PYPP 37 | Investing In Your Business

 

When you have a business, don’t be afraid to invest in it. Spend money on your system and your people. You may lose money at the start, but you’ll earn more later down the road. That is what realtor Kevin Kauffman believes in. He invested in his business, and now he is enjoying the fruits of his labor. Kevin is the Co-Founder of Group 46:10 Network and the real estate mastermind, Next Level Agents. He is also the host of The Kevin and Fred Show. Join Susie Carder as she talks to Kevin Kauffman about his wealth strategy for running a business. Discover what he did to get through the pandemic. And listen to some of the lessons learned from his journey into real estate.

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Your Wealth Strategy: Invest In Your Business With Kevin Kauffman

I am so excited to bring you my next guest. If you love this show, please like and share it with all of your community. I am going to welcome Kevin Kauffman. He was a real estate agent investor entrepreneur in 2008. He co-founded one of the nation’s most successful real estate teams called the Group 46:10. He is the host of The Kevin and Fred Podcast and Cofounder of a real estate mastermind called Next Level Agents. Please welcome to my show, Mr. Kevin Kauffman.

Kevin, I am excited because you bring a different perspective in growing a business, growing a multimillion-dollar business. Let’s talk about the elephant in the room. What the hell is happening in the marketplace right now?

I do not think we have that time, and if you are a qualified therapist or not, because I feel like I should be laying down on a couch if we are going to have that conversation. It is crazy for sure. I get that question a lot. What is going on is, number one, unprecedented. There are so many other factors. People’s normal inclination is there is a bubble or something is going on.

I do not believe there is a bubble, but there is a lot of activity and not enough inventory. We get so many people shifting with the way things have changed over the last couple of years. The real big elephant in the real estate room is the fact that there are institutional buyers and Wall Street hedge funds. It used to be several years when you looked at what is known as a real estate investment trust. Those were all big commercial properties. They were landlords for big box stores, office buildings, and office complexes. Right after the last bust, what happened is a new asset class got created, which is single-family residential rentals, so you have got these companies.

Blackstone is the biggest of the big that some of these companies own tens of thousands of homes and continue to buy them every month. These homes are never coming back on the market. When you have the impact of inflation and all that has been going on in the last couple of years, you are we already had a dynamic sellers’ market. You add in the fact that we have got builders who are trying to build. That process has been slowed for many reasons. We have what we have now. It is bonkers, to say it bluntly.

What should consumers be doing? I know we are geared towards and we have a ton of people in our community that is a real estate agent. If you are a real estate agent and reading this, you need Kevin and Fred in your back pocket for one. As the consumer, it was great for me. I sold my house in December 2021 and got $400,000 over asking. My daughter sold her house. She got $250,000 over asking. My other daughter is on the other side, buying and keeps getting kicked out of the market when she is offering $400,000 over asking. The agent is like, “It is going to go for $1.7 million.” She is like, “What?” What should we be doing?

As a consumer, probably the most important thing you can do is select an agent who is clearly a professional. What I mean by that is they understand what is going on in the market. I love our industry because we are so entrepreneurial. In Arizona, it is basically 90 hours of your life, a couple of tests, a background check, and you two can be in business within a month.

That is awesome because it gives us all a chance, but that also brings a lot of people who I would say are not professionals and people who are not lifelong learners and do not understand the ins and outs of the market. Number one, as a consumer, you have got to find an agent that truly is a professional and understand what is happening in the market now.

I did not say find one that has been in the business forever. As you know, age does not always equal wisdom. Understanding what the factors are, the players, and what is if you are buying like one of your daughters is experiencing. What do you have to do in order to secure a home? What is the best strategy? You have to go into these with a strategy, which means you got to have a strategist that is working on your behalf, whether you are on the buy side or the sell side, truthfully.

I had a second one. I have the first one that was not, although I had used him in the past for other homes. He had gotten lazy. I had to let him go, get another one that was more strategic and sold it again for $400,000 over asking because of that point. The first one was listing. The second one was a strategy. I am so loyal.

I felt bad and I am like, “At the end of the day, this is my part of my wealth strategy.” Real estate has always been part of my wealth strategy, whether it is my personal home, investment properties, or rental properties. When you read this, we are speaking on many different levels. One where we want to build wealth. Real estate is a great way to do that. Even when I lost my heinie in 2008, you started your business in 2008.

As a consumer in real estate, the most important thing you can do is select an agent who is clearly a professional. Click To Tweet

It was an advantage. At that time, I was such a rebel and wanted to go in the opposite direction against the grain of what everybody else was doing. That probably played into why I was willing to run into the fire. It did not take me long to realize it, and even more now, I appreciate what an advantage it gave me to start back then.

You did not have the cushy time, whatever the cushy time is. There is never a cushy time in entrepreneurship. Some people think that this is a cushy time.

It is hard. It is funny because going back to the public’s perspective or the consumer’s perspective, a lot of it is like, “You must be loving this.” I dislike this market. I would much rather see a more balanced market for both reasons for my client. No one is having fun right now. It is great when you get $400,000 over, but I promise sifting through 27 offers in two days is not fun for anybody.

Dealing with the lengths and the tactics that people will go through to try to be the one to get their offer accepted is how you get so worn out having to try sometimes to write an offer for somebody on 5 or 10 different homes. This market is harder than what I came into when I first got licensed in 2007, especially in 2008 when I was building my business with my business partner.

That is what was happening in 2010 too. Every home I went on was like, “You missed it. You did not get it.” You are like, “I quit.”

It can definitely wear on you for sure.

If you share your own personal wealth strategy, what is your wealth strategy as an entrepreneur and a business person?

I am glad you asked that question because this is probably the thing that I have spent the most time thinking about for a few years. For the first part of my career, I just built my business. I invested my money back into my business. We purposely took home less money than we could have in order to reinvest into more people and better systems in our real estate sales business.

That is my core business. That funds my life and pays my bills. I have got another business that is around residual income, eXp Realty, where I receive a portion of what we call revenue share. That is a big part of it because what that has done is I have been able to grow that to the point where it exceeded my active income from my real estate sales team.

The mental model that I use is to take that income and then try to replace that. I do that with a simple strategy that I have learned from a good friend of mine who is extremely wealthy and intelligent. I try to break my investments in my wealth into different buckets, things like cash. Obviously, the real estate I have been buying is under contract on the fourth rental, single-family rental property, and the loss is fifteen months. Real estate also has things like stocks and retirement accounts that I have funded. I have got other things like more collectible type of deals and cryptocurrency. I have got different asset classes.

PYPP 37 | Investing In Your Business

Investing In Your Business: As an entrepreneur, your wealth strategy should just be to build your business. Invest your money back into your business. Reinvest into more people and better systems.

 

I try to allocate my money across those five different what my friend Ben would call buckets in order to make sure that whenever I am done working, I do not know that I ever will be because while I do like to take time off, I am always thinking about it up here. If I ever wanted to stop it, it would not matter. I have got an investment in a couple of other businesses. I have also invested in two. That is one of the other buckets. I am always looking at opportunities and going, “What is the way to continue to build assets and cashflow for the future?”

When you look at all the ways, wealth is not one thing you do, like a business. My business has spun off cash to invest in real estate, other businesses, and my executive bonus plan. When you look at the whole pie, it is like, “This commitment to grow is not easy.” I paid myself last. Most people are not willing to do that.

Probably the most common thing I see with successful real estate agents is they have reached a level of success. They know how to do the business. It is not that they do not want to let go but they are financially incapable of letting go because they would have to do too much of a step back personally in order to do that. I was fortunate to have a mentor that drove home that point early on, “You can do that.” I knew right away. I like to say I am lazy but ambitious or maybe I am ambitious and lazy. I am not sure which order.

I am willing to invest in other people and other things if it gives me a better life. I will make less money now with the hope of my plan will work out 5, 10, or 20 years down the road. It can be hard sometimes when you are trying to do something now and for the next 90 days. The big payoff is 5 to 10 years down the road. That can be challenging. When you get some momentum, see a path, and someone who has done it, you realize that it can be done that way. For me, that is the route I have chosen to go.

That is what happened to me in 2007 and 2008. We had built this portfolio of real estate. We lost about $10 million in assets in what felt like overnight. It was so hard but the lesson was I knew how to do it again. The first thing I did once I corrected everything was invest in real estate. People are like, “Why? You just lost your heinie?” I am like, “It is because it has paid me millions. You got to have them down with the high.”

That was a hard down, but it did not take me 20 years because I had learned over 20 years. It took me five years. I saved fifteen years because I was not as naive and did not know. I did not have the connections with you, with my financial brokers, and those relationships before. I was ignorance on fire. Coming out of that, I was like, “Who do I call? Who can help me out of this and help me see because I am in the forest, weeds, dirt, and mud?”

It is tough for anybody who has ever owned or runs a business eventually. It usually happens when you think everything is great. You are going to get punched in the face. It is part of life and business. I do not know if you can relate, especially over the last several years, when we were head down, focused on growing our business and reinvesting into it, I saw a lot of my friends who are also real estate professionals start to do other things in and around their core business. It was not necessarily bad but we kept saying, “We got to refocus.” That was harder because, again, that payoff came down the road. Now it enables me to have a real estate sales team that I work at an hour a week, and we will sell a couple of hundred homes this 2022.

That business then kicks off the cash that I can, number one, live on, and number two, start to invest in and I can use that. It started to snowball and it felt like I was maybe missing out for a number of years. I feel like I have been able to make up for time because I delayed it. I kept delaying and reinvesting. Now I have been able to not just make up for a time but hopefully continue to snowball that into something much bigger.

Our culture is Google instant download, but that is not how wealth works. Wealth is a long-term game, not a short-term game. I have a client that makes millions, but she spends millions. You are not really building your wealth. Who cares that you make $5 million if you are spending $6 million? You have not made anything. You are just in debt.

That is what keeps most real estate agents in that. I believe most real estate agents have a job, not a business, because they are trapped by it for a lot of those exact same reasons.

As a business owner, don't expect everything to be great. You're going to get punched in the face. It's just part of life and business. Click To Tweet

It is a lifestyle. It is trying to keep up with the Jones, whoever the Jones is. We need to hunt them down.

Tell them to stop being a bad example.

It needs fictitious Joneses. You have to go through that, especially if you have not had anything. You got to go through buying the house, cars, clothes, shoes, purse, electronics, and all the things, and then you realize, “I am still not happy and fulfilled. I still do not have the things I want.” What is important? It is personal time, time with my family, and building the future so I do not have to work. You can choose. I am at a place where I do not have to work because I get to choose to work. I am fine for the rest of my life and that took huge discipline.

There are people who you would call rich, and then there are people that are wealthy. There are people that are extremely wealthy. At least, what I know is that the reason why some of those people get to be wealthy is not that they need the next dollar. It is because they understood how to play the game, and they kept playing it because they knew that, “If I move the chess piece here and I move it there, and then I move it there, I am going to keep winning. If I do not win, someone else will so I might as well keep doing it.” Sometimes, people go from this net worth of $5 million or 10 million to $50 million and $100 million simply because they kept playing the game that they figured out how to play for a long period of time.

You have to have people in your tribe like you and I. Be smart financially. Luckily, I had great mentors serve me on going, “You need to start now.” I was 25 when I opened my first retirement account and was so disciplined to put that money. I pay myself first. Even though I needed to pay rent, my mortgage, and my kids’ school, she kept saying to me, “Do not spend that money. Pay yourself first.”

One of my core beliefs is proximity is power. We have all heard the saying, “You are the average of the five people spend the most time with,” but the truth is, I believe we rise to the level of the people that we end up spending the most time with. I think about two of my friends/mentors who are both extremely wealthy. One of them is Chris. He told me this story about paying yourself first. There were times early in his career in his business when he would sit down with his bookkeeper and there was not enough.

He would literally say, “Deposit the money into the retirement account. We will be laid on this bill this month and we will make up for it next month.” He did and I look up. I do not know his exact net worth now, but I would guess it is probably North of $50 million, maybe even $100 million for all I know. I remember him sharing that with me a few years ago. That is the power of believing in that and then sticking to that plan.

Once I got out of spending and then I started accumulating, that was more fun than spending. You start seeing the accumulation. When I get my portfolio, I am like, “I made $100,000 last year and I did not do anything for that.” Be disciplined to go, “I made $100,000 last year in that portfolio.” That is a bonus.

Let that be the exciting thing. Not that not the new car, the third car, or whatever, but let the fact that I have accumulated more of this stock, this retirement plan, another rental property, or whatever it is. Let that be the win once you do that. That is what I mean by it seems like a game. Once you figure out how to play the game and how you win the game, you can keep doing that.

My first partner was managing the budget and I would say, “We need a new computer.” He was like, “No.” I would say, “We should create this product.” “Magically, we had money.” I am like, “You say we have no money then we have money.” He goes, “We got to spend money that will make us money, but I am not going to buy an asset that is going to depreciate. I want to spend money that is going to make us money.”

PYPP 37 | Investing In Your Business

Investing In Your Business: Really wealthy people are wealthy because they understand how to play the game. They know what chess pieces to move so they’ll win. They’ll keep winning because if they don’t win, someone else will.

 

It took me a long time to feel like he was trying to be the boss to me. To appreciate the discipline of going, “I do not need that new mic, new widget gidget, or update my website right now. What can I do that is going to make us money?” If I am working with our clients, I am like, “Is this going to make us money or is this a depreciation asset?” We need those, too, but when I look at the main goal of business, it is to provide you with a lifestyle that a job cannot. Let’s leverage that cash and use that cash and invest it in real estate, your executive bonus plan, and another business.

I do not think there is anything wrong with nice things. What I think is important is that we are honest with ourselves about, “Am I buying this or am I spending this money? Is it a good decision or sound decision financially or because it is something I want? Maybe it is an ego stroke or just something I want?” I drive a Tesla. I am not afraid to say it. I am not a car person and I am aware. I usually tell people like, “This is by far the worst financial decision I have ever made in my life and I would do it again tomorrow.”

Unless you bought it brand new because there were some good tax incentives.

I did. I zero costed it and all of that, but it is hard to justify that price tag on something. I was honest with myself about it. I said, “I am doing this and I am going to do this.” I did not tell myself, “I am going to buy this and then I am going to be able to do this. It is going to bring me more business.” I did not do any of that.

I went, “I am acknowledging what I am doing. Can I afford it? Yes. I realized the decision I was making and why I was making it. Let’s go do it.” As long as we are honest with ourselves about that, then there is no harm in it. It is when we start lying to ourselves because then we start to make a lot of poor decisions. Unfortunately, poor decisions also compound like good decisions and then you can look up and be in a bad spot.

I bought one too. The charging thing stressed me out. I remember having to drive to Santa Barbara and I had 450 miles before I had to charge again, but I could not make it to Santa Barbara. I literally went to the Jaguar dealership, got rid of that car, and bought a Jaguar. I am like, “I need gas. I can’t do this.” It was stressing me out too bad, so know your tolerance risk.

It is like my phone. I have a fear of losing charge. I am going to pull over and wait before I need it. If I still had a gas tank, I would have it for five years, but if I did, I would fill up when I get down to 1/4 of a tank.

It is a learning curve. What has been your secret sauce for shifting in a pandemic? When I was looking at your guys’ site, I was like, “They started in a pandemic,” because people think a pandemic is, “This is an anomaly.” No, we had the depression, recession, real estate crash, and financial crashes, but what has been your guys’ pivot inside of this to keep growing inside of the way the market shifted. In the beginning, you could not show houses. It was locked down, there were much more regulations, and then you guys started getting savvy with virtual tours and whatnot.

We were fortunate in the sense. Going back to my sales business. We expanded that outside of our home market, which is Phoenix, in 2014. On some level, we have been learning to work remotely and in a different environment for quite some time. To compound that, in 2018, we moved over to eXp Realty, which is cloud-based. There are literally no physical offices and everything runs on the backend in the cloud. That was also another advantage we had. A lot of it is we were set up for it. The other part of it is obviously, in March of 2020, nobody knew what was going on or what was going to happen.

We had been through tough times before, so my business partner and I sat down and said, “We do not know what is happening or what is going to happen. Here is what we think we can control. Let’s go do that.” We made a real focused effort to get more personal with our people, both who work with us as well as the consumers, the buyers, and sellers. What we found here in Arizona is we did not notice a big drop-off in sales. It was a week or two.

Proximity is power. You rise to the level of the people that we end up spending the most time with. Click To Tweet

We changed the way we did things. There got to be more virtual appointments and more showings virtually with less people involved. All of that came fairly naturally because the whole world had to adjust to it. It was easy to go if you were used to doing something in-person or even outside of in-person, whether in an office or on the road. It was easy to move that to Zoom because the whole world moved to Zoom and it became easier to set that expectation.

I had always been that way. I did not want to ever leave my office for my appointments. The rest of the real estate industry, which operates very much on a physical, let’s get belly-to-belly basis, got forced into leveraging some things that we would not normally leverage as an industry. Fortunately for us, our brokerage is set up that way from the beginning.

Some of my biggest lessons have been in my biggest hardship. We always say the bigger the breakdown, the bigger the breakthrough. Some people call it failures. We can call it breakdowns. What has been your biggest failure and what did you learn from it?

There are so many. In order to not turn this into a therapy session, I made a big mistake in 2012 at a thriving and growing business. I took an opportunity to be a regional director, at that time, it was Keller Williams region franchises. I was in charge of a region of 20 to 25 franchisees. Number one, there was a couple of breakdowns and big mistakes.

The biggest mistake was I got up and I left my city. I went to Denver, where the regional office happened to be. I did not do a good job in building leaders within my own sales business at home. I also realized that I was so desperate for more mentorship and guidance from people who had been where I wanted to go building businesses and passive income that I took an opportunity to be around people and to learn from people.

I realized that I am unemployable. I do not operate in corporate and follow the rules. You joked with me before we started about my footwear. I am unemployable. I am okay with that. I have this momentary lapse in judgment, and at the same time, I recognized that fairly quickly. I probably quit within 90 days and was out of the role completely within six months, but then I came back home. Even though it was our best year in business, it was also falling apart. Everybody who worked with us on the sales side of the business did leave in a short period of time, and the market was shifting. I had the specialty of short sales where I was better than pretty much anybody else in the entire country.

I had a higher conversion rate and was a well-known expert to be able to get these done. That was our specialty and niche, and then the market had turned. Not only did we lose our leverage because of our poor leadership, but the market was shifting. I had not even learned to be a realtor yet. I will tell people that 2013 or 2014 is the year I learned to become a realtor, meaning when I sat down to take a listing, I had to go sit at someone’s kitchen table. I had to do a good job of conveying the value that I bring because they were meeting with other realtors as well.

It was no longer because I could help save them from foreclosure, whereas nobody else could or few people could. It went from me having this unfair advantage to being unprepared. Those were a lot. In 2012 and the early part of 2014, there were a lot of lessons and punches in the face. Like you, it made me better. Our business is significantly better now because of that time.

Most people quit when they are in that spot like, “I can’t do this.”

I wanted to.

PYPP 37 | Investing In Your Business

The 7 Habits Of Highly Effective People: Powerful Lessons In Personal Change

We all do. We have the little pity party and then you go, “Pull up your big boy drawers.” Talk about your Group 46:10? Does that have a spiritual meaning?

Yes and no. 46:10 is from Isaiah 46:10. If you have ever read Stephen Covey’s book, The 7 Habits of Highly Effective People, one of those habits is, to begin with the end in mind or think with the end in mind. That is where it comes from. A friend of ours had talked to us about it. He had done some lesson, and my business partner and I had both attended that where he thought that came from Isaiah 46:10. The lesson itself begins with the end in mind.

It always stuck out to us. Especially in the short sale world back then, where when you took a listing now, everything you did would set you up for success or failure 6 to 9 months down the road. For us, we needed a team name and it was not going to be my name on the sign or my business partner’s name on the sign. I said it and we both went, “That is it.”

When I was looking at it, I went, “What is 46:10?” I found the Bible reference. I am like, “I wonder if that is it.” I love when you stand for something. You have to stand for something or fall for anything too. This is clear and my values begin with the end in mind. You can get ahold of Kevin and Fred at KevinAndFred.com if you are a real estate agent, want to invest in real estate, have a credible company supporting you, looking at you, and got a team of people that can help you. I appreciate your generosity, knowledge, time, and expertise. I have loved this conversation. I feel like birds of a feather talking about wealth strategy. I am being open and transparent because that is what it takes to grow in any marketplace. Thank you. Any parting words for us?

First of all, thank you. I appreciate the opportunity. It has been fun to do this with you on your show. You said something earlier about mentors. That is a word that is always stuck out to me and it is something I have always sought out. I mentioned believing in proximity is power. That is something I believe in and plugging into things like your community and our community of real estate agents. If you are in real estate or whatever it is that you are doing, plug into people who are maybe further down the road than you are and also like-minded, beliefs, and goals. Not that we should always be around people that believe the same as us, but who want similar things and are on a similar path is so valuable.

We always say the tongue in your mouth and the tongue in your shoe are going in the same direction. There are many people, especially in your industry, the tongue in their mouth and the tongue in their shoe are going in completely different directions.

I call that stage shock.

Thank you for serving us and contributing to us. If you love this episode and you have real estate agents in your tribe or your community and you want to introduce them to Kevin and Fred, please share this episode because that is how we find valuable partners that we can play with inside a business. Kevin, thank you so much. I appreciate you and have a blessed day.

Thank you. I appreciate it. I will talk to you soon.

 

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About Kevin Kauffman

PYPP 37 | Investing In Your BusinessKevin Kauffman is a real estate agent, investor & entrepreneur, In 2008 he co-founded of one of the nation’s most successful teams, The Group 46:10 Network. He is the host of a The Kevin & Fred Show (podcast) and the co-founder of the real estate mastermind Next Level Agents.

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