#103 - Multifamily Mastery: Building Cashflow and Legacy with Gino Barbaro

[00:00:00] Hello listeners, welcome back to Passive Income Pilots, Tait Duryea with Ryan Gibson here. What's up my man? Beautiful sunny day here in the Pacific Northwest. Love to hear it. Excited to talk about our relationship with money. Yes. Now, you know, I kind of grew up in the whole, don't talk about money, don't mention money, don't talk about it. It's, you know, don't tell anybody what you make, don't tell any, don't, you know, don't talk about it, right? So you just, no one really talked about money and it was sort of this big mystery to me.

[00:00:29] And a lot has changed in the 40 years that I've been alive. So who's this guest that we're bringing on, Tait? And let's talk about what he's going to talk about today. So we have Gino Barbaro on the show today. Gino Barbaro is a big multifamily investor. If you're in the real estate industry, you've probably heard of Jake and Gino. Started from very humble beginnings and has built an absolute massive portfolio. Wealth of knowledge. He's an author.

[00:00:56] We're going to link to some stuff in the show notes that he's written and really excited to have him on the show. He's also a coach, a mentor, and just an amazing story. Tait, let's jump into it. Welcome to Passive Income Pilots, where pilots upgrade their money. This is the definitive source for personal finance and investment tactics for aviators.

[00:01:23] We interview world-renowned experts and share these lessons with the flying community. So if you're ready for practical knowledge and insights, let's roll. Gino Barbaro, thank you so much for joining us. Thanks, Tait. How you doing, brother? You know, I've known the name Jake and Gino for a long time. It's an honor to be talking to you today. You know, can you give us some background in your own words about your journey in the real estate world and otherwise?

[00:01:47] I started back in 2002 with the Triplex. I was a small business owner. I was making pretty good money. But I'm like, this money ain't going to last. I need to find a side hustle. And I fell in love with the real estate. And for me, fortunate to met my business partner, Jake, in 2009 at the restaurant. And what happened was we partnered up in 2011. He moved to Knoxville, Tennessee. I'm like, Jake, this is a great market. Let's start looking at deals down here.

[00:02:14] And listen, it took us 18 months to find that first deal. Didn't happen overnight. Lots of mistakes. You know, the life before Jake that I say in the life after Jake, there's some things that were missing that I didn't know. Fortunate for him, I made all the mistakes. I crashed and burned before I met him. I got serious with the education. I found mentorships. I learned the business of real estate and that real estate is a business. And there is a framework. And there are solutions. And there are systems and processes that you need to follow. And I wasn't following them.

[00:02:44] So when I met Jake, we figured that out. And within five years of me and him partnering up in 2018, we had over 1,000 units. And to date right now, we currently own 1,800 units, no syndications. So that's just me, him and other business partner. We've had a great ride buying our stuff, then going the syndication route, then exiting the syndications. And for us, it's been multifamily for the past 15 years. We focused on that one niche and we found our love with multifamily. That's amazing. So let's back up. You talked about a restaurant.

[00:03:14] Sure. Tell us about that. You know, seven years old, I remember going to work with my dad. My dad owned the restaurant. And I thought every kid goes to work with their dad. I thought everyone owned the restaurant. I thought it was just normal. I thought it was natural. And for me, I fell in love not only just working with him, but I fell in love with who he was. And if you're listening to this right now, I would challenge you all to take a step back and think about your childhood for two reasons.

[00:03:40] Number one, figure out what your values are. If you don't know them, and you may know them. I may be repeating something that you know, but for most of us, we make decisions based on our feelings, or at least we think it's our feelings. When in reality, we're making them based on our values. And they're typically subconscious or unconscious. And I realized this a few years ago. We call it values-based decision-making.

[00:04:03] At that age, I understood that my father was impressing upon me hard work, responsibility, small business family. That's why I got into the restaurant business, really wanting to be good at something, really wanting to have that business mindset, being an entrepreneur. That all fostered at a young age, and that just carried up into my adulthood. And I was like, wow, that was a revelation to me.

[00:04:30] And when I wrote the book, I wrote a book, Happy Money, Happy Family, Happy Legacy. Let me bring you a full circle with money as well. Because at that age, you start hearing things about money. And you start listening to people. And all of a sudden, it takes money to make money. Save for a rainy day. Go to college. Get a good job. And more importantly, what are the things that you aren't hearing about money, which is really important, really powerful.

[00:04:57] Are you a person who grew up in a family where money was avoided? Money wasn't even talked about. As you get older, all of these things start affecting you. So your values, the way you look at money, and then the reason why I'm bringing this up is it's because we're going to talk about investing. And some people love the idea of investing, and some people are so fearful of it. They don't know where to start. It's because they were never taught. And I think the patterns that they've been learned and have been taught at a young age have carried into adulthood.

[00:05:26] And they're so subconscious, they're just repeatable. It just becomes automatic that they don't even think about it. So for me, that restaurant was great. I learned a lot of things. I loved it until I didn't love it. And 2007 comes and my father passes away, and I have to step back, Tate, and I have to say, do I love this? Is this my dream or was this my father's dream? And a bit of me had to have that self-realization that this was my dad's dream, and I don't love this anymore. Now, what can I do?

[00:05:56] And when you have a midlife crisis, there's one of two things you do. You continue to complain, or you say, what can I do? How can I get better? I read the book T. Harv Eker, Secrets of the Millionaire Mind. That changed my life completely because all of a sudden, I reverted back to my values. It wasn't anyone else's fault but my own. All of the actions that I took on my life were all compounded and were all realized that day.

[00:06:23] Everything I had done led up to that point. There's no one else to blame but myself. And once I understood that and I accepted responsibility, that's where I realized I want to do multifamily. I want to create additional streams of revenue. How do I do that? Went out, I sought mentorship. Took about 18 months myself to learn the business. And then lo and behold, I got lucky in the form of Jake Stenziano. Now, was it luck or was it being prepared? Because Jake could have come into my life, and if I wasn't prepared, I wouldn't have been able to act.

[00:06:50] So having that clarity, having that understanding of the relationship that someone has with money, which is really personal, challenging those limiting beliefs because if they're holding you back or they're not serving you, you can change them and understanding what your values are. Because all you hear nowadays is scale, grow, passive income. But if that's not what you want, you don't have to abide by what everyone else is saying. I don't want to retire. I love passive income, but I want to continue to work. So those are my values.

[00:07:20] So just understand the values and the passive income and also that relationship that you have with money. Let's jump into why real estate. You know, we talk quite a bit about real estate on this show, but we're fairly agnostic because we try to share with the audience, you know, the entire range of the financial picture. But, you know, Ryan and I are huge real estate proponents. Can you, what drew you to real estate? Why real estate? Of all the things out there, of all the businesses that you could have started,

[00:07:49] all the things that you could have invested in. Um, yeah, I'd love to hear your take on that. How much time you got? Because this could be an hour, hour. But the reality for me was once again, my family, my mom, my dad, they owned real estate. Actually, the restaurant that I had downstairs was the restaurant about 2,500 square feet. My mom had three apartments upstairs. So when it was snowing in New York and the restaurant wasn't making money, guess what? Mom was getting paid.

[00:08:18] She was getting paid in her sleep. That's what I love about real estate. It's one of those, you know, asset classes that can be boring at times. And that's why it's important to understand what your persona is with money. If you're a gambler, if you let, you're like someone who likes to have action and needs something going on all the time and needs to be doing transactions, multifamily is probably not the gig for you. I mean, Jake and I do two, three transactions a year, two to 300 units a year. It's pretty boring. We're managing a business. That's what I love about real estate. It's scalable.

[00:09:17] It's repeatable. For me, it's a basic human need, food, clothing, and apartments, right? That's the thing. The other thing is I have residents who are paying down the principal of my mortgage. So I'm actually getting principal pay down. Over the years, I'm getting price appreciation. It's a hedge against inflation. Those are just some of the benefits. And oh, by the way, one of my favorite ones is it pays me every month if I do it properly.

[00:09:46] Whereas a stock, a lot of stocks don't offer dividends. You're just hoping to buy at a certain price and hoping for the price to go up. If my real estate stays flat and it doesn't go up at all, I'm still getting the massive tax benefits and I'm still getting my cash flow every month. That's what I love about it. And at the end of the day, like I said, when you're looking at real estate through the lens of an entrepreneur, that's what you need to do.

[00:10:10] Because once you start looking at it from that perspective, every single deal, you're looking at it as its own cash revenue generating business. And once you start looking at it from that perspective, there's no comparison between stocks and real estate. I couldn't agree more. I love that explanation. You know, cash flow, appreciation, amortization, and depreciation, the tax benefits you get out of it. I mean, it's the best risk adjusted return in the world. So tell us more about the book.

[00:10:37] I love talking about money. I always have. But I know a lot of families have difficulty discussing money within the family. Tell us about the book. So if you love talking about money, that means you have a good relationship with money. That's the reality. I was interviewing Ken Honda, who wrote, I think, one of the original books on happy money. He's a guru in Japan. He's sold over 8 million copies. And after the interview, he's like Gino in his Japanese accent. I love it. You need to write a book.

[00:11:07] Happy money, happy properties, happy family. And I'm like, Tate, I don't want to write another real estate book. I want to get out of the real estate. I say, you know what? Happy money. I love it. Happy family. And I think happy legacy. Because I think if you can combine all three, I mean, think about how amazing that is. Happy money. It's not the idea that money makes you happy. I think by generating money and understanding what money is. Money is a tool. Money is a result.

[00:11:35] The better you are at something, the more money you can make. I've got news for you. That's the reality of what it is. And if you don't have a great relationship with money, right now you're saying to yourself, Gino, you're an idiot. That's not what it is. But that's what I've learned. Because I was at that rat race. I was working the nine to seven. I was every week hoping for more money, hoping for more money. Once I became financially free and I was able to pay my bills with real estate, all of a sudden opportunities abounded.

[00:12:03] I seemed happier, not because of the more money that I was making, but the autonomy that the money gave me. The better, I guess, optionality that I had. You can go to the Super Bowl, hang out with your friends in a weekend at Tahoe. I couldn't do that when I was at the restaurant. I had to work. I was stuck there on the weekends. But now if I decide I choose that, great. So understanding that happy money is really positive flowing money. It's abundance to you. It's not the scarcity that I grew up with, save for a rainy day.

[00:12:33] You need to save money for an event. No, you need to save money to buy an asset that will pay for that event. So when that event is over, like a college tuition or part of your retirement, you still own that asset that's continuing to print money. Now, from the happy money, you obviously want, if you've got a family, I've got six kids. I want to create a happy family through the utilization of happy money and being able to teach my children what money is and how to actually create more happy money.

[00:13:03] And then from that happy money, as parents, we need to become stewards for our children. Not only the financial stewards that we're going to prepare them for that next generation, but I don't only want to pass along my wealth, financial wealth. I want to pass along my values. I want to pass along my teachings. I don't want to pass along my real estate holdings. I want to pass along the business and the knowledge for them to go out and create their own businesses. So if you can put all three of those together, generating and understanding relationship with

[00:13:32] money to make it happier, creating the family unit around that. Because I think for myself and my family, we are there. Our motto right now is changing the world one family at a time. If we can start to change the world and make those relationships much healthier, make them more transparent around money, we can actually start talking about that legacy component because you can start planning for years ahead because why else are we making all this money? It's to enjoy it with the family and to leave it responsibly for future generations.

[00:14:02] Love that. So I resonate so much with all that because as pilots, we typically love our job, but we want the freedom. We want more freedom. We don't want to have to fly as much. We don't want to have to fly 90 hours a month, be gone from our families for 18 days out of the month. We want to be able to pull that schedule back and have passive income that just comes in and gives you the freedom. I saw a great meme the other day that said, money doesn't buy happiness. And it said, I think you're using money wrong.

[00:14:36] But there's a lot to unpack there. Can we address the saving versus investing thing? Because I think pilots tend to be very good savers. We make good money. We're taught to shove money into our 401ks, save for a rainy day. We have to only get a medical exam every year, every six months. And if we don't get our medical certificate, we can't fly. We can't generate revenue. But there's saving and then there's investing.

[00:15:06] There's saving for that college tuition. And then there's buying an asset that will pay for that college tuition. Sarah, can you speak to that a little bit? And then I'd love to get into what you teach your kids. Absolutely. So for me, money doesn't buy happiness, but poverty doesn't buy anything. It's just the reality. I mean, that's people hung about money. If you're pious and you're virtuous or you're telling people, hey, money is going to make me evil, right? It's not the love of money.

[00:15:32] Remember that people, you look at this thing called money, all right? And you're saying to yourself, I don't really want it because it's going to make me a bad person. Well, guess what? It's not going to come into your life. Change your paradigm. Look at it this way. Money is going to come into your life. You have the ability to do what you want with this money. I always say money does not corrupt the person. It reveals a person. And I heard that as a quote. Don't know where it was, but wow. If you're a dirtbag, just getting more money is going to make you more of a dirtbag. That's the reality.

[00:16:02] I seem like Elon Musk is a pretty cool dude. He's gotten a ton of money. He's putting it to good use and he's doing something really cool now. So I guess money is revealing what his true intentions are. So if you're that person, your relationship with money is damaged and you need to understand what's going on. Go back into your childhood because you need to fix it because the world needs you out there creating money because money is just value creation. The more value you create, the more money you're going to make. And we need more value in this world.

[00:16:28] Now, when you're talking about pilots, I think savings is the fundamental way to begin. You need to be a saver to be able to become an investor. One of the five personas is Steve the saver. I was a great saver. I was just too much of a saver in the fact that I had scarcity. I've got this money piled up. I like this feeling in the bank account that I have a couple hundred grand, but I can't touch it.

[00:16:55] Well, what ends up happening is when you retire, you've got this money in your bank account. It's saved there and you can't use it because you feel like it's going to run out. I think just understand that money is there to be utilized. And once you become a good saver and you're understanding what your spending plan is, not your budget. I don't like the word budget because it feels restrictive. You need to have a spending plan where your income's coming in and your expenses are going out. Understand that. And whatever you have left over, you put into a savings account.

[00:17:23] Then from there, you have three to six months set aside that if you decide to not work or go on vacation or switch to another job, you have that comfort. You don't stress out. Right? Once you have that set aside, then I would say to myself, okay, where do I want to invest? What do I want to start investing in? Because savings is not going to get you rich. That's the reality. Three or 4% a year is not going to do it for you. You need to start investing in alternative assets.

[00:17:52] And for me, maybe buying your own home, that may be the first place to start. You start out small. You don't start out with a 100-unit apartment complex. And if you do, good luck. That's the reality. But Morgan Housel says it best in The Psychology of Money. I would tell everyone to read that book. That was an amazing book for me. Because if you don't understand your money persona and you don't understand that you need to start saving money, that's not the end-all be-all.

[00:18:18] That is the beginning of investing, to be able to save that money and then be able to utilize that money into saving to buy those assets that will produce the rate of return. We don't have a net worth problem when we retire. We have a cash flow problem when we retire. And the problem is most people are investing just for net worth, but there's no cash flow coming in. That's a huge... I want to really tap into that because the traditional retirement model is the accumulation

[00:18:47] method. Yes. Let's create a large enough pile of cash to deplete over time and hope it doesn't run out before you die. I've talked about this in the show before. And instead, what we should be looking for is to turn cash into cash flow, which is perpetual. And just it's a tap that never turns off, right? And that's why we love real estate is because you can turn cash into cash flow. Let me go back and just vent one of my frustrations with this current system we have right now.

[00:19:16] When they started the 401k back in the 1970s, everyone thought it was a great system. What I've realized is they started a system for the stock market because what happens is someone needs to put money into that 401k. So you start creating demand for stocks. And then in their infinite wisdom, they said, well, by the age of 70 and a half, you need to be pulling money out of that. So you're creating demand for sales. So you have money going in and money coming out of the system. And the problem with that system is tax deferred. Great.

[00:19:46] You're not paying it while you're making it. You have no control over that money whatsoever, right? You have limited options. And it's pretty expensive at a lot of these brokerage houses. So when you reach the age of 62, 63, 65, I've got $2 million in this account. Well, not really. Because once you start pulling that money out, you could take $3 out of every 10 at least for taxes. So that at 2 million, you really have probably a million three to a million four in that account. And like you said, you start pulling money out.

[00:20:14] You start tapping down that principle. And you start having that scarcity mindset. I personally, if it was me and I was a lot younger, I would put more money into my whole life policies. I put money into whole life. It's a non-correlated asset. I'm in there. It's guaranteeing me 4% to 5%. I've got a long runway to retire, right? I've got all these other benefits, death benefit, estate tax planning benefit. I'd rather have money in that. So when it's time for me to retire, it's provisional income.

[00:20:43] It doesn't even go on my income taxes, right? At all. Yeah. Let's dive in more to that because we've done a couple of episodes on whole life. And I love that you're talking about this. I have a policy. I think it's an amazing vehicle if you know how to use it. So break this down. Nobody's ever heard of it before because it's hard to understand if you're just coming up to speed on them. Break this down for someone like we're five years old.

[00:21:07] So I've interviewed dozens of eight-figure net worth individuals, nine-figure net worth individuals. Every single one of them has whole life as part of their financial plan. And I think even people who have seven-figure net worths, they should all have them. I'm not sure if someone who's making $30,000 a year should start out a whole life policy. I don't know that for a fact. But all I know is that I started one when I was 31 years old. I still have the policy today. It was only $5,000 a year.

[00:21:35] Now, everyone's telling you to buy term and invest a difference. That never happens. You buy term and you go buy a TV or you go piss that money away. That's the reality. Whole life insurance is amazing. If you're buying it from a mutual life insurance company, not an IUL, not variable life, permanent whole life insurance. It is one of the most, I think, best ways for a real estate investor to be able to save money and to be able to get different and other benefits. You have this policy.

[00:22:05] It generates cash value. And there's a death benefit component to it as well. So you continue to fund this policy year after year. You put in money. Let's say you have a half a million dollar death benefit and you have $30,000 or $40,000 in cash value. You can take that cash value. You're borrowing money from the policy, from the insurance company. And your money in the cash value is used as collateral. So if you don't ever decide to pay them back, they've got your cash value. You're borrowing that money out at a certain rate of return.

[00:22:34] That's how insurance companies make money. They charge you 4%. But you may be saying, well, I'm paying interest on my own money. But hold on. Your money here is still earning uninterrupted. So if you had that money in a 401k, you can't touch it. You really can't borrow it. It's there to your 65. Whereas the whole life policy, I'm able to use it today. Right. And you can borrow up to $50,000 from your 401k, but it comes off temperature, right? You have to liquidate the assets, move the money out of the account. It's not growing in that account anymore.

[00:23:04] Although you do pay yourself back the interest. And we have an episode on that. You can go back to it. But in the whole life policy, it's literally working in two places at the same time. And talk about the benefits as well. It's protected from creditors. In a lot of states, if you get sued, it's protected from creditors. If you're a Canadian trucker and your bank account gets frozen, it's not there. It's out of the system. It's tier one capital. It is the safest capital.

[00:23:30] If you go look at bank balance sheets, if you go look at a lot of stock companies, their balance sheets are filled with corporate-owned life insurance and bank-owned life insurance because it's tier one capital. Well, you've got a death benefit component to it. So the estate planning is super powerful. It's not correlated to the stock market. So you don't have to worry about, oh, I'm retiring next year. I hope the market doesn't crash. The money's there. And what I love to call it, just think of it this way. We call it the dual asset strategy.

[00:23:59] It's a term that we came up with years ago. You have an asset. Instead of putting money into a savings account, you put money into your whole life policy. Now that starts generating income. You have all those benefits that I laid out. You find a real estate deal. Well, you go borrow the money from the whole life policy. You put it into the real estate deal. The real estate deal starts printing money. You take the money out of the real estate deal. You pay your loan back. Guess what? You've got two assets now. It's called the dual asset strategy.

[00:24:29] May not be for everyone. You may say to yourself, I don't see that working. All you're doing is controlling the flow of money and trying to be as efficient as possible with money. Now, the downside is it does take several years for your whole life policy to seed itself. But just like anything else in life, whether you're starting a business or you're buying a real estate deal, it takes time for it to fulfill. I would just go look up Nelson Nash, infinite banking concept. I mean, it really lays it out. It's a long term strategy.

[00:24:59] But to create wealth, there's two things when you're creating wealth. It's boring and it takes some time. And that's why I think whole life falls into that bucket. I love that. Well, we just did a webinar. We'll link to it in the show notes where we sit down with Rod Zabriskie for Money Insights. And we go through how to optimize for those of you who are listening that might have new policies. We go through exactly how the nuts and bolts work to utilize your new policy.

[00:25:28] And obviously, if you haven't started a policy yet, you can check out the webinar and look behind the curtain. To anyone listening, check the webinar out. I mean, I just got on a call with a friend of mine who lives in Canada. His insurance agent sold him a whole life policy years ago. The insurance agent doesn't even know what the hell the whole life policy is allowed. There's so many people who are so uneducated in this space because they hear the Dave Ramsey's of the world. Dave Ramsey's talking to a different persona.

[00:25:52] I mean, airline pilots, lawyers, doctors, people of higher net worths and higher incomes are going to do things differently than the lower income and the middle income. So go out there and make sure you listen to the webinar that Tate's got in the show notes because it will change your mind about money. Another one of those things that you have that relationship with money. Do you want to be somebody who's wealthy, who thinks like a wealthy person? I think you do. And I want you to because we need more of these people in the country. Absolutely. Thank you, Gino.

[00:26:21] I want to turn the attention to what you teach your kids. I heard a really great thing the other day. And someone was talking about how they don't teach their kids about, they don't talk about earning money to their kids. They talk about creating value. And I thought that was such a wise advice, right? They don't get an allowance. They don't earn money. They say, okay, what are you going to do to create value?

[00:26:48] And when you put that in perspective, money is the result of value. What you are creating value, which is in turn, creates money, right? So anyway, that's one of the tips that I got recently. What is it that you teach your kids? There are several things, depending on the age of the child. I think the first thing that we need to teach our children is needs versus wants. I need this. I want this. Well, what is it?

[00:27:18] And how are you going to pay for it? I think the second thing that I love to teach my children is price versus value. What does something cost? If you're going to buy a TV, it's going to cost you a hundred bucks. And Veronica, you're making $10 an hour. That TV is going to cost you 10 hours of your time. Is it worth it? It may. It may not be. But I'm trying to empower my children as they become adults to make decisions upon their own. I don't want to teach my kids and I don't want to tell my kids at every step of the way what to do.

[00:27:48] I'm trying to empower them and trying to teach them the basic rules of money. So understanding price versus value. Another thing that I love to teach the kids is delayed gratification. If you can hold off today and wait until you have the money or wait until you're really prepared for it. I mean, everything changes in life. When my son was 16 years old, he wanted to buy an amplifier. I'm like, Mike, you've got two amps. How much is this one going to cost you? Dad, it's $1,500 bucks. I said, do you need it? Well, no, I really want it.

[00:28:19] He wore me down for three months. Finally, I said, Mike, I've got a real estate deal. Would you like to invest in that deal? Because I don't want you to put 20% of your net worth into an amplifier that you don't need. And reluctantly, he said, you know what, Dad? Okay. Sometimes you've got to be the adult. Sometimes you really need to say no. Told him no. He invested his $5,000 into our real estate deal. Six years later, and this is no joke, his net worth is seven figures.

[00:28:46] He's making $4,000 to $5,000 a month in cash flow from that one $5,000 investment. Now, we've refied deals. We've sold deals. But what he has been learned, what he's taught from this endeavor is the experience and the language of real estate because your language becomes your experience. All of a sudden, he knows economic occupancy, owner draws, physical occupancy. He knows what capex is. He knows what refinance and roll is. He knows seller financing.

[00:29:16] He's got skin in the game. That's how you teach your children more than anything else. You involve them and you let them learn side by side with you and you let them invest in whatever you're investing in. If you don't have real estate deals and you like stocks, put money in stocks with them. Let them see how money really works. And what that allowed him to do is all of a sudden, he's like, well, I've got some money in the bank. I'm like, Mike, I've got another deal. I've got a deal actually coming up in two months. You want to buy the gun that you wanted to buy or do you want to wait and put the money in the deal?

[00:29:44] And when that deal starts making money, you can buy whatever you want. It's taught my child and my children to think about becoming producers. And from becoming producers, you can consume. Whereas most of us in this country are taught to consume. First to consume and then, oh, out of that consumption, I'm going to produce something. Well, that's why everyone's in debt. And that's why everyone has a terrible financial balance sheet because they're doing it backwards. So you're trying to lay the foundation for your children and you're trying to have them see money from a different viewpoint that money is just a tool.

[00:30:14] It's there to invest. And once you make production from that, that's when you can start consuming from that production. Love that. That's such sage advice. You said something there about converting a price tag into time. That's actually a strategy that I used when I was a brand new captain and I was saving for a deal. And I was really trying to put the screws on my spending. And I did that for about six months or 12 months.

[00:30:40] Everything I thought about buying, I converted into my hourly rate. And as a pilot, 85, 90 hours, 100 hours a month at the very maximum is how much you can work. So if you think you convert something into, all right, that's going to be three hours of work. On a 90-hour schedule, it's like, I don't know if I want to work 93 hours. I mean, it really helps to convert things into time.

[00:31:07] Because it's super easy to just say like, ah, that's, you know, it's a thousand bucks. I can afford it. But, you know, when you convert it into two and a half hours of time or even more, it's great. So, all right. A lot of people get into real estate, I think, with rose-tinted glasses. They think, all right, this is going to be great. It's going to cash flow. And they end up disappointed. Why do you think that is? And how can people avoid that pitfall? That's the easiest question you've asked me.

[00:31:36] I've got so much experience on it. You just don't know what you're getting into. I think when you get into an endeavor, you have to have a little compassion for yourself. First of all, we go to college for four years before you get a job. How many hours do you put in before you become a pilot? I mean, hundreds and hundreds of hours in training, in preparation. Now, all of a sudden, you got 30 grand in the bank and you're like, real estate investor, bro, bring it on. I'm going to go invest with Tate. I'm going to give him my money. We're going to make tons of money.

[00:32:07] Well, what did you do to prepare? There's two ways you learn in this world. You either learn on the street or you learn in the classroom. I learned on the street first and it cost me 170 grand on my first deal. And my second deal was worse than that. I said, time out. I need to learn in the classroom. I need to invest in myself. That's why I made the mistake. I didn't even know what I was investing in. I didn't know how to pick a market. I didn't know how to underwrite a deal. I didn't know how to analyze a deal. I didn't know how to take a deal over.

[00:32:35] I didn't know how to manage a deal. We're not born with any of these skills. We've got to learn these skills. And if you don't know how to do it, go out and find a mentor who can teach you how to do it. Or at the very least, partner up with somebody who's got the experience that you can ride their coattails and invest with them at the very least if you don't want to put in the time early on to learn. But what you really need to do is you need to spend several months on learning the business of real estate and not just saying, I've got a little extra money. I'm going to throw it in the market here because it's an illiquid asset.

[00:33:05] Once it's in there, it's a good thing and a bad thing. And illiquidity allows you to say, you know what, I'm not going to sell it. Over the long term, that decision of not selling, you're going to be happy. But at the same time, if you'd like to sell, it can be a lot more difficult. So you really need to learn, in my opinion, the business of real estate and how to invest before you start putting money into any vehicle. You said something great before the show. You were talking about once you buy into an investment, your wheel's up. Now you've got to land this thing.

[00:33:34] Do you want to talk through that? Yeah. It's one of the biggest mistakes that we make as beginning investors. It's called the exit strategy. People think that you're going to buy real estate and you're going to hold it forever. That may be the case. But your kids or your kids' kids are going to get it. Always think of your exit strategy. And people always have this misnomer in real estate. And this is another one that my coaches shared with me. His name is Bill Hamm. Same thing with the analogy. He was an airline pilot.

[00:34:05] He says, and I agree with him, that you don't make money when you buy real estate. You may make some cash flow. You may make some money as you're buying it. But you make money when you exit real estate. That's either through a sale or through a refinance. You're crystallizing the equity. You buy a home for $100,000. You make $2,000 a year in cash flow. Three years later, it's worth $150,000. You made $40,000 in equity, but you made $3,000 in cash flow. Where did you make the money? You made the money in the equity. You made the money in the exit.

[00:34:31] So as a real estate investor, you need to understand the options, the different options that you have of exiting this deal. Are you going to buy it, fix it up, flip it? Are you going to buy it, fix it up, hold it for a few years? Are you going to buy it, fix it up, and then refinance it, and then hold it for the long term? Understanding that exit strategy is so crucial when you're buying an asset because it really makes you understand of where's the value today, where can you bring the value to, and what are your options?

[00:35:00] And then once you understand what your exit strategy is, then you can start aligning the type of debt you're going to get on that asset. And then understanding the third component of what we call the three pillars of real estate is the market cycle. So whenever market cycle you're in will depend upon the exit strategy. And I can give you a quick example. Back in 2017 and 2018, things were crazy in real estate. In multifamily, you'd buy a deal. 18 months later, you're flipping it out. Your exit was literally 18 months.

[00:35:30] Typically, it's between three to five years, a hold. Now, guess what? In 2022, you bought an asset. Your exit strategy is screwed because now no one's selling right now. It's been extended. So understanding that exit strategy will help you align with the type of debt you're getting on that deal. And understanding where the market cycle is will help you align and help you figure out what type of exit strategy you're actually planning on this deal. And, Kate, every single deal is unique.

[00:35:58] You need to look at every deal through a different lens. And some deals that are older, you're like, hey, I can make a ton of money on this. But am I going to hold this for the next 20 years? It's going to be really old. Maybe I sell that thing and make some equity, especially if I'm young. I need equity because I need to put equity of my own into a deal to create wealth. So maybe this deal is great. I bought a 10 unit. I can sell it a year from now, make 200 grand. I'm going to pull the 200 grand out and buy another deal, my own deal. So understanding exit strategy is crucial when you're investing in real estate. It's just so good.

[00:36:28] Nobody ever talks about this. At least, well, if you're investing passively, you'll be familiar with the three to five year hold time that Gino just outlined. There's always a very clear business strategy when you're investing passively because you're investing with professionals. But a lot of people- But Tate, let me ask you a question. This is important for anybody that's investing passively. You need to ask the sponsor what their exit strategy is. What does it look like? What's their contingency plan? You're flying through a storm. Where are you going?

[00:36:56] You going through the clouds, ascending or you descending? That's important. And also, when you're investing passively, maybe you have $300,000 or $400,000 and you're seeing your deals at three to five years. Maybe you invest $100,000 this year, $100,000 next year, and $100,000 a year later. We call it the conveyor belt of investing where you don't have these liquidity events and all of this capital appreciation and all these tax consequences in one year. So talk to your advisor about that.

[00:37:23] But that may be a sane strategy where you're not putting everything in one year and then everything comes due in three or five years where they're selling out and you're actually making capital gains. Understanding everyone's exit strategy is important for you as well. Because some of your deals, you may want them to hold long term. You may like the sponsor and may say, hey, this deal is purely cash flow. I want this deal to go on in perpetuity. I'd love this deal to go on in perpetuity.

[00:37:46] But if you've got a deal where they're doing a development deal and, listen, three to five years, this thing's built, 20 IRR, I'm out after three years, that's a different kind of exit strategy. Figure out the asset classes and figure out what you're trying to accomplish. That's the important thing. What is your exit strategy as a passive investor? You mentioned the market cycle. Can you talk to where we are in the real estate market cycle right now? Give people some context. I've been saying for the last two years that we've been in a recession.

[00:38:15] And I've been saying that inflation's been here since it was transitory. I have a lot of confidence in what's going on in the market right now and what's going on in the economy right now and what's going on with Doge. Because if they can literally cut a trillion dollars of spending, which I think they can, inflation goes away. All of a sudden, you have that reckless spending gone. That money goes back into the private sector. If we can take inflation under control, all of a sudden we can drop interest rates.

[00:38:41] What people need to understand is market cycle in real estate, I think, is tied to interest rates. So as interest rates are really low, there's a lot of euphoria. There's a lot of deals going on. There's really low inflation. But as the market heats up, you have to raise interest rates. And as interest rates go up, all of a sudden, real estate gets more expensive. Things slow down. The economy slows down. And at some point where we are at the high with interest rates, there's no appetite for real estate, unfortunately, because that's when there's deals.

[00:39:10] That's when people should be investing. But things just slow down because the Fed is more worried about inflation than anything else. Now, as inflation starts receding and they want to jumpstart the economy, they're going to drop rates. And as they're dropping rates, all of a sudden, that's better for real estate investors. Now, if you're buying a deal today and it makes sense at 6.5%, can you imagine when rates go down to 4% or 4.5%? It's going to be a windfall for you. So don't worry about interest rates.

[00:39:38] You need to make sure the deal pencils out at the cost of capital today. Don't buy a deal saying, hey, when rates drop, I'm going to do really well. I have an alligator here. I got to keep feeding it every month, but I'm going to wait. That's how you make mistakes in real estate. There's two ways you lose money in real estate. You lose money by either running out of money or running out of time. Those are the two ways you lose in real estate. So if you run out of time trying to bet that interest rates are going to drop, all the geniuses last year thought that rates would have dropped by now. That's what everyone was saying.

[00:40:07] I even thought rates, we'd have some kind of rate relief. There was with the Fed funds rate, but that didn't affect the 10-year treasury. Now it appears that the 10-year treasury is going to start dropping, and that's where Trump's going to focus on because if the 10-year treasury doesn't drop, then our commercial rates won't drop. But for me, I'm always bullish on real estate because I don't look at it through the window of one year or two years. I'm looking at it through the window of five years and 10 years. Where are rates going to be five years from now? Where are rents going to be?

[00:40:35] And the last thing I'd say about it is if anybody's listening to this, how many of you who didn't buy real estate back in 2020 wish they had bought real estate? I'm probably going to say like 98%. So put yourself in the year 2030. Ask yourself that question five years from now. Do you wish you'd start investing in real estate back in 2025? The answer is probably yes. There's always the time to buy real estate. It's not always the time to sell real estate. Big difference.

[00:41:02] Right now, it's a little bit more difficult if you need to sell a deal, but there's always opportunities to buy real estate. Couldn't agree more. Yeah. I think we're just in a fantastic moment in time to buy. When rates were at 3%, I joked that you can't believe what pencils at 3%, right? You can buy anything when it's 3% debt.

[00:41:24] And that's why we've seen just massive construction deliveries recently because of all the construction starts that happened back in 2021, 2022. But yeah, I mean, if a deal pencils at 7%, it's a good deal. Yes. Well, Tate, the interesting thing is that's the problem right now with sellers. They're still thinking that cost of capital is 3%, 3.5%, 4%. And they're looking at pricing back in 2022. That's not where we are in the market cycle.

[00:41:52] So those who don't have to sell, those who are not motivated aren't going to sell. So don't force them because they don't have to sell. But those that do have to sell have to understand that their deal is not going to appraise. Debt is the circulatory engine of the economy. And right now, debt is pulled back. So if debt, the banks aren't going to finance the deal, then you're not going to be able to get the price. There's only two ways to make a deal work. You either drop the price or you bring more money. Your LTV lowers.

[00:42:18] And when your LTV lowers, your rate of return lowers as well. And a lot of buyers right now are not willing to take the risk on to bring more money to the table to take lower rates of return. They did that two years ago and see what happened to them. They've learned. So I think a lot of buyers right now say to themselves, prices haven't come down yet. They need to come down. And the lack of a lot of deals getting done right now, those appraisals haven't come in. But listen, we've got another 20%, I think, to come down in pricing, especially in a lot of these markets.

[00:42:47] And when that happens, you just need to be prepared. Absolutely. How do people get prepared? How do they get prepared? Well, in real estate, once again, there's two things that you need to do. You need to be sourcing deals or sourcing capital. And you should be doing those simultaneously. So if there are no deals right now, then start talking to investors weekly. And if you're saying, well, I don't know that many people, pull out your phone, get all your friends, let them know what you're doing.

[00:43:15] And don't wait till you find a deal to let them know that you've got a deal. Let them know what you're doing right now. Get them interested in it. And as you're doing that, what you need to do is you need to start talking to all the brokers in your market right now. And once you start doing that, you're creating relationships with the brokers and you have relationships with your investors. So when a broker ultimately does find you a deal, guess what? You've got capital lined up. You've got equity partners lined up. And the reason why I'm bullish Tate right now is these brokers are starting to talk to you.

[00:43:45] Whereas two years ago, they didn't need Gino. They didn't need Tate. They could have put a deal online and they could have sold the deal or anything. But now there's less deals and there's less appetite for those deals. So if you do speak to a broker, you do sign a confidentiality agreement, they're getting back to you. They're doing property tours because there's less demand for the asset. Now is the time to create the relationships with the brokers. And now is the time to start talking to your investors and letting them know about what's going on in the economy.

[00:44:12] And if you can do both of those, you will have success in 25 and 26. Love that. But Gino, how do people find more out about you, your books? What would you leave people with? Two places. JakeandGino.com. And I would go to Barbaro360.com. That's where the family company, we just launched about a month ago. Like I said, for me, the company is all about changing the world one family at a time. And I want to teach people these financial tools. I want them to be better stewards with their money.

[00:44:42] So at the end of the day, they have more money to leave. They can create more impact with their money. I love that. Gino, thank you so much for your wisdom. This has been a lot of fun. If people want to get in touch with you, can they? Yeah, absolutely. We can get this out if that's not. Yeah. You know what? Listen, Tate, if they want to email me, Gino at JakeandGino.com, just email me and I'll send you a PDF copy. Happy money. Happy family. Happy legacy. I'd love for them to start reading the book.

[00:45:12] It's really thought-provoking because these things we don't talk about. A relationship with money, that sounds so crazy. But really, that's what it comes down to. Having that relationship and understanding what's holding you back from building wealth. We'll link to it in the show notes. Gino, thank you so much for joining us. Thanks, brother. Have a great one. Thanks. You too.