Building $20,000/month Passive Income through California ADUs w/ Roberto De Leon

[00:00:00] James Rippeon: So I think you hit on what we're gonna be. I think nailing down in this conversation, could you do something that's a little unique that not a lot of real estate investors know a lot about or take action on ADUs? Tell us about ADUs. What the heck is that? 

[00:00:14] Intro: You're listening to the real fi podcast where we discuss time, tested tricks, techniques, and strategies for pursuing financial independence today so that we can enjoy a better tomorrow financial independence.

[00:00:30] Isn't about getting rich quick. It's about cultivating a foundation to grow financially, mentally. Physically and spiritually let's figure out how to kick the nine to five. Here are your hosts, Patrick and James. 

[00:00:44] Patrick McGrath: How's it going everybody. And welcome back to the real fi podcast. I'm your host Patrick McGrath with my coast, host James Ripon.

[00:00:53] How's it going today, James? 

[00:00:55] James Rippeon: It's going man, living that real estate life, part of this life is all about patience. [00:01:00] Right now we're waiting for some appraisals to come in for some of the properties we have for refinance weighing that game out. But other than that, I'm looking forward to our conversation today.

[00:01:07] I think we have a heavy hitter on board with us and we're gonna learn a lot. 

[00:01:12] Patrick McGrath: Yes, sir. We got a great guest today. Why don't you go ahead and introduce yourself and we're gonna get started. 

[00:01:19] Roberto De Leon: Hello everyone, Roberto Delon. I am a real estate investor in Los Angeles. I've been investing since 2014. I currently have a real estate portfolio of multi families and single families.

[00:01:30] I'm excited to join the podcast with you guys. 

[00:01:32] James Rippeon: So Roberta, don't you give us a little bit of background about yourself, like where you came from tell us like where you started your investment journey and what you're doing now, as far as maybe your day job and your side hustles with real estate and just give us all that background information, lead us up to what you're doing 

[00:01:48] Roberto De Leon: today.

[00:01:49] No worries. Yeah. I born and raised in Los Angeles, so I know Los Angeles very well. I started investing. I bought my first house in 2012 after the market crashed. I graduated college, got a good job. I was getting good income and [00:02:00] the next step was just to buy a property for myself. Got into house hacking there, not even knowing that was a definition back in the day.

[00:02:06] Got at four bedroom, three bath house and I cut off, put some drywall on the back end and rented out room in the bathroom and was paying minimal rent, minimal mortgage for that. It offset my mortgage. So in 2014, got married, bought another property. And then it just started from there.

[00:02:21] And I started investing from there in 2020, the law changed for Aus in California, which I could go into in a little bit. But yeah I got into more investing and that's more of our strategy of building Aus on the property. Little background. So I do work fulltime. I have a w two job that's full time.

[00:02:38] I'm the vice president for our medical company in Los Angeles. So I manage the business operation acquisitions and operations for the clinics for the underserved community. So we're like in the toughest areas of Los Angeles. So like a lot of those mafia, gangster movies in the nineties, two thousands, my clinics are in there.

[00:02:54] So we're in the housing projects. We're in the underserved area. So I've been working for this company for about 10 years [00:03:00] and I'm investing on the side since then since 2014. And it's been fun, very stressful, but investing on the side has been is, has opened my mind to a lot of different things and just life and just financial freedom in general and just perspective on and being an entrepreneur.

[00:03:15] James Rippeon: So I think you hit on what we're gonna be. I think nailing down in this conversation, could you do something that's a little unique that not a lot of real estate investors know a lot about or take action on ADUs? Tell us about ADUs. What the heck is that? So 

[00:03:29] Roberto De Leon: Aus are accessory dwelling units.

[00:03:31] In 2020 governor new sum, the governor of California passed this law cuz we have a huge housing crisis here. So there's not enough housing. I know it's in nation, but in LA it's much worse. We don't have enough housing and it's not affordable right now. It's very expensive to get a rental unit.

[00:03:44] It keeps on increasing as we go forward. So this new ad law ADU law makes it very easy to build additional units on the property. That could be a garage conversion that could be in addition to a house or a brand new house on the lot a lot of the building [00:04:00] requirements that se that make it difficult to build are taken away.

[00:04:04] And you're literally, the guidelines are four feet from a wall and four feet from a dwelling. And the max that you build on an external unit is about 1,200 square feet, which is a very good size three bedroom, two bathhouse. And and there's a lot of pros too. So if you could build more, if they're multi-family own lots, you could build up to two to three and you get bonus.

[00:04:22] If you have eight units, four units. So every four units you get additional unit you could build. So they're incentivizing you to build as we go forward. But yeah, we've taken this approach. Accessory dwelling unit is the best way for, to build. You don't have to, you don't have to have barking, which is great as well.

[00:04:37] So you literally can maximize. Which the barrier entry to get a property is very difficult. So you can maximize on a lot and build as you go on your lot. I 

[00:04:46] Patrick McGrath: really love this strategy, especially for California and, LA county in particular because, everybody would always say, Hey, I'm living in California and it's the [00:05:00] barrier to entry is so high.

[00:05:01] I need to go check out these secondary, third tertiary cities, people going to Utah and Arizona and all these other places to invest. Because a single family home is costing six to $800,000 and your rents aren't gonna be, meet anywhere close to the 1% rule. So everybody's how you're going off appreciation.

[00:05:24] And we know where that's taking us right now with the current market cycle. This is really huge. So what I'm understanding is they took the, you just have to apply for, to build it and go through the permit process, but you don't have to get the zoning changed for that specific lot or anything break, break that down to us, 

[00:05:43] Roberto De Leon: yeah. It's actually very interesting cuz you, you go through this when you get when you refinance cuz had a refinance one. It's like I did I did three units on a R one lot. So they basically gave me the occupancy as a R three, but it's still zoned as a R one on that particular property at a [00:06:00] 1600, four bedroom, three bath.

[00:06:01] And then I added a garage conversion of 432 square feet. I added one bedroom, one bath and then in front of the house, which is interesting, cuz usually behind the house I added a three bedroom, two bath or a thousand square feet in front of the house. So two parking spaces literally eight bedrooms six bath.

[00:06:19] And you're able to maximize every square foot. I literally maximize every square foot on the property. So it's interesting. And it gives you the ability to maximize growth. We're able to increase rents. I was renting the house for 3,500 and now I'm clearing about 10,000 since I'm Airbnb in the front unit.

[00:06:33] So I'm getting about 10,000 now on that property in rental income. 

[00:06:37] James Rippeon: So let's talk about that parking situation. Is that something that the tenants miss, or do they need that, or are they like able to rely on public transit? I'm just wondering if there's any impact for the density 

[00:06:48] Roberto De Leon: on these parties.

[00:06:48] Yeah. So one of the rules is that there has to be public transportation, a mile radius, but in Los Angeles you'll have a bus route in a mile radius everywhere. So it's very flexible in that end. So that was one of the [00:07:00] requirements. And that's usually waved as for tenants it's, as long as the ties are nice.

[00:07:04] They're not, it's, hasn't been a difficulty renting them out or having people complain about them, cuz it's so hard to find rentals that are affordable in this area. 

[00:07:13] Patrick McGrath: Yeah. I know that me in particular, like I've seen some documentaries on Netflix and like cheddar and different things on YouTube where people are turning, these 3000 square foot homes into 20 units where people are taking bedrooms in six people are living in them and renting like a bunk bed space for five or $600 a month.

[00:07:35] I know a lot of this listening out there are thinking a 430 square foot, one bedroom apartment. That sounds extremely tiny, but what you're saying is that's a nice size, unit. I just saw something on Instagram the other day where people were building 12 by 1280 used in their backyard and saying, they're gonna get like $3,000 a month for 'em.

[00:07:55] So I think for James and I, and people on the east coast, in the [00:08:00] Midwest hearing these numbers, is insane. So break it down for us on how much is this costing you per square foot to build this type of stuff, 

[00:08:08] Roberto De Leon: yeah. So ADU, that's a new construction you build from ground up cost me about $250 square foot.

[00:08:14] If I'm talking about garage conversion already has the walls and I'm just doing the plumbing and the inside building the inside, you're talking about $150 square foot. This is where the kicker comes in. That the properties usually that on that property that I did that unit it, those usually sell per square foot from seven 50 to eight 50 a square foot.

[00:08:34] So if you build at two 50, you're gaining about 600 bucks in equity right there. The difficulty right now is that there's no comps with Aus, so the frais have difficulty assessing it. So they, if I would list that on the market, it will sell at that 7 58 50. But since there's no comp they're having difficulty evaluating it.

[00:08:52] So sometimes I'm getting half of. Or I'm getting one to one evaluation on addition that's attached, but the detach unit they're only gimme a [00:09:00] $25,000 credit. So we're having difficulty there. But if you list on the market, it will sell that's where they're having difficulty on that end. So let's 

[00:09:07] James Rippeon: talk through that a little bit, because I don't know that's your specific strategy because you're building you're purchasing and acquiring these properties.

[00:09:14] You're building these ADUs and you're not looking to flip them. What are you doing with these properties? Holding 

[00:09:19] Roberto De Leon: them? So I only buy and hold. I put so much work into them. It's like art. I just keep them. And building takes, it takes me two years to do this project. So plans take about a year here and building takes about seven months.

[00:09:31] You're talking about two years at best to get a project done. I'm buying properties right now and sending them up for the next two years. So I have one starting in July and that one I'm gonna add a 1200 square foot, two story unit, and a three car garage, 800 square foot edition there. And on the next unit, I'm building 2000 square foot units on top of each other.

[00:09:48] So it's, it takes a while but yes, I hold those two rent and my plan is TOFI and get the money back. So it that's really my goal refinance and keep on repeating as long as I lock in. And this is the crazy part that I usually [00:10:00] stick to the under 1.4 million cost, 1 million to 1.4 million and under four units.

[00:10:05] So one to four units and then add to units. So the evaluation goes from a million to 2 million once I'm done. So you're doubling the evaluation once you're done and you're doubling the rent as you go as well. 

[00:10:18] Patrick McGrath: So you're essentially, so you are essentially doubling your net worth and. Almost tripling your cash flow on each property, but it's taking you two years, right?

[00:10:32] Which , to, to think that each one of these projects is able to do that in two years. I know most people, would think Hey, if I could double my net worth and my, triple my cash flow, that would be in three years, if you have one property, then you buy three over the next three years, you might be able to do that.

[00:10:50] But the numbers that you're talking about are absolutely huge. So how many total units are you currently at [00:11:00] now and what does that look like overall? 

[00:11:04] Roberto De Leon: So I'm at, I have five properties, three are multi families. There are tri two trifles and one duplex. I'm adding the two triplexes. I'm adding two units on them.

[00:11:12] Actually the two Plex one, the TriFlex I'm adding two units and a duplex. I'm adding two units. So they're gonna be four Plex and five plexes. The single family I do Airbnb that's that was used to be my primary house and actually cancel that one. Matt. I don't even keep track of that. So that one I rent out is a luxury unit.

[00:11:27] So that one I rent out is $7,400 a month. It's a five bedroom, three bath. So it's insane, man. So 

[00:11:33] James Rippeon: not watching the video Patrick's eyes pretty much popped outta. 

[00:11:37] Roberto De Leon: Yeah. Oh, that was another one that, you get so bogged down about your life and you don't, can't see other people's perspective that when I rented out my primary, I was telling people, it says market rates about 7,500 for this house.

[00:11:49] And everyone thought who would pay 7,500 for rent. And literally I listed it Christmas day, the 24th, the 25th. And I had four people inquire about it at 7,400 a month for that [00:12:00] primary house. It's insane. Like the people are not rather rent than purchased right now are rather weight on the market. Yeah but for myself, multi families and single families on our market. And we're planning to add on those and acquire about three properties a year. I am shifting to doing Airbnbs next year because my model before was to break even, and then build. But right now with the interest rates, those properties, I was breaking even last year, I'm losing about 800 bucks in my analysis.

[00:12:28] So I'm waiting to see where the market shifts I'm gonna focus to Airbnb next year, just to get the cash flow. And then I'm gonna just go back to multifamily, see where the market goes. Cuz a lot of the ones I would buy previously are not affordable 

[00:12:41] James Rippeon: anymore. So that was a lot to follow. Summarize that math for us.

[00:12:45] How many units are you at right now? 

[00:12:47] Roberto De Leon: And you say units are lots, right? Or you're talking about doors. Okay. Sorry. I never look at doors. I usually just look at income. So doors I have at 10 doors, 10 doors, 10 doors. 

[00:12:59] Patrick McGrath: Going to [00:13:00] 17 is what I got from that with yeah. Adding and building and yeah.

[00:13:04] Correct. All of that. So question on this is, have you thought about selling one of these off to make a million dollars and just like setting that aside or paying cash for any of this and then, having that 10 grand a month or 13, $14,000 a month just flow right into your bank account. Is that something that you thought of, or, I know you're doing the Burr method, but like taking out a giant line of credit or anything to pay all this, like, how are you paying for all this?

[00:13:36] Yeah, 

[00:13:36] Roberto De Leon: it's I have thought about it, a lot of times, but I'm looking at the long term game I'm looking at, really building a steady portfolio. I'm buying eight class areas in Los Angeles where very difficult to get. And I'm looking at the long term. I'm looking 10 years from now.

[00:13:51] Where do I wanna position myself? And the, one of the biggest things is like when I was gonna, I bought my new primary house in 2022 that, and I was looking at selling the [00:14:00] property we had, and we would've made a million in in, on that property, but we decided to hold it, make 3000 in income, hold it and use that equity to purchase more property.

[00:14:09] So my goal is to strip the property as much as I can in equity to purchase more. So I'd rather multiply and have less cash flow than have a lot of money sitting in my bank. 

[00:14:20] Patrick McGrath: That's a great strategy. I just had to ask cuz it's man there's a million dollars sitting over here, to most people, it sounds like, know I would struggle to not sell just for the simple fact to hit that first million, as like a win.

[00:14:34] So I love your delayed gratification here. And I know James probably has a question regarding this too, because like it's really blowing my mind here. I think that's, 

[00:14:42] James Rippeon: what's great about real estate is, this isn't the stock market and you don't have someone telling you every single day, what your equity position's worth and what your house is worth.

[00:14:50] I'm sure you've got like a general idea of it, but you're not tempted to get in and out sell it. And that's exactly what real estate is. It's a long term game, you're building equity and you're leveraging that equity through [00:15:00] smart refin. Opportunities to take down the next deal. And I think that's a lot, something that a lot of investors have a hard time grappling with is sacrificing that immediate payoff with the flip, for the sale and taking that smaller, more consistent cash flow for long periods of time.

[00:15:16] But time and time, again, every successful real estate investor, I meet either, they're flipping and they wish they could do the long term investment rentals or they got successful because they were patient and they held onto what they had for a 

[00:15:28] Roberto De Leon: long time. Yeah. And the biggest thing with me with my job is I get good income.

[00:15:33] So my job is right now is to get as much finance as I can strip as much equity as I can build my LLC revenue. So by the time I do retire, then I have enough income that can get loans without a problem. So I'm establishing the basis. So when I do stop working, everything's gonna, I it's gonna be cruise control.

[00:15:51] I can still get the same kind of financing, everything going. So I'm stripping as much as I can to to. Build my portfolio, a lot of 

[00:15:58] James Rippeon: real estate investors get a little, [00:16:00] they jump the gun, they think they can just get into real estate. They're quiting their job tomorrow. And they're gonna start making it happen one way or another.

[00:16:06] Yeah. What do you say to those investors that feel like they're compelled to quit their job and just go full time into real estate? 

[00:16:13] Roberto De Leon: It's, everyone's different. I think if you're young, you have no responsibilities, why not? See like myself, I have a family, two kids, and I have a good career that I've built that it's not that easy for me to make that adjustment.

[00:16:23] I have a good right now I'd rather build slowly build gradually and then eventually make decision there. I think like everything it's perspective on where you're at. If you could take the risk, but for me with two young kids, it's not worth the risk to, to take that risk and leave my 

[00:16:37] Patrick McGrath: job. yeah. I think.

[00:16:40] You know that right? There is an extremely solid point about building the foundation and setting yourself up a few years from now to, like you said have your business lined up, be able to continue to build upon that with the financing, having the income coming in [00:17:00] from your LLC, someone banks are looking at you, you're still being able to get approved.

[00:17:04] The, these are all things that I. When you're in your first couple years of investing and doing real estate that you don't necessarily think about because you're thinking about that next property and analyzing these deals and interest rates and the tenants, because you just haven't been doing it enough to get that thought process a little further down the road.

[00:17:27] James said, this is most people that we talk to. They have a long term vision of where they wanna be. And I really love how that's all we've heard you say so far is you're thinking about that long term vision. You're using your active income to build your passive income and.

[00:17:49] I absolutely love that. That's what I did. I think I'm one of those people possibly that maybe quit a little too early. This is probably the first time I've ever said it, but not that I'm having [00:18:00] issues like getting financing or anything. It's just one of those things where I look back at it and go if I had another year's worth of income, would I be a little further down the road?

[00:18:09] I'm looking back and reflecting on that same stuff as well. So I think that is great advice. I think people really need to hone in and listen to that and, set themselves up way further than they think they actually need to. Yeah. To be in a good position and that's what you're doing.

[00:18:25] Roberto De Leon: It's hard. It's hard. A lot of times I get these deals. I did a 500 cash, 500 K cash out refi. I'm like, man, I can stop working with this, but. You gotta stick to your goals. Me and my wife set a plan. I always set a goal is double our income. Once I double my passive, income's double my W2 income, then I could set sale.

[00:18:43] So that's the goal when we're sticking to it. 

[00:18:45] James Rippeon: Let's dive into goals a little bit more, and let's talk about, your financial independence journey, cuz that's what this show is all about. We wanna dig into kinda what your ambitions are. When it comes to building up your portfolio and having all your business come to light and grow, [00:19:00] where is that gonna put you in terms of your goals with with your finances?

[00:19:04] Roberto De Leon: With goals, my goals 20 passive, 20,000 massive income for me to stop working w two, I actually I'm on track with the, because the existing rental portfolio I have there to meet at 2020. With the two build out units. I have, I should meet that without a problem, but even before even with that, I'm still gonna add some Airbnbs on that.

[00:19:20] So I have extra cushion before I stop working. So I'm like in acceleration mode, cuz I know it's like a two year mark, so I'm building as I go just to set sale the right way, but goals are a 20,000 passive income. I don't really look at units. I don't really look at doors. I look at just revenue.

[00:19:35] That's all. I look at passive income I don't care if I, my goal is literally when I evaluate property is a thousand passive income per door. That's usually if I evaluate, okay, that's a good deal. And that's how I use that marker going forward. And now that I throw midterm rentals and short-term rentals into it, like I can get a lot more.

[00:19:52] So that's I just started doing that this year. So that's opened my mind up a lot as well to my strategy. 

[00:19:59] Patrick McGrath: [00:20:00] So tell us a little bit about that because we have had a very consistent theme over the last. Probably 10 episodes of people talking about short and midterm rentals, accelerating their cash flow. And you had talked about you're building these Aus and some of them you're using as Airbnbs, which I'm surprised that with all of California's regulations, they didn't skirt something in there that said you weren't allowed to do that.

[00:20:33] Tell us a little bit about that strategy and the cashflow difference. 

[00:20:37] Roberto De Leon: Yeah. So most of the California Los Angeles rules you could do midterm rentals or past 30 days short term rentals. The cities I'm in, they don't really have regulations. So I'm just capitalizing right now until there is regulation.

[00:20:51] Once the regulation comes, I'm gonna go to 30 day rentals. So technically you can do it with ad use. They say it on the rule, but I'm still doing it cuz there's no rules set in place. [00:21:00] So there's no regulation there in the cities I have. It is risky, but like how I say, I'm trying to capitalize on the revenue build as much as I can once they regulate it, then I'm gonna shift to 30 day, which I heard it's much easier.

[00:21:10] I'm actually starting my first two midterm rentals in August. I'm rehabbing those properties right now. So I'm gonna, I'm gonna jump into that market so I can prepare. So when the regulation does come, I can adjust very quickly. So for that 

[00:21:22] James Rippeon: midterm rental, how are you gonna be finding your clientele and your occupants?

[00:21:26] Is that through Airbnb or through more traditional marketing? 

[00:21:30] Roberto De Leon: Like furnish finder and Airbnb I'll be using. Yeah. Okay. Yeah. Right now I'm strictly only using Airbnb. I only have one, I just did short term rental, started that in March and it's going so well, like on that property I was supposed to do long term rental, 3,500 and I'm cutting about 6,500 a.

[00:21:49] Right now on average every month. So it's I'm doubling the rent right there. So it's opened up my eyes a lot to do just Airbnbs and it's worth the extra work. 

[00:21:58] Patrick McGrath: So [00:22:00] I am so like on the fence, back and forth about converting one of my units. I have an empty one right now, and I'm like, I'm either gonna list it for long term rental this week.

[00:22:13] Or I'm gonna go buy the furniture and try to list it on Airbnb. And everyone keeps telling me to do Airbnb, but there's I'm like that first time investor, like going to buy their first investment property right now where it's like analysis paralysis is like killing me to every end. And like, how did you get past that?

[00:22:32] Because I'm sure there's a lot of other people thinking the same thing as me, but having all these guests on here telling me about it, I'm like, I just have to do it. And how did you get past that man? Cause I'm struggling that with that right now, 

[00:22:44] Roberto De Leon: I just saw the numbers and my wife didn't wanna do it.

[00:22:47] She said, I just want long-term rental. So we don't have to deal with it. And I said, we could double our rent on this property here. So we made a deal if we don't get a qualified tenant within a week, Listening it, then we're going to Airbnb and I won and we [00:23:00] listened on Christmas, like I think January 1st.

[00:23:02] So it was actually perfect cuz a lot of tenants don't go in the new year's. So yeah, so it, I did that transition. I also thought the same and for me it was the additional work for myself and my wife. But once you flip to that model it's so profitable that you could hire VAs and you can make it work.

[00:23:15] And it still be profitable. So I would totally recommend doing it. I'm actually gonna transition to that midterm rentals more and short term rentals going forward and just maximize revenue. Cause right now I cash flow. I'm investing so much into these units. I kind show as much cash flow as I can on these properties.

[00:23:30] James Rippeon: Let's turn this into an accountability session to Patrick. You know what's your biggest holdback man? What, what's that one thing that is making you be parallel 

[00:23:38] Roberto De Leon: by time and work, right? 

[00:23:39] Patrick McGrath: That's what usually I think I, yeah, I think the biggest thing really is I don't know, I have this thing, I have this thing where I don't wanna fail at it.

[00:23:48] So I think there is like some legit what if I fail? I'm gonna be out some furniture really, but there is, you can resell which I could, which I can sell or just, refurnish [00:24:00] my spare bedroom at my house or whatever. Or like just that additional work up front.

[00:24:05] And then I'm thinking about this isn't a multi, this isn't a, multi-family building like a 10 unit department complex. So I'm thinking about my tenants that are already there. Man, what if I get somebody that's Messes with the tenant upstairs. That's super nice and never causes any issues.

[00:24:19] And then I'm trying to squeeze out like an extra, 500 or a thousand dollars a month. And I cause an issue with one of my other great long term tenants. But from what everything that I've heard is everyone is super great and nice because this isn't like a vacation rental. This is like a, someone's coming in for a graduation party or a wedding or funeral or something like that.

[00:24:41] Or like a, like a long business trip or something or a nurse. So it's like people aren't gonna be, loud and all that stuff. So I don't know. I, it is just that conflicting thing because I haven't done it. I don't know. I think I would say just 

[00:24:53] Roberto De Leon: try it, I think right now it's so new that it's so profitable.

[00:24:57] I think it's gonna get saturated in the next couple years, [00:25:00] to be honest with you, cuz so it's so profitable. It's only a matter of time when people start catching up. But the best thing I like about it that you probably stay clean. Like you're cleaning it so much that your property is staying is exactly how you left it, which is nice.

[00:25:13] Cuz when you get the long term tenants, you get the beat up, you get the normal wear and tear, but these properties stay is nice. They say beautiful the whole time. Cause they're getting clean twice a week sometimes. So that's another benefit that didn't even think of that. Every time I go to the property, I'm like, man, this is like a nice hotel.

[00:25:25] So I would totally recommend it. Just jump. There's so many automated systems we could connect offline, but there's so many automated systems that takes away the day to day from you as well. 

[00:25:33] Patrick McGrath: That's great. I know I said it before, but I just gotta do it. So just do it man. 

[00:25:38] Roberto De Leon: Take action man.

[00:25:39] Yeah, I 

[00:25:40] Patrick McGrath: was the same way I look at decide, commit, take. I'm just gonna have to do it now. All right. So hopefully by the time this comes out, like we've already had some books. That would be fantastic. So I'm just gonna have to do it now. I've committed. I've decided I've committed. Now the action will be taken.

[00:25:55] Thanks to you. And yeah, we're gonna make it happen. I, they won't let us build any [00:26:00] Aus around here, so that really sucks, that's that's crazy. All right. So let's let's think about this. So 20 K a month now, that's what my goal is out here on the east coast, where things are a little cheaper, that 20 K a month out there in, in California, that can, is that like your first level that's when you're gonna be quitting the job and taking that back, or would it be like a half?

[00:26:20] Would it be like taking a step down from the role and working? Part-time like break that down first a little bit. 

[00:26:25] Roberto De Leon: It's interesting cuz a lot of things have changed since I decided doing like when I set that target that right now I'm setting 20,000 goal. don't know if I'm gonna go into flipping or go into real estate full time that way, or just cruising it on that way.

[00:26:36] Or buying Airbnbs. I might I work in healthcare a lot and consulting fees do pay a lot. So I'm still deciding what to do, but full time work, I think I'll step down from 2020. And I have more of a passion in real estate. So focusing on that after that, but honestly my mind changes every month.

[00:26:53] So I don't know at this point, , to be honest with you, as long as I meet the 20 K, then I have the decision. I think that's the [00:27:00] key that you can make the decision at that point. And at that, that's the most powerful thing you, that you could 

[00:27:04] James Rippeon: have. It gives you opportunity and it gives you, the choice and it's better to have and not need than the need to not have.

[00:27:10] So I, I think that's, what's super powerful about that because you might find yourself in a position where, you enjoy continuing to work your daytime job and, things are just gravy, cuz you're young and things are just firing on all cylinder. 

[00:27:21] Roberto De Leon: So yeah. Yeah. And it's really it's. Yeah, it's the key too.

[00:27:25] It's it's now it's becoming more reality. Now they have the projects already in the pipeline that are gonna happen now it's gonna happen. Now I'm really starting to really critically think, okay, what do I wanna do when it gets to that point? So it's a reality now, which is a lot of times you work so hard to get to this point.

[00:27:42] Now that you're almost there. It's it's it's nice. And it's scary at the same time. 

[00:27:47] Patrick McGrath: yes. I was gonna say the exact same thing and that's where I was gonna go. So I'm so happy you went there because I think when you start from zero, that 10,000 or that 20,000 is always the goal for [00:28:00] most people that we talk to, those are the two numbers, right?

[00:28:02] Yeah. The 10 or $20,000 a month. And like you said, when it starts to become reality when you hit that first goal and you're getting closer to that next one, and you're seeing that you're only one or two more properties away or converting a couple units to something that's gonna make a little bit more money.

[00:28:21] You. I'm there. But my life really hasn't changed that much because you've been sacrificing the whole time to get there. Like sometimes I. Think people realize like the sacrifice that goes into getting to that number, because you're not spending money, you're investing everything you have. And then once you get there, you're like I've already set up this lifestyle where I am sacrificing.

[00:28:46] And you feel like you could push it even further. So you're not just gonna turn a switch on one day and be like, oh, we're going out to dinner every night and I'm going to buy a new truck. And we're going to buy a vacation home that, we never use or anything like that. Like I [00:29:00] just I don't think that people, realize like it's taken, it takes years of discipline to get there.

[00:29:07] And then, like you said, like once you get there, you just have the choice. Like now you actually have the choice. And I think that's one of the most freeing parts of it is that you have the choice now and you thought you always knew the decision you would make when you get there. But once you get there, you're like now I have.

[00:29:24] Way more options. So 

[00:29:27] Roberto De Leon: that's yeah. You said it perfectly the sacrifice, like I was telling my wife the other day, I'm so tired lately. Like we, we, like every night I've been for years with like day job, the nighttime job and seven days a week, like at certain point we're getting close there and like it's normalized this work schedule.

[00:29:44] By the time I stop working what am I gonna do? and that's where it's scary at the same time. But the sacrifice to get to this point has been it's understatement, it's just, it's so hard to get to this point, but when it's there, it's gonna be much more rewarding.

[00:29:56] Because all that hard work is paid off. 

[00:29:58] James Rippeon: Let's not forget that a lot of [00:30:00] the excitement that comes from this, isn't just reaching the goal of your passive income. It's the journey there too. You're finding a lot of fulfillment in the things that you're doing day to day, you're coming across and meeting great people.

[00:30:12] You and your wife have like great business that you're building. And that journey is what brings a lot of fulfillment as well. So it's, it doesn't necessarily have to be about hitting that goal. Cause I know you guys are gonna crush it. You're gonna hit that goal and you're gonna be sitting there what's next?

[00:30:26] And what's next is the next journey to the next goal. It's not just next goal. It's the path to getting to it. So I think that's something that 

[00:30:33] Roberto De Leon: needs to be appreciated. Yeah. The best things in life are the ones that arm planned and this was not planned. So that's how I put it. 

[00:30:40] Patrick McGrath: that's right. And I think this rolls right in to, what motivates you, man?

[00:30:45] What is the motivation behind that? Like the why, we just talked about the sacrifice. We talked about the numbers, break it down for us on what you're doing all this for, yeah. You know 

[00:30:56] Roberto De Leon: what I asked my question, I asked myself that question all the time. I'm very I'm a hard [00:31:00] worker throughout my career.

[00:31:01] I follow society, go to school, get your master's degree, go to work. And I thought that was gonna satisfy me. I grew up in the corporate ladder, but it wasn't enough. I had to grow into something my own. And that's when real estate started opening my eyes to that. But what motivates me, it's honestly, it's like a board game.

[00:31:16] It's like a monopoly game in person and it's fun. It's just fun. It drives me. It's kinda like a cheat code. Like you're building something and this everything's so unknown that it's unpredictable. And I like that by myself. Of course I do it for my family, but to be honest with you, I'm not building these units for my kids to take over.

[00:31:31] At the end of the day, I might donate some of them or sell them before that, cuz I think they should build on their own as well. But I'm just doing it just to, as I go, it evolves, but just the wise to have that choice of what to do. And that's powerful if I decide to still work as I go forward, but it's really having that choice.

[00:31:48] And I believe that's really where I'm working towards, where I can spend more time with my family, walk them to school, spend that extra time and have that choice to choose my day. 

[00:31:58] James Rippeon: That's freedom right there. [00:32:00] Yeah. Let's talk about some of the things that you've been doing to get to that why, and to get to that independence level what are some of the obstacles that you're facing?

[00:32:08] You've lined out, laid out pretty much, what your business plan is gonna be to reach your goals, but what are some of the challenges that you think you're gonna face on that path there? 

[00:32:18] Roberto De Leon: I think the biggest thing with me is Really the plan just how long it takes. It's so unpredictable too.

[00:32:23] Cause I don't know where the market's gonna be two years. And my project to have lined right now that I just bought is gonna happen finished 20, 23. So the unpredictability there, I think the obstacles I have is financing. I do finance everything on our own. And that's by stripping equity. It has worked so far, but we don't know where the market's gonna go.

[00:32:41] As for hurdles, we've limited those because we build on our own, we have equity lines that funds the construction on that end. So we're aligned there overall. But I think the biggest thing is time. Cities are getting, taking so much longer cuz of COVID they're working from home and all that impacts me costs keep on going up from two years ago.

[00:32:59] [00:33:00] Now I'm sure it's gonna cost me 2 60, 200 $60 a square foot to build. I think honestly obstacles wise, nothing that we haven't predicted, but just being able to build the units and just get through these next two years is gonna be. Let 

[00:33:12] James Rippeon: me ask you this. Have you thought about maybe investing outside of your current geographic region?

[00:33:17] Are you like all in where you currently are? 

[00:33:21] Roberto De Leon: I am. I'm actually gonna invest next year. Short, actually probably next two months. And Arizona, I'm gonna do short term rentals there. The state already made a statement. They already did pass the law. That short term rentals are open for for every city.

[00:33:34] I'm actually gonna invest in short term rentals. What I'm going to is luxury short term rentals. So I'm gonna start buying Lakehouse. I'm gonna start buying five bedroom, four bedroom units making the backyards really nice. So I'm gonna start focusing on that next year. Hopefully lock in three and rehab those.

[00:33:48] The reason I've been so hesitant is that I micromanage everything from the construction, everything bookkeeping, everything that I like to know, everything that happens that I have to. Delegating and pushing out that way. Cuz I could [00:34:00] still make, I can make a bigger profit margin in other states.

[00:34:03] So it's taking me some time, but I'm actually gonna jump the ship to Arizona and try that out this year. 

[00:34:07] James Rippeon: That's your obstacle man. Building your systems and your team right there. Yeah. I mean you're identifying it perfectly and I think once you get that figured out, you're gonna, you're gonna scale to incredible Heights.

[00:34:18] Roberto De Leon: Exactly. Yeah. It's been tough. It's been tough, but everything's close by my house right now. So it's been very easy to do, but outta state, so many people are doing it. I see that. It's very lucrative that I'm actually gonna jump into that. So I it's, 

[00:34:30] Patrick McGrath: I need to. And what's nice is you already have that foundation that we talked about in the beginning to, to cushion a blow.

[00:34:40] If there is one, you already have a, you already have a model you're already doing short term. You're already doing midterm. You already know how the system works, I'm sure you're gonna do you. You've probably already been doing a lot of. You're seeing that the market is soft a little bit and now you're like, now's my time to jump.

[00:34:56] So all that's great, but that's not [00:35:00] your first your first thing. Isn't Hey, let me go to this high risk, high reward investment. You've already have all of your solid stuff, your foundation, that cashflow coming in, those lines of credit, where you already built all that up. And now you're saying, how do I take my business to the next level?

[00:35:22] Yeah. And I think that's really important for our listeners out there to, rewind and remember that you have to build a solid foundation first with, your strategy, pick your strategy, build your solid foundation first. And then after you have that, you can gradually go out and take on a little bit more risk.

[00:35:44] James, what do you think about that? I 

[00:35:45] James Rippeon: think Roberta's overnight success story started in 2012 when he bought his first house hack without knowing what he was doing. And he took the risk and that's where his foundation started and he didn't start buying million dollar properties, from the kick go.

[00:35:59] And that, [00:36:00] that was 10 years ago now. And it's through that time that the foundation grows become stronger and gives you more opportunity to leverage the future. Take those small steps now build that foundation. 

[00:36:10] Roberto De Leon: Yeah, I think diversify the portfolio now, too. Now I'm gonna do out of state.

[00:36:14] I'm gonna do Airbnbs and I, I have a good long term portfolio. Now I'm gonna mix in the short term portfolio. I see a lot of people just do Airbnbs and I think they're missing out in the appreciation aspect in the next 10 years. That really brings value to multifamily value that you guys know that you guys are multi families that, diversify in the portfolio, I think is very important as well, to get all the benefits of real estate.

[00:36:35] Patrick McGrath: Exactly. That's our motto. I'm thinking on this, not necessarily a downturn, but on this flattening that we might, re-add some single families to our portfolio, and maybe now's the perfect time. Like you said to, I was looking at Airbnbs in the beginning of the year and I told myself I was gonna get one this year.

[00:36:55] Now I've started to look at them again, cuz interest rates are a little high and it's [00:37:00] softening a little bit in those key markets. So we're trying to do the same thing, diversify the portfolio a little bit, have those high cash flow. Deals have those long term, baseline foundation cashflow deals and maybe mix in some, like you said, midterm, some furnish finders, some nurse housing, and have a nice, real estate business diversified portfolio, instead of just having, your heart set all on, on one thing.

[00:37:27] So that's really great. James, I think we are like rolling down everything. I there's so much to dive into. I'm sure. I'm sure you've got something else you want to get off of off on here.

[00:37:41] James Rippeon: Ask Roberto or me? I think I think I think we hit it. Roberto, I saw something on that I wanted to talk to you about cuz I think your properties would probably be a good fit for this discussion. We can of dive into it a little bit, cost segregation, I think that's a big.

[00:37:54] Concept that people over gloss and they might think that their property's maybe too [00:38:00] small and they might think they have to apply that kind of strategy to more commercial types of acquisitions and multifamilies, but you're doing it for your single family and ADU properties. So talk to us about that a little bit.

[00:38:11] Roberto De Leon: Oh yeah. That's been a game changer. So same way as Airbnb has changed. My mind cost aggregation has changed my mind a lot. So I did my first cost segregation study for 2021 taxes. I'm gaining a $40,000 tax return. So I am paying zero taxes for my W2 income job because of real estate. And that's the power right there that I would pay 40,000 right now and give it to uncle Sam.

[00:38:34] But now I'm gonna get $40,000. And guess what I'm gonna do. That's gonna buy a property in Arizona outta. And I'm going to buy another property, increase my portfolio. So cost segregation. I did that one on a single family that I built two units on it. So I did the cost segregation on the property.

[00:38:49] And then I think at the cost segregation on the construction. So I was able to accelerate a lot of that, that those funds in the first year and ride off my w two income. So I have [00:39:00] three more cost segregation studies I'm doing this year. So for two multi-families we bought and then a single family that I used to have as my primary in 2014.

[00:39:07] So I'm using those and those that ride off will be for the next three years as well. So it's such a powerful play to use going forward. The really the key is if you're gonna keep the property and I keep my property. So cost segregate, those take advantage of every aspect on the real estate side, cuz it'll help you grow.

[00:39:25] That's $40,000 I'm getting now is gonna help me buy another property. 

[00:39:29] James Rippeon: that's the long term view here. And I think that people don't really get that when you're doing your depreciation. You're gonna have depreciation recapture when you sell this place and that's gonna hit you. So all the benefits that you had up front it's gonna be recaptured and you're gonna have to, step toe with uncle Sam later down the line.

[00:39:44] But what you're getting at here is the time value of money. So you're able to save all that money not pay taxes. Now, put it to use with another property and grow that portfolio purchase more property, grow that equity refinance, for instance, repeat down the line. So [00:40:00] when it comes down to the cost segregation investment, what goes into that?

[00:40:04] What are you paying who's involved? What's all entailed. 

[00:40:07] Roberto De Leon: Yeah, you're gonna have to have good bookkeeping, make sure the costs are allocated. I use QuickBooks. So once you're done with the construction, you then reach out to a cost aggregation company, and they will ask for your permits.

[00:40:18] If you're building, I'm gonna use one as if you're building. So the construction, the permits and the costs that you pay for the contractor you give 'em the financials, what they do that costs me about $5,300. For that costion study, they then send someone, just take pictures and then they have an engineer that does a report to say, what's what of the cost is 27.5 years.

[00:40:40] And what's under 15 years. So then they allocate, okay. Floors is about 15 years. Roof is about third, 27.5 years. And they could say appliances about three years. So then they do that. And then anything that's under 15 years can be accelerated depreciation in the first year. Anything that's 27.5 on that report stays as [00:41:00] 27.5.

[00:41:01] So you're able to accelerate anything under under 15 years. And that's usually from what I see, it's about 30% of the total cost that you could accelerate. So for example, we just bought a property this year that costs us a million we're depreciation for the building is about 800,000.

[00:41:15] We're gonna be able to write off about 30% of the 800,000. So about $240,000 will be right off for the first year. So it's, that's amazing. Yeah. It's crazy. It's crazy. It's cool. It's a cool incentive because you're technically, it's stimulating the economy because you're investing in the economy.

[00:41:30] You're obviously opening you're buying more property. So they're giving us that credit cuz we're stimulating the economy. 

[00:41:34] James Rippeon: Patrick. What are your thoughts on this? Have you done cost se on your properties unit? 

[00:41:38] Patrick McGrath: So I have I did one on our 10 unit department building that we bought last year.

[00:41:44] What I didn't know is that I could have done them on the Plex that I bought and the quadplex that I bought the years before. So I lost out on that. I don't know if I could go back and do one. I'm pretty sure it's only that first year that you own the [00:42:00] property when you're doing all the renovations and everything.

[00:42:02] I'm not an expert. So if that would be great. 

[00:42:05] Roberto De Leon: You can, I'm actually doing one on a property about in 2014, I did a remodel added 2000 square feet on it in 2017. And they said I could cost like that. So the only issue is that when you buy it so long ago, it's probably not worth that much. So even if you cost S it, you're not gonna get that much of a benefit , but if it's recent, it's more recent three, four years.

[00:42:25] You're probably gonna get a huge benefit there. The problem being you've already 

[00:42:27] James Rippeon: depreciated that property already. So you're not able to front load. 

[00:42:32] Patrick McGrath: That's true. Okay. So we paid $850,000 for this property and we probably put about all said and done 60 to 80,000 into it last year with like contractors and work and everything else.

[00:42:48] And I got 127,000 to be able to depreciate because here's the key I 10 31 exchanged into the property. [00:43:00] So I had to take 140,000 off the top because I already didn't pay taxes on that. And then I got to, depreciate the rest of that 30. So not only if I sell, do I have to recapture the 10 31 exchange, I have to recapture the bonus depreciation.

[00:43:16] , we haven't done our taxes yet this year, but I'm assuming, that 120 plus all the other money we spend on a lot of properties, we are going to have. Get a check back as well and be looking to do something just like that. Our goal is to buy at least one multi-family every year to be able to do that and just never pay taxes.

[00:43:37] So that is a absolutely huge thing. And you're actually, I think the first person we talked about that cost segregation analysis for and that's really huge. And like you said, you're gonna, you're gonna have so much built up with all these properties that you're gonna not pay taxes for years.

[00:43:55] Yeah. Just remember last year or the year before, it was huge how our [00:44:00] previous president's tax returns came out and he didn't pay any taxes. And everybody was like, oh my God, this is ridiculous. And this is exactly how it's done and anyone can do it again. Three of us are just three normal guys having a conversation about real estate because we're passionate about it.

[00:44:18] We got into it. And these are the strategies that, people are doing to not pay taxes, because and I loved how, what you said is because it's stimulating the economy because you are investing into your local community. And because you're doing that, the government is giving you the benefit of being able to depreciate some of that asset in advance to get you more money, to go and invest in local communities.

[00:44:46] James Rippeon: Let's all admit it here. I think we're all better stewards of money than the federal government. So I think it's a great thing. We can put this money to great use and provide nice habitable quality living environments for people. So it's an overall net. 

[00:44:59] Roberto De Leon: [00:45:00] Yeah, I agree. And the key, like Patrick said is that you have to buy one every year.

[00:45:04] So it actually motivates you to buy every year. So it's actually funny too, because if you don't buy any year, then you don't have a ride off for the next year. So it incentivizes you to buy. So you keep on growing so 

[00:45:14] Patrick McGrath: why not? Yeah. And every year you're making more and more money with your rentals and having more and more income.

[00:45:19] So you need ways to depreciate that. Cuz at some point you're not gonna be building, seven 80 use and spending a million dollars on construction and you're not gonna have that right off either. So at some point you're gonna have to start paying and none of us want to pay taxes. Wow.

[00:45:36] I that's huge for everyone out there. Go back and listen to that. Cuz that's a big one. Even if you bought a duplex or a tri a Plex or whatever, that, that could be huge. So I think this is a perfect segue into one of our favorite sections of the podcast and we are officially calling it the big four.

[00:45:58] So James kick it 

[00:45:59] James Rippeon: [00:46:00] off brother Alberto. So tell me something that you do that feels like a cheat guard for achieving financial independence. Something that you do that kind of just, makes everything feel easier. And maybe something that other people don't have an appreciation of doing themselves.

[00:46:14] Roberto De Leon: I think the ADU strategy is perfect example. It's a lot of work. A lot of people don't do it. Surprisingly I'm surprised that a lot of people don't investors don't do this because it takes so long. But I think that's the biggest cheat code. If you're investing in LA build ADUs, get a lot and you could profit so much, once you do that.

[00:46:30] I think another cheat code is cost segregation to utilize the tax code to, to benefit you. Another cheat code. I would say that I just learned that I'm gonna do this year as well is self-directed IRA buying properties on your self-directed IRA. Ooh, that blew my mind. When I learned about that and I'm actually gonna transfer all my money to raw 401k, move it to LLC and start buying properties that way.

[00:46:50] I think that's a huge cheat code that honestly is low risk, cuz you're relying on wall street to manage your money. It's the same thing. If you buy a property, like might as well buy property, see how it [00:47:00] goes from there. But I think that's a huge cheat code for people that are risk adverse to buy properties on the 401k money.

[00:47:05] But I think those are the huge cheat codes I've seen. 

[00:47:07] James Rippeon: So the cheat codes, which, what I'm hearing from you is follow the systems that are already in place for you to take advantage of maximizing the ROI money and exactly it's a cheat code. Most people don't feel like looking into it or taking advantage of it.

[00:47:22] So it's really just a take action of the opportunity that's already out 

[00:47:25] Roberto De Leon: there. Yeah. Do the things that people don't wanna do. Exactly. That's easy where it's profitable. 

[00:47:30] James Rippeon: Yeah. That's that you're adding value and that's where you make your money. So that's great. 

[00:47:35] Patrick McGrath: Boom. All right, Roberto. Are there any books, podcasts influencers or specific resources that have really shaped, your financial independence journey, your real estate journey besides rich dad.

[00:47:52] Portex I know most of us that was the book that started at all. So besides that one, yeah, I actually 

[00:47:57] Roberto De Leon: didn't like that book, but I'll leave that to the side. Cause that's how I [00:48:00] thought when I read it, I'm like that's normal but yeah. I think the biggest biggest thing that shifted me, I've read a lot of the books real estate.

[00:48:05] I've read a lot of the books, leadership books. But the biggest thing that changed my focus was I started following tax accountants, real estate tax accountants, and that's what really changed my mind about real estate investing. Cuz then I started doing my investing based on the tax. Using depreciation using the cost segregation and benefiting that way and doing my growth plan by that.

[00:48:27] So I would say KK OS lawyers, Matt Matt Swaran mark Kohler. They have great podcasts. They've they, they are geniuses when it comes to taxes and they're lawyers as well. They're actually part of my, they do my, they set up my LC. Those podcasts really changed my mind about just real estate in general and how to structure it.

[00:48:45] That's awesome. That's actionable advice, right? Yeah. And then like just building LCS, structuring your LCS, making sure they're profitable, making sure you have a holding company in Wyoming to create extra protection set up your LCS individually after your [00:49:00] 250,000 equity. So building the infrastructure to make you untouchable is key as well.

[00:49:04] Cuz especially in states like California, we could get sued for anything you wanna be protected. You build all this wealth, you build, you sacrifice so much that for one lousy lawsuit, you could lose everything. So building the infrastructure, building the protection, building the umbrellas that way is really the key.

[00:49:22] Patrick McGrath: That's key right there. Yeah, man. What a, what? Two? Fantastic. So James bringing this into this next week, cause I'm sure it's gonna be good. 

[00:49:31] James Rippeon: So Roberto, it's five years in the future and I want you to paint a picture for us. For what excites you about being at that place in your life. What does your business look like?

[00:49:42] What does your personal life look like? What's going on in Roberto's life in five years, 

[00:49:46] Roberto De Leon: man, you could, it could probably change when you ask me this next month, but still by multifamilies I think for myself, multi families is key to growth long term growth. I think I'm gonna have a real estate portfolio for luxury vacation units.

[00:49:59] And I wanna focus [00:50:00] on the luxury ones, cuz I feel like those bring the most capital per dollar on your investments. But I also am looking into congregate care living starting my own company there. And this is blows my mind. A lot of people don't know about this, but this is like an Airbnb on steroids.

[00:50:15] So I'm actually looking to building my own company next year and I think that's gonna be my focus for the next five years building that, that business portfolio. You want me to go into what congregate care is? Yeah. I'm 

[00:50:25] James Rippeon: sitting here scratching my head. I'm like, is he gonna, is he gonna give us this definition or what?

[00:50:29] Patrick McGrath: I'm like we can't just let this slide 

[00:50:31] Roberto De Leon: away. This is insane. And this is a lot of people don't do it cuz it's very difficult to. But what's the, again, give, gimme the congregate care living. Okay. So have you guys heard of like senior care centers living care centers that they charge per day to stay at your house?

[00:50:47] So these are residential living. Yeah. It assisted living so you can make good money there, but those are low acuity. So congregate care is higher acuity. So basically you have, they, they limit you at six beds per house. [00:51:00] So if you have three rooms, you could put two beds per room. The insurances pay you 600 to thousand dollars a day per bed.

[00:51:11] So think about that, Matt, you have six beds per day, $6,000. Let, just make it like that. $6,000 times 30 that's 180,000 a month times a year, 1.2 million, 

[00:51:24] Patrick McGrath: 1.2 million for a three bedroom 

[00:51:26] Roberto De Leon: house, three bedroom. And this is the crazy. These are more lucrative in the underserved areas, which are lower cost per square foot.

[00:51:35] You're gaining lower. You could get probably get it for $300 square foot compared to the a class areas I'm investing in. I'm paying 700 bucks, a square foot, 800 bucks a square foot. So you're gaining, you're buying property at the low, and you're gaining the revenue of up to a mill it's you're gonna have to apply put medical equipment, which I'm in the healthcare field.

[00:51:52] So I know about all this medical equipment, you have to provide nursing and you have to get a license by the state, which costs about [00:52:00] $20,000. One of my, one of the, my future partners, we're talking about it right now. He opened one this year, he's profiting $250,000 on a $400,000 house.

[00:52:12] Wow. Insane. 

[00:52:14] Patrick McGrath: Insane. That is. So is this like after, is this like after hospital care, like people get out of the hospital and need a couple extra days or something like that. 

[00:52:23] Roberto De Leon: Every day, seniors are aging into senior 65 years old. I think if the number was 10,000 per day or aging into senior care, so this is gonna be the future.

[00:52:32] So when you're in the hospital, once you get, you can't stay in the hospital could cost insurance is too much. So then they put you in SNPs, which are like aftercare, but those are getting out inundated with people. They don't have enough room. So then they're pushing 'em to living care facilities, but they don't have high acuity.

[00:52:47] So that's where congregate care happens. And in, in an overpopulated city like Los Angeles, there's a high demand for it. So we're gonna jump into this. I got some partners aligned. We're gonna [00:53:00] invest in this and we're gonna start buying properties, turning 'em into very nice facilities for congregate care.

[00:53:06] And then we're gonna be benefiting from the insurance money on that. this is just 

[00:53:11] James Rippeon: one of those niche real estate models that. Just blows your mind when you do the crunch, the numbers on and you do the math on. And what's great about this is that there's a regulatory hurdle. You gotta pay that $20,000 for a license to get into this.

[00:53:25] That's gonna keep a lot of people out of it. Exactly. They're gonna be afraid to invest that one reason or another, plus all the medical backside of this for the logistics and the medical equipment and everything. This is turned into a legit business. It's not as easy as putting a tenant into a house and collecting a check once a month.

[00:53:42] Like you're gonna have employees, you're gonna have staff you're gonna have a lot to manage. You're talking about these numbers, that's 

[00:53:48] Roberto De Leon: why it's insane. The margins. And then when once one of my doctors bringing it up to me, I said, what are the margins on that? And he showed me the numbers.

[00:53:54] I was like, whoa, I've never seen this before. and and this is the crazy part. So [00:54:00] you could buy multi families. And if you have three lots, three addresses, you could put six bedrooms on each property. . So if you have three houses on a lot, like I have the Aus are allowed to do this kind of living congregate living.

[00:54:12] So you could get 120,000 per month per unit. So now that's $300,000 a month. If you have three houses under. Yeah. 

[00:54:22] Patrick McGrath: This just goes to show like crazy, like this it's crazy. Just goes to show there is so many ways to make money in real estate out there. There's so many little niches, there's so many things people are doing.

[00:54:37] Like you. There's just so many ways out there. Like you, you just have to go out and figure that stuff out. And you just happen to be in this market with your W2 that kind of led you down to this, but your real estate background that you've built over the last 10 years now gives you the confidence and you have the foundation to take a risk.

[00:54:59] [00:55:00] On one of these extremely high profitability, business models. So wow. How we possibly missed out on that little nugget right there without the big four is really blowing my mind that we did. It was like two things right there that you just sprinkled in real quick. In the last couple minutes of this podcast that are like insane.

[00:55:20] James Rippeon: I can't wait to do the follow up episode too. After this all starts hitting on all cylinders, like that's something we're gonna have to dig into. 

[00:55:27] Roberto De Leon: Yeah. Next year, talk to me. So I'm gonna probably do this quarter one next year. I'm preparing everything right now. I'm looking into the legal structure and everything, but this is the crazy part.

[00:55:36] So if I buy multifamily and I start building units on that, I could build these units and get triple to profit there. But not even that you create the business company, you have your multifamily and multifamilies are are evaluated based on. So this company is gonna lease out the multifamily.

[00:55:51] So I'm gonna have strong leases on the multifamily, raise up the valley here, have the company super profitable. I'm gonna have both benefits if I own the real estate that the [00:56:00] property's on. And eventually I always think what's the exit route. Eventually senior care is gonna grow and it's gonna become more of a demand.

[00:56:07] If I gave a couple of them, I could sell the business to the health plan or the healthcare company and just lease real estate to. 

[00:56:14] Patrick McGrath: Keep the leases. Yeah. And like you were just saying, you are increasing the value of the properties, because if you're bringing in a hundred thousand dollars a month on each one of these, you could charge 25,000 rents or whatever you decide to charge.

[00:56:29] And because it's multifamily, now you have 70, 75,000, your net operating income is gonna be half a million plus dollars. So these properties are gonna be worth like 10 million. Yeah. 

[00:56:40] Roberto De Leon: So that's where I'm going 

[00:56:41] Patrick McGrath: to, so that's, and you're gonna sell the business. And of course, he is gonna sign commercial leases for 10 years or something like that with automatic increases and go, Hey, you can buy the business, but you have to, you already have these leases with me.

[00:56:57] So I'm set, like I'm just hearing that 

[00:56:59] James Rippeon: you're gonna be the [00:57:00] McDonald's of congregate living. So that's that's 

[00:57:03] Roberto De Leon: and the penetration's so low, I looked at the air barrier entry is very difficult. There's only like 10 in this area. I my the people I'm talking to that eventually we haven't formalized a partnership are physicians that are well known in the community.

[00:57:15] So we're structured in a way with my real estate background. Ooh, man I could see this going skyrocketing as we go forward, but hopefully we'll see. We can talk in a year from now. 

[00:57:25] Patrick McGrath: We will be talking in a year from now. All right. So for anyone out there that wants to pick your brain about any of the multitude of things that you drop nuggets on for the last hour, plus, where's the best way to find you?

[00:57:39] Roberto De Leon: Instagram I'm only have a presence on Instagram, on our builds. So I try to post at least one thing a week. So it's very difficult cuz it's in my, me and my wife are one team show. But R and R build on Instagram or you can find us 

[00:57:50] James Rippeon: perfect. We'll include a link to that in our show note. So anybody who just wants to click on that and go check out all the cool things that Roberta has going on, 

[00:57:58] Patrick McGrath: Hey, that's how we found them.[00:58:00] 

[00:58:00] And we are so happy that you decided to spend an hour with us. For everyone out there, please leave us a review on apple. Give us hit that five star on Spotify. Go subscribe on YouTube. I think we have like maybe 15 or 20 almost. And share this with your friends. We love you. We'll talk to you next time.

[00:58:20] See you guys. 

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