How to Fund a Business Down Payment in 24 Hours | Ep. 64

So because I had a bunch of cash in my policies, I was actually able to take a policy loan for that down payment. And you know, the way I have it set up with our bank is I can actually get that money within 24 hours. So we're talking hundreds of thousands of dollars, no credit approval, nothing. - So essentially you are your own bank.

- We created a family bank. That's exactly right. - And then that's what you used to acquire the carwash. - Exactly.

Welcome to Business Buying for Financial Independence. I'm Tim Delaney, and I help young professionals buy small businesses so they can escape the 9 to 5 and take control of their time, income, and future. If that sounds like you, hit the subscribe button and let's get into it. Today's guest is Chris Larsen.

Today's guest is Chris Larsen. Chris is the founder and principal of Next Level Income. Chris has been investing in and managing real estate for over 20 years while still a college student. He bought his first rental property at age 21.

From there, Chris expanded into development, private lending, buying distressed debt as well as commercial offices and ultimately syndicating commercial properties. He began syndicating deals in 2016, and has been actively involved in over $2 billion of real estate acquisitions. Chris is passionate about helping investors become financially independent. Welcome to Business Buying for FI.

Chris. Thanks, Tim. Great to see you again. Great to see you.

So as the bio there mentioned, you're very into real estate. But as listeners to the show know, we talk about active businesses and active business purchases, which we will also get into today because you do some of that as well. But let's just start out with a little background on you and what kind of what got you into investing in the first place? Yeah.

So and look, thanks for having me on your show. I mean, what we do at Next Level Income is we help investors achieve financial independence, which is right in your title through education and investment opportunities. But I think the important thing, because we're talking to a business audience is I've always been an entrepreneur at heart. I sold wrapping paper door to door when I was 12.

I had a paper route, I did lawns and shoveled snow, and I raced bikes and made money doing that. I was out and getting sponsors when I was 15, which was, you know, that's a business when you're going out and raising money and, you know, for, for a team like that. And then when I was in college, I sold loft beds. So I would buy use lofts at the end of the year.

Usually I just take them down, you know, for students, and they give them to me for free for, for doing that service. And I'd resell them for 100 bucks at the beginning of the year. So 100 lofts, 100 bucks apiece, ten grand. Great way, you know, great business to be in.

But I think it's important point because this was kind of the genesis of my investing career, Tim. When I was in college and I went to Virgina Tech to study engineering, but my passion was really racing bicycles. And my goal was to become a professional cyclist, which my team did, but I didn't. And the reason was between my freshman and sophomore year, my best friend, my training partner, he was going to be my roommate.

He was a year younger than me. He also got into Virginia Tech because then was also Chris. Interestingly enough, we got confused all the time, especially when we were on our bikes. He would be talking to me.

They're like, Hey Chris, they have this conversation. I'm like, I have no idea who this person is. And I'd be like, I'm not. I'm, I'm the other Chris.

And they're like, what? There's two of you guys. It was. Yeah, it was it was pretty.

It was pretty amusing. But we were at a bike race June 21st, 1997, and Chris had a massive brain hemorrhage and died during the race and went to the hospital. Doctor brought me into the room. I was the one that I did him and I went back to school.

I raced for another year. I was actually very successful. As I mentioned, my team went pro, but I stepped away from the sport because I said, would I be happy if I died tomorrow? Like, is this really what I'm going to get the most fulfillment out of my life?

And it was a it was a multi-year process, Tim. But what I really came down to was, you know, life is precious. Like, every day matters, you know, sacrificing every single day for this sport that, you know, I've kind of gotten everything out of it at that point that I wanted to do. Is that really what I was meant to do?

And the answer I came up with was, was no. And I don't want to have any regrets. I want to take advantage of what life has the has to offer. And I came to the realization that you need money to take advantage of opportunities, whether that's an opportunity, you know, to just go in and trip to the Grand Canyon or, you know.

Have the best medical care, send your child to the best school, you know, donate to a charity, walk away from your business for almost two months, like I did during Helene when Helene hit Asheville, North Carolina, and start a nonprofit to do those things. And in that endeavor, I read over 250 books on everything from stock market, businesses, and money and finance and real estate and my path. I decided I was going to be real estate. And I like real estate because and look, I think this is a good point.

You and I were talking earlier, real estate is a business. And when I learned that and said, wait, you can control the price going in, you can control the income while you own it. And there's tax benefits just like a business. Those are those are great things.

And if you make business with real estate, it can be super powerful. And I think it's really important to note that commercial real estate especially is 100% of business. It's valued like a business on NOI, and it's not a multiple of earnings. It's on a cap rate, which is effectively a multiple of earnings.

- Yeah, I couldn't agree more. In fact, when people ask me about the businesses that I bought, the first one is the the wine and liquor store. And I tell people the second business I bought was the plaza that it sits in, which is, you know, and that's because it is another business. It's run like a business.

It is, you know, to some extent all real estate is, but definitely the commercial aspects of things. That net operating income is how the banks value it, how other investors will value it. So you can control that to some extent. Maybe you know, you can boost income revenue to a point.

You know, you have a little bit more opportunity and pure business to raise the income, but you still have those different avenues to do that in commercial property as well. - So absolutely that's - - Yeah. How and so what was that first kind of foray into real estate? Like what like actually got you into it?

- Yeah. So I think it's important to note that, you know, you need to kind of program your mind, right? You have to say, hey, you're looking for opportunities. You're looking for, you know, investment opportunity, a business that's out there.

And, you know, I'd already started to think in that way. And I was renting a room in a townhouse from a friend of mine, and my lease was coming up. And like, the oven was broken. I hadn't signed the lease yet.

We're kind of going back and forth, and one of the townhouses down, down the street came up for sale and I said, oh, what if I can buy this, you know, just do the same thing. I was able to buy it. It was only $90,000. And, you know, it was FHA loan.

I put $3,000 down. My mom helped me sign on alone because I didn't have any credit, real credit at the time. And then I was able to bring two other of my friends in as renters in that in that townhouse. So I basically did a house, we call it a house hack today.

So I increased the income by bringing in renters. I was able to control the purchase price going in. I knew what my mortgage was, my expenses going in. So, you know, control the purchase price, increase the income.

And then the third piece is, is the tax benefits. And because I wasn't making a lot of money at the time, even though it was a piece of residential real estate, I was able to use that depreciation to offset my income. So, you know, as we've made more income, we've had to use different strategies by commercial real estate. That's a little bit more advantageous from a tax perspective in those situations.

And you probably know this by the buying the plaza, because you can blend your business who probably paid your rent to your other business and then take advantage of some of those tax benefits. So that was my first foray. Then I bought the place next door and then, you know, over about 12 years later, we started investing in commercial real estate before we started to do our own syndications and bring investors alongside of us. - Nice.

That's - Yeah, most people think of their home that they purchase as an asset, when in fact it's usually a liability unless you're doing what you did and renting out rooms and actually generating income. That's one of the strategies, especially for younger people. It's such an easy I shouldn't say easy, but it is a good way to get into investing, cutting your own living expenses at the same time and building building an asset, which is - - And I think that's a great point. So if you're young, you know, say, hey, you know, should I buy my first house or should I continue to rent and buy my first business or buy my first rental property?

I've explained this to my sons. My sons like, oh, I want to buy a Tesla. And I said, “Do you want to buy the Tesla?” Or do you want - you want to have access to the Tesla?

And he's like, well, what do you mean? I said, “What if you could spend that same money and own a business that paid you enough that it would pay a lease for a Tesla?” And he's like, well, why would I do that when I could just own it, you know? So we walk through how, you know, you would own an asset and maybe you didn't want the Tesla one day and you could buy something else, or maybe by a Porsche, because the business is kicking off so much money, you know.

And that's the thing. It's in real estate. It's actually about 30 to 50% more expensive to buy than to rent today. So if you're young and you're looking at different options, you know, couple questions you should ask yourself is how can I create the lifestyle that I want, you know, without burdening myself with that debt?

And then, you know, two, you know, how can you look at these opportunities and scale going forward - You know, with that? And that's really, you know, if you have a little delayed gratification, you have a little discipline, a little knowledge in education, you can create a pretty amazing life for yourself. - Yeah, I love that. I love that conversation you had with your son about finding something else that can pay for the thing that you want.

And it sounds complicated. It sounds, you know, it's obviously way easier and more straightforward to just take your money and go buy the thing you want. But if you buy the thing that will generate income in perpetuity, then when you're done with the Tesla, you can go get something else and then go do something else. - And you said, you know, so and that's that's the second, the other lesson, which is seek to own assets and rent liabilities, you know, and then ask yourself, hey, is this a business expense?

And if not, how can I make it a business expense? So if you're always asking yourself those questions, you know, oh, we're going on this trip. Well, can we visit one of our rental properties and make it a business trip? Great.

You know, or maybe I restructure my ownership so my business owns my computer, for instance, or my car. You know, these are these things are very, very powerful that are kind of behind everything that we're talking about today. But you have to think through them first and create that mindset. - Yeah.

So you started with the townhouse. You got into commercial properties. When did you get into actively buying active businesses besides just the commercial properties that we consider businesses as well? - Yeah.

So I've always had my own business, Tim. So I think that's important first. So I've always had a business. So you know, before I went and bought a business, I always had a business.

We bought our first business, which was a carwash. I might be I'm going to be forgetting another business or something, something small that I've purchased. But you know, I talked about, you know, the law business in college, next level income, you know, which is our education business that we have. You could check us out at nextlevelincome.

com, but that was 2022 bought started buying you know, carwashes bought one right in Asheville that I owned with just one other partner actually two other partners. He's got kind of a silent partner there as well. But you know, it was it was it was really cool to him because he knew I was already buying real estate. I'm sorry.

He knew I was already buying carwashes. So he reached out to me and said, hey, there's this carwash for sale. I want to buy it. Would you be interested in being my partner?

Because I know you understand carwashes, and we also need a financial partner that can come in alongside of this. So he reached out to me and I initially looked at the deal. And it's funny, I was in my sauna and I looked at it on my phone and I thought this doesn't really work. But I had misread the underwriting.

So the next morning I got up, I went through it again. I said, “Whoa, this is actually a good deal. And this specific carwash was such a good deal for two reasons. One, our mutual friend was selling it.

I actually had already seen the carwash before because our mutual friend that was selling it, I was talking to him. I had lunch with him the day he bought it. Coincidentally, totally, totally coincidental. So I knew about that.

He needed to sell it quickly because he was buying a short term rental portfolio, and he needed to get out of the loan that he was on quickly. So he said, hey, I'll sell it to you guys if you can close in 30 days, basically at a 15% discount. So that's the first reason it was a good deal. The second reason is that it had its own well, so we didn't have that huge water expense that we had.

So I said, oh, this is you know, this is great. You know, I got we're getting again, going back to the original principles, I talked about controlling the price, going in, getting a good deal, going in. When we bought it, we implemented some new systems that we're able to increase the membership. They had no memberships at the time.

So we implemented a membership model. We were able to increase the revenue with some other sources like that. And I was a big fan because carwashes and there's a lot of other businesses out there with, with depreciable equipment, had huge tax benefits on the front end. So it was it was very appealing to me with respect to that.

And then my partner was also going to be the operating partner. So he had his own team that he had he had built and built out over time. So for me it was a great fit. And I think that's another lesson to underscore is, you know, when you're when you're going into a business, you understand what your own capabilities are, your interests are, your strengths are.

And if you don't have those, partner with somebody that has those. I didn't particularly want to go and manage a carwash on a day to day basis. I understood it, I wanted to own it, but I didn't want to manage it. So I had a I had a great partner that I could go in with and take advantage of all those things, and then also take advantage of putting that into a bigger portfolio where you basically had an increased value through a roll up strategy, which I know can work through a lot of businesses as well.

- Yeah, a lot to unpack there. The, the, the first thing I want to touch on is you initially just kind of glanced at the numbers on your phone in your sauna and decided it was not a deal that you were going to do. What gave you the confidence to be able to look at the deal that quickly, just on your phone and say yes or no off of that? - I miscalculated the NOI, and I forget - I forget exactly what it was, but I was looking at the cash on cash and I was like, this isn't going to work.

But I looked at, I looked at something incorrect and I forget exactly what it was at the time. But when I went back and looked at it again the next morning, I misread something with respect to that. So, you know, for real estate, for instance, you know, my quick back of the envelope when I was buying a piece of residential real estate, I'd say, hey, can I rent this each month for for about 1% of what I'm paying for it? So if I pay $300,000 for a property, can I run it for $3,000 a month?

Now, that might sound crazy to people, but those were the deals I was buying back then. You know what? I'm looking at a business. I have different expectations, you know?

So I was I was like, hey, can I get 20% cash on cash? You know, on this, on this, you know, as an investment. So having those metrics kind of having your BUYBOX is very important because you may I see deals every day now. People bring deals to me every single day.

Do you want to invest you want to invest personally? Do you want to bring a group of investors into this? So understanding what that box is and does it fit with that and does it fit your return expectations is really important. So whether you're looking for a job or a business, get really clear on what you want.

You know, what does it look like? What does the day to day look like? What is it? What are the financial expectations look like?

And if you don't understand it, teach yourself how to do it. Use Claude. Build out an underwriting agent. I mean, it's amazing what AI can do to help fill some of those gaps today.

- Yeah, yeah it is - It's getting better and better, but still don't completely rely on it quite yet. But for initial assessments and helping you understand things better, it's amazing. - Don't lean on it entirely, I'll say that. But it's really good, you know, to do a first pass at something.

Or if you're looking like, if I'm looking at an underwrite today on a business or a property, Tim, I'll throw it into my underwriting agent and say, hey, provide me feedback. And it's pretty amazing. Like, I had a deal last year. We were buying two assisted living facilities, which again, are businesses have real estate.

And there was there was a real issue with the CapEx and our operating partner had kind of hidden this. And I was like this, something's not working out. And I'd figured it out over the course of about a week, but I ended up throwing it into Claude and saying, hey, like, tell me, tell me what you see is an issue with that. And it immediately flagged that CapEx.

So knowing what I know today, it probably would have saved me about two days of time going through thousands and thousands of cells and trying to trace back what someone else did. And it immediately said, hey, here's like something. So if you're looking at like a T12 or, you know, you know, annual financials from a business, you can say, hey, point out, you know, point out to me some areas of concern that I should dive deeper into and at least give you a head start. - Yeah.

Yeah, that's a great use case for it. CapEx for those that are not familiar with that term is capital expenses. Those are like the large items in a deal that are not typically on the expense side of a profit and loss statement, but they are money that goes out the door. And then a T12 is the trailing 12 months financials.

It's used a lot in real estate because if you're buying a deal in July or October, you don't want to just be looking at last year's tax documents. You want to be looking at something a little bit more recently. - Thank you. - Yeah, shout out to my video editor, he's been telling me that I haven't been doing a good job of naming - laying out what these acronyms are as we go through.

So just want to make sure that everybody's on the same page. Back to that quick glance too, in that, you know, you made a mistake when you first looked at it. How many carwash deals had you looked at, at that time? - Yeah, at that point, definitely a couple dozen at that point.

So I knew I knew some of the initial metrics to look at. And, you know, some of the big, you know, so if you're looking at a business, you know, whatever the business is, you should understand, hey, what type of top line revenue should I be looking at in comparison to the purchase price? What type of cash flow should I be looking at in terms of the purchase price? What type of expense ratio should I be looking at in terms of the purchase price?

And if you look at those, you can say, oh, okay, here are some different things. Or like in that business I was mentioning, you know, you have, you know, memberships and then you have individual sales, you know, so there's a lot of businesses that have this, it's like, well, okay, if you say, wait, this business has no memberships. And typically that can increase your sales by 20% or 30%. That's a huge area of opportunity, you know.

So there was like that was something I didn't notice initially, but it was a sweetener, you know, to the deal. They weren't accepting like credit card payments, you know, like really, really, you know, important things that, you know, you say, well, wait, if we do this, we can really improve the know. I in this property or this business. - Yeah.

It's good. And the point I wanted to touch on there is you had looked at a couple dozen already so that and that's what helps you understand what a good deal and what a bad deal is. The more you, the more you look at, the more you're going to start getting a feel for it. Not that you want to again be trusting your gut completely, but it gives you that good first assessment.

And sometimes you're still going to be wrong as you were. But you know, it gives you it lets you feel more comfortable with everything the more you do it. So you look at the numbers again, you like it, you turns out you know the owner, you know his situation. And this is something else.

You know, people always just assume that, well, why would somebody sell it for a loss? Why would somebody, you know, nobody's going to do that. But clearly some people will. This guy had a better opportunity.

I assume it was a better I'm going to assume that he had a better opportunity. And that's why he was willing to take a loss on this to get out quick. Can you go into that conversation with him a little bit more? Was there did he was open about that or did you just happen to know?

- Well, yeah. So I think to clarify Tim, he ended up selling it to us for what he paid. So he didn't make any he didn't lose money, but he didn't make any money on it. So he was trying to sell it for $150,000 more.

And so we got $150,000 discount on it would have been, I think we paid 1.2 for it. Don't quote me on that. Exactly if you're listening.

But, you know, we got a really, really nice discount when it came to that. And you know, that's the other thing. There are people that say, hey, you know, I've got, you know, I may be willing to sell a property today to get my cash out for me, for investors, because I have another opportunity that might be a better fit for me. You know, that means it can still work out for me.

It can be a good deal for somebody else at that time. But he was looking at another business that was a better fit. This was not part of his core. His core business was short term rentals.

He bought this because it was a good opportunity at the time. So it was cool because he found a good deal that he was able to basically give to us, you know? So he basically vetted the deal and showed us, hey, it's viable. He was able to maintain the revenue.

He didn't do any of the work that was necessary, you know, and that's we got a lot of baby boomers retiring today. 10% of those baby boomers have businesses that they're probably willing to sell that need to get out. And I'm talking to somebody right now. They're selling their business.

And he said to me, he goes, look, I'm either going to shut it down, I'm going to sell it to you, or I'm going to hire somebody to run it. And I really don't want to hire somebody to run it. So I'm either going to shut it down or basically give you a good deal on it. - Yeah, yeah.

And there's a lot of that out there. There's I saw some statistics the other day about how many are just closing their doors or just, you know, not even going to do anything with them. So if you can get it for very cheap, it's good opportunities. The other thing you mentioned talking about the car wash is so obviously it's a real estate investment as well.

Because, you know, from what I understand, most people buy carwashes. You're getting the active business of the carwash. You're also getting that real estate piece. But then you talked about the equipment as well.

How does that I guess maybe tie that into how you structured the deal with the seller. - Yeah. So, you know, if you buy a business that comes with a building, right, then there's a real estate component. Now a carwash is primarily a business, like you - You're probably not going to go just buy a carwash and, and shut the business down on the carwash, like there's there's not one without the other, right?

Like you're not going to live in a carwash. You're going to run it to somebody else. Although you can do that, you could rent your rent or like lease your carwash to somebody else to run it. You can do that.

But you got to have you got to have the business to have the real estate in that case. But this is going back to our initial discussion, Tim, which is businesses and real estate complement each other. So when it comes to depreciation, if we if we take a step back. So in residential real estate, residential real estate is depreciated on a straight line basis over 27.

5 years. Commercial real estate outside of multifamily, which is classified on that same 27.5 year basis, commercial real estate is depreciated over 39 years, however, and a lot of things have been kind of changed over the past several years with the new tax laws that have been put in place. But there's what's called accelerated depreciation.

Now, we as business owners are accustomed to this through section 179, you by a piece of business equipment that can even be a truck which you depreciate in the year you bought it. So the new law that Congress just signed says, hey, first year you can appreciate 100% of that equipment purchase, which is awesome. So what's neat is when you buy a carwash, yes, you have the building, but most of the “real estate”, it's the building - isn't a lot. But the equipment inside the building, you know, the robots that wash the cars, the kiosks, all those things typically exceed the actual cost of the structure itself.

So you can depreciate all that equipment at 100 at that 100% basis, which is which is really nice because then you can offset the cash flow from the business itself, which puts you in a really good tax situation. So understanding the real estate and tax side made this very appealing to me in my partners as well. - There's a lot going on there with depreciation. If you don't fully understand it, it's okay.

You have time. You can go back and listen to that a couple more times. But and there's some great textbooks out there once you get closer to being in that situation. But essentially what Chris is saying is that if you ever look at a carwash building, it's essentially four walls or two walls with openings on either end sometimes.

Yeah, it's really not - it's nothing fancy. They make them look nice now, but it's nothing fancy. It's all that equipment inside that you're paying for. And that's.

And if you can depreciate that in the first year and take that against your income, that means you're paying very little, if any tax on your income that year, which is great because I haven't really met many people that like to pay tax. So that's - - Yeah, if you want we've got we've got a great partner called Taxes Save. So if you email me chris@nextlevelincome.com just put taxes saved in the subject line.

we can put you in touch. And you know they can help you work through that stuff. Even introduce you to businesses that have have some of these tax advantages. So yeah you don't you don't have to do it yourself.

There's always people out there that can help you with these things. - Yeah that's great. And will you help people with that before they've even bought a business till you mentioned? - Oh yeah.

That's the cool thing. So yeah our partners save taxes. They will if you're W-2 earner they can help with your tax problem. If you're a business owner they can really really help you with your tax problem.

And that's one of the best parts I don't I don't know if this is the topic at today's show, Tim, but, you know, one of my favorite things about being a business owner and a real estate owner is that you have you can shift your income through your personal balance sheet, your business balance sheet, through your real estate to really optimize your tax scenario. And if you're doing it right, you shouldn't really be paying much in tax, if any. - Yeah, that's a great point. And it wasn't going to be the main topic.

But it can be because you you are well-versed in the subject with your active businesses and your real estate. So do you want to kind of go into a little bit of how that how your how you balance the two and why you do both. And, you know, I guess just go into a little bit more depth on that. - Absolutely.

And yeah, I don't want to I don't want to get too in the weeds because we could we could really go deep in here. So I'll keep it. I'll keep it kind of high level. So, you know, when you have a W-2 job, to put it simply, you make your income, you pay your tax; you pay your expenses.

Government takes their cut first. When you're a business owner, your business makes income. You pay your expenses; you pay your tax. And you can pay yourself before typically before you pay that, that taxes as a business and then you pay your your personal expenses afterwards.

There's a lot of things. I always like to ask, hey, is it a business expense? Is it a personal expense? What can I do?

We have we have a business vehicle that we sometimes use for personal use. Now our accountant keeps track of that. So we make sure we account for that properly. But I bought a sprinter van for our family to use.

But I also rent it out. So I have a business that I've created with my sprinter van. That sprinter van was $180,000. My business bought that.

My business. I have set it up as a rental. It's going out a week from today. We got another rental after that.

The great thing is we were able to depreciate in the year we bought it, it was only 80%, but I financed it over 20 years. So you can see the power just in that one little example, Tim, where we made $180,000 purchase, 80% of that, you know, was around about $145,000 that we were able to deduct from our business income that year. But we didn't pay $180,000 that year. We're paying for that van over 20 years.

And the rentals that we have through the business pay the carrying cost every month on that, and then we can use it personally or effectively rent it personally from our business to use and do that. So if you if you look at your business and your personal income altogether or even start a business, you could you could buy a sprinter van, start your own rental business, you know, that could be your first business to go out and do that. I'm not going to say that's an awesome business to be in necessarily, you know?

But if we break even with that, it works really well for us when you blend the taxes in. So that's my point. If you look at it from an income, a tax perspective, you know, along with the business perspective, you know, you can take something that may not look like a great purchase and turn it into a really good purchase. I'll give you another example as well.

So we built our home in Asheville, North Carolina, and Asheville has really strict short term rental rules. Well, short term rentals are a business much their hospitality business way more than real estate. It's way more than real estate. Run the short term rental business.

If you buy a short term rental and you pay somebody else to manage it and do that, it's not a great business. I can tell you that if you own the business yourself, you know, you own the cleaners, you own the management company, you can do a lot better. But we built our home to have an attached short term rental with it. And you know that with the other short term rental on our property basically covers our mortgage every month.

So again, we ask ourselves, how can we make this, you know, potential liability, a business that we can then make income from and have tax benefits from. We basically cover almost the full cost of owning that home by turning it into a business. - Yeah, that's a great strategy. And it's something we touched on earlier.

It might have been before we started recording of buying the assets to pay for your expenses. So it sounds like you kind of, you know, you needed a home. You found a way to create revenue that helps sustain that home helps offset some of it. So it's not just a pure liability, which is great.

I like both those examples. Hopefully, somebody out there can utilize them whether or not they ever buy a business themselves. These are simple things that can be done in your personal life as well. Back to that carwash deal.

So you how did you you have the partners on it did you. And you had to close in 30 days. How did you finance that purchase? - So this is, I'm glad you brought this up because the thought went through my head, you know, when we were talking about it initially.

So, you know, as a business owner is a real estate investor. We need a lot - We need a lot of cash. We need a lot of, you know, liquidity. So at the base of our financial pyramid, we have cash value life insurance policies.

So I always have a significant amount of capital in cash value of my policies. Now really quick I don't want to go to deep into this. Now you can go to our website Next level and click on the banking link. And we have a whole webinar on this.

And you can kind of look through it. But people might say whole life insurance. That's a terrible investment. Well, it's a strategy especially for business owners.

So because I had a bunch of cash in my policies, I was actually able to take a policy loan for that down payment. And you know, the way I have it set up with our bank is I can actually get that money within 24 hours. So we're talking hundreds of thousands of dollars, no credit approval, nothing. You know, we look at our personal balance sheet as a business as well.

So whenever you have capital going out as a business, you say, hey, there's a cost of capital, right? Am I going to get a positive ROI? Am I going to get a positive net present value making this investment? So where do you store your capital?

Do you put it in a savings account making 1%? It's not a good spot to do it. You know, we get 6% tax free in our life insurance policies. So we have a business that is paying us, that is fueling our life insurance premiums, that's coming out of our business.

And then we are able to use our personal life insurance policies and now loan our businesses money that can then be used to buy assets that then repay the loan back to us. And because it's a business loan, we can write off the cost of that interest. We can charge our business a reasonable interest rate to repay ourselves with profit to repay that loan. And now we create a positive income stream back onto our personal balance sheet that refueled the cash value of those life insurance policies.

And big companies do this. They ensure their own. They have their own capital pools. They have their own captive insurance policies.

So this is a way that you, as a small business owner, can do the same thing. And you can also implement key insurance and different strategies that, you know, some of you listen may be interested in as well, but that can be another very powerful, you know, bolt on to your business strategy. - So essentially you are your own bank. - We created a family bank.

That's exactly right. - And then that's what you used to acquire the carwash. - Exactly. So yep.

We used our family bank to loan our new business. We set up a new entity, our new business, to buy that carwash. And then that carwash every month, paid that loan back with interest and then with pretty significant profit as well. - Nice.

Did you set up separate entities to hold the real estate and the business as well? - So you can do that. In this case we did not do that. But that's certainly that's certainly a strategy.

And that's something you know, if you do that that's something you want to discuss with your CPA. I'm a big fan of that. With a carwash, it can be a little different for multiple different reasons. As we talked about with the equipment kind of blended in.

Yeah. But yeah, if you're like for when we bought our office for our business to, to occupy in Asheville, we did set up a separate entity. And I would say, you know, in general that's the best strategy to apply. - Yeah, I've been curious on carwashes because I have not looked at any I've not purchased any.

So but it seems to me as one of the rare cases where it would be blended into one entity just because of the nature of it. - We've looked at it both ways. There's pluses and minuses, but, you know, and it gets pretty complex with several different pieces with that. But like let's take you know, if you take like the assisted living facility, that's a case where you would have a property company and an operating company.

So you're going to have two different entities. One owns the actual real estate, one owns the actual operating company. And that in general is going to be your standard when you have a business that occupies a piece of real estate that that is integral but are two separate entities, and usually that's that's ideal from a tax perspective, but also a liability perspective as well. - Yeah, especially when you're dealing with assisted living.

We just had Anthony Lawson on the podcast talking about assisted living facilities and the operating company and the property companies, two separate entities, the way he structures them. And so sounds like the same as Chris does. Absolutely. Yeah.

Anything else that you want to share about that, about carwashes or about business acquisition in general? - Yeah. So I would say, yeah, with the carwashes specifically, Tim and I might have briefly mentioned this, but we really didn't touch on it. And when you look at businesses like carwashes, there's something called a roll up strategy.

So if you own - we have 31 carwashes now. So when you own 31 carwashes and you offer those up for sale, you actually get a higher multiple. So if you're a business owner or you're looking at buying a business, I think that's very powerful. If you have the option of two different businesses and you say, well, I can buy this one, and if I buy another one, so if I own one, two, three, ten, the value is going to go up, say 50%.

If I own ten of them versus one of them, that's a real advantage. So that's something that applies in the carwash space. It applies in other business areas. It applies to a lot of businesses in general.

Just because it may not necessarily increase the multiple. But take our multifamily properties for instance, with our Houston portfolio, about 1500 units, we can have the same roofing crew work across our properties. We can have the same pest control across our properties, you know, so there's a lot of, you know, synergies that occur with that. And you can reduce costs.

So if you're looking at businesses as you look to scale, I think make sure you're looking at businesses that are creative in nature. Like the more you buy, the more either the income increases because of efficiencies or the valuation increases. I think that's a really important note in the business world. - Yeah, that's great to touch on.

It's, you know, to your point, whether or not it actually increases the multiple, if people remember the multiple is how you're valuing the business. So whatever that that cash flow is or EBITDA is, you're using a multiple of that to decide on the price that somebody is going to pay. When you get to the higher levels, there are bigger fish that are going to buy those to add to their portfolio, and they're willing to pay higher multiples, just the nature of how they operate. So if you get there, it's great because you're not only making yourself more money in the process, but then you're exponentially increasing it.

Yeah. - One another point you to tag on to that, Tim. You know, if you're talking to a bigger group, they may say we're not interested in buying one carwash. But if you say, hey, we've got ten to sell, they'll say, well, that'll move our needle because, you know, a family office, a private equity group, they may have to allocate, say, 50 million at a time.

They're not going to allocate 5 million because they've got to do the same analysis and they need to deploy more capital than that. So that's another important thing to understand. You know enter with the exit in mind. - Yep.

Yeah. Always from day one be thinking about what your exit plan is. And that's a good point to about thinking bigger. You know there's we talk about it here is to not think too small.

You know I've never met somebody a successful person whoever says, I wish I could have started smaller, I wish I would have. My first deal was smaller. It's, you know, the same reason that these bigger family offices and private equity companies won't touch the smaller deals, because it takes them the same amount of work to look at one car wash as it does to look at ten at a time. So it just makes sense to buy more if you can.

So think bigger. Don't be afraid to look at those bigger deals if you if you can afford it. Yeah. You mentioned a couple email addresses on a website where people can find you.

Do you want to touch on those again? And who is your - who should be reaching out to you? - Yeah. Thanks, Tim.

So yeah. Next, like I said, our mission is to help individuals in chief financial independence through education and investment opportunities. We talked we talked about a few things here today. If you're interested in how you can save taxes, just shoot me an email.

Chris@nextlevelincome.com Put Taxes Saved in the subject line. That's probably the best way to handle that. We actually have a new book.

So if you're starting off and you're like, hey, I got a good W-2 income, I want to buy a business, I want to get to the point where I can create passive income and do this. Our new book is called How to Be Financially Free by 40. That's it. Nextlevelincome.

com/financialfreedombook totally free, step by step process. And then you can get all our all the access to our podcasts that you're coming up on an upcoming episode here Tim on that the next level income show, all our blogs, all our other information is up there as well, as well as my contact information at Next Level Income. - Awesome. Thanks for sharing that.

We'll be putting all of those links and email addresses in the show notes below, so don't hesitate to reach out to Chris. He's a great resource, obviously well accomplished and a lot of different areas. So really appreciate you coming on, Chris, and sharing all your knowledge with everybody. It's been great, great conversation.

- Likewise. Thanks, Tim. Thanks for having me. Love what you're doing.

- Thank you very much. And to everybody else I'll see you again soon. Cheers. Thanks for listening to Business Buying for Financial Independence.

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