00:00
Kelton Todd
If you just give them value first, then you find people really quickly that are begging you to say, hey, will you please take a little bit of money from me and show me what it is that, you know. If I learned anything in life from children, it’s that there is literally no such thing as the right time. You just got to make the decision and do it. And in hindsight you’re like, wow, this was the perfect timing that ever could have worked out. I think real estate’s the same way. No matter how big companies get in real estate, there’s always room for the new guy or girl to come in if they’re willing to go out there and do some of that grunt work.
00:30
Kelton Todd
If you get really good at the marketing, the rest of the stuff is what I like to call figureoutable or googleable.
00:38
Brad
What are people doing wrong with marketing today?
00:40
Kelton Todd
This is the most important thing in all of business, in my opinion, is.
00:46
Brad
Congrats on getting beyond a million. What got you here won’t always get you there. This is a podcast for entrepreneurs who want to reach beyond their seven figure business and scale to eight, nine and even ten figures. I’m Brad Weimert and as the founder of Easy Pay Direct, I have had the privilege to work with more than 30,000 businesses, allowing me to see the data behind what some of the most successful companies on the planet are doing differently. Join me each week as I dig in with experts in sales, marketing, operations, technology and wealth building and you’ll learn some of the specific tools, tactics and strategies that are working today. In Those multi million 8, 9 and 10 figure businesses, life can get exciting beyond a million. Kelton Todd, real estate Investor extraordinaire. Multi eight figure companies, multiple of them.
01:33
Brad
You have now eclipsed over 100 million in revenue in the last several years. And you have, it’s got to be the largest women’s real estate investing network on the planet. You’ve got over a hundred thousand people that you’ve helped in that front. It is great to see you, man. Thanks for carving out time.
01:48
Kelton Todd
You as well, brother. We actually just surpassed 250,000 women that have gone through our paid program. So that’s a pretty cool number that we are celebrating big time internally.
01:57
Brad
So yeah, that’s amazing, man. Well, I want to dive into that, but I want to jump first directly into a tactical takeaway for people. And you’ve worked with a whole bunch of different real estate investors, a whole bunch of different kind of backgrounds, both men and women. If somebody’s investing in real estate, with $0 versus somebody that has $1 million but wants to dive in right now, how does their approach differ?
02:22
Kelton Todd
Yeah, I think it’s. It’s widely different. Right. So what a lot of people hear whenever they hear real estate investing is they think, I’m just going to take money that I already have and go put it somewhere and have my money work for me. Well, that works great if you’re a millionaire, right? If you’re a trust fund baby, all of those things. What’s interesting is some people that have no money will hear about real estate investing and then they’ll be like, you know, hey, I’ve heard you can make money with no money in real estate investing, but they still bring that same mindset. They just don’t bring the money with it, right? So they want to come into real estate investing, do nothing but somehow make a bunch of money off of money. It’s like neither are really true, right?
02:55
Kelton Todd
If you have a lot of money, you can definitely start investing in real estate by doing a whole lot of nothing, right? Just making your money work for you. And if that’s the path you’re going down, then I actually do recommend those people to go more into multifamily. Even though I’m single family guy, I’ve been in single family for over a decade, have done a little bit of personal investing in multifamily, but just found that it’s not for me, or at least it wasn’t for a really long time. And so I had quite a bit of success. However, on the flip side, I not a huge fan of multifamily for people that are on that, hey, don’t have a ton of money starting out, right, have little to nothing or nothing for that person.
03:35
Kelton Todd
It starts with just getting a better mindset of like, hey, real estate investing is a phenomenal way to start building wealth. However, we can’t look at it like, hey, I don’t have to do anything. It’s the opposite. It’s like, hey, how can I use real estate investing to build wealth to the where one day I can just sit back and let my money work for me and not have to do anything. And that’s, you know, that’s the biggest difference. So the path I chose to go is I quit my job, I started trying to be a real estate investor, was actually going to get my real estate license. I was also trying to become like a contractor.
04:06
Kelton Todd
I mean, I was just trying to figure all this stuff out on my own, and six months later, I had no real estate Deals, no money, no path, no vision, and was literally working on my resume whenever my brother actually drugged me to another real estate seminar. And, you know, typical seminar guy gives a presentation and makes a pitch at the end of it. And I was just in a different place at that moment, and I was kind of desperate, and I was like, well, wait, what if this guy’s right? What if he’s already done it before and willing to show me how to do it? And so, yeah, I guess the rest is kind of history.
04:39
Kelton Todd
I signed up, ended up paying the guy a lot of money, and getting access to a network of people that were already doing what I was trying to do. And I realized really quickly I didn’t need my real estate license. I didn’t need to be a contractor. I just need to go out and find deals. And so my brother and I joined together. We hit the ground running, and, yeah, we started crushing it. We ended up going on to do over 100 deals over the next two years and had a ton of success early on and really just realized from that point forward that there was no reinventing the wheel in this industry. If you wanted to do something, just go learn it from somebody who’d already done it. And so we kind of got obsessed with that concept.
05:15
Kelton Todd
And so we started getting more coaches and more mentors. And, you know, eventually, like, people see that, like, oh, you’ve been mentored by this name and that name, and they’re like, you know, you were lucky. And it’s like, honestly, no, those people aren’t what helped me off the ground. Right. I, I, I met some local Joe who helped me get started. It was once we had some success, we started reaching out to some more of the successful people to learn more, you know, broad and advanced approaches to real estate investing. But my advice is definitely plan on rolling up your sleeves, jumping in. My favorite thing about real estate investing is I, I, I’m a product of the, of it is you can literally start with nothing.
05:57
Kelton Todd
I literally ran out of money and built up a really nice nest egg in a short period of time, but more importantly, was able to grow that and use that to where. Now, like you mentioned, you’ve got numerous different businesses, and probably at a point in my life where I could choose not to work, I’m definitely there if I wanted to, but it’s crazy how that flips. We were just talking about it, matter of fact, before went on air, and it’s like, I don’t Know what I would do? Like, it wouldn’t even be enjoyable to sit back and let my money work for me. Like, I, I truly enjoy helping others and serving people and adding value in general, no matter what business that’s in.
06:30
Kelton Todd
And you know, I’m fortunate to be able to do all of those things due to what real estate’s done for us.
06:38
Brad
So you talk about mindset being the first thing and I, I there’s such a big part of me that hates that cliche because it’s so fucking irritating to hear that when you’re brand new and people are like, yeah, just get your head straight. It all about personal development and mindset and you’re like, shut the fuck up and show me how to make money. You know, like that’s how I felt when I was younger.
06:58
Kelton Todd
But you’ll never find anybody that will show you how to make money that doesn’t start with mindset. Because they, you know, we all realize that the only way to do it is to first get your mind right.
07:07
Brad
Yeah. Well, and I think to say that another way, if you don’t believe something, it’s the, I think Henry Ford quote. Whether you believe you can or you believe you can’t, you’re right.
07:15
Kelton Todd
Yeah.
07:16
Brad
And that you have to, you have to have your head around how something works before you can really make the right choices down the path. So for, for somebody that has a bunch of money, you have options. Right. You can invest in a project yourself or you can give money to other people that are running the project functionally. Those are kind of the two different paths. And for somebody that’s brand new, I think this is true of most business ventures in general. You should expect to be doing work instead of trading money for more money. What type of investing for a brand new person makes the most sense? What type of. Because they’re like a million asset classes.
07:53
Kelton Todd
Right.
07:53
Brad
There are a million ways you can invest in real estate. If somebody’s brand new and has no money, what do they invest in as a starting point or what did you invest in?
08:00
Kelton Todd
I wholesaled my very first deal, which is very common for a lot of real estate investors. Getting started as they go in and they just wholesale, which is basically just get a property under contract and sell the contract. Right. So you don’t have to have money. You don’t actually buy a property. You’re literally just, it’s called deal sourcing. You’re just finding a deal, getting it under contract and selling it to someone else. And that’s a common way to get started. I went straight into flipping right after that because as I mentioned, I joined a network with a lot of people that were looking to make money with their money. So they were willing to lend us money to buy houses, fix them up and turn around and sell them. And they made a good return and we made a great return.
08:35
Kelton Todd
And so that was my path was a couple wholesale deals straight into flipping and then it was a bunch of flipping and wholesaling at the same time. Biggest mistake that I made that I love to share with people is I stayed in that lane for far too long. I think it’s a great way to get started if you have no money. And I was literally in that spot. I’d ran out of money. I actually maxed out credit cards and emptied out 401ks and everything I could just to get, just to hire that first coach, just to kind of get anything I could do to prevent from going back and getting a job. And so I was so close to failure that once I started getting tasting some success, I was scared that it was going to run out.
09:12
Kelton Todd
And so I just kept doing more deals and more deals and we got to where we had literally over a dozen flips at a time and doing 20 plus deals a month. And it was, you know, it was chaotic. And the mistake I made is I thought you had to start there because you had no money and I thought you had to stay there when in reality if you truly have no money, it’s probably the best place to start for sure. The biggest mistake I made is not getting into passive income sooner. So I took years before I started getting into rental properties. And it wasn’t until I hired more coaches that I finally realized that I was having, you know, quote unquote success according to the industry standards.
09:50
Kelton Todd
But I wasn’t building anything that was going to allow me to truly be able to step back and do what I wanted. And so I would say that’s a great place to start for people who have absolutely no money. But what I’ve found is more people actually could start closer to buying rental properties than necessarily having to go straight to wholesaling. Right again, if you’ve got a steady job and steady income, then what I found is just kind of that middle ground is jumping right into to rental properties and that’s the fastest way you’re going to build long term wealth. And I use fast with an asterisk beside it because it still takes 510 years. Right. But that’s the fastest way that you’re going to build true wealth versus wholesaling. And flipping is great.
10:30
Kelton Todd
And that’s the fastest way to get, you know, start making good income right away. But all you’re doing at the end of the day is trading a low paying job for a high paying job. But it’s still a job.
10:41
Brad
Yep. Yeah. So I want to highlight a couple of things there. So one for anybody that doesn’t know wholesaling functionally is going out and finding a property that is undervalued by some amount and then putting it under contract saying, hey, I have the right to buy or sell this contract to some to buy the property or sell the contract to somebody else. Sign a contract that says you have the right to buy the property, you go out and find another investor that actually wants to fix up the property, rehab it and then resell it and you make a little bit of margin and that’s wholesaling and you hit on something that’s really good there, which is it’s a job. And so when people say that they’re a real estate investor and they’re wholesaling, you’re not really investing in real estate.
11:20
Brad
You have a job to find properties and resell them, but you’re not investing in real estate. And then rental properties, you mentioned buying and then you put a tenant in and you have some cash flow and it could be a short term rental or it could be a long term rental you mentioned. And I want to move into kind of today’s world because you said, hey, it might take you five or ten years to realize, you know, wealth building. Which means basically that the, either you’re paying down the value of the property through your payments and hopefully you’ve got some cash flow along the way or in more likely in that period of time you are getting appreciation on the property. Right.
11:57
Brad
The property becomes worth more because over the course of the last hundred years, real estate has consistently gone up over that time horizon. Which brings us to now, how does investing change when you’re in a market where the values have dipped for a while and the interest rates are really high?
12:14
Kelton Todd
Yeah. So I’m a big data guy. Like, I like to look at the data because we’ve all heard things like you just said it and I’ve heard that a thousand times in my life, like real estate goes up in value over time and it’s a wildly accurate statement, but it’s kind of untangible. Right. It’s Hard to do anything with. And so one of the first things I did is I went back and just pulled the data and I was like, what does this mean? Real estate’s gone up in value. So went all the way back to the 40s and looked at the average price of a home all across America.
12:39
Kelton Todd
And, you know, it’s obviously, I get that there’s some outliers, but if we just look at the average price of a home all the way across all of America, dating all the way back to the 1940s, it takes just over 11 years on average for real estate to double in value. So every year since the 1940s, real estate’s doubled in value just about every 11 years. And sometimes it happens in four years and sometimes it happens in 12 years or 14 years, but it’ll average out to where it’s about every 11 years. And interestingly enough, nine times out of 10, it falls within that, like eight to 10 year, eight to 12 year mark. But so for me, what I do is I take a step back and I say, okay, I don’t want to try to outsmart anybody.
13:24
Kelton Todd
I’m not trying to time the market. I’m not trying to be a genius. I’m not trying to gamble. If I was going to do that, I’d just hop on a flight to Vegas, right? I just want to do what’s worked for people for centuries, decades and decades. And so what I do is I don’t look at the market, I don’t look at what the current, you know, for an up market, a down market, a sideways market, and try to predict what market’s coming next. All I do is I say the wealthiest people in the world got there by leveraging other people’s money. And so if I can buy real estate and I’m able to do that using other people’s money, which is, you know, loans of all different sorts. Starts with private money loans, then goes to bank loans.
14:02
Kelton Todd
We now use DSCR loans, which are really cool because you don’t have to have your own credit and income and all of those things, which is why I’m a big proponent of anybody can get started buying rental properties because things have changed to where you don’t have to have great credit and income to qualify for rental property loans. And so I just buy in any market. Having said that, I know that a lot of people listening don’t like to hear that, right? Because people are like, well, I’ve got to do it just right. I’ve got to Buy it just the right time. And, and what I found is, you know, there’s no right time. We were talking before we hopped on here. I just, I just had my third child.
14:34
Kelton Todd
Like, if I learned anything in life from children, it’s that there is literally no such thing as the right time. You just gotta make the decision and do it. And in hindsight, you’re like, wow, this is. This was the perfect timing that ever could have worked out. I think real estate’s the same way. A lot of people are trying to gamble with it. They’re trying to time it just right. And what I’ve found is it’s going to take you a little longer than you think. So if you wait till the right time to get started, by the time you actually start having the success you were hoping for, it might even be a different market than when you get started.
15:03
Kelton Todd
But once you get started and learn it, you’re going to realize that it doesn’t matter what market you’re in, it’s the right time to buy and hold real estate, because the sooner you get your hands on some, the sooner it’s likely to double in value. And so my big thing that I like to teach is acquire one rental property that’s worth $250,000. Once you do that, you prove the concept. If I can get you to do it four more times, congratulations. You own a million dollars in real estate. Historically speaking, in a matter of a decade, you’re going to be a millionaire. It’s going to double in value. And that’s not my opinion. That’s just data speaking. Once people grasp that concept and they do it, they start to realize, like, buying a million dollars of real estate is not difficult.
15:46
Kelton Todd
Sounds crazy hard, but. But it’s two, three, four rental properties. And once you do it and you realize that there’s loans set up specifically for investors that don’t require all your own money and income and credit. And, and there’s a process of doing it, like you mentioned, buying off market, getting discounted properties, working with wholesalers, then it becomes really easy. And it, and it helps people start to realize that I don’t really care what time in the market we’re in. Some of the best real estate I’ve ever bought in my entire life was right after Covid hit. I mean, deals were falling out left and right, and people were calling me and I was like, yeah, I’ll take it. And then my lenders started falling through.
16:25
Kelton Todd
And that was the first time in my life that I was like, telling somebody I would buy real estate, but I really and truly didn’t know how I was going to buy it because my lenders were backing out just as quick as these other deals were falling through. But we got to work and I made more cold calls and phone calls during that time period to find new money, new lenders. I mean, we even had banks that were backing out last minute. We extended a lot of contracts and were transparent with, you know, with the sellers of what was going on. But looking back, I mean, I, we probably built a good chunk of our wealth if not close to majority of it from buying real estate during COVID whenever everybody else was running for it, but running from it.
17:06
Kelton Todd
Because in my mind I was like, I don’t care if it goes down. It could, the bottom could fall out and it could drop to 50% of what it’s worth today. I know for a fact within 10, 11 years it’s going to double in value from where I buy it at. And I didn’t know that it was only going to take about three years for a lot of the real estate were buying to be worth twice what we paid for it. But you know, that was the fortunate from just sticking to the plan.
17:30
Brad
So. Yeah, so I’m fundamentally on the same page with you, which is that, you know, the, when people ask whether or not a specific property or a specific type of real estate was a good investment, what has to be a part of that conversation is over what time horizon? So was it a good investment over three years, over five, over 20? Those are all very different things. But what does change and what does change the dynamics of the investment are interest rates. So, you know, if somebody can afford to get a loan for a million dollar property or at 2%, they can afford the payment when the interest rates are 2%. They probably cannot afford the payment when the interest rates are 8%.
18:11
Brad
So how does your, how does the approach change for a new investor when they go into a market when interest rates are that high versus when interest rates are low, which they were at.
18:20
Kelton Todd
The beginning of COVID Yeah, I love it. I actually like how you even worded that because you kind of did my job for me. Right. The homeowners are more times than not the ones that are hurt from higher interest rates. And so we live in a world where, you know, the average person keeps a loan for less than three years. And so even though people live in homes and you think, oh, that person’s doing well, like odds are they refinanced in the last three years. Like, you can’t actually judge how somebody’s doing based off of the home that they live in. And for sure, times than not, statistically speaking, you can probably judge how much stress somebody has by the size of their home, just. Just based off of the statistics of how likely somebody is to be refinancing these homes.
19:03
Kelton Todd
And so what we actually find is there’s more motivated and distressed sellers that are willing to take a lower price for their home just to get out of a situation and need to do it quickly in a market that’s, quote unquote, a down market or a sideways market. Said differently, a buyer’s market, right? So the seller isn’t. Is. Is easy to get out of their property. And there’s an old saying in real estate that it’s cheesy, but it’s so accurate that I have to use it. And it’s, you know, we date the rate, marry the house, right? So when interest rates are high, I’m not looking at it like, oh no, this house doesn’t make sense for me in the long run. I’m looking at it like, is the. Am I buying the house using little to none of my own money?
19:47
Kelton Todd
If so, then I’ll take it. And even if it’s not cash flowing a lot at the moment, maybe it’s not cash flowing any. Fortunately, I’m able to do that now because I’ve been disciplined investing for some time. But again, goes back to, where are you at? If you have no money, then, yeah, maybe start with that wholesaling and flipping. But if you’ve got a little bit of money saved up. I personally am a big proponent of, I don’t mind if I have a property that’s not making a lot of cash flow because interest rates are high. I bought the house, right? The house is what’s going to double in value. Interest rates go up and down. The value goes up over time, right?
20:23
Kelton Todd
So I’ll hold on to the house long term, and then when the rates go down, I’ll refinance it, get into one of those really attractive rates. And now my cash flow is really attractive while I’m waiting for that property to double in value. But I don’t let it stop me from buying the house because all the people that were freaking out during COVID not buying homes, when they finally got back into buying mode three years later, they were buying them for me for twice what I paid for them. You know what I mean? Like, so they were Too worried about the rates or too worried about the current economic environments instead of just sticking to the core fundamentals of buy real estate anytime that I can.
21:01
Kelton Todd
As long as I don’t have to use much of my own money, as long as I do it in a way that allows me to sit back and wait it out. Which to your point, you know, as long as you have a little bit of cash flow in that property or you’re willing to accept some negative cash flow appreciation once you learn that appreciation is why we buy real estate and it’s not for cash flow, you instantly get putt in the top 10% of real estate investors. When you pick up that mindset of like, I’m not buying a rental property today because it puts 200amonth in my pocket or 500amonth in my pocket, that’s going to be gone the first time I have a tenant vacant, that’s going to be gone the first time a hot water heater goes out.
21:39
Kelton Todd
Like, get rid of that mindset. Do it because the property is going to appreciate. You’re going to get tax benefits along the way. Once you start doing that and you start getting what I call a portfolio. So now you have eight, nine, ten of them. Okay, well now that adds up. 500amonth times 10 properties, that’s $5,000 a month I can afford for a property to be vacant once or twice here and there or a hot water heater to go out. And I still have cash flow in my pocket. So it’s just that mindset of understanding why we invest in real estate I think is valuable.
22:08
Brad
Date the rate, marry the house. I like that.
22:11
Kelton Todd
Yeah.
22:12
Brad
So you have been big on single family homes in particular. There are a million asset classes in real estate. Probably not literally, but there are a lot of different asset classes. And my personal backdrop is quite a bit of single family homes. Some light, commercial, some small, multifamily. Why do you pick single family homes versus anything else, both as a new person and also as a seasoned investor?
22:42
Kelton Todd
Yeah, so the new person’s the easiest one to answer. Right. As a new investor trying to go out and for instance, wholesale a Property, there are 10 to 1, 100 to 1 single family homes for every multi family. Right. So you’re just fishing in a bigger pond, there’s a lot more fish, it’s a lot easier and it’s a lot less headache to go out and get started. You don’t have to understand cap rates and all these complicated formulas and have all these connections to brokers almost everybody you know who has a good solid job wants a home. And so the average person on the street doesn’t know how to get a home at a discount.
23:19
Kelton Todd
So the second you realize and learn how to go out and get a home under contract at a discount, you realize you don’t have to have degrees, you don’t have to have connections, you don’t have to understand cap rates. All you have to do is understand that I bought the house for less than it’s worth. Now let me find somebody who’s willing to pay me closer to what it’s worth, which is actually the easiest part in single family. So that’s why I’m a huge fan of single family for new investors starting out as well as loans. If I’m a new investor and I want to go out and buy a rental property, I mentioned these DSCR loans earlier. They’re these new loans out that are so easy to go out and get a loan to own a rental property.
23:58
Kelton Todd
Anybody can get approved for them. It’s all based on the rental of the property. It’s not based on your own personal income. You don’t have to have any experience. And it’s just a new way. It’s why you see like these 29 year olds on the Internet that own 20 rental properties or 50 rental properties and you’re like, how does this kid have 20 rental properties at 26 years old? And it’s DSCR loans. And it’s just easy to go out there and get started with no experience, without great credit, without a bunch of money in the bank. When you go over to multifamily, which I’ve done just enough to know about them, to not be ignorant about them.
24:34
Kelton Todd
But when you go into that, one of the reasons I don’t love doing them is because I can’t help anybody else do them unless I tell them like, okay, go start investing in real estate for 10 years, basically become very wealthy, have a bunch of money sitting in the bank and then go out there and just do X, Y and Z, right? Like nobody that doesn’t add value to the marketplace. Anybody that has that kind of success doesn’t need my input on how to go out there and leverage it. And so that’s my viewpoint of it is it’s a lot easier to get started in single family.
25:05
Kelton Todd
The reason that I stick with multifamily, I just, I mean I stick with single family as I just mentioned, but it’s also because I’m just a big believer in History and data and multifamily has its times and its peaks and its seasons. But you hear a lot more about these bridge loans that are coming due and these balloon notes and like timing and you have a lot of multi family investors that lose it all because they didn’t time things just right. I’ve never met a single family real estate investor who’s lost it all because again, you know, we’re history’s behind us and we don’t ever get in these bridge loans and balloon notes and have to rely on some kind of economic, you know, environment. Interest rates don’t impact us enough to get us in a distressed situation.
25:55
Kelton Todd
And so I like the comfort in the, and the reassurance of, you know, unless the world’s ending, I’m pretty sure people are going to always need these single family homes that I’ve got.
26:06
Brad
Well, I definitely know single family home investment that investors that lost everything during the 08 collapse for sure. So you can definitely leverage your way into a full collapse with single family homes as well. But your point is noted and I think that the accessibility portion and the simplicity portion is really noteworthy for new investors. Right. Just simplest terms, it’s easier to understand single family home and it’s a really stable asset class. People always need a place to live, etc. I also want a big qualifier which is you, you went on this personal mission of value to the marketplace of being able to teach people how to invest. And I respect and appreciate that. But I also don’t want to diminish the reality that the people that do have money in the bank still need help with the other investment strategies.
26:59
Brad
The number of people that I know that have lots of money that go invest in real estate and have no idea what they’re doing is it’s horrible, it’s terrifying. And it’s just that they can, you know, if things go sideways with somebody that has money, it’s not, it may not cripple their whole life where a brand new investor, if they invest money and it goes sideways, it might be their whole nest egg. Right. And they might have to start all the way over, which is terrifying. But we certainly have, you know, both sides of that coin that listen to beyond a million. So it’s good to hear like I like hearing the stuff that you’re doing in multifamily as well because that stuff is valuable, right?
27:33
Kelton Todd
Yeah, sure. So I want to add a couple of things there that I think are interesting. One you’re 100% right. When I talk I’m always thinking through the lens of the way we do things. Right. But I have to remember that like everybody doesn’t do things the way we do. Everybody doesn’t go out and spend. We’ve spent over a million dollars on personal coaching and development just to learn how to do this real estate the correct way. And so you’re 100% right. A lot of people lost money in 07 and 08, but a lot of those people, or not a lot of them, almost all of them were on short term loans speculating that the value is going to go up over a short horizon.
28:07
Kelton Todd
And our strategy is I don’t know if it’s going to go up or down tomorrow, but I do things in a way where I don’t care what it does tomorrow as long as it goes up over time. And so I think that’s where in my mindset I’m like, well there’s not risk because I’m not in these short balloon notes that are about to expire and I don’t need the property to appreciate over a short horizon. You know, I’m not going and taking second and third mortgages on my home to go put it all into a property, hoping that property goes up in value which is where everybody lost, you know, lost their rear end in 2002, 7 and 8. So you are 100% right. You can still, it’s investing, right? All investing has a risk. You can definitely lose money.
28:45
Kelton Todd
I’ve just found that a lot less lose money in single family than in multifamily. And then to your second point there, that I think is interesting is we have a network. And what we have found is a lot of people that reach out and say, hey, I want to start investing in real estate already have money, but they don’t have that guidance. And what we have found is we are, I would say like our expertise is connecting both groups of people. So we have about half the people reach out and say I want to get started investing in real estate. They don’t have any money. And we just create a network where we pair the two together.
29:28
Kelton Todd
So we take the people who do have the money but less time and energy that they want to commit to it and pair them up with the people that are realistic, that are serious about investing in real estate, investing in themselves and are committed to actually putting in the work. Yeah, we match those people up to where the people that already have money, they get to get started. But they still get to do it in a safer asset class, or what I consider a safer asset class when doing it the right way. And it’s a. It’s an asset class that they’re familiar with. Most people that have money own a home, so they’re very familiar with valuing a home. They’ve bought homes at full price.
30:01
Kelton Todd
So they understand that there’s a marketplace out there for people that would always be willing to pay closer to full price. And so they feel really comfortable lending their money to other people when they’re lending it out at a. On a home that’s 70% of what it’s worth, backed by that first lien position, meaning they’re going to get either the home back or their money back. And that’s where we found a ton of success, is bringing people, even the ones with money in through single family, to start getting all of that experience. And once they start to see the return they get on their money, which is usually 15% or more, plus, they start seeing the benefits of owning real estate.
30:37
Kelton Todd
Most of our network is not interested in going to multifamily because when they go dip their toes on that side, they’re like, wait, this is risky. I don’t control the scenario. I don’t even make the decisions of when we sell or not. I don’t even make the decision of if we get foreclosed or not. It’s out of my control because it depends on the debt structure and the economy and the interest rates and do we rent the property out and the cap rate and all of these things that are over their head. A lot of people end up like we do, and they say, hey, we just want to kind of hang out right here in the single family industry where we can understand our investment and do it in a way that we control.
31:12
Brad
Yeah, I think one of the things that’s really important for newer people in business and investing to know in general, and this is another one of these cliches that used to irritate me, but money is everywhere, and it truly is. There is no shortage of people that have money that don’t know what to do with it, truly. And when you’re new, you might think, I don’t have access to that. I don’t know those people. I think that’s bullshit. I can promise you, if you get very good at understanding something and doing something, whether that’s real estate, investing or business, somebody that has money and needs to put it somewhere will invest in you. But it starts with just understanding the principles of that activity, whether it’s real estate investing or business or anything else.
32:00
Kelton Todd
I love that you said start with getting good at something. I think a lot of people skip that step. But yes, actually go out and get some good valuable knowledge and experience. And it’s priceless to people that need to, like you said, need to put their money somewhere.
32:15
Brad
So normally I interrupt the show to promote EPD to tell you about credit card processing, but today I’m going to tell you about our partner program. If you know other business owners that accept credit cards and you refer them to Easy Pay Direct, you will get paid a percentage of what we make for the life of the account. As long as they’re processing. You can build a residual for doing nothing, just the introduction. You can do that by going to epd.combampartners that’s epd.comb partners. Well, I want to talk about some other business stuff, but you hit on DSER loans. Can you give me the breakdown of what DSR DSER loans are and what the basic structure is of them?
32:58
Kelton Todd
Yeah, absolutely. So it stands for debt service coverage ratio, which is just some fancy word for saying I’ll loan you the money as long as the property rents for more than the debt service. So whenever you go and get a loan to buy a house, you have a mortgage. And let’s say your mortgage payment is $2,500 a month, right? The bank wants to look at your tax returns, your W2s, your income, your credit score, your. And they want to make sure that you can pay that bank back $2,500 every single month based off your historical income and spending habits. Well, they started coming out with these DSER loans in about 2010, 2012 is whenever people, investors started getting their hands on them. But they were really new back then.
33:41
Kelton Todd
But long story short, what they’ve determined is I don’t need to know what your income is as long as I know what the property’s income is. So what they started doing is they started saying as long as the property rents for more than the mortgage that I’m going to give you, I don’t need to know that you’re going to pay me back with your income. I know that the property can pay me back with the property’s income. And so if the mortgage is 20$500 and that includes, you know, we call PITI, principal interest, taxes and Insurance, then as long as that property rents for 20$500 a month, I get approved. They don’t need my tax returns. They don’t need my bank statements, they don’t need my work history.
34:24
Kelton Todd
They do pull your credit score to make sure that you’re not like a horrible steward of your money. Like you have bankruptcies and foreclosures and a 500 credit score, they’re going to turn you down. But if you have a 620 credit score, because you’re just not.
34:37
Brad
You pay your bills.
34:38
Kelton Todd
Yeah, you pay your bills, but you’re just, you know, you’ve missed some and you’re not the best ever. They’re like, okay, that’s fine because I’m not worried about you and your bills. I’m worried about this property. And so, yeah, that’s the simplicity of it. Does the property rent for more than the payments? And if it does, they use that as the income to qualify you for the loan.
34:55
Brad
Love that. So in commercial properties, commercial is all gauged that way, right? You’re not personally guaranteeing a lot of commercial properties and you even may be, but they’re still looking at, in residential real estate, you do comps which are, hey, is there a comparable property nearby? And that’s how you assess value in most commercial, you’re assessing it based on the rent roll, based on what income comes in off it, and that creates the value of the property. So with the DSER loan, the.1 of the things that I want to find out is like, who’s lending these? Who has DSE our loans? Because traditional mortgages, for those that don’t know almost everybody that gives you a traditional mortgage, then resells that mortgage almost immediately after or in some short time period to another bank later.
35:45
Brad
And in order for that sale to take place, most of these traditional mortgages are Fannie and Freddie backed, which means they have to conform to a very specific criteria. And they have all these criteria to underwrite traditional mortgages, like debt to income ratio, which is directly tied to the person whose name is on the hook for the mortgage. They look at how much money you make and what your debt service is. So how much you have in expenses every month. And if that ratio is appropriate, then they’ll give you a loan or give you the mortgage for the house. So DSCR seemingly doesn’t do that. Which mean that means that a different type of bank or different groups of banks do these, I would think. Where do you get DSCR loans?
36:25
Kelton Todd
Yeah, you actually just nailed it and summarized it perfectly. And we call that the primary market. So when you go to a bank and you get a loan. They’re going to take that loan, bundle it up and they’re going to sell it off to the primary market. DSCRs are selling to the secondary market. So it’s literally the next guy in line, it’s like, hey, I don’t want to pay top dollar for that top tier loan over there. I want to buy your next tier of loans for a discount, that is a higher interest rate or points or whatever it is. And in terms of where you go to get them, one thing I like to explain to people is not the place you go to get your tier one loans.
37:04
Kelton Todd
So not bank of America, not Wells Fargo, not Chase bank, not your, you know, not your, probably not even your local credit union. Most Realtors and bankers and lenders don’t even know about these loans because they’re trying to keep them out of the reach of your everyday person who’s going to abuse them and turn into, you know, subprime loans again. They really want them to stay in the circle of real estate investors. So one of the harder things to get approved for these loans is if you don’t already own a primary residence, they instantly kind of turn their nose up and are like, hang on, are you trying to abuse this and get a home for yourself? So that’s like one of the only things that makes it difficult for new investors.
37:43
Kelton Todd
You can still get around it as long as you prove that’s not what you’re trying to do in terms of where to go get them. We, we’ve learned that every state has different lenders for different reasons, but also every property. So if you want to make it a short term rental, you’re going to be looking for a different DSER lender than if you’re wanting to make it a long term rental. If you live in the middle of LA or Atlanta or Dallas, you’re going to have a different type DCR lender than if you live out in the suburbs and you know, out in the country or far out in the suburbs. So really the best way to find them is to look in the specific market that you’re looking. Go to Google, type in that market. So for instance, I live in Dallas.
38:25
Kelton Todd
I would say DSCR Loans, Dallas, Texas. And I’m going to start scrolling through that map. You know, the first page that pops up on Google is a map of local businesses. And that’s what I’m looking for is I want a local DSER lender or at least somebody who for sure. Lends in Texas is going to pay more for, for ad spend to pop up in that first page of Google. So instantly I’m now fishing in a group of lenders that are likely to lend in my area. And, and I know people don’t love that answer, but the short answer is Google it.
38:56
Brad
Love that. Yeah. So what’s the time horizon? So traditional mortgages, conventional mortgages are usually there are a bunch of options now. Right. You can do 3 or 5 year, 10 year interest only loans or adjustable rate loans. But traditionally these are 15 or 30 year conventional mortgages. What’s the time horizon for a DCR loan?
39:13
Kelton Todd
They’re the exact same. Yep. I always pick.
39:15
Brad
Oh, interesting.
39:16
Kelton Todd
Yep, yep. And that’s where I was getting at earlier is that’s why we’re not in that risk of 0708 collapse because these are not balloon notes. These don’t have, you know, ticking time bombs like most of these multi family deals do. And, and just a quick summary for people that aren’t following. There’s a lot of concern in multi family right now because interest rates are high and as he said, the whole value is built around what the income of that property is. Well, when the interest rate rises, the income drops and most commercial loans have balloon notes meaning in five to ten years the whole note comes due. So you have a lot of multifamily homeowners right now. I mean property owners where the notes coming due but if they go down and refinance, the property can no longer afford to pay for itself.
40:00
Kelton Todd
And you start doing that on multimillion dollar projects. Now having an extra five grand in the bank and making an extra five or six hundred dollars a month, that doesn’t fix anything. You need to have an extra million dollars in the bank and an extra 50, $60,000 a month, which most people don’t. Which is why you hear a lot of, a lot about people getting in trouble in multifamily.
40:21
Brad
Yeah, I love that. That’s a really important point. And I think you know, for this we’re, and we’re getting in the weeds and we’re hitting the group of the market or the group of the audience that does real estate investing because when you get into heavy investing, understanding the financing is really important. And one of the things that’s attractive about single family homes as you pointed out, is everything can be simplified more. You know, you don’t have to get to these complex things. And I think the point that you just made though is really relevant across the board, which is know what you’re doing if you’re getting into an adjustable rate mortgage at all. And my, and correct me if you have a different opinion here, but when interest rates are high, that’s the time to look at adjustable rate mortgages.
41:07
Brad
Because the likelihood of the interest rates going up higher 3 years, 5 years, 10 years from now is not great.
41:13
Kelton Todd
Right.
41:14
Brad
We are at a historically high point in my lifetime, in your lifetime. And you know, in earlier generations there have been higher interest rates, but likely we’re going to go down. So if my mortgage adjusts in five years, right now, five years from now, likely interest rate’s going to be lower. So if I refinance, my payment’s actually going to drop, not go up. And where people get into trouble is a mortgage adjusts and their payment goes up dramatically and that kills their ability to even keep paying that payment.
41:42
Kelton Todd
For sure. And to answer your question, these are actually 30 year fixed as well. You can get adjustable, but we just stick with fixed and then we just refinance when the rates drop. But to your point, I agree for sure that if you’re going to get into adjustable, I would only touch that if you, if interest rates are at a historical high point like they are right now, or at least like you said, in our lifetime, they are. So for sure. And I think just for any of the people that are listening to this right now that are in multifamily, I’m not saying multifamily that there’s anything wrong with it. I’ve done it myself. I do it myself. There’s great parts about it. I’m not a big proponent of trying to convince people that’s how they should start building their wealth.
42:17
Kelton Todd
That’s the only reason that I like to draw the stark contrast between the two. If you’re wealthy enough and you can afford to do it, there’s phenomenal things about multifamily. And don’t let me stop you, there’s a lot of people who’ve built a lot of wealth doing that. So both are great asset classes. But to your point, it’s just knowing and managing your risk. And I’ve gotten really good at knowing and managing not just our risk, but helping other people manage their risk in that single family class for sure.
42:43
Brad
So you have built a portfolio of a bunch of real estate properties. You also built the Women’s Real Estate Investment Network. Now you’ve got 50 plus employees in that company doing quite well. I know you’ve invested in some other businesses as well in the last several years. What’s the. There are common threads across all types of business and it’s sort of sales, marketing, operations, technology, taxation. No matter what you’re doing, you have these things in business. What marketing elements span all of the businesses that you own, that you focus on and you have expertise in that make the whole thing work.
43:24
Kelton Todd
Yeah, I think you nailed it. Marketing is the key to all business in my opinion. I don’t care what whether it’s real estate investing, the first step is go out marketing and find an off market deal, right. Whether it’s starting a new company and you’re starting a landscape company, well, you got to go start marketing and knocking doors and find a, a yard to mow like you mentioned, you know, we’ve had a lot of success in some of our businesses and it all comes back to the things and the principles that we learned when we first started investing in real estate and that’s that if you get really good at the marketing, the rest of the stuff is what I like to call figureoutable, right or Googleable, right?
44:00
Kelton Todd
Like you can figure your way out of just about anything or you can google your way just about anything in business, if you have business, if you actually have revenue coming in. And, and so really what’s led to a lot of our success is early on in marketing we learned really, I mean in real estate we learned really quickly as goes our marketing, goes our success. And so we just got really good at marketing. And once we did that, once we started branching out and doing other businesses that are all kind of still in that real estate investing niche, we’ve, we learned really on that we could have a lot of success if we took the same mindset of marketing. First dial in the marketing, get the demand built up and then you can build, you know, a sustainable business around that.
44:46
Kelton Todd
And so I, I just summarize it all in marketing we live in a, a time now where digital marketing, particularly Facebook, Instagram is where most people spend the majority of their spare hours. If you take the average person, you know, they have to sleep, they have to go to work, but the hours that they get to choose what they do with their time, unfortunately most people are spending that scrolling on social media. So we take advantage of that. We say okay, we’re going to meet you where you’re at and if we can go and place ads in social media to help you sell your house, if you need to sell it quickly to help you Learn how to start investing in real estate.
45:26
Kelton Todd
If you want to start investing in real estate, we’ve used it for everything from finance companies if you’re looking for loans, to roofing companies if you’re looking to put a roof on your house. And what that’s what we’ve learned works really well is get in front of people where they’re at.
45:41
Brad
So marketing, you know, shifted decades ago from direct mail to digital and trackable. And now, as you just mentioned, we moved into the really social first or social entirely space. What are the elements of sort of the marketing funnel for, you know, the real estate network versus real estate investing itself? Are they the same? Are they different? How do you approach that? What are the steps in your marketing campaigns?
46:10
Kelton Todd
Yeah, they’re all really the same. What I’ve learned is if you meet people where they’re at and you add value to them, then they’re most, you know, they’re more likely to respond to your marketing. And so we’re big proponents of leading with value first. So whether that’s. If we’re looking to buy a house from somebody that needs to sell their house quickly, the first thing we’re going to do is put something in front of them that add value to them, lets them know that there’s a group of people out there like us that buy houses quickly for cash at a reasonable price. It’s a discount. We have to get a discount for being willing to buy your house without inspections and appraisals and lengthy close times and all of that. So we just add value first and let you know that exists.
46:50
Kelton Todd
And sometimes people will get the value from us and then go sell their house to another investor, which is totally fine, right? As long as enough still call me to pay for my ad, then I don’t mind that, right? Doing the entire industry a favor. And hey, that works too. And then same thing with, like the education space, for instance, people want to start investing in real estate. The first thing they want to do is not go hire a coach and pay them $10,000 to teach them everything they know, right? If you told the average person that, they’d be like, oh, that’s a scam. And they run. But if you just give them value first and all of a sudden they realize, wait, this person really does this. They really know how to do it.
47:25
Kelton Todd
And more importantly, they’ve spent a lot of their time really willing to show me how to do it. Then you find people really quickly that are begging you to say, hey, will you please Take a little bit of money from me and show me what it is that you know. Because they go out there and make that money back one deal and then from then on they have all that knowledge and experience. So we apply it to all fronts. Even a roofing company, you want to sell more roofs, run ads, educating people on why they need a new roof on when to know if they need a new roof and next thing you know, you’re the company they’re calling when they need a new roof.
47:57
Brad
So you mentioned running ads, which takes money. Ads versus organic. How much of one do you do versus the other and how do they work together?
48:06
Kelton Todd
Yeah, I call this time versus money. Right. So if you’ve got more money then you want to put more money in paid ads. If you’ve got less money or no money, then you’re not going to go out and run ads for your first deal. You’re going to go out and use your time. So you might do things like door knocking or sticking signs in the ground at the intersections. Right. Like those are all time labor intensive deals. Cold calling, picking up the phone and calling people. Those are all the things I did to get my first deals. I didn’t run out, I didn’t go out and run ads. But once I got those first deals, I took that money and said, okay, now I’ve got a little bit of money.
48:39
Kelton Todd
Instead of spending it, let me put it into ads to where next time I don’t have to use my time, I get to use my money to create more money and to get the next deal on the next deal. So there’s definitely forms of marketing in every industry that take more time that you can do with practically no money. But what I love about those is the successful people in those industries don’t like doing that Right. So you’re never going to have a monopoly of real estate investing because the bigger a company gets, the further they’re going to get away from cold calling, which even has some like legality challenges. If you’re doing it at scale, they’re not going to go stick signs in the ground, they’re not going to go door knocking.
49:22
Kelton Todd
So no matter how big companies get in real estate, there’s always room for the new guy to come in if they’re willing or girl to come in if they’re willing to go out there and do some of the, do some of that, that grunt work.
49:35
Brad
Yeah, I love that. I think that’s a good takeaway. In business in general, there’s a Famous story from Y Combinator and Airbnb when they just started out and we’re trying to figure out what to do to scale. And the advice from Y Combinator was do the thing that doesn’t scale. Go interview your customers. And the founders feedback was like, what do you mean? Like, we can’t do that. That’s not going to scale. That’s not going to scale. And the response was, it doesn’t have to. And because you’re new and you’re connected to your customers now, do the thing that you can’t do when you’re at scale.
50:10
Kelton Todd
Exactly. Yeah. I love that. That’s a great lesson for sure.
50:14
Brad
What are people doing wrong with marketing today?
50:19
Kelton Todd
I hate to be repetitive, but I think I’d go back to not leading with value first. Right. Looking at it from the lens of what in it for me, if I’m, if I see an ad and all that ad is trying to do is get me to buy something from them, then I’m instantly thinking, I’m defensive, I’m putting up my guard of like, wait a second, what? You know, I don’t want to give you my money. And so that to me is what I see most common is people don’t come from a, a place of adding value first. The second thing, and this is the most important thing in all of business, in my opinion, is not knowing your numbers. Right. I had a mentor who learned a lesson early on. He was getting leads for really cheap.
50:58
Kelton Todd
And that lead source called him and doubled the price of his leads. And he got mad and yelled at him and told him to screw off. And from that day forward, he started paying about four times as much for leads because he didn’t understand that even though they doubled their price, they were still by far the best priced leads that he could have gotten. And so a lot of people don’t understand that. It doesn’t. You got to know your numbers. How much are you paying for a lead? How many of those leads are you converting? And what we have found, the more you want to scale and the more success you want to have, the more time you got to be willing to take.
51:34
Kelton Todd
And so the way we run our, a lot of our businesses now when it comes to ads is like, we don’t even make money off of our ads. We don’t even make money the first time the client buys from us. The client might make a big investment and think, oh my gosh, we’re making all of this profit. In all reality, we’re actually losing money still. But we know that we’re going to over deliver on our value so much that you’re going to continue investing with us. And we call that a lifetime customer value. And then over time we end up making more than anybody else can make because we can spend more than anybody else can spend because we’re not trying to make a profit off of every single client.
52:11
Kelton Todd
We’re trying to build up a client base and we have to understand our numbers in order to do that. So I think understand your numbers and add value would be my top advice for sure. Yeah.
52:22
Brad
And ultimately for, I mean obviously people that are, you know, at scale in business understand this concept. But for those that aren’t, you’re liquidating your leads on the front end. Right. So the, the thought is that you run an ad and you sell something small to help cover the cost of ads, knowing that the person that buys something small is going to buy something bigger later.
52:40
Kelton Todd
Yeah. But we even take it a step further, we lose millions on the front end and then we’ll self liquidate on a, actually a good five, ten thousand dollar purchase. We’re still not making money but what that ends up doing is building up a, a really good pool of loyal customers. And then over time we’re able to, you know, not just monetize that but actually start to have profits in there. But we also, in all fairness, we also do that because we like to add value. So it also lets us reach a lot more people. So it’s kind of a long game as well.
53:13
Brad
Yeah, I think that there are, I mean there are definitively a ton of different ways you can approach business and ton of different ways that you can enjoy business. And a lot of it has to do with the outcome that you’re after. And if the outcome is the most profit ever, you’re going to operate the business differently than if the outcome is getting the most exposure ever. For example, I have a, a buddy in town, Khalil, who’s been on the show who runs this company, Sun Life Organics. And he was like, I can’t remember what the margin was exactly, but I think it was like 6 or 7%. And normally his, it’s a smoothie company. They’re, they just make these dope ass really expensive smoothies and normally those businesses are like 20 to 25% margin. And he was like yeah, I don’t fucking care.
53:59
Brad
It was like people think that I should have a higher margin. He was like guess what? We have a Dope product, everybody loves it. I get a few million bucks out of it. I don’t fucking care if my margin is 6 or 7%. It’s awesome.
54:10
Kelton Todd
Yeah.
54:11
Brad
And I think that takeaway is really important that you are allowed to run the business however you want, but if you don’t understand your numbers, you don’t even have the capacity to do that.
54:23
Kelton Todd
Yep. Spot on. Yep. And our thing is like, we want to reach more people, we want to help more people because we help people that never spend a penny for us. Right. Or maybe 17 on like our lowest tier products or just a free, you know, free trainings. And so we’re like, hey, we’re helping more people if we reach more people. And so to your point, we’re the same way. I would rather make a million dollars off of serving a thousand clients than a million dollars worth off of serving 100 clients. And it doesn’t matter if our margins are low, as long as our reach is out there, then that serves us. But to your point, if, you know, if a hedge fund were to buy us, then they would flip the model on its head because they’re all about extracting the profit.
55:02
Brad
Yep. Well, while we’re talking about or alluding to values in different ways to run business, you have been in business with your family for 10 years. For most people, if you ask them if they should get into business with their family, the answer is an astounding no.
55:23
Kelton Todd
Yeah.
55:24
Brad
What are the elements to successfully running a business with family?
55:29
Kelton Todd
Yeah, I think that’s a great question. I, I, I always like to tell people, you know, if you’re not happy without money, you’re not going to be happy with money. So you got to figure out how to get happy first because money’s not going to make you happy. And I think that same principle applies to family. If you don’t get along with your family right now, don’t go in business with your family. But if you’ve got a great relationship with your family and you get along great right now, and you, that likely means you’ve got 20, 30, 40, 50 years of experience of that, then I don’t think you should let that stop you from going into business. Because I would say our superpower is that we go, is that we’re a family business.
56:03
Kelton Todd
I know that I’ve got my brother, mom brothers and another company, so I know that I’ve got, at any point in time, I don’t have to worry about what’s going on. Behind my back. I know that I’ve got other people out there that are 100% committed to our company that are always devoted to doing the right thing. And so I think it’s a superpower for us. But I will say that we had a great relationship before went into business. Now that relationship and dynamic has definitely changed over time because as you start doing business together, you put yourself in more confrontational situations. And, you know, a lot of people think that we fight. And my mom used to say it all the time, like, I wish I wouldn’t fight so much. And now that she’s in business with this, she’s like, I get it.
56:51
Kelton Todd
You don’t fight. You actually respect each other enough to dispute and to argue. And so we argue a lot and people think that we’re fighting and it’s our version of like, no, we. If, if I don’t argue with you and if I don’t fight you, unfortunately, that means I don’t respect you. Like, I don’t really care enough to hear your side of the story or your opinion, or I don’t care if you agree with what I think. It’s the people that I respect the most that I’m like, no, let’s get to the bottom of this. If you think one way and I think another way, one of us are probably right, one of us are wrong, and I want to know if that’s me. And so I think, you know, it’s been our superpower for sure of having that family dynamic.
57:30
Kelton Todd
But it’s also another blessing that just comes from getting to experience success with people that you love. And, and, you know, we get to go on family vacations and spend time together and have experiences with our entire family, that would not be fun if I didn’t get to do that, or if I’m having to like, pay for all my family’s way. And like, it’s just not the same as, like, your family getting to be a part of it and experience it together. So for us, it’s been, you know, probably the biggest, not only, like, superpower, but also a blessing. And, and I highly encourage people to do it if you actually get along and if you’re willing to accept the fact that you’re going to argue. But, like, that doesn’t mean that you don’t love each other.
58:10
Kelton Todd
Doesn’t mean that, you know, we can get in a knockdown, drag out, brawl, but if we had dinner plans, like, I’m going to my brother’s house for dinner that night. It doesn’t matter if were fighting at the office two hours earlier. Like my wife and kids are loading up, we’re going in the car, we’re going to go have fun and hang out and watch TV and, and laugh and chat like nothing ever happened. And then we’ll pick our fight back up the next morning when we get to the office. Like that’s, you know, that’s what’s worked well for us.
58:35
Brad
Yeah. And that works because you had that relationship before you went into business in the first place.
58:40
Kelton Todd
Yeah, for sure.
58:42
Brad
One of the things that comes in play with real estate investment in business when you start making money is tax planning and protecting that money and making wise decisions, asset protection, etc. What’s the core lever you use to control your taxes as you make money with real estate?
59:04
Kelton Todd
Yeah, so the number one, hands down to anybody, that is, even if you’re already in business, but definitely if you’re not in business, you’re wanting to get started or really no matter where you fall is entities. Right. You got to set up an entity. Like entities are how the wealthy avoid paying taxes. Now the more complex your entity structure, the more asset protection and the more tax reduction that you’re going to be able to get. But starting out, I’m a huge proponent of go get a professionally set up LLC and start doing business to where the point you get to the point where you have assets that you need to protect. Because I think a lot of people make that mistake of trying to get started in a real complex structure.
59:48
Kelton Todd
And I’m like, no, just go get an LLC professionally set up by somebody who understands the industry that you’re going in and that should be enough to help reduce your taxes and create a base level of asset protection. Having said that, I actually love this topic. This is something that I’m passionate about. And as we started having more and more success, I started studying what it is that the, you know, true successful people of our time do to continue protecting their assets at the next level, as well as reducing taxes into the future. And we’ve ultimately found a structure that we really love, using trust and whole life insurance. So we set up a trust fund, whole life insurance and name that as the beneficiary. And so, you know, I own nothing and control everything. And that’s a really cool place to be.
01:00:41
Kelton Todd
It’s a scary place when you don’t understand it because it’s like, yeah, no, I don’t own my home, I don’t own my cars, I don’t own my bank accounts. I don’t really own anything. But I don’t want to own any of that stuff because if you own it, someone can take it from you. If you control it, then I would much rather just get to live in my house and if it goes up in value, I get to control the appreciation and the benefits of that. Not if, when, but same thing with, you know, bank accounts and everything in between. And so we’ve found that whole life is a cool way to do that in a instrument that is lasted, you know, over a hundred years in America. It’s got very solid, safe returns. But most importantly, you’re able to access it.
01:01:26
Kelton Todd
I think a big mistake that most people make when they start making money or quote unquote saving money is putting it in a, in what I call a breakable piggy bank. I’m not a big fan of putting my money into something that I have to break to get it out. So I’m not a big fan of 401ks and IRAs and all of these things where I have to pay fees and penalties and taxes when I go to pull it out. I love to put my money into whole life, which means it’s already taxed today. I put my money in and then I’m never taxed on it again. And I could pull it out at any point in time in my life without paying penalties on it. But if I don’t pull it out, I’m earning a really safe, solid return on it.
01:02:04
Kelton Todd
And then when I do pull it out, I’m only pulling it out to put it into something that’s going to give me an even higher return. And so that’s kind of the structure that we’ve created. It’s something else that I’ve kind of become passionate about because it’s actually very simple. But most people complicate it and make it seem like it’s this complex thing. But I love it because it secures a legacy from day one. If you just get started investing in real estate and you set this structure up correctly, you’re going to leave a legacy behind. You’re most likely going to leave millions of dollars behind in a death benefit which is just like this side extra benefit of using the structure that we set up this way. Not even why we do it’s just a cool added on bonus.
01:02:42
Kelton Todd
But it’s a nice bonus to know that from day one you’re set that you’re for sure going to leave something behind. I like that too.
01:02:49
Brad
Well, okay, so there are, I mean There are probably 15 different derivatives we could talk about relative to entity structures, trust structures and whole life. And that could be hours of conversation. 100 whole life, universal life, universal index life. There are all these different types of insurance that you can get, tons of different structures. So when you say people like to overcomplicate, well, it can be really complicated. So when you talk about whole life, can you give me just like the basics of how it works, the elements that are important to you and why you like that as a vehicle?
01:03:25
Kelton Todd
Yeah, so what we have found in a lot of study is that nine out of 10 people who sell whole life are selling it for the death benefit. So we don’t want to buy it from nine out of 10 people because we don’t buy it for the death benefit. That just happens to be like a really cool extra bonus. And so to oversimplify it, most people buy whole life with 90% of the premium going to death benefit and 10 of the premium going to cash value. We just flip that on its head. I want 90 of my premium to go towards cash value and only 10 to go towards death benefit.
01:04:02
Kelton Todd
And the irony in that is when we structure it that way, we end up with 10 times as much death benefit as we would have ever had because we buy more than 10 times the insurance that we would have ever bought. Bought because we’re not using it for insurance. We’re basically using it for a glorified savings account. It just pays a 10x return higher than your average savings rate and it has 10 times more protection than even really entities, but definitely than a typical savings account in most states. And so that’s the, that’s the gist of it is we overfund it with cash value and reduce the life insurance portion of it or the death benefit, I should say, to the smallest amount to legally keep it still considered insurance and no longer an investment.
01:04:54
Brad
Okay. So the basic elements, for those that don’t know with insurance is basically you can pay for just a death benefit and then the policy itself has no real value. When you stop paying, it’s just a death benefit. If you die while you’re holding this insurance, somebody will get paid out a certain amount. That’s the death benefit. Whole life in particular as a vehicle can maintain what’s called a cash value. And so you are creating this, you’re building up this value where at any point in time, that value is real and it’s sitting there. And you could liquidate that policy and just take that cash. You just will no longer have the death benefit later if you stop paying in. But you always have a value of that policy.
01:05:35
Brad
And so your chosen path here is to fund this, that you have this huge cash value and it’s sitting, and that cash will grow. You have interest on that cash, and in addition, you have some death benefit in the future. But that’s not the core reason that you’re doing it. You’re doing it because there are tax benefits to doing it this way. And you can keep the money parked there, earning some amount of interest, and you can pull it out as you need to or lend against it as you need to. So you can get a loan against it as you need to because it does have a cash value. Yep.
01:06:02
Kelton Todd
I think you summarized it perfectly. The, the final piece I would say is once we do it that way, then we never leave any of it sitting in there. We go borrow all of it out and go deploy it into real estate. Private money lending. Like you just mentioned, we’re always using our money. I’m not a fan of saving money. I’m a huge fan of using money, but I can’t use it if I tuck it away in some kind of a 401k or IRA that’s breakable and I got to go shatter it just to get it out. That’s why we use whole life is. It’s everything you just said and it’s accessible. So I put it all in there just to set it up, get the asset protection and the tax benefits.
01:06:39
Kelton Todd
And then as soon as I can, I go and pull it right out and start using it. And now my money’s working for me in two places. I’ve got the life insurance that’s still growing over here, as well as the asset that I go and invest it in. And then when I’m done investing it, I pay it back to myself with a little bit of interest to myself. That way it keeps growing and it’s available to use it again over and over.
01:07:02
Brad
So you can be your own lender from that perspective.
01:07:04
Kelton Todd
Exactly. Yeah. Love it.
01:07:07
Brad
Awesome. Well, I could talk to you about real estate forever. I like to geek out on it. Hopefully some of the people listening did too. Kelton, Todd, where do you want to point people if people want to find out more about you or the real estate network, etc. Where do you want to send them?
01:07:22
Kelton Todd
Since we talk the most about real estate. I think that’s being transparent. My life’s not that interesting to other people, so people don’t tend to care too much about me individually and I would say so. Yeah. On that topic of real estate, if you happen to be a female, the Women’s Real Estate Investors Network or rain.com or Women’s Real Estate Investors Network.com is a great place to learn more about a lot of the topics that we happen to talk about on this call today. But also you can find me on social media as well. It’s just Elton Todd, love to add value. Love to help reach out if there’s anything we can do for you. And quick plug to you guys.
01:07:58
Kelton Todd
I think you know, it’s because of people like you that allow us to stay in business and do the value adds that we’re able to do is because of people like you guys. So appreciate your time and appreciate you adding value to the marketplace.
01:08:12
Brad
Kelton Todd, I appreciate it, man. Until next time, that’s a wrap for today’s episode. Please subscribe. And most importantly, leave us a review. It takes like 30 seconds and it makes such a big impact. It helps other people find us. Also, you might not know this. You can watch over 100 episodes of Beyond a Million with guests like Grant Cardone, Wes Watson and Neil Patel at beyondamillion.
01:08:34
Kelton Todd
Com.
