Should I Invest in Real Estate or My Business | How To with Gino Barbaro

[00:00:00] Hello and welcome. My name is Gino Barbaro, one of the co-founders of Jake and Gino. And in this

[00:00:04] important how-to, we've got a question from somebody on Instagram. They wanted to know if I

[00:00:11] should invest in real estate or I should double down in my business. Now that question is from Samuel

[00:00:16] from Stuart Painters. And to me, it's such an important topic. It's actually, I like to say,

[00:00:23] it's near and dear. And that's what over the last 15 to 20 years has been the struggle in my life.

[00:00:28] Should I double down in my restaurant business, try to scale that business, or should I take some

[00:00:33] of the profits and some of the money from that business and invest in real estate? And thankfully,

[00:00:39] for me, I decided, hey, the restaurant was more of a transactional. It was very hard for me to build

[00:00:44] equity and to really scale that business. I took a lot of the profits there and I put it into real

[00:00:51] estate. As you're listening to the podcast, if you want to get premium content, I want you to subscribe

[00:00:58] to the Jake and Gino channel on YouTube. Hit that subscribe button. Every week, we release premium

[00:01:04] content. We do a weekly masterclass with our Jake and Gino community. That's only to the Jake and Gino

[00:01:09] community. If you want to get access to that, I want you to subscribe to our YouTube channel and you

[00:01:14] will get access. Now, to really get specific to the question of Samuel, should I put more money into

[00:01:22] my business? He's got a painting business. Should I really try to scale that or should I take some of

[00:01:27] that money, some of the profits and diversify and put it into real estate? My answer is why not do both?

[00:01:36] I think if you look at most people who are wealthy in this country, they either own businesses,

[00:01:42] they have a really high paying job, they have a really unique skill set as far as a surgeon,

[00:01:48] as far as an attorney, as far as an inventor, or they own businesses. Now, I think to me,

[00:01:54] the goal of any investor is to get a more favorable tax bracket. That's why someone who's a W2 employee

[00:02:01] can earn a ton of money, but they get very little tax relief. Entrepreneurs, business owners,

[00:02:10] people who create value, people who create jobs get more tax benefits. So what I want you to do as that

[00:02:16] business owner, you're creating money, you're creating jobs, you're getting income. That's active

[00:02:20] income. That's earned income. What I want you to think of is I want you to convert that income,

[00:02:26] save some of it, and put it into the second and the third types of income, which are portfolio

[00:02:33] and which is passive. Now, portfolio income is stocks, bonds. I guess if you want to call crypto

[00:02:40] portfolio income, put it into there. That third component though is that passive income. And that's

[00:02:46] what I started to do earlier on 15 years ago. Nowadays, it's called side hustle. When I started,

[00:02:53] it was called another job. And I wanted to spell something that people have been talking about over

[00:02:58] the last five, 10, 15 years that life has gotten more expensive and everyone needs a second job.

[00:03:04] Well, it's been that way for a long time. I think when globalization hit the economy,

[00:03:10] things started going global, competition started to become fierce. All of a sudden,

[00:03:14] the internet came about and we can look at pricing. And if things got so competitive,

[00:03:19] prices and wages dropped. And even for businesses, I wasn't making the amount of money that I was

[00:03:25] making back in the early 2000s and the 90s when I launched my business. 08, 09, 2010 comes fierce

[00:03:32] competition. Things start going and profit margins started to shrink. And that's why I needed to find an

[00:03:38] alternative to my business. Now, I could have scaled it, but the food industry is so challenging in my

[00:03:43] opinion. It's very hard to scale. It's really labor intensive. So for me, I said to myself,

[00:03:50] I've got this money that I've got saved up. I'm not a big fan of stocks, not a big fan of bonds. I'm

[00:03:55] not into the stock market. I can't control it. How about real estate? And that's where I started. I

[00:04:01] started with the fourplex. And then from the fourplex, I started moving into different areas of real estate.

[00:04:07] Not really good ventures, made a couple of big mistakes. But then when I met Jake, all of a sudden,

[00:04:12] I understood multifamily is the way to go and focus full time. Now, why real estate?

[00:04:19] It's a great way to build long-term wealth. Not short-term. It's not going to happen in the short

[00:04:25] run. It's for long-term wealth. It's got tons of tax advantages. It's a massive wealth builder. And what

[00:04:35] I like, it's not really correlated to the stock market. And another function of it that I truly

[00:04:41] love that people may think I'm a little crazy about is the fact that it's not liquid.

[00:04:49] As you may know, and you may be following over the last month and a half to two months,

[00:04:54] Bitcoin and crypto have gone crazy. Bitcoin has surpassed $100,000 point right now. I mean,

[00:05:02] it was $40,000 two months ago. Now, the problem with that, to be able to create long-term wealth

[00:05:08] is when you have it at $40,000 and you see it go to $60,000 or $70,000, you've made 70% or 80% in a month,

[00:05:14] your inclination, and it's a good inclination, is to hit the exit button and just to get out,

[00:05:19] recapture your money, and hopefully wait until it goes back down. But we know the vast majority of investors

[00:05:25] get caught up in the euphoria and they buy high and they sell low. Now, that's very difficult to do

[00:05:33] with real estate because it takes a little bit of time. And sometimes you may not be able to sell the

[00:05:37] asset and you may be forced to hold onto it. And that's a good thing. There is liquidity vents

[00:05:44] through real estate. You can sell a portion of your asset to a potential partner. You can go out,

[00:05:50] raise capital on that asset and get money from other people. Or you can do a refinance role,

[00:05:57] do a refinance role, refinance a property, pull the money out, another tax advantage property,

[00:06:02] because it's typically a loan to yourself. You're not paying taxes on that until you have to

[00:06:06] recapture it and recapture it if you sell that asset. Now, if you hold onto it and you have a

[00:06:12] refi in it, you're not going to pay taxes on that money. You can also do a 1031 once you're able to

[00:06:17] exit it and you're able to shelter or defer those taxes even longer. So I think that's what I'm

[00:06:23] trying to get at with this whole lesson right now that I'm talking about. Why not do both? Your

[00:06:31] business is a great way to make active income. You need to work in it. I mean, not that you don't need

[00:06:35] to work in real estate, you do as well, but it's such a great hedge against inflation as prices go up.

[00:06:43] Well, guess what else goes up? Rents. And I'm here to tell you, they're not going to stop printing

[00:06:48] money. Asset prices are going to continue to inflate. They're going to continue to rise.

[00:06:55] It's a basic human need on top of that. The demographics are there for multifamily and for

[00:07:01] commercial real estate as far as rentals go. I'm completely convinced of it. There's a shortage of it,

[00:07:07] especially in certain markets. So why don't you think about doing both? But here is the big problem

[00:07:14] with businesses. Did you know that 70% of all businesses never sell? The idea of building a

[00:07:25] business and building equity and being able to exit that once you're done with your business

[00:07:31] is the dream of all business owners, but 70% of them fall short. Now I was fortunate to be able to

[00:07:39] sell the restaurant a month before COVID. The new owners bought it. They had to stop. They did well.

[00:07:46] They did fine. They got money from the state. They were able to fix it up and reopen it. But I was

[00:07:52] fortunate to sell at a price. Unfortunately for us, there was so much intrinsic value in that business

[00:07:57] that we weren't able to capture. Now I'm going to give you a homework assignment. You may not like it,

[00:08:02] but, and if you're not a big reader, go to the Jake and Gino podcast, look up John Worolao. He wrote

[00:08:09] a book called Built to Sell. If you are running a business right now, read the book because I want you,

[00:08:17] if you don't think you're ever going to sell your business, that's fine. At one point, you may be

[00:08:22] able to want to want to hand it down to your family. John in the book describes how you build and set up

[00:08:29] systems and processes within your business so that you can extricate yourself out of your business

[00:08:35] if, and when you decide. And it's great because you don't have to do it, but you at least are

[00:08:41] positioning yourself to be able to do it. Remember seven out of 10 businesses don't sell because what

[00:08:47] you're buying is really the, you know, the, the, as the tech, the technician. Remember from the E-myth,

[00:08:53] Michael Gerber talks about the entrepreneur and the technician. Most businesses, seven out of 10 of

[00:08:58] them are technicians. They go into business, they create themselves a job and they never get out.

[00:09:03] Those technicians would definitely be more advantageous if they took the money from those

[00:09:10] businesses and invested in real estate. But remember that it's important. Now, 80% of a person's

[00:09:17] capital that run a business should be in the operating business. 20% should go outside your

[00:09:23] business. That's what, you know, the experts say. I think you always need liquidity to stay inside the

[00:09:29] business. You really need to have those emergency funds to be able to get payroll, to be able to take

[00:09:33] care of the short-term necessities, but whatever you can pull some of that money out. And Hey, by the

[00:09:38] way, if you are a painting company and as, as Samuel has, he has a painting business. Why not buy a mixed

[00:09:45] use building where you have a storefront where you house your business and you have maybe three or

[00:09:51] four rentals, maybe have some garages. That's a great way for over 20 years. My mother owned the

[00:09:59] restaurant building. She had the building downstairs. We were paying her five grand a month for rent every

[00:10:06] month, $5,000 for 20 years. She paid the mortgage. Whatever was left over went in her pocket. And on top of

[00:10:14] that, there were three rentals upstairs, three apartments. So she was generating almost 10 grand

[00:10:20] a month in rental income on top of the business itself. So it doesn't have to be an and, or it can be

[00:10:27] an and let me invest in my business and let me start in real estate. The only way to start though, is to

[00:10:33] truly understand what niche you want to start investing in. If you're a contractor and you're out

[00:10:38] there, you're building decks, you're flipping homes for other people. Why not do it for yourself? Why

[00:10:44] not find a distressed asset, fix it up? Don't sell it. Rent it out. And if you don't want to handle the

[00:10:52] management, find a third party property manager or find somebody who you can partner with, do what you

[00:10:58] love, do what's awesome on your plate, but find somebody to help you manage that asset. I'd rather,

[00:11:03] if you do, let's say you do three or four homes a year, you sell two of those homes. You need to pay

[00:11:09] yourself the bills. Remember transactions, pay the bills. Equity is what's going to make you rich.

[00:11:13] That third or if that fourth home, you hold onto it, you find somebody you can partner with to

[00:11:19] manage that property. Five years from now, you're going to be thanking me and saying, I'm so thankful

[00:11:24] that I didn't sell that home because now I've got a ton of equity in that home and that home is

[00:11:27] producing cashflow every single month. And that's what you want. You want to start generating

[00:11:33] passive income. I would ultimately say, find somebody to help you do this multifamily and

[00:11:42] real estate. If you're in the contracting business, you know, it's a team sport. You can't do everything.

[00:11:49] Don't think about just focusing on your business alone. That's what I did for so many years. It worked

[00:11:55] really well until it didn't. Now, if you've got this massive business, you're printing tons of money.

[00:12:00] You may say to yourself, I don't have time for real estate. I understand that as well,

[00:12:05] but there's still other avenues that you can invest in real estate, whether they're, you know,

[00:12:09] the REITs, real estate investment trusts, whether they're syndications, you can become a passive

[00:12:15] investor, or if you want to go and partner up with other groups that are raising money and going into

[00:12:23] deals and you still have some type of ownership and you still have some type of responsibilities.

[00:12:29] Man, if you are a contractor, I would love if I was starting out to have that person on my team

[00:12:35] to be able to go out, to be able to do due diligence, to be able to look at the property and say,

[00:12:39] Gino, this is what this is going to cost. You are an invaluable team member to anybody getting into

[00:12:44] real estate who is already in real estate. So I want to thank Samuel for the question.

[00:12:49] I hope I've answered the question. I hope you've seen how I became financially free

[00:12:54] through taking money from my business, investing in real estate. And within five years of starting

[00:13:01] with Jake, I generated enough cashflow and equity from my real estate deals to be able to leave the

[00:13:08] business and to be able to do something that in my opinion is one of the best generators of wealth

[00:13:14] in this country. Thanks again, Samuel. And I will see you all on next week's How To. Take care, everyone.