DFW Rental Domination

Mike Hambright (00:00.654)
Hey everybody, welcome back to the show. Today I am with Leah and Michael Slaughter. We’re gonna be talking about how to use a 1031 to build wealth in your business. As you’re gonna find out here shortly, they have a tremendous amount of experience to help people do this. So if you’re in that phase of your life, this would be a good show to watch. Hey guys, welcome to the show.

Leah Slaughter (00:16.933)
Thanks so much for having us.

Mike Hambright (00:18.67)
Yeah, yeah, so you guys are, we’re not, we’re basically neighbors, but we just haven’t met in person yet, but I’ve been kinda eyeballing you guys for a little while as we talked about it, and so excited to have you on here today. Yeah, so tell us a little bit about your background. You have an amazing background of how you got to this point, so tell us a little bit about that and what your business looks like today.

Leah Slaughter (00:30.432)
Thanks.

Leah Slaughter (00:38.838)
Yeah, so we got into real estate when we were 18 and 19. Michael was a corporate manager at PetSmart and we bought our first property and let’s just say it was not the best experience. He didn’t want me to negotiate and anyone who knows me knows I’m a bit too type A to not try to get a better deal and so.

Mike Hambright (00:52.678)
Yeah.

Leah Slaughter (00:55.036)
were laying in bed like a week after we bought the house and Michael said I want to go into real estate. We started right from the beginning while I was there I actually used my vacation time to go to real estate schools doing it in the evenings doing it during the day through a local college.

completed my real estate license and then as soon as I was able I ended up taking my broker’s exam and became a broker in the state of Texas. I think you were like the youngest that Texas had ever had. I believe I was the youngest broker or one of the youngest brokers Texas had had up to date. Yeah, so we started really, really early doing short sales, walking door to door and we actually became the exclusive listing company for owners.com and for sale by owner back when nobody knew what short sales were and flat fees and all of that and we were doing hundreds and hundreds of valuations a month.

Mike Hambright (01:25.464)
Yeah.

Mike Hambright (01:36.343)
I

Leah Slaughter (01:40.565)
And so we had a really unique kind of eyes to what was happening in DFW. We were kids, but we were really bright kids. And it was obvious that people had way, way more inequity.

or in terms of their debt than what they had equity in their homes. so between that and I mean, literally, we were doing like a thousand listings a year. And so I don’t think there were a lot of people in the market at that point in time that were seeing that many numbers. And it was really obvious to us the market was about to crash. We were being asked to value properties for so much more than what they were worth. And we just all of these homeowners were just in dire straits. I’ll never forget. We had this one customer who we were working with that their AC broke.

and they decided to walk away from their home because they had no equity in their home and they didn’t want to pay like $500 to fix their AC. So really, really early on, we realized the market was going to shift, but that there was opportunity. so we started, Michael started pulling maps of where he thought George Bush Turnpike was going to go. And we started selling investors on all this land right next to the adjacent tollway purchases. was pretty incredible. When Rowlett was nothing, had investors buying out there knowing areas like the neighborhood Waterview were going to take off based on the predicted paths of George Bush.

Mike Hambright (02:22.126)
Hmm.

Leah Slaughter (02:46.698)
And just watching that and dealing with both the side, we were doing BPOs for different banks that were going into short sales. They weren’t our listings, but we actually ended up contracting with several of the banks. And seeing what these values were, we decided early on that home buyers are not what our passion was at all. But when we looked at the numbers, investments made sense. And so we started in early jumping into that and the investors started following what we were doing. And when they started making money, then they started spreading the word. And that’s how we built our company to what it is today. Yeah.

maybe 21, 22, representing 800 investors. I mean, it was pretty incredible. But there were a lot of players back then, and I know you know this, that were doing a lot of shady stuff. And so we became known as the fixers. So people that were from other states were referring, there are friends that had invested with these same kind of turnkey providers, many of which now are in jail.

Mike Hambright (03:22.114)
Wow.

Leah Slaughter (03:37.142)
to us and so we would take on these people that had overpaid lipstick on pig remodels all these types of things and kind of help them navigate how do you avoid bankruptcy hold on to this property as a rental until the market recovers and so we just that’s what we became known as and the reason that that worked was everything was under one roof at that point we had in-house maintenance repairs property management acquisition sales so it was a one-stop shop but it was that family kind of handheld feel that we’ve strived for all these years so flash forward now we’ll be entering our 20th year

And we still follow the same model today that we did back then. And we have lived and breathed that for our career to build our portfolio as well. Absolutely.

Mike Hambright (04:15.32)
Yeah, that’s great. Yeah, the growth in the DFW market has been incredible, right? And so, yeah, and it doesn’t look like it’s gonna slow down anytime soon either.

Leah Slaughter (04:24.092)
No, I think we’re just getting started. Little LA, as I call it, by 2100. It’s going to be pretty crazy. I don’t think there’s anything we can do to stop it at this point, Mike. The growth will happen. mean, when you look at what was North Texas 20 years ago, what we considered North Texas, it really stopped at the Plano suburbs, maybe up to McKinney. Collin County was the end of North Texas. Now North Texas extends all the way through Grayson County to the Red River up into southern Oklahoma that now when you look at

Mike Hambright (04:28.11)
Hopefully not. Hopefully not.

Yeah.

Mike Hambright (04:40.29)
Right.

Leah Slaughter (04:52.672)
when somebody looks at the North Texas market, they’re actually including Southern Oklahoma in the North Texas market. Yeah. So we’ve got like tons of property up in Southern Oklahoma now too. So it’s just, it’s an extension. Yes.

Mike Hambright (04:58.38)
Yep. Wow. Yep. So.

Mike Hambright (05:05.87)
So tell me a little bit about your business. So you’ve got property management and you help a lot of people get into the real estate business and build wealth. And we’re gonna talk about some 1031 stuff here as well. But what does your business look like today?

Leah Slaughter (05:08.768)
Mm-hmm.

Leah Slaughter (05:17.674)
Yeah, so we have a lot of businesses. That primary company we started back in 2006 is really just everything under one roof to do with buying, holding, and reselling rental real estate. So we’ve got acquisition sales, property management, in-house attorney, in-house bookkeeping, everything that pretty much anybody needs to be able to hold an asset here. And we’ve been doing that same model all that time. In addition to that, Michael and I have our own investment holding companies. We have about a $45 million portfolio between the two of us. And on top of that, I have a real estate investment fund.

another about to launch, a renovation company, and our mentorship and education arm. So we’ve got a lot of moving parts. We decided early on what was important to us is to practice what we preach. There are so many investment groups out there and there are so many people who teach. I hate using that term. But gurus who we started to learn early in our career didn’t own a single rental, but they were telling people how to make money in real estate. And so we decided very early on, before we recommend anything, we are the guinea pigs.

And we try it out so we can give the good, bad, and ugly of every investment avenue.

Mike Hambright (06:21.826)
Yeah.

So the classic investor model is to go by generally older houses and older areas that are willing to sell at a deep discount. Honestly, that’s how I’ve bought hundreds and hundreds of properties and my rental portfolio is different than yours. I appreciate, it’s done very well, obviously, just because of the market and the marketplace we’re in in time and the growth in DFW. But I appreciate your model of buying new construction because we’ve had some, I’m doing regularly doing 20 to $30,000 make-repair.

and have deferred maintenance for long periods of time and stuff like that. So I understand the trade-off there, but why new construction for you guys?

Leah Slaughter (07:00.543)
So there’s a lot of reasons and I think probably the biggest part of the education that we do with our customers is teaching them why new construction because once you kind of understand those fundamentals, it makes a lot more sense. I think at the end of the day, what it boils down to is exactly what you’re talking about, price control. And it gives us a lot more control on the renovation side, the repair side, because you’re buying a product that is really designed to last five to 10 years. And our model’s unique because we don’t hold properties beyond that long.

And when we’re doing new construction, we’ve got to build a warranty in place. On top of that, we put a home warranty for years two to five. There’s a lot of these warranty companies that have a four-year product for new construction. And so it’s virtually five years of worry-free ownership. But in addition to that, when you’re remodeling a property, it’s still an old property. So I rebuild, as you do, pier foundations all the time. They’re going to keep moving.

You know, it’s a two to three year fix and then you start to have to adjust and those things and then that causes with plumbing and electrical. so, you know, the old vendors were doing lipstick on a pig and we were having to fix it. But even those of us that are doing these massive renovations and remodels, you’re still having to go back constantly. And so it’s really hard to control cost. And when the market’s rising and appreciation’s going crazy, you still can have a lot of equity build up.

And equity, whether you’re doing new construction or pre-owned property, that’s going to be your big play. $2,000, $3,000, $4,000 a year in cash flow pales in comparison to 5 % appreciation on a $200,000 home. That $10,000 a year goes a lot further. So I think at the end of the day, the number one most important thing is to go into real estate rentals. That’s the most important takeaway. But second to that, if we go into new construction, we can really kind of control this first five years where you have very reduced costs.

In addition to that, we’re putting materials in the houses that are going to outlive the tendencies. So we’re talking vinyl wood floors throughout, solid surface countertop, shaker cabinets with handle pulls so that we’re not getting the grease wear on the paint, upgraded roofing. You’ve got all the newer plumbing standards, newer energy efficiency standards. There’s just a lot of different things in new construction that are better.

Mike Hambright (08:43.064)
Mm.

Leah Slaughter (08:57.301)
It also targets the areas that we want. We’re doing this kind of outline market model, and I’m sure we’ll talk a little bit more about that, but it really allows us to put our properties in the concentrated areas where we see the highest growth rate, but in the lowest price point. So we’re typically in an average of like 230, 225 on a price point. And that’s really unheard of for new construction. And we’ve got access to inventory because of relationships that we’ve been building for almost 20 years. A lot of our builders build specifically for us.

I think at the end of the day, above and beyond all of that, the property tax benefit the first year of ownership is the single biggest difference in return other than repair reduction. So when you have January 1st roll around every year, the status of a property, as you know, is how they determine your taxable value that property taxes are based on. So we’re trying to tier our property acquisitions to homes that did not exist January 1st. So if we buy a property in May that they started construction on January 15th, that property tax bill for that first year is like $100.

instead of maybe $4,000. And so that $4,000 savings year one averaged into three to five years of ownership takes that overall global return over five years and skyrockets it, right? You’ve got basically an extra 20 % of your return built in there because you’re saving all that money. So that’s a really important factor. But then in addition to that, every year that they come reassess it, we’re fighting starting day one. So instead of buying a pre-owned home where you’re having to…

Mike Hambright (09:54.786)
Yeah. Yeah, yeah.

Leah Slaughter (10:18.813)
absorb 20 or 25 years of someone not protesting their taxes, we’re doing it year one aggressively every single year. So what we find historically is that that property tax value remains artificially lower and that allows us to save money moving forward. And by the time we get to a point where it’s really skyrocketing, well, we’ve gained so much equity, we’re already in that doubling process. So new construction just allows us to control a lot of pieces of the model that you can’t do in a pre-owned home. And when you look at a real estate investment, as the investor, you have two customers. Your first is going to be your tenant.

That’s your first customer, so you want something easy to rent. You want something desirable. The next one is who are you going to sell it to? The biggest mistake investors make is buy something and think, well, I’ve had this $800 or $900 a month cash flow, so I’m going to keep it forever. And that’s the equivalent of going to any local bank and putting $30,000 or $40,000 in a CD and making your interest return on it, allowing that interest to go into said CD, but never making money on that interest. So overall, you have that untapped equity.

Mike Hambright (11:12.526)
Yep.

Leah Slaughter (11:14.451)
and you want to make sure you have access to it. When you’re looking at these areas that we are, we’re looking five steps in the future. What is growing up? If we can buy in on the earlier side of that, then you’ve got forced appreciation because when the big builders come in and they start building these neighborhoods, that’s going to help increase your property values for the end client down the way. When she talks about what we’re looking at for the build-outs of these houses, that’s the other thing we’re looking at is what is a…

average starter home. What is an average starter family looking for in their starter home? And we want to make sure at the end of that five years when we go to sell it or anywhere in that two to six years that it is that starter home for the family. Yeah. I mean, these are beautiful homes that we do, right? Like they’re, I’m sure just like your remodels, right? They’re beautiful. They’re nice. Are my customers in California look at these and they can’t believe for 250, it’s better than their $2 million property in LA. It’s we’ve had more than one end up buying one for permanent residency and move.

Mike Hambright (11:48.45)
Yeah. I’m sure. Yeah.

Leah Slaughter (12:05.458)
because they look at it go, wait, I can get this and right now I in a million dollar home that doesn’t look anything like this. And so we’ve had that more than once.

Mike Hambright (12:08.717)
Alright.

Yeah. So it’s tied together with what you’ve been talking about, but also kind of why the suburbs, you guys are just staying out ahead of the growth curve and letting the growth kind of come into you and then just moving further out if you need to, right? So talk about that a bit.

Leah Slaughter (12:25.106)
Yeah, so I’ll give you an example. think anyone that’s following North Texas or following our growth right now in the United States is aware of what’s happening in Sherman with the chip manufacturing. So a lot of people are now eyes on Sherman starting to, you know, the last year start to buy out there. Well, we’ve been selling Sherman for eight and a half years because we knew what was coming or we at least we thought we knew what was coming. And so I’ll kind of walk you through. yeah. yeah.

Mike Hambright (12:44.917)
Right. That whole 75 corridor has been the growth path for decades, right? Yeah.

Leah Slaughter (12:50.236)
Yeah, but Sherman is a really unique buy because it’s going to be the new Silicon Alley, Silicon Prairie, whatever you want to call it. It’s the new Silicon Valley. And so I think what people failed to realize is all of these businesses that are in Dallas County and Collin County, they’re so focused on what businesses are coming here. They forgot to look at what businesses were already here. So I saw TI and Allen and we would drive past it all the time and we knew Allen was skyrocketing and they had a base up in Sherman.

And Michael and I would constantly drive by this and say it only makes sense that they’re going to expand in Sherman, not in Allen. It’s too expensive. It just makes sense. They’ve got all the water rights up there. You’ve got Texoma. There’s just a lot of things that make sense up there. You’ve already got steel manufacturing, a lot of land for their subsidiaries to come in, the companies they work with. So we bought up there anticipating that TI was going to expand and that other businesses that they worked with were going to come up there. Did we expect $60 billion? No, absolutely not.

When I look back eight and half years ago, I’ve had people ask me like, how did you know? Well, I mean, it made sense they were going to build. I had no idea it was going to become the new capital of the US. But at the end of the day, those are the metrics. So we look for what we call a boom market and a pre-boom market. And so a boom market is one that still has to grow. They have so much population growth, so much job growth, they can’t sustain it. So they have to keep developing. Dallas is, for example, the opposite of that. Dallas is actually having net population loss, even though DFW is the fastest growing metro in the US. Well, why is that?

Mike Hambright (13:52.43)
Sure.

Leah Slaughter (14:13.352)
Well, A, Dallas is not an area most of us want to live in. It doesn’t have the same political climate as the northern suburbs from a landlord and home ownership perspective. It’s already overdeveloped and overcrowded. The areas that we’re looking at, they have to continue to grow. So you have to keep getting new infrastructure, which means even if the market softens a little bit, those areas still do well. I’ll give you an example. Grayson County new numbers just came out for the end of May. And price points up 6.6 % year over year right now on median price point, despite high interest rates, despite

all this stuff people are talking about about the market pricing dropping. Is the market slower right now because buyers are waiting? Absolutely. But that doesn’t mean that the value is not there. And Grayson County is a shining example of that. So we’ve been focusing on Grayson County for almost a decade. And about 80 % of my portfolio personally is in Grayson County.

We are very much putting our money where our mouth is, but that exact kind of metric of trying to identify these boom and pre-boom markets is what we’ve been doing all along. So if you came to us 10, 15 years ago, we were selling Frisco and Little Elm and Rockwall areas now that I wouldn’t do an investment property there if I had to, because the metrics just don’t make sense. And so we’re just going to keep doing that. And we recently expanded into southern Oklahoma. We’ve got tons of properties right over the border. That area is booming.

So if you and I talk again in 10 or 20 years, we may be in the middle of Oklahoma, who knows? But the bottom line is if it makes money and it meets that market metric, appreciation and cash flow, that’s what we’re gonna make. And what we’re looking for is she talked a little bit on the political climate and it’s not partisan. It’s about investor relation. When we go into an area, we wanna be a partner with the areas and there’s certain areas, the city of Dallas being one, they have become more and more anti-landlord. And you see as they put in the regulations and you see as they put in,

Mike Hambright (15:30.382)
That’s right, yeah.

Mike Hambright (15:52.29)
Mm-hmm.

Leah Slaughter (15:55.229)
new protocols and new hoops that you can still invest in there, but you have a lot more regulation that you have to follow. Whereas the farther north you go, when we find most of the cities like Sherman and Denison, they’re happy to have us there to offer that level of housing that they haven’t had for all of these people who are coming in. We’ve had so many of these companies reach out to us going, we need to rent your house and I’ve got to put two to three people a bedroom because we have an employee shortage. Chip manufacturing has always been big in Sherman and Denison.

Mike Hambright (16:01.804)
Yep.

Leah Slaughter (16:24.304)
Actually, when you look away from computer chips, Ruiz Foods is there. It’s one the largest Mexican food producers in the country. And they’ve been down up to 4,000 employees at a time that they couldn’t bring in because they had no housing. And we look at what these partnerships are that we have in these areas with TI looking at the, even so much as now TI working with the high schools up there to create education programs. They want these individuals that are born in Grayson County to go to school in Grayson County, to graduate and to come work for them.

Mike Hambright (16:35.362)
Wow.

Leah Slaughter (16:52.594)
And so they’ve started high school programs to start grooming and recruiting to get them into places like Austin College, which was a traditionally two-year college that can teach what TI wants. So then you come to work for TI, you have employer loyalty, but you’ve also lived and worked in that entire area. And you look at just the infrastructure. There’s been a long time rumor, 75 will cease to exist within the next decade. It will no longer be 75. They want to turn it into 45 and take the 45 corridor all the way up through.

Oklahoma. So if you go into Grayson County now, you’ll see there’s been a lot of what they call exit reduction. So there’s not as many exits because there’s actually federal standard for exits and on-ramps for an interstate. And so for them to ever do that, they had to cut based on population, how many exits and on-ramps Sherman and Denison could have. They increased Sherman, they decreased Denison. They did that because they’re intending to bring that into 45. And that just makes the commute and the transportation of goods so much easier.

Mike Hambright (17:23.266)
Hmm.

Leah Slaughter (17:49.958)
And that’s what, when Leah was talking about earlier, looking into the future that we’re looking for, because if it’s easy to get equipment in and out, that’s industrial heaven. And so that’s what they’re looking to build. Yeah. And you know, like what’s happening right now with McKinney Airport, personally, we’re not happy about it. We’re two miles from the airport. And so we don’t love the idea of jets overhead all day. But from a business perspective, you have to think about the logistics of what that’s going to change for these areas. Hunt County, where we work a ton in Greenville and all that area.

and north into Grayson County, instead of having to drive an hour and a half to DFW, they can go 30 minutes up the road and they can get to McKinney Airport. there’s just, there’s a lot of change happening in these markets. And if people would just focus, don’t look at the inside city. North Texas is really unique. We’ve got the second largest number of highway miles per capita in the U.S. and that keeps our prices kind of artificially low. We’re the fourth largest market in the U.S. We’re about to overtake Chicago for number three and by 2100, we’re going to overtake New York and LA.

So you have to wonder, well, average price point right now is about 398,000 and fourth largest, soon to be third largest market in the US. Where is that realistically gonna go? A million, a million five? And so when we look at that, you have to understand that the reason we’re priced where we’re priced is because we have so much connectivity of land. We grow in our suburbs instead of inner cities like every other top 10 market. That is changing because what is the inner city is no longer gonna be Dallas, it’s gonna be Frisco, McKinney.

And so for us, that investment opportunity is just, it’s right for the taking. And you look at what they’re doing at these airports that she brought up. So McKinney, for example, they’re touting themselves as a passenger airport. You you look at some of the metrics that they’re putting out there and you start scratching your head going, well, how does that make logical sense? But then you start looking at the major hangars that they’re building for TI, Encore Wire, and some of the other groups. And you start to wonder, how many cars, Amazon.

Mike Hambright (19:12.577)
Incredible,

Leah Slaughter (19:36.047)
Amazon’s main distribution for North Texas is attached to the McKinney Airport. Well now we have cargo planes. faster access and egress of goods benefits. And when we’re sitting here, if we do get to talk in another decade, remember that I say watch the Grayson County Airport. Because a lot of people are paying attention to the McKinney one. Grayson County is another one I suspect we will start seeing cargo flights going in and out of for all of the chip manufacturing. And that saves the manufacturers money, which brings them in, which creates jobs.

Mike Hambright (19:39.885)
Hmm.

Leah Slaughter (20:05.16)
which creates our customer pool for rentals because that’s what people are looking for for their first starter homes.

Mike Hambright (20:11.342)
Yeah, that’s awesome. That’s amazing. You guys, I live not far from you guys and you guys have so much more knowledge than I do on that area for sure. So let’s talk a little bit about this, the model of 1030 buying a property, keeping it for a period of time, doing a 1031, parlaying that into the next thing. I know that’s your model. So let’s talk about that a bit.

Leah Slaughter (20:30.771)
Yeah, so we have customers that are school teachers and we have customers that are Fortune 500s. And so the model, the great thing about it is it works for everybody. So whether you’re starting with $50,000 or $5 million, our goal is the same. Whatever amount of money you start with, we have to take it as far as we can for you. Because we have to design it where if you can’t add more money to it, we still have to get you on that path to retirement passive income. And so if you’re just buying in a linear market, a market that has no price growth,

you’re never gonna get anywhere because you’re gonna have a little bit better cash flow every month on paper. Now they’re typically older homes, not as landlord friendly. So if you really break it down, you’re actually not gonna make as much, but on paper they look really good sometimes. But what you don’t realize is if your price is not rising, you’re leaving 80 % of your return on the table and you can’t ever get out of it. The great thing about buying in a market that appreciates in cash flows is you’ve got cash flow in the meantime and you’re making a great return on that.

If you’re leveraging at typical leveraging rates, you’re making another 5 % cash on cash return while you’re sitting on the asset. But then once that equity builds, whether it’s forced appreciation, whether it’s natural price appreciation, whether it’s principal pay down from your monthly pay down, whatever it is, once you’ve got enough money in that equity to turn one into two, you can double your portfolio.

Well then every two to six years you’re doubling, you’re not just doubling the number of properties you own on paper, you’re doubling your depreciation on your tax returns and you’re going back in at a higher basis because you’re paying more. You’re also gonna double your principal pay down so that 5 % cash on cash with the same amount of money now becomes 10. You’ve got two properties cash flowing, you’ve got two properties, the biggest win of all, two properties appreciating. So say that you start with a $250,000 home.

You want to leverage into as many as you can because every one of those, even at just a 5 % return a year, is over 12 grand a year in appreciation. So if you have one and you turn it to two, well, now you’re at 25,000 a year in appreciation just at a basic 5%. And so when you’ve got people like us at a $45 million portfolio do the math, the cash flow is great. I love my cash flow. The appreciation is what is incredible.

Leah Slaughter (22:28.859)
And so I think people don’t understand the power of multiplying property and how that is what creates millionaires. The biggest mistake that investors make is they get comfortable. And even as passive investors, if you want to consider that, when you own rental property, you’re never truly passive. If you’re in a fund, you can be passive. If you’re in a syndication, you can be passive. But they try to become passive. And what they do is they do the deal and they work up the performance in the beginning and they never do it again. So one thing that I always tell people when they sit down in front of me,

Mike Hambright (22:28.974)
Yeah, that’s awesome.

Mike Hambright (22:44.494)
Sure.

Leah Slaughter (22:57.629)
when we’re mentoring, when we have some kind of small group get together, or when we’re teaching on stages, please, every six months, or at least when you’re doing your taxes every year, sit down and re-perform on your properties and take into account what it’s appreciated to, because most people that I will sit down and talk to, they go, I bought this house, it’s been returning this percentage per year. And we sit down and do the math and I can prove to them, yes, when you first bought it, it was returning at five, seven percent a year, and that’s okay.

Now it’s returning at 1 to 3 % because you have all of this uncaptured equity in this property that’s not doing you any good as it’s sitting there. And you don’t get to depreciate it, you don’t get to touch it. It’s just money growth that you’re not able to do anything with and it’s not working for you. You need every bit of money that you have at your disposal working for you if you want to create a passive life. I did a consult call this week with someone that has three properties and they have built up enough equity in those three properties that if they turn them over…

Mike Hambright (23:31.49)
Right. Yeah.

Leah Slaughter (23:51.955)
between cash flow, depreciation, appreciation, and principal pay down. They go from making $30,000 a year to over $200,000 a year on their properties. And that’s the power. And that’s with three properties. And so at the end of the day, I think people just forget that you have to constantly look at performance. Instead, they’re like, oh, I’ve got amazing cash flow. I only owe $60,000. I’m making $700 a month. And what I tell them is, well, that $200,000 equity sitting is four more properties. And what would you be making on five instead of, you know?

Mike Hambright (24:00.686)
Wow.

Leah Slaughter (24:21.242)
I think it’s shifting the mindset and a lot of what we educate is shifting that mindset. Because whether you’re buying in Texas or California or Florida, New York, it doesn’t matter. At the end of the day, that equity sitting is your money that should be put to use. And if you’re not putting it to use, you got to calculate it into your return. So when we talk about properties and running numbers, you’ll never hear us mention cap rates because they don’t make sense. Cap rates do not look at financing and how that affects the return on a property. We only use cash on cash.

Mike Hambright (24:45.166)
Sure.

Leah Slaughter (24:46.834)
And that makes a huge difference because then you can compare deal to deal, market to market, property and finance to property to finance. And that’s really the only way to know what your return actually is. And that’s what we care about at the end of the day. If I send $100,000 out, how much is it making me back? That’s ultimately what 99 % of investors in this world care about. What am I actually making back?

Mike Hambright (25:04.94)
Right. Yep. So let’s talk about one of the keys to this whole thing working is quality property management, which as you know, and we talked about a little bit ahead of time, like that is a little bit of an oxymoron maybe, or to find good property managers, but they’re the key to everything, whether in any asset class, right? So let’s talk about the importance of quality property management in this model.

Leah Slaughter (25:18.791)
Yeah.

Leah Slaughter (25:27.248)
Yeah, so I think at the end of the day, any deal can be a good deal. Any property can be a good property. But if you’re not properly handling the tendency, it will never work out. And what I find with property management is we all are terrible, honestly, because property management is terrible. So you have to find the best of the bad breed. And it’s not that we don’t try. It’s not that property managers don’t work really hard and crazy hours and lots of high stress. Property management is just really, really hard.

And you can’t do a good job making your client, the buyer, happy and also make the tenant happy. It’s not possible. And so where I find property managers go wrong, and I do, we talked about this before, we do a lot of education for property management because we are doing it at a volume and a model that most people, don’t do. When you get to our size, you IPO and you sell. And, you know, I think there’s just very few family-owned companies as large as us that do as much as we do. We’ve got almost 50 people on our property management team alone. So I think where they go wrong is they don’t hold tenants accountable.

They try to become friendly with the tenants. try to become, I have a customer one time, I’ll never forget, he used to take his tenants to buy groceries because they didn’t have a car. Like we see this with mom and pops all the time, especially those that are self-managing. And the problem with that is you’re running a business and when you don’t treat it like a business, you’re not gonna make money. So one of the things that we do on all of our properties is we walk through all the homes, every and every unit on our multifamily every quarter.

And that allows us to see what the tenants are doing to check on the property, catch issues before they’re big and make the tenants correct them during the tenancy. And that allows us to know what the condition of the property is so the last two months of every lease, we can put it back up for rent once we are the tenant give notice. So we’ve got these quarterly visits and then a two month period where we can go rerent the property. We tear all of our leases to prime season. So we’re putting them back up for leaser for sale during the best times of year. We are going in and able to do all these things in house.

If we have a tenant that we need to evict, we do that in-house. We’ve got legal, we’ve got CPA, we’ve got everything in-house. So it’s a very controlled environment that you just can’t get with most property management companies. And that is what makes it work. When you only go in every one or two years and you’re turning, like you mentioned earlier, you’ve got really high rehab expenses. Every renovation or turn can turn into a rehab. And for us, really bad make ready, a really bad move out is five grand. And those are not common.

Leah Slaughter (27:39.42)
But it happens. And at the end of the day, when I look at the pre-owned properties where you’ve got a lot more that can go wrong, you’re not just having to deal with tenant stuff. You’re dealing with the other things that shift. Foundation, know, a $1,000 foundation touch-up turns into a $3,000 bill because you’ve got all the cracks and the texture and the gas lines and everything. And so it goes back to new construction paired with the right property management. And my recommendation to you if you’re self-managing, and a lot of our customers, that’s where they come from. That’s the world that they’re used to.

Don’t be your tenant’s friend, run a business. It doesn’t matter if the tenant loves you. They don’t have to love you. They have a contract, hold them to the contract. One thing you don’t want is if you’re only enforcing parts of the contract with some tenants and you’re not fair across the board, is a fair housing claim or a discrimination claim. And people, don’t think through these things because they’re not business owners, right? But you and I know we’ve been in the industry long enough. You have to treat everyone exactly the same because that is how you protect yourself and that’s how you’re fair. And if you ever have something in a lease,

and you don’t enforce it and then sometimes you do. I’ll tell you, justice of the peace is the first line of legal in any eviction or deposit dispute in the state of Texas and though they’re not attorneys, the majority of them in Texas are not attorneys, they’re everyday people who ran for a job and they were able to get it. They take an eight week course after they’re elected and then they’re a judge. You have to keep in mind that when you’re looking at that, the problem is is sometimes they’ll look at it go, well, if you’re only enforcing it sometimes I understand why the tenant didn’t follow it so I’m not going to allow it.

Mike Hambright (29:05.848)
Sure, yeah.

Leah Slaughter (29:06.79)
That’s when the walkthroughs also come in too. Inevitably you will have a deposit dispute at some time if a tenant has destroyed a home or has caused damage. And their favorite thing to do is say, it was like that when I moved in. And you go through your move-in photos and realize, I don’t have a clear picture of that wall that you punched a hole in. But then I get to go through every quarter’s walkthroughs and pull up three other times when no hole, no hole, and then suddenly I can show you the picture where there’s a hole. There isn’t a doubt as to who caused that. And we’ve won so many deposit disputes with those walkthrough photos.

Mike Hambright (29:33.731)
Yeah.

Leah Slaughter (29:36.71)
to show we did. And we also run into the fact that with tenants, they don’t live there. And so, well, they live there, but they don’t own it. So they don’t treat it as if it’s their house a lot of times. And they may see that leak from a roof and go, I don’t want to have to deal with having somebody come out and look at that. So I’m going to ignore it. Well, if you come through the walkthroughs, at least you have a chance to catch it and take care of it before it turns much worse. Yeah. And when it turns much worse, insurance doesn’t cover it because slow water losses, you know, is not a covered item. So.

Mike Hambright (29:47.022)
Sure.

Leah Slaughter (30:03.442)
I think not checking on properties and not holding tenants accountable, really the two biggest mistakes we see people make other than holding onto a way too much equity in properties they should have sold long, long time ago.

Mike Hambright (30:13.806)
Yep, so one of the challenges over the past couple of years, two and a half years or so has been the interest rate change, right? So interest rates drive a lot of this business and there’s still plenty of opportunities out there as you guys know. But I know you have a little bit of a unique lending process that you kind of follow, so tell us about that.

Leah Slaughter (30:19.952)
it

Leah Slaughter (30:24.166)
Mm-hmm.

Leah Slaughter (30:28.665)
Yeah, so we built direct relationships with banks and have products created that really fit kind of what our model is. So I’ll give you an example. If you go to a Fannie Mae loan.

You’ve heard the 10 door rule. You’re limited to personal name. You’re limited to 10 doors or 10 parcel IDs, depending on how that lays out if you’re doing small, multi, one to four. And what happens is you’re kind of locked in at that point. You’re paying for a rate that’s fixed for 30 years when under our model, you’re not going to hold it for 30 years. You’re paying for a longer period of time than what you need. And you’re really having to give everything but your blood type to get the loan. By building these direct bank relationships, it really supports our model. It’s easier to get the loans. They can be more creative with your income, your asset, all of that.

They’re gonna hold the loans directly, so for servicing purposes, it’s so much better. You’re building the relationship for when you build and grow the portfolio and you grow beyond that kind of personal loan style mortgage, and we’re only paying for the amount of time we need that fixed rate for. So we do a seven-year fixed, still 30-year amortized, so the principal payment is still low, but we’re not having to pay extra for a 30-year fixed on the Fannie. So barring one of our off-market builders having some type of incentivization program where you have to go through their partner lender, and that typically is conventional,

We put everyone through direct banks. Now, I have for national lending for our Australian and Canadian clients. I’ve got DSCR financing if we have to go that route, if someone literally has no income. But a lot of my clients, they don’t have great income, but they have great assets and we can still qualify them on traditional lending that way too. it’s just, it’s a different way of doing things that is really designed to help you support this business that you’re building, which isn’t just gonna be buying a few rentals. It’s gonna be building it as big as we can, as fast as it can.

Now, one caveat I want to say to that is I’m not telling you to go get 100 % financing. I’m not even telling you to go get 80 % financing. 70 % 75 % LTV is kind of our sweet spot, but when you’re sitting at 30%, 40%, 50 % LTV, that’s where the problem is. And the other piece I’ll add to that is a lot of people, it’s not just how much they have equity in their property, it’s what the rent ratio is to the value. So if you buy a home at 250 and you’re running it for 1,800, that’s a great ratio, especially for a market like North Texas. We look for around 0.75.

Mike Hambright (32:24.631)
Right.

Leah Slaughter (32:32.209)
is kind of our average, so 0.75 % every month of the value. Well, now that home’s worth 450, say it’s in Plano, now it’s worth 450 or 500 and your rent is 22, 2300. That no longer is a good rent ratio. So you’ve got to be looking at the whole global picture. And part of that is your financing, part of that is your equity, and part of that is your rent ratio to value. And one of the things we try to teach is real estate is not considered as such, but it really is a team sport. You have to build your team and that’s what’s having

Mike Hambright (32:58.277)
yeah.

Leah Slaughter (33:00.251)
those different aspects of it. We have built a team within our unity, our group, that’s already kind of self-contained. But if you’re out there doing it yourself, you have to build a team. You want to know there is a benefit to having a handshake relationship with a bank. They understand what you’re doing. They understand what your process is. And they will support you through it. It’s the same with your, if you’re doing it on your own, having the repairmen that you have that agreement with, that understanding with. They understand what your goals are. You understand what those are.

Your real estate agents, real estate brokers, your repair groups, they all have to be working in unison as a team because at the end of the day, it is a team sport. Yeah, 100%.

Mike Hambright (33:35.062)
No doubt, no doubt. I’ve used that phrase many, many times over the years. So yeah, fantastic. Well guys, it’s amazing. It’s been amazing getting to know you a little bit better. If folks want to learn more about you and all the amazing stuff you’re doing here in North Texas, where can they go?

Leah Slaughter (33:48.047)
I think the best place to go is to kind of our education side that really lets you learn a lot about what we do so that you can translate that into your own model. And that’s wealthandrentals.com. So www.wealthandrentals.com. And there you can pull up all of our free education. can, if you’re interested in seeing some of the properties and stuff that we do in our off-market model, you can see that there too. But I think at the end of the day, my goal is, and my goal really has been for a very long time, is to teach you how to do it wherever you’re doing it and show you perhaps a different way.

Because I think a lot of people, get stuck in the traditional way. Even my parents’ generation, right? You buy a house, your goal is to pay it off, have 10 paid off rentals, and you’re good for life. Well, that’s just not the way the world works anymore. If COVID showed us anything, it’s that whatever you think it’s gonna cost to live in your retirement years, it’s not gonna cost that because inflation could do crazy things. And I think, you know, what happens once is bound to happen again. So I tell people, you have to have an asset that is gonna protect you and hedge you against inflation.

And so paying off rentals is not the way to do that. Building a large enough portfolio that it’s going to grow with the market, that’s how you do that. And so I think learning the kind of key metrics of how to analyze your portfolio is where I recommend you start. Because if anything I tell you today is going to be transformative, it’s how to know whether or not you should even be sitting in that rental you have.

Mike Hambright (35:04.789)
Awesome, well thank you guys so much. We’re gonna add a link down below in the show notes here for anybody that wants to come check you guys out. So appreciate you joining me today. Yeah, everybody. There’s not a better way to build wealth than through real estate and these guys have an amazing model. You should check it out. Appreciate you guys joining us on today’s show. We’ll see you on the next one.

Leah Slaughter (35:12.507)
Thanks so much for having us.

Leah Slaughter (35:23.899)
Thank you.