May 2022

I’m about to tell you everything the Fed doesn’t want to say to you. 

Let’s start with the obvious: Most of us don’t like to see interest rates rise. Sure, it’s nice to make a little bit of extra money off our savings accounts, but the higher cost of mortgages, consumer loans, and all other forms of credit isn’t worth a few extra dollars of interest in our bank accounts. 

But here’s the thing.

The best way to quell inflation is to raise interest rates. This does two things:

1. It increases the cost to borrow, so people don’t buy as much crap. 
2. It increases the amount of money you make by saving, so people start to save more.

When people are spending less and saving more, demand decreases. When demand decreases, prices go down.

But how high do interest rates need to go to calm inflation?

The conventional wisdom is that nominal interest rates (the actual interest rate number) must be higher than the inflation rate to reduce inflation. This is because people need to understand that they are not losing value by holding cash. Rates higher than inflation will allow us to not lose money by saving.

With inflation at around 8%, you may be thinking that it means we need to raise rates from the current 1% mark to over 8%. But luckily, that’s not the case. As rates start to rise, inflation starts to subside, and there will be some point of equalization somewhere between the current 1% interest rate and the 8% inflation rate. 

Where is equilibrium? Nobody knows. 

It may be that raising rates to 2% is enough to drop inflation back to 2%, a number we should all be pretty comfortable with. But it’s also possible that we may need to raise rates to 4%, 5%, or more to achieve the desired goal. 

In theory, the right move would be to continue to raise rates a little at a time until we hit that equilibrium. And then perhaps a little bit more to push inflation down to a comfortable level. 

But there are a couple of real constraints that make things more complicated. Unfortunately, some of these constraints are at odds with each other. 

Let’s talk about two things the Fed doesn’t like to discuss publicly. 

Stagflation

The first is the risk of stagflation. You’ve probably heard this term, but for those who haven’t, it’s essentially a situation where we have both inflation and a recession. 

Inflation is typically a sign of a strong economy, but uncontrolled inflation can create a downward spiral that can destroy the economy for years or decades. 

An excellent example of this is Japan in the 1990s and 2000s. In 1991, the Japanese government spiked rates to curb inflation, popping their economic bubble.

This plunged Japan into a low growth, high inflation environment for the next 20 years called the “Lost Decade.”

So, how do we avoid stagflation?  

Conventional wisdom says that to avoid stagflation, we need to raise rates quickly, shock the system, quash inflation, and get things back into the normal rhythm. 

Many people have suggested that this is the right move for the Fed to make at this time. Even if it plunges us into recession, it’s better than risking a spiral into stagflation, which could be a much worse and longer-lasting economic downturn. 

This brings us to the second constraint that we’re facing in this current economic crisis that makes things complicated.

Raising rates too high too quickly could cause an irreversible debt crisis. 

When we raise interest rates, bond yields (the interest paid to bondholders) rise. Since Treasury bonds are simply debt that the U.S. creates, raising interest rates means we need to pay more interest on our national debt. Just like when we take a mortgage on a rental property, the higher the interest rate, the harder it is to cash flow due to the higher interest payments. 

When interest rates and bond yields rise, the government spends more money on interest payments. This means we either have to borrow more money (again at the higher interest rate) to pay all that interest, or we need to spend less money on items such as welfare, defense, education, infrastructure, and other programs. 

The government is clearly not good at spending less money, at least historically speaking.

So what would likely happen is that we’d have to start issuing more debt to make our interest payments, which would increase our total interest payments, which would force us to increase debt even more, which forces us to print more money. Do you see the problem here?

The national debt spins out of control—even more so than it already is—and we risk having to either default or restructure. 

So there’s our dilemma.

We have to increase interest rates to reduce inflation, and we have to do it quickly to minimize the risk of stagflation. But, if we do it too drastically and too quickly, we run the risk of a national debt crisis. 

Final Thoughts

So, next time you hear about Jerome Powell and the Fed acting in ways that make it seem like they don’t know what they’re doing, keep in mind that things are a little more complicated than they might appear.  

Next time you hear the Fed admitting that a soft landing seems unlikely, this is why. Going for a soft landing (doing things slowly, hoping there’s no major economic fallout) will likely lead to stagflation. I don’t think a soft landing is in the cards this time around. Not even trying is probably for the better. 

Unfortunately, we’re in a position where we have a bunch of not-so-good choices, and nobody seems to want to admit it to the American people.  

While I don’t particularly enjoy making public predictions, I’ve planned for at least a couple more rate hikes in my business, likely at least a half point each. While that won’t be much fun for us as real estate investors, the alternative could be worse.

David:
This is the BiggerPockets podcast show 611.

Jason:
If you would have told me that seven years ago, when I started that I’d be doing what I’m doing right now, I wouldn’t have believed that it was even possible. What was sad would be, I wouldn’t even believe that I was the kind of person that was capable of doing it, which was even more sad for me, right? I had to get into this space where we proved to ourselves, and we had proof of concept like, “Wow. This works. Wow, I am capable of doing it.” That confidence, that self-confidence is like a muscle that you build over time.

Jason:
Now, when I say that I’m going to do something, I know that it’s going to happen because for the last seven years, I’ve been doing everything that I’ve been saying that I’m going to do, right? It doesn’t start out that way but you can get there and it doesn’t need to take a lifetime.

David:
What’s going on everyone? My name is David Greene and I’m your host of the BiggerPockets Real Estate podcast, the best real estate investing podcast in the entire world. Here at BiggerPockets, we believe in helping you find financial freedom through real estate so that you can live life on your terms and do what you were meant to do, instead of what you have to do. We do that by bringing on different guests who tell their stories of how they found financial freedom, as well as industry experts that share advice, opinions and information that can help you become more successful.

David:
If you’re looking to get plugged in with over two million other people on the same journey, I highly encourage you to check out biggerpockets.com. Our website where there is a forum that you can ask any question you could think of when it comes to real estate investing, a blog where you can read articles written by other successful investors, as well as this podcast and others all designed to help you find financial freedom through real estate. I am joined today by my amazing, mysterious, captivating, and now athletic co-host, Rob Abasolo. Rob, how’re you feeling today?

Rob:
Lactic acid is building everywhere I mentioned right before this I went on my first run in three years. I thought I could do it. I did it. I ran five miles.

David:
You ran five miles your first time?

Rob:
Yeah, yeah, but you know.

David:
What the heck?

Rob:
Yeah, but they are 12 minute miles. I mean, it’s offensive to even call it running. I’ve been known actually. I’ve actually run three half marathons without training every single time. I was like, “Yeah, I could do five miles.” I’m paying for it today, my friend.

David:
You got a little bit of delayed onset muscle soreness?

Rob:
Yeah. Isn’t it supposed to be worse on the second day, though? I think tomorrow is going to be the bad one for me.

David:
I always feel it right around 22 to 24 hours after I worked out. That’s where it starts to hit me.

Rob:
I’m going to be healing up pretty good, though. I’m really simultaneously nervous and excited because a friend of mine sent me two A5 Wagyu steaks, and two oxtails and I’m going to be eating that right after this. I got to get a load up on the protein to heal up [inaudible 00:02:48].

David:
You need that protein to rebuild those muscles. That’s right.

Rob:
Yeah.

David:
Today’s podcast is brought to you by Rob DOM’s, Delayed Onset Muscle Soreness. It’s real.

Rob:
It’s real. I’m really excited about today’s episode with Jason Pritchard. We talked about a lot of good stuff, man. He basically scaled from, he started out doing a couple of deals and now he does about 75 deals a year, which is a really, really, really, really crazy feat. He gives us a really honest look at the growing pains of that business model and scaling up a team and the financing involved with flipping that many houses and just really, really easy to talk to and made it feel very digestible, I feel like.

David:
Yeah, and he did a great job of explaining sort of the entire process, how we’re getting leads, how we’re talking to those leads, how we’re wrapping them up, who we pass it to, to work on the rehab, how we decide if we’re going to wholesale it or we’re going to flip it. It’s a really good overview of what a successful business could work like.

David:
In addition to flipping all these houses, he’s got 83 rental properties. Jason is, I mean, this is the archetype of what you want to scale your business look like if you’re a flipper. He’s got income from flipping. He’s got passive income from rentals. He has six short term rentals that he’s working on. I mean, he’s kind of doing it all.

Rob:
Oh, yeah. Man. There were a lot of selfish questions are like, “Yeah, but how exactly do you do this because that seems very hard?” He was very, very gracious with his answers, I feel like.

David:
All right, moving on to today’s quick tip, Jason makes a comment in today’s show. You want to make sure you stick around for it, where he talks about his W2 job was in sales, and he took his skill from his W2 job and applied it into his real estate investing business. Because he was so good at sales, he did very well with convincing sellers to sell him their off market deals. The point to pull out of this is that if you’re not happy at the job that you currently have, if you’re just phoning it in and going through the motions and waiting for some new inspiring opportunity to crash your path, and then you’ll give it your best, it’s not going to happen.

David:
You have to do your best with where you’re at before your next opportunity is going to present itself. If you do a good job developing skills where you are, you will have those when the next opportunity comes. BiggerPockets wants to help you with that. We want you listening to more content that will help prepare you for the opportunity that will be coming your way. If you feel like you don’t know enough about business or finance or living within your means, you can check out the money podcast, which is all based on building financial independence.

David:
We’ve got the rookie podcast if you’re a brand new investor, and you’re afraid about asking silly questions, or you don’t even know where to get started, that caters to your demographic but the point is, there are resources out there that will help get you ready for the next step where you can take charge of your life and you don’t leave it up to fate. That was today’s not so quick tip. Rob, any thoughts before we get into the show?

Rob:
Mm-mmm. Man, I’m excited to jump in.

David:
All right. Well, let’s bring in Jason. Welcome to the BiggerPockets podcast. First question for you, if you were so independently wealthy that you could hire someone to announce you every time you arrived at a party, at an event, even maybe to work, what would you have them announce you as?

Jason:
Thy Jason Pritchard. I love the ring of thy before. It’s strong. It’s elegant. It’s classic.

David:
Very strong, very.

Jason:
Classic never gets old.

David:
Yeah, it rings of old school masculinity and value.

Jason:
That’s right.

David:
I can see that sort of emanating from your person as we speak here. Well, thank you for being here. I think we’re going to have a fantastic show today. Before we get into the nitty gritty of what you got going on, can you tell me a little bit about what your portfolio looks like or your business looks like right now?

Jason:
Yeah, yeah. We’ve been fixing and flipping in central California for the last seven plus years. We’ll do about 75 deals this year, on average. That’s about what we’ve been doing the last two or three years. We’ve got 83 rentals as of right now. Most of those are single family, small multifamily, small apartments in California. Then, we’ve got a handful of out of state rentals in Cleveland, and also in Northern Indiana.

David:
That is fantastic.

Jason:
Yeah, yeah. It’s a mix of fixing, flipping right now because with the market what it’s doing, we’re more flipping and less wholesale but we do a little bit of both. Then, we cherry pick the best ones to keep for ourselves. We also have six Airbnb, three that are live right now, kind of wading into the short term rental market as well, which has been a very pleasant surprise for us with how they’ve performed.

David:
Who is the we?

Jason:
Myself and my wife.

David:
Okay.

Jason:
Yeah, yeah. When I [inaudible 00:07:14].

David:
No business partners?

Jason:
I have a formal business partner through our nonprofit but that’s kind of a separate arm. I had mentioned that in some of the notes that I have but I have my own private real estate business. That’s mine and my wife’s, and then through our nonprofit, we do some affordable housing stuff and I do have a business partner with that.

David:
This is amazing. The reason I ask because I often hear people say, “We,” and then they go on to you drop these huge numbers like 83 rentals, and tons of fix and flips and 75,000 units and then you find out that their part of the we was like 1/10 of one half of that whole enterprise.

Jason:
Yes. Yeah.

David:
This tells me that you’re the real deal. It also tells me that no doubt, you are very good at finding off market opportunities…

Jason:
Yes.

David:
… if you have all these different exit strategies. Maybe we should start there. Tell me a little bit about how you built your business and how you’re finding all these opportunities.

Jason:
I built my business originally by just going off market. I got started in the end of 2014, completely self-educated, never had a coach mainly because I didn’t have the money to hire a coach or mentor go through that type of program. I started by listening to BiggerPockets podcast, Sean Terry how to podcast out. That’s how I learned the business. I found out very quickly in 2014 that there were just not a lot of opportunities that were listed on the market at that time. I spent a few months at the beginning, just beating my head going on like realtor and Zillow, and just trying to pencil out deals with the cheapest properties that were listed. We just could not make the numbers work.

Jason:
I found out very quickly that we had to shift and adapt. I dove headfirst into direct to seller marketing. We started with direct mail. I mean, I’ve done everything: direct mail, cold calling, bandit signs, door knocking. We just kind of cut our teeth doing that. I’d say 99% of the deals that we’ve done have been off market. I’ve actually only ever bought one property that was listed with an agent and that’s because I had a working relationship with that agent.

David:
All right. I’m assuming you started off with fixing and flipping for the most part, maybe you had a couple rentals and then sort of just started to pour more marketing dollars and resources into looking for off market opportunities and hit some kind of a rhythm where now you’ve got the same sources that are providing a decent number of leads.

Jason:
That’s correct. Yeah, it was all fix and flip for the first two years. I was mainly just looking to replace my income from my old corporate job. I mean, I’d worked in corporate America 15 years prior to getting into the real estate market and real estate field. If you would have told me back in 2014, ’15 that I could just replace my W2 income with income from my real estate business, I would have been happy camper just because I was so miserable and unhappy with what I was doing at that time.

Jason:
I just wanted to fix and flip. It sounds cliche but we used to watch all the flipping shows on TV, my wife and I, and we were always entertained by it. I always thought to myself, if these guys can do it, I know I can too and let’s just start there and figure out everything else after that. I didn’t really understand what wholesaling was at the beginning. I just knew that I needed to buy deals below market value in order to make all the numbers work out.

Rob:
Just for clarity, I’m kind of curious, to what did you do? What was your corporate job before you got into the real estate stuff?

Jason:
My corporate job, I’ve always been in sales and sales management. I worked for two large companies in my early 20s and all through college, and after I graduated. The first company, was a technology retailer. We did all outside sales. It was all business to business. That’s where I really learned the value of marketing lead generation and understanding how a sales process works. I excelled at that, honestly. I did really well. I was paid very well at an early age. I thought that that’s what was going to be, my life was going to be working as like a mid-level executive, climb the corporate ladder, make a couple 100 grand a year, and just kind of do that life.

Jason:
I found out after being at my first company for about seven or eight years that my heart just was not in what I was doing. I felt like I was just getting burned out. I thought it was the company. I moved to another organization where I worked in sales and sales management there. I went through the same basically seven-year cycle there where I thought I was going to climb the ladder.

Jason:
I was doing well, and I found myself at this transitionary period in my early 30s where I was just miserable and I was looking around and I was like 32, and I could see my future with some of the older employees that I worked with. I said, “This can’t be the rest of my life, man. I am not going to do this for another 30 plus years.” I’d always been drawn to real estate. I’d always just kind of talk myself out of it for different reasons. I finally just said, “You know what? We’re going to go all in and try this and if it doesn’t work out, I could always come back and get another job.”

Rob:
Would you say it’s been pretty applicable to use your sales acumen and knowledge kind of in the wholesaling in real estate business?

Jason:
It has been invaluable. I talked to so many people that are interested in getting into the type of business that I’m in, fixing and flipping houses or buying rental properties. They don’t understand how much of a sales job I think it is at the beginning. They don’t understand that the purpose of sending out direct mail is to get the phone to ring. When the phone rings, you got to answer it. You got to be on top of your game. You’ve got to be willing and able to build rapport and go out and negotiate.

Jason:
It’s very much a numbers game. There’s a lot of rejection, especially at the beginning. I had basically been doing that for 15 years. All the rejection, realizing that it’s just a numbers game, you’re not going to close every deal that you go out there on. I was just focusing on understanding the language of real estate. Once I understood that, all my old sales instincts kicked in.

Jason:
For me, I think it was my big competitive advantage getting into the industry. It just took me a little bit of time to understand how a real estate transaction worked. Then, once I understood that, I just hit the ground running.

Rob:
Is there a skill within that, that you feel like you mastered just to the nth degree that you’re able to actually execute every single deal or in your business?

Jason:
I think for me, the way I equated and this is the example or the analogy that I would use, I think we’ve all been in experiences where we’ve purchased something, a car or a house or a vehicle or a product and we’ve walked away from that interaction feeling very good about the person that we worked with, right?

Jason:
Just like, “Man, that guy, Jason, he was nice. He was really good. I really liked him. I liked doing business with him.” I learned very early on that people make decisions, and they do business with people that they like and trust. I think I was just really good with my interpersonal communication skills. I’ve always been good at that. That’s been something that is a strong suit for me. I honed that in my time in corporate America, and it was directly applicable towards the real estate business.

Rob:
Can you give us a little bit of an idea when you were first starting out, I think, you might have mentioned this, but were you wholesaling first and then that went into flipping? Were you doing them both at the same time? What was that progression like?

Jason:
It was only fixing and flipping because in my head, the deals were a lot further, fewer and further between when I first started, right? I didn’t have 5 deals, 10 deals consistently in my pipeline, right? Every deal that we bought, my thought process was we just need to maximize the amount of money that we can make from this and I thought fixing and flipping was the way to do that.

Jason:
We started out, our first deal was in 2015. We maybe did four or five houses that first year. Second year we doubled up and then after that second year where I really kind of got my feet underneath me and I understood that, okay, I’ve got a little bit of momentum. I understand how this works. I had no construction background, no real estate background. I barely understood what an agent did. I didn’t know how everything worked. I needed a couple years of just managing projects and penciling deals out and understanding what things cost.

Jason:
Once I got that under my belt, I eventually got connected with some other investors in my area that were more buy and hold investors. They were the ones that really encouraged me to start keeping some of these properties. They basically told me, “Listen, you just have another high paying job. That’s all that you’ve got right now with this business and until you can start investing in stuff that you can keep long term, you’re always going to be on that hamster wheel.”

Rob:
For sure. Well, I guess I got questions here because for me, I think the idea of going out and doing a flip, that’s pretty achievable for most people. I think most people, if they save up a little bit of money, they can do a hard money loan, they can get into a flip, but how many deals are you doing right now, consistently at a time?

Jason:
We always have about 18 to 20 projects on our books at any given time. Here’s what I mean, when I say that, I mean, we’ve got three to five projects that we purchased that we’re getting ready to start construction on. We’ve got another five to seven projects that we’re actively rehabbing. Then, we’ve got another three to five projects that we’ve got completely rehabbed, and were in escrow or on the market listed to sell.

Jason:
We typically stay right about that range. That’s about the capacity that my team has with the relationships with the contractors, and just, that’s about the max that I want to do as far as properties that we’re rehabbing. Then, anything else that comes in above and beyond that scope, then we’ll look to just assign it or do some type of quick exit strategy, maybe wholesale it or something like that, to just to monetize it and just move on.

Rob:
I got to imagine, probably in this then, if you’re doing the level that you’re doing 75 flips or so or deals every single year, can you tell me a little bit about, because I think the big question that comes through here is, obviously, you’re going to be making a lot of profit here, do you have to kind of stash away a significant portion of your funds for taxes or is your buying and holding and your rental strategy sort of helping to offset that side of things?

Jason:
It’s a mix of both, man. I feel like it’s tough because if you don’t show any money, and you’d really aggressively depreciate your rentals, then you’re not as bankable when you want to go get a big bank loan, right? Your borrowing profile maybe doesn’t look as sharp as if you show a bunch of money. We’re constantly finding the balance between those two things.

Jason:
I’m very fortunate that my wife is still a high school counselor. She’s W2. We leveraged a lot of her credit profile at the beginning when we initially started buying rentals until we were in a space where we could borrow just kind of on our own and we’re making lending relationships where we could get the loans that we needed without necessarily showing that income.

Jason:
It’s a balance. I don’t love writing a big check to the IRS. We just did that a couple of times already this year. That always is painful when you do it, but there’s a purpose behind it because you know you’re setting yourself up to maybe leverage some financing on some future deals.

Rob:
Well, it’s really hard to think of it this way. Someone that I talked to one time, put it very simply and they said if you’re paying taxes, it means you’re making money. I’m always like, “Okay, you’re technically right about it.” I would still rather not pay the taxes but that doesn’t make sense.

Rob:
Honestly, I don’t really hear a lot of people that come in and say that kind of what you’re saying, you want to do a good balance of both because I think the kind of the popular thing, that’s going around a lot right now is cost segregation. Obviously, it’s not new, but more and more people are learning about it. A lot of people are trying to effectively just nix out the entire tax bill but that’s not something that you necessarily are looking to do.

Jason:
It depends on the person’s situation. I mean, it really does. My wife and I just purchased, I don’t want to say it’s our forever house, but we purchased a house that we’re going to be very happy in for, I would say, the next 8 to 10 years. We’re in a really good place with our rental portfolio. I could probably get more aggressive with the depreciation on our rentals now and have less tax liability if I wanted to, because we’re in a really good spot, I think, for the midterm future, right?

Jason:
But if you’re in a position where you want to be really bankable, then you’ve got to show some money. I mean, I feel like I’ve had my mentors that I look up to when I’m very vocal and open on my social media about just the different things that I’m doing with my businesses and some of those guys will reach out to me and they’ll say, “Hey, I just wrote a $1.5 million check to the IRS for this year. I agree with your thought process. If you’re writing a check that big, then you’re making the income obviously to offset it. There’s a give and take there for sure.

David:
You know something? Jason, you just have such an impressive business so far. I want to commend you for that.

Jason:
Thank you.

David:
This is probably more than we’re going to be able to get into in one podcast because I’m thinking how did you build a team to get these leads? What does that structure look like? How did you build a team to manage the rehabs? Then, how are you managing all of your rentals? This is not something any one person can do by themselves.

Jason:
No.

David:
There’s that and then there’s the actual sales techniques that you’re using, which I think could be really good. We might have to have you on again to dive into that because I just can tell there’s a lot people can learn from what you’re doing. Before we get into any of that, I sort of wanted to highlight an issue that I can see that happens with someone like you that has so much success so quickly, is it’s sort of, this is probably not the best analogy, but it’s like you’re a bodybuilder and you’re becoming tremendously fit, but you have certain areas that you like working out more than others. When you’re good at working out, they become much more unproportionally big than the areas that you don’t like, right?

David:
You’re probably making a ton of money. You’re investing it very well. You’re probably cash flowing very strong. There’s even more money coming in. You’re very strong in that area but like you mentioned, you haven’t taken advantage of enough depreciation with some of what you’re buying and that’s why your tax bill is so high.

David:
At a certain point, you’re going to have to shift your thinking from okay, I’ve got this thing on autopilot. Now, I have to buy bigger property so I can take advantage of accelerated depreciation. You’d have to get some apartment complexes or luxury real estate, something like that. It’s very common to see this happen. It’s okay. I don’t think if you’re paying taxes, there’s no one that should be critical and say, “Oh, he’s paying all those taxes.” Well, yeah, that’s because he’s making all this money. He doesn’t have time to figure out how to save all the taxes.

David:
Ultimately, as we’re growing, we’re trying to build this balanced, well balanced approach to where we’re making good money, we’re investing good money, and then we’re saving in taxes. I see this all the time. There’s some people that do really well saving in taxes, but they don’t make that much money, right?

Jason:
Yup.

David:
They brag about, “My tax bill is so low.” Yeah, well, you make less than somebody does with their W2 job.

Jason:
That’s right.

David:
It’s not as impressive when it comes to your approach where you know, “Hey, I could be doing some stuff to save money,” but that would take away from what I’m doing over here. What’s your perspective on how you sort of handle that problem?

Jason:
I’ll be honest with you, I’m an analytical person, but I don’t make every decision based on does it fit this exact formula or whatever. I think I have learned to trust my gut and my instinct. I also have a lot of people that I surround myself with that I trust to take advice from, right? That’s one of the things that I’ve learned that has really moved the needle in my businesses that I didn’t know about finances, financial literacy, and education.

Jason:
My upbringing and my parents, and everything, that was great but this was stuff that we did not openly talk about. I was just unfamiliar and I had a lot of bad financial habits, even into my mid-30s when I started in the business. I had to relearn and retrain the way that I thought about money. Then, I’ve learned that I just need to be around other people that are have done or are doing the things that I want to do and get their advice, kind of pool that information together, sit down with the people that are closest to me, my wife, and we have to make the best decision for ourselves. That’s it.

Jason:
There’s no right or wrong answer. I don’t know that there’s just shades of gray when it comes to, especially to something like this because everybody’s situation is going to be different. Our tax strategy has changed. I think when we were at the beginning, I did want to depreciate more, because I was just not used to writing that check, but as we’ve made more money, and I’ve become more mature investor, and I’ve gotten around, I think older, wiser people that I like and trust and have taken their advice, they’ve kind of guided me and schooled me on to more long term thinking when it comes to this but I’m still learning, man. I’m still very, very brand new to this, you know what I mean? I feel like we’ve got a lot of runway left to go.

David:
I just figured it out last year. Last year was the first year where I’m like, “Okay, I’m taking all this information. I’m putting it together. I’m making it somewhat of a priority. I bought a property I normally wouldn’t buy, but it worked out great. The tax benefits were insane. I’m like, “Okay, I get it now.”

Jason:
Get it. Yeah.

David:
Actually, it covered me for two years, so I won’t have to pay taxes for those two years. I make my money in the way that won’t be taxed, which is different than, like how you make your money matters also. Now, moving forward. I’ve got it. I’m probably not going to pay taxes anymore. If you want me to connect with my CPA, I’m happy.

Jason:
I love what you said, you got it. I think we all have these light bulb moments that happen throughout our journey, where something happens and it just clicks, everything clicks, and you’re like, “Okay, now I get it, right?” I know and trust and have faith that those things will just come. As long as I keep my head down and do the work, eventually, we’ll get to a point where that light bulb moment comes for me and it may be this, right? Hey, just having this talk, having getting on the show and then talking to your people and then that’s it. That’s really cool. I think people just [inaudible 00:24:22].

David:
That’s what I wanted to highlight, right? Because there is an approach that would say, I don’t want to put my pedal to the metal until I’ve built the road in front of me perfectly. I know exactly what all the plans are. It’s just not practical. I don’t know any successful person that made it happen that way. It’s more like riding a motorcycle, you hammer the throttle and you hang on. You adjust your balance as it’s going and you start to get yourself under control and then a sharp turn comes up and you got to figure out what to do there.

David:
Rob’s business has exploded. Then, last year, maybe two years, there’s no way he’s going to have all these details perfectly outlined, but would you trade that to go back to where you were when you weren’t making money? No. You clearly made the right call, right? It’s not going to be a perfect blueprint with a foundation that’s laid beautifully. Then, the framing goes up.

David:
That’s what something looks like when you’ve done it thousands of times, but in the beginning, it’s not that. You’re sort of going, figuring out as you go. That’s perfectly fine because you’re obviously very successful. Once now you’ve got all these pieces in place, when you do figure out the tax component, it’s just going to be icing on the cake, but I mean, 83 rentals, six short term rentals, all the houses that you’re flipping, you’ve clearly done a lot of things well.

David:
If we’re going to sort of carry on from there, tell me in the building of the teams that you had to do, which I, just from hearing your story, I’m pretty sure this has been the most challenging part is getting the people that you want to work with you. What challenges did you face? How did you overcome those team building challenges?

Jason:
I think there’s so many limiting beliefs that we have. I think the first challenge that I faced was just changing some of those belief systems and developing a mindset and a self-image that actually, I believe that I was capable of doing some of these things because I literally had no money. I had nothing when we were getting started. I was bootstrapping everything, which is good because it makes you become very resourceful at the beginning, but then, you’re also coming from a place of scarcity when it comes time to start growing and reinvesting in the business, right?

Jason:
I was very worried about, can I afford? I mean, it’s funny to say now, but $15 an hour or $12 an hour or whatever minimum wage was at the time when I hired my first in person assistant and I was doing everything myself. I mean, I went from flipping one house at a time to flipping three to four properties at a time. I think we’re up to about a dozen rental properties.

Jason:
I was doing all the direct mail myself. I was answering all the calls myself. I was going out and meeting the contractors in the Home Depot parking lot and cutting checks myself. I was doing all the bookkeeping. I was negotiating all the deals. I was managing all the properties. I just reached this point a couple years in, where I just did not have the capacity to do any more. I was a one man army and that’s all that I knew that if I don’t do something soon, then this was going to change.

Jason:
I originally started hiring out virtual assistants. That was a big game changer for me. I looked for virtual employees first because I knew I could just save money and I had so many repeatable tasks that could be done from a phone or a computer that I figured, “Hey, you know what? I see other people utilizing Vas. Let me try this.” I started with that.

Jason:
Then, I hired my first in person, it started as a personal assistant, and then became my property managers, then my project manager, and then that role has kind of splintered out and grilled into individual roles. Now, we’ve got six people on the team, not including my wife, who also is kind of right there with me on the top. I guess seven people that helped kind of run and manage day to day operations.

David:
How did you find the people that you ended up wanting to hire?

Jason:
Social media, believe it or not. It’s funny how, not funny, it’s been amazing to me how powerful of a tool social media has been for me. I was not a social media person before I got into real estate. I had MySpace and then I was dark on social media for eight years. Then, when I started flipping houses, I didn’t know anybody. It forced me to build a network online because I literally did not have anybody that I could tap into locally in the real estate field.

Jason:
I said, “You know what? I might as well just post what I’m doing and maybe it can motivate and inspire some people, and maybe it will lead to something.” I was always very consistent with my social media and just being authentic and open about the things that I was doing. It resonated with people, especially locally. That was what turned into, now, eventually I just started saying, “Hey, I need an assistant for my business.” I had a few people reach out. The first person that I hired came from that. For the most part, the best hires that I’ve had, believe it or not, have been from social media or either referrals from people that I know and trust.

Rob:
Yeah, let me ask you this a little bit because if I’m being totally honest here, I think one of the more daunting things, like you hear a lot of people talk about scaling up, building a team, all that type of stuff, but it’s really hard to put some tactical steps here because when it comes to hiring a team, that means you got to pay people.

Jason:
Correct.

Rob:
In the very beginning of your business, you’re in the throes, it’s really tough to know, well, for a lot of people starting out, they may not be tracking their expenses or cash flow, having profit loss statements for everything. I’m kind of curious, as you started embarking on this and hiring people, what was your thought process for paying them? Were you paying them per project? Were you paying them a salaried role? Has that changed from sort of where you stand now?

Jason:
Yeah, at the beginning, I was just paying a base hourly. No bonus. No anything. I just didn’t understand. I come from a background in corporate America where I knew about payroll and these other different things, but it’s just a different animal when it’s your own business, right? Again, I was coming from a place of scarcity. I was trying to extract the most value that I could and pay the least frankly, right?

Jason:
I was just doing base. Then, I started to realize, as my company was growing, and as these responsibilities started piling up, there was no way that I could afford the level of talent that I needed just paying a base hourly wage, and then that’s it. Then, we started incorporating bonuses for our projects based on profitability. Then, we started incorporating bonuses to people that were helping us with property managers for getting our rentals turned in a certain amount of time. We do the same thing now for our Airbnb’s.

Jason:
I tried to do, I try to supplement my payroll in a way where instead of having one big salary and paying everybody 75 to 100 grand, we keep a reasonable base, and with the different bonuses, it allows them to make significant amount of money. My top person in my company should be making well over six figures, but we do a base salary, project management bonus, and she’s also a licensed agent. She gets a portion of the commissions of a lot of the flips that we sell.

Jason:
I like doing it that way. My explanation to my team is we are not a company that has consistent predictable top line revenue every single month where I can just say, “Hey, listen, we’re going to make X amount of dollars every month. It’s very easy for me to reverse engineer and project where we’re going to be at as far as expenses.” Some months we’re closing multiple deals, and we have a ton of money coming in, and then another couple of months, we don’t have anything and we’re just spending money, right?

Jason:
I want to reward you and pay you financially in a way that’s aligned with my company. As profits and revenue are coming into the business, I’ll tie your bulk of your compensation to that. That’s worked very well for me.

Rob:
That’s really smart. Yeah. Was this the process? Was it something that you kind of figured out along the way?

Jason:
Yeah. It sounds great now. You know what I mean? At the beginning, I was literally just flying by the seat of my pants, literally, I am a big believer in, I like to stay outside of my comfort zone and just not pushed so hard that we get to a point where we’re being reckless. I’m constantly pushing the envelope. Sometimes that can be scary and sometimes it can feel like you have no idea what’s going on. Some days it feels like the wheels are just going to completely come off.

Jason:
Then, sometimes things just click and it feels like, “Wow, this is working well.” It’s just been a constant process of progression and leveling up year after year that’s gotten us to this point now.

David:
How closely tied together are your, like the rehab crew and the people that focus on selling the property, getting it ready, versus the acquisition side where you’re sort of filtering through leads, and then setting someone up to go close on it? Are they the same people? Are these two different departments?

Jason:
No. They’re separate departments but we’re all integrated. The right hand does know what the left hand is doing. My operations manager, her name is Morgan, she also oversees a lot of the construction that we do on our rehab projects, and she’s reselling them. She’s helping me underwrite deals. She’s helping me understand what the resale value is going to be. I have final say so on what we’re going to buy and what we’re not going to buy, but she knows and understands. We’re on the same page and aligned with what those values are. Then, those numbers are then passed down to our acquisitions team.

Jason:
The way that it works is our leads come in. We do lead intake. We qualify them for motivation, all these other things. We send the property over to Morgan or myself to help with underwriting the deal. Then, we give them back an offer range that we think we could work, and we let them close that deal.

Jason:
Then, it just goes on the assembly line. Depending on what the exit strategy is, if it’s going to be a rehab or a burr property, then we’ll just get it scheduled with our contractors. We’ll get our bids in and we just hit the ground and start running and gunning.

David:
Do you have one person who’s sort of overseeing all the projects and they’re delegating things out or is that your role right now?

Jason:
No. I do not. That’s one of the things that I delegated out very early on, because I did not have a construction background. It was cool at the beginning. I still do like to see a really rundown house turned into a nice pretty house and hand that to somebody that’s going to live in there for a while. That makes me feel good but I don’t get any real joy or excitement in the process of doing it anymore. I delegated that out years ago.

Jason:
We do have a pretty good system in place now where we can buy, fix and sell a house and a lot of them, if I didn’t want to, I would never have to go out to them, which is good. We’ve systematized our design aspect. It makes it easier on us and it makes it easier on our contractors. We have two or three color schemes that we go with. We make a final decision on which one it goes. We send that list of material to our contractors. It’s got all the vendors where they go to buy it. Our prices are skews. We do phone sales for everything.

Jason:
We try to put out the best quality product that has kind of a custom look and feel without totally breaking the bank and it’s that balance between those two things that I have found has gotten us the really, really profitable deals, the things that sell for top dollar where it’s not just a carpet and paint, quick and easy rehab but also not over improving the property because we’ve over improved a lot of properties and left a lot of money on the table. You just kind of learn those things the hard way as you’re starting out.

David:
I found that in most businesses, like someone starts it and then you start hiring people to do parts of the job, the owner tends to move towards the front of the funnel and delegate the stuff that comes later on in the process.

Jason:
That’s true.

David:
I’m not surprised to hear that you’re still in acquisitions and you sort of delegate out the things that happen after the thing is acquired. At a certain point, you may even have one of your employees or hire someone out to be the one that negotiates and puts it in contract and you will move higher into how do I get more leads coming in for us to qualify? It always just seems to be-

Jason:
We have that now. It’s very interesting. Acquisitions and sales has been the thing that’s been the hardest for me to let go because deep down in my heart, I do feel like I’m still kind of a deal junkie. I always enjoy the hunt of doing a deal. I still get a little bit of a charge right now, even closing deals out. I’m good at it. At the beginning, I always had limiting beliefs because I said, “Well, if I’m the best person on my team to do it, and we could make 40 or 50,000 on this deal, I’m handing over this opportunity to somebody that may not be ready to close it and we’re leaving 50 grand on the table if the deal doesn’t get done, right.

Jason:
I had to overcome those beliefs and realize that in order for me to go to the next level, I needed to be a good enough coach and leader to be able to take the skill sets that were in me, download them into somebody else and make them stick. Now, we’ve got an acquisitions rep. We’ve got a followup specialist. We’ve got cold callers. I oversee that piece still, and I’m almost kind of fully extracted out of there. I like to interject myself. My coach says that I like to steal the ball from my team, and then dunk it and tell everybody how good I am by dunking. You know what I mean? I’ve got to stop doing that. I’m getting better at it but I’m not there yet right now.

David:
When it comes to these, finding these off market deals you’re talking about, I know you’ve talked about investing being a linear process. Can you describe what you mean by that?

Jason:
Yeah. When I say a linear process, what I mean is that you have a very clear and laid out process that you have to follow. There are steps and you can’t skip step one to go to step two or step three. One of the questions that I get all the time, especially for new investors is, if I had to start all over with no money, no resources, just the experience that I have, what would I do? I always tell them focus all of your time, effort and energy on step one. Step one to me is marketing and lead generation. That’s it. In this business, at least the niche that I’m in, if you don’t have your marketing setup and you don’t have leads coming in, you don’t have a business.

Jason:
That was one of the big things that was ingrained into me in corporate America was just the value of those leads. We knew exactly how much the company was spending every single month on our marketing budget. We were grilled. If leads came in, and we didn’t live answer or we didn’t call them back within a certain amount of time, our sales manager or my manager was all over us, right? Then, I was all over my guys. I just took that mindset and my thought process to this.

Jason:
I think most people, they skip the sales, marketing and lead generation because there is a lot of dirty work that’s involved with that process. Nobody likes to get on the phone and make 500 calls a day and get beat up on the phone by all these random sellers. Nobody likes to go out on appointments and get told no hundreds of times before they get a yes.

Jason:
Instead of just leaning into that and getting great at that, they want to skip that process and jump to how do I find the money to do a deal? Then, they want to jump to how do I find a contractor? Where do I interview contractors? What title companies are the best title companies in town? I tell them, “Listen, it doesn’t matter. If you had a $10 million and a construction company, if you don’t have deals coming in, it doesn’t matter, you have no projects to work on. You’ve got to focus on step one. I was just fortunate that a lot of my experience and background prior to breaking into real estate really taught me that and that was directly applicable towards the business I got into.

Rob:
I have a question in regards to sort of the financing of this operation because, this kind of gets back to what I was talking about earlier, one or two deals very digestible for people starting out. I sort of want to talk about, if you’re doing three to four deals at a time, I think you said you had 18 projects or 18 to 20 projects on the books.

Jason:
Eighteen to 20 approximately on the books all the time. Yeah.

Rob:
How does one really approach the financing aspect of that because if you’re doing one and you go in hard money, a lot of the hard money lenders out there will require 20% down, there are some that will do 10% down, I think it’s possible to find some that’ll just do the whole thing, but it’s very expensive, and it’s very manageable for one, but if you want to go from 1 flip to 10 flips, what is that financing approach and then is there a difference between going from 1 to 10 and then 10 to 75?

Jason:
Yes. For me, I started using all my own money because I was afraid to ask anybody else for money because I didn’t really know what I was doing. I mean, the conversation that my wife and I had at the beginning was, at least if this gets totally screwed up, it’s our money and we’re not borrowing money. I cashed in my life savings. I borrowed against my 401k. We took a second mortgage out on our house, and we use that along with maxing out all our credit cards and everything else. That, along with hard money, is what we did to initially start doing our first, maybe dozen deals, right?

Jason:
We would just borrow as much money as we could, get a hard money loan to cover the difference. Then, we would just fund the deal, sell it off, pay everything down, take that profit and reinvest it in the next deal. We did that over and over again until we start to get to two then to three. Then, it reached a point where cash management became a big deal. When you’re flipping at volume, that’s something that I don’t see a lot of people talking about is how to properly manage your cash within your company in order to be able to cover your overhead every single month and your payroll and the mortgages that you take in.

Jason:
What I eventually started doing, through just networking and building a community out, is making relationships with private lenders. That’s how we fund everything now. Depending on the deal, we may use hard money from time to time, but 95% of the deals are funded from different private lenders. I like that, because it’s easy. The terms are negotiable. I can get all the money that I need. I typically borrow 100% of the purchase price, the rehab costs and my holding costs. I’m borrowing all the money that I need.

Jason:
You have some people that want to get paid every month, but my preference would be to pay them at the end of the project. Then, that way, we don’t have cash crunches during on but cash management is a very important component of that business.

Rob:
Yeah, it seems like it could get pretty, pretty, I don’t know, like tough to keep track if you’re talking about three, four flips, you’ve got a few credit cards, if you’re using your home equity line of credit, and running the books on those different properties and breaking it all up. I mean is that-

Jason:
Accounting was a nightmare for us. It was a nightmare and especially once we got into like year three and four, where it was like, “Okay, now we’re flipping 30, 40 houses a year. We’ve got a dozen rentals. We’ve got a lot of things happening at once. We can’t just keep a separate Excel spreadsheet for every project. It doesn’t work like that anymore, right?

Jason:
We had to mature. We worked with our CPA, and eventually found an accounting team that basically handles all of our books. Now, they’ve got a custom built out of QuickBooks for us where there’s job costing, we have individual P&Ls on every single project. They pay all of our bills every single month. It’s one team where the finances kind of funnel in and funnel out. I just oversee, along with the people on my team, our key KPIs and those reports that get fed into us so we can make sure that we’re in a good space financially to make sure we’re managing everything.

David:
It’s a nice business model, man. That’s actually probably the most impressive thing.

Jason:
It sounds good me saying it but it was a lot of hard work. It’s, even now, it’s not perfect, man. The analogy I use with my team is we’re building the airplane while we’re flying the airplane in midair. That can be fun. It can also be really scary at the same time. [inaudible 00:43:13].

David:
I think that’s everyone’s business, though. You go to a workshop or you go to some seminar, and they get up there and they sound just like you. Here’s my flowchart. Here’s what this person does. It gives us impression that everything’s clean and nice. Then, you get in there and it’s actually complete chaos, and you are more or less trying to just keep this thing from crashing. What you’re describing is what you’re striving for, but it’s okay to be messy.

David:
That’s what I want to say is like, I think, we get compliments on my real estate sales team that we are the most organized, structured, best systems in place. It is constantly just, who’s doing this, why do I have to do it, how come they’re not doing it? This person messed up. It’s affected… There’s no way to have this happen without it being messy because there’s people involved. There’s emotions involved. You’ve got sellers that have, maybe want to sell, maybe don’t want to sell, right?

David:
You’ve got, I thought we were going to do it this way. Well, someone else does give me another way. I guess what I’m saying is it is okay to be messy as long as it’s successful, right? With time, it does get smoother and then someone quits or leaves or has a baby and doesn’t want to work and you got to throw a new person in there and it’s right back to messy. Has that been your experience?

Jason:
A 100% and I think that piece of advice that I would give to the people that are going through some of those growing pains is don’t be too hard on yourself. I had to take that lesson very early on. I was my own worst critic. I was so hard on myself.

Jason:
Even though we were doing great, I would always just beat myself up because we did not fit this image of what you see about that guy on stage with the flowcharts and everything’s dialed in. It took me a while to realize that nobody’s business is completely dialed in. It’s all just a progress, our process and we’re just progressing each and every day.

Jason:
I’ve learned to balance being grateful for where we’re at, and also just not being satisfied and knowing that we’ve got so much more left to do. That’s been a good space for me, because if you would have told me that seven years ago, when I started that I’d be doing what I’m doing right now, I wouldn’t have believed that it was even possible. What was sad would be, I wouldn’t even believe that I was the kind of person that was capable of doing it, which was even more sad for me, right?

Jason:
I had to get into this space where we proved to ourselves, and we had proof of concept like, “Wow, this works. Wow, I am capable of doing it.” That confidence, that self-confidence is like a muscle that you build over time. Now, when I say that I’m going to do something, I know that it’s going to happen because for the last seven years, I’ve been doing everything that I’ve been saying that I’m going to do, right? It doesn’t start out that way but you can get there and it doesn’t need to take a lifetime either.

David:
It’s such a good point. I think about that all the time. If you look at like, use a weightlifting analogy, or something, that just works so easily because you have to do it in increments, but you see someone bench pressing 400 pounds, and you look at where you are now and you’re like, “I could never do that. That’s impossible.”

Jason:
No. Yeah.

David:
It’s impossible yet at this stage, but the person that’s going to be doing it is not you right now. It’s going to be years of you adding five pounds onto that bar incrementally. And when you have that frame, that’s not going to be impossible. We all have a mental frame or a business frame or an emotional frame, something that will allow us to be capable of leading other people, managing other people, handling complex problems.

David:
As you’re listening to the podcast, and you’re like, “I’m just trying to get my first house or my second house,” yes, what Jason is doing would be impossible. That weight would crush you if we tried to load up the bar, but you’re not going to start off where Jason’s at. You’re going to start off where you’re at and just keep working out. You end up at where Jason is. It sounds like what I hear you saying is you’ve embraced, that’s just the reality of how life works. Quit worrying about if I could do it right now. Just have faith. You’re going to get there if you keep pushing.

Jason:
Yes, worry, doubt, and fear, those are emotions that don’t serve us. I learned a long time ago that I’ve got to be self-aware enough that when I feel myself going through some of those emotions, acknowledging them, but also reverting back to my prior experiences and realizing like, “Listen, every time you’ve been worried about something, you’ve overcome it.” 99% of the time, the problem doesn’t even manifest itself and the 1% of the time that it does, you figure out what you need to do. You overcome it and you move on so at least you learned something from it.

Jason:
I think most people are so caught up in those three emotions: worry, doubt, and fear that they just stop themselves from doing everything. You’ve got to work on your mindset along with the tactical real estate stuff that you’re going to learn in your day to day business. Those two things for me just go hand in hand.

David:
Good deal. We are going to move on to the next segment of the show. It is the famous deal deep dive. In this segment of the show, we are going to dive deep into a deal that you’ve done. Do you have one in mind we can dive into?

Jason:
I do. We just sold our most profitable deal ever in February. That would be a great one to unpack.

David:
Let’s talk about it. Rob and I will fire questions at you. If you could just answer that question, we’ll fire the next one. First question is very simple, what kind of property is this?

Jason:
It’s a single family house.

Rob:
Okay, how did you find it?

Jason:
We found it via trustee sale. We bought it at auction.

David:
Nice. How much did you buy it for?

Jason:
1.72 million.

Rob:
Okay, how did you negotiate it?

Jason:
We just ended up having to come up with a bid that we thought was good for the property. With these trustee sales, there isn’t direct negotiation with the seller. It’s basically house has been foreclosed on. We had to put in a bid that we felt we could make money on that.

David:
You’re flying blind. That’s tricky.

Jason:
Flying blind. Flying blind.

David:
There’s no baseline to go off.

Jason:
That’s right.

David:
All right. How did you fund this deal?

Jason:
We funded it with money from one of our private lenders and because of the amount of money that was required to buy, fix, and sell it, we ended up giving them an equity portion in the deal because there was no other way to structure it.

Rob:
What did you do with the deal? Did you flip it, rent it, burn it?

Jason:
The plan was to flip it. We were going to work with a construction partner, do a full blown rehab. This property was in 17 mile drive on Pebble Beach. It’s one of the most desirable neighborhoods in California. We thought we were going to buy it for 1.72, put about 5 or 600,000 into it and then sell it for 4 but about 45 days after we bought it, a broker from that area cold called us and said, “I have somebody that will buy it as is right now. They’re just going to tear the house down and build a mansion.” We ended up selling it to his buyer and we made about $825,000 in 60 days.

David:
All right. We know what you did with it there and we know what the outcome was. Last question is what lessons did you learn from this deal?

Jason:
This is what I would tell anybody that is following along, everybody sees the money on that and they get caught up in the money, but you need to understand what was involved in even getting us to a space where we could buy a $1.7 million deal that we thought we were going to get to 4 million. There’s so many different obstacles and hurdles that came up. I’ve got a whole big post on my social media account. You can go to my Instagram and you can read all the different things.

Jason:
To condense it, we basically talked ourselves out of buying this deal. We waited until five days before the bid was due to even ask about raising the money. We got the money basically the day that the bid was due. I missed all the commercial flights to San Diego where I needed to go drop the check. I had to pay $8,000 to book a private plane…

David:
Wow.

Jason:
… to get me to San Diego, to drop the check off at the trustee without even knowing whether or not we were going to win that bid. There were so many different mental obstacles and objections that we had to overcome before we even got there. We found out couple days later that we won, 60 days later, we sold it and made 825 grand. I mean, it was one of the most wild and amazing experiences that I have. I would focus less on the money and more on just what it took to get there mentally. It was seven years of work and building a foundation that got us there.

David:
Well, congratulations on that.

Jason:
Thank you.

David:
That’s wild. I mean, I can only imagine how fast your mind was would racing. We don’t want it. We don’t want it. We don’t want it. I want it. Then, boom, everything is just chaos. Can we get there? I mean, that have been a cool thing to video and turn into a YouTube video or even, it sounds like a TV show.

Jason:
I was gone. I was on my Instagram story the whole time. Maybe, I’ll go download my stories and send it to somebody and they can edit it and they can see everything. It was the wild… I was literally scared to swipe the $8,000 to charter the plane. Had I not done that, we wouldn’t have done the deal, right? I was negotiating. There’s all these steps where I was negotiating in my mind where I was like, “Nah, this is too risky. You’ve never done a deal this big. You’ve never done this.”

Jason:
Going back to that conversation that we had about building the muscle of self-confidence, I was able to tap into that experience and just say, “You know what, you got this dude. All the indicators are there. This feels right. Let’s go and see what happens.” It worked out.

David:
Congrats on that. That’s a very cool story.

Rob:
That’s crazy, man. That’s so good.

Jason:
Thank you.

David:
We’re going to move on to the last segment of the show. It is the Famous For. This segment of the show, we ask every guest the same four questions every episode, and we’re going to fire them off to you, Jason. Question number one, what is your favorite real estate book?

Jason:
My favorite real estate book, I would say as the Go Giver. It doesn’t apply directly towards real estate, but it helps people understand that if you come from a place of abundance, and if you help other people, you’re not taking away opportunities from yourself. The momentum that you get by helping somebody else actually gets the two of you where you want to go faster. That is my favorite book I applied towards real estate. It’s also the most gifted book that I’ve ever given out as a gift.

Rob:
What is your favorite business book?

Jason:
I would say Think and Grow Rich, even though it’s kind of a mindset book, I think the lessons in there can be applied directly towards a business. It taught me the value of networking. It taught me the value of visualization, masterminding with other high level people. There’s some universal laws in there that directly apply towards any business.

Rob:
When you’re not out there growing your empire and flipping 75 houses a year, what are some of your hobbies?

Jason:
Travel. My wife and I love to travel. One of the fringe benefits of flipping all these houses is we rack up a ton of credit card points. We were in Italy two weeks ago. Basically, we’re able to stay in every hotel for free, fly for cheap.

Rob:
Nice.

Jason:
We travel once a quarter. That’s basically our goal is to take one big trip once a quarter. Yeah, travel is definitely our thing.

David:
In your opinion, what sets apart successful investors from those who give up, fail, or never get started?

Jason:
Mindset for sure. I think if anybody’s going to take anything away from this podcast is that you can be great at negotiations, you can have great people skills, but I think if you have a losing mindset or a losing mentality, you’re going to self-sabotage. For me, everything is built off the foundation of self-improvement and mindset. If you can get your head screwed on straight every day and show up and be consistent, it’ll be much easier to find the success that you’re looking for over the long term in the real estate field.

Rob:
That’s awesome, man. Well, lastly, can you tell us more about where people can find out about you on the interwebs?

Jason:
Sure. I think the easiest place to find out about me would be just on social media. Instagram and Facebook is where I’m most active. It’s just my first and last name, Jason Pritchard. If you type those things in, that’s the easiest place to connect with me. If you’re in the Central California market, we do monthly meetups. We get 200 plus people that come to those. I love giving back to the community. That’s been a great way for me to build my network out here. In person, in this area, you can do that but if not just hop on social media. Shoot me a message.

David:
That is awesome. Jason, I love your story. I hope that we can get you back on here again to dive into it a little bit deeper. I don’t know how we haven’t crossed paths already. We’re both in California and you’re doing something pretty awesome down there. It’s probably because you live in no man’s land. Fresno is like the Bermuda Triangle of California. Fly over it. You hope your plane doesn’t crash and then you end up in Southern California and all of a sudden you’re in California again, but it’s like the wild, wild, west out there. Is that where you’ve lived your whole life?

Jason:
Basically, we bounced around for a little bit until I was five and then my dad got a teaching job at Fresno State. He’s a professor at Fresno State and Fresno has been home base since first grade for me, man. I really love it out here. Roots run deep. I’m bullish on the Fresno market. I actually think that we’re going to see a lot of growth in the valley and I’m very happy where we’re at. Everybody talks about the prices in California, but there’s still some affordability and some good deals where we’re at.

David:
I agree with you, especially in that Bakersfield Fresno area. That’s where people are going to be moving into because prices are just getting crazy in other parts.

Jason:
That is correct.

David:
I think you got a lot of room to run there also.

Jason:
I think so.

David:
Rob, where can people find out about you?

Rob:
You can find me on YouTube at Robuilt, Instagram @Robuilt, TikTok @robuilto, and I’ll have to resurrect my MySpace. I’m sure that’s still out there somewhere, [inaudible 00:55:40]. What about you?

Jason:
I don’t know if I want to resurrect my MySpace. Hopefully, my MySpace stays [inaudible 00:55:45].

David:
Someone will. I’m telling you [inaudible 00:55:47] play.

Jason:
Oh Jesus. I need to go looking out. Oh, no.

David:
Someone’s going to make MySpace cool again but bell bottom jeans keep coming back all the time, right?

Jason:
Oh yeah.

David:
Remember those slap bracelet things.

Jason:
Mm-hmm.

David:
Maybe you guys don’t remember those.

Jason:
No. I remember. Yeah.

David:
They’re very popular. They made a comeback, right? How many iterations of Transformers and Teenage Mutant Ninja Turtles have we’ve seen? Someone’s doing that to MySpace. Mark my word. If I could buy stock in MySpace, I would right now because it’s going to come back. It’s also ridiculous.

David:
Thank you, Jason. This has been great. You can find me online on all social media @DavidGreene24. Please look very careful at the screen name that the newest iteration of this garbage is David with two eyes. They’re faking my account and messaging people. If you get a follow request from me, look very carefully before you accept it. Makes sure it’s the right one. This is going around on social media quite a bit. I don’t have the blue checkmark yet. You don’t know that it’s me.

David:
You can also find me on YouTube at David Greene Real Estate, not as exciting of a name as Robuilt but pretty easy to remember, if that’s what you’re thinking. All right. I’ll get us out of here, Jason. This has been great. This is David Greene for Rob, the most interesting man in the world, Rob Abasolo, signing off.

Ashley:
This is the Real Estate Rookie, episode 183.

Omid:
Sometimes we got to be aware of our biases of like, “Okay, this may not be a place I may want to travel,” but the data proves that there’s a huge demand. And so now it’s changed my attitude around, okay, just because maybe I don’t like this particular vacation rental market, it may not mean that it’s in high demand. I’m going to default to Tony. He’s the geek when it comes to software, and it’s like he bust out all this data and I’m like, “Sold. Sold. I’m good. Okay.”

Ashley:
My name is Ashley Kehr, and I’m here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we give you the inspiration, information and education you need to become a real estate investor. So Ashley Kehr, what is going on?

Ashley:
Not much. I’ve dropped my crutches. I was allowed to get rid of them. Now I’m just hobbling around up in the place.

Tony:
Just hobbling. Yeah.

Ashley:
I actually took an impromptu road trip to Florida last week. And so I had to have my crutches for about half the road trip, and then the second half I got to get rid of them. And yeah-

Tony:
There you go.

Ashley:
… so it was nice.

Tony:
It’s progress.

Ashley:
What about you, Tony? Yeah. What’s new? How’s your foot?

Tony:
My foot is also healing. I took my boot off today for the first time, so we’ll see how it does. But keeping busy. We’re actually going to be out in your neck of the woods in like four days. Or no. Yeah, yeah, shoot, like four days. Yeah. We’re going to be out in Western New York in like four days. We just bought a bed and breakfast out there, so we’re excited to check that out.
And then as soon as I get back, we’re actually going to be walking the Big Bear Resort that we have under contract with our contractors so we can start getting the bids together. And then after that, we leave to Denver for like three days for the Rookie bootcamp. I’ll barely be home over the next week, but it’s all for a good cause.

Ashley:
Yeah. And actually, Tony, since we’ve been recording this podcast, I mean, a ton of snow has accumulated outside. So hopefully by the time you get here it’s all melted.

Tony:
It’s melted, hopefully. Fingers crossed.

Ashley:
Yeah, yeah, yeah.

Tony:
I’ll bring some good California weather with me.

Ashley:
Yeah. Today we have a very special guest on. Tony, who is our guest today?

Tony:
Today we’ve got none other than my partner in Alpha Geek Capital, Mr. Omid Tehranirad. Omid, actually Sarah, my wife, they’re cousins, but he’s the third leg of our tripod when it comes to running Alpha Geek Capital. And he just recently quit his job, so we kind of talk about his journey of going from … He was at the same company for almost 18 years, and kind of taking that leap from doing that to coming full-time with us in the business.

Ashley:
Yeah. I think, yeah, we touch on that for sure, him quitting his job, but also go into partnerships and how you guys have structured it, how you guys kind of started out and also what it looks like now, what are the roles and responsibilities.
If you’ve been thinking of getting a partner, this is a great episode to listen to as to how they structured their partnership, how they keep the lines of communication open, alignment, everything like that you need in a good, solid partnership. Omid, welcome to the show. But before we really get into anything about you, tell us all the dirty details about Tony as your business partner. We want to hear it all.

Omid:
Man, oh, I got so much to share. I can’t wait. I don’t even know where to start.

Ashley:
Yeah. Omid, well, go ahead. You could start with yourself. Start from the beginning of your real estate journey. Tell us a little bit about yourself and why you even decided to get into real estate.

Omid:
Sure, absolutely. I’m first generation, so my parents both came from different countries. Very different backgrounds, but I think the common values that they had were, “Okay, you’re going to pursue that American dream.” So that was, “Go ahead and seek out. Get good grades. Go to college. Get a good paying job. Buy a house. Have some kids. Retire at 65.”
And so fast forward, I got my job, I got married, I bought my house. I really felt that there was a sense of something that I was missing. And so I had worked this corporate job at the time for 16 years. I had excelled in the job, I had moved up. And at some point I decided, okay, I needed something else, or what I was doing wasn’t really fulfilling me, and so I started kind of looking in other places.
Just like everybody else, I came across BiggerPockets, started studying, and somehow I came across Tony. I don’t even know how this happened. Yeah. The power of social media, just hitting a button saying I liked something that David Green posted. And this was around the time when I was getting more serious about investing.
And so fast forward, invested as an LP in apartment syndication on a couple deals, mostly investing in short-term rentals. And quit my job, and now I’m here talking to you guys, which is bizarre. I would’ve never thought that in a million years I’d be on a show with you guys.

Tony:
Can I give the back story? Yeah. Omid is, he’s my business partner, but he’s also my wife’s first cousin. Me, Sarah and Omid were like the three-legged horse that runs Alpha Geek Capital. Obviously Sarah and Omid knew each other, they’re family. And Sarah and I, we’ve been dating since we were 17, so Omid and I have seen each other in family parties and things like that.
But I wouldn’t say that we were ever super, super close before we started investing together. And what Omid was talking about when you mentioned the social media thing is rewind to 2019. This was before I had my first deal. And Omid and I were kind of in the same space. We were both separately educating ourselves about investing in real estate.
And it was actually David Green from the OG Podcast. I was on his Instagram profile, he had posted something, I clicked through. On Instagram it shows you followed by X, Y, Z, and one of the people’s names was on there was Omid, and I was like, “What the heck?” I was like, “I didn’t know he was into real estate.” We started talking and finds out we’re both trying to do the same thing, and actually pulled it up, Omid. I pulled up the email.
On October 15th, 2019, at just before 11:00 PM, I sent Omid an email and I said, “Hey, I know we had been talking about maybe doing a deal together, but I got this deal. Do you want to partner on it with me?” And he replied in like, I don’t know, three minutes and he was like, “I’m in.” And that was the start of this long relationship.
But last thing, right? The funny part is that, that email that I sent, that was the Shreveport house that we ended up losing $30,000 on. So not the best start to the relationship, but it worked out.

Omid:
I think really the takeaway of, I think, with that was just more like it was really a stepping stone just to get our feet wet. And I know Tony’s message is often just take action and just kind of … You won’t know until you actually start kind of getting involved in some of the day-to-day activities. That led us to wanting to seek out apartments indication, to meeting, networking with a bunch of people that eventually led us to short-term rentals.

Ashley:
Omid, how did you guys structure this partnership? And did it take a lot of negotiating, or did you just say, “Well, let’s do it 50-50, because we’re each going to put in half of whatever that half is, money, energy.”? And did you have roles and responsibilities to find? Kind of go through what that structure looked like in the beginning, and also, have you made changes to that since then?

Omid:
Yeah, that’s a great question. I think we just kind of went in there blindly to a degree, right? I think sometimes I am just like … I don’t say spontaneous, but I just have an idea and I don’t know necessarily how I’m going to do it. We’re just going to kind of work it out along the way. I knew that Tony’s skillset complemented mine.
In my line of work before we did DiSC profiles, and so I would kind of learn through interacting with people, “Okay, this person is a analytical person.” And so for me, being more of a … I take action, but I don’t necessarily look at the details as much. And I know Tony is more of a analytical look at the details, so I was like, “Okay, he’ll complement my skillset. We’ll figure it out. We’ll make it work.”
There’s not that much risk in it per se, because there’s no money out of pocket at the time. I mean, at the time it was, okay, this was a bur where the lender funded the rehab portion as well, so I was like, “Okay, it’s not that much risk. I just want to learn, and I feel like this is a great opportunity to learn.” That’s kind of how we initially started.
And I think over time, as we’ve kind of completed different ventures, we’ve more clearly defined things along the way. But I think that’s something that we’ve just kind of figured out over time.

Tony:
Yeah. And actually really quick, I think that’s part of the reason why Omid and I work so well together, is because we’re both, in some ways, we’re like … What’s the saying? Fire, aim, shoot, or whatever. We’ll shoot first and kind of ask questions later, kind of guys, and we’ll both kind of go with the flow. I think that’s what made this partnership so successful is that we’re similar in that way.

Ashley:
When you guys structured this partnership in the beginning, was this like, “We’re just going to test out one deal,” or, “Let’s go and see what other deals we can find right away.”? What did that kind of look like?

Omid:
There wasn’t even really clear dialogue around where it was going to evolve. It was just more like, “Hey, let’s just do this and see what happens,” and that was it. And then after that, it was I just started calling him partner and then he’s like, “Hey, there’s this Black Friday deal to this Rod Khleif event. Do you know who Rod Khleif is? And are you interested in multi-family?”
I’m like, “I don’t know what you’re talking about, I don’t know Rod Khleif, but if you’re into it, I’m into it. I’m going to buy the ticket. Let’s go together and let’s kind of learn along the way.” For us, it was just more like, “Okay, this is a journey, and we’re just going to kind of figure it out,” and that’s kind of what we did.

Tony:
That event was super, I think, critical to our partnership as well, because we walked away from that event, I think, with a better sense of what we wanted to do as a partnership. And it was apartment syndication, that’s what we were initially planning to do. That didn’t work out, but it led us eventually to the short-term rentals.
But I think that spending three days together at this event, soaking in all this information about real estate investing really laid the foundation for everything we built from there on out.

Ashley:
Yeah, it gets you all hyped up and motivated together.

Tony:
Yeah.

Omid:
Yeah. Ironically, I mean, we’ve still talked to some of the same people that we met at that event, and we’ve been on parallel journeys with short-term rentals. And even just relationships we built through like a coaching program we joined, I think it all allowed us to kind of learn along the way and to kind of shorten that learning span for us to kind of invest, or just understand just the different spaces and niches in real estate.
Because I think one of the biggest things that’s like … I think we have a very big threshold for discomfort. For me, just throw me, kind of like what Tony said, throw me in anywhere, or Tony, I’m just going to kind of figure it out and learn. And I don’t mind spending time to learn it and master it. And then it was like the education piece. So learning education about whatever the particular niche is.
And are we interested in cash flow and appreciation or depreciation? And all those things we kind of learn along the way. So just a bunch of different items and then identifying the niche. There’s so many. I think you go to these presentations and you are like, “I want to do this and I want to do that,” but you don’t really realize … I think it’s hard to kind of narrow down once you’ve been presented so many opportunities, okay, what actually works or what fits your skillset, or where you are in your current real estate journey.

Ashley:
What are the different roles and responsibilities you guys have in your organization now before we kind of get any further?

Omid:
Yeah. Currently, I tag team operations with Sarah. Sarah and I both do operations, which that includes communication with our handyman, cleaners, addressing anything guest related. Also, I do guest relations, investor relations. We have the funnel of the Alpha Geek website and it leads to a calendar, and then essentially I’m the guy.
I told somebody today I’m like the chastity belt. You have to get through me to get to Tony and Sarah. I’m like the first layer of protection in a way. But I’m also the guy that just kind of assesses, “Okay. Is …” I had a call today, and somebody filled out a partnership or they’re interested in partnership. They don’t have enough funds, but they’re also interested in learning.
And I know you guys always talk about how can you bring value. This person had a lot of analytical skills. We have an opportunity with acquisitions. And so we just started talking and I loosely said, “Hey, we may have an opportunity,” and he was all in and he’s going to send me his resume. But I think it’s just being able to identify parts of our business and where I can fit them in the business. But primarily, yes, the investor relations is the role. Yeah.

Tony:
Omid, you have no idea the floodgates you just opened up. You know how many people are going to fill out that form now [inaudible 00:14:15].

Omid:
Oh God. Oh God. I know. I know. Oh, hopefully not. Yeah. No. I mean, no, as long as they bring value. Yeah.

Tony:
And Ash, it took us a while to get to this point where we’ve got more defined roles. I think when we first started, we were all just kind of doing everything, and kind of stepped on each other’s toes and doing all these different things. But as the business has matured, we’ve really kind of settled into our different roles. Yeah.
Omid and Sarah had all the guest communications. Omid’s handling all the partnership relationships. I’m focused more so on the acquisitions. I think most of the deals we’ve found so far have been from me kind of doing a lot of that work. And then I handle a lot of the technology pieces, right? Like our property management software, our pricing tool, our email automation tools. We’ve really kind of settled into our groove now that we’ve been doing this for a little over two years now.

Ashley:
Going forward with your partnership, you guys are building your team. Can you kind of talk about, Omid, you touched it a little in the beginning, what your strategy is now and your focus now going forward?

Omid:
Yeah. I think specifically we’re continuing to grow the partnerships. And so Tony does acquisitions. For me specifically, we’re looking to identify people that kind of fit the culture. I think there’s a lot of investors out there, there’s a lot of people, there’s a lot of capital. And I think sometimes what’s challenging is we’re going to have a long-term relationship, so we want to be able to work with people that we enjoy being around and also to have similar goals in terms of like …
Yeah. For us, the partnership is a cashflow play to a degree. Is that what they’re looking for? And then in terms of what we bring to the table, we run a short-term rental from A to Z. And so is this more of like a passive investment for a partner? And that might be more ideal for us because then we can have autonomy, we run everything, and they collect their monthly check for the distributions that we provide.

Ashley:
You mean you don’t want somebody to come in and tell you how to do the layout and the design and what the paint color should be? My point is that you guys know what you’re doing, and that is what operator … If you are going to be an operator, you should know what you’re doing and what works, and you guys are confident in that. And that’s why you’re saying the ideal investor is somebody who wants to be passive and not to be hands-on, and make the color choices and things like that.

Tony:
Yeah. And I think we do involve them to an extent, right? When we’re designing the space, we’ll typically share that with them. Any major decisions around the property, we will typically go over that with them as well. But yeah, the minutia of the day-to-day grind, I’m not going to reach out to the partner and say, “Hey, how do you want us to respond to this message?” Right? There’s some balancing there.
But Omid, one thing you mentioned, and I want touch on this because I think it’s important to call out, is you talked about goals and things like that. And I think that’s one space where me, Sarah and Omid really kind of balance each other out, right? We had our annual planning meeting maybe like a month ago, right? Coming up on a month ago. Omid, share what your goal was and share what my goal was and share kind of like where we landed.

Omid:
Tony’s like, “Yeah. No big deal. I just want like $5 billion in real estate acquisitions over the course of the next 10 years,” and then I was like … And then of course Sarah’s like, “Wait, billion with a B or with an M?” And for me I’m like, “Let me look at my answer,” because we were sharing answers and I’m like, “Let me adjust mine.”
And I forgot where Sarah was, but I mean, I think for me, I was maybe like a hundred million or something pretty … I was going to say 500 million, but I had to change my answer because I was like, “Okay, let’s be more realistic, somewhere in the middle.” And I think we landed on 1 billion. But I think it’s just funny.
We talk about our partnerships, what are some pros and cons of partnerships and what are your pet peeves. And Tony’s like, what I love about him is that he always is setting the bar super high. And sometimes, for me, I’m always trying to assess, “Okay, is this realistic? Is he being crazy again?” I think that’s what I’m trying to assess. And I’m trying to find some middle ground, I’m like, “Okay, this is more realistic.”
And then Sarah’s like, she’s just maybe on the other end of the spectrum a little bit, like, “Hey, let’s just do … You mean more work? We’re going to have more work? Is this realistic?” But yeah, no, I think it’s kind of fun to kind of have those discussions to kind of figure out what makes sense based on goals and seeing where we land.
I mean, a great example of that was, and Sarah likes to share this story, where she … Tony told the realtor after we closed on the first Joshua Tree property, “All right, we’re going to close one per quarter moving forward,” and then the Joshua Tree realtor was like, “What?” He just had this reaction like … And his personality, he’s like … Can I use the B word? Is that allowed? He has a very strong personality and his reaction was just like … He’s very sassy. That’s a more PG term. He’s more sassy.
But fast forward and we were able to close, I think, one a month or something like that. We’re able to kind of go beyond. I know you guys talk a lot about mindset and limiting beliefs, and I think sometimes we get caught in that. For me, I was like, “Okay, I have my one short-term rental in Tennessee. I’m good. I’m done,” and then Tony a month later was like, “Hey, what about Joshua Tree?” and then I was like, “Oh, I don’t like Joshua Tree. That place is not interesting to me.”
But again, that was kind of me rolling with the punches, I’m like, “All right, let’s try it.” And it was already an existing Airbnb, so there was a little bit less risk. It was already an established property. But this property was producing, I think it was like 30,000 gross. And I mean, if we would’ve kept it, we ended up selling it, but if we would’ve kept it, that easily would’ve been a hundred thousand dollars grossing property. That’s the irony.
And Tony doing the research on Joshua Tree and me trying to maybe … Sometimes we got to be aware of our biases of like, “Okay, this may not be a place I may want to travel,” but the data proves that there’s a huge demand. And so now it’s changed my attitude around, okay, just because maybe I don’t like this particular vacation rental market, it may not mean that it’s in high demand. I’m going to default to Tony. He’s the geek when it comes to software, and it’s like he busted out all this data and I’m like, “Sold. Sold. I’m good. Okay.”

Ashley:
He’s a lady in the streets and a freak at the spreadsheets.

Omid:
Yes. Yes, yes, yes. Absolutely. Yeah.

Ashley:
Okay. Before we move on to a different topic, Omid, I just have to ask, and Tony too, do you guys have weekly calls? How are you guys staying intact as a team? What does that look like? You had your annual meeting. Do you have quarterly meetings? Is it you guys are just constantly texting each other? What are your lines of communication like?

Omid:
I mean, you can’t text Tony, because you’ve seen his phone. I mean, I don’t know if he ever sees it or not. I mean, I know Sarah’s his chastity belt right, for messaging.

Ashley:
I actually message her. I had a question about Airbnb locks the other day, I just text her to ask.

Omid:
Yeah, of course. Yeah, it’s funny because it’s like, okay, if I need something done, I’m going to do the group text that includes Sarah, then I know she’ll tell him. Because sometimes it’s like, “We need these docs signed. Where’s Tony?” and I’m like, “I don’t know.” I mean, I know, but I don’t know. I’m like, “Okay, he’s not going to respond. Let me just tell Sarah to tell him to sign the docs.”
Tony’s version of yelling at you is basically he’ll sign you a task, right? Does he get upset? I don’t know if he ever raises his voice. He just does like … He kind of squints his eyes and then he just kind of looks to the side. I don’t know if you’ve ever seen those videos with him and Sarah. He’ll just kind of look to the side and that’s his version of like, “I’m pissed.” I don’t know if he’s done that to you yet, but if he does, that’s his signal.

Ashley:
I’m definitely going to notice now if he does. That’s the signal itself.

Omid:
Yeah, that’s signal. I interpret like, okay, you send me a task, uh-oh, I must not be doing something right. But yeah, we use monday.com, and that’s kind of our version. We originally were using Wrike, we’ve transitioned to Monday. We have kind of a combo of Monday and just text messaging. I think we use Monday just overall kind of like action to dos. And if there’s anything that needs a more immediate attention, we’ll just send messages, just text message.
And I feel like I’m privileged because he responds to mine sometimes, so it’s pretty good. Yeah. No. But yeah. I would just say it’s a combination of those things. And Sarah and I were very late adopters to Wrike, so Tony would yell at … Again, not yell at us, he’d do the side eye thing. And it would just like, “Hey, can you guys look at your task?” And we’re like, “What task? Oh yeah, Wrike.”
I think that’s the way he’s very organized, and let’s say Sarah and I maybe are a little more scatterbrained with some of those things. We’re very task-driven, but I think he keeps us organized. Now we’ve been better adopters of Monday and that’s allowed us to stay more organized. Especially as we’re scaling, we have to. There’s no other way other than to just leverage a system so that way … Because we’re including more people as we are starting to grow.

Ashley:
Omid, I hate to burst your bubble, but Tony actually has an alert set on Monday to remind himself to text you every once in a while just to check in, and it’s actually gone off while we’ve been on the podcast of our show.

Omid:
That’s awesome. I love that.

Ashley:
Okay. But I really want to get into the exciting part and one of the biggest reasons we’ve brought you on today. We had my business partner, Daryl Clinch, on not too long ago, talking about him quitting his job, and-

Omid:
I saw that.

Ashley:
… now you have quit your job too. So congratulations.

Omid:
Thank you so much.

Ashley:
I think it was maybe a month or maybe six weeks before you actually quit we had been in the Smoky Mountains together. And I have to say, if you knew you were going to quit your job then, you did not show it at all to me. I was shocked when you announced it and you were talking about how you’d eventually like to. Congratulations.

Omid:
No, thank you so much. For me, it was just like so … I was almost in denial. Because I was just so used to the mindset of I wake up, I do my job, I go home, I collect my paycheck. And I think so many people get into that routine and they’re afraid to make that decision. Tony approached me. It was actually at the BiggerPockets event in New Orleans.
He approached me, caught me completely off guard. And I didn’t know what to say at the time, I was just like, “Um.” He must have planned this way in advance because he’s like that. He already has it all planned out, like a mind trick. He just mind tricks on me. And so I was like, “Oh. All right.” It’s the same reaction I had to every deal we’ve done. “All right.”
My wife, she was there at the time ,and I think she was very supportive. After I committed to it, I started doing the math in my head. I know in Daryl’s episode, you guys kind of talked about that. When he was presenting it to me, I was doing the math in my head, I was like, “Okay, this is my gross income. This is my net income. This is what I contribute for my 401(k)”. I had a six figure job. And then I contributed like 20 something percent a year to my 401(k).
With the company match, it was like probably 30 plus K, 30K before compounding. Every year that would be contributed to my 401(k). My original plan before Tony approached me was, okay, I was 40 at the time. When I hit 45, I’ll have a million dollars in my 401(k). And at that point I feel comfortable where there’s a safety net and I’ll walk away from my W-2 and do anything I want.
I mean, at the time I was like, “Okay, let me get more involved in short-term rental.” I had a five year plan. Fast forward, that was probably, what, a year and a half after getting involved in short-term rentals that I ended up putting my job. And I think that what pushed me was, one, Tony, but two, thinking about all the things that I’ve always wanted to do, but was too afraid to do.
And I think hopefully this speaks to a lot of listeners. When you think about wealth, wealth a lot of people define it as financial wealth, but they don’t look at all the other things. You see these TikToks and it’s like, “The new wealth is time and experiences.” But that really speaks to me because I think for me it’s just okay. I feel like I have all the basic necessities. And so there are other areas that I really want to kind of work on. The time piece, so having the time wealth, physical wealth, so just being in better shape.
I see so many people that were in corporate jobs, a lot of my peers, and they’re my age and they look like they’re 50. I’m trying to do the opposite. I’m like, “How can I stay looking like Tony and Sarah?” And so hopefully if I’m just around them, it’ll just force me to look like them. I don’t know. I have my black shirt by the way. I have my black shirt. I never liked wearing black shirts, but Tony said it’s required now that I’m a part of Alpha Geek. I don’t know if that …

Ashley:
That’s the uniform?

Omid Tehranirad:
That’s the uniform. It’s like the black shirt. Yeah. But yeah, so financial wealth, social wealth, time wealth and physical wealth, those are the four. And a lot of times people trade their time and their physical wealth for that financial piece. And I had friends who were attorneys, who were doctors and they have no time for their families, they don’t go to any of the … They can’t coach. They can’t go to any of the games. They’re consistently tired.
I thought about it and it’s like, “Okay, I get my time back.” And fast forward, now I’ve been able to coach. I was doing orange theory and I was the … They had this like dry try competition, which is basically like a overall fitness competition, and it was like I had the top time for males in my gym. And I would’ve never done that under the circumstances I had before, because I was able to commit to it every day.
And then I’ve been able to drop off my kids at school, pick them up and drop them off. Before COVID, I never did that once. And I missed out on so many years of that and being able to do that. And now there’s just so much upside in terms of opportunities long term. I was willing to trade my salary for those things. And I think I was afraid. I was afraid of giving up that salary, but I think in the long run, I’m going to be a lot more happy.
I already have way more flexibility. What I want to do is be able to inspire others to do the same, because I think so many people are stuck in the they want to work, they’re afraid to walk away from their six figure job. They’ve done all the right things, but they’re just afraid to take the risk or walk away from a six figure job.

Ashley:
Omid, you took a pay cut, correct?

Omid:
Yeah. Yeah, I did take a pay cut.

Ashley:
Yes, okay. Were there any things that you had to cut out of your life or that was your extra money anyways, or did you have to kind of rearrange your budget that you have for your livelihood?

Omid:
I’ve always consistently lived way below my means, and I’ve always just needed a few things, the gym, the beach, somewhere to hike, hang around the kids, some good food and that’s it. I don’t need a lot of fancy things. And so I think for me, I’ve been able to just maintain that lifestyle living. I could probably live off of a … I don’t know what income. But the way I structured even my pay, I’d have increases in my pay, but I always lived off of 4k net income.
So that was no matter what my income was, it was always my paycheck was every month was $4,000. And so even though I was making six figures, even though I was getting bonuses, it didn’t matter because I put all the additional income into my 401(k) so that I could compound it faster at a younger age.
That’s the way I thought about it. My 401(k) became I’m doing the same pay now, but my 401(k), instead of it being invested in stocks, it’s now invested in real estate. Through acquisitions that we have, I have a percentage of ownership and that’s allowed me to still kind of grow, I guess, my retirement portfolio. And that’s how I’ve been able to kind of justify it while getting back kind of some of those other things.
I feel like financially I’m in the same position, if not better. Socially, I always want to be active in social media, but I never had time. That was like a very low priority item. And when I was working my W-2, it required a lot of hours. And so now I’ve been able to allocate some time for that. The time piece with family. Traveling, I’ve traveled more in the past six months than I have in the past two years.
Every month, there’s where we’re going somewhere. Shout out to my wife for allowing this, for enabling me to go and travel, because she gets comments all the time from people, a lot of naysayers who say, “Oh, he’s gone again. Oh, okay.”
And I feel like they’re stirring the pot in a way, but I think sometimes people don’t necessarily understand kind of what’s going on or what sort of dedication I have to kind of like the long term play in terms of like the real estate piece. Because maybe right now today the income’s the same, but I think you look fast forward five, 10 years and there’s a larger trajectory for just our financial independence.

Tony:
I mean, a couple things I want to highlight, right? When you look at going full-time into the business, there’s the benefits that you mentioned obviously. I think another big one is that you accelerate your ability to scale, right? When we first started Alpha Geek Capital, the only person that was full-time in the business was Sarah, my wife.
And she was really just focused on the guest communication side of things, right? But she wasn’t focused on growing the business per se. And then when I went full time at the beginning of 2021, we went from … We had two, almost three units when that year started, and we ended that year with, what, like 11 or 12, right?
We scaled a ton in those 12 months. And now we just finished Q1. And with you being full time, I think we’ve already closed, or under contract we had like nine properties already this year, right? So it’s like, as you add more fuel to that fire and you free it more time by going full time, it’s like an exponential curve that you’re on when it comes to the growth.

Ashley:
Yeah, it’s like taking that short amount of time that you’re going to be taking that pay cut so that you can build up and get to that replacement salary. And let me ask you this, so at your old job, was it a set salary that you knew how much you were getting every month or was it like commission based where it changed? And then how does that compare to how your pay is now? Did you kind of have to adjust when income was coming in and kind of when you had to pay your bills and things like that?

Omid:
Yeah. Nothing’s really changed in terms of my lifestyle or income. I think for me it was essentially at a fixed salary and then there was a bonus structure. There’s a bonus depending on how the company had performed. At the end of the year, you would see anywhere from like 20, 15 to 30K bonus, I would say. That bonus is nice at the end of the year, I mean, then you can kind of use that to invest or whatever it is that you want to do.
But in terms of the fixed salary, I’m contributing a big percentage into my 401(k). I had the fixed amount every month. In terms of the fixed amount, it matches. Nothing has really changed in that sort of piece. And what was the question again?

Ashley:
Well, I think it’s not really going to apply to you, but what would be your advice? You seem pretty money savvy. What would be your advice to somebody who’s going from a fixed salary to, okay, now they’re getting … They have multiple income streams from their different properties or something they’re going to be living off that might change like, “Oh, this month we have to replace a hot water heater. Your cash flow is not going to be as much,” or things like that. What would be your advice to kind of plan that out? Because that can be scary, getting that fixed income every single month going to a variable income.

Omid:
Yeah, absolutely. I think we’re very fortunate in terms of the cash flow for the short-term rentals. But I think it’s just identifying what you can live off of and setting a reserve. I mean, we have a reserve kind of set aside just for anything that can happen. And I know people’s idea of reserve varies.
Some people aren’t as liquid. They put all their money into stocks or invest, whatever type of investment. But I think the idea is, for us, what we felt comfortable with was, okay, between my wife and I, we had four different short-term rental loans in our names. In terms of debt to income for traditional loans, we weren’t going to qualify for any more loans that were traditional.
We’d have to go into like a DSCR loan or some other commercial loan product. At that point I felt like, “Okay, the leverage of the W-2 income and the salary, it didn’t have as much benefit by being in the job anymore.” I think the name of the game for me was cash flow. How can I create cash flow that’ll replace my income and through these assets?
And so the niche that was identified was short-term rentals. And so with that, just you can walk away with one or two. It doesn’t require that much. And so it’s just a matter of finding the right location that works for you. And do you have the appetite to run your own Airbnb business? Some people don’t. Yeah, some people don’t have the personality or the time or the know-how.
And not everybody has a Tony J who just bust out data in their sleep. But maybe it’s finding a partner that does. I think that’s for me what I was able to do was, “Okay, I can do operations. I can talk to people. I can build teams.”
Now, if somebody’s in that same position and they have capital and they have a good paying job, find somebody who’s good at systems, who likes data. And go to these Facebook groups, go to local meet up events. And there’s so many people who are just wanting to get their feet wet and just need the one person to maybe partner with.

Tony:
Yeah, I think the other thing I want to comment on is how we kind of manage cash flow, because we do it, I think, a little bit differently than other real estate investors. For the Rookies that are listening, Ashley and I interviewed Mike Michalowicz on one of our Rookie Replies. I think it was episode 132.
And Mike, we interviewed him about a book called Get Different, but Mike also has a book called Profit First. And in that book, Profit First, he breaks down how entrepreneurs should manage their cash flow. It’s a relatively quick read, but a really impactful one if you implement it. And that’s what we’ve done in our business.
Every month, we don’t really look at like … I mean, we look at them, but we don’t really manage our distributions based on the net cash flow, right? If a property nets a thousand bucks, we’re not going to look at that as a money that we distribute, instead we use a percentage of the bank balance every month. Every month on the 25th, I go into each one of the accounts for every one of our properties and I see how much capital do we have available in the actual bank account.
And then we have different percentages set up for different ways we allocate the funds. A certain percentage gets held back for operating expenses, another percentage gets held back for taxes, another percentage gets held back for our salaries and then another percentage gets held back for profit distributions.
And so we take a small salary every month for running the business, but then throughout the quarter, we have this big profit bucket that’s building month over month. And at the end of every quarter, we take a profit distribution as well. So that’s kind of how we’ve managed our cash flow as well.

Ashley:
I think that’s great you guys.

Omid:
What he said.

Ashley:
Thanks for sharing that. Yeah. Omid doesn’t have to worry about that end of thing. It just shows up in his bank account.

Tony:
He just gets a check. He just gets a check. Yeah.

Ashley:
He doesn’t know where it comes from. Yeah. Did you guys want to share a deal with us at all for your deal review?

Omid:
Okay. Yeah. So-

Ashley:
Go ahead. I’ll let you guys tag team it.

Omid:
… Can I deal with La Flora?

Tony:
Yeah, whichever one, man. You pick one. Dive into it.

Omid:
Yeah. Okay. Yeah, La Flora. This is one, it’s off market deal. We have a relationship with a builder. He essentially comes to us and says, “Hey, I have a tiny home in Joshua Tree. Are you guys interested?” We say yes. I think the purchase price on this one was … It’s a 400 square foot, tiny home in Joshua Tree. 333, I think, was the purchase price on it.

Tony:
But, Omid, before you keep going, I think you glossed over that. Dive into that a little bit, right? One of our secret weapons in Joshua Tree has been our ability to get off-market deals. We’ve gone direct to seller. We’ve worked with wholesalers. But one of our unique strategies is going direct to builder. Omid, maybe if you want to talk about how we built that relationship and how beneficial it’s been for both parties.

Omid:
Yeah. Tony had identified this tiny home in Joshua Tree and I was not a fan. I was like, “How much is it per square foot? And what’s so big about these …” Again, talking about biases and it’s not a good property. And of course, trust the process. Fast forward, he’s like, “Yeah, let’s make an offer.”
I normally do, “Okay, let’s just do it.” And so I went ahead and I approached the person who was selling the property, who was also the builder. And so I was trying to ask a lot of questions to identify specifically how we could get this one under contract or how we could be competitive. I asked a lot of questions. I realized he’s a mass builder. He wanted somebody who can close quickly, and he didn’t want a lot of nonsense.
Not too many questions, don’t bother him. His time was very valuable. And he really had zero patience for people in general. And he wanted to build a long-term relationship because he’s a builder. He wanted also be able to build on the particular lot or on a future lot. I essentially listened, identified what was important to him, and I told him, “Hey, look, we’re short-term rental investors. We’re looking to scale. We’re interested in your product. What is a number that would be competitive for us to be able to not only secure this, but also buy future deals?”
We proved that we could close, so he accepted our offer. I think it was asking price. We offered asking price, and accept the offer, we closed right away, no issues. And then fast forward a couple months and he had another property. And so he essentially at this point just started approaching us and said, “Hey, look, I have this property.” Ironically, this one property led to another three, and then there was additional.
I think we had seven under contract with him, and then now we’re going to be at 11 tiny homes with him, particularly. The irony is these tiny homes, there’s such a high demand, but this is the challenge for somebody that wants to buy these. One, typically, you’re going to have to hire a builder. The turnaround time is, what, a year from planning.
Nobody’s going to sell these because they spend so much time into engineering. And then the few that ever go on-market sell way above market. We’re able to get them at pretty much market price and off-market. He now comes to us. Few things, he likes that we close quickly, he likes that we are low maintenance and we have good communication with him. He’s kind of a grumpy guy a little bit, and so just like how can we keep things positive, but maintain a positive relationship? It’s worked out really nicely.

Tony:
It’s been mutually beneficial, because for us, Ashley, we have a very consistent source of deal flow for a property that we know has performed well. It’s easier on his side because he doesn’t have to worry about listing the property, dealing with different sellers or someone getting under contract and then backing out.
It’s really been a mutually beneficial relationship. And like Omid said, by the time this episode airs, we’ll have bought 11 houses from this guy and they all perform really well. Omid, sorry, I didn’t mean to get you off tangent there, but if we want to go back to the floor and maybe walk through what we picked that one up for.

Omid:
Yeah. This one we purchased, I’m going to say Q4 November-ish of last year, I’m going to say October, November-ish. It’s all becoming a blur. But 333, 10% down loan. It required about, what, 20K furnishings plus design, et cetera, et cetera. Total out of pocket is going to be probably close between like 65-ish, I’m going to say, with closing costs.
This particular property has actually become our best performing property. This is supposed to easily gross maybe 110 to 120. And the price point being 333, you can’t find properties at that price point for that type of gross. Usually you’re going to have to spend 600 plus to get that sort of gross. And 600 is on a conservative side. Usually it’s more like 700, 800 to get a gross of 120K.
But ironically, Sarah, she designed it and I was not a fan. I’m always not a fan. It is kind of funny, but I wasn’t a fan of her design. She’s like, “Hey, what do you think?” And I was like, “Oh, that’s cool. It’ll either do really well or it’s not going to do well.” I think that was my reaction. I think that was my response.
And we agreed to proceed forward with the design, and it became the most popular design of all our tiny homes. It’s actually now become our consistently most sought out tiny home. And I think it’s booked out two months in advance or so, give or take. And we got to raise rates clearly, because it’s like we’re not charging enough. But yeah, it’s doing well. Cash on cash return is probably 50 plus percent.

Ashley:
Omid, I think that’s a really great point to touch on, is that you have these tiny homes that are all the identical layout, but it’s the design. And the design has made such an impact on that one that it’s outperforming the other one. I think that a lot of people, and even I did this for my first Airbnb, was go and, “Hey, who has furniture laying around in their basement that they don’t want anymore that I can throw in my Airbnb?”
And you just prove that taking the time to actually design it and add that aesthetic to it can really give you a way better return than just throwing in mismatch furniture that you find on the side of the road or from your parents’ basement.

Omid:
No, I think that’s a great point. Because when we look at the portfolio itself, we’ve optimized and kind of made adjustments along the way. Because we’ve had the same model, we’ve been able to kind of get feedback from guests and even from social media. And we’ve been able to kind of keep making different adjustments along the way, and I think we have a more polished product moving forward because of it.
But we also, when we launch these, we are launching them more polished than they were initially. I think our very first one, I think we initially looked at it and we were like, “Okay, this is going to gross about 40K.” And then Tony’s like, “Oh yeah, we’ll do 60, no problem.” And of course I’m a skeptic and I’m not believing you, I’m like, “There’s no way this place is going to do 60.” And we’ve made modifications along the way.
And I think what happened is like during summertime, which is I would say like the low season because of the heat, we really had to look at, “Okay, how can we make our property stand out so that way we can make it gross even during low season?” We made a few adjustments to the property. And at that point from September on, every month the growth kept going up to now it’s averaging close to nine plus K a month since we made the adjustment to that property.
This property will do 100K plus. And the irony is, again, limiting beliefs and thinking, “Oh, okay, this can only do so much.” But I think just continuing to do your education, receive feedback from your guests, make the adjustments and try to optimize the property so guests want to come back.

Tony:
Awesome brother. Yeah, we’ve had some definite success with those tiny homes in Joshua Tree, and appreciate you, Omid, for building that relationship, man. I want to take us to the Rookie request line. For the Rookies that are listening, if you would like your question featured, give us a call at 8885 Rookie, and maybe we’ll play your question on the show. Omid, partner, are you ready for today’s question?

Omid:
Oh, man, I don’t know. I’m not prepared, but let’s try it.

Tony:
All right. Today’s question is from John from Fairfax, Virginia, and John says, “I have a question about putting offers on deals. You guys talk a lot about putting offers on, but not on having the financing lined up, and I’m wondering how do you do that. How does a seller have the patience to get you to put the deal together? You know it might take some time to get partners or a bank to get approval on the deal, so what’s running around my head is how are you making offers without having any financing lined up right away. Love to hear you guys talk about that.” And that’s funny, Omid, because we do that all the time, right? We’re like, “Just get under contract and we’ll figure it out.”

Omid:
Yeah.

Ashley:
You want to control the deal.

Tony:
Yeah.

Omid:
Yeah, very true. It’s going to completely vary depending on your local market and what the market environment is, and then building a relationship with your realtor, what sort of experience you have. If you can’t get pre-qualified, I mean, you should definitely get pre-qualified to get some sort of loan, even if it’s a hard money lender.
Sometimes you may not, let’s say, not qualify for a traditional loan. If I build a relationship with a hard money lender where you get something, that’s a great place to start. But I don’t know. Tony, do you have any … I feel like you always have a great answer, so I want to-

Tony:
Yeah. I mean, I think the only thing I’d add is that whenever you put a property under contract, you always have your financing contingency, right? Worst case scenario, if you’re not able to figure that out within that timeframe, just make sure you cancel the contract before your financing contingency. But I would try and exhaust every option before you have to cancel.
Because I think the second you start canceling on people, that’s when you kind of build the wrong reputation. I would use the financing contingency if I needed it, but first, yeah, hard money, private money, partners. If it’s a good deal, I’m going to be going to everybody that I know saying, “Hey, please, please, please work …” Not even please, but, “Hey, here’s a great opportunity. Work with me on this deal.”

Omid:
… Yeah. I think we went to a Ryan Pineda event, and then the quote they used was, “If it’s a good deal, money will follow.” I think just find that good deal and money will follow. And that’s whether you post it on social media, whether you’re posting it in local groups, there’s always somebody who has the capital who’s looking for that deal and they don’t have the access to the deal flow. If you can bring the deal, I’m sure money will follow.

Ashley:
Okay. Omid, I’m going to take us to our Rookie exam. Now, this is graded and this will actually be reported as to whether or not you stay employed by Alpha Geek Capital, so the pressure is on.

Omid:
I feel like I’m in college and I’m trying to get into some sort of like a Greek organization, and this is the hazing process, like-

Tony:
This is the hazing-

Omid:
… “Do I get accepted into the club or not?”

Ashley:
Omid, what is the return on investment, the ROI, based on the cash flow from the third Joshua Tree property you bought? The clock starts now.

Omid:
I’m going to say it’s like 100 plus percent.

Ashley:
Okay.

Omid:
100 plus. Yeah.

Ashley:
Yeah. Okay. What is one actual thing Rookies should do after listening to this episode?

Omid:
Yeah. Assess your threshold for discomfort. Because I think a lot of people, they get this idea, “Oh, I’m going to do this. I’m going to do this,” but then when they find out what it really requires in terms of the extra work and assess your threshold for the additional work. Are you willing to sacrifice maybe on the weekends, like not hang out with your friends? Are you willing to get uncomfortable? Are you willing to go to a network event and talk to people when you’re not comfortable talking to new people?
I think all those items are really big. If you’re married, is your spouse okay with you spending more time away from your family? And can your spouse maybe step up with some of those responsibilities at home? It’s all those little things that I think sometimes are overlooked before actually getting your feet wet into whatever it is that you want to do.

Tony:
Awesome, Omid. Question number two, what’s one tool, software, app or system that you use in your business?

Omid:
I have this one tool, and it’s called Tony J. Robinson. He’s like the software master. As long as you have a Tony J in your life, okay, great. Not everybody has a Tony J. But I think specifically for our line of business, Airbnb, our short-term rentals, it’s Hospitable.
And I know there’s different substitutes of that, but I think Hospitable really allows us to integrate pricing, messaging, gas, experience, communications all in one. That’s really a lifesaver. I feel like that allows anybody to scale long term. I would say if it’s not Tony, then Hospitable is a close second.

Ashley:
Where do you plan on being in five years? What’s half of 100 billion?

Omid:
Yeah. I feel like we had this discussion, because I feel like there was like a 10-year plan and there was a five-year plan. And in theory, what, half of that should be 500. But I’m going to say like 300 million in acquisition. Because I feel like it’ll kind of skyrocket faster as you kind of go towards the end of your journey, so I’m going to say 300 million in acquisitions. More time freedom, leveraging, just growing an organization. And so leveraging the organization and the culture to kind of build.

Tony:
Awesome brother. Well, as we round things up, I’m going to highlight today’s Rookie rockstar. And if you would like to be highlighted as a Rookie rockstar, get active in the Real Estate Rookie Facebook groups, get active in the BiggerPockets forums, slide into my DMs or into Ashley’s DMs. But today’s Ricky rockstar is Andre B.
And Andre says, “I caught the real estate investing bug a couple of months ago and have been hard at work since trying to secure my first property. Three contracts, two terminations post-inspection, I finally have doors 1, 2, 3, and 4 fully occupied with what seems to be great tenants.”
And this was a fourplex, all one bedroom, one baths. It was listed at 240, he was able to negotiate down to 210. And then after the inspection, got it down even further to 205. And right now the rents are … Or he’s going to cash flow about $351 per unit. Amazing job, Andre. Really proud of the work you did there.

Omid:
Andre, high five, man. That’s awesome.

Ashley:
Omid, thank you so much for joining us today. It was great to have you. Can you tell everyone where they can reach out to you and find out some more information about you?

Omid:
Sure. You can find me on IG, Omidtheradinvestor. So O-M-I-D, the rad investor. Or you can find me Alphageekcapital.com. And hopefully I’ll be launching my YouTube soon, so you can find me on YouTube, Omidtheradinvestor. Do I get a picture? Do people ever take pictures with you guys, like a digital one for their social media? Is that allowed?

Ashley:
No, we charge extra for that.

Tony:
Absolutely not.

Omid:
Oh, man. I’m just trying to fanboy a little bit since I’m on the stage with you guys. This is an amazing moment. My hair is like I got a haircut for you guys, just …

Ashley:
Actually, Omid, I already took a picture of us when we first started, actually before we even started recording. So don’t worry, I got you.

Omid:
There you go. Nice.

Ashley:
Well, Omid, thank you so much for joining us. And to everyone listening, if you guys have enjoyed the podcast and you loved Omid’s episode, maybe you actually have a similar story where you have learned from BiggerPockets and being able to quit your job, we would love to hear about it. Please leave us a review on Apple Podcasts or whatever platform you use to listen to podcasts. We’d greatly appreciate it. And also share the podcast.
If you know somebody that would benefit from getting started in real estate investing, please feel free to share the podcast to them. I’m Ashley, @wealthfromrentals, and he’s Tony, @TonyJRobinson. And don’t forget that you need to go through Omid, Tony’s chastity belt, if you’d like to talk to Tony. And we’ll be back on Saturday with the Rookie Reply.

The year was 1999. An exclusive group of multi-billionaires gathered in Sun Valley, Idaho, just like they do every year.

As usual, no reporters were allowed within miles of their gathering. This was a safe place for the wealthiest Americans to freely share ideas, strategize, and break from the rigors and pressures they faced the other 51 weeks in 1999.

But something was different this year.

People were whispering about one of their most revered members.

“Do you think he’s senile? He is almost 70 [years old], after all.”

“He’s lost his touch. He had a great run for about four decades, but he’s clearly fading into irrelevance.”

“The market has left his returns…and his old-fashioned thinking…in the dust. My high school grandson’s returns are three times higher than his.”

They were talking about Warren Buffett. And they were gloating about their massive wins from the run-up in tech stocks. Newer attendees like Jeff Bezos were celebrated while Buffett was discounted.

Buffett wasn’t ruffled. He knew what he believed, and he wasn’t about to trade decades of expertise and success through value investing principles to join yet another fad.

For Buffett, the issues surrounded the lack of actual value in the tech firms exploding in price. Companies like Amazon, Pets.com, and Webvan were the darlings of the S&P 500, yet, they had little to no profits driving their popularity.

Their popularity can also be called speculation.

Taxi drivers and college students were becoming overnight millionaires. Of course, many investment titans like Buffett were discarded as outdated relics of a soon-to-be-forgotten generation.

Time Magazine mocked Buffett that summer. It reportedly stated: “Warren, what went wrong?”

So how did Buffett respond? In his usual dry humor, he addressed the audience of doubters.

Buffett began by saying, “In the short term, the stock market is a voting machine, but in the long run, it is more like a weighing machine. In the end, the weighing opportunity wins, but in the short term, it will be determined by the voting chips. However, its voting mechanism is very undemocratic. Unfortunately, as you know, it does not certify voting qualifications.”

Elsewhere, Buffett said he preferred investing in Wrigley’s over tech. He said he had no idea where technology would be in a decade. But he knew how people would be chewing gum.

“Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it’s the lack of change that appeals to me. I don’t think it is going to be hurt by the internet. That’s the kind of business I like.”

Of course, we all know what happened. The tech bubble burst, about $5 trillion was lost, and Buffett landed on top, again.

When everyone is mutually rewarded from the market’s rise, expertise is no longer celebrated.

This is a phenomenon that raises its head late in boom cycles. This is not new. There are many examples in the past century:

• As reported by Time: “There is a famous story, we don’t know if it’s true, about how in the late summer of 1929, a shoeshine boy gave Joe Kennedy stock tips, and Kennedy, being a wise old investor, thought, ‘If shoeshine boys are giving stock tips, then it’s time to get out of the market.’ So the story says Joe Kennedy sold all of his stocks and made a killing, and maybe that’s the beginning of the fortune that made JFK president three decades later.”
• The stock market fell out of favor in the early 70s when I was a kid. The world ran away from the markets and shunned former experts. But this same world was quite different in the late 90s. Barnes & Noble’s shelves were bursting with books on trading stocks. I sold my company to a publicly-traded firm for a ridiculous multiple. Who needed experts when everyone was getting rich from the market’s bull run?
• Barnes & Noble’s shelves switched to millionaire landlord books from 2004 to 2007. Real estate experts with years of knowledge were ignored, and “Newrus” (my fun term for New Gurus) became celebrities. (Who didn’t know a fix-n-flip guru?) Then 2008 hit.

The Death of Expertise in 2022

So, what is going on now? Is this happening again?

I will say yes.

I know many people making a killing–millions of dollars–in real estate right now. Many of them were in high school, college, tech jobs, or engineering as recently as 2015. I applaud them!

I just spoke with a prospective investor who told me he’s made over $5 million in buying random parcels of land and reselling them a few years later. He’s a tech genius but only invests in real estate on the side.

Yesterday I spoke to one of our investors in Southern California. He told me the story of his family’s industrially zoned land near Los Angeles. He bought other family members out a few years ago when the land was worth $4 to $5 million. He just got an offer for $25 million, and his broker said he might be able to get $27 million. I’m so happy for him!

I applaud all of these investors! But there’s a problem.

Expertise is discounted late in cycles. When everyone is being rewarded relatively equally, it is hard to tell who the experts are. Therefore, it’s hard to know who to listen to and who to invest with.

How did this sound last time around? For those of us who were investing in real estate leading up to 2008, this is what we were hearing:

• “It’s different this time.”
• “This boom has now become the new norm.”
• “People are moving here for the lifestyle.” (Where was “here”? Everywhere. From Las Vegas to Buffalo, New York.)
• “Buy land! They’re not making any more of it.”
• “Everyone needs a place to live.”

In the Summer of 2005, the soon-to-be-nominated Fed chair, Ben Bernanke, said: “We’ve never had a decline in house prices on a nationwide basis. So, what I think is more likely is that house prices will slow, maybe stabilize, and might slow consumption spending a bit. I don’t think it’s [going to] drive the economy too far from its full employment path, though.”

In mid-2007, U.S. Treasury Secretary Hank Paulsen told Fortune Magazine: “This is far and away the strongest global economy I’ve seen in my business lifetime.” His brother, John, a true expert, was shorting the housing market and made a fortune in the next few years.

P.T. Barnum said, “Nothing draws a crowd like a crowd.”

Where is the crowd rushing right now? And are we living and investing in a time where true expertise is devalued, and hype is the operating principle of the day?

Howard Marks said the top of a bubble is reached just after the crowds think the bull run will go on forever.

But trees don’t grow to the sky.

Marks, a true expert, made much of his fortune in late 2008 at the other end of the spectrum: buying distressed assets when the crowds thought markets would decline forever.

In the autumn of 2008, a reporter interviewed Marks about his strategies during the free-falling market. He said their firm, Oaktree Capital Management, was buying up to half a billion dollars in assets per week. The reporter said, “Wait, you mean you’re selling, right?” Marks said, “No! We’re buying. If not now, when?”

True experts like Buffett and Marks are often busy going against the herd.

How Can You Get Burned When Expertise is Declining?

There are probably many ways. Just look online. Check out the thousands of “news stories” and opinions regurgitated as facts.

The internet has caused people to think they are more informed than they are. Users think they understand a topic by quickly searching and skimming often misleading headlines. Before the internet, rigorous study and deep research were required to develop a strong opinion on a matter.

Part of the problem is a society that has produced today’s education system. When everyone is rewarded equally, people don’t have to think critically and research deeply to get an A. But this lack of judgment doesn’t play well in the real world, and it can result in us treating non-experts as gurus.

When I was a boy…no, I’m not going to tell you how I walked six miles uphill in waist-deep snow!

We didn’t have rubber mats on playgrounds when I was a kid. Our incentive to master the monkey bars was to avoid a skinned-up knee or a broken arm.

When we increase comfort, we kill aspiration. I fear that a society that has protected our kids from potential pain (I’m guilty as a dad!) may have also protected them from the ability to reason deeply and clearly delineate risk and return.

(Some of the comments in this six-paragraph rant came from a review of Tom Nichols’ book The Death of Expertise.)

Rant complete.

I can see at least two obvious ways this could hurt your real estate career.

First, we all need to be lifelong learners. But I’m warning everyone to be careful who they are listening to. Look for true experts rather than Newrus.

Second, be careful who you invest with. You may passively invest in direct deals, turnkey homes, debt for house flippers, syndications, or funds. I applaud you. But I would warn you to do everything in your power to find the real experts. Put your money on them.

So, how can you tell if your “guru” is a real expert or just another Newru?

Identifying experts

Have typically weathered multiple up and down cycles.

Pay the price when they’re wrong. (They put skin in the game and don’t make a killing from non-performance-based fees.)

Anticipate change. They don’t assume the future is the same as the past. (Just look at interest rate declines over several decades, for example. Do you really believe that will continue?)

Look bad when novices soar but shine brightly when the crowds are in turmoil.

Invest in boring deals in times when others chase shiny assets.

Are comfortable with chaos.

Experts who play the long game will win in the end. Don’t yield your common sense and experience to Newru-Gurus.

Epilogue

There will come a day when expertise is celebrated again. We’re in a late-cycle phenomenon, and the current situation could signify a coming reversal.

Then expertise will be celebrated as it should be, and true experts will shine as they always do.

Many of the fallen will lick their wounds.

Some will vow to never invest in real estate again. Others will look for the next guru.

Prepare for a market shift

Modify your investing tactics—not only to survive an economic downturn, but to also thrive! Take any recession in stride and never be intimidated by a market shift again with Recession-Proof Real Estate Investing.

David Greene:
This is the BiggerPockets Podcast show 609. As far as practical advice for you on the next deal, don’t do it. Figure out a way to do it without a partnership. And if you have to have a partnership, don’t do equity splits. This is one of the reasons that in general, I don’t do equity, I pay people debt. What that means is people let me borrow money all the time and I just pay them a return that they know they’re going to get. And it doesn’t matter if the property completely falls apart, they get paid anyways. I don’t like sharing risk with people that I’m a partner with, because it ruins relationships, and it’s important to me that those relationships stay healthy.
What’s going on, everyone? My name is David Greene and I’m your host of the BiggerPockets Real Estate Podcast. If you’re not watching this on YouTube, then you don’t see the green light shining behind my head, but if you are, then you know what that means. This is another Seeing Greene episode. In today’s episode, I am going to take different questions from different podcast listeners or BiggerPockets members, and do my best to solve their problem, give them advice or help them scale their business faster, more safely, and in a better direction.
These episodes are specifically meant to teach you more about real estate by giving you my perspective. Now, I’m a real estate agent. I run a real estate team under Keller Williams. I own a loan company called The One Brokerage. I invest in short-term rentals, long-term rentals, multi-family property, commercial multi-family property, triple net property. I own note income. I flip houses. And I write books and stuff like that. So, I have a very well-rounded perspective that I like to share with everybody here. And the goal of shows like this is to take you deeper behind the curtain to see what’s really going on in real estate, rather than giving you the shallow answer that you can get anywhere else.
So, thank you very much for joining me. I really hope that you enjoy today’s episode. And if you do, please consider leaving me a comment on our YouTube page. If you’re listening to this on the podcast, that’s great. But when you get back to a safe place, if you’re watching this on a commute, please consider subscribing to our YouTube channel and leaving me a comment in the comment section, to let me know what you thought of today’s show.
For today’s quick tip, I just want to remind, registrations for BPCON are now available. This year, we’re going to be holding it in San Diego, and I want you to go, why do I want you to go? Because I want to meet you. Well, that’s not the only reason that I want you to go. I also want you to go because so many people get more involved in real estate when they develop an emotional connection to it. And in order to develop that emotional connection, you have to get involved. You have to get outside the realm of just being on the outside, watching, peeking in through the window, seeing what other people are doing. You have to get into the room and into the conversation, so you feel like you’re a part of it. BPCON is a great way to do just that.
So many stories have come from, “I went to BPCON, I met some people. I realized this wasn’t as hard as I thought. I bought my first property. I fell in love. I bought three more. Now I have more money coming in from rentals than from my job.” I cannot tell you how many times I have heard that same story, and I want you to be the next one to tell it. And if you’d like to register for BPCON this year, go to biggerpockets.com/events, and it will walk you through exactly how to do just that. Again, that’s biggerpockets.com/events.
All right, today’s show is fantastic. We talk about what is the best strategy in today’s market? That’s always a good topic. We get into what to do when you’re navigating partnerships with different priorities, as well as how to get closer to real estate when you can’t go full-time, and more. Lots of really good questions. This is probably my favorite episode we’ve ever done of the Seeing Greene style, BiggerPockets Podcast. I really hope you enjoy it. And most importantly, I need you to let me know in the comments on YouTube, if you did. So, enjoy today’s show and let me know what you thought.

Nicole Heasley:
Hi, David. My name is Nicole Heasley. I have been investing for five or six years. I have four deals under my belt, and I’ve spent years listening to the BiggerPockets Podcast. And I’ve heard you and Josh and Brandon talk a lot about moving into a career that has more synergy with my investment goals. So, I got licensed and started my career as a loan officer in February. It’s going awesome. I am so glad I made this switch.
But most of the resources and conversations on BiggerPockets tend to focus on the synergy between being a realtor and an investor. I want to know more about being a lender and an investor. So, where should I look? Who should I follow? What resources are out there? And you gave us the book on being the very best realtor that one can be. I want to know who wrote the book on being the very best loan officer that someone can be, who wrote the SOLD for loan officers? And if it hasn’t been written yet, I have a suggestion for your future projects. Thank you so much for everything that you do and take care.

David Greene:
All right. Thank you very much for that, Nicole. I think this is a really cool question, because it’s something that doesn’t get brought up all the time. Let’s see how I want to tackle this. First off, the reason I wrote SOLD for BiggerPockets is there were no good books for real estate agents. There’s one called The Millionaire Real Estate Agent, which is fantastic. It’s written by Gary Keller and Jay Papasan. Jay is someone that we’ve had on the podcast several times. Gary is someone that I’m still working on, trying to get on, because he’s a fantastic real estate mind.
But that was really a high level book. It sort of is a map. It shows you the terrain. Here’s where the mountains are. Here’s where the stream is. Here’s where the quick sand is. And it shows real estate agents how to navigate through the big picture, but I wanted something like a field manual. I want you to tell me what boots I should wear. What’s poison Ivy and I shouldn’t touch it. How long can I go before I need water? There was nothing that was really written at a micro level like that. So, I wrote SOLD for real estate agents, and SKILL is going to be coming out very soon, that’s the sequel to SOLD. And then after that, SCALE.
So, part of why I write books is because there’s not a book written on that topic. When I wrote Long-Distance Investing, that was a book that needed to be written, because no one was talking about how to do that safely. Most people write books on topics that are already really popular, because they’re going to sell better. I just don’t like that, because if there’s already a bunch of books written on it, I don’t need to.
You make a very good point, there are not any books that I’m aware of that teach somebody how to be a good loan officer. It just isn’t very common, because the way that that industry tends to work is it’s broker centric. You’re a real estate agent, you hang your license with a broker, your broker becomes your mentor. You’re a loan officer, you hang your license with your broker, your broker becomes your mentor. There is nowhere to hang a license as a real estate investor, because there’s no license. And that’s why people come to podcasts like this, or they read books, or they watch videos on YouTube, or they read blog articles, because it’s set up differently. There’s nobody to show you how to do this job. So, you got to learn it yourself. And that’s why everybody makes content for real estate investors but not for some of these other jobs. Same thing goes with insurance brokers or appraisers, you don’t learn how to do that in a book, you tend to learn how to do that from finding a mentor who’s in the field, who teaches you.
Now, that being said, I would encourage anyone who wants to be a better loan officer to come work with us. That’s what we do. We’re mentoring people and helping them to be better. As far as your question of, is there a book that needs to be written? I like your little subtle hint that I need to write that book. That’s something that I am not qualified to write yet. I’m still learning that industry. Now, I think The One Brokerage is probably the fastest growing loan company in the country. We’re doing fantastic. We have way more leads than we can keep up with. We have to hire new people. So, for anyone out there who’s like, “I’m interested in a career as a loan officer.” Please come to me. Especially if you already are one and you just want a better opportunity.
That’s one of the things that BiggerPockets exists for. It’s a community. We network, we get connected to the right people that we want to be connected to. You can find handymen, you can find contractors from being in this world. So, I’m really glad, Nicole, for what you’re bringing up here and for the listeners who understand you’re a part of our community, you’re not just peeking through the window, listening to a podcast, you’re part of this. So, get involved deeper with it.
When I feel like I’ve got it down and I can explain to teach somebody how to be a loan officer, I will absolutely go to BiggerPockets and see if I can write a book. In the meantime, we’re creating a curriculum to teach people how to be loan officers. And there’s not a lot of people doing this. I know this is one of those sources of frustration for everybody who’s out there, who wants to learn how to estimate rehab costs, or you want to learn what to look for in a real estate agent. It’s very difficult for anyone to say, “This is a good agent. This is a good loan officer.” The industry just doesn’t work that way. It tends to be very sales oriented.
So, the one that you come across is the loudest one, the one with the big, loud mouth that says, “Come here.” And they’re not always the best, which is why relationships and word of mouth are how you get connected to the right people. And I’m only saying this because I don’t want to give anyone the false impression that yeah, there’s a book out there you can just go read, or there’s one question you can ask and you’ll find the best agent that way.
You almost have to know what you’re looking for. And so, that’s why on the podcast, I talk a lot about the perspective of a loan officer and a real estate agent, as well as the investor, in all kinds of different asset classes. I talk a lot about what I’m doing in my own businesses, and the reason I have those businesses is so I can learn what goes on in them, so that I can share the information with all of you.
Now, I also want to be able to train agents and loan officers to provide a very good service. So, that’s true, I want people coming to me to say, “Hey, can we use your realtors? Can we use your loan officers?” But even deeper than that, I’m trying to learn how those industries work, so I can make them better, so I can teach all of you. If you’re in an area where I don’t service, these are questions you should be asking, this is stuff you should be looking for.
Okay. As to the first part of your question, when you were discussing how you got your license to be a loan officer and it sounds like what you’re saying is you’re not really following your way into more deals, as a loan officer. That you’re in the world, like we’ve said, hey, you should get more involved and you’re there, but deals are not crossing your path. This is a great question and I want to be able to address it. Part of the reason that you’re not exploding in your investing career, even though you’re a loan officer, is the skillset to be a loan officer is different than being a real estate investor. Just like the skillset of being an agent is different than being a real estate investor.
If you’ve ever heard the phrase, “To a man with a hammer, everything is a nail.” You’ll understand what I’m getting at here. I actually think that my business as a real estate agent has stopped me from buying as many deals as I would have bought if I wasn’t a real estate broker. Now, that doesn’t mean I regret my decision. I’ve learned a ton through the business of selling homes. I’m a way better negotiator. Like the property that Rob and I just bought in Scottsdale, Arizona, we got, because I told our agent, “This is how to negotiate this deal. This is the exact timeline. I want you to say this right now. I want you to wait four days and I want you to call back. And I want you to say this script.” I only learned that because I sold houses.
But to be fair, I tend to look at opportunities and say, “How can I sell this house for someone else and get them a ton of money?” Versus, “How could I buy that house myself?” So, in some ways you got to be very careful when you get into the industry of doing loans or selling houses or being a contractor, you tend to look at every opportunity through your business’s eyes, not through your own eyes, as an investor.
The other thing that I think you should take mind of would be as a loan officer, your skillset is very technical. You are looking at memorizing guidelines for loan products, trying to learn what products might be out there. You’re trying to upload the right documents. It’s very accuracy based. That’s what I’m trying to get at. You’re a bit of a sniper. You take your time, you line everything up and you make the perfect shot. It doesn’t go quickly. Well, real estate investors are less of a sniper. They’re much more creative. It’s more about casting a wide net, getting a lot of opportunities, getting people calling you ,and then creatively looking for how to solve problems.
It’s a different way of looking at the world than when you’re a loan officer. As a loan officer, it’s very technical. You’re trying to get every single thing right. So, what you have to learn how to do is take one hat off and put the other hat on. You got to build a switch back and forth between everything needing to be perfect and having a wider vision, where you’re seeing everything that’s out in front of you and looking for opportunities. And the same is true for agents. They tend to look at everything from, “How do I make someone like me? How do I become nicer, friendlier, more exciting, more engaging, more interesting?” And they forget to look at life from the perspective of, “How do I solve a problem?” They only know one way to solve problems. They put houses on the market or they help people to buy them.
And so, agents have the same problem. This is one of the reasons I always say, “No, don’t get your license just because you think you’re going to get more deals. You won’t.” It goes the opposite. You spend a bunch of money. You build a business, you create a database, you actually get sucked out of the goal that you did have. And now you’re in a new one. Now, some people, I’m an example of this, can pull it off. So, I don’t want anyone to be discouraged and think it can’t happen. It requires a lot more focus.
Let me give you a real world example. I was asked the other day, “How do you get your spouse on board with your investing goals?” And I chuckled for a minute, because I don’t have a spouse. It’s not hard for me. I forget that there’s people that have to balance their relationship with their investing goals. Frequently, I’ll have a client who’s trying to buy a house with us and I’m having a conversation, trying to explain a complicated concept and my solution for it. And in the middle of it, their kid will start crying. Their attention gets pulled away. They’re not hearing anything I’m saying as soon as their kid needs something, right?
That person has to learn how to bounce their balance from one place to another. Or maybe I should say, bounce their focus from one place to another. It’s more difficult when you have children who are demanding things from you than when you don’t. Now, that doesn’t mean it’s impossible. And in some ways, you might actually be more inspired and more ambitious because of that child. So, it’s not bad, but it will make things more complicated.
So, in your situation, Nicole, you’re going to have to learn how to bounce in and out. Look at it like the goggles that you’re wearing. I have my loan officer goggles on, I look at everything from the perspective of, “How do I make it perfect? I can’t make a mistake. I can’t miss a detail.” You take those off, you put on your investor goggles, and you look at it from the perspective of, “What creatively can I do here? How can I reach this person? How is this property not being used well? How would I be able to borrow the money to be able to buy it? And how would I be able to rehab it? How would I find the contractor?” And then you got to take those off and put on a different set of goggles.
But I really think this is something that I’ve learned to do when people ask me, “How do you do everything?” It’s because I figured out this skill. I can take my glasses on and off, or my goggles, if you will, depending on the scenario that I’m in, and emotionally I can hit a different sort of … Just like your phone has different profiles, you’ve got silent mode, you’ve got loud mode. You’ve got all these different ways that you can have your phone act. As a human, you got to be able to learn how to do the same thing.
Also, I want to say, I love the T-shirt that you’re wearing, way to go representing BiggerPockets. Please let us know if you would ever like to make a switch and talk with us about working with us. And for everybody listening, I think Nicole’s got a great story. She couldn’t get into the investing world like she wanted, so she said, “You know what? I’m going to leave my job and I’m going to get deeper into real estate. Even if it’s not a full-time investor.” I would highly encourage many of you, as that’s the right move.
It used to be, quit your job, go full-time investing. Quit your job, go on the beach and drink cocktails all day long while you do deals from your phone. And for a handful of people that have that skillset, I do think that is a good option, but the vast majority of people, quitting your job in a market as uncertain as this, I just can’t in good conscious recommend that. I don’t think that right now is the time to take that risk. We don’t know what’s going to happen. We don’t know if the bottom’s going to drop out. We don’t know if inflation’s going to take off even more. There is so much uncertainty and we’re all sitting, waiting to see how this is going to play out. That you want as much certainty as possible in other parts of your life.
So, if you’re thinking you hate your job, you want to get more into real estate. Don’t think just quit it and go full-time investing. How do you learn a new trade? How do you learn a new skill set? How do you get involved deeper into real estate without being a full-time investor, to make more money, to put into investing? And that’s why I’m giving the advice to Nicole than I am. Once you make that jump, there’s another jump you have to take. You got to learn how to take off certain goggles and put on other ones. I really appreciate this question. I think this was awesome, Nicole. I wish I could have given you the name of a book to read. Unfortunately, there isn’t one and might not be until I write it. But in the meantime, you got to find the right mentor.
In the world of real estate sales and loan commissions, and even maybe insurance providing, title and escrow, your mentor is your broker. So, pick the right broker carefully. It’s not about the best split you can get or a title that they give you, that makes you feel special, or a business card that looks better than another one. It’s the human being that you are working underneath that’s going to determine how successful you become.
So, everyone here listening, if you’re not super happy with the current broker you have, when you go look for a new one, don’t just ask the question about what’s the commission split? Ask the question of how they are going to develop you as a professional. Mentorship is still the way that people progress through life. If you look at the people that are most successful, they always had the best mentor. Sometimes, that was their parents that they got to start off with. Other times, they just got lucky and their friends’ dad or mom brought them into the world. But no matter how you look at it, the mentor is huge, so make a big effort to find the right one. Thanks, Nicole. I’d like to hear from you again. Let me know how your career is progressing.
All right. Question number two is from Colin, “Hi, David. I’ve found myself surrounded by great real estate professionals. I, myself, am not licensed. I have one agent in my area that I worked with to buy my current house hack, which was a duplex. She has me on a few drip campaigns and I really enjoyed working with her. My mom, who is licensed in another state, referred me to this person. Since moving into the area two years ago, I’ve made friends with several other agents. I’ve got one that is a prospective business partner, so I assume she’d want to represent us if we go that route. I have another friend that I’d love to learn short-term rentals from. My question is, with all these real estate professionals in my circle, are there boundaries, faux pas, red lines, et cetera, I need to be careful of? I don’t want to alienate any of these friends and/or business relationships on the path to further building my business.”
My goodness, Colin. I love this question. Just the fact you’re asking it shows that you’re a person of character and that tells me you are much more likely to be successful. I wish you lived in California, because I’d love to be able to do business with somebody like you, who’s asking these questions. Let’s get into the macro, big view, and then we’ll zoom in on your question.
Where this is coming from is you’re understanding that it’s not really cool to have a real estate agent looking for you to buy a house and then have four other ones that are all doing the same thing. And then, basically what people like to do is set their agents up to be like, “Hey, you could be one of several, whichever one of you brings me the deal first is the one I’m going to buy from.” That always sounds good when you’re the person who’s buying the house. The problem is, at this stage, it’s not hard to find a buyer, they’re everywhere. It’s hard to find a deal for the buyer.
And by trying to date several agents in a market where you’re not as valuable as you used to be, because buyers are not as important, or I shouldn’t say important, buyers are not as easy to work with for an agent, as a seller. You probably get none of those agents giving you their best effort and you’re more likely to fail. So, I’m glad that you’re asking this question. I think one of the things you have to do is be very clear yourself, on what you want from the agent.
So, here’s what I find being an investor and a real estate agent. Oftentimes, when I’m looking, as the investor and I’m going to hire an agent, I’m going to talk to them about what they know about the area, what contacts they have and how they can help me. So, the agent that I used to buy the house in Scottsdale that I bought with Rob, owns several luxury properties in that area themselves and they run a property management company. So, we used them, not necessarily because they’re the best negotiator, because like I said, I provided some of the information of what I wanted them to do.
But once the sale was locked up, man, they had the pool company we wanted, they had a person they put in touch with to help us come up with the design that we should go with. They had contractor recommendations. They had a security company we could go to make sure people aren’t having a party. It was very, very, very helpful to have a person who owned properties themselves in that area, representing us. But I knew that was coming at the price of they’re not going to be the best when it comes to negotiating.
I used them for information for the area, but I also knew this was the agent I’m going to buy a house with. So, I didn’t feel bad about asking them information. What you don’t want to do is be the investor that talks to real estate agents and thinks that you should get free information from them without committing to working with them. This happens a lot. Now, BiggerPockets is awesome, we provide you with free information. That is why we make this podcast, to teach you everything we can about real estate. And then, I go start businesses to learn it, so I can come back here and teach you what I learned from the business. But you can’t expect that same level of service and commitment from all the different professionals you work with.
It’s not cool to talk to a CPA for three hours about tax strategy and then not use them to be your CPA, and go find another one that’s cheaper and say, “Hey, you should use this strategy that I just got from this other person.” I hope that everybody’s understanding, these are professionals that you’re not paying and it’s not good to conflate the free service you get with BiggerPockets to how the rest of the world works that isn’t in BiggerPockets. And a lot of people make this mistake and they rub agents, or loan officers, or CPAs, or insurance providers, or handymen, or property managers, or all the people that you need, the wrong way because they expect free information without commitment.
So, when it comes to your specific situation, Colin, my recommendation would be, the person who helped you buy your house hack is the agent that you use when you’re buying a primary residence. You like that person. They did a good job there. And you continue to send them referrals for other people that want to buy a primary residence. If you’re wanting to buy investment property, you use the agent who you feel more comfortable with that, and you just tell your agent, “Hey, I thought you did a great job helping me buy my house. I’m going to continue to refer other people to you who want to buy their own house. But I found another agent who specializes in investment property and I’m going to be working with them to buy the investment property I want.”
You can tell that same agent that you’re going to be buying investment property with, “When it comes to short-term rentals specifically, I have somebody else that I’m using.” Let the agent make the decision if they want to commit to finding you a deal or if they feel that you’re being pulled in three ways that they can say, “Hey, I appreciate that. I’m not going to look for properties for you. But if you find one you want to buy, feel free to come to me and I can give you my advice on it.” It’s that upfront communication that is so important.
You would want to know if your agent stopped looking for deals for you. If they just put you on a drip campaign and ignored you. Every one of us would want to know that, right? So, offer that same level of respect and courtesy back to them, “I’m not going to be buying a house from you unless it meets these criteria.” Just like you should get to decide if you want to use that agent and they shouldn’t be not telling you that they’re not working for you. The same is true, where you should be telling them, “I’m going to be using other agents for different purposes.” And then everyone, as adults, can make their decision, what level of commitment they want to put towards it. And you can have that conversation and get it all laid out ahead of time.
You do that, no one’s going to be upset with you. There’s not an agent out there who’s going to say, “I can’t believe that you were upfront and told me ahead of time you’re going to be working with another person.” What they don’t want is to be spending their nights and weekends up late, looking for properties, calling listing agents, giving up time with their kids, giving up their personal time to find you a house. And then when they do, you say, “Oh, thanks, but I’m going to have someone else represent me on this.” That’s what will upset people. Thank you for asking this question. I think this is very relevant and helpful to our community as a whole, as we try to learn how to deal with everybody else. And I appreciate you bringing this to the forefront.

Jeroe Jackson:
Hello, David. My name is Jeroe Jackson. I am a new investor just hitting my six-month mark now. And I’m currently working on some BRRRR deals as well as getting a property under contract for short-term rentals. I’m actually in two markets. I live in Florence, South Carolina, that’s my primary market and I’m relocating into Atlanta, Georgia. And so, soon that’ll be my secondary market. My question is this, it’s around getting small, multi-family properties and utilizing seller financing. There’s been a ton of information that BiggerPockets has offered around how to structure these deals and how to place offers. However, more specifically, I’d like to get your input on, if I know that the seller is motivated because they want to do a 1031 exchange, how can I still get into small, multi-family properties, that’ll cash flow immediately, especially if the properties could use some rehab work such as electrical or roof work, while putting very little money down?
I prefer not to put 20% down. My original thoughts were A, I could try to place an offer at asking and hope that the seller would be willing to do seller financing in some form of that, at full asking price. However, again, if they’re not motivated, because they want to do a all cash purchase deal, so they could do a 1031, that might not be the best case.
B, I could do a all cash offer via conventional or hard money by putting 20% down on the property and that’ll help the seller out, but it wouldn’t help me with my goals. I prefer not to put 20% down on a rental property. Or C, I’m thinking I’d do a hard money lender for 10% down and evict the tenants and do a rehab. However, that also isn’t sitting too well with me.
So again, just to reiterate, I would like to get your input on how I can get into small, multi-family deals with as little money down and knowing that sellers may be motivated because they want to do 1031 exchanges. What options should I consider that I haven’t thought of yet? Thanks. Bye.

David Greene:
All right, Jeroe. Thank you for that. Let’s look at this situation from the seller’s perspective. So, I hear what you’re saying is, what it sounds like is you’re trying to balance your needs with their needs and you want a creative solution that will come in the middle. And that is a good starting point, but if you want to get practical about how to move forward, there’s a way that you can approach how you are looking at the situation to determine the right scenario.
The first thing that you have to understand is if you want to use seller financing or you want to put less money down, you are probably going to be looking at an off-market opportunity. And the reason is, if you have to use a loan to buy the property, they aren’t going to want you to have another mortgage in second position behind theirs, which would be the seller financing.
So, you can do things that way, if you can get the seller to agree with it and if the lender agrees with it, but in many cases, if you’re trying to buy a property with the loan, it’s hard to use seller financing for the next part of it. And if you’re wanting to use seller financing for the whole thing, you’re probably looking at a seller that doesn’t have other buyers, because most sellers don’t like seller financing. Now, you could find one that wants seller financing, which is the ultimate goal.
But this is the mistake I see a lot of people make. They assume they’re going to find a seller of a house they want and convince the seller why they should do seller financing. And when it doesn’t work, they get frustrated and they come say, “How do I make this person sell me their house with seller financing?” It doesn’t work. It’s like finding a person who’s not looking for a relationship and trying to convince them why they should date you. If they don’t want to date you, they’re not going to date you. What everyone would say is, “Move on and find someone that does want to date you.” It’s like that with real estate too.
When you find off-market deals, they are more likely to be open to the idea of seller financing, because usually when there’s an off-market deal, it’s someone who doesn’t like realtors. So, they’ve got this tunnel vision where they’re like, “Commissions are bad. I don’t want commissions.” And they don’t realize that they’re not getting good representation. They often make bad decisions, just to be frank, when it comes to their own best interest. Those are the people that I’ve seen are most likely to be open to seller financing. So, if that’s something that you have to have, my recommendation would be, don’t look at properties that are on-market.
Now, when you do find a seller who says, “I’m not interested in seller financing.” Let it go. Move on to the next one. If you get one that says, “Yeah, how would that work?” And you can come to terms on the seller financing, that’s where you start having these conversations about creative options. That’s where you can start looking at using a hard money loan to buy a property or having them do seller financing for the down payment and you borrow the money from a lender. So, maybe it’s like 80% of the cost comes from the lender and then the other 20% comes from a loan of the seller made to you. Assuming that the lender’s okay with it.
Now, regarding the part of your question that has a seller that’s motivated because they’re going to do a 1031 exchange. The best thing to do is to put yourself in the position of the seller. So, if I own a property and I’m going to do a 1031 exchange, there’s some motivation for why I want to sell my property and buy another one. Now, I’ve found it really boils down to two reasons why investors sell properties. It’s pretty wild, but hear me out. The first reason that they want to sell a property is they found a better one. That’s when they would be using a 1031 exchange.
So, if somebody’s got a property and they go, “Hey, you know what? I just think I have a lot of equity in this thing. It’s not performing well. I want to be in a different neighborhood. I want to be in a better market. I’m going to sell a perfectly fine rental property to get a better one.” Now, the more common reason that people sell homes is there is a problem with it. That tenants aren’t paying the rent, the tenants are giving them a headache. It’s in a bad area. They think that they could do better in a different area. The house itself has deferred maintenance.
I mean, let’s all be honest, think about every car you’ve ever had, at what point do you think, “I want to sell this?” You either have a car you want that’s nicer, or you know your car’s starting to break down and you want to pass the problem onto somebody else. And this is something every investor needs to be aware of as a buyer. If you’re buying a property from a real estate investor, it’s important to know why they want to sell it, if they’ll tell you that. Oftentimes, there’s problems you’re not aware of, that they’re trying to pass on to you. Just like when somebody decides they want to sell their car.
Now, what would make more sense would be if you hear, “I’m selling the property because we have to move. “I’m selling the property because the owner just died and it’s gone into probate and I don’t want to own the rental property.” Something like that, that makes logical sense, that isn’t, it’s because the house has a bunch of issues or the tenant has a bunch of issues, would be a more desirable reason for me to look into that deal.
Now, in this case, if they’re going to be selling the rental property because of issues with the house, you should be aware of that. If they’re going to be selling because they want a better property, that’s usually good for you as the buyer. What you have to understand about a 1031 is that from the seller’s position, they have two concerns. The first is, “Can I sell the property?” The second is, “Can I meet the requirements of the 1031?” Assuming they can sell the property, because you’re telling them that they want to buy it, they now only have one problem to solve, “Can I meet the conditions of a 1031?”
And that can be split up into two things, “Can I identify a property within 45 days? And can I close on a property within 180 days?” So, in order for them to do that, they’re going to need to be talking to a loan officer to find out, “Can I get pre-approved?” They’re going to need to be talking to agents in different areas to try to find out, “Can I buy a house in this place?” What you find is their biggest concern is time. A quick close is usually not good in a 1031. So, we should all be careful we don’t make the assumption that every seller wants a quick close. That comes from primary residences where someone wants to get out from underneath it and buy a better house. But in a 1031, you might want to set it up where if they give you your price and they give you the terms you want, you give them an escrow period that’s longer, that they have the option of selling it under a shorter period of time.
So, if you say, “Look, I’ll give you 90 days before we close.” And then after that 90 days is when their 45 day timeline starts for identifying property. That would be great. But if they identify property early and they think they can get it, you leave the door open that you could do a faster close in that scenario, that will help them. That approach of looking at it from the seller’s perspective, makes them much more likely to work with you, because you’re relieving the pressure that they’re going to be feeling. And if you can find a way to give the seller what they want, where you’ve relieved their pressure and they feel good about the deal, they are way more likely to give you what you want, which is possible seller financing.
Hope that helps and good luck out there. All right. I got to say, we’ve had some great questions so far. This has been a very fun and I think, relevant episode for a lot of the struggles that investors are going through today. So, kudos to everybody that sent in a video or a written question. I love that. If you would like to be featured on the show, we want you here. Please check out biggerpockets.com/david and submit your question today.
In addition to that, I want to hear, what do you think about the show? Leave me a comment on YouTube and tell me what you think about my answers, what you think about the questions, what questions that you have that are not being addressed. And most importantly, let me know, do you like how I’m dressed? I dressed up for everybody today. I actually put on a shirt that has collars and buttons. And I’m not going to do this all the time, if you guys don’t appreciate it. So, let me know if you like T-shirt David better or collared-shirt David better. And let’s see if we can get a big debate going on in the comment section of YouTube.
Lastly, please, if you like these shows, hit the subscribe button. It’s super easy. We at BiggerPockets love it when you do that and you’ll be notified when new episodes like this come out. So, you don’t have to think to check it. YouTube will just tell you, “Here you go, hot and ready, another Seeing Greene episode of BiggerPockets.” All right, at this segment of the show, I like to read some of the comments that people have left on previous episodes, so you can see what you could be doing yourself.
The first one comes from S. Adams, “I too, stopped listening to the BiggerPockets Podcast for two-plus years until David took over. The new content is something I can relate to. I’m almost able to take something away from every episode. That was a huge change for BP. Thank you, Dave.” Well, awesome. I’m glad that you feel that way. Hopefully, there’s more people like you that also agree.
Next comes from Joe Picasso, “Your show has all the questions I didn’t think to ask.” That is a pretty cool comment. I like that. And that’s actually what the goal of this is. Most podcasts just ask the same questions, tell the same stories. It’s all the same stuff you’ve heard a bunch of times before. From my experience as a real estate agent, as a real estate investor, as a triple net investor, as a short-term rental, as a long-term rental, as multi-family, as a note holder, as someone who flips properties, and as a loan officer, I like to bring the questions people don’t know they should be asking. So, I really appreciate the advice you’re giving there.
And the last one from Tessa Higgins, “I love the format. Even if I don’t listen to the other episodes every week, I always listen to the Seeing Greene one each week.” Well, that’s nice. Thank you for that, Tessa. If you’re trying to figure out if it’s a Seeing Greene episode or a non-Seeing Greene episode, just check out the light behind me. I try to turn it green every single time we’re doing Seeing Greene. That’s not a coincidence.
And shout-out to all the people who take some time to submit these questions. I love that. And to be frank with you, those are people that are more likely to be successful in their investing, because they are getting involved in the community. I’m really on a campaign right now to take people out of, I’m just peeking in through the window and I’m looking to see what everyone’s doing, to opening the door and stepping inside to this community. Getting more involved and taking the journey that we’re all taking together. All right.
It’s scary to think about jumping off a cliff and hoping that you like where you land. And that’s what it can often feel like when you’re trying to invest in real estate by yourself. But it’s much more fun when you join a group of 10, 20, 30, two million other people, that are all walking the same path, that can help each other out on that path. So, please get yourself on the path. Go to BiggerPockets, make a profile there, consider becoming a pro member. I think that that’s a great way to get yourself involved. Subscribe to this podcast and leave me comments. Let me know what you think. All right, let’s take another video question.

Alex:
Hey, David, big fan of the show. My question is regarding receiving gift funds in making real estate investments. So, I’m a young guy and I bought my first property last year with gift funds from my parents as part of the down payment. And that was as a primary residence. And now when I went to buy my second one as an investment property, the lender told me that I can’t do that, because you can’t provide gifts funds for an investment loan. So, now what we’re thinking of doing is using a hard money lender and then refinancing into traditional loan for a lower rate. You think that’s a good strategy? Any other thoughts regarding gift funds for investing in real estate? Appreciate it.

David Greene:
Thank you there, Alex. From my understanding, you were actually told the correct information from your loan officer, gift funds are allowed for a primary residence when it’s from someone like a family member, they’re not allowed for investment property. And the reason is, the lender’s looking at your debt to income ratio and they’re determining your ability to pay something back. Well, if you’re taking out a loan from someone else, which you may call a gift fund, but it isn’t always an actual gift, they expect it to be paid back, that creates concerns about your ability to pay off your mortgage, if you also have additional debt where you have to pay back the person you borrow the money from.
So, that’s where the whole gift funds things comes from. And it does apply to investment properties, where that’s not allowed. Your strategy as an alternate was basically describing the BRRR. And that’s exactly what I do think that you should do. Another thing that you could consider, instead of having your parents or your friends give you money as a gift payment for this investment property, see if they can be a partial owner. See if you could put their name on the title or create an LLC with them in it together, and use that LLC to hold title. And what they would’ve given you as gift funds can just be their contribution of the down payment. Talk to your loan officer and see if that strategy would work. That’s another pretty viable option for you.
Now, the last part of your question was, what advice do you have regarding gift funds? And I’m going to go back to the same thing I keep saying, that people might be tired of hearing, but it’s just this important, I got to keep hammering it out. This is the broccoli that no little kid wants to eat, but everybody needs to hear. This is why house hacking is such a superior strategy to everything else. It’s better than BRRRR. It’s better than long-distance investing. It’s better than everything.
Just consider that if you house hack with a 3.5% down, FHA loan, many BRRRRs leave much more than 3.5% in the deal. I’ll hear people say, “I want to BRRRR my primary residence.” And my question is, “Why? Why go through all that work, if you can just put 3.5% down and be done with?” It’s basically a pretty good BRRRR right off the bat, because you’re not having to get money back. You only had to put a little bit in down. You didn’t have to put a ton of money in. And when you house hack, you get the primary residence loan, so you can put less than 20% down. You get a better interest rate. You can use gift funds.
All the things that make real estate ownership easier to acquire, happen when you’re buying a primary residence. And if you buy the right one, when you leave, it becomes a rental property that you didn’t have to put 20% down on and you didn’t have to use the BRRR strategy for. Do you see what I’m getting at? I call this the sneaky rental tactic, because you end up buying a rental property that you just have to wait a year before you can use it for that. But in the meantime, you save a bunch of money on your mortgage.
Now, I hope you guys can understand, I wrote Long-Distance Investing. I wrote the book on BRRRR. I use both of those strategies. I still think house hacking is better than all of them. You can just only do it once a year. So, that’s why I tell people house hack one house every single year. Anything in addition to that, consider some of these other strategies like long-distance investing, BRRRR investing, some of the other stuff that we talk about. Moral of the story, house hack whenever you can.
All right. Our next question comes from Davis in Georgia, “On the mortgage side, the rising interest rates have been making predicting cash flow a little difficult. Do you see increased availability of fixed rate mortgages with longer amortization, for example, 35 to 40 years in the future? Would this be a benefit for investors to increase cash flow or do you think it would increase risk? I appreciate all your wisdom.”
All right, let’s break this down. Davis, I assume that you are talking about commercial multi-family type property. In residential properties, we’re not seeing adjustable rate mortgages very often. There’s actually products that my loan company offers and other loan companies, I believe, are starting to offer them as well, where you can get a 30-year fixed rate, but it’s still based on the income of the property, not the income of the person. So, from that situation, it’s still low-risk. It’s not going to change your cash flow, if you know what your interest rate is, it’s the same for 30 years.
My assumption is that you’re referring to when interest rates adjust on some of these commercial properties. So, you get a 3/1 ARM or a 5/1 ARM. If you’ve ever heard people talk about these ARMs, that stands for adjustable rate mortgage. And when you hear them say 5/1 or 3/1, the first number is how long, in years, the period will be where you get the same interest rate. And the second number is after it becomes adjustable, how often can it adjust? So, a 5/1 ARM would mean for the first five years, your interest rate is locked in place, and after that every one year, it can adjust to a higher rate.
Now, what I like about your question is I think you’re looking the right way when it comes to a crash. Okay? Here’s my personal opinion. I can’t state this as fact, because none of us know what the facts are, but here is how I see crashes tend to happen in real estate. They are not as related to the price of homes as people think. Home prices going up quickly or very high is more of a byproduct of what causes a crash. It’s not what causes the crash. What typically causes the crash is either the entire economy tanking, in which case real estate is not crashing, the whole economy is crashing. So, everything tends to crash when that happens.
And I don’t think it makes sense to worry about that scenario, because it doesn’t matter where you put your money. If you put it in crypto, if you put it in NFTs, if you put it in stocks, you put it in bonds, you put it in Treasury bills, whatever it was, it typically all crashes when the economy crashes. So, the specifics are, it’s usually related to debt and the cost of debt and the availability of debt.
So, here’s how I see it happening. This is what happened during the last crash and this is what I’m always looking for in my position as a real estate broker and loan broker, to see if I see another crash coming. Home prices are this hand, this is my left hand. And home affordability is my right hand. All right? They tend to move up at the same pace, and people have to be able to afford the house they’re buying. Well, if demand gets so high and supply is too low, what you see is that the price of a house gets higher and higher and higher than the average person can afford. I don’t think we’re there yet. We haven’t had that problem. All the loans that we’re giving out are still based on debt to income ratios.
Now, it’s probably wealthier people that are buying houses. I will agree, that’s a problem. It’s harder for the people that aren’t super wealthy to buy real estate. But those that are buying it, are not buying real estate they cannot afford. And that’s one reason I don’t see a crash coming anytime soon, they can still afford what they’re buying. But here’s what you’ll find, at a certain point home prices are much higher than what the average person can afford. And what that means is that banks that make these loans or the lenders that are giving out money are like, “Man, we got all this money to lend and we got no one to lend it to, so we’re not earning interest on it. And our employees aren’t making any money because they’re not getting any commissions from doing loans. There’s only a handful of people buying all the real estate. We need to increase the velocity of how often people can buy a house, so we can make more money.”
And at that point they have to be creative in solving the problem of what a house is worth on the free market and what the average person can afford. And the gap between those two things is typically what causes the problem. So, when they start coming out with loan products where they say, “Well, you can only get approved for a $600,000 house, but all the houses around here are $800,000. What if we give you an adjustable rate mortgage for the first three years at 0%, because you could afford the house at 0% interest rate, but then after three years, it’ll adjust. What if we find some way to not make you put as much money down to come up with the difference? What if we let you cross collateralize this with some other asset that you own?”
When you see tricky creative solutions in the financing department, starting to be applied to make real estate affordable, because by its very nature, it is not affordable, that to me, is the beginning of a crash. That is what I’m looking for. So, what we’re seeing right now is a lot of loans that are being made based off of an income that a property produces. That’s not crazy wild. Okay. I don’t agree with the people that say, “Oh, they’re giving out debt service loans. That’s bad.” We’ve bought commercial property like that forever. As long as I’ve been around, that’s how they determine how much you’re allowed to borrow for a commercial property. It’s, what is the property producing?
In some ways, that’s actually smarter and safer than making it based on the debt of the human being, because they could just go out there and load themselves up with debt, buying cars or stupid things. And now they can’t afford the payment. The problem would be if they made these adjustable rates or other creative solutions with financing. And they’re not, they’re still 30-year fixed rates. So, to me, you know what your payment’s going to be, you can budget around it. That’s not any riskier than a different kind of loan that’s based off your personal DTI.
But if I start seeing them say, “For the first couple years, your rate’s only whatever.” That scares me. Those are sales tactics, right? When you see a furniture store that’s like, “You pay this much for a couch,” and it’s really high, “but no payments for the first year.” Oh, I don’t like that at all. What kind of a person is that drawing? It’s usually a person that can’t afford a couch. Not always, but often. When I see car companies doing that, “Get 0% interest for the first three years, and then it’s going to jump up to 9%.” But they put that in the fine print. What that makes me think is they’re targeting people that can’t afford that car or that truck. All right?
Now, they can get away with that, because if you can’t afford your payment, maybe you sell it back to them at a big loss to yourself, but now they can go lease it to someone else. It makes sense for the car companies to do that, not for the person buying the car. Well, in real estate, lenders don’t like taking back homes. If your loan is being given to you by a company that understands real estate investing and they want to own your property, well, shoot, if you can’t make the payment, they’ll foreclose and they’ll just manage it themselves. We just don’t have that happening right now. That typically leads to foreclosures. They get put back on the market at reduced rates. And then when that starts happening at a grand scale, boom, we have a recession.
So, to sum all this up, what I’m concerned about in the future is creative financing that shouldn’t be making sense. If you start to see banks that are like, “Man, everyone we’re pre-approving is not getting pre-approved for enough to buy the house. We have to figure out a way to make up the difference.” That’s bad. You’re asking me, if I was President of the United States, rather than having loan companies create creative, tricky financing, I would be incentivizing people to build more rental properties, to build more homes, to build more supply, to balance out the supply with the demand. That’s the healthy way to approach it. It’s just not always the approach that we end up taking.

Anthony:
Hey, David, how are you? My name’s Anthony Zato. And my question is about multi-family strategies and partnerships. So, I am 24-years-old and I am 50/50 partners on four separate duplexes. One of my deals in particularly, I am partners with my father. He is in his late 50s and we have a lot of equity in the property and I would like to cash out, refi the property to purchase more rentals. And he would like to pay off the property to experience higher cash flow.
So, I guess my question would be, is there any way to satisfy both parties? I’m happy either way, but I just feel like making my money work more efficiently for me would benefit me, because I’m a little younger and I have some more time to experience the benefits. Thanks.

David Greene:
Hey, Anthony, thanks for asking. Life is good right now. And I love that you asked this question. To be completely honest, this is one of the reasons that I rarely ever partner with other people. It’s only happened a handful of times in my life, and even then only recently, and even then only on really big deals. And even then, only with people that I have other business interests with in other areas. And here is why, partnerships always sound like buying real estate is less scary. My friend, Daniel Del Rio, likes to make the claim, “Nobody likes to take the jump alone.” It’s always more fun if you got a person there to do it with you.
The problem is, once you’ve taken the plunge and you’re in the water, you now have to do a lot more work and keep a lot more people happy. And what you’re describing is the quintessential problem with partnerships. Somebody wants to play offense, like you, where they want to keep building and scaling. Somebody wants to play defense, like your partner, who says, “Nope, let’s pay them off and let’s have cash flow.” And there is no way to reconcile that. And this is just one of the things when you’re choosing your partner, it’s not that age is the relevant factor, but in general, people that are older want to play defense and people that are younger want to play offense. And so, you got yourself entangled up in this situation with somebody who has completely different goals than you.
So, now that you’ve taken the plunge, they’re swimming this way, you’re swimming this way. The further you get apart, the more tension starts to come in the relationship. So, as far as practical advice for you on the next deal, don’t do it. Figure out a way to do it without a partnership. And if you have to have a partnership, don’t do equity splits. This is one of the reasons that in general, I don’t do equity. I pay people debt. What that means is people let me borrow money all the time and I just pay them a return that they know they’re going to get. And it doesn’t matter if the property completely falls apart, they get paid anyways.
I don’t like sharing risk with people that I’m a partner with, because it ruins relationships, and it’s important to me that those relationships stay healthy. I also don’t like a person who isn’t me, having some input in what direction we should take the property. If they’re a genius, of course, I’d rather have them putting in some input, but most geniuses don’t need to partner with me. They would set it up to where I was getting paid debt instead of equity. In general, you don’t want two CEOs. You don’t want two team captains. There has to be a person whose vision that the group is going to follow. And unfortunately, in your case, when you have equity partners, which always sounds good, you end up with this problem of vision.
Now, how you can salvage. What I like that you said is you’re a half owner in four duplexes. Assuming they’re all relatively valued the same, what if you split up your partnership and said, “I’ll take these two and you take these two. You pay off yours. I’ll refinance mine to go buy more.” Both people get to be happy. And most importantly, you get out of this partnership that isn’t a bad partnership, it’s not like you guys are fighting, but you have different visions. And if you have different visions, you don’t want to stay long-term with those same people.
This is what human beings need to understand when they want to partner. If you go for the emotional security of having a partner, it makes it easier in the front end, it becomes much more difficult on the back end. And I know I have people listening to this that are nodding their head and saying, “Yep, that’s exactly what happens. Nobody ever thinks that was what would go down, but that is what goes down.” And for a lot of the people that do business with me, they’re confused at first as to why I don’t want to be 50/50 partners. And this is why, they will do better, they will make more money if they let me stay in the position where I’m the visionary and they’re following my vision. They will be happier. Our relationship will be better.
The minute you have the 50/50 thing, you have people’s egos getting involved. You have people saying, “Well, why can’t I get to have advice?” Even though they’re not someone who logically should be putting in their 2 cents. Or you have the problem of someone saying, “I think we have a crash coming.” And someone else say, “I think the market’s going to run up.” Does that sound familiar? That’s pretty much where we are right now. So, I’m sorry to hear about your situation. It could be worse, but I do think what you should try to do is dissolve the partnership. Each of you take two of the duplexes. Maybe you get appraisals on them and if somebody’s side has $30,000 more than the other, you figure out some way to make payments to that person until that 30,000 is paid off or something like that. Let them do what they want to do and you go do what you want to do.
Luckily, you’re able to get out of this situation, I think, because it’s a family member and because you have an even number of properties, but it might not be that easy in the future. So, you’re better off to cut it off now. Thank you for your question and let us know how that goes.
All right, everybody, that was our show. Another episode of Seeing Greene, and maybe one of the best ones that we’ve ever done. I don’t know, maybe I’m biased, but I like these difficult questions. This wasn’t the typical, “What kind of loan should I use?” Or, “What areas should I invest in?” These were some deeper, nuanced, more difficult questions that are super relevant to being successful in real estate investing. “Who should I partner with?” “How should I dissolve this partnership?” “What’s going to make the market crash?” “What do you think about the future of financing?” “I’m a new loan officer. How can I be better at my job?” That might be my favorite question ever. Someone saying, “How can I be a better human?” Whether it’s, “I want to be better at my job.” “I want to be in better relationships.” “I want to be better in fitness.” Whatever it is, I love the question of, “How can I be better?” And on the other end of that, tends to be success.
So, thank you all who submitted a question. If you’re listening to this, I want to hear from you. Please go to biggerpockets.com/david. We would’ve come up with this earlier, we just couldn’t figure out what URL to use. Luckily, we figured that out. I’m David, so go to biggerpockets.com/david, and leave your question there for me to answer. And one more time, I just want to remind you, please leave me a comment on YouTube. Tell us what you think. Tell us what you’d like to hear more of. Tell us what you loved about the show and then subscribe to the channel. Thank you very much for being here. I will see you on the next one. This is David Greene for BiggerPockets, signing off.

Ashley Kehr:
This is Real Estate Rookie, episode 182. My name is Ashley Kehr, and I am here with my co-host Tony Robinson.

Tony Robinson:
And welcome to the Real Estate Rookie podcast. And if this is your first time joining us, we are thee podcast focused on those investors who are at the beginning of their investing journey. And so if you don’t have a deal, or maybe you just got a couple and you’re looking to scale. This is the podcast for you. Ashley Kehr, my wonderful co-host, what’s going on? How are things happening on your side?

Ashley Kehr:
Not much, we’ve had a busy week of recording podcast. And so this is sad this is our last one for the week.

Tony Robinson:
I know.

Ashley Kehr:
But we just found out that Tony will be coming to my area in a couple weeks.

Tony Robinson:
Yep.

Ashley Kehr:
So that will be great to get to hang out for a day while Tony potentially looks at a property.

Tony Robinson:
Yeah, I’m super excited for that. We got a beautiful property under contract in Western New York. So excited to see that one come together. And obviously happy that I get to hang out with my co-host, because I’ve never been to that part of New York before. So I get to see what all the hype is about.

Ashley Kehr:
I know. I’m wondering how I’m going to be able to convince you to shorten the property tour and come to see some of my properties.

Tony Robinson:
Come see Buffalo? Yeah.

Ashley Kehr:
Yeah. But yeah, I’m so excited for you and Sarah’s coming too. Right?

Tony Robinson:
Yep.

Ashley Kehr:
Okay.

Tony Robinson:
Sarah’s coming, Naomi’s coming. So it’ll be the whole Alpha Geek Capital crew.

Ashley Kehr:
Oh, good. Okay, well-

Tony Robinson:
Yeah.

Ashley Kehr:
… I’ll be excited to have you guys here. I already put it into my calendar and-

Tony Robinson:
There you go.

Ashley Kehr:
… hope to my chauffer to chauffer for me around, but hopefully I’ll have my car by then.

Tony Robinson:
Yeah, fingers crossed.

Ashley Kehr:
Yeah. So today we actually have a question from my DMs @wealthfromrentals on Instagram. You guys can always send Tony and I a message. He’s @tonyjrobinson, I’m @wealthfromrentals, or you can call and leave us a voicemail 18885-rookie. Okay, so today’s question is from Brandy Smith. Hi Ashley. I listen to your Real Estate Rookie podcast and love it. My husband and I have a question for you. We are just starting out with a real estate investment journey, and hope you would have some good insight on this question. Selling verse cash-out refi to keep our current home, and turn into our first rental property. Our current home could give us about 260K in that proceeds if we were to sell. Our plan is to purchase rental property with our cash proceeds in addition to using part of it for the down payment on our new home, new construction due to finish in May.
We need about 46 to 93K for down payment, depending on if we do 10% or 20% down. However, if we keep it, keep in mind it’s a good area, good appreciation, and good rental rates. Basing off of our current monthly mortgage, we could cash flow about a $1,000 per month on strictly rent charges versus mortgage costs alone. Not sure how much our monthly mortgage costs would change with the cash-out refi option. Assuming we could get out near as much as we would profit by selling.
So with all that background, bottom line question, what would you do in our situation? If you believe hanging onto it would be better, how would you justify that to someone when it would take about 20 years to make the amount in profit by selling on just rent alone, not adjusting for rising rent rates, just keeping the same $1,000 chase per cash flow per month for quick scenario, comparative purposes? Hope that makes sense. Thanks so much for your time. Tony, what’s your initial thoughts?

Tony Robinson:
Yeah, there’s a lot in there, Brandy. So I just want to recap for the listeners to make sure we got everything set the right way. So the big question is, should she sell this property and reinvest those proceeds into another property? Or should she refinance and then keep that property as a rental? Now, the challenges, I guess the key differences here are, if you sell the property you get a bigger cash payment. So she said she would get about $260,000 in profits if she were to go out and sell the property. Now, if she were to refinance, I don’t think she says how much she would get if she were to refi. Did you see that number in there?

Ashley Kehr:
No, that number wasn’t in there, but assuming that she could pull out 80%, it would probably be less than if she sold it. Because saying that it sells for what it would appraise for. So it would be less than what she would get right now, I would assume.

Tony Robinson:
Yeah. So the way that I would approach it is I guess, two things I would look at. So first, Brandy made the statement that it would take 20 years to get that same $260,000 if she kept it as a rental. But I think that’s almost the wrong way to look at it, because she’s not just going to sit on that capital. She’s going to go out and reinvest that into something else. So I think the thing that I would look at is what is going to give you the better return on your investment?
Is it taking the cash, taking that full 260, going out and putting some of it towards a new house, and the other portion towards your rental property, and you figuring out what that cash-on-cash return is? Or you can look at the equity that you’re leaving in the property, and understand what your return on equity is for the one that you’re keeping as a rental? And I think when you look at those two figures, a return on capital invested versus the return on equity in the property, that’ll give you a better understanding of which one might be the better decision for you.

Ashley Kehr:
And plus that property’s probably going to keep appreciating too.

Tony Robinson:
Mm-hmm, yeah.

Ashley Kehr:
So that value is going to keep going up in that property. So at the end of 20 years, you’re going to have that property value. If you do decide to sell it, then you have made back that 260,000 and then you’ve also put in, or you also have this other X amount of equity-

Tony Robinson:
Right.

Ashley Kehr:
… in the property too. So in my personal opinion, I think that you can get the cheapest debt on a primary mortgage. So what you could do instead of going and refinancing, you could go and get a line of credit on the property, while it’s still your primary residence. And you can get a really low rate. So that way your mortgage payment isn’t changing. So your cash flow will be even higher than if you go and increase the mortgage, and you can use the home equity line to go and purchase properties, rehab them, refinance them, do the birth strategy, and then pay back that line of credit. So you’re only paying interest when you’re making that money work for you.
So we had Tyler Madden on recently, and he listened to the very first episode that he was on. That’s actually what he did with his primary residence. Before he turned it into a rental and purchased his new or next primary house, he went and got a line of credit that had the existing equity. Plus a lot of times with a line of credit, a lot of banks will lend you up to 85% of the home’s value. Sometimes I’ve seen even 90%, my one business partner got. So where usually if you’re going to refinance, a mortgage they’ll tend to only give you up to 80%. So there’s that advantage too. Okay. Well, anything else to add Tony?

Tony Robinson:
Yeah, hopefully that points you the right direction.

Ashley Kehr:
Yeah.

Tony Robinson:
No, I think that’s everything. Right? And a lot of these questions that pop up, there’s so many nuances and details that we don’t have. And I think ultimately it’s going to be a personal decision for you. But for me, I always try and let the numbers help me make my decision. And whatever turns out to be the better return is typically the route that I’ll go down.

Ashley Kehr:
Yeah. And I think too, one thing that she did mention in this there, is that it’s in a good neighborhood, good school. And so I think the fact that it’s not going to most likely won’t be a headache property, because it sounds like it’s in a class A area. I think is an advantage too. Where somebody going in and trying to buy a property for the purposes of it being a rental in that area will be higher or excuse me, will be harder if they’re going in and purchasing it as an investment property. Than if somebody used it as their primary, let that appreciation build up, and that equity build up in that property. So if I were to say, I would say keep it and put a HELOC on it, and use those funds from that HELOC to, you can use it for your down payment and then also use it to purchase other properties [inaudible 00:08:23].

Tony Robinson:
Yeah, totally agree.

Ashley Kehr:
Okay well, thank you guys so much for listening. Obviously, I’m stumbling over my words because we’ve had a long day of recording. Yeah, this is our last one for the week, but we will be back on Wednesday with another guest. Let us know if you’re loving the show, and leave us a review on your favorite podcast platform. I’m Ashley, @wealthfromrentals, and he’s Tony @tonyjrobinson. And we’ll see you guys next time.

If you’re not into traditional budgeting, where you place all of your spending into rigid categories, then the 50/30/20 rule might be for you. 

This method of financial management is broken into three main sections: 50% needs, 30% wants, and 20% savings and investing. It’s designed to take a full picture of one’s monthly expenses in the most simple way possible and remove the nitty gritty details that can bog someone down with complications.

So, in theory, if you make $5,000 a month after-tax, $2,500 should go to your needs, $1,500 to your wants, and $1,000 to your savings and investing goals. Let’s talk more about how this all works.

50%: Needs

The first section of the budget is devoted to your needs. Needs represent the essential items that allow you to survive such as:

• Mortgage/rent
• Groceries
• Healthcare
• Utilities
• Transportation
• Debt payments

While it seems like a simple solution, designating what is genuinely an essential need or not is more complicated than it looks. To set this budget up correctly, you need to hone in on your spending. An excellent way to frame necessary expenditure within the 50/30/20 rule is to phrase it as the following question: If you lost your job or source of income today, what spending would you still need to survive?

Even if you’re financially secure, these types of questions are critical to ask, as it brings us back to the basics of what is actually important or not. Stopping each morning for Starbucks might feel nice, but you can easily rack up more than $100 per month on coffee alone. In reality, you don’t need to drink Starbucks coffee. You could save hundreds, if not thousands of dollars per year by brewing your own coffee at home. 

If your needs take up more than 50% of your budget, then it’s time to consider cutting costs or finding ways to increase your income.

Generally speaking, housing and transportation are your largest expenses. Finding ways to decrease those significant expenses will help you come within budget. For example, if your car loan swallows $600 per month and you’ve recognized it as a painful expense, refinancing (if your interest rate is high) or selling it for a cheaper vehicle could free up a lot of extra cash per month. Cash that can be put elsewhere, such as investments.

Redirect funds you save towards savings or investments like real estate or stocks. Stocks are relatively inexpensive and easy to get into compared to real estate, but as we’ve said at BiggerPockets a billion times, it’s always the right time to start your real estate investment journey!

30%: Wants

The following 30% of your budget should be your wants.

Some wants are:

• Shopping
• Dining out
• Entertainment
• Nightlife
• Travel

This is the more controversial part of the budget. Critics would suggest that 30% of your budget should not be dedicated towards wants. Instead, 30-40% should go towards investments and savings, and as your money scales, the wants budget naturally increases. 

Say you do use 30% of your budget towards wants. Your goal should be to limit the amount you’re spending. 

An easy place to start is looking at your subscription services. Disney+, Hulu, Netflix, and Paramount+ are all excellent streaming services, but do you need to subscribe to every one of them?

You can also look at how much you spend on take-out and restaurants. For example, cooking four or five meals each week can save you a few hundred dollars at the end of the month.

Of course, just like the needs, if you can’t cut down on costs, you’ll need to increase your income to balance the budget. Going over 30% on wants is an easy way to recognize that you’re spending too much money.

Short Term Savings

You should include short-term savings in the wants category as well. Saving for a vacation, a new car, or a fancy computer are short-term savings goals that fall into the wants category. 

Whatever you’re saving for, you don’t want your long-term savings to be delayed because of short-term wants. Make the distinction between what is more important and keep a future-orientated attitude towards savings.

20%: Saving and Investing 

The last section of the 50/30/20 rule is to dedicate 20% of your after-tax income to savings or investments. We’ll always emphasize that it’s vital that you look out for your future self. 

While 20% might not seem like a lot, and in reality, it isn’t, any savings that you account for will put you in a better financial situation.

What type of savings make sense, then?

Saving #1: Emergency Fund

If you haven’t started one already, you need to save an emergency fund. This is an important goal for everyone. 

Aim for a starting fund of $2,000. After that, you can scale it to what you feel would protect you most.

Emergency funds are crucial buffers between you and the world. If you lose your job, your car breaks down, or your dog needs surgery, you’ll be liquid enough to pay your way out of trouble. 

Saving #2: Retirement Account 

Retirement accounts are also critical. According to a SimplyWise survey, 40% of Americans are worried that they’re not going to be able to retire, and the vast majority of Americans only have $65,000 in retirement savings. That’s certainly not enough to live off. 

Building your retirement early protects your future self. You might already have a 401(k) through your employer, but there are other options like a Roth IRA. Be sure to do your research on what works best for you.

Related: 401(k) vs. Roth IRA: Which is best for you?

Saving #3: High-Interest Debt

Some people also use this 20% to get a head start on paying off high-interest debt. While this is not ideal, it’s not a bad option if you’re overwhelmed with debt. Even $50 extra each month can shave years off of your debt payment day, depending on how much you owe.

Those are three savings you’ll need to be looking at. As for investments, these are the ones you’ll want to consider.

Investment #1: Real Estate

Real estate is one of the best investments to make. For one, real estate has a long history of stable, consistent appreciation, with few hiccups in between (i.e., 2008). Second, real estate is constant, as in, the home you buy will usually remain in place unless a natural disaster or something else occurs that damages or destroys the home. 

Finally, real estate is leverageable. While yes, you can trade stocks on margin, it’s risky. On the other hand, real estate can be acquired with a 20% downpayment. Depending on your financing terms, even less. There are also plenty of ways you can execute creative financing strategies.

Investment #2: Stocks

Another popular investment to make is in stocks. Compared to real estate, it’s much easier to get involved in stock investing. All you have to do is create a brokerage account, verify your identity, and get started.

Whether you plan on being an active or passive investor, note that long-term investments save a lot of money in taxes. While stocks are volatile compared to real estate, 30-year outlooks of stock indices show that stocks tend to appreciate over time.

Being Flexible with the 50/30/20 Rule

The simplicity behind the 50/30/20 rule makes it easy to make changes that fit your lifestyle. As we’ve discussed, one of the most common changes is switching out the 20% and 30% parts of the budget so that you’re emphasizing savings over wants. If you’re working on building your investment portfolio, it would be more beneficial to set aside 30% of your income for those projects, then spend 20% of your income on wants. 

Overall, the purpose is to create a truly balanced budget that equates to 100%. If you can lock in these numbers over a consistent period of time, then you should see real changes in your financial outlook.

The Bottom Line

The 50/30/20 rule is excellent if you want to try something other than traditional budgeting. It gives you ballpark numbers to spend on each category while still setting aside what you need to live life as you see fit.

While it might not make sense for an investor to apply the rule as is, the concept behind percentage buckets might be something worth considering. Perhaps you can try a 50/40/10 combination, favoring 40% in savings and investments. Or a 40/40/20 variety.

If it can help you achieve your goals, then it’s something worth considering.