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Have you ever felt discouraged in your effort to build a cash-flowing rental portfolio? Probably so—most of us have. Perhaps you feel like the cash flowing properties are just too hard to find; or maybe you feel that today’s prices and interest rates just don’t pencil out. If you’ve ever felt that way, this episode will give you a new way to look at things. In this episode, Jeff shares a powerful analogy that he developed to help his coaching clients. This analogy will help you reframe your approach to building a rental portfolio, and will give you new energy and encouragement as you do so.
Episode Transcript
Okay, I think there’s a reasonable chance that if you’re listening to this podcast, you are probably wanting to build a portfolio of cash flowing properties, probably so you can have some financial independence. And I’m just wondering, are there any moments? or have there been any moments at which you felt kind of discouraged in that process? You maybe you felt a little bit like, Geez, it’s really hard to find properties that cash flow or prices are changing, and interest rates are going up. And so deals don’t pencil out any longer. Or maybe things could pencil but I just can’t seem to find them. Or maybe I can find them, but I just don’t have the money or the resources of credit at this exact moment. And you feel a little bit frustrated by the overall process. Well, if so, I’ve made actually a short video recently, and I’m putting the audio of that video in today’s episode because I hope it will help and let me give you a hint and a clue and a preview. It’s about cookies. What am I talking about? Let’s keep the theme so I’m gonna jump right in and find out.
Welcome to Racking Up Rentals, a show about how regular people, those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans, nor are we posting We Buy Houses signs are just looking for “motivated sellers” to make lowball offers to. You see, we are people-oriented deal makers, we sit down directly with sellers to work out win-win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from the Thoughtful Real Estate Entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media, this show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio.
Hey, thank you for joining me for another episode of Racking Up Rentals. Show notes for this episode can be found at thoughtfulre.com/e179. Please do us a big favor by hitting the subscribe or follow button in your podcast app, it really helps make sure you don’t miss any shows, of course, but also sends a message back to the platforms that you’re listening, and wants them to then tell other fellow thoughtful real estate entrepreneurs about this show. Thank you so much for doing that. And onward with today’s episode.
I come across a lot of people in my community and in the greater mainstream real estate investing community who expressed some sense of frustration in their efforts to build a cash flowing portfolio. And I totally can understand that and can empathize with it. But I’ve also always had kind of a different perspective on it. And the perspective kind of comes from this place of if you want to build a cash flowing portfolio doesn’t mean that you need to necessarily incrementally build a cash flowing portfolio instead. There’s other ways you could go about doing this. And, you know, I really love analogies and metaphors, they help me learn. And I feel like they help other people learn to. And sometimes admittedly, as my coaching clients will tell you, some of my analogies could be silly, or I might be mixing metaphors in some way or talking about something like fishing, which I don’t really have a lot of experience with trying to get a point across. And I think normally it works.
Well, recently, as I was thinking about this particular challenge that I see a lot of people having, I realized there was a good analogy that involves cookies. It involves cookies, and I made a short video about it. And I thought you know what, I’m going to share the audio from this short video, because I think it’ll help the racking up rentals podcast listening audience as well. So without further ado, here’s the audio of this analogy. And I hope it’s very helpful.
Hey, there, hello from beautiful Bend, Oregon. I wanted to make you this short video in case you have ever felt frustrated with the prospect of trying to build a cash flowing portfolio, I want to give you an analogy. I’ve given this analogy to other people, and they said it’s helpful, so I’m hoping it will be helpful for you as well. So let’s say you want to have a cash flowing portfolio of property so that you can be financially free. Awesome, I think we can probably all relate to that. And I want you to think of that like a plate full of cookies. Okay, let’s say it’s 10 cookies. Each cookie represents a cash flowing property. And you want you know, $10,000 a month globally in your portfolio of net cash flow. So, each cookie represents $1,000 of net cash flow.
So, you get inspired by this vision, you’re like, I’m gonna achieve this financial freedom. I’m going to start putting cookies on the platter, on the plate. And so what do you do? Well, you know, most people they go out and then start trying to get the first cookie. You know, I how do I find and finance this cookie, let me put myself in a position to buy this cookie, I have to find it, I have to negotiate it, you know, the numbers have to work, I’ve got my standards and my criteria, and that’s all good. And you got you do, you buy a cookie, you put on the plate and look at you like, sweet, I got you, one down, nine to go. This is this is great.
And then you start looking for the second cookie as soon as you’re ready. But you know, maybe it takes a little bit of time to get ready. You’re having trouble perhaps finding properties that kind of meet your definition of what’s a good enough cookie, you know, what’s sufficient cash flow, you have maybe cash on cash return or cash flow per unit kind of a metric, maybe, and maybe you’re having trouble finding those, maybe you can find those in your market, but you’re not in a spot anymore, like where you got the cash to do it, or the credit to do it or, or whatever. And you start trying to put that second cookie on the plate, or the third or the fifth or the sixth or whatever. And you’re like, gosh, it’s like it’s a little, it’s a little bit tedious. It feels like a little discouraging. And that’s one way to do it. But there is another way to sort of think about it.
What if you were to not worry about cookies, but instead focus on ingredients? Okay, so what are the ingredients of cookies? Well, flour, sugar, eggs, chocolate chips, maybe vanilla, you know, oil, whatever. What are the ingredients to a great cash flowing portfolio? Well, great properties first, first of all, probably great blocks of affordable, advantageous debt, maybe very flexible debt, perhaps, but low interest, that kind of thing. Equity would be good in a cash flow portfolio, liquid equity, like cash on hand actual cash flow from the properties, from these great properties. So there’s all these ingredients that you need to have a cash flowing portfolio.
So what if instead of trying to buy a cash flowing property, a cookie you put on plate, what if you instead had an investment strategy that was centered around trying to gather yourself the ingredients? So instead of like having a difficult time finding any property that will meet all your cash flow metrics, what if you could more easily find a deal that would give you like a five pound bag of flour, right? In other words, equity, like you can buy this house for $300,000, you can easily make over $400,000. Now you have equity. And the next deal, maybe it’s kind of similar, but you can sell that one, maybe it’s kind of a flip and you extract some cash. And then the one after that you’re like, oh, there’s really no equity or cash flow here at all. But this is the property I want to own and someday with the right debt structure, and enough equity, this thing will cashflow because this is the type of property I want to have. And the next deal you do, you buy an amazing block of debt. That’s more advanced topic. That’s part of what I call supercharged seller financing. But just go with me, you’re buying the ingredients.
Now, you look at your plate of cookies, and you’re like, Well, I’ve been working with this for 2, 3, or 4 years, and there’s still no cookies on the plate. And that might feel frustrating. I’m looking at my portfolio and I’m still not seeing a bunch of cash flowing properties. But you know what you are getting, you’re getting a ginormous stuffed, stocked pantry, and your fridge is filling up. And suddenly, you don’t have any cookies on the plate – but you have a lot of ingredients such that if you wanted to you could overnight bake a tremendous batch of cookies, right.
So now let’s say you have 10 or 15 properties, none of which cashflow more than just a tiny amount you’re like God, this feels, you know, like a failure. But it’s not – because you could choose to rearrange your portfolio, you could choose to sell a bunch of those, refinance some of those, 1031 exchange some of those. But you put all the ingredients together and now you could very suddenly go from having no cookies to bake a batch of like 20, 30, or 40 cookies at once. You could go from having a great portfolio of some great properties but no cash flow, but tons of equity, tons of great debt, that’s flexible that you could move to other properties. And now suddenly, you have the ability to go overnight from a large non cash flowing portfolio to maybe a smaller but totally cash flowing portfolio, because now you’ve taken all the sugar and the eggs and the chocolate chips and the flour out of the pantry and out of the fridge and you’ve suddenly baked yourself one they will batch of cookies.
So why does this matter? First of all, I just don’t want you to be discouraged if you can’t find the cash flowing properties that you want right now. I think the problem would be if five years down the road, if your plate doesn’t have any cookies, that’s by itself is not a problem. But if five years down the road, your plate doesn’t have any cookies and your pantry or your fridge aren’t any fuller, then that’s a problem. But if you’re pantry and your fridge are filling up with the ingredients you need to make a big ol batch of awesome cookies – you know your cash flowing portfolio – that’s what counts.
So as you’re looking at deals if you’re feeling discouraged, like I can’t find any cash flowing properties, that’s okay. Maybe you don’t need to buy cash flowing properties right now; right now you’re trying to stock your fridge, you’re trying to stock your pantry. So if you see a deal where you can make $100,000 of equity through forced appreciation and using your entrepreneurship to add value, do it. It doesn’t matter if it cash flows. Now, the point of that property isn’t a cash flow; the point of that property is to put a big ol bag of flour in your pantry so that when it comes time, and you decide you’re about to convert all your ingredients to cookies, and convert all your ingredients to a sweet cash flowing portfolio, you’re gonna trade all your high equity, low cash flow properties for something that’s a cash flowing portfolio, then you can do that at will. All right. I hope that analogy works for you. I hope that analogy didn’t make you hungry. If it did, go get some cookies, get a glass of milk, and get out there and start buying properties, even if they don’t cash flow if you get other awesome wins from them. Alright, take care.
Well, I hope that analogy strikes a chord with you. I really think that for a lot of people maybe the best plan is to not worry about putting cookies on the plate right now. But instead, to really focus on stocking that pantry, stocking that fridge so that when it’s time to bake cookies, you got everything you need.
Well that’s it for today’s episode of Racking Up Rentals. Again, show notes for this episode can be found at thoughtfulre.com/e179. Please do yourself as a massive favor by hitting that subscribe or follow button in your podcast app. And even better if you would rate and review the show on the platform that you’re listening on. Oh my gosh, I’d be so grateful for that. I see every single one of those and they mean the world to me and it really does help this show as well. Thank you so much.
Do you know that we have a Facebook group for Thoughtful Real Estate Entrepreneurs like you too? I hope you’re hanging out with us there; if you’re not you should check it out. It’s called Rental Portfolio Wealth Builders. We’d love to have you join us there. Instead of typing all that stuff into Facebook, you could just go to group.thoughtfulre.com and the magic of the internet will take you right there. If you liked this episode, please take a screenshot of it, post it to Instagram that would be fantastic and tag us we are @thoughtfulrealestate. All right, I will see you in the next episode. Until then this is Jeff from the Thoughtful Real Estate Entrepreneur signing off.
Thanks for listening to Racking Up Rentals where we build long term wealth by being win-win dealmakers. Remember: solve the person to unlock the deal and solve the financing to unlock the profits.
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