Semi-Retirement, the FIRE Movement, and Real Estate with Joe DiSanto was hosted by Taylor Loht. The Passive Wealth Strategy Show will teach you how to build your passive income through real estate investing and the personal finance concepts of the FIRE movement.
Joe, thank you for joining us today.
Absolutely. Taylor, thanks for having me.
It’s been a great conversation so far, and I know you have a lot of knowledge that our listeners are going to get a lot from today. For those out there who don’t know about you and your background, can you tell us about what you do, where you come from, your business, and all that great stuff, and then we’ll dive into it?
Yeah, yeah. These days, I do technically consider myself semi-retired. I guess I consider myself that because these days I am a part-time or fractional CFO. So I basically do money management and business management for a handful of businesses, but I also do money management for a handful of high-income individuals.
Some of which own those businesses I just mentioned. And I do that work part-time now, along with running my blog, which is called playlouder.com, where I share and evangelize all sorts of information about personal finance investing, particularly real estate investing and entrepreneurship. But prior to this,
I spent most of my career in Los Angeles, where I started and ran multiple businesses in the entertainment and advertising space. and built up the main business to, I don’t know, on average, about 40 employees or so. But after having our son, when I was 40, my wife and I decided that we wanted to have more time for him and work less and be less stressed.
So we decided to get out of the business, and my partners cashed me out, which was very nice of them. And my wife and I moved to Florida. But three years ago, we were living that more relaxed, less stressed, less overworked life. But prior to having a kid, I really loved working. I loved owning a business, and I was all about it.
It wasn’t a bad thing, but once you have kids, they take up a lot of time. As I was saying to you earlier, apparently, I didn’t know that. So we decided to prioritize that, but in leaving. Honestly, my partners are like, “Hey, I always did.” I, among other things, managed the money and was the business quote-unquote partner of the operation.
So they asked me if I would just stay on to be the CFO and they would just pay me as a consultant or something. I said, “sure.” And then that just naturally grew to other people. I know someone who owns businesses and was like, “Hey, you’re doing that now.” Will you do that for us?
And I quickly learned that there’s kind of a gap there, a need there for those kinds of services and a lot of businesses because if you don’t have a partner in your business, that is the finance guy. That is the person who manages the money and is always looking out for that.
And honestly, getting the great information that comes from managing the money. You basically have a gap in what you need to be doing for your business. So I’m starting to fill that gap now with my new work.
Awesome. So it’s all about the money. You’re the money, man. And we were talking about this before we started recording.
And now that you’re in the blogging and personal finance space, and you’re also working on that for the various CFOs and business owners that you work with, I’d like to dig into what the fire movement gets wrong about real estate and, maybe from the other angle, what real estate investors get wrong about building true financial independence.
So let’s dig into that and talk about your thoughts on what they got wrong. Sure.
Yeah, yeah, because, as I said, I consider myself semi-retired and just de facto. I guess I’m a little bit of the ilk of the fire movement. I’m not like, officially, one of the folks who are usually talked about in that sense.
But I guess, you know, I think a little bit, I don’t know if they got it wrong, I’m like, I’m very much doing the numbers, doing the math. I also come across as some sort of do-it-yourself entrepreneur, and I’m not afraid of things being challenging and for them to take time for you to do well.
And I believe that, particularly with real estate and related, the people who talk about it in the fire movement, just gloss it over and make it seem like it’s this super easy passive income thing. You just plop down, you find some houses, you buy them, and it just works out super well.
And there isn’t much work to do and all that. And I just do not want to discourage anyone from doing it. I just get nervous when I think people are going into it without a thorough understanding of it. And potentially, it doesn’t work out that great for them because they weren’t prepared or they weren’t ready to deal with the variety of things that can come up in real estate investing.
I think that’s probably the thing that I think people get a little bit wrong about, or maybe don’t do it, I guess I should say. The other thing about it is that real estate is, in my opinion, just like any other investment, essentially. It’s a vehicle for you to put in investible capital and get a return on, and I always jokingly say, unless you’re going to go sit in front of your rental property in your car all day and just bask in it.
It’s awesome. This It’s just there to produce a return for you, which may come in the form of cash flow, may come in the form of appreciation, or both, which collectively would be your internal rate of return. So you need to look at real estate in terms of the returns that you’re getting on it in relation to other potential investments that may be easier to do, obviously.
The stock market says you invest in dividends. That’s super easy. It’s very liquid. You just buy something and you don’t really do anything else. Real estate is not like that. You do have to do research. It’s not very liquid. You do have to deal with tenants and make sure that it’s performing well and treat it as a business.
But I’m saying this all not to discourage you from doing real estate. I think real estate is for the risk-reward profile. Ours is better than stocks. At least for me, it has been that way. I think you’d get a superior return for lower risk in real estate. But it just comes at the cost of some work, and it’s not a ton of work, but I like to think of doing real estate as the perfect side hustle, really.
It’s something that can generate side income like spendable cash flow for you today. And it’s a business from which you will get actual tax benefits, both from the business perspective and also from the real estate ownership perspective. So if you like the idea of real estate and you want to be involved in investing and get a good return for a reasonable amount of risk, I think getting into real estate as your side business or side gig is the best thing to do.
And then eventually it could become a full-time job for you, but like a lot of times you go on the fire, people talk or you go on other shows, and it’s like. yeah, you work your way up to a thousand doors and then just live the life of leisure. You’re like if you’ve got a thousand doors.
You’re working full-time, which basically means you’ve just replaced your regular office job with a new real estate property management company. That’s what happened there. However, if you do that, you also own that real estate. You have a new job that you potentially like better. It’s producing a good income for you.
I assume you have a full-time or more positive cash flow and you own the real estate from an investment perspective. So it’s a good thing to do, particularly if you hate your cubicle job. I guess it’s not much work, but that’s not a bad thing. I’d like to, but I don’t know what it is.
I feel like the world, or, sometimes, like we gotta make it super easy for people to be interested in it. If it’s a little hard, they’ll just say they just won’t do it, and I don’t know, as a coach, and I do coach both individuals and businesses, I’m like if you need things to be so easy just for you to be interested. I’m not a good coach because life isn’t easy.
It’s not hard. It’s not easy to make a lot of money. It’s not easy to retire early. Yeah, it takes a lot of work and effort, and interest, and that’s a good thing. It shouldn’t be looked at as a bad thing or something to discourage you. Totally.
So, one of the things that we get as real estate investors, as opposed to stock and bond investors, is that we do have more responsibility. It’s typically more active than stock and bond investing, which can be much more put on autopilot. However, you want to do it.
Yeah, as real estate investors, one thing we get to do is control our business plan. “Hey, am I going to raise my rent?” we can decide. Or am I going to change the finishes to get better income from the property or whatever, change my property management, or whatever you’re going to do?
and that comes at the cost of additional time and mental energy. So I think I would say, I agree with you, that it’s not. It’s nowhere near as passively easy as stock and bond investing.
Yeah, the most passive versions of it, at least from my experience, are going to be true turnkey rentals.
We did because I owned a bunch of those. I was in California, and I bought places in Kansas City, Memphis, and Austin, Texas. And that’s a pretty good handoff. You’re basically managing the manager. The problem is that the financials are tougher to get to work. And unfortunately, with property managers, your interest in their interests is not in alignment.
It’s like, almost the worst thing you do is the best thing, and that’s okay. They have got to make their living and have it be a worthwhile endeavor for them. But. The numbers, essentially in terms of rent versus purchase price, have to be pretty favorable. And I don’t know that they’re favorable enough these days for that model to work super well.
You can sustain negative cash flow, which you shouldn’t want to have to do. But if you can, and you go for the longer-term appreciation part or play there, maybe it could work, but it’s just that real estate is so expensive right now. It’s just really hard to get it cheap enough for turnkeys to work.
Otherwise, I think, syndications are like the truest form of passive income, or I guess you could say, if you want to go, you can jump over to the stock market. Basically, reaching good dividends is essential. The truest most passive, but syndication is something that I would rather do than REITs because REITs are essentially vulnerable to basic trading volume and the fluctuation of the stock market.
So you’re really more in the stock realm over there. But I figured I wanted to do something super hands-off, so you would go the syndication route and then. It’s so much more accessible these days with all the platforms and so on. So it’s a good thing. I think, where what you give up is potentially a little bit, there is the larger scale appreciation of actually owning the asset yourself.
I think you could potentially have more value there, but not always, and if it’s a good syndicator, they know what they’re doing, and they have good teams to run the properties. Okay, syndications, I believe, can provide more cash flow than single-family owner properties, which comprised the majority of what I owned.
I did better on those, on the appreciation front. So I’ve been slowly exiting them, and I’ve been known to put some of that equity into commercial real estate syndications. But I want the cash flow right now, with my sort of semi-retired status.
I can understand that. So one of the things that I like about syndications, in particular, is that I can get exposure to asset classes, and I would have an absolutely 0% chance of owning myself. I would never go and buy a mobile home park. I’m sorry, I just wouldn’t do it. But through syndication, I can get access. Working with a syndicator now for your turnkey rentals, approximately how many units did you buy, and for how long were you acquiring or holding your turnkeys until you started to sell them off?
Yeah, I bought my first one of those all the way back in 2007. Turnkey wasn’t even a thing back then. What that meant was that I’d found a realtor in Austin. I was looking at different markets other than LA because I didn’t really want to start buying rentals in LA. Because once they’re expensive and two, it’s not very favorable, it’s more favorable for the tenant in terms of things like local laws and stuff.
So I found an investment-oriented realtor in Austin, so I went down there. I bought a place, and he basically referred me to a property management company that he liked, and I just took it from there. And poof, you had what, I guess, turnkey, but real turnkey is, I guess, theoretically, the person who sells you the property is also the property manager, and it’s truly out the door done and they’re managing it for you and everything.
But between then and, I don’t know, up to 2016, I bought a total of 10 properties, all single-family. I’m not sure why; you just go with your gut and what you feel. I felt more comfortable with single families because I thought they might do better on the test.
Because for anything that’s more than two units, largely because it’s going to be there, the price and the value are going to be based on rents. And my methodology was that I was purchasing them as an investor. But then when I went to sell them, I would sell them retail.
I wouldn’t sell them to another investor because, obviously, retail is where. The actual owner-occupant, they’re going to pay more. They’re going to buy a little bit more on emotion. If it’s a tough market and they’ve put in six offers and they haven’t gotten anything, you need a little more money out of them.
So, that worked out to actually be a pretty good strategy. And so I started selling them in 2018, just a couple a year, basically. And then when I moved to Florida, I was like, “Oh, the math on the turnkeys was very up and down.” Sometimes I have good cash flow and then it gets unwound by some event or the property manager.
Basically, the bed, so to speak, and not getting it rented out quickly enough. It’s when you do it for yourself and it’s your money, obviously, you move faster and that kind of thing. But again, I was coming from a market where I couldn’t really own properties in my own market.
So once I moved to Florida, I was like, “All right, I’m going to sell.” Sell these slowly and get out and get rid of them. Get out of having to manage them. And I’m going to buy some properties down here in Florida and manage them myself. So I did that, and in my specific area, where properties are twice the price.
So of the five that I sold, I got two here. And I still own one of those. I decided to sell one of them at the end of last year. It closed in December just because the market here just went bananas. And I was like, eh, I’m gonna. I’m gonna. I want more cash flow. I was doing better on the cash flow.
Having them here, managing them myself. But I was like, “I’m going to sell this and see if I can get some more cash flow in some syndication deals.” So I found a syndicator that I liked, and their thesis is just strictly more yield, yield-oriented projects like maximum yield versus value add, or whatever.
And I diversified. So, essentially, I spread my risk across different types of real estate. And I still have the one rental here.
Nice. Okay, And then along the way, I should say too. I, for my business in Los Angeles, sequentially bought two buildings, and I now own a pretty sizable commercial building in Los Angeles that my former business occupies. And essentially, I generate cash flow from that. So I’ve done a lot of single-family rentals, but I’ve also, like, pretty much developed and renovated full project change-of-use development projects for two pretty sizable commercial properties in LA.
Actually, I think you mentioned you listened to my episode on the best real estate podcast ever, where I talked about my woes with the renovation project for the last building.
When we first spoke two weeks ago, I was curious about your thoughts on the decision to get into Turnkeys. Would you, if you were to make the decision all over again today, knowing what you know now, would you invest in turnkeys in the first place?
Would you do syndicates? Would you do something else? Was it the right decision at the time, given the knowledge base you have now?
I wouldn’t do it again. On the whole, I’d say, again, everything’s an investment, and you do the numbers. And with turnkeys, you just have to factor in both the cost of the management and also the cost of the fact that
The manager, again, is not entirely your friend, so you’re going to have more losses there with them. They’re not going to bid things out. They’re going to do in-house work. They’re going to take over, they’re just going to, you’re just going to spend more than if you really did it yourself.
And then I also think that when tenants deal with the actual owner versus a management company, I think they’re more comfortable complaining about things. Not that you shouldn’t address all tenant concerns. I think you should, but. It’s like a tenant. I’ve literally had to pay for a plumber to go over and pull hair out of a drain.
Do you know what I mean? And you’re like if they had to call me about that and they were like, “I don’t know, Joe, if Mike literally comes here and if he just pulls the water hair out of this strain,” One, I’m going to feel condemned about that, but I don’t even know if I want you to come in, like in my place, like he doesn’t know we have this dog over here.”
So they might try to pull that hair out of the drain themselves first. And honestly, that can add up. Maybe I’m wrong about that. I guess I don’t particularly have the statistics to back my claim up there, but that’s my instinct. But, in any case, I would do it if the price of the house was low enough.
I think for turnkeys to work, you have to beat the 1% rule. I think it’s got to be more than that. like 1.2, 1.2, and 5%. I’m not doing the math right in that sense. You know, I don’t know if the 1% rule is that if you buy a house for a hundred grand, you have to rent it for a hundred bucks a month.
I think if you buy a house for a hundred grand, you want to rent it for something like a thousand a month, for turnkey to be more foolproof. Yeah, so when 1.2% rules, and that’s just something you have to find. I think if you can do it in your own backyard and manage it yourself, I think that’s going to be a more foolproof plan and you’re going to do better.
Obviously, the best thing to do is to get. Fixer-uppers do the rehabs. I don’t know about you, but manage them yourself and do value. In essence, you are renting out your property to more people, and in the long run, those are going to perform much better for you.
It’s hard to find those deals. It’s like everybody in the world is just getting postcard after postcard, but like I just bought a house in your area, I want to buy your house, all cash. I’ll give you the greatest deal ever. And it’s really just for the competition. Do you know what I mean?
To find these deals. Even turnkey guys, you’re like, some of the guys I follow and talk to, they’re like, “We just, we literally can’t find the deals.” So one of them says, “We’re building new houses right now to do turnkey deals with essentially Florida.”And honestly, in some sense, I like that better, especially in Florida, because you get better insurance that way.
It’s a house built up to hurricane standards and all that sort of stuff, but literally on their pro forma, they put $0 in for expenses, and the cash on cash is only like 5%. And they’re like, “We’ve put in zero expenses because it’s a new house.” It comes with a two-year warranty.
And I’m like, okay, hopefully maybe I’m in a 5% capture on cash. That’s pretty lean. Not much can go wrong there, but then again, it’s Florida, and the state’s kind of blowing up. Tons of people are coming here. If they’re in the right up-and-coming area, you could do quite well on the appreciative.
So I don’t know. It’s just tougher in, and we’ll see if that changes, but I wouldn’t do it again. That is for sure. Honestly, it depends on who’s listening to this. If it’s a younger person versus a more seasoned or older person with more money, its place number one is to buy your own house.
I would say that. But I think I do. That’s a little bit of a debate. I don’t know, in the ether, like in the blogosphere. I don’t know why. It shouldn’t be, but I’ve done the math on that. And overall, the math is incredibly compelling for owning your own house. And honestly, that was something that paid off in spades for me and actually showed me why I like real estate so much, as it proved to me that real
I don’t know. I just think it could do so many things. It kind of got me on the real estate investing train, even more so than taking my investible cash and putting it in the stock market, where you just don’t know what’s going on. I dunno, I’m not a good stock person. The liquidity of the stock market
I always say, “I’m that guy that gets nervous and let’s do a really good job,” but you can’t do that in real estate, which is a good thing. But it’s, I just don’t know. I don’t know. When the sacrament gets to you, you’re like, “I don’t know what Elon Musk is going to say next.” That’s going to tank the stock. “
I just don’t know anything. Do you know what I mean? I don’t know. I’m just hoping that they’re doing a good job over there. I like real estate because of all the things I mentioned earlier, but it’s a simple business. It’s a property. There’s not too much going on there. I own a house.
I know what’s going on in there. It’s plumbing. It’s electrical. It’s HVAC. It’s predictable. You can basically model it out and it’ll work out pretty well. I just felt like it always felt more secure to me, in terms of where I wanted to put my, my, my investible money. And it paid off.
I tried to do it again, this time with the math, and I like how the properties perform collectively. I do it pretty meticulously. I’d like to say, I do know, gimmes accounting, essentially. And I did it like an average, kind of like a time in a weighted average return, on the amount of investment versus total project price, and also the time in the project relative to other investments, time in.
And I came up with an average compound return of something like over 40% for my real estate. To be sure, much of that was made in commercial projects, to which I contributed, where it was a value-added situation. From my point of view, it was like I was finding a place that needed to be fixed up and turned over. They use the warehouse to be like a creative office.
We invested a lot of money, but we added a lot of value and made a lot of money with those projects. Real estate, on the whole, has performed really well for me and has definitely been a huge contributor to being able to move and work less and do all the things that I mentioned that I have done since leaving Los Angeles. It allowed me to have the cash to be able to feel comfortable making that kind of change in my career.
Nice. I love that. And your comment in particular about the liquidity of stocks enables you to do that. I think panic selling, I think, is really one of the biggest downsides of stock investing that is not discussed often enough. A lot of great knowledge in this one right now. We’re going to take a quick break for our sponsors.
Cool. All right, Joe. I’ve got three questions. I ask every guest on the show. Are you ready? I am. All right. great. What is the best investment you have ever made other than in your education?
I’m going to go back to my house. Actually, that first test took me a while to get into.
I do consider real estate more like a business, rather than an investment.Joe DiSantoTweet
But I was able to refi and pay off a lot of my credit card debt and other stuff. I had a lot in my twenties because of that house. I was also able to take money out of that house and start a business. In the end, that was, I bought it in 2004. So, luckily, I was able to refi back in those crazy lending days of five, six, or seven.
It went underwater, but there was no margin call and houses. I didn’t have to leave. I just lived there. I enjoyed it. It made its way back. So, for a very handsome profit, I sold it and traded it for another house in Los Angeles that did even better. And that house paid off big time for me.
So I always encourage people to take their concerns about residents seriously.
Nice. I loved it. We had the best investment. Now we go to the other side of that coin, the worst investment. What was the worst investment you ever made?
Oh, the worst investment. Luckily, I can knock on wood.
I haven’t had too many disasters. But not in real estate. I wouldn’t say it was my worst investment, but it’s one that we made. That didn’t pay off financially. very well. My partners and I in our business, as I said, we did entertainment advertising. We were a post-production company, but we’d always invest in projects like trying to just have multiple lions in the fire and try new things.
And we decided to create a comedy website. which still exists and is called the Worldwide Interweb. And we grew it to a pretty good-sized audience. We were getting over half a million unique visitors a month, but it turned out that comedy websites are hard to monetize effectively. And with our lack of knowledge, we just couldn’t really monetize that thing into a profit for whatever reason.
But we put in a good amount of money. So it turned out to not be a great financial investment for us. It was probably one of my bigger losers financially. But I learned a ton about websites and so on, which I am actually employing on my own blog today. And these, as we put them, are in the hands of another person to run, and they dish off a little bit of revenue here and there.
So it was a good learning experience, but not a big financial win.
Interesting. Okay, but you turned it into something positive.
In the end, yeah, oh yeah. You get lessons from the winners and the losers. Totally.
My favorite question here at the end of the show, speaking of lessons, is what is the most important lesson?
You’ve learned in Brisbane, excuse me, in business and investing, if I can talk right.
I do consider real estate more like a business or a company than an investment. And I guess back to what I was just saying about doing the website, I think it’s important as a business owner or someone that wants to be entrepreneurial.
In order to have multiple irons in the fire, so to speak, in my case, we always had this primary thing that was a revenue driver that was working well. but we were always looking for new ways to leverage the investments we had already made in our business. So we made a documentary, we made a website, and we did a whole bunch of other side projects.
Some of those really evolved and turned into a whole new line of income for us that we didn’t actually expect. And while I was doing all of that, I was investing in real estate along the way because I liked it. And that was yet another iron in the fire, from my point of view.
And not only did it pay off well, but it was producing income for me in this new state. Now, I get to help people and guide people to go down that road and, hopefully, skip the line a little bit and avoid a few mistakes. So you have a lot going on in your life.
Don’t rely on one.
Nice. Nice. I like that. Joe, thank you so much for joining us today and bringing us all these lessons. If folks want to reach out, if they want to get in touch with you, if they want to read more of your writing, or follow what you’re doing, or anything like that, where can they track you down?
You can go to my website, playlouder.com. I got a ton of free info there; a lot of articles I’ve written, and also articles that other folks have written with me. It’s all about personal finance. In my opinion, these are the three pillars of success. And I also have some free courses there.
And then there are also some paid courses. If you like it and you want to learn more, you can maybe dive into one of those. And then, of course, as I mentioned, I do coaching and also CFO work. There’s a lot of interesting stuff to look at. Awesome.
Thank you once again for joining us today. Everybody is out there.