JF2240: Burning The Boat With Salvador Aldrett

Salvador Aldrett is a full-time chemical engineer at Shell and has 17 years of real estate investing experience. Salvador grew up in Mexico and had a dream to come to the states to get his graduate degree with the goal to go back home. However, through his journey, he discovered real estate, met his wife, and the rest is history.

Salvador Aldrett  Real Estate Background:

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“Jump off the cliff and grow your wings on the way down” – Salvador Aldrett

TRANSCRIPTION

Theo Hicks: Hello, best ever listeners and welcome to the Best Real Estate Investing Advice Ever show. I’m Theo Hicks and today, we’ll be speaking with Salvador Aldrett.

Salvador, how are you doing today?

Salvador Aldrett: I’m doing great, Theo. Thanks for asking.

Theo Hicks: Absolutely. Thanks for joining us. Looking forward to our conversation a little bit about Salvador. He’s a full time chemical engineer at Shell. He has 17 years of real estate investing experience and his portfolio consists of 17 units spread over two different markets in Texas. The portfolio consists of single families, duplexes, fourplexes and one townhome. He’s also invested in apartments syndications, over 2000 doors. He is based in Houston, Texas, and his website is https://saldrett.typepad.com/.

Salvador, can you tell us a little bit more about your background and what you’re focused on today?

Salvador Aldrett: Yes, thanks for asking, Theo. Let me tell you a little bit about where I come from and how I got where I am today, and we can start basing our conversation around that. I was born in Mexico and I lived in Mexico until ‘94. Then I came to the United States to get a graduate degree. I graduated with a Master’s of Science in Environmental Engineering and PhD in Chemical Engineering from Texas A&M University.

To be honest, I never thought that I was going to stay in the United States. My intent was originally to go back to Mexico. I met my wife who is a US citizen, and the rest is history. I have worked for different chemical companies. I have lived in the Netherlands for seven years, and that was a great experience. We will get to talk a little bit more about that. As I was preparing for our conversation, I drew lessons that I have learned in life, from real estate mentor and what they have taught me. And also give to your listeners a path that when one has dreams, when one has something that we really want, we can make it happen.

Theo Hicks: Perfect. Thanks for sharing that background. It sounds like you’re prepared. I’ll just let you take it away. You can go through your list and then I’ll ask some follow up questions once you’ve gone through all of those.

Salvador Aldrett: Absolutely. Let me start going through some of the lessons, and I numbered them. Real Estate has taught me a lot, and some of the experiences have been quite funny and I’m going to describe some of them. Some of them have been true learning lessons and I’m also going to talk about those, because I don’t want other people to make the same mistakes that I made. Hopefully, they will learn or they can learn from my experience.

The first one is having a dream. When you have a dream, when you set your mind on something, I think there’s two elements. There’s a why and then there’s the intensity on how bad you want it. For me, it started from just first wanting to come to the States to get a graduate degree, to get a graduate education, and I made that happen through loans. I came to the United States with very little money in my pockets. I can say that I’ve been very fortunate and blessed through my life. But that’s not to say that I came to the United States and I had hardships. I started at Texas A&M, I was admitted, but I came here with less than probably $1500, hoping that I would find a job here, hoping that somehow I would make it happen. I think that goes back to some stories that we have heard before that if you want to get somewhere and you want to get something accomplished, you get there and you burn the boat, and you are forced to move forward; you build your wings as you throw yourself off the cliff. That happened to me. That was the first one. I achieved that. I achieved coming to the US, getting admitted to a really good university, finishing my degree and then real estate.

So I started thinking about real estate. I didn’t know how to do it; it sounded just so overwhelming owning even one house as a rental unit. And keeping that dream, wanting that dream is really what keeps you motivated. I think success comes in the growth, in what you become in the process of achieving a goal. I don’t think that the success is really achieving that goal. And that has happened to me throughout my life. I have had dreams and I have kept working at it. Maybe I’ll stop and see if you have any questions. Otherwise, I can go to the next point.

Theo Hicks: I would just reiterate what you said about burning the boat and the wings. I know that’s something that comes from — I think it’s Napoleon Hill who talks about that, right?

Salvador Aldrett: Yes.

Theo Hicks: Yeah. I like that advice. I like your analogy of grow your wings once you jump off the cliff.

Salvador Aldrett: Yes, absolutely. If you want to do something, you’ve got to commit. There’s no turning back. The next one is finding mentors. I told you that when I started real estate, I got overwhelmed. I didn’t know where to start. I started reading many of the books that the listeners like me on your podcast have read, reached out for that; Think and Grow Rich,  The Millionaire Mindset, etc, etc. You can read as many books as you want. But at some point, it helps a lot if you find someone that has done that already, and you just talk to that person. You will at least be shown that path. But for me it happened to be a friend from work. I wanted to invest, but I didn’t even know where to start.

I was having lunch with my friend, and he told me, “Oh yeah, I own a fourplex.” To me that was overwhelming. Because one fourplex, at that point, I was like, “Wow, how did you do that?” He was kind enough to hook me up with his real estate agent, and from then I started talking to a real estate agent and he said, “Well, come over and I’ll start showing you properties.” From there, I bought one and then another one and then another one. But to me, breaking the stigma, breaking the paradigm that this is impossible comes when you see someone that you consider a peer or someone that is a friend already doing it. That, to me, was a major breakthrough.

And many times that person is closer than what you think it is. It’s also telling people what you want, right? If you want something, keep yelling it to the world. I don’t know if this is what the book The Secret, or the law of attraction or what, but if you keep telling people what you want, eventually it comes to you. Tell people that you’re looking for real estate and make it known.

In my case, maybe  another example is I wanted to live in Europe and I wanted to take my family and experience that there’s a world outside the US. I don’t know how that happened, but we lived there for seven years and it was just by making my intention known, and people will help you.

Theo Hicks:  For the mentor aspect, you’re not necessarily saying that I need to go out and find a $10,000 a month coach, I just need to find someone who is doing what I want to do. Just in a sense, just see them doing it and see that it’s possible. Someone that ideally you have some sort of relationship with, and that’s what helps you break through, right? Is that what you’re saying?

Salvador Aldrett: Absolutely. You can go either route; you can go and pay for a coach, pay for someone that is going to keep cheering you, that he’s going to keep calling some sense of accountability with you. But you don’t have to. I think just by getting to know your friends, by being curious when you have conversations with anyone that you meet at a social gathering, which I guess nowadays those are becoming fewer and fewer with social distancing. But nonetheless, when you have a zoom call, or a meeting, or something like that, just be curious about what does the other person do, what are his or her experiences, etc, etc. You’ll find that they have done something that you are interested in and they will not charge you and they will share a lot of information for free with you. So yes, Theo, it is basically that. You don’t have to pay for a mentor. You can but you don’t have to.

Theo Hicks: The third lesson you said was, if you want something, tell everyone, make your intentions known. What’s the next lesson?

Salvador Aldrett: Taking calculated risks and maybe even the beauty or the advantage of being naive. I started in real estate and I knew nothing. If you would have asked me when I started in real estate about the 1% rule, or discounted cash flow models to predict the return on my investment, etc. I knew very little. But I had a willingness to buy a house and to make it work. I could do the basic calculations; how much was I getting on rents, and how much was my mortgage going to be… I guesstimated, which meant underestimated many times, the expenses that I was going to have. Maybe being naive is also what helped me become a little bit bolder about acquiring unit after unit. Probably, if I would have known as much right now as back then, I probably would have done what they call analysis paralysis. I probably would have just come up with an excuse every time not to buy a unit. But it’s about taking calculated risks.

I was thinking about some of the rentals that I bought in the past, at least one of them I bought with the checks that I got back then from a credit card. I don’t recall, a Discover credit card, or something like that. My wife was terrified about even doing that. I said, “We can pay them back.” Today, would I do it? I don’t know. I don’t know if I would do that or not. But back then I had the will, I was naive and I did it, and everything turned out well. [unintelligible [00:12:52].17] You have to read about multiple topics.

One of my interest, in addition to real estate is financial planning. I’m in the process of becoming a certified financial planner. It’s about learning how to use the tax law, and how to use retirement accounts and estate planning and all that to your advantage. I have one or two units were I rolled over IRA, which is – if you have an IRA, you can withdraw money and you can put it back within a span of 60 days, and you don’t pay the penalties. I bought another unit with a rollover IRA.

Anytime that you do something, there’s going to be a risk. You just have to be aware of the risk and you have to be willing to take that risk. Anytime that you do something going out of the house, buying something, there’s gonna be a risk. I think when it comes to real estate, you just have to cover your bases, you have to know what you’re getting yourself into and you have to go for it.

Theo Hicks: I totally agree.

Salvador Aldrett: Let me talk about my next lesson. This one, I’m going to save a little bit because I know that there’s another question coming later, where I will get to talk more about that. But doing your homework before investing. I cannot stress how important this is. In real estate you will be put an offer to consider. You have to know what are the important things to ask, what are the things that can go wrong. You have to go by numbers. Real estate is a numbers game at the end of the day.

There are many units that I have bought and I never saw. I was living abroad. I was relying on video and advise that my real estate agent was giving me. I never fell in love per se with any single one of my units. I was looking at where the numbers were; is it going to make money? What is my risk? What if something goes wrong, and something will go wrong.

Well, let’s just rewind back to January. No one really knew the effect and the magnitude that COVID was gonna bring to the world—and forget the USA, the whole world. You always have to think about what are your risks, and is the risk something that you are willing to undertake? You’ve got to do your homework, and you’ve gotta also look at every detail, at hidden fees or things that are really not on the surface; sometimes is not to the best interest of the real estate agent to really show you completely and exhaustively all the expenses that you’re going to incur. They’re not going to show you maybe proformas… But you’ve got to do your due diligence. You cannot just rely blindly in what they’re telling you. You have to have a model, which as I said at the beginning, I started knowing very little, but there’s a number of books that I read; there was one on cash flow and financials of real estate, and I developed my own spreadsheets to start evaluating units.

Nowadays, you can find many, many already made the spreadsheets, and you can easily evaluate what is the risk and what are the things that you really need to know, and what are the things that move the needle, what are the value drivers in your opportunity. Is it occupancy? Is it taxes? Is it insurance? You’ve gotta see what are the major expenses,  the major items in your profit and loss statement that are going to be making a difference in your cash flow.

Theo Hicks: Do you think it’s better to buy a model and then keep using that model without changing it? Or do you think it is important that everyone has their own customized underwriting model?

Salvador Aldrett: Excellent question. You can buy a model. However, a model doesn’t make up for using your brain. I think what helps out building a model, even if it’s a very simple one, is that you go through the calculations and you see, for example, how taxes are affecting the cash flows. How many years does it take to depreciate a unit, which nowadays, depending where you invest in multifamily, where there’s an opportunity to depreciate everything in year one; or if you depreciate it just as a normal residential unit, to see where you’re on the 27, or 25, 35, etc, that range, how is that going to affect your before and after cash flows.

So it is good to learn for the first time, but for example, if you go to places like BiggerPockets, they let you use their calculator for free. That’s a very good one. You can put yours together and just calibrate against what they predict. It doesn’t require a lot of time and you should be able to get to the same place. But I think it’s important just from the learning perspective, just from seeing what the mechanics are, which is basically—

Another piece of advice that I have for people, for those that start investing in single family residences or duplexes or fourplexes, which is not massive properties… Even if you’re going to employ a property manager, I would recommend that at least for one or two years, do it yourself. It teaches you so much on what the expenses need to be, what they do, contractors, etc, etc.

Theo Hicks: Alright, Salvador, what is your best real estate investing advice ever?

Salvador Aldrett: I think if I were to choose the best investment advice, it’s just to always keep trying something new, to never stop learning, never stop growing and certainly never get overwhelmed by the size of a deal, for example. Don’t get put down by the fact that you haven’t bought a house or you haven’t bought a duplex or a fourplex. Take it one step at a time. I think the real estate business is quite simple. It requires work, but it’s quite simple. Going one step at a time is the way to go.

I would say take it one step at a time, never lose your will… And also, you have to be very intent and very intentional from the beginning. What is your ‘why’? Because if your ‘why’ is not there, anything is going to detract you from investing in real estate.

Theo Hicks: Alright, Salvador, are you ready for the best ever lightning round?

Salvador Aldrett:  Absolutely. I’m ready.

Theo Hicks: Perfect.

Break: [00:19:06] to [00:20:00]

Theo Hicks: Okay, Salvador, what is the best ever book you’ve recently read?

Salvador Aldrett: I just recently finished reading a book that is called Think for Yourself, and the subtitle is Restoring Common Sense in an Age of Experts in Artificial Intelligence. I think this is particularly relevant for real estate investors because you learn to think for yourself. You’re going to be thrown many assumptions and a lot of information. Many times we take that for face value. We really need to question, is that really the occupancy? How are they going to keep tenants coming in? How are they going to keep increasing rents, etc, etc? Excellent book.

Theo Hicks: If your business were to collapse today, what would you do next?

Salvador Aldrett: Very good question, too. Maybe back in March or April, given that I’m still under W-2 paycheck, it almost came down, you saw oil prices going negative, and maybe I started thinking that, too. I would say that it would be a combination of real estate – I would go full time real estate syndications, become an active syndicator, as opposed to being a passive as I am right now. Finishing my Certified Financial Planner program, and also go on a parallel path being a financial planner and a real estate syndicator.

Theo Hicks: Tell us about a deal that you’ve lost money on. How much did you lose? What lesson did you learn?

Salvador Aldrett: Thanks for asking. This goes back to, I believe the fourth point that I made. Years and years ago, I was invited to a syndication by a friend. You have heard that when you’re gonna invest with someone, there’s that know, like and trust element, right? You have to know the person, you have to like the person, and you have to trust the person. Maybe they like is not a must, but the know and the trust need to be there.

I thought I knew him, but I didn’t. I blindly handed over to him the amount of money for a syndication, which it was typical, again back then, as it is now, $50,000. I never saw a penny out of that. It was a development complex in Corpus Christi, Texas. I was taken for a fool. Some of the lessons actually that I have indicated, they have come from different sources, but this one certainly was a very expensive school of hard knocks.

Theo Hicks:  On the flip side, tell us about the best ever deal you’ve done.

Salvador Aldrett: Maybe I go back also to the advice that I gave at the beginning, which is you just need to get started. There’s never a good time or about time to invest in real estate. I started investing in real estate in the early 2000s. If I rewind myself to that time, there were people who would tell me, “Wait, because real estate is going to be cheaper in a year or in six months or in two years. You need to wait.” Or there were others that said, “Oh, no, just do it right now.”

The best deal that I’ve ever made is probably getting started in the first apartment. It was a duplex that is almost paid right now, just with the rents and equity. It probably has more than doubled in price.

Theo Hicks:  What is the best ever way like to give back?

Salvador Aldrett: Good question. Right now, different ways, right? But I like paying back or paying forward what I have been given. I like mentoring people. I like sharing my knowledge. My philosophy is that I like making people smarter than I am. When I’m approached by someone that wants to learn from me, that want help, I always want to improve them. I want to make them smarter than I am, and more successful than I am.

The other one is recently now through a pandemic with my daughters and my wife, we have been going out to our neighborhood around the house, and we have been putting flyers for a food bank. So we have been collecting food and just donating it to a local food bank. That actually takes your mind away from all the media bombarding of news and also everything that you see going around, to just giving, to focusing on others rather than yourself.

Theo Hicks: Lastly, what is the best ever place to reach you?

Salvador Aldrett: You can reach me through email, s.aldrett@gmail.com, and through type path. I have a blog [unintelligible [00:24:09].26] address which will be included in the episode’s notes.

Theo Hicks: Perfect, Salvador. I really appreciate you coming on the show and being really prepared to share with us your list of lessons that you learned, and giving us examples for each of those lessons.

Your first one was having a dream. It has two components, which is the ‘why’, and then having a very strong intensity for how badly you want it. You gave us the example of you coming to the US with really no money. And you gave us the Napoleon Hill anecdote of arriving and then burning your boat, so you either survive or die. And then you have your own analogy of jumping off the cliff. Once you jump, again, you grow wings or you die. And then you mentioned essentially you need to commit to your why and that will give you that intensity.

The second lesson was finding mentors. But you mentioned that it can be the traditional paid mentorship route, but you can also do a free route, which is to find someone that you know – your example was your friend who did a fourplex. And they’re doing something that you want to do, maybe that next step, that you are having some sort of obstacle or mental block, and then by seeing them do it, it gives you that confidence to kind of break through to take the next step towards accomplishing that next goal.

The third lesson was that if you want something, make sure you tell everyone about it, make your intentions known, and your example was you and your family living overseas. Lesson number four was taking calculated risks. You talked about in the beginning of real estate — this is actually helpful, and I could totally relate with this… Being naive helped you overcome the analysis by paralysis. You’re getting started in real estate, you don’t know anything, you’re super jacked up, you do some deals, and then once you learn more, you realize the risks and then maybe don’t take as much action you should be like. That’s essentially what analysis by paralysis is.

You mentioned that you want to take risks, but they need to be calculated. So you need to be aware that there is a risk, but you need to be willing to actually take that risk. In order to mitigate the negative outcomes, you have lesson five, which is doing your homework before investing. So knowing what questions to ask, analyzing what can go wrong, realizing that real estate is a numbers game and making sure you know how the cash flow calculator works that you’re using, make sure you keep looking out for the hidden fees and the details, and making sure you know what the value drivers are when you’re analyzing a deal, looking at profit and loss statements.

Your sixth piece of advice was self manage for a few years. Rather than going straight into getting a third party management company, manage the properties yourself so you understand what it takes to successfully manage properties, but also you know what actually results in your property not doing so well. When you eventually do get third party, you know what works and what doesn’t work.

Your best ever advice was to always keep trying something new, to never stop learning and never stop growing. You also said, don’t get overwhelmed by the process. And then again, you mentioned in the first lesson, which is to be very intentional with your ‘why’ from the very beginning.

I really appreciate you coming on the show, Salvador, and sharing with us your distilled advice. Best ever listeners, as always, thank you for listening. Have a best ever day and we’ll talk to you tomorrow.

Salvador Aldrett: Thank you, Theo, and thanks to everybody that listened to the podcast.

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