David: Welcome back to the Discount Property Investor podcast. I am you host David Dodge, coming to you today. My co-host Mike Slane is out in the field as usual. I usually get Mike on the show about one in three or one in four, but you know what? He's out in the field buying us some rentals. So I am not going to complain. However, today I have one of my friends on the show, Mr Jorge Contreras, did I say it right?

Jorge: You said it right.

David: I nailed it, I knew I was going to fuck it up, but I didn't, I said it right. Awesome, my man, Jorge Contreras. He is here today, and Jorge is the founder of The R.E.A.L System. I am going to let him explain to you guys what that is. But today, we are going to talk about Jorge and his business, as well as how he became a millionaire by the age of thirty. So please welcome Jorge Contreras, how the hell are you, my man?

Jorge: I am great, man. Thank you for the opportunity to come on here to you show and share some wisdom with all of your followers. It's an honor to be here. I am excited, man.

David: I'm excited to have you, absolutely.

Jorge: The R.E.A.L System is a coaching program that I developed that I teach people how to build an Air BnB empire without owning real estate. As you know, there are a tons of strategies like your wholesaling, it is a very effective way to build up capital and reinvest into cash flow, right? Start making money in your sleep and things like that. So Air BnB is just one of those vehicles to also create cash flow, and that is something I have had the fortune of being very successful at. I got into real estate-- sorry I got into Air BnB about three years ago with four of my units that I converted, started making like six figures. There was a lot of opportunity. It has just been an incredible journey, man. That's what The R.E.A.L System is.

David: Awesome, let's define The R.E.A.L system, because you haven't broken out R.E.A.L, so let's explain to the listeners and the viewers here, what that stands for-- and what it's all about. There you go, The R.E.A.L System, I love it.

Jorge: The R.E.A.L system is an acronym for Revenue, Education, Action and Legal. It is the four pillars on how someone can build financial freedom using this method. There is a subliminal message here pointing from E to I, so I teach people to go from employee to investor.

David: Okay, I like it.

Jorge: That is exactly what it is.

David: Awesome. So guys, The R.E.A.L System, let me recap; the R is for Revenue, the E is for Education, the A is for Action, got to love that one. The L is for-- legal. Awesome so Jorge has an awesome program. He teaches people how to get into the Air BnB niche of real estate. So if you have listened to this show before, you know will know that I only have one Air BnB. But, I have about 65 other single family rental properties at this point. So I am not super heavily invested in the Air BnB, but I like to bring people on the show that do things that I don't do so I can help spread the word and educate you guys on some things that may be outside of my own wheel house. So I am really happy to have Jorge on today. Hopefully he can explain to us some of the benefits of Air BnB, and maybe even expand a little bit about how you can get involved with Air BnB investing without owning, which I think a lot of people think that-- well if I am going to be an Air BnB investor, I need to own it, right? That's not the case. I am going to yield to Jorge here, and let him explain how that all works. At the end of those if you guys decided that you want more information, then we will connect you with Jorge, and he can talk to you a little bit about his program as well.

Jorge: Yeah definitely. So one of the things I love-- like Tony Robins says that the two most important things in the business is marketing and innovation. I couldn't agree more. When you don't innovate,your business model gets left behind so it's like, hotels to Air BnBs, taxis, Uber, Blockbuster, Netflix. The list goes on. I love the Air BnB model, because one, it is an innovative technological company. From the year 2000 to 2015, we are in the technology age. It is innovating in of itself, so they do-- Air BnB is a customer acquisition company-- you have never seen somebody go on Uber-- even if you have, have you ever seen somebody go on social media and be like, what's up, guys? I'm going to be driving around over here by the mall. If you need a ride, hit me up. Nobody does that, right? Because Uber, you turn on the app and Uber brings you the client for a fee. So they are a customer acquisition company. Air BnB is the same thing. You upload your property, they do all the marketing for you, and they take less than 3%, just about 3%. There is really three ways that I have operated and continue to operate Air BnBs. One of them, I started with properties that I already owned in my portfolio. A couple of duplexes and triplexes out here in Los Angeles California. Then I tapped into the sub leasing. So this is where we would approach landlords who are marketing their property and we would say, hey I know you're basically looking for a qualified tenant, let me show with you why I am the most qualified person. Of course we have capital, 800 credit score. Just being in business, an investor, I knew what objections they would have before they would come up. Up front we would pay them the fair market rent. As long as we take care of that property and pay them on time, there are no issues with the neighbors, it is a win win. So it's an arbitrage model, just like if you walk into the bank and deposit $10'000. The bank says, hey we're going to pay you 1% annualized. I walk in-- well your ten grand from the bank, they charge me 11%, and the bank just made 10%, that's the arbitrage business, right? It's like wholesaling, you get it at a certain price, you mark it up, you make $5000, 50'000, 100'000 on the sale, same thing, you might pay a thousand dollars of rent, maybe we make 1800 on Air BnB, and we get profit. So that's the arbitrage model. The third and final option is co-hosting. That's like if I was to say, hey David, I have a lot of experience, I have six other BnBs, I can most likely help you make even more revenue, and create a hands off experience, and I will charge maybe 20-30% of the gross revenue from the Air BnB, providing you a hands off experience. So hopefully I explained those three-- good there.

David: Yeah, you did a great job, very good. So guys, you can do the Air BnB business with property that you own, but even more cool than that, you can do the Air BnB business with property that you don't own. You can go rent that property from somebody else. As long as you take the transparent approach. I'm all about transparency, I don't know if you have listened to any of my other podcasts or not. I am all about transparency. I like to go in with the approach that-- it's better to tell somebody exactly what you're doing, because down the road, if something arises, and you're holding something from them-- this is not just in leasing, this is in buying, selling, managing, whatever that might be. If you have the transparency approach, it is probably going to serve you in a better way, right? You go in and say, listen, I like to rent your property, I am going to pay you typically what the market rate is, probably what they're asking. Even though I am going to be paying it, I'm not going to be staying there. I am going to be leasing or subleasing this property out. But at the end of the day, all that matters to to you is that you get your rent, I am the one reponsible for paying you, no one else, and I am the one that is going to be responsible for the property during the term of the lease. So, if there are those damages or what not, we will handle that. If you go in with that approach, I know a lot of people here in the St Louis market, I know you're out in the California area, but I know a lot of people in the St Louis market that have had really good success converting landlords that typically lease to learn term tenants into allowing them to be the lease-ee, right? Then sublease out those properties on Air BnB, or channels. They have had great success with that. I think that is a really cool business-- and again, you don't have to have tons of money to get into that business, right? There are some barriers to entry, again, I like transparency. I don't like telling people that you can do this with no money, because that is not the case, right? There are going to be some barriers to entry. However those barriers are going to be very very small compared to you going out and actually owning that property. So what would you say Jorge the amount of property that you Air BnB is arbitraged versus you own? Do you--?

Jorge: We have seven sublease-- three that we co-host, then we have four that we own.

David: Love it, very cool. So you have got a couple of each it sounds like--.

Jorge: Yeah, some of our properties last year and this year-- last year we sold a two unit, in February we sold a three unit. So that was five less that we own. In July of last year we really started going hard on the sublease. Towards the end of the year we got on the co-host. So we have been diversifying. I like to test out-- like split testing, right? Hey, test this, test this, let's see what the better strategy is. I like the idea of making the most amount of money with the least amount of money out of pocket. Obviously you get better return on investment. So that co-hosting has been powerful because as long as you have the expertise, right? That's the challenge; it's difficult-- if someone is getting into the game of co-hosting or management and they have no experience. They would have to have a really good relationship with that person, so that they know they are going to be learning. But, when someone has the experience they really don't have to put any money. But, essentially instead of putting money, you are putting in your experience. I would say that is the least utilized strategy, not a lot of people talk about it. Even-- eight months ago I started hearing about it, this guy messaged me, he was like, why are you renting these properties when you can co-host? I was like, this guy is crazy. I was like, you know what? I think they guy is onto something, you know? I love it, you can make even $600 and you don't own the property, you don't even have to put a first months deposit, you don't gave to furnish it, you don't have to worry about any deferred maintenance because you are just the glue. You're investing your time, and learn how to put systems and automations, it could be somewhat of a hands off experience. Someone still needs to be involved. So we usually delegate all the in person things like the replenishesables, if your guests need a fan or more blankets; someone needs to be available. So I like to hire a cleaning man or woman that lives within 15 minutes of the property. So anything that is required in person, it is part of their scope of work. We communicate that when we hire them, and I can run the Air BnB business from my phone.

David: Man, I absolutely love that. I would think somebody being within 15 minutes of the property especially where you live-- super important, because to me, I can get anywhere in my city in probably twenty minutes, twenty five tops, right? Los Angeles might take you four hours to get there depending on the time of day, where you're going, where you're coming from. So having somebody in that close proximity is key. I like how you-- stated that when you hire them, you tell them their scope of work. I think we align very similar in the transparency approach here. This is what the job is going to entail here are all the things that may be asked of you, even though some of these might not be very often, but this is the job, right? Being able to go drop off blankets or a fan or whatever it might be, or even run to the hardware store and get something for them if needed is part of that scope of work is awesome, because it just lays it out there and lets them know this may be required of me, right? I doubt that you are calling on these people to do those odds and ends that often, but when you do, it is not Jorge running to the hardware store, it is them. It allows you to be the boss, you can automate the business and put it together systems and processes that make it easier for you, but also something that allows you to scale to where you can take on more and more of these co-hosting scenarios. Really the way I look at it is, you are really just being the property manager, right?

Jorge: Pretty much, yeah.

David: Which is great, but, being a property manager of a short term rental is a lot more work than being the property manager of a long term rental.

Jorge: Sure.

David: We have about 65 properties, we have about 80 doors five or take, but we have about 65 properties. Some of our best tenants we never heard from. We will sign a lease, and we may hear from them eleven months later when they either want to renew or go month to month or whatever. Others we have a lot more headaches and issues with. So when you are in the Air BnB business, the turnover, the short term rental game is going to be a lot quicker than the long term game. So you are going to have-- I don't want to say headaches because that's not the case. You are just going to have a little bit more effort that is going to be required to manage those properties properly. But, in return, you can charge a much higher cost of management. I know I pay my property manager 8%, and you mentioned 20-30% is what you charge your clients. I would imagine that it is probably pretty in line with the competition out there, right? You are going to have a little bit more effort that is required, so you are going to be able to charge a little bit more, in this case, two or three times more to manage those properties. When you do the management or the co-hosting you would say, you don't have to own the property like you said, you don't have to buy the furniture, you don't have to deal with the cutbacks or the maintenance. That is somebody else's job, you just get to manage it and take a piece of that gross revenue. Now I have owned a franchise in the past. Jorge is probably thinking, Dave, where did this come from? Why are we talking about franchises? The reason--.

Jorge: I was going to go there too.

David: The reason I bring this up, is because there is a massive difference between getting a piece of the gross revenue and a piece of the net revenue. Here is a perfect example, guys. I used to own a restaurant-- now I live in St Louis Missouri, right? So I am right in the middle of the United States. Me and my two buddies, I am going to go off on a quick tangent, but I promise I will keep it quick. Me and my two buddies, we bought a franchise about eight years ago, it was a restaurant. Are you familiar with-- you have probably never heard of [00:17:17.21 - inaudible] which is the name of the restaurant that we bought, but it is very similar to another restaurant called Pot Bellies. Have you ever heard of Pot Bellies?

Jorge: No.

David: Pot Bellies I think is bigger in the North East and what not. I know Chicago has like a hundred of them. Anyway it is basically just a sandwich shop, a sub shop, right? They do salads, soups and sandwiches. When we bought into the franchise, the franchise or the guy that owned the whole thing, he wanted us to pay 6% of the gross revenues. We thought, hey that's not bad, let's do it. Well that 6% of the gross revenues ended up being about 40% of the net profit, right? So if we brought in let's say, a hundred grand in profit, well that was before we payed out our fees to the franchise. We were only giving him 6% of gross, but he was getting six cents on every dollar that came in, even though that whole dollar wasn't profit, right? So 6% of gross in that scenario equated to about 40%, almost 50% of the net profit, guys.

Jorge: Wow.

David: So the reason I went off on that tangent there, is because you mentioned that you guys collect 20-30% gross, not net. So the mortgage of that person that may have is their problem, right? The maintenance is their problem. The [00:18:52.10 - inaudible] is their problem, the taxes, the insurance, the utilities.

Jorge: Yeah.

David: You are collecting the gross. I absolutely love that approach. I almost like that approach more than even the arbitrage approach of finding someone that wants to least it to you, right? I think that's a really cool way to go about it. Jorge, I know we don't have a ton of time. I don' want to skip over-- you said you have an online course. You want to talk a little bit about financial literacy which I am a huge proponent of? Also I want to learn a little bit about how you became a millionaire by the age of 30. I am a millionaire myself as well. I have probably hit that number around 33, 32 or 33. I am 35 today. But you beat me, bro. You got there by 30. I want to take my hat off to you, my man. That's very cool. So let's talk a little bit about your course, financial literacy, and how you were able to become a millionaire by 30. I think our listeners and viewers are going to be really interested in that.

Jorge: Yeah so I will start when I was twenty years old, almost thirteen years ago, I started my very first business. Right before that, my last job I worked at Bank of America, had my little cubicle, and I would help people open up personal checking accounts and their business checking accounts. So that's how I was introduced to LLC,s corporations. At the same time we would do-- whenever somebody wanted to purchase, refinance, or take a home equity line of credit, I was their guide. We did loans in-house. That was my introduction to real estate. I got to sit down with a bunch of people that owned Gasoline stations, like any kind of business, all industries. They owned a bunch of properties, multi millionaires. I was like, holy crap. Long story short, I'm 23, I tried to buy my first house. I didn't know I needed-- most of the clients I would help buy properties were employees, so I didn't know you needed a second year tax return back then to buy a property. I didn't file in time so I bought my first property at 24. I got this property or 240. As you know in California markets appreciate like crazy, they also go down in value when the markets crash, they are a lot more volatile.

David: Very volatile.

Jorge: In addition to [00:21:20.01 - inaudible] insurance and PITI payment I would send an extra $2-5000 towards the principle. I was going to pay that property off in the first eight years, because I thought that's how you create financial freedom. In 2015 I became a student at the Rich Dad Poor Dad education program.

David: I did too.

Jorge: Cool--, I signed up for the masters course. 35k in 2015, and it came with a mentor for three days. Her name is Mary-Jo Wilson, she was my mentor, she came to LA for three days. Man, did I learn-- disruption to my scarcity, and limiting beliefs I had around money. So this kind of ties into the financial literacy. Before that I used to think all debt was bad because in my community as a Latino we are taught to cut up your credit cards, pay off your house, buy cars cash. Don't get into debt, it is evil, and that's what I was doing. So she asked me, why are you paying off your house? I said, because I want to create financial freedom. She said, well that's now how you do it. There are two types of debt, Jorge. She goes into the financial literacy, she said, there is good debt and there is bad debt. Good debt puts money into your pocket, and bad debt takes money out of your pocket. I was like, oh okay. She said, you have all this equity tied up in your property, couple of hundred thousand and it is just sitting there doing nothing. She's like, money doesn't like that. Money, you have to look up [00:22:53.08 - inaudible], money likes to be moved around and invested there and moving around, compound over time. I was like, what should I do? She said, if you want to create financial freedom-- she said-- because even if you pay off your house, you will still be stuck in a rat race. You still have all these other bills that you are going to have to pay for. You are still going to need a job. So the only way you can get out the rat race is to get your passive income [00:23:15.26 - inaudible] living expenses. She said, if you want to create financial freedom, do a cash shot refinance, take your 15 year loan, extend it back out to 30. I pulled out 160'000 and shortly after that I bought [00:23:29.02 - inaudible]. So that took me from-- I bought the property as a single family, and I was able to rent out three rooms, which payed for the mortgage. I lived in the 4th bedroom mortgage payment free. So I kept saving those $1800. Two years later I have $43'200 saved, and I built a studio in the back yard. New construction, so now I have experience working with contractors, getting permits, new construction, all that stuff. So I had two units when I started working with her, and that took me from two to six. I remember she said, imagine that in ten years this property goes from say 300-- say you owe 200 and in ten years it is worth 500. She said, you would have 300'000 in equity. She said, Jorge, what would happen if you had two of those? In ten years you had 300, and 300, 600. What if you have four of those? I'm like, I would be a millionaire. My net worth--- she said, exactly. That's how you use leverage as a tool to become rich. Long story short, that's what I did. I got-- up until last year we owned two duplexes and two [00:24:34.12 - inaudible]. Obviously I started buying in 2012 so I got to ride up the market. Some of those properties appreciated between 8 and 14% [00:24:45.07 - inaudible]. Combining my businesses from real estate and my coaching. I own a couple of Latin dance festivals, so I always like to sit on a good amount of cash like I am now, being prepared to buy at a discount if things go down. In short, that's how my net worth exceeds a million by the age of 30.

David: Love it, love it. Guys, did you hear that? Good debt, bad debt, right? It is so incredibly simple. I was also a student of the Rich Dad Poor Dad program with Robert Kiyosaki, and that is like the first thing they teach you over there, right? Having debt doesn't necessarily have to be a bad thing, right? If that money is coming into your pocket it is an asset, if it's going out it is a liability. But you can still have an asset with debt on it, right? You can still have something that has debt, but it makes you money, right? What are some of the easiest things that we can get with leverage and have debt that's an asset? Real estate, right? It is something we can buy, we can leverage it, meaning we can go get a loan on it. Some cases put down as little as like nothing, right? If you do a VA loan or something along those lines if you're a veteran. If you're a first time home buyer you can use an FHA loan that gets you in for 3-3.5%, live there for a year or two, move onto the next home but keep that loan in place and rent it out, right? That's another way. Or you can go conventional and or commercial. I have done all of the above minus the VA one because I'm not a veteran, I have never served in the military. But, there are a lot of options. At this point-- let's back up, I used to do the 20% down with an 80% loan. That was the leverage, 80% leverage. I did that about ten times through my twenties. I started buying, Jorge, when I was a junior in college, I guess I was about 22. From 22 to 30, over that eight year period, I had acquired about eight maybe nine properties. Every one of those, I went in and put down 20%, sometimes I didn't have the 20%, I went and borrowed that from a friend or a relative or my grandparents, or whoever. I would put that in, ten I would go get a loan for the other 80% then I would make it my goal to pay back the 20% that I borrowed. Once i payed back the 20% that I borrowed, I essentially didn't have any of my money in the deal. I payed back the 20%, I had a loan for 80 and so on and so forth. That was what I did for the first eight to ten years. The last five years, I really shifted and pivoted to the BRRRR method. If you are not familiar, I am sure you are, but if you're listening and you're not familiar, the BRRRR method is nothing more than a strategy to acquire a lot of assets very rapidly with little to no money. That may sound complicated but it is really simple. So now what we do is buy everything at a discount, hence the name of this podcast, Discount Property Investor. What we do is buy a property at 50 to 60 cents on the dollar, and yes you can do that, they are out there. You have to learn how to market to those people and how to find those people, right? What we do is go out and get-- I have actually done this about 50 times over the last 15 to 18 months, 50 times. We will go out and buy a property at 50-60 cents on the dollar, then what we will do is rehab that property. When we do our rehabs, we typically spend at least 15-20 grand. In Los Angeles that may be pennies, right? But here in St Louis 15-20 grand will get us a decent rehab, right? We do that for two reasons, one, we want to increase that value of that property, right? Typically if we are going to spend 15-20 we want to see the value increase by 30-40, so basically twice what we spend. Then what we will do is get the house appraised. I said there are two reasons. One was to increase the value by doing the rehab. The other is a lot of banks don't want to lend on just the appraised amount of the property unless two things come into play. One, the borrower them self is an experienced real estate investor. They know that we are not moving into these. So they want to see that we know what we're doing, and that we can manage them. That's the first part. The second part is that they won't just look at the appraisal and the appraisal only if the property isn't updated. So put yourself in the banker's shoes, right? They are taking risk by making you a loan. But if they are lending on a property that has recently been rehabbed versus one that hadn't been rehabbed in let's say 10-15 years, it is a lot less risky. By doing the rehab, we increase the value, we also check the box over at the bank that says it is updated and we have been in business for about five years full time doing this, so we check all those boxes. But the cool thing is, now we can truly buy properties, or I should say be all in. You still have to buy, right? But what we do is use private lenders. So we will ask one of our lenders, hey I need 80 grand to buy this house, and I need another 30 to fix it, right? That's 110. I will go borrow 110, let's say in three or four months I am going to pay them back whenever I go to refi, I may now owe them 115 to 117, I have to pay them five to seven grand to borrow that money for a couple of months, but I can actually get a loan for 80% of that it appraised for, right? If I can get it to appraise for let's say 150, and I am all into it for 115, the 80% loan is usually at or even above what I owe my lenders.

So we don't typically try and walk with money, although there have been some scenarios in the past where we walked with maybe five or seven grand, but our goal typically is zero, which sounds kind of crazy, but we want to be all in for zero, right? So very similar, I think we align very closely on a lot of these things with the financial literacy type of mindset as well as the good debt bad debt type of mindset. I think that is absolutely phenomenal. Guys, you can be a millionaire by the age of 30 if you start in your twenties. You are no going to be able to do that if you start at 28 or 29, it's going to take a couple of years, right? But you an use leverage and you can use financial literacy to your advantage to acquire these means. I think it's phenomenal. Jorge, I want to thank you for coming on the show today. You have shared some really valuable nuggets. I want to take a minute to talk a little bit briefly about your coaching program, also tell people how they can go about finding you if they come across you on my podcast here. They see it or they hear it. They say, hey I really like that Jorge guy, how do I connect with him?

Jorge: Yeah definitely, so I am just pulling up my IG real quick, but the IG is TheJorgeContreras.

David: Spell that out for us.

Jorge: Yeah so it's The, like--.

David: T.H.E?

Jorge: T.H.E, Then Jorge, J.O.R.G.E.C.O.N.T.R.E.R.A.S. Same thing-- I have a YouTube channel, Facebook Instagram, all that stuff. Yeah the Air BnB, it is a 90 day coaching program where we guide you through the three phases of acquiring, launching and automating your first cash producing Air BnB without owning real estate. If you guys are interested come check it out, or just come to my Instagram and just like David, we post content daily. I am all about putting as much free valuable content, I know not everyone is in a position to drop money. So I want to make sure we always provide a value for everyone, and make everyone aware they are, and help them elevate from there. So thank you so much for having me on, I truly appreciate it.

David: Absolutely. Hey I'm grateful for your time and I appreciate you coming on today. Guys, go check out Jorge Contreras on Instagram, Facebook, YouTube, you name it he is on all the platforms. If you want more information about his coaching program, do you have a URL for The R.E.A.L system? 

Jorge: TheR.E.A.L.System.com/GetAccess.

David: If you want to go straight to Instagram, i'm sure he has a link over there or on other socials, or you can go straight to TheR.E.A.L.System.com/GetAccess. Jorge, thanks for coming on the show today, I appreciate you. Hopefully somebody listening to this, or multiple people will be interested in the Air BnB program that you have. I don't have one today, so this is a good thing for me to bring you on, because I know there is a lot of people who are interested in the Air BnB program. They are going to be able to find a ton of value in your program. I have seen kind of under the hood of your program thanks to you. It is a pronominal program guys. He has a ton of students, they are all having massive success. You are going to be learning from somebody that is doing it himself, one of my main things is-- I will never hire a coach that doesn't do deals, right? Or doesn't do what I want to learn about. I think it is so crazy that people are like, oh yeah I went and hired this guy and he has done 20'000 deals, but he has been retired for 15 years. Well shit, that's worthless, right? You want to work with a guy that is doing this every day, and that is Jorge. Guys, check him out, Instagram, Facebook, Youtube. TheJorgeContreras, or go over to TheR.E.A.LSystem.com/GetAccess. Alright cool, guys, go check it out. Jorge again, thank you for coming on the the the show today. I am grateful for your time and your friendship. Again, thank you so much.

Jorge: I appreciate you, man

David: One last thing before we depart today.

Jorge: Yes, sir.

David: What is one thing, just one thing that you can share with our audience, our listeners, our viewers that is going to help them be successful in real estate specifically? One thing.

Jorge: Start investing and learning from people that have the outcome that you desire, whether it's books, YouTube. Like David and I actually just got started thanks to him with like texting, just go out there and seek the knowledge. The knowledge is available. The only thing that is getting in your way is you. So go out there-- I remember-- I will finish with this. I remember one time I was sitting next to this old lady, and she was hearing about my success and she was like, did you have to go to school for that? I didn't have to go to school, but I did have to get educated. School and education are two different things. Education, is going and reading all these books that I have here and going-- again, learn from someone that has the result and outcome that you want.

David: I love that, guys. Get educated, take action. Jorge is the man. Jorge, thanks again for coming on the show today, guys. Signing off.