From Lost Millions to 650+ Flips: Eric Martel's Cash Flow Blueprint for Real Estate Agents

Welcome back to the REI Agenda, my guest today is Eric Martel, a real estate investor in New York. In an effort to stop spending your time for money, Eric bought his first apartment building in 18 while still in university, spending nearly a decade as an actuary, then left millions in stock to appear overnight at the dot-com crash of 2001. That week, a call launched him on a mission to build true passive income. Today, he has completed over 650 flips to win more than $85 million in transactions, founded Martel Trampede to help everyday investors buy cashflow and rentals, launched FlipSystem to help 500-plus clients start and scale their investing businesses, and most recently launched RedBrick Equity, a fund giving accredited investors access that we would have stayed without. Eric, welcome to the REI Agenda Podcast. Thank you for having me. Eric, that’s quite the intro, man, that’s a lot of stuff you took. Yeah, but I started very young, and I am relatively old. I was saying, what got you to buy an apartment building at 18, and what got you, I mean, there had to have been work behind the scenes to get you to do this, but what got you started? Well, from an early age, I mean, I realized that my parents didn’t have all the answers, and then they didn’t really understand how the system worked. You would see people that would start a business, I mean, for me, I still remember a businessman that had a food truck, and he was just doing food truck things, and then my parents were kind of feeling sorry for him, but he was doing his food truck, and eventually that food truck turned into a restaurant, and that turned into a restaurant chain, and that turned into different businesses, like flower shop, candy shop, and I was like, wow, we felt sorry for him, but we should have felt sorry for ourselves for not knowing how things are working. So there’s a couple of things like that that felt a little bit off, but when I was very young, I realized that my parents, again, didn’t have all the answers, and I had all kinds of evidence for that, and eventually I met, when I was at university, I met a real estate investor, and he was just a regular community college teacher. He was not smarter than everybody else. He was not working harder than anybody else, but he managed to build a 36-unit apartment building. He was working with an architect to build a shopping center, and he was working on a project to do a nursing home, and I was like, oh, this is amazing. I mean, this guy’s no smarter than my parents, but yet he’s able to do all of this. So when I met him, I said, I want to learn what you, I want you to mentor me, and this was the beginning of my journey, and through him, I was able to acquire an 18-unit apartment building with no money down, and it was still cash flowing, $250 a month. Wow. What did your parents think of that? They were not happy. So actually, their reaction was kind of like, well, if you can make these kinds of, buy these buildings and stuff like that, then you don’t need, because I was at university, so they were paying for my apartment and my expenses, so if you can buy an apartment building, then you don’t need our money, so they cut me off at that point, so I was forced to live off of my apartment building and my girlfriend at the time, so that’s it. So yeah, they were really not happy, and again, so they didn’t really quite understand the system. They didn’t know that I bought this with no money down. They didn’t ask any questions. They were just very upset by that, but that kind of, after that point, I was trying to replicate that through, like I said, I graduated in actuarial science, actuarial math, so I started working as an actuary, basically converting all these defined benefit pension plan into 401ks, kind of, and then similar, and then I moved on to, I didn’t really enjoy that. I knew I was destroying the retirement system, and so I decided to kind of move off of that and start doing my own business in technology, but everywhere I was going, I thought that I would be able to redo what I had done at 18 years old, but there’s a lot of things going on because you have the money, and now you think that there shouldn’t be any issues buying a property, but these cash-flowing rental properties, you have to be in specific markets. If you’re in a big city, they’re hard to find, and even if you have the money, sometimes the numbers don’t make sense, so I did that in San Francisco and LA. There was really nothing that was penciling out in terms of cash- flowing properties. You would have to put a lot of money into these properties as a down payment in order for them to break even, so that means 0% cash-on-cash return, and you have 50% of the purchase price that’s in the property, so it didn’t make sense to me. I had to look for something else, so I started looking out of state, and that’s when we ended up in the Midwest. In the Midwest, we found a lot of different markets where we could find cash-flowing rentals. They were a decent price, and then they were in high demand for renters. Yeah, I’ve heard it described a little bit like the investing pyramid, where you can maybe start your base off as cash-flow-heavy markets. If you’re in LA, if you’re in San Diego, it’s going to be impossible to cash-flow, probably, but holding onto those assets for a while, too, has benefited me, but there’s going to be greater appreciation. Starting off with the base of the pyramid, if you will, where you’re going to get a lot of cash flow to support yourself, and then maybe start looking at some creative ways to buy a bit more expensive property, maybe, in LA or whatever that will, if you’re doing a mid-term or a short-term rental, or something that will make it better, the cash flow better, but it’s probably going to be a half-spoon, but it’s more of an equity play for a long-term growth. Yeah, and so it really depends on how much money you have. If you have a huge amount of money, if you have $20, $30, or $40 million, it’s okay to play on equity, but I think the first phase of everybody should be to achieve financial freedom, and in order to achieve financial freedom, you need to build a portfolio of cash-flowing assets. So that’s your first goal. The first goal is really to buy your time back, and then after that, once you’ve bought your time back, and you’re cash-flowing solid, and you still have equity, then you can look at investing in other assets where it’s a little bit more like equity-focused. But even in these markets, you would be surprised to hear, and everybody that I talk to is surprised to hear, that when I invested in Cleveland, for example, the appreciation for the markets where we invested was around 14% annually. It was incredible. It was more than in California, but people don’t realize that. I mean, you look at some other markets. If you look in Phoenix and stuff like that too, the appreciation was significantly higher. And I can’t talk about California because I lived there, and I knew exactly the mentality that people have. When you talked about investing in the Midwest, did you also move out in the Midwest, or did you stay in the Midwest? No, I stayed in California. I think my philosophy is invest where it makes sense, live where you want to live. Because if you live in a market that doesn’t like California, you live in San Francisco, you want to invest in single-family rentals, and you don’t have the money to buy an apartment building, anything, then you can’t invest pretty much. You need to have a huge amount of money. I tried to invest in California, and you need to have a lot of money, and the returns on that investment is very low. So even for the retail flip, the cash-on-cash return on the retail flips is probably going to be 3%, 4%, and you have to put a lot of money at risk, and you have any kind of delay, and your profits are gone. The tenant laws are also… Yeah, exactly. Even for retail flips. This is just for my own information. I’m originally from Ohio. I thought that was the Midwest. Then I moved to Kansas, and people in Kansas said, absolutely not. That is not the Midwest. That is the East. And I’m just curious how far that line of thought continues to go as you go. For me, there’s a coast, and then there’s a mid-Middle America. I guess we could call it Middle America. But all the coasts, I’m picking California, but it’s the same in Washington State. It’s the same in New York, New Jersey, Florida, where I live now. These markets, they don’t make sense. They only make sense for people that have a lot of money. And they don’t have to worry about anything else, even if they lose money. It’s not a big deal for them. Eric, you bought your first apartment building at 18. You spent a decade as an actuary watching the plants disappear, and then lost millions in stock options. I forgot that. At what point did you decide that your traditional path to retirement was broken? How did that shape the way you build up now? I felt that the retirement was broken pretty much after I lost $7 million in the stock market with the stock options that I had. That was in the dot-com crash. I was working for a tech company, and then I had tons of stock options. And then when the market tanked with the dot-com crash, most of my stock options were worthless. And then I had to salvage a little bit of money on the side. And then that also basically went down like 40% or something like that. I learned two lessons. I learned diversification across multiple asset classes. I know a lot of people are invested a lot in the stock market, and they think it’s great, and it’s going to continue to go up. I hope so. But you have to be diversified because if the market goes down or when the market goes down, you’re going to want to fall back on an asset category that is more solid and proven and just diversify. Being diversified in the stock market is not diversification. When the stock market crashes, the whole thing crashes. So that’s one thing. And then at that point, that’s when I realized that I said, what am I going to do? I’m spending a lot of time working. How am I going to retire my 401k? I have a whole, we can talk an hour about the 401k and how it’s not meant for retirement. It’s not a retirement plan. And you would be much better off to take that money and invest in cash-flowing rental or cash-flowing assets. But I look at that and I say, well, the 401k, I would have to save so much money in my 401k, and I’m going to have to make sure that I get such a high return in order for me to retire. And I said that that’s not going to work. So I had to find another alternative. And it didn’t make sense for me that you would save, you would make money, you make good salary, and then you would save that money and put it in the 401k in the hope that it grows over the next 30 years of your career. It continued to grow at least 9%. And then that you can actually use that money after that to retire and take that money out at retirement. What if I want to retire early? Well, there’s penalties. What if all kinds of situations, if I’m sick, if I find a great investment and I want to take some of that money that I saved to invest in that, well, there’s penalty or you’re not allowed, you can only do this. Why am I locking that much money away where I can, if I could find another asset that would be more flexible, where my money is not locked in and where I have total flexibility. And there are different cash flowing assets. Stock market is one of them, definitely. You can definitely go and buy dividend stocks and it’s very liquid, but you should also, in my opinion, do cash flowing rentals or cash flowing real estate because as you invest in cash flowing assets, you can see your passive income grow year after year after year. And eventually, a lot of the people that I talk to that we kind of like map out a plan for retirement, they’re very surprised to find out that if they invest the way I’m suggesting with cash flowing asset and rentals, that they would be able to retire in no matter what age they are, like around five to 10 years from where they are today. So, a lot of them are very, very surprised by that. So, that’s kind of my philosophy and they’re also asking me all the time like, it’s my philosophy, but it’s also backed by numbers. So, I created a couple of tools to basically help people come up with a plan for financial freedom. And so, these are kind of like some of the nuggets that I have to share with your audience if they want to get involved. Yeah, I see. You built three different businesses, Martel, Turnkey, for passive rental and passive income system for people who want to flip and scale equity for accredited investors. How do you think about each vehicle and which one’s right for which investor and where does someone with no experience start? So, it really depends on where you want to, what you have in terms of resources, how much money you have is very important and how much time you have. And so, these two components make a big difference. So, if you are an individual who is very busy and you are an accredited investor, that means that you’re making $300,000 a year as a joint, as a couple, or you have a million dollars in equity beside your primary residence, then I would probably invest in Red Brick Equity because everything is going to be managed and our average return there is around 15%. So, that’s probably hands down the easiest thing you have to worry about and it’s apartment buildings, cash flowing apartment buildings. Right now, we have like three of them in Chicago, for example. So, that’s pretty good. If people want to get more involved, they want to get their hands dirty then and actually go through the process of buying a distressed property, renovating it, renting it out and then either refinancing it or selling it at the end, then FlipSystem is the right solution because we’re going to coach you how to find, how to manage these deals from beginning to end, from close to close. We’re going to help you find the distressed property. I know you have a lot of real estate agents and brokers in your audience and we’re partnering with real estate agents and real estate brokers to work with them. The broker becomes the team on the ground for our investors, for our community and we coach our investors on what to look for, how to analyze the deals, how to work with the broker, the property manager, the contractor and then go through this entire process. So, it’s very beneficial for the real estate agent because they start building a relationship with someone that’s not just going to buy one house every 20 years, they’re going to be buying one or two or three houses every year. So, in terms of getting commission, you’re going to get a lot more commission as an agent doing that. So, that’s the FlipSystem method. If you are interested, if you’re not an accredited investor but you don’t have that time or you don’t feel like this is the right thing for you to be dealing with construction, then you have Martel Turnkey which is basically turnkey single family rentals. The advantage of that company or the products there is that you can gradually build your own portfolio of single family rentals. So, all these properties are cash flowing from day one, they have a tenant, they were recently renovated and they are in the middle America and we connect them with a team on the ground, the property manager with the insurance and all of that. So, that’s a great way to get started. It makes a lot of sense. I think if the agent isn’t really wanting to be super active, like you said, I think the Red Brook equity or syndications, good performance syndications can be a brilliant thing for agents who are real estate professionals at a destination. It’s a really good thing to be able to do and if you’re not quite an accredited investor and you want to build up some equity, you want to build up your net worth or however you want to go about it, I like those other options. But ultimately, yeah, I mean getting to have a 15% return, for example, all of your money is really hard to beat in the stock market, etc. But you didn’t even touch on the possible tax benefits as well. Oftentimes, these deals will do accelerated depreciation which can have a pretty good reduction of your tax liability. Normally, if you’re not a real estate designated professional tax-wise, you can only take depreciation off of your passive income. So, if you’re getting cash flow, you can use depreciation of that rental against that cash flow. But if you’re a real estate designated professional, if you’re making $200,000 a year in commission or whatever, you can actually take a much larger chunk off that income from something like what he’s talking about. So, if you’re not quite there at the equity level of being an accredited investor or you’re maybe not comfortable with it and you want to start something else, those other options are really good too. I mean, so we basically got ourselves to be accredited investors through doing the Burr Method, which is kind of what you’re talking about, a capitalist system. And where we were able to flip houses, we sold some, we kept some, and that was able to build up our equity to the point where we are being accredited investors from the equity standpoint. And so, yeah, it makes a lot of sense that this works really well for agents and you don’t have to be worried about unplugging toilets and those kind of things if that’s not who you are, if you don’t want to be dealing with the home labor side of having those kinds of stuff. So, to me, it’s a lot more about time also. Time is a big component. So, if you don’t, if you have the time, sometimes you can compensate for lack of skills and lack of money even. Because then with more time, which is what, when I was 18 years old and I bought that apartment building, it’s because I had time. I’d had no money, but I had time, time to analyze 500 deals to find the one deal that’s going to work. And my broker every week was telling me, Eric, it doesn’t exist. You won’t find one every week. So, I’d have found one. But it took a long time. So, time is a big factor here. And then kind of like the skills and interests as well. So, if you don’t like to do the renovation piece of it and you want to start building a passive income portfolio, I mean, Martel Turkey is the right way to do it or Red Brick Equity. And we’re always looking for deals. I know you have a big network of real estate brokers and agents. So, even on the commercial side, we’re looking for apartment buildings, 30 to 70 units, cash flowing and basically below market rent. And then if we bring them to market rent, they’re cash flowing. So, that’s the kind of buildings that we’re looking for. Eric, I want to go back to the university. When you invested in that apartment building, you mentioned that your parents cut you off. I’m curious, over the years, as you grew your business and things started to evolve and you started to become more successful in that, how did the relationship with your parents evolve at the same time? Did you find avenues in to continue that conversation with them? Did they become a little bit more open-minded? No. They were always… They never understood. They never understood and they never understood. Still, very frequently, I mean, they both passed away now, but my father passed away last year. And still, he was introducing me as, oh, this is my son, Eric, and he’s an actuary. Well, I haven’t been an actuary since 2000. So, maybe even before than that, probably 2017. Maybe like 1980, 1990, something like that. So, it was ludicrous to me. I said, dad, I haven’t been an actuary forever. So, it was kind of strange. Mainly in denial. So, they never really understood. I tried to explain, but yeah, it’s pointless. What did you say? No, no. I think that’s the one that often gets people to think a little bit differently. If you’re thinking like, you know, if you’re just at, you know, my sense, education, school, good job, pension, that kind of stuff, it is really hard to understand. No, I think that was a great comment. No, I was just thinking that that must have been really hard to not even have your parents give it or they could acknowledge it. Yeah. I mean, it would be nice sometimes to be acknowledged, but that’s not what I’m seeking. I kind of got rid of that need, I would say, early on. So, I just moved forward. That’s all I did. Did you, I guess I did want to ask too, did you stay in contact with that mentor at the university who got you started? No. When I moved away, basically that mentor kind of, yeah, he just disappeared at that point. Okay. Yeah, you’ve done a lot. I tried to contact him and even the book that I wrote, Stopped Wasting Your Time for Money, I talk about him and I tried to contact him and say, I talked about you in there and how important you were in my life and yeah, nothing. Hopefully he received that message at least from you as a teacher. I would imagine that would feel good to hear. Yeah, sure. Whatever you do, do it for yourself. You won’t be disappointed. I was going to ask you about your book, Stopping Wasting Your Time for Money. For a real estate agent who is closing deals all day but not started building their own, what is the honest conversation you would have with them about their future? It’s not the same as wealth and what are the first real steps in creating actual wealth? Yeah, for real estate agents? Yeah. Yeah. So, I mean, for me, the conversation that I have with the people, the real estate brokers that I work with is they get it. They’d rather build a relationship with someone that’s going to buy two, three, maybe more houses every year. I mean, this is much better, much more satisfying. I make more money also to work with an investor like that. And over the years, you build the relationship and all of that. So, you know, go ahead. Well, and in terms of them wanting to actually build wealth, not just their own, what would you say? I mean, they’re in a very unique position, right? So, they walk the street. I mean, I work remotely. So, I don’t drive in Cleveland or St. Louis or Detroit or any of these cities. But as a real estate agent that’s on the ground, you have a unique opportunity to see all the properties that are there and then knock on doors and then say, I’m a real estate agent, blah, blah, blah. Would you be interested in selling the house? And you build a funnel of properties like that, and you can pick and choose the one that makes sense for you and then build a network of contractors and figure out the property management piece of it, either partner with the property manager or build property management in-house. If you build a business like that, this is going to be within a few years, you’re going to be really be very satisfied, I think, with your position, your situation. But that’s really the right way to do it. I mean, I wish I was able to kind of like invest where I live. Unfortunately, I haven’t found the intersection of that. But if you invest where you live, I mean, this is great. You can walk and knock on doors. Yeah. And if you’re really just getting started, don’t have much capital to invest in something, maybe you aren’t able to do a cash offer and do a flip. And I know there’s property managers that can do it, but if you’re wanting to kind of take it maybe a little bit slower to start, you know, the house, you always need to have a place to live. So if you can make a rental work long-term, like if this property is going to cash flow eventually, maybe it wouldn’t and you can get into it for a little money down, live there for a little bit, rent out the rooms, rent out the basement, whatever, to make that work, reduce your income, your living expenses, save up for somewhere else to go, maybe do it again. That’s a great way to invest in your area. It’s a win-win. You can start building a portfolio that way as well. It’s probably not going to be something you want to do forever. I remember before I was an agent, we bought with an agent and we were looking and I remember kind of wanting to do like a 50-plus or something to that extent and I got it now. And, you know, once you are, you know, the thought of doing that now with our three kids, little kids, like that just sounds impossible and insane and you probably wouldn’t do it unless there’s a perfect property. But there’s a time and a place and I think at the beginning of your career, you might need to hustle a little bit more and be a little bit more creative. And that’s another way that you can kind of get started. You know, if you do that three times, you fast forward 10 years, you might have, you know, an area market. You might be in, I guess, just from that. Also, if you’re a real estate broker too, I mean, there’s a lot of new real estate agents that are just getting their licenses and they don’t make any money. So, you know, build a team of eager, younger real estate agents and have them pick up the phone, drive and knock on doors and build a funnel of properties like that. You make money on the commission side, work with a company like me, like Flip System, and then to sell, you know, to sell these properties, off-market properties to investors. I mean, that’s a great way to do it. It’s very dynamic, dynamic market that way. The other thing too is private money lending. So, obviously, there’s hard money lenders. There’s a lot of those around. But to me, the best is really private money lending because you’re basically, it’s not so much a loan, but it’s the money is, you’re kind of renting somebody else’s money. It becomes your money. So, when you go, you talk about cash offer. So, if I borrow $100,000 from a friend of mine and say, you know, I have this deal that I want to do and here’s all the data. I’m going to pay you 8% or 10% interest per year. I’m going to pay you every month. I can go and turn around and say, yes, you put the money in my bank account. I start paying him like a month of interest. I can go to that property and put a cash offer on that deal because that money is mine now. So, I am paying interest on it, but I treat it like my own money and I can go and invest in that property and make a cash offer. So, that makes it a lot faster, a lot easier and cheaper. Typically, your friend is not going to ask for points. They’re not going to ask for a huge interest rate. They’re not going to have all kinds of paperwork that they have to do. Normally, just a promissory note, maybe not even a lien. So, yeah, to me, that’s the big one. If you’re flipping something like, for example, there too, like if you have an ideal lineup to continue that relationship, you can just continue to do it instead of paying them back. Yeah, exactly. It keeps rolling. I mean, after that, once you sell that first deal, you just say, hey, we just finished the deal. I can pay you back or I have this other deal. If you want to continue, I’ll just continue to pay the same amount of interest. Most of the time, they say, oh, you have my money? Okay, sure. So, I have people, private money lenders, I’ve had their money for at least 10 years now. They’re always surprised when I tell them that we’re moving their money from one property to the next. Eric, you dropped a lot of gold nuggets already. Do you have another gold nugget? Well, so I think that there’s a couple of things too that I can help people with. I think that if you’re planning to, if you want to achieve financial freedom, you can contact me at pretty much anywhere on social media. I have a few tools that can help you kind of put a plan together on how to achieve financial freedom with cash flowing rentals. So, just reach out to me and then we can set something to do that. I was just going to say, we typically at the end ask about your social media and stuff. Yeah, so my social media is Eric Martel Official. So, pretty much anywhere on Instagram, TikTok, YouTube. So, just reach out to any of these and just send me a DM or whatever and say, I saw you on this podcast and I heard you had a tool for financial freedom and I’ll just send them the link. So, you’re going to enter some information about how much money you have in your 401k, how much money you’re making, which state you’re in and then what’s your passive income target? How much money do you need to make a month to be financially free? And I’ll show you how. I’ll record a video and we can even talk one-on-one and I’ll show you exactly how you would invest and how quickly you could be financially free. What about a favorite book or one that you think is fundamental that everybody should read or one you just currently enjoy? So, there are a few. One of them is, if you haven’t read Rich Dad, Poor Dad, you should read it for sure. But I know that some of the younger generation probably didn’t read it. It’s very good at kind of like setting up some concept in terms of the personal financial statement. It’s a little light on how you do it. So, that’s why I’m here. But at least get the concept of you having a personal financial statement and understanding where your income is coming from. Is it coming from a salary or is it coming from asset? And that’s kind of like, how do we do the shift to get the income from salary and have the income coming from your assets instead? So, I think it sets a good stage for that. The other one that I like is What Got You Here Won’t Get You There. So, that’s another kind of interesting book as well that describes that when you’re working full-time, you have a certain set of mentality or a certain mentality when you’re working 9 to 5. And when you go and you start to become a real estate investor, you have to change your mentality. You also have to change your identity. It’s a little bit different. And I have this, when you have a LinkedIn profile, sometimes it’s kind of hard to go and say, I’m a real estate investor and you get rid of your other jobs. And then your boss calls you and say, hey, what the hell? You’re supposed to work. You’re working for me, right? So, there’s that identity concept as well. And when you meet other people at meetups or conferences, real estate conferences, you’re going to have to introduce yourself as a real estate investor. And the more you get into this change in identity and mentality, I think the more empowering it’s going to be. So, that’s the idea of the book, What Got You Here Won’t Get You There. Well, Eric, hey, thank you so much for being on the show. I guess you said socials did, what about for finding a book? Can you repeat that? I’m sorry. How did people find your book? So, it’s on Amazon. Amazon, stop trading your time for money. Okay. Well, Eric, yeah, thank you so much for your time and being on the show. My pleasure. Thank you. Excellent. Thank you very much. Thank you for having me.