In this episode of the Tactical Empire podcast, Jeff Smith discusses strategies for real estate investing, focusing on growing a real estate portfolio and managing equity. Jeff and co-host Shawn Rider dive into their experiences with single-family homes and explore various investment tactics such as the BRRRR method and property flipping. Jeff explains his shift in strategy from accumulating numerous properties to focusing on higher-value investments, aiming to achieve $30 million in equity. The episode also covers logistical and legal considerations like setting up separate LLCs for each property flip to mitigate risks. The hosts conclude by promoting their Inner Circle group and their upcoming meetup in Jacksonville.
In this episode of the Tactical Empire, Jeff Smith and Shawn Rider discuss the evolving strategies for building a successful real estate portfolio. Jeff shares insights on shifting his investment focus from acquiring numerous single-family homes to leveraging equity in higher-value properties and larger projects such as ground-up construction and commercial properties. They cover concepts like the BRRR method, 1031 exchanges, and the importance of protecting investments through LLC formations and insurance policies. The episode also touches on best practices for partnerships in house flipping and the benefits of creating clean and dissolved LLCs for liability protection. For those interested in real estate investment strategies and flipping, this discussion provides a wealth of practical advice and advanced techniques to help maximize your returns and achieve financial independence.
00:00 Introduction to Tactical Empire
00:29 Real Estate Strategies and Personal Updates
02:09 Shifting Real Estate Portfolio Strategies
04:48 Equity and Property Value Enhancement
16:51 Flipping Strategies and Legal Considerations
22:28 Final Thoughts and Upcoming Events
205 FULL
[00:00:00] How do you find the will to fight back against a world that wants to keep you sedated, averaging, stuck in place? Join us for the tools and strategies you need to create a life of abundance, discipline, and high achievement. This is the Tactical Empire, with Jeff Smith.
Jeff Smith: Welcome to another episode of the Tactical Empire. Sean Ryder and I are here to continue a flipping series. Apparently, we're going to talk real estate. We're going to talk strategy and, uh, whatever else he wants to talk about. How are you, man?
Shawn Rider: Let's go. I, I am good. I must say that, uh, I think the creatine is, is.
Paying off, uh, again, my biceps man, you can't see 'em in these videos, but, uh, my biceps are getting huge. So I know you're doing a lot of running, but you might want to start increasing the bicep [00:01:00] curls so I don't outshine you in Jacksonville in, in two months. Oh,
Jeff Smith: oh man, man. All right. Now I. I
Shawn Rider: know I was going to throw you for a loop on that one, but I don't, I don't know if my traps will ever be as big as Jeff Smith's traps.
I've just carried a lot of stuff. I love when I love when, uh, your wife posts the old military photo of you and your traps are to your ears. So I'm like, yep, that's a college football player picture right there. Cause I have, I have my freshman year photo from app. Well, it'd be my sophomore year photo from app state.
After I had a full year of training at college and my traps were like, Up to my freaking
Jeff Smith: forehead. I look like that from exactly the same since I was like 14.
Shawn Rider: Remember slapping like four 45 plate pound plates on the side of a barbell and doing shrugs? Oh yeah. More like head bobs, but we all thought the shrugs were [00:02:00] getting us huge and ripped, but we were, we were mistaken.
Jeff Smith: Definitely mistaken there for sure.
Shawn Rider: Yes. So let's take this conversation on the last episode. We, we talked about flipping, um, and how it's been more of a conversation in the inner circle, uh, more recently with different types of people and certain strategies. And you made a comment in that episode, not, not verbatim on how I'm going to say it, but it was along the lines of that your thought process.
And strategy on your portfolio, your real estate portfolio has changed in recent months. And I didn't poke the bear when you made that statement on the last episode, because I didn't know where it was going to go. But I'm going to openly bring that statement back and say, what did you mean by that statement that you made on the last episode?
Jeff Smith: [00:03:00] Uh, well, I'm just taking a different strategy with the equity that I have in our portfolio. And so this came about by like, when I started investing in single family homes, I was like, okay, let's just run it up and get 100, 250 and like, just keep stacking doors. And the reality of it is like, You just get more doors, more headaches, more problems, which, which is fine.
I mean, like, I love it, but. I love just being in the game of acquisition. I love acquiring properties. I love underwriting them. I love buying them and holding them. Like, and at the end of the day, regardless of what's going on economically, like the more physical property you hold the deeds to, the more kind of control and flexibility you have, regardless of what goes on in the macroeconomic.
Like world, um, which has been [00:04:00] a bit turbulent for the last few years. Right. So like, for me, I was holding on to like as much as we could, but I also have like some targets of like where I want to get to, um, from a net worth perspective and then what that will kick off on a regular basis. So you kind of like, you're talking about, I mean, we were doing 401ks or whatever last time, or when we were talking about them and like, kind of like you're doing your, uh, Target date program.
I'm just doing a target date program with my own shit. And so I'm, I'm bringing it from like high maintenance, boring activities into single family homes that are entry level or, um, if you will, type thing. Um, and, and so we have sold off a bunch of our stuff. We still own 40 some rental properties and uh, but, but the strategy there, and I started this about 15 months ago, to be honest, and um, it is to just take more of our equity [00:05:00] and strategically figure out how to put it to use today, as opposed to just leaving it buried in those houses, like appreciating over time.
So I'm constantly evaluating our portfolio for opportunities to Pull equity now, roll the equity up into something else, whether it's like class B, single family homes where you're buying like five, six, 700, 000 homes as rentals. Um, and, and then borrowing against them, um, meaning like you're, you're parking your equity in there instead of having it in like.
150, 000 home where there's thinner margins. So you would put more money in the more valuable home, but you're parking yourself in a safer appreciation rate. So you're getting more appreciation with those homes on occasion, but you're getting way less maintenance because the renter category, the people that are renting are [00:06:00] different.
Right. And so, um, So I'm kind of just dabbling in a few different things. So we're looking at ground up building. So we're doing ground up construction that is starting. I don't know any day, hopefully I've been talking about it for a minute, but it'll, it'll be going. We're, we're doing the value add play that we did on that storage, which we have a meeting Thursday of this week with, uh, buyer.
Um, so a potential buyer coming through on that. And then I'm still doing single family homes. So I'm really out there trying to figure out what strategy I want to do and what Is going to be most effective to to roll up our equity into so like what I mean by that is like let's say you have a Million, i'll just do a simple commercial example because that's easier to think about than like a house probably Um, but let's say we have a million dollar Storage facility that we have 300, [00:07:00] 000 equity in.
Okay. And, and then you take that 300, 000 equity, you sell that property, roll the 300 and hopefully get. 2 million property, right? So you roll that into a 2 million property, let it appreciate. And you, you're now at 500, 000. You sell that one for 2. 5 million or whatever it is. And then you take that 500, 000 and roll it in a 1031 exchange into the next thing.
And I have a target. That I'm trying to get to and, uh, I mean, I'm just, I, full disclosure, I'm, I'm working to get to 30 million. And so like, that's where I want to take the equity that we have in our portfolio is to 30 million. Um, On that top line
Shawn Rider: value, 30 million.
Jeff Smith: No, no, that's, that's the equity portion of where we're at.
Shawn Rider: Okay. Okay. Okay.
Jeff Smith: So, so I [00:08:00] want 30 million in equity, so that might be leveraged at 60 million worth of leverage, right? Um, but it might be a hundred million dollars worth of leverage. I don't know. Um, so like, I've got to make some significant jumps in what we're buying, but what we're doing, we have to take our.
Equity that's millions of dollars and we need to start going out and buying big, bigger projects and having, but with the bigger projects comes bigger bills, but hopefully less headaches because we're going up in asset classes. We're going up in like the, the level of, I guess, uh, condition of the property and, and the perspective renters of the property.
So. Um, I'm, I'm just dabbling in a little, a few different things, like I said, all in real estate, but, um, we're trying to figure out like our lane that we want to [00:09:00] be in to, uh, to kind of roll things up as quickly as we can. And so that's what I'm working on as opposed to just trying to buy 500 single family homes
Shawn Rider: is the, and I think you kind of said this earlier, but I want to click is the purpose of getting to 30 million of equity.
And Also, at that point, the cashflow from a larger number is going to benefit your family in the here and now would be the ideal situation. But you also said, um, it's not necessarily that the appreciation number on some of these assets is bigger, but with the same appreciation percentage, just because it's a bigger asset, the dollar amount is bigger.
5 percent of 100 million is greater than 5 percent of a million, right? 100%.
Jeff Smith: Um, it, it, it really is to like, just to provide the cash flow that I'm looking for, um, to [00:10:00] be. I guess done done like I I mean i'm having fun doing what i'm doing So I don't know that i'd ever stop but that's like the target in my mind Right now for where I want to take things and so like it's kind of
Shawn Rider: Sorry, go
Jeff Smith: ahead
Shawn Rider: from an outsider's perspective.
I kind of view it as you just shifting gears and speeds for now. So like You, whether you viewed it slowly or not, but accumulating 100 properties takes time. So you slowly accumulate it. Now you're going to rapidly divest to, as you put it, roll it up into less quote units at higher values. And you're going to do that faster so you can slow down again.
Right. I think what you referenced there, and I don't want to put words in your mouth, but like to be done, done. And yeah, I don't ever see you not like acquiring new properties. But. To be way more selective in the deals you're doing, the projects you're doing, the roll up that you're [00:11:00] doing. And I know this episode was, you know, we're trying to build a little flipping series and this isn't necessarily that you've been flipping, but in the short term, this is just another flipping strategy.
You're taking a portfolio and flip it into the next. And so people that want to do flips, they could take the next two years, do a flip every four to six months. And as long as those flips are profitable, they can do two at a time instead of one where they start leveling up to the next asset class. So two years from now, their first flip might have been 100, 000 property that they flipped for, you know, uh, after all in, you know, 150, 160.
But then two years later, they're doing two, three, four X that in a single property. Potentially, I don't necessarily view that as what you're doing, but you are flipped in equity in a sense. Yes or no.
Jeff Smith: For sure. Um, and that's why, like, we teach the burr [00:12:00] method to beginners because it literally is the easiest way to make your first million dollars, uh, with very little capital.
Like, you can take a hundred thousand dollars and turn it into a million dollars in, in not a long time. And it's not a complicated thing to do. So if you're coming with not a lot of capital, like I, I'm a huge believer in the burr method because you can make one, three, five million bucks in a couple years by just executing on that.
And then, and then rolling the properties like you're talking about. I mean, if you flipped houses and did like. I mean, you wouldn't want to flip you could 1031 if you were staying in like within that threshold of three a year, you could 1031 exchange that and not pay the taxes on it and keep buying higher and higher asset classes.
Like if you had to start with 150, 000 house and he flipped it, sold it and went and bought a [00:13:00] 300, 000 house and then sold it a couple years later, roll it into a 450, 000 house. Like you just keep on stepping up and then you're avoiding the taxes and you're doing what you were talking about and amplifying your appreciation and all the other phantom gains that go along with it.
So it's all interesting, but, but once you understand the concept of adding value and that forced appreciation. Which you do learn burying houses. I don't give a fuck if you buy a 40, 000 house and turn it into an 80, 000 house. You start seeing things differently. That's what I have trained my mind to do.
I look at something, I figure out how much it costs and I'm like, these are the angles that you can take on it. It's no different than business. Like it's just a business that runs with like less moving levers and less people involved [00:14:00] usually. Yeah. And so like you look for opportunities to increase the value with an ROI return, right?
So like I go into a house, I say, well, if I can add a bedroom, I've added 15, 000 on the value of the house if it's a 150, 000 house. So 10 percent of the value is just went up. If I can add a bedroom, if I can add a bathroom, it's like another 15K for that. And so then you think about like if you were going to actually do that, it trickles down if you're going to actually do that and make it like Section 8 home.
Now you've raised the value of the Section 8 rent payment. Buy 450, 600 bucks a month with those ads. Now what does it cost to do a bathroom in a bedroom? You just bang out the math. It's 15 grand for the bathroom, it's fucking 5,500 for a bedroom. It's just framing paint and sheet rock. Like it's cheap as hell to do.
Bedrooms should always do 'em if you can do [00:15:00] that. But like if you find like, so. One little trick I used to do when I was looking for houses that I would burn, I used to go look for ones that were kind of mismarked. They'd be one bedroom, one bath, and they'd be 1, 600 square feet. Like, they put them out on the MLS incorrectly.
And you can go out there and you can see what they really are. And you're like, okay, then you have to go check and see if that shit's permitted because they might attack a shacked it and built onto the back of the house and not told the city. And like, that's, you don't want to buy an 800 square foot house that you think's 2, 200 and then you, you buy it.
The inspector comes out and you got to tear the fucking whole back of it off. Cause now you've lost your leverage on how you're going to add value to this thing. Right. So it's just. Boring is a low barrier of entry way to get into real estate investing that teaches you immense lessons because you, you're still going to do the same little mental math if you're buying a hundred million dollar apartment complex.
Like, how can we add value to this [00:16:00] thing? Maybe put a coffee shop in, maybe bring like different, uh, laundry room in for rubs. Like we can have different rubs. Whatever. There's a million ways to do it, but how can you increase the profitability of what you're buying to force that appreciation? In the commercial world, every dollar of net profit you can add is, is a multiple of what that, that property is worth.
As you know, with your office building, I mean, if you can add 35, 000 worth of gross rents in a year, your property, it probably raises the value 900, 000 or something fucking crazy. Yeah. Like, like, And that's what we always have to be training our brain to think about. It's just a different level of like the math that you're doing.
Shawn Rider: Yeah. I'm going to shift gears in the direction of the question with, in regards to flipping in particular, is there any thing [00:17:00] people have to be cognitive cognizant about? Or think differently, uh, in regards to a potential partnership with a pure FLIP. So with Burring, we've talked about the operator and the financial partner.
Is there anything different that needs to be discussed or thought of with a FLIP deal and a partnership
Jeff Smith: with 2B? Every FLIP needs put in a brand new LLC. Uh, and then it needs, uh, dissolved at the end of the FLIP. Uh, You, you want to, you want to put them in their own LLC and you want to tear it down when it's done.
Um, that's for liability reasons and contractor liens and all kinds of shit. Um, you just don't want any of that stuff attached to any future projects. Yeah.
Shawn Rider: Well, let's talk about that. I was not expecting that answer. So thank you for [00:18:00] educating the ignorant podcast questioner. So talk about that.
Jeff Smith: Yeah, I mean, just from, from a standpoint of like, you want to, you want a crystal clean LLC, nothing has been done to it.
It doesn't have any bank accounts or anything come into it. Do your partnership, clean, and uh, make whatever, an operating agreement. Go get a bank account, and then run it for six months, and then dissolve it at the end. Uh, because you can have all kinds of things. Like, things can happen from vandalism to theft.
Contractor disputes to slip and falls to everything. And then you're getting builder's risk policy of the thing throughout the flip. You, you want to protect yourself there, uh, and make sure that it's, it's, you're shielded from the liability of it. And then you want it to be able to have a clean title, of course.
Um, cause they're going to be checking for all the liens [00:19:00] as you close and sell it. Okay. And so you don't, you don't want to take an LLC that you guys just flipped a house in, have a contractor place a lien against that LLC after you sold the house. And then it's sitting there with your new flip on it because you use the same LLC.
Then it can't clear title because your tile guy from fucking 10 months ago placed a lien on your property or on your LLC. So.
Shawn Rider: Interesting. So we're going to the best way to do it. The LLC owns nothing prior to. The LLC will own the property after you buy it. Then when you sell it, you dissolve the LLC. At that point, now I know that there's crazy shit that happens.
You sell the property. And at that point, if something is wrong with the property or something happens and they want to come searching for the person with the most money, and they see that this LLC owned it, [00:20:00] is there still risk there after the dissolution to the owners of the LLC, or I know we're talking legal legalities here.
So don't talk outside of your purview of knowledge. But, um, what, what is there risk after the fact? Either way, there's always risk. You can't insure yourself to cover everything. But
Jeff Smith: yeah, that's, that's my answer on it. Like, I don't know. I just assume I can get sued for anything. Like I do the best I can to protect myself.
But like, that's why I tell everybody in the group as your net income or your net net worth goes up. You need to raise your. Personal liability umbrella policies, because that's what they're gonna, that'll, that is what will cover that, um, in the future. So, like, you can't mitigate every risk, but, like, you just need to cover your ass.
So, like, when you're, when you start making any decent money, you need a liability policy that just covers you and your family. So that, like, when frivolous stuff comes up like that, I mean, I don't know, [00:21:00] you, that's the best you can do. They can definitely come after you even if it's dissolved because you guys are listed as the the owners of the company now if you start your LLC in Wyoming, like they'd have to try a little harder to figure out who it is like, like Because that doesn't show who the owners are of the entity, that state.
Um, so there's a lot more anonymity.
Shawn Rider: Do you start LLCs in Wyoming?
Jeff Smith: I don't, no. All my shit's in Texas because I don't care. But like, my sister is like that and she doesn't like her personal information being shown. Um, now she deals with a different tenant class because she owns mobile home parks. But it is what it is.
For me, I just, I don't have the time or the patience or, or the administrative abilities, quite frankly, I am not an organized human being. So the more complexity that I put to any of our organizations, like I can't maintain it without a [00:22:00] fucking. Executive assistant. So like, I really need like a secretary to follow me around if I'm going to start doing stuff like that.
It's.
Shawn Rider: What was the insurance policy you said you needed when you're flipping builders?
Jeff Smith: Probably, probably a builder's risk policy is what you want. Um, cause like that, that's just something you buy to during the. It covers you during the construction process.
Shawn Rider: All right, Jeff, this is a good episode. You got anything else you want to send the people out on?
We can keep this rolling or shut it off and see how it rolls back into the ecosystem.
Jeff Smith: No, man, this has been good. It's been good. I liked your questioning. It was awesome. So guys, if you have any questions about any of this stuff, you want to get into any of this stuff, let us know. We'd love to have you in the inner circle.
Uh, we got a meetup coming up in April in Jacksonville that Sean is finalizing the details on right now, but it's going to be a amazing group of [00:23:00] guys, uh, getting together for a few days down in Jacksonville and talking business, investing family. So hit us up. If you have any questions or you want to get in the group and, uh, send this episode to anybody that you think might be interested, like, and subscribe to us on YouTube and otherwise you have a kick ass week.
And we will see you soon.