Big Fat Real Estate Checks Ep 172: The Hidden Costs of Being Cheap: Critical Lessons on Time, Value, and Investing

Please enjoy this transcript, but please note that it may contain a few typos. With many episodes lasting over 2 hours, it can be challenging to catch minor errors. Enjoy!

Marco Kozlowski: Hey, everyone, welcome to big fat real estate checks. My name is Marco Kozlowski hook and I’m with Gabrielle adda each and Francesco Gallucci Oh, the first or the second or the third, we stopped counting the last. Jessica, he’s got you that’s 464,212.3. If you’re new to big fat real estate checks, our mission or vision or purpose is to serve you at the absolute highest level, serve others at the absolute highest level to give you absolutely fantastic content, make it fun, and really show you how you can use skills and not money to really become wealthy. And I am joined with my two compadres, my bros from another Mo and we’ve been through the thick and thin we’ve yelled at each other loved each other too much. And we We always enjoy giving you what we got on the topics that we discuss. And of course, make sure you like us love us share us put us at the top of your playlist. We want to hear your feedback as well. And we’re very proud of our five star average, which is very hard considering how many, how many episodes we have almost 200, which is kind of cool. So today, we’re going to be discussing cost versus price. And a lot of lot of us think maybe that’s the same thing, you look at the price, but we don’t think of the end cost, right, there’s always a cost to doing something. And there’s a price tag associated with different things. And many of us as we have struggle, and as we are ascending to try to have a better life, we work our asses off to make a couple of bucks. And we’re trying to save money. And there’s certain things that you want to save money in. And other things that you absolutely want the best, not the cheapest. And it’s very, very important to understand the cost to have having something that’s perhaps cheap. And I want to have a fun discussion around that. I actually heard someone discussing this internally. And I thought that might be a really neat podcast. So here we are. So yeah, let’s talk about cost and, and versus price and the cost of, of, you know, as I’ve tried to save money or in certain things, like one easy example that we can go over, because Frank really knows about this. Saving money on on the contractor. That

Frank Galluccio: was my goodness, I was just gonna say that because I was laughing because I was memory. I remember a conversation with the hotel. Yeah, I wrote it down. I wrote about rehab. I mentioned the rehab. So

Marco Kozlowski: I’ll let you start with that with you know, not cutting corners on the right person is really or the great group.

Frank Galluccio: It is. And so just to backtrack, so there’s one it was actually this was one of the first hotels. Yep. And Marco, you came to came, you came to take a look at it, because it’s in Florida, it wasn’t too far from your house. And we got out of school, take a drive for shits and giggles, we went there. And then like Frank, maybe you shouldn’t buy this because you knew there was going to be a lot of work involved. I was like, Nah, you know what, let’s do it. I’m up for the challenge or whatever. And yeah, I didn’t do a lot of shopping around for a contractor in that case. And some of them were really expensive. They gave me a whole outline of what they’re going to do. So they do what’s they do an engineering study, they they factor in all the materials that don’t need and all that and, you know, some of these bills came up really high. I found the other one. He said, You know what, just give me 15% of whatever the project is. I was like, oh, that’s cheap. That’s good. I can do that. Right. Yeah, like, mark you Marco. I remember he say, right, don’t do it. You gotta check this guy out. Whatever, though. He’s, he’s a general contractor. So just because they had their license. It doesn’t mean that he’s a good general contractor, for sure. We found out so anyways, they came back and say, Well, how long is this going to take? They go, You know what, no more than six months. I was like, well, that’s fair to do. Laureen Dorn

Marco Kozlowski: fleet rehab. Good job.

Frank Galluccio: It was a lot of new electrical for because we have to put new new units in their new H facut units in there. So I was like, oh, six months seems reasonable for for that many new units or they won’t get it to do it. Well, that six months turned into 18 actually turned it to nine. It turned into 14 and then 18 months. And I think you did the math on this. And again, I found that later, as he was a contractor. He was licensed, he was reputable. But he was semi quasi retired and that’s why it was cheap was like you know what? Throw me a bone 50% or whatever the project is. I’m cool with it, which was low because I was looking at the price But the cost, I think you figure that out Marco. Yep, the cost. So I was I spent, I invested about 200k on the rehab, but I was closed for 18. And right now on average, I do 20 to 25 Gross a month on that property. So I believe that too. So if I do even 20,000,

Marco Kozlowski: over $300,000 of lost income, so

Frank Galluccio: that the opportunity cost, talking about cost is actually more than the rehab rehab. That took place, which is terrible.

Marco Kozlowski: The only hours, he was still not finished almost 14 months into it. And that’s when you actually remember a conversation with Linda, your wife. It’s like, you gotta go there. And you gotta write is asking how to get it done. Which there’s another cost of that and that you weren’t with your family for a few months. You were actually at my house for a few months, just like live? Yeah, sorry.

Frank Galluccio: Can I say your house does not? Yeah,

Marco Kozlowski: sure. It wasn’t until I showed you the math. It’s like, you know what? It’s costing you not to be open. It’s when you realize an eye opener. It was yep, yep. Yep. Yeah, it was,

Frank Galluccio: it was an eye opener. So yeah, looking at cost, okay, if it’s too cheap, wise, too cheap, how long is going to be almost like even when you’re buying I know, we’re looking for vehicles recently, and look at vehicles that are either hybrid or all electric or maybe their gas guzzlers or whatever, yeah, you may get in cheap on the vehicle, or by use vehicle, you get it cheap, but you’re gonna have problems along the way where with the maintenance and all that, so you can look at in that same light from a vehicle perspective. Or,

Marco Kozlowski: Gabe, I’m sure you have some examples as well, in your, your travels, and

Gabriel Araish: a lot of it is around professionals, right. So in my case, like just, you know, using the right, by accountants, the right legal structure, who’s who’s who’s preparing your legal structure. So, you know, a lot of times you’re gonna look at this, and, you know, I help a lot of people with that part of things because of my background as a CPA. So, you know, I take the stuff pretty seriously, and then have discussions with them, and either using the wrong professional because it’s cheaper, or you don’t know. So it’s one thing to, you know, if you’re, if you’re doing a real estate deal, and say you’re raising capital, you know, what you really, you would use a real estate lawyer or would use another type of lawyer, and most people will go to their real estate lawyer, because they’re doing a real estate deal. But really, the rules that govern capital raising are securities law rules. And so you would need a securities lawyer. So if you’re hiring a real estate lawyer, to do securities work, that they don’t understand, they’re going to be billing you, but you’re really not solving your problem, and you’re still going to be exposed.

Marco Kozlowski: So you’re doing all these things, possibly, and possibly, and the cost of that just from an accounting side, you know, not doing your taxes properly or not, none understand the deductions that you have access to. I’m blown away by how many assets that we actually get into where the other side didn’t do proper accounting and overpaid on taxes significantly, by not taking advantage of the deductions or did deductions that they shouldn’t have deducted somehow got away with it? And if you get audited, they’re completely screwed, like, not doing things properly, because you want to save a couple bucks and go to h&r block. And I have a portfolio for properties. That’s who’s going to do your taxes properly to take advantage of all the nuances because you’re in tax. Frank, you know, the tax code is really short. Right? It’s only like it’s a handbook.

Frank Galluccio: out there for all the tax so so the government so here’s the thing, here’s the when you do your taxes, I know tax season just passed Oh shit, maybe if you watch this before tax season, but the trick with the government is you want to apply for every deduction, because the government will say no, if you don’t qualify, but if you miss a deduction that you’re entitled to, they’re not going to say hey, Marco, by the way, you missed that deduction that you’re entitled, they’re never gonna say that. So I always tick off all the boxes, or I told my CPA tick off all the boxes. You know, as for this, maybe there’s a new program for whatever for environmental just take it off. Putting your documents and everything, let the government tell you know, as opposed to not doing it,

Marco Kozlowski: I do want to disclose that you have to get your CPAs advice on doing this in a real action. Yeah, CPA, you don’t just listen to Frank in the podcast before you start doing your own taxes. This

Frank Galluccio: is innocent I even on your on your personal taxes again, it’s, you’re not bullshitting. You’re just basically saying yeah, apply, apply, apply, apply. They’ll tell you know, on your Notice of Assessment, say hey, man, you don’t qualify you make too much money. Well, you don’t qualify because you live in this part of the country. Right. So there’s nothing wrong with doing that.

Marco Kozlowski: From a Canadian standpoint. Definitely doing your taxes if it’s your your tax returns are similar. Yep, yep, yep. Yep. So

Frank Galluccio: going back to tax returns, if you get a CPA that doesn’t know, hair, for instance, cross border, yep. Right. You get someone that’s cheaper and they’ll do your business structure. They do all this and you’re like, Damn, you know, I didn’t take advantage of the tax treaty or whatever, you paid a lot of taxes. Yes, you got it cheap on the CPA, or structures are horrible, but your pain, actually a year, a year to year, several times.

Gabriel Araish: It happened to one of our, one of our you know, in money partners were I remember we had this out of discussion with them said, hey, you know what I don’t think you want to come in with this structure, I will check with your CPA to make sure because the way you’re envisioning coming into this, it looks like you’re going to be double tax. And this was a cross border issue where someone was investing their, their money from just their Inc in Canada directly into an LLC in the US, which is a big no, no. And then again, you can validate this with your CPA, your cross border CPA, because, you know, an LLC is is a flow through entity. So really, they would have to, you know, file a return in the US because you’re not taxed at the LLC level. But then in Canada, because you’re receiving it in an inc as well. I mean, they view an LLC as an entity, so you’re going to be paying corporate taxes, and you end up paying double the taxes. And I remember having this conversation with them. And they’re like, no, no, I asked my CPE I’m like, well, rd across borders CPE. And not all they’ve done this a lot of time like, Alright, listen, you do you but I’m just I’ve warned you. And then, you know, like clockwork after the first tax season, you know, you know, they came back to us and like, hey, holy shit, I paid 80% of taxes. Well, yeah, no shit. Like, you know, we, we’ve warned you to use the right people. But if you choose to work with the people that you feel, you know, just because they tell you they know something, and they’ve done it before doesn’t mean it’s right. So you got to work with the right people. And that applies to your structure and understand that investing in the right structure is a lot cheaper in the long run, than having to invest less money in the bad structure, and then having to dismantle everything and restart over because once there’s assets instead of structure, that’s when it gets costly to start moving things around. And yes, Frank’s waving his hand because he’s been through it. I mean, going through it, you’re in it. Yeah, you

Frank Galluccio: can’t get out. It’s hard. It’s hard to get out of a bad structure, like I got a new structure going forward, but you still have that bad structure. While

Gabriel Araish: it was easier for you to create a new structure and start fresh, then having to dismantle and re mantle, if you will, the first one. So it’s that there definitely is a difference between price and cost. And you have to understand the two because it’s, it’s, you know, it can get really costly, no pun intended there. Right?

Marco Kozlowski: Well, just as an example, right, but like when I first started, you get an LLC, because that’s what everyone does, right? And you put your property into the US in the US. I’m Canadian, I’m double taxed at foreign national. So I’m literally taxed by the IRS as a foreign national alien. So I text that number. The Canadian government, as you said, sees that as a corporate tax with paid corporate tax, then there’s withholding because I’m going to have an address. Foreign Yeah, foreign and blah, blah, blah. So I’m expecting $100,000 Plus, you know, check at closing, I’m all happy and I get 10 grand, and you know, gotta wait for you know, another 10 for later, just in case. And I’m like, I’ve already spent 120,000 of this money, and I only have 10. So now I’m even more screwed. Now to speak to that. That was the cost of not getting just the right numbers. I wanted to save money by not getting the right person involved, right. And now Now, in Frank’s case, he grew very fast, right? And he realizes he’s paying too much tax, and you’re paying 1400 bucks an hour. And Frank talks a lot. All right. 1515. Sorry. I didn’t mean to shortchange you. All

Frank Galluccio: right. That was that a discount that gave gave me was it was read 2,050%. So 50%.

Gabriel Araish: So I told him, leave yourself on mute and just let them do the darn li he wouldn’t listen. So

Marco Kozlowski: whatever that whatever that was, if you’re looking three grand an hour, who the hell, you know, deserves that? Well, at that, I don’t know how many hours. Frank that was, let’s call it 20.

Frank Galluccio: No, it was less than 10. I think my bill was just under 20k. All right. So that was a conversation. Okay,

Marco Kozlowski: well, you did 30% of the talking for sure. So so if it cost double that 40k How much did you save in taxes with that? $40,000 bill? Oh, my God, Congress actually, this

Frank Galluccio: is the second year. This is the second year that I was under that entity. Totally. Totally different than the other entity that I have. Because everything there’s no withholding tax, like you said before, right. There’s no withholding tax that fate. I don’t have to report it up in Canada because the way the legal the way we structured it, it’s not me per se. I’m not tied anywhere in how

Marco Kozlowski: much money was saying just

Frank Galluccio: I wouldn’t have while the two different i don’t know i ish? I don’t know. I know. I got that money back. That’s for sure. Because just the withholding tax on my other entity was, you know, It’s 30 $40,000. So there you go.

Marco Kozlowski: There’s the point, right is even if it cost you, you got paid back, you’re at zero the first year, and then every single year after, yep, you’re ahead. Plus, now you can do 1030 ones, which you couldn’t do before, because of the structure, blah, blah, blah, blah, blah, right? So yes, you have all sorts of tax advantages on top of that. So if you look at just the menu item, and the cost of that, the price of that, forgive me, it might actually be the cheapest thing around like, if you were on death row, and you had two attorneys that you had to go to one was $100,000. And he got everyone off, or we have the public public defender, which you know, you got a one out of 20 chance.

Frank Galluccio: Yeah, you’re not taking the free

Marco Kozlowski: one, right? Well, here’s the thing is, every decision that we make actually does affect our life the same way, instead of a quick death, it’s a slow death, right? So sometimes we look for example, for a class that’s too expensive, I mentor, that’s too expensive. This is too much, this is too much, this is too much, this is too much can’t afford it can’t afford it can’t afford it. Well, you can’t afford not to sometimes, to get the thing that’s gonna get you where you need to be. Because it’s the behavior that you’re going to have, that’s going to change the direction where you need to go, right? If you keep doing what you’re doing now. You’re gonna keep getting the results that you have now. And if you invest in someone that’s monitoring you or invest in a better vehicle, like, is it cheaper to take a flight? Or is it cheaper to walk?

Gabriel Araish: endzone, what you value? Your time is exactly

Marco Kozlowski: right. I can walk there I can fly there just depends, right? Is it better to walk? Or is it better to have a car like you buy a car because you know, it saves you time? And it’d be ridiculous if he says, I’m gonna just use my horse and buggy because I don’t want to buy the stupid car. Why would anyone pay this much amount of money to get from A to B? Well, the answer is because that’s just an investment that you have to have.

Gabriel Araish: Yeah. So any also depends on what you do, like a time, right? Like, you know, so like, I go to Orlando, it’s a three hour drive from here, right, give or take. And, and, you know, just to just to take the train, and that’s also about two hours. 45 minutes. I’m going from Boca from Boca, sorry, to Orlando saying from here. Yeah, Nabisco. So some people might think I’m not a Montreal No, no, I’m in Boca. And so that’s a three hour drive, or a two and a half to 45 hour train. And, and I choose the train a lot of times, because I can do some work in the two and a half hours, two hours, 45 minutes, as opposed to driving, where I have to focus on the road alone.

Frank Galluccio: And the highway. So it’s like toll highway, so people choose to take the toll, it’s 50 cents or $1. For the next whatever miles. Again, that goes back on time. Whole Foods,

Marco Kozlowski: you know, it’s some people want to deliver routes, you know, because I don’t, I don’t want chemicals in my body because the cost of not eating organic could be more doctor visits later, right? There’s a cost to not, you know, doing the right thing. So, and again, I’m not from a person that’s struggling, if you’re living out of your car under a bridge, and you’re showering at the why and you know, you have to use the internet at the library, you got to pick and choose where you’re, you know, where your money is gonna go. But if you if you are conscious of what you need, in order to get out of there, and what ingredients or what people around you are important in order to quickly solve that money problem, because you don’t have a money problem necessarily, you have a behavior problem, if you behave differently, you’re completely going to change the results of your life because we’re exactly where we are by our past behavior. So it’s as simple as changing your behavior slightly, a small shift makes big difference. If you’re shooting a gun, and it’s an eighth of an inch, of you know, of a difference at 200 yards, it makes a massive difference. So and we’re always moving in a direction that, you know, that we hope is in the right one. But when when when you are surrounded by people that are experts, and I’m not expecting anyone to surround themselves with an expert, immediately. Specifically, if you’re in hard financial situation. Just make sure that you’re aligning yourself with the it’s not the cheapest people that you need to find it’s the right people that give you the best value. So it’s not always the price tag that matters, right like for Tony Robbins choose pays. You got to pay a million dollars for an hour of his time and you have a two year waiting list. You get you get an hour a million bucks. Yeah. And and if he and people pay it all the time, and if he you got to be chosen and you got to go through a series of questionnaires you got to jump through this hoop you got to do whatever he says basically, but that out if there’s one piece of information that you’re missing in order to make an extra million dollars a year $2 million a year in net worth, it’s worth every penny. So it’s not the cost that matters. It’s the result. That does very important. So gotta look at the full cost, not the price.

Frank Galluccio: And the right person and

Marco Kozlowski: the right group, right, that actually give a shit. That’s important because, again, you could have an expert that’s a real pain in the ass to deal with. And, you know, you don’t want anything to do with him to be a match there. But yeah, we

Frank Galluccio: got we got many examples on that, that I, Hey, fella hates repeating. I, I made one right now another one, which again,

Gabriel Araish: wrong attorney,

Frank Galluccio: wrong attorney. Wrong attorney, I bring it, I bring in a contract attorney to a real estate litigation case, which is, again, not good. You

Marco Kozlowski: got to have the right people that have the right drive. And it’s not the cheapest one, it’s always the best one. And if you smell something that’s not going right, you got to switch it quickly. Right? You got to recognize it. Bad management, for example, on a property right. So if you’re if you have to consistently manage your manager, then why are they managing it to begin with? As an example, so you just have to know what to look for and find because the best boss, he can fly like an eagle if you’re surrounded by turkeys, let’s just say it that way. That’s right. All right. Well, anything else that we want to add to this? Because, you know,

Gabriel Araish: I mean, how to find the right people also, you know, a lot of times is going to be with referrals, look for people that have done what you’re trying to do before, and, and get them to refer you people but even if they refer you someone, you know, I always tell anybody, even if I’m referring you like if I referred Frank to an accountant, I’d say, hey, you know, this is someone I’ve worked with, but make sure you interview another two, at least, and make sure that it’s the right fit for you. And that it answers your, your queries and who you feel comfortable moving forward, based on the answers you’ve gotten for the same questions, you’ve asked all three of them. So just always, you know, use the trust, but verify. So you can trust the relationship. And that gives you some confidence. But feel free to you know, always look for a bunch of whatever service you’re looking for, and then make an assessment.

Marco Kozlowski: Yep. And don’t always trust the interweb, right, you want to go directly to source, you want to talk to clients, because sometimes they’ll have a great reputation, but they really suck. And sometimes they might appear to have a bad reputation, but they’re the best in the biz. And it’s very easy on the internet to be a ghost, when people can say anything about you on the internet and get the information that you need from either the source directly or by doing research talking to the clients directly that have done that. And, and

Gabriel Araish: that’s them for what do we call I guess, ask them for proof of what the work they’ve done.

Marco Kozlowski: Yeah, yeah. Just toxic, toxic clients and see results. And and if they’re saying one thing, and they have a problem, you know, sharing whatever that is, then there’s probably some, you know, you smell a rat to get out of there. Absolutely. Yeah. So trust but verify, do not look at cost in the wrong way. Right. price and cost are totally different things. Look at the price. Understand the value, if you’re just looking at the price without understanding the full cost of that. Just like I’m flying spirit, but I’m going to be nickeled and dimed all the way down in fact, if I’m landing, there’s a landing fee. What’s the point? Right? I’m supposed to let at this airport. Oh, that was an extra cost. I’m sorry. I didn’t You didn’t do yesterday. I flew. I flew Ryanair, and I didn’t have a boarding pass. They charged me 50 pounds 50 pounds for a boarding pass 50

Frank Galluccio: I think there’s another airline that does that you can’t get it. You have to download the app and it was in a window. We print it. You can’t reprint it like we want to reprint it I don’t know about 50 bucks, but

Marco Kozlowski: it’s pretty powerful. And they basically give you a window but they that window closes three hours before the actual boarding so if someone isn’t ready three hours before, which is usually when you pull up a check in your flight is well for me anyway five minutes before but you know, you’re not

Frank Galluccio: already in this case. In this case, they already checked in they got their boarding pass that came on their screen. If you didn’t download that at that moment. Oh my god, you lost it too bad. There’s no email that comes to you that can’t add it to your apple Wallet. So it was one of my it was my nephew’s he was freaking That’s hilarious. I guess they’re not coming to Florida. Gotcha. Anyway, see? Yes, exactly. That’s, that’s

Marco Kozlowski: that’s cost versus price, cheap price, high cost missing your flight and having to pay for another one. There you go. Or would they cancel your flight? Your you know, it’s been revoked. That’s a whole other story for another Yeah. Frank is still butthurt about that one he got his ticket was revoked because he didn’t

Gabriel Araish: think we’ve landed the plane on all that we should have been intended. Alright,

Marco Kozlowski: guys, I appreciate you very much listener, I hope there was some value in this and just remember price versus cost. Look at the full cost, not just the actual price. It’s gonna make a huge difference in your life. And like us, love us, share us and comment and really appreciate you as a listener, and I love you Frank and Gabe as well. And of course listener I love you too, and I’m looking forward to to a giving all of us giving you as much value as possible for years to come. Thanks guys. Have a great day. Toodles bye for now