Philip Michael (02:45):

That means basically, historically people who got access to these types of deals had to partner up with someone, or if you just want to invest in them, you had to be an accredited investor. Which means you have to make $200,000 a year, be a millionaire, one of the two. And that’s what we did. And we helped create 2000 first time investors of color and set a record for the fastest company to sell a million dollars in micro shares or real estate.

Philip Michael (03:10):

And then we just recently closed on an acquisition on a partnership to develop $477 million worth of real estate. So since 2016, when I did my first deal and to 2017, when I actually decided to do this for real with myself, my dad and my nephew, who, by the way I got to shout him out. As at the time of this recording, he plays for FC Barcelona. He scored twice and he did one assist and he allowed Barcelona to advance from the group of the Champions League. I got to shout him out.

Philip Michael (03:38):

So three of us and… Not that it means that he came with a lot of money, we saved, we had our own money. It was very little, 850,000. As of today, we have a $50 million in assets under management and around 1200 units in our portfolio, so that’s the longest short. And our goal is to help 100,000 people become first time investors and by 2030 help them become millionaires. Still determine what’s invested. So that’s what it is, a real life Wealth-Lab if you will. That’s me in a nutshell.

Robert Leonard (04:06):

We have a lot of different things that we’re going to talk about today, from everything you just talked about. There’s a lot to dive into, but the first thing that I want to start with is your book called Real Estate Wealth Hacking. You wrote in this book about the power of leverage and how $10,000 became a $100,000 overnight. Tell us a bit about what leverage is and how it can turn $10,000 into a $100,000.

Philip Michael (04:29):

Well, very simple. If someone that was to me… People to listen to you, to me be familiar with Rich Dad Poor Dad. And then one of the things he talks about in this book is that, there’s this misconception, that debt is bad. And I keep hearing this, “Oh, how do I own my property? If I don’t pay it off?” Well, the bank doesn’t own it. You own it outright. Even if they give you a loan for 90% of the value, which would be like 10,000 to $100. You own it outright, they just gave you a loan with collateral in the property that you own outright. If you don’t understand that debt is literally the secret weapon to building any type of billionaire fortune. If you go on and it’s public information.

Philip Michael (05:04):

If you go on Yahoo Finance right now and you look at Apple and Amazon, two of the most valuable companies in the world, you’ll see… and you’ll go look in their financials, you’ll see exactly how much debt they have. Debt isn’t a bad thing. Consumer debt, high interest debt that is a bad thing. Having intelligent debt that allows you to generate more cash flows than your cost of capital, that’s good intelligent debt. So now back to your question, how does 10,000 become 100,000 with leverage? Let’s say you use 10,000 and you get… Typically, it’s 20% down. Well, you can even start investing with three and a half percent down.

Philip Michael (05:38):

But there’s… You can bring 10,000 to the equation and with debt control $100,000 asset. Whether it’s building something new, but that’s the concept of leverage. If you take your equity, which is the cash that you have, get a lender to compound the buying power of what it is that you brought to the table and then you go out and buy something. The largest funds in the world that may raise $100 billion, let’s say a Blackstone to me, and raise over 100 million or $1 billion, and then they’ll get 9 billion from the bank to go out and buy $10 billion worth of product. This is how you leverage. It is how you leverage it. Just how you can turn something into more.

Philip Michael (06:13):

Even with the way that I started, which was with an FHA Finance property, three family property, not too far from here, 750,003 units and three and a half percent down. Started there, that grew in value, went from there to where we are now. So that’s the power of leverage, that’s that? And that’s what I try to explain in the book. That what you’ve been talking about. The word debt is carry this bad connotation, but it’s… If you remove that bad connotation, it’s financing. And financing is what you hope to get, “Oh give me a loan.” Or, “I need an investor.” That’s another… That’s equity financing, is another form of financing. And debt… And that sense of leverage, it’s just that. Does it make sense?

Robert Leonard (06:52):

Yeah, absolutely. And that exactly what you just said is where I parked from Dave Ramsey. I actually believe in a lot of what Dave Ramsey says, but I disagree with him in the fact of investment properties in real estate. He’s in no debt at all. And I agree with the no consumer debt. Just like you said, I don’t think consumer debt is good. But when it comes to real estate having an investment portfolio, I think it is okay to have debt. You got to make sure the numbers work. But if the numbers work, I think that could be great.

Philip Michael (07:16):

It is great because just think about it. You always… You just want your cash flows to outpace your desk service. Once it does that, you’re making a profit. Someone said to me, and it comes like, “Well, what about I pay all the money that I pay after 15 years or 20 years or 30 years? How much?” So what? If it’ll cost you $5 to get 100, but from that 100 you make 10, you still made a $5 profit that you wouldn’t have otherwise. You see what I’m saying? So it’s just how you maneuver your money intelligently.

Philip Michael (07:46):

When people get in trouble, if they’re too highly leveraged just like you said… Let’s say what happened in the crisis was with these single family homes that don’t have an income producing component to them anyway, is that they underwrote these crazy loan, where they were 100% LTV. Which means you have a loan for, let’s say 1.1 million when it’s only worth a million, you owe the bank now. Now you’re in the back kind of debt because number one, the asset won’t make money for you. And you have no way of cashing up, you’re underwater as they say. So I think, yeah. This is probably the best thing that you can do. And it is largely speaking every single billionaire fortune.

Philip Michael (08:20):

If there’s one authentic it says, I’d like to know who it is and I’d like to see how. Outside of Vladimir Putin, perhaps, or just a billionaire fortunate that doesn’t have a large degree of debt that allowed them to get to that spot in the first place.

Robert Leonard (08:31):

I think the other important component is having reserves.

Philip Michael (08:34):

Yes.

Robert Leonard (08:34):

I mean, having debt can be great. It can cut the other way too. So leverage is great on the way up, but it can cut down too. So we got to keep that in mind, there is a component of risk to that, but how you can combat that risk and hedge that risk is by making sure you have reserves. And I’ve talked about that here on the show, how, when we hit the pandemic, I wasn’t really super worried for my rental properties because I had almost nine months or almost 12 months of reserves that I could cover all the mortgages just in reserves.

Philip Michael (08:57):

Right. That is the risk factor because you can all have reserves so if a tenant doesn’t pay and then you’re responsible for paying the mortgage with the tenant is late or whatever, then you might run into problems. As long as you have reserves and you have that there, you’d be in a good spot. You’ll be in a good spot and you continue to leverage intelligently and build your portfolio.

Robert Leonard (09:15):

And you mentioned about billionaires and ultra wealthy, having a lot of debt. And that brings me back to… I had the opportunity to sit down with Robert Kiyosaki. I was able to talk to him for about an hour and a half. And he wrote, Rich Dad Poor Dad, the book on real estate. If you ask any real estate investor, they’ve pretty much read that book. And he told me in his interview that he has a ton of debt.

Philip Michael (09:35):

Of course.

Robert Leonard (09:35):

He said, it’s a good debt. He talked until he was blue in the face about hating student loan debt. Which I agree with and consumer debt. But he’s like, “I love my debt, I got to have my real estate portfolios, it makes me money.”

Philip Michael (09:46):

Exactly. That’s the whole point there. I’m curious as to why Dave Ramsey would say no debt on properties. Because number one, if you’re dealing with investors, one of the things that allow you to raise money is that you got to hit return metrics. The more equity you have, meaning the less debt you have, the lower your returns are. Meaning your return percentages, more debt… You have the higher return income. So, I’m curious why did he say that he didn’t want any debt on the properties?

Robert Leonard (10:12):

He’s just completely against debt altogether. He just is blanket statement, no debt period. I mean, to your point, I would love to see, and I’ve said this a couple of times. I’d love to see Dave Ramsey’s financials. Because if you follow him at all, he has a beautiful facility for his business. I assume he probably has a pretty nice house. I’d love to see if he personally has any debt on that business property, because it’s probably a couple multi-million dollar property. And I’d be curious to see if he has that on that. And even his personal home.

Philip Michael (10:41):

Just not liking something doesn’t mean you won’t take it because I have not to get into this, into a detour, but it’s just so hard for me to see how any type of a millionaire is called fortune or portfolio or asset holdings don’t have any degree of debt on them. Jeff Bezos uses a credit card. This, he says. It’s just part of how money works. It’s just part of the system. Obviously you want your assets to be more than you liabilities. That’s a given, that’s obvious. But it is a part of how you leverage. But it would be interesting to your point to see that whether there’s something there.

Robert Leonard (11:18):

One of the issues with that is that not all new investors actually have access to this credit. So how can people get around credit limitations?

Philip Michael (11:25):

It’s funny. I checked my credit score for the first time a week or so ago. I never ever used it. I’ve had one credit card because I started out without a social security number. I didn’t even exist in the system. And I just had to find a way to get around it. And whenever the subject came up, I would just go, “Look, I’m a foreign investor,” if we’re having a conversation. Because we own the whole portfolio free and clear, no debt on the portfolio. We had no debt on the portfolio actually. That was one of the events we had. So if somebody…

Philip Michael (11:52):

When I went to go shop for financing to actually do my construction, I would just tell them, “If you’re talking about credit, I’ll just go somewhere else. I have a portfolio with no debt on it. Super clean deal. This deal will make money. Do you want to make money? Do you like to make money? On top of that, you have a well capitalized management team. And if you don’t believe me, you can go look them up.” And not point to my dad and my nephew and myself to some degree. And then that’s like, “Look, you just go look it up. It’s not like can’t find information about it. Do you want us to deal on that?” So I just never actually got to that.

Philip Michael (12:24):

And some people might hear this and think, “Well, you had this advantage of this and that.” That’s not the point. Is that most people… Something I would say, most people overestimate others and underestimate themselves. In any type of transaction, interaction there is some sort of leverage. Somebody that holds a position of power or perceived power. So when there’s a situation like that, you always have to figure out where do I have a position of strength and play to that. So if somebody says, “Well, credit, where’s your credit?” I’ll say, “Forget about credit. You have a debt free portfolio of quality product in Philadelphia and New York City with a well capitalized founder T. Do you want this deal or not?” Now I just remove that potential roadblock and turn it into a different conversation.

Philip Michael (13:07):

And you can do that with so many things in life, where you can shuffle what you think is to the position of power and leverage, different kinds of leverage in this case. Not that but leverage to where you actually hold the position of perceived power if you will. We’re human beings, you can always shuffle that. You just got to figure out where you have a position of strength. And you will always be able to find one because if you didn’t have one you wouldn’t be at the table in the first place. So it’s just a matter of unearthing where that position of power lies and that’s what you can do.

Philip Michael (13:36):

So that’s how I got it wrong. But I just don’t… I always find, “Okay, where is it that I have value of this equation?” And that I render that objection, moot. And if it turns out there’s nothing there, I’ll just go to the next person. And again, I’m in a position of power because I hold the option. And once I hold the options, they potentially lose business and lose money. Ergo, I now hold the position of power. So it’s just always a way of reshuffling it in your direction to your advantage. This is business.

Robert Leonard (14:02):

Yeah. Arguably more than ever, there are plenty of options for financing. I mean, there are so many-

Philip Michael (14:08):

Absolutely look, here’s another thing, people overestimate money. Money is a currency. Okay? There’s lots of currency out there. That’s what I say. When somebody comes in and it’s hard, unlike people with the money, they will sometime talk as though they have the position of power. And I was like, “Stop, stop that right there. You are just currency. You need opportunity.” Then I highlight what the opportunity is and our percent of necessity where would they go? Okay, this is an opportunity, this is plenty of money out there to want to find at you. Just like you said, there’s plenty of people that want to lend against you. Especially if you have collateral where it can become a low risk proposition for them. And where they can charge you extra, just because you don’t have anything else. That’s a great business model. That’s a great… So like you said, there’s plenty of financing options out there. Absolutely.

Robert Leonard (14:52):

You have a blueprint for turning $500 into a million dollars in assets in 18 months using a six-step plan. Walk us through each step of that six-step plan.

Philip Michael (15:01):

When I say 500, the reason I put it that way is for a very particular reason. I created a video like this for Instagram as well. People feel as though a million dollars is this elusive marker like what a grass turns green, where all your problems go away, your life will become better and you magically become into something you wish you were going to who felt you could be. That’s how people associated with the million dollar, especially people that don’t feel like they have enough. That’s the marker. That’s why I put it 500 to a million dollar. Not that it’s inaccurate. It totally is. And it gets it in a second. That’s why I did that.

Philip Michael (15:31):

The reason I coupled it with 500 is because everybody knows what it feels like to have 500. You know what 500 can buy, you know how far it gets you, you know how quickly you can blow it. And everybody knows the emotional feeling of having 500 then will know the million dollars. They just think it’s what I just mentioned, right? So I say, No. It’s not like you’ll have a million dollars in cash. However, you take that 500, and the way I broke it down is using the concept of leverage. I said, “Look, if you put three and a half percent down to buy a million dollar property, that is $35,000 and change with whatever else comes with the transaction.”

Philip Michael (16:09):

And the way that I broke it down is, “Look, take 500, save it up to six months.” You can find a way to do that. 500, save it up, you now got 3000. Find nine and other friends that you’re doing this with. Now you have 30,000. Now with an FHA payment and look, obviously 10 people can’t sign on an FHA loan, I get that. But there’s ways that you can stretch it out, if you really, really wanted to. Or the principle is that that money now goes towards a down payment. With leverage that could become just south of a million dollars. With a little things, managing it correctly, you can refinance and you have a million dollar asset. That’s literally how I put it together. Save of 500, six months, find nine other people to do the same thing. And now you can let them, we have enough money to own and control the million dollar asset or very close to it.

Philip Michael (16:56):

So that’s how I broke it down. And once you break it down into digestible parts, where… Because everybody can understand 500, everybody can understand saving. Now when I really taught them in that example, they think I just coupled five, because everybody thinks, “Oh, you can flip money, money just went that way.” So I took the 500 everybody knows and a million dollars today everybody knows, put it together. But what I really taught you was one, leverage two, private equity, three, establishing positive habits of saving, budgeting, and four, finding the right people to be around, that share the same mindset as you. Because you know this as well, if you’re around poor people, you become what? Poor.

Philip Michael (17:35):

If you’re around drunk people, you become a drunk. If you’re around people that have the same mindset as you, you will automatically get rid of those stuff not on the same wave as you. But if I were to use words like private equity and leverage and this and that and budgeting, no one wants to hear. So that’s why I put it in that way. It’s all about bringing the information in a way that a person will receive it. And once they receive it, they don’t even know. If I started talking to somebody about private equity, automatically they’ve been probably been taught, “Wait, this is money. This is a high level of finance. This is Wall Street. This is not me.”

Philip Michael (18:04):

So it was already being rejected as it’s, right? By the way it end up, precision is something that I can relate to. “I know 500, I’d love to have a million.” Appease them together. But the underlying information is those concepts that I just mentioned, private equity, budgeting, this and that, and the other. Some very important concepts that you need to have embedded in you to become successful. And once they recognize them again, they’re like, “Wait a minute. I understand this. This makes sense to me.” And they won’t even know why. So that’s why I did it in the way that it did.

Philip Michael (18:29):

If you actually read the steps, I break it down that way. And each step of the way you could actually follow, “Wow, I could close the closest.” And then also break down a million dollars in assets does mean that you’re million dollars of liquid, which also helps articulate some of the misconceptions about money. Because they’re billionaires, Kanye West is an example who was a billionaire. And I said, “I’d be shocked if that guy has 20 million in cash.” And I said that to people and they said, “He has 17 million in cash,” they said. Okay. It makes a lot of sense, of which 15 is probably in stocks, cash equivalents.

Philip Michael (19:01):

So I try to explain to people just because you’re doing this, I mean, you just have a billion dollars lying in the bank. That’s not how money works. Right? So that was a blueprint but I articulated it that way. And that’s how I show people to get to that point. And the reason why I know it works because exactly what I did, bought something. We put down 25K, around there, bought it for 750 and it went to 1.2 million. So essentially that’s what happened.

Robert Leonard (19:23):

I heard a funny story once about the difference between net worth and liquid cash. And it was with Warren Buffet and Bill Gates. And I’m probably going to butcher the story a little bit because it’s been a while since I heard it. But basically the story went, Bill Gates and Warren Buffet are best friends. Bill Gates’ mom introduced the two and thought they should become friends. Anyway, they became really good friends. And they were going to an event together.

Robert Leonard (19:45):

And I think they were taking a taxi or something along those lines. They had a driver for whatever reason. They were going to an event. And if anybody follows Buffet, they know that he gets the same thing for McDonald’s every morning, Coke, Reese and egg sandwich or something along those lines. Anyway, they stopped at McDonald’s on the way and neither of them had any cash. And so the driver actually had to pay for their food. And in the backseat of their car, there’s collective probably $500 billion in net worth.

Philip Michael (20:12):

Yeah. And none of them had the cash to actually pay for a burger and a Coke.

Robert Leonard (20:16):

Yeah, exactly. Exactly. So that’s just a funny story that illustrates the difference between net worth and liquid cash.

Philip Michael (20:21):

It absolutely. I love that story. It absolutely does.

Robert Leonard (20:24):

So many of the people listening to the show today have heard of House Hacking. And I’m assuming that that’s going to be the answer to the first part of my next question, but I’m not sure of the strategy or answer behind the second part. So how can someone listening to the show live rent-free while 10 X-ing their net worth.

Philip Michael (20:41):

Look, if you’re in a position where, let’s say you started with… I want to make sure I answer this correctly and with mathematical precision. So I don’t steer off of what it is that you need to ask me. Let’s say that you went ahead and did that. Let’s say it’s the two of you that put together 15K and you went ahead and you got a property and it got to the point where your equity… Let’s just use numbers, you have $300,000 worth of equity. Now between two units, 150 each, you’ve 10x your net worth.

Philip Michael (21:11):

But if it’s a proposition, if it’s… Obviously has to be really good property. But let’s say you’ve got four units. You live in one, you run out the three of them, you fix them up. I’m just throwing out numbers here. Let’s say the property is worth sum of $1000 dollars, you live in one. The payments from the tenants are enough to cover your expenses, to cover your mortgage and you fix it up. So you increase the value of the property. You force the appreciation of the property even though you bought basically break it.

Philip Michael (21:35):

Even on the cashflow, the value of the property, let’s say you’re not refinance. And you refi at 1.1, 1.2, whatever. And you take out a new mortgage for 900,000, pay off the old one. And you have 300,000… Just for the sake of the numbers here you have 300,000 leftover and you came to the deal with 15K each. You’ve not 10 X-ed your net worth, and you live rent free. And you continue to do that. Now you can pull out some money, you can put that to invest in. If you’re a real boss, you don’t go live in a crazy condo, not Jan anyway. You just go stay right where you are and pretend as if you’re still broke in a sense… and barely breaking even, because that’s how you start to save and bring more resources. And you just deploy your money to continue to building your portfolio.

Philip Michael (22:18):

And before you know it, you have enough of a portfolio where next time you’ll be financed, you can take out money to pay for a year or you’ll have enough units where it’s just cashflow and giving you passive income, depending on the strategies that you have. So that’s the one way. And it’s actually not rocket science once you just understand the rules. That’s what I always say. Well, as a function of a number one conversation about them and say, that’s one thing you say. But there’s also seventh grade math and a set of rules. Just having the same rules. That’s really it. Because the other math is second grade. It’s nothing complex about math. You just have to understand how it’s taught. Is it?

Robert Leonard (22:50):

Yeah, I’m not sure I’d qualify or classify myself as the boss status yet, but I am closing on my third House Hack in two weeks. So yeah, that’ll be my third one. So I’m excited.

Philip Michael (22:59):

Really? Where is it?

Robert Leonard (23:01):

It’s in New Hampshire. I live in New Hampshire, some about 45 minutes north of Boston, the city. So,I think it’s a great strategy. I always recommend… Everybody asks me, “Where do I start in real estate?” I say, “House Hacking,” every single time.

Philip Michael (23:12):

That’s what you should do. Because when people ask me, “What about grants for the [inaudible 00:23:16].” If you cannot save up three and a half percent, this is not for you. I want people like, “Three and a half percent is not a lot.” And just get into the habit development discipline. Because if you save up for six months, how does the saying go? It takes how many days to form a habit and X amount of days to form a lifestyle? If you save it up to six months, you don’t even know it, but you’re creating a new lifestyle. You’re going to create a new people that have the same lifestyle. Well, you all of a sudden have a wealth building mindset around you. The conversation around going to change. It will be different. And that’s why I say it’s such a good thing. Save up three and a half percent, find other people who want to do that and who do that. And then just go the route that I didn’t and you’ve done.

Robert Leonard (23:53):

I agree. And I think that the dollar amount, it can be a lot to people, but in the grand scheme of things, it’s not a lot. And I’m going to use my example of my House Hack that I’m buying to break it down. So I’m buying a $350,000 asset. It’s a duplex. Total, I have to bring to the table with closing costs and down payment, $11,000. Now you might be wondering how is that possible? So all in down payment and closing costs, I think is around 20,000, maybe a little bit more, maybe 21,000 or so. But what I’ve done is I negotiated a seller credit. So they’re giving me back $10,000. And I can talk about this more in a Q&A for everybody listening. If you’re interested, let me know on Instagram.

Robert Leonard (24:32):

But basically what’s happening is, they’re giving me $10,000 cash back. So rather than having to bring $21,000 to the table, I’m only having to bring $11,000 cash out of my pocket and everything else is financed. So yes, $11,000 is probably a lot of money to a lot of people. I get that, but in the grand scheme of things, $11,000, isn’t a ton of money. And I think if you really are determined and want to figure this out, you can find $11,000 to control a $350,000 asset.

Philip Michael (24:57):

Of course. If someone’s tell me, “Look, bring me 11,000 I give you 350.” Without telling them particulars, they will come up with that money so fast. So maybe that’s the pitch. But even so it’s less than $1000 a month for a year. Now, if you really are serious about the rest of your life of having financial freedom, just invest or sacrifice the next 12 months to save up, not even $1000, whether it means no partying, not buying clothes, not going to any trips.

Philip Michael (25:24):

Basically what we’d have to do on this whole year anyway. Okay? Just do that. Pretend that it’s remix of 2020, another year of living like this. We just save up, save up, save up, right? And then go for it. I don’t think it’s an unreasonable request from the future you to make to yourself. In fact, I think it would be unbelievably selfish of you not to do it. But let me just keep my personal opinions to myself. But I will say the future, you will thank you. And the future you… If you don’t do it will be mad at the pressing you for not doing it because you realize how little time it actually is.

Robert Leonard (25:59):

Yeah, I agree. And it really comes back to education because this concept of getting a seller credit is really not super complex. Not everybody knows about it.

Philip Michael (26:07):

How did you negotiate it?

Robert Leonard (26:09):

So this is kind of going back to my first ever property. I bought my first property when I was 20 years old. I hadn’t even walked at my college graduation yet. And I had bought my first property.

Philip Michael (26:18):

I love it.

Robert Leonard (26:18):

I didn’t have a lot of money. I was a college kid. How was I going to buy this? So I started researching. I did have the benefit of being a loan officer, but that wasn’t by luck. I put myself in that position to become a loan officer. And so I learned, and I’d studied a lot. I’ve been super into these topics. I was reading, reading, reading, getting super educated like anybody else can do.

Robert Leonard (26:35):

And I just learned that there was this thing as a seller credit. And I said, “well, this is how much I need to get down for a down payment and closing costs. I don’t have that money. So what can I do?” Learned about seller credits. I did that on my first property. I’ve done it on every property sense. And so basically I went into this property. I said, these numbers make at this price. So I offered that amount. I said, “Hey, I want a $10,000 seller credit. And that was really it. I mean, the seller agreed to it. It’s not really $10,000 cash out of their pocket. It’s just reducing essentially their selling price.

Philip Michael (27:05):

Of course.

Robert Leonard (27:05):

So they’re open to it?

Philip Michael (27:07):

Of course. Everybody would chop $10,000 off. They expect it was a lot easier to negotiate money that isn’t in your hand. You know this yourself, the banks figured it out by giving you cars, so that you don’t psychologically have to go in your pocket and then go out and feel like your pockets are lighter. We’re plastic, you’ve removed all that. It’s ingenious really. So of course it’s this very simple. Yes. That credit. Because again, that’s twice the amount you would have to bring to the equation and just ask for it. If that’s the deal breaker, come on.

Robert Leonard (27:37):

And you can go overasking too. I didn’t specifically in this deal, but how I approach these usually is I say. Okay, this is asking, “This is what I want for seller credits. And if I add those seller credits on top of the purchase price, do the numbers still make sense for me as the buyer?” If they do, then I set that as my ceiling and say, “Okay, well, I’ll go up to this amount.” Because how it works is you get the purchase price minus out the seller credits. That’s what the seller gets.

Robert Leonard (28:03):

And so for me if… This didn’t happen in this case, but say they’re asking 350,000, I want 10,000 back in seller credits. I would offer them 360 for the property, tell them I want 10,000 back in seller credits. They still get their net asking price of 350, I get my 10,000 at closing. So I have to bring 10,000 less to the table. Now I’m only going with 11,000 and everybody is happy in this deal.

Philip Michael (28:26):

Now that’s so smart because I didn’t even think about that. It’s like, “Okay, let’s just go above asking and reduce it back to where you want it to go.” And you’ve effectively reduced the closing cost. Which effectively renders that excuse because a lot of people say… I’ll put out the FHA example and say, “What about closing costs?” I said, Look closing costs are to your bargain.” And that doesn’t take away from the larger point of the example of leverage that I’m trying to convey to you. But that’s just a beautiful, beautiful sponsor. Offer 10K more and ask it back into seller credit. Boom, it’s gone. That’s ingenious. I like that.

Robert Leonard (28:56):

Thank you. Yeah. I talk about how the asking price of a property that you’re looking at buying, is almost a figment of your imagination for the most part. A seller can ask whatever they want for that property.

Philip Michael (29:07):

Yeah.

Robert Leonard (29:07):

It doesn’t mean that… I talk about how you can pay more for a property than they’re asking. And it doesn’t mean you’ve got a bad deal. And you can pay less than asking and you can still get a bad deal.

Philip Michael (29:16):

Don’t do that.

Robert Leonard (29:16):

So for me, I don’t care what they’re asking. I know what my numbers are. This is what I have for cash. This is what I’m willing to put in the deal. This is what the numbers make sense for me. I can pay this much. These are how much my mortgage is going to be versus the income. So I know what my max is. And then I make a deal based on that with seller credits and make the numbers work.

Philip Michael (29:34):

That is-

Robert Leonard (29:34):

And if it works, it works.

Philip Michael (29:35):

I love it. That is a really good idea. I’m going to share that. That’s a really, really good idea.

Robert Leonard (29:40):

Thank you. I appreciate that. So back in February, of 2020, you partnered up with your nephew to start the development on the first smart home project in Philadelphia called The Temple. Tell us what a smart home project is. And then give us an update on how this project has progressed throughout the year.

Philip Michael (29:57):

I literally just returned from it 30 minutes ago. Myself and my friend, he’s the CEO of Nooklyn, which is a… New York Times call it Match.com for roommates. And they’re a leading tech broker, think of fastest growing in Brooklyn. Let me find this here, so you can actually see. This is what it looks like now. This is phase one, phase two is across the street. This has 17 leases. Across the street has 80 or 85. But yeah, we started it then. And we’re pretty much done. To answer your question, it’s just we have a tech stack.

Philip Michael (30:26):

It means there’s going to be AI in terms of how we manage it. And of course, basic voice AI. Then we have some really unique, which is access, keys, and locks that you can do with tap your phone and you can go right in. You can have codes where… See, this is removes some of the need for an agent to be present to lease it out because they can get a one-time code. And we can monitor who uses that code. They can go in and check it out in an hour. Maybe a resident can show them around, like, “This is what it is.” And it’s going to be more of an unbiased pass by, assuming they love it.

Philip Michael (31:00):

But it’s going to be not from an agent that is trying to sell you stuff before the resident. There’s many cool things we can do. Just the smart home tech devices and technologies that we have out there, there are a lot of landlords or property owners aren’t using. Developers aren’t using it because they’re already making money. When you see people being lazy about stuff. Because we went down and Philly is… The marketing is… Parts of the university, they have… Historically for the past few years had close to pretty much 100% occupancy, which means that it has people who are making money.

Philip Michael (31:29):

So there’s not really a if it ain’t broke, don’t fix it. Whereas we come in there and I build stuff that I would want to live with. So I’m thinking of all these details. Right now I have… If you see behind me, I have these two lights that you can control with voice and they go like this and you can change the colors. So I’m like, “I want my tenants to have that.” I’ll go like this, I want my tenants to have that. And even the way that we do the rentals, we don’t think of it as even landlord tenant that inherit power relationship. Even though there is a transactional relationship, we reposition it as memberships. So it was like almost a membership of the social club, the way we created this property that owns a smart type property.

Philip Michael (32:12):

But we’re targeting the entrepreneurship community. People like myself, yourself, almost like a hacker house of sorts. But instead of just condos, it’s you live there, you have the community, you have the amenities. If you want to be an investor, a business owner or a tech CEO, this is the type of place that you would want to live and that’s effectively how we do it. And then in addition to living there, mentorship advisory, assisting you with starting a business, getting networking starter kits, iPass, stuff like that. Then you can work in an intelligent way. And here’s the kicker, once you stay there for more than an extended period of time, you can become a shareholder. Part of your rent goes to buying shares in the building. So you actually co owned the buildings with us.

Philip Michael (32:53):

So one of the things that we talked about, we went for it. And looked at it like, “I want a big sign and banner here, myself and my nephew,” who, by the way, just scored two goals. Have I mentioned that? Two goals for Barcelona and get them in there. I think I did. We’re just going to say it again and an assist by the way. Stay put there, live with us own with us. Just to create a feel on top of that, there’s that it’s backed by our mission of course to create millionaires. So it just… It underscores and supports that whole mission that we’re on. And it repossessions that sort of rethinks the landlord tenant relationship.

Philip Michael (33:21):

So it’s the technology, but it’s also more like a social club that you live in, where you can create more millionaires. We have them on Instagram, we have them on social media. Now we actually have them in under our roof where we can actually help them get to the place that they want to go. So that’s effectively equity. Yeah, that was then we broke ground and we’re ready to lease it out or… We literally came back from there and we’re building a website and getting it ready to go.

Philip Michael (33:44):

I think we can shut a leasing records for this one. I’m actually really excited for this hypothesis alone. So I could be totally wrong. When I had this feeling, I really am. And I’m putting myself in a spot here. When this is out, because we will know whether I’m right or not. But I think we can actually close to double what others are getting just because of this social club component that student have. Is for students around Temple University. You’re not selling to kids, you are selling to their parents. And they have to know and feel comfortable that number one, their kids are safe. Number two that they are in the best environment to succeed because they paid a hell of a lot of money for their kids to go to college. And three feel like they’re responsible and great parents for splurging for their children. That’s what it is. That’s the pitch.

Robert Leonard (34:23):

I think the component of becoming an owner of the property as a tenant, I think that’s really cool. I don’t think I’ve ever heard of that from a guest. I think that’s really, really cool. And it’s funny that we’re talking about this tech component of it because I’ve conducted probably close to 150 interviews between my two shows and no one, except for one person has talked about tech and real estate. And I’ve always had the opinion. I’m a very tech enabled guy. I love tech-

Philip Michael (34:48):

Yes.

Robert Leonard (34:48):

… I’m a millennial. I love tech. I’ve always been about it. I’m not super great with it. I’m not a tech guy, but I love all tech.

Philip Michael (34:54):

Right now. We’re not in each other’s physical presence. Tech enables everything we do.

Robert Leonard (34:58):

Exactly. And as a real estate investor, I’ve always felt that real estate lack that technology component.

Philip Michael (35:03):

Absolutely.

Robert Leonard (35:04):

It’s funny to hear from you because like I said, 150 interviews and then I did an interview yesterday or a couple of days ago, and then one with you today. And the first two guys ever talked about tech and real estate were back to back. So it’s funny.

Philip Michael (35:15):

Who was that you spoke to?

Robert Leonard (35:17):

His name’s Peter Pallidus and what he’s doing is… I would highly recommend that you check out the episode when it comes out. Not just because it’s my show, but because this has probably been one of my favorite podcast episodes that I’ve ever recorded. I just think the concept is super cool, but basically what he does is, he builds a ground up development, brand new state of the art. You should see some photos of these. They’re absolutely beautiful, incredible. And in major metros like Downtown Miami, Downtown Denver, Downtown Toronto and they’re just gorgeous. But what they do is you get… You have a bracelet or on your phone, you can get into the property as your key.

Robert Leonard (35:48):

Just like you were saying, it’s good for a set period of time. So you can go in and out, but it’s co-living. So it’s essentially a rent by the room strategy. And so you have a common area living room and then each there’s a couple different bedrooms and every person has their own bathroom. But there’s a ton of tech that goes into it. And I think it’s really cool. So it’s just kind of funny that 150 episodes [crosstalk 00:36:07] nobody had it. And then two people back to back do the same thing.

Philip Michael (36:10):

Well. Yeah, that’s the way, that’s exactly how we do it now. We’re just looking at how the competition does it, what they sell in their are amenity package. One of the things that they sell in their amenity packages, some of those throw away items in outs. And on top of that, you can’t put a price on Philly environment. It is just extremely like the people that are invested with us. It wasn’t necessarily that I learned this later. It wasn’t because they thought it was a good deal, which it was because that price it had a discount. Specifically so we can make money on the bot. They didn’t even care. They didn’t know, nor did they care. They wanted to get more of that feeling of understanding the concepts, feeling like they’re learning, progressing in their journey to become more financially literate, empowered, and eventually free.

Philip Michael (36:48):

So that’s what they wanted more up. So I’m like, “Man, okay, this is okay, this is what it is.” So I realize you can’t put a price on them, start with things. And if you can create the right environment for that, I think you can… And it’s not just a matter of gouging people, is creating the value because this is where a price is just a function of perceived demand. And I’m not even explaining this, right. But I’m just saying people will pay what they feel is worth. And the market will dictate what it is worth. Because people will say, “Look, there’s one I’m willing to pay for it.”

Philip Michael (37:14):

And I feel like we can really do something really, really unique. And of course that’s our objective to create a healthy, sustainable business model. And I think by adding value that justifies some of those prices. I think we do some of these things. I’m trying to say it in a way that doesn’t make me sound greedy because I want to make sure that we satisfy the man in the right way. I hope I’m making sense here. But that’s what we want to do. And I think tech and adding that feel to it. I think that’s going to be really key.

Robert Leonard (37:39):

You mentioned earlier in the show that one of your big personal goals is to create 100,000 millionaires through real estate ownership. How are you approaching this goal?

Philip Michael (37:47):

All right. So talking about tech, right? So one of the things that we did is we have an app that’s coming out, where the people that invest in us, they will get access to all of our projects. So now we have a mid sized development portfolio where we do 25 to 100 units. Then we have a large institutional scale portfolio, which we do with our partner in Texas. Lien is the name of the company, the CEO, his name is David Lenz. He’s a friend of mine also. And those are larger deals, like 300 units multifamily in that neighborhood. And people can buy into those. Those are more traditional value, add deals. We just go in and buy larger multifamily properties, garden style. Renovate each one, add value to them and unlock the value, increase the valuation of the total assets. These small loans you’ll get access to those and they do that through tech.

Philip Michael (38:33):

And what we want to do is we want to have enough product and diversification for them to create an experience that is similar to the Robinhood app at Robinhood invested app, but just for real estate. So that’s what we want to do. The reason we only had 20… It’s 2100 to get the exact number, we weren’t allowed to sell anymore. There was a $1,070,000 cap that you allow to underworld the SEC, if it wasn’t that we’d have a lot more. By January, we can go as high as 79 million. We can allow people to invest in over the next 12 months. So we’re going to increase that number dramatically. And the idea is, let’s get to 100,000 people who then become owners. Because think about this, even if you invest $10, $100, $1000, why don’t you become an investor and or business owner?

Philip Michael (39:20):

You start thinking about money differently. You don’t think about $1000. “Okay. How do I blow it so I return to zero?” You think about, how can I get a yield with this money? If you have 10,000, you definitely don’t think. And if you have that investor owner mindset, you definitely don’t think how can I blow this money? You think, “How can I turn this into 20?” Turn that 20 into 50 and so on and so forth. And that’s what we’re really trying to do. Get more people and change the way they think about money. Provide the environment and the community for them to learn, get access to information, give them the tools to succeed, is one of the things that we’re doing. We’re teaming up with number one, our own platform. We’re going to eventually start opening up for other people to get access to funding through our platform same way that we offer people to buy into ours.

Philip Michael (40:01):

The platforms that I’ve worked with, I’ve worked with Republic and a public platform called Wefunder. Teaming up with them and teaming up with some people that have good projects and even putting my own… If I feel is a good project, my own name and reputation and know-how capability to bring that to the equation, bring that on a platform, allow them to go out there and present something that could fetch investor money, just providing a different access to equity financing. And then the relationship we also have, we have a series of lenders and I’m going to get to the real kicker in a second.

Philip Michael (40:33):

We have a series of lenders who will then fund because they have that equity that can bring to the equation and they have the project that can not fund them. And then they’re off to the races. Almost like raising people from childhood to adulthood because that’s the process. If you’re starting from scratch, you’re effectively a child in terms of your level of consciousness, when it comes to wealth building. And bringing you to the point where you are capable. Because it’s not rocket science. Rocket science is seventh grade math.

Philip Michael (40:58):

Lastly, one of the things that we did was… I don’t want to mention the name because they want to announce it themselves, but there’s a large lender in New York City, they agreed to match up the $5 million every investment made by my investor community. They’ll match it up to $5 million. And once our investors get their returns, let’s say it’s $100 in to make $20. So they have 120. They then pay the bank back plus fees, and then they have, let’s say $15 left over. Just for the sake of math we save and keep. So this is another way to continue to leverage their buying power. They’ll match it.

Philip Michael (41:32):

We have another fund that offer to match it today. I’m not going to name it because who knows, expressing intent does not mean a deal is close. But I’m just saying, this is one of the things that we’re doing. And we want to get a lot of banks to come along and do that and help empower these people who may not have done it because of, more people have access to wealth, more people build wealth. My hope is and my perhaps naive idea is that if more people have wealth and are focusing on those types of things who have less time to focus on banalities. And people tend to be upset when their belly is empty. But when your belly is full, I mean, you’re too busy kicking back to be angry about stuff and doing bad things. So that’s some ways we’ve gone about it.

Robert Leonard (42:13):

What has been the biggest thing you’ve personally learned during COVID-19 and what are you doing to better yourself?

Philip Michael (42:19):

Oh my God. All right. So one of the things I didn’t realize until I was 36 years old, people care about what I have to say. Do you know what’s crazy? One of the biggest things is I said to Martin, my nephew, as a joke, “Can you help me get to 10,000?” Because he signed with Barcelona is far on jumped from 31,000 followers to, yes, 820,000 followers. Probably more because he’s scored, less 800 and some thousand followers. Surely after, when he had a couple of hundreds, I said, “Dude, can you post me in your story so I can get to 10,000 followers? Because once I get to 10,000, I can start to link to my stories and I need to promote our building.” He said, “I’m supposed to, I could but you don’t need me to. It’s like you already there.” He’s like, “You are already it, this will be set to me.”

Philip Michael (43:01):

That clicked to me. It’s like, “All right, I’ll get to 2000 next week by myself.” Then I did a video that got picked up by page, had 300,000 views. And next thing it had 10,000 and then it grew to… I think I have 69,000 followers now. So I have a friends and family. So that’s one of the things that I realized that people actually care what I had to say. I did not know that until I was 36 years old.

Philip Michael (43:20):

That was huge personal thing to overcome because I was really shy about those things. I felt super awkward. So that’s now opposed to videos of today. Imagine that. So growing that… Of course, putting that out there with our project, bringing on thousands of people to come invest with us for the first time, being accessible and helping people. That’s one of the things that I’ve learned. Of course, the larger deals that we’ve had and just running a team in this environment.

Philip Michael (43:46):

Also, it wasn’t easy going back to what I said to you before. Our entire portfolio was all equity. So when it came time to start construction, I said, “Look, I want to make sure that I protect my downside as much as humanly possible.” So what I did was I had a line of credit from overseas, two and a half million at two and a half percent. So I’m like, “Okay, I can build this all day.” And it was not restricted capital. I couldn’t even use that to go out and make the feeds on other properties as one. Then I had a local lender in America. I said, it’s time we established some historicity or relationships with you as lenders, because we’re going to need to go forward. Had that wound up two of them, then COVID hit, both have gone. Gone.

Philip Michael (44:26):

I still got people in the field I had to pay. It was 134,000 a month. So I’m like, “Okay, this could be serious, we don’t know when the banks are coming back. This and that and the other.” It was so hard to figure it out.” That was tough, man. That was tough. But we just had to figure it out. Then once we did and the lenders started coming back, then we got a new construction loan. And because we had put out some of the money, we had more equity in the deal now. And usually, you talked about it before, you wantt to have less equity, and then you get high returns.

Philip Michael (44:53):

In this case, it was better because we had to give. Because it was COVID we had to pull over to the premium. Is what it is, but the numbers worked out and made sense. And here we are, we had two weeks where we had to shut down two, three weeks. We had to shut down construction. Got through it anyway, and here we are. To answer your question, number one, on the personal side, that people cared what I had to say and just doubling down on that and just helping people as much as I can. And also just finding a way to be resilient and get through those challenges. And once you get on the other side and realize that nothing can really touch you. So that’s what I’ve learned.

Robert Leonard (45:24):

For a new or aspiring real estate investor that’s listening to the show today, who has big real estate goals like you have, what’s the best piece of advice you could give them?

Philip Michael (45:33):

Same thing that you say to people to do, start with FHA or House Hacking as you called it. Start with that, just go out there and do that. And you will quickly find out if… You can be an active investor or a passive investor. If you’re an active investor in real estate, means you’re a landlord, you’re hands on. You’re there. You can quickly find out if it’s for you. If you could deal with tenants and the whole psychology of landlord-tenant, that whole relationship. Dealing with complaints, dealing with repairs, maintenance. Isn’t that the other figure out if this view is, but you great double down them. You realize it’s not for you and you still like it to real estate, find somebody who likes doing it. Give them money, team up, go Dutch with them. Half and half you go in there and you make the money. You just stay out of the way, but at least you’ve learned.

Philip Michael (46:14):

And that’s one of the things I always say with your first deal. I just consider it tuition. You don’t necessarily have to break. Even, you don’t have to make a profit. You don’t have to break. Even, even. Even if you’re paying out of pocket 500 a month. Compare that to what you would pay paying rent. And you’ve got a piggy bank right there that’s just accumulating value. Secondly, consider it tuition. You’re going to learn so much and basically you are going to be rewired to the point where you can understand a lot of nonsense. You can start to foresee things because you really know how it works to be a real estate investor.

Philip Michael (46:47):

You really understand the dynamics. So you’re going to learn so much without even realizing it. But that’s what I was saying. I would just start there, because again, the three and a half percent that come on. And get that seller credit at the closing costs is too great for you. Come on. That’s what I was saying.

Robert Leonard (47:00):

Philip, thanks so much for coming on the show today. Where can the audience go to connect with you and learn more about you?

Philip Michael (47:06):

You can follow me on Instagram. Y-F-W-T-B is my handle. I put out videos and content every single day. You can follow what we do, or you can go on 100Kmillionaires.com and like me direct to our website. But this is nice to catch it, 100K millionaires. And you can see our new app, our projects, our latest projects, and follow us there. And you can find me on Facebook also, where I do a real estate show every week. And also I have a TV show on Bold TV, @BoldTv, you can find it in as well. So yeah, that’s how you get in touch with me and yeah, hit me up.

Philip Michael (47:41):

If there’s anything, I’ll try to respond to as many messages as I can. I feel like I’m pretty responsive there. Just link up with me. And thank you so much for having me. It was a pleasure talking to you. I really love your story and you ended having to empower people and inspire people. And the type of people that you talk to and just getting some of those things out to the masses. I love it.

Robert Leonard (48:00):

Thank you so much for the kind words. I’ll be sure to put links to all of those different resources and websites and Instagrams and socials and everything below in the show notes. You guys can go connect with Philip. I’ll be joining him on Bold TV in just a couple of weeks. So be sure to check that out as well. Philip, thanks so much. I really appreciate it.

Philip Michael (48:17):

Thank you brother. Thank you so much.

Robert Leonard (48:19):

All right guys. That’s all I had for this week’s episode of Real Estate Investing. I’ll see you again next week.

Outro (48:25):

Thank you for listening to TIP. To access our show notes, courses or forums, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decisions consult a professional. This show is copyrighted by The Investors Podcast Network. Written permissions must be granted before syndication or rebroadcasting.