that balance in your strategy. I mean, that's how, like, I've lived for a while. I mean, since you would consider me pseudo, I guess, retired, besides running the couple companies we do, I don't think I'm retired at all. My wife says I'm retired all the time.
But, like, for, for me, like, it's, it's just [00:08:00] that simple balance of, like, quickly you're recouping the money. And, and you need that, that balance of cashflow deals versus wealth accumulation deals versus like short tail versus long tail payouts.
Shawn Rider: Let's, let's be clear. You are sitting in the bedroom of an RV talking on a podcast to me.
You're not retired.
I know you, I know you work your ass off. Jeff is definitely not retired. Oh, well, I kind of like that. I mean, we, we talk about variety. We, I say, we you're, you're the guru when it comes to real estate, really. It's like, um, there's so many strategies for us to implement. And so for this individual, right. Buy three properties, hold to flip one.
What did the finances look like for that? Right. If he's buying a hundred thousand, if he's buying 70, 000 properties, put in an extra 30 or 40 into them. So he's getting a hundred, 110, 000 in a property and he can sell [00:09:00] them for. One 60. Right. So one property every what, five, six months, if he net, if he nets 45 on the flip, that would come out to what a 12, 000, 12, 15, 000 average month income, or how to, sorry, I'm doing math wrong, five months.
I was thinking three, eight to 12.
Jeff Smith: Ideally you wanna be like 50 cents on the dollar all in for a flip. And so like, I mean, you could push to 70, 70 cents on the dollar. So the way you do it is you buy it at a 30% discount and then you back out any repairs you're gonna make. So like the actual purchase price is somewhere about 50 cents a dollar on the dollar.
So like if you go in and you're like, the ARV on this thing is $200,000, you're starting at one 40 and then you're backing out your repair costs. 'cause one 40 would be 70%. And so you want to get down somewhere around like 50 cents on the dollar for, for the purchase. So [00:10:00] you'd want to be somewhere around buying it for like 90 or a hundred and then keeping your repairs at like 20, 30, hopefully, because there's, There's waste and overages at every level of flipping.
So yes, the idea of what we're trying to get him is 50 K every two or three months, and so gives him pocket money, walking around money, not having to necessarily affect his, his life. Or day to day that much as far as like a lifestyle change, um, and so it, it works out nicely from that perspective for him and, and he's done a good job.
He's done two flips, I think so far. And I think he's got, I think he's got six rentals.
Shawn Rider: Nice. Okay. So let's get back to the comment that you made on the last podcast episode, which was The LTRs, the BRRRs are going to be the wealth play long term. So psychologically, you gotta, you gotta be thinking of the long [00:11:00] term play here.
But now how does that actually happen? We know real estate makes money five different ways, but you buy one year, one, you buy two year, two, that's three properties. You buy four year, three, that's seven properties. You buy eight year, four, Uh, that's 15 properties. So now what are you sitting on seven years later?
Right? You're like, it takes seven, get, get, get seven years into the game. Then what are you looking at? Right now you're, you're, you're 25, 40, 50 properties deep. And then what, and then what do you do? You, you're, you're taking the cashflow or you could change your strategy. What, what have you seen people do at that level?
Jeff Smith: I think there's two ways to go at that point. Um, you, you can go the, the. The portfolio real estate company, vertically integrated direction. If you want to stay in kind of that asset class, in my opinion, that's the only way to go. Like you need, you need to then scale up to hundreds [00:12:00] of properties. You need a construction company, a management company, an acquisition company, a brokerage, and.
Whatever else I'm missing here. Like that's the model you would go to. Or the reason that we teach BRRRS is because it's the least, uh, lowest barrier of entry to make your first million dollars is the way that I describe it, if you don't have a million dollars of net worth yet, And you're not sitting on 500, 000 of cash to deploy, like burring is the best way to penetrate the marketplace and make your first million dollars of net worth, if you will, because you're going to be able to do that.
Shawn Rider: Well, to the beginners, like head up, they can't even fathom that statement, right? So if they don't have a million dollar net worth, how does the million dollar net worth come into play? So talk to us like we're in first grade.
Jeff Smith: Yeah, [00:13:00] yeah, yeah. So. Essentially, when I'm burring, I'm doing a burr right now, so I'll give you like the, the information on it.
I bought it for 83, 000. Um, I'm going to end up putting 19, 000 in it, so let's just call that 20, 000. So, I'm at 103, 000. I've got 3, 000 of closing costs, um, to, to refinance it. So, I'll put me at 106, 000. The ARV on that thing is 165, 000. Okay, and, and so I'm at 106, let's just call it 105, 165 is the ARV, so I made 65, 000 to my personal bottom line on that acquisition by doing that work.
So that got me 60 grand. So let's just say I make 50, 000 a house from an equity standpoint. So then if you do
Shawn Rider: Yeah, that's network.
Jeff Smith: So if you're doing it, [00:14:00] it's, if you're doing a balance sheet. It's showing you 50, 000 per property of equity. So let's just say it's 150, 000 and you owe 100, 000 on it, right?
It's worth 150, 000, you owe 100, 000. You own 50 percent or 50, 000 worth of equity in that property. If you have 20 of those, you've got a million dollars worth of equity.
Shawn Rider: So, so there's, there's your net worth, right? Net worth doesn't put food on the table. So obviously these properties are cash flowing.
They have tax advantages. What are you personally doing with these now in the situation you're in? Are you, are you cash out refined as much as you can, or are you leaving the equity in for now? Because you don't need the, the cash after that. What are you doing? And what do you suggest most people do?
Jeff Smith: Well, over So if you, let's, let's just use the example of you, you're getting to 20 properties.
What am I doing? I am currently raising rents. So for us, we, we had to raise rents to the point where it made sense to do the cash out refi. And, and [00:15:00] I, I haven't done any cash out refis because I don't want to lock into two more percent interest right now. So I, I am just raising the rents like gangbusters as fast as we can and increasing cashflow from that standpoint.
And letting those kind of just marinate, we, we own 40, 40 rental properties still, um, uh, just Kirsten and I, we own. Um, and so that's what we're doing with that particular portion of our portfolio. Um, what you need to do is if you're that person that buys 20 gets to the million dollars worth of net worth at this point, but we'll just call it a million dollars of equity to not confuse things.
Now you've got real money that you can roll up and. Invest in some real shit with still like, let's say you go to sell your 20 houses. You sell them at a bit of a discount so you could sell them all at once. Right. And you walk away from the transaction table with 800, [00:16:00] 000 cash. So if you do that, and now you've got, so you've done the work for three years, let's call it, you, you built your 20 portfolio, 20 house portfolio in three years.
And. Um, to do that. You've had to lay out a little bit of money, right? Not a lot of money. The deal I just told you about is still, I'm going to make 8, 000 on that deal. I told you back in my pocket at the end of the day, I could make more depending on the reef, when, when the reef comes out, I might walk away with 25 grand from that closing table.
So like I did that deal, it's taken me three weeks, a month. I might, depending on how I want to structure the thing, I might put 25, 000 in my pocket. And then walk away with only instead of 60, 000 of equity. I might only walk away with like 35, 000 of equity, but it doesn't matter because I added 25, 000 today.
Shawn Rider: Yeah. The cash is so good. [00:17:00] And
Jeff Smith: so what I would do in the scenario that I'm telling you is get that 800, 000 free and clear. And that gives you lendability of what, three times that, which is what 2. 4 million, 2. 4 million. So now you're getting rid of your 20 single family houses because you don't want to be in that asset class anyway.
You just used it to generate 800, 000 of gains for you to get started. And now you go buy a 2. 4 million asset, whatever it is, triple net commercial building, or an apartment complex, maybe you buy an apartment, but you upgrade the class that you bought. So you might buy a. Eight unit apartment complex.
That's a class B property that has higher rents than anything you're doing. So like now you're, you're moving up in asset classes. The income coming in is much higher. The, the [00:18:00] quality of tenant is upgraded because now you're buying a more expensive asset class, that's a more desirable asset class. And so your overall net returns may be a little bit lower, but it's going to appreciate faster.
And you're dealing with less headaches because you've went from 20 tenants to eight tenants. And so now, and, and also, I mean, this is the same thing we shared when you bought your building. The same thing I shared with you is that you move to a 2. 4 million asset from your, so you turn your 800, 000 into 2.
4 million. And like, when you think about the deductions or the appreciation on five, five percent, 5 percent of 2. 4 million is fucking, what, I don't know, 120, 000 every year. So like, you're talking about adding 120, 000, uh, to your bottom line [00:19:00] again every single year. So now you're, you've got, and, and that's phantom wealth gains.
You're it's unrealized wealth gains at this point, but you're making six figures, even though you're not doing anything for it. So for me, I would build a big portfolio, vertically integrated, big ass company, or you roll up your single family homes and go into different asset classes that are more efficient.
And, and have more upside, because as soon as you can take your million dollars worth of houses and turn it into 3 million worth of assets, the game is leverage and speed. So every time you can roll that up. So your eight unit apartment for $2.4 million, as soon as you get a an offer on that thing for 4.2, you go ahead and walk away with the $1.8 million delta that you just made on that you turned your 800,000 into 1.8 million and then you go buy a $5 million asset [00:20:00] and you just keep cycling the leverage.
Shawn Rider: Ladies and gentlemen, hopefully you had your notebook, Sal, all of that, that masterclass came from Moment Podcast. So I, I don't know. I don't really, I don't really have a follow up question to that. That was pretty darn good. So what other people sent to the people?
Jeff Smith: I like simplifying things because I mean, like, I know that got complex and complicated and down the road, but like, this is why we,
Shawn Rider: but then there's the shit that they're gonna go through that makes them, and I've, I've verbalized this too, like the process is simple, but then they're still dealing with shit along the way.
And getting through that shit is where the mindset and psychology comes into play to where like. You have to just fucking handle it. And that's, that's the upper part of it.
Jeff Smith: Well, and that's what, that takes us back to the very beginning of this podcast. That's why 99 percent of people quit. It's not worth it.
The first time you take a call and [00:21:00] somebody's got a shitty toilet at 2 in the morning and like, it becomes not worth it. That 200 is not worth it when you're getting calls on Christmas Eve. We had 27 properties with burst pipes on Christmas Eve three years ago. It cost me 115, 000 cash to fix that shit because you're not filing insurance claims on issues that are 300 to 17, 000 depending on water damage, right?
You're not filing a bunch of insurance claims because our insurance is already crazy as hell down by the Gulf Coast. And so, for me, that was a cash deal. Like, you know how many people would have quit real estate all together if that happened to them?
Shawn Rider: That's a question that's always in the back of my head.
But we've kind of seen this in the group with some of the guys that are new to real estate. It's like, okay, whether it's 115, 000 cash or just 15, 000 cash. So these guys buy a [00:22:00] property and within the first three months, there's a major expense. It could be something that they should have found in the inspection or just, again, even Airbnb, my retaining wall fucking fell over.
That was very, very expensive. I did not file insurance because it was hurricanes, so they weren't going to cover shit anyways, right? So where does, where does, quote, I'm doing air quotes for those of you not watching, where does the small time investors find the money to fix the shit? So, yeah, there's the psychology, G.
Of getting through the shit, but then there's actually having the funds to get through the shit. So if someone doesn't have the cash, maybe they only have enough money to do one property. How do they survive? How do they get the five properties? I mean, maybe it is because they have to, they have to make the properties value enough to cash out enough money to have the cash reserves early on.
But what other, when you've seen people like in shitty situations, figuratively or literally, uh, how did, where do they get the capital? Well, I mean,
Jeff Smith: yeah, [00:23:00] I think that you need capital reserves. That's why you don't take your, you don't take your profits out of your houses until you're way down the road.
You need, you need like six months of. Rent, like whatever rent you're charging for that thing. You need six months of that in your capital reserves account before you even think about taking any of the proceeds off of there. The way I teach burring to people, like you don't need a lot. I mean, you, the, the deal I'm telling you is, is not, I don't tell you about it to brag about it, but like I've done so many of these, like upwards towards a hundred burrs that like By the time I was done doing them, I didn't pay any money of my own money at all.
Now, if you're the first. Time you're ever doing that, like that is not an expectation you should have, but I would tell you that an expectation you could have is that you're all in cash out of pocket [00:24:00] could very conceivably be between 5, 000 and 15, 000, which to own an entire rental property for five to 15, 000, that's going to pay you forever and add all those things we talked about.
So for 5, 000, if you could capture 60, 000 worth of equity and a cash flowing asset that's going to pay you 350 a month, is that worth it? I would say 10, yes. So, but, but about the expenses, I wouldn't get too hung up about it, except for the fact that, make sure, Like, like we teach you, you need liquidity. So I would go get a 0 percent credit card for 21 months or whatever they're slinging them now, 24 months.
And, and I would put my expenses on that every bit of it that I could to start. And then I would make the house pay for it back. Like one of the big things I'm big on teaching as well is that like you should treat every individual asset like its own [00:25:00] business. So like it needs to stand on its own two feet and be profitable.
Okay. Even if that profit is only like 1, 100 at the end of the year. Like, because we're talking smaller numbers because it's a cheaper house and the rent's low or whatever. Right. But it, but it needs to be able to cashflow itself and it needs to be able to take care of its own expenses for the most part, unless you're.
A far more sophisticated investor and you're doing appreciation investing and things like that. And like that's speculative and not something that I recommend for newbies at all. I mean, I, I got, I got a guy I used to talk to that was a client in the tactical empire. He had whatever he was worth nine or 10 million and he had a bunch of properties that he 400 bucks a month into paying them, but they had appreciated so quickly because of the areas he bought.
He, he might've had 800, 000 in equity in a property and [00:26:00] he, he would, so he was paying 400 a month out of his own pocket to cover the Delta on that thing. But it was making him like 200 grand a year in appreciation. He was spending 4, 800 to keep the property his, that was his bleed rate. He was, he was losing that amount of money, 5, 000 to make 200, 000.
And so, would you do that? It depends on how much cash flow you have and what you do in a job, right? Like, that's why I pound on everybody in the group. It's easier to make 10, 000, an extra 10, 000 a month than it is to fucking save 10, 000. Like, that's where people miss the mark all the time. It's just such a scarcity mindset that always has people figuring out where they would get more money from.
Go watch some YouTube videos, add some skills and make some more money. [00:27:00] Like, I mean, I know that sounds bad, probably, or people could misinterpret that and think I'm a dickhead or something. But like, ultimately, at the end of the day, you've got tons of opportunity to raise your personal income. All right, guys, we had some technical issues, but hopefully you enjoyed that episode on burring.
Go ahead and join us in the Tactical Empire community. We talk about real estate, we talk about infinite banking, we talk about investing in businesses. If you guys have any questions, hit us up, let us know. We can be reached on Instagram, Facebook, whatever. Send us a message. If you have any questions, let's get your financial house in order in 2025.
So you can start making progress, have a kick ass week and we will see you soon.