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I flipped a lot of houses starting in 2008, or were over 400 houses. I've written a few books on the subject. And I wish that I had all that time to do over again because I probably wouldn't have flipped a single house, I wouldn't have written a single book on flipping houses. Welcome to the action Academy podcast staring back while I celebrate freedom, the show where we help you achieve financial independence with the mindset methods and actionable steps from guests who've already earned their freedom, the freedom fly. Choose to do what you want, what you want with who you want, who you want, when you want when you want with another episode today. Now, here's your host, Brian Luebben. Good morning, good afternoon, or good evening. Welcome back to another episode of the action Academy podcast. I'm your host, as always, Brian Luebben, bringing you the mindsets methods and actionable steps for guests who have already earned their freedom so that you can earn freedom in your life and business today. Now, if you're in the real estate investing community, or you follow bigger pockets at all, then the guests that I have today needs no introduction. But hey, heck of a soundbite ahead at the beginning of the episode, right. The guy that wrote the book on flipping houses, actually also the book on estimating rehab costs, and also the book on negotiating real estate wishes he didn't write any of them. So you guessed it, today's guest is none other than the J. Scott J has flipped over 400 houses in his career. And as I previously mentioned, wrote best selling books through bigger pockets on the subject, and also was host of the BiggerPockets business podcast. And these are all still fantastic books. If you're in the middle of rehabbing properties, or you're in the middle of doing a flip yourself. These are the books in the subject. But now to the interview, you will realize that J wishes he would have at least kept one out of four of these rentals. Today's conversation covers various topics ranging all the way from where J sees us in the market cycle of real estate in the economy in general, all the way to how he's playing defense with his cash flow, how he's recession proofing his investments, and also why he has made the pivot and shift to multifamily syndication investing. So before we go into the show today, if you go on the show notes and show description, you'll have a couple of different links for different things and services that I use, like go abundance my mastermind group, Jason Drees coaching, and on air brands. He's taken up a production of these podcast. So go in the show notes, you can get information on all that. Now finally, we've reached your favorite part of the show. Where's the completely scientific not made up factor the week where it is this week? If you go leave us a rating and review five star for the action Academy podcast on Apple podcast and Spotify, you will never get another Robo dial again. Can you imagine a world where you never have to pick up the phone and wonder if it's someone selling you something? Well, that world could be a reality. And that's based off of science and data. In fact, if you leave us a five star rating and review, so hey, not making it up. Without any further ado, Jay Scott. J. Scott, how are you my friend? I'm doing well. Brian, thanks for having me. I'm very excited to have you on my first question. The most important question on everyone's mind is why J Scott, why not Jason Scott? Oh, yeah, it's funny. I spent my career at Microsoft, my tech career before I got into real estate. And I worked for a guy whose first name was literally the letter J. And I loved that I thought it was so cool. And so I said one day, I'm just going to go by J. And when I got into real estate, I wrote my first book, and I'm like, hey, I can do a pen name. And so I did J people had called me that before, but I never really thought about like the letter versus the name. And so I changed it to J and I stuck and I like it and my wife calls me that my mom calls me that so I was like, Okay, I'm gonna go with it. Just the power in the singular letter. It my wife is all about branding, and she thinks it's an awesome brand. b I just think it's there we go. That's all wanted to know. Thank you for coming on. Everyone signing off. I'll tell you, nobody's asked me that question before in 12 years, it's the first time I've gotten the question so I appreciate you asking There we go. It's that's a small win. Anytime that I can get somebody to say that's a good question or no one's asked me that before. Then that's how I know we went so if you're listening and you appreciate it, that five star rating and review please and thank you. Moving on, Jay. Normally how we structure these interviews as we go into the life and kind of design and like have a little chit chat in the beginning for the first 30 minutes or so and then we go into business in the back half. I want to flip flop that So on this, I really want to talk cold, hard numbers, data. I know that you hate data. I know it's just not your language, not your love life. I'll do my best, but you'll do your best. And then on the back half back 30 minutes, I've got a timer here. And then we can go into your portfolio, your story, how you went about this. But to start this off, I want to hit on one of the posts that you just posted on Facebook, where you're talking about your cash flow for your single family rentals versus appreciation. And every time for people listening, if you haven't followed Jay on Facebook, I would wreck I would describe it as like when Warren Buffett posts his I'm absolutely inflating j here but I describe it when Warren Buffett posts his annual newsletter whenever J does a state of the market Facebook posts. Everyone is up. Everyone's like it's time. It's like Groundhog Day for the real estate investor. So J Tom, like the small town, Warren Buffett. Okay, small town, Warren Buffett, I'll take it. But hey, he is he doesn't go by W he goes by Warren. So take it away. So yeah, I did a post, I had a lot of people who were telling me that they can't buy single family properties right now because cash flow just wasn't supporting it. And so my first question back to them, as always, what do you do with the cash flow? And they're like, I save it, or I put it into more properties. Very rarely do I get the answer I needed to live off of few people are thinking I'm gonna start buying single family properties today, and I'm gonna retire tomorrow. I know, back 15 years ago, a lot of people were thinking, Okay, I want to quit my job overnight, by buying a couple properties. Nobody really thinks that anymore, because we're not getting enough cash flow to do that. Anyway. So very few people said to me, I need the cash flow to live off of. So I said, So what's the problem and they're like, I'm just not getting the returns. That make sense. If I'm getting four or five 6% cash flow, those returns just don't make sense. And so I've had to explain to people that cashflow is only one way that we make returns in real estate. And in real estate, there's actually four ways to make returns, cashflow is number one. And if again, if you're going to live off of that, if you need that to pay the bills, if you need that to pay your mortgage, put food on the table, then you need to focus on cash flow. But for a lot of us, we have another job or another source of income, at least for a while. And so we can focus on those other three types of returns as well. And so the first one of those is, is amortization. And amortization is just a fancy word for you get a loan against a property and let your tenants pay down the loan. And so I go out, I buy a$200,000 property, I get$150,000 loan, I'm fine. I'm$50,000 out of pocket, but every month, my tenant is paying down that loan, I'm building some equity, they're paying partially they're paying or I'm paying interest. But partially they're paying down the loan, the principal of the loan, that's Rockefeller, right, Rockefeller said, what's the easiest way to make a million dollars by a million dollars in real estate, have your tenant pay it off? 100%. And so over 10, or 20, or 30 years, my tenants gonna pay off that $450,000 loan, and it's gonna be painless to me, I'm not coming out of pocket. In fact, I'm still making my two or three or four or five or 6% cash flow. But in addition, I'm gaining equity. So if every month $600 is being paid down on that loan, it's as good as as long as I don't need that 600 To spend that $600 in extra equity is just as good to me as cash. If ever, I really do need that equity, I go do a refinance, and I pull it out. So I can get access to it, it just takes a little bit longer. And I'm going to do it in large chunks, as opposed to doing it like cash flow getting in every month. So amortization and principal pay down is the second big benefit of owning real estate. Number three is appreciation. And when I talk about appreciation, a lot of people are like, No, you can't count on appreciation, I'm the first person to say, Don't ever factor appreciation into your returns. Don't ever assume that because the market went up 10% Last year, it's going to go up 10% every year. But what you can assume based on over 100 years of data is that your property is probably going to appreciate at least the rate of inflation, you may not get these crazy 510 15 20% value growth every year, like we've seen since 2015. But you're almost assured that over the next 10 or 20 years, the property is going to keep pace with inflation. So if nothing else, owning real estate is a hedge against inflation. If inflation is 4%, your property is probably going to go up at least 4% in value over the long term. So if nothing else, it's better to have your money in real estate than in cash or in some other non inflation hedged investments. So number two is that appreciation. The other piece of appreciation, we often think about the the natural appreciation, just the market going up. And the other thing is we have this thing called forced appreciation. If I buy this property that I got $150,000 mortgage if I bought that property for $100,000 and then I get it to be worth $200,000 By doing a renovation on it. I've now built equity through that renovation, let's say I put 50,000 into it and it's Now have gone up to 200,000. I've built$50,000 in equity in that property. So I forced appreciation, again, that$50,000 is now locked up until I do a refinance. But at some point, I can pull that out. And it's just as good as cash. So two types of appreciation, you have the forest and the natural appreciation. Yeah. And then also like you think about it in context, in regard to cash flow cold, hard on paper, and on your balance sheet. It's like how long would it take to acquire $50,000 in net cash flow? Exactly, in that context. So it's just, I really enjoyed your I really enjoyed the specific post on that. And we can get get into the state of the market here in a little bit. But I know that you're going into multifamily right now. And we'll get into that more in depth in the back of the show, I really want to talk about right now I'm trying to speak to the person that's like, I can't find any deals, I can't find any deals, I would challenge them to say it's a game where the rules are always changing. So it's like before you had everyone was wanting to do a house hack with the duplex. Everyone was buying duplexes all across the country. And then that was the thing I was I can't find a duplex, I can't house hack. There's still ways to do it. But you just have to tweak your parameter and tweak your criteria. Is there anything that you can give from the single family perspective? And maybe also from multi perspective on like levers and different tweaks and your parameters for buying criteria? Yeah, again, going back to what I was saying before, if you measure it just by cash flow, yeah, you can't find a lot of deals. But when you add in the amortization, you add in the the appreciation, either forced or natural. And then you add in the last piece, which is is the tax benefits, I'm seeing double digit returns on my deals. Now, yeah, I'm not getting double digit cash returns, but I'm getting double digit returns, they're just as good as cash. And I save $10,000 in taxes. Yeah, it's not 10,000 is 10,000. In my pocket, it's 10,000. I didn't have to spend. And so these are things that are as good as cash. And so don't just look at like the amount of money that's going into your your bank account every month, think about the equity, that you're building the amount of money going into your bank account, and then the amount of equity that's not coming out of your your bank account for taxes. When you add all those things up, what you're going to find is there are a lot of decent deals out there. And I don't know, maybe somebody out there wants 30 or 40% returns, yeah, you're not going to find those deals anymore. But you can still find the 10 or 12, or 15% returns when you add in all those benefits of real estate. So when we talk about pulling levers, and which ones do you pull, the big one for me these days is loans. And what I tell people is instead of looking for great real estate deals, look for great loan products, look for great lenders, because these days with high inflation, and relatively still low interest rates, historically low interest rates, I know it's a little bit higher than they were a couple of weeks ago. But historically low interest rates between high inflation and low interest rates. The real estate, the property is no longer the asset. Yeah, it is it's an asset, if it goes up in value, but the real asset these days is the loan. That's where you're going to be making money alone is literally the best hedge against inflation that's out there. If I take out a loan today for $100,000. And let's say I have to pay $1,000 a month to pay off that loan. If in five years from now, my salary goes up double, and I'm making twice as much money. While I'm still because of inflation, I'm still paying$1,000 a month on that loan. Basically, everything's getting more expensive, I'm making more money on everything costs more, with the exception of the loan, that's a fixed monthly payment. And so as everything else goes up in value, if the loan stays a fixed monthly payment, I'm now paying off the loan with cheaper dollars. And so that is literally the best hedge against inflation out there. So what I tell people is when you're thinking about finding a good property, don't think about finding a property think about finding a great loan product. I apply that to a decent property. And now you've got a great investment. Yeah, now you've got a homerun because it's almost like a mindset shift that you have to take to where now debt because everyone's like, Thanks, debt, scary negative word, negative connotation. We're talking about like consumer debt. Yeah, that's not good. That's no bueno. You don't want to max out your credit card going and buying a new freakin Honda the brand new car, but we're talking about long term fixed rate debt to where changing your mindset to where debt is almost encouraged on the balance sheet. That's like an asset now. Yeah, think about back in the 1970s. Somebody that had $100 A month mortgage. That was a huge mortgage because people didn't make as much money. Let's say you could, let's say you could have taken out a 50 year loan back in 1972. Today, you'd still be paying on that loan. You'd be getting down to paying the last couple payments on that loan. How much would you be paying on that loan? Still 100 bucks a month. So salaries in that time have gone up 100 times, but your debt hasn't gone up? And that's the benefit of fixed rate long term. Trade debt. Again, it's a great hedge against inflation. Is there any specific loan products and loan vehicles that you're looking at that are really catching your eye right now, maybe in the creative space outside of traditional like Fannie, Freddie. Yeah, so I'm a big fan of portfolio lenders. First, I'm a big fan of seller financing. So if you can get the seller to do a hold back, typically, those are the best term loans out there. But for those of us who don't have the time, or the energy or the negotiating skills to really negotiate seller financing, I'm a huge fan of portfolio loan products. And a portfolio loan is basically a loan made by a small local bank, these small banks typically make their own rules for lending because they lend their own depositors money, they don't lend money from Fannie Mae or Freddie Mac, they lend their own money, they get to make their own rules, and their own rules means you may not have to have as good credit, you may not have to have as much income on the back end, they may be able to do literally 30 or 40, or 50 loans, whereas Fannie Mae might only be able to do four, they're able to say, hey, yeah, we'll do an 80% LTV, whereas Fannie or Freddie may only do 70, or 75, they may be able to do blanket loans where they bring multiple properties under one loan, so you don't have to pay as much in closing costs, or appraisals, or whatever it is. And so they can be a lot more flexible. And so what I'm starting to find a couple years ago, these Portfolio loans, they were tapping out at five year loans or seven year loans, I'm seeing a lot now that are 10, or they're fully amortized, which means they keep the loan until they're fully paid off at 1520 or 30 years. So right now, most of my loans because I don't like the idea of five years from now having to refi. And what potentially could potentially be higher interest rates, or a market where it's hard to refinance. I'd rather my loans right now be long term loans that can be fully paid off. So I'm focused on those small local banks that are offering 20 and 30 year loans at still really low interest rates that I know I'm just gonna keep the loan until it's paid off. I love that. I think that's an interesting segue point right there. When you're talking about five year adjustable rate, which is what you're not looking for. I think that'd be a good segue into market cycle and where we're at because I was talking to one of my friends Andrew Cushman, he was on here. I don't know if you know him, but he's doing Yeah, he's doing large multifamily. He's bird of a feather for you. And just a huge data guy, just a huge syndication numbers, guys. So he was saying that you don't want to get caught with your pants down. And that maybe like that two to five year range, it's like, but anything that's 10 years or out talking time horizon is hard to miss. So I think that's an interesting segue there to move into market cycle. Where do you think we're at? Because I remember I was listening to a podcast that you were on, I think that was when you're doing the bigger pocket business or something when the yield curve inverted, like a year's change ago. And I remember saying, Ah, Jay Scott said, the yield curves inverted. I was like, We're toast guys, we're toast. And then I accidentally tripled my net worth, because everything is still going up. It's going bananas. So the crazy thing is, everybody ignores the fact that we were in a recession. Was it last year, two years ago, then the government said, Nope, nevermind. Yeah. Yeah. So we printed our way out of it. But we did have a recessionary event. I was so convinced that a recession was coming in 2019 and 20. And I wish I could go back and see what would have happened without COVID. Because obviously, COVID changed the trajectory of everything in the world. I'm really curious if all the predictions I was making back in 2017 18, and 19, would have come true. Had COVID not happened. So I don't know how to reconcile the things I was saying with what happened. Part of me can say, Yeah, we did see a recession. So I was right. And, like, farmers like Yeah, right. pandemic, right. Yeah. But nobody was right, because who can nobody predicted that? So in terms of market cycles, I think right now, we are in a place. And I think we have been for about a year and a half, two years now, where we're not within any natural market cycle, always, market cycles in general are driven by the government, whether it be the US government, or the global economy, and all the governments that kind of drive the global economy by doing things like raising interest rates, printing money, tightening fiscal policy, or monetary policy, there are lots of things governments do to control. They don't purposely do it to control the cycles, but the things they do end up resulting in these cycles. And typically, if you're willing to do crazy stuff, you can start to control the cycles, at least for a time period. If the goal is to put off a recession. Yeah, you can continue to lower interest rates, you can continue to print a ton of money and basically consumers or build debt. Businesses will build debt, the money supply them to the with the M one and m two money supplies will go through the roof, you can basically push off the recession, who knows how long I guess we're gonna find out. So it's really a question not so much of where are we in the cycle? But a question of where are we in in the appetite for the government to not Want us to go into a recession? And so the question is the government willing to literally destroy our economy in attempts to keep us out of out of the next route. And so far, both this current administration and the last administration, it seemed like they were pretty hell bent on keeping us out of recession, and would go to pretty great lengths to do see basically printing of seven, eight $9 trillion over the last year, interest rates can staying at historic lows, despite the fact of inflation is at 8%. Typically, we raise interest rates to slow down inflation. But the government likes inflation right now, because it makes them feel like the economy strong. And yeah, I don't think it's so much a question of where are we in the cycle as much as what crazy lengths is the government willing to go to to keep the next part of the cycle from happening naturally? That makes sense. And that's an interesting perspective. I haven't heard that one before. But that makes a lot of sense. Because you're like the government's the one that's pulling the levers. So then we've C at that point, and that also goes off the termly. So what like Biden has another two years, right? Yep. Yeah. So then, to that point, maybe once we hit an election year, things start getting a little dicey here. But for the time being is that's kind of, you know, what he's trying to keep going. So I guess let me wait the question a bit, too. We're in this wacky, almost like artificially created market cycle we're included at all both sides. We'll call it a side cycle. We'll trademark it trademark podcast, all the leading scientists will use this in their literature. But so this tweet the question a little bit from a an investor's perspective. Yep, you have I'm in go abundance. We have everyone in there talking high level about okay, cool. What do we want to do with our money? Where do we want to allocate it especially higher net worth individuals? They're like, where do we put where do we put this where we park this and it seems to consensus is your point where everyone's okay, cool. I'm getting as much cheap fixed rate long term debt that I can possibly get buying as much cash flowing real estate as possible. That seems to be the consensus, do you maybe talk to some defensive maneuvers and maybe some portfolio reallocation ideas that you have maybe that's you're doing, just to play safe while we're going through this kind of transitory period, because this next couple years, it's gonna be, it's gonna be a ride? Oh, no doubt, no doubt. So one thing to keep in mind that people don't seem to realize this, because of the Crazy Cycle that we've just seen from 2008. Ever since the last recession, people think that the cycles that these up and down business cycles involve like 10 years of the market going up, and the economy going up, and 10 years of the economy going down, and then 10 years of going up. Typically, it's not the case, typically, what we see is we'll see five or six or seven years now, where if you if you discount the that blip back in 2020, we're now at 14 years of the market going up. But typically, the down side of the cycle only lasts about 12 to 18 months. If you look back historically, recessions don't typically last more than 18 months, even in 2008, which was the biggest downturn we've seen since the 1920s 1930s. The market recovered within about two years, we were out of from a purely data perspective, we were out of a recession by 2009, the end of 2009. And even though everything was quite a bit lower than it was before the recession, we were recovering within about 18 to 24 months of the 2008 great recession. So even in a worst case scenario, and I shouldn't say the worst case scenario, and worst case scenario we can talk about that would be something like Japan that's been in in a stagflation type environment for two decades. But in a realistic worst case scenario, basically, the cycles we've seen over the last 100 150 years, we can expect about two to three years of downturn in a worst case. So what I would suggest to anybody that is looking to insulate themselves from this type of downturn, is make sure all of your investments are basically recession resistant for at least three years out. And I don't know if Andrew said this, but he's absolutely right, that over 10 years, you're going to be fine. Unless our economy collapses, and we lose reserve currency status in the United States goes away. That'll happen one day, historically, it happens to every country. But hopefully, that's decades or centuries away. Until that happens, we're going to recover. And so our goal is basically to find those investments that can weather a three year storm. And so for me every time I'm making an investment, I say, so what is the worst case scenario? And so let's look at that the multifamily syndications that I'm doing typically we're expecting three to five year holds. Let's say on a typical deal, we're getting up towards your five we're at four and a half years in, we're just getting ready to sell and then the market collapses. Okay, that's the worst time for that to happen because I'm now four and a half years into the deal and I was getting ready to sell, let's say. So let's say the worst case there is that we're going to see a downturn for three or four years until we recover. That means the total length of that investment has gone from five years out to nine years. So for that reason, when we underwrite a multifamily deal, while we may anticipate a three year four year five year hold, we're always going to underwrite to 10 years, ensure that our modeling works for a 10 year hold. So what does that mean? Number one, it means we have to understand what loan products we're going after, in order to ensure that we don't get caught from a lending perspective. I hate those three, one on ones as you were talking about, or the five year loans or the three year bridge loans, where literally the day before you refinance everything, go to shit. And then and then you're caught. And what are you going to do, you don't have any other options. If it's $100,000 loan or $200,000 loan, you go borrow that from a friend of yours, but when you're talking about a 10, or 20, or $30 million loan, you're pretty much out of options, if downturn happens at the wrong time. So we want to make sure that our loan terms are at least 789 10 years, we want to make sure that we don't necessarily have resetting rate every year after your three, four or five. And we want to ensure that the projections for an eight 910 year hold still work for us in our investors. Okay. And then it says, so when you're presenting this product to invest just is going to be like a 10 year product where you're like, hey, invest in syndication, we're going to 10 year time horizon, where's this sto like a three to five year time horizon, but you're still doing you're just doing a 10 year product and a 10 year underwrite. So that way everything is baked in to where the investors will still get their preferred return that they're expecting, regardless. Is that? Exactly. Yeah, we did. We did a presentation last night for a new investment. And it's a three to five year investment. But what we said to our investors was, in the case where something bad happens, and we can't sell it five years, we're confident that the eight year numbers look good, we're confident that the 10 year numbers look good. We have 10 and a half years left on this loan, we're not confident after 10 and a half years because at that point we'd have to refinance. But assuming we don't have some major event that destroys the economy for more than 10 years, we're pretty comfortable with a worst case scenario for this deal. I love that. I love that with the underwriting. So if anyone that's listening to this that's in multifamily or multifamily syndication, like take notes and rewind that part because that is awesome. And hopefully that's what other people are doing. I know people are being I've also heard that people are buying with cash flow as the as the defense, they're like, we just want enough cash flow to play defense so that when we're going through the cash flow was there to be able to cushion it as so we don't have to sell our product at a bad downturn. Yet, but I think that this is actually a cool segue here. When we're talking about multifamily. We're talking about this process, to kind of segue back into your backstory here because I correct me if I'm wrong, but I believe I've read a post to yours for your you're pretty pissed off that you spent so much time flipping houses. Like I wish I would have kept but every house that I flipped, so maybe maybe right now is a good time to introduce yourself as maybe some of that I'll put an intro at the beginning of the district at the show. So people will have an idea that maybe you now give an intro to this guy that's been spitting out pure knowledge for the last 30 minutes. Yeah, I flipped a lot of houses starting in 2008. We're over 400 houses, I read a few books on the subject. And I wish that I had all that time to do over again, because I probably wouldn't have flipped a single house, I wouldn't have written a single book on flipping houses. I'm not a book. Now Yeah, go buy the book, go buy the book. write the foreword to it is things I wish I didn't do but are super helpful in the short term. Exactly. Exactly. No. It's funny back in 2008, just before I start when I started flipping houses, and this was right around the time of the downturn, I took this other investor out to lunch. And he was the guide known for flipping a lot of houses in the area I lived in and everybody wanted to be him and I convinced him to let me take him to lunch. And you always when you meet somebody like that, the first question you ask is what's the best piece of advice you have for me? And so I asked that question, his response was sell or I said what's the best piece of advice he says my biggest regret in real estate is selling every property I ever purchased. And at this point, I had flipped a couple houses. I was getting good at it. I was like I'm making like 20 3040 grand per flip. What am I wasting time talking to this guy for when he's He clearly doesn't get it anymore, like flipping is the greatest thing ever. And here we are 15 years later. And let me tell you something, the biggest regret I have in real estate is every property I've ever sold, I look back and obviously I couldn't have kept I've done 400 And some flips, I couldn't have kept 400 properties I couldn't have afforded to keep 400 properties. I probably wouldn't want the overhead of keeping 400 properties even if I could afford it. But I think that what if I would have kept one out of four? What if I would have kept one out of the three what if I would have kept one out of six literally houses I was flipping and I know this is I'm Cherry Picking data This doesn't always happen over 15 years. But the the lesson holds true properties. I was flipping back in 2008, nine and 10 for literally at 90 $100,000. Now selling for $300,000. And so I was back with my wife a couple months ago. And we said, let's just ballpark if we would have kept every one of those houses just to make ourselves feel better, just to have a nice cry. Yeah, somewhere between 30 and$40 million in equity that we'd have right now from the appreciation and from the the cash flow, and from the principal pay down on those loans, which would now be we'd be literally halfway through that 30 year, like paid down. Literally, we our net worth would be 30 to $40 million more, if I only would have kept one out of four of those and one out of four was completely reasonable. Oh, I bet 30 million more with one out of four, no, no, no 30 million more would have been all with one out of four. There's another seven and a half to $10 million in that goes right to our net worth. So I look back and I think yeah, I at the time, I was very short sighted by flipping all those houses. And so what I would recommend anybody that's doing this now, and you won't listen to me, if you're flipping houses, you're not gonna listen to me because I didn't listen to that guy. But one day, you're gonna wake up, and you're gonna realize you wished you didn't sell every house you ever owned. So that's my best advice to anybody that's getting started out there flipping houses, figure out a way to keep one out of three of them, or one out of four of them. Because one day, you're gonna wake up and realize you were glad that you were building your portfolio because that's where the wealth is really built. The built, wealth is built in assets, and the cash you're making from flipping is great. But you're gonna pay a ridiculous amount in taxes. That was the other thing when I was 1015 years ago, taxes didn't bother me. I was like, who cares? If I pay 40 50% in taxes? That's, that's still I'm making all this money. 40 or 50%? Take it I don't care. But these days, I realized that's a lot of money that you're giving away. Yeah, it's a stupid kid. But I talked to a lot of house flippers that have that same attitude. If I can make $300,000 Next year, who cares if I pay 100,000 in tax, I'm still making 200,000. And they don't realize that $100,000 is a lot of money and completely forget where I was, well, the way to build wealth is basically you don't pay the taxes. Yeah, number one on benefits even better than not paying the taxes, you get the tax benefit. If you can become a full time real estate investor, you can become a real estate professional, literally, you can pay zero in taxes, plus, you're getting the appreciation plus you're getting the cash flow. Plus you're hedging inflation that all the money I took that was left over after I paid taxes, I was still losing yet. So that's my best advice to anybody out there is start building your portfolio, start holding at least a few of those houses now. Because your future self is gonna be glad you did. And I know where you're about to take this. I know what you're alluding to what you're prefacing is like Cost Segregation studies with multifamily and everything and obvious. So I've got single family right now I want to go into commercial, I want to be in the triple net lease space, that's going to be my next avenue that I'm going down. But I know that there's some literature with the government right now that's talking about costs, eggs, maybe not lasting too much longer. I'm curious about what you've heard about that. And if there's any kind of defense or any other kind of maneuvers that we can plan for the next one to two years, because I know that the two levers the polar yet, like a 1031 exchange is a huge vehicle, and the cost segregation study, and maybe you can go into what a cost sex study is for someone that's listening to that's brand new, and what that entails. Yeah, so there are two big ways to get a lot of big tax benefits these days on your properties. It works with single family houses, but generally the amount of money you're gonna make isn't worth the cost of doing it. But if you own like even an eight unit or 15 unit or more any multifamily it probably makes sense. Basically, you get this thing first, you get this thing called depreciation. And depreciation is basically just like anything you own, it wears out over time. And these buildings that we're buying, they wear out over time, and the government recognizes they wear out over time I buy a printer for my business, basically, instead of maybe a printer is a bad example. But if I buy like a car for my business, the government will let me say, okay, the value of this car is going to drop every year for five years. So every year I can take 20% of that value of that car as a deduction because the cars wearing out and I'm gonna have to buy a new car in five years, they let us do the same thing with property. So if I buy a house or an apartment complex, basically the government says that property in general is going to deteriorate over about 27 and a half year that's the number that they picked up. Around 27 and a half. Yep. So if I buy a property where the property itself, not just not the land don't have to discount the land. Let's say I buy a property that's worth 3 million to $2 million, and the land is worth a million. We estimate the property's worth a million dollars. The government's gonna let me depreciate or take a deduction for that million dollars over 27 and a half years, so about $40,000 A year, the government's gonna let me take a deduction against it just because my property is wearing out. And so I'll get a $40,000 deduction this year and the next year and every year for the next 27 and a half years. Now, when I sell that property, I have to pay it back. But the nice thing is, I get a deduction this year and next year in the year after, so I have all this money that I can now invest for several years before I have to pay it to the governor, I'm deferring taxes by taking this deduction. But deferring it is a big thing, because we can invest it for a lot of money in the meantime. So that's this depreciation that we keep hearing about. Now, there are two ways that we can increase that in this case that$40,000 a year, there's two ways we can increase it. Number one is we can do what's called a cost segregation study, where the government saying the building is going to wear out over 27 and a half years, but not everything in that building wears out over 27 and a half years, the cabinets and the countertops are going to wear out over 10 years, the appliances might wear out over four years, the H vac system might wear out over 20 years. And so what the government allows us to do is if we're willing to do the work or hire somebody to do to do the work, they'll allow us to come in and say, okay, instead of depreciating the building over 27 and a half years, I'm going to say the H vac system is worth$20,000, and can be depreciated over 20 years because it only lasts 20 years. So now you get$1,000 of deduction this year for that that H vac system, I can do the same thing for each piece of the property. So instead of getting my deduction over 27 and a half years, I can actually get more of a deduction by taking piece by piece of the things that are wearing out in the property. That's cost segregation. And typically that allows us to get our deductions much, much faster because most parts of a property were out in less than 27 and a half years. The second piece is back in 2017. With the the tax and Jobs Act, there was legislation that basically said instead of waiting 27 and a half years to do all of this to take all this depreciation, we can accelerate it. And we can, yeah, we can take most or all of it in your one. So we get this huge deduction in year one, which is obviously a huge boon. You don't need to hold out you don't need to hold the property for 27 years to get all the benefit, you get the benefit in your one. And so between these two things cost segregation and bonus depreciation, there's a huge tax advantage for the next couple of years where basically you can deduct if you're not a professional real estate investor, you can deduct all of your passive income so you can deduct all of your rental property income, syndication income, if you're investing in real estate syndications. If you are a real estate professional qualified by the definition of the IRS, you can literally use all of that depreciation to offset your active income. For example, I'm going to have literally this year probably over a million dollars in depreciation benefits. I can go out and make a million dollars doing anything else, I make money from reading my books, I make money angel investing, I make money selling properties, if I'm flipping houses, whatever I'm doing, let's say I make a million dollars, typically, I would pay three, four or$500,000 in taxes, because of this depreciation, my income is gonna look like zero this year, and I'm probably gonna get money back. And so when we hear about let's take the example Donald Trump, everybody hears about how Donald Trump or 10s of millions of dollars a year and then it comes out that he didn't pay any income tax back in whatever year it was, this is the way he was doing it. Because he had all these properties that he was holding. And you can't do that if you flip a property. If you flip a property, the government's not going to let you take this tax deduction. But if you hold enough property literally you can be deducting 1000s 10s of 1000s hundreds of 1000s millions of dollars a year in off your taxes. And that savings is money you can invest until you sell the property and then have to pay it all back. And that's the that's another mindset shift to make is the first mindset shift is debt is bad to Fixed Rate long term debt is an asset. So that's the first mindset shift and then now this is the second one to where we can be like, Oh, okay, let's do this so that we can write off all this depreciation and knock this out right now first thing or if you're listening this and you want a sexier way to do all this, you could just do what I did. And just lose like $30,000 in crypto, and then you can just write off $3,000 In your taxes for the next 10 years because that's all you can that's all you can do in losses apparently. Crypto and pay a ridiculous amount of taxes and crypto that's that's that's quite a scam. Yeah, I was about to say I would not recommend the ladder so now so you go from your flipping so now you're into multifamily and that's your vehicle what brought you specifically to multifamily syndication as opposed to all the other sexiness you have your self storage you have mobile home parks, every single investor I talk to a lot of people listening to this show are going from I'm going to buy a laundromat nevermind I want a mobile home park nevermind ha Osborne just posted apart. gas. I really like self storage now. I'm guilty. So I'm just curious about your kind of buyers journey here to figure out what your vehicle was. Yes, I originally decided to move in that into that space back in around 2016 17. I was really burned out from flipping houses. It's just It's tiring. It's tiresome. And so I, I thought about leaving real estate completely going back I did. I bought a couple businesses back in 2017 18. I was doing some crypto, I was doing some angel investing. I was doing some advisory work. I was all over the place exactly like you were talking about what we're doing. I was I was lost. I didn't know what I wanted to do. And two things hit me at that point one, I realized I missed real estate. I didn't miss single family real estate. I didn't miss flipping houses. But I missed doing real estate. It was something I really enjoyed doing and I was good at number two, I had this all this cash that I was using to flip houses that was now sitting in a bank account and I needed to do something with it. And that the natural thing to do was invest in syndications. Because I know real estate and I know some people that do syndications that I really trust. But I'm not good at handing money over to people and saying invest this for me, you. I have trust issues. I'm a control freak. And so I found it very difficult to invest in other people's syndications. So what I said was, if I want to satisfy these kind of two requirements, one I want to do real estate and I want to have a bunch of cash too. And where's the best way to do that? And the answer was, we should be doing syndications myself. So that way I can manage the deals, I have the control, but at the same time, I can invest alongside my investors with my cash. So I have a vehicle to investment in cash. And I get to see the underwriting and I get to control the property. And so I'm basically just being a good steward of my own money as long as well as my investors mine. And so at that point, just like you said, so how do I decide mobile home parks or self storage or multifamily? I know AJ and so he like just watching him got me excited about self storage, I'm friends. And Brandon got me excited about mobile home. Parks. Yeah, but at the end of the day, I knew residential the best and so multifamily kind of made sense for me. I had a good friend, Ashley Wilson, who has been doing multifamily for a long time. And so I basically went to her and I said, Look, I'd love to do multifamily syndication, but I plan to put a lot of my own money into it, I plan to raise money from other investors, I'm not going to take somebody else's money, and I'm not going to risk a whole lot of my money unless I really know what I'm doing. So I'll make you a deal. I will come to work for you for one year, you've got my time, my knowledge, my effort, access to my network, I'll put money in if you want me to whatever it takes. All I ask is that you mentor me for that year. So we just make this trade. You get me I get your mentorship. She jumped at it. She said, Great. So let's pause. Let's pause there real quick. Yeah. So for anyone that's doing this right now that's listening to this, Jay Scott, who after flipping 400 houses, and after doing writing, you had already written the BiggerPockets books, you already had the podcast, you already bought the businesses. And throughout all of this, you found someone that you liked and respected. And you didn't just say, Hey, how can I provide value to you, even you at your level, you said, Hey, you have a very specific skill set that I don't have yet. Let me here's some specific ways that I can help your team. And then let's let's revisit the drawing board a year later. That is huge. Too many people have this, too many people get this big ego because they're good at something. And they assume that that naturally makes them good at everything. Or it makes them important enough that they can just go to anybody and say, Hey, teach me. And I try not to do that I recognize there are certain things I'm good at. But on the list, if I list 20 things I'm good at, I'm really good at that just means there's 10 million things I'm not good at. And I recognize 20 might sound like a lot of things to be good at. But there's always going to be millions of things in this world I'm not good at and I'm not scared to admit, I'm not good at something. And I also recognize obviously, I've had people come to me over the years and just say, Hey, will you mentor me? And that's the Hey, will you spend a couple hours on the phone with me and go through my business plan teach me how to do this. And that's their pitch. And that's sorry, that's not a pitch. While I'd love to help everybody. I have to decide every time I say yes to something. I'm saying no to my family. I'm saying no to my business. I'm saying no to my partners. I'm saying no to my kids. So if you want me to say yes, you need to make an attractive offer. And so I recognize that if I want somebody to say yes to me, I need to make an attractive offer. And I felt that was a pretty fair offer to Ashley because I do have a pretty good network and I do have some cash and I do have some knowledge and all of these things. And so I felt like that was a really fair trade. She felt like it was a fair trade. And so for a year, basically I worked and in that year, what we realized was one we had tremendously complementary skill sets. She was really good at some things that I was really not good at. I was really good at some things she was really good at or didn't enjoy doing. And so we realized that we between us we had a really good set of skills. And number two, we realized that we worked very well together. And number three, we realized that we had the same outlook on life. So we both put family first. And we're both very community centric. And we're both very empathetic. And so it just made for all the beginnings of a good partnership. So after about a year, she she said to me, Hey, would you consider partnering with me? And I said, Yeah, I would love to do that. And ultimately, it turned into a 5050 partnership. And so we've been working together for a few years now. And I've done a bunch of deals, but that's kind of what led me into multifamily as opposed to non real estate or something else in real estate. And, and yeah, I'm having a blast. And it's a lot of new challenges. And it's hard because I go from like something where I've written four books, and people consider me an expert. And, and here I am in something new, where people think of me as an expert, but they shouldn't. Because Luckily, I have a partner who's an expert, but I'm still learning the business. But every day is fun. Because I get to learn the business, I get to do something new. And it's been great. And that's what that's the exciting thing about life. It's like success, I've got like the literal definition of success, but it's like continual progress towards a new goal. So if you've already reached mastery, then at so you've I made the comparison of like a Kobe Bryant mastery in basketball. And then he was like, I want to go into film, I want to go into writing. And that was his new mountain to climb. So it's almost like the second mountain to climb. And also selfishly, it's I'll really want to hit we'll spend this I know you have to go here shortly. So we'll wrap it up here very shortly. But on the topic of you know, instead of messaging someone and just asking for time, because that happens to me, too. Now, ironically, because I have a podcast and I didn't anticipate that because I'm to a point where I'm like, I don't want to talk about me, I just interviewed very interesting people. But even when me reaching out to you, it's a different conversation than, Hey, Jay, loves your Facebook posts, can we can you spare an hour to chat? This is a different, it's a different conversation. I'm like, Hey, I've got a podcast, we're talking to the same people are listening to this, that it would be a value for all parties. It's a win win. So for anyone listening, I would challenge you to, before you send the message to people ask, How can I get a win win here, and then that's gonna take you further. So as we finish up here in this last one more, let me give one more example here real quick. And you could give advice, Jay? Absolutely. 2010, this guy randomly contacted me and said, Hey, I'm starting to flip houses, I don't want to take up any of your time, but I haven't offered to make. He's like, I've got all this and I'm looking for something to do with it. And you know how to flip houses, I want to learn how to flip houses, because I want to finance every one of your deals. And you just tell me what the bank rate, what the rates you're getting at the bank are the terms you're getting at the bank are and I'll finance every single deal, you do the same terms you're getting at the bank, but you won't have to go through appraisals, and you won't have to go through any of that stuff. And you'll never have to like justify your loans. All I ask in return is to ask him questions or follow you around occasionally. And I'm like, that's more than a fair deal. That's solving my biggest problem, like getting access to as much cash as I need. Easily. I was like, I'll do whatever you want. Like I'll mentor you I'll teachers. I know. Just let me ask you some questions here and there. That was 2010. He and I still partner together on businesses, angel investments, real estate, basically everything we've done over $100 million in deals together over the last 10 years. There's not a deal that he'll do that he won't say, Hey, Jay, you want to come and partner with me on this? There's not a deal that I'll do, where I won't say hey, do you want to come partner with me on this? Because he just decided to come to me and he was able to provide value to me didn't ask anything in return immediately. It was somebody that like I knew I could trust and knew I wanted to work with and here we are literally added millions of dollars to each other's net worth over the years. Because he was willing to do that. Yeah, that's just a little bit. So even we talked about having all the like you have 27 and a half years of depreciation, you could take advantage of it your one up front front loaded, same thing here. So maybe instead of that, just be like, Hey, I'm gonna lead this interaction will lead this relationship off with I'm going to provide as much value as humanly possible. And if it's reciprocated, fantastic, if not, that's okay. I still put out value into the universe and then the universe tends to reward that back as we finish up here. Why do all the point why are you doing any of this? So several reasons. Number one, one, I enjoy it. So I, for me, it's just a part of me. I like trying to achieve things and it doesn't have to be monetary things but I like to be able to measure my my success and so real estate's a good way and money is a good way to measure your success, which is a really horrible answer. That's the selfish answer, but I understand where you're coming from. It's metrics you're like, How can I know that I'm progressing towards A goal? Yeah, really thank you numbers for it. Yeah. Am I winning or losing? It's and again, it's a very selfish answer to the question, but it's an honest answer. I'm competitive. And I like to win. And that's money is a good way to keep score. But I also do it in the reason that that I got into real estate or the reason that I got out of the corporate world was 2008, I got married, and my wife and I were both working ridiculous hours. And we said, this isn't sustainable if we want to raise a family, or at least not a good, healthy family. And so we said, look, we need to create a lifestyle, where we can be with the kids where if the kids have soccer practice, or piano practice, or we want to go on vacation, or we want to go on a field trip with them, we can do that anytime. And there's no restrictions. And I originally got into entrepreneurship in general, as a way to basically be able to build a family in a way that I thought was best for my family. And I guess the last piece is, I love to be able to give back. There's nothing and this is partially selfish as well. But there's nothing nicer than being able to write a check for a charity that you care about, or help a friend or help a family member. And so just knowing that I can do that is very rewarding in and of itself. And again, it's selfish, because it feels good to be able to do those things. I'm not saying, Yeah, we all do it, it's nice to be able to do more of it. And so those are the big reasons. I love it. And there's a gentleman coming on the show named Chris harder. I don't know if you're familiar with him, but he runs a lot of businesses very successful guy. And then his kind of tagline is, you get good people good money, they do great things like that. And that is like my whole moniker. That's what I'm gonna lead with. When I interview him, I'm gonna be like, Hey, man, let's talk about this quote, because we can sit on that for the entire show, because it's the difference between a pebble hitting a lake and a frickin meteor hitting a lake, it's gonna be a much bigger ripple effect. With the we just use money as a tool. Money is a tool you hear. So as we wrap up, Jay, I appreciate that. Appreciate this conversation today. Where can people find you? What do you have going on right now, for anybody that's interested in partnering with you investing with you as well? Yep. So we actually just launched a new deal. We're almost fully subscribed, it probably will be by the time this comes out. But if you're interested in learning more about me or connecting with me or investing with me, the best place to start is WWW dot connect with Jay Scott comm. That'll give you all the links out to everything, I have 30 of those URLs, like for everything, just because the worst thing in the world is having to look things up or having to give people a long URL. So yeah, connect with Jay scott.com. That'll take you to everything where if you just want to invest with me, you can go to invest with j.com. The airport, it's a navall Raava Khan hasn't has an email address that he would send people where it's Nevada. I don't do coffee.com Awesome. I love it. That's awesome, brother, I appreciate you. It's been awesome watching your journey and your transition from your first Zona genius to what your next genius is gonna be here. Absolutely. You just dropped so much value in this episode in so many different areas, and especially towards the end. I know it seems small. But just to drive the point home that it's just all about leading with value. And it's really cool because people at your level and people that are successful level they rarely talk about, especially on these podcasts because they want to puff the chest. They don't talk about Oh yeah. So when I moved into this completely new thing, I reached out to this mentor and I'd worked with them and for them and no one talks about that. So thank you for sharing that. And thank you for your time today, brother. Awesome. Thanks, Brian. Appreciate you having me. Appreciate you, buddy. That's Brian J. Scott, signing off. You've been listening to the action Academy podcast helping you to choose what you want with who you want. When you want. You've been given the gift of freedom. Don't turn your back on that. We hope you've enjoyed the show. And we hope you've gotten some practical and useful information make sure to like rate and review the show. We'll be back soon. But in the meantime, hook up with us on social media. Remember financial independence is freedom. The flag the freedom fly