Street Smart Finance – The Real American Dream

Mad Fientist: Hey everyone. Welcome to another episode of the Mad Fientist Financial Independence Podcast, the podcast where I interviewer some of the most inspiring personal finance writers to find out how they’re able to achieve financial independence.

My guest today is Shilpan from StreetSmartFinance.org. And I’m really excited to have him here. He’s originally from India. He came to America in his 20s to pursue a graduate degree. He came with very little money in his pocket, but through a lot of hard work and perseverance, he was able to build a commercial real estate portfolio that is now worth billions of dollars.

Since I’ve been recently studying real estate investment quite a bit, I’m very excited to hear Shilpan’s story.

So without further delay, Shilpan, thanks for being here.

Shilpan: Thank you, Brandon. I appreciate it.

Mad Fientist: Oh, absolutely. It’s my pleasure. So before we get in and start talking about all the fun money stuff that I know we’re going to be touching on, would you mind just telling a little bit about your background and what led you to eventually become Street Smart Finance?

Shilpan: Brandon, my life is anything but conventional. Back in India, I was set to go to run my father’s business. He owned a small car dealership. It was all set. I’m the only son.

But one day, I met a guy who was handicapped and he had a lot of inspiration, a lot of ideas about life. That really changed my thoughts. I wanted to do something on my own. So I decided to come to the States.

I finished my undergrad in Mechanical Engineering. Ever since I came here, what I appreciate about this country is the opportunity it provides to guys like myself who come with nothing here.

There’s been an article written about me four years ago when I started blogging. You may not know, but I blogged before with another blog that I launched in 2008. It was quite successful at the time because it was all about personal growth. The way I wrote, the conventional people liked it because I wrote straight from my heart. That interview pretty much summed up my life.

I essentially came here and finished my master’s and worked in engineering for a while. I still work as a matter of fact. So, I enjoy working. That’s fun stuff. But I’m an entrepreneur at heart. So I explored so many business opportunities. I’ve done close to $15 million worth of real estate transactions right now.

Mad Fientist: Wow!

Shilpan: That had given me another field that I really enjoy in working and doing. So it’s inspirational in that part. So it’s been 20 years here in the United States. I’d say I’m not ultra rich, but I can quit tomorrow if I want to.

Mad Fientist: That’s great. Yeah, the real estate is definitely something that I really enjoy reading about on your site. I know that’s something we’re going to hopefully touch on quite a bit here in the next few minutes. But before we move on to that, what age were you when you came to the States from India?

Shilpan: I was 25. I’m 46 now. It wasn’t a really young age, but I guess it was young enough for me to explore different things. I think the entrepreneur’s heart was there in me since my father was a businessman back there.

Mad Fientist: Right! And did you come alone or did you come with any other family?

Shilpan: I just came alone initially to do my master’s here.

Mad Fientist: And I believe I read somewhere that you came to America with very little money in your pocket. Is that true?

Shilpan: That’s the thing. I told my father that I want to create my own life. He came from a small world and built his own life from nothing. So I told him that I want to follow his footstep and create my own course.

He said, “If that’s the case, then you have to go on your own. You really have to do things on your own without my help.” So he bought me a ticket to come here and $20. That was it. That’s all he gave me.

Mad Fientist: Wow! That is incredible. Can you talk a little bit about what you said? When you’re working in India, you had met someone who had changed your outlook on life? What was it that he discussed with you that made you give up…

Shilpan: Yeah, it’s a great thing. This was a guy who was handicapped. He didn’t have legs, to be honest, but he wanted to be a wrestler. I saw him in one of those local events where he was fighting or he was wrestling with others despite his handicapped situation.

After that event, I met him and asked him what inspired him. He said, “If you have a dream and if you really want to achieve something, you can’t be sorry for your circumstances. You can’t blame circumstances.” That really changed my thought process about life.

Mad Fientist: And for people that don’t know your full story as well, I believe you had polio when you’re young, you overcame that and obviously, you did great things as well.

Shilpan: Oh, yeah. It’s great. When I was three or four (I hardly have a memory of it), but I had polio for a few years. When I started going to school again, I was behind. I always felt some inferiority complex. My mother always told me, “You’re not different than others. You really have to think like that because if you victimize yourself, then you’re never going to succeed in life.”

Mad Fientist: That’s amazing advice. It’s the people that are saying, “Oh, the economy has made me lose my job. And now I can’t pay the mortgage, so the bank wants to take my house.” Treating yourself as a victim and feeling that you’re being treated differently than everyone else is really not going to get you any success.

But if you instead work harder to find a new job and start working part time on the side to pay for your mortgage and move into a smaller house and if you take control of your life, then obviously that’s when the great things can happen.

Shilpan: Yes. Brandon, George Bernard Shaw once said, “Liberty requires responsibility. That’s why most men dread it.” That’s so true. We all like liberty, but we don’t like responsibility. Once we understand that we can’t achieve anything without responsibility – for example, if you want to retire, you got to start saving like crazy. You got to give up something, what I call cost open opportunity. If you start spending on money on stuff in progressions at a young age, you’re going to pay when you get older.

So the choice is yours, whether you want to spend now or save now and live life with freedom.

Mad Fientist: Absolutely! And you said responsibility. That’s a very great word for what I was hoping to talk about next. Listening to your story, it seems like it’s the perfect story of the American Dream. You come here with 20 bucks in your pocket and you end up building businesses and becoming an entrepreneur and having a great life for you and your family.

But these days, it seems like the American Dream is different. It seems like for people, the American dream is “Well, I went to college and even though I had to go into a 40K debt to pay for it, now I deserve a job and I deserve a big house and I deserve a nice car.” It doesn’t seem like people want to take the responsibility to earn that and get that for themselves.

Do you see that? Do you see that as a shift in perception of what it is to obtain the American dream as being an immigrant as opposed to somebody growing up here and thinking that they’re entitled to all of these things?

Shilpan: Yes, yes. I’m not generalizing, Brandon. But when I speak with friends and colleagues at work and so forth, most do have complaints about their situation. I’ve come from a third world country and I’ve seen real poverty. American has nothing close to it. I mean, this is a great nation. Even the poor here enjoy all the luxuries that the rest of the world really is envy about.

As you said, the problems are within your two ears. When you think of yourself as the victim and think, “Yeah, I have a degree and I need a job,” or “I’m educated, so I can’t do this work,” it creates so many barriers.

I’ll give you an example. I finished my master’s in 1991. If you remember, there was a terrible recession we’re going through. So I was applying to a lot of companies. I applied for a machinist job at a small plant that Emerson Electric owned. When I went there for the interview, the manager recognized that I’m highly educated and he asked me this, “Why do you want to be a machinist?” I said, “I’m an immigrant. I need an opportunity. If you give me this, maybe I’ll learn how to run a machine.” So I did. I began at CNC machines, programming and so forth. Long story short, within six months, I was Chief Engineer there.

Mad Fientist: Wow!

Shilpan: So if I had not applied for that job, Brandon, I would have not really learned the real world. That job taught me so much about life. I think every young person ought to have a different perspective in life instead of demanding. They ought to define what the job is and train, acquire skills so that you’re more saleable.

Mad Fientist: Yeah, absolutely. For people that don’t realized how hard you worked, I know I read somewhere that you and your wife were working 18 hours a day pretty much for five years straight as you were trying to build up your businesses.

Shilpan: Yeah, the very first business we bought, for straight five years, we’ve worked 18 hours minimum and some days we had to work for 20 hours. That’s not a lie. In today’s world, we work between 15 to 16 hours a day. That’s true.

Now to some, that’s overkill, but I enjoy what I do. As long as you do what you love, you won’t feel terribly bad about working. Steve Jobs, in one of his commencement speeches (I think in Stanford), you got to keep looking until you find what you love.

Now, I was having this conversation with my friend a few days ago and he said, “Well, it is easier said than done because I don’t have much money in the bank and I got to do this work that I hate. So what do you say about that?”

My friend Jim talks about this and I told him about that. I said, “You got to change your lifestyle. I’m pretty sure that if I sit down with you and we look at your life, we can find so many things that you spent money on that are sucking your life energy.

If you can get rid of those things that are not really helping you achieve your true freedom, that’s your first step. You really need to start organizing your life and budgeting and living way below your means.

Once you start saving like crazy for five or six years, the more money you have in your bank account, the more power you will have over your life. You don’t necessarily need to hoard money, but having money provides you the liberty and opportunity to do or pursue things that you love.” It’s that simple.

Mad Fientist: Yeah, absolutely. My wife and I were actually just talking about this last night at dinner. So many of our friends are miserable and we can see that they’re miserable with their job. But rather than save to get out of that situation, they just spend to make themselves temporarily happy. They’re just taking themselves to a hole that they take longer to dig themselves out of.

I would be interested to hear how your friend eventually gets on. I don’t know if it’s just a mindset thing. Like for you and I, it’s obvious, it’s like, “Whoa, if I don’t like my situation, then I’ll save money until I don’t need to work, then the situation will take care of itself.” But so many other people are just like, “Whoa! I had a bad day at work. So I’m going to go spend 100 bucks on dinner and drinks on a Friday night and then go buy a new car on Saturday to make myself feel better and make Saturday and Sunday fun before I go back to hell on Monday.”

Shilpan: Yeah. For me, Brandon, we live in a consumer-oriented society and everything is targeted to entice you to spend money. That’s the way capitalist system works. There’s nothing wrong against that. But those who are smart understand that life doesn’t take much to live happily.

Happiness has nothing to do with money. Once you can have that mindset to work hard and start saving and do anything and everything in your early life to increase your revenue, yet not allowing increased revenue to inflate your lifestyle, you can achieve your true freedom.

They’re really levelheaded. They are the ones who can understand that they need to work hard in order to save money because then, money works for them. But on the same token, they don’t allow ‘living like the Joneses’ attitude to creep in their mind and start spending. Most people can’t delineate between those two things. I think that’s when trouble starts.

Mad Fientist: Yeah. And you mentioned that it doesn’t take as much as you think to live a happy life. It doesn’t take as much money as you think you need.

Shilpan: Yes.

Mad Fientist: That’s something that has been very apparent to me in the fast few months. My wife and I have just been discussing what is the absolute perfect life for us? What would make us the most happy, no boundaries and there’s nothing tying us down and anything goes? We spent quite a few months talking about it and we eventually came to a plan that I had written about on MadFientist.com.

But after we’ve come up with the plan, it was even more exciting to budget for that plan because when you know you’re going to be free, it’s much easier to cut down on everything in life to what’s important. We’re not going to need cars anymore because we’re not going to have to drive to work. We’re just eliminating these items from our budget and then we’re looking at the final number and being like, “Wow! It’s so easy to get to this stage.” It’s amazing that other people aren’t doing it and they’re just stuck in the rat race for 40 years.

Now, I’d like to definitely get into real estate, which is what I was really excited to speak to you about. You are an owner of hotels. I would love to hear the story of how you ended up investing in commercial real estate.

Shilpan: When my kids started growing – my youngest one, when he was around three or four, my wife, she quit working since we had our first kid. But she wanted to find something that allows her to run a business and still spend time with our kids. We started thinking this hotel was one of the businesses that we thought can provide her an opportunity to be with the kids when she wanted and she can still manage the business.

That was the basis for our desire to purchase our first hotel. Back in 1998, that’s the time we purchased our hotel that we still own and she still runs it. It’s almost been paid off now. So it’s an amazing journey.

But since then, we purchased two other properties and we purchased several commercial lots. At one point, I was dreaming to build one, but then 2008 came in, I put that project on the back burner for now.

Mad Fientist: Right. So you own a total of three currently. Is that right?

Shilpan: Yeah, correct.

Mad Fientist: And are you still managing the initial one? Are you managing the three?

Shilpan: Yes. Yes. In other ventures, I have partners and someone who manages the business. I don’t do any indoor management as far as those properties other than the one that my wife manages. I help her out when needed. To your knowledge, I also am an IT. I worked for a bank actually. So on top of having this business I also work.

Mad Fientist: Wow! I can see where all the hours in your day get spent. You have quite a bit of work to do. How do you find commercial real estate investment? Isn’t something that you’d recommend?

Shilpan: That’s a good question, Brandon. Yeah. I have written an article on this too. The very first property I bought – I’ll be honest with you, right now, I’ve only got $30,000 in my pocket or I think to be precise, around $28,000. So I liked this property that was near our home back in 1998, a small property. It needed a 225,000 down payment. So I found few partners to buy it.

But about a few weeks before the closing, those who told me that they’ll be coming out with the funds called me and said they can’t do it. So I was really disappointed after all this work. But fortunately, I had a built friendship with this young man who owned the property. He realized how much work I had put behind this to make this deal happen.

So long story short, he financed over $100,000 to me and we saved like crazy. Within eight or nine months, we had closed $200,000.

So that’s how it happened. We took that note and paid it off in 18 months. So within the 18 months of purchase, we paid up $225,000.

Mad Fientist: Wow! That’s very impressive. Do you own your personal house that you live in? Or are you a renter?

Shilpan: No, no, no. We have a house that’s about 30 miles from the property.

Mad Fientist: How do you find commercial real estate? As opposed to a lot of people that are maybe starting out in real estate who would go the residential route either buying a single family home or maybe a duplex or a triplex or things like that, was it very difficult to go that extra step and purchase that hotel? Or is that pretty much the same principles that you would apply to a residential deal that are applied to something like a hotel?

Shilpan: I think in 2008, the financing world was different. There were a lot of small community banks who were eager to do conventional loans. Now, you can always go SBA route. SBA has 7A and 504 loans that you can use for commercial real estate. That’s a great way to start if I could advise someone who’s interested in buying a commercial real estate with a great credit.

You can purchase a commercial real estate through SBA. And SBA is just government-guaranteed with the bank. So the bank has a guarantee of up to 75% of the loan amount. As you know, hotels are highly speculative instruments. So banks are now not lending as much. It’s just really hard to get lending on commercial real estate.

So if I have to compare that to a duplex or a condo, it’s much easier to get financing on a duplex condo. So it’s far easier to become a landlord that way. I think if you have bandwidth and if you can handle the work with the right opportunity, you can make a lot of money with commercial real estate in a relatively short time provided that you want to work hard for the first three to five years.

Mad Fientist: And does the difficulty of getting financed, does that usually help people like you who are able to get the financing or already have the financing to purchase it? Does that make it more favorable, keeping people just starting out here, just trying to get into the business from even having a chance of purchasing some of these properties?

Shilpan: Yeah, that’s a great question. So one of the things that SBA also looks at is your resume to see if you are experienced in running business and what kind of business. If you have a partner or someone in your family who has run a commercial business like a shopping center, banks look at that really favorably because commercial enterprises require some hands-on experience in management. Whereas if it’s condo or a house, you don’t need any kind of management experience to manage it because you can outsource it to a property manager.

Mad Fientist: Sure!

Shilpan: You can do the same with a hotel if it’s a big operation. But most small to medium size hotels require hands-on experience.

Mad Fientist: Right! It seems like it would be quite a big endeavor to take on. It seems like people would maybe work themselves from maybe a triplex or a small apartment building and then maybe take on a hotel, but it seems like it would be very daunting to jump right into buying a hotel.

Shilpan: Yes. It seems so. In the last one year, the landscape has really changed in the United States for the hotel business. Back in 1980s, of course I wasn’t here, but I have friends who told me that it would be a lot easier to buy a hotel, especially even build a hotel back in 1980 to give you an example. If you want to build a hotel, it only costs about $15,000 a room.

Today, if you want to build a hotel like a Cambridge Suite or a Hampton, it costs you $70,000 or $80,000 a room. Even if you look at $60,000 a room to build a small hotel, it requires about a $5 million investment to begin with.

What was happening, Brandon is back in 1980s, those who invested in hotels were able to get their money back within three years. That was the average payoff. Now, it takes 10 to 12 years before you can even think about it. The risk is proportionately much higher now than ever because of competition.

Mad Fientist: I’m sure the banks don’t want to wait that long to get their money back these days.

Shilpan: So it has become an increasingly difficult business to run now. Again, for someone who is starting out new, I think a great way to participate real estate is through duplex or small properties if they have desire to manage those.

Mad Fientist: Great! The next thing I’d really like to talk to you about is what you write quite a bit on your site that I love reading about is some of the tax benefits of real estate.

Shilpan: Yeah. I was talking to a friend yesterday on this topic. He invested in the stock market. That’s another way to build out. But he was telling me that he has about $250,000 in losses in the last 10 years.

The problem with stock market losses versus, for example, real estate losses, is that in stock market, you can only deduct up to $3000 a year. So if the gentleman is 55 years old, he will never be able to take all the losses there from that standpoint. Whereas if he had owned a hotel and lost $700,000, but then if he has some other renters where he made money, he would offset that through his S Corp or LLC.

One of the great benefits of a commercial real estate is if you lose, if you have several businesses, if one is losing, you can offset that against the profit from other renters and then you get depreciation. The expense would just really pay, in my mind, to gross expense.

And you get to deduct anything related to business. You can buy a vehicle. You can go on trips as long as they’re business-related. So there are lots of benefits with commercial real estate. But the best part is that it also appreciate over time. So, while you’re taking advantage of the tax situation, you also are accumulating tax-deferred benefit. So you can re-invest your property into something similar to 1031.

Mad Fientist: Right!

Shilpan: Like in 2008, I sold a property and I made close to $600,000. And this was just before Lehman collapsed to be honest with you. The buyer was scared. Long story short, I convinced him to buy. Once I sold that, I realized my accountant told me that I had to pay a tax if I don’t reinvest this.

So through 1031, I was able to reinvest that into a similar business as long as you identify your investment within a definite time period. I think it is 90 days. You can reinvest the entire gain without paying the capital gain to 1031.

I think that even applies to a condo or any other property that you own. So it’s not limited to commercial. But normally, your profit is a lot more in commercial ventured compared to a small property.

So the benefit of owning a real estate is that there is no limit to the losses you can take. On the same token, like I said, now when you have a property, the government allows you to roll it over into another investment without paying any taxes through 1031.

Mad Fientist: Yeah, those are amazing benefits. And you mentioned LLC versus S Corp. What would you recommend? Obviously, I’m sure it depends on exactly your situation.

Shilpan: Yes.

Mad Fientist: But is there either that you would prefer when you’re setting up some sort of venture?

Shilpan: I’d prefer S Corp because of the nature of business that I’m in. I think a real estate is better to go with S Corp since they have more liability protections. I’ll tell you, S Corp is like a mini-corporation. It enjoys all the benefits that major corporations have without worrying about major losses.

If one morning, you get snow and if someone falls and someone gets hurt for whatever reason in your parking lot, an S Corp provides you a lot more protection in terms of personal liability. So, an S Corp is great if you have a real property in the new portfolio.

LLCs are also similar instruments, but I think, as you say, it all depends on what kind of business you’re in. The beauty of the S Corp is that it accesses a corporation, but then at the end of the year, you get K1 and you’re getting practical loss. The corporation is not paying any taxes. It’s just you paying.

Mad Fientist: Great. Before we finish up here, is there any general advice or advice that you’ve received in your life that has been particularly useful that you’d give to someone who’s looking to achieve financial independence early in life?

Shilpan: Brandon, I think you got it right. It’s all about your attitude towards money. I think it’s your attitude towards your life in general that dictates where you will be in terms of financial independence.

All you have to do is really make it simple and try to save like crazy as much as you can. As you said, look at every expense, no matter how big or small it is when you’re really building your career. That even takes saving money on transportation, saving money on your habits and all that comes into calculation.

Once you save, I would suggest 40% or 50% of what you saved, start investing wisely. Once you start doing that and understand the nature of the investment, you really start reaping the benefit as time goes. Everything takes time and persistence. But you stay your course and in 10 to 15 years down the road, before you know it, you’ll be financially independent.

So there’s no rocket science here. It just amazes me that most people don’t get it. But in a nutshell, it’s just doing the right thing early on which makes a great difference.

Mad Fientist: It’s great advice. Yeah, it is amazing that not a lot of people are doing it. Shilpan, I really appreciate you taking the time. Your story is an absolute inspiration. It was a pleasure speaking with you.

How can people get in touch with you if they want to learn more? I know they can find some great stuff that you’ve written over at StreetSmartFinance.org. Is there any other way they can get in touch or send an e-mail to or just leave a comment over on your site?

Shilpan: Brandon, my site is great if they want to connect with me. They can contact me. They can e-mail me or leave a comment. I’m very precise about responding to all the e-mails that I get. So I’d love to help anyone one if I can.

Mad Fientist: Perfect! You mentioned your previous blog. Is that still kicking around somewhere?

Shilpan: Yes. It’s SuccessSoul.com. It was doing very well and then I abandoned it because I realized late in 2008 that my family needed more time. So I didn’t pay attention and someone else got the domain and it took a while for me to get that domain back. But I have it back just two months ago. I’m just trying to revive it now. If anyone is interested, it’s SuccessSoul.com.

Mad Fientist: Okay, I’ll link to that on the show notes, as well as your StreetSmartFinance.org site and a few others. I know we talked about a few of your other articles, so I’ll link to those as well on the show notes. It was absolutely great talking to you and I really appreciate you taking the time.

Shilpan: Thank you, Brandon. I really enjoyed the opportunity to talk to you this afternoon.

Mad Fientist: Thanks, Shilpan. I’ll speak to you soon.

Shilpan: Yes, sir. Thank you.

Mad Fientist: Well, that wraps up another episode of the Mad Fientist Financial Independence Podcast. Thank you very much again to Shilpan for taking part. His story is incredibly inspiring. So I hope you are as inspired by it as I was. If you’ve not been to his site yet, be sure to go to StreetSmartFinance.org to take a look.

I just want to thank you guys for listening. I’ve noticed the podcast has been getting some good reviews over on iTunes. So I really appreciate your kind words there. I have some really exciting Mad Fientist things planned for next year. And I definitely look forward to producing more of these podcast episodes as well.

Since it’s the last episode for 2012, I just want to wish all of you happy holidays and I’ll see you in 2013.