Updated: Dec 18, 2020
Connect with Keith at www.financialjourney.life
Keith Blackborg joins the show to explain how he was able to obtain financial freedom and travel the world by his mid 30's. The journey to financial freedom does not have to take your entire life. This episode explains tricks to accelerate your pathway to financial freedom and how to structure your wealth around an excellent tax strategy. Keith also explains how people getting started can create the right mindset to develop the lifestyle they are seeking.
Keith Blackborg, CPA reached Financial Freedom within 10 years from success as an investor and tax strategist. He began his career at Deloitte, a Big Four International Accounting Firm and later started his own firm serving high net worth real estate investors including nationally recognized apartment influencers. He mastered complex tax strategies allowing clients to legally save ~10% of their net worth in taxes each year. His personal investing experience, deep tax knowledge, wide network and breadth of industry expertise allowed him to mentor clients in business making their whole operation more efficient and profitable.
Keith and his wife Jessica have experience with domestic and international investments including residential and commercial real estate, lending, startups, and paper assets. Keith served as the director of acquisitions for a hedge fund which transacted the largest private sale of homes in US history. Keith and Jessica were millionaires before they were age thirty. When they transitioned their active investments to passive they were able to retire comfortably through Financial Freedom in less than a decade of working.
In the two years that followed, Keith and Jessica literally traveled around the world while soul searching and seeking what was next. Financial Journey is the manifestation of passion to share a “rich” life and help others reach Financial Freedom.
The Passive Cash Flow Podcast is for beginner or experienced investors. Subscribe today to learn how you can diversify out of the stock market, own a part of an apartment building & start earning Passive Cash Flow!
Peoples Capital Group has been helping passive investors build wealth in NJ real estate for 10 years. Visit www.PeoplesCapitalGroup.com to find out if you qualify to start earning passive income and pay less taxes via investing in real estate. IRA's and 401K's are accepted.
Keith Blackborg: In your case for anybody thinking that they've invested with you and they're worried about prices going down, I want to point out that as long as you have cash flow you're positively cash flowing in an asset, you can hold that indefinitely. Positive cash flow is a great risk mitigation tool. Somebody that's already invested with you can just hold on for five or ten years, wait for the next cycle, and continue to collect cash along the way, and you really don't care what the current valuation of the property is worth.
Aaron Fragnito: Yes, absolutely, and we always buy cash flow positive assets, we would never buy a property that doesn't cash flow unless it's vacant land and we have another strategy.
All right ladies and gentlemen welcome to the Passive Cash Flow Podcast. I'm your host Aaron Fragnito, and we're back with another episode and we have Keith Blackborg. Say hello, Keith.
Keith Blackborg: Hello.
Aaron: All right, thank you for joining us. I just came back about two weeks ago from an amazing mastermind group with Keith, he was so kind enough to put it on for a select few business owners and really impressive people. I really loved it too. I met and what I learned, we had some intense wealth creation courses, but Keith talk a little bit about what you do and who you are.
Keith: Sure, I'm in the business of helping business owners and accredited investors reach financial freedom. After I reached financial freedom a few years ago myself, I looked around and wondered what I could do next? Sitting around watching Netflix and eating Cheetos, gets old after a while, and I find a lot of fulfillment helping others reach financial freedom as well.
Aaron: Awesome. I loved your message, and I really enjoyed speaking with you a number of times before I got there and met you in person in San Diego. You really have an impressive story, I talked with a lot of real estate investors and all of us seem to be so busy myself included, and I was impressed how you and a lot of your colleagues and people in your network also had cracked the code and had this mentality that success is actually about having a schedule where you can enjoy your life, and that's really financial freedom.
It's not about driving the fanciest car necessarily, it's more about having the ability to have your free time to do what you want to do with your time. I really enjoyed that mindset. Talk a little. That's not really what we're taught in America. We're taught success is working hard and da, da, da, da, and busy, busy. How did you come to that conclusion with your financial journey?
Keith: Well first and foremost any financial journey begins with your vision. What do you want out of life, and then once you know what you want, then you can build in the plan and the resources to get there. So many people are caught up with hustling and doing, just trying to obtain wealth, trying to run a business that they forget that the whole point maybe is to become wealthy, so people become so focused on just building their wage or their business that they don't make time to become wealthy, and by just a change in focus on that ultimately wealth growth should be the focus, instead of just running in a business that change of focus may help people reach financial freedom much quicker, and if you don't have a destination like you've set in your vision, then you could end up growing your entire life while you're hustling and doing stuff, but never reach financial freedom, just simply because you don't have a destination.
Aaron: Exactly, it's important to know when you're at your destination as well. If you don't know what your destination is, you don't know when you're there, of course, or if you're reaching towards it every day. It's interesting. I know you had your own financial journey, you had worked to build some real assets that produce passive cash flow, you're doing some really interesting stuff now we can talk about a little bit, but how did you get started for building financial freedom?
Keith: I started off buying rental houses in 2010, I moved from San Francisco to Dallas, Texas. Some of it was a mixture of luck, and some of it was taking advantage of the opportunity. At the time I saw that houses, you could buy them for less than what you could build them for, so I started buying rental houses, I was doing the occasional flip. I started at 25 and my wife and I, we had no kids at the time, so we just started buying rentals, we got to a point where we had 10 rental properties, and then from there I realized we can go buy a hotel because how many rental houses does it take to equate one hotel or apartment complex. There were greater economies of scale with doing those larger properties.
I think the biggest mistake I made was not going commercial sooner, and it feels difficult when you haven't done it before, but once you do your first or second commercial deal, you realize it's not that much more difficult than doing a single-family. Along the way I had a CPA firm focused on high-net-worth real estate investors, so I worked a lot with apartment syndicators in the Dallas area and I had some advanced tax strategies that allowed me to save people a lot of money, typically about 10% of their adjusted gross income, and then on top of it because I saw so many apartments and I was in the business myself, I could then provide tips on how to make their businesses more efficient. Maybe your property taxes is too high, go talk to this property tax consultant or your insurance is too high, consider a captive insurance policy to build your own retirement plan and while saving your tenants' money at the same time.
Eventually, I got to this point though with the CPA firm where I had 400 clients, I had five staff, I could never ultimately get away, and for me, it caused a lot of friction in my marriage, ultimately I decided to sell the CPA firm. I put money with some of my best clients, I had a great view of who was doing the best deals and that worked out really well, from that perspective sold a lot of our real estate holdings over the next two years and then we just went traveling. We traveled for 14 months out of 24 months. Literally, we went around the world and saw every continent except Antarctica.
From there we came back, we had a great little souvenir from our trip, our son is now 20 months old, and so our financial journey is a manifestation of those dreams to help other people reach financial freedom. I now see myself as a wealth connector, either connecting people with the education and concepts to get them to where they need to do, the deals which could be like a deal that you're putting together, I know you offer a great deal for passive investors so maybe I'm connecting people to you. It can also just be the vendors and the professionals beyond that so I'm not looking to replace your tax professional or your financial advisor, I'm a second set of eyes that really comes behind there and is an independent third party who can help you work through all the wealth, tax, financial matters that might help you in your journey to financial freedom.
Aaron: Yes, and that's what I liked about your service. You really are an addition to a good CPA and a good bookkeeping firm which is necessary for the day-to-day operations and filings of business of course, but you're more of a tax strategist, and we were talking about was an overall view and an individual like me with the management company and all the holdings and the fix and flips, employees. I have a lot of different tax avenues to be able to avoid all types of attacks. Really interesting stuff.
I had a three-day session with you there and your group at the Mastermind and boy those were in-depth sessions. What was my feedback? Your slides have so much information, they need to break them down. It was incredible how much information you were giving us, and those wealth strategies were really what I liked.
Also, Keith what impressed me about was you actually put these in motion. I know a lot of people in the business of tax advice or financial advice are in the business of giving advice which is nice, but I like people that are actually also exercising that advice and doing it themselves and successfully doing it, and showing, "Hey this works." I don't think this is financial freedom because of it. That was really nice to see that.
Keith: I don't really want to advise somebody to do something unless I've done it myself or I've walked very closely with the client who has done it. The moment I recommend something, I want to be able to have done it personally so I can know logistically how all these things not work, not just a theory.
Aaron: Yes, and that's so important in today's day and age to have people you're working within a business that actually have the experience, and actually practice what they preach because real estate tends to be a place with a lot of different people preaching different things and practicing different things, and there's lots of ways to make a buck, but it's important to recognize the right avenue for you, and then execute.
Keith: Yes, thank you.
Aaron: Definitely. No, I like that. Now it's interesting how you got into the hotel business. I'm right now at one of our Airbnbs, you can see it says, "Relax and Unwind" behind me, and all I do is work when I'm up here, so obviously we're relaxing and unwinding here as we like to do it. The hotel industry, what were some of the pros and some of the cons, obviously there's some challenges right now, that have been going on and how are you're working through that?
Keith: I'm no longer in the hotel business. I got out back when I thought the market was at a high between 2018 and 2019, and I'm glad I got out when I did.
Aaron: [laughs] I like that crystal ball you have.
Keith: What's that?
Aaron: You have a good crystal ball, looks like.
Keith: Yes. Frankly, hotel business, I saw apartments, they seemed really competitive at the time. I wish in hindsight, I had gone and done more apartments, but I did hotels, partly because they didn't feel like they're at as high of a price point. I also saw the opportunity for rapid turnaround. One of the projects I did was I bought an independent hotel at maybe 40% occupancy. Then I put a flag on it. I put a brand on it, a Choice-branded hotel.
Then the property jumped up in a year and a half to 88% occupancy and did some rehab and stuff. Within two years, I gave a 50% return on my investor's money. In effect was able to flip the hotel. That was in my mind a great deal. What I did not like about it, is it's much more complicated. There's more staff to manage guests. There's potentially more drama. With an apartment complex, hopefully, your tenants are turning over less than once a year.
Keith: With a hotel, it's every night or every few nights, and you always have people coming and going. Then you can just imagine from an accounting perspective, you've got Expedia, Travelocity, all these different online travel agents that all have two or three different programs on how they might collect revenue, and you got to somehow reconcile all that.
There's just a lot more complication to that that the takeaway I learned is, when I approach commercial, I can do just about any commercial, but I can learn how to buy it, and I can find people who want to go in on me with it. I just need to have good management and they can take care of the operations. The key to me was focusing on buying and getting things at a good deal and understanding that component to it.
Aaron: Yes, absolutely. No, and that's we recognize, too as we branched more and more into short-term rentals over the last few years. My wife has developed a short-term rental management company, and I've helped her along the way and Peoples Capital in general, she works with our accounting and bookkeeping firm that we work with. Our companies are very intertangled in that sense because we work so closely together.
It's been a really interesting journey seeing my property management company, PCG property management, which focuses on managing apartment buildings in New Jersey, and all the growing pains with that over the last five years. Then overseeing my wife's hospitality management company, it's completely different. It's apples and oranges in a lot of ways. Then there's a lot of similarities, of course, as well. It's about systems.
It's about having good boots on the ground, good people that you're working with whether you're doing year-long leases or a new guest every night or two. It's all about those systems, but they're different systems for different types of properties completely. Yes, that's really interesting. I'm glad you were able to develop that and have that experience. Now you're more focused on multi-family primarily at this time?
Keith: This time around, I am personally investing passively in a number of deals. I just look for great syndicators like yourself, who I can connect with, connect clients with and I pick the best of the people I see. I like syndicators who have their own management company. I find sometimes with syndicators, who have a third party property management company, sometimes they're not as efficient with that and so they don't get as good of a deal or returns for their investors.
That's one of the reasons why I connected with you and I like the way you do business. Now, I've transitioned to where I focus primarily on just finding great passive deals. I learned that same time I gave my clients a 50% return on their money in that hotel deal. I have a good apartment syndicator, a former CPA client who's also a good friend. She did a 105% return to investors in that same time period.
I realized that I could make just as much money by just finding other people who have done it before and put money with them. Then I don't have to go through the headache. If I really want to get into the business, yes, maybe I can do so but I know it's competitive in apartments right now. I'd rather find somebody who already has some of those established relationships, invest with them, and then maybe see how it goes.
Aaron: Yes, absolutely. That's the right mindset because you can't be everywhere at all the time. The real way to build wealth is to have passive investments going on while also actively looking for good active investments in itself can be an active part-time job. Connecting with those and making sure those operators are the right deal. For people that are looking, shopping essentially for a good place to invest their capital, so one of your rules is you like them when they have a management company in-house. You've been doing this for years, so what are some other tips you might have for people that are shopping maybe for their first passive investment in real estate?
Keith: One, I like to see a track record. It's ideally not their first deal. There's a lot of people on their first deal, and I don't want them to make their mistakes on my dime. I want to know what their track record is. I generally look for at least a 12% return on my investment over the life of the investment. If it's going to be locked up for over three to five years, I just want to make sure it's a good deal and that I like the people I'm going to be doing business with because, in effect, we're almost in a marriage, in a relationship for that time period.
As a passive, I want to make sure that I connect with the syndicator. Alternatively, I also want to be the person that a syndicator wants to have in their deal. I want to be easy to work with as a passive. I know I've been on both sides of that fence, so generally easy to work with. If I have questions I'll answer, but I don't want to pester either over little things. I also like the idea of maybe being geographically diverse in a few different markets.
I also like the idea of maybe even investing in some Airbnb units for somebody that knows what they're doing, because there's significantly higher ROIs, return on investments with that. If somebody else is willing to take on the main headache and hassle of that, the management of those, then that seems like a really good deal for me. Yes, as we've seen recently, with COVID there's some risk to that. Overall, those have bounced back pretty quickly especially over the summer depending on what areas you have them in.
Aaron: Sure. Yes, I was amazed at how much they bounced back. It was frustrating when they shut down Airbnbs in March and April, but then they allowed us to start booking again. I think it was around mid-May and it was crazy. It was like you flicked on a light switch. At least where I own out in rural New England because everyone's trying to get out of Boston, New York.
Seth and I were looking at the numbers as we do every week, every quarter every month. We're like, "Holy mackerel, it's just been-- Let's see where this goes. Let's wait another month. Let's see if this still is happening." Then it even grew from there into June, July so then we doubled into rural New England Airbnb. Really incredible stuff that's going on in the market right now. It looks like in the past, I don't know, maybe there's a little bit of reading the market.
A little bit of luck. I think all of us investors have probably a little bit of both sometimes, but what are your thoughts? What does your crystal ball tell you for what's going on? The COVID looks like there's a vaccine coming out. How much of an impact is going to have on the real estate market? Right now it's hot. Property values are going up. Rent's going up. People are investing. When's the party going to stop? Is it gonna stop anytime soon?
Keith: Boy, I would say with multi-family, I am always looking to buy when I can buy at a discount. I'm a value investor. When I can find value or I can invest with somebody who's found a great deal, that's when I want to buy. Multi-family right now is one of the hottest asset classes. It's a great time to be an owner. If you're selling you're selling at record highs. Everybody who's in the office space or retail space is looking to go to multi-family. Maybe self-storage, there's some other things out there but if you can get in with a syndicator who's getting great value when they're buying, then I think that's almost a no-brainer.
Aaron: Yes, I feel like multi-family when no one really knows what's going on is like the fail-safe in my opinion. I've always gone to that. I think flipping houses can get a little dicey around this time. We're a bit at the top of the market. I think there's still opportunity there. We're still flipping a bit and wholesaling. I think wholesaling is a good indicator but wholesaling can be very tough in a buyer's market phase one.
Just to clarify, so what I mean by buyer's market phase one for our listeners, is the real estate market ideally moves in four phases. Although we're not even sure if it's still the case. Your economist will tell you it'll go buyer's market phase one where cheap properties that was like 2008, 2011. Then buyers market phase two, it was 2012, like 2015. I'm switched around then at least in the Jersey market.
Given a seller's market, phase one up to about 2018 or so and, arguably a seller's market phase two now we're getting into here. The next cycle is the buyer's market phase one which would indicate prices would drop or at least remain stagnant for some time. I really actually welcome foreclosure starting up again, we have to have that inventory on the market, it's a process of our economies, how it works. It motivates those owners to put those properties on the market and move them to owners that can then renovate them or live in them and pay taxes and that that's how our economy works.
I think that when we have these foreclosures, my crystal ball is saying that it's going to actually bring the market down to a healthier place where the inventory is not so tight. I see unemployment dropping, I think we're going to come out of this all right, we'll figure out who the President is. The world's not going to end and we'll soldier on. That's what my crystal ball says, in case you were curious.
Keith: I will also say that back in 2016, interest prices were rising, I was concerned that we were going to have a drop then, I was wrong. I actually sold the hotel based on thinking that that was the time to get out, it would have been better to hold a little longer in that case. In your case, for anybody thinking that they've invested with you and they're worried about prices going down, I want to point out that as long as you have cash flow, you're positively cash flowing in an asset, you can hold that indefinitely. Positive cash flow is a great risk mitigation tool. Somebody that's already invested with you can just hold on for five or 10 years, wait for the next cycle, and continue to collect cash along the way, and you really don't care what the current valuation of the property is worth.
Aaron: Yes, absolutely, and we always buy cashflow positive assets, we would never buy a property that doesn't cash well as its vacant land and we have another strategy, but for the most part, that is one of the most important things to us. Is it cashflow positive asset through good times and bad? Also, when we go to project our long-term equity growth, we're extremely conservative and just basically assume inflations keeps happening, which is generally what we've seen for the last 100 years.
I think that I've seen-- We just did a refinance yesterday, Seth and I, and we pulled out nearly a million dollars of equity, growth over properties we've owned just for years in downtown Newark, and the rates are so low right now, and there's so many good places we can reinvest that capital that we're going ahead, and it was really successful refinance for us.
It just goes to show what we're talking about with the wealth strategy, that's a million dollars of tax-free money into our business. We didn't sell that package of properties, it's still cash flowing. Albeit it's going to cashflow less with a larger mortgage, but it's a healthy amount of multi-family housing in a high demand market, and the values have just really been amazing since over the last eight years, and that's what we talked about at your Mastermind session there, some of those wealth strategies. What are some good just general tips maybe for our listeners to wrap up here for tax strategies, saving on taxes? What are some of your core principles there?
Keith: Just real simply, a lot of people will talk about budgeting and spending, and you can go into that to control expenses, but if you're just setting aside 15% of your money for investing, that'll grow with time. Just set aside 15%, I would say three things to be able to accomplish anything is know where to apply your focus, have a community of people that support your goals, and then lastly, have the habits that will get you there.
Goals are merely waypoints in your habits, of successful habits. Figure out the habits that will get you to the wealth goals you need, which could be setting aside money for investing, could be having great deal flow. Start building a network of great syndicators like Aaron, and just know when those deals are coming in, and the better deal flow you have, the more you'll have your pick of those deals, I would also suggest that you focus on the process, not the project. A lot of people think, "Hey, I'm going to do this one project, or I'm going to do this one house, I'm going to do this one investment."
Instead, if you can turn that into a process where you are in the process of always having great deal flow, you're in the process of networking, you have a way to just record that or you have a way to routinely evaluate great deals, then your outcome of reaching financial freedom is just merely an eventuality, not a when or an if.
Aaron: I like that. I like that. That's great. That's great. Keith, how can people contact you learn more about what you do?
Keith: Sure. My website financialjourney.life. Happy to send me an email at email@example.com and I'm happy to talk to people if they'd like to continue the conversation.
Aaron: That's great. That's great. Yes, I really think it's important for our listeners out there. If you're looking at your tax strategy, if you're thinking how can I pay less taxes and build more wealth? Keith really blew my mind at the Mastermind group, and if you are looking to connect with more people, he's a great guy to know, he's really a real connector. You know I like about you Keith, you're not an Askhole. You know what and Askhole is?
Keith: I do not.
Aaron: [laughs] Someone that just asks for things. All right, you're a giver, you're someone that that creates opportunity. You don't necessarily charge for your-- And I like that and that good things will come back to you in the end.
Keith: I know if I'm consistently delivering value, and I'm focusing on serving others, I'll make money along the way. I'm not concerned about that. I've already reached financial freedom. I'm comfortable where I'm at. I get more fulfillment by helping others. I like the opportunity when I get to help.
Aaron: Yes, I love that. I love that by you. Great. Great, and thank you for our listeners here. If you want to learn more about People's Capital Group, of course, I'm your host, Aaron Fragnito. You can learn more at peoplescapitalgroup.com. We have some webinars there you can watch, you can sign up for a live webinar, we're going to self-direct your IRA or just passively invest in real estate.
We have apartment buildings in New Jersey, we have short-term rentals in rural New England, we're doing a lot different things these days. Very exciting investments. You can learn more at peoplescapitalgroup.com and check out our podcast. We're going to keep on doing this every other week for our guests, and thank you so much, Keith, for coming on. I'll put your contact information in the show notes for our guests there to take a look at. All right.
Keith: Thanks for having me.
Aaron: Have a good day.
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