You're listening to the Master Passive Income Podcast Network.
All right.Welcome back, everyone.Hey, today, I'm going to share my interview on The Ideal Investor Show with Axel Mayrhofer.And yeah, here are discussion getting into arbitrage and lending.
And, you know, something I love to talk about the difference between real owned assets, owning your own properties, and challenges of trusting others and syndications and those LP investments.So
You'll hear the good and the bad again, as you've already heard across, but you'll get some some chime in from him and some good debating and conversations back and forth.So hope you enjoy today's episode on the Ideal Investor Show.
Welcome to the Passive Income Life Show, where we guide you to a seven figure income with a special focus on making passive income so you can live the dream life.And now here's your host, Zach Zimmer.
Hello, everybody.Welcome back to another episode of the Ideal Investor Show, where we bring you great guests when we talk about passive income portfolios and how to basically get to early retirement.Zach, welcome to the show.
Hey, thanks for having me.Love talking about early retirement and independence.
Yeah, exactly.Yeah, me too. So it's a very cool thing.
Before we go into too much of the details and a little bit of how personal lending actually works, can you tell the audience a little bit how did you actually get red-pilled and all that stuff and ultimately got to the finish line in 2019?
I was raised and brought up the traditional path.Go and get degrees.You got to get degrees.You got to get a good job.You got to get a career.And that was what I focused on.That was all I thought was making it.
And got a very good engineering and business management degree.Had good jobs and bled for those companies.Got in early and ran around with a great welcoming personality, high energy.Yeah.
And I jumped companies, you know, it was always, Hey, how high do you want me to jump?Where do you want me to travel to?I'll move all over the country for you.And companies love that.
And in 2012, I was an engineering manager and I remembered, I started to hear from a good friend of mine in a different department in the same company about guys buying rentals. And I actually was given Rich Dad Poor Dad in 1999.
So real early, I think that's only like two or three years maybe after it came out.And I was given it by a gentleman trying to recruit me into multi-level marketing. Because Robert Kiyosaki is a fan.He's a fan of it for the sales principles, right?
You know, not because some of them are different, but you have to go out and hustle.And the harder you hustle, the more you earn, which is very different than normal corporate America.
At that time, like I heard and I read some of the principles in that book and I thought it was cool.And I remember telling my parents about like, He used to melt down the toothpaste containers for the metal or something.
I remember telling him how cool that was.And my parents all were just kind of like, what is he talking about?Like, no, you're going to do this.
And that book got put away, not thrown away, but put away for the next 15 years until I came across it again once I started hearing about guys buying rentals and I pulled that book back out.
and kind of could understand it a little differently now at 32 in 2012.I was like, okay, what does this look like?And back then, you know, there weren't a lot of good online references.I mean, you didn't have podcasts.The opportunities to learn were
riddled with snake oil salesmen, right?All the conferences of, Hey, it's free.And then the next conference is a thousand.And then from here, they sell you to the 30,000.And I never, I just remember I was very fortunate.
I mean, I've always been frugal.My father was frugal. And I've always been that way.So I don't think I ever would have dropped the money.
But I was fortunate by the time I went to one of those conferences to be a while more experienced than everybody else in that room.
And when I saw what it was, they actually didn't even try to sell me and my buddy because once they heard we had 20 properties or something, they didn't even take us to the back of the room where they were opening up credit cards for people.
charging $30,000 on these new credit cards, giving them a diamond lanyard so they could run around the room.Look what I did.But yeah, so in 2012, there wasn't a lot.
of bigger pockets was either just beginning or wasn't even out there and there wasn't anything good.So I just, Craigslist is what we used.Oh, I can go list this property for rent on Craigslist.Oh, I can see it's gonna rent for 850.
Okay, here in Northeast Ohio, one of the top rental returns in the country.Back then, these properties were $25,000.Guys were buying them with credit card advances.
I was just about to ask you, were you still at the time able to take advantage of some of the foreclosure inventory or was that too late?
The first two that I bought were both bank foreclosures.It was both back when the banks were doing carpet, doing paint.They were fixing them all up to try and move them. So they were both turnkey foreclosures.
They were a little higher end than what my friends and what I had heard they were buying.Like I said, they were buying with credit card checks.I used a Huntington 30-year fixed loans and they were more than happy to throw loans at us.
We were two great W-2 incomes, no kids, no debt.And so yeah, when I found one, And the agent, the loan officer was like, yep, you're good to go.And the next day I found another and I called her up and I said, Hey, can I buy two?Oh yeah.Yep.Go for it.
So I took my bonus.I had a $20,000 bonus from the company because we were living like your standard rat race people, even though together we made, I don't know, 120,000, 130,000.And then that was good money in 2012.We spent it all.
New cars, redo the patio, do the basement, vacations.
I was fortunate that I was in a position that gave me a nice bonus and that I was able to change our mindset a little bit to say, we're not going to go do something like we would normally do with this money.We're going to go buy two properties.
And I think my wife was more on board because we were pregnant.We're having our first child.And it was like, OK, we're going to do this.
And how I kind of understood it at that time was these two properties are going to kick off about six hundred dollars a month in cash flow.Our weekends are covered.Our weekends of wine and dine and go see a show, do an overnighter is covered.
And in 18 years, we can sell these properties and that's going to pay for a lot of college.So now we don't have to worry about saving for college. And that was all I really thought it could be.
And I bought two properties in 2012 and then didn't really buy anything for like another 10 months because I didn't have any money.And I didn't know about taking loans up front that were going to cover things.And I didn't have down payments.
And the next thing I did was I had a 401k that was stranded at a company. And I started hearing about self-directed IRA, LLC.And so I did that.
So I took about 280, 300,000 and moved it from a stranded 401k into the self-directed IRA, LLC so that I could cut checks.People might be cringing.And now I do know that holding real estate in a self-directed IRA is not good. right?
You don't get any of the benefits of holding real estate, but I didn't know that.I thought that was the only way I could go buy more houses.
And now I know today, and I've pivoted to lend from your self-directed IRA, LLC, because you don't get depreciation, you don't get business expenses, all those things that holding a property there.
Back then, hey, it was a way to accumulate in another four properties that are going to grow and cashflow better than my money sitting in the market. Yeah, I was just about to say, I mean, you still get the cash flow and the appreciation.Yep.
I mean, you're still going to get a better return.It's just you're losing, right?The main reason that we want to own real estate is arbitrage leverage and depreciation, right?Non-cash deductions.
And you don't get to do either one of those in a self-directed IRA or LLC.
Did you consider to start your own little LLC and turn the IRA into a solo 401k?
My understanding of the solo 401k, I mean, I've heard about, but you have to have active, you have to have earned income to do the 401k versus the IRA.
Well, yes, but the way you have the income is you would say this is the Zach Zimmer Empire LLC and Zach is the CEO and he makes 60 grand a year.That's the income.
And then obviously as the company, and this is why it's called solo 401k, you and your wife can be the owners, but you can't have employees, which you wouldn't want anyway.
And then you also have all the benefits of other 401ks, the company can basically match to the maximum for that year, like 2024, whatever year you're in, can match the contribution to whatever the IRS said the maximum is to match, right?
So you do, as the CEO, your contribution into your 401k, and then your LLC, even though you're the owner CEO, match that, which also, by the way, reduces any kind of profits that you make with your rental portfolio.
into your solo K and then you have that.And since it's a solo K, it's in a sense similar because you have checkbook authority, right?You are the one in charge.
It doesn't have these kind of pretext, post-text limitations, and you can't have deductions and all that kind of stuff, at least not to my knowledge.So maybe something to look into if you want to.
Yeah.I mean, I know when I've thought about it in the past, the one other issue
is when you're doing a formation like that now i'm paying self-employment taxes and for somebody who is retired who wants to make social security all of my income is unearned passive income so i pay no self-employment so to start saying okay i'm gonna pay myself an active income
Well, number one, then self-employment.And number two, a lot of the perks go away that I get from the government because I have no active income.Tax code is crazy.
I mean, the other part, and I'm sure you have good advisors to evaluate, to say, okay, well, if I take like from the portfolio that you were mentioning that you were building, if you take the deductions, because you get those every year and you only have a penalty once,
right, to maybe ultimately say, okay, well, I'm not 59 and a half, I just take the penalty.Yes, that may be killing my deductions for a year or so.But after that, I have my deductions forever.
There's all sorts of things and figuring out our ways around the tax code or not around it, but to do what they want us to do.And big thing of why I'm not a fan of any of those deferred is we know taxes are going up.Oh, yeah, taxes are going up.
and how my tax strategy is today, I don't pay any taxes because of depreciation, cost segregation, oil and gas, ATM machines, business expenses.So my AGI is all the way down to where I pay no taxes.
So why would I do any type of deferred strategy where I lose some amount of control over that money in a retirement vehicle?And I know tax rates are gonna be higher down the road.
Yeah, absolutely.And I didn't mean to say now that you're way beyond that it would make much sense or I would even recommend it.
But I was more thinking, you know, at the time, did you consider different options, like, for example, paying the penalty or a solo K or stuff like that?I mean, obviously you grew out of it anyway by now.
I was just going to say, we paid the penalty on a couple other 401ks.Once I started to understand it, I was like, no, I don't want to increase the self-directed, controlled, deferred, no depreciation.
So on some other ones, we just paid the penalty so that we had 100% access control of that money and we would get the tax benefits of owning.
Okay, cool.Now, from a transition from there to where you are now, did you first get rid of all the loans before you went into lending or how did that transition work?
From 20, let's call it 2014 to 2018 was real acceleration. Let's say 2013 and 14, getting the team together, and then I bought another 65, 70 single families from 2014 to 2018, early 19.
Just a pure arbitrage leverage model of buying houses in cash, rehabbing them in cash,
taking them in a package of three, four, five every quarter to a community bank, regional six to 12 branch bank that would do a 20 year amortization on a three or a five year adjustment.And they would cash me out at 75% loan to value.
So I'm adding more than 25% value through the rehab and through buying these in distress. So basically it's this perfect burr of where all that money plus more comes into my pocket.I have no money left in the deal.
So my return is infinity, but yet I control the asset and I'm making about $500 per month per house.
So we go to 2019 and yeah, I've got 60, you know, I flipped a bunch, but at that point I had close to 60 single families that were all printing money.And I said, okay, you know, I need to do something else.
I was always focused through the last couple of years.I wanted more colors in my monthly income chart, right?My stacked bar chart.I'm a data guy, but in the W2 world, I was Director of Continuous Improvement, Lean Six Sigma.
So give me Excel and give me pivot tables and all that.I loved it.And so I always have my data, my big dashboard of KPIs.And yeah, I didn't want to just see two colors, rentals and flipping.I want to see rentals flipping and then okay.
Syndications was actually, no, actually lending was, I got into lending before syndications, just a flipper that I had bought some deals with and we became friends and he was flipping and wholesaling.
He mentioned something about paying a point a month.And because I was talking to him about something, I had seen some type of a fund that was going to pay me about 10 points, 10 or 12. And this was in 2018.
And he said, well, I'm here in your backyard.You know what I'm doing.I would pay you those same numbers.And I was like, oh, okay.So it started with him.It was more of a blanket.So, or it was a blanket because he's transacting properties.
So this wasn't what is definitely the safest, right?First lien position on a piece of hard real estate where you're on title.
So just before you go on, Zach, before you go further, did you just give him the money for the renovations and you held title together or can you say a word about that?
This was a blanket promissory note against his business with a personal guarantee.So there was no, I think it generically said any and all real estate held by this company.He easily could have sold out all the real estate.
I mean, he was personally guaranteed.So even if he tried to declare bankruptcy, he'd still be liable. So that was another great example of your money working in more than one place.
So how I had built 60 some houses, the same dollar likely went through five, six, seven houses.And so now that dollar that went through five houses, six houses, now it came back to me for a last time and then I lent it out.
It's making me infinite returns and now it's making me 12%.What I tell folks is you definitely need to stay active when you're seeking financial freedom.Lending and syndications,
depending upon terms, but you're kind of putting that money to sleep, right?You can't be active and leverage it.
And, you know, what I did was instead of sitting on hundreds of thousands in my chase account, I would lend it out on these callable terms with him.So we eventually got up to four or 500,000 was out with his company, wholesaling flipping.
And he was also closing on rentals that, that he would refi out like my process.
We did that for a good year and a half until, you know, I was ready to pull back to, I was getting more interested in syndications in like 2020 and had started and done maybe half a dozen syndications just, yeah, was ready for, for more money to flow that route.
So that's why I ended that. and pushed heavy in 2020 to 2022 into syndications.
Cool.Yeah.OK.And are you still doing the private lending?
Yes.So I have gotten smacked by syndications pretty hard.And, you know, it was just naivety.Young guy.Everything I touched was gold.
And I believed these syndicators that were saying these returns and these models and not understanding deep enough that interest rates were so predicated on interest rates.
And as the rates flew up, these deals totally have dissolved around what their expectations and models were.
So as I started to see those targets disappearing, capital calls coming in, I said, okay, I'm going back to buying my own real estate again and into lending.And I have very close friends that are high, high volume flippers.So
even more high volume than we talked about that first individual.And these are my close friends that I help with their coaching business.And I just consult with them from my experience.
And so I'm back to those blankets with close friends that need, you know, over a million and a half, $2 million in working capital, because they're flipping 20 houses at the same time, or they're wholesaling 10 deals.
And so that same type of a very close personal blanket, PG, monthly interest and callable terms is what I really love for when, if a good deal comes across my plate, that I have enough cash in my chase, and then I can hit up some of these guys, hey, I need to make some calls on this money.
And yeah, that's pretty much what I've resorted to is just close connections and relationships versus I know some people that look at their lending as a true hard money lending business that anybody can come to them.
They'll take a first position lien.They're going to charge two points.They're going to charge some draws. and they're going to make it more of an active business.That's not what I want.
I want it to be monthly payments from people I know that are never going to have an issue.If something does go wrong with that deal, I know they're personally going to make it right.For now, since they're consuming that much capital,
I don't have to reach out and offer, hey, I'm a lender lending to anybody.
Absolutely.That makes total sense.And I think it proves that, you know, there is a time for certain things.And what you mentioned about syndications, I mean, if we wouldn't have had that spike in interest rates,
They would have probably, for the most part, continued to work.I just literally today wrote a little piece about why are we not in multifamily.Why?
Because people don't necessarily realize what's the big difference between having single family or even duplex triplex properties versus 100 unit apartment complex.This thing that you cannot get 30 year fixed rate financing.
you know, regardless what the interest rate is, is actually the big thing, right?
And that's why so many, whether they're syndicators, but even just operators are really struggling now, because if they got the money, like you said, like 2019 or 2018, and their terms come to an end, because five years is kind of normal, seven if you stretch it, but I don't know of many that get anything longer than that.
And so they're already starting to struggle, especially the ones who started with shorter for lower, you know, and the ones that were not quite as greedy, they will be probably, in my opinion, still through next year.
I mean, I think it's going to come down at some point, but it's not going to come down anywhere as fast as it went up.Right.And so we will, I think, see quite a bit of pain in that space for quite a while.
That's probably in, I mean, I've got probably 20 syndications out there.So I've got a lot of money that is, distributions have paused, capital calls have come in.It's a lot of pain.And if I could go back in time, right?
I mean, a couple I did, everything I did pre-COVID should be doing well.One of them did pay out very nicely, a 52% IRR, an 18-month hold. But then, you know, one of I was in one complete fraud Ponzi scheme that we validated heavily.
We talked to investors and they've been running a four year Ponzi scheme.And so that money is just gone.Zero.Yeah.
Well, I meant like more a situation where somebody is either developing or renovating, let's say, a hundred unit complex.And they got their money in 2019 for like, I don't know, 4% or something, maybe five.And now
they're looking at, OK, it's going to jump to nine.And how are you going to make the numbers work?
Because even though you've got maybe the renovated place and you've got the increased rental income, but it might still not cover, it might still not make anything.And nobody wants to buy it either.
That's exactly the Florida story.I'm in a bunch on the Florida coastal side from Panhandle down into St.Pete, Tampa.And the first thing was the habitational insurance from the big claims.So I got hit with nearly a six-figure capital call.
And then now they're having to buy interest rate caps because they only had two or three year caps.So they're doing more capital calls for interest rate caps.
So let's go back to a little bit to your original story.Like you said, you know, you started out and then you had the flipping person and you got into lending with basically a burst strategy.
If you look at that trajectory between 2012 and, let's say, 2018, that time window, and somebody is listening to us and says, wow, I mean, what Zach did is really, really cool. You have a lot of experience in that.
Do you think it had substantially to do with the circumstances, with the timing, with any of the other variables?Or could somebody say, well, maybe a few things have obviously changed, but it still can be done?What do you think?
Is it more you were at the right time in the right position and brave enough to do it?Or how would you describe it?
I don't want to be this person that tells these folks, Oh, you can do it.Everybody can do it.It doesn't matter your time and place.So here's the facts, right?So I live in one of the top five to 10 rental returns in the country.
So when you're talking about your own backyard, it's infinitely easier to go fast than out-of-state investing.Two, I mean, the demand. There was not nearly, there was 50 people, 50 big buyers in my area back in 2012 to 2015.
There's thousands of buyers in my area now.Redfin, BiggerPockets, everybody talks about Akron Canton to Cleveland.Out of state, So, I sell a lot of my properties to turnkey buyers.
Turnkey buyers are buying hundreds and hundreds, thousands of houses in my area a year now.So, these turnkey buyers are willing to pay essentially 1% rent to price.So, they're paying $130,000 for $1,300 a month.
And then you also have fractional.Fractional has grown quite a bit.So, the demand,
area lending standards, right?There's not many, if any banks that are doing like no seasoning burrs.They want to see at least six and most of the ones here at 12 months now.
So that'll really slow you down because remember my money was probably only in that house for no more than six months.By the time I bought it, rehabbed it, cashed it out, it was probably more like three to five. Right.
So I just want to be honest, right?You know, it's very challenging.
I don't chase with all these other investors, the properties here, and, you know, I'm very established and I'm only able to do this about four times, five times a year now, uh, finding a great, great cash flowing to meet my same type of requirement where I'm going to get about
a 20 to 25% cash on cash and burr everything out of it.But that's not going to be for 12 months.So I got to hold those properties for a year now to do that.
Right.Understood.Yeah.And I think we used to have for quite a while this super low interest rate environment.We don't have it anymore.We used to have a refi market that was kind of half of the people in banking and lending did refis.
That's pretty much dead. we had a reasonable ratio between the price of a property and what you could and not so much rent to price 1% or above 1%.
But even if you look at it from people who are interested to buy properties between what income they had to bring in their 35 40% monthly payment versus the price of the property that has really during COVID.
I mean, I recently looked in four years, we went like 40 to 50% appreciation, and not in San Francisco, but in Ohio, right, like places like that. So a lot of those variables have changed.
And on the other hand, I think the real message should be, be constantly aware of what's going on.And then identify out of what's going on, what is one of the things that actually works in those circumstances.
And it might be something completely different than what you have been doing to get to where you are.And when the
situation changes again then you can maybe go back to it just like you said you went back from syndication to private lending because it's just a better safer article moving forward the route i will continue to do is continue buying direct on real estate and then keeping everything north of a couple hundred out and lending
and short-term callable kind of lending when I can call it if I need it.
Since you are retired, I have to ask a little differently than normal, but are you willing to entertain anybody who says, Hey, I would love to have a chance to talk to Zach?
Yeah.I mean, there's a couple of mechanisms I can, I can tell folks when we get to that of how to contact me and reach out.Yep.
So what's the best one?Just give me one really good one.Yeah.So my website is realzachzimmer.com.That's R E A L. Z-A-C-H-Z-I-M-M-E-R, realzacsimmer.com.But I also have a freebie for any of your listeners if they want to text The Passive Life.
So text TPL to 33777, and I'll give them my top five strategies to how I got to seven-figure passive income.
Okay, that's very cool.And we're also going to put that in the show notes so people can read it and don't have to crash their car while they're listening. Cool, cool.So that's really great and thank you for making the time.
Before I let you go, I always ask one question at the end and that is, since you already mentioned the other one with the time machine and going back in time, the final question is, if you could meet anybody, who would it be and why?
I mean, one of the people I most admire, Matthew McConaughey.If you've ever listened to his speeches, he's not just this goofy actor.
If you've listened to him speak at the University of Texas, he always does a commencement because he's an adjunct professor there. The podcast and everything I listen to now is very little real estate.
It's much more like Tony Robbins, like reflection, gratitude, and like his book, right?Greenlights is one of my books here and just listening to him speak. It is so reflective, so deep of a thinker.
And, you know, it's things that I get caught up so much.And I remember lamenting about one of my big losses.And it was actually a note that's in big court hearings now on fraud.
And my buddy, who's a real big Tony Robbins guy, he throws his arm on my back and says, how many people have the opportunity to lose $400,000, $500,000 and still be golfing, buying a place in Florida?And I'm like, you know what, Joe?It's so right.
You've got to ground yourself because our thinking and our thoughts certainly impact happiness in our life. more than money and these other external things.And it's another book, The Art of Not Giving a F. If you've heard or read that.
I have to have one too.Yeah.You know, it's like, you know, I'm always chasing, you know, I'm a lot focused on health and nutrition and fitness and always chasing a six pack, right?Always chasing a six pack and getting fitter and leaner.
And even though people tell me I look great, you still aren't happy. And do I want to live like the rest of my life not being happy with how I look when I look perfectly fine?
And so it's a lot of these skills just around controlling your thoughts and your mind.And so, yeah, I guess that would be one I just really admire when I hear him in his deep speeches, like how much of a thinker he is.
Yeah, that's an interesting choice.I don't know that anybody has ever chosen him for the person, so that's cool.Well, Zak, it was a great pleasure having you on the show.Maybe we can do it again sometime in the future.What was that one more time?
What is the code that people should text you?
Oh, it's TPL for The Passive Life.Text TPL to 33777.Thank you so much. All right, thanks for having me.Absolutely.All right.Well, that is it for today, guys.I hope you enjoyed my interview with Axel.
Please reach out to me at realzackzimmer.com with your thoughts on today's episode, or you can reach out to Axel as well on his show, The Ideal Investor.Let me know what you want to hear more of.
If there's topics that you're not familiar with, you want me to talk about, you want to know my thoughts and opinions on things, I'd just love to get feedback through the website or you can reach out through social.
Again, you can text TPL for The Passive Life.Text TPL to 33777. and you'll get my breakdown on my top five strategies to seven-figure passive income.As always, thank you for joining me.
Don't forget to rate, review, share this with anyone else you think would benefit, and we'll see you next week.
Sign in
