GI162: Real Estate Investing and Traveling the World with Derek Clifford

Derek Clifford is a multifamily real estate investor controlling 400+ apartment units who retired from his corporate job in 2021. He is also an author and host of the “Elevate Your Equity” show.

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Announcer:
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles:
Do you have money sitting in the stock market? And you’re worried about it or worse. You have money sitting at the bank, not keeping up with inflation. My name is Charles Carillo, founder and managing partner of Harborside Partners. And since 2006, I’ve been investing my money and my family’s money into income producing properties. These are real assets, real properties with real addresses that produce real cash flow. At Harborside Partners, we provide passive investors who love real estate with a turnkey investing solution. If you want to put your money to work in real estate, but can’t find deals, don’t have the time to get funding in. The last thing that productive people want to do is manage real estate. We find the deals. We fund the deals and we manage the tenants, the termites and the properties. Partner with us at investwithharborside.com. That’s investwithharborside.com. Go to investwithharborside.com. If you love real estate, you like the idea of passive income and believe that income producing properties will appreciate over time. Go to investwithharborside.com. That’s investwithharborside.com.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Derek Clifford. Derek is a multifamily real estate investor controlling 400+ apartment units who retired from his corporate job in 2021. He is also an author and host of the “Elevate Your Equity” show. So thank you so much for being on today, Derek.

Derek:
Yeah. Thank you Charles, for coming on. It’s gonna be a blast.

Charles:
So give us a little background on yourself, both personally and professionally prior to getting involved in real estate investing.

Derek:
Yeah, sure. So I’ll keep this as brief as I can just so we can get into some of the good stuff later on. But yeah, so for, for me, I was born in California, in Los Angeles. My dad moved us out for high school for me and my brother out to Colorado. So I grew did a lot of my growing up in Colorado and went to go on and get an engineering degree in Colorado. Then I started working for a gas company, an oil and gas company in Texas and then eventually found my way out to Washington state and met up my, my wife there actually I met her in Texas and then relocated to Washington where she was going to school while she was getting her doctorates. And then, you know, I, I got into project management after getting disillusioned in the engineering field.

Derek:
And then, you know moved to the bay area, lived in the bay area for several years. And I’m sure we can get into this a little bit later on Charles, but now as of last year we sold our house in the California bay area in the middle of COVID out in the burbs, right. And now we are traveling the world. We’re, we’re living out of a couple of suitcases now, literally we’re in Europe for four months. This is month two of four and we have one carryon bag and one backpack for each of us and we’re making it last for four months and we’re actually throwing stuff away every time we go from place to place, which is awesome. And so we’re really loving this lifestyle per personally, and then really quickly on the professional side.

Derek:
It kind of interweaves over with the profe with the personal side, but we started investing in real estate while I was a project manager out in California. And really kind of like the beginnings of that was starting to happen in, in the engineering when I started to get disillusioned with having to rely on a employer for my sole source of income and having them determine what my, what my worth was worth. And so it really didn’t stick with it. It didn’t sit well with me. So I started educating myself and, and buying single family homes early on while I was working the full-time job. You know, I was in California buying stuff in the Midwest and then eventually ran into loans cuz you can only get 10 single family home loans and then you have to either refinance them into a portfolio loan or get multi-family. And then in order to scale, I started doing, multi-family bring in other people who didn’t know what this was and wanted to find out more and then started doing syndications and started raising capital and, and started to get really deep in the commercial real estate space. So in a nutshell, that’s both my personal and professional life.

Charles:
Nice. Awesome. Yeah. I wanna get definitely into more of the traveling and seeing what you’re doing and how you made that decision. But I was reading in research for this episode that you purchased 13 cash flowing units in nine months while working a full-time job, which is pretty amazing. And now that we find out that it was time zones away from you where you’re buying these, so what did you need to change or give up in your life to make that a reality because that is running two full-time jobs and you know, married.

Derek:
Yeah, I think, you know I’m a big proponent of if the, why is big enough the, how will get legs? I was just so disgusted with my current situation and the job that I just had to make something happen. I may have, I may have cut out a little bit, but the I’m sure you’ve heard of Dave Ramsey before mm-hmm <affirmative> and when Dave Ramsey, my approach was to basically save up as much money as I could and live off of 4% of whatever I could put in the stock market. And that was my, my main go to, until I found out how long it was gonna take for me to, to actually achieve the life I wanted to achieve. So I was constantly looking for this vehicle. So once I found it it took me about two years to get fully comfortable around what it is that I was doing.

Derek:
I was looking at bigger pockets you know, talking with people about this, going to meetups, reading books, doing all the things that I could do. And once I was ready to push the button, I had been saving up money and like I was building my network to really take some massive action quickly. And just like in any business, Charles it’s like, once you get one down, the second one is easier and then the third one is even easier. And then the fourth is easier after that. And then, you know, by the time I had like my fifth or sixth property, right. I had it down to like I had in one email chain, my agent, my insurance broker, my loan broker, my property manager and my contractor. And I’m like, all right, let’s go for it. And then they all work together with each other. And so that’s kind of how that ended up working out. So really just, you know compounding that experience and going deep in one market. So staying really, really deep going an inch, an inch deep and not a mile wide, so to speak.

Charles:
So I have a question here with your team, cuz obviously you had a great team for doing this. How did you find your team? Cause I think a lot of people that are investing outside of their hometown, let’s say they, you know, obviously they’re gonna have to have a team they’re not gonna be walking the properties initially themselves. They’re definitely not gonna be managing themselves or they probably shouldn’t. How did you find all of your team members referrals or were you searching online or a little bit of both.

Derek:
Yeah, really great question. So it was actually a mixture of both of those. Later on I’ll get into the four CS, which is like one of the most important things that, that I can recommend people who wanna walk the same path or really do anything entrepreneurial. But for me it was talking with people and getting referrals, looking them up and cross referencing them on bigger pockets, which is like this forum for real estate investors that’s across the country. And really going into bigger pockets and finding out who was adding value, like the people that really like that knew their stuff that was like replying to people and that were being helpful and, and like reaching out. Those were the people that I wanted to meet with in person. So I literally made a list of all these people that were either referrals and or people that I looked up on bigger pockets or saw on forms online, or just saw the name over and over again.

Derek:
Right. I put their name down on a piece of paper and me being a project manager, I dialed every one of them and tried to fit them into a slot in a visit that I had planned to go to the market. I, yeah. So I called all of these people and wrote down their names and just basically dialed them one by one and told them, you know, when I was going to be in town and had like a calendar right next to me and as I was calling them and, you know, introducing them to who I was, what I was trying to do, the money that I had available to deploy and what I was looking to do out there. I just arranged for slots and I literally had like three full days of like meeting with a whole bunch of people and, you know, for every one property manager that I needed I interviewed like six people, right. And after like two or three, you start to get the hang of like sitting down with these people take ’em out to lunch. And you know, when you make these research visits to do anything in your business, it’s all about the people. It’s not about me just driving around aimlessly around the city, trying to find houses to buy, because I realize that if I found the right people, they live there so they can find the property for me.

Charles:
Okay. Very good. Very good. Did you ever have to change one of those have you you’ve had to change property managers or yeah.

Derek:
Yeah. Several times. Yeah. Several times. Like, you know, with property management let’s say that when you first interview them, like, let’s say they have 500 units under management for instance, and they have maybe five employees, well, what tends to happen if they’re not on top of their systems, is that usually people stay within the systems they have and they just add people to a system. Well, if they double their business in two years, which is what happened to me with one of my property managers. Now you find a company that has six people and a thousand units to manage and the quality starts dropping. So while they were good, at one point in time, they weren’t built to handle this in this increase of business. And so now you have to kind of work with the different person. So, and then of course it’s like the Mar landscape’s changing, like some PMs that, that I was working with before thinking about jumping to committed fraud, like they took all the, the security deposits for all the rents and they literally pulled that and went to Vegas with it. I’m not joking at all. They went to Vegas with their owners’ security deposits that the tenants had paid, went to Vegas, lost at all, came back and went out of business. And you can imagine the nightmare that was for the tenants and also for for the owners as well for everyone.

Charles:
Wow. That is quite the story. It’s just, it’s one thing with property managers is I’ve had some really good ones and then I’ve had ones that aren’t as good. And <laugh>, it’s just and it’s really just, you know, I, we had one before with some smaller properties and they were like when they would get a request from a tenant, they would like screen somehow. I don’t know why they were taking calls through their cell phone, but they would screenshot because a tenants would always be complaining about everything. Cuz you can just text someone, right. It wasn’t like call in and be like, Hey, this is an issue you taking care of mm-hmm <affirmative> and then they would send me the screenshot. So you’re like, oh, well what would you like me to do? Would you like me to solve this problem for you?

Charles:
Like, <laugh> like, okay, like, you know, you have to like, everything would be come through me. And then you’re like, I don’t know why I’m so it’s just like, it’s just, people don’t know how to manage the tenants and they don’t know how I’m like you have a maintenance person, you would contact that maintenance person and have ’em go there. You know what I mean? And I just, people just don’t know what they’re doing and it’s, it’s crazy. And I got that person through a referral through a trusted referral. I would say, not a business partner, but through a broker that specializes from one of the large, if I told you the brokerage firm, everybody in the world has heard of them and it’s just, you just can’t referrals are good, but they’re not great. You know what I mean? So

Derek:
Yeah. You just, you still have to do your research, right. Especially, you know, in a business like this Charles, where it’s very people based because you know, what we do in real estate is, is people like it’s very personal. You have people that are living in your unit. It’s a very personal thing. And then you have people that are managing that unit on your behalf. And if there is an emotional situation or like an escalation between the tenant and the property manager, and there’s some beef that gets generated there between the two, because these are people, right. Something’s gonna fall through the cracks. There’s gonna be some sort of retribution. It’s, it’s a very human thing is what I’m trying to say. It’s a very human business. So the more that you can exude like this level of contentment and happiness, that goes all the way down to the tenants, the more harmony that you’re gonna find in your real estate investing and that’s profitable for everyone.

Charles:
Yeah. Yeah. You’re, you’re definitely exactly. You’re definitely managing tenants. And then on another thing you’re managing the property physically and there are two separate kind of bodies that have to be, you know, so it’s, it’s just a, a good property manager, as they always say is worth, you know, everything because, and as the thankless job, cause no one ever calls, I never called my property manager. I go, you know what, you’re just doing a great job. It is no one does. I mean, no one does it. It’s just like a joke within real estate circles, but you really should do that. But it’s just something that I dunno just how it is, but and then real estate you’ll have some, you know managers have their own kind of I’ve seen before what they, what they like, what they’re good at. Some are really good at collecting rent. They’re not so good at like dealing with inquiries or repairs. Some are not the best I’m putting their foot down with collecting rent. So it’s like, you know, you have to find someone and usually larger firms with like a night with an full-time office that are, have a lot of local properties around yours is really the best. You know what I mean? And that’s what I have found.

Derek:
I would agree. And also someone a property manager that has the same values as you like, for instance, if, if your property manager has a little bit more like leeway in dealing with tenants, then you do like, let’s say, you’re like, you know, your personality and you wanna run properties with an iron fist. You can be like, yeah. You know, if they didn’t pay, if they paid 6 99 on a $700 per month rent a victim for that dollar, that’s there. Like I wanna see every dollar, right. Even though, you know, their, their mom is going through chemo or whatever. Right. there’s a line there. And so if your property manager thinks one way and you think the other that could cause conflict, right. So it’s just really important to know who your property manager is as a person and by extension in some way they will have an influence on who enters your property too.

Charles:
Yeah. Yeah. And then the other thing too, is that, like you said before about cuz I’ll see it with a lot of nicer properties, the property managers will not accept partial payments. Right. Kind of like what you were saying. Yeah. And it’s like super important that you are having a manager that’s managed, you, you have a C-Class property have a C manager that has C-Class properties. I wanna drive by those properties. I wanna see what they look like and I want them to be close to mine. You know what I mean? I don’t care about when they’re renting it. They’re gonna gonna rent one property before me. I want them, they drive by my property when they know exactly the tenant base, that’s there. They know how to deal with the tenant base. They’ve been successful with the tenant base and then, you know, you have you’re going in the right direction. And that’s one thing I find too, where you can’t have someone that’s gonna, you know, like you said, 6 99 and 700 in C class. You’ll never make money. You know what I mean? Right. maybe in an, a plus you have that kind of thing maybe, you know, but that’s a whole different demographic, so a hundred

Derek:
Percent.

Charles:
Yeah. Yeah. But so let’s talk about you, you briefly spoke about it right now, what you’re working on. You’re a full time real estate investor. Now you’re traveling, which I wanna get to in one second. But what is your company’s current strategy in criteria for investing?

Derek:
Yeah. Thank you. For giving us a space to talk about this. So right now we’re primarily looking at properties in the Midwest. There’s a lot of things happening in the local economy or in economies right now in the us that gives cause for concern, obviously right at the time that we’re recording this it’s it’s hopefully you don’t it’s okay. That I mentioned it’s it’s a little bit, it’s like late June. And right now you know, the interest rates are going up. The fed just announced to point a 75 basis increase on interest rates to help tamper or, or temp temper down the inflation mm-hmm <affirmative>. And a lot of the investor sentiment is starting to shift from more of a seller’s market to kind of a buyer’s market. And so we have to be really careful what markets we pick because whatever we do, we wanna make sure that we’re buying right, because the risk is high right now.

Derek:
So we like the Midwest just because the price per door versus the rent that we’re getting for that door. It just makes sense. Like there’s plenty of room for us to absorb a shock in rental income. Like let’s say, you know, the fed cuts rates or the fed raises rates and then employers have to start letting people go. And so unemployment starts going up. That means that there’s gonna be less people available or more inventory that we have to compete with in the area. Right. Because people aren’t renting. So if you have that dynamic there, just in case that happens with our units, right, then we’ve got room to cut rents and still be profitable for the investors. If you are working in an expensive market like Florida or Arizona or Georgia, where there’s so much demand for buyers to come in and buy properties, they’re running these things.

Derek:
So lean Charles that like they’re on interest only loans. And this is, these are things that you won’t find out until you start asking questions of operators in multifamily is like, you know, what type of loans are they getting? They’re like leveraging to the hilt based on these interest rates right now. And they’re counting on record levels of occupancy. What happens if you go from 95% occupancy down to 90% occupancy because an employer shuts down or because people are leaving the market, cuz it’s too expensive. Cause they lost their job right now. You’re in big trouble because now you can’t even afford to pay the debt payment cuz you’re, you’re running so close to the margin. Mm-Hmm <affirmative> so out in the, the Midwest things aren’t quite that hot yet. We are starting to see some things like happening where it’s a cashflow market.

Derek:
That’s turning into an appreciation market just because there’s very little inventory. People haven’t built out. The type of, it’s not as sexy as a, as a, you know, Arizona or Florida or Georgia or something like that. So but I have a feeling that’s gonna catch on. And so people that are really mindful of what’s important to tenants right now, which is affordability. Midwest has got affordability, it’s got amenities, affordability, everything that a tenant or renter class would need. And so that’s where we wanna be. We want to be a place where there’s gonna be strong demand throughout any type of recession. So just to summarize a little bit more, we’re looking for tertiary markets in the Midwest individual properties that we target look for. We, we project no rental increases or at least 3% rent increases over time. And we want the internal rate of return for the property to be at least 15% or higher preferably 20.

Derek:
And then the cash on cash returns around 7% as well. On average for each year of a hold, which will be five year hold. And then the last important metric that we look at is if we only had about 60 to 65% of the economic occupancy in our units, could we still be at break even that is what we target. We wanna make sure that if market rents is a thousand bucks and we had to drop all the way down to 700 bucks, could we still at least pay the mortgage? That’s what we look for.

Charles:
That’s great. There was some very good great criteria and strategy that you’re working with there in, in the Midwest and a lot different than out there on the coast where you used to live.

Derek:
So for sure,

Charles:
Let, let’s talk about where you used to live and where you’re living now. So what have, what have you been doing you so you quit your job or you retired from your job in 2021. What have you been up to

Derek:
<Laugh>? Yeah, so we are big fans of the three degrees of freedom to us the three degrees of freedom. So as an engineer, every time you unlock a degree, freedom, it opens up a whole new world, right? Like if you think about one dimension, you can only move along a straight line, two dimensions, you move along a plane like X, Y axis, and then three dimensions. Now you’ve got all space, right? So every time you unlock a degree of freedom, you’re adding a whole new layer of possibilities to your life. And so what we did was during COVID, we worked on our location, freedom degree of freedom. So first we did location. That’s something that a lot of people can do right now. You know you just work with your employers, say, Hey, I want remote positions. Some people fell into that.

Derek:
But make that intentionally, seek that out. And so that’s really what we were looking for is that location freedom. And then next came time because we were able to kind of negotiate in our job that no matter how much we worked, as long as we got the results done at the end of the week, then we can get our stuff done. So that’s also something you can do with the full-time employer. And then it was financial, which was next. And using some of that time that I was devoting to my full-time work, still getting the results done, but working on my side hustle, why we were locationally independent. That’s how we’re able to create this, this life and where we are now. Charles is we essentially sold everything. We sold our house. We took all of our capital gains from the house and we put it into apartment complexes that are cash flowing and paying us to live, to help us live our lifestyle.

Derek:
And we live out of suitcases. We’re traveling around the world right now. And when we made that jump, we actually have less expenses Charles than when we were living in the bay area. So not only were we struggling to make this financial independence thing work when we were in California, but we unlocked it by selling the house and traveling because when you have your expenses here and your income here and that dynamic shifts in your favor, all of a sudden life starts opening up a little bit more. So we’re all about traveling right now. We don’t have kids yet and we know that that’s gonna be coming eventually. So we’re just trying to like explore, be out there, enjoy what it’s like to be out in the world. And and continue to live a really fully, fully lived life. You know, one on business side and then one on the adventures and, and a relationship side too.

Charles:
Tell me about the luggage you’re carrying just, you mentioned it earlier and I just have to hear this again. <Laugh>

Derek:
So, you know, we’ve been, this is month two of four in Europe and we have one carryon bag and one backpack, and that includes this computer and camera and stuff that I’m, you know, a power setup because everything in Europe is different than the us. All of that stuff fits in everything. And we’ve like been to, I think we’re at 40 Airbnbs now. Wow. About 10 of them have been in Europe already. So

Charles:
Nice. That’s fantastic. Yeah, my wife and I, we did six months of traveling throughout the United States starting at the end of 2021. And we finished up early 20, 22. So it’s a lot of fun. I kept it in the United States. It was a lot easier with, with having a dog and stuff. But yeah, for my wife is gonna be a little difficult getting on with your luggage situation there. I don’t even wanna bring it up to her, but well, as we’re finishing up here so tell us about you, you talked about your mindset. Is that what you feel is one of the main factors that have contributed to your sex, your success?

Derek:
Yes, it is. I think one, one thing I have to bring this up is that the, the four CS mm-hmm <affirmative> these are the, these are the things that really, I didn’t know I was doing them, but is super important for people out there who are looking to start up something either on the side or just jump into something. The four CS is what unlocked the success for me and the CS are consistency, clarity, coaching, and connections or community, right? Same thing. And for consistency, for me, what that looked like was sitting, finding a dedicated time in the middle of the day, which for me, was getting to the office before all traffic built in the bay area <laugh> and sitting in the office an hour before everyone else got there. And consequently, that was, you know, the, the Midwest was three hours ahead.

Derek:
So it worked out perfect. So I was in the office at six 30 or seven and they were starting their day in the Midwest too. So that was perfect. Like that was how that worked for me. So I had a time block every day for me to work on my goals. And what ended up happening was I realized how important a coach was, you know, getting someone who could show me things that I could cut out, like I don’t need to do, or isn’t important. Right? Yeah. And it giving me references community was just as important for accountability and seeing what other people were doing and teasing out ideas and getting partners to do stuff with. And then of course the clarity piece came out of that consistency too. So if you are dedicating yourself to an hour a day and you are doing something, you’ve gotta have clarity on what you’re doing.

Derek:
Otherwise you’re not gonna have the wherewithal to stick through that consistency. So no matter what it is, everyone has something different, everyone. Like for instance, you know, Charles for you, you may like to really get super clear on your goals. That’s going to drive the other three CS automatically, or there may be PE people out there that just want to coach, right. That they really admire a coach and they wanna be like that person. So that person will tell them to get involved and get the other three CS involved. Right. And so my advice and what I was doing was in mindset is leaning into whatever approach, either one of those CS that best resonates with you. And that’s the mindset you’re gonna need to help bring everything else up. And as soon as you do that, you know, as soon as you bring in one extra C, if you’ve just been working in one or two CS in those realms and you bring in that third one, your business is just gonna skyrocket, right. You’re gonna experience a quantum leap because there’s gonna be an extra factor that you never knew about coming in there. So again, I think if the, why is big enough, the, how will get legs, but you have to know what actually works for you. And that’s why I like to break it out into those four CS, cuz everyone’s different.

Charles:
It makes perfect, perfect sense, Derek, thank you so much for coming on today. How can our listeners learn more about you and your business?

Derek:
Yeah. Charles, thank you again for having me on this was a blast and it was really short and sweet. But people can get ahold of us just by going to elevate equity.org or looking for our podcast, wherever you look at podcasts and the, the name of it is called elevate your equity. So elevates your equity wherever you listen to podcasts and for people that are wanting to get a five step blueprint on how we created this life. Just go to elevate equity.org/podcast gift and you should be able to get that blueprint for free.

Charles:
Awesome. Well thank you so much for coming on today, Derek and looking forward to connecting with you once you’re back in the states.

Derek:
Yeah. Thank you so much, Charles. This was a blast. I loved it.

Charles:
Have a great rest of your day.

Derek:
You too.

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

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About Derek Clifford

Derek Clifford is a successful single and multifamily real estate investor and fund manager, retiring himself from his full-time corporate job as of September 2021. He is a multifamily investor controlling 400+ apartment units with over $40M AUM. He is also an author and podcast host of the “Elevate Your Equity” show and the founder and CEO of Elevate Equity, a firm that partners with individuals to help unlock the three degrees of freedom: location, time, and financial. Derek published his first book “Part-Time Real Estate Investing for Full-Time Professionals,” back in 2020, which has helped several people get started on the path of growing their passive income on the side while working a full-time corporate job.

He is a fervent student of self-development and mindset. Derek loves to give back his knowledge and has a passion for breaking down complex ideas into easy to explain topics. He’s helped many people start, maintain, and grow their portfolios to achieve their own financial independence. In his spare time, Derek enjoys relaxing with his wife, biking, hiking, reading, and undertaking small household construction projects.

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