David: Alright guys, welcome back to the Discount Property Investor podcast. I am your host, David Dodge, and today I am joined by a special guest. This is a gentleman I have been following on social media for several months now. I have also been following several of his partners and business associates, and I am honored to have him on the show today. Please welcome Lee Kearney! Lee, how you doing, buddy?

Lee: Good, David. Thanks for having me on the show.

David: Thanks for coming on. So quick little introduction about Lee, is that he is the CEO of Real Advisors. I have been following Real Advisors. They have a couple of subsidiaries, or maybe you can correct me, but they essentially publish a couple of businesses that they have. They have Real Empire, they have the Commercial Empire, and I have just interviewed-- what's his name? Help me out, Lee.

Lee: Tim Bratz.

David: Tim. I just interviewed Tim like last week. I know Raphael from a mastermind that I am in in Tulum, we are meeting in February actually. I know Raphael, and is it Havier?

Lee: Havier is his CEO now.

David: Yep, from Real Empire then Commercial Empire. You run Real Mogul as well too, right?

Lee: Correct.

David: Is that you specifically?

Lee: That's my brand specifically, yeah, and they all fall under the umbrella of Real Advisors. We are super proud of what we do, because we are operators teaching real information, real strategies that are working in 2019 most of the time of this recording, instead of stuff-- actually if you take the stuff that worked two years ago is not working today. The market is shifting, we have things like iBuyers that have come into the market. We have got-- now the market approaching peak most primary market, so even despite the iBuyers, you have a market condition that is really lending itself to wholesaling. You and I before the show were talking about that. We are highly dialed in on where you buy properties, and what do you do with those properties. So it's important, if you don't understand that, you are going to be dead in the water. It's a very, very-- cut throat game right now. You have to be a perfectionist as an acquisitionist If you are are not a perfectionist at acquisitions, you are dead in the water. It doesn't matter if you are the best rehabber in the world, doesn't matter if you have the best buyers list, all that stuff is nonsense. If you don't actually know how to get properties at a discount today, the dispose is easy; iBuyers for me is just icing on the cake. A buyer that will pay more money than my normal buyers list, and it's cash. Again, if I don't have anything to sell them though, I am dead in the water. So we are highly focused on acquisitions, teaching acquisitions, how to use today's technology so you can actually push out to a lot of people, a lot of distressed sellers, instead of one by one going through a lead. Technology again has helped us, but if you don't know who to target you are dead in the water.

David: Dead in the water. So before we started the show, guys, me and Lee were introducing ourselves to each other, because this is the first time I was able to have met Lee, so again I am grateful for his time today, and I am honored to have him on the show. We were talking about the Discount Property Investor podcast, what do we stand for? It's very simple, we stand for buying properties at a discount, that's it, it's very simple. So we like to push people to learn how to wholesale. If you don't want to be a wholesaler that's okay. However, you need to learn how to market like a wholesaler because you make your money when you buy no matter what, you get paid when you sell, those are two different things, but you are always going to be making your money when you buy. If you buy it right, hence Discount Property Investor, buy it at a discount here, guys. If you buy it at a discount, then you have several options for your exit. You can wholesale it if you want, if you don't want to be a wholesaler you can fix and flip it. You can keep it as a rental, you can do lots of different things. Lease option, owner financing, whatever it might be, whatever floats your boat. But, you have to buy at a discount. So I think that me and Lee really align quite well our messages with-- you have to buy it at a discount, acquisitions is the most important thing.

You mentioned that these companies that are coming in that are buying, these big [00:05:02.02 - inaudible], million dollar companies that are buying, they don't scare me either. Those are buyers for me now too. I love it. 

So Lee, thanks for coming on the show. I am going to turn it over to you just for a couple of minutes. I want you to kind of just give me a quick introduction of what you are doing these day. Also, with that being said though too, how did you get started and when?

Lee: Sure, well that's a loaded question.

David: It is, it's like three questions really.

Lee: I will try to blast through it. I started investing in real estate 16 years ago by accident. I bought a pent house condo back in Ireland, got broken into right after moving into it. Decided to sell it, made more money on that condo than I did in my job. I am looking at a $30'000 job plus commission that I had, the $35'000 I made on my condo and said, this is nonsense. I can do this over and over again, I can make more money than working a job. That's when the light bulb went off for me. I actually sought out someone to teach me this business in California when I moved back to California. So I had lived in Tampa, moved back to Ireland, hated it, moved to California. Found someone-- I was going to church with, he showed me how to rehab houses. I followed him around, helped him pick out materials, just whatever he needed, and he showed me buy in this area, buy in this price, do this kind of rehab. So I didn't jump into wholesaling, I had someone really get granular on exactly what to do. I took his instruction, took me four months to find one house, it was a probate deal. Went on the market day one, I bought it day two, was able to get a line of hard money, and had some cash of my own, so between my cash and that hard money private loan, I was able to purchase the house, I dispoed it in three months, and made about $30-35'000 on that too. I am two for two, life is good.

David: You are making basically what you were making at your job on one flip on each of them.

Lee: Right. It's huge money, even today 2019, making 30 or 40 grand is incredible. I always use the example if a guy is working at the gas station, how many candy bars or sodas do you have to sell to make 30 or 40 grand in revenue? A lot.  That's going to be 30 or 40 thousand units they have to sell just to make the same amount we can turn on a switch and flip a house. In fact, with how hot wholesaling is right now, I see wholesalers making 30 or 50 grand, it wasn't that way ten years ago ago, but because you have buyers paying such premiums because they want to deploy capital, that's a huge opportunity. You don't even have to get a great deal, just get an okay deal and you can make a lot of money. Just like you said, for me that's icing on the cake.

I don't want to run a business where I am just buying okay deals, I always want to buy at a discount, so if those buyers get out of the market, I have a sustainable model where I can sell to a rehabber, I can sell to a landlord, I can sell to a traditional wholesale buyer, because I have seen it, and you've seen it too, all these fads in real estate that come and go, and yes it is good to move your business today, and take advantage of that opportunity, but I don't want to build a long term business based on just what's working today.

Going back to 2004, purchased my second purposeful home, but as my third house out of all the houses a purchased, decided to rehab that house, move back to Tampa making my second and third mistake, actually first and second mistake on that house. I had a friend do it and try to rehab it remotely. Complete disaster. Somehow made it out the door, low teens on that property, 10, 12, 13, 14 grand, something like that. But the market in California, Trustee estate, which is not a judicial estate, which means they can take the house a lot quicker when you default. I could see the market already starting to slip in 2005. So moved back to Tampa Florida, asked a bunch of questions. What I would say to you and everybody else out there; there are no dumb question you don't know. You have heard all sorts of different phrases like the dumbest question is the one you don't ask, and probably twenty different versions of that. I just ask a lot of questions. What is a foreclosure? What is a foreclosure auction? Where are these auctions? What room? Where do I go? Do I just stand on the courthouse steps? I am getting really detailed in asking these questions.

David: Right.

Lee: Finally a friend's father who did foreclosure said, hey come down to the courthouse, go to this room. I stood in this room with a bunch of numbers being auctioned off. I had no idea. So I started to track what people were doing, what they were bidding. They were all looking at each other and winking and nodding. Finally realized there was a lady was selling a book that turned the numbers into addresses, and the rest is history by the way for the next two years. I drove to the properties in the morning, go to the Hillsborough county auction, buy houses in the afternoon. Between credit cards and hard money loans, and lines of credit from Bank of America, I was able to boot strap up several million dollar operation in two years.

So fast forward to 2007, I lost everything. I was over leveraged, I had rentals that were not cash flowing, the market flipped on a dime. Literally overnight I went from two million positive to two million negative, I was done, out of business overnight.

David: Overnight. Isn't that crazy?

Lee: Just like that.

David: Overnight, man.

Lee: Like that. I mean the market took a nose dive, it was done. You couldn't sell anything, nothing was moving. It was just done. I realized a couple of key things that I want to share with everybody, the reason being is that is is eerily reminiscent of twelve years ago what is happening today in today's market, properties stop selling, price reduction. I have seen this all before. People just chasing properties that make sense. Whenever someone says that they have a creative way to dispo this property or a creative strategy, and they ignore what you mentioned which is equity and getting a property discount, I am not interested in doing creative strategies with properties with no equity. I think it's dumb.

You interviewed Tim Bratz last week, doesn't matter if it's commercial. I know the number one thing he preaches, buy at a discount, buy wholesale. Whether it's ten million dollar deal, or a ten thousand dollar house, if you are not buying a discount, you have nowhere to go. You can put the rest of the pieces of the puzzle together and have a deal that makes sense, and is not going to--.

David: On that topic Lee, I have a couple of friends, not many, a couple, but if they can find a deal subject-to with no equity, they are all over it. It is mind boggling to me. Yeah you can take over the payments, and maybe make a little cash flow like a lot of these guys are doing. Subject to on the acquisition and then lease option on the exit, but there is no equity to begin with. You are either banking on the cash flow, or you are banking on the appreciation only. If the market were even to take a 10% dip-- you're screwed. I never got into it, I like equity, I like to buy at a discount. So if the market did fall 20/30% at least my investment is worth that I paid for it. It would literally have to decrease over 25% for me to start seeing some properties where I would see a little negative equity, but I don't buy anything over 80%. Typically I shoot for 65-70% on the properties. Totally agree, man. I think it's kind of crazy when people don't have the mindset that they need to buy it at a discount. They are like, I can get into this for nothing. That's fine today, but there is a lot of risk out there. I don't think people are thinking this all the way through.

Lee: Well I agree. They are looking at the cash squeeze between what they paid the seller and what they collected on the lease option. The problem with that is, ultimately the chickens come home to roost. If you have an angry buyer you sold the property to, and there is no equity-- I have seen some of these bigger operations that are put together with no equity fall apart very quickly. Even become under legal scrutiny because they are just collecting cash where there is really no cash to be had. I always want to go back to fundamentals of real estate. I think you are right. Some of those properties I gave back in 2007 were subject-to properties with no equity, negative cash flow.

David: I wasn't calling you out, bro, I swear.

Lee: No it's all good. I learned that lesson because I was creative. Yes I have collect ten, twenty thousand dollars, I even got into legal disputes where they said-- equitable interest, and they weren't a tenant, even though I had deeded them the property, they gave me a large chunk of money, and I had the courts really come down on me for collecting that payment, I had to default on the mortgage, then I couldn't collect from them. A lot of people get themselves in trouble, they put themselves in the middle of a deal where you are collecting the money, but you're not paying the money, and I would just caution everyone out there. That is the litmus test, if you find yourself in a situation, no matter what State you're in, if you're taking money from one person, but you are not paying the underlying mortgage or whatever. If it's a seller or a bank, that's a good way to land yourself front and center of an investigation. So you don't have to deal with a lot of this stuff though, if you have equity, and real equity in a property--.

David: Yeah that covers your bases right there. And that's the simplest thing, guys. Just make sure you buy at a discount, period. That's really what it comes down to. Lee, I love it, man. Our thoughts align perfectly. So tell us a little bit about how you got started in real estate. I am looking over the one page sheet you sent over with your bio, and it says here that you bought and sold 7000 properties. Am I reading that right?

Lee: You are reading that right.

David: Holy cow, man! I have done about 400 transactions in the last four years, and I am thinking I'm doing pretty well.

Lee: You are doing well.

David: 7000, holy smokes! That is a ton of deals, man.

Lee: Yeah, 2013 our record year was 2500 plus transactions.

David: Wow, so you guys got to be buying packages, right? Or no?

Lee: No, we actually-- that was crazy. We did-- they were individual deals in 2013.

David: Holy-- you have a team of 40 people or what?

Lee: It was about almost 40 people.

David: Okay.

Lee: I remember one month we did just on the buy side, it was 150, 160 transactions, maybe a little bit more than that, just on the buy side.

David: Man, I have interviewed a lot of people, I don't think I have ever heard anything like that. You're crushing it.

Lee: Some days we were buying 10 or 20 homes. 10 or 20 homes in one day, you want to talk about flexing your systems and processes? You have got to have a production line set up with money, with a team. We had a lock change teams that would just change locks and take pictures, and there was several of them. Just-- that's how specialized the role has got in my company. As the market is tapering out, and I see that prices are not shooting up-- people always ask me, how do you know this? Like it's a magical answer. Type in Google, type in 'Tampa market Zillow', click on the graph. What you will see is that the market has gone up. It actually took a dip when they tried to raise the rates at the end of 2018. When they started lowering them it has taken off a little bit a again.

David: But it's flattening out.

Lee: The shot across the bowl across most major markets, I did the same thing I was teaching last week. Let's take Las Vegas. Same exact graph. We picked another market, I think it was Miami, same exact graph. They call them 'Bellwether markets'. So Tampa is considered a Bellwether market of how the real estate market is doing here in this country. Miami is too by the way, Vegas is another one. You look at these Bellwether markets and you are seeing that there has a first shot across the bowl in the last seven years has been 2018 when Feds raised the rates, it immediately tanked the market. We are like, oh crap, then they started lowering them again. Don't take my word for it, go Google that, and you will see exactly what I'm talking about. That tells me that-- if you want to use the baseball analogy, 8th or 9th inning whatever you want to call it, maybe the 7th inning in some markets. There is not a lot to go, the only tool left in the Feds tool belt is to keep lowering rates, keep stuff affordable. That means the equity component we are talking about is highly at risk, and I see things in the primary markets flipping the other way.

David: So the Feds fund rates as of this episode, today is Wednesday November 20th 2019, guys. Again, I don't know when you're going to listen to this, it could be five years from now. But as of today it looks like the Feds fund rate is 1.75. A month ago it was 2, a year ago it was 2 and a quarter. How much lower can they go? Can they go to zero? Will they go to zero? It seems like when they raise the rates like you said, we start seeing the decreases. So you know--. Can they keep dropping? If so, for how long? I mean, I know there are certain parts in the globe right now where there are negative interest rates. Don't quote me, I think Norway or-- Denmark, that's it, Denmark. I knew it was up there somewhere, right? They have negative rates of return on their mortgages, right? Which is just crazy. You get paid to own a property. I don't think we will get to that point. Either way, I am agreeing with you which is my point here. It's pretty crazy how this is working out.

Lee: Now that you're talking about the Feds funds raised, if you go back to 2008 under Obama, that was put down to .25%. You say it's at 1.75, that rate was at .25%.

David: That was 2008?

Lee: 2008. I will give you another fun fact--.

David: It was at point what?

Lee: Point two five.

David: So a quarter of a point.

Lee: You want to know another fun fact?

David: What's that?

Lee: It sat for seven years at .25%. It has not been raised until 2015, they progressively raised it up, and stopped in 2018. What they realized is that they immediately tanked the market with that last rate. Every major market took a dip with that last quarter point raised in 2018, you are absolutely correct. 2.25%, now 1.75%. I guess to answer your question, history would say that .25% was doable. For me though, that doesn't answer the question about equity.

David: I'm with ya.

Lee: It just keeps liquidity in the market. To me liquidity and equity are completely different. Right now a lot of major markets, my humble opinion, you have a market value that far exceeds the intrinsic value of the asset. That's a big problem for me, because ultimately when real estate is not hot, it goes back to fundamentals, and that intrinsic value really comes into play. People say, well the market is great. The market doesn't say, hey I am going to be down 30% two years from now, and make a news announcement for everybody to see. It's when things are hot, exactly what I saw in 2007, just stopped. Now what I will say which is really interesting, the stock market are stick doing gang busters. In fact, let me just look at--.

David: Oh my goodness, man. It is gang busters!

Lee: As we are talking right now, it is still at 28'000. So the two things-- I am actually doing an Auction.com interview right after this. One of the things they are going to be interviewing me on is-- right now in most major markets, third party bidders at foreclosure auctions are down. My point that I am going to give you a sneak preview on this, is the two measurements of real estate and economy are people trading at real dollars. For me I look at the stock market, because that is people trading real dollars every day, and you will see that the stock market starts to go down before it hits the news that there is an economic problem, you start to see people losing their jobs. It's people parting with real cash. In real estate, the front line of investors parting with real cash, because we are talking cash auctions, no inspections, no garbage, no listing on the MLS, no agents, is a foreclosure auction. So that should send the shot across the bowl to every listening to this, third party sales are down, savvy investors are realizing that there is a change coming. That is why they are interviewing me today, because they say, is there a connection between a Bellwether market like Tampa--? Yes of course there is a connection. People parting with real cash are going, I have made millions of dollars, I might want to keep some of those dollars in cash because I sense a market risk. The reason they are sensing a market risk, they are flipping these houses, they see their houses sitting on the market longer, which means how likely you keep having inventory rising, keep having the lower prices, how bullish are you on parting with real cash? Not as bullish. We are seeing that in markets like Tampa, we are seeing them in Miami.

Another fun fact, I have sat on the sidelines now for two years are foreclosure auctions. I saw this trend coming two years ago, and I want to keep my cash for when stuff is a bargain again, not when people are paying top dollar. People who say you win at auctions, did you really win if you overpaid? Or are you just the dumbest buyer? You won the bid, it doesn't mean you're the winner. I am seeing this first hand, but I am really cautioning everybody, I like looking at the stock market, I like looking at foreclosure auctions, because it is the front line of real people with real cash trading. That's what you are seeing with both of those.

David: That's a great point. I never looked at it that way before but I love that analogy though. It is so true though, that is the front line. People that have real cash, they are buying these properties. A lot of times without even getting inside, they might drive by or whatever. But yeah, that's a great point. It's slowing, I can tell you that.

Lee: Yep.

David: In my market especially. It's funny, I go to CMBC.com and the first thing that pops up is Feds meeting minutes may give clues when the Central bank will act on rates again. Of course the stock market said 27 8. It's like, come on, guys, this is nuts.

Lee: The bubble is about to burst. I guess to be kind of doomsday, I've sold all my rentals minus five. I had over 300 personally, so about 25 million in rentals. Actually today's market value would be about 35 or 40 million, but I dispo all them for about 25-30 million, because my mentor told me this which I will share with you, he said it's not important to call the bottom of the market, it's important to call the top. Taking that advice into account, I have dispoed over the last two years, and I feel very comfortable that I have taken these properties out of the value that make sense as far as selling them. I am very confident with certain asset classes, especially where there is high concentration of FHA buyers. Don't take my word for it. What you will hear is not an opinion from me that it is not backed up by solid statistics. If you look at FHA default rates, about 9-12% compared to conventional defaults which are in the 2-3% range. So my acquisition strategy for the next market cycle is targeting FHA concentrated areas, where FHA buyers bought the top of the market. I know there are going to be a lot of defaults, which means there is going to be a lot of distressed inventory. We are really dialed in. We are ready with a front loader of cash for next market cycle. I plan on personally buying thousands of homes once the market does crack. I stand behind that statement, and people say, it hasn't crashed yet. We have a couple of interesting things going on politically. We have a president who is highly motivated, becoming president to make sure he becomes re-elected. A terrible economy is the number one sure shot way of not getting re-elected. So I think--. I mean it's true, people vote with their wallets.

David: As of right now, while we are recording you and me are doing this, but they are doing impeachment hearings up in Washington as we speak, it's crazy.

Lee: It is crazy, but I guess what I'm trying to say is that-- because of the fact we are one year away from re-election, all other things being equal, I would say there is a decent chance we can keep this party going. You have to remember, the Fedz have got a lot of tools in their tool belt. They can put money into the market, so they can increase the supply, which also produces liquidity for lenders. So they can just buy out the lender's position, put real cash into the market, that's one tool. The other tool is that they can raise the reserve rate or lower it. They can tell banks how bullish they want them to be with their lending.

David: Yeah that's a good point.

Lee: The other faucet they have--.

David: Let me ask you this, Lee. I don't know a whole lot about that. You're the expert on this obviously here. How often does the reserve rate change?

Lee: The reserve rate does not change as often, but it is a tool that they--. If they tell the banks, we need you to keep more money in reserve, that shuts off lending, right?

David: And or anybody that has existing lines of credit, they get killed.

Lee: Yep.

David: They have to short those lines down, or even remove them completely. The amount of credit they are offering has to shrink if they are shrinking that rate. Yeah, wow, crazy.

Lee: There are several things I look at. I look at the manufacturing index. Why do I look at the manufacturing index? That's another front line indicator, that's a Bellwether indicator of an economy. The reason being, manufacturing starts to slip because people stop spending. You can see it right at the manufacturing level. Right now, don't take my word for it, look at the manufacturing index, you will see it sliding to a very critical level. People want to point to one statistic like, oh unemployment. Oh everything is great because unemployment is low. I look at the manufacturing index and I see a crack in the armor. I look at consumer confidence, you will see it is starting to slip. The economy is driven by one thing, it's spending, that's it.

David: So true.

Lee: When people are not confident, they stop spending, whether it's an investor or a consumer, it doesn't matter. People stop spending, like a foreclosure auction, they stop buying stocks because they feel the market is over inflated. What's happening is, everyone is chasing a place to put their money, and the reality is, there is no free lunch. Whether it's the stock market, the real estate market, people feel like-- I love it when I see, I discovered some self storage. No you didn't self storage has been around-- I understand it's hot right now, but there is no free lunch. Self storage trades at a certain rate because when you compare it to multi family, commercial, single family, A class, B, C, D, everything is priced accordingly of what its intrinsic value is. There is no free lunch. At the end of the day, if an investor has a dollar to spend, they have all these different options, which means prices meet at a point where buyers and sellers meet, and there is a price that makes economic sense.

Now we are the other way, there is an over supply in single family, same thing in multi family by the way too. So cap rates are going down. Now I would say the market value is far exceeding that intrinsic value. Going back to economic measurements, manufacturing index, consumer confidence. I look at all these things-- foreclosure rates, defaults. Even before foreclosures, which States are having the highest defaults? You will know this on the West coast and the East coast, defaults are going up. That is a pre-curser to foreclosures. In California, it is actually a very good measurement of what is happening six months from now. You got to trust the estate where there is no judge, you stop paying today, six months or less, more like 90-120 days, your house is gone. I see big changes coming, and people think I'm doomsday, but I'm not, I am just looking at the statistics and making decisions--.

David: I don't think you are, Lee. I don't think you are at all, I think you are being really smart and conservative about it. As of today I got 55 rentals. Just the last couple of days my partners and I have been saying, maybe we should sell a couple of these off. I wouldn't say we are over leveraged, everything we have bought has been at a discount. However, we do have a lot of debt out there. Ou cash reserves are decent, but they could be a whole hell of a lot better if we sold off some of those properties, just to prepare for what you were talking about right now. Everything happens in cycles. By us sitting here today saying, there is going to be a dip isn't us being pessimistic at all, this is facts. You are going to have cycles, you are going to have good times, you are going to have bad times. We have been in a good time for a long period now. It's inevitable that we are going to go into a time that is not so good, and who is to say if that is going to be six months or six years from now. I am leaning towards one to two years, who knows, right? But yeah, we were just having this exact conversation yesterday and evening this morning actually. Talking about, hey we got quite a bit of equity in about 30 of these, maybe we should start selling a couple of these off and start stocking piling some cash, just so we can get prepared. I love it, man. I think we are on the exact same page.

Lee: Especially if statistics are pointing towards you buying the same asset for less money, two years from now why wouldn't you do that? You got--.

David: I will buy every rental that I sell right back, everyone of them, because we have rehabbed those. I know the quality of them. They might get a little torn up in a year or two in the in term, but--.

Lee: I have bought and sold the same house three times in several instances.

David: That's awesome.

Lee: I have seen that factually, I sold high, I bought on the first dip, went back up a little bit, bought it again, sold it again, went back into foreclosure. Between 2007 and 2012 the market actually took a couple-- it had a bit of a rocky start. It didn't really start taking off until 2012. It was a double [00:31:13.21 - inaudible] back in '08 to 2012, sorry 2007 till 2012. We have not been on an upward trajectory clearly since 2012. That's when things just took off. I challenge everybody, look at the major markets, taking any market and you will see that exactly dip in October or November of 2018. That is the first shot across the bowl line going up to going down, now it is not going back up, it's just kind of flat but slightly up. That is purely because of the rates, purely.

David: Right. I love it, man. Let me ask you a couple of questions here. We broke-- we talked a lot about-- market cycles, and the current condition of the market, so I want to thank you for that. You gave me a lot of insight as well. You obviously are an expert on these topics. So when it comes to understanding the real estate market cycles, how to find opportunities in any market. So when the shift is coming, how-- what's the game plan for you to profit? Just start buying low? Buying at the low end of the market?

Lee: If you consider wholesaling using a stock market analogy. You have got long term traders, mid term traders, then you have day traders. If we look at ourselves as wholesalers, here is the great news; you eliminate market risk, in fact if you do a double close, sell it before you buy, there is zero market risk. All you are doing in that case is day trading real estate. If everything we talked about we believe is true, why would we want to day trade real estate? That eliminates the market risk. Now if you think about-- you have market risk when you take down a rental with debt on it, personal guarantee, that's another risk. If you owner finance, you now have the risk of the market, because if the market goes down the buyer is going to default on you. Conversely, if you are buying from someone, and they are financing, they bare the risk. In simple terms though, when you wholesale, you are transferring the market risk to your buyer. You are taking a profit home today--.

David: Man, I love that. I always say whenever you are wholesaling, all you are doing really is providing liquidity to the market place--.

Lee: Right.

David: I never thought of it that way though. You are completely removing your risk out of that scenario.

Lee: In today's market-- as a wholesaler, you are actually not only collecting a profit and providing liquidity, you are transferring the market risk to the buyer. When you owner finance off someone, let's say I have a seller that wants to give me a 6% loan on a house and I can cash flow, there is no PG, it will be dumb not to do that. But guess what? If I paid them zero dollars and I am just paying the arbitrage, in that particular case, using the exact same analogy, where we transfer the risk to the buyer, you have transferred the risk to the seller. The seller is 100% bearing the risk of the market. If you have no skin in the game, and the market tanks, no harm no foul. You walk away, the seller is stuck with the asset that is worth less than when they sold it to you. So the equation actually works in both sides, which is why auction contracts are good.

David: I love auction contracts, man. I use the hell out of auction contracts.

Lee: Then you get to leverage, you get to leverage against market risk. In that particular case in simple third grade language, you get to walk away from a little dollar instead of a lot of dollars.

David: No absolutely.

Lee: Also if your auction is long enough, you can ride out any market cycle. Which means you won't lose any money. One of my mentors used that strategy on vacant lend. What happened was when vacant lend went down to about ten cents on the dollar on these not so great areas, he would approach all the owners and offer 200 dollars. He signed ten year auction contracts. He turned that 200-500 dollars into several thousand dollars, because he just waited for the market to pick up to exercise his auction.

David: To exercise, right. Man, I love it. I know you have another interview coming up here, so I don't want to take up too much of your time. Before we wrap up here, I want to learn a little bit more about Real Advisors, then of course the business under, Real Empire, Commercial Empire. So tell me a little bit about what you know, I have been following you guys. I have been following you, I have been following Raphael and Havier and Dolma. Dolma is the one I haven't met yet, maybe you can help me connect.

Lee: Yeah he's my business partner.

David: I would love to interview him, he seems like a great guy, I love following you guys. I probably know the most about Commercial Empire to honest, just because I have interviewed Tim most recently. But I would love to learn more just about the big picture here, so what is Real Advisors?

Lee: Real Advisors is myself CEO, got my business partners Dolma, Brian Hanson, Francis [00:35:57.18 - inaudible]. Francis and Brian come from the marketing side of the business, and they have been in this space for 10-15 years. They saw all the good, the bad, the ugly, the things they didn't like. Dolma has also been involved in that space too, former real estate investor as well.

David: I would love to interview him as well. Help me out with that.

Lee: It all came together in alignment on this, I was the [00:36:21.15 - inaudible] rock star ten years ago. Preston [00:36:23.27 - inaudible] created me as that alter ego as he-- on Facebook he said that a couple of days ago, it's funny how you raised it. My point is, he took what I did buying and selling [00:36:34.14 - inaudible], but I also got to experience the good, the bad and the ugly. What I didn't like was people on stages selling product with no value for customers. In fact, not only were they no value, they didn't work in some cases, in other cases they were a scam. It was completely a fraudulent product that was made up. I hated that and--.

David: Been to a couple of events like that, man.

Lee: I can't mention names for obvious reasons.

David: You don't have to.

Lee: It was a luxury house brand with a spin on it that made no sense. When you got behind the scenes there were actors involved in this. I was blown away. How can you take someone's money for something that not only you don't do, but it was made up and it doesn't work.

David: Or it worked at one time and doesn't anymore, but they are still selling it like it does.

Lee: No, I'm talking about stuff that was made up that never worked. I saw the full gamut of good products, great products, okay products and stuff that was just made up. I am talking about an extreme example of something that was just made up.

So I sat on the side line, I said, I want nothing to do with this. Dolma approached me literally three years ago at this point. He said, we want to do a product with you, we want you to teach people, you have been killing it. I said, no. I gave him a hard no. He tracked me down for a year. It took me a year for me to even want to teach people. I didn't want to be that guy. But then I started teaching people again, realizing how much success they were having and I said, this is great. I get to own and control the narrative, because it's my story which is real. It's not something on a jet I don't own, or a car I don't own, or standing in front of a house I don't own. All that kind of nonsense you see that is out there. I got to teach what I actually do in my business. Then we brought on Tim. Tim and I had several conversations before he came on board. We are like, Tim are you real? We realized pretty quickly-- you interviewed Tim, so I am preaching to the choir. I'm going to be in Utah with him tonight. And so-- we realized that was a good fit, so then we launched Commercial Empire. I was still a brand. About seven months ago I said, you know what? I like where this company is going, I really feel-- I like the vision, I'm aligned on teaching real stuff that works, then when Real Empire came onboard at the beginning of this year-- and the rest has been history. We have had a tremendous growth, we have had really good success with our students and clients. It's amazing, so I like being a part of this, because everyone is aligned with wanting to teach stuff that works. Going back to the lab and doing it, the next iteration of what I do in my business, or Raphael, or Tim, we get to share with our clients and say, here is what I changed last week in my business. It's cool, then you get to tell a thousand people about that, and watch them change in their business too. I really do like this business. We are poised for even bigger growth next year, we don't really have any competition. We are competing against guys who are packaging the same information twenty different ways, calling it something different. They are not actually doing the business.

David: Yeah, that's the main thing, doing the business versus you know-- talking about the business. I always tell people all the time that are looking to hire a mentor. I go, would you rather hire someone that has done 10'000 deals but hasn't been active for five years, or someone that's done 25 deals but they did them last week?

Lee: Bingo.

David: Honestly, I would want to talk to the guy that is doing it now. Markets change, business changes. All this-- systems and technology. Absolutely. The fact you guys are doing the business, then teaching what you're doing, versus just teaching-- something that is not necessarily being used in your own businesses-- tells me you guys have a lot of integrity and I respect the hell out of that.

Lee: Thank you. The biggest change just to give you an example, my own business, and I say this to everybody out there who has a single family business. The biggest game changer this year is that we have gone back to a seller direct model. We were dealing with auctions, MLS, every other source rather than buying directly from the seller. I have shifted my business back where my number one source is sellers. If I'm doing that, that should tell you something. The market has come full cycle, we have gone up steam. If something is on market, opportunity has gone. The way to create value and get that equity is finding the most distressed sellers with the most amount of equity, and being highly targeted with your marketing, not marketing to everybody. The most distressed sellers with the most equity, and go after them every which way until you find them. On top of that, I will let you in on another secret. It is not about buying houses. We are problem solvers. What we are doing when we find these distressed sellers with lots of equity, you use your two ears, you listen to what their problem is. We just happen to flip a house, that happens to be the widget. But, we are not in the business of buying homes. If you told the seller, well I am going to give you half of what your property is worth, every seller would run away. That is not the tool in our tool belt. Our tool in our tool belt is to listen to a problem, and provide a solution, then the widget we use is the house, and that's where we create our money. I really trained my team on that, to treat people well, to listen to people, to understand their problem, and to come up with a solution to their problem. I would say nine our ten offers that I made to people don't involve a price. I literally talk about how much money they will get, and how much time they need to move or whatever the problem they need solved, but it's not about price. That is a terrible tool in our tool belt.

David: I totally agree. Honestly, I don't even ask-- on an asking price anymore. Reason is, I don't know maybe I'm wrong, maybe you agree or disagree, so I am actually curious to hear your input on this.

Lee: Of course.

David: But one in a hundred times, somebody will say I need this, and that number-- whatever they say is less than what I'm offering. So 99 times they are asking more than what I'm willing to pay, so why even ask? When you ask, they are anchoring high. So instead I always try to anchor low, maybe use the spread. I can pay between this and this, this is kind of where I'm at, but all it all depends on the condition of the property. That is kind of irrelevant, let's talk more about your problem and how we can help address that problem, and it works great.

Lee: I will actually give you a different spin on that. Rather than asking people-- when they give you that answer what they are actually telling you is not what they need, they are telling you what they want. What we do is say, we understand you want 50'000, tell me what you need. Obviously you have got this distress going on, and I want to come up with a solution for your problem. So we need to start with what you need. You will get the, oh I don't know where to go. So our discussion will sometimes be, well where do you go? How much is an apartment? I need $5000 to move. I can't move next week because there is a sale next week and I'm going to get kicked out. What if I gave you two months to move and moving expenses, not only five but we will do ten, that will give you what you need. Yeah it would. There may be 50 grand in equity, but what you have done is taken the conversation about what they want-- again you are dealing with distressed sellers, and you are addressing what they need. So we always go back to a need with people. Once we are able to phrase that conversation, and get the seller to really understand that it's not about what they want, because they are not in the driver's seat, they are in a distressed situation for a reason; because they are not in the driver's seat, we need to be realistic in our expectations and approach what they need, and try to work a solution around what they need. That has been a very effective tool for us on addressing people's needs. We consistently buy houses with ten bullet points that are probably weird to everybody listening to this, going why are you putting that in the contract? They told me they want ten things. One of the things we do as a company, we will put all ten things in the contract. So we need a moving truck, we need a mover, we need $2000 now, $3000 later, we need 60 days to move, we need to mow the yard. We will put all that weird stuff--.

David: I love that, man, that's cool. Guys, I really want to reiterate what Lee just said. I always try to shoot for at least one or two gold nuggets, and I have gotten several, but this is the one that stands out the most with me so far of this episode. That is, that whenever Lee and his team or talking to sellers, okay? And they tell you what they are asking, that is what they want. I am just reiterating. What you need to do, and this is great advice, I am going to run with this actually. Ask what they need, okay? That is two different things. They are going to tell you what they want, ask what they need. If you want to list those things great, if you don't no problem. However if you give them what they need-- at the end of the day you are solving their problem. That also kind of takes away from-- well maybe I can get more there, more here. You didn't call me because you wanted more money, you called me because you had a problem, and that is what I'm trying to do right now is solve that problem. What we end on, what number that might be, did I solve your problem? Yes or no? I just really want to reiterate that because I think that is awesome, that is phenomenal, so thank you for sharing that.

Lee: Yeah of course. I will give you a real life example. The seller didn't want any cash closing, he had a previous bankruptcy, had creditors, was worried that somehow they were going to come after him. I said, what do you need? He said, I need you to buy my furniture for $50'000. I bought his furniture for $50'000, I literally wrote him a check, took his furniture, and I bought the house I think for a dollar, paid off his mortgage, and we ended up with $200'000 in equity.

David: But you solved his problem.

Lee: He didn't want an offer, he said, I don't want any money. I said, so let me get this straight, what we do-- that's where we do a trial close right on the phone. We will say, if I give you $50'000 for your furniture, and you get no money, you are good with that? That solves your problem? He said, yes. We had an electronic contract-- signed it, on the phone, done.

David: That's sweet.

Lee: We didn't say, well actually you are leaving $200'000 in equity on the table, are you sure you want to sell your house? Because if you add 50, you are at 315, and your property is worth 550, are you sure you want to do this? No. We solved his problem.

David: Yeah, just go for the problem, give them a solution, done. Guys, that is a huge nugget right there; solve people's problems, okay? Our mission with this podcast is to teach people to buy at a discount. If you solve people's problems, you can win win this scenario. You can solve their problem and also get it at a discount. Do not get hung up on the price, okay? If you get into the price, emotions are going to start flying, people are going to want to start telling you what they want, not what they need. They may even go shop around for multiple offers. If you can get into a mindset of just solving a particular problem; you win, the seller wins, and if you are wholesaling it, the cash buying typically wins too because you are giving them a good deal. So we always shoot for the triple win, I love it.

Lee: That's why you want big equity, because equity is money for you, money for the seller, money for your wholesale buyer. There is meat on the bone for everybody. The problem is when you get no equity, someone is going to lose on that deal. That's why we want sellers with big problems and big equity. Now we can come in on our white chariot and solve everyone's problem and there is money for everybody.

David: Right, Lee tell me a little bit more about Real Mogul.

Lee: Real Mogul is the course I teach, in fact I am going to be switching over to a conference call in just one second. But Real Mogul, I teach people how to flip from being a real estate investor to owning a real estate businesses. So it is about systems and processes and strategies in real estate. When you look at the whole market, which tool to use at which point in the market cycle. So I teach everything from wholesaling to rehabbing, when to buy rentals, what kind of rentals to buy. Ultimatly what we want to do when we create a real estate business is create an active income portion of the business that feeds the passive income form of the business, that then feeds into a tax free structure that keeps the government away from it. It is about making it, flipping that into passive, then turning that money into tax free money, so you are not paying tax on it for the rest of your life. That's the progression of a real estate investor. It is understanding-- you don't want to be on the active hamster wheel for the rest of your life. At some point you have to transition into passive income to get yourself off the hamster wheel and have cash flow coming out.

David: Man, I love it. Lee, I want to thank you so incredibly much for coming on the show, it has been an honor to have you on. I've been following you so it's great to actually get to meet you. Guys, check out Real Advisors, check out Real Empire, Commercial Empire, Real Mogul. These are the businesses that are under Real Advisors. Lee, if people have more questions, or they want more information about you or any of these businesses, where can we point these people? I know I'm interested personally.

Lee: Absolutely. RealAdvisors.com. Very simple.

David: I love it. Keep it simple, guys. RealAdvisors.com. I know you have to run, Lee. These guys are real, they are doing the real business, and that is what they are teaching. They are not hoaxing people, they are not talking about things that worked 6, 8 months or even years ago. They are talking about and teaching about what they do in their business today, and as their businesses change, they are changing the way they teach it. You can't get any better than that. So guys, RealAdvisors.com. Check it out, Lee, thank you for coming on the show, it was a pleasure to meet you and I look forward to learning more about Real Advisors. Anything else you want to add.

Lee: No, it's been a great show, thank you.

David: Great show. Alright, guys, that's our episode of the Discount Property Investor. Again, you make your money when you buy, you get paid when you sell. So make sure you are buying at a discount. If you want to learn more about buying at a discount and how, check out my free course at Freewholesalecourse.com, to learn more about Lee and Real Advisors go to RealAdvisors.com. You will not be disappointed I can almost ensure and guarantee that. That's our episode, guys, signing off. Until next time, we will talk to you soon.