I was recently interviewed by wealth advisor, author, and real estate investor, Salena Kulkarni.  Salena is an international celebrity from Australia, so it was fun to know that our conversation would be heard by audiences thousands of miles across the Pacific.

A little bit about Salena:

Salena is the author of an Amazon #1 best-selling book, The Freedom Warrior.  Her company, Phoenix Wealth Group, connects her clients with vetted alternative property investments in Australia and the U.S. (our buy and hold fund is one of them).  She offers live workshops and trainings for business owners who want to develop multiple income streams and build their wealth.  Given the wide reach of her followers and the depth of her knowledge and success in real estate investing, I was honored to be a guest on her show.

Below are some highlights from the interview, where you’ll learn a little bit more about my history, including how I got into this business and the events that shaped the “why” and “how” of what I do.  We talk about how I started in commercial real estate, then made the move to residential and have never looked back.

We also cover things like: picking up the pieces after the last recession, what to expect in the next recession (yes, it’s coming!), how our buy and hold fund is structured to weather downturns for possibly the next 20 to 30 years, and how investors benefit from a 1031 Exchange with us, including a few new changes we’ve added to make it 100% bulletproof. 

Salena asked some really good, insightful questions about our chosen market and the way the fund operates.

I hope you enjoy it!

–Greg

My intercontinental interview with wealth expert Salena Kulkarni was a lot of fun.  She’s a savvy real estate investor with a lot of really good questions up her sleeve.

Salena: Good Morning Freedom Warriors!  I am thrilled that today, I have my friend Greg Hughes with me.  We were lucky enough to meet in the U.S. last year, and I really have a lot of respect for his knowledge in the industry.  He’s certainly an old school gent and a fountain of knowledge when it comes to what’s happening in the market right now.  So, thank you so much, Greg, for joining us today.

Greg: It’s great to be here.  Thanks for having me.

Salena: Well, I’d love if we could just kick off with you sharing a little bit about your story.  Who are you?  And how on earth did you get into property?

Greg: We started our business about ten years ago.  I’ve always liked the finance side of things and I liked real estate.  So, being able to put this business together put those [two] things together.

We started by literally flipping homes off the courthouse steps, here in Reno, Nevada.  Since then, we’ve opened up six different investment funds, from lease-to-owns, to non-performing and re-performing mortgages, to the fund that we’re doing today, which is buying homes that we call “little affordable homes” in the Midwestern United States.  They are ranging somewhere between $30,000 and $75,000.  We buy them, we rehab them, we get a tenant in there, get them stabilized, and then the property sits as part of our fund.

Salena: Did you see yourself getting into property when you were in your twenties?  What were you doing back then that led you into where you are right now?

Greg: When I was nineteen years old, I had a lawn and landscape business that I had started when I was fifteen years old.  So, when I was nineteen, I bought my first property.  It had three houses on it.  I lived in one, and I ran my business out of it.  I rented the other two out.  I learned all the fun stuff that goes along with having tenants.

Ironically, after that, I found a piece of vacant land and I built a 12,200 square foot commercial building to house my lawn and landscape business with five different suites in it.  We rented out three of the five suites.  That was my first realm of going into commercial.  After I sold my other three homes, I thought, “That’s it.  I’m doing commercial for the rest of my life.”  And now, probably 600 or 700 homes later, my “thing” did not stick with me.  I still like commercial, but there’s real safety and stability in residential.

When we went through our big recession in 2008, I still owned my commercial building and had another commercial building in town.  It really taught me a lot because of another part of the story, too, where we were investing in first trust deeds in vacant land.  When all that stuff came to a crash, commercial buildings weren’t easy to rent out.  Land was impossible.  It wasn’t worth anywhere near what it was worth beforehand.  And that’s why, when we started this ten years ago, we started with single-family homes.  And not just single-family homes, but homes in the affordable range, or the core rental market.  [This is] super important, because if things take a downturn, that’s where you want to be.  That’s where the stability is.  That’s where the safety is.

Salena: Super interesting.  You are really clever about positioning the business so that if and when there’s another reset or a pullback in the market, the impact is going to be negligible for you.  So, when the initial global financial crisis happened, how did you fare overall? 

Greg: I literally almost had to start over.  When 2008 hit, it was really tough because we had dollars, but then the recession hit.  And I was basically out of “dry powder” [liquid marketable securities or cash reserves] as they say.  I wasn’t completely broke or anything, but it was tough, because during that time, if you had a lot of dry powder and a lot of cash, you could make a lot of great buys.  But even with that, there were some timing issues.

So, we started our business in 2009.  At the time, I thought I was going to do commercial, but I went out and talked to a lot of people, and their eyes would just glaze over.  They didn’t want to do anything.  And so, we started by going to the courthouse steps.  We said, “Let’s just see what we can do.”  I’d never done that before.  We started by buying a few homes, and actually spent 90 days down there, watching how it all worked, trying to figure out the patterns and how to do it the right way.  That’s where we started our [first] fund, buying homes, and then building from there.

We really feel like we position almost everything today based on those lessons that we learned in the past.  We know the recession’s coming again—probably won’t be as bad—but there are no ifs, ands, or buts about it.

We try to always look at what we’re doing and say, “Okay, maybe we’re not making a killing.  Maybe we’re not making 15% or 20% returns.  But through the diversified assets we’re purchasing, we’re making really safe, stable, consistent returns.”  And that helps us sleep a little bit better at night.  And we think that’s an important piece of the portfolio for people as they’re looking at what to do.  You always need some diversification.

Salena: Can I ask you a question?  My understanding is, if I was an investor wanting to buy real property, the sweet spot that I’d be looking at would be more like $80,000 to $150,000 to get into neighborhoods where the caliber of tenant is a bit more stable, lower turnover, better quality homes.  You’re picking a bracket below that.  Why did you do that?  Why didn’t you go into those slightly more expensive homes?

Greg: That’s a great question.  It really is.  And it shows your perception, too, of what’s going on with this.  So, when you’re in the $80,000 to $150,000 range, you’re in what we consider to be a much more “efficient” market.  It’s a very easy market to buy in, so most people like to be there.  But, what happens in an efficient market?  Well, there’s more competition.

Not only are we on the most affordable side, but there’s less competition in this area, because people just don’t want to deal with it.  It takes a lot more managing.  But again, there’s just a lot more stability and safety overall, because we do have such a diverse portfolio.  Today, inside of our fund, we’ve got over 250 homes.  We’re in nine different places, concentrating in five main areas out of those nine.  For example, we’re in St. Louis, Missouri, but we’re in multiple neighborhoods there.  So, no matter what’s going on, we’ve got this diversity.  And that’s a lot of safety.

One thing that we haven’t talked about with this fund, and this is really important, is that we do not look at this fund as having any kind of appreciation built into it.  And there’s real value to that because we look at it as strictly cash flow.  If we get appreciation, great.  But because it’s a buy-and-hold, we think this fund can be around for the next 20 or 30 years. We have no intention of trying to flip the homes and make any money on them.

Salena: That’s great.  Great answer.  So, if people want to get involved, what can they expect from working with your firm?  What sort of returns are you offering and how does it work?

Greg: With our fund, you have what is called your “pro rata share.”  Today, we have about $17 million in the fund.  So, if a person were to put $100,000 in, they would own a share of whatever $100,000 represents within $17 million.  And then you collect the net profits from that.  That’s the way you get your return.  It’s right around the 9% mark today, but it’s probably going to be closer to about 8.5%.  Call it 8.5% to 9.5%, somewhere in that range.  I don’t know if this changes because we’re in different countries, but you would receive a K-1 from us at the end of the year, and then you would also get to, I would assume, take the depreciation.

Salena: The thing that you offer, which is your 1031 Exchange —I’ve heard you speak on another podcast about it, and it’s such a phenomenal loophole that you guys have in the States.  If you can share it, that would be great.

Greg: I always joke about this, but it’s like, “Hey, we need to be quiet.  Don’t tell anybody.  If the government ever figures this out, we’ll be in trouble.”

Salena: I think you’re all right while Trump’s in charge.

Greg: Yeah, we should be since he’s a real estate guy.  He gets it.  With a 1031 Exchange, you can sell any investment property that you own, and instead of taking the proceeds, they go into a 1031 escrow account.  So, in other words, you never take possession of the money.  That allows you to not have to pay taxes on the capital gains or the recapture of the depreciation, which can be pretty heavy on some of these properties, especially for people that have owned them for a period of time.  Then, we then come in, and we sell that person “x” amount of homes.

And so, what happens is — this is a little bit new for you too, because this is something we’ve developed to make it 100% bulletproof — we set them up in what’s called a “master lease.”  And so, we take those homes and we master lease them back from the investor.  So, we pay them a set rent on all those homes and everything that happens on those homes becomes our problem.  So, we say to them, “Okay, we’re going to pay you $4,000 a month for those homes,” and whether those homes are vacant or rented, or if there’s a hot water heater that needs to be repaired, or whatever, that all becomes our problem.  It’s a guaranteed $4,000 for them in rent in that respect.  And then they have deferred all those taxes along the way.

Let’s just use some numbers if it makes it easy.  Someone sells an investment property for $500,000.  They want to do an exchange with us.  We’re going to get them ten homes for $50,000 a piece.  By doing that, they’ve completely eliminated all their taxes, or at least they’ve deferred them for the period of time.

Salena:  It’s a phenomenal loophole.  I love it.  Thank you again, and I look forward to connecting with you in the near future.

Greg: Sounds great.  Thanks, Salena, for having me.