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Celebrity Lawyer Explains How To Create Wealth

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[Source: Profit With Law]

https://www.profitwithlaw.com/blog/creating-wealth-through-smart-decisions-with-christopher-melcher

Celebrity Lawyer Christopher C. Melcher, who is ranked one of the best family law attorneys in California, explains how to create wealth through smart decisions

 

Mosha Amsel:

Welcome to another amazing guest interview here on the Profit With Law podcast. My name is Mosha Amsel and I’m really excited to introduce our celebrity lawyer guest, Christopher C. Melcher from Walzer Melcher LLP, which is a top family law firm in California.  Christopher is a really well known attorney over on the West Coast.  Business owners, celebrities, and trust beneficiaries across California, turn to Christopher Melcher for his assistance, protecting their most valuable assets with deep experience and complex family law litigation and premarital agreements. Mr. Melcher helps his clients achieve successful outcomes despite extremely challenging circumstances. He understands the need to keep sensitive family matters private for his noteworthy clients and is dedicated to handling family law matters in a discrete manner that still gets the results his clients are seeking.

Let us know your backstory and what brings you to the show here today?

Christopher Melcher:

I’ve been a lawyer since 1994 and I started in criminal defense and civil litigation because when I got out there just wasn’t any hiring. The economy was really bad at that point. And so I had a walk in the door type practice and was a true solo. Just doing everything on my own and it was a mess, but I was having fun doing these trials. And there was a gentleman who had a family law practice down the hall from me, it was just him and a secretary at that point in time. And we got to know each other and he was convincing me to switch over practice areas. He’s 15 years older than I am. And I thought I would never want to do divorce. It would be the last thing in the world I would want to do.

But I learned through him that there are these high-end clients, these wealthy clients who go through a divorce who have very interesting matters. And I started doing some work with him and eventually switched over and became his partner in 2005. And it was me, him and a secretary. And it’s been the best decision I ever made. I’ve never been bored practicing family law. And now we have nine lawyers plus support staff. So we’ve grown this thing into a very nice practice for ourselves and for everyone that’s working with us and had to learn along the way, these financial issues that I didn’t get in law school. I knew about money but I didn’t understand how to run a law firm. And I always was looking at more the artistic side of it that I’m going to go and be a great trial lawyer and win cases. And I never understood until I started working with top family law attorney Peter Walzer my future partner, that this was a business.

Mosha Amsel:

Yeah, I love that differentiation. A lot of people pick that up in the book called The E-Myth by Michael Gerber. But essentially when you start a law firm, you need to quickly recognize that the lawyer is the technician and the lawyer is replaceable. And your role is the CEO. Your role is the owner of the business. And if you got into it because you wanted to be a lawyer, then you need to go ahead and hire yourself a business manager, right? You need to hire a CEO. 

But if you want to own your own practice, you want to run the firm, then you need to as quickly as possible, bring other attorneys on staff to do the legal work so that you’re not distracted from growing the firm. 

 

And I think that that’s the differentiation that people have a hard time really. They understand it conceptually, but they have a hard time putting it into practice because they feel like they need to wear all the hats.

Mosha Amsel:

And you were a solo for a while. You then partnered with somebody else. How long did it take before you started to realize the power of bringing other people onto your team to expand the business?

Christopher Melcher:

Yeah, that leverage is very powerful, but it’s hard when we were starting out because it’s, I remember when we hired our first lawyer, our first associate and it was a risk. And then we went from there and everyone that we hired initially was a little scary because it was potentially meaning all of our profits going into this person, but we realized that it was an investment. And as we got busier, we saw that power of having the assistance there at the firm, because we are going after these gigantic divorce cases, that’s our typical client. These are very, very wealthy people, sometimes that are well known folks. And because they have so much wealth, they have a lot of legal issues surrounding their divorce. It’s not something that one lawyer can do. We are staffing these cases with two, three or four lawyers at a time.

And if we just stayed small, we would not have been able to take those cases on. And even if I wanted to go and do all the work on these cases, I would not have time then for administration and business development stuff to help see where we’re going with this law firm, because I’d be stuck in court all the time. So it was really in a band of years probably between 2005 and 2010 that we were understanding there is potential to grow this. And to start adding lawyers and then to understand how do you compensate them and how do you motivate them? And I foolishly thought that those were the same. You motivate people with comp because that’s how I was motivated. Just simply by money. But, we’re seeing that that’s not true that. That of course you need to treat people well with their comp, but that does not motivate people.

Mosha Amsel:

Yeah, absolutely. And so what are the kinds of things that you find are motivating staff members?

Christopher Melcher:

Well, there’s obviously respect is a big one. It’s understanding that what their value is to the firm and to the clients and showing appreciation for what they bring to the firm, having a path forward, if they want to accelerate in the law firm and to grow their own book of business or chart their course. Sometimes it’s title, sometimes it’s the office that they get. These other little perks that they would have, sometimes it’s case assignments that they want because we’ll bring in a really interesting case, a high profile case and some people want to work on that thing. So it’s these intangible non-financial things that we’re seeing will motivate people. And hopefully everyone here I think is really wanting to do the best job for the client. But there’s also a burnout factor that happens when you’re a hardcore litigator.

We’re trying to monitor that and push the work around in a way that we’re not overloading one person with it. But this is a daily struggle for me because I had no education or experience in managing other people. And I don’t know that I’m doing a great job at it, but it’s just something that I’ve had to learn and work through like everyone else that started a law firm because we were never taught these things.

Mosha Amsel:

Yeah. It’s interesting that you say you don’t know if you’re doing a great job. And I think that you’re saying that publicly, but I think internally you probably do know there is a litmus test, right? There is a way to grade your score as a manager of people. And this goes back to in the green room before we hit record we were talking about a few things. And I brought up Mike Morrison his book, Fireproof. And we’re reading that in the reader’s NOOK right now.  So he’s got this concept, which I really love that your office needs a jumbotron. When you go to a football game or a baseball game, there’s a massive screen and on the massive screen, it shows the score. You can look and you can see who’s winning, who’s losing. How many outs is it? What period are we in? What quarter are we in? And your firm needs the same thing. What is the key metric to know whether I’m winning at this or not?

And to be a good manager, the metric is turn over, right? So you got to look and see are people staying or are people leaving? Now, some turnover is normal, you’re going to have some turnover. But over time you will start to learn what turnover is healthy for your firm and what turnover is excessive. And if you start to see that turnover increasing people are leaving, that is indicative that they’re not happy. That is indicative that there’s a problem. If you see people are staying, nobody’s leaving, that’s indicative, you’re doing a pretty good job as a manager, but now you got to figure out why. Sometimes people get lucky, right? Sometimes we’re doing well and we’re just not sure why we’re doing well and you need to learn why it is so that you can continue to duplicate it, replicate it and do it again.

But just by the way that you’re communicating how you are thinking about motivating your staff, I’m sure that you probably get a pretty good score in the turnover department, which then reflects back on, hey, you’re doing a good job as a manager.

Christopher Melcher:

Yeah, that’s great. And we do have what we’re calling flash reports and that’s one of the metrics that we’re looking at is our head count. And we’ve been very fortunate to have people want to stay with us. But like I say, I’m the last to know what’s going on around here. 

And we’ve seen also that as the firm grows, that people will gravitate towards one another inside the firm and I’m unaware of those things.

But the goal is for us in leadership is to groom people to want to take over and to want to have the same success as we have, because we think that’s best for them as an individual, but it’s also best for the firm to create leaders.

 

Mosha Amsel:

Absolutely, absolutely. And leaders create more leaders, right? Because when somebody’s leading, they’ve got to be leading somebody. So there’s always somebody behind them and hopefully some of those people are wanting to become leaders. So that’s absolutely essential to the growth of a firm. And you’ve done a pretty impressive job of increasing your head count. Clearly you’ve got the business coming in for that. But that presents a new challenge, which is where I know you wanted to focus our conversation on today and that’s office space. And before we jump into office space, I want to ask you the current… Currently right now, as we’re recording this, I don’t know when it’s getting released, but I imagine it’s still going to be a problem when this gets released. The United States and I don’t know about the rest of the world, but at least in the US, we’re undergoing a really interesting phenomenon where wages are increasing. And really, you can get paid a decent wage, even if you go and flip burgers at McDonald’s. So wages are increasing and yet there’s a shortage of employees, right?

People just can’t find good staff. And the unspoken part of that is that a lot of people are looking for virtual positions, right? People want to have the flexibility to work from home and not have to report and clock into an office, probably because of the education system right now, right. We don’t know if our kids are going to school tomorrow. If tomorrow they decide, oh, there’s a COVID exposure and we’re closing the school. You’re going to have school from home for the next week or 10 days or two weeks. How is somebody who’s supposed to report to work, supposed to be able to deal with that? So more and more, the people are looking for these opportunities to be able to work virtually. And it would be silly to not include that in this part of the conversation.

So what is your experience with your own staff and your own head hunting? And I know you’re probably not the one doing the head hunting. But as you’re expanding your firm, what are you seeing in the marketplace? And are you requiring your staff to come into the office? Do you give virtual work options? How has all that play into the office space requirement?

Christopher Melcher:

I’ve spoken to a lot of other firm managers about this in this last year, about what their plans are with their space. And for us, everyone’s come back in working in-person. I think that most people prefer here to work in-person here together because there’s less distractions. And we are working as teams on these cases so we don’t really have people siloed. We’re all working together and you hear conversation through the hallway or pop into people’s office. And that’s helpful to move the case forward. And especially for younger lawyers who need mentorship, it’s very difficult for them to work from home. And they lose out on the exposure to the other lawyers in the office if they’re going to work remotely. 

 

In terms of recruitment, it’s provided opportunities to us because we’re in Los Angeles and the city of Los Angeles, but we’re right on the edge of it.  We’re in a suburb of the city of Los Angeles called Woodland Hills where most of the other firms that are doing the type of work that we are on the west side, so they’re in Century City or Beverly Hills. When we’re trying to recruit attorneys to work for us, a lot of people don’t want to come to the valley. And so that’s made it difficult for us to recruit in the past, but now anyone with a law license in California who has experience with this type of work, or is a really good litigator, could be a candidate for us and they could potentially work remotely. So it’s opened up some opportunities for remote, but I do think that that would probably be for an attorney who already has it figured out and they know how to work on a team and they can do it remotely.

I think a younger lawyer, we would want them to be here in person because we want them to understand office etiquette and learn as much from the process as possible. Other firm managers that I’ve talked about are locked into the releases. But as those come up, they are talking about going to a different model. And I’ve even been part of a work group where we looked at designing an office around common space with the reception and conference room, and more of a hoteling arrangement for lawyers to just pop in and meet rather than the one window office per lawyer model that we’ve been using for what, a hundred years.

Mosha Amsel:

Kind of like a WeWork or a Regus, but specifically for law firms. So somebody wants to come meet them in person. They need to be able to do that and doing it out of their house might not present themselves in the light that they want. They also don’t want, who wants a client to know exactly where you live and who knows what can happen, even if you’re not in criminal law, right? Every area of law can have a bad actor and a bad outcome for somebody where they want to take things a little further and nobody wants to potentially have them come into their home. So I definitely see the ability for that as a business. Now, let me ask you, I’m going to go on a tangent and we’ll circle back to office space in a minute.

There’s been a movement in HR in general, throughout the country to enhance people’s flexibility and their work arrangements. We almost know the stories of Google and Apple, where they putting in almost like it’s a frat house. Putting in entertainment for their staff and providing them with lunches. I know firsthand some companies that provide an unlimited time off for their staff. Clearly they don’t want them to abuse it. And if somebody abuses it, they probably wouldn’t last there. But it takes away the need to account for vacation days and sick days and just gives people the flexibility to work as hard as you can, and then take off when you need to. With stuff like that are you seeing any value in entertaining any of those or is the age old model that has worked in the past? The thing that you’re sticking to with benefits and time off and things like that?

Christopher Melcher:

Oh yeah. It’s something that we’ve been embracing for quite a bit. And having represented some tech companies to see what they do for folks. So first we have a snack room where there’s incredible amounts of snacks, very delicious, healthy stuff here, all kinds of drinks. We got coffee makers. We had a massage therapist coming in every two weeks. We got somebody who can detail the cars out front. 

We offer as many perks as we can provide, so people are comfortable here in the office, because they spend a lot of time here. It’s helpful for us to maintain them here because they’re able to work more and then to get their stuff done. I’m also a proponent, I use Uber for everything. If I’m going more than 15 minute drive, I’m using Uber. So that’s available to anyone going to court or going to meetings is, hey, hop in a Uber and we’ll pay for it.

 

In terms of the time off, that is something we talked about because if you’re an attorney you’re going to be an exempt employee. So you’re not on paying by the hour typically. So I didn’t really understand this whole vacation. Why are we providing vacation time at all? Because… they’re on a salary and they got to figure out when to do their work. So it is something we’ve looked at. But I think the thing that’s getting a lot of attention from firm managers that I’m speaking with now are how to deal with the employees who do not want to put in the work schedule that we did to get to where we are. And that’s a struggle because I had to work and I still am working nights and weekends, constantly working even just to maintain what I have. And if somebody wants a work life balance, a lifestyle firm, a 9:00 to 5:00, yes, you can make a living off of that, but you’re not going to build a law firm. You’re not going to build a huge book of business. You’re just going to be there in the service capacity.

And we’re seeing a lot of people or hearing a lot of people who just want that, which makes perfect sense. Because you have to be a maniac to do what we’re doing here. But also who is going to then create the next firm? Who’s going to take over these firms if they’re a 9:00 to 5:00 or it’s not… sorry but it’s just not going to happen.

Mosha Amsel:

Yeah. It’s interesting. I don’t want to go down on a tangent with this, but I think that… I would argue on that belief. In other words, I think that the workaholic or work all the time or do what it takes mentality it might be what got you to where you are and it might be what got your partners to where you guys are. But I don’t think it’s a requirement. And I think that we can find examples of really, really successful people who didn’t have to do that. At the same time you look at some of the most successful CEOs and they had to sacrifice their families. They had to sacrifice… They basically gave everything up. Their business was their baby. So there’s definitely both ends of the spectrum. But I think that ultimately, if you think about what you’re spending your time on, most owners when they really evaluate where they’re spending their time, a lot of it could be handed off to somebody else.

The time that we spend is a badge of honor on our chest, like, oh, I’m working 100 hours a week and that’s really, what’s getting me there. But the reality is you could be working 20 hours a week and hand off the other 80 hours to somebody else you’re choosing to own it. And is that really the key to the success the fact that you chose to own it. But I want to go back to… When we spoke at the beginning, before we hit record you shared with me that not only did you own your office building, I think you own two, is that correct?

Christopher Melcher:

Yeah. We had purchased, we ended up buying two. We just have one now. But this was a dream that my partner and I had when we started working together. Both of us had played around and in real estate investments separately and we just thought we would just love to own our own building. And it seemed far off for us. And especially if you’re going to be in an expensive part of town, then clearly that would be really, really hard to do. So you got to set your sites, which we did and figured, okay, this is something I think we could afford. But we started just putting money aside and into a savings account. Every month we just started separating that amount of dough into this account. And all of a sudden we had over a couple years, some cash there. And we had saw that when we were in a high rise tower before that we had spent quite a bit of money building out that space for the landlord.

So if none of your listeners have done this before, it’s pretty amazing that you’re spending a lot of money on a long term lease that you’ve guaranteed, but now you’re spending your cash fixing up this person’s property.

Mosha Amsel:

Right. You have to customize the space to what you want, which sometimes means tearing down interior walls, putting up new ones, running your own wiring, installing your own tech equipment, your own IT, and putting your own decorations on the place and your own signage and all that stuff.

Christopher Melcher:

For a place you might only be in for five years. So it’d be like somebody renting an apartment and just gutting it and putting in hardwood floors and a new kitchen. It doesn’t make sense, but that’s what everybody does. So we said, we don’t want to ever do that again. And that’s why we were saving this money. And then an opportunity came up. 

Mosha Amsel:

Before we talk about the opportunity, I’m going to interrupt you for one second. I was going to ask you, what was your motivation to buy a building? Why did you start considering it? And I think you just answered it where basically it was you realize that if you’re ever going to move offices, you’re going to have to have this expense again. And you don’t want to keep doing that. You’d rather invest in your space and be done with it. But then you said that you started saving, putting some money away every month. How did you determine how much to put away? Did you have any idea how much you would need? What revolved around that conversation and how much did you have to put away to really be able to entertain an opportunity when it came up?

Christopher Melcher:

Sure. What we were looking at and still what we’re doing now is we basically pay ourselves, say salary. And so that covers my basic living expenses. It’s not what I think I’m worth to the firm, but it’s my salary. And then everything else just sits there. And back, back, going back in time we were saying, and I think the number was like 10,000 a month or something like that, that we were just going to say, hey, we’re just going to put 10 grand a month into the savings account every month, no matter what. And okay, so two years you’ve got whatever, $240,000 and over time it grows. And so that was the start of that. 

But in terms of the motivation for it, yes, we didn’t want to spend money fixing somebody else’s property. But we also saw that as a service professional, we are really a product of our time and we don’t really own anything other than our time.

And I’ve represented enough folks who made a lot of income and had very little to show for it. Versus I’ve represented earlier in my career a school teacher, where she made very little money, but she had a lot to show for it because she valued money and she made good decisions with her money. So those type of things got me thinking that, hey, we’re bringing in money here, but we have to be smart about it. And I want to get out of this game. I want to have an exit here. I don’t want to be in my seventies doing this job. 

Rent is a big part of our overhead and how can we turned that expense into an asset? Well, that’s through purchasing the building. And so it seemed like a big and far off dream at the time, but that’s what we set out to do.

 

Mosha Amsel:

Yeah. I love that. And as a tax accountant, there’s a lot of tax benefits to owning real estate and being able to depreciate the building. And ultimately you may never have to pay taxes on the gains of the asset if you do it right with 1031 exchanges and bequeathing it to people on your death as opposed to before you die. So there’s some real advantages to doing that. And another is being able to control that income and set your own rent and be able to maybe decrease the income on one side and increase it somewhere else, if you need to play some end of year games with your taxes. So that really gives you a lot of flexibility with that as well.

And people who are early on in their firms, don’t really recognize how big this tax bill is. But if you’ve been doing this for a while, you probably got that shock at some point. And one day you walk into your accountant’s office and they do your tax return. And they say, okay, you got the IRS, you owe them $50,000 and you owe the state of California 20. And you’re like, whoa, whoa, whoa, what’s going on here? And it came out of the blue because the first two to three years, you barely made any money. And now all of a sudden you’re profitable and the government’s taken half of it. And then attorneys are in this special category where you lose the QBI deduction. You lose this special deduction after a certain amount of income. And you got to keep your eyes on that and take steps towards it.

And owning real estate can be a really good strategy to help overcome that without getting into all kinds of things like cost segregation and things like that when you buy a building. I stopped you when you started saying that an opportunity came knocking. So let’s go back to there because I want to make sure that we get the whole picture here. And I want people to be able to learn from your own experience on how they might be able to navigate and do the same. So the reason for buying a building is, hey, I don’t want to pay rent to somebody else. I don’t want to build out somebody else’s space, and there’s tax advantages.

So ultimately if I recognize that I may or may not be able to sell my firm for some money at the end, I need to have something else, some other assets in play to be able to walk away from this without having worked my whole life and have nothing to show for it. And an office building is one of those things. So what happened next?

Christopher Melcher:

We saw this listing come up for a building in our area. And I think it was $2.2 million or something like that. And 6,400 square foot building in a place called Warner Center. So we figured, hey, that we could afford this.

With SBA, so the Small Business Administration, they have a wonderful program for purchasing real estate for your business, easy to qualify, low interest rate, 10% down, great terms.

 

And so it’s there they want to give this money to you. It’s a great program. So we said, hey, we’ve got the 10% down, we could buy this thing. Yes, it needed a lot of work. But what was interesting was that there was already a law firm in that building as a tenant. And they were paying, I think it was like $18,000 a month in rent.

And we asked the broker, it’s like, “Well, why doesn’t this guy just buy it?” Well, he didn’t have the down payment, which was to me, was a shocker. Because if you can afford $18,000 a month in rent, but you don’t have $200,000 in cash to plunk down to buy the space that you’re paying 18,000 it tells me a lot. And that’s where a lot of the lawyers are, is just that they’re living hand to mouth, stripping out all the profits, distributing out everything. There’s no savings, there’s no end game. There’s no plan. So we thought, wow, we’re smart to save that money and be ready.

So we were able to get the building. It took quite a bit of work to fix it up. But it was an incredible thing to have that space. And then fast forward a little but during the pandemic, we had control of our space. We were able to go into it. Whereas other tenants were locked out of their buildings, potentially. We were able to put in airs scrubbers and do all the stuff that we wanted to do to make its say for everyone. Whereas if you were in a rented space, you might not have been able to access it. So it was really nice having that. And I think also with the clientele that we have these are business owners, they are sophisticated people, they want to see their law firm to be stable and to be sophisticated, so I can talk to them at their level. And this is another thing that I realized. I thought all lawyers were really sophisticated, but no, there’s a lot of lawyers who really don’t know anything about real estate, transactions, taxes or finance because they’ve never done it in their own personal life. So I think having those experiences allowed me to relate to clients better, provided stability for the firm. It was really our home here. And it was just nothing but good. I mean, basically when you look at the tax benefits of all this, the rent that we saved, the depreciation it’s a free building. They basically gave this to us.

Mosha Amsel:

Yeah. And that’s incredible, but what happens next? Do you stay in that building? Is there an upgrade plan? Is that building big enough for your growth plans? It’s one of the things that when somebody buys a building, they think that they’re buying a building that’s big enough, right? And then all of a sudden, five years later you look back and you’re like, well, what was I thinking? We’re busting at the seams here. So what’s your experience there. And do you think that you’re going to have to look for the next one?

Christopher Melcher:

Well, sure. We are busting at the seams here, it’s 6,400 square feet. Now, under the SBA program, you could rent 49% of it. So you just have to occupy half. And so initially we took half and rented the other half out, which helped pay for the upgrades that we did to this building. And then eventually we took over the space. And then we purchased a second building in Santa Monica because we wanted the presence on the west side and we needed space for additional folks. And that was a beautiful building. But there was an opportunity with a developer to sell that because they wanted to develop it. And we did really well on that. And that was never our intention when we bought it, but it just turned out that it just made more sense for us at that moment to sell. And now I would like to buy another one.

What we’ve seen and I’m sure this is true for anyone who has partners is that you’re in different life phases with your partners. And unless you’re the same age and the same amount of wealth that everyone’s looking at this differently. So that’s one thing to… I know my partner’s 15 years older than me and I’m always looking at properties and like, hey, we could buy this and in 20 years it’ll be paid off, and it’s like-

Mosha Amsel:

He’s almost ready to cash out?

Christopher Melcher:

Yeah. So there’s some considerations there because you’re going to have to personally guarantee this debt. That could be rearranged on a partnership level and refinanced. But that’s just something to consider is where are your partners in their life plan compared to yours? I think purchasing doesn’t make sense on a short term level, but if you’re going to be in this for five, 10, 15 years, yeah. It makes a lot of sense. It makes no sense to rent, I think, especially because you could rent excess space out to others. My hope would be that we would be acquiring a second building at some point, or just not at that place at the moment.

Mosha Amsel:

Yeah. And it’s interesting because I think that the… It sounds like the SBA loan requirements of occupying 49% might be something that’s hampering you from potentially moving to the next building. And I just want to throw this out there. I’m sure you already know that that’s an option. But you can always refinance a loan, right? You can always pay off your SBA loan and you’ve been in there for a while. You probably have more principle, it’s probably worth more. You probably can meet regular commercial loan requirements and just move into a traditional loan, put other renters in there. Now you’ve got a building with renters, your landlord and you move on to your next property, use the SBA program again, to get you into maybe something a little bit more expensive, larger and just keep laddering up. Will you sell the building and do it that way. But there’s a lot of options that you have that doesn’t box you into a corner.

Christopher Melcher:

Well, yeah. We’ve almost have this paid off. And that was our goal, especially because of my partner getting closer to 70, I didn’t want him to have any debt if he chose to retire. And that also provides an opportunity if you have partners at different age groups is that if you’re going to own this asset together, it is essentially a way of a retiring partner to continue participating in some income from the firm. Whereas normally it’s, hey nice knowing you, and that’s about it. So we have this opportunity to continue, like you say, being a landlord to a law firm, like we are now. Or a renter, I’m sorry, a landlord to others or sell it, whatever. It’s nothing but good options.

Mosha Amsel:

Yeah. Yeah. Very interesting. Okay. That sounds like a great opportunity that people should investigate at the very least look into, because like you said by the time you were done between the SBA loan program and the tax benefits you essentially were getting… and the other tenants in the building, you essentially were getting a building for free, right? Talk about 15,000 a month, 20,000 a month, whatever you’re paying for your rent, imagine if you can put that back in your pocket, instead of paying that what effect would that have on your life and what could be possible for you. Even if it’s not, I’m taking it home how many more people can you hire with that kind of money, right? And continue to grow your firm in other ways? I think that it really is something that people should consider probably sooner than they really think that they should. And maybe this is a question to ask you, what do you think the size of a firm should be at before they start to think about this?

Christopher Melcher:

I think you start thinking about it from day one. If I would’ve done stuff over again, it would’ve been the day out of law school. I would’ve said I want to buy a building. And here’s the problem because I talked to every lawyer who will listen to me about this. It’s like, you got to know this, please. And the most of the response is, well I’m in this fancy area and I can’t afford the fancy area. And to me, I would rather be in the bad area and own than rent in the good area. If you’re good your clients will come to you. And so you got to start small. You’re not going to go buy a skyscraper in your first deal. So it’s going to be humble perhaps. But I would rather own that humble thing than lease a really nice thing. I think it’s start early, have the plan, put money aside, dream big but all also be realistic about what you can afford.

 

Maintain your credit really well, because you’re going to need it because you’re going to be borrowing 90% of this money and have that long term plan, because this was not that long ago. I think we bought this in 2012 or 2013. So here it is eight, nine years later, it’s an asset that’s almost paid off. 

Mosha Amsel:

Sorry, I didn’t mean to interrupt you. What is the length of that loan officially? I’m assuming you prepaid it or paid it down early, right?

Christopher Melcher:

Well, that’s it. Had we just gone about normally it would’ve been… The SBA amortizes over 30 years, but it’s a 20 year loan. They make the payments smaller by amortizing it over a longer period but it’s 20 year loan. And most people will refi those in about five years in because of the SBA loan fees become a little expensive. We just aggressively paid this down because we didn’t want to have the debt. And that was our point is, to have an asset… If we would not have purchased this thing or if we would’ve just paid the minimum monthly, yeah, what would I have done with the money? I would’ve just taken vacations, I would’ve bought stuff. And I’d have nothing to show for it other than maybe some memories.

And to me where I’m at now at 53, I want to have things to show for it tangibly. I want to have assets and I don’t want to have to work so hard. And that’s what I’m seeing for us lawyers is we have a very long career, people working 40 years at this job. And 40 years is a very long time to show the effect of good decisions like hopefully I’m doing with trying to acquire things with the money that I’m spending here or blowing it all.

Mosha Amsel:

 And here we start to get into the deeper philosophical, like, what am I doing? And why doing it? And if you started your law firm just to replace a paycheck, you’re in for a rude awakening because it’s very hard to replace that paycheck. But if you want to create a long term game plan for yourself where you’re creating wealth, creating a cash generating machine, you have to be making smart decisions and buying an office building is a really good one.

There’s other things you could do, like starting a deferred compensation plan, where you’re able to just defer some of your profits and basically create your own pension. That over time creates this recurring monthly payment that you can start to collect on when you retire.

 

Obviously you have to be willing to do that for your staff too. There’s all kinds of rules around it. You need a good accountant for that. But there are ways to unlock long term wealth and long term potential by doing some smart things early on and along the way as you grow. And it leads back to another thing because so many people struggle with their firm and they’re sitting here listening to this podcast. They’re like, “Well, $10,000 a month, you put into savings? I can’t even take home $10,000 a month.” And I presume that it’s not just because you were successful or have the staff, or have certain type of caseload or whatever. People are looking into, oh, that’s because he’s got wealthy clients. That’s because he’s doing family law… What it’s probably because, and I want you to weigh in on this, is because you made prudent decisions along the way about where your money would be spent, because you didn’t waste money on things that didn’t need to be purchased.

One of the things that we teach here is Profit First, by Mike Michalowicz. But one of the things that profit first demonstrates is where you should be financially as a business owner and up until 250,000 in revenue, you should be taking home according to that plan, about 55% of the money coming into the business. But nine times out of 10, I meet an attorney who’s bringing in 250,000 in revenue and they’re bringing in 10% or 15% of that if they’re lucky, right?

And those habits that you have at the beginning, when you’re earning 100,000, 150, 200,000, those habits to translate into what you do when you’re earning two million, three million or four million. And if you had bad habits, you end up with a two million, three million practice, and you’re still taking home $50,000 instead of where you could be taking home a third of that or 25% of that. And when you start to have those kinds of numbers, now it makes buying a building look like a piece of cake.

Christopher Melcher:

Yeah. And I get that and everyone’s going to start somewhere. And I certainly did. My first 10 years of practice was a disaster. I was living on credit cards and I was in debt. I almost went bankrupt. So I understand what that looks like, because I lived that. And I didn’t want to have that anymore. And yeah, it hurt. Putting that 10,000 a month was not easy. I needed that money and I did without.

But that’s a conscious choice of do you want to go and take a $10,000 vacation for one week? Or do you want to take a little one hour driving trip that’s going to barely cost you anything and probably have just as great of a time. And these are choices that we make and we can’t have it all.

 

We can’t live this big lifestyle. And that’s the problem with lawyers and I’ve suffered it for myself. It’s like, you get out of law school, well, you need a nice car, you need the suits, you need the nice house, you need the vacations, you need the golf club, et cetera. And then great, you have a lifestyle, but you have no future. So I’ve really tried my best to make those choices about where I’m going to spend my money. Because as I’ve gotten a bit older we could see this has gone by very quickly and we’re not going to get another go round on it. And we have to make good decisions and good decision making over really on only a few years has a huge impact. It didn’t take me long to get out of debt. And it didn’t take long to do all this with the building. But if we just think about like, oh, it’s out of reach, I could never do that. Well, you’re right.

Mosha Amsel:

Yeah. You’d still be deeply in credit card debt. And you’d still be wondering when is the good times going to come, right. So looking back at those first 10 years where you were over leveraged where you weren’t potentially… Maybe you weren’t making good decisions or maybe just the income wasn’t there. And I don’t know which one it was for you. Do you think that was avoidable? Do you think that if you look back at your younger self, that you can give some advice to say, hey, if you’re starting out now watch out for these things because this is going to get you. And I learned, it took me 10 years to figure that out. But if you do X, Y, Z, you can avoid all that.

Christopher Melcher:

Part of the problem was that I was doing criminal defense and it’s hard. It’s usually all upfront money. Whatever you see when you sign up a client is usually the last money you see. And then I was also doing stuff on contingency for personal injury cases.

So you’re basically gambling the whole time here with my time. 

The big lesson that I learned through all this was to value my own time, because there are people who will definitely take your time and have no intention on paying for it, or can’t pay for it at the beginning. And I just don’t want to give away my services unless I’m being intentional about it, like some pro bono course that I’ll get involved in. That was the problem is not valuing my own time and saying, hey, I’m going to get paid for this work, or I’m not going to do it at all.

 

I’m not going to just take on a client and say that the $5,000 that I got upfront’s going to cover it when I know it’s not going to. So I think it’s making a choice to say we’re not going to give away our time and we want to get paid for it. And it may mean starting off with a firm, which probably make more sense than doing a solo like I did, but I really didn’t have any choice there wasn’t anyone hiring. So I think it was looking at it as a business rather than an occupation or a profession. The only point of doing this is to make a profit. And if that’s not happening then we’re utterly doing something wrong. And that was the shift. And it really took me partnering up with Peter Walzer to understand that, because I just didn’t know any better when I started out.

Mosha Amsel:

And that’s why this podcast is called profit with law. Thank you for that segue for me. Real words of wisdom here by Christopher. And I think that our listeners should really listen in because that last two minute sound bite was incredible.

You’ve got to value your time. You’ve got to be really careful with your time. You don’t be cavalier with it, the same way your cavalier with money. Those are the two resources that you have at your disposal. And how you to spend them is going to dictate your level of success. And I think that if nothing else that you can see from this episode, you can see that it’s possible. It’s possible to build a law firm with nine lawyers. It’s possible to buy yourself an office building or two and sell one of them for a profit and own the other outright eight years later or practically, right?

 

All of that is possible. It just requires good decision making along the way. And if you have trouble navigating gain that good decision making, then go get yourself the book Profit First by Mike Michalowicz, implement that that plan, because essentially it does what you did. In Profit First, all they need to do is open a separate bank account, ear market for my future real estate investment decide that 5% of revenue that comes in or 3% of revenue or 10% of revenue, whatever it is, is going to go into that account. And all of a sudden, as the firm is growing and that percentage stays the same. All of a sudden you have a nice big chunk of money in there. And now you can say, oh, look at that. I’m ready to buy a building and get rid of this massive rent expense that I have once and for all.

So I love that journey that you’ve been on and I look forward for an opportunity for us to reconnect and maybe see how things are going once it’s paid off and where you were able to take it from there. I’m going to ask you Christopher, if there’s anything, any way that you want to provide people to get in touch with you, if they have question, they’re considering doing this themselves, they want to pick your brain. I know you value your time, so I don’t want to just give it out, but if you want to share, you’re certainly welcome to.

Christopher Melcher:

If you just Google Christopher Melcher, M-E-L-C-H-E-R, you’ll find all my contact details right there. I’m always happy to talk about this. This was the best thing that ever happened to me and by far. So if any of you are thinking about purchasing a building, I am happy to talk to you because I just would love to see that happen for you. And no matter what stage you are in that process, ready to buy or just dreaming, yeah, I’m happy to talk about that because it was all good for me and I think it would be all good for you. And the other thing that I’m more passionate about is nothing to do with my law firm really is my YouTube channel. So if you go to YouTube and go to CCMESQ, I’m doing a lot of legal commentary there on big legal issues and just having fun, explaining the law or surrounding these things that people just want to understand more in depth about trials that are going on, or legal issues that they’re reading about. 

 

So I’m just having fun doing that as my little side project.

Mosha Amsel:

I love it. And we will definitely go check out YouTube channel. We’ll all also link it up in the show notes below. So folks, the show notes link is in the podcast description in your podcast player. We might have the whole show notes in your podcast player, but every player is different. So don’t want to assume that. You could also go to profitwithlaw.com/episodenumber. I don’t know what episode this is going to end up being, but if you just tag on the episode number to the end of profitwithlaw.com, you’ll get the show notes page for this episode as well as another way that you can tune in and listen. If this is your first time listening to the Profit With Law Podcast, I hope you’ll be coming back as a subscriber, make sure you hit the subscribe button in your podcast player so you get notified every time we release a new episode.

We’re here twice a week, every Tuesday and Thursday. Tuesdays, it’s just me behind the microphone, shooting the breeze, letting you know what’s up. Sometimes I’ve got things of value to share, and sometimes it’s not. Let you be the judge of that. But every Thursday we have a rockstar guest just like Christopher. 

If you keep spend every penny that comes in or spending more than that, you’re never going to be able to do what Christopher has done. You’re never going to be able to buy an office building. It’s going to be a struggle to hire new staff. All those things can be solved by just being prudent and careful with your money and having profit as you go. And if you’re struggling with creating profit, then your business model’s probably broken. You probably need some help with that. And you can get help by getting on the phone with one of our coaches who will perform a free coaching session with you to help you identify where your weaknesses are, to help you identify where you might be getting stuck, and how you can propel your business forward..