Right, well actually both sides.
We'll say they both have risk.
The auto side risk is not as clear so there are some guesses, technology.
Technology is probably the biggest risk, right?
Electric cars, the way cars are lasting longer.
For example, brakes are a big part of our business and
now we have regenerative brakes where they don't wear down as much.
>> But I have to remind myself,
25 years ago when I started this, we only did mufflers and brakes.
And we thought, my god, what happens if they start having ABS,
which is anti-lock brake systems, and they have these.
They don't happen really fast.
So we just evolved through them and figured it out as time went on.
But technology is always a risk, but outside of that, it's people.
We happen to be in a business that cannot be automated.
So if I don't have a guy that can fix the car physically with his hands and
mind diagnosing it, it's not going to work in the automotive business, right?
There's no way to automate.
And if people aren't going into that industry, which they're not.
There's not a big pool of technicians, and there's a shrinking pool of
qualified people that are even entering this business.
Then now all of us are competing for a very, very small pool.
And that is a serious risk, and it's something to really think about.
On the real estate side, it's always interest rates.
Always interest rates to me first.
But even interest rates depend on when you buy in that cycle you'll be okay.
But the other part is frankly the economy.
If it's not growing and
retail is not thriving, then as you notice in Champaign over the last seven or
eight years, you've seen a cycle of a bunch of buildings with for lease signs.
>> [LAUGH] >> And
then they'll go through a period where those are leased.
And then they'll come back again.
And that's really predicated on what type of economy we have.
So that's always the risk is just oversupply.
>> Yeah.
>> Oversupply on the real estate side.
And then, ultimately.
It's very hard to manage interest rate risk,
because right here's a higher cost of capital.
>> Even if the interest rate on your loan is fixed,
you still face the interest rate risk.
>> Because the buyer that's eventually going to sell it to me now has to spend
more to finance that project, so you just lowered the price of your asset.
>> Yeah, that's a good point.
So do you feel like this risk is pretty much outside of your control then?
>> [CROSSTALK] >> Yeah, my
only thing is that it's going to apply to everybody.
I mean that's really the best way to think about it,
well that's the way I think about it.
Is that it's going to apply to everybody and
as long as you're cognizant of it, like I learned in.
>> [LAUGH] >> The phrase I learned in MBA school was
scanning your environment.
>> [LAUGH] >> And as long as you are scanning your
environment and really paying attention to the subtle changes that are happening, and
adapting to them, you should have a competitive advantage,
at least to be able to stay in it.
>> You talked a little bit about paying cash to owners.
So how do you pay dividends to the owners of the equity?
For example, to yourself.
And let's say if you have a coinvestor in the real estate business.
How do you manage this payout?
What do you do there?
>> Well, couple ways.
One of them is you have to think about taxes.
Taxes are a huge, huge, huge,
huge consideration because they change everything.
They really change the equation from a tax standpoint.
So whether something is ordinary income or something falls into,
when you sell a property and it becomes- >> Capital gains.
>> Capital gains.
So all these things go into the pot, right?
But one of the ways.
So in my business, I have two businesses.
The operating business, I don't have much choice.
It's an operating business.
So we're an S1 company, so whatever money you make just flows.
Down to your personal income.
Now what I can do is because I own some of the buildings
that the operating business is renting from.
I can make those rents be higher, for example.
I can make those rents higher and take more of your money through real estate.
Real estate you depreciate.
You have depreciate real estate.
So it's not a cash event, right?
So it might show on paper that you made $50,000 on this real estate a year.
But really, you might have made 85,000 in actual cash.
Because you have depreciation in real estate.
So one way is to shift it.
The other way that we take, and I do it.
Which I just did a year ago, I periodically sell property.
Okay, or re-finance property.
So there's a couple of ways you can do that.
One is you were almost telling the example.
If you built $250,000 of equity this year.
Then at the end of the year, you can do this every year if you want.
As long as the bank is holding the loan to value of 80%.
At the end of the year- >> You can get some.
>> Go and refinance- >> Yeah.
>> You pull out the equity, and it's non-taxed.
>> It's not taxed?
>> It's not a taxable event, zero tax.
>> Interesting. >> Because you refinanced.
So a lot of people in real estate that love real estate.
Which is why people watch like Donald Trump and stuff and
be like, well, he doesn't pay very much taxes.
Well because he owns a lot of real estate.
>> That's because of the real estate, yeah.
>> It's not because of him, or Heidi.
It's just the way the function of real estate.
So every single year I could pay myself zero, okay?
And every single year go back and refinance my property.
Pull out whatever excess equity I've made
outside of the loan to value that the bank would like keep.
And that becomes a tax free event.
>> And you can even get some profits out of your operating business, right?
And so you can put the two businesses >> You can them together, right.
>> Together in a way that minimizes tax revenue.
That's very clever.
>> The other way to do it is to randomly, every once in a while sell certain assets.
You pull out that money, and
then you put them in a 1031 exchange which is what I just recently did.
So basically you just take your equity that you made in these other properties.
Sell it, make a little bit of money.
And then put it immediately back into upgraded property.
And that becomes a non-taxed event.
You can then go refinance that and then pull it out.
So, those are really.
Then the last part is at some point you have to decide to cash out and just sell.
And that's a major tax benefit and you really have to plan for that.
I haven't got to that point yet.
>> Yeah, yeah, well, thank you.
This is all very interesting.
Just to finalize,
there are business students from all over the world watching this.
What kind of advice do you have for people who are starting out?
>> In business?
>> Yeah, in business.
>> Well, I mean, there's a couple of ones that I always say to young kids is that.
This is more of a philosophical thing.
That you don't have to love what you do.
>> [LAUGH] >> Everybody wants to say I'm not happy,
or I don't love this, right?
Well, it's the means to the end, right?
>> Yeah. >> So along the process of
whatever it is that you want, define what you want.
If it's quality of life, if it's money, it it's whatever.
Define that, okay?
But the steps along the way,
you're not going to be happy all the steps along the way.
So obviously that's the main thing.
And the other part of it is, everybody knows this.
Is that unless home runs are wonderful, they're wonderful.
To be honest, I've never had a home run.
>> [LAUGH] >> I've never had a home run.
I've had a lot of singles and- >> I'm not sure I believe that, but.
>> Pardon? >> I'm not sure I believe that.
>> I really haven't.
>> Okay. >> I really haven't had a home run.
I have friends that have home runs.
>> All right. >> And I know and
I can tell you the difference between what home runs are.
Home runs are when something goes from nothing to just exploding.
Mine has never exploded.
It's been sort of a steady process that I started a long time ago.
But it started with, you asked about the real estate.
It actually started with an apartment that I bought for $63,000.
That was the first real estate transaction I made.
And that's when I learned, whoa, I can make more rent than thing.
So I think it's just a matter of defining what you want.
And, having the patience.
Because most of the time, you will have to have a methodical patience.