Passive Isn’t Easy: What Real Estate Investors Get Wrong About Cash Flow

Leah Collich (00:00)
No, I also think people think it’s a lot greater than it is per deal. I think there’s a lot of pie in the sky, expectations of what, how much cashflow should come from one deal. ⁓ so that’s the first thing is you got to be realistic, especially if you’re coming in and the only value you’re bringing to the equation is capital. Like you gotta, you gotta have realistic expectations about what is just having money get you right.

Cody Crabb (01:58)
Hello and welcome back to the Real Estate Pros podcast by Investor Fuel. I’m your host, Cody Crabb. And today I’ve got Leah Collich with RealWealth. Leah is the director of the referral brokerage where she sits right between passive investors looking to put capital to work and the turnkey operators providing those opportunities. So we’re going to talk about what passive investors are looking for right now, why repeat buyers are moving while others are waiting, and what active real estate operators should understand about attracting capital. Thanks so much for joining today. I appreciate it.

Leah Collich (02:28)
Yeah, it’s good to be here. We’re fans of the Investor Fuel Network and actually have several mutual business relationships that are part of the Investor Fuel Network. So it’s good to be on.

Cody Crabb (02:38)
Love that. Love that. Well, again, thank you so much for your time today. I’d love to start out with a little bit of your background. Where did you come from? How did you get interested in the industry? ⁓ what brings you to today?

Leah Collich (02:51)
Yeah. So my husband and I started investing kind of by accident. It’s probably similar to so many of your listeners stories. we, my husband’s actually in active duty military and we were stationed in a very tiny town. ⁓ our very first assignment in 2010.

which was unbeknownst to me, a really interesting time to be buying real estate. we showed up in this tiny town knew that we were only going to be there for a couple years, but had this idea of like, Hey, there’s a, there’s a first time home buyers tax credit.

We can use our VA loan. can buy one of these. And then when we get shipped to the next location, we’ll just rent it out and keep it as a little rental for ourselves. And so we did that. And that was kind of our first segue. ⁓ fast forward about, ⁓ yeah, six or seven years down the road at this point, we’re like, you know, ⁓ really kind of knee getting to waste deep in our careers, trying to do everything right to plan for our retirement, maxing out 401ks and IRAs, like doing all the things by the book.

right? And at some point we had this light bulb moment where we realized, okay, you know, we’re going to be able to retire. We’ve got these, these retirement accounts, we’ve got a military pension that we’re working towards. ⁓

But wait a second, like we can’t live on the military pension alone and all this money that we’ve been sucking away in our retirement accounts, we can’t touch to 59 and a half. So what are we going to do for the 19 years to gap that if we want to truly have like flexibility and, you know, freedom. And so we looked back at that tiny rental that we bought and it was being paid off and it was appreciating and we had renters in there nonstop. Yeah, we.

Cody Crabb (04:26)
Yeah.

and you’re kind of like, hmm, yeah.

Leah Collich (04:33)
We’re both starting

to scheme and go, OK, we need to do more of that ⁓ and be a little bit more intentional. ⁓ And we did.

Cody Crabb (04:43)
That’s awesome. Yeah, I love stories like that where it’s kind of just interesting. Like this seems to be actually. Yeah. And you kind of just find yourself doing it. That’s ⁓ for some reason people are so prone to just falling into this by accident. ⁓

Leah Collich (04:51)
Yeah.

Yeah. It’s the next

steps that always, I think people get the wounds and the scars from, cause it’s like, okay, this makes sense. Let me go do this. And then you like, you get your brain too involved and you can make some missteps.

Cody Crabb (05:13)
For sure. ⁓

Well, so tell us a little bit about where that brings you today and kind what you do at RealWealth.

Leah Collich (06:08)
Yeah. So, you know, because we were, my husband and I were geographically like all over the place. Um, we were living overseas a lot of the times, or we were living in, in high cost markets. You know, right now we live in Washington DC, very expensive market. Um, and so we were having a problem. we recognize that this was how we wanted to grow our portfolios, but said, man, we just can’t do it where we live. We’ve got to do it long distance. And, um, we went back to that tiny town.

remotely, we were living in Europe at the time and we went back there and bought, you know, got our hands on a foreclosure that needed a little bit of fixing. And we did the, you know, burr, ⁓ model to get into our second one. And, ⁓ I hate to say it, we made some mistakes. spent more than we should have. ⁓ and so we didn’t really improve the value enough to justify a cash out refi. So we were under leveraged on this asset. had, we’re going to keep it. It made sense to keep, but we just had a little more cash stuck in it than we probably should have. And so.

Cody Crabb (06:36)
wow.

Leah Collich (07:04)
we were like, we’ve got to find someone who can do kind of this hard, the hard part of this for us and allow us to come in with maximum leverage, just 20 % down on the purchase. We’ll pay, we’ll pay retail, you know, if, somebody else kind of gives us this done for you, you know, packaged property. And so we were, you know, scouring the, the internets looking for a company or someone who could help us do this. And we came across RealWealth.

And ⁓ I just fell in love with the company ⁓ and kind of what they stood for. And ⁓ through RealWealth at the time as a member, we scaled our portfolio really aggressively, all long distance, all passive. I got into five or six ⁓ properties in that first year with RealWealth, just being totally hands off and remote.

And, fast forward a couple years, I was drinking the RealWealth Kool-Aid and growing my portfolio and seeing, you know, seeing the outcomes that we wanted and we were building something, but we weren’t strapping ourselves with another job. ⁓ and, ⁓ I just got to know the people at RealWealth and they eventually said, Hey, why don’t you come work for us? Come, come join the team. And, ⁓ so yeah, it was really a good match.

Cody Crabb (08:13)
Thought you’d never ask, yeah.

Leah Collich (08:18)
and so now I work for RealWealth. started off working as an investment counselor, just teaching people what I had done and how they could do the same, how they could scale and grow portfolio long distance. ⁓ and then have found myself now kind of at the directorate level of our referral brokerage. So I sit kind of at that position that, ⁓ sort of the matchmaking position of, okay, what do investors want? What are investors, passive investors like me looking for? And then on the other side,

who are the companies and the businesses, the turnkey operators that are out there that have the done for you product available and that have property management, you know, so that we can connect those two people together so that, you know, both can grow their wealth.

Cody Crabb (09:00)
⁓ So what was it that you know, how do you think about scaling that you think it’s different? You know, you said you don’t want to buy accidentally buy yourself another job basically ⁓ When you think about scaling, you know How did you think about that in a way that allowed you to do that?

Leah Collich (09:14)
Yeah, I mean, this is why we call ourselves RealWealth. ⁓ cause we’re about more than just money. Money’s nice, right? Don’t, don’t hear me wrong. Like we need the money. ⁓ but we’re about, we’re in pursuit of more than just financial freedom. We’re, in pursuit of autonomy. We’re in pursuit of, ⁓ more space to, to be around the people we want to be around to spend our day, how we want to be spending it.

Cody Crabb (09:18)
Mmm.

Leah Collich (09:38)
And so we’ve got to strike that balance of, okay, I’m trying to grow long-term wealth for myself, but I’m not trying to just pick up side hustles. And, and I mean, some of your listeners know, I mean, as you scale a portfolio, can strap you down big time. Like it can be maddening the amount of, mental stress and, ⁓ overload that you can have as you, as you acquire and scale all on your own. So.

⁓ For me, it’s just always been really important to be true to the core value that I have, and that is I get to do this life once, and I want it to look how I want it to look. Even if that means I maybe am on a tighter budget, I want to have more freedom. ⁓ And so the turnkey investing space has done that for me.

Cody Crabb (10:58)
Yeah, at the end of the day, that’s really what I mean, that’s what we’re talking. We’re not talking about wealth at all. Really. I mean, we’re talking about the freedom that it gives you. It’s that’s the whole point. ⁓ So I think that’s it’s always good to kind of reframe that and remember that because the number doesn’t matter at all. Honestly, like it’s it’s what it allows you to do. I mean, if you could live on 100 bucks a month, then you could retire today and you’d be good, you know. So it all depends on on your goals and stuff.

Leah Collich (11:22)
Yeah.

I’ve got this really good analogy that I’ve used before. ⁓ my husband and I are our big bike riders, our time living in the Netherlands turned us into, were just, love riding bikes. ⁓ and we always rode kind of traditional bikes. And a couple of years ago, my husband was like, let’s get e-bikes. and I was at first a little bit like, like an e-bike.

Cody Crabb (11:37)
Yeah.

It’s cheating.

Leah Collich (11:49)
Yeah, it feels that was exactly my thought. I’m like, well, it’s not

as much of a workout. Like, you know, I think people that zoom past you or that you zoom past, like they kind of resent you a little bit for flying by on your e-bike when they’re putting in the actual work. ⁓ and I’ve used the analogy of this because to kind of compare it to turnkey investing, ⁓ you know, what I found after getting an e-bike, we got e-bikes by the way, ⁓ we just went out last night actually. ⁓ but.

Cody Crabb (12:01)
Yeah.

Leah Collich (12:16)
What I found is that we are going out more often on our bikes. We are going much further when we go out, we’re going for longer rides. ⁓ and so yeah, some people look at the e-bike and go, you’re not doing the work, right? But how much more often am I going? How much further am I going? You know, and, that’s how I kind of look.

Cody Crabb (12:20)
Hmm.

Well, and what’s your

goal? think that’s it. That’s the I mean, if your goal is to see the city, then that’s going to make it way better if you’re trying to get a workout. Maybe not so much, but, know, depends on what your goal is. Like you said.

Leah Collich (12:38)
You

Yeah. Maybe not. Yeah.

So I see RealWealth as being kind of, it’s like the e-bike approach to real estate investing. It’s, you know, we’re still going somewhere. ⁓ but I think that’s great that you added it. It’s, we’re going somewhere with a little bit less stress and we’re, and we’re going to go further. We’re going to go out more often because we’re not, we’re not as worn out.

Cody Crabb (13:05)
⁓

So what would you say to someone who looks at that and is kind of like desperate for it, but they’re in a situation that is just nothing like the ability has the nothing like someone that has the ability to invest their paycheck to paycheck or they’re super busy in their W2 job. Like what about those people?

Leah Collich (13:18)
Mm-hmm. Yeah.

Yeah.

Yeah. I mean, first, I think we’re perfect for the person who’s super busy with their W-2 job. You shouldn’t be going and trying to, but for the person who maybe is living paycheck to paycheck and it’s like, see that this is the way out, but how, like, how do I get there? If that’s the reality, right? I mean, the reality is that this strategy does require capital. It’s a trade-off. ⁓ and I literally had a call with an investor this morning who asked me a very similar question. He’s like,

Cody Crabb (13:30)
Yeah, no kidding, yeah.

Leah Collich (13:52)
what’s the upside like a buying turnkey? Like what is it? Like if I buy, if I buy a property below market value, like I capture that instant equity and you know, then I keep it and get the long-term benefits. And I say, well, yeah, you do as you should, right? You, you, you don’t want to be working for free in anything, ⁓ including for yourself. So there, there, if you’re putting in more time, there should be some instant upside. And so the flip side of that, I think is if you don’t have the capital to come in as a passive investor,

you might be in a position where you have to be a little more active. You have to be willing to give some of that time and energy until you do have the right capital to deploy for it. Maybe you’ve got to do a little more active, a little more short-term gain type of investing where maybe you’re flipping or wholesaling, looking for those quick cash injections that give you that principle that you need to be able to go put down on something that kicks off the slower churning

Cody Crabb (14:25)
Mm.

Leah Collich (14:51)
wealth that Turnkey does.

Cody Crabb (15:34)
So ⁓ I guess one of my other questions would be, know, ⁓ what do people get wrong about… So passive income is one of those things you just… It’s a phrase you hear. It’s just kind of words at this point because everyone just says it. So I’d be curious, like, when people hear passive, what do you think people get wrong about the term passive income? Like, do you think people actually understand what it means?

Leah Collich (16:00)
No, I also think people think it’s a lot greater than it is per deal. I think there’s a lot of pie in the sky, expectations of what, how much cashflow should come from one deal. ⁓ so that’s the first thing is you got to be realistic, especially if you’re coming in and the only value you’re bringing to the equation is capital. Like you gotta, you gotta have realistic expectations about what is just having money get you

If you’re willing to come in and roll up your sleeves and you know,

take some risks and you know, then yeah, your returns again should be a little bit higher. But if you’re coming in with just capital, you know, ⁓ that same loss as you’ve got to be realistic about, about how much money is actually coming in per door that you control. ⁓ but more than that, I think it’s people not seeing that the cash flow is a little bit variable. ⁓ this was actually a lesson that I learned pretty early on in scaling my portfolio.

I scaled my portfolio pretty aggressively with a lot of C-class, you know, property, very inexpensive on paper, looked like the highest projected cashflow at the time I was working a job that I didn’t love. it’s like, was super drawn into that high cashflow deal because I could buy some of these and then quit my job. And what I found is that there was such a ebb and flow to the cashflow.

over the years, you know, I’d have two or three years of pretty stable, good cashflow. And then I’d have one year where it was like, shoot, like a lot went wrong in that year. You know, I had this tenant move out. I had this air conditioner break. had this tree fall, you know, and I was watching the cashflow from a year get cannibalized or even worse. Sometimes it was, Hey, like that took all the cashflow for the year. And like next year too. ⁓

And so what I realized was that if, if I want to live on this cashflow, if I were, you know, truly job optional and living and retiring on this passive income, I couldn’t, I wouldn’t have been able to do it, you know, in, in some years. And so for me, it made me see one, the importance of reserves, having really good reserve funds available, but to not being attached to immediate results.

Cody Crabb (18:05)
Yeah.

Leah Collich (18:14)
Um, having a little bit more of a long-term view of that passive income. I’m looking at a 10 year horizon, recognizing just like the stock market, you know, when we are a stock investor, you go in and check, you know, the, the value of your stock and day to day, you’d see it go up and down and up and down. And, similarly in real estate, you’re going to see some of that up and down, up and down. The difference is you’re going to have to cut a check, you know, and maybe feed it a little bit. Um, but.

Cody Crabb (18:14)
Hmm.

Yeah, yeah. Yeah.

Leah Collich (18:42)
But yeah, it ebbs and flows. And so you’ve got to be prepared for that, especially as you’re scaling a portfolio.

Cody Crabb (18:47)
⁓ Something I often think about is the trade off between time and like risk and return. ⁓ Obviously, like it’s a triangle where, you know, depending on how close you get to one, the other things change. ⁓ How do you view that balance? Like, obviously, if you are not making enough money and you’re like, you really, really need that to happen soon. ⁓

This is maybe a little different, I’d be curious if you have thoughts around like, can you, what’s a good balance for that?

Leah Collich (19:21)
Yeah. I mean, think you said it best. It is kind of a moving target. think the most important thing that I do is I am actively analyzing every deal, you know, every year to look at the returns, not just the monetary returns, but the return on brain power, right? How much hassle did that property give me in the last year and was it worth it?

Cody Crabb (19:44)
That’s

an underrated way to think about it. I definitely hear people say like, yeah, I was making tons of money and I was completely miserable and all my time was taken up. So it’s just not worth it, yeah.

Leah Collich (19:52)
Yeah,

let’s add a line item to the standard perform of return on hassle. And let’s look at that. ⁓

Cody Crabb (19:57)
Yeah, yeah, the

freelancing industry or not industry, but the freelancer community refers to that as like an a-hole tax. You know, like you just toss it on top. Yeah, no, but that’s a really good, I mean, if someone’s willing to pay you that extra, that’s a good way to kind of rebalance that and be like, well, it wasn’t worth it for this amount, but kind of is worth it for this amount. maybe, yeah, so like you said, I think.

Leah Collich (20:08)
Yeah.

Cody Crabb (20:26)
balancing your priorities, I think is where it’s really at.

Leah Collich (20:28)
Yeah. And your,

and your season, like what, what season of life are you in? Are you in the hustle and grind years of your career where you really need to be focused on the next promotion? you know, or getting fully vested at your company, like, okay, well then, you know, let’s let that lever is going to be pulled all the way up. Let’s, let’s adjust the others accordingly, knowing that that needs to be the priority. but yeah, I think it really, you’ve got to

Cody Crabb (20:49)
Yeah.

Leah Collich (20:56)
be nimble enough to respond, I think, when you’re seeing that these things get out of whack. I like for me, I decided to diversify a little bit into some short-term rentals. ⁓ And I manage those myself. ⁓ And those are a lot more active for me. All my long-term stuff is professionally managed by other people. It’s long distance. Most of them I’ve never been to. I don’t ever plan to go to them. They’re very hands-off for the most part.

My involvement is virtual, but for my short-term rentals, I’m very hands-on. mean, I’m getting notifications as we speak of someone who’s checking in, you know, at one of my properties. The reason it’s worth it to do that for me is one, it gives me great tax advantages to, to materially participate in my short-term rentals, but two, they, they do generate a lot more cashflow significantly more, ⁓ than my long-term rentals. ⁓ but if all of my portfolio was short-term rentals, there’s no chance. I I certainly wouldn’t be.

working an actual job at the same time. That would be my job, you know? Yeah.

Cody Crabb (21:58)
Yeah, of course.

Yeah, think they, yeah, like I keep saying this, but it’s just, it’s the balance. the, specific goals that are, that’s the only thing that matters. Really. The whole point of investing is to accomplish the goals that you’re trying to ⁓ achieve. And so the, it’s silly to just go highest return automatically. Let’s go high, the highest return. Like it, there are so many things to think about. ⁓

So ⁓ what do you think is like a realistic expectation when it comes to cash flow right now? Or is there anything different ⁓ that’s happening right now that is not typical?

Leah Collich (22:32)
Well, yeah. I do think you’ve got to be realistic that cashflow is tighter than it was, you know, when I was aggressively scaling in 2016, 2017, 2018, know, deals worked almost everything you looked at worked. mean, ⁓ it was a much easier game. didn’t feel like it at the time. I will say that in hindsight, looking back, you see, wow, that was, yeah. Yeah. but you know, today there are still deals that cashflow, margins are a little bit tighter.

Cody Crabb (22:53)
Yeah, grass is greener.

Leah Collich (23:01)
And the double whammy to that is it costs more than ever to maintain the assets that you buy. So preparing for variable costs like maintenance and vacancy, like that’s a bigger line item on your analysis, or it should be, especially if you’re buying older properties. ⁓ A way that RealWealth investors have overcome that is ⁓ a lot of our members are focused on newer property. We work with a lot of new construction teams that are building homes for investors to turn them into rental properties right out of the gate.

Cody Crabb (23:13)
Mm-hmm.

Leah Collich (23:31)
And, um, with that has come some really impressive concessions. Uh, most of the build teams that we work with are offering what’s called a builder forward commitment loan. That’s an interest rate, buy down program that builders can do because they’re locking big chunks of capital, you know, for the, for all of the deals that they’re selling in a, in a month. And we actually have some teams that are buying down the interest rates to 3.75%. So, you know, everyone’s everyone’s, um,

Cody Crabb (23:56)
Mm.

Leah Collich (24:00)
you know, pain right now is, interest rates are high, you know, and that’s the, that’s the kicker for deals. Well, if you go with new construction, you buy these rate buy-down programs or you get in with these rate buy-down programs, you can get a 3.75 % interest rate. And now your cashflow is better. Your principal pay down is significantly more effective, right? ⁓ and it’s just creating that little bit of space that was needed in a pro forma to make a deal, make a deal work.

Cody Crabb (24:24)
Well, this has all been super great. Thank you so much for all these insights. ⁓ If somebody wants to work with your or you or I guess RealWealth, ⁓ how can they get in touch with you and find you online?

Leah Collich (24:34)
Yeah, they can go to realwealth.com. It’s free to become a member, to sign up. We’ve got a ton of education and resources. host live webinars every week. I’m hosting one today talking about the buying opportunity in Southwest Florida. So you can sign up, become a member at realwealth.com.

Cody Crabb (24:47)
awesome.

Great, well again, thanks so much for joining us today and thank you audience as well. If you got something out of today’s episode, go ahead and give us a like, subscribe, comment, all the things so that you don’t miss another great conversation like this one. It’s been a pleasure. Thank you so much for joining us and giving us some great little nuggets there. I think I definitely learned a couple of things, Leah.

Leah Collich (25:10)
Thank you.