Each week for the Best Ever Round Table, the three Best Ever Show hosts — Ash Patel, Slocomb Reed, and Travis Watts — come together for a deep dive into a commercial real estate investing topic.
In this episode, Ash, Slocomb, and Travis talk about the two sides of the coin: personal finance and investing. They discuss the importance of each practice and share tips and stories based on their own personal experiences.
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TRANSCRIPT
Travis Watts: Welcome, Best Ever listeners, to another episode of the Best Ever Round Table. I'm joined with Ash Patel, Slocomb Reed. I'm Travis Watts. And today, what we're talking about are the two sides of the coin. So we've got personal finance, we've got investing, so today we're just talking about money and the difference between those two. So I think that we've all heard the stories of the lottery winners, the celebrities, the professional athletes that go bankrupt and broke after X amount of years of making crazy money... So why is that?
I tend to think it's either lack of financial education, poor investment decision-making, or not investing at all, and maybe buying too many liabilities. So that's kind of the topic of the conversation. And what I want to kick it off with is this question - how important is personal finance and investing? So we'll start with personal finance. I just want to get your thoughts, what it means to you, and just like I said, how important is it? So with that, I'll let you guys run your quick intros. Slocomb, do you want to start with that question and start us off?
Slocomb Reed: Yeah, absolutely. Best Ever listeners, Slocomb Reed. I am an apartment owner-operator here in Cincinnati, Ohio. There's a lot of value to personal finance, of course. My path into real estate investing was different than most. I was a full-time professional youth minister who had no financial background. I didn't start learning about investing until, basically, I was in real estate. I started with my house hack and was off to the races from there.
Learning personal finance and learning investing came in tandem for me, and learning how to control expenses, control spending, in a fairly Dave Ramsey style - I paired that with learning how to increase my income through real estate investing. So incredibly important to know personal finance, but also to recognize what it is that investing and in particular real estate investing can do for you personally.
Travis Watts: Awesome, a lot of parallels there. Excited to jump in here in just a couple of minutes. But Ash, your thoughts here first, a little intro on you if somebody's not familiar - I don't know how that could be - and then your thoughts on personal finance?
Ash Patel: Yeah, thanks, Travis. Hey, Best Ever listeners, Ash Patel. I am a non-residential, full-time commercial real estate investor. I've been doing this for over 10 years, and here's my thoughts on personal finance and investing. Investing is not even an option until you get the personal finance part down. Probably the two of you guys -- I learned on my own. Didn't have a lot of teachers to really teach anything about finance, other than, like Slocomb mentioned, the typical Dave Ramsey mentality: Save, save, save, 401(k), retire at 65. That wasn't for any of us.
So personal finance I think is incredibly important, because I know so many people that are high net worth individuals, but they lack any personal finance skills at all. Doctors, lawyers, business owners, they spend so much time in their business or in their craft, and they never devote any time to personal finance. And I'm in my mid-40s, these guys are as well, and you can see the difference in that they have accumulated wealth, but they have very little to show for it. A lot of it's being spent as fast as they make it.
They don't know how to invest properly. They usually hand that off to their guy. "Hey, what do you invest in?" "I've got a guy, my guy does it." "How's your guy doing?" "I think he does pretty well." Really? Do you know that? No, you don't. You just assume he does. And when the market crashes, their guy will let them know. "Listen, this is cyclical. Hang in there." Come on, guys... You spent all this time, effort, money in honing and perfecting your craft... Put 5% of that into personal finance and investing.
Travis Watts: 100%. The whole buy low and sell high and stay in it for the long run... There's really nothing else to say when we have market crashes when you sell that product. My background was pretty interesting. My parents were extremely... Well, still are, still very frugal, so I was taught all about the coupons and buying off-brands and not buying anything I didn't need and all that kind of stuff. So I'm very grateful to have had that kind of upbringing. But at a certain point, I just realized that it's great to have that foundation; I think it's totally key to all of your points. But if you're truly wanting to build wealth, it has to start with the personal finance and the small steps, and then you keep building onto it. And when you get introduced to the concept of investing and compounding and passive income and all the things that we're after, it can make all the difference in the world.
So, just general thoughts... The way I look at it -- the parallel I draw is this; personal finance to me is like K through 12 school. I think it's essential, I think you have to learn the foundation, and then beyond that, college and beyond and specialty training is investing. So I think you've got to start with one to get to two; nobody just drops out in kindergarten and then goes to college. So that's my personal thoughts on it. So you guys, Slocomb, I'm going to circle back to you. Do you have any tips or anything that's worked for you, or anything that you've seen other people do you think is a good idea in terms of personal finance?
Slocomb Reed: Totally, thank you. This is coming from a guy who failed kindergarten. I wasn't even ready to move on to first grade after kindergarten. I couldn't sit still and got in too many fights. I'm pretty good at sharing now, but I had to spend two years learning about it. So the big thing for me, the financial education that I learned from my parents - Travis, it sounds like it was really similar to yours.
My parents were great at saving money. Buying the Kroger brand, the coupons. Family vacations for us growing up were travel all together in the minivan to a place where we can stay with family, go visit them. Still never been on a cruise, plan to work on that here soon. I say all of this because the personal finance foundation that I was given in my adolescence leading into my adulthood was "Find work that is meaningful that you enjoy, and then learn how to live on the resulting income." That was it.
My parents have done that fabulously well. There was nothing with regards to, "Learn how to increase your income, learn how to find the lifestyle that you want, and then figure out how to generate the income, both the amount and the style of income that you want in order to get that lifestyle." I didn't get any of that until I started reading books in my 20s, when I had my first job. And again, I said I came from professional youth ministry, the epitome of the "do good work, live off the money that you make" kind of job. The introduction to investing for me was also the introduction to figuring out how I want to live, and figuring out how I can create those sources of income that would produce for the lifestyle that my family and I want.
Travis Watts: I love that. I think the common theme from all of us that I'm hearing is most people just aren't taught this stuff, either from parents or obviously not from school, so it really is a journey of self-education. So I think it actually starts with that curiosity or drive to be able to self-educate in the first place, to get to the ladder steps there.
Unfortunately, a lot of people never pursue that, so it's just the K through 12 than the W2 income and then paycheck to paycheck, and then maybe your 401(k) has some money in it when you're 65, as Ash pointed out. Ash, any tips on personal finance from you, anybody else, that you'd like to share?
Ash Patel: Yes. Slocomb, you should not have told me you failed kindergarten. The next time we play poker, it's coming out.
Slocomb Reed: I'm good at addition. I'm good at addition, that's fine. I learned that one early. [laughter]
Ash Patel: I had a similar upbringing as you guys. I graduated college in 1998, right as the tech bubble was booming. So I saw people all around me make a killing in the stock market, and it's unlike anything we've ever seen. Stocks were doubling, tripling in no time. Everyone that had 401(k)s, they were looking to retire early. Everybody opened an Ameritrade account back then, very similar to today's Robinhood group. Everybody's got a Robinhood account, and everybody's seeing the market go through the roof. What happens when it stops? That's when you learn some hard lessons, and you learn all about economic cycles.
So my advice - and this is probably going to be unique and I'm going against the grain, but I've seen enough market cycles, especially in stocks where I don't practice time in the market, instead of timing the market. I'd rather time the market. So I'm a bottom feeder. When there's other opportunities, my money's not really in the market. When the market dives, I go all in, and I've done very well doing that over the last 20 years.
Travis Watts: That's awesome.
Ash Patel: Including most recently the COVID crash, right?
Travis Watts: Yeah, I spoke out a few times about that. Sorry to cut you off. But I'm the same philosophy as you, just wanted to throw that out there. That's awesome.
Ash Patel: Yeah. But Travis, I think it's important to talk about that, because us real estate people, especially the younger real estate people, anybody under the age of 33 has only seen economic booms. They've not lived through some of these harsh cycles that we've lived through. And knowing that, it's important for them to realize what's on the horizon.
Travis Watts: 100%. The first time I was introduced to this stuff, I had a little bit of money, not much at all relative. And going into 2008 and 2009, as it started slipping, I had read Robert Kiyosaki's Rich Dad prophecy. So not Rich Dad Poor Dad, but Rich Dad Prophecy. And all I remember from that book is there's going to be a huge stock market meltdown, don't be in stocks, basically. It was like the general sense of that whole book. So like you, I thought, "Okay, understood" that I could look at a chart and I could see it's been a while since dot-com. So I said, "I'm just going to pull out and try to time the market," even though statistically, you could argue you can never really time the market or whatever.
But it happened to be right. So I was able to sit out the majority of 2008, all of 2009. And that's when I started getting into real estate; to your point, I'm a bottom feeder. So as I saw these prices come down. I didn't get back into stocks because I was more interested in cash flow and I needed a place to live. So like Slocomb can probably resonate with, house hacking was my entryway into real estate, so good stuff, man. I appreciate you sharing.
The only thing I would say as far as a tip on personal finance if I had to narrow it down to one, it's always been that no matter what my income level is - I've lived on as little as $8,000 per year; after college I was making about $20,000 per year - I always, always, always had a margin. If I pulled in $1,000, that was deposited into my bank, I was living on $800. It was always that, and it's self-discipline. It just teaches you, and as it moved up from $10,000 a month income, I'm living on less than $8,000, or usually about half at that point.
So I think keeping a margin is so critical because there's always going to be something, if you're paycheck to paycheck, that pops up, that's an unexpected expense, and this is what demolishes wealth. It's like, "Oh crap, my car blew up, or something. I got these deductibles. Now I'm $2000 out of pocket, I don't have the money. I've got to put on a credit card, now I'm paying 20% interest." It's a downward spiral. Now you've got more payments, but you don't have more income. It's a scary thing.
And as we know from COVID and today's economy, layoffs are starting to happen now with these big companies. Massive layoffs throughout COVID. So things can happen. One income source is very scary, so just keep a margin. So let's switch gears. I appreciate your guys' input on personal finance, but let's talk about investing now. So this is the other side of the coin. Thoughts on investing. Again, how important is it? What's your opinion on being an investor in 2022? Slocomb, do you want to start?
Slocomb Reed: I do, Travis, but I have to go back to what you were saying, just to make a quick point. The best way that I've heard, the point that you just made about saving money summarized, is that the ability to save money is not a financial condition, it is a mindset and a behavior. It's not about how much money you have coming in, it's about the way that you think about it and how disciplined you can be about your mindset of saving money. It's not about having more than you're spending, it's about making sure you're establishing for yourself how much you will spend based on how much you're making, so that you can save.
How do I feel about investing now? We're recording in May of 2022. I have a couple of points here that I'd like to make. Thank you, Travis. One is really about the opportunity available in real estate investing, both residential and commercial, especially... I hope I resonate here with our Best Ever listeners who are active investors. When I started studying Warren Buffett -- I've never invested in the stock market. I've almost invested in Bitcoin in October, November of last year, 2021. I'm very glad I didn't do that. My gratitude for not being in Bitcoin back then will hold weight when this finally airs. What I learned studying Warren Buffett is that I don't consider myself an investor anymore.
The reason I don't consider myself an investor is that the way investing is typically defined by our culture is that investing is placing your money in a bet on someone else's performance and production. I have only ever placed bets in real estate on myself. Yes, I have invested my capital, but I've invested capital in deals that I own, or that I co-own and control. So I am investing my money, but I'm investing my money in a way that, at the end of the day, I have, at least on a microscale, the capacity to dictate the performance of my assets. Which is something that is available to people in real estate if they're willing to be active, like a house hack, taking down a 24-unit apartment building with a partner, doing some of the strip center investing that Ash is doing...
Ash is putting himself in a position to be the one who forces the appreciation of the assets; so when he bets on himself, he has the power to dictate what's going to happen, and if things go sideways, he has the ability to step in, in a way that I couldn't if I invested heavily in Frito-Lay the way that my grandfather did. I don't know anything about chips, and no matter how well that company does, it's never going to have anything to do with what my grandfather did or what I do. In real estate investing, I'm placing bets on myself. That gives me the ability, when things go sideways, to step in and make sure that the course is corrected for my investments.
Travis Watts: Awesome. Appreciate you sharing great things. I'll comment in a second on a couple of them, but...
Break: [00:16:48] - [00:18:36]
Travis Watts: Ash, your thoughts on investing, opinion, how important it is, and 2022 thoughts in general?
Ash Patel: Yeah. Travis, I'm going to take this opportunity to drive this point home again to the Best Ever listeners - be prepared to pivot. Listen, a lot of people have already pivoted. Multifamily cap rates are so low, interest rates are going up, the deals don't make as much sense as they once did. So look at different asset classes, look at different assets, look at different investments.
So I've invested in a lot of startups, a lot of other people's businesses, and just a variety of different things. So everybody that's been living through this 13-year bull run with real estate going up and up, be prepared to pivot and start doing your homework now. Imagine real estate's going to go down for the next five years. It's going to be very difficult to make money. What are you going to do?
So why not educate yourself? Look at investing in start-ups. Look at investing in second-tier businesses. Look at opening your own business, partnering with somebody. There's so many different opportunities for investments, franchises even. Just keep your eyes open, take the blinders off, and continuously look at pivoting
Travis Watts: 100%. Love it. And to your point of pivoting, that's exactly right. What we're seeing, at least to right now as we're recording - I was with one of my stock buddies the other day. We're looking at these charts that how many of these companies are 70% and 80% down from their all-time highs right now. Now, obviously, some aren't going to make it through a really nasty recession; that's just how it goes. But a lot of them will. So anytime something goes 70%, 80% off, it's probably worth looking into and trying to learn more about it. So this is definitely that year of getting educated, not just diving in off a news headline or thinking "This is the bottom" and trying to time it, but really understanding what it is you're investing in. And you do have to be able to pivot. I'm 100% with you on there.
A lot of people know me as the multifamily syndication guy, and historically, I have done a ton of those deals. I do continue to do some of those deals; I am also diversifying this year. There's pros and cons to the market. I'm never one to bash the stock market, but when things fall irrationally and so quickly, it's something to consider. Real estate's a very slow-moving game. So my answer to real estate right now, if you're going to be an investor in real estate, focus on the cash flow, focus on the passive income. At worst, price can be secondary. If you lock-in, you've got a solid cash flow, some diversification among renters, and you can ride through five to seven years until maybe a market recovery. I'm not a speculator, I'm not the buy low, sell high, the house flipper. I did those things before, that's not the market this year, in my opinion.
And then Slocomb, I said I'd comment on yours real quick. So my key advice in this area is to invest in what you know and understand best, and I'll give an example. You brought up crypto. So I've got a different buddy, who's more of a day trader, but also this crypto die-hard advocate. I always ignore him when we have the conversation about crypto, but he was so convincing about two months ago, and he's like, "There's this mining stock, you have to be in it. We're at all-time lows, 50% off its highs. Now's the time, we're going to see the bounce back, it's already formed." He was so convincing. And I said, "I'm going to put a little bit of capital into this. I don't know what I'm doing. I'm just being honest, I don't know, but you're so convincing." So I put $25,000 in this deal, and I'm 40% down right now, in one month, and that's stupid.
So the whole thing is, you should never do that with the bulk of your capital. Had I put, let's say, $1 million in that bet, that is foolish. That is straight foolish. But to put $25,000 there and see what happens - I can lose $25,000 and the world moves on. We're all going to make mistakes, everyone loses money from time to time. But you want to focus primarily on what you know and understand the best, so that's my little story to that. So...
Slocomb Reed: That $25,000, Travis, considering that it's a small percentage of your investable capital, it puts you in a closer, more intimate position to learn a new industry, because now you have more direct access to the reporting and the analytics and the performance of a company in that space. So you're not just getting the possible growth of that company and of that investment that you place, but you're also exposing yourself to an opportunity to learn a new industry and a new asset class. So there are multiple things that could come from that, from placing that small bet in a new space.
Ash Patel: What a great illustration. Patience and discipline. So right now, when the stock market's collapsing, a lot of these Robinhood traders are probably going to panic and pull out. And when we were younger, we did the same thing. The market's going up, we're great, we're greedy. The market starts going down, our emotions take over, oh my god, we panic and we sell. So having that discipline, knowing if your entry into this investment or this stock is at this price, know your exit, both in terms of time and price, so that you're not triggered to make emotional decisions. And then patience is very important.
And again, I think it's just an evolution that all of us learn on our own; but the day trading, everything on crypto - guys, those stories typically don't end well. Now I get it, crypto could go to the moon, but it might take some time to get there. There might be a fair amount of volatility, so the capital that you've invested into whatever crypto - have a plan, be disciplined, don't panic. Same thing with stocks, man. It's so important to have that entry and exit written down, otherwise, your emotion takes over.
Travis Watts: 100%. It's always helpful to pull up the long charts, and to always remember that really the best time to buy is as it's crashing, and somewhere from the middle to the bottom. Because the recovery is usually not more than four years where you're back up to a breakeven, and often less if you're getting in near the bottom. So anyway, something to look at, give you a little bit of peace of mind. So do you guys have any personal finance or investing stories that you want to share as we come to the end of this episode? Slocomb, do you want to start?
Slocomb Reed: You're asking for specific pieces of advice?
Travis Watts: Oh, no. Any stories or any final thoughts, any closing thoughts. Just anything you want to share on either personal finance or investing, just as we wrap up this episode.
Slocomb Reed: One thing that I'll say here... Coming to commercial investing, just in the last three years, from residential investing - actually, everything that I own without partners at the moment qualifies as a one to four-family residential property. I will say, given that our Best Ever listeners are a commercial real estate investing audience, that my 30-year fixed-rate mortgages are looking pretty nice right now.
The ones that are in the threes and the twos that I was able to get refinanced last year - they are definitely helping me sleep at night when it comes to what's going to be happening coming down the road. My shortest term right now won't be up until after 2030. So so far as debt is concerned specifically, I'm grateful that, in this moment that we're experiencing right now, I can have the patience, and I know that whatever was coming in the next few years isn't going to impact the real estate investing that I've already done from a debt perspective.
Travis Watts: 100%. Ash, any final thoughts? Any stories, advice, anything you want to share?
Ash Patel: Yeah. Travis, I grew up in New Jersey. A lot of my classmates ended up on Wall Street. A lot of them became traders, the hedge fund guys. And even now in my adult life, a lot of people have pivoted and gone into equities. So I'm going to tell you, there's people that have spent their entire career trading stocks, Wall Street, day traders, they've got hundreds of hours of education, years and years of experience, and there's times where those experts get rocked. Day trading, especially.
So right now, again, there's a lot of young people. Best Ever listeners, if some of you guys and girls or your friends are doing the day trading game, just know, in my opinion, 99% of that time, it always ends bad. People will get rocked. They can have a great run. Guys, I know people that have had 18, 20-year runs through market cycles, but there comes a time where they end up getting rocked.
So my advice to everybody - don't be afraid of those boring investments. Putting money in your kids college fund, putting money in safer, fixed-return real estate. Diversify, but don't be afraid of boring long-term investments. Stop chasing the quick buck with all of your assets. There's nothing wrong with putting a fair amount of money into the get-rich-quick thing. If you can time it right - good, get out. Don't be greedy. Patience. And that day trading game ends bad.
Travis Watts: 100%. And I always go back to perspective. So you look at some of the smartest Wall Street guys around, you look at the Warren Buffett, the Carl Icahn - they've made massive mistakes, to your point. Buffett was just talking a couple of weekends ago about dumping a bunch of money into some stocks in January and look at where the market is now. Nobody can accurately time these things. I think Carl Icahn has been shorting the market for years now at this point, and we're just finally seeing some results out of that. So the timing wasn't right. Robert Kiyosaki, Bert Dohmen, David Stockman - all these guys have been out there. Big crash, major crash for seven years in a row. So it's just tough, and all these guys have 30+ years experience. The public markets are just, to your point, really, really tough.
So my foundational points, my key takeaways - focus on passive income, diversify, invest mostly in what you know and understand the best, so that you're taking less risk. Look at fundamentals, not hype and speculation. Those are the things I always come back to and land on. And with that, we're going to wrap up the episode. Appreciate you guys tuning in...
Ash Patel: Sorry. Hey, Travis, I'm going to interrupt you. I want to throw one more thing.
Travis Watts: Oh, do it.
Ash Patel: We've quoted Warren Buffett a lot, but he got absolutely rocked during the COVID crash. And then he ended up selling all the stocks that crashed. The airlines, the cruises, energy, and he should have doubled down and bought more. So granted, his powder keg was still plentiful, but he got absolutely rocked during the COVID crash. So everybody does it, we all make mistakes, we all get rocked.
Travis Watts: Sure. And again, diversification. He's very diversified. He keeps, like you said, the dry powder on the side. So something to think about, and just like with my little crypto trade that's in a loss... I've invested before in a Ponzi scheme, I've invested in stuff like that. I've always lost money, quite frankly, in the stock market. If I've ever had a win, it was so marginal compared to the losses that it's not even funny. So it is something I want to know a bit about, be able to pivot to, have a little bit of exposure there for liquidity reasons. But at the end of the day, that's not what I'm here to promote, by any means. So with that, Slocomb, any final thoughts?
Slocomb Reed: This was a great conversation. The one point I'll come back to that I made early on is that within investing, especially within real estate investing, there are opportunities to place bets on the performance of others, and there are opportunities to place bets on your own performance. Real estate investing, including commercial real estate investing, gives you the opportunity to develop a set of skills, put skin in the game, and then when you see that things are starting to shift, you have more control over the performance of your assets, and you have the ability to make sure that your ship can ride out storms.
So yes, absolutely, it's time for a pivot. Assuming a big recession is coming, this will be my first. I'm one of the generation that you guys have been talking about. But fortunately, I'm well-positioned, in part because of long-term fixed-rate debt, and also in part because I'm still the one who is, at the end of the day, responsible for the performance of my investments.
Travis Watts: 100%. Appreciate you guys, appreciate the input, appreciate all of you tuning in. So stick around, we've got another episode of the Round Table next week. And have a Best Ever week, everyone.
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