Welcome to Cleveland real estate investor. On this podcast, you'll hear about every aspect of the real estate investment business. You will talk to your rockstar investors about their businesses, how they built them, where they came from, and where they're going. Who am I? I'm Joe Lieber and I've made millions of dollars from the real estate investment business over the last 20 years. If you're ready to hear the good and bad from a guy who's learned this business from the school of hard knocks and get educated by some bad ass entrepreneurs, then put your helmet on, strap on your chin strap. Let's ride.
(00:36): Hey, what's up guys? How are we doing this evening? I'm talking to you live here from Catawba Island. So another beautiful night up here. So for a golf cart ride with the fam really cool, really cool place to be. Man. I got some inflammation in my toe tonight. My wife reads online that Apple cider vinegar helps with inflammation. So she gave me a shot of this stuff. Oh my gosh, man. Nasty. If you ever had to use that to, I don't know, rinse out with canker sores or something. I hear us good for that too, but I had to swallow it and man, Holy crap. I think my brother had a shot of fireball in that. Oh, I don't know which one was worse. So really funny. But she watched me there screaming like a little girl crying, going. It's awful. Anyways, getting back to the topic for tonight, you know, I've seen this mistake many, many times, not just with people I know, but this is just a classic mistake that people make all over the world really.
(01:42): But Americans love making this mistake and I get it though. Like I can relate, you know, I've been there, I've done it. I've seen it done a million times. I'm going to explain it to you in detail. But it's crazy, man. The desires, you know, you wait so long people just, you want stuff, you know, you want a new car, you want a Rolex, you want a vacation, you want new Ferragamo shoes, you know, and you see this stuff at Nordstrom. She's like, damn man. Like, no, I'm not going to buy it. I mean, you know how many times you went to the mall and you looked, might've looked at you know, an Armani suit and you're like, Dan too, that suit is sick. You know, it's 2,500 bucks. Not now, not now, you know, maybe a few years it makes more money or maybe, you know, if I lose 20 pounds.
(02:31): So he was a treat to myself, you know, I'm going to get that right. And the desire she saw, man, it's there, you know, you want this stuff so bad could be anything. You know, some people it's watches and cars and boats and vacations or houses, right. Drive through that million dollar home neighborhood. You're like, damn man. Like I want that so bad. Like what I gotta do to get that, you know, then I seen people who let their desires lie. They know they can never get them. And I've seen that, you know, I had situations or I, you know, I bought new cars, nice cars, you know, the new Cadillac or something. People are like, Oh, what do you want that for man? Like, that's too much money. It's too expensive. Who would want that? You know, they downplay it because they know they could probably never have it.
(03:17): You know, at the same time I seen the same guy five years later who maybe hit his ticket. I thought you didn't like Cadillacs, bro. Why are you driving a Cadillac? This is a really habit. I'm not even kidding. I'm thinking I'm a guy right now that happened to, you know, he had a minivan and he's like, dude, minivans are great man to the best. And there are something wrong with a minivan. But at that time I had a Cadillac escalade and he was dogging it, you know, five years later he bought a Cadillac escalade. And like, dude of all cars, you can like us Catholics. You're a minivan guy, you know? Oh yeah. I know. Cause you're making some money now I get it. You know, here's the story I want to tell you tonight. I know of a gentleman who is a friend acquaintance and he's flipping a house right now.
(04:01): And it's the first house that he's flipping and he's going to make some money, right? He's going to make some, he's gonna make about 25 grand net. And he's excited. You know, he works a day job. He's an employee of a company and it's an, a normal paycheck. He's not a, a high paid person by any stretch of the imagination, but he had an opportunity to flip a house. Now he's doing all the work himself and he's over there and he's been there for about four months and he's grinded, man. He goes through his day job from nine to six and he goes there in the evening and he grinds. He just does 90% of the work himself and he's doing a good job. And I saw the house and you should do good after, you know, all of a sudden done for commissions and closing costs.
(04:44): He should knock down about 25 grand, which is really cool and he's getting close. And I know this thing will be closed and filed and funded and probably about 60 days for him. So he's real close to getting into his first pretty good sized check. You know, 25 grand is nothing to sneeze at that's good money. So he texted me tonight and said, Hey man, I want to swing by. I bought a toy. I'm like, dude, what'd you buy bro? I mean, the check hasn't even come yet. You know? And he bought an RV, big old RV, you know, like, that's cool. Hey, that's exciting. So one on one for a long time, he wants to do some trips with his wife and child. So I get it. That's totally cool. It's a little bit older one. It's a big one. So it's a little bit older.
(05:30): He wanted to sacrifice age a little bit so he could get a big one, which is cool. But, but with a, an older RV, there's gonna be things, right. You know, this is the one you drive. I don't know much about these RV stuff. So bear with me here. It's when you drive, he's going to drive it around from campsite to campsite and by looking at it, you know, you can tell, Hey, it's probably gonna need new tires. I would assume brake pads. I mean, as heavy as this thing is, it's got to just run through brake pads. And he's a little updating inside too. And the maintenance, you know, I don't know what the maintenance is going to look like for him, but here's what he did. So the thing costs 25, right? Gran of all things. And I don't know if he took a loan just now or borrow the money I didn't ask.
(06:16): But my assumption is that he's going to take his $24,000 profit. He gets in the next two months and he's just going to pay off the loan or pay himself back the 25 grand. I don't believe he has the 25 grand currently just knowing his situation, just financial situation and how he got the money to purchase the home and different things like that. So I'm going to assume that he took a loan to get this RV, knowing that he's going to pay it off. And that's good. Good for him. So it's not a paid off RV. Sweet. Right. But what about all the ancillary charges and costs that go with this? What about the maintenance, which has been big tires, pads, rotors air condition, doesn't work. The doors busted here where he lives. I know that he cannot park this thing in his driveway. So now he's going to pay for storage.
(07:12): And I was asking him about that and the, where he's going to store this thing is going to cost him about 300 bucks a month because he's going to do like outdoor storage in the summer and indoor storage in the winter where it's heated. And he just picked up a monthly bill is what he did. He picked up a $300 a month, bill the store, sorry, along with, you know, you're going to these campgrounds and you've got to pay to get into them. And I'm sure there's cost associated with parking there overnight. And the insurance is a bill he's going to pick up and the fuel, these 6.5 mile per gallon hogs, the fuel's gotta be a fortune. And I look, I think it's great. I do. I'm super happy for him, but he's using his after tax earned income to pay for all these ancillary charges costs ancillary costs.
(08:04): I want to say to this vehicle now there's no going to be no debt on this. So that's one thing that's out of the way. And that's great. And that's what he's thinking. He's thinking, damn, it's things paid for dude. I got no debt on it. You do have debt, bro. You have all these different costs that we just named off that you have to pay for. And now things are already tight. I don't say tight but tight, right? I mean, financially now you're going to use your earned income to pay for it. I get it, man. You've one Oh one for a long time. I mean, just really try to relate to this. You know, as a listener right now, we've all done this. I'm gonna tell you a time that I did it. The year was 1998. They just finished a state licensing requirements to be a real estate agent.
(08:50): And I was excited. It was really my first real, real job. Big boy job, adult job is going to be, get to wear nice clothes. And I thought this was going to be the bomb. So right before, right before I took the state board exams, I had an opportunity to take over a lease 1997 BMW, three 25 ice convertible. And they tell you something in 1998, this car was hot. I was 19 years old, 1998. This car was ridiculous. I mean, I just saw myself rolling up to my real estate sales office. I was going to be hitting it. I knew I was going to make money and Beamer and a young dude chicks. And Oh my gosh, like the desire I wanted it so bad. Right? So I did it. I took over this person's lease and they were a little more than halfway through.
(09:51): Thank goodness. They're little more than halfway through. I think I had about 11 payments remaining. So it wasn't very long, but I took it over. I passed my state board exams the next month. And I went to work at Coldwell banker Tim. And guess what happened? It was a hell of a lot harder than I thought it was going to be. I wasn't making any money. I wasn't like nothing. I was not making money. Like you said, Oh, you don't make any money. He makes 1500 bucks a month. No, I didn't make any money at all. Zero, not a 19 years old had no idea how to sell real estate. The young kid, I was making zero and these monthly payments and this BMW were coming in. The payments were like six 50 a month. Huge. Oh my gosh. It's still a lot. Now. It was yeah.
(10:37): Really big back then. It was awful. I made like four of them didn't have the money. Then I started borrowing money from my grandparents. I need to borrow some money. As soon as I get a check and I sell a house, I'm going to pay you back. And Oh my goodness, this went over like a fart man. It was not cool. You know, I don't think I ever did pay my grandparents back that money. I must have borrowed five or six payments from, and this felt terrible. That was a huge mistake. Got myself in a big jam. And I kinda like saw it tonight, you know, with my acquaintance forever friend where we want to call it, I kind of saw it. And I was like, dude, man, like I know you want this thing, bro. And it's just, I don't know if I like the deal.
(11:21): So I'm going to tell you what I think he should do. And if I had to do 1998 over again, this is what I wish I would have had someone show me to do. And by the way, this person is buying the RV's not a young kid though. He's a grown man. So it's a little different, but this is what I do. I take my 25 grand that I just made and put it in my savings account. I would go out there and find another deeply discounted house, deeds a deal. I would find something that needed some work, just like you found this time that he could fix up. But I wouldn't do like a suburb flip. I would do a long term rental and here's how I would do this. I'm going to find the cheapest house on the West side of Cleveland. I'm going to spend maybe 40, 45 grand on a three, one, maybe something I can turn into a four Oh one or five one, and I'm going to borrow the money.
(12:15): I'm going to go through my contacts. I'm going to find a private lender that I can borrow the entire purchase price from. And he can get it. He has a little of experience. Now. He knows how to do the work he has as the rehab money. I'm going to find someone that will fund the entire purchase price and he's going to pay for it. He doesn't have that much experience. He's probably going to pay 12% or maybe more. And that's okay. He's supposed to he's new. He has to has, he has to come into the game, man. It is what it is. And then I would take my prevalent, I mean, in a situation in the story I'm given here. If he's buying a house for 40 K West side of Cleveland, it's not going to be a 25 K rehab. It shouldn't, let's say it's a 1520 K rehab.
(12:59): I'm going to put that money right into the house. I'm going to borrow the 35 40 grand short term, as short as I can get it. I'm going to pull out my calculator and do a calculation. I'm going to think, Oh, if I'm pulling 900 bucks a month in rent, minus taxes and insurance, of course, it's going to self manage. I'm going to say the net is 700 bucks a month. So I'm going to take the amortization and make it very close to the sub a hundred bucks. So I'm planning on breaking even because I want to pay this house off as soon as possible. This is how I did it. By the way I got all my houses paid for, but I'm going to reverse in these numbers real quick for you. Number guys out there, 700 bucks a month is the net. And that's what I want the mortgage payment to be.
(13:39): So I want to rapid pay down loan. So I'm going to do seven. I'm going to do a calculation right now. My fancy mortgage calculator. So $700 payments, right? And let's say the interest rate is 12%. The loan size is 40 grand fine term, seven years. So I want a seven year loan. That's 84 months. So that's what I'm going to do. I'm going to hammer this thing, man, the tenants that we're really going to pay for it. And I'm going to hammer this loan out. And in seven years, I'm I have a paid for house throwing me a net 700 bucks a month. Then it's called delay gratification. You know? No, you don't just look. You don't get to go out there and flip one or two house and think you get to get the big RV in this situation. It doesn't work like that.
(14:24): There's a ramp up time. Sorry. It's how it works. So in this situation, it will be seven years. When the house gets paid for in seven years, then he goes to gets the RV because the monthly cashflow will pay for all the ancillary things. What's the cost of ownership with this, having an RV, it pays for the parks. It pays for the maintenance, the pace of the insurance that pays for the 6.5 miles per gallon. Gasoline thing takes, it, pays for the storage. It pays for the summer storage, wherever it pays for all of it. And now it doesn't hit his bottom line. And yes, it is seven more years in the future. Oh well that's the game this happened about recently. This is 10 years ago. True story. My wife, Cheryl, some of you know her, some of you are getting to know her right now.
(15:11): Some of you learn a lot more about her. Cause I'll be talking about her a lot on this show. 2009 Shaw comes to me goes, Hey, I really liked those Cadillac Escalades. Those girls on those shows Beverly Hills Housewives. They got them. And I just love it. Like, yeah, I bet you do. Who wouldn't love an $80,000 vehicle. I want to get one. Well, what you don't know about Cheryl is Cheryl, my wife, she works. She works full time. She has a really good job. Well she has, she is officer at a company here in Cleveland and for a female she's paid very, very well and she can afford it. She can go in there and get a Cadillac escalate tomorrow morning. It's no big deal, but I wouldn't let her do that. Like you are not going to go to work and take your earned income and pay for Cadillac Escalade.
(15:58): That's the trap. That's a trap right there. When you start doing that stuff, you'll work forever. Now your company owns you, okay? That's it. You need that income to pay these bills. The things that we own us, right? You have to be really careful the only way to buy crazy stuff like that through passive income. Here's what I said, Cheryl, you're making good money. You know, you don't have to pay for a whole lot of stuff around here. When you save up the money, buy enough houses to pay for your Keylock escalate. You can get a Cadillac escalate. Cause that's how we're going to do it. Cause thing for Cheryl she's high income, she say we'll put the money away very quickly. 2009, the real estate market was like, gosh, you're literally getting houses for nothing, but we went and bought her two nice houses for $20,000.
(16:48): A piece needed $5,000 rehabs. We still own them to this day. She has many more than that now, but that's a whole nother episode. Got to those two houses. She was into a $50,000, no mortgage bringing it 1800 bucks a month in rent minus Texas Maya's insurance. I was managing them for her. So she got to say something money there. She needed enough money to not only leased the case lack, but she still had extra money left over every month to cover insurance. Or if they oil changes, you know, I didn't think that might've went wrong with the car, but it was a brand new car. So that's another story. But that's what we did. True story was a white diamond tri coat. That was the color with the Chrome wheels, 20 twos, black interior. That one was, it was a great car and that's how she got it.
(17:34): But she paid for, with passive income, right? She needed caught in that trap because as soon as you caught in that trap, that's it. You know what it feels like to go to work because you want to versus going to work because you have to let me you something there's a big difference. Okay? There's a huge difference. Your mindset, your attitude is completely different when you go to work because you want to. So these are some of the things I want to share with you tonight. They were on top of my mind. So I get to talk to you guys about that. Thank you for listening to me on my, wow. Okay. This is also a long list. I must have a lot of passion coming out of me tonight in this, so, well look, I hope you enjoyed it. All right. Thanks for tuning in my loyal listeners. I sincerely appreciate you. Some of you have been emailing me really cool. Thank you. And all right guys, be good. Behave. Catch another episode.
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