Possibilities in Real Estate Part 3

Jessilyn Persson: [00:00:50] Today’s topic is The Possibilities in Real Estate Part 3. This is three of three. Recap, part one we discussed understanding your goals, what makes you uncomfortable and what are you willing and not willing to do. Part two we discussed different real estate asset classes, understanding market dynamics, and leveraging real estate for lifestyle design.

Brian Persson: [00:01:16] A lot of topics there already.

Jessilyn Persson: [00:01:18] I know, I’m super excited to get into part three but part one and part two were also really good topics. These are like bricks, building the foundation. Start here, move up. Introducing different topics so you’re aware of what’s all going on when it comes to building your wealth.

Brian Persson: [00:01:40] That’s why we wanted to discuss the possibilities of real estate. Because real estate is such a big game with so many aspects to it. Not only technically, but mentally, how it’s going to affect your life, your family, your mindset. You have to consider the whole picture. You can’t just say, I’m going to invest in real estate and I have some money, let’s go. It’s like, what else around it? Hence topics like, what makes you comfortable? That is huge, because honestly most people should not be in real estate. There’s a certain level of grit that is required to be in real estate, and you need to have that grit if you’re going to go off and do your own deals.

Jessilyn Persson: [00:02:18] Even all the topics that we covered in part one and two, and here coming in three, under these topics are subtopics. We don’t even cover everything under all those either, there’s still so many different options out there. We encourage you to absolutely hear what we have to say, but go out and do some investigating and research yourself to understand what else might be out there.

Brian Persson: [00:02:40] Takes a lot of self exploration to nail down what you should do in real estate.

Jessilyn Persson: [00:02:45] Today we actually have four takeaways. I know we usually have three, but we’re going to roll into the first one here which is, creative financing strategies. There are multiple different ways for creative financing, we’re not going to touch on them all. Because firstly, we don’t do them all. Some of them, we don’t have enough knowledge in to speak to but we definitely have done some and still do some ourselves. Some of those could be low or no money down options. I get approached quite often when I’m in real estate rooms asking, how do you do it with other people’s money? Or how do you do it if I don’t have money? It’s like, have you explored how much money you might have? I say that considering using your own home if you have a mortgage, your equity in there, as a tax deductible asset. I know you can speak to this a little more than I can, but you can start there without having to worry about going to other people’s money or other strategies.

Brian Persson: [00:03:40] Creative financing, people hear that and they get a little bit wary about it, I think. But the reality is that it’s not creative. It’s just that you don’t know what you don’t know. If you don’t know that you can change your personal mortgage into a tax deductible asset, just to back up a little bit, your mortgage is a liability. No one’s paying for your mortgage except for you, and you’re using after tax dollars to pay for your mortgage. That, basically, is the definition of a liability. But if you can change your mortgage to both get a tax deduction and increase your wealth through savings, through investments, then your mortgage, the same thing, same product, becomes an asset. Sometimes it’s just a matter of knowing how to operate on whatever financial strategy or real estate strategy you’re going to attack.

Jessilyn Persson: [00:04:35] There’s also partnerships, we’ve discussed this multiple times over different episodes. Because we do partnerships and we understand the concept of whether it’s other people’s money or whether it’s our money we’re partnering. It all depends, of course. Every situation is unique.

Brian Persson: [00:04:53] The reality is you need partnerships if you really want to grow big. Because you, personally, are only ever going to have so much money. If you stick with your 9 to 5 and you have a really good paying job, you will be able to buy more real estate than the average person. But eventually you’re going to cap out, and the money that you’re making every year is not going to exponentially buy more properties. Whereas if you really understand the game and you get into partnerships, then you can exponentially find a lot of partners that have a lot of money and help them build their wealth, too. It’s a win-win for both you and your partners.

Jessilyn Persson: [00:05:32] Another one that we are currently working on is infinite banking. You being the banker as opposed to your ‘big bank’ out there.

Brian Persson: [00:05:42] I’m not going to go too deep into it. I’ll let the insurance agents who are trained in this go more into it. Effectively what it is, is that you borrow from a life insurance policy. You mitigate the amount of financing that you have to take on, and you end up being the financier yourself. That’s a really great strategy for you to not only potentially finance your real estate portfolio depending on how you organize it, but you can also finance your car and other things. That way you are still gaining interest and money from the money that you would otherwise be paying to the car dealership or other places.

Jessilyn Persson: [00:06:22] Your bankers or whatever that looks like. In future episodes, I’m sure we will speak to this more as we dive in deeper into this topic ourselves.

Brian Persson: [00:06:32] The possibilities are endless. We feel like we’re scraping the surface, but we want to provide enough to open up your mind to the fact that you have things right in front of you that you can use in a different way, that is going to generate significantly more wealth for you into the future.

Jessilyn Persson: [00:06:52] Take these ideas we’re talking about and go do your own research. Go investigate them, go see how they can fit into your lifestyle, your wealth portfolio.

Brian Persson: [00:06:59] We are not financial advisors, we’re not recommending you to go down any path. You always need to do your due diligence when it comes to real estate.

Jessilyn Persson: [00:07:07] Another takeaway under the creative financing strategies is building credit and using leverage. This is a good one, and I say that because I know. As a contractor, when we were a little newer into our real estate portfolio, you were an employee and you qualified way easier than I did. We got to a point where we had a certain amount of properties and I was just stuck, because I was a contractor or, it’s called, an entrepreneur. The banks did not favor my income the way it was showing, so I had to take two years to clean up my corporate accounts, the way I paid myself and the way I did taxes to reflect that for the bank to be able to qualify more.

Brian Persson: [00:07:53] The simple of it, is that if you try to play a good tax game-which you were doing, you were playing a fantastic tax game. You’re properly managing the taxes within your company. You play that good tax game, you’re going to have a really bad loan game. If you play a really bad tax game then you’re going to have a really good loan game.

Jessilyn Persson: [00:08:11] I wasn’t paying as much taxes back in the day, but then I also looked like I didn’t make as much and I didn’t qualify.

Brian Persson: [00:08:18] That’s the problem is that you were, from the government’s perspective, it looks like you make less because you’re managing your taxes properly. You’re paying the least amount of tax you can legally. Here I am as an employee and I’m paying significantly more tax, so my take-home is a lot lower but the banks were throwing mortgages at me like they were spears. And yet you couldn’t get anything, you couldn’t get a single mortgage.

Jessilyn Persson: [00:08:45] Even though I made really good money and my company had money.

Brian Persson: [00:08:47] The take-home was better for you, worse for me. They wouldn’t give you a mortgage, they would throw mortgages at me. You really have to understand the banking and the loan system, and what your long term goals are. We purposely kept me as an employee for a little bit longer so we could hammer in a couple more mortgages before I quit and became a contractor myself.

Jessilyn Persson: [00:09:09] Understand what it takes to qualify for mortgages and lending, especially if you’re an entrepreneur or a contractor where it’s not quite viewed the same as an employee. Just know that role before you decide to get into real estate investing.

Brian Persson: [00:09:24] You can significantly stall your real estate journey by doing what we did. We stalled our journey by about two years early on. That was because, as you mentioned earlier, you chose to go be a contractor, play a good tax game, and make a little bit more money. It prevented us from getting mortgages for almost two years until we could reorganize all of our finances properly so that the banks liked us again. You need to make decisions not only based on, how much am I actually going to take home, but what are my actual real estate goals and are these going to sideline some of those real estate goals?

Jessilyn Persson: [00:10:06] Moving on to the second takeaway, which is building a strong network. We always speak strongly to teams. Having your team, whether that’s your realtor, your mortgage broker, contractors, lawyers, property managers, you name it. You need a solid team around you to be able to have your real estate portfolio.

Brian Persson: [00:10:25] So important. There was a time when I was getting really frustrated at having to rotate through, the worst of it was, handymen. They would get good at their job, they would get too busy, and then they would no longer have time for me. It frustrated the crap out of me. I was cycling through handymen like crazy, and then I realized that I didn’t have a side investment with real estate. I had a business. This was early on in our real estate journey, where it was like, this is operating like a business. I have employees coming through my system, and I’m not just going and looking for the next plumber or the next handyman, I’m actually looking for the next employee that fits my business really well. That’s when we started to dial in on mortgage brokers and realtors and, who should we really work with?

Jessilyn Persson: [00:11:25] We definitely have a team around us, but it’s not just one. We have several realtors, several mortgage brokers. It all depends on what our needs are, what areas we’re in, but also for our clients because we recommend them and refer to them. They have different needs, so depending on that, not everyone is the same. So we have multiple, even lawyers, in our partnerships just so it’s accessible and available for us and for our clients.

Brian Persson: [00:11:52] We’ve done some very deep vetting of all the roles that we just mentioned. It’s taken a lot of years for us to vet at this level and to gain the experience in order to know, what does it look like to have a good real estate lawyer? What does it look like to have a good plumber for real estate? You do a lot of vetting, so I would highly recommend that your family is not the first place you start for any of these roles. Friends and family, ask some very serious questions. Make sure they have real estate investment experience in their roles, even right down to a plumber. I would say that if a plumber can’t manage your tenants properly, i.e. he’s not presentable and professional and you want this plumber to be showing up at your properties and he’s going to manage himself and his space, then he’s not the plumber for you.

Jessilyn Persson: [00:12:54] That’s a really good point. I say that because there’s all kinds of ‘wonderful’ people out there. If you have a plumber or an electrician show up to your renter, and it’s a single mom with two kids, and he looks sketchy and you’ve never met him, just as an example, then you’re going to scare your tenant. She likely may not let him in, which could cause delays and more problems. Or even if she does, she might be extremely uncomfortable which could make her question whether she wants to stay there and who you are as a landlord. So absolutely keep in mind the business and the presentability. Not just how they look, but how they speak and how they act.

Brian Persson: [00:13:31] I know all of our professionals that show up at our properties. We know all of our lawyers. Everybody from the top to the bottom, we know them quite well. A lot of them we’ve had dinner with. It’s not just some contractor or some business that we’ve hired. We really go deep into who they are and whether or not we want them showing up at our properties or not. Or being in our business if they’re a lawyer or an accountant, things like that.

Jessilyn Persson: [00:13:58] Another good takeaway under that one is finding mentors or coaches. I know we talk about this often because we are mentors and coaches, but you can learn so much from them and save yourself money and time. We made mistakes, and while there are mistakes now, we know now in hindsight if we had hired a mentor or a coach we would have saved ourselves time and a lot of money on some of our properties and the mistakes we made. But those were our lessons learned.

Brian Persson: [00:14:30] It ties into finding your ‘power team’, too. Your coach could be part of your power team, but one of the services we offer, as coaches and mentors, is actually our power team. We recommend our lawyers and everybody else in the team to our clients. It’s interesting how people shy away from that. We find a lot of clients will be like, I got a lawyer, that’s okay. It’s like, all right, good luck.

Jessilyn Persson: [00:15:00] We’ve gone through with some of our clients and talked about mortgage brokers, lawyers, things like that. When they do say if they’ve got one, we usually will vet with them to be like, are they familiar with this, this and this? A lot of times they’re like, I’ve never even heard of that. No, they didn’t mention that. It’s like, that’s okay, let’s get you a second opinion. For a mortgage broker, for example, let’s get you a second opinion with a mortgage broker who understands real estate investing. Then they always come back so grateful and thankful because it opened their eyes to things they had no clue of and they weren’t aware of.

Brian Persson: [00:15:33] Everybody goes through this phase of having to experience it themselves. So what we do is, we generally prepare our clients with a list of questions. It’s like, you want to go with this mortgage broker? Here’s three questions you should ask your mortgage broker. Come back, be accountable and tell us what the answers to the questions were. They come back and it’s like, the mortgage broker didn’t have answers for any of those questions. It’s like, do you understand now why we say he’s not your mortgage broker?

Jessilyn Persson: [00:16:04] We not only recommend from within our circle, but we will help you vet yours to make sure that you got what you need to cover your assets.

Brian Persson: [00:16:12] The occasional professional out there does match what it takes to be an investment professional, but very often not. That’s just part of the experience of knowing how to vet these people and knowing how to build your power team. A coach can cut through that by, like us, providing you a power team or helping you very quickly narrow down who should be in your power team.

Jessilyn Persson: [00:16:41] We’re going to roll into takeaway number three, which is creating multiple income streams. We are super passionate about this. We heard this from Grant Cardone back when we worked with him in 2020, he recommended having seven streams of income. We agree with that and we definitely have multiple streams of income ourselves. But with real estate there’s active versus passive income. Ours are more passive because we have rental properties, but we have friends who do flipping, which is more active. Wholesaling private equities which we’re in is passive.

Brian Persson: [00:17:20] Private equities are probably the most ultimate passive income. Me, as a licensed private equity dealing representative, I do all the research and I present you with all the details on the deals and you just have to make a choice as to what fits your goals the best. Really, the most active part of it is signing the paperwork, which can be extensive but a couple signatures on paper is significantly less than having to answer telephone calls about tenants and plumbers and toilets and all kinds of other things. Your real estate business, if you do it yourself, can seem passive but it’s actually fairly active. Whereas private equities is a completely passive game, and you still get to invest in real estate.

Jessilyn Persson: [00:18:16] Just to delve into that a little bit more, passive versus active how you want to look at it. When you’re buying a property and you’re a buy-and-hold, which we do, the game itself is active up front. Of course, because you’re buying and you have to look at all these properties, deal with your lawyer, your mortgage broker. You got to have it inspected, all these wonderful things. Then you got to do any renos you’re doing, get your renters in there, that’s very active. After that, it becomes a little more passive. Yeah, you got to check in on them and you got to make sure they’re paying rent and stuff like that. Versus flipping, now you’re full on renovating that thing. You’re in a certain time box, whatever you set based on however you have that funded, and you need to flip it otherwise you start to lose money because, of course, you borrowed to buy it. That one’s a lot more of an active game, and that’s almost like an active business. Whereas ours, we actively chose to have passive, like buy and hold and the private equities, because we already have full time day jobs and companies and businesses. So we didn’t want to have these streams of income to be super active.

Brian Persson: [00:19:28] Not only is it active on your time, it’s active on your taxes. The government looks at things that basically cycle too quickly. Flipping, wholesaling, things that have a really high cycle. You’re not going to buy a house in a buy and hold strategy, you’re not going to buy it and sell it within a year, that’s not buy and hold. But flipping, you are potentially almost always going to do that. The government looks at it differently and they end up taxing you differently on it. You can actually suffer through taxes in that case if you’re not careful.

Jessilyn Persson: [00:20:03] You want to make sure you diversify, spreading the risk across different asset classes and markets. That’s why we do buy and hold, not just with suited properties, we’re moving into multifamily. We’re private equities, but not just one. We’re in at least 3 or 4 different private equity type options because we believe in diversification.

Brian Persson: [00:20:26] This is why you have roles in the relationship. “It’s 3 or 4”. It’s 3. Someone has to know.

Jessilyn Persson: [00:20:35] I knew my money was somewhere.

Brian Persson: [00:20:38] But that’s a really good point as to, you’re a very good driver for a lot of the initiatives on this stuff. I’m the box that holds it all together and understands what’s in the box. The roles don’t overlap between the two of us. The way we’ve diversified is started and vetted, sometimes, by you, but then I am the one who actually manages the diversification of it. That’s really important because, why should we both be working on the exact same thing at the exact same time? That just seems like a doubling of effort inside of the relationship.

Jessilyn Persson: [00:21:19] Yeah, that doesn’t make sense. Taking two efforts when I can be doing other things that make money. Then just filtering that into our wealth. Then you know what to do because you’ve already diversified. You understand the markets and where their gains are and what’s working well for us.

Brian Persson: [00:21:36] We are fairly well diversified. We have two completely separate and non-correlated sides to our company. We have the coaching side and then we have a more professional management side of the company. Plus we have invested into buy and hold in our local area. Plus we have private equity. We even have land in Romania. We’re all over the place on how we’ve diversified, and when you actually get to this point, it’s very interesting to watch your portfolio. Then you start to understand why you need to diversify. Like we said earlier in the podcast, sometimes you just need to experience it.

Jessilyn Persson: [00:22:22] It’s all about spreading the risk.

Brian Persson: [00:22:25] People understand diversification, but then when you actually see it in action you’re like, I get it now. Six out of my seven streams are doing really well, and this seventh one tanked. Then five years later, that seventh one is booming and some other one tanked. You have this beautiful little balance between all your diversifications in your portfolio.

Jessilyn Persson: [00:22:50] That’s a good way to put it. Like I explained, when I do my presentations and talks, if you have multiple streams of income and one tanks, you’re not suffering so bad. Whereas if you have one and it tanks, you are stressed out. You’ve got a lot more to do to get that ball rolling again.

Brian Persson: [00:23:12] As you mentioned, you can get nuanced about it. Inside of private equities we have three different investments in three very different classes, as well. One’s a dental fund, another is just a REIT, basically buy and hold.

Jessilyn Persson: [00:23:29] A real estate investment trust fund.

Brian Persson: [00:23:30] Then one is in long term health care. We have dentistry, health care and regular real estate. Not any one of those is probably going to suffer at the same time. Dentistry is more or less recession proof, so you’re not going to get affected by that. Whereas your REIT is going to go up and down significantly, and you have this interesting diversification inside of another higher level of diversification.

Jessilyn Persson: [00:24:07] And long term care is going to be around for a while.

Brian Persson: [00:24:10] With the boomers coming? Yeah.

Jessilyn Persson: [00:24:12] All right, rolling into our fourth takeaway, measuring and celebrating success. The first thing you want to make sure you’re doing is tracking your ROI, your return on investment. Evaluating your progress and refining your strategies. I know we did that. We, let’s just say, diversified our real estate portfolio on the brick and mortar side because we had a mix of single family condos and suited houses. After over 15 years now, we realized where the money was for us, and we got rid of all our condos over time because they were just not working the same way our suited properties were. That’s where we went, evaluate, refine, and now we’re down just to suited properties and moving into multifamily because we’ve assessed that. We figured out, over time, what worked for us and what didn’t, so that our portfolio was always successful and growing.

Brian Persson: [00:25:08] Remember, return on investment is a division. It’s not just the money versus how much you put in, how much are you getting out versus how much you put in, it’s how much are you having to spend? How much time are you having to spend? What’s the yearly maintenance? There’s all kinds of things that affect your ROI. If you’re making a whole pile of money, but you’re also working 80 to 100 hours a week, what is your true ROI? As compared to making a little bit less money, but it costs you two hours a week.

Jessilyn Persson: [00:25:40] We started reviewing and analyzing that over the pandemic, where we really started to understand and appreciate the value of our time and where we were and weren’t willing to give it up.

Brian Persson: [00:25:56] Even things like driving. It’s like, oh my God, I have to drive to a rental property?

Jessilyn Persson: [00:26:02] We had one property that was a ten hour return trip. You lose a whole day.

Brian Persson: [00:26:07] I got very good at delegating throughout that period. Even things where I had to drive five minutes to a local rental property. It was like, my professionals can help me, they can deal with the situation. The ROI on our portfolio went really high because of that. Even though I was giving more people jobs and ending up having to pay other people to do things. The ROI went through the roof because my time went down to nothing, almost.

Jessilyn Persson: [00:26:44] It freed up your time to work on other endeavors. Making money in other ways or spending time with the boys and me just to get that self time back. Absolutely track your ROI. Reinvesting for growth, you want to use your gains to scale and diversify. We’ve done that multiple times over and over where we’ll have a property that’s doing very well. We will refinance, take it out, and buy the next property. We did that for several of our properties, and that’s how we grew our portfolio as large as we did.

Brian Persson: [00:27:17] Occasionally when I’m looking at our portfolio I go, oh that’s it? When I say that’s it, I mean a lot of our properties, we’ve used the leverage on our properties to buy other properties. A lot of them looked leveraged even though we’ve had them for a number of years. When I’m looking at the surface layer of it it’s kind of like, that’s all we got in that? Then I remember that property actually bought two other properties. You really got to track that. You got to track, not only your ROI, but what is ultimately, hopefully, your infinite ROI? Where you’ve taken all your money back or all your money has been reinvested multiple times and can potentially grow at an infinite pace.

Jessilyn Persson: [00:28:11] I loved taking money out and buying more properties. I was like, yeah, growing a portfolio!

Brian Persson: [00:28:18] Not only that, but here in Canada when you borrow money, you borrow it from a mortgage and you reinvest it into something that is going to produce a cash flowing asset, then you actually get to write off the loan costs of what you borrowed. Talk to your accountant about that.

Jessilyn Persson: [00:28:36] Lastly, under measuring and celebrating success, acknowledging your wins. Celebrating milestones to stay motivated. I know for the longest time I’m not sure we did this, but we do now. Everything from when you’re buying a property, of course we celebrate because that’s super exciting. When you sell a property we celebrate because that’s also exciting. Everything in between. If you’re deciding to do a reno and you’re putting shingles on or new windows in, which can be a fairly hefty price, celebrate because you’ve just increased the value of your asset.

Brian Persson: [00:29:11] If you’ve done it right, you should always be increasing the value of your asset. The big thing here is that most people don’t celebrate a lot of the wins. In fact, I was with my business mastermind the other day. They’re all business owners, they’re focused on exactly what they have in front of them and they never look back. They never really see how well their business has grown, or all the amazing changes that they’ve made to their business. I actually had to give them an analogy, and I’m sure I’ve shared this before, where you swim out to an island from the shore somewhere and you look up and there’s like another island there and you’re like, I got to swim to that island now. But you never look back at the four other islands you just swam from and the original shore you came off of. So stop on those shores, look back at the shore you just came from and go, I actually went that far? That’s awesome.

Jessilyn Persson: [00:30:08] Celebrate, celebrate, celebrate. You put a new tenant in? Celebrate. To recap our takeaways from today, the first one was creative financing strategies. The second one, building a strong network. The third one, creating multiple income streams. The fourth one was measuring and celebrating success. In our next episode, we will be talking about the true cost of ownership, which is one of five mistakes we discuss in our free giveaway, ‘The 5 Fatal Mistakes When Buying Your First Investment Property’. Thanks so much for tuning in to this episode of the Life by Design podcast.

Brian Persson: [00:30:43] Before you go, don’t forget to visit discoverlifebydesign.ca to book your discovery call and build your customized wealth strategy with us. We release new episodes every two weeks, so be sure to hit that subscribe button on your favorite podcast app and join us on this journey to create your life by design.

Jessilyn Persson: [00:31:00] Thanks again for listening, it’s been a pleasure being with you today. We’re Jessilyn and Brian and we’ll see you next time.