Navigating Real Estate Investing Wealth and Insights with Jim Manning

Transcript

Mattias
(0:03) This is the Wealthy Investor Show, where we don’t just talk about your wealth. We also talk about your holistic health. I’m your host, Matthias.

Erica
(0:10) And I’m Erica.

Mattias
(0:11) And this is the Wealthy Investor. Welcome back to the Wealthy Investor. Unfortunately, it’s just me again. Erica is with the kids. This is going to probably be a reoccurring theme for all the podcasts that are recorded in the summer. The summer months are a little bit more challenging. We haven’t been able to figure out childcare for everybody, every single day. And then, of course, things happen like kids get sick and schools close, holidays, all that kind of stuff. I had the opportunity to interview Jim Manning. Jim Manning is out of St. Louis, and he is a broker. He is an investor. He is primarily an investor, and he operates funds for lease option kind of deals. So, basically, people will invest with him. He offers a preferred rate of return. With that capital, he then helps people buy houses that are not able to quite obtain financing in a traditional route. Now, that typically looks like somebody, maybe like a new business owner, where they haven’t done their business for two years. They could be making great money. They could be making hundreds of thousands of dollars a year. But if they haven’t done it for two years, they are not lendable at that moment. What he does is he helps bridge that gap and provides them ownership in a house where the repairs are their responsibility, et cetera. And then the goal is for them to eventually buy the property at the end of the day. So, it’s a really cool strategy. It’s really cool that you can invest in that kind of thing. It’s a very passive investment. You’d need to be an accredited investor to be able to do that. But we will talk more about that. Something that we actually talked about off-air that I wanted to chat with you a little bit about now is why I’m behind doing everything. So, Jim told a story about how he worked for a billionaire when he was very young. And at first, the billionaire was his role model. Like, wow, this guy just has it all. He is old. He is big. He has a gorgeous supermodel girlfriend. He flies around in a private jet. They were drinking $1,000 champagne bottles in that private jet, seemingly had it all. But the more that he got to know him, the more he realized that that guy really did not have his life figured out because his family wouldn’t talk to him. And he was just miserable. And so, at the end of the day, don’t get lost in the journey. If you are trying to build your wealth, your kingdom, if you will, don’t get lost in what’s really important. And I think that it takes a lot of intentionality at the beginning of the journey to really define what you want. And then it takes a lot of intentionality throughout the process because you can find yourself so focused on how you’re going to have a great life once you just get this next rental property, or once you get financially free, once you become a millionaire, once you become a multi-millionaire, like, whenever those things happen, then I will live my life. And reality is you’ve got to be living your life every single day because we don’t know when we’ll die. We don’t know if one of our family members will die. We really need to be present for them at this moment. And so that was a really good reminder of somebody who has achieved so much, and everybody looks up to, and thinks they are living the dream, and really they’re miserable. And I’m not saying that all rich people are miserable. I’m just saying you need to be, no matter how wealthy you are, no matter what you’re trying to do, you need to be intentional and not take things for granted along the way. This is a great information podcast about syndications. We get into a little bit specifics about how one could invest as a realtor, and some of the advantages that realtors have. So definitely if you are an agent and are considering investing as well, it’s a really good opportunity to listen because there are passive, very, very passive. I know people say that rentals are passive income, but really you are working on those rentals, you get calls, even if you have a property manager, you know, there is some work to be done with them, not pure passive. When you get into these kind of syndication or fund deals, you are analyzing the deal, you’re analyzing the strategy, you’re analyzing the person, the operators behind it, you invest the money, and then you really don’t do much other than collect checks and potentially get tax benefits from it. So yeah, really interesting story. I think that financial literacy is something that’s so important for people as a tool to live the good life. And the good life is again defined much more broadly than just wealth. So without further ado, let’s listen to Jim Manning on this episode of The Wealthy Investor. Welcome back to The Wealthy Investor. I am here with, I found out, broker and investor Jim Manning. Jim Manning is out of St. Louis. Thanks for joining us.

Jim Manning
(5:33) Oh, thanks so much. I really appreciate it, Mattias.

Mattias
(5:36) Hey, where are you focused on in your real estate investing currently?

Jim Manning
(5:41) Oh, man. Yeah, that journey’s been a lot. So we’ve done a lot over the years. We started out doing short sales, and we’ve done that. We’ve done flips. And then currently we’re doing a lot of lease purchase deals, as well as hard money lending. They’re kind of two of the main strategies that we’re using right now.

Mattias
(6:04) Awesome, awesome. Tell me your journey. I’ve heard a little bit about it, but yeah, tell me how you got to this place and how you started.

Jim Manning
(6:13) Yeah, absolutely. Thanks for asking, man. So I started out as a 22-year-old. I got licensed and I got my license just to run comparables. I didn’t want to trust a realtor to do that for me. I wanted to be in control of that. Then we fast-forwarded today. There’s three companies that I founded and two real estate funds. We’ve actually done over 3,500 deals collectively through our agent team and investments. I know all about being an investor agent and what it takes to be able to live in both worlds. Our agent team got up to a top 10 team in Missouri and Illinois in our heyday when we were doing the most amount of agent deals that we had ever done.

Mattias
(7:08) So you were focused on residential sales at that point?

Jim Manning
(7:11) Yeah, residential sales, that’s right. I fell in love with real estate investing because I was at a corporate America job and I was pushing paperwork and it didn’t matter how good of a job I did. There was no value. One month I worked my tail off, and my boss didn’t notice. The next month I slacked off, and my boss didn’t notice. I was like, okay, I need something that’s a little bit more valuable. If you think about real estate investing, we’re taking a piece of property and we’re putting money into it and improving it so a family can live there when you’re flipping a house. I just fell in love with literally improving a piece of the world and creating homes for families.

Mattias
(7:57) I’ve heard some people talk about that as recycling a home, which I think is an interesting way to look at it. It’s a great feeling to see it transform and then to have somebody super excited about living in it is really great. Sorry, keep going.

Jim Manning
(8:13) No, that’s right. When we started doing a bunch of flips, one thing that I would say to note is if you hear the 3500 deals, again, that’s a lot. We have a team of over 30 people now, and it took me 18 months to do my first investment deal. If you’re just exploring this and getting into it, it took me 18 months. There are a lot of things that held me back on that and a lot of challenges that I had, but really the biggest one was as a 22-year-old kid, I was too afraid to reach out to people and admit that I didn’t know. I thought that studying courses and buying courses, studying things online, was going to get me there and get me into some knowledge. And really what happened was it created a situation where that’s analogous to if I wanted to be a really good free throw shooter, buying a book on shooting free throws and just reading the book and never going to the gym and actually physically taking a practice shot, much less shooting one in the game. And so there’s only so much educational learning that we can do until it starts to go in one ear and out the other. I was just reading through one course and forgetting about the last course that I just had completed and just in this information loop.

Mattias
(9:38) Analysis paralysis, I think. Great way to say it too, right?

Jim Manning
(9:42) Yeah, and education without implementation is really just a form of entertainment. There’s no actual value to it. If you’re not doing that, and then yeah, then Ryan and I, Wessels, we ended up partnering on businesses and then we ended up bringing in. We got 130 now limited partners in our two real estate funds

and, you know, just kind of snowballed from there and Andy. Yeah, I guess the rest is history on that.

Mattias
(10:14) Yeah, that’s awesome.

Jim Manning
(10:15) Yeah.

Mattias
(10:16) What do you, I think oftentimes people when they’re taking on their first deal or getting, trying to get out of that, you know, analysis paralysis, if you will, just gathering more information, not taking any action. I think oftentimes people assume that their decision is going to be a zero-sum game. So like they’re going to invest $200,000 in a property. And if they don’t do it perfectly, it’s going to lose $200,000. But really, I mean, sometimes in a really bad deal, you might lose, I mean, of course, it’s going to be worse than this, but like if you do your numbers, if you’re, if you’re reasonable, if you’re actually underwriting property, you know, you might lose $5,000, maybe, right? In a really bad deal that you’ve done a lot of due diligence on. And that’s a bargain for probably the lesson you’ve learned.

Jim Manning
(11:07) Well, I mean, yeah, you’re definitely right. There’s more fear there. Now, I mean, we have, I’ve lost a lot of money on deals before more so than 5,000, but I mean, out of 3,500 deals, I think there was a deal we lost 100 grand on. But, you know, one out of the 3,500 and that loss happened in part because of the volume that we were doing when you get to a certain volume and you have a little bit less control. And then a mistake can get magnified because not only do you have that one project, but you have 240 other ones that you’re, you’re working on and balancing and everything like that. Right. So, I mean, I think the, so what’s interesting is, I think there’s a step that everybody like misses when it comes to real estate investing. And I don’t really hear, I haven’t really heard anybody else really talking about this. So if I can give some, hopefully in my mind, some thought leadership for you all here. And the first step I think to investing in real estate is it comes through like a self-awareness of who you should be. Now, for example, like out of the 130 limited partners, many are financially free and the top 10% are making more money than almost all the full-time real estate investors that I know. And guess what? They’re spending zero hours a year doing it. The difference though is that they have a very high net worth and they have millions of multiple millions of dollars to invest into passive vehicles. So that other people can do the work for them and then they generate a return that way. So the first step really when it comes to investing in real estate is thinking through like, are you more of a passive investor or you more of an active investor and which one is best, which one’s best for you. So like, for example, before this call, I just sat down with a programmer guy and I asked him, I said, Hey, what are you making? Are you making good money? Are you happy with the income that you’re making? He said, yeah, Jen, I said, do you enjoy it? He said, yeah, I do really enjoy it actually. And then he starts talking about, Hey, well, maybe I should scale a real estate investing business. I said, well, do you enjoy, already enjoy what you’re doing. You’re making really good money. If you were just starting out in your career on day one, like, would you be making close to what you’re making now? So no, well, no, I wouldn’t be. I asked him and I said, well, you just mentioned that you want to scale a business or scale your investments. Are you okay with saying no to your full-time gig right now? That’s, you know, you’re making over $100 an hour on and you’re able to, instead of doing it eight hours a day, you’re so good that you can do it in five hours a day and you’re able to make that kind of money. And he said, well, wait, what are you talking about? I said, well, if you scale an investing business, you’re now saying no to your full-time gig that’s paying you over $100 an hour to do. And just so you know, starting out as an investor, you’re not going to make close to that income as you’re starting out because you’re starting a new business. It’s like you’re a freshman in college all over again, right? And so he started thinking about it and we had a really nice conversation and the end result of which was, well, no. Why don’t you be a passive investor and work at your expertise and pour more hours into that, find out a way to make $200, $300 an hour into like your programming expertise. But then also learn how to be a passive investor. There’s real estate funds or syndication deals out there that you can learn how to invest in a passive way. And all the benefits of being a full-time real estate investor and but in a way that actually generates you passive income, not a way that is a theory of generating passive income. But yeah, so I don’t care if you’re a programmer, in this case, that’s who he was, or a realtor. There’s a lot of mega agents, like mega producing that are making over a million dollars a year, agents. Maybe you love the idea of investing, but that might take, but then turn around and start doing flips and everything like that could be a pay cut for you, right? So I think there’s a formula there on like, do you have the time to take on opening up a new company? Do you like what you’re already doing? And then when you factor in all, when you kind of factor that in, then it kind of becomes clear, okay, like, should I go down the passive route or the active route?

Mattias
(16:12) That’s, yeah, very, very well said. And I agree with you completely. And I think that depending on your stage as a realtor, if you’re just getting going, if you’re an agent, you’re just starting, you probably don’t have the net worth. You probably don’t have the income to do passive type of income investing, and you might do something that also doesn’t take that much focus from you, and that would just be house hacking. Like, you know, if you’re young and have flexibility by a house, see if you can rent out part of it, if not, you know, as soon as you’re saved up enough money to buy another house, rent that first house out, you know, rinse and repeat, and then slowly build up your net worth, your establish yourself that way. And that doesn’t really take a ton of, you know, thought. And from there, you could open up maybe a flipping business. Once you have equity, you could tap into. You could get more interested in, you know, other investment portfolios. And you can also just start investing passively like you’re talking about. But can we talk about kind of what that looks like, what a syndication is, what an LP is, a little bit, for people that don’t understand or haven’t heard about this terminology before?

Jim Manning
(17:21) Yeah, absolutely. Good question. And, and for, and guys, for the record, like, like, I’m an active investor. I start out actively investing. So I’m not dogging on that. Like, that’s, that’s a good opportunity, but it’s, it’s an awareness of who you are. I was a 22-year-old kid. I had a zero-dollar net worth when I started out investing in real estate. I had there, I didn’t have a penny to my name to invest into these passive structures. These passive structures, if you have a high enough net worth, you can make like, I mean, literally I could make you six figures of passive income with an hour of work. You know, if you have a million dollars plus to invest, right? Like, yeah, like it’s, but it’s the value out of having, of having the capital to throw into it.

Mattias
(18:08) Right. You got to get there.

Jim Manning
(18:09) Yeah. So as far as the real estate funds and the syndications go, there’s a couple of nuances and differences to them. Think like, like the United States of America and Canada are both in North America, right? But they’re two different countries. So a syndication is kind of the same way. They’re both alternative investments that you can do. But syndication is a little bit different than a real estate fund. Okay. So the real estate fund, what you do in our case, we have in our first fund that we have that’s, that depending on what this recording launches may already be closed out by the time you hear it. But we have a group of 65. It’s called limited partners, but basically just private individuals that are investing into the fund structure. So there’s 65 limited partners. And then there’s also general partners, which in my case, I’m the general partner and we have five total general partners. And it’s on us and our company to do all of the work and operate the real estate deals. So the limited partners come in, the word limit is a really important word because it means that they’re, they’re not making any decisions. And they’re just, you know, very much passively investing. It’s on them to provide the capital and not do any of the work. And then on the general partner side, that’s on us to do all of the work, depending on the

deal. There may be capital that is brought by the general partners to just depends on the structure. You’ll see sometimes general partners will bring money other times they won’t. And so when the fund structure, everybody comes together and then that entity will buy multiple real estate deals. Okay. So one entity has multiple people in it. And then you may go out and in our case, in our fund, there’s about 130 houses in this fund. So one structure, multiple people are in one structure and that one structure owns the 100 plus properties. Okay. Now, a syndication deal is similar in that it is a group of people investing together. They can have limited partners and general partners, just like I explained earlier, but a syndication would be one syndication per one deal. So it’s not very common to use that on single-family real estate because you’re not going to group, every time you buy a house to get like five or 10 investors into a syndicated deal and then to do another syndicated deal where you need five to 10 new investors on one deal, like it’s just not quite at that scale. So it’s common to see syndication deals on like a $10 million apartment complex. So, you know, so like when it’s, you know, when the deals get bigger than the syndication, it can make a lot of sense. But then it’s you’re not going to buy with a syndication deal. You’re not going to buy another apartment complex that you would put together draft new legal documents, put together a new partnership with new investors or some of the same old ones. And then now you’d have syndication deal one for apartment deal complex one and syndication two for apartment complex two. And then like, and that’s how you would do that.

Mattias
(21:34) Sure. No, that makes a lot of sense. Now, let’s say I am a multi-million dollar producer. I earn, let’s just say, half a million dollars a year. And I really know I should invest more in real estate. I just don’t really have the time. And I hear about a service like you have, so a fund or a syndication. What would be my job? What would be my job to invest wisely?

Jim Manning
(22:07) Yeah. So I, whenever you have these deals, like you do have to, you do want to enter into a real, you’re entering into a relationship with people. So you want to get to know them. And there’s a lot of key risk factors that go into this. There’s the overall real estate markets doing is important to know. There’s key person risk. Like, are you investing into an established company? Are you investing into like one or two general partners that have never done this before? So that, and then the actual investment strategy itself, what the likelihood is as well. So for example, just to give you, I’m going to put my investment hat on and how I’d like to think about deals. So, and I know this from truth at one point, I have 15 vacation rentals, but let’s just talk about vacation rentals. So on a macro level, okay, like what is the overall real, like the investment strategy? There’s some big pros to vacation rentals. A lot of people have made a lot of money in them. I think that’s kind of like an obvious thing. I think a lot of people understand the pros to it. But from a risk standpoint, there’s a couple of things I don’t like at all about vacation rentals. First is controlling the real estate of the vacation rental marketplace. So I have a property in St. Louis city that’s, it was generating us. In its heyday about $14,000 a month gross was what we were grossing per month. And it’s a over a 4,000 square foot building, like just beautiful building in south St. Louis city. And Air DNA and there’s other tools out there that allow other investors to see what people are making on vacation rentals. And so, so my theory is people saw what we were making, and then they end up putting a whole bunch of competition on the market. So then we got, then the vacation rental and this niche got to oversaturate in that 14 grand a month that we were making slip down to nine, slip down to eight, slip down to seven. We got hit with some, you know, it’s over a hundred year old home. We got hit with some bills too. And then what turned out to what we thought was going to be one of the best investments we ever made. We were kind of scratching our heads 24 months later saying, man, like, what’s going on here? Why are we losing money on this deal? So one of the weaknesses with vacation rental is it does not mesh the supply and demand as its own, its own supply and demand. And you don’t have control over how many other investors are going to come in and potentially flood the market. And one of the strengths with real estate investing too is it can diversify yourself out of what’s going on in the overall economy and the overall stock market. Three out of the last five recessions, home prices have appreciated, for example, real estate typically I get in 2006 at Denon, but really typically performs really well in recessions. So it’s a good diversification play, but if you’re in vacation rentals, okay, what’s happening? Well, you’re reliant on what the travel industry is doing and the travel industry is very much reliant on what the overall economy is doing, right? So as you think through these deals on whether to do them or not, like I share this with you just as insights into how a guy that’s done a few thousand deals over the last decade now, it’s just kind of like how I think and how I think through these deals. And yeah, so we do, yeah, we still have a couple of vacation rentals, but at one point we have 15 and now we’re down to two, I think, yeah, we have a different strategy, we prefer more now.

Mattias
(26:05) Sure, and so with the fund, if I was looking over a package to decide if I wanted to invest in it, would that fund typically have like a target? Like so we’re doing single-family flips, we’re doing single-family rentals. I know with this indication like we talked about, it would be like we’re approaching this specific deal. Like this is the location, this is the demographics, this is the job growth, this is the vacancy rates, that kind of stuff, but with a fund, tell me how you would know that if you do want to avoid vacation rentals, how would you avoid that?

Jim Manning
(26:40) Yeah, it’s just finding operators. So we love a lease purchase strategy, that’s what we do. So you mentioned like, well, how do you, so our first fund, we were targeting 37 and a half million of them. And like the strategy that we’re putting all the properties in was a lease purchase strategy. And then asking me the question one more time was I feel like I’m missing a part of it.

Mattias
(27:05) Oh, so what would you give me to explain? So it would be, you would say that this fund is going to be specifically only for lease option and strategy. It would kind of outline what type of property you’re going for and the projected returns.

Jim Manning
(27:21) Yeah, and then it’s, yeah, so you just kind of outline what the investment thesis is and how you’re helping people, what the demand is from the market. And then maybe some of the risk mitigants and how you’re lowering risk. And then you know, just the goal is, is that, you know, I think on any investment, we should have crystal, we should be very clear on what the investment is and feel like we understand it. But as real estate agents, I think we, we really underestimate the value of our real estate knowledge. And it will, especially the ones that have been around a while that are kind of the quote unquote millionaire agents that are making a lot of money. Well, you know real estate really well. And just because your financial advisor may talk to you about these index funds and all this stuff that’s over your head doesn’t mean that you can’t still, I mean, real estate is made more million investing has made more millionaires. And there isn’t just about anything. I mean, probably anything. I don’t have the stats behind that. And as a real estate professional, you already understand it at a really high level. So you can lower your risk when you really understand something quite a bit. Like I don’t, for me to invest into, okay, well, here’s something. So I got approached by a friend that was in a mastermind group for three years. And in this mastermind group, you spend two full days with people in a room, you share intimate everything. Like you get to know these people better than sometimes your family that you know. And for two full years, I had an individual promoting his, his oil investment with me and wanting my business partner myself to invest into this and very successful guy. Everything checked all of the boxes. But when he explained it to me, I just couldn’t wrap my head around how the heck it worked. Is it clear to me? And I end up saying no on the investment and not because of the individual individual completely passed my test. Well, turns out that the whole thing was like a Bernie Madoff complete scam. I don’t know. Yeah. And they raised, they raised like a, like, like two or three billion dollars for it or just something. The returns on paper were incredible, but they were taking new investors money and paying the kind of pimping all the returns for the old investors. And I mean, so that, I mean, that’s the importance of clarity. The clarity part saved me. Right

. Just because I just wasn’t fully clear on what the investment was. And it turns out my, you know, he was a friend. I actually would still consider him a friend because as it turns out, it looks like he was defrauded to, like, so he was promoting something that the fraudster kind of like fooled him on to. So he kind of put his reputation and name on the line and unfortunately, yeah, unfortunately, he was wrong too and got really hurt too. And so, I mean, there’s definitely like, yeah, there’s risks. There is risks there. But, but yeah, I mean, when you’re already, no one understands real estate, you get the right company and like you understand a strategy. It becomes a great opportunity for, you know, that quote unquote replacement income that you have. But I mean, that is the weakness to investing, by the way, like, like if you’re going to do all the work yourself, like, there’s nothing passive about it. I know people are online promoting how passive it is and how you can generate passive income. And it’s unfortunate because real estate’s a recurring revenue business model. And recurring revenue takes time to manage. It takes time to set everything up. The fortunate thing, though, is that these structures, these syndication structures and these real estate fund structures, when you have the right strategy, you have the right team that you know, like and trust. It really, truly can create passive income. It can create financial freedom. And it’s not because the widgets passive, like we were working every day on this thing, right? I mean, it’s, it’s that I think you mentioned the book Who Not The How and some of y’all have maybe listened to it. But other, if you invest with other people, they can make it passive for you.

Mattias
(31:53) Yeah, it’s, it’s really at a much bigger scale than getting something like a property manager. Like it’s, it’s, so if we’re looking at the syndication model where you’re looking at just one, one deal, we’ll see those. It’s a multifamily property in Austin, Texas. You can, you can really get into the details of, you know, and usually you get a report on this property that’s going to explain how, yeah, the demographics of everybody, why this is a good deal, why there’s opportunity. And most of these, there’s an angle at all these properties. So like with a multifamily deal, it’s probably they’re looking to increase the value by increasing the rents by improving the property, by having better management, by, you know, reducing the fees, all this stuff, making the, playing the game with the, with the cap rates to, you know, basically flip this big, big deal. I get a ton of equity in this new thing and then do a capital event, which means they’re going to, you know, refinance the apartment or sell it. And at that point, you know, there’s a bunch of different ways you can get paid. Usually you’re getting a preferred return along the way on your initial investment. Then on the capital event, you either get your money back. Sometimes you get like, if they’re selling it all together, you get whatever the profits are. So, you know, doubling your money is not unheard of. It’s not guaranteed, of course. And then if you’re getting just refinanced, you might retain some ownership in the property and get your initial investment out, which is all great. And that’s why it’s so passive. You can really, like you said, understand the deal. You can, you know, understand why this is good and trust your operator. So you’re analyzing the deal. You’re analyzing the operator. Those are your main jobs, right? And, and then the thing that we haven’t touched on yet is the tax advantages of doing something like this. Now, are you able to get a K1 with a fund as well?

Jim Manning
(33:48) Yeah. I mean, the, I mean, when you, we get into the tax world, I’m not an expert at it. I’ve tried to get my CPA to like answer all these questions for me and the problem is each person’s situation can be a little bit different. And I’m not licensed to, like, give full-fledged advice. So that’s the key answer to my CPA is like, this is how you respond to this gym. You have to do this. But pragmatically, how ours works is it’s the same benefit of whether it’s your deal or not. You get depreciation on it with your K1, but instead of getting 100% of one property’s depreciation, you’re getting 1% of 100 houses. And, you know, with the difference of you’re not doing any of the work, you’re just taking the K1 and then giving it to your CPA and having them deduct what you own taxes because of it.

Mattias
(34:42) So most people that are familiar with investments would understand that you would take the structure value minus the land value and then divide that by 27. And that would be what you could depreciate every year in your taxes as a tax professional. And again, same disclosure, I’m not a tax professional. If you’re a real estate professional is what I’m trying to say, you have some extra advantages you might be able to take advantage of. And that could be if the property is doing accelerated depreciation, they could reduce your tax liability by a lot more. Just to give a quick example, I invested $50,000 in this indication and I got a K1 of about $66,000. So I was able to reduce my taxes by $66,000. And that’s just my personal situation. That could be different, you know, in your situation like you said. You would have to talk to your CPA about it. But that is one of the things that I want to shout out off the mountaintops because I don’t think many realtors really understand that they are real estate professionals and what the benefits of that for taxes are. And your services, investing in real estate.

Jim Manning
(35:52) So, did you get to hear that? I like how powerful that is. So you had to pay $67,000 less than taxes.

Mattias
(36:02) With a $50,000 investment. Yes.

Jim Manning
(36:07) Can you say that one more time? Are you guys hearing this?

Mattias
(36:11) Yeah, I invested $50,000 and I’m getting a preferred rate of return on that better than I would in some kind of money market. I’m getting good return on my investment, which is basically what most people hope for. But then on top of that, I got a K1 that allowed me to reduce $66,000 on my taxes. Wow. So that is maybe lucky. This was a mobile home park and I think that there’s probably a lot more depreciation on the first year than maybe some other projects might have. And I’m not expecting that again this year. But if I were to continue to invest in these things and mind you, in a little bit of time, that money is going to come back to me that I initially invested. So if you keep piling up these kind of deals, you see the power in the syndication if you’re a real estate professional. And that’s one of the big reasons for this podcast.

Jim Manning
(37:08) So if you weren’t a real estate professional, what would that have looked like? Have you ever ran those numbers?

Mattias
(37:14) I don’t. I do not have any idea to be honest, because I think I would still get a K1. I think I would still get a K1, but I don’t think I’d be able to take advantage of that full amount. I don’t think that the amount would be different. I just don’t think it would have been able to take full advantage of it. So I don’t know what that would look like.

Jim Manning
(37:30) Yeah. And then there’s also nuances on like, so a lot of people don’t know you can invest IRA money into real estate. But if you invest IRA money, you’re not getting taxed on any income that comes up. So the appreciation doesn’t really benefit you. But it’s also kind of sweet to be able to say, well, IRA money, I don’t have to just invest in the open market. I can invest and generate passive income through IRA money that one day I can live off of when I no longer have my income.

Mattias
(38:00) Yeah, absolutely. And I know that some people are hesitant to go all in on real estate. But another way to look at it here is what other opportunities are you able to leverage what you’re investing in? So if you’re buying $500,000 worth of stocks versus $500,000 worth of real estate, you’re going to only put $100,000 into that real estate. You’re going to put 20% down. And let’s say that both portfolios go up by 20%. How much money, what does your return on both of those? So you both have, they’re both worth $600,000 now. But you made 20% on your $100,000 investment in stocks and you made 100% on your $100,000 investment in real estate. I don’t know if I explained that well, but that’s one of the reasons. I mean, these are the reasons why, you know, I’m not fully all in on real estate, but I understand more and more why people are.

Jim Manning
(39:02) So what else are you in on other than real estate?

Mattias
(39:06) Yeah, no. So I have, I’ve done, you know, SEP IR

As and so Roth IRAs, those kind of things. And considering there’s another tax strategy that I think is interesting that if you’re able to get, reduce your taxable income by enough, you can convert your traditional IRA into a Roth and not have to pay the taxes on it. So if you’re essentially negative $20,000 in your taxes, you could convert $20,000 into your Roth IRA and not have to pay like the capital. Like it’s tax-free when you pay into the traditional and then you would pay taxes on a Roth. So you usually would have to pay taxes on that amount you transfer over. But again, not a tax advisor, so definitely talk to a tax strategist or somebody before you try to do that. But if you’re looking at, you know, having some significant depreciation from these strategies that we just talked about, you might consider doing something like that. And then you can do a self-directed Roth IRA or just have that in stocks as like a balance where you can, you know, just let it grow tax-free.

Jim Manning
(40:14) Yeah, investing, like I believe in the concept of diversification and the funny thing is, and I’ll tell people, yeah, I think you should diversify and then every time it’s time for me to diversify, I buy more real estate. Yeah, like 95% of real estate. And it’s been hard for me. I mean, I do have a pharmaceutical investment and some other stuff as well.

Mattias
(40:38) Well, I think it goes back to what you’re talking about understanding it, right? I mean, it’s very easy to understand and it’s a very safe thing to invest in overall. I mean, because everybody needs housing. So if you understand your market that you’re investing in.

Jim Manning
(40:52) Yeah, that’s right. And I think that’s really where I come back down to is you look at like a Maslow’s hierarchy of needs and food and shelter are like your basic two, right? And if stuff hits the fan and like craziness happens, well, like we still have to have a roof over our heads. And so like to me, it is a less risky. I’m talking about single family real estate here, but like there’s different types and all that. But because it fulfills that most basic need, push comes to shove and I have a storage unit and I have a roof over my head and I can only pay for one. I’m going to pay for the roof over my head, not that storage unit. I’m going to have to let that stuff that I think I needed that I don’t really need. I’m just going to have to let that go, right? And so like I really like that as a foundation for my own personal net worth. And part of my problem too, guys, just so you know, is I do have a, we have enough real estate now to where diversification probably starting to make sense for me. But we’re in a housing crisis and housing is really short and NAR did a study over the last decade, 5 million houses should have been built that weren’t. And then Harvard did a study that they believe this housing shortage is going to last through 2038. So anytime I look at buying anything else outside of real estate, like it’s like, well, like this is just such an amazing buy and hold long term opportunity right now. Clear upward pressure. And when it’s, and the way we do it, we’ve mitigated our risk. We have higher cash flow and lower overhead than what a normal landlord takes on. And like, so when I look at what the, you know, when we factor in what our risk is compared to what our returns are, and I haven’t been able to find anything that beats what we can do because of that. And here’s the deal. I mean, it’s taken us 18 years or whatever 3000 plus deals, whatever the heck it’s been to like kind of develop this and refine it and master it. But it’s, you know, so like, you know, I mean, I’m going to believe in diversification and talk about it, but it might be through the next 14 years, I may not be actually diversified and then I’ll start. Okay, then now it’s time to start branching it out. But I mean, it makes sense, guys, like how common sense investing in real estate is right now. If you think about it, my family would always talk, my parents are baby boomers and they would always talk about all the wealth that was created because of the baby boomer generation. But if you look at that demographic, baby boomers are gigantic, and then the following demographics were much smaller. And now you fast forward to the baby boomers children, right, and millennials are a little bit bigger, not quite, not crazy bigger, but they’re a little bit bigger than what the, what the baby boomers were. And then Gen Z’s following millennials are almost as big too. So we have two gigantic baby boomer-esque generations that are entering into the housing market at our first time home buyers now that are creating demand for housing. Right. And then on top of that, we have a construction where one in five construction workers are over the age of 55 and retiring these young Gen Z’s and millennials, most of them. We weren’t doing trade schools, which I mean, my goodness, trade schools have to come back for these for our kids like we need people to know how to build things with their hands. And so, and now we have no one to build that we have all this demand. And we have very few people that can actually keep up with it and build and build stuff anymore with our hands.

Mattias
(44:46) And so many people got out of it with the last recession with the bubble burst. And so there’s just, like you said, this huge lag of how many houses should have been built.

Jim Manning
(44:56) Yeah. So from an investment standpoint where my head’s at is like, well, this is kind of a common sense thing. I just want to buy and hold on to what I can right now. And we have a group of 130 people that agree with me that we’re just doing it together. And we’re doing it in a way that has mitigated our risk to make it very unlikely we can lose anything and just kind of enjoy the, enjoy the shortage for a little while and take it.

Mattias
(45:24) I mean, you’re diversifying. You probably have red houses and blue houses. Yeah. White in there. So, I mean, if you want to really quickly mention your lease option strategy. Okay. I covered somebody did mainly that in another podcast. But if you want to explain at a high level what that is for people that don’t understand.

Jim Manning
(45:47) Yeah. So what we do rent to owns like another name for it. We technically do lease purchase, but you know, it’s a similar concept is rent to own. There’s nuances that are different. But anyway, so what we’ll do is we’ll find someone like maybe a small business owner. I myself could have been one of these, one of our clients. And we’ll say, Hey, you have the money you can afford to put down 5% for a home, right? Looks at it. Okay. $300,000 house. Yeah. I have $15,000. I can put into it. Sure. Yeah. I can do that. Well, instead of renting. Do you want to be a homeowner? It’s like, Oh, well, yeah, that sounds amazing. So we’re opening up the dream of the American dream of homeownership to someone that maybe just doesn’t fit into a traditional lender’s box the right way. A traditional small business owner in your first couple of years of being a small business owner, like you’re not going to, you’re not able to get a loan, a traditional loan. Every single one of us. And then there are some that, you know, after four or five years, maybe the money’s there, but maybe they, maybe they bought their landscaper and they bought additional trucks with the profits. And so they reported a zero profit, even though they didn’t have to buy those couple extra trucks, but they did, because, you know, that’s, that’s just, they needed a long term anyway. And so in many cases, there’s small business owners that, you know, like, well, if they owned the home, maybe they would have bought one less truck and they would have just taken that money to pay for the roof over their head, right? So there’s an entire demographic of people that we can serve and feel good about serving. One of our first clients is a special needs child. And the special needs child had to have a, had to have a school district called Lindbergh’s school district. And they got behind on medical bills because their special needs kid got sick. And so that dinged their credit. When we cross paths with them, we say, well, hey, like you need Lindbergh schools, you don’t have seven, your kid doesn’t have seven years to wait for their credit to repair. That’s all of grade school, basically. And Lindbergh schools has like no properties to rent because it’s one of the most sought after areas in Saint, all of St. Louis, where we’re at, well, why don’t, instead of just even renting, why don’t you be a homeowner, why don’t we get your kid and the school district that they need. And so like we get a feel amazing about some of the people we’re helping and serving. So they’re winning at a really high level. And on our side, we’re, as an investment, we’re winning at a huge high level too. Because, you know, they’re putting 5% down. So imagine having a tenant that has 15 grand of

investment into it before they move in. That’s a lot of skin in the game to take care of a property, right? And then they’re also, the way we structure it is they pay for all the repairs and maintenance. So if the roof leaks and I own a home, I don’t, I call a roofer. I don’t call whoever my lender is, right? And so I mean, that’s really the structure that we set up and I mean, there’s a lot more to it that we all have to do.

Mattias
(48:55) They’re paying rent. And that covers the, I would imagine getting a mortgage on it.

Jim Manning
(49:00) Yeah. And there’s a lot to it. There’s a tremendous amount that goes to finding these people. So I almost didn’t even, I almost didn’t do this strategy because one of my whole hiccups was like, are there really a lot of people that have a need for this that don’t fit in the traditional box? And you know, sure enough, I was wrong about that. It took us a couple of years to develop a company called Homeways that we really have marketing and, you know, the conversion, the education and the conversations around, you know, how to educate people that think they can only rent that no, you can be a homeowner too. And a lot that goes into that piece of it, I tell you, once you get a dial down, I mean, we had in our fund and our first fund, it was over a hundred properties and the number, I think it was like $4,500 on repairs and maintenance in three quarters of 2023. And I have two properties that are outside of the fund that are duplexes that don’t fit the lease purchase model well, like I hit with 20 grand on those two properties. That’s two versus a hundred. And you know, and I paid five times more in repairs and maintenance, right, on just two properties. So there’s a lot of amazing things that go into it too, but I mean, I think the biggest disadvantage with it is like if you’re, if you do have a full-time job and you’re looking in the strategies to do, I don’t, I personally, I could not have pulled, pulled it off part-time. Like, I mean, there’s a lot like, like it’s a, it’s an amazing, it’s higher cash flow, lower overhead, lower risk than what a normal landlord’s used to taking on. But because it’s a, it’s a little bit more intricate, like you really have to get the right who’s in your world and get, you know, right people to, to help you pull it off. But you know, the good news is that there’s companies like ours, and I’m sure there’s other ones out there. I don’t really know of a whole lot, but that you could do this through too. Like, you know, you don’t have to, you don’t have to do all the work.

Mattias
(51:03) If you have capital to invest in, how could people reach out to you to invest in this type of thing? What, what websites you mentioned on before is that the one they would go to?

Jim Manning
(51:14) Yeah. So, when I’m on podcast, so just Jim Manning, if you remember my name, J-I-M-M-A-N-N-I-N-G dot com, the ability to kind of schedule like a call and get more information on it. I have some, I have a couple of free courses on there too, that you can get access to one’s called Passive Profits, and it teaches you how to be a passive investor and helps you break down, well, should you be one or not. And I also have a Generating Passive Income course on there that breaks down. So we’ve used really three strategies to generate over $10 million in passive income here recently, and this is a hundred percent passive income guys. This isn’t like the quote-unquote passive income theory, and then I just took on another business. But, you know, so we did that over the $10 million, and I broke down to our three, my personal three favorite ways to do it, and the course as well. And then, yeah, so if you want to get a hold of us, like I’d recommend you going there and kind of filling it out, and we can help you, you know, if you’re looking for an investment or if you have a rental property that you’d like to turn into a lease purchase deal, we can kind of talk to you about that. And I also have a podcast, Passive Oil Show, you can kind of YouTube me and find me that way too.

Mattias
(52:32) And I’ll link stuff in the show notes so people can look there.

Jim Manning
(52:36) Yeah.

Mattias
(52:37) And we got to ask as well, do you have a favorite book that you would recommend, listeners?

Jim Manning
(52:41) Yeah. So I’ll go with one that’s not as commonly known. It’s called Relentless Solution Focus, and a sports psychologist, it’s Dr. I think it’s Salk, Dr. Jason Salk, I think, don’t quote me on his name, but anyway, he’s a sports psychologist and has had a lot of success. He was worked for the Cardinals one of the years they won the World Series, I think in 2006. And what it helps you do is we’ve all been like in that rudimentary headspace where like the sky is falling, and it’s like you just get like anxiety and stress and like, aren’t really getting what you can get done and then almost feel like, I know when it’s happened to me, I felt like dumber when I’m in that headspace. And what’s nice about the relentless solution focus is it kind of teaches you, okay, how do you snap out of that, and then how do you get into that positive headspace? Because like, I know when I’m in the flow of things, and like things are going well, and I have all that momentum, like it’s an incredible space to be. And what I love about the book is, is it kind of breaks down like why it happens when you’re in a slump, and it also gives you like a formula and a way to make it more likely for you to kind of stay in the pocket and the zone, whatever you want to call it. But yeah, it sounds interesting.

Mattias
(54:07) That sounds interesting. I’m definitely going to read that.

Jim Manning
(54:09) Yeah, it’s a neat book for sure.

Mattias
(54:11) Cool. Well, I really appreciate it. This has been a really interesting conversation. Hopefully, we have inspired at least one agent maybe to get started getting into the investment world if they aren’t already. Yeah, thank you so much for being here, Jim.

Jim Manning
(54:25) Absolutely. Thank you. And hey, guys, appreciate you. I hope you have a great rest of the day. Take care.

Mattias
(54:34) Thanks for listening to the Wealthy Investor podcast where we talk about wealth and holistic health. If you enjoy our content, subscribe wherever you get your podcast and hear new episodes every Thursday. If you really like our content, you can follow us on social media at the WELLthy Investor, WELLthy spelled W-E-L-L-T-H-Y.