Don’t Over Leverage: The Simple Real Estate Rule That Protects Investors

Ken Simons (00:00)
You you got the income coming in, but you get to write off the interest on the loan. You get to write off the taxes and the insurance, any maintenance you do, you get to depreciate the property, all these beautiful things that they let you do. And it’s still worth the million dollars. Plus you had all these write-offs. So depending on how you do it versus not doing it. But if you don’t own a house, the best investment, my suggestion is buy one and then just hold onto it. Figure out a way to do it.

Don’t kill yourself. And remember the words that I say, don’t over leverage. That’s where it’ll kill you.

Cody Crabb (00:35)
You know, I.

Hello and welcome back to the Real Estate Pros podcast. name is Cody Crabb with Investor Fuel. Today I’m talking to Ken Simons. He works in commercial real estate investment advisory, helping family owned real estate groups move portfolios from where they are to where they need to be through strategy, brokerage, asset management, and repositioning. Ken, thanks so much for joining today. It’s going to be a good one.

Ken Simons (02:31)
Well, thank you for inviting me, Cody.

Cody Crabb (02:34)
course. ⁓ So I’d love to, something that we talked about in the little pre podcast chat there was ⁓ you said real estate is simple. If it was, I wouldn’t be doing it. And that really stuck out to me because I’m like, I’m not a numbers guy. I love the idea of that. Where do people kind of make it more complicated? what is it? Why do you say that? Because some people would hear that and be like, ⁓ what are you talking about?

Ken Simons (03:01)
Well, it might be just as my years of experience, I tried to simplify it because you’ve got to be able to talk to a variety of people that are looking to invest, especially for beginning investors. The last thing I want to see is for them to lose their money. ⁓ Otherwise, I wouldn’t be much of an advisor or of help. And I’ve got friends that worked with me for years.

Sometimes it’s not even my deal that I’m working with, but they call me up just to get my input. you know, I guess, unfortunately for my personal basis, I’ve talked a lot of people out of a lot of deals because there’s always some hair somewhere on it and dealing with it. So when I say it’s simple, it’s because I’ve got enough experience to delve into what’s behind the wall or behind the ⁓ door, the curtain, but as well as

there’s are certain basics in real estate that you just got to be aware of. after you understand those basics, it is simple, but there are a lot of intricacies beyond that as you get more more sophisticated. So some investors are investing because they have some extra money. Some investors are investing because they’re in control in the real estate business and they are.

They’re very aggressive and they have certain obligations for their investor groups, et cetera, because they may be leading an investor group. So they’re different types of investors, different types of goals. uh, but at the end of the day, um, most of the stuff that I deal with, requires a one, a physical building, right? You got a building and you probably have a tenant in there and there’s probably an agreement. So that’s when I say it’s simple. You got a tenant.

You got a building and you have an agreement. So the building says, you know, it’s physical, you know, is there a roof on it? Is there air conditioning? Is there a front door?

I’m just trying to simplify it, but yes, it does. And then there’s a tenant, oh, I got to have that look. That building was perfect size for me and I just got lots of parking and it’s on a main street and I just love being there and I got to put my location there. And then you have the agreement. Well, I don’t want to pay for this, but I’ll pay for that. And it really comes down to, you know, who’s paying for what?

Cody Crabb (05:51)
Yeah.

Ken Simons (06:14)
There’s the basic rent and then there’s these things called triple nets or it could be included in the rent. So there’s things like electricity. There’s things like taxes, the property taxes. There’s things like gardeners. There’s things like water. There’s, you know, there’s maintenance. Some guy goes around and picks up gardening. mean, does this stuff sound complicated? It’s pretty basic. I mean, if you ever…

Cody Crabb (06:32)
Hmm.

Ken Simons (06:42)
owned a house or lived in a house or even rented, you’ll see these same things anywhere you are. The question is how does that interpret who’s paying for what as comes to the intricacies that comes down to the lease agreement. But you know, if you got Cody and Ken’s furniture store and you got Bob’s furniture, which has 150 locations,

who’s more of a risk. Look, I’m not saying that you and I aren’t gonna pay our rent, but, you know, Bob’s might be more capable of paying the rent than we are, so it’s that risk and yield. That’s what I’m getting at.

Cody Crabb (07:20)
Yeah, I love that. I think, like I said ⁓ before, you I love how you simplify it because you are you’re fully acknowledging. Yes, obviously, there are a lot of intricacies to what we’re saying. But when you really get down to it, that’s pretty much all we need. All you need to think about. and I think people some people think too much, especially kind of people that listen to this podcast, not people that I don’t know the people that listen to this podcast, but.

I’m assuming many people that listen to this podcast are on the new side of investing and they maybe are like hearing about all this stuff and they’re like, this is a lot to take in. so sometimes people just need to take a step. You just need to acknowledge like it might be complicated, but these are the things I need to worry about. And you mentioned something before we, again, before we were recording here, ⁓ desire, the desire acronym. Can you tell us a little bit about that?

Ken Simons (08:13)
Yeah, so I this basic format, which I’ll probably put in a book someday, it’s helped me get into the trademark desire. DSYR Desire. That stands for Demand, Supply, Yield, and Risk. So those are the four basic elements that I could break down into 40 different categories, depending on how intricate you want to get into.

Cody Crabb (08:18)
TM, yeah. ⁓

Ken Simons (08:43)
First of all, if you invest in real estate, there’s risk. There’s risk of losing your money. There’s risk of losing the property. There’s risk that a tenant doesn’t pay you. There’s all sorts of risks. There’s risks that a hurricane could just take the building out. It depends on where the property’s at. There are risks and you have to be able to evaluate them. And for those starting in real estate,

You know, most people start in real estate usually invest in houses or not using the commercial investment side. And that’s a whole different format. But here’s what’s true about real estate that I could probably say with comfort. It’s not about, it’s about how you hold the property. So if you were to pay cash for a property and you held it for 20 years, and it’s not like in an open plane area, like in Texas, where you got

20,000 acres next door you that are vacant and haven’t been developed. If you go into a metropolitan area, whether it’s a house or a commercial property, and you hold it for 20 years, you’re probably gonna make some money. And for two reasons. One, you’re gonna have mortgage, you’re paying down the principal, so you’re building up equity every year, you’re getting all these little write-offs because you get write-off interest and property

and property management, all this other great stuff that the IRS lets you do.

it’s probably going to be worth more than it is today. mean, think about it. Think about your parents. They bought a, probably bought a house at some

Cody Crabb (10:52)
Don’t get me started. I think about this every single day. yeah, go ahead, go ahead.

Ken Simons (10:57)
Well, so in

your era, you know, I bought a house, I paid $135,000 for it, you know, in the Hollywood Hills, now it’s worth $1.5 million. Well, you can’t…

Cody Crabb (11:09)
My mom bought a house for

$26,000. So that really stings, right?

Ken Simons (11:12)
And what’s

it worth today?

Cody Crabb (11:16)
It’s probably close to a million now. So.

Ken Simons (11:18)
Exactly,

because they held it for 20 or 30 years. So they’re going to make money off it because they paid off the, you know, what they paid off for now, but they certainly, 30 years, they would pay off the mortgage. They have no debt on it. And now they got them over a million dollars of equity. That’s the beauty of real estate. But that’s an owner user. That’s somebody living in the house. If they rented that house out, now there’s a whole different set of benefits you get.

Cody Crabb (11:27)
Yeah.

Ken Simons (11:46)
You you got the income coming in, but you get to write off the interest on the loan. You get to write off the taxes and the insurance, any maintenance you do, you get to depreciate the property, all these beautiful things that they let you do. And it’s still worth the million dollars. Plus you had all these write-offs. So depending on how you do it versus not doing it. But if you don’t own a house, the best investment, my suggestion is buy one and then just hold onto it. Figure out a way to do it.

Don’t kill yourself. And remember the words that I say, don’t over leverage. That’s where it’ll kill you.

Cody Crabb (12:21)
You know, I.

I, I bought an RV in 2020 like many people did. They were like, I’m going to be an RV person now. No experience doing an RV, never had never even stayed in one. But I was like, this is a really good idea. might be you might be suspecting that this was not a very good idea. And you are right. It was a very bad idea. It was in 1991. It was in terrible shape. I didn’t know anything about what to look for.

I learned more about RVs and what not to do and what to look for from having a terrible RV that I ended up selling at a loss. If I went to go do one, go get one now, I would be a thousand times better at it. I would, I would get a way better price. I would get, would know what I was looking for. And that was just from my dumb summer of owning an RV that was broken. Yes, it was broken too. That was just cherry on top there.

Ken Simons (13:16)
Thank

Cody Crabb (13:17)
But that’s,

I use that as an example, like it was terrible and it was like expensive and stupid, but at the same time, if I went and did it now, it would be a totally different experience. So I think, like you said, it’s worth it to just, sometimes you just gotta do it. I mean, even if the math kind of makes sense and you feel like you can do it, I mean, there’s not always logic that you can throw at it.

Ken Simons (13:40)
It’s interesting, you’ve said something that I’ve used many, many times, but I used to train real estate brokers getting into, I want to do investment in real estate. I said, well, I don’t know if I’ll teach you what to do, but I will definitely teach you what not to do. I’ve made probably every mistake in real estate, and that’s how you learn, unfortunately. You’re a good example. That’s how life is.

You’re going to make mistakes. So the question is how much money are you going to throw at that mistake? And is it worth, was it worthwhile? I mean, at the end of the day, that money you lost on that vehicle gave you more, 10 times that in lessons.

Cody Crabb (14:19)
Yeah. If I took

an RV maintenance or like RV ownership course at a community college or something for like a year, it probably would have taught me around that same amount. When you think of it that way, it’s actually really worth it to get that much. Yeah. And now I will absolutely remember that. Yeah. See that. So it’s even better. ⁓ I love this. I think ⁓ one thing that kind of shows me that you’re, that you

Ken Simons (14:32)
Yeah, but you would have remembered everything. The fact that that was etched in your mind.

Cody Crabb (14:48)
really take this, your kind of role seriously is talking people out of deals. So I, you you always have people that are, ⁓ they have a financial stake in getting you to do something. ⁓ I, I use my, my mechanic as an example. ⁓ I, he’s the same one my mom used for 35 years

and my mom would always go, Hey, Nate, ⁓ can you please check this out? My car? ⁓ I’m going to go on a long road trip for her. like an hour.

She’s like, I’m going to go on a long road trip. Will you please check out my car? And he would always say, go home. It’s fine. Go. You don’t need to do this. He could have sold her anything and he didn’t. And I’ve used that mechanic ever since. So I just kind of want to explore that a little bit. Like you say, you talk people out of deals. I want to know kind of what are the, what are some things that, ⁓ some red flags that you see and kind of what have you gotten from being able to operate like that?

Ken Simons (16:23)
Well, before I answer that question, let me segue into something we kind of touched on in the pre-qualifier here. So there’s AI technology, and then there’s individuals. where are they going to meet? When is it to take over, et cetera, et cetera, et cetera? some people think that you can do everything by technology. ⁓ Unfortunately, for me, I’m kind of old school.

And it’s relationship business. So the question is, are you going to let a computer that’s determined for you what in between the cracks, the sensing of what’s going on, are they going to help you do that? Yeah, probably. I don’t know to what degree, but your mechanic, your doctor, there’s a, it has to be a relationship and, and relationships are important in a service business, in my opinion. When that goes away, I don’t know, but

And when it goes away, it’s because people don’t understand that it’ll be subject to a machine making their decisions for them. And God bless them, that’s where they want to be in life. I don’t know, go back to what was the original question though you were gonna ask. I apologize.

Cody Crabb (17:33)
No, I think just just to stop

here. No just to stop here for a second. I think ⁓ Like you meant you we were talking a little bit about changing and kind of being able to be changed quickly and accept that we maybe don’t know everything I I just just to pause on that like I think It’s you can’t completely rely on technology. You can’t completely rely on the on the human side

I mean, we all use phones. We all use email. Like there are parts of technology that we’re like we wouldn’t do it in either way because it would be stupid not to do that. And so, but I think that’s the same thing with relationships. Like you can’t necessarily there’s stupid things to try to replace with a robot, too. I think ⁓ I’d love to actually hear kind of your thought. Where do you kind of draw the line? How do you determine what what should go where? Like, is it just anything with people should be just person to person or where is that technology line?

Ken Simons (18:05)
Insect.

Well,

yeah, interesting. You know, again, I’m old school, so, you know, it’s probably hard to detect an automated computerized voice, but there are certain tricks you can go ahead and trick the voice into. It’s, and it’s going to get better and better. And I have people, I’m a member of LinkedIn, so I’m getting probably five requests from new brand new AI companies that help commercial real estate in the whole bit and will help you market your thing, cetera, et cetera.

Well, that’s fine and dandy, but if I want a relationship with somebody, I want to meet with them or talk to them or have an initial conversation with them. I like that. Now, doesn’t mean I’m going to be that way forever, but at some point time, a human being contact in relationship to someone’s portfolio has to take place. Is it the introduction side or is it the follow through after the introduction? I don’t know, but for me, I use technology to review documents.

Cody Crabb (19:13)
Yeah.

Ken Simons (19:26)
And I’ve tried a couple of times and they’re 90 % correct, but still 10 % of things that they don’t have yet. But that’s gonna change, it’s all gonna happen. So the question is, where does it start, where does it stop? I don’t know.

Cody Crabb (19:36)
Yeah, yeah, they always I always hear the quote.

Yeah, I always I always hear the quote, it’s the worst it’s ever going to be, which is so scary, but it’s true. So whenever people say when you dismiss technology, you’re also saying like it can’t get any better than it is, which obviously, you know, it can. So ⁓ anyway, yeah, that’s just pissed up. When you talk about when we start talking about technology, you get my attention. That’s all I’m So so the.

Ken Simons (20:04)
Well, yeah, well,

don’t get me involved. My son and I had talked about the movie Terminator and when’s all that stuff going to happen. Okay. There’s already conversations as to where AI starts and where it stops. And what are the good members of our country societies in the world and which ones are not, and who will take advantage of it. It’s out there, Next 20 or 30 years, your generation.

Cody Crabb (20:11)
Yeah. No, yeah.

Ken Simons (20:33)
your kids’ generations, you got an eight-year-old. I mean, it’s ever-changing. I guess I’m going to sidetrack again and I apologize. But I have an account guy I work with. His son stays home, you know, and he’s not really going out to work. But he does a very beautiful thing. He does these interviews for World War II veterans. And then you go back to, okay, you get to hear these people’s stories.

Cody Crabb (20:44)
Do it, no, I love this.

Ken Simons (21:02)
And that was a generation that allowed for our freedoms. I know I’m not giving out a bandwagon here, but hey, you know, their kids grew up differently and they were strict. And, you know, my generation was a less strict and my son’s generation is a little less strict. And, you know, I got a grandson two years old and he doesn’t like something. He, wah! You know, it’s like, it’s like the world stopped. Okay, dude, stop. Put it in perspective.

Cody Crabb (21:28)
Yeah.

Ken Simons (21:31)
And every generation is different, but it goes from one side to the other, sometimes comes back. Now you introduce all these other things like AI and instant information, social media. can get a word out, be a nobody, get a word out, false information out. There’s a lot of new things we have to decide in our minds, what’s real and what’s not real and how is it going to affect our lives? And I had this conversation yesterday with a lady and I said, look at

You know, there people who go out and they have these bad days, et cetera, et cetera, and they talk about, this happened to me, or Sally said this, or whatever it’s going to be. And my filter was, okay, when I wake up tomorrow, how is that going to affect me? It’s a simple series of yeses and nos if you ask yourself the right question. Do I don’t respond to this? Is this helpful? ⁓ Do I want to be sad today? Do want to be happy today? I mean, I know this…

too theoretical, but that’s how life is and it’s affecting all of us daily.

Cody Crabb (22:35)
Yeah, I mean, you make it too simple. I want to argue with you, but you’re like, I’m like, he’s right. I mean, it really is like where you go to where you go to school, who you marry. Like, it’s all just like a question of what decisions you make. And so ⁓ like it’s it’s very I think it’s important not to get too afraid of like, I’m going to I’m going to mess up the I’m going to mess up by making the wrong choice. We’re never going to know what the other path was. So just if you make a choice with your best judgment and stuff, why not?

Just take some risks and stuff too.

Ken Simons (23:04)
Well, goes

back to your RV story. It wasn’t a great judgment, but it seemed like it was a good one at the time. It was the best decision you could make. And guess what? You learned from it. And life is fun.

Cody Crabb (23:16)
And I will tell you,

I don’t regret it. I do regret it. But I don’t really regret it because it’s it’s this thing that my wife and I bonded so much over and it’s we had a we had a friend’s birthday party in it before we sold it. Like it’s it’s yeah, it was cool. That was the only cool thing about it. ⁓ But but that’s what I mean when I say like it was it’s memories and it’s the your life is going to be like that. And so if you’re if you spend so much time being afraid of.

Ken Simons (23:27)
cool!

Cody Crabb (23:40)
Like you said, the risk and what’s going to happen and overanalyzing, I think you lose out on a lot of opportunity that way.

Ken Simons (23:47)
Right, right. Well, when I grew up as a kid, we lived seven miles away from the nearest grocery store. And there was a, grocery store was on this four lane street, two one way, two the other way. And I rode my bicycle and people were going 60 miles an hour down the street. And I would ride down there and get my candy. wouldn’t tell my parents. And then I’d ride home seven miles, seven miles up this hill.

I mean, I got really strong legs after five years of doing this. Exactly. So which helped my track career in high school. But when my kids grew up, they were going missing. I didn’t want my kids riding the bicycle seven miles without me knowing where they’re at. And your kids, entirely different. So things have changed.

Cody Crabb (24:19)
14 miles a day that will do that, yeah.

Yeah.

Ken Simons (24:43)
You deal with what the perception is of safety and you deal with the reality of safety and the reality of losing your money. And a lot of people don’t want to lose their money. Some people are willing to risk it.

Cody Crabb (24:54)
I would say

most people don’t want to lose their money, but more people can accept that if there’s a chance at a high return. yeah. Yeah. Yeah.

Ken Simons (25:02)
Well, there you go. That goes back to my desire, risk versus yield. So that’s

real estate. What kind of risk are you willing to take for what not be yield?

Cody Crabb (25:12)
So I think we somehow every time we go somewhere we kind of come back to the same thing which is things are simple like things are simpler than you think they are I’d love to know kind of How does that mentality show up while you’re kind of advising somebody on a real estate investment? Like what what do you look for that can kind of help somebody?

Ken Simons (25:33)
Well, first of I have to understand the person and who they are and what drives them. Some of them are very aggressive. Some of them are really have been successful at risk and have been able to monitor it. And also the age of the person and who’s involved with the operations. Are they fully staffed or are they running a small operation with a handful of people? All these things take into place. What’s going on and how big their portfolio.

Is your portfolio one apartment building or is your portfolio a million square feet of retail? I mean, it’s apples and oranges. And so you have to understand what their goals are, have an honest discussion with them and understand that they understand what the value of what they have and what the value isn’t what they have. I mean, I’ve got a guy right now in a valuing retail center and goes,

Cody Crabb (26:27)
Yeah.

Ken Simons (26:31)
I want to sell it, can you give me my $5 million? I go, well, you’re not going to get $5 million. I mean, I want more hair. That ain’t going to happen either. So let’s talk about the reality. So you got to put people in perspective to where the market’s at and be logical about it. Again, it’s simple if you understand what the market.

Cody Crabb (26:52)
Absolutely. ⁓ This has all been really, really great. So if people want to kind of work with you, they like your style, they like you, I sure like you. Who should they be? Where do they need to live? What’s your ideal person that should reach out to you and kind of what can you help them with?

Ken Simons (27:08)
Well, there’s no idea. I have ⁓ a lady who’s in her 40s. She’s got some money to invest in real estate. She hit me up and we talked about, and I’m in the investment arena, but she really needs to buy a house. She wanted to do an income house. So I did it for free. I don’t have to make money off these. I’m just trying to make sure she understands what she’s looking for and what she’s not. And then she overanalyzed everything. I said, well,

Don’t worry, you’ll figure it out. I’ll help you, but anybody can call me up. ⁓ I’m there to help people. I don’t charge. I don’t charge unless we do a transaction, but ⁓ to set you up for that, I may not be the right person to help you. Like for instance, I totally, I don’t do houses, but if you need somebody to do it, I can give you 10 or 15 people. I don’t make a penny off of it, but you talk to them or look for this type of person in your own backyard.

somebody you feel comfortable with. But you have to find somebody that’s honest. I am the worst salesperson in the world. I tell everybody, say, you want a salesperson? Don’t look at me. I’m not a salesperson. I just have an honest conversation with you about what you’re trying to do. And sometimes I can help you. Sometimes I can’t. Sometimes you’re helpless. You know, I can’t help you.

Cody Crabb (28:18)
Mm-hmm.

Well, and

I think that when you talk about sales, though, that’s I mean, that’s what sales should be is I will help you in the way that you need to be helped in the way that I can help you. Like that’s what sales should be. There is like there’s this whole ⁓ feeling of like people convincing you to buy something sometimes. But I think that I think that’s really at the heart of it. I think that’s really what what it should be. So ⁓ awesome. ⁓ So maybe I mean, you didn’t give your website or anything, did you? Let me where can people kind of find you online?

Ken Simons (28:46)
learn.

⁓ You see my my asset management website is srgla1.com. ⁓

Cody Crabb (29:11)
srgla1.com.

Ken Simons (29:15)
Yes.

Cody Crabb (29:15)
Awesome. Well, Ken, it’s truly been a pleasure. Thank you so much for all the little nuggets of wisdom and advice that you’ve given us. It’s been a fun one. And we appreciate you hanging out with us.

Ken Simons (29:28)
Well, thank you, Cody. It was pleasure as well. and if I ever buy an RV.

Cody Crabb (29:31)
Yeah, and thank you. go ahead.

call me. Do not call me. And listeners, don’t call me either. Thanks for joining us, by the way, listeners. We appreciate your time. Go ahead and follow us, subscribe, like, comment, follow, all the things, and make sure you don’t miss an episode so that you don’t miss a conversation like this one that we had with Ken today. I’ll see you later, Ken. Thanks so much.

Ken Simons (29:59)
Thank

you, Cody. God bless.