From Working on Oil Fields to Passively Investing in Real Estate

Travis Watts grew up with frugal parents. They taught him about coupons, buying the off-brand products, and basic financial 101, but never taught him about real estate investing. In 2009, as the market was hitting unprecedented lows, he decided to start investing in real estate. He purchased a single family home to start, then started house hacking, moved on to some fix and flips, bought some vacation rentals, and before he knew it, he was a very active real estate investor.

There was one problem though. Travis was working 90+ hour weeks in the oil industry, often working overseas for long periods of time. Travis was trying to run his active investing with his hectic schedule, but often found it hard to put a high level of effort into his rentals when so much of his energy was being exerted from his job. In 2015, Travis made the decision to become a passive investor.

Passive investing isn’t for everyone, especially for those who want to be making the big decisions. Luckily, Travis didn’t mind having general partners make decisions for the syndications he invested in, if anything, he preferred it. Travis walks through what you need to look at before putting money into a syndication, including the general partners, the market, and the deal. He also talks through how to identify whether or not a syndication is being run well, and other passive investing strategies like investing in REITs.

Many real estate investors will find themselves with lots of projects, lots of experience, lots of money, but little to no time. If you feel like this, it may be a good idea to start balancing some of your active investing with more passive cash flow opportunities!

Ashley:
This is Real Estate Rookie show number 75.

Travis:
Instead of seeing the light at the end of the tunnel, it was like the tunnel was closing in and getting darker. Every property I acquired, it’s like I’m one step from burning out, I’m one step from not being able to do this anymore. And so for me, what resonated was this idea that perhaps I could still participate in real estate but not have to do it all myself so I could free up my time so that I could pursue other things. And so that’s what that process and journey looked like leading up to 2015.

Ashley:
My name is Ashley Kehr, and I am here with Tony Robinson. Today, we have a surprise for you guys, we’re going to have a pro on the show.

Tony:
We are. Sorry, I’m laughing a little bit actually with the flare that you put on 75 when you brought it in today, that was good. But yeah, today’s episode is great. We’ve got Travis Watts on the podcast, and he is the investor relations guru for Ashcroft Capital. He’s the guy that goes around educating people on the ins and outs of passive investing. And if you have like a W2 where you’re super busy and you’re not quite sure that you can make enough time to invest in real estate, then this is the podcast you need to listen to you because he really breaks down how he went from having a job where he was working 96 hours a week, but he was still able to invest in these big apartment complexes. And really just gives you all of the nuts and bolts of investing passively.

Ashley:
Yeah. So Travis started out as an active investor for five to seven years. He tried everything, he tried buy and hold, he tried flips. And then he started to learn about passive investing and really started to switch gears, and that’s what he does now. So we wanted to bring him on to show you guys if this is something you’d be interested, what your future could look like. And he talks about having time, freedom, and flexibility. And him and his wife love to travel, and they’re able to do that with passive investing. There’s so many different terms I’m sure you guys have heard before but have no idea what they mean. And Tony and I had a great time learning about some of these terms today. Syndication, what is that? An accredited investor, even a 506(b), so what are these things? Well, Travis really breaks it down for us and gives us a really good explanation. And these are just the basics you need to know if you want to get into syndications and then even other passive investments that are out there. His nephews are even passive investors in real estate.

Tony:
Yeah, he gives a lot of great information. Again, if you guys are wondering of some alternative ways to get started, this is the episode you need to listen to.

Ashley:
Travis, welcome to the show. Thank you so much for joining us today. Let’s get started with hearing a little bit about yourself and a little bit about your real estate background.

Travis:
Sure, absolutely. Appreciate the invite. Hello Ashley, Tony. Thanks everyone for tuning in. In a nutshell, my background is that I was born with two very frugal parents who taught me about using coupons and buying the off-brand and not extending myself beyond my means, and a lot about just basic financial 101. But never about real estate, never about investing. And so my journey has really been about self-education around that space. And so I got started in 2009, bought a single family home. Did a little bit of house hacking, later got into fix and flips, did some vacation rentals. So from 2009 to 2015 was doing a lot of active hands-on investing. And then I switched in 2015 to passive investing, where I could actually leverage another team that perhaps could do things better than I could. Had perhaps some better connections so I could kind of piggyback and share in the success of what they were up to. So I could still participate in real estate and investing but without being hands-on.
So the simplified version to my background. And today, I just really try to help educate other people specifically on the passive side of investing, just letting folks know not everything has to be active, not everything has to be hands-on, whatever we’re talking about with the various asset classes.

Tony:
So Travis, for people that don’t know what the difference is between passive and active investing, break it down for us. What does it mean to be a passive investor?

Travis:
Sure. I would define that as not having an active role in the actual business of what it is you’re investing in. So for example, let’s say you buy a stock, you buy, I don’t know, Apple stock. Well, you’re not the CEO, you’re not an engineer at Apple. You’re in no way, shape, or form actually impacting the business yourself individually or having to work or exchange time for money. You’re a passive investor, you’re just owning a fractional share of that company and being hands-off in the process and then sharing in the profits and success of the company. Same thing could be related to real estate. I invest in real estate syndications or real estate private placements where another team is out there finding the deal, running the operations, finding the property management, finding the contractors. I’m just a passive investor in the deal, giving them some money to help that be successful and then sharing in the profits. Not having to do all of that on my own like I used to do.

Ashley:
I think that everyone can see that Travis is not a rookie anymore, he is a pro at this. And that’s why we brought him on is we want to give you guys some insights, some knowledges to where you can be, where you can go with your real estate investing. And Travis is really going to break down what he does and how he has made it passive for him. So Travis, what was that first mindset shift where you decided I don’t want to be hands-on, I don’t want to be active anymore, and I want to go towards the passive side?

Travis:
Yeah. That’s kind of a funny story. At first, I just thought two things, I need to make as much income as I can make so that I can start investing. And then number two, I thought I can do it all myself. I don’t know why I thought that, that was so naive of me. But I just wanted to bounce it, and I just thought, I can flip a house, I can run a vacation, I can manage tennis, I can do all this without really having the backing to support that. I wasn’t really around anybody or a family that was doing that, I just thought I could. What happened was I took it to the extremes, I had a W2 job in the oil industry. So I worked a consistent 14 hours a day, 98 hours per week two weeks in a row often out of state, away from home, and later overseas in Saudi Arabia and Kuwait.
So I was trying to scale a very active hands-on single family portfolio while managing that career. And instead of seeing the light at the end of the tunnel, it was like the tunnel was closing in and getting darker. Every property I acquired, it’s like I’m one step from burning out, I’m one step from not being able to do this anymore. And so for me, what resonated was this idea that perhaps I could still participate in real estate but not have to do it all myself so I could free up my time so that I could pursue other things. That’s what that process and journey looked like leading up to 2015.

Tony:
So Travis, think you did a great job of explaining some of the benefits of being a passive investor when it comes to a real estate deal. But what are maybe some of the, maybe disadvantages or some of the things you give up when you become a passive investor?

Travis:
Absolutely. So really what you’re trading is … So the pro would be in a simple sense, diversification, you get to park money in a bunch of different places, with a bunch of operators and different assets. The con is you don’t have control. As far as the business plan goes, whether we’re going to do a refinance, whether we’re going to sell a property, whether we’re going to cut the business plan short and not end up renovating all these units, we’re only going to do half. Whatever it may be, that’s not my decision to make. So if you’re the person that likes to have a lot of that control or feels like you could perhaps do it better than the competition or what other folks are doing, this may not be the right fit altogether. And quite frankly, there’s not a lot of folks that are as extreme as I am in the sense that I was full-time active to full-time passive. I would say most people fall in the middle.
So you might be doing a few of your own properties perhaps but then also scaling up your cashflow through the passive investing. The other trade off would be there’s certainly in a general sense, of course, theoretically, I should say, more money to be had on the active side. The way I see that, you’re paying yourself for your time, for your effort, for your labor, right? And so on the passive side, I’m getting a portion of that profit but certainly not the biggest portion of it. So that’s something to consider as well. Passive isn’t right for everyone, and I certainly, as you know, started on the active side. So for me, it’s like you have to build up your nest egg, you have to build up some network, you have to build up some savings, then you might consider perhaps passive investing where that makes sense. No one’s going to be too enthused with $100 a year in cashflow. But if you get to the point where it’s $100,000, that’s a big difference in your life.

Tony:
Travis, what a great explanation of what type of person might benefit from passive investing. I love that we have you on today because I think you’re showing a different path that maybe a lot of our listeners haven’t thought of before. You said that passive investing isn’t for everyone. And I think that’s the cool part about real estate investing is that you really get to choose the strategy that best suits your specific situation. So for you as someone who was a super, super busy W2 worker trying to scale a real estate portfolio on your own to the point that it could replace your income probably would have been very, very difficult, right? Not impossible, but it would have taken you quite a long time. You had the realization that if I relinquish some of the control and give it to someone who’s maybe a bit more experienced or has better teams and systems in place that I can fast track that replacement of my W2 income. I just want to highlight that for the listeners because it’s a really important lesson for people to learn.

Travis:
Absolutely, Tony.

Tony:
One other thing I want to touch on because you mentioned this phrase, and I think people might not understand what it is, but you said that you passively invest in syndications. So for a real estate rookie that’s never heard the phrase syndication, what the heck does that mean?

Travis:
Yeah, absolutely. If you had asked in 2009 when I first got started with real estate, who’s buying these apartment buildings, these 400 to 600 unit apartment buildings? I would have said either a billionaire or institutions. Big REITs and mutual funds, et cetera. And that would have been my only answer to it. I had no idea that you could actually pull investors together, and each person could be investing smaller amounts into a larger project. So how it works is this, just simple numbers, simple example. If you had a 400-unit apartment building, let’s say, in Dallas, Texas. Well, that may require, let’s say, $20 million for a down payment and for the rehab budget because you want to fix some things up. Well, not everyone has $20 million laying around.
So the beauty of a syndication or a real estate private placement, I use those terms interchangeably is you could perhaps get 100 or 200 individual investors like myself to put in 50,000 a piece or maybe 100,000 a piece, and then we could all collectively bring that property to closing and share in those profits. So it’s just a way of pooling capital among a lot of different investors in order to buy these larger assets. And so that’s been my preferred way to invest. But I do invest in many other asset types that produce passive income and cashflow. But that’s syndication in a nutshell.

Ashley:
I want to really dig into this a little bit more, Travis, if you don’t mind because I think syndication is what active real estate investors see as the next step. And it’s kind of a scary step as to, okay, how do you even do syndication, and what exactly is it? And even Tony and I are still learning about it. So can you go through the two different types of … So you’re a general partner, you’re a limited partner, talk about that. The people who are actually putting together the deal, managing the deal, and then the difference between them and the people who invest. And then also if you could break it down for us who can invest depending on if you advertise or if you don’t advertise and run through that for us real quickly.

Travis:
Sure, Ashley, happy to. So to your point, you have general partners and limited partners. And it could be one single general partner, it could be a couple, it could be 5 or 10, it could be whatever you want it to be. But the general partners are the folks who are out there finding the deals, working with brokers, trying to get perhaps off-market opportunities, things like that. They’re going to find the deal, underwrite it, put it under contract, format through use of an attorney the legal docs, et cetera, which would be your PPM, Private Placement Memorandum, subscription agreement, operating agreement, et cetera. There’s some legalities that go with these private placements. And they’re going to be managing the business plan. So maybe the business plan is we’re going to buy this asset, we’re going to fix up the clubhouse and the amenities and the units. We’re going to paint them, we’re going to rebrand it. We’re going to add some things that perhaps the property needs and doesn’t have currently like covered car parking or a dog park or a barbecue area, et cetera.
And then we’re going to sell it in maybe three years or five years or something like that. So the general partner is basically making sure that this business plan actually gets executed. They’re going to have to find the contractors, they’re going to have to find the property managers if they don’t manage the properties themselves called vertical integration, et cetera. The limited partners are the folks like myself saying, “I like that business plan, that makes a lot of sense to me. I want to participate in that, I believe that there’s some equity and some cashflow to be had in that idea. So here’s $50,000, I’d like to participate.”
So that’s kind of the yin and the yang, general partners managing the business and then the limited partners bringing the capital, so to speak. And of course, sometimes the general partners are investing as well in the deal. So that’s kind of an alignment of interests that I really like a lot. Now, to your point, so yes, there’s some barriers of entry. Some syndications are only available to accredited investors, high net worth, high income individuals. That’s not all, and I’ll define that in a minute. An accredited investor as an individual person would have 200,000 in annual gross income for the last couple years with expectations to meet the same in the current year or a married couple with 300,000 gross income for the last two years, expectations to do the same in the current year. Or you could qualify by net worth, which excludes your primary residence and any debt that you have, but you’d have to have an actual net worth of a million dollars or more to participate.
So where that comes into play, primarily, to your point, Ashley, there’s two types of offerings. Well, there’s more than two types of offerings. There’s two primary types of offerings. You have 506(c) as in Charlie, you have 506(b) as in boy. And a 506(c) allows the general partners to accept accredited investors only into their deals, and they must be third-party verified that they are accredited. That can be done through a CPA, an attorney, a broker dealer, or a third-party service, there’s many of them out there online. But they have to ensure that, the SEC, Securities Exchange Commission requires these operators to get that third party verification to ensure all of their investors are accredited before they participate in the offering. So obviously, there’s some barriers of entry there.
The biggest pro and advantage to doing that kind of offering is you can generally solicit or advertise your deal. You can put that online, you can put that on YouTube. You can openly talk to strangers about your deal and the projected returns, et cetera, knowing they have to be accredited to participate. The 506(b) allows you to start with friends, family, people that you have preexisting relationships with, people that you know, you understand their goals, their risk tolerance, et cetera. The advantage is you can allow up to, I think it’s 35, sophisticated investors is the term. Sophisticated, meaning these folks understand the risk of what they’re investing in. They understand the ins and outs, the fact that maybe this is a illiquid investment, et cetera. And they can participate in your offering if you choose to allow them to without the third party verification because they don’t have to be accredited. And you can also take and accept accredited investors as well into those kinds of offerings.
So again, back to your point, Tony, earlier, it’s not for everyone. And depending on your accreditation status, et cetera, just know that those exist, those differences. There’s also Reg A, and I could go on and on with different types of offerings. But just know that there are offerings for both non-accredited and accredited, but a lot are only going to be available to accredited investors. And that’s why I always put out there to the world that you don’t have to start necessarily with the syndication, maybe buying a REIT in the stock market for $10 or something. Maybe that’s the way that you start with this, or perhaps you just wait until you have enough net worth or liquidity to participate in these types of offerings.

Ashley:
Travis, thank you so much. That was a wealth of information. Just to follow up on that a little bit, how hard is it to actually start a syndication? Say one of our rookie investors want to be on the active side, they want to be a general partner. What are the first couple steps they could do to learn more about being a general partner, learning more about the asset management where they’re responsible for the property managers, they’re responsible for the contractors? What are some good resources for that?

Travis:
Yeah. Well, that’s a great point. You’re definitely going to want to start with the education, for sure. It’s a very crowded space, it’s very competitive. You have to stand out, you have to have a competitive edge. So how are you going to know if you have a competitive edge? Well, either training programs, there’s a lot of them out there, boot camps you can go to, courses, mentorships you can join. Of course, podcasts like these, lots of books you can read. I always advise getting some form of a mentor. It doesn’t have to mean a one-on-one mentor, it could mean that you’re in an ecosystem of other people who are looking to learn the same things, but you’ve got to get the education there. A lot of listeners have probably heard of like, know, and trust, and that’s the golden triangle, so to speak.
People have to like you, know you, trust you before they’re going to be forking over $100,000 or more into your deal. So how do you do that? Again, maybe it’s through blogging through Advance Guide’ forums, maybe it’s through launching your own podcast. Maybe it’s you know a lot of folks or you start a real estate meetup group or something like that. You’ve got to get exposure because you’re going to be raising capital, and that’s not an easy task to do, to your point. It can be difficult. And you also need a team on your side, you have to have a CPA team, you have to have attorneys on your team. You’re probably going to have maybe a core GP or someone else that you’re working with on your immediate team. So there’s a lot of key players here.
And it gets back to knowing your strengths, what you’re good at, what you enjoy doing. And that was something I had to really self-reflect on before I decided to go the passive route is just quite frankly, I wasn’t very good at being an active in the space. I wasn’t good at building those relationships or having those connections. I’m not a handyman, so when I’m flipping a house … My first flip, actually it was my second flip, I didn’t even have an electric drill. I mean, this is where I was. It was amateur 100. So it takes some self-reflection too.

Ashley:
Travis, out of curiosity, how often are you investing in the person that’s putting together the deal rather than the deal itself?

Travis:
That’s a great question. I would say in general, to simplify the concept, there’s three areas of risk. You have the general partners and the team, to your point. You have the market that you’re going to be investing in, then you have the deal itself. And unfortunately, I had that flipped upside down in terms of importance when I got started and I was looking all at the deal. It was all about the numbers, I was getting real analytical and forgetting that maybe this team can’t even do this in the first place. And so that was my experience with my first couple of deals was exactly that, it was that over promise and under deliver that happens. So to answer your question, I would put probably a 50% on the team and the sponsorship group as far as their actual ability to execute the business plan. Then I would put 25 on the market, 25 on the deal. They’re all important, but I come up with those ratios just off my own experience of what’s happened.

Tony:
Now, one follow question to that Travis is, how do I even find a potential team to invest with? How can I go out and find a deal to passively invest in if I wanted to, is there some kind of marketplace, is there a Facebook group where people just post all these things? How can I find a deal to passively invest in?

Travis:
Yeah. I think everyone’s going to have a different take on that. My process was to start with a local real estate meetup group. In there, I started asking around and networking. Then I got some word of mouth referrals, then I would reach out to those groups. And then I would ask those groups, “Are there any other groups that are doing what you do? I know that’s kind of a competition question, but I’m interested in diversifying as well.” And so it incrementally grew, and I would join forums and Advance Guide, listen to podcasts. There’s a lot of folks that way. Then I started going to seminars. And I think that was really a breakthrough for me is going to these very large 1,000 to 2,000 person conferences. And then you would have a lot of different active syndicators there maybe at a booth or speaking on stage.
So I got a really wide array exposure that way as well. But really, I still think it’s a word of mouth business, I still think it’s a referral business mostly. So you can find these things. I mean, you could Google it. But what we talked about earlier is you’re probably going to find a lot of 506(c) for accredited investors only, which is fine. But just know there’s a lot more groups than that out there, they’re just not advertising their deals. You might find them as a company, and they say, “We’re a real estate firm, and we fix up properties,” et cetera. But it’s a little bit vague, you may not know exactly what they’re doing. You’ll have to network and build that relationship that way.

Tony:
I love the advice about getting out and networking like the local RIAs, the conferences. I’ve been to a multifamily conference, and you’re absolutely right, Travis, there are syndicators looking for investors everywhere at those conferences, so definitely not a shortage. I want to go back to something you mentioned earlier. Yu said that about 50% of your analysis of a deal is in the team and not necessarily the property itself. So if I’m a new passive investor, what should I be looking for in the team that’s running the deal to know whether or not they can actually execute on the promises that they’re giving me?

Travis:
Yeah. That’s a great point because when you see projected returns, anticipated outcomes, they’re only guesses. Their best guesses, their best predictions. And so your job as a limited partner, as a passive investor is to be stacking the team up against the business plan trying to figure out how realistic is it that you really can do that? And so the things that help probably the most would be looking at their track record. First of all, have you done this before? And how many times have you done this? And what was the outcome? Good, bad, ugly, et cetera. You want to know the facts that way. If a team has absolutely no track record, you’re taking more risks, just accept that. That’s a fact. And sometimes too, something to point out, sometimes there’s new companies that get formed as a syndication group, but the individual general partners have a lot of experience, but maybe their new operation doesn’t under that particular umbrella. So ask individual questions as well.
But really, it’s kind of an interview. It’s kind of that, hey, if I give you $100,000, persuade me why I should. And another really key point here is to identify your criteria. And what I mean is first start with your goals, what’s your outcome? For me initially, it was I want to replace my income from this oil field job because I don’t like what I do for a living. And I can’t see myself here till age 60, I’m going to die somewhere in the extreme weather. So I thought, “Okay, so how do I do that?” It wasn’t about net worth, it was about cashflow. So I said, “Okay, then if it’s cashflow, I need to be looking at these buy and holds and things that distribute perhaps monthly distributions,” things like that.
So I started forming my criteria. I like class B properties, which are some older properties, et cetera. And so then I started finding teams that were doing just that, and I started networking in that space. And it made it a lot easier because if someone were to send me, I don’t know, a deal to my email that’s a new construction, no cashflow, San Francisco, something or other, I know right off the bat I don’t want to invest in that because I know what markets I like, I know it’s not cashflow producing, et cetera. And so start with your criteria, interview the general partners, jump on a Zoom call or something like that or if you can in person. And maybe even visit the properties that are in their portfolio if that’s reasonably possible for you. Those are some things you could probably start with.

Tony:
That’s great advice, Travis. And it makes me think of another question, and this one is pertaining to risk. As a passive investor, as you mentioned, you don’t have as much control over how that deal is being run. So what happens if the person that’s actually in charge of the deal, this person that you’re investing in, what happens if they, I don’t know, like if they stopped paying the mortgage or there’s some kind of insurance claim against the building. Am I as a passive investor going to be potentially held liable for maybe the bad actions of the person running the deal?

Travis:
That’s a great question. And a pro and con scenario, to your point, of being an LP, A, the risk is what you just proposed right there. That’s why due diligence and upfront is so important. Number two is in most cases depending on the structure of the private placement, you’re limited in terms of liability to what you invest in the project. So if I go put 50K in there, that’s my max loss, 50K, if everything goes completely wrong. And a key element to point out about that, something I got uncomfortable with when I was doing my own properties is when I close on a single family home, I’m signing the dotted line that this is a recourse loan. If I default, they are coming after me, an individual, they’re going to take all my assets, that kind of scenario. With a lot of these syndications, you’re getting non-recourse loans, meaning that they’re not coming after the limited partners in that event even if something goes way sideways and is way underwater.
Again, I put in 50, I could lose 50. That is a risk to consider. I mean, this is why due diligence. You can only do what you can do, right? Because even with publicly traded companies, you have the Enrons of the world. And then in the private placement world, you have the Bernie Madoff’s of the world. And so you can only do what you can do. But that’s why to me the primary way that I limit my risk is by diversifying among different sponsorship groups in different geographic locations, and in different asset types. Because my Florida properties might get hit with a hurricane, but my Dallas properties are safe. They’re hit with a tornado, but my Ohio property is good. That’s the best way I have found, I relate that to stock investing as well. I don’t want to have all my eggs in one basket, I want to diversify and have a handful of sectors and in different companies.

Ashley:
That’s great advice, Travis. And whether someone is investing in single family homes or in passive investments like syndication, it is so great to diversify and not have everything, like you said, all your eggs in one basket. I want to find out, how much money can you make? So how does passive investment work? How are you getting paid? You put in 50,000 on a deal, does it vary per syndication and what kind of returns are you looking at?

Travis:
Sure, good question. It really depends on the business plan. So you could do a new development. So there, you’re parking some capital, and you’re hoping that three, four, five years down the road you’re going to make a big sale perhaps and have a big exit to that business plan. What I invest in are preexisting stabilized assets, so like a 1990 400-unit apartment building like the example I used earlier that’s already fully occupied, collections are up very high. And so day one, we have cashflow. So that’ll range depending on, again, the class of property. You have new high-end luxury, which is class A property. You have class B, which is a little bit older, maybe some deferred maintenance, things you need to renovate and update. You have C class just below that, less amenities, lower rents, different tenant demographic, et cetera.
So you have to decide again based on your risk tolerance and your criteria what makes sense. But I’ll speak to the value add multifamily syndication space. I would say in 2021 right now, cashflow annualized is in a range of maybe 6 to 9%, we’ll say, somewhere in that kind of range. And that’s either distributed pro-rata on a monthly basis or a quarterly basis in most cases. Then you have participation in most cases in the equity upside, whether you do a refinance later or you sell the asset. So maybe those numbers could perhaps be double that if everything goes according to plan. You might end up with what’s called an IRR, an Internal Rate of Return. That’s your total overall return when everything’s said and done in a simple sense of maybe 12 to 18% or something like that. That would be pretty realistic. But just know those aren’t guarantees, there is risk in it.
If the team can’t actually execute the business plan, that 18 could turn into a 5. That’s why it’s so important, that’s why I put that weighted emphasis on the team. And I’m making a bet that they can actually do that, and that those numbers we’re talking about are conservative underwriting numbers. In theory, we’ll probably make more than that is the idea, but they don’t want to project that. They don’t want to tell you 18 and deliver 7, they want to tell you 7 and deliver 18. So that’s what I look for as an LP.

Ashley:
What about someone … So we talked about syndications. And if someone is an accredited investor, they can go and look for these deals. Well, what if they’re not an accredited investor, and so they can’t seek any of these deals that are advertised, they don’t have anyone approaching them to do the 506(b), what are some passive investments for non-accredited investors?

Travis:
Yeah. Something that I’m working on right now with my nephews who are around 18 is I got them a brokerage account. I started doing this as my annual gifts to them instead of these cheesy birthday and Christmas gifts. It just seems like it’s a better-

Ashley:
I can already tell I’m going to love this.

Travis:
It’s just a better use of my time in there. So I started them out with a couple of hundred bucks, and I’m teaching them how to find publicly traded REITs, et cetera, like we talked about. Some of which are $10 a share, $20 a share, that kind of stuff. And they distribute monthly. So there’s pros and cons to the publicly-traded markets. A couple of the pros are you have immediate liquidity. So if they go put $1,000 into something and decide next week they don’t want to be in it, they can just sell and get out of it. And that’s a beautiful thing because with private placements like I invest in, it’s illiquid. So I’m most often not able to pull my money back out if I need it for three, four, five, six, seven years, something like that. That’s one thing to think about.
The other thing with the stock market, it’s a personal thing, but I can’t stomach the volatility very well, that my portfolio might jump up 5% tomorrow, it might fall 15% next week. I don’t like that inconsistency and that volatility. And more to the point, sometimes you’re overpaying quite frankly for what it is you’re buying. And other times, you’re getting a bargain. So those are the pros and cons. But never an advocate, I’m not an advocate for trying to time the market. So that’s the way that they’ve gotten started with just a couple of hundred dollars. You can get very creative with this stuff. I’ll give one other example, it’s kind of a weird side note. But my wife and I, we have a couple of places that we live. And in one of them, we have our car there for us when we’re there and when we want to use our vehicle. But we also signed up for a car rental program. So when we’re not there, our car gets rented out to other people, and it’s like a profit sharing mode.
And so we’re getting passive income every month even if we’re not there or not driving our vehicles. So there’s different things you can do. Again, it’s that we’re active in the business of doing that, we’re not actually renting that car out and signing people up. We’re not a Hertz or an Avis. So there’s different things I’ve invested in. In notes, you can lend your money out like a hard money lender kind of thing. I’ve invested in ATM machines, I’ve invested in self-storage, on and on. There’s a lot of ways to do it, but not all of these things are private placements.

Ashley:
Travis, when I was in Hawaii last week, I saw a car that had a house lockbox on the trunk of it. That’s the first thing I thought of was one of those car rentals where someone personally loans out their car, I tell the person the code just like an Airbnb, and they get the key out to the car and they go. It was so funny, it was just drilled right into the trunk of the car.

Travis:
People are getting creative since these Airbnbs and Vrbos, it could apply to almost anything. You can rent things turnkey like that.

Tony:
So Travis, one followup question because you mentioned REITs. If you could define what those are for our listeners who don’t know. Ad if I want to go out and purchase into a REIT, how would I do that?

Travis:
Yeah. A REIT is an acronym for Real Estate Investment Trust. It could be private like a private placement or it could be publicly traded. A lot of them are publicly traded, that’s how most people think of REITs. So what it essentially is is a real estate fund, that’s all it is. So if you want to be invested in multifamily or self-storage or mobile home parks, you can find a REIT that buys those kinds of properties. And they’ll put them all in their portfolio, and then it’ll just be going up and down with the stock market. So how you invest in that is through your IRA or through a brokerage account, something like that held through these brokerage firms out there, these Fidelity Investments, Charles Schwab, Janus, et cetera.
Yeah, there’s different ways that you can buy them, but it’s usually pretty simple. You have to establish one of these accounts, fund it, and then you’re just finding out what these REITs are by just running an internet search and then just buying five shares of this, 10 shares of that, that kind of thing to build your portfolio that way.

Tony:
Awesome. Travis, you’re like a wealth of knowledge, man. Every question we’ve asked you, you’ve got a really detailed response, I love it. I got one more follow-up question for you, and this is going back to your passive investments. I’m a short-term rental guy, the majority of my portfolio is in short-term rentals, so we’re on Airbnb and Vrbo. Have you ever heard of a passively, a funder or a syndication that focuses on short-term rentals?

Travis:
That’s a good question. I wouldn’t doubt it exists. Coming to mind right now, I haven’t. But that being said, I know of a private placement that was a large Airbnb concept. It was in, I don’t remember if it was Puerto Rico or Belize or something, but they had a short-term rental concept to it. Wasn’t necessarily a diversified fund that way. But yeah, I’m sure they exist. Maybe it’s even publicly traded. So there’s different ways to do that. When I was doing Airbnb, that was at the tail end of my active experience, and I’m sure I went about everything the wrong way. But that was the final straw for me, and things got real active real fast. And I thought, “Okay, no. I can’t scale, I can’t go have 50 of these things.” But anyway, yeah, I’m sure there is a private fund or a publicly traded fund that focuses on short-term rental.

Ashley:
Well, Travis, since this is the rookie show, we do need to have you share one of your rookie deals with us. If you can kind of give us a story and break down a rookie deal that you did.

Travis:
Sure, I’ll start with the first property I bought I guess. It was 2009 in September, things were still coming down, so to speak, in real estate and with the markets. So a lot of people … It’s funny, I get both sides of the coin when I share this story. I get either, “Wow, impeccable timing, you timed it perfect,” or, the way I remember it was everyone was scared to death in 2009 telling me not to buy real estate, “you’re catching a falling knife, don’t do it. We just lost half our home value, it’s terrible, bad investment.” But here’s what I knew, this particular deal, it was a two bed, one bath, Fort Collins, Colorado, about an hour outside Denver. It was in a college town with CSU, Colorado State University.
The property had previously sold for about 168,000 a couple of years prior before the crash, and it was on the market for 95,000. So I knew at least I’m getting that much of a discount. I didn’t know if it was going to keep falling or not, but that wasn’t the point because I was going to move into this particular home. And at the time, the government was giving a first-time home buyer stimulus credit of $8,000. And that comes directly off that as well. It kind of covered almost half my down payment. So I moved in, I bought it for 95, and I house hacked it. That’s the first thing I did. So I rented the spare bedroom out knowing I’m in a college town. I was raised in this town, I know there’s a lot of demand for rental right now and always around a college campus.
So I had a mortgage that was about $650 per month give or take. And I found someone willing to pay me 600 a month for that room if it was fully furnished. And so I’m basically living rent free right out of college, it was amazing. And that was my first introduction to a lot of things, to cashflow, to passive income, to the power of real estate, leverage and using debt and having a mortgage. I learned a lot of different things. And what I ended up doing is I turned that later into two furnished units for rent. So I had two different roommates there, and that became a little bit of a problem after a while. People don’t always get along, we’ll say. So then I made it a full-time rental, just one tenant. And then I ended up selling it for, I don’t know, maybe a 35% profit or something like that.
But again, that market was still pretty flat when I sold it. So had I held it through today, I would have more than doubled my money, I’m sure. I’m sure that same condo is 275 right now or something. It was just a great experience, I learned cashflow, I learned equity. I learned buying at discounts, which is my parents’ background to me, buy things on sale. So it was just a great rookie deal to get started with. It was an all-inclusive learning experience of what’s possible in real estate.

Ashley:
Just to give some insight for rookies, you have grown so much since 2009. What were some of the first steps you took that got you into that deal?

Travis:
So about three years before I bought that property and before I was into investing at all, I read Rich Dad Prophecy. So nor Rich Dad, Poor Dad, the famous Kiyosaki book, but Rich Dad Prophecy.

Ashley:
You tried to trick us there.

Travis:
Yeah, no. It was just totally random, I didn’t even pick it out. My dad, he got me that book at a garage sale or something. He’s like, “You might like this,” and I read it. I was bored one summer, so I read it. And all that book really taught me was stay out of the stock market, there’s a huge crash that’s coming. He didn’t tell you when, of course, but just that’s going to happen. And then he’s of course a huge advocate for real estate. So all I really put in the back of my mind was one day when the timing’s right, I’m going to get into real estate somehow, somewhere. And it was just coincidence that the market did decline, it did crash. I don’t know if that’s what he was calling for or not. But at the time real estate all of a sudden made a lot of sense at that particular moment, so I thought, “Now’s my time.” And then the government stimulus, et cetera.
So reading books has been fundamentally important. Those were some of the first steps that I took. I read of course, a lot more than that book, but that was one. Cashflow Quadrant was another in the same category, it teaches you how people make their income. And I wanted to be in the I quadrant, which stands for Investor. Other than that, I think having a mentor. I wish I would’ve had a mentor back then, and I just didn’t. As I pointed out early in our conversation, I just thought I can do this, I can do this on my own. It was just naive and maybe ego. But the fact is I should have had a mentor because I would have done a lot of things differently and would have had different outcomes and different scenarios. I had deals that were painful experiences that I would have avoided.

Ashley:
Well, thank you so much for sharing the beginning of your journey with us. Let’s see. We usually do a couple random questions here towards the end. They don’t really have to do with real estate, we just kind of pick them. But Tony, do you want to take the first one?

Tony:
As an active investor, there are lots of tools and resources, software that you can use to kind of help manage your portfolio. Is there anything on the passive investing side, is there some kind of tool that shows you all of your passive investments or you can kind of go in and check up on them? I guess, how are you keeping track on your returns on all these different deals?

Travis:
Unofficially, it exists. I have one, and I’m happy to share it with anybody if you want it. And it’s a work in progress. There’s always all these variables to private placements and when a refinance happens and how to track these different metrics through Excel. But this is just an Excel sheet that helps me keep track of everything, to your point, and project forward, if you will, based on your own assumptions or your own opinions, or you could choose not to track certain metrics, et cetera. So yeah, reach out to me. I’m all over the internet.

Ashley:
So Travis, you live a different lifestyle now that you’re a passive investor than when you were active. What is one habit that you have formed and that has changed your life?

Travis:
I think constantly evolving has been critical. I’m always doing something to try to keep up with the economy. I’m always reading headlines of what’s happening, what’s the fed doing? Are we going to have inflation or not? If we do, what does that mean? How do I pivot? And tuning into podcasts with experts talking about inflation and debt cycles and things. That’s their expertise because you can’t be an expert at everything, but just reading. In 2015, I made a goal, that’s where I was making my transition from active to passive. I said, “I’m going to read 52 books this year.” That’s one book per week, most are going to be self-help, self-education. And I did that. And I’m not saying that was a great thing because it was a fire hose of content, and I couldn’t possibly absorb all that.
But the point is that that’s an extreme version of it. But how about, I don’t know, read a book a month. How about that? Something like that. I think that’s a reasonable goal. And if you’re always keeping up that way, it’ll get you ahead so fast. If the average person reads a book a year and you’re doing 12 a year, you’re a decade ahead every year.

Ashley:
Yeah, that’s great advice. I love that, Travis. I want to talk about mindset, so this is our mindset segment of the show. And your experience is a little different than most of the folks that we’ve had. But I guess the question for you Travis is when you thought about what your life was going to be like as a real estate investor before you started and then you got into the active space, what was that kind of final straw that made you say, “This is not what I imagined for myself, this isn’t what I thought investing was going to be like”?

Travis:
Yeah. I had a lot of limiting beliefs when I got started because I had nobody, no mentors, no one in my network, no one to look to to say, “Look how successful this person is, I want to be like them.” It was extremes, I was looking at billionaires, and I was looking at me with no experience. And I was saying, “I don’t think I can get there.” So my first goal was, I just want to buy a property. I just want to have a house, I just want to get into real estate. That was my only goal. And then once I got the first one, I thought, “Well, maybe I want to try short-term rentals,” or, “maybe I want to try fix and flips.” So I kept educating and building and expanding my mindset until I just got more clear I think on what I really wanted.
When I started seeing that you can really build up enough cashflow to replace your job or your income, that’s kind of where my mind was blown. And I thought, okay, I see that as a viable possibility, and that’s what I want to pursue. And so I had to get real clear on what that meant now because maybe at some point my goal was to have 100 single family homes, I had moved on from that way of thinking to what if I could be hands off and I could travel. And that’s what my wife and I do, we travel a lot, and we get a focus on the things that we really enjoy and love doing.
And I think that’s really what this whole message is about. It’s not about money, it’s not about income, it’s not about net worth. It’s about your time, it’s about freeing up your time to do what you want to do with your time. For some people, it’s retirement. For others, it’s volunteer. For others, it’s spend time with kids and family. For us right now, it’s a lot to do with travel. That was really my thought process shift over about six years to 2015.

Ashley:
I love that. That’s such a great vision is that it’s not about the money, but it’s the money buys you that time basically. It buys you that freedom to do what you want to do. I always think about like, okay, when I wake up in the morning, I want to be able to be spontaneous. If I have something scheduled, I want to be able to change it. And you know what, I’m going to learn how to do syndications today and decide what I want to do. That doesn’t have to mean you’re retired, and I think that’s a big misconception is, well, I love to work. Well, being financially free doesn’t mean that you have to stop working, it just means you have a lot more flexibility in what you’re actually working on.

Travis:
That’s exactly it.

Ashley:
So we’re going to move on to our next segment, this is the rookie request line. So we have rookies call in, they leave us a voicemail. At any time, anyone can call 1-8885-ROOKIE. Leave us a question that you would like answered, and we may play it on the show for the guests to answer. Today’s question is from Jacob, from Chattanooga, Tennessee.

Jacob:
Hey, my name is Jacob and I live in Chattanooga, Tennessee. I’m just starting out as a real estate investor. And my question is, if you were to do it all over again, what is the first property that you would buy, multifamily, single family? And reasoning why, maybe some troubles or woes or positives that you’ve taken out of your first deal. All right, thanks.

Travis:
Sure. Happy to answer that, Jacob. I use basically a four-step strategy. It’s not going to be right for everybody, I’m just sharing what I did. It’s earn as much as you can earn using your highest and best potential. And everyone’s going to be different there, maybe it’s what you went to school for, doctor, dentist, lawyer, attorney. For me, it was working a very intense oil field job and flipping houses just to simplify it and doing some side gigs and anything I could for an extra buck. The second thing is live on as little of that income as possible for a period of time. Not your entire life, but maybe five to seven years or something like that. Try to be as frugal and stop keeping up with the Joneses. And then three is park your excess between what you earn and what you live on into assets that either produce equity, cashflow, or a combination of the two. I found real estate to be that fit for me.
And four is avoid bad debt. Credit card debt, car debt, whatever, consumer debt, just get out of debt because that can be such a ball and chain for so many. And as we know, we have a lot of debt crisis stuff going on right now in the States. So with that in mind, I probably would start active again. I wouldn’t have gone straight to passive just because of what we talked about earlier. I would have had a few hundred bucks a year of passive income.
That’s not very life-changing, that’s not very motivating. So I would’ve gone a similar path, but I would have cut out some of the things that I did in the process. Probably would have subscribed to the buy low, sell high mentality, tried to find off-market deals, fix them up, value add, maybe have some rentals in there that are buy and hold. House hacking has been a great experience as I shared on this episode, so you might consider that too. Everyone needs a place to live in the first place, you’re either owning or renting. So if you can manage to pull off owning first and then rent a spare bedroom, that might be a great start. And that probably is, to simplify it, how I would start again.

Tony:
Awesome. Travis, I love that advice, I love the four-step process. Man, you shared so much knowledge with us today, Travis. I’m sure listeners got a ton of value out of hearing your story and just hearing your methodology on investing. Like I said, at least since I’ve been on the show, you’re the first one to really focus on just the passive side of things. And I’m hoping that it kind of opens people’s eyes as to what’s possible out there. So Travis, if folks want to get in touch with you, where’s a good place for them to go?

Travis:
Sure. I’m on Advance Guide, first of all. You can search me on YouTube. I’m on Facebook and Instagram. The handle is a Passive Investor Tips, so you can connect with me there. And Ashcroft Capital, I work there as well with Joe Fairless, so we can connect there. So any of those outlets are great, happy to connect with anyone and go from there.

Tony:
Awesome, Travis. Thank you so much, brother. Before we close out, I just want to give a quick shout out to today’s rookie rockstar. So for all of you rookies that are watching, if you’d like to get your name shouted out, your deal shouted out on the podcast, make sure you join our Facebook group. I think we’re at like 26,000 people in the Facebook group right now. But today’s rookie rockstar is Gregorio Sanchez. And Gregorio just closed on his very first rental property, and he’s ready to get the ball rolling. So congrats to you, brother. Looking forward to hearing when that second deal comes through.

Ashley:
Well, thank you so much Travis for joining us. I am Ashley at Wealth from Rentals, and he’s Tony Robinson at Tony J. Robinson. Don’t forget to listen to our newest episodes on Saturday, the Rookie Reply, where we break down your questions from Instagram, the Facebook group, or we just create topics, whatever we want to talk about. So we will see you guys Saturday.

 

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