Do you want to learn how to "own your life?"

Elisa is a real estate investor who built a portfolio of over 1,700 units. She started with humble beginnings raised in China in a 400 square foot apartment. She was a computer engineer prior to becoming a full-time real estate investor and wants people to learn how she maximizes returns for investors.

Listen to this episode to learn how to get started in real estate investing, how to partner and scale your business and how to build trust and maximize returns for investors!

Table of Contents:

• Where To Listen To The Podcast
• Elisa Wants You to Own Your Life
• A Pro Tip on How to Own Your Life
• The Way to Reach Wealth and Own Your Life
• Paying It Forward
• Rome Is Not Built in a Day
• A Super Powerful Tool to Own Your Life
• A Great Trade-Off
• How to Reach Elisa Zhang

Elisa Wants You to Own Your Life

Darin: Elisa Zhang lives in Seattle with her family. She started with single family and fourplexes and then scaled up to 1700 units. Now, she is not only focused on growing her portfolio but she is also focused on teaching others through her ezfiuniversity.com website. I love her quote that says she wants people to "own your life."

Just a little bit on how we know each other. We were both part of the same multifamily mentorship group and ran the same crowd. We know a lot of the same syndicators and passive investors and whatnot. Elisa has been killing it so I'm excited to hear her story and have her share it with everyone. With that, typically the first question I ask is how many properties and how many units you currently own?

Elisa: I think we're over 1,700 units and 14 to 15 properties. Sorry, I got to do the math in my head a little bit.

Darin: That's crazy. And when did you get started?

Elisa: I actually got started in real estate investing since 2009. We started with single family like many people do and it was really a side gig investing after our investing. So passive, we were always buy and holders. In 2009 we know what happened in 2008 so it was a really great market to get in. Our first investment was a single unit condo. And I can tell you the reason not to buy one but it served us well in the really good locations.

How It All Started

Elisa: Seattle, that's where we started. And then we just over the years saved and saved and bought more single family homes. The goal was that I did a calculation that basically if I bought seven properties and paid them all off in Seattle then I should be able to live on the rents for good. My daughter was born in 2015 and after my really good maternity leave, about six months or so. I didn't really want to go back. And it was really hard.

Even after six months, you start, you're ready. I was even commenting on how people can't even go back after four months. And then here I was six months later, I was supposed to go back and didn't really want to. So during that time, I've been giving a lot of thought. Did a lot of research online, literally typed in how to quit my job through real estate investing because that's the only thing that I do. Anything I invested in a stock, didn't really do very well. Also, I just didn't have the time or energy or the interest to invest in the stock.

That's how I typed in a question and then I ran into biggerpockets and I read all about it. Spent time binge-reading blogs and then realized that maybe we were doing all this wrong. Because we weren't going after full cash flow, because we remembered our goal was to pay off the seven properties. So all of them are on 15-year mortgages, there's literally no cash flow on these deals or barely any. But we got a lot of equity because when you invest in the right market at the right time, it's very forgiving.

Going Through the Up and Down Cycle

Elisa: So the upside is that we got tons of equity accumulated in these properties. And especially going through a down cycle now you're on the up so even more equity. We were able to release some of these equities and the 1031 exchange into couple of small fourplexes. We also were able to cross-collateralized our primary home to buy fourplexes. Essentially try to execute the BRRRR method, before BRRR becoming the BRRRR, a really value add method on a much smaller scale.

So I self-managed my tenants and my husband self-renovated them. Keep in mind we also have an infant at home. So he's our primary care between caring for our kids and renovating the units. The units take forever to get done. And somehow we still saved costs because you're doing the material costs versus paying labor and Seattle is a very expensive labor market. Seven or eight months later, one or two units were done, we were able to rent it out.

But it did teach me quite a bit in terms of dealing with your tenant, what the tenant wanted, and how do you actually move the price up. On some of these units, three out of four, they didn't want to leave so it was actually easier for us. And it was an uptime doing in Seattle, the rents were going up crazy, it was going double digits every year. So these properties when we buy, they were really under-marketed. I was able to work with our current tenant and then raise up their rent just on the get-go $200 per unit without even doing an update.

A Good Lesson

Elisa: And then they stayed and then we realized if you address a deferred maintenance issue your tenants are more happy to stay. Especially the ones that's been there for 10, 20 years, they don't want to move because this is their home. This is actually quite a good lesson teaching me how to manage your tenant and move up the lease ultimately.

Then I started to get bored after a couple of fourplexes. I'm like, "Okay, we got this down then …" And then we also rinse and repeat. Then we got refinanced multiple times and who knows? I will probably get two or three times our principal back during all that. Meanwhile, still cash flowing about $500 a unit which is pretty good.

What I did is I listened to all these podcasts and I was like, "Okay, we got to go bigger. Commercial is the way to go." But I wasn't ready to go out of state yet so we bought a 12-unit. I had a couple of goals set out.

Any type of investment when you're investing I think the mindset of setting a goal is very important. Ideally that goal ties into your life goal, it ties into where you want to be in your life. For me it was, okay, commercial can get us there maybe faster. Maybe we can get more cash flow on these deals.

I set up a goal that I basically want my husband not to be renovating the units anymore. It is definitely not healthy to be in a relationship together where there's a lot of stress and you have an infant and it's not very efficient. So once you go bigger, you can't have one person just doing all these renovations.

Doing the First Deal

Elisa: The other thing is I enjoy talking with my tenants. Some I do, some I don't. I don't want to manage them anymore because it's not scalable to be managing all tenants. So we set our site in Tacoma which is about an hour away from here. But with traffic you might as well lose three hours of your life.

Tacoma is far enough that we couldn't self-manage anymore, and is also close enough that should there be any emergency, we can jump on it. I had three goals doing this. Getting a commercial loan because that seems to be really hard to do, getting onboard a partner, and getting us out of the management. With the 12-unit acquisition, we were able to achieve all three.

I took on the one single partner but then it was my first deal so we put at least 75% of the money down. He only put 25%, I pretty much worked for free. That was how that was done because I didn't feel comfortable enough not to use other people's money and not have skin in the game. In this case, it was really great, he turned out to be an amazing partner. He's super passive, he understands every risk which you will have in real estate investing.

We did analysis because we focused on a single metric which is cash flow. And when you invest and focused on a single metric, you start to be blindsided by other metrics. This property is in Tacoma mall. For all your folks who live in Seattle, you know Tacoma Mall is probably the worst area around.

A Pro Tip on How to Own Your Life

Elisa: There's a lot of crime in the area. We did do our research, but honestly, in the Northwest, there's not really a true D location. Even if it's high crime, it's still relatively more tame compared to the Bay Area and whatnot. We had to deal with a lot of drama then, and we had a lot of turnovers. The units were more of deferred maintenance than we thought they were.

Then just pro tip, any time you do an inspection for some reason, even commercial, they're always going to be a little bit more lenient when they're writing these reports. They can't uncover everything. Somehow everything looks really good. We did an inspection and after you close, just a day after closing they could turn out not so great.

The interior unit had a lot of mold issues. We did renovate a few units, all turnovers etcetera. That got us a good buy here. But again it's the same research on rents etcetera. We were able to move up the rents to where we desired to be and then we sold it less than two years later. Did a 1031 on that and made 100% profit, but it did not hit my goal on cash flow. We were spending so much time and so much money on CapEx, which is not the type that we plan to do.

A Partner for Life

Elisa: We also didn't have cash reserves, so into our pockets we go. I did not ask my partner for a single dime on this. In the structure, he had a preferred raise, so he's getting his preferred raise. He actually made more than I did. Through that experience, I found a partner who's going to stick with me forever. He sees how we are dealing with the hardships and all that stuff, and he's happy with his salary on the capital. From there, we went out of state.

Darin: It's amazing all the levels of learning and trading up that occurred with you. I think that's also important for listeners to understand. You wouldn't have continued to level up if you didn't get your first single family.

You were working a W2 job and you took a risk. Real estate is a risk. Then all of a sudden you had all this capital. That was equity that was built up in those single family homes and gave you the ability to roll that into others. Were you born super wealthy?

Elisa: No, that's always what people assume because you're Asian. You're a crazy rich Asian, but no.

Darin: Of course you're not. You don't fly around in private jets from a kid?

Elisa: We're working class, we're middle-class. I always tell people it's interesting how you grew up with what you used to. And I grew up in the '80s in China in Shanghai. I mean, it's a great city. But as middle-class you literally live in studios of about maybe eight square meter because Chinese people use square meters. That's probably about four or 500 hundred square foot studio.

The Normal Path

Elisa: I grew up with my aunt and my uncle and my cousins. So four of us will put a bed together, literally put a bed together and I'll sleep on the chairs. You put four chairs together, that's a bed. But we're middle-class. I don't want to sell the story like, oh, we were super poor but that's just how we grew up. We don't even have running toilets.

Darin: Right. That's how you grew up. But then, what kind of business were you in, W2 wise?

Elisa: Yes. I was a computer engineer because my dad is a senior scientist. And then later on moved to Canada because he lived in Canada. He still lives in Canada. And I always tell people that the day he retired, I also retired the same year that he did, which was really great.

Darin: That's great.

Elisa: But you see him, he is a guy who has two three-bedroom house in the middle of nowhere in Canada. And he's always a role model growing up for me. So getting a job seems to be just a normal path because in China, education is the number one key. Academically you have to do good and you basically have no other life other than your study. That was kind of reinforced to me and then you get a job and that's how you get there.

But when you reach America or Canada you start realizing the opportunity is what you make out of it. In China, in the old country, or even Europe, such opportunity is not abundant. There's a lot of old traditional rules, classes, etcetera, that blocks you from getting there.

The Opportunity to Own Your Life

Elisa: But when you are coming to this land you have the ability to really have an equal opportunity. When we say equal opportunity, it’s if you try as hard as you want with the ability that you have, you can get somewhere.

Darin: That word that you used multiple times I think is so key, opportunity. It's afforded to everybody in the country. But a lot of people are scared to take a chance on that first investment property. Think back in terms of had you not made that decision and you just tried to save your way to wealth just how much more difficult that would have been.

Elisa: Yes. You just touched on things I never thought about but just popped up in my head there. I looked at my grandma. When my grandma passed away, she left me an inheritance. Pretty much all her life savings, quite a big chunk of it, that's $8,000.

Darin: $8000?

Elisa: I used all of that because of depreciation inflation that caused all that. Because remember she passed away pretty early in her 60s or so. She is a lady who when I come over on the weekends she will scold me about using hot water to wash my hands. And that she will basically drip, the drip method where you're saving up all the tubs of water. You use that to flush the toilet. All her life savings, and I got a pretty good chunk of that inheritance. Not all, but obviously went to the daughters and the son too, but I got $8,000 from her. That's big money that she has saved all her life.

A Huge Development Period

Elisa: And then during the inflation, China went through a huge development period from the '80s to '90s then to 2000s. The dollar value has basically depreciated so much because of all these developments. So all her money at that time are maybe worth a lot more but by the time she passed away it was not substantial. Of course, I used it to buy my first car but it didn't even make the down payment but it was symbolic for me.

Darin: Right. But I mean, that's the thing that I've learned. I've only been in the real estate business for three and a half years but I've met so many people. And they found a way to take a chance. Then all of a sudden they saw the power of leverage and using the leverage of the loan, leverage of other people's money and tax efficiency. All of a sudden they started building their wealth and some use a process like you talked about. You sell a property and you have a gain and roll it in 1031 exchange and that allows you to roll that tax-free.

Other people started to do the syndication route and leverage other people's money and got fantastic returns from that. But I don't see any other path. The only other path I guess you probably see it more out in the West, is if you work for a company that you get a lot of stock options and they just hit it big, you could be multi, multimillionaire from the stock options. But aside from that I haven't met many people that have just saved their way to tremendous wealth.

The Way to Reach Wealth and Own Your Life

Elisa: Yes, because savings, especially when you put it in a bank, the inflation is just going to eat it up. Saving is definitely not the way. The second path was my dad who worked his W2 job. Back in 10 years, when I was working he was like, "Why are you not in the office working extra time? Try to get that bonus," whatever. It's not the way to reach wealth. Yes, it's a foundation for it, anything that we do, it's a foundation. The money that you saved, you have to invest, the money you make from your W2, you have to invest.

This is not to say for our listener to go out there and quit your job right away to invest. In fact, it's a really good idea to create some bases. Using your W2 job, using your savings, using your habits, basically using that to invest. Sometimes investment may mean losing money and sometimes investment may mean making money. For me, it was in stocks. I just don't see that balance going up forever. Your 401(k) is supposed to go up, your stock is supposed to go up. But it just takes forever, it's not doing anything. Every time you check your statement, it’s still the same, maybe loss of some money.

Whereas your real estate, you look at Zillows, etcetera, your asset value just increases, let alone you have cash flow. Cash flow is what we discover later on. But if you only focus on cash flow then you’re missing out on the big golden nuggets on equity growth, which is why you invest in real estate. To become wealthy you need to invest in equity, to create your job you need cash flow.

The Education You Need to Own Your Life

Darin: Yes. That's great advice. Don't go quit your job not knowing. First get educated, listen to podcasts, read books, and then find somebody else that's successful. Figure out how you can get your toe in the door and then you learn one thing and then you're off. Like you said, after you did fourplexes which a lot of listeners may be like, "Oh my gosh, owning a fourplex, I can't even imagine it." Then you're like, "Oh, after I owned a fourplex I got bored and I wanted to go do something else."

Had you never bought that first single family home you never would've thought you could buy the fourplex. Now you're doing large syndications and own over 1700 units. The other thing that's cool is I see pictures of you traveling all over. Well, how old are you? I'm 51.

Elisa: I am close to 40. I'm looking young because I’m Asian.

Darin: I see you traveling all over and look, at close to 40 you have a pretty good lifestyle. Would you be able to do that had you not gotten involved in real estate investing?

Elisa: No. I mean, that's just it. You are not able to involve it with that. When I'm traveling I also work. So I tried to not make it as glamorous as it is, but you have the flexibility, I think it's key. It doesn't matter if you invest in real estate or doing business. Once you become an entrepreneur, you own your own business. You truly own your own business not your business owns you. And you now have the freedom of time, freedom of space, and flexibility of who you want to spend time with. You own your life.

Becoming a Real Estate Syndicator

Elisa: I think that was a transition for me which is being an entrepreneur and then you can be investing in real estate as a syndicator. You're an entrepreneur, and this is what really excites me. And not everybody is built to be, it's not one path is better than the other. Not everybody is built to be an entrepreneur. People can be very successful during their job too. You mentioned there are people who make loads of money doing the W2 job, being CEO of the companies.

Being a CFO and all that, that's what they do. They should be sticking to what they do and what makes them the happiest. For me personally, it was being an entrepreneur. I didn't even realize it until recently when I looked back into my W2 job, I was constantly growing myself. And I did a personality test and I was like, "Oh, no wonder I hate my W2 job." It's not because of the job itself, it's because the tasks come along with it. I was doing 80% of work on the spectrum I was not supposed to do work. I do not enjoy doing the 80% of work, but I have to do them because someone else owns me.

Then when I became an entrepreneur I accelerated on, I was doing 80% of the work on the stuff that I love to do. Which is being strategic, generating ideas, and all that sort of stuff and that fits naturally into my spectrum.

Achieving a Balanced Life

Elisa: I highly recommend any listener if you’re embarking on this, especially if you want to be a syndicator in investing and you need to create a team so you need to figure out your roles, is to take a personality test.

Understand what you’re really are good at and what you really love to have. When you have that intersection, you reach a balance in your life. And that balance does not mean you work no hours, that balance may mean you work 12 hours a day but then you're actually happy doing this.

Darin: Yes. I love that statement that you own your own life. And I agree with you. There's some people that if they took that personality test they'll be like, "I'm right where I should be. I'm doing exactly what I should do, I love my job. I love that and I wouldn't do anything different." And then there's other people that just feel stuck. Those people need to figure out a way to get started doing something else, like staying in your job but then learn how to invest.

Elisa: The guys who are really good at their job, they should learn how to invest it as well.

Darin: Absolutely.

Elisa: You want to do that passively, because you're very happy where you are. So when you’re generating that job, you want to convert active income into passive income. I interview CEOs and et cetera, actually C-suite has a lot of turnovers. People get fired all the time so don't think your job is secure. Build that nest egg to make sure that your life is secure, you have an option.

Take the Responsibility to Own Your Life

Darin: Yes, that's a great point. There's a lot of people in the workforce that when they sign up with a company and it doesn't matter if they're a worker bee or they're at the C-suite. They sign up for the 401(k) and they do the match and they just think that I'm going to be focused on my job. I'm just going to put the money over there and then somebody is just going to miraculously grow it for me. But the reality is that you're responsible for your entire life. The money that you're setting aside is part of what you need to be accountable for. You need to actually understand where you're investing that.

If you want to diversify, maybe you have some in stocks and you figure out a way to get into real estate. One way is passively investing with somebody else that's going to manage it for you. But those are important points. Since you've gotten more successful and you started giving back so you created a website and a podcast and YouTube channel. You have this EZ FI University, can you talk a little bit about that? What is that and why did you even start that?

Elisa: Yes, sure. I'm some person that just comes up with crazy ideas, and don't ask me how I came about with these. But then they become some sort of a goal in my life. One of the goals I had in my life was to help millions of people reach financial freedom. One of the things that I wanted to do is to help a million people be financially literate. And I don't know where that came from, what it is is to create equal opportunity.

Equal Opportunities

Elisa: When I think about my life, equality is something that I'm really passionate about, equality being given equal opportunity. It doesn't mean that you're handing someone something but it's just making that option possible for the person who wants to try to work hard to make that happen. That was something that I had in mind. So when COVID hit, here I was November 2019. I quit my job and then doing real estate full time, it's a little scary.

Then April rolls around, March rolls around, COVID hits. I wish I actually stayed at my job because I would've got an employment check, but it is what it is. Then I was sitting at home doing not much and then there's a lot of government help stuff going on. So I started a mini series to basically bring information to all my surroundings, people who I work with, people who I partner with etcetera. The intent was to help them understand these resources to help them.

We made a mini series of 12 episodes. We interviewed a few guests where the topic was specifically around COVID help because there were actually some great policies that came out to help people. That got me thinking, one thing leads to the next. Oh, well, I was always interested in doing this. It was my five-year goal to create an education program after we're more established to do that. But then we were just twiddling our thumbs sitting in our home anyways right now, so why don't we just get it started now? I thought it would be really easy.

It’s Not an Easy Quest to Own Your Life

Elisa: I have this disadvantage or advantage of thinking everything was an easy and quick starter, I guess. So when I start doing something then you realize it's not as easy. And a lot of my investors have expressed an interest to get to the next level, become more actively engaged. There are tax benefits where you become actively engaged. So I said, "Well, a weekend, maybe just create a course to teach people how to be financially independent. And then also create a little mastermind so that we can help our investors who expressed interest to become more active."

And then once you create some of these materials then you realize you're okay. But where are these people who were interested and said they were interested? And then you realize time is a commodity that not everybody can afford. So the passive investors are passive for a reason because they couldn't squeeze any more minutes to spend time on education. There's definitely a lot of tweaking and marketing and I learned a lot of stuff there. So we have pivoted from just teaching people the basics of financial independence, all these great concepts, how to set up your financial systems.

So you're leveraging whole life insurance, you're leveraging solo 401k, all these financial vehicles to optimizing for your yield, optimizing for your investment. From there it's a base foundation. We actually now created a mastermind for folks who want to be mentored, group mentored. And then getting into syndication or owning multifamily or owning mobile home parks, that type of stuff. So making sure people are reaching their potential to reach their FI.

Paying It Forward

Darin: Very cool. So now you're taking the lessons that you've learned and you're teaching other people how to achieve their goals. Where would somebody find this information?

Elisa: Yes. You can go to EZ FI University. FI stands for financial independence. So EZ, my name, ezfiuniversity.com. Then we also have a lot of blogs of free articles and just be warned, I write long articles that people do as examples. My marketing team has told me that by putting three of your articles together we can make an ebook.

So we do explore very deeply into the topics. We have articles about how do you leverage passive advantages when you invest actively? So I share my personal stories and the calculations how we get there. We also have some basics for passive investors of what they should be betting on. So some pretty good articles but they tire me out because they're super long articles to write.

Darin: Did you think 3, 4, 5 years ago that you would be in a position that you're helping all these other people to grow their wealth? I mean, was that even on your mind?

Elisa: Yes. Three, four years ago, maybe 10 years ago, no, and then I'll be on an entirely different trajectory. Sometimes obstacles in your life lead to new opportunities. Should I be successful in my work, my full-time job of really accelerating, getting to a CFO of CEO's position, I wouldn't probably not think about it. It's because of that conflict there were the personalities and what I do as a work that has put a limit and ceiling on my growth and my work.

Hardships Are Accelerators to Success

Elisa: I'm still a good performer but I understand there's a ceiling to where I can go. That prompted me to look for other opportunities. Sometimes hardships in your life are an accelerator for you to get onto the right path for yourself.

Darin: Absolutely. I've interviewed a lot of people and you mentioned it before, sometimes not every deal is a home run and sometimes there's challenges. And I've interviewed a lot of people who, sometimes, their first deal wasn't the best deal. But they saw the power that could be and so they kept pressing on. Because some of these people I interview have thousands of units. I'm like, "You were just born wealthy." I asked you that and you're like, "No, I wasn't, it came one step at a time." Everybody starts with their first investment deal. You could be pretty far down the path but everybody starts as a passive investor. I was nervous on my first passive deal and I had the capital.

It wasn't like it was going to put a huge dent if it went but we just have this innate thing in our human being that we don't want to lose. And we don't want to be taken advantage of, and we don't want to be ripped off. But now, I just got an email yesterday that I put 100 grand in three years ago and now I'm going to get that 100 grand plus another 100 grand. I wouldn't have done that in the stock market and that was passively. I wired the money and then other people managed it so I'm excited to have gotten involved. But I remember I was scared but just like you, you layer one thing on top of another.

Passive Investments

Darin: Talk about partners. You had that initial partner who was a passive partner and now you've gotten into larger deals. You're doing 200 units, 100 units, 300 unit type deals. Where do you find partners? How do you figure out how each partner compliments one another and what each one is going to bring to the table? How are you going to divide responsibilities and all that?

Elisa: When I first started syndication just like you, I thought it's a great idea to actually start passive investing. I invest five or six deals passively, I wouldn't say before. During the time I also did passive investment. I invested at least three before I got my first deal. I was trying, but it takes time to get into the active part. So that actually taught me a lot. How do I find partners? Oftentimes at first I was kind of naively thinking, "Oh, if I passively invest with someone maybe in the future we can be partners. But don't think that.”

Darin: It's funny though that you bring that up because I think a lot of people think that. I thought that too.

Elisa: Yes.

Darin: But the reality is that, most likely it's not going to happen.

Elisa: Right. Well, because on the flip side being a syndicator now that you have limited bandwidth, your focus is making sure you make returns for investors. You're focused on creating a system so any good syndicator should be focusing on creating a business, creating a system, hiring people to make that happen. And then there's a system process that you have in place. So having a partner is different from hiring people because you need to be at an equal level.

Bring Value to Others

Elisa: And make sure that not only the person brings value to you but you also bring value to them. It's a good fit to be in the business. That role can change over time. When we first started doing the syndication we partnered with multiple people because we pit ourselves. It's totally just all myself. I pit myself into, well, I'm going to be focusing on a capital stack. Because I live on the West Coast and I don't want to move to Texas or Arizona, but I want to invest there.

Darin: Texas isn't so bad, I got to tell you. I'm an East Coast guy and I'm in Texas Dallas now for 11 years and it's not so bad, I like it here. But I get you, all right.

Elisa: Now when you're from the North West, Seattle is where it's 80 degrees right now and beautiful. You can actually walk to your destinations, they're in the summer. But I love where I live. It's beautiful scenery and my husband doesn't want to leave so there's always that. But for me, I pit myself in, well, if you're remote you can't manage yourself. That's not true, that's just a limiting mindset that we put on ourselves so therefore we partner with a lot of partners. And over time we figured out who are good at delivering.

If you're going down this path, you want to make sure that you actually instead of being too eager to be on the deal as an active syndicator checking the box. You want to actually partner with someone who is very experienced and you know is going to deliver results for you and as well as your investor.

How to Pick a Partner Who Delivers

Elisa: When you talk to people when they want something from you, everything's going to be really peachy and nice. Not until you get into relationships then you really know how that's going to keep playing out.

Darin: Why is it so important to pick a partner that has the experience that's going to deliver?

Elisa: Well, because if you are focusing on raising money or the capital stack, the best way to grow your base is, yes, the marketing, the content all works, but it's delivering results. In our Phoenix deal, for example, if there isn't a deal in two years and delivering huge results for investors, guess what? That money is coming back to the pot. Then you actually have to go run around and look for a deal and make sure the money gets allocated to the deal. And that's a good position, good problem to have.

Then it's not just that money coming back to you, it’s 3, 4, 5 friends of and family of these people that they introduce you to. Literally, I have investors that will introduce me to three or four of their friends in a day. And that's how you raise a million dollar in a day. Not in the current deal but you lay up that relationship so that they can pass with you in the future.

Darin: That's huge.

Elisa: Yes. And that's how the big investors are getting them done. Really focusing on the results, focusing on your investor, focus on your customers, focus on your customer experience, communication. And that helps you to accelerate in and then multiply.

Rome Is Not Built in a Day

Elisa: I love how Dan Sullivan always talks about longevity. His life expectancy was, well, he wants to live a century. So he expected to live 156 year old. And then he talks about the time but in the opposite way because in America everybody always wants stuff now. It's always getting there in the year, I want to get into 1000 units in a year.

What happens if you expand that? It makes you stressed about the time. What happens if he asks you a question like, "Well, could you 10X your business in 10 years?" "No, not possible." "But what about 25 years?" "Okay. We'll probably get there." Rome was not built in a day, it's one brick at a time. And if you lay more bricks, it's probably going to build a little faster. Also if you are not afraid to fail then that's also going to grow a little faster.

Darin: That's a hard one for a lot of people. I think a lot of people getting into real estate, the one that stumbles a lot of people is being afraid to fail on their first deal. Whether it's passive or whether it's active or whether it's buying their own single family or duplex or fourplex, it's a big investment. It's not like buying $5,000 worth of Amazon stock. It is typically 50,000, 100,000, 200,000 depending on what you're buying, and so people get scared.

Elisa: Yes. And that's when you use knowledge to test the feasibility. Whatever, whenever we decide on a transaction or not, we do a risk assessment. In my mind I will do a risk assessment whether it's a 10 unit that we're buying or a 300 unit that we're buying.

The Worst-Case Scenario

Elisa: So we look at what is your risk cap, what is the possibility of losing all the money. And then how much cash do you need to actually set aside to make sure that you go through the hardships? What's the worst-case scenario? And not just worst-case scenario, that's what a lot of investors ask us about, worst-case scenario. But how likely that worst-case scenario could happen, that's a very big factor to that.

And then what is the upside of this and how likely is that going to happen? Then based on market conditions, etcetera, that helps feed into a decision making for you to decide if I'm going to pull the trigger on this one or not. Also if you only had a $50,000 saving then you shouldn't be doing passive investing. If that's all you're saving you probably want to get it to a little bit more capitals to do that. So then it forces you to do something more active to get there.

All paths including syndications are active jobs, so truly the holy grail is the passive investment for me, at least. So all these activities that you do is building up that passive pool of wealth which then generates your passive investments, that's more predictably. I think that's how you should look at your whole life map, when we talk about a 10 year plan out, 20 year plan out. But if people just religiously saved and passively invested smartly and yield about an 8%, we did a calculation on this. If you yield about 10%, everybody can basically just invest 50K every single year. You can retire in 10 years, which is amazing.

Darin: Wow.

The Formula to Help You Own Your Life

Elisa: Yes. And then if you made a 12%, 11 to 12% then you can retire earlier, maybe 8, 9, 10 years. But a lot of people in our programs or whatnot, that if they ate the red pill, what’s the red pill that you take? Morpheus from the Matrix. And they discover more ways to make other incomes and then a lot of people can just get there in five years. Then you get there pretty quickly, too.

Once you understand that you're hanging out with the right people, the information just comes to you. And then you're pretty confident you can get there in five to 10 years.

Darin: Yes, you can. You gain confidence by doing. There's a leap of faith of getting in and investing in something that you don't fully understand. You read books and you listen to podcasts but you just are not going to know everything until you actually do it. And then when you do it you learn so much more and it gives you confidence. That look, there's a lot more control in this and there's a lot more ability for you to pull levers versus just putting your money in the stock market and hoping.

The other thing that you talked about, you focused a lot on cash flow. I've had a lot of people educate me in terms of when you're an employee and I was in that world. I've been a business owner since 2007. But still putting money in the stock market you have this mentality of building up this big nest egg. And then at some point you're going to retire and then you're going to draw down from it.

The Mindset Game

Darin: Then I've had a lot of people in the real estate world say, "Well, look, that's a mindset thing. Instead of doing that, why not buy assets that create cash flow and then if your lifestyle is below that cash flow you have financial freedom today."

That's where you're going through and that's phenomenal. Yes, I'm in a position where my other business brings in the cash flow to satisfy our lifestyle. And then all the real estate is building wealth and generational wealth. But I'm so glad I did it because it just happens so much faster than the traditional stock market way.

Elisa: And the other thing is I talked about focusing on being blindsided on single metrics when you evaluate an investment. If you only evaluate a cash flow, you can be missing a lot of opportunities. Example, back to this, is that we did that Tacoma deal and then subsequently we got into the Phoenix deal. We had 1031 there. The Phoenix project, we put a tenant in common together on that. And after 20 months, all closed, we made a 91% return on that again.

Darin: In 20 months you made 91%?

Elisa: Yes.

Darin: Then were you able to roll that?

Elisa: 6% of the cash flow during the holding, but remember the first deal we had is we try to chase that 8% and we can’t get that 8%. Now we're 6% but we're 6% on double our base, so we're making a really twelve percent of original income. So is your cash flow much better? Yes. If you build up the base, your cash flow is going to be a lot better.

The Right Base

Elisa: Now, subsequently from there we wrote it into a 24-unit Scottsdale and then seven months later we got an offer. Looks like it's going to be 80%. We're going to have an 80% return on that one, which is just a big accelerator.

Darin: In seven months?

Elisa: Yes. So that part has grown 7.5 times in four and a half years. Then you think about cash flow. So now we're 1031, wanting that into our latest syndication. Our investors are really happy because we're bringing $2 million into the deal. Also, we're happy because, let's just say, even if it is only 5% of cash flow on the get-go, you add, I don’t know, 35% cash flow total?

Darin: From your original base?

Elisa: Yes, from the original base.

Darin: Right. Let me ask you this. You're rolling that into a syndication using 1031?

Elisa: Yes, we are.

Darin: I've heard that on select opportunities but very few. In the syndication world I hear more and more that 1031 exchange is very difficult on the exit to do. I don't know what the rules are. If it's more than 50%, I have to continue to go on, but then coming in there aren't those requirements or how does that work?

Elisa: Yes, there are. 1031 is an entire topic by itself. Many times when you're doing anything complicated, you should have a professional team. So I always work with a facilitator. One of my favorite ones is Bill Exeter, William Exeter Exchange. I've worked with Bill on all my 1031 exchanges, I've done multiple of these. I've 1031-ed into a tenant in a common structure before so it's not the first time I've done that, but only with partners. It's very simple.

The Tax-Deferred Method

Elisa: Basically, you need to maintain anonymity. A separation between the two parties that's in the tenant in common. Instead of holding the property by itself, I'm explaining the tenant in a common structure, when you crack open that deed you will see two of us actually co-owning this property. And then you have to treat the two entities entirely separate. The reason why you would do a tenant in common is, that facilitates your future 1031 or your current 1031.

A 1031 is basically a tax-deferred method for you to basically roll your proceeds into the next deal and defer the tax. Not offset of tax but defer the tax, so kick it down. We always say this, kicking the can down the road until you kick the bucket. But the power of it comes through leverage. If you combo that with leverage because people will pay about 15%, 20% capital gain taxes.

If you just bought and sold it through a long-term hold, now if you didn't have to pay that 15%, 20% and put a 70% leverage on this and all of a sudden your money just grow in X amount of fold. So you're using the money much more efficiently.

There are rules. Basically the property that you're buying needs to be higher priced than the property that you sold. Then you have to identify your next 1031 exchange target within 45 days and you have to transact within 180 days. So that was the rules. That 45 days is usually the most restrictive. Then at the time when you don't have a project and then later you could end up with a big larger bill.

A Super Powerful Tool to Own Your Life

Elisa: Because you did the leverage and all that stuff, sometimes the 1031 owners, a couple of times, they did a refinance, they may end up owing more taxes than the proceeds actually is, down the road. But it's a super powerful tool for you to continue to build wealth. In this perfect example I just explained rolling the money down the line and then you basically don't need to have access to that money at all. But think about $2 million. If you made a 10% return on this every year, your 200K, most people can retire on that money just on a single pot. But it takes years, all the hard work to get there.

Darin: It's a simplified example because that 2 million probably was rolled through multiple properties to get to that. But just on 2 million, if you just sold and didn't do a 1031 exchange and you pay 20%, that's $400,000.

Elisa: Taking off the pot.

Darin: Taking that off and then thinking about, okay, if you're getting 75% leverage, 400,000 you could buy something 1.6 million. So it's crazy how that can really compound over time. It's huge.

Elisa: And so our goal is to potentially get this thing to over 10X within six years. I think we're on track on that. But of course my first investor is the happiest because they're in this sort of free ride.

Darin: Well, and then you probably helped him roll things tax-free or tax-deferred over and over and so you made him more.

The Good Markets

Elisa: Yes. The reason why I'm continuing to do 1031 is because of him. I, as a real estate professional can actually just pay the tax, and because I have negative K1s to me from cost segregation on these other projects I do. But for my investors I will do anything. So because of him I want to make sure that we'll continue to be in this road. Because other people may have W2s which are full-time jobs which does not allow them to have the benefit a real estate professional has with tax benefits.

Darin: That's huge. And you know what? You pick some good markets. Talk about the markets that you picked. You live in Seattle but you invest out of state. Where have you focused your time?

Elisa: Yes. Again, adversity is the best thing. Because I live remotely and I did not care for the hot weather, it forced me to be in this location. Then once you remotely invest, all markets are equal for you. So then it allows you to look at it not with a potential shackle on your hand to say, "Oh, I live in Dallas, this is a great market." You should stay in your backyard if you're in Dallas. But because I live in Seattle I didn't want to invest in Seattle.

So then the rest of the 50 states are basically open for me. That allows me to look at national market trends and to pick a few markets. You don't have to pick the best market. It just so happened the markets we pick are within the top fives. Three markets that we invest in now, four, are within the top 10, Houston, Dallas, Phoenix, and Washington inbound migrations.

COVID Is an InterestIng Time to Be in

Elisa: We don't use inbound migration data to really triangulate what cities are growing and what cities are reducing. But it's a very interesting time right now where we have COVID. So we're just post-COVID right now. I honestly am really bullish on Houston because I think Houston had a little bit of a dip. Over there Dallas and Phoenix continue to accelerate.

With accelerating markets sometimes you kind of wonder where's the top. And then when the unit prices becomes not reasonable it makes you harder to get the yield. But with the Houston market we love it. This is why it's our third market because I see a potential dip over there. It has had a little bit dip over there but we put it as a cashflow market for us but with true value-add methods.

We see a recovery happening in Houston and we see the recovery trend is quite well. So this is a little slight winner you get in there because you want to buy low and sell high. So that creates a little opportunity for us to buy over there. That's how we look at the market and New York. I've actually contemplated in New York because guess what? The biggest loser is New York, The Big Apple.

There are no opportunities that you can actually go into New York and create value. It's not quite there yet, regulation kills it. I just recently got it in a contract with a 10-unit deal, I wasn't even looking. It's literally five minutes across my house. For this and that reason I asked it, sort of, we stumbled into it and then we got another contract.

Know the Rules to Own Your Life

Elisa: Why am I investing in Seattle when all these tenant-landlord rules that people talk about are not friendly. Because I know the rules pretty well. I still have some properties in Seattle, but not Seattle proper for that reason. And that our strategy is potentially, it's a value-add strategy over there. When there's a value, there's deals to be found anywhere.

That's how we pick the market, which is we look at some cycles. Somehow it is kind of intuition as well but there's a lot of data research that go in there. Every time we do a webinar it's time for me to research the market that we're investing in right before or when we have a deal in the contract. Because it requires you to really deep-research into the market and every time it is reinforced these are great markets.

Other great markets are Las Vegas, the Carolinas, the Salt Lake City. Idaho is great but inventory is very limited. Kansas City is actually one of them I really like. I think it did lose some momentum during the COVID, but again you want to pick the right time to get into the market.

If the markets are already written on CCIM magazines or any other magazines or Forbes, then it's likely too late to get in there. You want to see where the puck is going versus where the puck is right now. And then this should go into your underwriting analysis of the deal as well because a lot of people are bumping their heads. They're like, "We're not getting our first deal".

Earn the Right to Own Your Life

Elisa: When I recall back before I got my first deal I was trying to underwrite to make a deal not work. Of course you're not going to make a deal work. The deal doesn't work because you tried to not make it work. Now I underwrite to try to make the deal work.

And this comes into experience and creativeness of where else can you find value where other people can not find. And you have to give the respect to your competitors that they're smart enough to be able to identify the value that you see. So you have to be extra creative or extra good, informative to understand other sectors.

We're now doing energy, solar roofs on some of our buildings and we do a lot of research on that. So it's not any building that we just want to do that but a lot of people would tell us solar doesn't make sense. We always believe as a company to invest in the good. It aligns with our company agreement but also it turns out it's a win-win for our investors as well. Because you can invest 500K and get a $1.4 million valuation. I'll do that all day long and you shave off your bottom line electricity bill but it'll only work on all bills paid buildings.

Darin: That's a great point about the underwriting piece. I think that it happened to me and I see it happen to new people coming into the space when they start underwriting. You just hear, "Okay, how do I underwrite and plug this information in here and there?" But when you underwrite there's a lot of little decision points.

Delivering Value

Darin: If you take the conservative route on every one of those decision points, you're most likely not going to come out with a deal that looks promising. So okay, I can get a 3% interest rate but I'm going to use three and a quarter. I could get 75 LTV but I'm going to put in 70 LTV. I think our rents could get to 950 but I'm going to use 900.

Well, every time you make that little decision your returns are impacted on your underwriting. And so you may not go after that deal but to your point, there's other syndicators that are smart enough. That are confident enough in being able to deliver that they are going to use those numbers. And so they're going to be able to buy at market prices and then still be able to deliver value.

Elisa: Right. And then there are metrics that we are very conservative on such as interest rates. Where you mentioned they would like to put in a 25 base point buffer in there. But what we're being aggressive on is things that we can control and we have a track record on controlling. And this is where you're going vertical integration or vertical. Which means that you own your construction stack, you own your property management stack, that you get that extra juice.

The creativeness, the stuff that we do, it doesn't come really easy. It's not just numbers. It actually takes hours and days and weeks and years to set it up so that you can control your property management expenses. You know you negotiated something that's aligned with incentives.

A Great Trade-Off

Elisa: Again, a lot of operators would tell us, it makes no sense when you waive property management fee and put them on the general partner side. Because lenders are still going to evaluate the other way, that's very surface. But what about creating cash flow in the market that doesn't have cash flow like Phoenix? Most deals don't have cash flow in Phoenix and they're very low. And by being able to play with that property management fee and people still getting paid on the general partner. So if I gave a piece of your pie away you end up with a whole deal, you end up with a whole pie. Is that a great trade-off?

The whole thing is about giving a small piece of your pie. Don't focus so much on your slice, focus on the bigger pie. Focus on how you work with a whole team to elevate the teams, the people around you. Create opportunities for people around you. And that wheel becomes bigger and bigger, and the piece of pie that's shared by everybody becomes bigger and bigger. The one thing to think about, some people will ask me, "Well, do you pay your broker on full commission?" Absolutely!

We don't try to negotiate any of that because he's going to do a good job. He's going to bring you the next three deals. Whether having a deal versus not having a deal is how you make money, how will your investor make money? The other question was, wow, we were really worried about getting 50%, a 50-50 split. We do a straight-up cut, we don't do waterfall because our investor knows that we're not trying to. I think a waterfall is great, it rewards the right behavior.

Own Your Life by Elevating the People Around You

Elisa: For your syndicators, don't get me wrong, we just don't do it because it's you know what?  Yes, we can get that extra 20% on the small sliver out of 2% on the top. But the perception is, we want our investor to invest with us again. The 150 years old analogy is that we want our investor to be with us for 20 years, for 30 years and rinse and repeat. It's not so much about this deal, how much we get, how much they get. It's elevating everybody around us.

Same with my property management company. We sign pretty much exclusive contracts with them. They're free to do the same model with other people but nobody has taken them up on it. I understood my PMs were really passionate about the ownership. We made an ownership spot for them but as a trade-off we waived 2% of their PM fee. And this aligns the incentives for the investors. Because their PM fees are charged on revenue so they don't worry about expenses too much.

But if you're on the general partners you worry about investors getting paid before you get paid. So that's all incentive. A couple of lessons I learned to partner with people too. It's self-examining too. You pay people well, people's going to be sticking with you. And then it makes the business a lot easier in the future and then it creates wealth for everybody around you.

Darin: That's the long game. I've learned that this business is really a long game. Building long-term relationships with investors, with lenders, with property management companies, so you're right on there. We're coming to the end. What do you like to do for fun outside of work?

Leisure Hours

Elisa: I'm kind of a workaholic. I'm actually restructuring my day and trying to have free days. One free day a week where it’s intentionally spent with my family doing some self spa. In the winter I love to go snowboarding. I love traveling and it's hard for me to not read business books for the free days I have. But that was not how it was supposed to be. Learning is really interesting for me.

I know it's kind of a boring answer, but being able to go to different conferences, explore different ideas, it's pretty rewarding for me. It's really rewarding when I put different ideas together and this whole thing becomes a whole circle.

Darin: When you get to choose what you want to learn is when it gets fun. My son is a junior in college, my daughter is going to be a freshman. High school, college, you have to learn what they tell you to learn, and a lot of it is boring. But when you're an adult and you choose to read books because you want to learn about something, that's great. That's how you grow.

Elisa: Yes, and traveling. I think everybody loves traveling. We're at the position where we could, we actually went traveling for five months during COVID. It's the best time to travel because there's nobody around.

10,000 Roads to Financial Independence

Darin: That's great. Elisa, how do our listeners reach out to you?

Elisa: EZFI University, we've got everything over there. From there you can subscribe to our YouTube channels. We have our own podcast, 10,000 Roads To Financial Independence, we interview entrepreneurs like you. They’re in there to look inside the entrepreneur mindset. Go to EZFI University where you can find all the resources. We've had lots of blogs, et cetera. There's a button on the page where you can schedule a call with me as well.

Darin: Fantastic. I really appreciate you coming on the show. Listeners, I hope you enjoyed that one and until next week, signing off.

How to Reach Elisa Zhang

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