From Praying for Rain to Making it Rain with Brad Smotherman

Episode 92: From Praying for Rain to Making it Rain with Brad Smotherman

The Profit First REI Podcast

Jun 20, 2022

David Richter

 

Summary:

Brad Smotherman is a seasoned real estate investor. He’s the nation’s ultimate house flipper and he’s always one step ahead in helping new investors build a lasting real estate company. Currently, he has invested in over 14 states and owns a top-notch REI business. His wits and knowledge in selling and marketing is unparalleled. Listen to this episode to find out how this genius has been doing it for years.

Key Takeaways:

[1:38] What got him started in real estate?

[5:23] Early lessons that he thought about money

[6:58] We have to create long-term cash flow assets or we’re never going to get ahead.

[10:38] Does he want to pass on lessons about money to his children?

[15:47] How does he go about analyzing deals from his perspective?

[18:46] Does he think that most entrepreneurs should have a basic understanding of the business world in order to be a savvy business owner?

Quotes:

[3:05] “Most of the time, your biggest wins come after the point that you want to quit, but you don’t.”

[13:24] “Come up with a plan that you’re comfortable with.”

[23:31] “If you can market the right way and negotiate the right deal structure, then it’s really tough to mess up this business.”

Links:

Profit First for Real Estate Investing FB Group – https://m.facebook.com/groups/ProfitFirstREI/about/ 

Brad Smietherman’s Website – https://www.bradsmotherman.com/ 

Investor Creator Podcast – https://www.bradsmotherman.com/blog/podcasts

Tired of living deal to deal? 

If you are a real estate investor or business owner who is tired of living deal to deal, and want to double your profits, head over here to book your no-obligation discovery call with me. Either myself or someone from my team will hop on a short call with you to get clear on your business goals, remove any obstacles holding you back, and map out a game plan to help you finally start keeping more of the money you work so hard to make. – David

Transcript:

Brad Smotherman:

Know who you are, you know, in terms of risk that, and, and what you’re trying to accomplish, come up with a plan grind to get there, but also understand that, like money’s not everything stuff, isn’t everything like relationships and, and impact is so much more important.

Intro:

Welcome to the Profit First REI podcast, where real estate investors, master financial management, eradicate entrepreneurial poverty, and learn to be profitable from day one. Now for your host David Richter,

David Richter:

Hey everyone. It’s David Richter again, and just wanted to thank you for listening to the Profit First REI podcast, have another special guest today, Brad Smotherman. And he actually has his own podcast, which I’ve been a privileged guest on Investor Creator Podcast. Make sure you check that out, check out his podcast. If you’re listening to this one, you’re probably listening to other podcasts as well too. So give his a look. Then he’s also running a seven figure, flipping business, holding notes across the middle Tennessee. He invests in multiple states. He’s doing things and he’s training. He’s the real deal. I don’t have people on here that just talk about it, but are actually doing it as well, too, but so really excited to have Brad on here, believe in him and what he’s doing, but Brad, before we get into all of that, and I just wanted to welcome you to the show. Thanks for being on today,

Brad Smotherman:

Man. Appreciate you having me. I’ve been looking forward to this all week.

David Richter:

Awesome. Well, I appreciate that. So very first question. I wanna dive into it. What got you started in real estate? Like what was the big moment for you?

Brad Smotherman:

Well I’m not really sure how this happened, but I woke up one day when I was 17 years old and I decided to get my real estate license and I was finishing up high school turned 18, got my real estate license and, and realized over some time that the sales side was really not for me, but my family was, was actually in farming and agriculture. And so we were small time farmers, beef, cattle, and corn and soybean. But I remember my grandparents who raised me every summer being very concerned about weather patterns because we didn’t have irrigation. And so literally they would pray for rain. And I thought, gosh, you know, like maybe there’s something better than that. Like maybe I can have a little bit more security and a little bit more influence over my future than praying for rain and real estate bug bit me. And then really in 2010 I decided to retire my real estate license, having never done an investment deal to chase this dream a real estate investment. So that’s really how it got started.

David Richter:

Awesome. So then tell us about your journey then. So 2010, it sounds like it’s when the journey started in the investing side. So how’s it gone for the last over decade plus?

Brad Smotherman:

Well, we’ve had a lot of growth. We’ve had a lot of growth, which you and I have talked about really offline and it’s been a fun journey so far. I’m really excited about the future, but kind of what happened was it took me eight months of struggle to get my first deal. And one thing that I wanna impart to my, to your listeners real quick is, you know, one thing that I found in my business and I found this in other people’s business is that most of the time, your biggest wins come after the point that you wanna quit and you don’t. So I, I specifically remember I had a lead come in. I was sitting in my truck when hot August day. I didn’t have enough money. Cuz gas was $4 a gallon at the time to fill up my gas tank to full.

Brad Smotherman:

So I do like quarter and a half tanks at a time. And I remember I had this lead come in and I listened to the voicemail and I was just like, I just don’t wanna call this guy back. Like I’m just so done and over this business, but I did call the guy back and ended up, we made the deal. That deal was, I still think the best deal I’ve ever done because it gave me two things. It gave me a little bit of money to market. So I’m a really big believer in marketing. And secondly, it gave me some confidence to say like, Hey, I can’t actually do this. I can pull this off. And so I got a $20,000 down payment. I got a 17,000 note that note paid me about $400 per month until it paid off. And so it was a really, really good first deal and a deal that we did a whole whole lot more of, just very, very similar to that.

David Richter:

Awesome. I love that, that, that that’s your best deal because of those things, what it taught you and what it were able to provide you. And then the, also the mindset there is like that success is usually on the other side of wanting to give up. You know, when you know you have something good and it is something and it’s usually that personal battle, right? It’s usually the internal struggle of, you know, what, I just don’t wanna make this call. I’m feeling defeated, but then you make that call and then it turns out to be your best deal because it changes the trajectory. So if you’re listening to this podcast, that is some great advice from personal experience, you might be feeling that right now and don’t give up, do not give up on your dreams and what you want to do, especially if it’s around real estate investing that there is, there is another side to it. So just wanted to shout that out. Thank you, Brad. That was amazing. So that’s real estate investing and you’ve, you’ve grown from there. Let’s talk about then since this is the Profit First REI podcast, a little bit just about money mindset. What about in the early days coach, we got to a little glimpse at you. They were praying for the rain, but besides those, that concept and like wanting something different than that, what other early lessons did you learn about money or how does that come and how does that compare to how you think about money today?

Brad Smotherman:

Yeah, so, you know, early on, I was really taught to be very anti debt, kind of Dave Ramsey mindset, that kinda thing. And I think that that certainly has its place. So if you’re putting a boat on a credit card, that’s probably not a good idea, but I’ve also found that any, most of the time when we, we paint these really broad brush strokes of like always and never like cash is king, always debt is done, always that it doesn’t always hold true you know? And so and I remember I almost got actually into a fight, an altercation at my real estate office when I was selling real estate because I had this conversation conversation with another realtor and this was maybe 2009. And he, he was talking about Dave Ramsey and this debt is dumb, always kinda mindset.

Brad Smotherman:

And it, my background was accounting. So in college I got my undergraduate in accounting and he said, well, what do you think about this? And I tried to like kind of stave off the conversation, but know, finally I was like, well, let’s paint the scenario. The house is worth a hundred and twenty thouand dollars, you can buy it for 50 grand, you have 49,500, do you borrow 500 to do the deal or not? And he didn’t really have a great answer for that, you know, but, but got kind of upset. So, you know, a couple of things that I I’ve found is that I really feel like one of the biggest mistakes that people make in this business is they don’t play both the short game and the long game at the same time. And really what I mean by that is, you know, flipping and wholesaling is good. It’s a very, very well paid job and the cash that we get from that we can allocate to long term resources, but we have to do that.

Brad Smotherman:

Like we have to create long term cash flow assets, or we’re never really getting ahead. And so like in my consulting work, my education work, I find that a lot of people come to me first because they can’t find motivated sellers. But second, I have a big group of people that come to me that they’ve been wholesaling 3, 4, 5, 10 years at times, or flipping in that time. And they say like, gosh, I’m still transactional. I really haven’t gotten ahead. And the big problem that they have is like, they haven’t created, you know, a source of cash flow that exists outside of their time. And so, like, that’s a, I think a big thing that I’ve found that is really, really important. That is a big mistake that I see. And I also find that for myself, I, I always kind of like Teeter between like, I really feel better emotionally if I have cash sitting, but then also like allocating resources because like, if you have cash, then it’s tough to not spend it on something.

Brad Smotherman:

Now I’m not the toy guy. I think, you know, having a Lamborghini is kind of silly. I mean, for whoever that enjoys that that’s cool is just not me. You know, it’s like we, we, I came from praying for rain as a teenager for the family. So, you know, getting a, Lamborghini’s not super exciting, but you know, just kind of like Teeter tottering between like having like enough cash where I emotionally feel really confident and good about decision making, but then also like not bleeding that cash into stuff that may not make sense is, is kind of a struggle. So I mean that, that’s just a couple things that I see that hopefully is helpful for the audience.

David Richter:

Oh, I think that’s incredibly helpful because I believe when cuz this, it was the exact same thing for me, I a hundred percent relate to this story because I was, when I first started my journey, I read Rich Dad Poor Dad. Then one of the second books I read was the Dave Ramsey stuff. And it was like very conflicting. And I was like, well, I don’t want the day. I don’t want a bunch of debt, but I also want to make money in real estate. And I want to, you know, not be, you know, buckled down and not be able to grow. And I think one of the biggest things for me was taking that leap from, from W2 job to business owner and like from working a job to investing in real estate and in having in my own business and knowing that like, you know what, in my business, I can still be financially responsible and make sure any debt that I have is going towards building assets, building something long term, whether that be, you know, sometimes that is for marketing and you are investing in that to get that next deal or whatever it might be.

David Richter:

But it’s making sure that you are investing in that way with a clear, specific purpose too, because that’s where a lot of people get in trouble. It’s like, well now, oh, money’s coming in, we’re just gonna spend like crazy. Then you go crazy on the cards and stuff and you rack all that up and that’s where it gets. Then you need Dave Ramsey to go back in and beat you over that and say, this is not what that stuff is for. You know? So it’s like making sure that you have those types of things. So I really, that really resonates with me. So I’m sure that it’ll resonate with a lot of people on the call here cuz that’s, that’s a great, that’s a great analogy of like, how were you thinking about money and then where are you now in that thought process? Cuz it is a journey I always believe too, that you should be thinking and constantly rethinking the beliefs and thoughts that you have right now. And are they serving towards your higher vision, your values. So absolutely love that. So right now, Brad, are you married? I wanted to ask, are you married? Do you have children right now?

Brad Smotherman:

Yes. Happily married almost 12 years I believe. And two children. My, my little girl just turned six yesterday. So we had a big day yesterday.

David Richter:

Congratulations. I have a, a girl turning five in two months. So love that age. Love that time period, which is I asked this question selfishly, but I, what lessons about money? Do you wanna pass on to your children? So I love hearing people’s thoughts around that.

Brad Smotherman:

You know, it it’s really a funny thing. So just recently one of my thoughts was okay, like we have things in the business to where the really to where we want them and, and really to a point that even three years ago, I would’ve thought wouldn’t be possible. Mm-Hmm , you know, because of, of all the transactions that we’re doing and the equity that we’re getting and almost everything that we’re doing, we’re doing remotely now. So like we’re, we’re buying just over the phone. And so I came to a point where I sat down with an estate attorney and said like, okay, like, let’s look at putting things into trust for the children. And, and my thought was, well, I can add, I don’t know, five rentals per year each to this trust. And whenever they come of age, then it’ll be worth something.

Brad Smotherman:

And I was really close to doing that. And, and then I thought, well, maybe not. Hmm. And, and it’s like, well maybe what I should do is, you know, I have a company now, like I have team members and they’re that we’re growing, we’re growing very fast. And so whenever they, they come of age, then I know that there’s gonna be opportunity within the business for them to create their own success. And so like, that’s kind of what I’ve come up to is I don’t want pass. Like, Hey, you’ve turned 25, here’s 50 rentals. And most of them are free and clear. I don’t know that I’m really doing them a favor by doing that. And so, you know, we’re keeping those same assets and keeping them in house. And you know, I, I really think that providing the opportunity is, is the better thing.

Brad Smotherman:

And so I’ve got a good, good friend of mine that is very wealthy and he created a trust and his trust basically says that whenever he passes away that his, his daughters can pull one third of their adjusted, gross income from their tax return from the trust per year. And if, and if the, because you know, one spouse may stay at home and the other work, if one stays at home, then it goes off the, the other spouse’s income. And so I thought like, how genius is that? Like if you go out and you create a lot of money, then you’re gonna pull, be able to pull a lot of money from the trust, but it shows that you’re responsible financially in the first place. And if you’re a bum, it skips you and it goes to the next generation. And I thought like, how great of, of an idea is that?

Brad Smotherman:

So, I mean, in terms of what do I want to pass along? I mean, it sort of depends. It depends like, you know, if, if my daughter and my son worked W2 jobs, it’s, it’s a different financial plan than it. If it is that they’re out hustling and buying equity like we are. And it also depends on you know, their, their threshold for risk, you know, like I enjoy risk to a certain extent, although not like I used to when I was younger – I’m 35 now, but you know, there’s a whole lot to it. So I would say like, come up with a plan that you’re comfortable with, that you feel is gonna be successful. And one, one big, big thing that I’ve done that I think has been detrimental to me is what I felt was success maybe 10 years ago, that five years ago I accomplished, I wasn’t satisfied with it.

Brad Smotherman:

And so I never really celebrated the wins. And so like, it, it’s like I’m running a marathon and I’m always, you know, 800 yards from the, the finish line, but I I’ve ran the marathon probably three times now. Yeah. You know? And so that can be a little bit emotionally exhausting. So I mean, work hard, work, your plan know who you are, you know, in terms of risk that, and, and what you’re trying to accomplish, come up with a plan grind to get there, but also understand that, like money’s not everything stuff, isn’t everything like relationships and, and impact is so much more important. And I think that, you know, David, that’s a big reason why you’re here. That’s why I do what I do as well. And so like, we’re, we’re kind of cutting the same cloth in that way.

David Richter:

No, I a hundred percent agree with that. That’s why I love having you on here and having those mindsets, especially that next generation, like how are we gonna pass that down responsibly and make them the human beings, you know, that will want to pass it on to, and have those values and, you know, the work ethic. And like you said, if they have a w two job good for them, ha make sure that they’re equipped to be the best human being. They can be no matter what they do and make sure they’re, don’t, we don’t empower them to be entitled. You know, it’s like making sure we don’t give them that opportunity, you know, to just go out and do whatever they want. And, you know, just, that’s not why we create the wealth and why you don’t buy the, the rentals or train other people and do everything that you do, the fix it flip and everything inside the business is not for that.

David Richter:

So, I love that. I love asking people about that really appreciate, you know, you telling your mindset on that. So then this has been amazing already, lots of value dropped here. You have an accounting background, which is definitely different than most real estate investors. So when you analyze a deal or the financial, maybe key performance indicators, those buzzwords, you know, KPIs or whatnot, when you’re looking at deals, whether it’s rental fix and flip, what are you specific? What do you analyze on that deal? And do you look at it differently than a typical investor because you have that background or, you know, like how would you go about analyzing deals and from your perspective?

Brad Smotherman:

Yeah, so I think that my accounting background has helped me in the business but not necessarily when it comes to analyzing deals…I feel like I’m an equity buyer and I feel like marketing is actually more important than real estate as real estate is a means to an end. I’m not in love with houses, you know, but I, I do enjoy the marketing side of negotiation and that’s really like 90% of getting great deals is being able to generate the right lead and say the right things at the right time that motivate that seller to say yes to an offer. Right. And so, you know, with that,uwhenever I’m looking at a deal, I really want to make sure that I’m buying equity. And so everybody’s focused, there’s in it’s free and dollars. They own it free and clear, and they would, would accept payments at $500 per month until paid at 0% interest. Well, that’s a great deal, but the, the equity’s not in the price we’re paying market value. The equity is in how we’re. And I know that that might sound a little bit crazy to some of these people that are listening that have never heard of a deal like that, but like, we’ve done a lot of deals where we’re basically paying market value, but it’s at a 0% interest rate and we’re getting 10 or 15 years,u10 or 15 year terms where the, these payments are going out.

Brad Smotherman:

Well, whenever you look at the amortization there, then, you know, like that creates equity really, really quickly, you know, and we can turn it to a rental or owner financing or whatever we decide to do at that point. But, you know, that’s really what I’m looking at is either equity and price equity in terms. And so I, I really wish that I could create some kinda a mind map where it’s like, it always gets me to the right answer, but there’s some, you know, different factors like, okay, is it a, a kinda deep rehab or is it really clean? Is it in an appreciating area or is the area flat, or maybe possibly declining as an area. So like there’s some X factors there that you really have to look at, you know, but those are the, the, that’s the main metric that I’m looking at is can we buy equity day one? And if we can, and it makes sense, then we move

David Richter:

Forward. Yeah, no, I love that. Now I’ve had, you know, talked with people and they’re doing what you’re doing with properties. A lot of people do that with businesses too. They go in and they’re, they might buy it at market value or where it is right then, but it’s on payments. And then they’re able to go in and just raise that value of that business within three to five years, and then they sell it, you know, and it’s like for a multiple, and it’s the same thing with this property, you know? So it’s like having those comparisons and love that. Well, what you do with the properties, and then what, around your accounting degree, I know I’m stuck on that. Do you said that you it’s, it hasn’t helped with deals or like, you know, the analyzation of deals, but it has helped you like in the business, do you, because this is also something Robert Kiyosaki, a lot of people talk about is accounting and the language of money. Do you think that most entrepreneurs should have a basic understanding? Should they , should they go through college and get an accounting degree? What is your, what level do you think that entrepreneurs need to be in order to be a savvy business owner and know that language of money and finances? Accounting.

Brad Smotherman:

Yeah. So, I mean, does somebody need to go and get an accounting degree? I mean, probably not, but I do think that it has helped tremendously and it’s not necessarily like, what does it help me with? Well, it’s not about like plugging transactions into QuickBooks, although that is important. I mean, what I think is most important is understanding cash flow mm-hmm and also understanding like how income impacts your balance sheet long term, you know, like whenever we have a good understanding of the flow of money on financial statements, then, then we know how to manipulate that to get to where we want to go right. Maybe manipulate is the wrong word, you get what I’m saying. So, you know, it’s, it’s really more about a study of, of how businesses work in terms of profit and cash flow to the balance sheet. Long term that I think is really, really interesting. And I think that most people are weak there.

Brad Smotherman:

I think most people are weak. I think that most people feel like , I’ve seen people like play with QuickBooks on, on one journal entry. It’s like, oh, well it balanced. So it has to be right, like, wait a minute. That is not how it works, you know? And so I’m sure that you see a lot of this with the people that you consult. It’s like it it’s cringeworthy about how people don’t have control over the finances and have no understanding on where they are and, and where they’re trying to go. And so it’s just like this, this whirlwind of chaos where you don’t know where you’re going, you don’t know where you’ve been. And so it’s, it’s just like, you’re just throwing some stuff out there and, and doing the best you can. And I think that’s very dangerous.

David Richter:

Yeah. You are talking my language here. Big time. This is gold right here. You do not have to have an accounting degree, but in order to be a business owner, this is one area that you will need to learn. You will need to learn how these talk with each other, these financial statements, like a profit and a loss of balance sheet. You know, those things that he is talking about, because like he said, it’s manipulating that money, that full of money directing it, basically putting the control back in your hands. So that way you’re not being like a chicken with his head running, you know, or her head cut off, running around all over the place, because it puts that power in you to make those decisions, make better decisions and say, are we on track with our overall goals? Really? Are we really getting to where we want to be?

David Richter:

Because I don’t know how you feel when you consult people and you know, you, they get all this different stuff from books and seminars and all this stuff. And they’re like, well, I need to track this. You know, I need to track this number. I need to track my leads, or I need to track deals close. And it’s like, yes, those are good. But do you understand how that goes into your overall profit and into your overall business? It’s like, it’s great if you’re making this amount per deal, but like, what’s the bottom line? Like, what is the actual cash flow? Like, do you have too many of the expenses? And if you don’t know these basic things, I don’t think you can have that true. You can really go to the level that you will want to go to in your business if you don’t have that basic. So I love that. Get that foundation, you do not need the accounting degrees. So this was just a lot of grid stuff right there. So Brad, this has been amazing. Just have a couple last questions here. Sure. Do you have any other advice just in general could be around finances, could be around anything that you want to get out to the real estate investing community?

Brad Smotherman:

Yeah, so I, I think two main ones, number one, we’re a marketing business. And so if you can generate motivated seller lead flow on a whim and be able to capture that with good terms, then you’re gonna be a lot better off. And so, like, one of the things, man that I, that I’m asked a lot right now is like, what do we think the market’s gonna do? Like we’ve been on a rollercoaster for almost a decade. And I mean, just straight up rocket ship, you know, and you know, at some point we have to have a correction. Am I concerned about that? No, because we know how to play a declining market as well. And that’s really more about buying creatively and turning it into under finance notes because we’re in a position, let’s say the market declines, you know, and, and we go to a six month days on market, which I don’t think is gonna happen, but let’s assume, you know, we’re gonna be able to buy equity easier on the front end because we’re gonna have more motivated sellers and less investors to contend with. And then we’re also because banks tighten during these times, we’re gonna be able to sell that house within our financing, easier than what we have been in the past five years. And so it, the ability to, to, to transact goes up on both sides, both on the purchase and the sale. And so like, I’m okay with the declining market. So just keep that in mind. Like if you can, you can market the right way and negotiate to the right deal structure. Then it it’s really, really tough to mess up this business.

David Richter:

Yeah. That’s good stuff. That’s amazing. So I appreciate all the advice you’ve given today. There’s been so many nuggets that you can take from this from the beginning where you said, don’t give up. I mean, if you’re on that right now, you could be that one call away one call away from turning around, pick that, call up, call that person back, look at that voicemail all the way there to where being a savvy business owner, getting out there, doing the deals, doing, making sure that you are the right business owner as well too. And there’s been a ton of good information here. So Brad, we I’d like to ask you how can our listeners now provide value back to you? How can they connect with you? What are you working on currently? Tell us a little bit about that.

Brad Smotherman:

Yeah. So I mean, what we’re working on right now is spending a lot of time on the podcast. I’m actually launching a, a YouTube channel as well, where I’m bringing in some of the top investors that I know, and actually having sit down interviews, which I think is so so impactful. And I’m really doing that. Getting people stories where, you know, they’ve struggled and now that they’ve seen success and looking back, like what could they, what could, what could we all learn from that? So that’s been a lot of fun, but for those that wanna reach out to me Investor Creator Podcast, and then my email is Brad@BradSmotherman.com

David Richter:

Awesome. Well, there you go. Can reach out to him and if you make sure to check out his podcast too, I was approached beyond there as a guest, but he’s got a great podcast. That’s up right now. The Investor Creator Podcast. Brad, thank you so much for being here today and providing a ton of value to the listeners.

Brad Smotherman:

David, thank you so much, man. I enjoyed it.

David Richter:

Thank you so much for listening to today’s show. If you found this episode valuable, could you do me a quick favor? Could you give us an honest rating within iTunes and be honest, you could say whether you liked it or not. And obviously with iTunes, the more reviews and ratings we have, the better it is for other people that are searching for a Profit First and a podcast. So we’d love to be ranked on there and that’s thanks to your help. So we would really appreciate that if you would like to go give us a rating. Also, if you’re looking to connect with us further, I would highly recommend checking out our Facebook group Profit First for real estate investors. And that’s literally what it’s called. So you can type in Profit First for real estate investors, and you’ll be able to find , you’ll be able to find our Facebook group right there.

David Richter:

So come join active real estate investors who are supporting each other and growing their businesses and profits together. That’s what that group is all about. The link should be in the description below. And if you’re interested in working with us and implementing Profit First in your real estate business, we offer coaching and guidance. So if you wanna work with someone who’s actually Profit First certified and who works right now currently with real estate businesses, you can actually go start your application process by going to simpleCFO.com/apply, or just go right to simpleCFO.com. And there’s an apply button right on there. If you wanna actually start your Profit First journey with someone who can actually walk you through those step by step and help, you know, and grow your cash flow. Thanks again for joining us for another episode of the product. First REI podcast. See you next episode.

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