Achieving Financial Freedom with the Moat Theory, Solocast Episode #4
Mitch Stephen has been a self-employed RE investor for 23+ years. His real estate investing career started at the age of 23 when he read “Nothing Down” by Robert Allen.
REAL ESTATE INVESTOR:
Mitch, together with his wife, Tommi, and his daughter, Shannon purchased their fair share of local houses. Their company, Independence Day, Inc., has bought and sold over 2,000 properties in and about San Antonio, Tx since 1996. This company specializes in buying distressed properties with OPM and the selling of those owner financed properties.
Mitch is the author 3 books:
MY LIFE & 1,000 HOUSES:
Failing Forward to Financial Freedom
MY LIFE & 1,000 HOUSES:
200+ Ways to Find Bargain Properties
My Life & 1,000 Houses
The Art of Owner Financing
For more info about these books go to https://1000houses.com/books/
Mitch offers Online Education, Group Coaching, and one-on-one Mentorships as it relates to all the aspects of Owner Financing and owner financed properties.
Mitch forged the creation of a mass texting software, LiveComm.com to help solve problems that arise when you get numerous calls from bandit signs and other advertising efforts to sell your houses.
The main reason Mitch wanted this system was to reduce the number of calls from potential buyers (that asked the same questions over and over) to a group of the most qualified buyers, saving time for the sales team. This solves that and much more to streamline you selling process.
What you’ll learn about in this episode:
- Why you need to build failure into your plan and how to do it
- Achieving financial freedom with the Moat Theory
- What financial freedom really means (it doesn’t mean being rich)
- Figuring out your freedom number
- Resources for helping you achieve your financial freedom
Mitch: This is Mitch. And welcome to the Real Estate Investor Summit Podcast. I am your all-knowing and gracious host, Mitch Stephen. I have a–we’ll gonna go solo today. So, you just me. I’m gonna talk you a little bit about the Moat Theory and how to sail forward without failing. But, right now, let’s take some time to pay homage to our sponsors, and we’ll be right back.
Alright, this is Mitch and we’re back. Okay, so, today we’ll gonna talk about how to build failure into your plan. Sounds kinda crazy does it? How you gonna build failure into your plan? You don’t have to listen very long to the smart guys out there that are talking about how to become successful or how other people become successful. You don’t have to read to me autobiographies, every single time you’ll gonna see this common theme. That people failed a lot, the most successful people on the earth failed hugely over and over again, until they figure it out.
So, in my book, My Life & 1,000 Houses: Failing Forward to Financial Freedom, I didn’t know at that time where I was living through my build to success, what was making it possible if I had figured it how to fail without collapsing, and so the Moat Theory takes us back into medieval times, you know what a moat is? You got your castle, and then the moat is the circle of water that is around the castle, so that all the enemies can’t get into the castle, without having to swim that moat.
And in that moat you’ve got alligators, piranhas and snakes and probably sewerage. You know, if am thinking about this right, sewerage from everyone that is living in the castle, very very unpleasant that moat is. It is the protector, it is the ring of fire around the castle, and so, I was putting my analogy into the basis of chivalry and knights and castles and the way to get out of that castle and across the moat without getting wet, stinky or eaten alive is to drop the drawbridge down and you can charge out or bask in over the drawbridge but, when you finished and you wanna be back in protection mode, you pull the drawbridge back up, and then you are safe with inside the moat. Inside the moat, I want you to look like at your household. Your house is your castle and the moat is the protective barrier around it.
And as described in the moat theory, that inside that moat is everything that you need to live comfortably. You got your chickens, you got your horses, your car, your insurance, your air conditioning, your roof, your food, you know, anything that a normal modest household will have to pay for, that is what i’m calling your castle and what’s inside your moat. And so, in order to talk about how to fail forward, we’ve got to talk about how to get in the position wherein you can fail and not collapse. Now, I once heard a financial speaker, they were talking– I don’t know if I read it in a book, or if I saw it on the seminar, or someone was speaking but, I heard the definition of financial freedom. And it change–it started to change my life.
You probably all heard that saying, that teacher will appear when the student is ready. I think, I was ready to go to another level when I heard a person say, that their definition of financial freedom was, “Financial freedom happens when your wants and your needs are exceeded by your passive income”. I say it one more time, ‘cos it’s really important, “Financial freedom happens when your wants and needs are exceeded by your passive income”.
Man, when I heard that sentence, it started to haunt me, I couldn’t let it go. Because I was having all these revelations about what that sentence really meant. And so, the number one thing that I got out of it, right out of bat, which was quite a revelation to me at that time, was that being financially free and being rich are not even remotely close to the same thing.
See, I always thought that people use the word financial free, people that use those words were rich. And in fact, that was a huge huge accomplishment, and while being financially free is certainly a big accomplishment, it wasn’t as big as what I had in my mind. Because, the other thing that the statement said was, I control the bar. If everything it took to run my castle was modest like, if I needed $4,500 to pay for everything inside the moat, I mean that’s not rich and then I thought, I control the bar, so in the name of financial freedom, I scull some of my expenses, and got my $4,500 to $3,500, granted I was writing this book, My Life & 1,000 Houses: Failing Forward to Financial Freedom, and like– it came out in 2008. And I was writing about a 10-15 year period before that, so, am writing a period about 199, 1997, 1998, 1999 and 2000. And that was my overhead at that time. So, I just wanted to put the $3,500 in context around 1966-1997.
And so, I lowered my bills, I sculled some of my expenses, not that I was gonna live that way forever, I was just lowering the amount of my expenses, so that I could get freer faster and here’s why it is so important to get free, because the third thing that I started to calculate was that, it wealth– if true wealth was in the cards for Mitch Stephen, then it would probably happen, it would most likely happen. I would have the best chance for it to happen after I got financially free. And this is why. Because, once you are financially free, you don’t have to give up all those hours that you are putting in for your bosses at that J-O-B, that job. You don’t have to have a job anymore, I mean to be financially free, I need to get $3,500 a month coming to my mailbox. Every month, without fail. So that I don’t have to have a job. So, that would pay my bills.
Now, I picked the number 2,600 hours a year, because, I think that responsible people, energetic people who have what it takes to become financially free, even if they have an 8-hour day, they’ll not just gonna work 8 hours. They’ll gonna work 10 hours, 11 hours. I pick 2,600 a year that you would dedicate to yourself, instead of some other job that are just barely getting you by.
You can go work for free, you can emerged yourself, you can hang around people that are in position that you wish you are in, people that have been successful, if you don’t have money, you can hang with them all month. Because, your castle’s paid for inside that moat, because you generated, you know $3,500 a month, coming in–in my case.
And so, then the last revelation was, after all this put together, in my mind was that, you know, I can stop all this huge thinking, right now. In trying to take on or brings or proposals or trying to come up with this big thing, so that I can become a multi-millionaire, my first step was just a measly $3,500 a month, come into my mailbox every month without fail. And then, I would free to do whatever I wanted to do, Monday, Wednesday, Sunday, Thursday, Tuesday– it didn’t matter. I could do whatever I wanted to do. And I knew in my own heart, I wanted to be healthy, I wanted to be successful. And I knew that I would take that 2,600 hours a year and learn how to make real wealth, and so the big big thinking, that stuff just went out of the window. It took me less than a year, I wanna say like 8 months, using owner financing strategy, to buy houses with other people’s money and owner financed the sale to my buyers, requiring a down payment and monthly payments for 15,20, 25, 30 years. It took me about 8 months, I think to get that to $3,500. Once I focused and knew exactly what I was doing, and exactly what my freedom number was, and I wanna talk to you about your freedom number.
So, the first step in becoming financially free is you have to figure out, how much do you need. You’ll be amazed how many people do not know what they spend and what their bills are. And honestly, it is not easy to get a hand on that number. Because, you know, it’s easy to say well, I’ve got a house payment, I got a car payment. And those payments are easy to find and write the number down. But, how much are you spending on you know, at the bar. How much are you spending on restaurants? How much are you spending on clothes? You know, how much are you spending on gas? Do you really know? So, these numbers can be a little tricky, but the first step into your journey towards financial freedom is to figure out what is your freedom number is.
And I call it your freedom number, it is not live-my-dream-numbers, it is not fly-the-airplane-numbers, it is not travel-around-the-world-numbers. It is just what it takes to pay your basic overhead and take your spouse to a movie now and then, and go out and eat and live a rather but fruitful life. That’s your freedom number. And once you figured that out, then you just started to make a plan. And believe me the day that I become financially free, and I called up and fired my boss, was one of the days, I’ll never forget in my life, I’ll never forget it.
And so, imagine you got your freedom number, and you got your castle paid for every month, and you got your moat bills around it. The moat signifies you do not risk in your future endeavors, you do not risk what pays for the expenses of your castle. You never risk it, that’s why the moat surrounds it. You don’t risk because let me tell you, one, so you are sitting there inside your moat, and you saved up some excess money. And you decide you wanna try out and try this endeavor out in the world, so you lower the drawbridge from your castle, so you could charge up over the moat, out into the wild world. And let’s say you get out there, and boy, you just get plummet. I mean, they have weapons that are sharper than what you thought, that were faster–their horses are faster than you thought, you just got out gamed. I mean, you just simply got out gamed. And so, here you are, you are riding your horse back towards the castle, trying to get that draw bridge, so you can over into the safety of your castle, and pull that draw bridge up, where you can pull these arrows at your back side, you can start to heal.
And because, your castle and everything inside that moat is paid for, you can relax, heal and contemplate what you did wrong out there in the wild world. And how come your business venture was not successful, then you can start to amass more money again, and as your cups are filled up, above and beyond what you need for your castle, then you can charge back out again and do a better job next time. The question is, how many times you’ll gonna charged out from your castle, over the drawbridge out into the wild world, and lose. How many times you’ll gonna charge up and fail, before you figure it all out. Because, once you figure it out, you try to charge out there, you are not coming back. You setting up shock, you’re building another fortress over there and outlet. Another income producing stream out there. And the problem is, so many people gamble everything and if they lose out there in the wild world, they lose their house, they lose their cars, they might lose their marriages, and this is a heavy duty stressful way to do business. And I would venture to say, that you make very bad decisions when you are under that kind of stress. I started to know that I was gonna do well in business, when I could try out a venture and lose some money and not sweat it. Not sweat it, I know it sounds ridiculous. But, you know, I go out, I try something for $10,000 or $15,000, it didn’t work. I was okay, because everything inside that moat, was paid for. That castle was paid for. And now, it was just money, you see, it is not just money when–if you fail; You’re not gonna lose your house, your cars and your marriage.
That’s–it is not just money. This is life or death, heaven forbid, you have kids, because, and then you’ll not really feel good about yourself. But, when your castle is paid for, it is just research and development money. And you know that you’ll gonna blow some of the time to figure out how things work, and it is not really the cure yet. And when I learned to take some losses, without breaking down in trying to pitching up a fit, and feeling like my world is coming to an end, I knew at that point, and start to become a real business person.
So, figure out what your freedom number is, buy my book, My Life & 1,000 Houses: Failing Forward to Financial Freedom, check out the Moat Theory, in the Moat Theory chapter, because I said it very so well there and start planning on digging your moat and building your caste and fortifying it, so that you can become free and be able to chase your passion.
Whatever that passion is, be able to go out there, it doesn’t make you that much money, for the first year or two, it is okay. You can hang up that space because you are financially free. And you just have to make a little bit, or maybe not even make anything for the first year, you’ll gonna be okay, that’s basically the story of how I found my financial success, I figured out my freedom number, I went out made some deals, make sure I have that amount coming in, and I started what I wanted to do for the rest of my life, that was 20 years ago, yeah about 21 years ago, life has never been the same, and I continue to grow every single year since that first time I walked out of my job.
I’ve grown every single year without fail. And it is amazing how fast time goes by and it is amazing, you know, the numbers that you see. I see numbers on my balance sheets right now, in my profit-loss statements, that I wouldn’t have ever dreamed.
I exceeded my expectations at myself, many times over and I think it is all because, I set myself up to be able to absorb failure without collapse, and that’s the message my friends, it’s been a pleasure. This is Mitch and I am outta here.