What Makes or Breaks a Turnkey Investment with Ali Boone

What turnkeys allow you to do is learn the very basic fundamental principles of investing in properties without all of the risk and the hardship of the hard stuff, like flipping and negotiating and sourcing the properties and all that kind of stuff with turnkeys, because other people are doing it for you.

Welcome to Truly Passive Income. I'm Neil Henderson.

And I'm Clint Harris. And today's guest is Allie Boone. She's a former aerospace engineer turned real estate investor, entrepreneur, and author.

She's the founder of Hipster Investments, where she's helped countless investors, mostly in the turnkey rental space. What makes her unique, she didn't just build a business. She designed a lifestyle.

Whether she's coaching new investors, writing for bigger pockets, or snowboarding on a Tuesday, Ally's mission is to help others hack their mindset before they hack their wallets. Allie, great to have you here. How are you today?

I'm so good. I'm so excited to be here. I'm excited to talk to you guys.

Thank you. We're excited to have you. So I just learned a little bit about you in the green room before we got started.

You've known Neil significantly longer than you've known me, which is about five minutes now. So please tell us a little bit about yourself, your background, and how you made the transition from aerospace engineering into real estate.

Tell us everything we need to know about you.

Well, I'll try and give you somewhat of a condensed version of that because that could go on for a while. But the very short of it, we can expand on anything that's of interest to your folks is I'm a corporate dropout.

I did the whole thing, you know, grow up, get good grades, get a secure job, get the dream job, air quotes, and I did that. I was in school for, I don't know, nine years through a master's degree, got my first big girl job.

I walked into the cubicle for the first time, and before I even sat down, the thought in my head, clear as day, I was like, oh, this isn't going to work. Like, I knew it and I didn't. But I didn't know how I was going to get out of that.

And I kind of probably did my company a disservice that I was already thinking of how to get out of there before I ever sat down. But it took me five years, and I was just exploring.

You know, I had a lot of skills, but nothing really directly applicable to anything that could walk me out of corporate. So I started all the research. I was looking into starting businesses. It seemed like something real estate investing could work.

Those two things kind of be, seem to be the things that would get people out. But I still don't know what that looked like. Kept going down. I kept coming up with, you know, genius ideas that never really went anywhere.

And in that, I was, of course, subscribed to every newsletter possible of anyone who could entertain me during my job. And some real estate investment deals came across my desk and I started thinking.

I was like, well, you know, while I have a steady paycheck and good health insurance and get paid every Friday, I might as well do something smart with my money. So I started doing investments just for myself, not thinking anything much of it.

And I didn't start with turnkeys, but turnkeys came up in the whole thing. And I thought they seemed super boring. I was like, man, like, I want something more adventurous, but I don't really want to swing hammers either.

But turnkeys at the time, because this was during the crash, were very advantageous. And so I finally looked at them kind of reluctantly, and I was like, oh, maybe I kind of see the value here.

And I got into it and it just became a total addiction. And turnkey at the time, turnkeys have been around forever. But that around that time is when they really kind of started picking up steam.

Steam in terms of the term turnkey, you know, people were buying them. And so suddenly everyone's like, wait, how are you investing in real estate without swinging any hammers? I was like, oh, man, get a load of this.

Suddenly my mom's friend was buying one, my cousin bought one. So everyone started coming to me, just asking, you know, what are you, what is this thing you're buying? Who are you buying it through?

And I wrote something online about it, and biggerpockets ended up picking me up and I became a writer for BiggerPockets. Suddenly everyone wanted to know who to buy turnkeys from.

But in all of that, turnkeys often attract new investors. And so I started working with more and more new investors. I started really seeing, you know, I knew my challenges getting in the industry.

We didn't learn this in school, but who do you trust? Everyone's telling you what you should do. It's Completely overwhelming. And I saw that with a lot of other people, and I love that kind of stuff.

I'm like, you know, how can we simplify a pretty complicated industry? Because the good news is there's a million ways to do real estate investing. The bad news is there's a million ways to do real estate investing.

And so, you know, the passive part of this is a big deal for me. I live, I'm location independent, time independent. I work when I want, from where I want. That's a big deal.

A lot of people want that financial freedom, you know, all the buzzwords. And so I started doing coaching kind of along the way, even outside of turnkeys.

Like, I do turnkey coaching, of course, but, you know, just people trying to get in this industry. And so that's what it's really evolved into. There's been a lot of progression along the way, but that's kind of the bulk of here we are today.

And it's, you know, getting under in the crash has been interesting because you, I mean, as you guys probably know, there have been so many turns of the real estate market. Like, you know, I tell people at all times there's a reason not to buy real estate, but.

But what I've seen is you've got to buy the real estate, you know, so it's been a. It's been a fun journey. There's the entrepreneur side of it for me, the investor side. I've got my own investments.

I'm closing another couple properties next week. You know, it's. It's constant learning. That's the other thing I've learned is that no long.

No matter how long I've been in this, this industry is on the job training, and I'm constantly learning new things. Just when I thought I knew it all. So it's ever evolving. Ever changing can be stressful, and I hate it some days, but for the most part, it.

It gives me everything I want.

Something you said there early on was that, you know, you explored all sorts of different business ideas. And it echoes so much of the.

The journey I went through, you know, trying to figure out, you know, you know, I think I read Four Hour Workweek and it's like, all right, how do I, how do I, you know, how do I generate some sort of life, you know, create a lifestyle business and, you know, information products and some sort of whatever Some, you know, just trying to come up with business ideas. And one of the things that finally sort of drew me towards real estate is that it's really a worn path that you can follow. I mean, it's not.

Listen, real estate, when it's done well is really boring.

Yeah, the boring side of real estate is usually the better side.

Absolutely. If it gets exciting, you're probably not doing it right.

I live for excitement. And I'll tell you, excitement. Real estate is not my favorite version of excitement at all. Even the boring side of it can be stressful.

Yeah. And the, you know, the, and I forgot where I was going with this.

Well, I'll pick it up. Jump in.

Yeah, you pick it up.

Thank you for that. A lot of times we hear about the journey, like Neil's talking about, of like where you started.

And eventually so many people find their way into real estate. And then a lot of times with real estate, people follow this trajectory of, well, if I don't have any money, I'm going to start wholesaling.

If I do have some money, I'm going to start flipping because I watch HGTV too many times. But wholesaling or flipping, eventually you realize that you're trading time for money and the day you stop working is the day you stop getting paid.

And then that guy, if he's wholesaling and he's, and he's doing a few deals and making a few money, he realizes, oh, I'm passing up on some deals, so then he's flipping them. But eventually that guy turns into, I need to start holding some properties long term because I'm not generating any income. Right.

Single family homes, maybe they discover burrs. A lot of times eventually that moves into small multifamily.

Sometimes that turns into short term rentals, sometimes it turns into midsize multifamily.

A lot of times eventually in their mid to late 50s or 60s, that person realizes their time is worth more than anything else and they look more towards passive investment strategies and syndication and things like that. A lot of times I hear about turnkey as an earlier step in the journey because you don't have to worry about handling the forced appreciation. Right.

The good.

One of the good things about turnkeys is also one of the gripes that I hear it's that, oh, I don't have to do any work, I don't have to swing any hammers. The work is already done. But one of the problems is, well, the forced appreciation has already been added to the property and you're paying for that.

You could renovate them. You could put tenants in there and hit the 2x rule where their rental income coming in per month was twice 2% of the of the purchase price.

You can't do that anymore. So at the time, like when you're buying turnkeys, what's the strategy to recapitalize so that you can continue to scale?

Because Otherwise you're buying 2, 3, 4 and you're running out of money. So what's the strategy to recapitalize and continue to move forward?

And then it also seems like it's so seasonal like this makes perfect sense when the interest rates are 3%. What about when there's. When there's seven? Right, exactly. You couldn't miss. Everybody could win that.

Warren Buffett says you can't tell who's skinny dip until the tide rolls out. Right. Until things get hard. Till things get hard, you don't know. But, but talk through some of those gripes. Right? The forced appreciation is there.

So the recapitalization can be hard. The ability to scale can be hard. You have constraints in terms of capital markets from interest rates. Those are all the negatives.

But it's still something that you love to do and something you coach on. So I'm sure, yeah, I know you've heard all those objections. So lay it on me.

You're the best person I've talked to so far to handle those in a way that is going to help me understand this.

Yeah, for sure. And there's, there's two things you're really asking about in this.

There's scaling because, you know, unlike flipping a property or brewing or whatever, you put X amount of dollars in and then on the refinance, you get to capture a lot of that back, rinse and repeat. Whereas a turnkey, if you have $30,000 and you put that $30,000 into a down payment and closing costs or whatever, it's gone.

You know, you're not getting that back. So there's the scaling conversation. And, but before I get to that one, and there's a really good chance I'll forget to come back to that one.

So take me back to it.

But on the broader perspective, what you're talking about, all the, the gripes and the complaints about turnkeys, Well, I almost want to say Two fundamental misunderstandings. I think there's one technically fundamental misunderstanding is that rental properties are long term investments, period.

So to give you a perspective of this, I bought, I call my core four. I had four or have four properties in Atlanta. Three were turnkeys, one was not. It was the house I used to live.

Keep in mind I bought these during the crash, but I bought them in an appreciating market. I'm currently dealing with a situation where between those four properties, the cheapest one I bought for $55,000. The most expensive I think was 165.

I currently with those four properties have $900,000 in equity between the four of them and only 250,000 of debt. So grand total portfolio like 1.15. I owe two hundred and fifty. So I've got somewhere like 900 equity. And those were all turnkeys.

I didn't put work into any of them. And hello, you know like hi. So something doesn't not work on turnkeys. But rental properties are a long term deal.

And what people don't understand that fundamental misunderstanding is how rental properties really make money when you really dive into it. There's five profit centers on a rental property. Cash flow we all know and love appreciation is pretty obvious.

The tax benefits start to get a little bit more convoluted. Hedging against inflation, that's a hard calculation, but it's a big deal. And equity build during via mortgage pay down.

So what I tell investors these days, and I didn't really determine this for myself until I started looking at the equity in my Atlanta properties. Because I was like, wait a minute, what has changed about these properties since I first bought them?

And you know, I said there's 900,000 in equity before between four pretty cheap rental properties. Again, three of them were during the crash. So let's call it half of that. That would still be almost half a million dollars in equity.

And that's, you know, skewing for the crash. But for example, one of those properties started out negative $100 in cash flow a month is currently plus a thousand.

So that was at the 10 year look back. So I got to 10 years on my properties. I look back, I was like wait a minute, okay, now that I've been in this for a while, what did I buy?

What worked, what didn't work? What's my perspective here? And that's when it hit me. I was like, it's the ten year mark that matters.

That's when all those profit centers really start compounding you know, cash flow. If I tried to sell someone a house right now of negative $100 cash flow, I'm never going to hear the end of it.

Like, they're like, oh, my God, you know, like, you can just hear it in your head. But if my house started 100, negative 100, and now it's plus a thousand.

If you're thinking about financial freedom on the most basic level, how many properties at a thousand dollars a month cash flow do I need for financial freedom? Well, I'm in la, so I probably need a lot more than some. But let's call it. If you need $5,000 a month, you only need five of those properties.

That's very attainable. Like, that's easy enough, not a big deal.

But if it's lower cash flow, you know, the, the number one thing I discounted was the rent increases, you know, because everyone loves cash flow and we're really. The cash flow message is so, so deceiving. But if we're going to play the cash flow game, that changes over time.

So when I'm buying turnkeys, what I'm looking for for myself is because I'm not going to force that appreciation myself. I need the market to do it for me. That's what happened in Atlanta.

So, like, I'm focused. There are a lot of people buying in cash flow markets. They are completely focused on the cash flow. And, you know, that can work over time.

But I had $900,000 in equity and four properties. I'm like, where am I? How am I going to do this again? It's way more challenging right now.

But there are pockets that are, you know, I'm working in Detroit and Cleveland right now. They've both been experiencing somewhere between like, 17 and 19% appreciation just in the last year and, like, high.

So you change your strategy to make the market do the work for you rather than you doing the work yourself. And tied into that fundamental misunderstanding is God bless the Internet. If you type in how to be a real estate investor, you, Clint, you nailed it.

Is what's the first thing someone's going to say? Well, you don't have capital, so go Wholesale. And then make sure you flip a property and never buy something turnkey or at market value.

Oh, my God, you're going to lose. That's ridiculous. You've got to force that appreciation.

You have got to understand that the process to do all of those things is a very simple process. It does not make it easy. It doesn't make it doable. It can be very risky. I can't tell you how many properties I've walked into that.

I almost feel like I'm in a warp world where half of the property is completely renovated and the other half is missing all the drywall and everything. I'm like, what happened? Well, somebody on the Internet is like, I've got to flip a house.

And they go do all the things and they get hosed, they run out of money. You know, something happens. So if you actually look at the difference with the numbers and turnkeys are not for everyone.

If someone has the interest, the skill or whatever to go flip a house, I say, go flip a house, don't buy turnkey. You know, like, I wouldn't either if I were you. I'm not that person, though. And there's a lot of people that are not those people.

You've got to be a certain person with certain resources and certain knowledge to make the seemingly simple things work. Like, flipping doesn't seem hard, but it can be incredibly risky and challenging.

So when you put the call the turnkey option and a flipping option next to each other and you run the numbers, by the time you account for your time, your risk, your effort, how much are you actually making? Because if, let's say you buy the distressed house for $60,000, you're going to rehab it for 40 is supposed to be worth 120 to 150 or something. Cool.

In theory, you should have that 20 to $50,000 equity. But what happens if there's rehab overages? What happens if there's delays? What happens if they're vacancies?

And then you add all your time and effort into it, whatever that calculation comes to be, your margin is suddenly a lot smaller than it looks like on paper. And if the in. If the final total is, call it 20 to $30,000, between this flipped project and this turnkey project, that's not really worth it to me.

If I didn't like what I was doing, if it was risky and I put all this effort, you know, like, is 20 or $30,000 really worth it? I don't know.

Like, you can absolutely buy with the fundamentals of turnkeys in place and capture every bit of what's actually profitable on a rental property. And you know, I'll come back to scaling too. But one other thing you said is the typical order is wholesaling, flipping.

They're like, oh, then we'll move to Burr, then we'll hold stuff. I say completely reverse that. Skip wholesaling in general. That's a job. Unless you really want to do it. Like, cool.

And you'll learn stuff if you do it, but it's not going to help you invest necessarily, necessarily, maybe some ways, but do it reverse.

Like I tell people at turnkeys, even if they're the most boring thing on the planet, even if you have no interest in sticking with turnkeys, do it to start.

Because what turnkeys allow you to do is learn the very basic fundamental principles of investing in properties without all of the risk and the hardship of the hard stuff like flipping and negotiating and sourcing the properties and all that kind of stuff with turnkeys because other people are doing it for you. And make sure you work with a good turnkey provider because that could hose you too. But make sure you work with a good one.

Assuming you are, they're taking care of all the hard stuff for you, which leaves you the time and energy to learn how to run numbers. Learn how to, like what are you looking for in a rental property?

Like again I mentioned now I don't look at rental properties when I'm, I, you know, I said I'm closing on two next week. I don't care what the one or two year mark of those property is.

I care what the 10 year mark is going to be, what is this property going to do in 10 years? And, and with turnkeys you get the chance to learn that like what does contribute to the most, the highest profits in 10 years.

Like you've got to learn that stuff, how to pick out your properties, how to run those numbers, and most importantly, due diligence.

Because even though the turnkey providers are doing it all for you and your hands off, you have got to do your own due diligence to make sure that you're getting what's promised, make sure the numbers are shaken out, get your property inspection and when you can spend the time to learn numbers, due diligence and what makes for a good property, those core learnings will make you succeed through or help you succeed at least through any other strategy you do. If you can just understand those three things because those pertain to any kind of deal you're going to deal with at all. Deal. Yeah.

Got my words there tangled.

But then once you learn those fundamentals, because when you're flipping and you're doing all these complicated things, you can breeze over those basic things so fast and easy that you get yourself in trouble later. Whereas when you really lay that foundation, you can do anything later that you want. So I say reverse course is do the really boring, easy thing now.

Learn those basics. And then what I love seeing people do is apply those like, okay, now I'm gonna, maybe I'll do the Burr myself.

And now they have the more grounded foundation versus the brand new person who goes on Google. And they're like, you should definitely Burr property. And they're like, first of all, what does that God awful acronym stand for?

Because I still can't say it off the fly of my tongue because there's too many Rs. But you know, that's, that's where I think people really get hitched up.

So before I move on to scaling, I'll, I'll touch base with you guys just so I don't keep rambling. Everyone's a year off.

Yeah. So there's an old cliche in real estate investing which says don't wait to buy real estate. Buy real estate and wait.

Yep.

And that seems like essentially what you're saying here. We, we interviewed my good friend Alex Felice way back, I think on episode 20 or something like that.

And, and I love one of the things he says about life in general. He says, you know, find a hobby that makes you money. And for him, he says, my hobby is buying houses.

And he's like, if I just buy one house a year, just a boring, you know, whatever turnkey, I will be so far ahead of most of people that it will make your head spin. Now obviously there's room, there's room, plenty of room to make mistakes.

But that's essentially sounds like kind of what you're, what you're preaching is that like, look, don't, don't overthink it. You know, we say this all the time. Keep the main thing, the main thing.

This is maybe not necessarily a strategy for somebody who's only, you know, making $100,000 a year and can only. Or maybe it is, but, you know, because there's a flavor for everybody. But let's, let's go from there and then let's talk about.

All right, you know, how do you scale this?

Yeah. So this is, and I'll probably only go so far with it just because it'd be such a rabbit hole of details there.

You know, if you're starting with, well, let's call. So I've got $900,000 in equity between these four properties. I was like, what am I going to do with it? Do I take out a portfolio loan?

Do I pull it all out? Like, wow. Because I am doing properties in Detroit right now.

And I calculated I could buy like with that money at I think only with only about 700,000 of that money, I could buy 17 Detroit turnkeys. And I was like, I'm done. You know, like, do I want to go that route? And I decided not to go that route because that's, that's a lot.

I'm like, I'm closing on two and it's already exhausting. And so what I decided is instead of rolling all four of those properties into a portfolio loan, I'm going to refinance them one by one.

So I can kind of just dip my toe in the water. So I just refinanced one of the properties and I'm taking that, I think ballpark, like 180. I'm like, okay, where do I want to put the 180?

I'm going to allocate that, make sure, you know, because I don't want to blow all my numbers in Atlanta and suddenly be negative cash flow on all of those because I've taken so much money out. So kind of baby stepping all that. So if you're starting my.

The reason I said that is if you're starting with a chunk of Money, call it 200,000, 500,000.

This is obviously less of a conversation because you can buy a good solid turnkey at this point for between 30 and $40,000 between the down payment, closing costs. Make sure you always have a nest egg, as you always showed with real estate, but you can really get a nice start there.

But let's say you don't have 500,000 to start with.

It's a bigger conversation because what I've Learned over this, 13 years, 14 years, something like that, everyone asked the burning question of how do you get to financial freedom? And obviously to get to financial freedom, you have to scale. Well, how to scale if you don't have money.

And for the longest time I didn't totally know the answer to that question. And I can't even, you know, the, the reason I, I'm not going to go into a ton of detail here is because it's not that clear cut.

That's what people need to understand.

It's Not a black and white answer like, oh, well, if you have no money to start, or if you only have $50,000 to start, here's the process to do and it'll make it happen. Well, there's a reason you haven't heard that process before, because that process doesn't exist. You know, all these financial freedom.

You can get financial freedom in six months or less and just assume that's not true. And so the answer to the scaling of the turnkey question is it's a bigger picture situation.

So a couple of years ago, I partnered with a money mastery system and this is all they do. Their whole goal is financial freedom in 10 years or less. And they actually have the system built out.

And I've now partnered with them on the real estate side and I've adopted their principles for myself. So everything they teach I'm starting to learn myself.

And what it ultimately comes down to is you have to figure out how to get more capital because the reality is you need the money to invest. This whole no money down thing, yes, there's absolutely options for that, but it's not. If it was that easy, we'd all be doing it.

Not to be cliche about it, but you need money to invest. So the first question is, where are you going to get the money to invest? This comes down to everything from savings.

You know, it's going to be easier if you're a six figure earner or higher. This is going to be freakishly easier than if you only make $50,000 a year. So we'll be fair.

You know, like there's, there's certain people that this may not necessarily apply to, but you have to figure out how to save the money. And when you get really smart about it, part of that money savings comes in tax savings.

So when you start to bring in tax strategies and you learn to implement those into your income, into your savings, into how you set up your real estate, all that kind of stuff that continues to add more money into your pocket as well. This particular company works with whole life insurance.

If you, you know, normal days, if you spend a dollar that you own, that dollar's gone forever. You put in a whole life insurance policy and it keeps paying you over and over. So you start rinsing and repeating.

So it's like you get, you have the money you have, you figure out how to get more of that. You figure how, you figure out how not to let that money leave your pocket, so to speak, even though when it's technically leaving your pocket.

And then once you have all that money, where do you put the money to make those, you know, the income generations. That's where the real estate comes in. And the whole thing, the thread between it all is tax savings.

Like, how can you do all of this and never have to pay taxes legally? I like to call it legal money laundering, if you will, but it's 100% legal. Like real estate, for example.

But the takeaway that I want everyone to have is that it's not the straightforward thing that everybody says. So if you're starting with limited funds, there are absolutely ways to do it. But it does take work on your part.

And you know, we're all big fans of passive income, obviously we're on this podcast. But you have to put that initial work in. And really for most people, passive investments, there is an initial time.

Like my turnkeys now, I maybe spend like five minutes a year on them. Unless something totally crazy happens like I'm just approving work orders. Really it is hands off. But in the beginning I had to do that leg work.

It's the same with scaling turnkeys and even other real estate things. It's not just turnkeys.

But if you're going to scale and you're lacking the capital to do it again, if you have a million dollars, we can just, you know, call me tomorrow, we'll spread it out and you'll be fine.

But assuming most of us don't have that, if you'll, if you're willing to put the legwork in ahead of time to really be strategic in how you set things up. And then you have this mindset of the properties themselves are long term term investments.

But your investment in this process is also, it takes a little bit of time. This is not an overnight thing. This is not a financial freedom in six months kind of gig.

You've got to be strategic and you've got to work with the people who, you know, know how to do that. So it kind of didn't answer your question at all. But just to really implant the mindset of, it's not straightforward, but it is absolutely doable.

It's strategic. And if you do have the money ahead of time, you know, if you, if you had a million dollars and you, what did I see?

I said 700,000 would have bought me 17 turnkeys. I don't remember what my math is on that, but something like that.

Even if you buy 10 turnkeys tomorrow, if you just hold those and wait, you're going to be fine in 10 years, most likely, you know, like depending on where you buy and all that kind of stuff. So there's a lot of almost, kind of just almost indirect messages about this is it doesn't take as much as you think it does.

It does take time if you'll let the time do the work for you. You don't have to invest as much to get to financial freedom. And it is a process, but it can be done. Absolutely.

I bought nine of them and accidentally burned a couple of them. But all of them needed forced appreciation and I fixed them up right. And I sounded like every other new investor. I was like, okay, per property.

I could buy a property and be all in for between 30 and $35,000. These are not Section 8, but they were not much better. I would look for brick homes with an okay roof and refinish the floors and stuff like that.

And off of each one of them I would be like, okay, I'm going to make $6,000 a year, right? So I can save up enough money to buy one of these a year.

And then once I've got five of them now I've got 35,000, 30, 35,000 dollars a year somewhere in that range. And then I can buy one more per year and then once I have 10, I'm making 60 grand and I'm retired.

This old me thinking this, right, hey, that's done, right?

That's more than a lot of 24 year olds are thinking. So I like where this is going.

Well now I'm on e easy street, right? Well, a couple things were wrong there. Number one quality of tenants in that price point is terrible.

And every time somebody's moving out, it was really sad to see things like a kid's bedroom door kicked in or appliances ripped up and things like that.

So all the money you make on that property you're putting right back into it when the next tenant has to Move in and the year's worth of cash flow can disappear really quickly. The other fallacy is that you think you're going to get to the point where you can afford.

If your strategy is, I'm going to save my way to my next down payment, or on those properties were so low in price point that you couldn't even get a mortgage. You had to pay cash. But if you get above that 50,000 mark, you could get a mortgage.

But it's like, okay, if, if my strategy to get to the next property is saving my way there, you're making the assumption that the price point when you save the money to get there is going to be the same that it is now. And it, it's not. It never is.

Fine. During the crash. That's a rude awakening.

So this brings up another point, right? If I would argue you've got $900,000 in these four properties, but I would argue that, yes, you've, you've got some great tax benefits there.

Passed yet?

It hasn't passed, but it's in there. Right. So I'm happy to that conversation. Hey, throw me a cost segregation study. Let's take the accelerated depreciation. So I get that side of things.

But I would argue that on those four properties, you didn't make your money through cash flow, and you didn't make your money through saving on appreciation or saving on taxes. You made your money through appreciation in the market. Appreciation is a recapitalization strategy.

I think a lot of people, there's a phrase out there I don't mean to be offensive. People say appreciation is speculation.

I converted this four unit into four Airbnb properties, and they do well, but I didn't make my money by saving the cash flow. And I, I, I did really well by offsetting my medical income by taking depreciation on the property.

But I didn't even take all of it, which I'm glad, because I don't want to have to recapture all of it. But we're talking about it's going to end up being close to 7, $800,000 of equity that was generated by the market appreciating.

So if it takes me 2, 3, 4 years to save the money to buy another turnkey because I don't have a recapitalization plan coming by refinancing a property with forced appreciation, when I am finally able to buy that next property, it's likely to be more expensive than it was. And now we're betting on another big bump.

And I know that eight or nine or ten years from now, I'm going to have a ton of equity that I can tap into and that the refinance that you're looking at right now, rates are trickling down from where they were six months ago or 12 months ago. But the LTV has changed, too. Typically, a refinance right now is not at 80% loan to value. It's at 70 or 65 in some markets, or 75.

So your interest rate is higher, your monthly payment is higher. You're able to pull less money out to try to buy new properties and what's. And.

And I have trouble seeing the clear scalability to continue to add more down the road. Does that make sense?

Yeah. And I. I love this. I'm like, this is a sexy conversation. Unfortunately, there's so much in it.

We're. We're weird.

We have weird fetishes. Weird, weird fetishes.

I'm kind of into it. I'm going to be honest. Keep going.

Like, there are so many topics of conversation just embedded in what you said, and that's. I. I'm like, oh, man, if we. If we just sat back for hours, we should do like a campfire podcast interview sometime and, like, hit everything.

It'd be so fun. Yes. So I'm going to get to that. One thing I do want to say is, you know, what you said is that the market appreciated those properties.

It turns out the properties are going to get more expensive. You couldn't save to get there. You know, I started investing in the time period you're talking about is when what was the motto? Cash flow is king.

And we all start. Any one of us who started in that era heard, cash flow is king.

And at that time, it kind of was, you Know, like we were at 14% cap rates on $50,000 properties. If I knew then what I know now, like, you know, the famous cliche is that was the message we all had.

And it has taken me round and rounds and rounds of different learnings to extinguish that theory.

You know, I said, at this point, when I buy properties, I don't care what's happening in one years, one or two, assuming I can afford my life and I don't need, you know, the couple hundred bucks in cash flow a month. I don't even care if the property cash flows. I care what the prospect of the Property is in 10 years. That's a little bit loose.

Like I do care in the meantime. But ultimately it's that 10 year mark I care about more than year one or two.

Because year one and year two, what's everyone focus on is the cash flow. And like you said, if you start buying properties, you know, people get in this mindset of buying the highest cash flow properties possible.

Well, you described it. If you get bad tenants, you end up having to put all that cash flow back into the property anyways. And that didn't really help you.

So like I said, rounds and rounds and rounds of me learning that the power is not in the cash flow. There's not a real estate guru out there who has made their riches just off of cash flow. It's in the growth of the property.

And when we say appreciation, it's, we all know the housing, the value of the house, obviously, but it also goes to those rent increases. You can look at rent increases like an appreciation.

So like in turnkey world, I only operate in certain markets because there's only certain markets where turnkeys make sense and where there's good turnkey providers. In turnkey world, a lot of people love Memphis. It's one of the, probably the most historically popular turnkey markets. I don't get it.

It's, you know, when you look back at the, the appreciation rates, the rent increases, there's not a lot of movement in Memphis.

Now it doesn't mean if you buy a house in Memphis, it's not going to be profitable because again, you know, the most basic rental property in 10 years is going to be making you profits, most likely, unless something weird happens or the market crashes or whatever.

But I can be very strategic in what I'm where I'm buying. Because like you said during the crash, everything was going up. There's been lots of booms.

Covid gave us a really weird boom that I still don't completely understand, but it worked. And now we don't really have any of that going on. Right. We have high interest rates.

So then the question is, instead of the real estate market as a whole being supportive of these booms or whatever we want to call them, it's down to the strategic location. So one thing I love about Detroit and Cleveland, Detroit being the main example. Most people think Detroit's still in shambles.

I did, I got a call and they were like, how do you feel about marketing properties in Detroit? I was like, awful. Why? That sounds terrible. You know, I got in real estate. Everyone was flee, fleeing out of Detroit.

Most of the world now doesn't realize that Detroit is completely, completely gentrified. It's the cleanest, safest, cutest downtown I've probably ever been to. The town is absolutely amazing.

But people think the town is still in shambles, which is holding the prices down. So from, like I say, it's an investor's paradise. Since I started working there about two years ago, the prices are up easily about $15,000.

All the low income families have, not all of them have been moving out. Cleveland's been getting revitalized as well.

And so like I start to look for, you know, kind of like we would do if we were shopping for a property to flip. We're going to look for that distressed property that needs the work and it has that potential.

Well, if I'm not going to do that from the flipping perspective, I'm going to do it from the market perspective. Right now, Detroit is not as cheap as it used, not nearly as cheap as it used to be. But it reminds me of Atlanta.

It's probably not going to have the same boom that Atlanta did, but it's.

There's all that growth coming because the world's figuring out how great Detroit is now because it wasn't before, you know, so it's like that unique kind of, you know, off the beaten path. Whereas like Memphis, I don't really know what's happening. So.

And people like Memphis, there's more cash flow and it's like, yeah, but ultimately when you run the numbers, like if you actually run the, the stats and the detailed data over, call it 10 years in a linear market versus an appreciating market, I mean, it's like tenfold. And in that equation, cash flow is not there.

You know, like if we're talking like 100% increase on the linear market, but 550% increase on the appreciating market. Hello. And that's irrelevant of cash flow. So you know it. And then to kind of get to your specific question.

Well, I guess I just answered it is for me, strategically, is it is a waiting game.

You know, what do they say, like the, if you didn't, what's, what's the thing about, like, if you didn't buy 20, the next best time to buy real estate is now, if you didn't buy it 20 years ago kind of thing. Because if you look at all the track records, look back at the 80s when interest rates were 16%, those were terrible deals at that time.

But if you bought a property with a 16% mortgage at that time and you still have it now, that 16% mortgage is laughable. You know, like just inflation, appreciation, all these things. And so again, it's that waiting game.

So even if you buy in Memphis, where it's a pretty linear, nothing vague really happens there, you're still going to be pretty well off in 10 years. And as far as the interest rates like I'm getting right now, DSCR is about the same as Fannie Freddie. So I'm like, screw Fannie Freddie.

I'm, I'm getting DSCR because it's way easier. But I think my rates are, I want to say like 6.2 and 6.8, which people think that's high, but it's actually a completely normal rate.

You know, we, we got spoiled by two threes and fours. We're in a completely normal interest rate environment right now.

And the good news is that I've seen with my properties, the rate today ultimately does not matter over time. If at some point that drops, guess what? I refinance and that bumps my cash flow.

And so it's that appreciation on the house and the cash flow that you're constantly working. And this is one of the joys of real estate versus putting your money in stocks.

Once you put your money in stocks, you can't, you just have to kick back and hope something happens. Whereas real estate, you can make pivots, you can refinance to get that lower interest rate.

You can Rehab, you know, make a fancier bathroom to get more rents. You have pliability there. So you combine all of those things.

And that's why it 100% still works today, even though the market doesn't seem as, you know, as advantageous or exciting as it was before. But in my mind, you find the strategic options. You really.

What this comes down to is what, let's see, when was it cash flow got really, I want to say, like right before COVID there was a shift where you no longer could invest in properties with a consumer mindset. You had to put your investor hat on because the consumers are just like 2% rule or 1% rule or cash flow.

You know, like any bozo can invest with that mindset.

And those numbers, well, when those numbers were no longer there, you have to dive in to how properties really profit in order for you to understand that they're completely advantageous right now, like a hundred percent. And so when you can put that hat on it, I mean, you still world's at your fingertips again ten years from now.

And not to say everyone's gonna have 900,000, I won't even have that, you know, but even if I have 300,000 or 400,000, I still get to rinse and repeat.

And the way I look at it, my last kind of comment as I've rambled on, is the way that I look at rental properties now, that's newer for me, that I did not look at them this way before is I almost look at it like a fancy savings account where if I just put my money in there and I look at the cash flow, like the snorkel that keeps me afloat while all these things are happening on the profit side, that's actually what it is. Because I think people have in their mind that it's a more active, like, immediate, like, I need the cash flow, I need the whatever.

But let's say I put all this money into a fancy savings account which happens to have an address on the city attached to it, and I just leave it. And let's say a big repair comes up, like $15,000. If I put the $15,000 into it now, you know that's gonna be a blip on the radar.

In 10 years, I've done that with my properties. And, you know, fast forward, it's like, that's laughable at the point that quote, unquote, savings account does its job.

You just wanna stay afloat while you give it time to do that. And that's kind of my new perspective. And not the cash flow is only your snorkel in that equation.

Again, you know, all things aside of like if you're living paycheck to paycheck, if you don't have a savings account, if you don't have an emergency fund, like, you know, there's some, there's some nuances here depending on your personal situation. But as a whole, that's how I look at them now.

I love it. Great conversation. For the sake of time, we're going to have to start winding this down.

One thing I want to point out is especially something that Neil and I've learned as self storage operators in the Southeast, you have deal states and you've got money states, right. You live in la, which you're investing in Detroit. It's exactly the situation, right.

We're doing deals in the Southeast, across the Sunbelt, and a lot of our investors are west coast or northeast investors. Right.

So I think it's important to point out there's deal states and there's money states and you're obviously in a position where you can bring those people together. So I'm curious how that plays out. But before we move on to our last question, I want you to tell us about hipster investments.

Hipster has so much exciting stuff going on right now. I'm not going to lie. I. So hipster primarily over time has been turnkey matchmaker. I used to say I was a kind of glorified matchmaker.

Now I add emotional support dog onto that. Turns out real estate investing is stressful and you know, people get overwhelmed. So just a support system mostly for turnkeys.

And then over time, a few years ago I started offering coaching. I've been doing one on one coaching.

And now the big exciting thing, you know, I alluded to this earlier, is that a couple years ago I partnered with a money mastery company and I, I would normally never do that, but this company is so just absolutely epic and what they allow. So for them they get access to the turnkey providers. You know, I, I handle all the property slinging and coaching on the real estate side.

But for me and my people, like I said, for the last 13 years people have asked me how to get financial freedom and I'm like, well, conceptually I can kind of answer that, but I couldn't quite get them there from the scaling perspective or like just the life perspective. Now I can offer that. It's not my product, it's somebody else's product, but the world's play together.

And so I'm working behind the scenes on Hipster now of cool. We've been offering people good turnkeys, support along the turnkey route, coaching, even if it's just general real estate coaching.

But now, how can we bring these possibilities in? Because, like you mentioned, I think in my intro or bio or something, like, I work when I want, from where I want. Like, it's a lifestyle design.

And I feel like we're all operating in a universe these days where we have that ability. You know, there's work from home. There's, you know, how can we live life on our terms and not be tied to the man, so to speak?

And so, you know, that's what's really exciting for Hipster now is I don't know exactly what those offerings look like. Right now, I'm building a free online community for just investors to join to ask questions, a much friendlier version.

You go on landlord groups on Facebook, and they're terrifying because people are mean. Like, it's, you know, it's gonna be a supportive place.

Just really my goal now is to just bring people together and like, hey, how can we all conquer this industry easier and less stressful. Because, again, we didn't learn this in school. We don't know who to trust. The. You know, we Google it. It's super overwhelming.

So I'm really trying to put some efforts forward to kind of chill that out and really start making the industry a little bit more fun for people, more accessible for people more trustworthy, all that kind of stuff. So there's a lot to come for Hipster. I don't know exactly what form that is in, but it's very fun to be working with in the meantime to build that.

I love it. All right, final question.

Hang on, hang on. So we mentioned we could probably go on for four hours. We could do a fireside chat. We don't have that. None of.

Neither one of us have set aside that amount of time today. And I'm going to take this question.

Okay, here we go.

So this is a question we've been asking every one of our. Our guests lately, which is what is one book that you find just aside from your own?

Yeah, what is.

What is. Yeah, I had to jump in there. What's one book you find yourself recommending to friends and colleagues over and over again.

You know, I have friends and colleagues in very different worlds. So my book recommendations can be very.

I mean, everything from the real estate books to mindset books to, I say the spiritual books, not religious books. Just like, you know, mindset, personal growth, Spiritual kind of stuff. It depends on what somebody's looking for.

You know, I think that's something that gets over. This is me not answering your question.

That's something that gets overlooked, is that there's not one thing that plays into any of this if you want to become a really successful real estate investor. It's not just about reading the real estate books. It's about the mindset.

You know, I'd say more of it's a mindset game than it is the actual numbers game. Business owners. Well, okay, I got one. Here's one that I actually do recommend to everyone, regardless of what their question is.

Now I'm thinking about this. The E. Myth Revisited by Michael Gerber. 100%. I don't care if you're not an entrepreneur.

The principles that he lays out in this tiny little book, I've read through it like three times. He used to just, like, carry it around like an emotional support book.

I think about those concepts at almost every given point in my journey, whether real estate or as an entrepreneur or even as a human, as he really breaks down the difference between different skill sets.

And now, you know, when I'm working with turnkey providers, when I'm working with property managers, when I'm working with clients, I can adopt what he says into every situation and better organize the whole thing. So 100%. It's the easiest read on the planet, but I think it's super profound and really applies across the board.

But again, you know, it's not just a real estate journey. It's not just a business journey. It's not just a mindset journey. It's all of those things. So I love book recommendations from all of those genres.

I love that. And it's.

It is so funny how sometimes you can read the same book multiple times and each time you get something different, depending on what you really needed to hear right then. And it's okay to rotate. Neil's book constantly rotates to whatever coloring book he's really into that month.

So, anyway, well, listen, Ali Boone, founder of Hipster Investments, thank you so much for being here. We really appreciate your time. This has been great conversation. More conversation I've had about turnkey rentals ever.

And you, you've been really helpful in helping me navigate. Wrap my head around that. So thank you for your time.

They're not a fun conversation. Like I said, I didn't even start into them because I thought they were so boring. But as we said, sometimes boring in real estate.

That's it. Awesome. Well, thank you, Ali. We really appreciate your time. Thanks for being here.

You bet. Thanks for having me.

Thank you so much for listening and watching the Truly Passive Income podcast.

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