Do This To Master High-Performance Cash Flow in Real Estate with Dr. Axel Meierhoefer, PhD

It's important that when somebody joins our community, what we also want to do is to help them actually really build a protective shield around themselves and their family. So I encourage them to set up an LLC so that they can operate their portfolio and their clusters within that LLC.

Welcome to truly passive income. I'm Neil Henderson.

And I'm Clint Harris.

We are pleased to welcome today. We're thrilled to have Axel Meierhoefer with us.

Axel began his career as an air force officer, transitioned to the corporate world, and then found his true calling in real estate investing. As the CEO of Ideal wealth grower, he helps others achieve financial freedom through strategic investments and his unique performance based approach.

Axel, welcome to truly passive income.

Yeah, Neil and Clint, thank you for having me.

You mentioned you transitioned from a military career. How did you end up from military career into real estate investing?

My last assignment in the air force was to help build a multinational flight training center at Holloman Air Force Base in New Mexico, and multinational in the sense german air force and US air Force. So I had served in both. It made kind of sense for me to be chosen for top project manager for that.

And it really literally included building facilities for the german planes and for students and operations and so forth on Oloman Air Force Base. Logically, we used us contractors of any kind from like people who made buildings to AI or actually at that time, it system integration and so forth.

And one of the things that was pretty out there on the bleeding edge of development was to try to find software solutions for flight training scheduling.

And a company emerged and had special contract for the US Navy developing this and offered, if we were interested, for this new honor us air force base installation for the german training.

And I looked into it, and since I was kind of the guy in charge, I was constantly talking to them and they kind of caught on the fact that I was about to retire. And so they said, hey, how much longer is it? And I think at the time it was like nine more months or so.

And they said, hey, would you consider maybe joining us to keep helping to develop this software? And I said, yeah, but everything I'm looking at is requiring a sponsor for a green card.

I'm here, but I'm on military orders, so if you want me to stay here, I need a sponsor. And took a few months, and they said, okay, yeah, we're willing to sponsor you. And that's what got me from New Mexico to California.

And I worked for them for about four years, and I don't want to go too deep, but there are contracts that the government gives to startup companies for military contracts where they say, we help you with the initial funding, but the goal needs to be that the product that you're developing, whether it's a software or like a hardware product, needs to ultimately be able to stand on its own 2ft.

And so while I was working at the company more and more it became obvious that the owners weren't really doing much to get to this step where they weren't dependent on the military anymore.

And so myself and the other five people that were kind of like in the traditional executive departments approached the owner and said, hey, we think we need to do something, otherwise the government is going to finish out funding and we have nothing. And he said, yeah, why don't you go and spend a day or two, figure out what strategy should be and then come back and present it.

And shortly before that, he had taken on some external investors. So long story short, we did that.

We came up with what everybody assumed and thought to be a great strategy, presented it at the end of the second day, and the next morning the owner came back and said, yeah, we really appreciate all the work and all the thoughtfulness that you put in, but we decided to stay the course. And that basically, and you might say, well, what has all of that to do with getting into real estate?

But what basically, I call it in my version, the mutiny, because in a sense, we told owners this is what we think we should do, or at least a version of it, and they just outright rejected it. And so, you know, if the leaders of each department want to do something and the captain doesn't, then what do you do?

So I basically, and everybody else, within the next eight, nine months, we all decided we kind of have to leave because we don't really believe in the direction the company is going. And so for me, I thought, okay, so I've been government service, I've been an employee. The one thing I hadn't done is entrepreneurship.

And I started looking at what do other people do, especially people whose name I knew who were successful. And I found almost anybody, if you dig a little deeper, to real estate. And so I started buying cassette tapes and cds and books and stuff like that.

And that's how I got into it.

Isn't it funny how so many people, when you have a choice, you get to a point in your life, like the decision got made for you.

Either you get terminated or somebody makes a decision and you have to step away and go in a different direction when the world is open to you and you can do anything that you want.

It's so interesting how many times people end up in real estate or some type of investing and the best way to do that, there's this commonality there that I see a lot, and it's the same thing that happened to me, is within real estate, everybody kind of finds their own niche, but there's so many different things that you can do that it's who are the successful people that have done this before me and have had success with it? Not just financial success, but business success and life success, and they're able to do the things that they want to do.

Ultimately, most of those people are in some level of entrepreneurship or business, mostly in the real estate realm, and then you kind of work backwards from there as to which of these strategies fits in with the way that I want to live my life. And I did it wrong the first time. I had built a portfolio of Airbnbs and I was wildly busy. So eventually I changed course.

I moved into self storage, which is what we do now. But it's so funny seeing that success, that story repeat over and over and over. I had a job change, I had a career change.

I need to do something different. And ultimately, this is typically what it comes down to. And it's.

People have been having success with real estate for thousands of years, and at that point it really comes down to, well, how good of an operator are you? Because a property or a strategy is only as good as the person operating it.

So once you made the decision, that was the direction that you wanted to go in. You've landed in a situation where you're the CEO of ideal wealth grower and you're doing Turnkey properties.

Turnkey is an implication to me that you are probably very good at the systems and operations because you're doing all the heavy lift and literally handing someone the keys on these properties after you've done most of the value add. So how did you find your way into that niche within the real estate market?

Yeah, first I have to say thanks for the praise, but it's undeserved because it's not really what I'm doing. But what I found is, and how did I find my way into it?

To answer your question was, remember I said we were or had moved to Santa Barbara area, which everybody knows is very expensive from a real estate perspective area. And I had discovered that successful people invest in real estate. And the first step, like you said, was, wow, there are so many different things.

And one thing, this comes a little bit from our little discussion about flying jets. To really get good at it, I would say you have to master it. Theres a certain aspect of mastery in it.

And so when I discovered or wanted to look into real estate, I found all these different aspects that you mentioned, and I had to decide which area do I want to master, what can I actually get good at?

And so that's why I decided to stay in the residential real estate investing space and immediately found out, wow, in Santa Barbara area, I would have to already be rich to ever be able to invest in anything, which then meant, okay, well, so if I can do it here, does it mean I cannot do it at all, or can I do it somewhere else?

When that search started, I basically, in a way, stumbled upon through biggerpockets and some other, and I was really, really early when bigger pockets was tiny, where I saw the first time anybody talking about turnkey.

Then I saw a book that Chris Clojure wrote about the turnkey revolution, which is basically describing what Memphis invest did and now called Rei Nation. And I was fascinated by it and then deliberately started to look for turnkey providers.

And I found a handful of turnkey providers, and then from a strategic perspective, said, okay, what would be my ideal turnkey provider?

Which is kind of a combination of what the book describes and what I, as an investor, both initially for myself and ultimately now for other people, would want to have.

And what I found the core thing is to have certain things under one roof, it needs to be a company that has kind of like a construction department or renovation department that finds the ugly duckling in a good neighborhood and buys it and renovates it.

Number two, they need to have a good sales and marketing department so they can consistently acquire investors who are understanding the concept and are willing to pay market rate, or I call it the appraised price for these properties.

And then, number three, they need to have a department in the same company under the same umbrella that does all the property management for all these ugly ducklings that they renovate. So that's kind of the ideal turnkey provider. And when you have those criteria, there aren't that many anymore that really, truly falling under this.

And so what I started initially for myself was developing a portfolio of investments for myself and my family. As you remember, I mentioned their purpose was to avoid, to have to work forever and build a passive income portfolio just for myself and the family.

But as you can maybe tell, I'm a kind of a chatty guy. And I told all my friends and family, anybody who ever wanted to hear what I'm doing and up to about this stuff.

And ultimately, more and more people said, hey, you need to let other people in. Let other people do it, too. And that's how idea wealth grower started.

So you mentioned something that's really important. There is vertical integration. You're talking about. There's multiple operators in that space. So we do self storage.

We buy old vacant Kmart's grocery stores and warehouses. We convert those into climate controlled self storage facilities.

The reason it works for us, it's a fairly high risk strategy in terms of the amount of risk and cost that goes into the construction, because these are really big buildings. Because of that, there's risk involved, right? It's calculated risk, but it's there.

The reason the strategy works for us is because we have an acquisition team that's typically finding off market deals. We do the construction in house, we do the property management in house.

All of those things combined control that risk and help us create great margins on the back end. The intelligent thing that you did is you're looking for an operator who is finding the properties.

They are doing the construction in house, and they have the management.

Anytime there's a transfer from a wholesaler buying a house and sending it over to the contractor, and the contractor sending it over to the property management, anytime there's a transfer of ownership of that deal, there's risk there. What you really want is that top to bottom vertical integration. So they're going to control the process all the way through.

Otherwise, if you're paying retail costs to the wholesaler for the property, you're paying retail costs for the construction, and you're paying retail costs for the management, and they're not invested in the deal, you're leaving margin on the table and it creates a little bit more risk.

So I love the fact that you didn't find the operator that had the best website or the operator that jumped out at you, or the first one that came along, is that you're looking for that vertical integration, top to bottom, so that you have better control of the deal, because that's what determines what the end product on that house is. So tell us about your portfolio that you built and then how you made the transition to taking the next step after that.

Yeah, so first, I love this term vertical integration because we have obviously by now gone beyond that part that we just discussed.

For one, I felt I was basically obligated to find these turnkey providers because I needed to find a way to invest in locations that I could afford initially by myself. Right. So the very first investments were $80,000 single family homes.

I mean, anybody who has ever been in Santa Barbara knows you wouldn't even get a garage for that, or a piece of land for that matter.

So this out of state portion of the strategy was basically dependent on finding turnkey providers who provide this vertical integration plus properties that I could afford.

Now, the vertical integration went a couple of steps further because now we also have relationships with lenders, relationships with appraisers, relationships with inspectors, relationships with different turnkey providers and have some different offerings and so forth. So my portfolio basically evolved into clusters, is what I call it.

So we have four properties, for example, in the cluster in Ohio, we have four properties in a cluster in Idaho, Illinois, right at the border. And we're building a third for myself, I'm building a third cluster in Florida.

And that's basically what we're also doing with our clients, is basically to first identify what is the focus of your performance ideal. Are you looking at cash flow? Are you looking at appreciation?

Are you looking at a combination of the two and then determine where do we have an existing partner with this vertical integration you mentioned, that can provide that combination of performance that you want going forward. So my portfolio is right now, I always say 9.5 because we have one in construction, so it's not quite done yet.

But then our clients are typically looking for the same thing, to stay within this residential real estate space.

And as far as the risk goes, obviously, if you were somebody who could theoretically afford a property anywhere in these higher priced areas than from a down payment perspective, that means you can get three, four, five properties in a higher performing area, which is definitely also a way of spreading the risk.

And is there any method to the madness of trying to cluster in certain areas rather than diversifying across multiple markets?

Well, part of the reasoning is if you go back to what we mentioned about working with the turnkey provider, there is obviously a human component to it.

And that is if I have four properties, let's say in the Dayton, Cincinnati area, and I bring a handful of my clients and they each buy one to three to five properties in that general area. And so any one of them has any issue with any of their properties.

I obviously, from a mentoring perspective, always initially encouraged them to deal with it themselves with the turnkey providers like property management manager or whatever.

Now, if you think about it, part of our strategy has this term out of state in it.

And when you build clusters, you really once a month have to deal with that property management company that has three, four, five of your properties under management.

So I oftentimes say until you really pushing hard to get a large portfolio quickly in the first five years, you're probably not spending more than 30 minutes to an hour once a month to talk to your property manager.

Now, if you say I buy a house all over the place, because the only intention is to get the highest performance deal that I can find leaving the clustering out, then you have to at least have those five calls once a month, right? So that's five times the active part of your passive investing versus one time.

I love that. There's a book that I quote far too often, and I'm going to quote it again here. This is a who not how situation. The book.

Dan Sullivan wrote the book who not how.

And this is a situation where your job is to find the operators that know how to find the deals, how to do the construction, how to do the management. You don't need to know how to do all those different components. You need the who.

If you find that operator and they control that, it makes more sense to stay with that operator in their market instead of trying to go find your own market and learn how to do those different components yourself. So you're leaning into that. And actually, I own a property management company.

I have 14 Airbnbs, and our management company right now manages about another 75. When you have an individual property yourself, with any management company, this is my experience with single family homes and Airbnbs.

Sometimes it's hard to get the attention that you want if you're one of 70 or 80, right?

Once you get five or ten or 15, you become a big enough book of business for that handyman, for that AC service, for that management team that they are paying attention to you and they're giving you what you need in terms of your properties. Ultimately, nobody will mind your business as much as you mind your business.

But the reality is if you become a big enough part of their business plan through economies of scale, you typically are going to get treated better because they don't want someone to walk away with five or ten listings. There's certainly value there and you hit on it. The show is called truly passive income, right?

And the joke is that there is no truly passive income because even the hands off investment that people do with you, their responsibility is to underwrite you. They are betting on your ability to know how you operate and your ability to pick the right operators that you are working with.

So there's still front loaded work that has to be done there. The reality is passive income is actually typically, it means you did the work upfront, right? Its residual income.

You front load the work, you build the relationship with someone that you can trust, and then it pays off down the road. And it looks passive to the outsider looking in.

So from the perspective of an investor, if somebody is interested in getting in this type of investing and building a portfolio, what is the time expectation that they need to have to be realistic? And what does that look like as an opportunity from the investors perspective?

Yeah, absolutely.

I mean, for me, if I may respond to this aspect, active versus passive for a moment, I really like to kind of educate people to look at this more on a scale, right? If you say, okay, what do I do under normal circumstances to have a paycheck at the end of the month, right?

So I have a 40 hours job if I'm a little bit more in a management role as maybe a 50 hours job. So I'm spending 200 hours of active time to make this paycheck at the end of the month.

If I compare that to somebody who, like myself, has three different clusters, who have three different property management organizations to talk to, and the pure review of what happened in the last month is an hour and a half, 30 minutes with each. And let's say we are in the situation that half of them have some maintenance issue that we need to address.

So let's add a another three and a half hours. So on that scale, working 200 hours to get a certain amount of money versus working 5 hours a month. Right.

So when you say truly passive, for me, truly passive is anything that is taking me less than a day. When somebody else has to spend 20, 21, 22 days to make income, it's not.

I'm finding this lately more and more, and please don't take this as a critique. It's just an observation of where we going culturally. I have the impression we're getting more and more binary.

It's red or blue, it's black or white, it's right or wrong. It's like either no work at all or the work in the world. And that's why I'm saying to me, it's on a scale.

If I would otherwise to make $5,000 a month, spend 200 hours, and I can spend 5 hours, I would say that's pretty passive. That's just in that context.

To your question, what would basically take it for people, one thing I want to mention is, yes, we have that vertical integration with the investment itself.

But to me, it's also important that when somebody joins our community, what we also want to do is to help them actually really build a protective shield around themselves and their family.

So I encourage them to set up an LLC so that they can operate their portfolio and their clusters within that LLC, to hold the individual properties in either land trust or LLC, and then have a family trust that takes care of the fact that if they get run over by a boss tomorrow, that there is no probate court or anybody external taking care of it.

And initially, that might not sound like that important when you have one or two properties, but if you take your own portfolio that you mentioned, even if you take the storage units out, that is a substantial asset portfolio that shouldn't be left, in my opinion, to the courts to decide who is getting what and how is it going to be handled. Right. So, yes, there is a very heavily weight focus on right property, right turnkey provider, right lender, right insurance, all that.

But there is for me, this all inclusive holistic service to say, you as a person, you as a family member who may be the principal of the family, I want to help you protect your family. And so initially, when we're doing the onboarding, it all starts out with really identifying what are your goals, where do you want to go?

And it starts out with something that I got stolen from Brandon Bouchard. He calls it the bhag, the big hairy, audacious goal.

And then from that sub goal is down, then to see how far are we with those already and what do we need to do to get to achieve them.

And finally, to your point, depending on what the financial strength of somebody is, we try to identify what is what we call your time freedom point, meaning like the passive income on a monthly basis that you want to get out of your investments. And if somebody says it's $3,000, then we can probably accomplish this in five years or something like that and build generational wealth that way.

If you say $10,000 is probably more like eight to nine to ten years, unless you're one of these people who make $10,000 a month and live like a hermit. And you can put $6,000 a month aside. Right. So it's a little bit of an individual thing. How fast do you want it? How much do you want it?

But the underlying idea and goal is always, let's get to a point where you get this freedom to decide what you want to do with your time. Not zero, but like I said, maybe 5 hours a month or 10 hours a month on what actually pays you your income as fast as possible.

Well, actually, you touched a little bit there on what it's like to work with the ideal wealthcrow community. But can you give our audience a little bit of an idea of sort of what they getting when they join that community?

Right. Yeah. So we have basically two options in a way, and I really appreciate that question. The one option is to say, I really want to dive in.

I really want to make this my main investing approach. And I want to join the mentoring program. And so for the mentoring program, we have a one time fee.

And it includes not just the advice and support in where to invest in my network of lenders and turnpike providers, insurers, all the ones I read it down before for, but also this protective thing, this kind of like really holistic coaching and mentoring relationship.

Because I found, and I mean, you know, my dissertation is literally about the fact that you cannot just help somebody in one little facet of their person or their personality.

If you really want to truly help somebody to, for example, change their mindset and become like the true owner and mindset, I call it the creator of your own future rather than the victim of the circumstances, then all of those things need to be addressed holistically together.

So if you want that, if you say, I want the protection for my family, I want the investment, I want to really learn how to be an entrepreneur and basically the king of my own empire. That's what we do in the mentoring program. But then on the other hand, some people say, okay, I'm pretty well versed in finances.

I just don't have access to this like whole network strategy thing. Then that's the other option to say, I just want to be an investor.

And if somebody says, okay, I wouldn't want to do all the legwork, and then analyze all the offerings and then find my own insurer, find my own property management, find my own, fill in the blanks. So I just want you to help me, Axel. Then that's the other option. So we have the holistic option and then the more focus on investing option.

Got it. I love the way that you have the foresight to not just talk about the investing side that you're talking about offense and defense. Right.

Its investing in its protection. They dont have to be mutually exclusive. You can do both at the same time.

This could be the last question for me ive heard before we started recording. I was looking over your bio, and one of the things that you talk about is the performance approach that you developed for real estate.

Can you talk a little bit about that performance approach and how that differs from a traditional investment strategy?

And so, as you know, as experts in this, the government gives us all these benefits. We have depreciation and we can write off the interest.

We have appreciation that we can keep 100% off, even though we are only putting 20% of the asset value as a down payment.

I mean, just to reiterate that if you buy $150,000 property, and let's just be modest and say it increases in value by 3%, so those 3% increase in value is 100% us, even though you only put $30,000 in.

So when somebody sits down and says, okay, let me figure out what's my depreciation aspect, my appreciation aspect, plus my cash flow, even if I deduct the management fee from property management, you very quickly, in relation to your $30,000 investment, you get to borderline insane numbers. It's not unusual to say it's 25, 30, 35, 40%. I'm always jokingly say this. When people say, oh, look at how much my stocks made.

I said, okay, show me how they did that for ten years consistently compared to this. Most of the time they can get there or they need to be the Nvidia of the world or something like that, right?

So that's basically, I think, an important component to realize what performance are we really looking at? And I'm the first to admit I love appreciation.

I'm even relatively, well worse of taking advantage using home equity lines of credit when there is substantial equity in a deal. But the main focus is cash flow.

Because when you think about it, what I really help people that join our mentoring program is to get that time freedom point I mentioned earlier where they can say 5 hours is enough instead of 200 hours for the same amount of money per month. So if we want to do that, then the cash flow performance is number one. And that also leads to where do you need to go to get the best cash flow?

And for anybody who says, okay, this is all very theoretical.

How can I even get an idea how this works is just go and look at properties that you might stumble upon if you're generally interested in residential real estate and look at what's the price and what's the rent. And a good starting point, when I say, okay, am I even willing to spend five minutes to look at it? Is the rent to price at least 1%?

So if you have $150,000 property and it's in an area where you have no chance to get $1,500 rent a, you dont even need to look. Now, there are exceptions. Like for example, a brand new property that you never have maintenance in the first five years.

You might be willing to say 0.8% or 0.9%, but for all intents and purposes, just to get a feeling, what is a good performance focused on cash flow?

The 1% rule is really good starting point it has gotten, obviously, and I want to say this to your audience, it was much easier when interest rates were like three and four and 5%.

Now that there are 8% and 9%, depending on what kind of loan you get, makes it much harder because you might still have 1%, but then more of your rent income goes to serving all these fees and your cash flow might be lower because the starting point is the 1%.

But you ultimately might say, okay, I wouldnt really want to buy anything that makes less than 200 or $300 a month after everything is paid well, then the air gets really thin.

So that's basically the answer to your performance question is really, where can you go to find a good, dependable, full service turnkey provider that has properties that reach at least 1% or better and build your portfolio that way to get down from 200 hours closer to 5 hours.

Well, Axel Meyerhoffer, this has been a great conversation. I've certainly enjoyed it.

If any of our listeners want to find out more about you and ideal wealth grower, what would be the best way for them to do that?

The easiest is go to idealwealthgrower.com. and when you get to the site, on the top right hand corner, there is a little button that says book a call or discovery call or anything like that.

And so basically you jump right on my calendar, your book time, and then we talk, get to know each other, and see if what I can offer meets with what you're looking for. And if that's a yes, then be rock and route.

Thanks so much, Axel. It's been great chatting with you.

Thank you for your time.

Yeah, thanks having me on the show.

Thank you so much for listening and watching the truly passive income podcast.

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