Jillian Johnsrud & Chad Carson - Small and Mighty Real Estate Investing
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Hey, what's up, everybody? Welcome to the Financial Independence Podcast, the podcast that gets inside the brains of some of the best and brightest in personal finance to find out how they achieved financial independence. I have a treat for you today because I am welcoming back a past guest, Coach Carson, and you may remember him from episode number 32. And Chad is coming back on the show because he just released a book called The Small and Mighty Real Estate Investor, How to Reach Financial Freedom with Fewer Rental Properties. And he's going to be talking about how to achieve financial independence.

I'm not a real estate investor myself, but if I was to do it, I think this would be the way I would do it because you see a lot of things online about getting the most leverage to buy the most amount of properties.

It seems like a crazy way to live, in my opinion, but small and mighty sounds just about right. But since I'm not a real estate investor, I figured why not get someone who is a real estate investor to talk to Chad because they're going to ask a lot better questions because I won't even know what to ask since I don't invest in real estate. So my friend Jillian Johnsrud, who I spent a lot of time with at the UK Chautauqua many years back,

And Jillian is a small and mighty real estate investor. And she talks about that during the show. But she thankfully was willing to take on the role of host. And they had an excellent discussion that I'm going to share with you today. So thanks to Chad Carson, Coach Carson, for coming back on the show. And huge thanks to Jillian for taking over the role of host today. So take it away, Jillian.

Hello, hello, welcome to the Financial Independence Podcast. And if you can gather, the lovely voice you hear is not that of Brandon. My name is Jillian Johnsrud, and I'm super excited to be doing kind of this podcast takeover. Today, we're going to talk about an idea that I'm so excited about, which

And that is how do we get to our ideal financial independence lifestyle faster? How do we start living this idea a little bit quicker and

and easier because if you've listened to Brandon's podcast for a while now, you've maybe heard this theme that just because you have enough money doesn't mean that you instantly move into your ideal lifestyle. There are some challenges. So today we have a super special guest to give us a tool, give us an idea of how we can make this happen.

With me today is the one, the only, the awesome Chad Carson. He is a real estate investor. He's been doing this for 20 years. He owns about 30 houses. And he has this idea that is so refreshing to me that we can be a small and mighty real estate investor, that we don't need to own

100 doors or add, you know, I bought 350 new doors this year. We don't have to make it a brand new full-time job, but instead we can leverage it in this way where we gain financial freedom and live our lifestyle faster.

With the least amount of effort, which is super refreshing to hear. So Chad, thank you so much for coming on today. Jillian, this is great to be here. Thank you for the introduction. And I'm just excited to talk about this topic and particularly to talk about it with you. I couldn't think of anyone better to do it with. So a little bit about my real estate background. Me and my husband, we live in Montana. We've got five kiddos. We are financially independent.

And we travel half of the year, every year. We're kind of really big into this mini retirement idea. But we own two properties, which is like small and mighty. We're like tiny and mighty. We're the tiny and mighty real estate investors. And we're not an all or nothing. We have investments and 401ks and all of that. But our rental income does make up about 30% of our passive income.

And honestly, without it, I don't know if we would be doing what we're doing with our life. So what inspired you to start to share this idea of maybe bigger isn't better?

Well, there's a couple of motivations here. The more recent one, in case anybody was noticed, if you've dabbled a little bit in the real estate world, if you've gone online, Instagram, wherever you want to go, podcast, there's just this ethos that's out there that the biggest are the best, that the fastest is the best, that more is better.

And, you know, it's not really just a real estate thing, although it's very prominent in real estate. It's also in the business world, the entrepreneurial world. I mean, you could take it all the way up into people's corporate lives. There's just an assumption. You know, maybe our international friends could tell us that this is an international thing as well, but it's definitely an American thing. And so part of my motivation was just pushing back on that.

because my own experience has not been that that's actually necessary to live the good life, to have a financial independence life, as you put it before. In fact, it might even get in the way. And so having more, and I really love the book. There's a lot of financial independence. People in this community might remember Your Money or Your Life. When I first read that book, it was sort of the thing that took me on this path of trying to do things a little differently. And they had this curve, this enough curve where...

If you get more and more and more and more, and this applies to your personal stuff, the more stuff you get, the more cluttered your life gets. And your happiness, the first meal you eat, you're going to be very happy because you're hungry. But overeating, you start going down the satisfaction curve because you've had too much. And real estate works that way too. Like having too many properties, having too much of a business, having too many moving parts, etc.

It might make you more money. Maybe there's some argument that could be happened there too. But even if it does make you more money, if your objective is to have more life and you and I are both big proponents of travel and being with our family and being present to the extent we can, when you want more of that stuff, the stuff that life is made of time and presence, then you're,

Having a smaller blueprint, something that actually could be more manageable and produces enough income because we all got to have money, but does it in a way that the business is oriented around your lifestyle. And we're starting with the life and we're working it backwards and saying this business model, this real estate portfolio has to serve that. It's just a tool.

And so I want to start with a lifestyle, work it backwards. And my own personal story was that I tried to go big early in my career 21 years ago. I was young in my early 20s and going to classes and a lot of the seminars I was listening to at that point. And I'm going to date myself the CDs I was listening to in the car instead of podcasts.

they were all, you know, the success was going big. And so I just sort of tried to emulate that. I copied it. And a few years in, we were buying a lot of properties. I have a business partner, by the way, a 50-50 business partner. So that's when I say we. And we were flipping houses. We eventually started buying some rental properties. But then a couple things happened. The 2007, 2008, 2009 recession happened. And that was scary. Having a lot of properties or trying to go too fast and grow into a recession. We survived, but that was a little dicey.

But then the other thing was just realizing in my gut, in my business partner's gut feeling that this is just not for us, that we like a simpler approach. Yes, we want to grow, and we have grown. If you're the tiny and mighty investor, we're the smallish and mighty investor. We've got enough. But my motivation for writing this was

I've lived it for the last 21 years of me doing it and my business partner doing it, helping other people do it. And I just, I wanted to create a blueprint, a guide that says, here are some ways to do it. This is, it's not going to be easy at first. Real estate's got some challenges. Most people know that, but it's going to, it can be, it can be easy in the end. Like we were,

My own lifestyle now, like you, we travel, living in another country for a year, working a couple hours per week on my real estate, and it's producing a full-time income. So the end result of this, of a small and mighty real estate portfolio, it can really accomplish, that's the mighty part of this, it can really accomplish the goals that you have personally if you do it in a very deliberate way.

When I was reading through your book, one of the things that struck me about this book, because I think you're right, there is a little bit of a vibe on social media of like, more, like go bigger. And kind of, I don't know, kind of this hype mentality. But reading through your book, it actually hit me of, this is the book I want my kids to read.

This isn't necessarily just a book for people who are like, I'm super into real estate and I want this to be my full-time gig and I want this to be my life. This is a book of how do I fit this into my life to give me more life if I don't want it to take over my life? And so I thought about it, like wanting my kids to read this too because...

Even if they don't want to be this massive real estate investor, this can be such an important tool, such a useful tool in giving them more financial freedom, getting closer to their FI lifestyle. I'd love for you to talk a little bit more about this idea of like.

How can we do this and it not become our full time jobs? Because like we're trying to get away from our full time jobs because you've created a lot of good systems to where you're not you're not on the phone 30 hours a week managing properties and fixing dealing with repairs and turnovers and all of that stuff.

Yeah, I love this topic. And speaking of talking about it with your kids, my kids get to listen to podcasts in the background and hear me talking about it. So it's kind of an interesting perspective from the five kids that listen to this. And one of the messages, though, I try to not just tell them in words is challenge myself. I'm not perfect at this is to actually live that, like to actually carve off pieces of your life and say, this is my goal to be present. And for my in my case with kids and and to do those things.

But to actually do that on a practical standpoint is difficult. We all have busy lives. And the cool thing about real estate, though, and I'm not going to sugarcoat. I want to tell everybody the real story and the real story of real estate investing. And this keeps a lot of people from getting into it in the first place. It starts off like a startup company.

like a venture capital company where, you know, there's going to be some work learning it. There's going to be some work finding a deal. There's going to be some work analyzing your market, making sure you're buying the right neighborhood. There's going to be some work getting financing, building a team. So all of that, that's the, the, the dirty work, right? Either that's the cost. That's the, I call it like a psychological down payment. Like you have to put that money, that, that time into it. In addition to putting some financial down payment, perhaps, but,

And, but on the other side of that, the return of that is that real estate can end up like a blue chip stock. And I think a lot of people who are just on the fence about real estate, they get kind of stuck on the front end of it. And they're like, oh, real estate, you're gonna have to spend all this time doing it. And depending on how you approach it, there's gonna be some time for sure from two hours per week to 10. Like if you're just starting, if you can't invest five to 10 hours per week, it's probably, there's probably other things you wanna get into, right? So it's, there is that investment aspect

But what I have found is once you make, if you follow a process of getting the right properties, meaning properties that are more likely to be able to be lower management intensity. So they're going to attract tenants who are self-sufficient, attract tenants who are going to be able to cut their own lawns, for example, or shovel snow for people who are in the snow areas. You know, they can take some responsibility because they have this nice home and this nice neighborhood. And you'll be, I mean,

The tenants on most of my properties have been great. They're team members. These are amazing people who are wanting a place to live. And the value we're providing to them is doing all this work on the front end to put this deal together, to take this risk. And we're giving them a property that we then hope they are a custodian of. And so your tenants are your number one team member. They're the people who can help you out in this respect.

And there's just some practical examples, like not only cutting the grass, like I have a single family house that we still self-manage, although most of our other properties are managed by a third party manager. We give them some ability to, if there's an emergency, that's the thing people always think about. There's a toilet leaking in the middle of the night. By the way, here's my plumber's name and number. They have 24 hour service. And if that toilet leaks, call them. They'll come out and fix it. I'm fine with it. I'll pay for it. But just call them.

And that's the thing people are worried about, the plumbing call in the middle of the night. There's a service that does that. You write a check and you pay that service to do it. So that's the kind of basic systems you can put into place, a phone number, a name, give it to your tenant. But it can get bigger than that. And so part of that is also building relationships with if you want to have a property manager, which I like having a property manager, they can handle a lot of the details, particularly on properties that are a little bit more management intensive.

So I have some student rentals. I'm in a college town. And those take more time to lease up every year and a half or two. And so that's something I couldn't do from Spain, for example. So the more time-intensive business models, hiring managers, there are plenty of property managers who can do a great job. And I find those are my main team members to make my life easier and

And all of that to be said between simple little systems, checklists, operational type stuff, and people, just great tenants, great team members. That's what makes this thing eventually become that blue chip stock, that passive asset.

investment. And if you can get over the hump on the front end, and that's sort of your cost of entry, then on the back end, I've literally for the last 12 months, and this has probably been last five or six years, it's kind of been this pattern. I spend a couple on average, a couple hours per week, some weeks, I might spend five or six hours doing a lot of bookkeeping. That's pretty much what I do. But the rest of the rest of that time,

that most weeks it might be 10, 20 minutes of just sending a text message to my property manager, the tenant letting me know they deposited the rent, stuff like that. A simple response, simple there. So what I like to tell people is like, it's not completely passive, two hours per week. I know.

But it's passive enough. It's never kept me from doing anything that I wanted to do, anything my family's wanted to do, because there's so many other benefits of real estate, of the income, the growth, the wealth building you get, that if you can figure out a way to solve that kind of hassle time thing that kind of keeps everybody from wanting to do real estate, then you can get all those benefits with a passive enough structure for how you manage your properties. Yeah.

One of the things I loved about your book that really resonated with me in that when I talk to real estate people about my real estate, they are 0% impressed because I think they feel like I'm doing everything wrong.

But when I talk to five people, they're like, oh, that's clever. Because, you know, when we started, people were like, oh, you should do multifamily, you should do all these stores. And I was like, that sounds really hard and kind of like a hassle. So we went with single family homes. And I was like, they need to be big enough that they're hard to move out of.

where you can't do it in a weekend with a truck that your friend lounges you. Like, I need a house with, like, closets where people can put stuff and garages. And we priced it a little bit or a lot of it below market value. And my thought was, it's going to be super easy to rent. We're going to have lots of applicants. And because it's below market value,

They're not going to move out because they can't find any place cheaper, which like financially, all of these things don't make sense. Lifestyle, like I mentioned, I've got five kids. We travel half of the year. This is not the season of my life to constantly be inundated with real estate problems popping up. So I wanted to make it as easy as possible.

And that's something I love about your book. Like it's okay to optimize for the lifestyle that you want. Like you don't just have to optimize for the most stores or the most profit. There are other metrics that we can try to, to lean into. And it's something that I feel like you have really embraced and you

I don't know if, I don't think I even mentioned this in the intro. You are currently in Spain where you have been for a year. And you did, was it 17 months? How many months were you in Ecuador? 17 months. Yeah. 17 months in Ecuador. I would love for you to tell people a little bit about how, how we can fit this real estate in with this,

Getting to this five lifestyle faster. Yeah, something I think you always appreciate about your work as well, Jillian, is that we both value these sort of seasonality, both of our year, but also of our life. And I think real estate fits really perfectly into these fire seasons, these financial independence seasons.

And my life has been with my wife and I, when we first met before we had kids, it was before the Great Recession that I was talking about earlier. And so we were kind of in the early days and just grinding away and trying to make money. And she was working as a Spanish teacher. But we always dreamed the lifestyle that on our very first date, we talked about this, that we want to travel abroad.

We want to live in another culture. She's a Spanish teacher. She now teaches English too. So languages are just her, her thing. She loves like correcting accents and doing all like the little nerdy kind of language stuff. And we wanted to go do that. Like, and we wanted eventually when we had kids, we wanted our kids to experience that. So that's, that's our thing. Like everybody has their thing.

And, but, but we always knew that that was the thing we're optimizing for. And we want the compass to point, you know, the business, the lifestyle has to, has to be first. And I think that's where it's easy to kind of get caught up in an either or thing. Like you either have to go big to make enough money and then you cash out and then you can live your lifestyle. Like that's sort of the, the, the normal ethos. Whereas what I appreciate about, appreciate about your work that I've learned a lot about and I've tried to implement as well is that you could sort of mix that. You can have,

the pushing hard season for two or three years, acquire a few properties, get to a little plateau, take a break and enjoy this life while you're in your 20s, your 30s, your 40s, wherever you are. And then you go back to work again and you try to grow again. And so I think that's the difference here is that real estate is something, it's like a tool that you pick up

You use it for a while. And then it's, as I mentioned earlier, then once you stabilize it, get a good tenant in the property, get it maintained, get everything ready. Then it fits very, it fits perfectly into that six months, 12 months, 17 months in our case. And it's been such a, it was hard for me, honestly, to get off that, that rat race. I know Brandon has had,

He's had some similar conversations on his podcast about just going through some withdrawal after you get to financial independence where you're psychologically like, oh, I need to be on this rat race. It's like you're addicted to it. And I physically had times, and I thank my wife for kind of pushing me into these many retirements sometimes against my, ah, we did a little bit more, a little bit more. And I had physical sensations about a month or two into some of our many retirements where it took me like two months to finally just say, wow, all right, okay.

This is when you get off of that rat race a little bit, you can think clearly, you can take a deep breath, you can think about your life and have that perspective. And that is such, such a beautiful thing. It's just a gift that I wish for everyone.

And part of my mission is to say, here's a toolbox that can help you do that because it's not a tool you're going to learn in school. It's not a tool you're going to learn in a lot of the mainstream financial information and honestly, the mainstream real estate information either. So you have to mechanically do things a little differently, but it starts with that different perspective of saying, I don't have to wait till the end of my life to live it. I can interchange my life with these many retirements, with these pauses, with having my cake and eating it too, so to speak. Mm-hmm.

One of the examples, the metaphors I use with coaching clients. So if you don't know my background, I do a lot of one-on-one coaching where I help people either physically,

make the transition into early retirement or a mini retirement, you know, it can be a little bit tricky of a transition. Like you kind of mentioned, there's, there's some stuff going on. But one of the metaphors I use, I used to work at REI, which is like an outdoor sporting goods store. And we sold a lot of hiking equipment. And it was always funny to me, the hiking customers that came in, because we have two, two varieties. We have the

what's the most amount of stuff we can carry? Like while we're in the store, can we fit the, like the feather booties? Can we fit all of the accessories? And then there's, and they're, and they're trying to do the math. Like how heavy can I make this? And how long can I walk with this amount of load?

And they're kind of optimizing for the most amount of suffering. And then there's hikers who are like, what's the least amount of stuff I could carry? How light could I make this? Maybe I could just do like two pairs of underwear. The pair I'm wearing and the pair that's drying because I washed it the night before. Yeah.

Yes. They're also the people who cut their spoon in half and have like the bowls substitutes for a hat. I don't know what they use. They double use everything. I love it. I appreciate those people for sure.

But it's optimizing for how light can I make this? How easy can I make this? How can I make this sustainable to where it's, I could walk with this weight forever. And I love how you kind of incorporate this idea into your book of how

Instead of thinking about what's the most amount of houses I could handle, what's the least amount I need to make it work? And it's kind of like the hiking trip. What's the least amount I need to carry to get me through this trip?

So when you're thinking when people are like, OK, so I like this idea, but how do I figure out like what's the lightest load I could carry that would make a significant impact for me? How do you help people kind of do that mental math?

Yeah. Another great thing that I love about real estate investing is how simple the math can be. In some financial equations, you can get overwhelmed by it. And if you're not a super big math person, you're like, oh man, you're losing me in the spreadsheets. And I love spreadsheets, by the way. So no problem there. But I want to go through just a real simple way that you could work it backwards. So if you're brand new and you're thinking about getting into real estate, or even if you're someone who's already in real estate and you're like, all right, how can I get off this rat race? Like, wait a minute, how many properties do I actually need?

Let's just do a real simple exercise. Assume you have a house in your town, wherever you're investing. And I know these prices can go all over the place, depending on if you're in Manhattan, New York, San Francisco, California, or Clemson, South Carolina, where I am. But just roll with me here. You have a single family house, and let's assume it rents for $1,800 per month. That happens to be the rent I'm getting on some single family houses that I'm thinking of right now. And

And let's also assume that you have some expenses on that house. We could go into a lot of detail on those, but let's say you have taxes and insurance and maintenance and management fees and capital expenses. You're going to have to replace the roof at some point. But all of those things, except for your mortgage payment, let's say we're about $800 per month.

So $1,800 minus $800 is a nice even round for my math, $1,000 per month. And that's called net operating income for the, if you want to get a little nerdy with that, or NOI. And that number is really important because that's the amount of money this rental property could produce before you make your mortgage payment.

And if we want to kind of fast forward and think about the future goals here of how many properties do we actually need to have financial freedom, assume for me here for a moment that you pay your mortgage off on that property. And so if you pay the mortgage off one of these days, maybe five years from now, 10 years from now, then all that money, that thousand dollars per month would go into your bank account. That's money that you could use to do other things, including taking many retirements, traveling, whatever. And so let's just, let's just kind of extrapolate from there.

All of you probably have at least a general idea in mind. If you haven't, this is a good exercise to do of what is your number? What is your financial independence number? How much money every single month for you and your family would you need to be in a kind of a basic lifestyle, maybe a kind of a lean financial independence?

How much would you need just for a normal lifestyle, kind of standard financial independence? And you can even go crazy here and say like fat financial independence. Like how much would I really, if I want to travel a lot and stay in a little bit nicer hotels, like whatever flows to your boat, that's fine. The math will work for any of those, but you work it backwards. And let's just say your number's $10,000 per month.

then you would say, all right, one house, free and clear, paid off, would produce $1,000 per month. Easy math, 10 times 1,000 is $10,000 per month.

And any number in between, 5,000 per month, you could have five properties, 20,000 per month, it would be 20 properties. The point here isn't that you need to be exact with that because this is a goal for a few years from now, five years from now maybe. But the point is to kind of give you a compass to realize that you don't need 50 properties. You don't need 100 properties. This is probably a smaller number than you think.

if you take this approach of keeping it simple, having the light backpack, I love that metaphor, of thinking about what's the least I could have to accomplish my goals.

And if you get any bigger than that, it's kind of the clutter. It's the heavy backpack. It's the extra stuff in your pack. And there might be a good reason to do that. Maybe you just love going big and 10xing and it just makes you feel good. And if it does, that's fine. But for most of us, we just want to have it as a tool. We just want real estate to serve our life. So two properties is brilliant. You're a hero of mine. You're a small and mighty investor who has found enough.

Amazing. What an amazing concept. Two, works for your life. And a big part of my mission for the book was to give the math, to show people, here's how you do the goals. Here's how you implement that. Here's some ways you finance the property, buy the property, do all that. But also just to validate that, to celebrate that, to say, you know what?

That's actually, in my mind, the people I celebrate, the person who has two properties or five properties or 10 who said, I've got enough. I'm going to start doing these other things that are also challenging but are different than just making money. I think that's amazing. I think we should celebrate that. We should be excited about that. And I just wanted to give a toolbox for those kinds of people who can then teach them how to implement it.

One of the ideas in the book that is a little countercultural in the real estate kind of vibe is,

is your approach to paying off properties? Like you mentioned, um, I think there's so much talk about like more leverage and more leverage and more leverage and like making everything bigger and bigger. Um, and there again, that's, that's one thing where in, you know, in my real estate life, one of our properties is almost paid off. Um,

And, and sometimes the real estate people are like, but you could, but, but you could take that and then you could have five more. Why, why do you kind of introduce this idea of you could have less leverage, you could have less debt? What's, what's kind of your thought process or strategy there? Yeah.

Yeah. So just like real estate is a tool, I look at debt as a tool and it's really a power tool. Like it's if you were a carpenter, you know, this is this is a tool that can really help you build something special a lot faster.

But it's also like a power tool. It can cut something. You know, it can be dangerous. So I have a healthy respect for debt. Like, I think if you're just starting and you're a brand new investor and your funds are limited, I get that. Like, you know, you might be starting from negative. You might have a lot of debt. You might be overwhelmed, you know.

people, that's where you start. Like that's, that's okay. And being able to get a 5% down mortgage and buy that little simple house or that duplex and move into one side, like that's what it's all about. And leverage allows you to get in the game. Like what a, what an amazing tool that is. And so I look at it from the standpoint, and this is a really important metaphor to think about that we have to know what stage of the financial journey we're in. And so for a starter, like, girl,

Great. You don't have a lot of resources. Leverage is an outstanding tool if you use it carefully. Use the power tool carefully. Put your safety goggles on. Don't put your finger in the saw, all that kind of stuff. But then you move into another stage, which is the wealth builder stage. And this is where most of the real estate advice comes from. It's where it is reasonable to say, if you use leverage, if you use debt, that's going to be the optimal way to grow a $100,000 nest egg into a million dollar nest egg.

It's how you grow. It's a good tool. It's not necessary. There's people like Dave Ramsey and others who invest in real estate paying all cash. And I've actually done that on the side as an experiment. I have a self-directed retirement account and we just paid cash for properties and it's grown really well for the last 10 to 12 years. And it's possible. You don't have to use debt, but it is a tool that if you want to get there a little faster and use it safely, it's a great tool. But

But here's the problem. Like the third stage, you go from the starter to the wealth builder. Nobody really talks about like, how do you actually get to financial freedom? Like, wait a minute, you just magically right into the sunset. And by the time you get to your hundredth property, now you have enough cash flow and you can do it. My advice and what I actually have done with my business partner is eventually you start recognizing there's some signposts along your journey at the Financial Independence Mountain that say, I think I'm getting close to having enough

Or I think I've approached a point where it would make some sense to take some chips off the table, to use a poker metaphor. Like I've made some winnings. I've built some wealth. I've done some good stuff. I think I want to not just optimize for growth. I actually want to optimize for reducing risk because bad things can happen. Having leverage is a wonderful tool. It can make you grow. It's also the main way. I can't think of any other way that I have friends, people I know, acquaintances in real estate who've gone out of business, who've failed. Yeah.

The only way that's happened has been leverage, has been using leverage in a negative way. So I think in the good times, people are like, let go, go, go. Perpetual debt religion. We love this stuff. This is great. But then if you think about the worst case scenario, as you climb up the mountain, my recommendation is as you're getting ready to harvest that wealth and use it, in the book, I use the term called ender, which I kind of have misgiving, you know, misthoughts about like, I don't know if that's the best term because we're not ending this journey. We're just starting another journey.

part of the journey. But the point is you start playing a different game. You start reducing your risk. You start increasing your income. Yes, you can still grow, but you're not just optimizing for that. And one of the best tools to do that is paying debt off.

And I'll just give you a real quick example. We had a property that had $100,000 debt on it, plus or minus. It had $1,000 mortgage payment, and it used to be a $180,000 loan when we started. So we've paid it down. This property is probably worth well over $200,000 now, maybe $250,000, maybe $300,000. But we have a $1,000 payment, $12,000 per year, that if we paid $100,000 and just paid that off, we would free up $12,000 per year.

$1,000 per month. If you look at it as a cash on cash return, that's a 12% cash on cash return. And I haven't found anywhere in the entire investing universe where I can make a 12% return while reducing my risk, while also increasing my free time and my simplicity.

That's the power of eventually using the tool of paying off debt. It's like you put the debt tool back in the toolbox, you take the paying off debt tool and put it on your desk. And it just makes sense depending on where you are in your career, depending on what your risk tolerance is. But it's been one of the best things we've ever done is to start going down that path. So one of the things I've noticed in...

you know, having the privilege of kind of working with people in their numbers in this transition, I feel like I get that kind of inside scoop on what's really happening in their minds, all the fears, all the hesitations. And it's something that Brandon's talked about a lot of, you know, it's one thing to amass all of this wealth. It's a very different thing to then start to pull from the piggy bank and utilize it for, you know,

creating this, you know, five lifestyle. And one thing I've noticed is that no money spends the same. As odd as that sounds to the most logical among us, there is a different emotional weight to pulling money out of your 401k versus if you have cash or a brokerage or rental income. Right.

I actually, I had a blog post where I listed like the happiest money for people to spend in retirement. And rental income is up there because...

Man, don't you know, those rental checks kind of feel like paychecks and they kind of spend like it. It has a different emotional weight than like robbing the piggy bank. Is this something you've noticed in your journey or other real estate investors, kind of especially in the FI community? Yeah.

Yeah, 100%. And I know Brandon's done a lot of good episodes on just the science and the analysis of withdrawal, your minimum withdrawal strategies. Like, can you take out 4%? Can you take out less? You can take out more. I find those very intellectually interesting. But I have to admit that because of my...

leaning towards real estate has never been an issue. It's not something I think about, but I talk to a lot of people who get into real estate because of this issue you're bringing up of, how am I going to spend this wealth that I got? It seems like a simple equation, but psychologically selling an asset that you have, and then it's almost like you're eating the principle. We've all heard that metaphor of the golden goose. The golden goose lays these golden eggs.

And you can use those golden eggs to go spend it, but don't kill the golden goose because then there's going to be no more golden eggs. And even though you know mathematically that's not the case, it meets the 3% rule or the 4% rule. That's just a tough thing to do until you actually have to do it. Whereas on the other hand, what I talk about in the book and what I've done myself personally is, again, it's pretty simple. Simple math here is build something called an income floor. Okay.

And the income floor works like this is you want to get the least risky, most steady, most consistent sources of income. And you want to get those sources of income in a place where they every single month pay for your basic lifestyle to start off kind of your lean financial independence.

And when you hit that point, I'm telling you, it's a huge sigh of relief. It's just like, wow, I've got my mortgage taken care of, or I've got my health insurance taken care of from this $1,500 per month or whatever your number is. And I literally think about it like every cash flow, if we have 500 in cash flow, oh, that could pay for half the groceries or a third of the groceries or whatever the number is. Or this $1,500 in cash flow over here can pay for my health insurance because health insurance in the United States is

is crazy. It's crazy expensive. Right. But whereas everybody else is complaining about it. My idea is like, well, we just got to add some more to the income floor because that's getting a little bit more expensive. And so it's literally, as we talked about earlier, just kind of stacking up cashflow estimates from your rental properties. And then there's this, the work of that is then you've got the estimate and you've got the properties. Now let's kind of clean up our portfolio, clean up our properties so that that cashflow is more consistent and

And it really is, it's even better than a salary because it comes in every month. And yes, there might be some issues here and there. Like people might object and say, well, somebody might not pay the rent on one of your properties. And so one of the kind of disciplines I've had that's really helped me out, especially in the great recession, 2008 and nine is you have some cash reserves as well. So,

So whereas stock investors might not have, they might see a cash reserve account being a waste of money. I have a very healthy cash reserve account. I've only tapped it one time. That was in the great recession and I'm glad I had it. The rest of the time is like an insurance policy to sitting aside in a savings account, making whatever I can make in a savings account and not worrying about it because it sort of smooths out those times when you're not getting the full cash flow you want, whether it's because a one tenant's not paying the rent or because you had a big expense on the heating and air that month, whatever the case might be.

You have the income floor, you have cash reserves. And I can tell you just from personal experience here in Spain, I used to budget a lot. I don't budget. I just look at my bank account and say, huh, there's more money in the bank this month than there was last month. And there's more month, this is another month, another month. It just keeps going up. That means I'm spending less than these rent checks, this net income that I'm bringing from my rentals. That's my budgeting because I still have the properties. I'm not selling them. There's nothing happening to them. They're still there.

This income continues to come in once you get it stabilized. And it's psychologically an amazing place to where you can then you can spend that money a lot more guilt free, knowing that there'll be another month with another rent check coming in and you can do it all over again. Yeah. One of the things I'd love that you mentioned in the book, because I think

I think people miss this entirely. Until you're in it, you don't see it. You know, we have the fear of the middle of the night toilet call, but we don't see the other end of that spectrum in that it's

we get to have real relationships with people and we get to do something good in our community. And while there's unexpected repairs that are kind of a hassle on the other side, there's this really lovely, beautiful thing that, you know, I understand that people are hesitant for real estate because they don't want the hassle side, but you're also going to miss out on this really lovely side that,

We had an experience. We are, I think like a lot of rental markets, ours has gone a little crazy in the last few years. You know, real estate markets gone a little crazy. I live in Kalispell just outside of Glacier National Park in Montana. And we were like the fastest growing small town in America. It's just, it's put a lot of stress on our market. And we post our listings on like in Facebook groups mostly online.

And man, people in the Facebook groups, people post market rights and the comments are ruthless. Like, oh, they're angry. So angry.

But we posted ours. We listed one of our properties this year. Actually, while we were traveling, we did all of it remotely. And all of the comments were like, thank you guys so much. And we actually posted on April 1st. Comments were like, we thought this was an April Fool's joke. Like, I didn't think that there could be a reasonably priced property.

Like it had to be a scam. It has to be a joke that there's something affordable that like a nice place that people, normal people can actually live. And hearing all of the appreciation from the people we interviewed, like, oh my God, thank you so much for offering something that like we can afford. And it's like a decent place to live. We kind of miss out on that side because we're worried about,

a toilet repair. And by the way, Roto-Rooter is on our speed dial. Sometimes we call them, we're like, is there like a punch card that we can get? Because like buy nine, get one free maybe. How have you seen kind of that experience play out for a small real estate investor?

Yeah, this is one of those benefits of real estate that you get into something because you think it's going to give you one thing, the income, the wealth building. But then you get into it and you realize, whoa, there's a whole another dimension here that is so rewarding and is exactly what you're talking about. It's the fact that I live in the community where I invest and not everybody does that. Some people invest long distance, but-

I think the small and mighty investor, I'm really passionate about this, is that we actually care about what happens to our tenants.

We actually care about our community. And for me, just to show you how this manifested in my own life, we had these rentals. And I'm always studying the market and trying to understand what's going on. And this leads to you reading the news in your local city councils, like what's going on with the council, what's going on with this. And I started volunteering for some of these community input sessions. And that led me to being on the rewriting of the zoning code. I don't know what kind of committee this is on, but I was on it.

And this conversation kept coming up. It was like, oh, man, we love living here in Clemson, South Carolina, where we are. But everybody kept saying, but you know what? Like when I leave my house to go push my kid in the stroller, I almost get run over by a truck trying to get to the park a quarter of a mile away. Like, why is there no sidewalks? Why can't we do a crosswalk here? And this common theme, at least in our case, was...

there just was not any walkability and it was just really difficult as a human being to get around the town. And I thought about it, of course, from my tenant's perspective, like that would be nice. It would be easier to rent my properties if they could walk from there. So we started buying properties in a walkable location. But I

But I also started thinking about, well, how can we change this? How can we make this better? I live here. I invest here. And that led to me in 2014 and 15 gathering with some friends and starting a nonprofit. It's now called the Friends of the Green Crescent Trail, where we have been sometimes futilely but finally successfully the last few years trying to build a network of walking and biking trails of trying to change the community, like make it better. Yeah.

And that doesn't mean that's the only... There's tons of things that need to be changed in every single community. And who's going to do that? Who will do that? It's the small...

caring people in your town. Some of them are entrepreneurs. Some of them are just people who live in the town and just want to make a change. But we as real estate investors have a pretty unique perspective is that we can talk to our tenants. We can see what's going on with them, what problems they have. If we don't live there, but if we live there, we can also go to meetings. And I have found small investors, as opposed to hedge funds who own 10,000 houses and

big, huge syndications who they know their tenants as a number on a spreadsheet. I know my tenant's name. They're on my speed dial. I text with my tenants who I self-manage. I know them. I know their kids' names. I know where they go to school. I know what their struggles are. They're a human being who I probably am going to see in the grocery store. And

You know, it's a little different when you're going to see somebody in the grocery store and how you're going to treat them because there's some common decency that happens. This always happened as human beings. And when we see other people as people and not a number on a piece of paper, it totally changes the dynamic. And I think as somebody who's interested in financial independence, this has led me to say, like, what am I going to do when I have a lot of free time?

I'm going to try to make my community better. I'm going to try to get involved. I'm going to try to use these skills, the money to do these things that are important to me. And I think that's an opportunity. That's something I didn't see coming when I first got into real estate, but it's now become the best thing. It's like the amazing part of this is that

when I'm on my deathbed, am I going to be more proud that I had 33 properties or I'm going to be more proud that there was a couple of little problems in my community. And I made a, I made a little bit of a dent on making that better in my own way. And I used my free time and my energy and my money to try to, to make that better. And maybe my kids are watching that. Maybe they'll see a little bit of that too. And they'll try to do the same thing. Maybe my tenants will see that. So it's, it's a, it's a virtuous cycle, but,

And I think it's part and parcel of being close to the ground, being a small investor who has that perspective of caring about their what happens, not in addition, not in substitution for money. Money is still important. But in addition to that and kind of building off of that money that we're trying to make as well.

And Chad, thank you so much. I hope this has been such an encouragement for people who've been a little bit on the fence, a little bit hesitant because like the TikTok bros are like, I'm not sure that that's me. But want to get to their five lifestyle faster, want to really optimize to have an awesome life. Your book comes out July 20th through BiggerPockets.com.

So if you want to get it early and quick, that's where you go. Or everywhere else, August 22nd, Amazon, all the bookstores. I always love your writing. It's equal parts encouraging a new vision of how things can be done, but like super practical, step by step. Here's everything you need to do from I don't know what I'm doing to it's already, it's been accomplished.

Well, thank you. Thank you, Jillian. Your feedback is wonderful. I appreciate it. I hope it's been helpful for everybody to hear this conversation. This is sort of the tip of the iceberg. But if you are interested in the book, this is something I put my heart and soul into for six months writing, but really 20 years. This is everything I know, the best of what I know, condensed into a format that is really just a guide. The sort of the wrapping of the guide, the outside of it is the philosophy of being smaller, why that's a more reasonable approach.

And then the inside, like kind of the meat of it is here's how you do it. Here's how you execute it. Whether you want to buy one property, whether you want to buy 10 or 20, whatever the case might be, there's a step-by-step process. You know how I roll, Jillian. You know, I like those little analytical, here's how you do this thing. Here's the checklist. But if you are interested in it,

As Jillian said, we'll have links in the show notes, also in the description if you're listening to the podcast that has a link to how you can get it on BiggerPockets. That's probably the best place to get it, although Amazon will be great as well because there's a lot of bonuses that I've done. For example, I wrote a bonus chapter called How to Be a Small and Mighty Real Estate Investor in 2023. So when interest rates are higher, when the market's changing, when everybody's like, oh, prices are too high, they're going to crash. How can you get your head around starting right now? And shouldn't you start right now?

So I've got a bonus about that. I've also got a pretty cool bonus that shows my actual schedule. I talked about two hours per week. Like, what do you do during two hours per week? And how do you go from working 60 hours per week to working two hours per week to make your income? And I've got a pretty cool agenda where you can fill out your ideal day and what you want to do with that. So there's some really cool bonuses that you get just on BiggerPockets. And if you go to BiggerPockets to that link, there's also a 10% discount code you can use just as a listener of the Financial Independence Podcast.

And I will tell it to you right now, but you can also get it in the show notes as well. You just use the code FIPOD, that's F-I-P-O-D. Use that, you'll get 10% off. And I just hope you find it helpful. I really appreciate you listening. And Jillian, thank you for having a conversation. Every time I talk to you is always fun. And the fact that we got to do it on a podcast and that Brandon was willing to let us just chat for an hour was wonderful. So thank you.

Thank you all so much. I'm Jillian Johnsrud. This is Chad Carson. Thank you, Brandon, and the Financial Independence Podcast listeners.