It’s Time for a Checkup From the Neck Up
“Discipline yourself to do the things you need to do, when you need to do them, and the day will come when you will be able to do the things you want to do when you want to do them.”
Zig Ziglar wrote those words years ago. I operated my business by many of his “Zigisms.” Zig, along with many others like Tom Hopkins, Anthony Robbins and Jack Miller, greatly influenced my belief system and had a tremendous impact on my life. It’s one thing to read books and articles and go to seminars, but nothing, and I mean nothing, takes the place of action.
Every one of us needs a beacon or guiding light to direct our lives. We need a compelling reason to get out of bed in the morning and be productive in some way. The larger your purpose, the bigger your dream, the more compelled you will be to obtain knowledge and ultimately act.
The Myth of Retirement
Retirement is not the “end all” for most people. That’s a myth. For many, retirement is the sign of death. People who retire as soon as they can typically have a “job.” They take orders and work for somebody else. They set their sights on some day, at some age, they’re going to stop taking orders and then live life on their terms. All too often, they die within a few years.
That’s the bad news. The good news is, if you are reading this, that probably won’t happen to you. Why? Because most of my readers are entrepreneurs, and we never completely retire. Entrepreneurs, for the most part, live a purpose-driven life with measurable goals. We thrive on a sense of accomplishment.
Several years ago, I asked my greatest business
mentor in life, Jack Miller, why Jack Griffin, in his mid-80s, was still working. Clearly, Griffin, who specialized in the acquisition of single-family homes, was wealthy. In my eyes, he had more money than he could ever spend. Jack’s words to me that day have been etched in my brain since. It was a breakthrough moment for me. Jack said to me: “He doesn’t need the money. He needs the work.”
I didn’t fully realize the impact of those words for several years. You see, at that time, I was still working as smart as I could to reach my financial goals, and I really couldn’t comprehend the fact that once you have the income and assets to protect your lifestyle, why would you keep working?
I’ll tell you why. It’s because we are wired to accomplish tasks, objectives and meaningful goals. We need a reason, a purpose to get up and push ourselves because of the insatiable feeling of accomplishment we get from it.
As I was closing in on my financial goals, Aaron, one of my best friends, gave me a book called “How to Retire Wild, Happy and Free” by Ernie J. Zelinski. I highly recommend this book to everyone over 50 years old who is thinking about retirement.
After I read the first 30 pages, I knew I would never fully retire. In fact, it’s the same reason Warren Buffet—and you—won’t retire. We’ve got to be active with our bodies and especially our minds, or we start to slip away. I can’t speak for you, but boredom would kill me.
Get Ready to Start Again
My new epiphany was when you reach your goals, it’s your new starting point.
Are you kidding me? You rush through life, making sacrifices along the way to obtain the financial freedom to live out of personal choice, and what? We can’t stop! It’s like working for the Mafia; once you’re in, you can’t get out! The adrenaline of deal-making hooks us.
If you love what you’re doing, why would you want to stop? If you’re able to positively impact the lives of others, why would you put a light over your basket? Let that light shine on and be a beacon for others to follow.
For those of you who have reached some kind of pinnacle of success, you will understand this: “The basic goal-reaching principle is to understand that you go as far as you can see, and when you get there, you will always see farther.” Zig wrote that, and I’m here to tell you, sometimes you don’t know that until you’ve lived it.
You Won’t Believe What I Did
Am I crazy? After reaching the financial goals I’ve set since 1985, adjusted for inflation and other factors, I sold 50 percent of my rental portfolio that provided tax-free income, as they were held in my retirement accounts. I sold houses I held personally and did a 1031 exchange as well. Let me tell you what happened and see if you wouldn’t do that same thing.
Remember, I’m set. I don’t need to make more. I just need to hold on to my investments.
Adam Stern, the senior vice president of portfolio services at Renters Warehouse, contacted me to buy my portfolio of houses. I told him there was no way I planned on selling my portfolio, as I had finally reached my lofty goals for cash flow. When he told me he could get me full retail with one sale, I paused and started to consider his comments. Here’s how my thinking went:
Assume I bought a house in 2012 for $100,000 and it had a 12 percent cap rate. If that same house is now valued at $200,000, then I was currently getting a 6 percent cap rate, because the house doubled in value and many of the houses I sold were in tax-free retirement accounts so the gains would not be taxed. As I ruminated over this information, I knew I could do better than a 6 percent cap rate.
Changing My Mindset
Selling 50 percent of my portfolio went against all my goals for the last 35 years!
My mental paradigm of owning single-family homes was shattered once I had enough money to get involved in bigger projects with others. Don’t get me wrong. I love negotiating house purchases and having absolute control to sell or finance if I need money. But look at the residential market today. It’s a bit frothy, opportunities are hard to come by and net yields are compressed into the 5-6 percent range. And guess what? You still have the thrills of property management. I hate property management; however, it is the foundation of all real estate.
But you know what? It’s a lot different with commercial real estate, especially medical buildings. Did I write that? That would have never come from a pen in my hand unless I experienced it myself. You see, with residential properties, problems arise when people lose their jobs, get transferred, get divorced, get sick or have other family and personal problems. Commercial real estate, especially medically related, is a lot easier than residential for upside and property management. I’ve experienced every issue in property management you can think of because I’ve had over 10,000 tenants in the last 40 years.
For you more seasoned investors and even hedge funds, it makes more sense today to get involved with medical buildings, including assisted living. The demand in this area is being driven by us boomers.
Think about this: If I go out and buy a house today and hold it in my rental portfolio, I have to do the following:
Market to find a distressed house. This could include post cards, pay per click, ringless-dialers, auctions, etc.
Rehab it.
Select a tenant.
Collect every month.
I’m used to doing all that, but I don’t have to anymore, and neither do you. Look at the property in San Antonio, Texas, that I was able to invest in (top photo).
It’s an “A” Class Medical Building, professionally managed with 5- to 10-year-old leases. It delivers an 8 percent, and going up to 9 percent, cash on cash return with a 16 percent IRR when sold in 10 years.
As a senior investor, this is so much easier than buying houses in a frothy market. This is what I refer to as mailbox money, as the company I got involved with has a stellar reputation and my checks show up quarterly. No leaky toilets, no rental excuses or evictions, simply passive investing at its best.
I bought this medical building in partnership with Orbvest. Here’s the best part for me: I know these guys. Early on, in 2011, they bought collectively 193 single-family homes from me, and they still hold many of them. They saw the future in the United States in the medical space and transferred their knowledge from building and managing hospitals in South Africa to becoming a big player in our medical field.
Don’t get me wrong! I love the single-family housing business, and my team acquired eight houses in the first quarter of this year. We’re selling most retail as our local markets in Tampa and Atlanta are very hot. Besides, old habits die hard. For you hard-charging house buyers, you might pick up a few tips by going to my website. You can download my new book “Confessions of a Two Hundred Million Dollar Real Estate Deal Maker” for free. Just go to RJPalano.com/Confessions.
rJ PALANO
Robert “RJ” Palano has acquired and sold properties in 12 states and over 50 cities throughout the United States. He purchased his first property in 1977 and started acquiring foreclosures in 1979 in Western New York. By the late 1980s, he managed and owned over 300 properties. He is considered an expert in single-family home investing and strategically using self-directed retirement accounts for investments. RJ has been involved in the creative acquisition and disposition of real estate for nearly 40 years. RJ Palano has written three books, with the intent of passing on wisdom accrued through his long career for people with less experience. His most recent book is “Confessions of a $200 Million Real Estate Dealmaker.” RJ is currently the CEO and acquisitions director of Buy Cash Flow Properties, a Tampa-based real estate investing company that primarily provides turn-key single-family homes for real estate investors in Florida and Georgia. Since 2012, Buy Cash Flow Properties has acquired and sold over 1,000 homes in the Atlanta area to international investors, hedge funds and U.S. buyers. Turnkey sales to investors exceeded $100 million over the last few years in the Atlanta area. RJP@ BuyCashFlowProperties.com
