December 4, 2023 • 25 mins
Ever dreamt of building lasting wealth, but don't have heaps of cash to invest? The truth is, you don't need a fortune to start investing in real estate. In today's discussion, we, your hosts, Michael Notbohm and Andrew Hoek, decisively shatter this common myth and guide you on the path to financial freedom. We unfold the journey of a savvy investor who, with a small down payment in 2018, reaped incredible equity and tax savings by 2023. We're pulling back the curtain on strategic real estate leverage and smart tax planning to help you craft a thriving investment portfolio.
Prepare to be intrigued as we dissect a wealth-building strategy that revolves around real estate investment, showing how a modest duplex bought in 2018 for $250,000 could yield a staggering $692,000 profit by 2024. We'll illuminate the way to reinvest these profits and expand your financial horizons while securing tax benefits. Discover the art of resisting lifestyle creep, staying disciplined, and focusing on asset accumulation. We explore how to balance your tax savings for both future investment and present enjoyment. So, if you're pondering real estate as an investment vehicle, this episode is designed to guide you in making calculated moves towards a solid financial future.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
This is the Legacy Wealth Code podcast helping you
build long-term wealth and alasting legacy through real
estate investing, tax strategiesand motivational stories from
some of the most successful andinfluential people out there.
Here are your hosts real estateinvestor and entrepreneur
Michael no b, and real estateinvestor and attorney, andrew
Hoek.
Michael Notbohm (00:23):
Hey guys, welcome back to another episode
of the legacy wealth codepodcast.
My name is Michael, not bomb,here with my partner in crime,
Andrew Hoek.
Andrew Hoek (00:31):
What's going on, guys?
Michael Notbohm (00:32):
So we are gonna talk about wealth today.
I know that's a surprise, givenit's the legacy wealth code
podcast something new anddifferent.
Yeah, right, so, but I think Imake a post every year and the
post is something you know Isend out on my normal Facebook
and then on any of the businessrelated stuff, and it's just
basically, like you know, we getto December, what are you gonna
do this year or next year?
(00:53):
As you start to game plan, likeyou know, for me you know a lot
of times it was, you know doyou need to up, size or downsize
your house, blah, blah, blah,and then you start moving into
the investment space, and that'sreally obviously my focus now
and it's like what are yourinvestment plans for for 2024?
I do this every year.
I've done it since 2018, and sothis year I did a little
different, as you know.
(01:15):
Yeah and just kind of went backto the first year I did it,
which was 2018, and Just putinto like real terms what it
would look like if they listento me the first time.
Andrew Hoek (01:24):
That's interesting is total segue.
That's interesting.
You said that, though, becauseI was thinking back, as you
mentioned that that Back when Iused to sell real estate, you
know, in the early 2010stimeline, I used to send a
letter every end of the year out, but it was snail mail and, you
know, just shows you howquickly, like, the world has
changed, where, like we fastforward a decade, and it's like
(01:47):
who would even think to putsomething in snail mail now?
Just blast it out to socialmedia and you've already
automatically contacted probably10x what you would have in
snail mail.
But anyways, total, totalsecondary thought.
But so I'm interested in thisbecause, you know, I think
there's a there's this, thismisconception out there as to,
(02:09):
like you know, especially forpeople who are just getting
started, and I remember when Iwas young, it was like man, if I
don't have a couple hundredthousand dollars in cash laying
around, how am I we're gonna buya property to invest in?
You know and that's such a wrongway to approach it, because you
can get into a lot of theseproperties with a small amount
down and that is what reallykind of starts to help
(02:32):
Accelerate, especially whenyou're talking about a market's
like in Tampa Bay, where we'vehad great appreciation.
It accelerates your ability tobuy more and start building your
, your wealth and your portfolio.
But tell us a little bit aboutwhat you found when you went
back to 2018 to say you know, ifyou'd bought one property in
2018, what's that looking likenow as we, as we fast forward
five, five, six years from?
Michael Notbohm (02:54):
yeah, so you think I mean I make the post as
a pretty broad statement, right?
So I'm not saying in 2018 ifyou buy a duplex, but I wanted
to do this in terms of, like,you know, anyone can do this,
you don't have to be the.
The biggest misconception Iwould say in real estate
investing is people think youhave to have all of this money
set aside In order to be a realestate investor, and it's really
(03:16):
not true.
So the example I gave is if youbought a duplex in 2018 for
250,000, you can live in half ofit and use an FHA loan, right?
So you're only paying 8,750down and you rent the other side
out.
Looking at rent averages backthen it was about 1250 for that,
right.
So you know you look at thatannualized.
(03:38):
It basically ends up beingwhere the person living in that
half of the duplex is paying 540a month for To live right
because somebody else was payingthe mortgage, which is what I
think a lot of people.
The initial thought with realestate investing is like well,
let somebody else pay off mymortgage, which is totally
correct.
Sure but the big part of thisthat we talk about a lot on here
(04:00):
is the tax stuff.
So you could actually costsegregate half of that, the half
that you don't live in.
So in this you know, once yousubtract out land I just did a
rough estimate it would putabout thirty eight thousand
dollars in year, one taxdeductions Equating to eleven
thousand four hundred in theirpocket, and then the next year,
as you move into 2019, you'regonna see my post again.
(04:22):
But now you've bought the oneproperty that, based on the the
increase in Tampa, would have37,000 roughly in Equity mm-hmm
so now you take that equity andthe 12 grand that you just saved
and you buy another property,right?
And so you rinse and repeat thisprocess 2018, 2019, so on and
(04:43):
so forth, right?
So I mean, this is crazy to me.
So when you do the cost seg,the tax savings, the actual
dollars in your pocket $138,228.
Andrew Hoek (04:55):
This is, if you fast forward to now 2023,.
Yeah, okay.
Michael Notbohm (04:59):
So you started with $8750 as a down payment.
Andrew Hoek (05:02):
Yeah.
Michael Notbohm (05:04):
And now, after the six years, you've got six
properties that you own, thatyou have approximately $692,000
of equity and that's just basedon what the normal trend has
been in the Tampa Bay market forreal estate and I think for the
most part it follows suit, Ithink pretty much across the
(05:24):
country, within a few percentagepoints, but I mean, whether
it's $600,000 or maybe it's$800,000 in other markets, it's
a lot of money.
It's $700,000 in equity and$138,000 in tax savings and
roughly $3,500 a month inpositive cash flow after you pay
your mortgages, taxes andinsurance.
(05:46):
And this is an example that Ican't imagine.
I mean, obviously you have tohave a job, you have to be doing
something, but this issomething that anyone could do.
You start with $8750.
Andrew Hoek (06:00):
I mean, that's a pretty powerful visual and you
think about what if you had notbought that property and you
would have taken that $8700, andwhat would you have done with
that?
Probably that would have beensquandered on some form of
either entertainment orsomething that you bought.
That maybe it's a depreciatingasset as opposed to an
(06:22):
appreciating asset.
Michael Notbohm (06:23):
Well, and you make a good point.
So this Thanksgiving weekend,family and one of the things I
wanted to talk about today isjust what does wealth really
mean?
Because there's a lot of peoplethat have money in the bank.
Maybe they've got a greatincome, but they blow it all.
Not that I could point anyfingers no one I can think of in
(06:45):
the Tampa Bay area that makes alot of money and doesn't have
any at the end of the day butit's one of those things where
it's Wealth to me is theaccumulation of assets that are
creating positive cash flow foryourself, that are creating tax
strategy events, that you canmaximize the growth of your
wealth and then ultimatelyhaving an asset that appreciates
(07:08):
.
Andrew Hoek (07:08):
Well, I'm curious and I think this is a good segue
into that but from your modelthere if you're doing that, at
least in 2019, you said you buya second property that is a
total rental.
At that point, it's notsomething you're residing in.
Where, in that scenario, is thebuyer residing in year 2024?
(07:30):
Is it in theory?
I?
Michael Notbohm (07:32):
mean.
So in theory, you could stillbe in the other half of the
duplex and maybe you don't have700,000 in equity because you
took 100,000 of it out and youbought your own primary
residence.
But I'm looking at, I factoredin the increase in average
median house property value,except, etc.
So in 2023, you're buying a350,000-hour property, not a
(07:56):
250,000-hour property there'sstill plenty of those out there
and factoring in interest rates.
All of that Because what yousaid people that have a lot of
money that's been parked on thesideline.
Now you're starting to see somehigh-yield savings accounts and
things like that.
But I mean, during the yearswhen interest rates were in the
(08:16):
threes, you were getting nothingout of your parked money?
Andrew Hoek (08:19):
No, exactly, but so in theory you could still be in
that duplex or you could havetaken some money off the table
and bought something else, oryou're living in one of the
other properties that you'veacquired in that scenario.
But what I think is interestingabout that and the reason I was
asking is I go back to a numberof the people we've had Ryan
(08:43):
Butler on the podcast talkingabout kind of a similar
structure of how you go from oneproperty to 10 properties, dave
DiNofrio talking about how hebuilt his real estate empire.
But if you harken back to whatthose guys talk about and as a
pertain to wealth, a big pieceof that is the discipline factor
(09:04):
.
The easy thing here is to say,okay, I got $36,000 in
appreciation in year one, so I'mgoing to sell it and up-size
myself.
And then I got it down this one, so I'm going to up-size it
again.
And next thing, you know you'vegone from a duplex into a
million-plus-dollar property infive or six years, but you
(09:26):
haven't done anything else tokeep any other properties.
What I think is so importantabout the wealth-building piece
of this is the discipline to notdo that and to fight the
temptation of the lifestylecreep every time you start to
get a win.
And that's where I think thedifference between being rich
(09:49):
and being wealthy comes intoplay, because the people that
are wealthy are going to look atthat and say I may not have the
million, $2 million house as aresult of this, but I have a
portfolio worth that, that'sspinning off income and
generating income and it'sactually an asset, not something
that I'm living in that'scosting me money that I have to
(10:10):
then figure out how to pay forevery month.
Michael Notbohm (10:13):
Yeah, that, and I mean obviously the tax stuff
that we talk about all the timeI mean out of that in this
example, 138,228 of this wouldhave just normally been sent to
the IRS.
You know, and I think thatthat's the part that is so
important to not overlook iswhat did that enable?
In this example, what did thatenable you to do?
Well, in 2018, you used $8750of your money to buy a duplex.
(10:37):
2019, you used most of theappreciation doing some type of
cash out refi, but you also had$12,000 that you know.
So, say, in 2019, you did atraditional conventional loan.
You would have needed that12,000 to fill the gap of like a
20% down conventional product,right?
(10:58):
So, really, this tax savingswas what you know propelled them
forward to be able to do thisin ongoing years, which is what
we teach all the time.
It's that you know.
What would you rather do?
Would you rather do somethingthat government will incentivize
you to do?
Real estate?
Andrew Hoek (11:17):
Yeah.
Michael Notbohm (11:18):
Or would you just rather write a check and
let them do whatever they wantto with it?
And obviously, most commonsense answers would be well, I'd
rather own real estate becauseone, it's going to go up in
value.
Two, it's going to create thistax event.
Three, hopefully createspositive cash flow.
Andrew Hoek (11:34):
Well, and I think that's an important point too,
that what you just said.
I mean, one of the things wealways talk about is, you know,
don't sleep on the tax side ofthis stuff, because it really is
a huge benefit, and you know,to what I was just saying.
Like, there's probably a routethat you could take where you
could say I'm going to hoardevery penny and I'm going to
live, you know, well below mymeans and not ever have any fun,
(11:57):
and there's a lot of problemswith that too, right?
I mean, we've talked about thatin the sense of, like, you got
to do things that you enjoy, yougot to still have fun and you
still have to take advantage ofthings while being reasonable
about it.
But to me, the tax piece of thatis almost the ticket to find
the middle ground, right?
Like, if I'm going to hoardevery single penny I have and
(12:19):
never have any fun and doeverything, yeah, I could build
that, but I'm going to pay allthat money to the IRS at the
same time, whereas if I amtaking advantage of both sides
of it, you know, okay, let's gosplurge a little bit, you know,
maybe I take a nice vacationwith my family or I, you know,
whatever you want to do with it,you know, but at least there's
(12:39):
that additional amount of fundsthere, too, to help you.
You know, you don't have to beso crazy about it.
You can still build the wealthand the portfolio while you know
living your own life and makingsure that you're enjoying
things as you go.
Michael Notbohm (12:54):
Yeah, going back to what I said over the
holidays, you know chatting withfamily and everyone has
different perspectives on theway that they live their lives
and etc.
But you know, the couple offamily members are very frugal
people and but they still enjoylife.
I mean, they do the things thatthey want to do, but they're
just very frugal.
And we were having aconversation and there was one
(13:14):
of these high yield savingsaccount options that was out
there and you know, theirquestion was like well, if I put
my money in it and I need itfor something, can I get it out?
Which, of course, you know theanswer is yes, but so, you know,
and it was like four and a halfpercent, I think, is what it
what it boiled down to, and I'mI'm thinking this was like a
huge risk for them in their mind, because the way that they had
(13:35):
done it in the past is justleave it in a savings account
that they have.
That's like next to nothing,and they've, you know, because
of their lifestyle, they'vesaved a ton of money, but the
money is not ever doing anythingfor them.
And those people, you know,they're very like, you know to
your point, very disciplinedwith the way that they operate
(13:57):
their lives, and I'm always like, if you only had just like a
little bit of risk factor, youknow, with the discipline you
have with money, and I thinkpart of it's just education,
right?
I mean so many people were neverreally brought up learning
about investments.
You know, schools certainly wetouch on this a lot.
(14:19):
Schools certainly doesn't teachfinancial literacy to to at a
very high level, which I thinkyou know.
There's a million reasons forthat.
A lot of it boils down to theydon't you know the government
really would rather people relyon them for certain things Well
and that's why, I think, youknow, an exercise like this is
so powerful, right?
Andrew Hoek (14:38):
Because it's it's one thing to talk about it and
say, you know, hey, you can dothese things, but to try to
conceptualize it and put it intoreal terms, I mean, that's when
it becomes real to people andthey're like whoa, I could
actually do that.
You know, because I think humannature is kind of like there's
(14:58):
a possibility to do something,but but the I think the
immediate thought is well, thosepeople are doing that because
of some other circumstances thatenabled them to do it.
Well, in reality, it's notnecessarily some different
circumstances that enable themto do it.
They did, they went and did it.
You know, yeah, and I thinkuntil you put it in real terms,
(15:18):
a lot of people can't see that.
Michael Notbohm (15:21):
Well, and I you know, going back to your snail
mail comment, you know when youfirst become a real estate agent
, right?
So when all I was doing is sellit, you know helping people buy
and sell homes had noinvestments, I would post
everything I was doing, you knowpending under contract.
You know it didn't matter if itwas a trailer park or the Taj
Mahal, I mean, I was.
You know you would know when itwent pending, you would know
(15:42):
when it closed, and I thinkthat's kind of the nature of a
lot of real estate agents.
And so sometimes I've almostfeel like because I don't really
post that much anymore Like ifI help a friend out by a house,
it's typically like a prettynice house at this point.
So it's like, you know, I helpBrian buy this beautiful
waterfront home.
That's awesome.
But I don't want the message toget mixed to where, like, the
(16:04):
average person can't see that Ican invest in real estate as
well.
And I think you know thepowerful piece to this part is
that you could start being aninvestor using a primary
residence.
FHA government-backed loan, soyou only have to have 3.5% down.
(16:25):
That to me is you know, I thinkanyone can conceptualize that
that could be me.
I could do that, and that'sreally what my whole point of
the post was, because usuallyit's one of your 2024 goals.
A few people will reach out.
Oh, you know, I love whatyou've been posting, blah, blah,
blah.
We have some conversations mostfizzle out just like everything
(16:45):
.
A few do some things andthere's not any of them that
ever regret doing them.
You know.
I think you and I talk aboutthis a lot.
Our biggest regrets were theones that we thought was like an
instant home run, so we cashedin real quick and now we're like
.
I mean, I met like that one onon Sly.
That was a three bedroom, twoand a half bath condo on the
(17:09):
lake, beautiful view, 1900square feet that we paid 100 and
like 99,000.
Andrew Hoek (17:16):
Yeah, yeah, I think 106,000 or something.
Speaker 1 (17:21):
And that was about 2008.
Michael Notbohm (17:22):
I mean this literally, you know.
Aside from that, we have takenaction, you know, with regard to
investing.
But I think the part that iscool to me is that it's not this
huge elaborate plan.
It's buy one property a year.
The natural appreciation that'shappened in real estate and,
(17:42):
yes, that will probably simmerdown some in, at least in the
next couple years, but itshouldn't deter you from buying
because, as long as you're stillhaving something cash flowing.
You know, I don't want everyoneto say well, you know, I
remember 2023,.
Mike, I listened to yourpodcast and I bought six
properties and now I only have400,000 in equity and you know,
(18:05):
and you said 692.
And we've been on a really goodrun, but I don't think that
it's.
I don't think we're at the endof it.
Andrew Hoek (18:12):
And I don't think you can be.
Even if you didn't hit thosenumbers and you appreciate, at a
level, a fraction of that, it'sstill better than what you're
going to do in most other thingsyou know.
So what you said before aboutis anybody can do this.
One of the things we alwaystalk about is that it may not be
easy, but it's simple if youkeep it simple, and I think
(18:37):
that's such an important messageto always go back to, because
it's very easy to overcomplicate what you think you're
doing.
But if you stick to yourfundamentals and you stick to
the tried and true, it's thereto be taken.
Michael Notbohm (18:56):
No, I can't agree with you more on that, and
I think part of it too is, likeyou know, as we discuss a lot
of times, what does the legacymean to each person?
If you start thinking aboutthis as like a five or six years
from now, you have a portfolioof products, portfolio of
properties.
You have a large amount ofequity, not only for your
(19:18):
current wealth, but what doesthat do for your legacy?
Like, what are those, what arethose the things that mean the
most to you?
And I think when you start,really you know the dream board
or you know whatever you want todo.
There's power to that.
I mean I think about howpowerful the mind is.
A lot.
You know, the things that I'vewanted the most, that I've
thought about, that I've, youknow, dreamed about manifest
(19:40):
that a lot of them, you know,have either come true or are
well on their way.
Andrew Hoek (19:44):
I think there's a lot to that.
You know the manifestation ofthings, so.
But what I love about this andwhere you're going with it is
like I think back to when we hadChris McLaughlin on the show
and he's talking about how hehas either entrusted or gifted I
(20:05):
can't remember how he did itexactly a couple of rental
properties for his children,with the plan being that you
know they hit 18 and these areyours and you can either, you
know, refi them, sell them, dowhatever you want with them If
you want to go to college andpay for your college with it, or
if you don't want to go tocollege and you want to become a
(20:26):
landlord, these are yours tostart peeling off income from.
I mean, talk about opening anincredible gateway for your
children.
And you know we were hangingout with a friend over the
weekend and she recently got herCFP designation and, you know,
wonderful achievement for her,nothing against that.
But like one of the first thingsshe's talking about is, you
(20:49):
know, wanting to network withpeople who are interested in
like 529 programs for their kidsand you know I have a 529
program for my children but likethat's nothing compared to
being able to say I've bought arental property that's going to
cash flow me now as itappreciates, and at some point
(21:11):
I'll turn it over to my children.
That is a way more powerfultool than thinking about a 529
or Florida prepaid or one ofthose, just from a you know
thinking about collegepreparation strategy, and so
again, it's kind of reshapinghow you're thinking and getting
creative about it.
But, like I mean, I thinkthat's an awesome substitute for
(21:35):
something that's like a moretraditional, you know plan.
Michael Notbohm (21:39):
Yeah, so think about this.
I mean, so your kids are fiveyears old, right?
Andrew Hoek (21:45):
Seven and two.
Michael Notbohm (21:46):
Okay, so cost average three and a half yeah.
So you've got to roughly 15years till you got to start
thinking about college.
Speaker 1 (21:54):
Sure.
Michael Notbohm (21:55):
So if you bought a property today, for
each of them you did a 15 yearloan by the time that they're
graduating high school.
It's free and clear, it's cashflowing.
You turn it over to them Now,to your point.
You don't even have to sell itin Pay for College, you can do a
cash out refi, since it's paidoff, pay for college with that
(22:20):
and still have the property.
That's cash flowing.
I mean, when you start, really,the thing that I'm always amazed
with real estate is how manydifferent angles that there are.
You know even Brett, one of ourmentors.
I was always blown away withhim because it's like my head
would explode sometimes just bythinking about all the different
(22:40):
.
It's like an onion, it's like,okay, well, that's.
It's not just that level, it'sthen this level and this level
and this level.
Before you know it, you're likethis one thing, this one asset,
is literally giving me benefitfrom, you know, a wealth
standpoint, from a taxstandpoint, from a cash flow
standpoint.
You know it's like all justfrom one property.
(23:02):
And then you start thinkingabout all the different types of
properties that there are.
It's like there are so manydifferent angles.
Andrew Hoek (23:09):
I think about that a lot.
You know, when we talk withRomano, who's been on the show
with us too, but I remembertalking to him one time and he
was, he was evaluating someproperty he was looking at and
they were coaching with Mani atthe time and his comment was
Mani was like you have to figureout how to extrapolate
(23:30):
everything out of theseproperties and, like you know,
we look at something and youmight say, okay, well, I can, I
can rent it for X number and wedo our underwriting and move on.
Well, you haven't reallythought about the other three to
four things that you could dowith that property, the other
ways that you could use it inaddition to just the rental
activity on it.
(23:50):
So I mean really reallythinking about how can you get
creative and how can youmaximize each of these things.
I mean, you're right, there'sjust, it's almost an endless
opportunity as to what you canfind when you are willing to get
or able to get creative withsome of this stuff.
Michael Notbohm (24:07):
Yeah, and I think to kind of summarize,
everything is that it doesn'thave to be super complex like
that.
You know, it just needs to be.
You can't listen to the, justlisten to the show and say all
that that was a great show andthen never do anything with it.
Which is kind of the wholepurpose of my post I made is
it's like, you know, I don'twant.
(24:28):
I love having the conversationswith people.
I'll talk to people as much asyou want to talk to me about
real estate, because I'm notpassionate about it, but it's
like I also want to see thatwhat I'm telling you, I want you
to see how fruitful it can befor your own legacy and for your
own wealth building journey,because there's nothing like it
in the world.
There's no other asset that hasso many benefits and so little.
(24:52):
I mean risk really.
I mean even you buy somethingbad, you know, as long as it's
cash flowing and you can, youknow weather, the storm, you'll
probably still be all right.
Speaker 1 (25:02):
Sure.
Michael Notbohm (25:03):
And I think, but if you, you know, using
sound fundamentals andfoundation, et cetera, but it's
just, it really boils down toyou just have to do something,
even if it's a duplex that youlive in half of it, to start.
Speaker 1 (25:15):
Right.
Michael Notbohm (25:16):
So I think going into 2024, hopefully
that's the message that wasreceived on my Facebook and
hopefully to the listeners ofthe show.
Andrew Hoek (25:24):
Just do it.
Michael Notbohm (25:25):
Just do it.
We didn't take that from anyone, just for disclaimer.
Andrew Hoek (25:30):
I'd like no cease and desist letters.
We don't own it.
Yeah, we don't own it.
Michael Notbohm (25:35):
Credit Nike All right, guys well until next
time, this has been the LegacyWealth Code Onward.
Speaker 1 (25:40):
Thank you for joining us for another episode of the
Legacy Wealth Code podcast.
If you enjoyed this episode,click subscribe now and never
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This is the Legacy Wealth Code podcast helping you
build long-term wealth and alasting legacy through real
estate investing, tax strategiesand motivational stories from
some of the most successful andinfluential people out there.
Here are your hosts real estateinvestor and entrepreneur
Michael no b, and real estateinvestor and attorney, andrew
Hoek.
Michael Notbohm (00:23):
Hey guys, welcome back to another episode
of the legacy wealth codepodcast.
My name is Michael, not bomb,here with my partner in crime,
Andrew Hoek.
Andrew Hoek (00:31):
What's going on, guys?
Michael Notbohm (00:32):
So we are gonna talk about wealth today.
I know that's a surprise, givenit's the legacy wealth code
podcast something new anddifferent.
Yeah, right, so, but I think Imake a post every year and the
post is something you know Isend out on my normal Facebook
and then on any of the businessrelated stuff, and it's just
basically, like you know, we getto December, what are you gonna
do this year or next year?
(00:53):
As you start to game plan, likeyou know, for me you know a lot
of times it was, you know doyou need to up, size or downsize
your house, blah, blah, blah,and then you start moving into
the investment space, and that'sreally obviously my focus now
and it's like what are yourinvestment plans for for 2024?
I do this every year.
I've done it since 2018, and sothis year I did a little
different, as you know.
(01:15):
Yeah and just kind of went backto the first year I did it,
which was 2018, and Just putinto like real terms what it
would look like if they listento me the first time.
Andrew Hoek (01:24):
That's interesting is total segue.
That's interesting.
You said that, though, becauseI was thinking back, as you
mentioned that that Back when Iused to sell real estate, you
know, in the early 2010stimeline, I used to send a
letter every end of the year out, but it was snail mail and, you
know, just shows you howquickly, like, the world has
changed, where, like we fastforward a decade, and it's like
(01:47):
who would even think to putsomething in snail mail now?
Just blast it out to socialmedia and you've already
automatically contacted probably10x what you would have in
snail mail.
But anyways, total, totalsecondary thought.
But so I'm interested in thisbecause, you know, I think
there's a there's this, thismisconception out there as to,
(02:09):
like you know, especially forpeople who are just getting
started, and I remember when Iwas young, it was like man, if I
don't have a couple hundredthousand dollars in cash laying
around, how am I we're gonna buya property to invest in?
You know and that's such a wrongway to approach it, because you
can get into a lot of theseproperties with a small amount
down and that is what reallykind of starts to help
(02:32):
Accelerate, especially whenyou're talking about a market's
like in Tampa Bay, where we'vehad great appreciation.
It accelerates your ability tobuy more and start building your
, your wealth and your portfolio.
But tell us a little bit aboutwhat you found when you went
back to 2018 to say you know, ifyou'd bought one property in
2018, what's that looking likenow as we, as we fast forward
five, five, six years from?
Michael Notbohm (02:54):
yeah, so you think I mean I make the post as
a pretty broad statement, right?
So I'm not saying in 2018 ifyou buy a duplex, but I wanted
to do this in terms of, like,you know, anyone can do this,
you don't have to be the.
The biggest misconception Iwould say in real estate
investing is people think youhave to have all of this money
set aside In order to be a realestate investor, and it's really
(03:16):
not true.
So the example I gave is if youbought a duplex in 2018 for
250,000, you can live in half ofit and use an FHA loan, right?
So you're only paying 8,750down and you rent the other side
out.
Looking at rent averages backthen it was about 1250 for that,
right.
So you know you look at thatannualized.
(03:38):
It basically ends up beingwhere the person living in that
half of the duplex is paying 540a month for To live right
because somebody else was payingthe mortgage, which is what I
think a lot of people.
The initial thought with realestate investing is like well,
let somebody else pay off mymortgage, which is totally
correct.
Sure but the big part of thisthat we talk about a lot on here
(04:00):
is the tax stuff.
So you could actually costsegregate half of that, the half
that you don't live in.
So in this you know, once yousubtract out land I just did a
rough estimate it would putabout thirty eight thousand
dollars in year, one taxdeductions Equating to eleven
thousand four hundred in theirpocket, and then the next year,
as you move into 2019, you'regonna see my post again.
(04:22):
But now you've bought the oneproperty that, based on the the
increase in Tampa, would have37,000 roughly in Equity mm-hmm
so now you take that equity andthe 12 grand that you just saved
and you buy another property,right?
And so you rinse and repeat thisprocess 2018, 2019, so on and
(04:43):
so forth, right?
So I mean, this is crazy to me.
So when you do the cost seg,the tax savings, the actual
dollars in your pocket $138,228.
Andrew Hoek (04:55):
This is, if you fast forward to now 2023,.
Yeah, okay.
Michael Notbohm (04:59):
So you started with $8750 as a down payment.
Andrew Hoek (05:02):
Yeah.
Michael Notbohm (05:04):
And now, after the six years, you've got six
properties that you own, thatyou have approximately $692,000
of equity and that's just basedon what the normal trend has
been in the Tampa Bay market forreal estate and I think for the
most part it follows suit, Ithink pretty much across the
(05:24):
country, within a few percentagepoints, but I mean, whether
it's $600,000 or maybe it's$800,000 in other markets, it's
a lot of money.
It's $700,000 in equity and$138,000 in tax savings and
roughly $3,500 a month inpositive cash flow after you pay
your mortgages, taxes andinsurance.
(05:46):
And this is an example that Ican't imagine.
I mean, obviously you have tohave a job, you have to be doing
something, but this issomething that anyone could do.
You start with $8750.
Andrew Hoek (06:00):
I mean, that's a pretty powerful visual and you
think about what if you had notbought that property and you
would have taken that $8700, andwhat would you have done with
that?
Probably that would have beensquandered on some form of
either entertainment orsomething that you bought.
That maybe it's a depreciatingasset as opposed to an
(06:22):
appreciating asset.
Michael Notbohm (06:23):
Well, and you make a good point.
So this Thanksgiving weekend,family and one of the things I
wanted to talk about today isjust what does wealth really
mean?
Because there's a lot of peoplethat have money in the bank.
Maybe they've got a greatincome, but they blow it all.
Not that I could point anyfingers no one I can think of in
(06:45):
the Tampa Bay area that makes alot of money and doesn't have
any at the end of the day butit's one of those things where
it's Wealth to me is theaccumulation of assets that are
creating positive cash flow foryourself, that are creating tax
strategy events, that you canmaximize the growth of your
wealth and then ultimatelyhaving an asset that appreciates
(07:08):
.
Andrew Hoek (07:08):
Well, I'm curious and I think this is a good segue
into that but from your modelthere if you're doing that, at
least in 2019, you said you buya second property that is a
total rental.
At that point, it's notsomething you're residing in.
Where, in that scenario, is thebuyer residing in year 2024?
(07:30):
Is it in theory?
I?
Michael Notbohm (07:32):
mean.
So in theory, you could stillbe in the other half of the
duplex and maybe you don't have700,000 in equity because you
took 100,000 of it out and youbought your own primary
residence.
But I'm looking at, I factoredin the increase in average
median house property value,except, etc.
So in 2023, you're buying a350,000-hour property, not a
(07:56):
250,000-hour property there'sstill plenty of those out there
and factoring in interest rates.
All of that Because what yousaid people that have a lot of
money that's been parked on thesideline.
Now you're starting to see somehigh-yield savings accounts and
things like that.
But I mean, during the yearswhen interest rates were in the
(08:16):
threes, you were getting nothingout of your parked money?
Andrew Hoek (08:19):
No, exactly, but so in theory you could still be in
that duplex or you could havetaken some money off the table
and bought something else, oryou're living in one of the
other properties that you'veacquired in that scenario.
But what I think is interestingabout that and the reason I was
asking is I go back to a numberof the people we've had Ryan
(08:43):
Butler on the podcast talkingabout kind of a similar
structure of how you go from oneproperty to 10 properties, dave
DiNofrio talking about how hebuilt his real estate empire.
But if you harken back to whatthose guys talk about and as a
pertain to wealth, a big pieceof that is the discipline factor
(09:04):
.
The easy thing here is to say,okay, I got $36,000 in
appreciation in year one, so I'mgoing to sell it and up-size
myself.
And then I got it down this one, so I'm going to up-size it
again.
And next thing, you know you'vegone from a duplex into a
million-plus-dollar property infive or six years, but you
(09:26):
haven't done anything else tokeep any other properties.
What I think is so importantabout the wealth-building piece
of this is the discipline to notdo that and to fight the
temptation of the lifestylecreep every time you start to
get a win.
And that's where I think thedifference between being rich
(09:49):
and being wealthy comes intoplay, because the people that
are wealthy are going to look atthat and say I may not have the
million, $2 million house as aresult of this, but I have a
portfolio worth that, that'sspinning off income and
generating income and it'sactually an asset, not something
that I'm living in that'scosting me money that I have to
(10:10):
then figure out how to pay forevery month.
Michael Notbohm (10:13):
Yeah, that, and I mean obviously the tax stuff
that we talk about all the timeI mean out of that in this
example, 138,228 of this wouldhave just normally been sent to
the IRS.
You know, and I think thatthat's the part that is so
important to not overlook iswhat did that enable?
In this example, what did thatenable you to do?
Well, in 2018, you used $8750of your money to buy a duplex.
(10:37):
2019, you used most of theappreciation doing some type of
cash out refi, but you also had$12,000 that you know.
So, say, in 2019, you did atraditional conventional loan.
You would have needed that12,000 to fill the gap of like a
20% down conventional product,right?
(10:58):
So, really, this tax savingswas what you know propelled them
forward to be able to do thisin ongoing years, which is what
we teach all the time.
It's that you know.
What would you rather do?
Would you rather do somethingthat government will incentivize
you to do?
Real estate?
Andrew Hoek (11:17):
Yeah.
Michael Notbohm (11:18):
Or would you just rather write a check and
let them do whatever they wantto with it?
And obviously, most commonsense answers would be well, I'd
rather own real estate becauseone, it's going to go up in
value.
Two, it's going to create thistax event.
Three, hopefully createspositive cash flow.
Andrew Hoek (11:34):
Well, and I think that's an important point too,
that what you just said.
I mean, one of the things wealways talk about is, you know,
don't sleep on the tax side ofthis stuff, because it really is
a huge benefit, and you know,to what I was just saying.
Like, there's probably a routethat you could take where you
could say I'm going to hoardevery penny and I'm going to
live, you know, well below mymeans and not ever have any fun,
(11:57):
and there's a lot of problemswith that too, right?
I mean, we've talked about thatin the sense of, like, you got
to do things that you enjoy, yougot to still have fun and you
still have to take advantage ofthings while being reasonable
about it.
But to me, the tax piece of thatis almost the ticket to find
the middle ground, right?
Like, if I'm going to hoardevery single penny I have and
(12:19):
never have any fun and doeverything, yeah, I could build
that, but I'm going to pay allthat money to the IRS at the
same time, whereas if I amtaking advantage of both sides
of it, you know, okay, let's gosplurge a little bit, you know,
maybe I take a nice vacationwith my family or I, you know,
whatever you want to do with it,you know, but at least there's
(12:39):
that additional amount of fundsthere, too, to help you.
You know, you don't have to beso crazy about it.
You can still build the wealthand the portfolio while you know
living your own life and makingsure that you're enjoying
things as you go.
Michael Notbohm (12:54):
Yeah, going back to what I said over the
holidays, you know chatting withfamily and everyone has
different perspectives on theway that they live their lives
and etc.
But you know, the couple offamily members are very frugal
people and but they still enjoylife.
I mean, they do the things thatthey want to do, but they're
just very frugal.
And we were having aconversation and there was one
(13:14):
of these high yield savingsaccount options that was out
there and you know, theirquestion was like well, if I put
my money in it and I need itfor something, can I get it out?
Which, of course, you know theanswer is yes, but so, you know,
and it was like four and a halfpercent, I think, is what it
what it boiled down to, and I'mI'm thinking this was like a
huge risk for them in their mind, because the way that they had
(13:35):
done it in the past is justleave it in a savings account
that they have.
That's like next to nothing,and they've, you know, because
of their lifestyle, they'vesaved a ton of money, but the
money is not ever doing anythingfor them.
And those people, you know,they're very like, you know to
your point, very disciplinedwith the way that they operate
(13:57):
their lives, and I'm always like, if you only had just like a
little bit of risk factor, youknow, with the discipline you
have with money, and I thinkpart of it's just education,
right?
I mean so many people were neverreally brought up learning
about investments.
You know, schools certainly wetouch on this a lot.
(14:19):
Schools certainly doesn't teachfinancial literacy to to at a
very high level, which I thinkyou know.
There's a million reasons forthat.
A lot of it boils down to theydon't you know the government
really would rather people relyon them for certain things Well
and that's why, I think, youknow, an exercise like this is
so powerful, right?
Andrew Hoek (14:38):
Because it's it's one thing to talk about it and
say, you know, hey, you can dothese things, but to try to
conceptualize it and put it intoreal terms, I mean, that's when
it becomes real to people andthey're like whoa, I could
actually do that.
You know, because I think humannature is kind of like there's
(14:58):
a possibility to do something,but but the I think the
immediate thought is well, thosepeople are doing that because
of some other circumstances thatenabled them to do it.
Well, in reality, it's notnecessarily some different
circumstances that enable themto do it.
They did, they went and did it.
You know, yeah, and I thinkuntil you put it in real terms,
(15:18):
a lot of people can't see that.
Michael Notbohm (15:21):
Well, and I you know, going back to your snail
mail comment, you know when youfirst become a real estate agent
, right?
So when all I was doing is sellit, you know helping people buy
and sell homes had noinvestments, I would post
everything I was doing, you knowpending under contract.
You know it didn't matter if itwas a trailer park or the Taj
Mahal, I mean, I was.
You know you would know when itwent pending, you would know
(15:42):
when it closed, and I thinkthat's kind of the nature of a
lot of real estate agents.
And so sometimes I've almostfeel like because I don't really
post that much anymore Like ifI help a friend out by a house,
it's typically like a prettynice house at this point.
So it's like, you know, I helpBrian buy this beautiful
waterfront home.
That's awesome.
But I don't want the message toget mixed to where, like, the
(16:04):
average person can't see that Ican invest in real estate as
well.
And I think you know thepowerful piece to this part is
that you could start being aninvestor using a primary
residence.
FHA government-backed loan, soyou only have to have 3.5% down.
(16:25):
That to me is you know, I thinkanyone can conceptualize that
that could be me.
I could do that, and that'sreally what my whole point of
the post was, because usuallyit's one of your 2024 goals.
A few people will reach out.
Oh, you know, I love whatyou've been posting, blah, blah,
blah.
We have some conversations mostfizzle out just like everything
(16:45):
.
A few do some things andthere's not any of them that
ever regret doing them.
You know.
I think you and I talk aboutthis a lot.
Our biggest regrets were theones that we thought was like an
instant home run, so we cashedin real quick and now we're like
.
I mean, I met like that one onon Sly.
That was a three bedroom, twoand a half bath condo on the
(17:09):
lake, beautiful view, 1900square feet that we paid 100 and
like 99,000.
Andrew Hoek (17:16):
Yeah, yeah, I think 106,000 or something.
Speaker 1 (17:21):
And that was about 2008.
Michael Notbohm (17:22):
I mean this literally, you know.
Aside from that, we have takenaction, you know, with regard to
investing.
But I think the part that iscool to me is that it's not this
huge elaborate plan.
It's buy one property a year.
The natural appreciation that'shappened in real estate and,
(17:42):
yes, that will probably simmerdown some in, at least in the
next couple years, but itshouldn't deter you from buying
because, as long as you're stillhaving something cash flowing.
You know, I don't want everyoneto say well, you know, I
remember 2023,.
Mike, I listened to yourpodcast and I bought six
properties and now I only have400,000 in equity and you know,
(18:05):
and you said 692.
And we've been on a really goodrun, but I don't think that
it's.
I don't think we're at the endof it.
Andrew Hoek (18:12):
And I don't think you can be.
Even if you didn't hit thosenumbers and you appreciate, at a
level, a fraction of that, it'sstill better than what you're
going to do in most other thingsyou know.
So what you said before aboutis anybody can do this.
One of the things we alwaystalk about is that it may not be
easy, but it's simple if youkeep it simple, and I think
(18:37):
that's such an important messageto always go back to, because
it's very easy to overcomplicate what you think you're
doing.
But if you stick to yourfundamentals and you stick to
the tried and true, it's thereto be taken.
Michael Notbohm (18:56):
No, I can't agree with you more on that, and
I think part of it too is, likeyou know, as we discuss a lot
of times, what does the legacymean to each person?
If you start thinking aboutthis as like a five or six years
from now, you have a portfolioof products, portfolio of
properties.
You have a large amount ofequity, not only for your
(19:18):
current wealth, but what doesthat do for your legacy?
Like, what are those, what arethose the things that mean the
most to you?
And I think when you start,really you know the dream board
or you know whatever you want todo.
There's power to that.
I mean I think about howpowerful the mind is.
A lot.
You know, the things that I'vewanted the most, that I've
thought about, that I've, youknow, dreamed about manifest
(19:40):
that a lot of them, you know,have either come true or are
well on their way.
Andrew Hoek (19:44):
I think there's a lot to that.
You know the manifestation ofthings, so.
But what I love about this andwhere you're going with it is
like I think back to when we hadChris McLaughlin on the show
and he's talking about how hehas either entrusted or gifted I
(20:05):
can't remember how he did itexactly a couple of rental
properties for his children,with the plan being that you
know they hit 18 and these areyours and you can either, you
know, refi them, sell them, dowhatever you want with them If
you want to go to college andpay for your college with it, or
if you don't want to go tocollege and you want to become a
(20:26):
landlord, these are yours tostart peeling off income from.
I mean, talk about opening anincredible gateway for your
children.
And you know we were hangingout with a friend over the
weekend and she recently got herCFP designation and, you know,
wonderful achievement for her,nothing against that.
But like one of the first thingsshe's talking about is, you
(20:49):
know, wanting to network withpeople who are interested in
like 529 programs for their kidsand you know I have a 529
program for my children but likethat's nothing compared to
being able to say I've bought arental property that's going to
cash flow me now as itappreciates, and at some point
(21:11):
I'll turn it over to my children.
That is a way more powerfultool than thinking about a 529
or Florida prepaid or one ofthose, just from a you know
thinking about collegepreparation strategy, and so
again, it's kind of reshapinghow you're thinking and getting
creative about it.
But, like I mean, I thinkthat's an awesome substitute for
(21:35):
something that's like a moretraditional, you know plan.
Michael Notbohm (21:39):
Yeah, so think about this.
I mean, so your kids are fiveyears old, right?
Andrew Hoek (21:45):
Seven and two.
Michael Notbohm (21:46):
Okay, so cost average three and a half yeah.
So you've got to roughly 15years till you got to start
thinking about college.
Speaker 1 (21:54):
Sure.
Michael Notbohm (21:55):
So if you bought a property today, for
each of them you did a 15 yearloan by the time that they're
graduating high school.
It's free and clear, it's cashflowing.
You turn it over to them Now,to your point.
You don't even have to sell itin Pay for College, you can do a
cash out refi, since it's paidoff, pay for college with that
(22:20):
and still have the property.
That's cash flowing.
I mean, when you start, really,the thing that I'm always amazed
with real estate is how manydifferent angles that there are.
You know even Brett, one of ourmentors.
I was always blown away withhim because it's like my head
would explode sometimes just bythinking about all the different
(22:40):
.
It's like an onion, it's like,okay, well, that's.
It's not just that level, it'sthen this level and this level
and this level.
Before you know it, you're likethis one thing, this one asset,
is literally giving me benefitfrom, you know, a wealth
standpoint, from a taxstandpoint, from a cash flow
standpoint.
You know it's like all justfrom one property.
(23:02):
And then you start thinkingabout all the different types of
properties that there are.
It's like there are so manydifferent angles.
Andrew Hoek (23:09):
I think about that a lot.
You know, when we talk withRomano, who's been on the show
with us too, but I remembertalking to him one time and he
was, he was evaluating someproperty he was looking at and
they were coaching with Mani atthe time and his comment was
Mani was like you have to figureout how to extrapolate
(23:30):
everything out of theseproperties and, like you know,
we look at something and youmight say, okay, well, I can, I
can rent it for X number and wedo our underwriting and move on.
Well, you haven't reallythought about the other three to
four things that you could dowith that property, the other
ways that you could use it inaddition to just the rental
activity on it.
(23:50):
So I mean really reallythinking about how can you get
creative and how can youmaximize each of these things.
I mean, you're right, there'sjust, it's almost an endless
opportunity as to what you canfind when you are willing to get
or able to get creative withsome of this stuff.
Michael Notbohm (24:07):
Yeah, and I think to kind of summarize,
everything is that it doesn'thave to be super complex like
that.
You know, it just needs to be.
You can't listen to the, justlisten to the show and say all
that that was a great show andthen never do anything with it.
Which is kind of the wholepurpose of my post I made is
it's like, you know, I don'twant.
(24:28):
I love having the conversationswith people.
I'll talk to people as much asyou want to talk to me about
real estate, because I'm notpassionate about it, but it's
like I also want to see thatwhat I'm telling you, I want you
to see how fruitful it can befor your own legacy and for your
own wealth building journey,because there's nothing like it
in the world.
There's no other asset that hasso many benefits and so little.
(24:52):
I mean risk really.
I mean even you buy somethingbad, you know, as long as it's
cash flowing and you can, youknow weather, the storm, you'll
probably still be all right.
Speaker 1 (25:02):
Sure.
Michael Notbohm (25:03):
And I think, but if you, you know, using
sound fundamentals andfoundation, et cetera, but it's
just, it really boils down toyou just have to do something,
even if it's a duplex that youlive in half of it, to start.
Speaker 1 (25:15):
Right.
Michael Notbohm (25:16):
So I think going into 2024, hopefully
that's the message that wasreceived on my Facebook and
hopefully to the listeners ofthe show.
Andrew Hoek (25:24):
Just do it.
Michael Notbohm (25:25):
Just do it.
We didn't take that from anyone, just for disclaimer.
Andrew Hoek (25:30):
I'd like no cease and desist letters.
We don't own it.
Yeah, we don't own it.
Michael Notbohm (25:35):
Credit Nike All right, guys well until next
time, this has been the LegacyWealth Code Onward.
Speaker 1 (25:40):
Thank you for joining us for another episode of the
Legacy Wealth Code podcast.
If you enjoyed this episode,click subscribe now and never
miss an episode Until next timeOnward.
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