Codie Sanchez (03:51):
So I thought, well, how do you make the most impact? And in my opinion, it was not status. It wasn’t if you were American or Mexican. The differentiator between those who live incredible lives and those who live harder lives is monetary. It’s one word, money. And this green language that everybody speaks is really what controls most happiness in life, at least up to a certain level because if you cannot cover your basic human needs, then really nothing else like personal passions or pursuits matters. And so I got kind of obsessed with financial freedom. And what does that mean and how do you get it? I started at a young age and I realized, I don’t know anything about money. I’m a journalist, like we don’t make any money. And I didn’t know what a 401(k) was. I didn’t know about mutual funds.

Codie Sanchez (04:35):
And so I kind of worked my way through a bunch of financial institutions, got lucky, got into a program at Vanguard, which was an accelerated development program where you got to see a bunch of different aspects of the firm. And then went to Goldman Sachs and then State Street. And then finally ended up running a business at First Trust that was a Latin American investment business. So built that business up to a pretty good size, exited that business, was looking for my next emerging market, went into cannabis private equity, saw an opportunity there between the difference between the narrative on cannabis and the actual numbers. We thought we could profit handsomely while actually doing some good, like we did in Latin America. And so built up a large asset management business in cannabis.

Codie Sanchez (05:14):
And then we did three funds together. And after that third fund, I thought, okay, I think we’ve made our mark in this space. I have a decent allocation to it, like what’s the next asset class? And that’s when I started talking publicly about investing in small businesses or what I call boring businesses with an eye towards private equity or later-stage companies that have been around for a long time by cash flow. And so right now I probably talk about that the most publicly, but the real goal is financial freedom and these asset classes are all just a tool that you can use to get it.

Robert Leonard (05:44):
Do you think that saying that money can’t buy happiness is wrong?

Codie Sanchez (05:49):
Yeah, I do. I think it’s absolutely wrong. I think we’ve actually proven that the statistics, and you can go and look at the research on this, what that says, like anything over $70,000 has a de minimis impact on happiness increase is actually false. The data was flawed. It actually shows that happiness does increase all the way up to, I can’t remember if it’s about $500,000 a minimum or a million dollars, but then it starts to plateau and then you have little increases from like a million to 10 million and 10 million to 50 million, whatever the case may be. But there is no doubt that somebody is trying to sell you something if they say that money doesn’t matter.

Codie Sanchez (06:23):
In this world that we live in today, money absolutely matters. And you want to make sure that you can cover at least your base needs and then have incremental growth in it. I mean, that’s why we have minimum wage to start, but you’re not supposed to stay there. You’re supposed to continue to climb up to different wage levels because it does actually increase happiness at a certain degree. Now, do I think that if you have money, you are happy. No, that’s a totally different thing. It does not mean that you are happy just because you’re wealthy in any way, shape or form, but it does help if you have money. And so I think we need to be honest about that. And then people might feel better about the pursuit of it.

Robert Leonard (06:59):
I completely 100% agree. That has always been my philosophy. And I think the distinction you made is so important because just because you have money doesn’t mean you’re going to be happy, but having money can’t help you get happy is kind of the way I think about it. And I also think anything that you want to do that will make you happy is likely going to take money. If you don’t care about being rich or making money, that’s fine, but whatever you want to do that you do care about takes money. And so I think people need to really connect those two to really understand that having money can help buy happiness.

Codie Sanchez (07:29):
Yeah, I think you’re right. I mean you have different polarities, right? You have Mr. Money Mustache guy, which is like, I want to retire early or the fire guy that wants to retire early and they don’t really care about making additional money on top of it. They keep their income level at the same, consistently over time. And then people would say, well, they’re happier than Peter Thiel who is a billionaire and simultaneously, maybe isn’t married or doesn’t have a family or whatever the case may be. But I think the difference is this guy has just realized what is the monetary level that is interesting and increases happiness for him and maybe some billionaires haven’t. And so they keep pursuing past their rate of need. And so you’ve got to figure out what that is for you.

Codie Sanchez (08:10):
All the time I say like, I don’t want to be a Fortune 500 CEO. If you paid me right now, I mean, well, if you paid me $100 million, I’d do it for one year and then I’d quit, but I wouldn’t keep doing that job. Right? I’m actually very happy and I’ve chosen continuously over my career, less money in the moment for more personal freedom and to do things that I want to do or find interesting or have actual impact. And so I think that’s the balance. People think about it unilaterally when it’s a tripod. It’s like, where can you have freedom? Where can you have whatever you think you’re good at or your purposes? And then where can you be monetarily rewarded for it?

Robert Leonard (08:45):
When I was graduating high school, my superlative, those things they vote you, best smile, best eyes, whatever, I was voted most likely to be a billionaire because I’ve always loved money. I’ve always wanted to be wealthy. I just used to want to be super-rich. And over the last couple of years, I’ve had that same realization that you had as like, I don’t actually want to be a billionaire. I don’t want to be a Fortune 500 CEO, like you said. I want more time than I do anything. And over the last year or so, I actually took a relatively decent pay cut to step back from my corporate career to just do the podcast full-time and do real estate because so much more flexibility and I could do what I want versus making a little bit extra money that wasn’t worth it to me.

Codie Sanchez (09:28):
Yep. I totally agree. I think that most of it comes down to how well do you know yourself? That’s what the Oracle of Delphi said, right? “Know thyself.” And so once you give yourself some space to be the architect of your own home, as opposed to buying somebody else’s, then you kind of can figure out what money means to you. But most people don’t spend that much time thinking about money or wealth except in the next step forward. So my framework on wealth and money is longer term. It’s how do I want my life to look day to day, week to week, year to year, and three and five and 10 years out.

Codie Sanchez (10:04):
And then I want to reverse engineer that. So what do I have to do to have a day or a week or a month in which I’m never cleaning the house, in which I can live in two locations, in which I get to donate to whatever charity I want to at any moment in time without having to think about it? And then I reverse engineer the money to that because I think about what do I want? And if money is just a tool, I don’t think, hey, I want 50,000 hammers because I might have a nail. I want a hammer, I think, hey, I’m going to have a pretty big construction project. It’d be great if I had a whole construction crew to do it with a lot of hammers that they all use and that’s why I want the money. And so I think people need to reframe themselves slightly.

Robert Leonard (10:40):
I reverse engineered and kind of backed into mine as well. I had somebody sit me down once because I was kind of on that endless treadmill of just wanting more and more and more. And I had somebody sit me down once. They were very successful and they said, “Write down everything you could ever imagine you want in life. And then calculate how much that cost.” And I did that. And it was way less than I expected. It was significantly less than I expected. So I was like, okay, maybe I don’t have to go all out for every single dollar, ever, just to get all the stuff I want. And that was, like you said, it’s knowing yourself.

Codie Sanchez (11:11):
Yeah. I mean, that’s exactly right.

Robert Leonard (11:14):
Where did your curiosity for becoming a contrarian come from? Do you think it is rooted in your background as a journalist? I feel like a lot of journalists, especially in a field, may be where you were, could be contrarian.

Codie Sanchez (11:28):
Well, I think, a few different things. From a young age, I’ve certainly pushed against norms to my parents, probably chagrin, but more than anything, I think it came from reading. If I could impress upon people to do one thing in their lives, it would be to read more. That’s why I started a newsletter, Contrarian Thinking, that’s why I sort of push people to there because when you consume content through TV or video or whatever the case may be, it’s really hard for you to pause and add stuff, ponder it, think about it. Reading’s one of the few mediums in my perspective, where you can have a book in front of you and in that very moment, you just pause, write a little something. And when you’re listening to a podcast, you might have to pause a podcast, TV show, and otherwise is the same.

Codie Sanchez (12:10):
And so for me, I think it came from a young age. I would read ravenously. And some of my favorite books, if people want to stimulate that cantankerous thought inside of them are like Letters to a Young Contrarian from Christopher Hitchens. And he talks about how to stand up against whatever the mob may be. What’s interesting to me today is that people think about critical thinking and contrarian thinking and questioning things as some sort of political leaning, right? Like it seems to be a mantra of the right, right now. But Christopher Hitchens, he was a communist. He was like a card-carrying member of the Communist Party in the US. And he said the same thing. He’s like, it was just all about questioning things and coming to solutions yourself. And so I think that is why that’s ingrained in me, are all of those questions that I saw protagonists ask continuously and they lend themselves to having a continuous mind.

Robert Leonard (13:03):
These days, do you think it has to be books? I think over the last couple of decades, books were kind of the default, but there are newsletters like yours that are amazing. And I mean, there are tons of them, right? And maybe we can get as much value from newsletters as we could potentially books. So do you think it has to be books or can it just be reading in general?

Codie Sanchez (13:21):
I think long-form thoughts tend to lead to long-form payouts. So in my belief, if you are reading long-form and that’s typically in the form of books, it could be, I suppose, a series of newsletters, for sure. It allows you to get really deep into a subject matter that you can steal somebody else’s 10,000 hours as opposed to having to do them yourself. And so a part of me says, yes, I still think that books are the medium today. Now newsletters are great, but even my 10,000-word newsletter or 3,000-word newsletter or whatever it is, it’s not going to give you as much context as if you immersed yourself in the pages of the Biography of Winston Churchill, which I think is a great book for somebody wanting to learn from history.

Codie Sanchez (14:02):
So yeah, and people disagree with me. I mean, we’re getting faster, faster, and faster on this. I mean, TikTok has more eyeballs than Facebook, and certainly, email is not set for long-form platforms, but I think if you want to differentiate yourself, well, you shouldn’t think about what is most of the crowd doing. In fact, you should probably question if most of the crowd is doing something and say, instead, what do I think has the best return on my time? Where’s my ROI spend? And if I have to think about it, when you can focus intently on one thing, that’s usually your highest ROI spend, as opposed to when you’re really scattered, like you would be reading email, reading newsletters, having other are things that can pop up and invade your psyche. So I think it is absolutely books, even though nobody really does that.

Robert Leonard (14:44):
I host two podcasts. One is about real estate and one is more about stock investing and side hustles. Today, we’re not talking on the real estate one, but I still want to talk about something that is real estate related because I read it in one of your newsletters and it piqued my interest. And you wrote why buying rental properties is … dumb. Talk to us about this newsletter that you wrote and why you think rental properties might be a dumb idea.

Codie Sanchez (15:12):
It’s all about opportunity cost, right? So in everything in life, if you want to go out on a Friday night with your friends, you can’t stay in and watch the Netflix movie. If you want to go to a concert, you can’t go out and go to a dinner. You have to pick, right? And for every decision you make, there’s some constraint, which means you don’t get to do something else. And with investing and when you have money, you have to think about where can my little army of soldiers go best and attack? The one reason that I have them out there fighting anyway. And that’s for more money to come back to me, right? I want my soldiers to go out, I want them to get more soldiers, and I want them to bring them back to me.

Codie Sanchez (15:44):
And so when it comes to rental property investing, the market right now is really tough. Real estate’s at all-time highs, interest rates are very low, which means we continue to have more and more people purchase. Even though rental prices have gone up, it’s really hard for you to buy a property that makes you enough money to cover your mortgage cost and all the additional, let’s call it utilities and whatever else. They say that the average rental property makes something like, I’m going to mess this up, 400 to $600 a month is the average payout for a rental property. And so if you think about that the average cost of a home in the US is anywhere from 200,000 to $300,000, I would imagine that’s gone up slightly over the last couple of years, then you are putting down a pretty big down payment to get a couple of hundred dollars a month paid into your bank account.

Codie Sanchez (16:33):
So what I would be saying, if I was with those soldiers, I’m like, well, you’re not bringing back many others with a rental property. Instead, I want something where I got a better return on your time. And so I own rental properties. I think you should have them diversified, but I’m much more interested in buying cash line businesses. I’m interested in short-term rentals because those have a higher return than long-term rentals do. I’m interested in, how can I get into maximizing renting on other liabilities that I have and turning them into assets, cars, bikes, surfboards, whatever the case may be. And I’m interested in things where I have to do less work and put up less capital to have a bigger return on my time.

Codie Sanchez (17:10):
The last point I’ll just say is like, anytime it’s really easy for someone to execute on an idea, you usually have a decreased return. So right now we have a lot of people out there buying real estate, doing rental properties. And when you have a rental property, there’s only so much you can do to differentiate yourself. And it’s not usually service. You can’t add other experiences on top of it. You kind of have like one revenue stream you can get from it. And so those aren’t my favorite type of businesses. I would even prefer an Airbnb to a long-term rental because an Airbnb you can have better services. You can have tied experiences. You could have really cool decorations in the business overall. You could have incredible location. You could do events there. There are lots of different things you could do, whereas with a rental property you can’t do as much.

Robert Leonard (17:56):
Does the increased risk of Airbnb concern you over rental properties?

Codie Sanchez (18:00):
Lots of people talk about that. And I think, yes, I wouldn’t underwrite it. Underwrite it, meaning I wouldn’t expect that long-term I can make the same amount of money forever that I’m making today. I typically don’t expect that in any business. But if I have a pretty high cash-on-cash return and I’m buying the property at a level where I would be okay with long-term rentals, but I happen to be doing short-term rentals, then I think it’s a really interesting model. And then you can always long-term rental it. You can always, if you have enough capital, make sure that you can weather a storm if there’s a pullback in that market. But at this point, I’d be hard-pressed to imagine that Airbnb goes away forever. That would have to be a pretty aggressive move. And in this world where more and more cities and states, some are deciding to limit freedoms immensely, and some are deciding to open freedoms immensely, I think my goal would be to choose more properties in freedom-based markets.

Robert Leonard (18:57):
I’m getting into the Airbnb space. I have more rental properties and I don’t have any short-term rentals, but I’m starting to get into Airbnbs. But what concerns me about Airbnbs is just if legislation changes. So I want to buy one in Florida, but a good friend of mine lives in Virginia Beach. And I was talking to him about potentially looking at one there and they just like, not outlawed it, but they made it very difficult. They just changed a bunch of laws in Virginia Beach that basically said you can’t do it there. And there are some ways around it, but it just made it really, really difficult. And so things like that concern me with Airbnb overall.

Codie Sanchez (19:32):
Yeah. I think you always have to underwrite for legislative risk for sure. But that’s where the opportunity comes in too. So you need to decide between the two, right?

Robert Leonard (19:41):
Yeah, absolutely. So I originally found you on Twitter because one of your tweet threads went a little bit viral and came across my feed. And this was about your deal that net $67,000 with only $100,000 needed to close. Tell us a little bit more about that.

Codie Sanchez (19:58):
Yeah. So this was a laundromat, one of the first deals that we did in that space. And basically, so I talk to a lot of people about how to buy boring businesses, how you don’t have to be a rocket scientist or Elon Musk to go out and create a cash hold and create a really incredible life for yourself. And then once you’re stable and once you have enough cash hold for you, build from a place of abundance, as opposed to scarcity. Build the SpaceX next, but do it from a place where you’re not sacrificing your entire future or your mortgage in order to build this huge, next thing.

Codie Sanchez (20:27):
So with the laundromat, there’s a whole entire market of baby boomers who are retiring right now. There are millions of businesses. We estimate anywhere from 1.2 to 2.5 million businesses for sale in the US right now that are considered SMBs, small and medium businesses. These are businesses that are predominantly boring businesses, businesses like laundromats, car washes, anything you can think of, podcast services companies. I own one of those. It’s called Strike Fire Productions. Carpet cleaning, house cleaning. All of these things that we take for granted every day are these small and medium businesses that I like to go and buy.

Codie Sanchez (21:01):
And so in this instance, it’s a laundromat. It’s a very simplistic business where I bought that business for $100,000 for the machines and the rights to the business and to operate it and the SOPs and all of that. It didn’t include the building. It was a leased property. And it cash flows, now it’s anywhere from, let’s call it 67,000 to 75,000, $80,000 a year. And that’s net. And then people typically, especially real estate people are like, liar, no way, no way that happens. And the funny part about that is it happens every day in SMB land. And if you don’t believe me, you can go to BizBuySell. I’m not a part of them. And you can look at their annual report and on it, you can see that businesses typically are sold anywhere from one to three X in the SMB space. So from one times their annual profits to three times their annual profits. And there’s definitely some pushing up in costs right now because we’re in such a long bull market, but those businesses are for sale everywhere. So I happen to buy this one.

Robert Leonard (22:01):
What is the difference when you buy a business like this, between buying something that’s more passive and just buying another job? Like, how did you buy this laundromat and not just buy yourself a job?

Codie Sanchez (22:12):
Well, I think in any business, if you’re going to buy a house and do rental properties, or rents on it, for your first rental property, you’re going to do some work. So there’s no such thing as a free lunch. Expect the first deal you do, you’re going to have to be involved in some way. You’re going to, first of all, have to find the deal. Then you’re going to have to structure the deal. Then you’re going to have to finance the deal. Then you’re going to have to figure out how to operate it. In the case of a rental property, you might have a property manager, or you might just have a little bit better automation besides getting phone calls in the middle of the night, when something goes wrong or having to find a new renter when your person leaves or steals money or whatever the case is. Buying a business is not very different.

Codie Sanchez (22:50):
So in this laundromat example, pretty much all of my businesses, except maybe three or four, I have an operator that runs them. So in real estate, it’s not that weird for you to have a property manager, right? You would think that’s pretty normal to do if you had multiple properties. When you buy a business, you can do the same thing. You can have a general manager would be probably appropriate for a laundromat, somebody that oversees the business overall at a managerial standpoint, or you can have an operator, somebody who is like your CEO of your laundromat business, that runs multiple of them. And so if you know how to build a business, it’s not that different than buying a business and then layering management on top of it.

Robert Leonard (23:23):
What were you looking for in the laundromat? What made it attractive for you? How do you even run the numbers on underwriting that? How do you know how many people are going to go in there and clean their clothes and how much they’re spending and all of that? I mean, maybe you could look at historical financials if that owner even kept good records. I know a lot of times mom and pop owners don’t do that. And then demographics, like what is the area like where you bought it? How important is that?

Codie Sanchez (23:48):
I think just like buying real estate, all of that is important. I like to look at a couple of different things. So if I’m buying a laundromat, I want them to have three to five years of PNLs. I want them to have three to five years of tax returns. Tax returns are obviously more reliable than their financial statements or their P&Ls, because you actually know that they’re not going to pay the government more than they have to for their laundromat over multiple years. Like that’s not going to happen. So that’s your baseline. Then typically there’s going to be some wiggle room between what they’re reporting to the government and the P&Ls that they’re trying to show you on the business, especially in this year.

Codie Sanchez (24:23):
And so that’s where you start to get to negotiate. And if you’re trying to do a good evaluation, there are a couple of different ways to do it. First of all, we really only care about cash flow, right? So we want to figure out how much money they made every single year, which means we need two inputs, right? We need how many quarters they collected, or if they’re on technology, you can do it that way. And then we also need how much they spend. And so it’s kind of like, you become a little detective. You are going into this business and sort of trying to figure out, okay, do all the expenses make sense? Can I look at the utilities’ bills for the location? Can I have an equipment provider tell me what all the machines are worth inside of it? They’ll usually do that for free. Kind of like you would have somebody come and check your house and inspect it before you bought a property. Same thing with the equipment of the laundromat.

Codie Sanchez (25:08):
And then you’d want to make sure that the lease has at least 10 years on the lease term. For a laundromat, you need a longer lease term because the two most expensive things in a laundromat are your rent and your utilities, mostly your water and electricity. And so those are the things I’m starting to analyze and it becomes a little bit of a game. The cool part about this is it’s not rocket science. It is really straightforward. You’re just a sleuth tracking down where did the money go? Where did it come from? And do I believe the numbers that I’m getting told?

Robert Leonard (25:36):
How did you finance this deal?

Codie Sanchez (25:39):
I didn’t finance that one. So that deal, I ended up actually paying for cash on the deal, but I’ve done seller financing on deals. There are like four different ways, right? So the first way is seller financing, which means that the owner will pay you out of future sales to purchase the business. We’ve done that on a ton of deals. 60% of small businesses are sold with seller financing, very different numbers than in real estate. It’s supernormal. The second way on laundromats is equipment loans. So there’s a bunch of them like Coinamatic. I’m blanking on some of the other names, but there’s a bunch of providers that will actually give you a loan based on the hard assets, the equipment that you have in the laundromat. And they’ll do that at a decreased rate, from like a hard money lender, which would be more like double digits, if you were going to do that.

Codie Sanchez (26:25):
And then the third way is getting an SBA loan. So getting the actual SBA to come out and they will do anywhere up to 90% of the purchase price. Laundromats are a little hard with the SBA. If they don’t have clean financials, you can’t always get an SBA loan on it. And then the last way, and it just depends on how you want to do the deal is you can get lines of credit from banks, or you can get direct bank loans on businesses like commercial lending. So those are the different ways you can structure deals. We’ve pretty much done all of them, except I’ve never done hard money lending. And I don’t think I’ve ever done an equipment loan on a laundromat straight up, although we’ve taken loans on laundromat equipment before.

Robert Leonard (27:03):
If you do SBA, do they still require 20%, 30% down, some sort of large down payment on the purchase price?

Codie Sanchez (27:11):
Usually it’s 10 to 20%. The interesting thing about the SBA is if you want to figure out how to get an SBA loan or free government money, which it basically is, it’s a grant program, you search most frequently something along the search terms of like most commonly used SBA loan banks. And for those, you’ll see a list. It’ll be like the top 100 banks by the number of SBA loans that they’ve processed. And so you can basically go down a list. And the thing with the SBA is it’s run through normal banking institutions. So there are the SBA rules and then there are the bank’s rules.

Codie Sanchez (27:42):
So I like to use a broker, typically, if I’m new to this business, somebody like MultiFunding who would help you find who would be the best bank to do your type of deal. And they’ll actually reach out to a bunch of banks with you, you’ll find out what the rates are. They’ll talk to the guys and let them know how real do they think it is that they’ll be able to fund your deal. And those things are pretty important. And then the other thing to note with an SBA is you can’t layer loans on it. So if you get an SBA loan, you can’t then go also add an equipment loan on top of it. SBA has to be in the first lien position. That means they have the first right to your money.

Robert Leonard (28:16):
You have a quote that I love personally, but some people might find it controversial. And you said, “The world is the classroom and the school is the prison.” Talk to us a bit more about this quote.

Codie Sanchez (28:31):
So basically what I’m trying to say here is this. I think that the way that we have the educational system set up right now does not actually create producers or creators. It creates the opposite of independent thinkers. And I can say this because I went to Georgetown for my MBA, and I went to a public school, Arizona State for my undergrad. I got a Ph.D. in Brazil from Fundação Getulio Vargas, which is like their most preeminent institution, I mean. It also involved a lot of like dancing in the streets in Cachaça. So take it with a grain of salt, but I’ve been to a lot of these institutions. And I can tell you firsthand people say, “Well, you go to the Ivy Leagues to get the network.” And Georgetown isn’t an Ivy League, but it’s a pretty good school. And hey, I have a bunch of buds from Georgetown, but it’s not my network. That is by and far not the number way that I’ve created a network. It’s actually through things like this and on the internet.

Codie Sanchez (29:25):
And the other thing about it is, these days, I think institutions are really good at teaching you what to think and not how to think. And unfortunately, that’s what we’re paying our dollars to do as opposed to going out and actually doing the thing. And then going to school to think about mental frameworks. Think about how many people we follow on Twitter to think about mental frameworks on how to consider things. And then think about how often you went to school and you were just reciting history and repeating items as opposed to actually learning from them. So I have a big problem with how the educational system is set up right now.

Robert Leonard (29:57):
All right, guys, that’s all I had for this week’s episode of Millennial Investing. I’ll see you again next week.

Outro (30:04):
Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires by The Investor’s Podcast Network. Every Wednesday we teach you about Bitcoin. And every Saturday we study billionaires and the financial markets. To access our show notes, transcript, or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.