Episode 203

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One of the most expensive mistakes many agency owners make is leaving too much money in the business. It’s too easy to forget that the retained earnings in the agency’s checking account is actually your money. You’ve earned it. You’ve paid taxes on it. It should be in YOUR bank account.

But, when you leave it inside the agency you often spent it on bad financial decisions, like staying overstaffed rather than making the tough call to downsize if business shifts.
You need to build your wealth outside of your agency. I dove into that topic in detail in episode 115 if you want to go back and review it.

For many agency owners – when they think about building that wealth outside their agency, they think about real estate I’m a big fan of this strategy and it’s been my go-to for years. But it’s easy to make big mistakes if you aren’t well educated (I wasn’t) or don’t have a good advisor. In the early days, I made some costly mistakes that I’d like to help you avoid.

That’s why I wanted to talk with a true expert in real estate investing so we could all learn from one of the masters.

My guest, Chris Prefontaine, has been creating wealth through real estate and teaching others how to do the same for years. This conversation is going way beyond flipping houses. There are so many ways to make a profit in real estate, and the barriers of entry are much lower than you might think.

Chris has always been a big advocate of constant education which is why he’s written Real Estate on Your Terms: Create Continuous Cash Flow Now, Without Using Your Cash or Credit. He’s also the founder of SmartRealEstateCoach.com and the Smart Real Estate Coach Podcast.

He’s been in real estate for over 25 years. His experience includes the construction of over 100 single-family and duplex homes (mostly 1990’s and selectively to date) as well as ownership of a Realty Executives franchise (Massachusetts 1994-2000) as a broker, where he maintained high per-agent standards and eventually sold to Coldwell Banker in 2000.

Chris runs his own buying and selling businesses with his family team, which buys 2-5 properties monthly, so they’re in the trenches every single week. They’ve done over $80 million in real estate transactions and help clients do the same thing around the country.

A big thank you to our podcast’s presenting sponsor, White Label IQ. They’re an amazing resource for agencies who want to outsource their design, dev or PPC work at wholesale prices. Check out their special offer (10 free hours!) for podcast listeners here: https://www.whitelabeliq.com/ami/

What You Will Learn in this Episode:

  • Why you need to start building wealth outside your agency today
  • How real estate can become a source of income beyond your agency
  • How to use tax liens as an instrument to earn income via real estate
  • The wide variety of ways you can earn through real estate
  • Why you don’t need a massive cash reserve to get started in real estate
  • How to minimize the outlay and risk in real estate
  • When to consider remote real estate transactions, and when to work on transactions closer to home
  • How to ride out market fluctuations to make the most of your real estate investments
“If someone does not pay their property taxes, an investor can buy the face value of the tax certificate and recoup that investment plus a guaranteed statutory interest. It’s pretty amazing.” – @chrispre Click To Tweet “On managing risk, I think of it this way: A stock can go to zero, right? My property can't go to zero even if the market crashes. And so I'm much more comfortable with that.” – @chrispre Click To Tweet “Real estate investing is not easy. It’s simple once you understand the vehicle you are using to invest in property. But it’s not easy.” – @chrispre Click To Tweet “In real estate or any endeavor, there is an enormous gap between going to a seminar and actually executing a deal.” – @chrispre Click To Tweet “If it’s a financial decision that’s going to keep you up at night, don’t do it.” – @chrispre Click To Tweet

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Ways to Contact Chris Prefontaine:

Announcer:

If you’re going to take the risk of running an agency, shouldn’t you get the benefits too? Welcome to Agency Management Institute’s Build a Better Agency Podcast presented by White Label IQ. Tune in every week for insights on how small to mid-sized agencies are surviving and thriving in today’s market. We’ll show you how to make more money and keep more of what you make. We want to help you build an agency that is sustainable, scalable and if you want down the road, sellable. With 25 plus years of experience as both an agency owner and agency consultant, please welcome your host Drew McLellan.

Drew McLellan:

Hey everybody, Drew McLellan here with another episode of Build a Better Agency and this one is awesome. We are going to talk about money, but in a way we have not talked about it before. But before I get into that, I want to remind you that we are literally giving away a, almost $2,000 prize every single month. We are giving away a free seat at one of our live workshops or a free seat of access to one of our on-demand workshops. And all you have to do to enter this drawing is leave a rating and review for the podcast wherever it is you download your podcast. So for many of you, it’s going to be on iTunes. For some of you, it’s going to be on Stitcher or on Google. All you got to do is leave a review, give us a rating, take a screenshot of that review because as I keep telling you, I don’t know who Biker Momma 109 is.

So a lot of times your user IDs are not in alignment with your professional name or your email address. So take a screenshot and send it to me. That’s all you need to do. And then we put you in the proverbial hat and we draw a name out every month and we give away a great prize. So you can use it yourself. You can send a staff person to one of our AE workshops. Someone inside your shop can use the workshop. You have a year to use it. So please don’t not take advantage of that opportunity. So happy to offer it as a prize. Happy to have you come to the workshop. I love meeting podcast listeners in person. It’s always fun to have conversations about how they listen and what episodes mattered the most to them, so really love that. So please go and leave a rating and review and we will reward you accordingly.

You only have to do it once and then you stay in the drawing. So, all right, let me tell you a little bit about this episode. So here’s the deal. I want many things for you. I want you to have a sane life. I want you to have a stable staff. I want you to have grateful clients, but one of the big things I want for you is I want for you to make a lot of money. I want your agency to be an ATM machine that funnels and fuels your dreams, your family’s needs, your team’s needs. And there’s no reason why that can’t happen. One of the big mistakes we make in agencies is we leave too much money inside our business. And when we leave a lot of money inside the business, we forget somehow. And this, by the way, if you’re a C-Corp, this is a little different, but most of you are LLCs or partnerships or S Corps.

We forget after a while that the money that we left in the business is actually our money. We’ve already paid tax on it. And so it’s Drew’s money. It’s not the agency’s money anymore, it’s Drew’s money. And Drew is in essence leaving it in the bank account of the agency for the agency to spend my money. And oftentimes what happens when you leave an excess of earnings inside the agency, you make bad business decisions. You keep staff longer than you should. You do lots of things that you wouldn’t do if you had to lend the money back into the business. So this is a whole different topic which we’ll talk about another time. But my point to you is I want you to get the money out of your agency and build your wealth outside the agency. And for many of you, one of the more attractive ways to do this, and for many of my agency owners who are already doing this, one of the key vehicles for building that wealth is real estate.

And so I met a guy, all he does is real estate deals and he partners with business owners and other investors. He does this stuff on his own, he partners with his family, but he’s built this amazing business on not only doing real estate deals but teaching other people how to do real estate deals. And when I met him, I started asking him questions about real estate. And what he was saying to me is that most of us if we’re investing in real estate do it wrong. And we do it wrong because we put our own other personal assets, our house, whatever it may be, on the line, we put it at risk. And there are ways that we can do this that are safer for our family. And that there’s a variety of ways to invest in real estate that are not just about buying a house or a commercial property.

And so I asked him if he would come on the show and tell us all about it. And he said, yes. So Chris Prefontaine is his name. I’m going to let him tell you a little bit about his background, but I’m excited to pick his brain for me personally and for you. And again, as you’re listening to us talk, I want you to hear my voice in the back of your head saying your agency should create cash that you get out of the business and you build your wealth outside of the agency. I want you to have a diverse portfolio. I don’t care if you invest in ponies or real estate or poppy fields. I don’t care, but I’m suggesting that for many of you, real estate is kind of high on your interest list, which is why I asked Chris to be on the show. So without further ado, Chris, welcome to the podcast. Thanks for joining us.

Chris Prefontaine:

Well, thanks for having me. Pleasure.

Drew McLellan:

As you and I were talking about, off-air, one of the mantras of AMI is get the money out of the business. And so many of my listeners and AMI clients look at real estate as a huge opportunity, but it’s one of those things sort of like diamonds. I’m sure I could make money buying and investing in diamonds, but I don’t know how to look at two diamonds and know which one is good or bad. I think a lot of business owners feel the same way about real estate. They know there’s huge opportunity there, but they don’t know how to maximize or take advantage of the opportunity, which is why I thought you would be a great guest on the show. So give everybody just a quick snippet of your background in terms of real estate. And then I want to dig into the meaty topics that are a part of your new book, the new rules book because I think that outlines all kinds of different ways for us to think about real estate investing.

Chris Prefontaine:

Yeah, for sure. So I’ll date myself a little bit. I’ve done this for like 28 years now, so that gives you some perspective on my age, but Drew, just to give you an idea of where this came from, the book and everything, I’ve done everything from single-family building on single lots to multi-family to commercial, to raise the roof or we tear off a roof and go up another floor to new homes. So we ran the gamut and then I learned the hard way in 2008 with the crash why not to be on personal signatures in loans and things like that. And so we re-engineered the whole business in 2008 and that’s what we do today, which is buy on terms only. We don’t use banks and we buy everything on lease purchase, owner financing, things that don’t require banks. So I go to bed at night with a different calmness than I did pre-2008, let me put it that way. It’s a family company too. Just so you get a picture, it’s myself, my son-in-law, my son, and then a great support team. And we buy and sell ourselves and then we teach others around the country to do the same.

Drew McLellan:

So let’s talk a little bit about the buying on terms because I think for a lot of people they… I just had a conversation with an agency owner yesterday and he said, once I get $1 million in the bank, I’m going into real estate. And I said I don’t think you need $1 million to start. I know I didn’t start with $1 million. I still don’t have $1 million in the bank. I know that I didn’t start that way. So I think maybe you’re thinking is askew. So talk a little bit about this idea of being able to jump into real estate without visiting your friendly banker.

Chris Prefontaine:

Yeah. You’re %100 correct. That person thinks like so many in that, okay, I got $1 million. If I buy X amount of properties, I put 20 to 30% down because that’s what they require then I can buy X amount of properties. That’s a little bit limiting. So we use two vehicles mainly. Lease purchase, we have a whopping $10 deposit built into a lease purchase. So if I’m going to buy your house on lease purchase, I’m going essentially pay your underlying debt if that number works for me. In other words, if that number is less than I can get on the market for rent or what we call a tenant-buyer. And I’m going to then at the end of that term, usually 36, 48, or 60 months, I’m going to pay off the underlying debt. Now it’s lower than day one so I benefited from that and I’m going to give the owner any equity we agreed to at the beginning if there was any. We protect it and give it to them at the end when we pay off their loan. Now, none of that required a deposit. None of that required a bank. The loan stayed in their name, I just paid it. And so we’re creating, I don’t want to say out of thin air, but we’re creating income literally from a $10 deposit. That’s the lease purchase route.

Drew McLellan:

Why would an owner do that? Why would an owner stay on the hook for the note if somebody else is paying it as opposed to having somebody… What’s in it for them, I guess?

Chris Prefontaine:

Yeah. Great question. Students ask that. They’re, come on, why would a seller do that? Well, in no particular order, some sellers need debt relief. So I’m going to go bad to good. Some sellers need debt relief. They got a second mortgage payment. Some sellers divorce and need to get rid of it now without having a hassle. Some sellers frankly are in good shape; they just want more money. In a lease purchase they’ll usually get more cash out if they can wait. The only person this doesn’t work for, this is the easiest; if someone says I need or want the cash now to go buy another house for my family. I need this cash to go buy a house and I’ll even take less. Okay. We can’t help them. Everyone else, we can help them get more money out of the deal because the longer they go term-wise, I don’t care about price, I care about term.

Drew McLellan:

Right. Because you’re getting rent.

Chris Prefontaine:

That, it’s a monthly cash flow, but I’m also getting principal paydown every single month that goes farther. So sometimes homeowners just care about their number they’re getting at the end as long as they can wait. I care about pushing out as far as I can and getting that principal paydown.

Drew McLellan:

Yeah. Right. Okay. So in your new book, because you’ve written several, but in your new book, you outline lots of ways that somebody can be involved in real estate and benefit from real estate investment without owning a commercial property or without owning a rental property all on their own. So let’s say I want to jump into real estate, but I don’t have the time, I don’t have the expertise to manage a bunch of properties? I don’t want to be a property manager. What are some of the ways that I should be thinking about real estate?

Chris Prefontaine:

Okay. So again, in no particular order, I’ll use my CPA and my attorney who know our business integrally, obviously. They’ll come to me every now and then. My CPA just sold his house and he said, hey, Chris, I got $165,000. I know I won’t make any money on it, where can you pocket it for me? Do you have a deal? And so we’ll look at what we have going on. We’ll propose two or three things. So he does a passive investment, he couldn’t care less. He knows our books. He knows how strong we are. And so he just does it passively. They could also dig into, like in the book, things like tax liens, tax lien certificates because they could have someone do that. They could subcontract that out, have someone hunt that down and just invest in tax lien certificates.

Drew McLellan:

So explained to us what a tax lien certificate is.

Chris Prefontaine:

Okay. So all around the country forever in the United States, different every county. If I use an example, in Illinois, I have a building there. In Illinois, if you don’t pay a tax for a long time they sell that tax certificate to an investor. That investor buys the face value of the tax and they’re guaranteed statutory interest. So what we talk about in the book, say I go in, I’m late on my taxes, I go and I pay it off, well, that person who bought that tax certificate gets the principal back plus a statutory, whatever it is for that state interest rate, guaranteed. I think it’s Texas, some states as high as 25%.

Drew McLellan:

Okay. So let me just see if I understand this. If in Texas or some counties in Texas it sounds like, somebody has not paid their taxes on a commercial property, I could go in and pay their tax and so I’m absolutely protected, I’m guaranteed that I’m going to get not only my principal back but whatever their stated interest is. So as you were saying in Texas it might be 25%. So let’s say they owe, I’m just going to make up a number, $25,000, I go in, I give them $25,000, I’m guaranteed to get my $25,000 back plus a 25% interest kicker.

Chris Prefontaine:

Correct. Whatever it is in that state. Yep.

Drew McLellan:

So let’s say the building owner doesn’t come in and make good on their taxes, when do I get my money back or what happens next?

Chris Prefontaine:

Yeah. This will get your attention. So different states are different. I’ll just give you some examples. So some states have a right to redemption. Like they’ll let the homeowner or the building owner come back after X amount of months or a year. Some of them are a year. So give them that long to pay it, but if they don’t at whatever that point is, six months, a year, some of them are deed states, you’ll own the property. You’d actually own the property.

Drew McLellan:

Okay. So I pay their $25,000 in taxes. They go whatever the period of time is, let’s call it a year.

Chris Prefontaine:

Yep.

Drew McLellan:

They don’t make good on that and now I own the building.

Chris Prefontaine:

You own the building in some states. It’s crazy.

Drew McLellan:

Wow.

Chris Prefontaine:

And this has been around for decades. This is not new. It’s just that a lot of people don’t talk about it. So in the book, we have an expert on that because I’m not so naive to think our niche is for everyone. Right. So there’s all kinds of experts in there.

Drew McLellan:

So in other words, what I’m hearing you say is I could hire someone who has a depth of expertise in these tax liens. They could help me identify, based on the dollars that I have and I guess maybe where I live but it sounds like it doesn’t really matter, properties that I could pay the taxes off on. So what if it’s not a deed state? So again, let’s say they’ve gone a year, they haven’t paid back the $25,000 that I in essence have paid on their behalf, how long do I wait before I get the principal and the interest back?

Chris Prefontaine:

Yeah. There’s still a cutoff because that’s when the government guarantees it. There’s still a cutoff date. It doesn’t go on forever. And you know that going in which state you’re in. And to your earlier point, a lot of this can be done online now, believe it or not. You used to have to go physically. And you do still have to on some, but some you can do online auctions for this. Okay. So let me draw the distinction. So there’s kind of a gap between what you said earlier like, hey, I don’t want to get in the trenches. I don’t really want to do that, I’m an agency owner and then full passive. Tax lien will be towards the full passive, but you’ve got to set someone up and get them trained. So there is some override, some overseeing. It’s not heavy, but it’s somewhat involved a little bit.

Drew McLellan:

Right. Or you have to hire someone who already has the expertise and for a fee, they would manage it for you. Yeah. Interesting. Right. So tax liens, is one. What’s another way that I can invest in real estate without wholly owning a commercial property and being a property manager?

Chris Prefontaine:

Yeah. So aside from the passive thing, I say, well, you just get involved in a deal. There’s in the book, we talk about and some experts talk about the crowdfunding now no longer is there a restriction. And I’m not going to get to SEC stuff, but no longer is there a restriction for the small investor. The person wants to kick in $2,500, $5,000, $10,000, they’re not going to put it in $100,000, there’s vehicles for them now. And those are talked about in the book as well. So they can go on to these funds that have been approved by the SEC and they can invest little amounts of money like the old REITs or things like that, that you used to be