Ep 5 - Why I say No to Good Deals

Every operator that I know is wired to chase. There's always a new thing, a new opportunity, new asset class, new idea across the desk. There's always something new and exciting. I feel it too. It feels like ambition, but a lot of the time it's just noise, and it's a distraction. So this morning I sat down and I did the opposite. It might sound cliché, but my wife always tells me to be intentional, which I think is incredible advice. So I spent several hours not chasing anything. I sat down, I used Claude, and I built a app that shows me my entire financial picture in one place. Several operating businesses, a bunch of different property investments, loans, equities, cash. And I asked just one question: Am I being intentional or am I just reacting to whatever showed up this year? How many of you as operators or even employees can tell me what your taxes are gonna be next year? What strategies could you employ right now to mitigate those taxes and plan for the future? What do you believe is happening in the macroeconomics in the world, and are you being intentional in your business and your operations to leverage that? So do you know where you're at financially? So this is the whole idea. It's not necessarily just your personal finances, but are you challenging yourself not to have shiny object syndrome, to make a plan, to set out your goals, and be deliberate and intentional on what you're spending your time on, what you're putting your money in, and what new opportunities do you actually chase? So most operators are great at the offense. chase the next thing, build the business, make it happen, but they don't have a lot of defense for the, planning when that business is successful and what to do next. So I'm Brent Neely. Welcome to the Wealth Cockpit, and today we're gonna talk about some specifics of how I leveraged AI to be intentional in my financial planning. So there's a hidden cost of, what I call shiny object syndrome. I know I didn't make that up, and I know it sounds like LinkedIn clickbait article, but, shiny object syndrome a real thing. And Being intentional is really important. capital scattered across half-finished bets, not enough reserves because you're so bullish on your business, no overarching theory to tie it all together I use Claude Code, but Claude Cowork is a great tool as well. You can download, financial statements, profit and loss statements, general ledger exports, everything into a folder on your computer and point Claude Code at it and tell it to make, Or Claude Cowork. Claude Code's a little bit more technical, but it does, a very similar thing to Claude Cowork, Point it at the folder, tell it to help you build a financial dashboard. tell it to interview you on what your, theories are with money and your goals, and help it to, have you build a full-on intentional, plan operators, we tend to deplete our liquidity reserves because we feel like sitting on cash feels feels lazy. There's always opportunities to, improve the business to make more money. But that discipline only comes from having a well-structured plan might have one business or multiple. you might wanna deep dive into that particular business, but what do they actually throw off? What cash flow is real? we tend, business owners tend to focus on the top line a lot, the revenue coming in and the, the expenses, the, reinvestment, the inventory, whatever it is, are not always as exciting. So dive into those real numbers. Get real. give it your bank statements. Have it rebuild some of your financials. what real cash flow can you count on every, month coming out of that business? So real estate investments. Most smaller investors, don't focus on the right metrics. So return on equity is one of the most important metrics in my mind for rebalancing your portfolio. Look at where you have equity. look at how that equity is performing for you. yes, there are costs to selling, and repositioning that equity, but set a threshold for what your target return on equity is. Over time, The return on equity tends to go down, especially if you have amortizing debt on it where you're paying that off. You're locking more and more equity up with appreciation and, principal pay down every year, where your returns might not be growing proportionally. So this needs to be done, on a regular basis. But, a property can be a fantastic asset, but a really lazy use of your equity. So put all your real estate in one, spreadsheet. look at it all, through the return on equity lens, the cash on cash return, and see what's working well for you, what isn't. Look at real cash flow on that property with CapEx honestly counted. So a lot of operators fool themselves. I am extremely diligent on accounting for CapEx, in my apartment investments, my office investments. CapEx is one that, tends to go below the NOI, the net operating income line, and, we kinda don't look about that. Look at that. We kinda don't talk about it. But load, the last, twelve to twenty-four months of actual, general ledger export from your, property and look at what your actual CapEx spend is, what's your planned CapEx for the next year, and plug that into those same numbers. That feeds right into cash on cash and return on equity. some properties can look fantastic when you're looking at the NOI. Cash in cash looks great. everything seems really exciting, but then there's no cash flow. you're not actually taking money out of the bank because all that is going into, CapEx spend. something to be really real about. If any of you listening, like you're going through your head, you're like, "Well, maybe I don't wanna know that," that's exactly the impulse that we're trying to fight. you have to, One of my favorite is to confront the brutal facts of your current reality. So unless you have the data, unless you're digging into what's real and you're willing to look at, the reality of the transactions, tell Claude to use the actual bank statements as a s- as a source of truth and don't sugarcoat it. and then you're able to make those data-driven decisions, for what's working and what's not and make, good decisions for your finances one thing that I really dove into is that I actually had, too much reserves in some of my accounts where looking at the timing of mortgages coming in, rents coming in-- mortgages going out, rents coming in, expenses being paid, I needed to optimize how much money I'm keeping in one of those, each of those operating accounts and make sure that I'm redeploying that. So while having, enough liquidity on a global perspective is really important, not having too many reserves i-in any one property, and making sure I'm deploying that money really came up So liquidity was one thing that really, drove me to this exercise, to do this exercise. It's a common trap for business owners and real estate profe- investors especially, about being plagued about being all in. having, liquidity reserves, on a global, financial perspective is extremely important. I start with six to twelve months of all my debt service, operating expenses, held in something liquid. So this gets to be a pretty big number, as you're growing your net worth and your portfolio and your overhead, but it also helps you sleep at night. Just having that hard line to say, I'm not just keeping some cash over here," and then I deplete it as shiny objects come up. But I have a firm and hard floor that's defined as at least six months, if not twelve months of obligations. You can decide that based on your risk tolerance. But, as you get more diversified, like I have, a bunch of different properties, several different businesses, the odds of them all, demanding those liquidity reserves at once are pretty slim. So I set mine at, about nine months worth of, all the reserves, and it's plenty to, sustain a particular property if I lose, a key tenant or something for, a longer period of time. But setting that absolute real reserve floor on your liquidity, is extremely important. And, it's not laziness, it's discipline So going back to as you see and you have visibility into your financial picture through using this tool, you can tie it to your, macro thesis, your, even your politics or, whatever that is, your, framing. my thesis is that the US government is going to, continue to print money. They call it quantitative easing or whatever they wanna call it now. But the, debt burden has gotten so huge that, it's either cut spending drastically to bring us back to a balanced budget at least, or print money. And the reality is that I don't see any other way than them continuing to print money. That is what has brought me to multifamily real estate. That as, the government continues to print money, inflation continues to be an issue, generally, rents will appreciate with inflation, especially if you're in, right micro, economic environment with, a solid economy, population, growth, job growth, all the fundamentals that make an MSA a good investment. You combine that with the, the fact that inflation's gonna continue to happen. That multifamily, really leverages that growth because, let's just at a five percent cap rate, every dollar that you can raise, NOI, the net operating income, you're gonna get eighteen to twenty dollars, increase in value on the property. So you're leveraging that inflationary growth, of the, of the rents. So I've got two, really specific takeaways for me going through this exercise, and number one is liquidity. When I laid everything out in one place, I'm actually in a better position than it felt like the cash was there. It was just locked up across different buckets in too many different operating accounts and not, intentionally optimized for what each one of those properties should have for, liquidity. the lesson from that is that you just-- you can't manage what you can't see. almost all of the larger companies these days, the C-suite is managing based off of dashboards. they're ma-managing based off KPIs and dashboards to give them a view into, the finances and the operations of a company. why not have a dashboard for your financial picture, set your plan, and be intentional about how you're managing it? this scattered picture that I didn't have, a firm grasp of, bringing it all in into one, dashboard, actually brought me a lot of relief and was able to, clarify things. So the second, big takeaway is taxes. I was paying the taxes, but I wasn't budgeting, my taxes and quarterly taxes properly. I paid them when they got here, but it wasn't part of the bigger plan. So the AI, actually forecasted my tax liability. I was able to load in my, basis and depreciation schedules, and, it's given me a almost real-time, view into, taxes and what I'm going to be owe-owing. and then I can actually tell it, "Hey, how would investing in this next real estate deal or opportunity, impact those taxes?" So it's an incredible tool, to be able to do that, but I would encourage everybody to do that. If you have complicated, taxes like most operators do, this is a huge blind spot typically. trying to meet quarterly with a CPA and get them all the information that they need, is a lot of work. And some operators do it incredibly well, some don't do it at all. But, this AI process, actually does it phenomenally well All right. So I keep saying be intentional. what did I do intentionally out of this exercise? there's three properties that I am listing right now. they're lazy on the return on equity. So I had a hunch, that these were, but I wasn't really keyed in onto it until the numbers were right in front of me. So I'm listing those properties. I'm gonna put that equity to work harder somewhere else The second thing I'm gonna do is I'm actually gonna hold on to more cash than I would normally deploy. While I do believe inflation is gonna continue to hit, I've realized that the skill isn't in finding opportunities. There are opportunities everywhere if you're looking. but the skill is really the discipline to say no to the good ones so that you have the bandwidth, the ability, to tackle the great opportunities and still maintain that safety net. You don't want a great opportunity to come across, and then it be all in or nothing. I'm working to build additional cash reserves to be that opportunity fund and then, just screen really hard to make sure that it is a great opportunity, not just a good one So as I mentioned, I had Claude go through bank statements, my general ledgers, rebuild my NOIs, look at my real CapEx spend for the last eighteen months, build a source of truth dashboard from actual facts. So what I would recommend that you do is do the same thing. you can just download, PDF statements, whatever, put 'em all into a single folder. if you have QuickBooks and can export GL transactions, if you have statements from investments that you're doing, your W-2. part of, what I realized is that it was a very itere-iterative process. I kept remembering things. I'm like, "Oh yeah, there's this account." I forgot about the retirement account for a little bit. I had it forecast a, cash flow model, and then as I started looking at that, I'm like, "Oh yeah, we forgot that, upcoming expense or, that sale." And it's crazy that AI filled in this plan as fast as I could think of the next detail. I just kept telling it, "Oh, here's the new statement." So this isn't a static spreadsheet that you're punching numbers and formulas in. this is a-- it's a living model that you can think out loud. You can tell it to interview you for your, thesis, your goals, where you wanna end up, and have it give you advice on how you get there. AI isn't just a marketing tool, draft this email, or here's my new Facebook or LinkedIn post. this is a strategic partner, is how you should look at this, and, it's an incredibly useful tool So while I was doing this, I ended up talking to a buddy of mine. hopefully he's listening, but, he actually did a lot of this exercise the day before, and his trigger was that his taxes, every year are a nightmare because he's got income scattered a-across different, deals that he's a passive investor in. He's got a couple rental properties. he's got ten ninety-nine W-two income. And the point is, the more successful and diversified that you get, especially being a business owner, it gets more complicated, and people are reaching to AI to get intentional about it. this is exactly the kind of workflow that I outline in my AI playbook. So you can go to neelypi.com/playbook. It's totally free. it has AI workflows, operational planning for operators that are building towards the exit. and as I mentioned a couple podcasts ago, even if you don't intend to sell your business. Building your business now, planning your finances now, working towards an exit is a huge benefit anyway even if you never sell So if you're a few years from selling your business, you're about to have more shiny objects thrown at you in the last few years than you did in your first twenty. buyers, brokers, advisors, friends with a deal, every one of them wants your attention, and the worst exit is the unplanned one, the one where you sell and then you react to whatever lands in front of you. I would highly encourage you, I'm gonna say it again, to be intentional. Build the filter now while there's time for it to still matter. Intentionality is the filter. It works on the assets that I loved. Real estate isn't exempt. Nothing gets in without a plan. So the full set of the workflows, including how to use AI to run this, is in the playbook. check it out. It's free, neilypi.com/playbook. And I also send out a Friday letter, of what I'm actually working on this week, what's new in real estate, what's new in business. you can read it anytime, but it's You can reply anytime and I read every email and I'll get back to you So I'm Brent, and this is The Wealth Cockpit. I'll see you next week