House Flipping to Ultra-Luxury Real Estate | Frank McKinney’s Investing Playbook

Frank McKinney (00:00)
Bought that $50,000 fixer-upper with my own money. To me, Scott, that was a bigger risk than building a $50 million spec home. Why? Because we’re taught our entire lives that we fear the unknown. So for those of you watching, listening, you fear the unknown of leaving what you’re doing to pursue a career in real estate. You know what? I got news for you: you can’t fear something you don’t know. You cannot fear something you don’t know. So I had no idea.

Scott and I were interacting. If he were to get me on here and start cursing me out, now how would I have known that? You can’t fear something you don’t know. You know what y’all fear? You fear leaving the known.

Scott Bursey (02:09)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host, Scott Bursey. And today we’re delighted to be joined by the legendary Frank McKinney, a true real estate artist who has evolved from flipping a modest $50,000 fixer-upper into creating a $50 million oceanfront estate empire. Frank has spent decades redefining the ultra-luxury market with his unique artist approach.

Building masterpiece homes that double as sustainable works of art. You can expect this conversation to dive deep into the mindset required to scale your vision and how to intersect and interject massive value into every square foot of a deal. Frank, welcome to the show.

Frank McKinney (02:59)
This is something I’ve had on my bucket list, my wish list. I’ve done I’ve done thousands of podcasts, but I have had my eye on this one since I don’t know, you guys have been around for a decade or so, right?

Yeah, so so th this is a this is a big day for me. You know, I put on my best shirt, washed my hair, did a little shave this morning so I could look good for you guys.

Scott Bursey (03:27)
Frank, thank you so much for being here. This is a true honor. And to help our listeners get up to speed, please give us the ninety-second highlight reel of how your career ignited and where you’re pouring your fuel now.

Frank McKinney (03:42)
Cornfed country boy from Indiana, was born and raised on a farm, oldest of six. I went to four high schools in four years. Not because my father was in the military, it’s because I was asked to leave one high school after the next after the next. Seven times in juvenile detention before I turned eighteen. My parents said, You’re a wonderful young man, but you need to leave because you’re ruining the family. Gave me a backpack with all my clothes in it and a fifty dollar bill and a one-way flight ticket. I got to choose where I could go I wanted to go.

And and I just couldn’t stay in Indiana anymore for my my family, and it was the right decision. I said, Well, let’s go to Florida because it’s January and I want to get out of the cold. I landed in Palm Beach, and and for me, my age, maybe Scott, your age, there was a show on TV called *Lifestyles of the Rich and Famous* when I was younger. For you, young people, *MTV Cribs*. And I got off that plane, and yes, I smelled the jet fuel, but I also smelled the br balmy breezes of the ocean. And I knew I had landed in the right place.

I got a job as a maintenance worker on a golf course doing sand traps for four bucks an hour. I then graduated to becoming a teaching tennis professional. While I was teaching tennis, Scott, I earned my PhD in entrepreneurship and my master’s in real estate because every person that I taught, these were very rich people, lifestyles of rich and famous rich, very you know, Rolls-Royce, million dollar condos, million dollar yachts, beautiful husband, wife, what have you. And

And I earned my PhD by going to school on those people in the tennis court. They paid me for an hour. I made sure after 45 minutes they were too tired to finish and I picked their brain for two years. And the answer I got was, I’m a lawyer, I’m an inventor, but I took all of my discretionary income money left over after I paid my bills and took care of my wife’s jewelry and I put it into real estate. You hear that story once, it’s interesting, it’s fascinating. You hear it a dozen times, you realize that’s your calling. You’re gonna that’s your professional highest calling, you’re gonna pursue it.

I took all the money I saved. Like I didn’t know anything about other people’s money and borrowing and all that. I just put my money where my mouth was. I saved 35 grand teaching tennis and I bought a crack house and I flipped it and made seven thousand dollars and it could have been Monopoly money. The concept of buying an undervalued commodity, real estate, fixing it up like nobody else. Yes, I overimproved. Sacrifice your bottom line to build your reputation first. The bottom line will follow. And I from that point on we did hundreds of little houses, and eventually, as you mentioned in the intro.

A fifty million dollar spec.

Scott Bursey (06:56)
Thank you for highlighting that. It’s incredible to see how those early days laid the foundation for the empires you build today. And Frank, what really caught my attention about you was the way you’ve been able to transition from traditional flips to becoming a real estate artist, creating spec homes that are actually sustainable oceanfront masterpieces, and taking that a step further. Curious to know in the world of ultra-luxury spec building. What is the biggest strength that allows you to sell a property before it’s even finished?

Frank McKinney (07:34)
So we don’t sell too many before they’re done. I actually will be do quite a bit of pre-marketing. the ultra-wealthy want what they can’t have. So what I’ll do is I’ll really do a tremendous amount of hype and buzz and sizzle. And then I pull it off the market because you know they know something special is coming. It’s almost like taking a Van Gogh or Renoir Monet painting and putting a veil over it, even though you know what’s behind that veil. It’s a Van Gogh. You know what’s behind the property that I just took off the market is a Frank McKinney property. So, you know, what I have become so dialed into is knowing what the ultra-wealthy want before they know they want it. And then deciding to risk based upon those assumptions. So if you were to walk in the front door one there, you need to take risk in the kitchen. I call them, you know, the four the four money rooms, the kitchen, the master bath, the master bedroom, and some kind of I’m gonna call it man cave, but come h

Map kitchen, master bath, and master bedroom are if you if I were to ask 10 people on the street who had nothing to do with real estate, what gender are those? It’s a female gender. The kitchen, the master bath, the master bedroom tend to be more female. You got to do one room that’s more masculine, you know, a den, an office, a movie theater, a man cave, what have you. We take tremendous risk in those rooms because when somebody walks in the front door, we’ve done 44 houses with an average selling price of 14 million. Somebody walks in the front door. I learned early on.

Either they love it or they hate it. Nobody’s gonna buy a house worth $14 million based upon turning to their wife and saying, honey, that was kind of nice. Not kind of nice ain’t gonna cut it. It’s either, my god, that was the most beautiful house I’ve ever seen, or what in the world was he thinking.

Scott Bursey (09:20)
Interested to hear, Frank. Looking back at your most expensive builds, what was a hidden weakness, if you will, in the ultra-luxury business model that caught you perhaps off guard?

Frank McKinney (09:32)
I’ll tell you exactly. So right brain, left brain, right brain creativity, left brain kind of statistical analytical. If you’re in this business and you are because you’re watching this, you need to learn how to toggle back and forth between right brain and left brain in nanoseconds. A good example is somebody who does that is Elon Musk. You know, he wants to send a rocket up into space to put it you know, deploy satellites, but yet he wants to land that rocket on the same thing it took off of. You know, like that’s masterful right brain, left brain nanosecond switching.

When The Wall Street Journal kind of recognized me as this real estate artist back twenty some years ago, I have allowed here here’s the weakness. I have allowed the right brain, the create the creative side to sometimes get carried away. And what does that mean? My budget gets blown because I’ve overimproved and I’ve decided to put red velvet on the walls of the theater instead of just wallpaper. You know, my wife is all the interiors and she’s really good at pulling the reins back on me because we fully furnish these spec homes.

But please do learn how to toggle between right brain and left brain. You if you’re listening to this, I know what you’re saying. I’m a right brainer. I’ve always been a right brainer. I have no left brain capacity. That’s what I used to think. It took me a decade to wake up my creative side because my father and grandfather were bankers. So I know money and statistics and spreadsheets and analytical side. That’s the one thing that has gotten me in trouble, which is overimproving because the artist side got a little carried away.

Don’t be a starving artist. If you think you’re creative and you’re doing your $200,000 flip, you want to make it beautiful because you watch all these shows on TV, be a businessman or woman first and an artist a distant second.

Scott Bursey (11:52)
Help us understand with the current shift towards sustainable living, where is the biggest opportunity for pros to add artistic value to their properties right now?

Frank McKinney (12:03)
You know, I have learned that we we’ve done a few, not many sustainable, like truly certified green homes. And the higher the price, the less important that is to the buyers. Meaning, well, I did a I did a 20, I think it was a 29 or 27 million dollar house, and it was the largest and most expensive certified green home in the world. When I say certified it was triple certified by LEED, USGBC, and ENERGY STAR for Homes.

Scott Bursey (12:05)
Yeah.

Frank McKinney (12:33)
I had green police crawling all over that house for two years, making sure we were doing the right thing. And I led with that marketing. Greenest house in the world, you know, most expensive green home in the world. And there was crickets, Scott. There was crickets. And I wasn’t selling it. And sometimes we’re blowing through $10,000 of interest in a day. So I gotta move this thing. I then reversed the message and said, you know, obviously the beautiful finishes that we have in there, the bamboo floors and all those sustainable things, but that the green was an application.

It was an afterthought. It was, by the way, it’s green. So you know, we don’t have time to get into some of the finish suggestions that I would make, but it is important. You know, s the sustainable floors. We have these beautiful bamboo floors in this house. It’s beautiful. I’ve done all sorts of beautiful flooring. and we collected all the rainwater off the roof and used to fill the pool. Yeah, it’s cool. I mean there’s no doubt. They the lower the price point, the more important that kind of element is. But you don’t need to be

I don’t think you need to go certified green. You just, because it’s expensive, you need to just be able to pick some green elements of the house, sustainable flooring, cabinets, you know, rain collection type of things. That will help you. You just gotta be careful because the dollar for dollar return on some of the green things doesn’t happen. You’re spending a dollar and you’re getting 80 cents back. I wanna spend a dollar and get a dollar twenty.

Scott Bursey (13:58)
Frank, it would be great to hear. What is the biggest threat facing the Florida oceanfront market today that keeps even the most seasoned investors awake at night?

Frank McKinney (14:10)
Okay, so I am sitting in in a new project that we are nearing completion in western North Carolina. The biggest threat to a direct oceanfront and a waterfront and high-end development in South Florida is what chased me out of South Florida, which were compressing margins. So what I what I witnessed, which was fascinating but yet unfortunate.

Was the ultra-high-end market is defined by over $10 million, regardless if it’s on the ocean or coastal or some equestrian community. You have so much money in South Florida, and men, I’m gonna use men as an example. They have they have a ton of money and a ton of time. And they decided to get into the spec building business as a hobby. So what did they do? This is this gave them something to do. You know, just a typical high-end spec house will take you two years from start to finish. They overpaid for the land.

They overpaid for the improvements, which drove up the cost of my land, drove up the cost of my improvements, because these spec house hobbyists didn’t care if they made any money. They just want something to do. I saw that happen on multiple so my margins, which we were operating on around a twenty to twenty-five percent margin. That sounds like a lot, but when you when you when you draw that margin out over a thirty-five-year career, you better believe there were times the market crashed. Of course, 2010.

Even in the late 90s there was a crash. So I have to operate on a margin where it’s safe. And if the margin takes it the market takes a turn, let’s say I we get hit by 20%. You know, there’s a big crash by twenty, at least I’m not losing money. Well, now my margins were compressed to like five percent. I can’t operate under five percent. So I left that market and am now in western North Carolina, so we can colonize a new moon here.

Scott Bursey (16:38)
Frank, if you could walk us down the path, how do you balance the art of a project with the strict ROI requirements of your investors?

Frank McKinney (16:47)
Well, I don’t have any investors. It’s me, the bank, and the IRS. I don’t have partners. I’m not a good partner person. I’m gonna dictate. I’ve had them, but I realize it didn’t work. Partnerships, just by the way, if you have partnerships, and that’s great. One of my mentors had a partner, the co-founder of Amway, Rich DeVos, was my mentor for about 20 years. And he had a partner they founded Amway with for 50, 60 years. Worked great. Partnerships are supposed to be like as a metaphor, a visual, like the rails on a railroad track. We know perfectly aligned going down into the horizon.

What happens if one of those rails is off by three percent? It’s a disastrous train wreck. So you’ve gotta make sure. And I had a you know a couple little rail issues that that derailed my partnerships and ended up in court. So I I got rid of partners a long time ago and went to the bank who isn’t really my partner as long as I pay them on time, the bank, I’m sorry, the IRS who you gotta pay, and my wife. I mean, those are basically my partners.

So money, this is great. You have all these ideas and you’re creative and you it the whole world revolves. I run a charity where we’ve built 32 self-sustaining villages in Haiti. It’s not about hugging orphans, it’s about raising money so I can build a self-sustaining village. It’s all money, it’s all business. It’s in that case, it’s the capital is human capital. In our case, we’re talking about financial capital. so the cost of capital, nowadays, you know, this is a beautiful thing that I’ve seen kind of evolve, which is these hybrid.

Hybrid lenders, not hard money, not bank lenders. So you’re not paying 12%. Unfortunately, you’re not getting your money at you know 4% or 5%. You’re somewhere in between. And I think that’s a very responsible way to obtain capital. I don’t, I mean, unless you’re I just I don’t advocate, and this is gonna sound not great. I don’t advocate for partnerships. I mean, you have one, make sure that that partnership is getting its funds, not from one of the partners.

That can be pulled so quickly, the partner’s wife says, I want to buy another house in Monaco, and your source of funds has dried up. Use some of these either hard money if you can’t get the hybrid lender. In my case, I did start with my own money, as I mentioned. I bought that first crack house with my own money. And then I had a couple partners early. Then I was able to get bank money. Like back in when we were building before the crash in 2010, I was paying 3% for my money. That’s free.

That is free money. You have to be cognizant as an in bed. I’m talking about a buy and flip, not a buy and hold. It’s a different story. I’m not a buy and holder. but debt around my house is a four-letter word. You can say the F word, you can say the S word. But if you’re a speculator, which is a flipper, rehab, or whatever you want to call it, flip, you’ve got to be highly cognizant.

Monomaniacally focused on what that cost of capital is gonna do to you if there is a slowdown, a downturn. And by the way, one of my books, *Burst This!*, my real estate book, *Burst This! Frank McKinney’s Bubble-Proof Real Estate Strategies*. I went back and I studied six different real estate cycles back to the late 70s. And they come every six or seven years. So what are you gonna try to time them, do not try to time them, get in with your formula, but if you’re overpaying for your debt,

Like a lot of my competitors did in 2010, you will be bankrupt. So I always put a little money where my mouth is, put my own equity into the deal. I then go to now hybrid lenders, and get the 7%-ish, seven, eight percent money, which I think is fairly responsible. Because I can’t banks won’t loan to spec builders anymore. I was a poster child of who to loan money to up until about 2010. Like I had a $30 million line of credit based upon my signature.

After that crash, I’m the poster child of who not to loan money to because so many of us, not me, so many of us went bankrupt. So that hybrid kind of money out there, that that’s what I use now. Be careful of the four-letter word and be careful of the partnerships, four-letter word meaning debt, the partnerships that like the rails of a railroad track, one of them goes off, it’s a train wreck.

Scott Bursey (21:03)
Wow, that was an excellent breakdown, Frank. Wondering, what does your professional network look like right now?

Frank McKinney (21:11)
You know, I’m kind of a loner. I you know, I’ve written ten books. Most of I wrote from a tree house or either overlook the ocean. In this case it’s overlooking the river. I you gotta be careful. I’m gonna get to the direct answer. You gotta be careful to create there’s this book over my shoulder right there, “Aspire! How to Create Your Own Reality and Alter Your DNA”. It’s my only mindset book. And it and I didn’t write it until this that was my seventh book. So it was way late my

Writing career, I want to make sure that I am not surrounding myself with people who are going to usurp the passion, the creativity, the purpose from me. And that’s why I chose to work out of a tree house. All my people that work for me, especially in Florida, I was way ahead of the time when it came to letting them work from home. Like I we don’t need an office. I don’t want water cooler talk. As I’ve gotten a little older, finding like-minded people is critical.

I do not want to talk about how the Chicago Bears are doing or the Miami Dolphins. I mean, it’s fine, whatever. But I want to have these kind of deeply engaging conversations, not about my waffles and the syrup. Like I wanna, and there’s a one way to do that, and that’s to join a group like yours, a mastermind. I’m a part of this family mastermind that that I go to four times a year. and it isn’t, I mean, in my stage, Scott, I’m really not looking for

You know, investors, or I’m not looking for I just want to be around like-minded people. Because sometimes in our line of work, rather whether if you’re doing a hundred thousand dollar buy and flip or a hundred thousand buy and hold or a ten million dollar flip, you need to associate with those who think the way that you do. And if for those of you a little bit older, there’s this Christmas movie that was out when both Scott and I were young.

Where all the toys that were broken went to this island of misfit toys. And this was a place where only the misfit toys were misfits in what we do. You need to surround yourself with other misfits who have this burning passion for their purpose. Remember, passion is one thing. I can passion for chocolate ain’t good. Passion for the purpose of creating a wonderful new home for somebody, either the first-time homebuyer or the ultra-wealthy.

Though the way you think can be perceived by the rest of the world as being a misfit. So finding that network that I have found later in life and then then breaking off from that and you know, even having two or three really good relationships has helped me feel more maybe accepted and at home and certainly more educated.

Scott Bursey (23:55)
That makes total sense. Who you surround yourself with defines the ceiling of what you can build.

Frank, interested to know, what is the one specific habit or mindset shift that allowed you to stop thinking in thousands and start thinking in millions?

Frank McKinney (24:16)
One word, it’s also a four-letter word, and it’s the word risk. So I’m afraid every day of my life, you would think, you know, I’ve been in a in a public restroom at a at a at a restaurant, somebody comes up to the stall next to me in a urinal stall and said, Man, you must have brass balls. Like how in the world is it that you’re able to build, you know, ten and twenty million dollar spec houses? And I said I tell them.

You know, I started very young exercising my risk tolerance, my risk muscle, my risk threshold. I started exercising that like a muscle. Eventually, if you exercise your risk tolerance like a muscle, it will become stronger and able to withstand greater pressure. So when I came off, everybody listening to this, almost everybody, was or is a nine to five. You nobody’s born a real estate investor. You’re made. So my nine to five was a tennis instructor.

I was making 100 grand a year as a 21-year-old and bought a Ferrari, too, as a result of my tennis teaching. I’m like, well, okay, this is great, but there’s a limit to how much I’m gonna make on the tennis court baking out there in the hot sun. I still have friends that are tennis pros making 150 grand a year 40 years later. So I realized that I needed to exercise my risk threshold like a muscle, buy it, come off that tennis court, leave the cubicle, metaphorical cubicle, the nine to five, and take on this thing called real estate.

Bought that $50,000 fixer-upper with my own money. To me, Scott, that was a bigger risk than building a $50 million spec home. Why? Because we’re taught our entire lives that we fear the unknown. So for those of you watching, listening, you fear the unknown of leaving what you’re doing to pursue a career in real estate. You know what? I got news for you: you can’t fear something you don’t know. You cannot fear something you don’t know. So I had no idea.

Scott and I were interacting. If he were to get me on here and start cursing me out, now how would I have known that? You can’t fear something you don’t know. You know what y’all fear? You fear leaving the known.

You fear leaving the known. You can’t fear the unknown. You fear leaving the known, which for me was the tennis instruction business at a hundred grand a year as a 21-year-old. I feared that. I overcame that fear, bought the $50,000 fixer-upper, flipped it, made seven grand.

And from that point on, it was just a matter of continuing to exercise my risk tolerance like a muscle, feeling afraid every day, but taking the risk anyway. That’s the one thing that has set my career apart from most of my competitors.

Scott Bursey (26:55)
Frank, thank you for dropping that knowledge for our listeners. And you have dropped a lot of great knowledge bombs here today. But is there any additional words of wisdom that you can leave with our listeners?

Frank McKinney (27:10)
This

is our close, I’m going to tell them this. with the help of Investor Fuel and all the guys you know with Scott, you will discover your professional highest calling. Your professional highest calling is a gift God gave you to put food on the table, money in the bank, and cars in your garage and clothes in your closet. Maybe it isn’t real estate, but for me and for most of you listening, your professional highest calling is going to be real estate.

I’m going to implore you to discover as soon as you possibly can what your spiritual highest calling is. Because for me in the late 90s, I had come from a $50 bill in my wallet and all the clothes I could put in a backpack on my back, which was in the 80s. And by the 90s, we were doing $10 million spec houses. And there wasn’t I was a consumerist, I was a materialist, I was an egotist. You couldn’t put enough in my vein. I’m not talking about, you know, heroin, I’m talking about the metaphorical.

Heroin, which is consumerism. And I had I couldn’t have enough cars in my clock, no cock, my garage and clothes, my closet. I I mean it was and I was ready, I was suicidal until I went met with my mentor and asked him why I felt the way I felt. And he told me, I won’t tell you the whole story, but he said, You haven’t found your spiritual highest calling. I went out and found it in the late 90s to save my life into the early 2000s. And what my spiritual highest calling is, I’m a linear thinker.

Go back 1.8 GPA. I’m not very well educated. I’m not well educated. I provide housing to the world’s most wealthy, and we take a lot of those proceeds and we build these self-sustaining villages that we have been building since 2002 in the poorest country in the Western Hemisphere, that being Haiti. What did that do for me, Scott? That gave me purpose every time I took on a new project to know that when we’re finished, we’ve cared for over 14,600 kids that were it, let’s pretend this is a hamburger that are eating pressed dirt.

Flavored with bouillon and lemon juice. We’ve provided them with a self-sustaining existence. I implore you to find early on in your real estate career what is your spiritual highest calling. It has fueled my professional highest calling to new heights when I found the spiritual highest calling. You know, one last thought, and then we’ll go to whatever’s next. and I’m not gonna pound on the pulpit and I am not gonna, you know, shove the Bible down your throat, but I am a Christian.

And there’s a passage in the Bible. Now, if you’re not into the Bible, just hear this is a great life mantra. Don’t let it flip you out because you’re agnostic, atheist, Hindu, Muslim, Jew, what have you. To whom much is entrusted, much is required. To whom much is given, much is expected. It comes from the Gospel of Luke, chapter 12, verse 48. Know that as you follow the you know the path of Investor Fuel and all the information they give you, and you’re successful, it’s incumbent upon you to share those blessings with those less fortunate.

Scott Bursey (30:00)
Purpose is powerful. Thank you for that, Frank. And Frank, for those of our listeners that want to keep this conversation moving, stay in your lane or collaborate with you, what is the best way for them to reach you?

Frank McKinney (30:12)
The first thing I want to do when I wanna have a new relationship is I want to get to know a little bit more than a 30-minute podcast is gonna provide me with. So PC Magazine, or I think it’s PCMag is called now, has called my website Disney on a desktop. Disney on a desktop. So you go there, which is Frank hyphen McKinney dot com. There’ll probably be some show notes. Frank-McKinney.com. You can take tours of these beautiful oceanfront mansions.

You can see the 32 villages where we built and the 23 Haitian cities we’ve built them. You can read sample chapters from all 10 of my books. And by the way, I’ve written 10 books in nine different genres. So I’ve got something for everybody. So I would go there, of course, social, you know, go to Instagram and all those others. You can follow, follow me there. I do not post pictures of my waffles. I do not post pictures of you know little plants and stuff. I give I give content usually once a week. I’ll talk about something new, real estate related, or coming from my books.

So Frank-McKinney.com for that Disney on a desktop.

Scott Bursey (31:14)
Frank, thank you thank you so much for joining us today on the Real Estate Pros podcast.

Frank McKinney (31:20)
It was a pleasure, man. You’re a great host, Scott.

Scott Bursey (31:27)
This has been an absolute masterclass. And to our listeners, we appreciate you. If you receive value from today’s episode, please subscribe. We’ll be filling your tanks with the lineup of elite guests, just like Frank McKinney, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.