Financial freedom with only a handful of rental properties!? So many real estate investors are convinced that amassing units is the key to bigger profits, but the truth is that a strategy involving fewer doors can be just as—if not more—effective. Today’s guest is an advocate for the “small and mighty” real estate portfolio that allows you to create passive income, pursue your passions, and achieve financial independence on your terms!
Welcome back to another episode of the Real Estate Rookie podcast! Today, we’re sitting down with Chad “Coach” Carson to discuss his latest book, The Small and Mighty Real Estate Investor. Enjoying the flexibility that many rookie investors dream of, Chad and his family live abroad while his property managers handle the day-to-day operations of his rentals stateside—allowing him to spend very little time on his business each week.
If you want to achieve financial freedom without becoming enslaved to your real estate business, this is an episode you won’t want to miss! Chad speaks on creating passive income through real estate, how to enjoy a two-hour workweek, and why accumulating more units shouldn’t be your end goal. He also talks about the three phases in every real estate journey and why the final phase is the key to unlocking your financial independence!
Remember to pick up Chad’s new book and use code “SMALL306” at checkout!
Listen to the Podcast Here
Read the Transcript Here
This is Real Estate Rookie episode 306.
I think the common theme is mostly small multi-units. Although I have 10 units, 12 unit buildings, I think you can grow into that as well over time. But I think the common theme is figuring out, and here’s a definition that I didn’t mention earlier, of a small and mighty investor. A small and mighty investor is someone who has the least number of properties possible to still meet their goals.
My name is Ashley Kehr and I’m here with my co-host Tony Robinson.
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And while most episodes we talk specifically about real estate investing, today’s episode is obviously about real estate, but we also talk a lot about mindset. And I think we challenge some well accepted notions in the world of real estate investing, about building a big portfolio and why everyone should be doing that. We bring on Coach Chad Carson, who’s an author in the BiggerPockets ecosystem. He has a new book, The Small and Mighty Real Estate Investor, and we bring him on to talk all about what it means to be small and mighty.
And I think it really translates the conversation that we have about keeping up with the Joneses, and not in sense of you guys want to go buy everything that’s new and flashy, but in a sense you want to go and buy as many properties as another investor so that you can keep up and you can build this mighty and large portfolio. So we talk about how Chad went into that phase of growing, scaling, growing, and scaling and realized, wait, why am I doing this again? It doesn’t even align with what I want out of real estate investing.
So we have a really great conversation about why you should think about why you even started in real estate and what you want the outcome of real estate to be for you, or what do you want it to provide for you. And what you’re going through and what your journey is right now, does that align with what you’re trying to achieve? So that was my favorite part in the beginning there. But Chad has a book coming out called The Small and Mighty Real Estate Investor and we do have a coupon code for you guys. So if you guys want to be eager already, you can pause this, come back and hit play. But you can go check it out at the BiggerPockets bookstore. You can go to biggerpockets.com/smallandmighty. And for 10% off, just enter the promo code small306.
I love so many things about our conversation with Chad today but just a couple of things I’ll call out. He talks about the three phases of being a real estate investor. There’s a starting phase, the growth phase and the harvesting phase, and he breaks down what each of those different phases mean. He talks about how he’s been traveling the world with his family for the last two years, spent time in Spain, now he’s in Paris, and he also talks about his two-hour work week. So not four hour work week, but his two-hour work week and, how he solved a major issue with one of his properties with just a simple text message. So just throughout the conversation, a lot of really good tidbits from Chad about building a small and mighty real estate portfolio.
So I want to give an Instagram shout out today. This one is to the account, honeyimhome_ct and this is Ryan and Aaron. They’re real estate investors working towards FIRE. And as Chad teaches us, that is Financial Independence, Retire Early. And they’re trying to reach FIRE and sharing their journey. So go ahead, go check them out. They’re sharing what they’re working on right now with the real estate and go ahead and give them a follow. Once again, that’s at honeyimhome_ct. If you want to be featured on one of our podcast episodes, go ahead and use the hashtag #realestaterookie, sharing your journey, what you’re working on, and also helping others learn about real estate investing.
All right, last thing before we get into the episode here, we want to give a shout to someone who left us a five star review on Apple Podcasts. This one goes by the username of hilarious, but this person said, “This show is great for beginners. The hosts and guests provide great insight and actionable advice that really helps get the ball rolling in your investing career.” So we appreciate that. And for all of our rookies that are listening, if you haven’t taken the two minutes that it takes to leave us an honest rating review, please do. The more reviews we get, the more folks we’re able to reach. And the more folks we can reach, the more folks we can inspire with the messages here at the Real Estate Rookie Podcast. And that’s what we’re all about here. So take the few minutes, leave that review. We would appreciate it.
Chad, welcome to the show, or as many people know you as Coach Carson, we are so excited to have you. Please tell us a little bit about yourself or anyone who doesn’t already know you.
Thank you for having me. It’s great to be here. And I am originally from Clemson, South Carolina. That’s where my home base is. But I have actually been living abroad with my family. I have a wife and two kids, a 12 and a 10-year-old. And our ambition in life is to be able to travel and do lots of cool stuff like that. So we’ve been living for 12 months in Granada, Spain. And so our home base with all of our rental properties is in Clemson, South Carolina, but we’ve been hanging out in southern Spain for the last year.
That sounds amazing. And I think part of the reason we’re having you on today is how you’ve been able to do that. So tell everyone about your new book that is coming out.
Yeah, the book’s called The Small and Mighty Real Estate Investor, and this has been something that works for me for a while, but it was a turning point early in my career where I decided that instead of being … There’s a lot of different ways to be successful at real estate investing and I respect all sorts of different paths, but for me, the main reason I got into it was to have lifestyle, to be able to have free time and flexibility to do stuff like traveling. But also, I have kids. Being able to be there with my kids and have spent time with them, to be able to exercise, be able to participate in my community. I started in 2003 but back in 2007 I was going on the climb the ladder, go, go, go, buy a lot of properties. I bought 33 properties in one year, some of them flipping properties, some of them just buying rental properties. And I have a business partner.
And the two of us looked at each other and said, “This is not what we got into this for.” Because we were really busy, we were more stressed than we wanted to be, and we actually made a list of the things that we wanted to do, the types of things we wanted to spend our time. And we wanted to do things like traveling, like I just talked about, like being able to go out and hike or jog in the middle of the day, being able to play sports. I like to play pickup basketball a lot. And I wasn’t able to do any of those things. And I said, “Wait a minute, why did I get into real estate investing in the first place if I can’t do these things that are really important to me?” And so it was an “aha” moment for me. It was at the same time I read books like The 4-Hour Work Week and Your Money Or Your Life. Or these books that just … they hit you a little bit and say, “Wait a minute, you could do things differently than you’re doing in your business.”
And so it challenged us to start building a business that … Worked it backwards. Started with a lifestyle, started with what we wanted to do, and it turns out that being smaller instead of going bigger, and at least in our experience, was a better approach. It was simpler, it had a lot of benefits to it while still having some good financial benefits. And so that was the origin of that idea for us. And over the years though, I’ve been collecting stories and talking to people and just realized there’s a lot of us out there. There’s a lot of small and mighty investors. And so I wanted to collect stories and I wanted to produce a guide that taught people who had that ambition to have a lot of free time and flexibility and do other things that matter to them. How can you build a rental property business that actually works for you for your life and helps you do that? So that’s where the book came from and why I wrote it.
And before we get into more detail on that, you have another book that you’ve previously written in. Can you just tell us about that real quick too?
Yeah, that was another BiggerPockets book. They published it in 2018 and it was called Retire Early with Real Estate. They’re companion guides but that first book was … If people are familiar with the Financial Independence, Retire Early community is more like the Mr. Money Mustache, ChooseFI real estate book. It was how do you … What’s the strategy to retire early? Why should you do that in the first place? I always compare it to if your real estate journey, your financial journey, was like climbing a mountain, then financial independence might be at the top. That book was showing you multiple ways to get up the mountain.
It was like a strategy book. But it always itched at me that I like the strategy but I wanted to teach the tactics and I didn’t ever get into that. So this book is like … it’s got the small and mighty philosophy and the big picture, but it really gets into the nuts and bolts of how do you do it, how do you finance it. If you’re a rookie investor, what are some ways you can come up with cash to buy deals if you don’t have a lot of money? I wanted to get into those nuts and bolts and that’s what this book is more about. It’s got the philosophy, but it’s then, “This is how you do it. Here’s step one, two, three, four, five.”
Chad, first, super excited to get into the contents of this book because I think for most real estate investors there is this certain level of drive and ambition that just causes them to want to build, build, build. But I’ve always thought of myself as an ambitious person but you said something that really stood out to me. You said you have the ambition to have free time. And I’ve never really heard the word “ambition” followed by “to have free time”.
When people talk about ambition, it’s about, “I have the ambition to grow a bigger business. I have the ambition to generate more revenue. I have the ambition to net worth. I have the ambition to … ” something like that. But you said, “I have the ambition to have free time.” And it’s such a profound statement. How do you balance being entrepreneurial, having the ambition in the usual sense of the word, with tempering that ambition to say, “I don’t want to get too big.” Because I feel like that’s something I struggle with is I just want to keep growing. And sometimes it’s just growth for growth’s sake but I can’t really turn it off. So how do you approach that?
Well, first and foremost, I struggle with it too. So I’m just going to raise my hand and say there’s no perfect people in this room. Maybe you guys are, I’m not. But I am ambitious and it has been a struggle for me because I love it. I love the game. And not everybody gets into real estate because they love being an entrepreneur. That’s part of the reason I wrote the book. I think some people like doing it on the side and they like being a nurse or they like being a janitor or they like being a teacher or a mom or a dad, and they want to do real estate to support that. So to me though, the ambition, if you really it boil down and you do an exercise … This is a good journal exercise by the way for everybody. Going back to that 2007 story where my business partner and I had this “aha” moment, it was because we were out of alignment.
I could feel it in my gut. I said, “Wait a minute, I’m pushing towards something.” And I went to classes and I listened to other successful investors talk about it and they had goals that I borrowed. They said, “Hey, I could flip 50 houses per year.” Or, “I could buy 10 rental properties,” or whatever it was. And it was exciting. But as soon as I tried those goals on, if I asked myself the question, “Why am I doing this?” there was always a deeper answer. And so that’s the journaling exercise, if anybody wants to try this out, is just make a simple list like we did. Just make a list of the types of things you want to do. And I think those are ambitions. They’re a little bit less … they’re harder to quantify maybe than buying 10 properties or 20 properties, but really they’re the essence of, at least in my experience, why we did this.
And so for me, the ambition is have a life that has options, that has flexibility. And then I like to fill in the space. So real estate investing is always a part of it but these days I spend two hours a week, something like that, on my real estate business. So for me it was replacing some of the real estate time with other things that I’m really ambitious about. So for example, being a parent, I really like being able, when my kids get off the bus or they come home from school, and we’re in Spain right now, I like to meet them there at 2:30 and walk with them home from school. I’m a checklist guy. I could check that off the list. I did that. I was there with my kids. Or in my community in Clemson, South Carolina, there’s a lot of jobs that need to be done that aren’t paid jobs.
So I am really into the walkable communities. So I live in a town, it’s a small southern town, everything’s built around the car. And I would try to push my kids in a stroller when they were younger and try to go to the local park and I would almost get run over by a truck because there’s no sidewalks and there’s no way to get around. And so as an entrepreneur, an ambitious entrepreneur, I was like, who’s fixing this? Who’s working on this? And nobody was working on it. And so, to answer your question about ambition, to me, when you have financial success, it’s also opening yourself up and asking yourself this question. What else could I do when I grow up? What else is important to me that I could use my ambition and my entrepreneurial abilities for? And for me, it’s been being a teacher and helpful to my kids, being a leader in my local community, being a teacher online, being … helping people who are also real estate investors and sharing on social media, that’s a lot of fun as well.
So those have been ways that I’ve, instead of growing my real estate business, which is fine, a lot of people want to do that. To me, I got to a place that was enough. I had enough properties, I had enough income coming in. We can talk about how I started paying off properties if you’d like to. Instead of reinvesting my money to buy more properties, we started reducing our risk and paying debt off, increasing our cashflow. And that freed up more cashflow, that freed up more time because I had a lot simpler portfolio at that point. And then I was able to use that time to do other stuff that’s really cool. I’m so proud of the fact that, in our local community, that local nonprofit we started to build trails has raised $4 million. We’ve built a couple miles of trail already and I didn’t get paid a dollar for that. But that’s the kind of thing that we as real estate entrepreneurs can do if we have enough free time, have enough money to take care of the basics so that we can do whatever’s important to us.
I think the thing that stood out to me there was the two-hour work week for your real estate. So you have … It’s a hundred units you have right now?
Yeah, I have a business partner. So the two of us have a hundred units, about 33 properties. Yes.
So yeah, let’s dive into that first I think, and then maybe we can go into how you’ve maximized your cashflow on those properties by being strategic about it. So I’ve read the book, The 4-Hour Work week. So please tell us about the two-hour work week.
Yeah, we wanted to start a new trend, the two-hour real estate work week. The cool thing about real estate, you guys know how it is. Every time somebody complains about real estate, they’re always like, “Yeah, but that’s not a passive investment. It’s not passive because real estate always has some work.” And there’s some truth to that, right? There’s no free lunch. When you get into real estate, you’ve got to spend a lot of time, a lot of effort. I think of it like a psychological and a time down payment. You have to invest your time learning this business. You’ve got to listen to podcasts, you’ve got to go out and network, you’ve got to go out and study your market. There’s just no getting around that. And so that keeps a lot of people from getting in the rental business or the real estate business in general.
But the cool thing about it, my experience has been that it starts off like a startup company, like a venture capital startup company with a lot of time upfront. But then once you get rental properties, you get them stabilized, whether it’s a long-term rental, short-term rental. You can hire people, you can have teams of people, which is what I do. I have property management companies who manage 90% of the properties. I have a few that we still self-manage as well. And then we have systems. So between a really good team, really good systems, a rental property business, once it’s mature and once it’s stabilized, it doesn’t take that much time. And this isn’t just me. I challenge all of you listening to talk to people who’ve been in the business for 10 years, five years, 20 years. Ask somebody who has a stable rental portfolio, how much time do they spend on it every week?
And I’m collecting answers to this. I’ve had answers like four hours a month, a half hour per week. I’ve had answers like one hour per week. If you’re managing a small portfolio, which I talk a lot about in this book, is they have five properties, 10 properties, 15 properties. I promise you, even if you self-manage that, if you get some systems together, if you get the right tenants, if you buy the right properties, that’s the kind of thing that can be definitely a two-hour work week, maybe less once you get it stabilized. That’s the key. That’s the thing that people just have to get over is it’s not going to be without work. There’s nothing free in this world. But I really love real estate for that reason because you can use your entrepreneurship to make some good money, to build equity, to build relationships with private lenders. But then on the backend it turns into this blue-chip stock, this really passive, mature, stable thing.
And for me, I’m in a stable phase right now. We just bought one property in the last month but we haven’t bought a property in the last year and a half or two. That’s why I’m not spending a lot of time on it. But if we want to grow some more, if we want to get back into the game, when I get back from Europe, we can always turn the volume up. But you have this base, this nice base of income properties that take very little time. And what I tell people, no, it’s not completely passive but it’s passive enough. It’s passive enough to do everything I want to do in my life. It’s passive enough to do that whole list of things that I mentioned earlier. And that’s all you can ask, right? You don’t need it to be completely passive, you just need it to be passive enough to do everything that matters to you.
Before we move on to something else, can you give us a little glimpse into who those team members are that are assisting helping you? So you lived overseas for … You were in Spain, right?
For a year and a half. So who was on your team that was the boots on the ground, maybe showing apartments? And give us that insight as to someone who maybe wants to copy your roadmap, who they should be looking at to bring on to their team.
So my number one team member is a property manager. And in my case I have long-term rentals but actually I’m in the … about 50% of my properties are in the student rental niche. So I’m in Clemson, South Carolina, we’re a big university town, go Tigers, big football team. And so we have students who rent those. We have grad students, sometimes we have faculty members. And the good part is we always have tenants. It’s a growing university. The challenging part is the average time that somebody spends with us is less than two years, so a year and a half or so. So it’s in between the midterm rental and long-term rental. We very rarely get a student apartment where somebody stays for five, 10 years. That just doesn’t usually happen. So there’s a little more turnover. And so I hire companies that specialize in student rentals to manage that.
And so actually between our apartments that we have in Clemson, we have two different rental companies. We split them up between two different companies. They handle the leasing, they handle the rent collections, they handle maintenance issues. And I’m not saying I don’t ever hear about what’s going on. I like to have a communication flow. But typically, in that two hour work week, I’ll just give you a real example. The worst thing we’ve had happen in the last couple of years is we had a septic tank went bad on one of our properties. And I don’t like septics by the way. This is very in the weeds. But if you can have a sewer instead of a septic, it’s a better long-term play as a rental property because, like everything else, they break over time. It’s been 15, 20 years since that septic was put in, the drainage lines went bad.
And it gets really ugly when a septic tank goes bad because all that stuff starts coming back up in the tub and the tenants are unhappy understandably. But the thing was, all of that happened. That’s one of those nightmare scenarios people think about when they own rental properties. What did that look like for me? It looked like a text. It’s like a 911 text. “Hey Chad, we’ve got this sewer issue.” But what my property manager does, and this is how you can tell a good property manager, they said, “Here’s the issue. We have a septic tank backup. Here’s my proposal. We need to get this company out there. They’re pretty expensive but they’ll go out there really fast. Are you okay with that? Because it’s over 500 bucks.” And I give them a limit and I say, “Anything over $500, please ask me. Anything under 500 bucks, you just go ahead and do it.”
And so that’s our working relationship. They texted me, I said basically one sentence. “Yeah, let’s do it. Go for it.” That was it. And so I did have to follow up and I was worried about it and I wanted to make sure it was okay. But if you compare that to a full-time job, if you compare that to other small businesses, that’s a much more passive … Even when you have a big problem, that’s a much more passive situation than you having to go solve a problem or you having to manage 10 employees. It’s a very different level of involvement but it takes some work. It takes finding that property manager I think is probably the key component. And for years, I studied all the property managers in town because I was self-managing all our properties, my business partner and I were.
And we knew the two or three property managers that were like, “Hey, if you ever want to hire a manager, I really like them. They seem trustworthy. I’ve met them, I’ve vetted them. I talked to their other clients.” And so I think taking it slowly, if you’re new to a town, meeting all the property managers on the phone, on Zoom. Do you feel good about them? How much experience do they have? And I have one property manager who has a lot of properties and they have a lot of years of experience. I had another property manager who’s pretty new. They were a boutique property manager. So I went with two different styles of property managers and I’ve been happy with both of them. They both have worked for different reasons. But as a long-term rental owner, you’ve got to have good managers on the team. Otherwise, I couldn’t do what I’m doing.
You’ve got to author that book, Chad, the Two-Hour Real Estate Work Week, man, you’ll be the next Tim Ferriss.
But I want to go back to something. You said said that you got to a place that was enough. You said, “I got to a place that was enough.” And it goes back to what I mentioned earlier about the whole ambition thing. How do you recognize when you have enough? And I’ve told this story before but I’ll tell it again because I feel like it relates. My son and I, we really enjoyed watching all the Marvel movies with Captain America and Ironman and all that stuff. And the main bad guy in the Marvel’s movie was Thanos. And Thanos was this guy from space, wherever, and he had one mission in life and it was to decrease the population by 50%. He felt there was too many people across the entire universe. So over the arc of all these movies, Thanos is collecting all these little pieces he needs to be able to make that thing happen. And on the second to last movie, Thanos snaps his finger, and half of the world’s population is gone.
So Thanos, this incredibly ambitious guy who’s beaten up Captain America and the Incredible Hulk, he does all these crazy things and he snaps his finger and he does what he needs to do. When that last movie opens, the first time we see Thanos, he’s no longer this ultimate warrior soldier dude. He’s a farmer. He literally hangs up. That’s the first thing you see. Thanos’ armor just sitting on this … almost like this rack. He’s just racked up his armor and he’s farming. He’s completely given up this thing that he was super ambitious about because he got to that point that enough was enough. Where I struggle is I don’t know where to draw that line, right? And when I think that I’ve drawn that line, you get there and it’s like, well, is this really enough? So you keep going. So how did you know, Chad, when enough was enough? How do I have my Thanos moment where I can just hang up my gear and be happy with what I have?
Avengers metaphors are my favorite. I love it. Yeah, that’s such a … My kids and I watched every one of those movies. I get that a hundred percent.
Well, I’m glad you could explain it for me, Tony, thank you.
It is good. And I think this fits with the small and mighty because I feel like we as real estate investors, we’re the hero of the story. The people listening to this, they are the hero of their own story and ambition’s wonderful. It is the engine that gets you somewhere. And so I have a couple of comments. One thing I like to … my experience has been that you begin … your real estate investing journey has three basic stages. It has the starter phase. And the starter phase, for me, the ambition in the starter phase is just to get that first property, that first two or three properties, to learn, to network. Yes, you want to make a profit. Yes, you want to build wealth, but you’ve just got to get in the game. That’s the starter phase. And then you get into this builder phase, which is where most people spend most of their time.
As a real estate investor, this is where you use the BRRRR strategy. This is where you start turning the volume up. This is where your number one ambition is grow safely. You’ve got to grow. You’ve got to turn that $100,000 nest egg you’ve got into $1 million or $2 million. That’s the ambition. And I think the problem is most of our conversations in real estate investing stop at the builder phase. And we just assume, all right, we’ll get to that stage where I figure out what enough is and I’ll get to that stage where something happens. And yet it’s hard to make that transition. And so what I have found [inaudible 00:24:27] to examples of other people. And I’ll give you one example from somebody in Southern California actually. I don’t know if you know a guy named Mike Cantu. He’s been investing in real estate since the ’80s.
And this was his situation. He’s a wholesaler. He was flipping properties for years. But he also bought rental properties. And his deal was he got to that stage where he was past the builder phase and he knew he had enough because when he looked at all of his rental properties and he said, “You know what? If I just lived off the income from these properties, let’s say if I paid off all the debt on these … ” Let’s just call it 10 properties, right? “If I paid off the debt on these properties, I would have enough to cover a hundred percent of my lifestyle that I have right now. So everything I spend money on.” So you need to know how much you spend on an annual basis but then you just round it up. If you just say, “All right, I want to build a big cushion in there.”
And in the book I call that the FatFi. If financial independence is your normal number just to pay your bills, fat financial independence is build a nice cushion in there just for peace of mind, for inflation, for other things. Let’s just call that, I don’t know, 150,000 bucks per year. Let’s say that’s your number. Well, what Mike did, he looked at his rental properties and said, “If I paid off those properties, I would have 150,000 bucks coming in from these really nice, solid single family houses in California.” And so that’s what he did. He flipped some houses, he saved up his money, he sold some of his rental properties that weren’t great long-term rentals and he paid off that smaller portfolio of properties. And he had a lot of his friends, he had his mentors. People were saying, “You’re crazy. Why would you do that? Why would you do that?”
And it’s because he’d hit his number. He’d hit that number where instead of growing and using leverage to keep doing what builders do, which is grow, grow, grow, grow, he was in this third stage, which in the book, I called it the Ender Phase, which I don’t like the word ender because you’re not done yet. But it’s more like a harvesting phase. Let’s harvest it. Let’s take some chips off the table, to use a poker metaphor. But here’s the thing, his ambition wasn’t done. Mike is still, to this day … He probably did that 20 years ago. He’s still, to this day, flipping houses, wholesaling properties, but he never has to worry about going back because he’s got that foundation. And so I think that’s the message I want to convey is I’m not trying to say don’t be ambitious.
I’m not trying to say you should, “Retire, sit on a beach, drink a pina colada.” Which is cool if you want to do that, right? But if you’re ambitious enough to build enough wealth to retire early, to have financial freedom, you’re not going to sit on the beach forever. I promise you. You’re going to need something else that drives you. So whether that’s real estate, whether that’s another venture like my nonprofit that I did, whether it’s teaching people online, you need something, you need some kind of work that matters to you. But I can tell you from experience, I think Mike could probably tell you, other people that I’ve interviewed for the books could tell you, your whole work or life changes when you don’t have to do it for money. It’s totally different.
When you don’t have to flip houses, when you don’t have to do this other thing, you do it just because you love it and it gives you leverage. If somebody says, “Hey, I want you to do this thing and we’ll pay you a hundred thousand bucks,” but you just think it’d be not fun or unethical or whatever, if you’re just not comfortable with it, you can say, “No, thank you. I’m not going to do it.” Because you’ve got enough. And so that’s my definition of enough, Tony, is that let’s take care of the financial phase, let’s get to that Ender Phase, let’s … You don’t have to pay off all your properties but I like paying off debt, at least in part, because I feel like that’s a manifestation of the reducing risk from your portfolio. It’s a way to increase your income.
It’s a way to reduce … Let’s say we went into a great depression or we had some really weird situation where your market just tanked and you didn’t get any rent for a year. Whatever reason. We had a COVID that went really bad or something or you couldn’t evict anybody. It gives you peace of mind knowing that you’re not having to be aggressively always leveraging, growing and just always having to pay for stuff. You have that place where you could just sit back and relax. It’s like financial oxygen. And it’s such a good feeling, it’s amazing, but it’s hard to quantify. And so with the book, I’m trying to quantify that for people and show them that the end of the journey could be that and you could have that ambition to have a financial portfolio that looks like that.
So Chad, let’s talk about some of the things in your book that maybe someone who’s starting out doesn’t even know as to whether they want to build this huge empire or they want to start out with the small and mighty. What are some of the first steps that they should take and does it even go back to how you were talking about financial freedom and personal finances? Is that where somebody should start or what’s those first couple steps to reach this financial independence from a small and mighty portfolio?
Yeah, so I think it’s helpful to get started as soon as you can. But think there’s a step that you can take before you go buy your first property or before … maybe if you already own a property but you’re just starting to take this seriously. I think it’s helpful to have a big picture goal. And one of the exercises that I’ve done myself and I taught in the book as well is to just work it backwards and figure out what’s a potential portfolio that I could own and how much money would that portfolio produce? And so let me explain it a little more concretely. Let’s say you, in your town, a property rents for $1,500 per month. Let’s just say a long-term rental, that’s what this rents for. So just ask yourself, if I owned 10 properties like that and I paid my expenses on all those properties, and let’s just use round numbers. Let’s just say you netted $1,000 per month on each property and you didn’t have a mortgage on the property. You did what I talked about and you paid all those properties off.
You have $1,000 per month coming in and you add 10 properties. 1,000 times 10 is $10,000 per month or $120,000 per year. And so that’s just a rough way to say, “All right, if I needed $120,000 per year, a rental property like this, I would probably need about 10 of those.” And so as you’re starting your journey, it’s just nice to know, oh, that’s about a number I would need. Maybe when I get there I’ll need 12 or I’ll need eight or I’ll need 15. You could adjust that as you go. But it just gives you a concrete goal to work for. And then my next suggestion would be just start with one. Just get one property. Because as both of you know as well, it’s like your university education starts when you own the property. That’s where all the learning happens.
That’s where all the Xs and Os of how maintenance works and how tenant screening works. You’ll actually learn all those things you’ve been hearing on the podcast because you have to apply it to that one property. And so my recommendation is to get that first property and then maybe get to four properties and then regroup and think from there. Because four properties is sort of a … it’s not a magic number but a lot of the financing programs out there, the conventional financing programs, they get a little bit harder after four properties. So if you’re using conventional financing, that’d be a good place to get your first four loans.
And you can also then regroup and say, “Is this enough for me? Do I really like real estate? Do I want to do this more? Or maybe I want to do something else and I just want to leave it at four.” So I think having the big picture goal, maybe it’s 10 properties, maybe it’s 15, and then having a short term goal of, let’s just get to four and maybe I buy a property per year for the next four years or two properties per year for the next two years. That’s a very manageable goal that, instead of thinking, “I’ve got to go buy a thousand units.” Or, “I’ve got to do all this.” Just buy a couple properties, keep it manageable, learn along the way. That’s how people, in my experience, get in the game and make progress.
Chad, can you talk about the misconception that people might have as to looking at somebody on Instagram and seeing, “Wow, they have 54 doors. Wow, they must be doing really great. I only have five right now. How did they get to 54 in a year and I only got to five?” Can you talk about the misconception and how counting people’s doors can be so misleading?
Yeah. Yeah. 54 doors doesn’t necessarily translate into the cashflow and the free time that we’ve been talking about. So I know people who have one or two properties who produce more income than somebody else who has 20 properties literally. And so I think that it’s really difficult. Instagram, social media, it’s easy to measure the number of properties, the number of doors, but you just don’t know the story. That’s my encouragement. Is you don’t know, first of all, how much money they’re actually making. I know investors and I’ll give you a real quick story. 2007, the most “successful investor” in my town had hundreds and hundreds of properties. They had tons and tons of leverage. They used lots of seller financing and creative financing. And they were really good at it. They really were good at their business but they didn’t have cash reserves.
They didn’t have enough money set aside. They were moving too fast and they crashed and burned. 2007, 2008, they had a lot of risk behind the scenes that often comes with people who grow really fast and buy a lot of properties really fast. So first and foremost, you don’t know what’s going on behind the scenes. Are they taking too much risk? How much money are they really making? And then the other thing is just this is not a game of competition, you against the world. I don’t play golf a lot but this is more like golf where it is you against your best score that you got in golf. It’s you against your goals. It’s you against … If you needed 10 properties, did you buy one property this year? That’s successful. That is successful? And that’s a big motivation for my writing this book was I want to validate people who are ambitious but aren’t trying to buy 50 doors this year, aren’t trying to buy 1,000 doors and syndicate.
Those are cool. There’s nothing wrong with all that. But my experience has been there’s a lot of people who need some validation. They need to say, “Am I okay? Am I doing this okay? Can I meet financial freedom with five properties, with three properties, with 10 properties?” And my answer is absolutely, yes. And only you know how much time you’re actually spending on the things that matter to you. Are you really spending time with your family? Are you really traveling? Are you really exercising, getting sleep at night? Those things are hard to quantify and only you know those things. At least in my book, that’s success. That is you living life on your terms and real estate’s just the tool to help you do that stuff. It’s not the [inaudible 00:34:36] it’s the tool.
Chad, have you read the book, The Gap and The Gain by Dan Sullivan and Ben Hardy?
I feel like I have because I’ve heard other people talk about it, so I need … It’s on my list. I’ve heard a lot about it.
Ash, have you read that book yet?
Yeah, I have. Yeah.
Yeah, I actually just finished re-listening to the audiobook this week, and I think a lot of the concepts of that book ties into what you just said, Ashley. It’s like, where, “Man, I bought five properties this year where I’m looking at the person that bought 50 and now I feel like I’m doing something wrong. Now I feel like I haven’t accomplished enough.” But really, if you look backward and you compare yourself today to the Ashley or Tony that had zero deals, how proud would that version of yourself be for what you did today? As for our producers, maybe we can get Dan Sullivan, Ben Hardy on the podcast because I think the whole concept of The Gap and The Gain is such an important thing for entrepreneurs of any kind, but real estate investors particularly, when it comes to the door count and things like that to really take into account.
One follow-up question for you here, Chad, and it ties into the whole concept of being small but mighty. Do you find that certain real estate investing strategies work better to build a small but mighty portfolio? Because I would imagine, say I wanted to go out and buy a bunch of turnkey short-term rentals from one of the turnkey providers, and obviously there’s nothing wrong with going down that path. However, I also feel like you might need more doors to achieve the small but mighty idea without investing strategies. Is that where you went the student housing route? How much does strategy play into success with the small but mighty idea?
Yes, it’s a good question. I’ve seen a lot of different niches or strategies, like student rentals, section eight, turnkey. I’ve seen all of those work. I think the common theme though is typically they’re small, either single family or small multifamily, and it’s mainly because of the financing. I find financing is such a key component of every real estate deal, and so if you can stick with the one-to-four units, the advantage of being able to get long-term fixed financing, the advantage of being able to sell those properties easily if you need to sell them. I just find … One of my mentors was a guy named John Schaub who wrote a book called Building Wealth One House at a Time. He loves single family houses. He’s been investing for 50 years. He’s bought mobile home parks, he’s bought commercial buildings, he’s bought all sorts of stuff and he comes back to the single family house.
Because if your goal is to have a lot of time and free time and flexibility, and if your goal is to have tenants who are pretty much managing themselves and doing a lot of stuff, taking care of themselves, single family is great. So I love single family. I have some single family. But I think the common theme is mostly small multi-units, although I have 10 units, 12 unit buildings. I think you can grow into that as well over time. But I think the common theme is figuring out … and here’s a definition that I didn’t mention earlier of a small and mighty investor. A small and mighty investor is someone who has the least number of properties possible to still meet their goals. And so I think a single family house, multifamily properties, they allow you to do that. They allow you to have that simplicity, that elegance of a small portfolio that’s easy to manage, that still has the advantages of having good financing. The BRRRR strategy is a lot easier because you can get good, solid financing on the property. That’s the common theme. But I think the cool thing about the idea though is there’s lots of different ways to apply this.
If you want to buy mobile homes, if you want to buy turnkey properties, if you want to buy small multifamily and [inaudible 00:37:59] student rentals, that’s all … And short-term rentals as well. I have a lot of people I know who mix it up between short-term rentals and long-term rentals and have both of those. Maybe the short-term rentals is their cash cow but they also buy in good locations that are going to be good … that are wealth builders over the long run. And then they get some more long-term rentals to be their more passive, wealth building vehicles as well. So it’s like a chessboard. There’s so many ways to mix it up but the common theme is that philosophy of having the least number possible, the philosophy of not only just trying to grow but also thinking about risk and your free time and your flexibility. If you integrate all that together, your portfolio looks a lot different than if your goal was just to maximize the number of units to grow as fast as possible. There’s just two different approaches to real estate.
You said that the goal is to get to your number with the least amount of units possible. We talked about this a little bit, Chad, but just break down how should I calculate my number? What are the steps I need to take to understand, here’s the number I need for my personal life to I guess build the small but mighty portfolio?
It all starts with your personal finances. And so one exercise I recommend as a takeaway for people is just to … if you have a partner or a spouse, get together and just figure out how much are you spending right now on an annual basis? You can use a software like [inaudible 00:39:18] or something I think is still a free software. You can use spreadsheets, you can use QuickBooks, whatever you use. But just get a rough idea, how much are you spending right now? And then I try to break that down into what are the necessities? What are the things … If I took away the fluff, I like eating out, my wife and I like eating out, we like traveling, but push came to shove, if things were really bad, we could fall back to let’s just get the house paid for. Let’s just buy the basic groceries. Let’s just do the basics and figure out what those basics are.
And that’s known in the financial independence world as lean financial independence, so like the basic financial independence. For some people that might be 30,000 bucks a year, some people that might be 50, 60,000 bucks per year. Whatever your number is, there’s no judging there. Just figure out what that is. Then add on to that, what is my normal financial independence? In a normal year, if we spend a 100,000 bucks per year, let’s just call it that. And then I mentioned earlier but try to find … then have a little bit of a stretch goal, your fat financial independence. Add some cushion to it, make it a nice cheeseburger instead of just the celery version of financial independence. And so then that’s the starting point. That’s all about personal finances. And then you can work it backwards from there.
And it depends on what market you’re in. If you have a property in Southern California versus a single family house in Clemson, South Carolina, where I live, there’s going to be two totally different numbers. And so you just need to figure out what market am I investing in, and if I owned 10 of those properties or five of those properties, would that support that goal that I just worked out, that financial goal? It’s really as simple as that. To do financial independence planning, you just need to know how to do addition and subtraction. There’s no fancy calculus or algebra or anything like that. You need to figure out how much could a property produce in cashflow if I got it paid off and then what’s my financial number? What kind of number do I need to hit personally? And then you just need to match those up.
Yeah, I love hearing that, Chad, because I think for so many people, the idea of landing on a single number can seem overwhelming, but you broke it down in really a formulaic way that hopefully is easy for everyone. Dude, I’m really enjoying this conversation because I feel like it’s almost the antithesis of what you hear from so many influencers and gurus, et cetera, and even authors a lot of times. You hear the 10X, 10X, 10X and go big and do this, but what you’re giving folks is a different perspective to really use your real estate business to support the life that you want and not let your life get consumed by this real estate business that you’re trying to build. Yeah, man, I love it. Yeah, I guess, anything else from you, man? I mean, I feel like we touched all the big stuff on my end.
Well, I’m just going to rip on what you just said because I have been there. I started this conversation saying, “I’m not perfect on this thing.” Most of the time, I’m the kind of person who has to touch the fire and learn and get burned. So if you want to go 10X and get big, go for it. There are ways to do that and that’s great. I just want to give an alternative. And I also want to point out the dark side of that, the downside. And for me and the people I’ve known who’ve 10X-ed and grew really fast, I found it’s like that horror movie, Frankenstein, or the horror book Frankenstein. And for anybody who doesn’t know how that works, there was a really famous … there was a really smart scientist in this book. His name was Frankenstein. It wasn’t the monster, it was the scientist, and he was brilliant, and he created this creature and he made it come alive. Originally, it was supposed to be helpful. It was supposed to be a great thing. This creature was going to help make his life better.
And I look at entrepreneurs like Frankenstein. I’ve been there. I built this business. It was supposed to be great. It was supposed to be awesome. But then this Frankenstein woke up and it looked at him and it wasn’t the nice, cuddly, fun creature that it was supposed to be. It was a horror story,. And the scientist turned around and ran away. And that Frankenstein made his life miserable and it ended really badly for everybody. That happens with 10X-ing, that happens with business. There’s this bias that you hear the success stories, you hear the people who did well, and it’s definitely possible to do well. So I don’t want to take your ambition away to have a big business. But you need to know that it’s difficult and you also need to know there’s alternatives. So if that’s not your thing, if you’re like, “I don’t really want to have a bunch of employees and scale and have all that leverage and do all that,” you don’t need to.
That’s the thing, the main message I want to get out there, is that to scale beyond your financial independence number, you need to have a good reason for that because it’s not necessary. You can have a small number of properties. You can be conservative. You can have the simple little scenario that can accomplish a hundred percent of your financial dreams. And I hope to be living testament of that. I pinch myself sometimes. My wife and I had a conversation at breakfast this morning just saying, “This is crazy. We’ve spent a year here in Europe. Our kids are getting to have this experience. Now we’re in France. We’re getting to spend time with our family here. Wow. This is what we wanted to do 10, 12 years ago, and we’re doing it.” And so I just want to encourage people, if that’s your dream, if you have an ambition that’s beyond just owning a bunch of units, if you have an ambition to spend time with your family, you want to have ambition to work less or work a job that doesn’t make a lot of money, but it’s your passion, it’s your enthusiasm.
There’s teachers out there who are doing some other job that makes more money who need to be teachers. There’s people who are preachers. There’s people who are moms and dads. There’s people who are local community advocates who should be doing that but they’re doing this other thing because it makes a lot of money. And my passion is saying, let’s solve the money and then let’s give you this enormous amount of time because the world needs you to be doing whatever that thing is. And you can. You can do it. It’s going to be some work, it’s going to take some effort. But five years from now, three years if you’re really ambitious, 10 years from now, you could be just like my wife and I are. You could be kind of pinching yourself saying, “Wow, this is amazing. I can’t believe we were able to use rental properties to get to the point where we are now.”
And I think to your point that you don’t have to love real estate. It doesn’t have to be your passion to do it. It is a tool to open up doors to do your passion. So I think people get caught up as, “I have to do Airbnb. I have to do short-term rentals because I love design. I’m passionate about it.” But yet, long-term buy and hold might actually be a better play for them because of their market, because of resources they have or things like that. But that’s boring to them or not their passion. And don’t get too caught up on what you’re passionate about right now and use something to build that solid foundation so that you have that time and money freedom. Last year I went and did cabins on land, renovated old rundown cabins into this beautiful thing. And if I would’ve done that my first couple deals, I went $40,000 over budget on this cabin. I never could have done that if that was one of my first couple deals. It would’ve bankrupt me at that point.
And so it’s just like now I can go because I have more flexibility into what I can do and how much risk I can tolerate because I have the strong, solid foundation. And then you just have more options as far as time. It’s like, okay, maybe I need to put more of my own time into this deal. Maybe I need to put some of my own money into this deal. Or maybe I need to make the time to find out how to be more creative for this deal, things like that. But Chad, thank you so much for coming on. We really appreciate it. I want to give a shout-out again for your book, Small and Mighty Real Estate Investor, and it’s coming out with BiggerPockets Publishing. And you guys, we do have a promo code for you. It is small306 and you’ll get 10% off. So make sure you go to biggerpockets.com/bookstore to check that out. And Chad, where can everyone find out some more information about you?
Well, other than the book, which I hope they check out, thank you for talking about that and you can find me … I have a podcast. I’m on the Coach Carson podcast and I talk every week about this kind of stuff. If you look for Coach Chad Carson on Instagram, on YouTube, anywhere.
Okay. Well, thank you so much for joining us. I’m Ashley at wealthfromrentals and he’s Tony at tonyjrobinson. We’ll be back on Wednesday with another guest. We’ll see you guys then.
Watch the Podcast Here
In This Episode We Cover
- How to build a small real estate portfolio that supports your financial goals
- The three important phases in every real estate journey
- Lean FI, fat FI, and why you should know both numbers before investing
- The people and systems you NEED to create passive income from your rentals
- Arriving at “enough” when scaling your real estate empire
- And So Much More!
Links from the Show
Books Mentioned in the Show
Connect with Chad:
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.