(intro)

Welcome to The Gold Collar Investor Podcast, with your host Pancham Gupta. This podcast is dedicated to helping the high-paid professionals to break out of the Wall Street investments and create multiple income streams. Here’s your host Pancham Gupta.

Dave Zook

Hey, this is Dave Zook. I listen to Pancham at The Gold Collar Investor Podcast. And so should you.

Pancham Gupta

Welcome to The Gold Collar Investor Podcast. This is your host Pancham. I really appreciate you for tuning in today.

My guest is Paul David Thompson. He is a successful real estate investor and entrepreneur. He used his expertise in real estate to make the transition from traditional nine-to-five work schedule to becoming a full-time investor.

In just a few years, Paul and his wife were able to turn their dream of escaping the grind into a reality. In addition to his own real estate investments, Paul is the founder of MyFreedom Foundry and the Next Level Mastermind, where he helps other real estate and entrepreneurs grow and scale their businesses. Through his companies, Paul is able to share his knowledge and experience with others and help them achieve financial freedom through real estate investing.

(interview)

Pancham Gupta

Paul, welcome to the show.

Paul Thompson

Thank you so much for having me on here, Pancham.

Pancham Gupta

Thank you for your time here. Before we get started, are you ready to fire up my listeners break out of Wall Street investments?

Paul Thompson

5, 4, 3, 2, 1… Blast off. You know I do.

Pancham Gupta

Awesome. Just taking off from Melbourne, Florida for the Space Coast.

Paul Thompson

That’s right.

Pancham Gupta

All right. So let’s start with your background. Talk to us about how you got to where you are today and how you got started with this journey.

Paul Thompson

Sure thing. So I worked in corporate world for a long time. I worked for an internet service provider. As an engineer, I have a background in computer engineering. Overall, it wasn’t an all-bad life. It was a means for me to earn a good income. I found the work, for the most part, interesting and challenging. I did get tired of corporate politics working for Fortune 500 companies. I worked for four different ones. It’s just the nature of the beast that you deal with corporate politics a lot, and they got really old.

I’d always hoped and dreamed that I could branch out and do something on my own, kind of test my mettle, so to speak. I had this moment on a beach vacation where I wanted to extend the vacation. I had the money to do so. I had the time scheduled off to do so. My wife is a stay-at-home mom, so we didn’t have any kind of scheduling with her job. My kids were both out of school for the summer. So we should have been able to extend our vacation. After calling my boss and saying, “Hey, I’m going to work from the beach house, if that’s okay. The kids are going to stay here and play at the beach. I’ll just work remotely—” this is in the year 2015 — he said, in no uncertain terms, “That’s not what we do here. I need you to be back in the office Monday at eight o’clock,” and hung up the phone.

I said okay. Okay. I’m not sure what else I can do, but to tuck my tail between my legs and do the work on Monday. It was a Friday when I called. I stewed about that. I packed up my van. I was driving it off, seeing the beach disappeared into the distance. When I looked into the rearview mirror, I saw my kids. They really wanted to stay, but they didn’t really understand why we couldn’t. But okay. My wife was an adult. She understood. My kids couldn’t. They’re, at the time, pretty young. I just saw them resigned and slumped over and just resigned to their fate. That whole view of them in the rearview mirror, of them not being able to stay at the beach longer because I didn’t have sovereignty and I didn’t have control really pissed me off. That was the wakeup call that I needed to say, “I will not do this anymore. I will be in control of my own life. I will create a business where I call the shots, and I’ll ask the permission of my family to spend time at work versus the other way around.”

Pancham Gupta

That’s awesome. That story, I can relate to that myself. A lot of our listeners are computer programmers, engineers. And myself, my background is computer science too. So I’m sure. So 2015, you said, was when you quit?

Paul Thompson

Mm-hmm. 2015 is when I had that moment. And I spent the next two years working on building a real estate portfolio so that I had enough passive or residual income from those rentals to cover my living expenses. It was about two years into my three-year-plan when I was laid off from my job, which we all know is happening now in the tech sector. It’s just kind of the nature of what’s happening. We thought, in the tech world, we were kind of immune to that. That has not been the case recently. And it wasn’t the case for me a few years ago. It’s just the cold equations sometimes. Through no fault of your own, it doesn’t make sense anymore for the company to have you. I just was so pissed off that I was in a situation where I needed that job more than they needed me. The power dynamic is off, I think.

I’m a big believer now that we can create. Even if you are an employee, you can create an economy for yourself, a personal economy where you don’t need the job more than they need you anymore. The dynamics of working is changing. The COVID helped with us quite a bit. People more prefer work from home. We have more flexible way of approaching things. We have tools now that we can only have dreamed of a few years ago. The way we work and think about work is changing dramatically right now.

Pancham Gupta

Absolutely. Can I ask you this? Were you a programmer? You were? Okay.

Paul Thompson

I was a computer engineer, so we did write configuration code. But I wasn’t a classic developer. I worked with a lot of developers when I got into management, and I had developers that worked for me. But my training was more in understanding the operating systems of routers and switches.

Pancham Gupta

Got it. Okay. So let me ask you this. That day when you made that decision to the day when you got laid off, even though you had that plan working, what happened next? Were you like, “Oh, thank God. I got laid off,” or you said, “No, the power dynamics were the other way around”?

Paul Thompson

Right.

Pancham Gupta

You wanted a job. So did you go back after that? Did you look for another job? Are you like, “Okay, maybe it’s my calling”?

Paul Thompson

A good question. On the day I was laid off, I wasn’t terribly surprised, but I also did not expect it. I did not know it was coming. But I had been preparing for something like that happening some time in the future. So I wasn’t exactly where I wanted to be financially, but I was far enough along the path that I felt confident that I would be okay. So I did not even for a minute consider applying for jobs. In fact, previous employers, previous colleagues and bosses from other times in my life reached out to me when they heard about it and said, “Hey, if you’re looking to go someplace else, we’ll give you a recommendation. We might be able to give you a job.” I didn’t even really entertain any of that, because I did not want to jump back into the frying pan. I was pushed off the cliff, and I was going to let — I’m figuring it out if I could figure out a way to make my machine fly. That was about eight years or six years ago now, actually.

So I’ve made it past the five-year mark, which is typically the thing that people — if you get past five years, you’re typically okay. I feel very comfortable in that at this point. It was nerve racking. It is a big mindset shift, shifting from, “I’m going to go to work in exchange my time for money and get a paycheck” instead of, “I’m now the owner of the company. I’ve got to figure out how to hire employees, cover my expenses, create a payroll system, and then pay me as the employee, so to speak, of the company payroll.” That’s something that I think we should all be working for.

We should be doing interesting work, and we have to get paid for it. But we should be able to have assets that are paying us and not really care whether or not we’re getting paid at our jobs anymore. I really believe that’s something we should all should be doing. Whether you end up working or starting your own business, so to speak, or not, we should all be owning assets so that we have the flexibility to walk away from a job that either is doing something immoral, unethical, or you just don’t like the people you work with anymore. Because things change in jobs, right?

Pancham Gupta

Yeah, absolutely. I 100% can relate to the fact that you said that this is a big mindset shift. And these golden handcuffs that you have, it’s very, very hard to get rid of. So let me rewind and go back. So 2015. Did you have any? Were you investing already in real estate at the time?

To extend that question, did you have that figured out by then already that you’re going to be doing this on the side and create this passive income? Or was it after, that you figured out, “Okay, what do I need to do to quit? Let’s think about real estate.” How did that happen? Where was that light bulb went off? For anyone listening who is in the same boat like you and probably a full-time developer or whatever their role may be, and they’re thinking the same, from the time that switch went off to the time when you actually got laid off, talk to us about that.

Paul Thompson

That process? Yeah, it was a process. Up until 2015, the only thing I knew how to invest in was the stock market. So I had been investing through my 401k and my IRAs, HSA and index funds — the typical index fund strategy you might hear from the financial independence, retire-early type space. That’s what I was doing before I even knew those terms existed.

And so I had saved up a modest amount of money in those accounts. The problem is, is you can’t easily tap into those accounts without early withdrawal penalties or tax implications, at least if you’re less than nine-and-a-half years old. They’re kind of hard to touch. So I thought, okay, I can look for something that I can do different. I can take the experience. I can take my business acumen, my leadership experience that I’ve gotten so far and do something in the business space. I’m smart enough to figure this out. And so I looked at a lot of different options. I considered buying a franchise. I considered starting an insurance agency. And everything that I looked into felt like I would just be buying myself another job. I didn’t want to spend a bunch of money or borrow money for sure to then buy a job. I already had a job. So I wanted to create a different dynamic. The only thing I could think of was real estate, where I could buy a rental property and just see if I liked it. Because not everybody is suited to being a landlord.

I bought my first property in my home city of Little Rock, Arkansas for $30,000. This was 2015, mind you. I lived in a low cost of living area. I bought a three-bedroom, one-bath, 1000-square-foot Class C property in Little Rock, Arkansas. I rent it for like $650, and then I put $10,000 into it. I then refinanced it. I got my borrowed money of $30,000 back. It paid back my private lender, and then it paid back myself with the $10,000 that I put into the rehab. I had a loan for $40,000 or $42,000. I can’t remember exactly. The property rented for $650. If you do the pro forma, I was probably making like $87 a month net cash flow.

Pancham Gupta

This was 2015? What year?

Paul Thompson

15. Yeah, that was eight years ago. Yeah, as of this recording, eight years ago. And so that’s not going to change your life — $100 or so extra per month. But I was playing with house money, and I still own that house. If you look at the future value of those cash flows over the next 10, 20, 30 years on this property, it’s pretty compelling. It tells a really compelling story. Most engineers, and people who have come from a STEM background gets this very quickly. They look at the numbers and they say, “Yeah, it’s not going to change my life today. But if I were to get to collect 10 or 20 of these things in an appreciating market and I get a little bit of cash flow, I could significantly create wealth over time with the capital appreciation and the debt by now that you get with real estate.” So that was my approach to it.

I kept doing that. I learned the principle of buying and refying, often referred to as the BRRRR method. I thought this works. This is my proof of concept, and I can replicate this. I was making decent money. I had a W-2 income, and I had good credit. So I had an asset in my credit that I hadn’t really been tapping into prior, other than buying my own personal house. That’s an amazing resource that a lot of professionals have access to that they don’t really know how to maximize.

Pancham Gupta

Right. So in 2017 when you quit or you got laid off, how many properties, if you can share, you had? You don’t have to give the exact number. But how much in the passive income were you making at the time?

Paul Thompson

My number was I wanted to make $10,000 a month from residual income or passive income. I think at the time that I was laid off, I was about $8,000 a month of residual income. So I wasn’t 100% replaced my amount. But I was also doing things. I’d learned a lot in those two years. I was doing things. I was flipping a few houses. I was doing some wholesale deals. I was starting to lend out of my IRA, my self-directed IRA. So I was gaining a lot of sophistication as an investor.

My limiting factor was my time. And so when you actually do the “how much I was getting paid at my job” versus “how much I could have potentially made by running a business,” doing what I’ve learned over the last two years, I think I was actually discounting my time by still continuing to work. I probably should have quit earlier. But we’re all very careful engineers. We want to measure everything out, right? And so we want to see the path perfectly. It doesn’t always work out that way, because you don’t know what you don’t know yet. And you don’t know the potential power that you have if you have all that extra time given back to you, because you’re not having to now log into a job that demands at least 40 hours, sometimes much more than that per week from you.

Pancham Gupta

That’s so true. Right. We, engineers, we want everything to be perfect. We would leave the house when we see the next 10 lights to be green. It’s never perfect. So how many houses was that $8,000?

Paul Thompson

Sure. If memory serves, I think that was 27 at the time.

Pancham Gupta

And all in little Arkansas?

Paul Thompson

Yeah, Central Arkansas where I live. Now I have a portfolio of about 40 or so. I have consistently upgraded my portfolio. I originally had a goal of 100 properties. I realized that I would rather manage 25 or 40 really, really good properties than have 100 average properties. Because it’s just a lot more work to manage properties, and it’s more work to manage really hard-to-manage properties, if you know what I mean.

So as I would go through my portfolio, every year or two, I would sell off the duds. For whatever reason, there are certain properties that just don’t perform well. The pro forma says that it will do this, but then the reality is it’s more expensive than it should have been. Or for whatever reason, it attracts bad tenants. Whatever the reason may be, it just is not operating or living up to its potential. So you sacrifice those, especially if it has a little bit equity in it. Sacrifice those. Sell those. Get 10, 20 30, maybe as high as 50 grand back out of it, and then go and deploy that equity in someplace else. So I kept turning. I still do this. I turn my properties. So now I carefully select one or two, maybe four new properties a year that just happened to land in my lap. Then I may sell some other property that isn’t performing as well.

Pancham Gupta

Got it. That’s awesome. Getting your losers out — or not so much losers — or bad ones, or average ones out and getting the new ones, the better ones.

Paul Thompson

That’s asset management. All that is asset management. You’re upgrading your portfolio.

Pancham Gupta

Got it. So do you self-manage these properties?

Paul Thompson

I did at first. I realized very quickly I’m a terrible property manager. So I decided that I would no longer do that, and I would hire a professional to do it. As a lot of people would tell me, you’ll never find somebody who manages the properties as well as you do. That may be true for a lot of people. But in my case, I’m terrible at it. It’s very easy to find somebody who would perform or do a better job at product management than I would. Some people just enjoy it. They enjoy the process of being able to control and tinker with their properties. That’s how things will be. But I wanted to be a business owner and not a business operator. I wanted to basically take the advice of The E-Myth, if you read the book, and become the owner of the pie shop and not the maker or the manager.

Pancham Gupta

Got it. So let’s talk about this. To anyone listening who is probably in your shoes and getting motivated to hear your story, what advice would you give them, who are there but they cannot just take the first step? It’s just very hard. Given you are an engineer, you know how analysis paralysis can get you. The market has been great since COVID. Now they don’t have to work or go to office as much as they were going before. Before, they were going five days a week. Now, probably, they’re going three days a week. So it’s gotten better. Also, they’ve gotten hikes over time.

So this golden handcuff thing, you start talking to yourself and you say, “Hey, life isn’t bad. It’s fine. I’m going only three days a week. Two days, I get to spend with my kids at home and also work. I want to do it. But, again, it’s just the inertia gets them.” What advice would you give them?

Paul Thompson

In this case, inertia, it’s almost like entropy is working against you. You are aging. You will not always be able to work and make as good of an income as you are now. As Warren Buffett famously said: if you never figure out how to make money while you sleep, you’re never going to retire. You’re going to work for the rest of your life. I don’t think any of us want to do that. I would much rather be in a situation where I get to work on really interesting projects and be surrounded by people I really enjoy working with, because I’ve chosen to be there and not for the exchange of time and money conversation.

I think it is incumbent on all of us to create and buy equity in something, whether that be stocks, or building your own business, or real estate. One or more of those asset classes, you need to be involved in. You need to own equity. I would not consider owning equity in the company that you’re working for — as the strategy piece, you’re putting too many of your eggs in one basket. I think intellectually, logically, you should be compelled to go and find another way to earn income that isn’t relying just on your time and the value that you can exchange for that time. That’s a very linear way of thinking.

Anybody who’s listening to this that may be struggling with how to attack that, you need to identify what is the fear. There is a fear of uncertainty, fear of failure, fear of making the wrong call somehow. I don’t think that failure really is what we make it out to be. Actually, I’d take a risk when I take investments. But I think it’s a much bigger risk by doing nothing. You have to take some sort of action to control some sort of equity that you control completely separate from the job that you’re working.

And so if that fear is, “I’m not sure how to solve for this,” find other people who are doing it. Success leaves patterns. I mean, success leaves clues on how to follow this. Really, when it comes down to it, what you’re doing as a computer engineer or a software developer is far more complicated than buying some rental property. Buying your own properties and getting things is as easy as a business model there is. They’re not making more land. We’re making more people in the US. Our population continues to grow. The cost of living continues to be the number one thing that we all get to pay for. So somebody is paying a rent to somebody all along. Why can’t it be you?

Pancham Gupta

That’s awesome. I love that line. Not taking action could be the most risky thing that you’re doing. Someone said that having one place where your money is coming from is more risky than anything out there. If that shuts off, there goes all of your income. All right. Well, great. Thanks for sharing that. Anything that you would like to add before we move on to the second part of the show?

Paul Thompson

Yes, one last thought for everybody to hear this. You have the potential to completely design and control your life in this modern world. We are suffering from looking at the world with default mode thinking. Anybody who’s in the STEM subjects, I think, would value the idea of thinking differently and being innovative. But yet, for some reason, when it comes to our own personal finances and accepting what our lifestyle is, we’re very reluctant to be innovative. You have amazing talents and skills that the marketplace will reward. If you enjoy doing those things, by all means, do them. But do them to fulfill some sort of purpose, that you have to solve interesting problems. If you can do that separate from having to earn income doing so, life is profoundly different. You are no longer held back by this need to cover your basic living expenses.

So I would really invite everybody to reconsider what kind of default behavior that we’re all accepting, that you have to go to Starbucks to get the coffee. This is just like me. I do that every day, but I choose to because that is something that is of value to me. But if I was trying to control my expenses, I can make coffee at home. That’s a small example. We can decide how we live. And by doing so, you can then control how you spend your time and energy and work on something that is purposeful and meaningful to you.

Pancham Gupta

Awesome. I love that. Thanks for sharing that. Let’s take a short two-second break. We’ll be back.

(break)

If you’re an accredited investor and have been thinking about putting your money to work for you, then I have good news for you. I have created an investor club which I call the Gold Collar Investor Club. I will be putting together investing opportunities exclusively for the group. These are the opportunities where I have done the due diligence for you and will be investing my own money alongside you.

If you are interested, please sign up on thegoldcollarinvestor.com/club. I repeat, thegoldcollarinvestor.com/club. I will reach out to schedule a 30-minute phone conversation to discuss your investing goals once you sign up. This can be a good opportunity to diversify and take some chips off the hands of Wall Street to produce some passive income.

And in case you are wondering what is an accredited investor, an accredited investor is someone who has earned more than $200,000 as filing single or more than $300,000 filing jointly for the last two years. Another way to qualify as an accredited investor is if your total net worth is more than $1 million, excluding your personal home. It includes your stocks, 401ks, IRAs, cars, et cetera—just not the equity in your personal home. If this is you, I would highly encourage you to sign up.

(interview)

Pancham Gupta

So let’s move on to the second part of the show, Paul. This, I call Taking the Leap Round. I ask these four questions to every guest on my show. My first question for you is: when was the first time you invested outside of Wall Street? Was it that rental property you discussed?

Paul Thompson

Yes, 2015. I bought a $30,000 rental property.

Pancham Gupta

Got it. And you still have it?

Paul Thompson

I still do, yeah.

Pancham Gupta

Awesome. For anyone listening, what would be the value of it today?

Paul Thompson

Probably, in the order of about $80,000. I live in a low-cost living area. Even with appreciation, it’s probably only $80,000.

Pancham Gupta

Got it. My second question: did you have any fears that you had to overcome when you bought that one, the very first one?

Paul Thompson

Yeah, I was very much afraid of doing it wrong. It’s one of the reasons why I did a small proof of concept. We’re all analytical, and we consider ourselves as personal scientists. When I have a theory, I have this model of insight invites investigation. The data drives decisions. So you have some sort of insight. Oh, you know what? Maybe I should be buying some other things. And so instead of putting my entire net worth into some new project and hoping it works out, let’s do a proof of concept. Let’s do a small-scale experiment that I can do in a few months’ time. Buy a small rental property. Run the BRRRR method through it and get your refinance back out, and get your money back out. And say, okay, that’s a data point. I have found out that I can do that successfully. And so based on that data, it then drives my decision to the next one. I just keep replaying that feedback loop to myself of: insight invites investigation; data drives decisions.

Pancham Gupta

Great. Cool. My third question for you is: can you share with us one investment that did not go as expected?

Paul Thompson

Yes, there are fears that a landlord has of having terrible tenants, getting sued, having some sort of natural disaster that destroys one of your houses. I’ve had all those things happen. Very quickly, I’ve had somebody sue me. That was completely bogus, completely ridiculous. There’s $20,000 in legal fees to defend myself. That’s the cost of doing business. There is no legal strategy that makes you 100% immune to somebody. It’s just we live in a litigious society. So your insurance, you do your proper behavior, and then you pay an attorney to defend you.

Things like having people tear your house up — yes, it is not an if, but when is someone going tear your house up. You run that into your numbers. Walmart would quickly say, “I’m not going to run a retail store. People will steal from me. I’m going to have to stop the shoplifting.” You take mitigating effects, but you accept a certain degree of shrinkage in the retail. In the landlord’s business, you accept a certain sort of wear and tear on your properties. Then in the case of natural disasters, you have insurance. I just had a tornado come through on my local city. It tore over the roofs off of one of my houses. It was expensive, and it was problematic. It was part of it. But these things are survivable. You deal with them. You’ve spread your risk out over multiple properties for a reason.

Pancham Gupta

Yeah, I know. Exactly. That was your first lawsuit, I’m sure. On a scale of one to 10, how stressful was it? Sorry, I’m adding my own question here.

Paul Thompson

Good question. No, it was good. Because not everybody’s been through this yet, and I have. I would like to explain some of the insights that I learned. On a scale of 1 to 10, it’s probably 6, where 10 I would have wanted to jump off a cliff. 6 was like I’m super frustrated. Very expensive, very time-consuming, and just this idea of they’re just so bogus. This claim is just completely frivolous. They would just make up stuff. The way the US works, someone can sue you for any reason at any time. You have to defend yourself, and you have to pay a lot of money to do so.

Pancham Gupta

Yeah, there is a stat. The number one way people think in the US they can get rich is by buying the lottery, and number two is by suing someone else.

Paul Thompson

Suing somebody, yeah.

Pancham Gupta

Yeah, that’s crazy. All right. My last question for you, Paul, is: what is one piece of advice would you give to people who are thinking of investing in Main Street that is outside of Wall Street? I know you got some of it before. Is that what your answer is?

Paul Thompson

Yeah, I’ll refine it a little bit. So you’re doing something different than Wall Street, which means you’re going to buy a real estate, or you’re going to get into some sort of alternative investment, or you’re going to start a business. I mean, that’s what I would consider what Main Street to be. I am a really, really big believer that we should all have some sort of small business. You can be the only employee of that small business there. I mean, our tax system is set up to favor people who own businesses. It is not set up to favor people who have earned income.

People listening to this are probably high-income earners. You need to take some of that high income that you get, and you need to deploy it into passive investments. You need to deploy some of your time into running a business so that you can optimize your tax scenario. Because, again, we’re going to approach these things from not a default thinking. But let’s look at the rules. We’re smart engineers. We know how to solve problems. We can read the complicated rules, and we can optimize our path through it to suit our desired outcome.

Pancham Gupta

Great. Thank you, Paul, for sharing all your wisdom and time here. How can people connect with you if they want to find out more about you?

Paul Thompson

You bet. The best way to find me is on my website pauldavidthompson.com. Those are all spelled the way you would expect. I have the curse of a common name, so I had to use all three of them. pauldavidthompson.com.

Pancham Gupta

Awesome. Thanks for your time.

Paul Thompson

Thanks for having me.

Pancham Gupta

Thanks for tuning in today. If you have any questions, do not hesitate to reach out to me at p@thegoldcollarinvestor.com. That’s p@thegoldcollarinvestor.com. This is Pancham, signing off. Until next time. Take care.

(outro)

Thank you for listening to The Gold Collar Investor Podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at www.thegoldcollarinvestor.com and follow us on Facebook @thegoldcollarinvestor. The information on this podcast are opinions. As always, please consult your own financial team before investing.