Building Wealth Beyond Brokerage

To another episode of CRE – The Unspoken Truth. Our topic today: building wealth beyond brokerage. I’m joined by my father, Craig, and I am Charlie Coppola. So, building wealth beyond brokerage. You got into brokerage for a few reasons. We’ve covered this on other podcasts. You liked working for yourself. You liked the income potential. I think a lot of people probably would say the same thing of why they’re drawn towards a career in brokerage. Tell me, how did you approach building wealth with the kind of, you know, earnings potential in this career?

It’s a really interesting topic. This is one that’s been on my mind for a long, long time. And you know, financial independence is really what drove me, being from a very middle class family, with parents that never had any money in the bank account. It just drove me for a long period of time. So I’ve been thinking about wealth building for multiple decades. And so one of the reasons why we started Lee & Associates in 1991 was the ability, because Bill Lee was like, “You should be building wealth in real estate.” And he was really big, he had a lot of wealth in real estate. And so when we left the big firm, you know, where they really put you in and say, “You can do commissions, but we don’t want you buying your own deals,” we came to Lee & Associates, and the gloves were off on that. And so I really did that.

So I had two really big things that happened in my life that were really beneficial to me building wealth. The three things: first is I made a ton of money, a ton of money, right? It’s easier to build wealth when you’re making a ton of money, and you can do that if you’re really good at brokerage. The second was starting Lee & Associates, where we had the ability to acquire real estate and it wasn’t taboo. And the third thing was, early on I got introduced to Robert Kiyosaki, right when he had just self-published Rich Dad Poor Dad, which is now the most widely sold, 40 million copies, financial planning book of all time. And so Robert and I have been friends, and Kim, and investors together for over 30 years. And those three things really set me on a different course than, I would say, the traditional broker.

Yeah. So I know this just growing up with you as my dad. You were making money as a broker, and then you were reinvesting it. Like, you were very diligent, as diligent as you could be, about reinvesting it in your own career, and also investing it in other assets, right?

Yeah. So number one, the first thing is pay yourself first. And when they say pay yourself first, they mean you’re investing. You’re not paying yourself a salary that you can go blow. You’re investing it. So I literally would say, and you know that, if your mom and I had a hundred fights, 70 of them have been over money. And it was all over, I was putting away way more than she wanted to. And I was like, I am on a mission, man. And this mission is financial independence. You can join me or not, but I’m out there grinding away, and I’m going to suck a lot of money out of what I make and I’m going to invest it. And I did that, some good investments and some shitty investments, but a ton and ton of investments.

And so I started doing that really early, and I did it. And one of my rules, until I hit 60, one of my rules was, once I invested that dollar, I never took that out and spent it. So if an investment paid off or we sold it, I would just take that and reinvest it. So that would be from, let’s say I started investing at 28, and I’m 63 now. So whatever that is, 45 years of, and so that’s 60. So that would have been 42 years of just putting it in, never taking it out.

Yep. 32 years. And these are all types of investments. So I know you have an investment addiction. You say it about yourself. You love investing in startup companies, in, you know, hard money loans, and real estate.

Yep.

A lot of other brokers either do the, you know, stocks and bonds, or other real estate. Would you agree with that?

Yeah. And my first couple million that I invested went right into a traditional S&P 500 stock and bond portfolio. And I looked at it at the time as, like, hey, if all hell falls apart when I’m in my early 30s, I’ve got a couple million bucks that I’ve got in that’ll grow. And in hindsight, as a broker, I made a mistake. The young guys that started investing in real estate earlier and did more than I did, they’ve done just fine. And so I was super conservative, saying, “I’m not going to invest in what I do.” And they were like, “I do this, and so I’m going to invest in it.” And I would say I was wrong, or they were right.

I have multiple friends, like Kevin Swinsky, who was a broker like me, and now he’s a developer, and he’s made way more money than I have, and he’s way smarter than I am, because he started investing and he’s done a great job with it. So I look at those guys, and it’s not jealousy, it’s just like, they were ready to risk it, and they did, and they did a great job.

So would you say invest where you’re interested? Like, if you’re not passionate about startup companies, don’t spend time putting money there. Would you agree with that?

Yeah, I think yes. You know, I invest more in startups today than I do in real estate, because I have a greater passion, like OneSource. You know, I have opportunities to invest in real estate, and I do, but mostly my interests, my personal time and what I spend, is in these startup businesses. So I do like the idea of, where you’re passionate is where you’re going to spend your time. If you don’t like it, don’t do it. You can be really good at it. Like, I’m really good at buying real estate, but I don’t, yeah, I don’t kill it.

Well, you could be not passionate about all these investments and put it away in stocks and bonds and be just fine there, too.

Yeah. A lot of people do that. And I thought that was extremely boring, where every 90 days I’d meet with my financial planner. “Hey, your portfolio is up 2%,” or, “It’s down 2%.” I was like, why are we having these meetings? So I’m like, I’m going to start, and you know, Brad, my financial adviser, Brad Lemon, he’s always holding me back. He’s like, “Hey, you need some of this over there.” I’m like, “I don’t want any of it anymore. I got plenty. So let’s spread it out and let’s do these other things.” And he’s kind of come around, and he’s put us into some alternative investment stuff. And so it’s good. But again, I do like the idea of, if you’re passionate about it. And I run into people all the time who really want to buy some real estate, they’re really into it. And so it’s just cool.

Yeah. So I love the rule you shared. Until you’re 60, just reinvest every dollar, right? Pay yourself first, reinvest that money.

And I’ve got to tell you, it sounds, you can see, easy to say. It is so hard to do. I’ll give you an example. You buy a house and you sell this investment, you’re going to want to buy furniture, and it’s like, “No, no, that’s not…” You want to redo your backyard? “No, no, not going to take money out.” There’s a hundred times. Kate went to Xavier, private high school. You went to Brophy, private high school. “Nope, not taking it out.” And that’s why I say we had fights, like, “Why don’t you pull some money out of here?” The answer was always, “Why don’t you put some money in?” I’m like, “No, you’re making a lot of money this year. Just invest less.” “Yeah. No, no.” I’m investing multiple hundreds of thousands of dollars every year for a long time, and I’m going to wake up when I’m my age and not worry about it.

Yeah, it’s good. What other advice would you give to brokers who are starting to make a little bit of money and thinking about their future, building wealth?

Well, I would tell you that, let me finish that previous thing. It was worth it.

Yes, it was worth it, sure, the delayed gratification one.

Because I don’t give a… about cycles anymore. You know, market’s coming up, going down. I see people panicked on Squawk Box or whatever, and I’m like, I don’t care.

The other advice is, look, Robert Kiyosaki, damn him, told me for 25 years, forget net worth. He didn’t say it like this, but it’s really about passive income. It’s a conversation you and I have had. It’s like, yeah, you can try and build your balance sheet, which I tried to do a lot more than I should have, and I should have been focused on passive income. How do you build your passive income from $500 a month to multiple hundreds of thousands of dollars a year? That’s the goal. Because it doesn’t matter what your net worth is, really. What matters is how much cash do you have that’s offsetting, so you don’t have to work. That’s financial independence, right? Where passive income is more than your lifestyle.

So when I met Robert and Kim, they had some net worth, but they just had a really modest lifestyle. And so they were financially independent. They have a lot of net worth now, but they had some net worth, but they had passive income from some condos, and they were just living a very modest lifestyle. It’s like, okay, that’s financial… That took me a long time, if people could figure that. It took me a long time to figure that out, because, you know, we’re always keeping up with the Joneses. We live in this super nice house, and we own this, we’ve been in this house 26 years. I couldn’t afford it when I bought it, but it was kind of like, we needed it for the family, but it was also more like, “Hey, you’re making money. You deserve a big house.”

So help me reconcile the two things you said. One, every dollar, you know, you just continue to reinvest it, versus, you know, forget net worth, it’s really about passive income. But passive income and financial independence, in the Robert Kiyosaki example, is really about your income paying for your lifestyle rather than being reinvested.

Well, yeah, but all this passive income is going right back to reinvestment when you’re working. It’s like, as long as you’re working, you’re not pulling that money out and saying, “Oh, I’m not…”

Well, right. Didn’t Rich Dad Poor Dad, I think they retired right when they were in their 20s. And so that’s a little different than the advice you’re sharing, right?

Well, and then reinvest over here. Yes. And what Robert, you know, if you read his… The other book that I love to read is his Cash Flow Quadrant. He makes a ton of money on his books and Rich Dad Company. And so their lifestyle is covered under their business. And so they have the ability to take all their passive income and they just roll it into new deals. And so I don’t think there’s a… The idea is, if you have $500 a month in passive income, that $500 a month is going back into your next investment. You’re not taking it and spending it.

Yeah. And it’s hard, because that passive income, guess what? It’s taxable. And so the accountants would tell you, you don’t need passive income because it’s taxable. It’s ordinary income. And it’s like, okay, but if you can just build this up slowly over a long period of time, and your assets, you’re paying down your debt. Life is really, really juicy when you do that.

Yeah. Yeah.

And Robert tells this story. Robert tells a story, our best investment, his best, and Kim, they tell the story. We bought at 32nd and Camelback, and it was a single tenant. I went to them. I just loved the real estate. I went to them, and I had it under contract, but I couldn’t close it. Robert says to me, “I want all of it and I want to buy it.” And I go, “No, I don’t want a commission. I want to own this.” And he says, “I’ll tell you what I’ll do. I’ll pay for it and I’ll give you 10%, just a carried interest. No money down. And once I get my money back, then I’ll start paying you 10%.”

And over the next 12 years, we paid off the debt. Robert paid off, and Robert and I started making money on the investment. And now we just did a ground lease on it for 99 years. So I still own 10% of that, and for 99 years, every single month for the next 99 years, I’m going to get a check. You know, my check’s not what theirs is, but my check, it’s 10 grand a month for the next 99 years. I think there’s 96 years left on it. And so that investment, that’s passive income.

Yeah. I know it’s coming in. Like, that’s the definition. It’s fantastic.

It’s a sweet deal.

Last question I have here. What advice would you give to, like, you had the ability to do this on the real estate side because of Lee, and you’ve made that point already. We have a lot of brokers, and there are lots of brokers at the big shops, corporates, that, I think, I don’t know for sure, they don’t let you own real estate, or I don’t know what exactly the rules are. So what would you say to them?

Well, the brokers that are at bigger companies, what I see them doing is investing with their clients. So they’ll sell somebody, if they’re multifamily, they’ll sell somebody an apartment complex, and they’ll throw some money on it. So you can do this. My buddy Paul Braun, who’s a medical broker in San Diego, is just about ready to retire. He’s at JLL, and he’s been the top medical team in Southern California for 30 years. Paul has, almost all of his net worth is in limited partnerships that he’s invested with his clients, and he’s been doing that for 20 years, and I don’t know, he has 30 or 40 different investments.

And that’s one of the things I wanted to point out today, is that you want to diversify your streams of income. So at any given time, Paul, there’s two or three deals that aren’t going pro forma, but he’s got so many that the others offset that. And I think that’s what you want. You know, I wake up now and I have, you know, I get some that are small checks, 46 bucks a quarter, but I get some big checks, like the 10,000 a month. And so if you just get 20, 30, you know, 40, 50 of those, diversified across, and it comes in every month or every quarter, life’s pretty good.

Yeah. Mailbox money, right?

Mailbox money, baby. I love it. And sometimes people are like, “Why don’t you just direct deposit?” I like seeing the checks.

You’re one of those guys.

I like to feel it. Well, you know, most of them don’t come anymore, but if we can get it now, we’ll do it. We don’t care. But it is nice.

And the other thing that I was just telling White House this morning, Nick White House, our young guy, because we’re going to do some investing with him, and they’re looking to start buying stuff, is like, you need reps on this. If you’re going to buy real estate or do some, you need to get out there, you need to make offers. You need to do research. You need to have a mindset of, the deal flow just doesn’t come if you’re buying real estate. Nobody’s knocking on your deal going, “Hey, Charlie, you’re the only guy that could buy this.” They’re out selling it. So you have to be in the marketplace. You have to understand it.

And I think here’s a pitch for my first book, you know, How to Invest in Commercial Real Estate. That’s the highest selling book I’ve ever written, my first book, because people resonate with the process. I basically spell out, here’s the process. It says eight weeks, but it could be six months. Here’s the process of developing how you’re going to buy commercial real estate, and then go start getting reps on it, making offers. You might not buy anything, but go start doing it.

Sure. Good. I like it. Thanks. Multiple streams, passive income, reinvest it all, lots of reps.

Yep. Over a long period of time. That’s the other thing, you know, if you’re in this business a long time. One, there’s a cyclical, and you know, our commissions go up and down. The other thing that happens, if you’re really invested in real estate, I remember in 2009 when the Great Recession hit. In 2008, it just sucked, and you know, I had heavy losses. And so I finally wrote down, you know, half or more, might have been 60% of my net worth in 2009, and just said, “Screw it. All this stuff’s going away.” And then since 2009, just been building it up again.

And you know, you just want to build it up so high that when it comes back down, it’s still higher. You know, we were talking about the sine wave going up. And I remember 2009 going, man, I don’t know what I was at that point, in my 50s. And I was like, man, I thought I was done. I thought I had it. And here I wrote it all down. I still had enough, but it was like half pork and beans enough. You know, it wasn’t steaks. Now we’re on the steak level, and I think we’re going to be there. But it did sober me up to go, you’ve got to be really diversified. You’ve got to be able to withstand these cycles, and that’s where the truly wealthy, they withstand cycles and they come out of them stronger.

Yeah. And I think there’s multiple levels to the diversification, right? You talked about your buddy having 40 different properties. That’s one way, but they’re all real estate. You know, I don’t know what asset classes, but they’re not that diverse there, right?

So I’m pretty diverse, but heavily weighted, you know, in startups, and especially now with the investment in OneSource. It’s more than Brad wants me to have, but I feel really comfortable about it. So, yeah.

Yeah. Awesome. Well, thank you so much. Building wealth beyond brokerage. Good stuff today. Thank…