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Today’s guest is the incredible Travis Watts, a true luminary in the realm of passive income and real estate investing. Travis is not just an investor, he’s a full-time advocate for those who are looking to adopt a more hands-off approach when it comes to real estate ventures.
As the Director of Investor Education at Ashcroft Capital, Travis spearheads the mission to educate investors about the remarkable potential of hands-off investing in the multifamily real estate space. And what’s truly remarkable is that they handle the day-to-day intricacies, even managing residents through their in-house property management company.
In this captivating episode, Travis delves into his personal journey, shedding light on his transition from an active real estate investor, juggling single-family homes and various property types, to a burnout in 2015 that led him to seek a more sustainable path. Travis then emerged as a fervent advocate for passive real estate investing, specializing in multi-family apartment complexes.
Why multi-family properties, you ask? Travis enlightens us with compelling reasons: a soaring demand for apartments, risk-adjusted returns, tantalizing tax advantages, the prospect of appreciation, monthly dividends from rental income, and the inherent potential to cultivate lasting wealth.
So, whether you’re an experienced investor or just starting on your wealth-building journey, this episode with Travis Watts is an absolute must-listen.
In This Episode
- Travis’s background and transition
- Benefits of passive multi-family investing
- Active investing vs passive investing
- The vision of long-term wealth for financial freedom
Welcome to another episode of Wealth Strategy Secrets. Today, we are joined by Travis Watts. Travis is a full-time investor, a passive income advocate, and a public speaker. As the Director of Investor Education at Ashcroft Capital, he’s on a mission to empower investors who prefer a hands-off approach to real estate investing. Recognized for his outstanding contributions, Travis received the prestigious Linda’s Industry Impact Award in 2022.
Travis, welcome to the show.
Thanks so much for having me. I’m thrilled to be here.
It’s great to connect, Travis. We had such an engaging conversation at Charlotte’s multifamily conference with you, and Jeremy Roll and I thought we needed to bottle that up and share it with the community. There were so many pearls of wisdom to unpack. For those who don’t know you, let’s start the discussion with a bit about your background and your journey, and then we can go from there.
Sure. I’d be happy to share. First, I’d like to say that I didn’t come from a family of wealth, real estate, or investing. My parents divorced when I was five years old, and I was raised by each of them independently. I learned a lot about frugality during that time. Whenever we talked about finances, it was mostly about saving money, so I’m grateful for that humble upbringing. However, at a certain point, through my self-education, I realized that your potential is limited if you’re just going to pinch pennies your whole life. The real reward comes from learning how to multiply your money and invest wisely.
Your potential only goes so far if you’re just pinching pennies your whole life, the real reward comes in learning how to multiply your money and learning how to invest.
I tried a multitude of small business ideas early on that didn’t work out for various reasons. Eventually, I landed on real estate when I was 20 years old. I bought a single-family home in 2009 at about a 40% discount compared to previous pricing. I rented it out after living in it for a bit, furnishing and updating it before making it my very first rental. That experience got the wheels turning for me. I thought, “Okay, I’m making around $600 a month in cash flow. How do I amplify this?”
I believed I needed to earn more money to become a serious investor, so I started seeking jobs that paid well without requiring extensive background experience or a specific college degree. I ended up in the oil and gas industry, working 14-hour days and 98-hour work weeks, sometimes spending months at a time overseas in the Middle East. It was a crazy period in my life, but that frugality paid off. I was saving a significant amount of money while keeping my lifestyle expenses low, and I poured all of that into real estate, specifically single-family homes, for about six and a half years.
I did flips, vacation rentals, and buy-and-hold rentals. I had roommates back home who effectively paid my mortgage when I wasn’t there. It was an interesting time. I don’t necessarily recommend that specific approach, but that was my ten years of grinding it out, trying to get ahead. In 2015, I started transitioning my portfolio into multifamily private placements—what we often call syndications in layman’s terms—and other passive income-generating assets as well.
This transition allowed me to reclaim my time, something I refer to as time freedom. It enabled me to pursue active work that I truly enjoy and that benefits others. Helping people has always been my goal, but I had to put in those dark years first.
Did you have any pivotal moments during that time, where you learned something significant or had a conversation or read a book that made you realize, “Okay, now I need to take action on this?”
Absolutely. I would say my biggest personal regret in my investing journey was starting out with the mindset of being a do-it-yourselfer like my parents were. I thought, “Why would I pay someone $30 to mow my lawn when I can do it myself? Why pay a painter when I can paint?” I entered real estate with that naive perspective, thinking I didn’t need a team or expertise and that I could figure everything out on my own.
After six and a half years, I realized that real estate is truly a team sport, and it’s incredibly beneficial to partner with people who are experts in areas where you may not be. What changed for me was that I began reading more books, listening to more podcasts, and joining real estate meetup groups in person. This was while I was in Colorado, where I met a couple of gentlemen who ran a large investment club. They had become financially independent over 30 years before our meeting. I started picking their brains about investments and asked them what they primarily focused on. They told me, “Well, in general, it’s private equity, and more specifically, it’s multifamily apartment communities. We invest as limited partners in other people’s deals.” I had never heard of that concept before in my life. That was a huge pivotal moment for me.
I began to consider that if I sold all the properties I was currently operating, paid the taxes and broker commissions, and then looked at what I might have in cash, I could invest that passively and generate meaningful income. For someone just getting started, let’s say they have $10,000 to invest in a passive income deal that yields 8% a year—that’s about $66 a month. It’s not a very meaningful income; what can you do with $66 a month? Maybe fill up your gas tank once. It’s not very motivating to be in that position. But if we take the same example for someone with $1,000,000 to invest at 8%, now we’re talking about $80,000 a year in supplemental income.
That starts to be a game changer for a lot of people. I was approaching that level in my journey, and surprisingly, I ended up making more as a passive investor than I did as an active investor. That realization was a huge pivotal moment for me, highlighting the power of passive income and what it can do for your life.
Those are great points. Many people struggle with taking action. You might listen to a good podcast or read an inspiring book, and then try to apply that to your situation. But if you’re in a W-2 job, balancing a career and family, there are many intricacies involved. It often comes down to having that moment of epiphany where you can take action. Once you start taking action, you begin to reap the fruits of your success, which opens new doors you never thought possible.
Exactly!
So, Travis, I love hearing about your journey as a passive investor. There are so many different elements to unpack. Let’s dive into the psychology of passive income first. It’s a term similar to financial independence, right? What does being financially free mean to you? What does it mean for your income to exceed your expenses? For example, if your expenses are only $4,000 a month, you might technically have achieved financial freedom, but you could still be living in a frugal mindset. What does financial freedom mean to you, and how has that understanding evolved?
For me, I was in an oil and gas job that I really didn’t enjoy. I knew it wasn’t going to be long-term; I couldn’t physically withstand that type of work for 30 or 40 years as a career. My goal was to get out of that job. The great thing about passive income is that you can start immediately, even with low dollar amounts. Take that earlier example of investing $10,000 at 8% a year—that’s $66 a month. That’s just step one, and you can build upon it from there.
Passive income creates a financial backstop for you. As you climb the wealth ladder, let me explain what I mean by that for your listeners. I think of the wealth pyramid as an upside-down triangle. At the bottom is self-sufficiency, where you’re living paycheck to paycheck. You have an active source of income, but at least you can pay your bills without needing support from another source.
Next, you move up to stability. This is what many financial gurus preach—people like Suze Orman and Dave Ramsey. Stability involves paying off debt, cutting up credit cards, and building an emergency fund. Only after reaching this stage can you start thinking about investing. Above that is flexibility. Here, you have some investments and a bit of passive income coming in—perhaps not enough to live on, but maybe a few thousand dollars per month.
Flexibility means that if you get fired or lose your job, you have an alternative source of income. It also allows you to make career pivots without as much fear, knowing you have that financial backstop. Plus, it gives you the freedom to take time off to travel—like that trip to Italy we both value.
Financial independence is right above flexibility, and that’s what I teach people how to create. To me, financial independence means the ability to live solely off your investments—whether that’s cash flow from passive income investments or owning stocks and making sales to live on. The key is that you no longer need active income.
The highest tier is financial abundance. This includes individuals like Mark Zuckerberg, Jeff Bezos, and Bill Gates, who have so much wealth that they couldn’t even spend it all if they tried. They often end up donating the majority of their wealth back to society. This concept represents the journey of climbing up the wealth ladder.
I believe that most people can achieve flexibility and financial independence; it’s just a matter of how long it will take. So, in response to your question about mindset, I encourage your listeners to consider this: How many of you were taught about passive income investing by your parents? Did the school system educate you about it? Did Wall Street offer any guidance on passive income? Usually, the answer is no to all of these. It’s a journey of self-education that requires willpower, drive, motivation, repetition, and consistency. Unfortunately, many don’t discuss these crucial factors, but they are extremely important.
I’ve witnessed this over the years. You go to a conference where there’s a hard sales pitch on stage, and people end up buying these $10,000 programs. Statistically, the majority never even use the program. They might attempt it and then change direction.
You need to get clear on your “why.” While it may sound cliché, it’s essential. What are you trying to achieve? Is it merely about the money? I often hear people discussing their financial goals, like wanting $10,000 a month in passive income or to become a millionaire. But what do you truly desire?
Consider this: If you had $1,000,000 in cash in your bank account or $10,000 a month in passive income starting right now, what would you do? Why do you need $10,000? Maybe you only need $5,000 or $20,000. Is $1,000,000 the goal, or are you looking to create generational wealth to pass down?
Start by identifying your goals and objectives, then reverse-engineer how to achieve them. What types of investments will help you reach those goals? What companies or individuals offer those opportunities? That’s how you begin to learn the game backward; at least, that’s what I did.
Now, why do you think there’s such a challenge in this country regarding financial education, understanding passive income, and exploring alternative investments like real estate? I believe it all goes back to the original purpose of the education system: to create a formalized way to train people to become employees for companies.
It’s not in the best interest of company owners to empower individuals with that kind of knowledge if it could create competition or lead employees to quit their jobs because they become financially free through their investments. This issue is deeply rooted. As we moved into a more modern era, marketing has also influenced people, especially in America, pushing the idea that you need certain things—like a Gucci bag, a BMW, or a McMansion. But do you need them?
Are you trying to impress others or achieve some elevated level of status? It requires some soul-searching to determine what truly brings you satisfaction and happiness. My wife and I have practiced this many times over the years. We sit down separately and write down the ten things that bring us the most happiness and fulfillment. Interestingly, I find that about 60% of my list requires almost no money—things like walking in the park with our son, going for a bike ride at sunset, or visiting the beach, which is only 45 minutes from our house. These are simple pleasures.
When you start identifying these sources of joy, you can begin to lessen the consumerism that drives many people to live paycheck to paycheck. It’s fascinating to examine the excess cash Americans had leading up to the pandemic. Most people were living paycheck to paycheck, but then stimulus checks arrived and spending shot up. Suddenly, everyone had all this money—$1,400 or whatever the amount was. Yet two years later, many are back to living paycheck to paycheck again because we tend to spend money in our capitalist, consumer-driven society. I encourage individuals to reflect on this: Do I need these things, or are they just want that aren’t truly necessary?
This kind of internal dialogue is worth having. I find it fascinating, too. I grew up in a middle-class family, and I remember hearing about starving children in Africa, which often puts you into a scarcity mindset. It can make you feel like you must do everything yourself, especially if you have the energy and will to succeed.
However, as you begin to adopt an abundance mindset, as you mentioned, you realize the value of working with a professional team. With this leverage, you can focus your time on what you’re truly good at—your unique abilities—rather than getting bogged down in the active management of assets or side hustles. This shift can lead to exponential growth and a more fulfilling life.
Most people seek not just financial freedom but also freedom of time and purpose—the ability to wake up every day fascinated and motivated by their work. Relationships matter too: who do you want to spend your time with? You become a product of the five people you surround yourself with, so consider whether those individuals inspire you or hold you back.
This deep thinking about your “why,” as you pointed out, is crucial. It’s a great exercise to do with your partner. Instead of creating a bucket list, consider making a top 100 list of things you want to be, do, or have. This approach can reduce consumerism and provide the drive to move forward.
I love that. That’s a great point. To expand on that, I often use the wealth pyramid as an example, similar to Maslow’s hierarchy of needs. At the very bottom, we have our necessities: food and shelter. From there, we seek safety, then relationships, and at the very top is self-actualization. This is where we explore who we want to be, what we want to do with our lives, our “why,” and our mission. It’s also about the relationships we choose to cultivate.
That’s why this deserves some thought. Let’s say you reach your passive income goal; it can be a trap—a double-edged sword. For example, if I only had $5,000 or $10,000 a month in passive income, what would that enable me to do? We need to be cautious of becoming complacent. Many people in the FIRE (Financial Independence, Retire Early) community reach their passive income targets and think, “I’ll just sit on a beach and relax; I don’t need to work anymore.” But that can lack fulfillment; it’s important to rewire our thinking around what we truly want to do.
Travis, let’s bridge this into the dichotomy of active versus passive investing, as this is something people often contemplate. When I first got into real estate, I thought, “I’m going to pursue active investing.” I didn’t even know what passive investing was back then; this was around the time “Rich Dad Poor Dad” came out. I remember driving around with my kids at night, looking at properties and wondering how this would scale over time.
Time is a critical factor—how do you want to spend your time? How do you view this, and how do you discuss it with others? You’ve experienced both sides of the coin.
There are pros and cons to both. I’m not here to bash active investing; it was successful for me. I did it for six and a half years and tried various strategies. If active investing is something you want to explore, I suggest starting small—maybe try getting one rental property or doing one flip to see how it goes. For me, it involved a lot of self-reflection. I began to realize that I wasn’t finding the best deals or the best off-market opportunities. I lacked strong connections with contractors and wasn’t getting the best pricing.
As more institutional investors entered the market and it began to heat up again, I felt squeezed out. This was my moment of self-realization: maybe this wasn’t the right path for me. Another naive belief I had was thinking I could scale that business effectively. For example, if I bought one property a year for the next 30 years and then retired, I would have 30 single-family homes to manage. But let me tell you, managing that many properties is more than a full-time job—even with a property management company, it still demands significant time and effort.
You still have to find deals, underwrite them, show up to closings, understand the markets, and maintain good relationships with lenders. Good credit and solid down payments are also crucial. Managing tenants is just 10% of the equation; there’s so much more involved.
That said, there are two significant advantages to active investing. First, you have complete control. You get to decide what color to paint the house, how to furnish it, what your business plan is, and what to do with the rent—whether to refinance or sell. You have the freedom to call the shots.
That’s awesome! If you’re someone who needs or wants that, then consider it. In general, I experienced pretty high returns when I was active in investing. Some of that was due to where we were in the market cycle, particularly between 2010 and 2014, when the market was starting to recover. I got lucky with many of my properties, making significant profits simply because the market increased in my area.
However, passive investing is far more scalable. Whether I have one limited partnership investment or 300, the process isn’t overly complicated. I typically receive a monthly email updating me on my property’s performance, and I don’t have to make any decisions until it’s time to sell. This makes it much easier to scale and diversify. I can invest in markets that are too far from where I live but that I still want to invest in.
Additionally, I can leverage true industry experts who are dedicated to building their brands and legacies. I’ve never reached that level of expertise. Many of our investors are hybrids, too. I talk to investors all week long who have a couple of rental properties or short-term rentals and are looking to diversify by exploring passive income options.
You can be a hybrid investor. For example, Joe Fairless at Ashcroft, where I work, is both a general partner (GP) and a limited partner (LP) in various deals. This hybrid approach maximizes your time. We all have limited time, resources, and energy on any given day, week, month, or year. This strategy allows you to amplify your income without needing to invest extra time and effort.
Agree! Do you have a particular investment thesis or wealth strategy that you follow? For me, the simple thesis is to invest for passive income. It may sound straightforward, but consider how many people taught you about that. How many are preaching it? How many ads, commercials, or billboards do you see promoting passive income? Not many.
Most people invest with the mindset of “buy low, sell high.” They might think, “I’ll put $1,000 in my IRA, and when I’m 65, I’ll check on it and hope it has grown.” Or they plan to buy a house for $200,000 and flip it for $300,000. That’s the “buy low, sell high” mentality, which comes with more risk and unpredictability. There’s nothing wrong with that approach; many people do it, including those in the FIRE community who invest in index funds and sell off shares.
However, I prefer to live off passive income while preserving my initial investment in the deal. That’s how I’ve always approached investing. Over time, I’ve averaged about an 8% cash flow yield. Some deals I enter now might have slightly lower yields, while others I’ve held for five years may yield significantly higher returns. My goal is to maintain an average of 8%.
When I sell or refinance and suddenly have extra liquidity, that’s just the icing on the cake. I can use that money to pay taxes, cover other expenses in my life, or choose to reinvest it into more deals, compounding my passive income. My main focus is on monthly cash flow. If people could truly see investing through that lens and experience it themselves—starting with $66 a month and growing it to $666 a month and then $6,006 a month—they would begin to grasp the big picture. This is what the ultra-wealthy do, and it’s a proven, long-standing strategy that people have used for decades.
Yeah, I think the problem stems from Wall Street and the investment thesis that has been shared with all of us—our parents, employers, and peers—regarding the 60/40 portfolio of stocks, bonds, and mutual funds. They focus on this accumulation theory, which is all about reaching that nest egg number by retirement. But in reality, what does that ultimately convert to? It converts into income, right?
But you have to wait 35 years to access that income. I think that’s where a lot of misunderstanding originates, and people aren’t fully aware of passive income strategies. Now, let’s discuss how to create this strategy because it’s a process of investing; it’s not just about investing in one deal or another. We want to be doing multiple deals each year, and it starts to snowball, as you mentioned.
Happy to highlight a couple of points on that. For instance, let’s say you start with $50,000, investing in something that gives you a 10% return annually in passive income. In year two, if you continue this investment journey, you would only need to put in $45,000 the next year because you received $5,000 in distributions from the previous year.
Every year becomes a bit easier. So, you’ll need to put in $40,000 next, then $35,000, then $30,000. As you look ahead a decade, your investments are funding themselves, in theory. Now, you could be making $50,000 a year in passive income, allowing you to make entirely new investments without having to inject any new capital into the deal. This is a simplified example of compound interest, but it illustrates one approach.
If you’re truly looking to build significant net worth over time while maintaining a fulfilling active career, this is one way to engage in the passive income game. I often refer to the rule of 72. If you take the yield you’re receiving and divide it by 72, you’ll find out how long it takes to double your money. For example, a 10% return means it takes about seven years to double your investment.
I consider it like this: every few years, I’m adding new investments without needing to put in new capital, although I do still contribute new capital.
The rule of 72 also applies to the S&P 500 average, which suggests it takes about seven years to double your money. However, in multifamily investing over the past decade, many deals have been able to achieve that in as little as five years.
The reason I’ve concentrated the bulk of my portfolio on value-added multifamily private placements is that it offers one of the best combinations of benefits for investors. You can enjoy monthly cash flow, equity upside participation, and tax benefits all at once. You’re utilizing both the “buy low, sell high” philosophy, but even if things don’t pan out on that front, you still have the cash flow aspect to rely on. Additionally, you receive tax benefits to offset that income, or you can take advantage of long-term capital gains upon sale if you hold for over a year.
To me, this is a fantastic strategy. If you compare it to other options, like buying bonds for passive income, there’s no equity upside. Or consider buying into the S&P and hoping it appreciates—again, there’s very little cash flow, often around 1% a year.
This hybrid approach to real estate investing is beneficial. If treated properly, real estate is an intermediate to long-term play with a lot of packed benefits.
Do you think it’s still the right time for this asset class? There seems to be a lot of distress building in the marketplace right now, particularly for those who took out poor loans a couple of years ago, like floating-rate debt, especially with interest rates where they are and the market changes. Do you still feel the fundamentals are strong? What are your thoughts on the current outlook for multifamily?
I’m happy to share a few insights. The first thing to realize, whether we’re discussing a real estate cycle or a stock market cycle, is that the saying goes: “The bull takes the stairs, and the bear jumps out the window.” It may take over ten years for a bull market to fully develop, but when a recession hits, it can collapse in just 12 to 24 months, followed by a recovery phase.
I believe we are currently witnessing the final developments of this real estate cycle reset. The Fed has taken the most aggressive stance in U.S. history by raising rates, which directly impacts property purchase prices. We’ve seen cap rates reverse and pricing drop significantly. For instance, we’re about to close on two deals where we’re receiving about a $50 million discount compared to pricing 18 months ago.
If you can still find a cash-flowing asset and secure it with fixed-rate debt, you could be cash-flowing from day one. That presents a great opportunity this year. If the Fed maintains its current rates at the top, you can execute a business plan similar to what was done in previous years when interest rates were around 3-4%. If they eventually lower rates due to a recession or if inflation goals are met, you might be able to refinance early or sell a property for more than initially projected. So, I think 2023 is shaping up to be a much healthier market than 2022 or 2021.
I was quite skeptical in 2021. The stock market was up 30%, real estate was reaching all-time highs, and stimulus money was flooding the market. It felt like people were gambling, and crypto was skyrocketing. I thought, “This isn’t sustainable,” and I was concerned about what lay ahead because markets don’t just rise 30% a year, and double-digit rent growth isn’t the norm.
Now we’re witnessing a flattening or reset—whatever you want to call it. I’m still investing this year, just as I did in previous years, and I might even be a bit more aggressive this year. I’m very bullish about the future. The Fed can’t double rates again—if the Fed funds rate hits 10%, it would implode the economy and the world for that matter. We’re nearing the peak.
As I see it, we have three scenarios: two of which are very bullish for real estate, and the only scenario that isn’t is if rates keep rising indefinitely. However, the Fed must support the economy in the event of a recession. If they raise rates too high, they will force a recession and then have to cut rates to bail us out. So, we might circle back to that third scenario of rate cuts anyway. That’s just my personal opinion on the matter. Who knows? I don’t have a crystal ball, but that’s how I view it.
Exactly. I think one of the key lessons I’ve learned as an investor over the years is that so much of investing revolves around expectation management. If you’re forecasting a certain pro forma return and then it misses, what’s your attitude toward that? Do you believe the operator didn’t execute according to plan, or are there market dynamics beyond your control, such as the Fed implementing unprecedented interest rates that you didn’t underwrite?
I believe expectation management is crucial to investing. It’s important to recognize that there are risks involved in any type of investment.
Look at bonds and banks, for example. Take SVB, which just failed. Investing in bonds was supposed to be one of the safest options out there, yet we’ve seen two significant occasions where that’s not the case. My wife and I even wrote about this in my book.
My wife was generously gifted a portion of Kodak stock by her dad, which is a blue-chip company recommended by financial advisors across the country. Then, it went bankrupt, and there was no recourse—nothing we could do.
Warren Buffett’s number one rule is to not lose money. But you have to understand that in the investing game, not everything will be a home run. Managing your expectations is crucial because sometimes factors are outside your control. Recognizing this can make you a better investor as you allocate capital and build your portfolio. Diversification is a great strategy; to your point, it’s the only approach I believe in.
There could be bad actors out there, fraud cases, economic downturns, natural disasters in specific markets, or even a general partner who fails to do their job. These are all risk factors.
That’s why I recommend that people invest in what they know and understand best. The more you know, the less risk you take with a particular asset type, but it’s also important to branch out a bit. Over the years, for no other reason than to learn about other asset classes and have options to pivot to if needed, I’ve gotten into car washes, ATMs, self-storage, mobile home parks, covered calls with my brokerage account, and ETFs that do the work for me.
If my primary asset class stops making sense—let’s say a multifamily deal in ten years offers only 1% cash flow and 2% upside—I won’t go for it. I need to know what else I can do to achieve a healthier yield and not be a one-trick pony.
Those are all great points. I agree. What do you think is the biggest risk in investing in multifamily right now?
It comes down to debt structure and the operator. The operator’s ability to execute the proposed business plan is critical. When I look at multifamily syndication, I focus on three macro-level factors: the operator, the market, and the deal. All are important, but I place about 50% emphasis on the operator. This is based on my own experiences with newer operators who couldn’t execute and the impact that had on our overall returns. I’ve seen how a so-so deal can still perform well if the market is strong, which has affected my perspective from my single-family investing days.
The common sense of doing a good deal is crucial—one that makes logical sense and cash flows from day one. Many people are now shifting to fixed-rate debt with longer terms instead of the typical one- to two-year floating-rate deals.
What’s interesting about 2020 and 2021 is that if you looked closely at the projected curve for interest rates and listened to what some of the so-called smartest people were saying, none of them predicted what would happen. When I say “none,” I’m sure there were a few who might claim they did, but the majority suggested that while rates might ease a little, it wouldn’t be drastic. Then all of a sudden, we saw the Fed funds rate rise to around 5% to 5.25%. Many people were caught off guard by that.
Adjustable-rate debt had made logical sense for many years and had been performing well—just like with the SVB bond example. But suddenly, everything changed, and those strategies stopped working because we hit a cycle reset. This serves as a reminder to diversify if you can.
I agree. If you could design the perfect investment, what do you think it would look like?
It would be a real estate deal. I like to consider whether what I’m investing in is truly needed or necessary. This is the issue I have with many stocks on the market. Do we need Coca-Cola? Not really. Do we need McDonald’s? Maybe not. But do we need affordable housing? Yes, absolutely. That need has been around for a long time and has a proven track record of success.
Let me share a quick story. Two weeks ago, I was in Colorado visiting family. I grew up in Fort Collins and hadn’t been there in years. While walking downtown, I noticed that at least 50% of the retail shops I remembered had changed hands or gone under for one reason or another. We passed a flower shop with a sign in the window stating they had been in that location for 90 years.
This raises an important question: will people always want flowers for occasions like weddings, funerals, or Valentine’s Day? The answer is yes; it’s a consistent need. The same goes for liquor stores, generally speaking, if we exclude the Prohibition era. These types of businesses tend to do well in up markets, down markets, and sideways markets.
So, investing in something trendy, like a hipster bar with sparklers in martinis and neon lights, doesn’t appeal to me because that’s a fad without a proven track record. To answer your question, the perfect investment for me would be a real estate deal with solid cash flow, relatively low leverage—maybe around 60%—fixed-rate debt, great equity upside, and purchased off-market at a discount. It would also have lucrative tax advantages currently available in the tax code. I believe that’s the ideal scenario for what I’m trying to accomplish.
Well said, Travis. I think it’s essential to understand the macroeconomics and fundamentals of an asset class before investing. We’ve had countless discussions about what someone’s worst investment was and why it went wrong. Often, people point out that they invested in something they didn’t understand well enough.
You’ve got to be smart about this. Starting from a macro view is crucial, especially when you realize we have a housing shortage in the country of around six million units—something like that, right?
You’ve got some supply-demand imbalances, and as we discussed earlier, markets like Florida, Texas, and Arizona are hot right now. People are leaving the northern tier-one cities because they want to pay lower taxes and enjoy a better lifestyle. So there are a lot of factors driving that trend.
I appreciate that point, Travis. If you could give just one piece of advice or your biggest insight for the audience on how they could accelerate their wealth journey, what would it be?
Oh boy, that’s a tough one. A mentor of mine said years ago to double down on what’s working. At that time in my life, nothing was working except real estate. So I shut down all my small businesses and went full force into it. But I had to reflect on what we just discussed: Is it necessary? Does it have a track record of success? You want to put the odds in your favor—pretend like you’re the casino in Vegas, not the consumer.
I like to analyze any investment with three potential outcomes: two in my favor and one not. When people start experimental businesses, the majority of those fail, which means they are beginning from a disadvantageous position. I would ask that person, “Why?”
Absolutely. That’s sage advice. There are a lot of misconceptions, and people just need to be smarter out there. Wall Street is a big part of this problem, and that’s why I am passionate about the topic. They promote accumulation theory, which advises people to save and defer taxes along the way.
However, the only thing I’m certain of is that taxes are likely to increase in the future. So wouldn’t you rather pay taxes now instead of at harvest time? Take, for example, traditional IRAs or 401(k)s. You’re investing in assets that would otherwise benefit from favorable tax treatment, like long-term capital gains in real estate, but you’re putting that money into an account that gets taxed at ordinary income levels.
So again, why? If you invested in cash, you might pay 15% in taxes, but if it’s in an IRA, you could end up paying 30% or 40%. The game is about assets under management, and here’s the business model: “Give me your money, and I’ll take a 2% fee regardless of your investment’s performance. Just give it all to me for the rest of your life.”
And don’t forget the government’s role in this. They encourage you to put your money into 401(k)s, IRAs, and other vehicles, and they know exactly how much tax revenue they will collect from you when you turn 65. If they’re short on revenue, they can demand that you pay more. Plus, you have required minimum distributions (RMDs) every year, which ensures they get paid. Talk about the ultimate passive income scheme.
It’s a well-designed business plan, both for the government and for Wall Street.
Of course, it’s important to acknowledge that there are reasons you might still use these accounts. For instance, if your employer offers a dollar-for-dollar match on your 401(k), that’s a good reason to participate. You put in $1,000, and your employer matches it. But when it comes to maxing out those accounts and putting all your eggs in one basket, I recommend reading 401 Chaos by Andy Tanner to gain a new perspective.
Awesome, Travis! This has been a great conversation, and I know the audience will enjoy it. If people would like to connect with you and learn more about what you’re up to, where’s the best place for them to do that?
You can find me on Instagram and Facebook at Passive Investor Tips, and I’m also on BiggerPockets and LinkedIn as Travis Watts. I have a landing page at ashcroftcapital.com/travis, where you can find my calendar. We can talk about whatever you’d like—there’s no need to be an accredited investor or to discuss Ashcroft Capital specifically. I encourage you to reach out if you have any questions or want to learn more.
Thanks so much, Travis. I appreciate the discussion, and we’ll see you next time.
Thanks, Dave. Thanks, everybody.