May 2022

David Greene:
This is the BiggerPockets Podcast, show 607.

Andrew Cushman:
That’s one of the beautiful things about multifamily. In single family, you buy a house and the average price in that market goes down 30%. Well, yours probably went down 30% too. In multifamily, you’re valued on the net operating income so if you’re a really good operator, you can still increase the value of your property in a flat or down market, even if everyone else is struggling. That’s one of the really cool things. That’s part of why, again, with caveat, it’s somewhat okay to pay a little bit for future performance, because it is something that’s in your control.

David Greene:
What’s going on, everyone? This is David Greene, and I am your host of the BiggerPockets Real Estate Podcast. At BiggerPockets, we want to teach you how to build financial freedom through real estate. We do that through formats like this podcast, where we bring in experts on specific topics like my good friend, Andrew Cushman, who is here with me today.
Andrew and I will be co-hosting this one. We invest in properties together. Andrew’s the best multifamily investor that I know. I call him Hawkeye from the Avengers because when this guy lets an arrow go, he never misses.
In today’s episode, we do a deep dive into multifamily apartment investing with a specific bend towards how to make it work in this hot environment while interest rates are rising. Andrew and I tackle several difficult questions and I think it came out really good. Andrew, how are you today?

Andrew Cushman:
I’m doing really well. Yeah, that was a whole lot of fun. We talked about a lot of stuff. Is it okay to ever pay proforma value for a multifamily apartment? We talked about, how do you find deals in today’s hot market? The low-hanging fruit’s gone, so how do you get up to that one that’s hanging on the branch way up there that no one can get to? Then we talked about some ways to add value that maybe some people haven’t thought of before.

David Greene:
Yeah, this was very unique. I thought you gave some answers that I have never heard anybody else say, and the guests asked some really good questions. Make sure you check this one out and listen all the way to the end, because Andrew gives some fantastic advice of how you can add value to multifamily property that I can almost guarantee you’ve never heard anybody say before. It’s very creative and very insightful.

Andrew Cushman:
We’re going to talk about pine straw and I won’t explain what that is. You need to go to the end and listen.

David Greene:
That is the word of the day. When you hear pine straw, make sure you pay attention. Today’s quick tip consider going to BPCON. Open registration’s started and you can go to biggerpockets.com/events to get your ticket. I will be there. Andrew might be there. My co-host, Rob Abasolo, will be there. A lot of BiggerPockets personalities will be there as well as a lot of members. Probably, some of the people that you heard on today’s show.
I’ve never, ever, ever seen a sad face at a BPCON in my entire life. It’s just a lot of people having a really good time, learning a lot of fun stuff, and having a great time. You always learn something at an event, but it’s often like a bran muffin. Just who really wants to be eating that? This tastes really good. This is fun and entertaining at the same time, so do not miss out.
These events will sell out. Get your ticket there. Events like these are also a way that you can meet other people that will help you in your business. Too many people underestimate the value of helping somebody else and then learning from them in that process.

Andrew Cushman:
Yeah. We’re actually looking for someone to help us right now. If you’re listening to this podcast, you’re probably someone who has a general interest in real estate. That’s a base requirement, but we need someone on our team who would make an awesome investor relations manager. If you’ve got strong organizational and system skills, you’re detail-oriented, you’re a strong communicator, then reach out to us.
Just go to vpacq.com. There’s a “we’re hiring” tab on there. Fill out the application and we look to, hopefully, add another BP community member to our team. We just hired a BP community member this week and we’re looking to do that again. There’s no better people out there than the BP community.

David Greene:
That is right. If you like what you hear from today’s show and you want to invest with Andrew and I, you can go to investwithdavidgreene.com. Register there. Accredited investors only please, but we are still raising money for an apartment deal that we are buying and it’s a really good one.
All right. Without any further ado, let’s get to our first caller. Whitney Boling, welcome to the BiggerPockets Podcast. How are you today?

Whitney Boling:
Hey. Doing good, David. How are you, man?

David Greene:
I’m pretty good. I’m excited. I got my buddy, Andrew, here with me today and he’s my … I’m putting together the investing Avengers, so Andrew’s like Hawkeye. He’s the sniper He just does not miss on anything that he does, so you’ll get some really good advice today. What’s on your mind? What do you got for us?

Whitney Boling:
Awesome, yeah. Thanks for having me on. I’m an investor out of Phoenix. Been listening to the show a long time. Got some single family rentals going right now, some condos, some single family homes, but ultimately, looking to try to make the transition into a multifamily right now.
Being in Phoenix, I’ve built up a decent equity position. I feel like the timing is right, but I just wanted to try to see, in making that transition, what are some of the top five things that don’t stick out in researching single family that might stick out when you’re looking at multifamily?

David Greene:
That’s really good. Andrew, you want to start there?

Andrew Cushman:
Yeah. Top five things. I could probably list off about 50, but I’ll try to narrow it down to the five that come to mind first. One is learning. Committing the time to learn how to underwrite a multifamily. It’s definitely a lot different than a single family where you’re looking, you might start with an ARV, after repair value, and then work backwards to determine, “Okay. What can I pay for it? What’s my mortgage going to be, and my expenses.” Then, “Is my rent going to cover that?”
You can do that pretty simply on a small Excel spreadsheet or even sometimes on the back of a napkin once you get good at it in single family. Multifamily gets a little bit more complicated, especially as you move into the bigger stuff where you’ve got 80 units, 100 units, 200 units, and you have things like ongoing vacancy factor.
You’re going to renovate, in many cases, and raise rents but it’s not 100% of the time. You buy a house, you fix it up, you re-rent it, boom, you’re done. Well, if you’ve got 100 units, you’re not going to renovate all 100 units the first day you move in. You have to plan on, “Well, how do I schedule that? How do I account for the fact that maybe I’m going to do eight units a month for the next 12 or 14 months?”
Then just all the other factors that go into underwriting. What do you do with … How do cap rates affect things? “How do I determine a going in cap rate and then what do I put for an exit cap rate? How do I underwrite the cost of debt?” You get into things like not only management companies, which you typically have with a single family, but then also actually having staff that are dedicated to the property.
One of the biggest things is just learning how to underwrite. Every operator that I know does it a little bit differently, so the key is to either purchase, or develop, or borrow a template for underwriting multifamily, and then get to learn that, and then maybe develop your own down the road. That’s what I did. This was not something I was going to figure out on my own from scratch. I’m not the creative guy, so I literally hired a mentor, got his underwriting spreadsheet, and then have built it out far greater over the last 11 year.
The number one thing is, learn how to properly underwrite. There’s courses, there’s books. Find a mentor. Partner with somebody who’s already in the business. You’ve got to learn how to underwrite properly. Or if that’s totally not your thing, partner with somebody who’s already got that nailed. Underwriting is number one.
The second big thing I would say is really important to commit to learning about, as you move into multifamily, is the debt is far different than what you’re used to dealing with in single family. In a single family, you might just go get FHA, 30-year amortized loan, boom, you’re done. Everything’s good, don’t worry about it.
In multifamily, and I should define multifamily. We’re talking commercial-size multifamily, five units and up. In commercial-size multifamily, the loans, number one, they’re typically nonrecourse, unless you get a bank loan, so that’s a benefit. Recourse meaning they’re not going to come after you. You really need to understand recourse versus nonrecourse. Then they also have things called bad boy carve-outs, which means if you commit fraud, then they can come after you no matter what.
You have to commit to learning all the different types and terms of debt, and then not only that, but just how does it work in terms of your property? Again, if you get a single family house, many cases, you’ll slap a 30-year loan on there and you’re good for as long as you want to hold it. In the commercial world, your loan is typically only good for five, seven, or 10 years. There are exceptions to that, but in most case, you have to pick. Is this going to be a five-year loan, seven-year, 10-year? Maybe 25, if you’re going bank, or HUD, or something like that. The second big thing to commit to learning is definitely how multifamily commercial debt works. It’s very different than the single family world.
A third thing, and this piggybacks or parallels with that is matching that debt with your business plan. One of the biggest mistakes that we see people making, even experienced people, is not properly matching your debt with your business plan. If you buy a house and you put a residential mortgage on it, or a duplex, even a fourplex, you can basically sell that and pay it off anytime, no problem, in most circumstances. In the commercial world, you can’t necessarily do that.
We have what’s called prepayment penalties, which most people understand what that means, meaning if you pay off the loan too early, if you said, “This is a 10-year loan” and two years in, you’re like, “Hey, I want to pay this off,” the lender says, “Great, but you’re also going to owe me 10, 15% of the loan balance as a penalty,” which is huge. We also have yield maintenance, which is effectively the same thing. Meaning the lender wants to protect their yield, and if you pay off the loan early, they’re going to make you pay them extra interest in advance.
If you plan on holding a property for three years, you probably don’t want to put 10-year fixed debt on it, because when you go pay it off, you’re going to have a huge penalty, so the third key thing to commit to learning and understanding is how debt affects your business plan. It definitely has a lot more strategy and thought to it than you typically have in the single family world.
A fourth thing is … We just talked about debt and the loan. Typically, your lender’s your biggest partner in any deal. The other half of that is, where is the equity piece going to come from? Commit to learning the equity side. Now, if you’re just putting in your own money into deals, it’s pretty simple.
You might be putting in 30% or 35, or 40% of whatever the total cost is, but if you’re taking money from outside sources, which of course, is syndication, or raising money from investors, or partnering with other people, commit to learning the legalities and the rules around doing that. It’s actually not that complicated. Most BiggerPockets listeners could probably pick it up in a day and have a really good handle on it.
It’s one of the those things where if you do it wrong, you can get into a whole lot of trouble, and there’s lots of people out there doing it wrong right now. Everyone’s getting away with it because the market’s been fantastic, but the minute something shifts, and deals start to go bad, and someone complains to the SEC, if you didn’t follow those rules, you can be in a world of hurt.
Once they find out that you did one deal wrong, what they typically do is they will ask you to open your kimono on every single deal you’ve ever done, and they don’t limit it. They say, “All right. If we’re looking into Andrew or Whitney, we’re going to look at everything they’ve ever done,” so the fourth thing would be, if you’re taking outside money, make sure you’re doing it right.
Again, this isn’t something, you don’t need to become a syndication attorney or an SEC attorney. You just hire one that knows what they’re doing to keep you protected. David, before I jump into number five, is there anything that you would put in the top five that maybe I’ve missed or that you would add to that?

David Greene:
The only thing that I would have added, and I don’t think I can sum it up as concisely as you were, so I won’t get into it, but the idea would be, with residential real estate, we have rules of thumb that we tend to follow. When you see something that is close to the 1% rule, you’re like, “Ooh, I should probably look at that.” Or when you see a property with more square footage at the same price as other homes in the area, or that’s listed lower, comparable sales is a much easier way to establish a baseline of value, so when something falls outside of the norm of what you’re used to seeing, it catches your attention, you look into it.
Anytime you’re changing asset classes, one of the first things you want to do is try to figure out what that baseline is for that asset class and what’s falling outside of the norm so you can key in and then implement everything that Andrew’s saying. We just take for granted how many deals are out there, and that you do not have the resources to analyze all of them.
Part of being good at this, like what Andrew hasn’t said, but I know him so I see him crushing it, is his criteria are so incredibly defined that he subconsciously gets rid of 98% of what comes his way. He doesn’t even look at it. All of the efforts he’s giving are on 2% of deals that could actually work. If you don’t learn how to do that, you’re going to be like me at jiu-jitsu. You burn all our energy in the first 90 seconds, and then you get your butt kicked for the rest of it because you haven’t learned how to be efficient. It’s an important part of business.

Andrew Cushman:
Actually, that was the next thing I was going to say, so thanks, David. That’s perfect, and is define exactly what you’re looking for, and then learn how to go find it. We talked about that in some of the previous episodes of how to screen markets. Then once you screen for the market, how do you screen those deals and just take 100 and whittle it down to two that are worth your time? That would be the fifth thing. Great question.

Whitney Boling:
Yeah, that’s great, Andrew. I appreciate it, man.

Andrew Cushman:
Whitney, do you have any follow-up questions or any clarity you wanted on anything?

Whitney Boling:
I think just in terms of the loan piece of it. That’s where the biggest hurdle is for me, and trying to understand the structure behind the five or seven-year loan. I just am not exactly clear on how that works.

Andrew Cushman:
When they say a five, or let’s just say a seven-year loan, and you could maybe do that with a bank or agency, so Fannie Mae, Freddie Mac. Could be a bridge loan. Most bridge loans are five years, but the principle is the same. Typically, what that’ll look like is, let’s say you’ve got a seven-year loan. You might have two years of interest only, so you’re not paying the principal down, you’re just paying the interest. Then the remaining five years, you’re going to be paying interest and principal.
What they do is they’ll amortize it over 25 or 30 years, so in that sense, it’s very much like a residential loan in terms of the amortization, except you just can’t keep it for 30 years like you can with a residential loan. When you get to year seven, you have to pay off that loan. You can do it through either refinance, sell the property, or if you’ve come into a lot of cash, you just pay it off. You have to pay it off in whatever year that loan comes to term. That could be, again, year five, year seven, something along those lines, so that’s how they’re structured.
Then something else that’s negotiable, and when I say negotiable, it’s not just like, “Oh, I want this,” and they’ll say, “Okay, fine.” You often will pay for these things, meaning you can pay a higher rate or you can pay a higher fee in exchange for some of the things I’m about to talk about.
We’re actually in the process of doing this on a deal right now where we are paying a slighter higher rate on a seven-year loan in exchange for the ability to pay it off early in year three without having a big prepayment penalty or yield maintenance. Well, you say, “Okay. Well, Andrew, why would you do that? Because it increases your rate a little bit.” We are in a place in the market where the fundamentals of multifamily are rock solid, however, we do have increasing rates. The debt markets, it’s not inconceivable that everything that’s going on in the world right now that something could spook the debt markets over the next couple of years, or the economy could go into recession.
There are risks out there that really weren’t as prevalent just a couple years ago, and so we want to have, and this gets back to, I think it was point number two or point number three about matching your debt with your business model. We’re paying a little bit higher rate to be able to exit early just in case there’s some market force that dictates, “Hey, it’s best for us to get out now, rather than hold for seven years.” Or vice-versa. That’s why we’re not getting a three-year loan.
We don’t want to be forced to get out in three years. Many bridge loans, it’s a 25-year amortization, but you have to pay it off in three years. What if in three years we’re in another March of 2020 or fall of 2008 and the debt markets are just locked up and not available? You don’t want to be in that situation. That’s how you lose money in commercial real estate is being forced to sell or refinance at a time when you really can’t or shouldn’t, and so you take the debut structure and work it to your advantage.
That’s generally how it works is you may amortize for a long period of time, but you then, you can pick a menu of … They literally will give you, in many cases, a matrix. Says, “All right, if you want a five-year term, here’s your rate and other terms, one-year IO. If you want seven-years, we’ll give you two years of IO, and your interest rate’s a little bit higher. If you want 10 years, we’ll give you four years of IO and the pre-payment penalty burn goes away in five years,” and whatever the other terms are.
That’s how they structure it and, literally, it’s like a menu. Whereas, with a residential mortgage, correct me if I’m wrong, David. It’s been a while since I’ve been in residential. It’s basically like, “Hey, here’s your rate. It’s 30 years. This is what we’re going to give you. Maybe you can pay a point to lower the rate a little bit, but that’s it.”
Then also, another thing you can do in multifamily that can be really beneficial, especially if you don’t have as much equity or cash available, is you can do lender-funded renovations. If you’re buying a property and you’re going to do $800,000 in renovations, many cases, the lender will not only give you, let’s say 75% of the purchase price, they’ll give you 75% of that renovation budget, and then you do the work. The contractor invoices you. You send that to the lender. They release the funds. That’s another piece of the structure to factor in. Any other follow-up questions or, hopefully, that helped a little bit.

Whitney Boling:
Yeah, that definitely helps. I just want to try to understand, with the rising interest rates and things moving rapidly, I don’t want to be stuck in a situation where I can’t refinance or I’m stuck with a higher interest.

Andrew Cushman:
You know what? To me, that is the biggest risk to the multifamily market right now, and to a lot of deals that have been done over the last two, three years. I think it was 2021, 70% of deals were done with bridge loans, at 75 to 80% LTV.
Well, when they go to refinance or sell a couple of years from now, if rates are still significantly higher, many of those loans aren’t going to be able to refinance out because the debt coverage ratio won’t be there. What I mean by that is the net operating income won’t be enough to cover the new debt load at a much higher interest rate, and those deals are going to run into problems.
Real quick, how you mitigate that is, number one, go in with lower leverage. Our last couple of deals, we just went in at 60 and 65% LTV, just to make sure we had that extra room. That’s the biggest way to mitigate it. Number two, a whole nother discussion, but there’s fixed-rate and there’s floating-rate with multifamily debt.
Floating rate, actually, typically is cheaper. However, what we’ve been doing recently, and for the foreseeable future, is we will get fixed-rate debt but then make sure that we can either get a supplemental loan, which is the equivalent of getting a second mortgage and pulling out cash, or going back to our previous discussion, we can pay it off early.
That way, we’re eliminating the risk of rates going way up on us. We know, “Hey, we can ride this thing out for seven or 10 years, but if everything goes to plan and it works out really well, we can still pull cash out and give that back to investors.” That’s how you work with the structure of multifamily debt to still do deals in an uncertain environment, but not increase your risk. It’s all about, there’s so many creative ways to do debt, and equity in multifamily deals. You just have to adjust it as the market adjusts, and that’s just some of the ways to do that.

Whitney Boling:
Yeah, that’s exactly what I was looking for, so I appreciate it, Andrew.

Andrew Cushman:
Oh, awesome. Thank you.

David Greene:
All right. Thank you for that, Whitney. Before we get on to our next caller, I want to make a comment about people that have invested in somebody else’s syndication with rates going up because there is risk. Now, one of the things that Andrew and I have noticed is a lot of deals have been put together by more amateur, they haven’t done as much, and they just shoot from the hip.
They’re raising more money than they should be. They’re paying more money than they should for the property. They’re not experienced with the management, so their operating costs and ratio is higher than it would be with the more experienced operator.
While we’ve had just the best bull market we’ve ever seen, you get away with playing sloppy, but rising rates is one thing that is very impactful on multifamily housing because your debt plays such a big role in making the numbers work. If you invested with someone who wasn’t that great at doing this or wasn’t that experienced, the odds of you being okay are higher if you got in the right area.
If you went in an area where rents have been going up and demand has been going up, you should see an increased NOI, even if the operator didn’t do a great job and so therefore, you can afford the higher debt service that comes with the higher interest rate. If you chased after really high returns and you didn’t get into a great area and you didn’t get in with a great operator, your money might not be that safe.
Moving forward, one of the things that I’m telling people is, don’t chase the highest return possible. When they say, “Hey, we can get you a 20% IRR,” and you say, “Well, that’s better than a 16% IRR. I’m going with them.” A lot of people got away with that for a long time. This is not the time to be doing that as the Fed is continuing to increase rates and people are moving at a faster rate across the country. After COVID, that jump-started this entire idea of, “I want to live where I want to live. I don’t want to live where I’m stuck.”
What could have been a great deal in New York five years ago is now not looking like a great deal. Rents aren’t going up. It’s hard to get people to want to live there. People are leaving that area. Now interest rates are coming, so in my opinion, when you’re going to be investing in someone else’s syndication or with a partner, safety should take priority over top-end return.
In a bull market, you can be a little riskier, chase after those big returns. In a bear market or a potential bear market, you want to put a higher weight towards safety, as opposed to just pure maximum profit you could get on your money. Thank you for that, Whitney. Appreciate you, man. All right, Pete, if we get you in here.

Pete:
Hey, guys. How are you doing?

David Greene:
Good. Thanks for being here. What question do you have for us?

Pete:
Long-time listener, first-time caller, so appreciate you guys doing this. I’m a real estate-friendly financial advisor up in the Seattle area. I’ve done about 14 BRRRRs over the years with varying levels of success, as I’m sure we can all attest to. I’ve been trying to transition into the multifamily space for about a year and a half or two years now.
What I’m consistently seeing is that it seems like, against the adage, making money going in, it seems like the pricing is based more on the proforma numbers or proforma NOI, so to speak, rather than on the current numbers.
I’m trying to figure out if this is just symptomatic of the hot market and how I should be thinking about this because I don’t want to give up that value-add opportunity, but I also don’t want to sit on the sidelines forever.

Andrew Cushman:
That’s a really good one. That is definitely something that is a constant struggle and I would say it’s always something to consider but it is, as you alluded to, it is very much a symptom that has been aggravated by the current market.
When you hear the stories of an apartment complex traded for two and a half cap in a place like Atlanta or Dallas, which are great markets, but historically, not two and a half cap markets. A two and a half percent cap rate, that’s LA, that’s San Francisco, that’s New York. When you hear that a property traded at a two and a half cap in Atlanta and you’re like, “What the heck are they thinking?” This is exactly it. What it is is it’s somebody paying today for tomorrow’s performance.
You’ll see the brokers will advertise. They’ll actually put it in print. I think this is going to start going away soon, but they’ll put it in print, “Hey, this is a two and a half cap, but you can get it up to a four cap if you do all this work,” and that’s the value-add. The answer to this, to me, is double-sided.
One, is this gets to don’t get overlay caught up on going in cap rate. Because some of the best deals that we’ve done historically, yeah, our going in cap rate was between zero and two, and in some cases, it was even negative. The property was losing money when we bought it, but there was enough value-add there to make up for it.
On the other hand, Pete, like you said, you do not want to pay the seller for all the work that you’re going to do, and so the answer lies somewhere in the middle. If you’re looking at marketed deals, odds are there’s going to be someone out there who’ll pay that seller for all the work that the buyer’s going to have to do, and you’re probably not going to get that.
If you can … What we found is when we work with either, some cases, directly with sellers or in most cases, it’s a broker bringing us an off-market deal where there’s not this competitive bidding environment that gets everyone hyped up and like, “I’m going to win this, and I’ve got to win this. My investors haven’t seen a deal. I have to get something.” That leads to exactly what you’re talking about.
What you are aiming for is an environment where you can … This I like a one out of 100 type of thing right now, but it is still out there, whereas, you work with a seller where you can have a reasonable and non-hyped conversation and negotiation over the deal. We closed one last month where it was very similar to this, where a broker just connected us directly with the owner of the property. He had built it and developed it himself. He did have one off-market offer. Just someone had literally called him, and flown down, and looked at the property, and gave him an offer.
He was getting ready to sign that and the broker connected us. Said, “Well, look. You should really let this one other group at least come visit,” and so I went down. Literally, was there within an hour. Toured the guy, got the deal, and made him an offer, and eventually got the deal under contract and closed. It was one of those situations, I don’t remember what the going in cap rate is, but the going in cap rate, it was low. It’s probably somewhere, I think it was right around four, and this is for a 2011 construction property in a larger tertiary market in Georgia.
On the surface, that might not make sense. “Why would you pay a four cap for that?” Well, this guy, his daughter was running this large, almost 200-unit property all by herself. Not doing a bad job, but just way too much work for one person. No website, no marketing, no nothing, so when you’re in that situation, you know how you keep it full? You don’t raise the rents. You don’t want turnover because you don’t have time for that, and so they hadn’t raised rents since 2019.
We actually own another property about a mile away in that market, so we know for absolute certain, like, “Holy cow. The rents on this are incredibly low.” We took our market knowledge, and we went and looked at every other property in the market, and we said, “All right. This property as it is today should be renting for $200 more than it is. Without doing any work, it should automatically be 200.”
We look at that and say, “All right. We’ll pay somewhere, we’ll pay, call it a four cap because we know this market and we have very high confidence that we can get it up to where it should be.” Then at that point, it’s like a six, or a seven, or something really high. The seller, all he wanted was just a reasonable offer on where his property was today.
Would I like to buy it a five cap going in? Yeah, of course, we would but it had such a clear value-add that we are willing to pay just a little bit more. To me, that’s where the workable middle ground lies. In today’s market, very few sellers are just going to give you a killer deal on a property. This property, I think we were buying, it was like 126 a unit or something like that. We have a very, very clear path to like 160 to 180 a unit in a very quick, near future so we can pay him 115 and we know we can very easily get it significantly above that, that deal works.
The key to what you’re asking about, “Hey, I don’t want to pay today for tomorrow’s performance,” number one, and we talked about this with the last caller, is really knowing your market and your property, and diving into the data so that when you say, “You know what? I can pay just a little bit more for this now because I will be able to get it to much higher value.” You do that study, you do that analysis, you can go into it with the confidence of a four-year-old in a Batman shirt. Just like, “Going to do this. I’ve got this nailed.” That’s really how we look at that. Any follow-up questions? Or hope that helps.

Pete:
Yeah, so on that one, in terms of the underwriting, it sounds like you’re talking about a happy medium between the underwriting of what the cap is today or the NOI is today versus the proforma numbers, so you’re trying to find the medium between that, but if they’re starting out at the proforma numbers for their asking price, usually, the expectation is you need to come down from that a little bit. If they’re not ready to do that, I guess, they’re not ready to do that and maybe you need to move on.

Andrew Cushman:
Exactly. Yeah-

Pete:
Which gets into your point too about the source of these leads. If you’re going to go to the market, you’re probably going to see somebody trying to value it based on proforma income numbers, but if you can get directly to the seller …

Andrew Cushman:
Yeah. You said that more concisely than I did. That’s really what it comes down to is, you’re absolutely right. You cannot pay today for 100% of the work you’re going to do. It’s got to be somewhere well below that, and you have to have high confidence that you’re going to get there.
Now, five, 10 years ago, you could pay for the absolute dead bottom of what it is today and then it’s all on you. It’s just got to be a reasonable spot in the middle. Also, I would say it’s common to say in single family you make your money when you buy. In multifamily, that’s really not true. In multifamily, you make your money through operations. That’s how you make your money, by …
Again, we’re assuming you bought the right asset, the right market, all that stuff we’ve talked about in other episodes, but you make your money in solid operations and increasing that operating income by increasing collections, decreasing expenses, all those things that go into it. That’s one of the beautiful things about multifamily. In single family, you buy a house and the average price in that market goes down 30%, well yours probably went down 30% too.
In multifamily, your valued on a net operating income, so if you’re a really good operator, you can still increase the value of your property in a flat or down market, even if everyone else is struggling. That’s one of the really cool things, and that’s part of why, again, with caveat, it’s somewhat okay to pay a little bit for future performance because it is something that’s in your control.

Pete:
Makes sense.

David Greene:
I like your question, Pete. I’m going to provide the same answer Andrew gave from a single family perspective so that people who are used to that investing asset class, which is a little more common, can understand the principle we’re trying to make here.
When we say you make your money when you buy, it’s based off of an understanding that you cannot rely on appreciation, which is a single family concept, like other homes selling for more in the area pushes up the value of this home, and so it drags it all up. Commercial properties, multifamily properties are not quite, they’re not as simple as appreciation.
If someone buys an apartment complex across the street from you and pays more, it doesn’t automatically make yours the same value. It depends on what rents you’re getting, how well you’re operating at the net operating income or just the profit at the end of the day is how you base it. There’s certain times where you make your money when you buy is more important than in others.
Part of it could be the time, like the market in general. 2010, prices aren’t going anywhere fast. It’s very important that you get in under market value if you want to get what we call a deal. 2013, prices are kind of starting to move forward. You still want to be below market value, but maybe it doesn’t have to be at 80% or 70% of value. If you’re at 90% of value, it’s still a pretty good opportunity.
Then you have 2022 or 2020. Rampant inflation, a very irresponsible fiscal policy by our country fueling fires everywhere, where we’ve literally had buyers that two years ago, had a house appraise at 550, and they had it under contract at 560, and they walked away and said, “I’m not going to overpay,” and two years later, it’s worth 780. That principle doesn’t age well. It ages like milk, not like wine.
I like what you’re saying, and that is how we should be looking at it, but we can’t be so rigid that we don’t understand the overall macro principles that are at play and how they affect how we operate by these principles. To Andrew’s point, if I had a chance to buy a single family home in Gary, Indiana, that I did not think would be appreciating much at all and I could get it at 95% of ARV, I would have to wait 10, 15 years before that started to make a lot of sense for me.
If I’m buying it in South Florida in a suburb outside of Miami that’s the next big thing to go off, I could pay 105, 110% of ARV, but in nine months it might have appreciated much more than that. In single family investing, the time you wait is equivalent to commercial investing, the effort you put. Those are the two resources that we measure.
There’s only so much you can do to make a house worth more in a single family sense. You have to wait, but in multifamily investing, the effort you put into it can have a significant impact on increasing the value, so what you’re looking for is, “How do I get maximum NOI for minimum effort?” Any deal will work if you just stare at it all day long, and constantly talk to people, and market the crap out of it, and just study all day long. You could turn it into a job, but that’s what we’re trying to avoid.
That’s what Andrew’s getting into is, it’s okay to pay over what it is worth, in quotes, if you see a very clear path to value-add that is not a lot of effort. That’s easier money than if you’re paying more than it would be worth on paper and it’s going to be like walking through sand or mud to try to get there. Does that make sense?

Pete:
Yeah. It does, absolutely. I appreciate the insight. On that same note, real quick, Andrew, do you see, or David, do you see anything changing with rising rates?

Andrew Cushman:
Yeah, that’s, I do, definitely. One, already, we’re starting to see overblown seller expectations get reined in a little bit. David, I think we see this in the single family too is, you’ll hear media say, “Oh, prices are coming down.” No, no, no, no. That’s not happening.
It’s just crazy, “Hey, I’m going to sell for 20% more than the guy down the street who did last month.” That’s what’s starting to go away is seller just saying, “Okay. Well, the property next to me traded at a four cap, so I should get a four cap too.” Instead of saying, “Well, now I’m going to get a three cap because that’s one month later.” That is starting to go away. The buyer pool is thinning out a little bit, whereas, six months ago, we might have had …
We actually have two properties listed for sale right now. Where six months ago, we might have had 30 buyers, now we’ve got 10. It’s still a good buyer pool. It’s just not the feeding frenzy that it was. That’s what’s happened so far. Going forward, I see, I’m hoping for things like hard money going away. Five years ago, you had 30 days to do your inspections and then you had a financing contingency. Meaning if your loan blew up at the last minute, oh, well. Seller has to give you the money back and you’re out.
Then, as you probably know, Pete, since you’ve been listening to BP and checking out deals, now it’s like, “All right. If it’s a million dollar property, we want $100,000 nonrefundable deposit day one.” That money is the seller’s, almost no matter what. As the market shifts to a more balanced buyer-seller market, I think that will start to go away. Candidly, I hope that goes away. That’s one of the things I’m looking forward to as this market shifts.
Then the third thing is, well, I don’t see, in most good markets, significant valuation declines for multifamily. For that to happen, there’s going to have to be a whole lot of motivated sellers and that’s tough to see right now because most sellers, if they don’t get their price, they’re just going to hold. Most multifamily are making so much money that it’s like, “Well, if I don’t get my price, I’m just going to keep it.”
That’s how our portfolio is. It’s 35% LTV and rolling off all kinds of cashflow. If we can’t get a good price, we’re just going to keep it., so I don’t foresee a huge decline in pricing, especially with inflation going up, and replacement cost going up, and all of that.
I do see the market shifting to be a little bit more balanced between buyers and sellers, which for those of you who have been out there for the last five years going, “Ah, I can’t get a deal,” I think it’s going to start getting a little bit easier. Not easy, just easier.
The final thing I want to add in terms of what I think might be changing is, a lot of people took out really high-leveraged bridge loans in the last couple years. 70% of transactions were done that way, and if rates go up too far and stay that way for a couple years, there actually might be some motivated sellers who can’t get out of their bridge loan that’s due next year or the year after, and that’s where savvy investors, like all of us, can come in and get a deal and not pay for future performance. Those are some of the things that we’re seeing now and I think it’s going to lead to.

Pete:
Sounds good. I appreciate that. I could pick your brains all day and ask you a bunch of questions, but I’ll stop there. Appreciate it, guys. Thank you very much.

Andrew Cushman:
All right. Take care, Pete.

David Greene:
Thank you, Pete. Matt, the author of the BiggerPockets book on raising money. What’s that? Raising Private Capital? Is that the name of it? Oh, there it is right there.

Matt:
Raising Private Capital. Thank you.

David Greene:
Wonderful.

Matt:
I love that Andrew talked about raising money from investors for quite a while, and I’m sitting here like, “Of course, he’s going to mention my book because we’re friends. He knows my book. It’s a BiggerPockets book,” whatever. He didn’t mention my book and that’s okay, and that’s okay. I still love you, Andrew.

Andrew Cushman:
[inaudible 00:41:50]

Matt:
My book is Raising Private Capital. If you want to hear more about raising equity from investors, check out the Amazon bestseller, BiggerPockets book, Raising Private Capital.

Andrew Cushman:
Well, hey, at least we know you’re not going to ask the question about how to raise capital.

Matt:
I will not. Wouldn’t that be great? “I’m looking to get started in raising money, Andrew. I want to talk to you about that.” No, man. I want to talk … As you may know, I’m leading the BiggerPockets multifamily bootcamp, and it’s been going great. We just concluded our first one. We got another one coming up, which we can mention here.
I get a lot of recurring questions, guys, and I wanted to bring those questions here to you guys to discuss, bootcamp questions that come up on a regular basis, and just get your take on … Because I have my answers to these things, but I’d love to hear what you guys think to these recurring questions that a lot of folks that are looking to get into or expand into multifamily have. What do you guys think?

Andrew Cushman:
Let’s do it.

David Greene:
Let’s do it.

Matt:
Okay. Both of you have already heard these questions, but I’d love to know what you think. Number one, “I’m a new investor and I’m having a problem finding deals. Then, I’m going to the deal tree and the deal tree is not yielding fruit right there, right in my hand. I’m not able to just pluck a deal right there off of the tree. Good deals are hard to find.” Aka, “How do I find good deals? What are your tips to finding good deals in the multifamily market?”

Andrew Cushman:
If you’re looking for deals in the deal tree these days, you’re going to have to get a six-foot tall step ladder, one of those extendable fruit pickers, and aim for the very, very top of the tree. Then you might be able to get something, so-

Matt:
Cut the tree down, right?

Andrew Cushman:
Yeah, or just cut the tree down. There you go. Like that story The Giving Tree. You pick the fruit and then you just cut the whole thing down.

Matt:
That’s the worst tree ever.

Andrew Cushman:
Oh, that’s a sad story. It’s a sad story.

Matt:
That dude is a jerk to that tree, but anyway …

Andrew Cushman:
Yeah, we talked about in the … Number one, I think the fruit on the tree’s going to start regrowing a little bit lower in the future, so that’s the good news for everybody, but it doesn’t mean it’s going to be really easy.
How to find deals, number one, I see a lot of people make the mistake of like, “Oh, I’m looking at a deal in Indiana, and I’m looking at one in Boston, and I’ve got this one down in Florida.” They’re just all over the place. Just anything that shows up in their email inbox is something they’re going to look at.
Number one, pick a geography and stick to it. When you pick that geography, pick one that has the right tailwinds for multifamily. Population growth, job growth, strong median income, all those things that we talked about back in, I think it was episode 571, of how you pick a market and submarket.
The first thing is be very firm and decide on, “This is where I’m going to look for deals.” The second thing is, decide exactly what kind of deal you’re looking for. Are you looking for 20 units or are you looking for 200? Are you looking for 1960s value-add or are you looking for 2010 construction that you just paint it and call it good?
Nail down exactly what you’re looking for. That does two things. Number one, that helps you quickly process everything that comes into your inbox. At this point, I literally probably get 50 properties emailed to me every single day. Some of them are repeats, but literally, 50 or more a day. I can delete 49 of those because they’re the wrong areas, they’re the wrong size, they’re the wrong age, they’re tax credit, all these things that we don’t do. I can get it down to one, “Ooh, this is the one that we need to look at,” so clearly define what you’re looking for, that you can do that, so you’re only spending time on deals that fit your investment goals and your investment criteria. That’s what Brandon talks about in his crystal clear criteria.
Now, once you have your crystal clear criteria, this other benefit of that is you make sure that all of your relationships understand your crystal clear criteria so that all the brokers you work with, all the, maybe if you’re dealing with wholesalers or any source of deal that you work with, make sure that they understand that criteria.
If you’re looking for a 20-unit property in Dallas or Fort Worth that was built between 1990 and 2010, and you keep looking at those, and every time a broker has one of those, you talk to that broker, and you give them feedback, so that after six months or whatever, that broker talks to a guy who’s owned it for 10 years and he’s like, “Yeah, I might consider selling it.” That broker goes, “Oh, Matt is the guy for this deal.”
He calls you, says, “Hey, I’m going to send you this off-market deal. Let’s see if we can just put it together. I think it’s a great fit for you. This guy might sell if you give him the right number.” That’s how you get the off-market deals that are really good deals and that you’re not necessarily overpaying or getting into bidding wars.
That’s really the key to doing it in these markets, is knowing clearly where you’re looking, what you’re looking for, and then building the relationships to not only bring you those deals, but so that keeping those relationships fresh and active so that when that deal pops up, whoever sees it thinks of you first. That is how we get 90% of our deals.

Matt:
That’s brilliant. Thank you.

David Greene:
I think that is great advice. I would say that’s better than the advice I’m going to give, but because … Sorry. Because Andrew took the best donut in the box, I’m going to try to be like, well, this one’s kind of crumbling falling apart, but it’s better than-

Andrew Cushman:
I got the chocolate sprinkles one.

David Greene:
That’s it, man. I got the plain, like there’s no glaze or there’s no topping. It’s just like the boring donut that I don’t even know why they make. It’s just the bread, but for some reason, they make them, and even a more weird reason people buy them. That’s what I am. I’m that donut that has no topping.
Here’s the advice that I was going to give. Andrew’s advice is better. It is safer and it is going to build you wealth better. If you can get the better deal by just working harder to get it, yes. There’s also a scenario, like where I’m saying, your strategy has to adapt to the market itself.
When you’re in a situation where prices are just solid, rigid, they’re not going to move because demand has gone down, or you’re in a market where it’s like that, you have to be extra careful when you buy. When you’re in a market where a reasonable person would expect that demand is going to continue to increase and maybe supply is constrained. The deal that Andrew and I are buying together right now, they can’t build there. It’s incredibly difficult to get any real estate. It’s landlocked and there’s a buttload, that’s a technical term, of Americans that are moving into this city.
As we see demand increasing, we see supply is restrained, it would be almost an act of God in order to see that not happening. In those situations, it’s not always about the price. It’s about, like Andrew said earlier, the management. In today’s market, you need to ask yourself, where do you have a competitive advantage? Do you have a contactor that you know that can do the job for 80,000 and you’re being bid 150,000 by everyone else? Well, your competition’s probably getting $150,000 bid, so if you can get someone you know that you trust that can do that work, you can pay more than somebody else and still get a good deal.
Now, in this case of the deal we’re putting together in Fort Walton, we have management that is already there that is already managing other properties and we believe we can do it much more efficiently than other people, so that deal makes a lot more sense for us than it would be for someone else.
Long story short, yes, beat the bushes, turn over the rocks. Find the deals before they hit the market, but even if it is on-market, if you have some kind of a competitive advantage that allows you to operate it cheaper, or better, or add value in ways other people don’t see, that’s a good plan B.

Matt:
That’s awesome. I want to … Here’s what I tell people, and I’m going to sum up both what you guys said with here’s my icing on the top of the cake that you guys just baked right there, is that, yes, pick a market. Drill down, have your crystal clear criteria. Have your unfair advantages, the contractor that can do it for cheaper, whatever.
You obtain those things, you drill into those markets, you build those relationships by going to the market in person. I cannot tell you how many people I’ve talked to in the bootcamp and in my travels, and people say, “Man, I really want to buy a deal in Columbus, Ohio. I love that market. I’ve done my research and my homework. That’s my jam. I want to buy a deal there.”
I’ll say, “Okay, great. How many times have you been to Columbus?” “Oh, I’ve never been there.” It’s like, “Well, I’ll bet you’ll never do a deal there because you’ve never …” That is the bottom line. If you’re going to choose a market, the way you’re going to build an unfair advantage, the way you’re going to meet that contractor that can do the job for 80 grand instead of 150 is go to that market, go to the local rehab, meet them on BiggerPockets, meet the broker that’s going to truly send you off the market stuff.
Whatever it is. Build an unfair advantage by traveling to that market and networking yourself in person. Look at people dead in the eye, and buying them a cup of coffee, and sitting down and chatting with them face-to-face. Anyway, so that’s what I tell people on finding deals. You guys know that as well, so good stuff.
That is far and away the most common question I get from those that are trying to get into or expand into multifamily is finding deals. It’s a tough market, I get. All three of us still, we don’t connect on every pitch that we swing at either. That’s just the nature of the game right now. Another way to find good deals is by you look at a lot of deals. You know?

Andrew Cushman:
Yep, yeah. It’s not easy at all, but it is absolutely worth it.

David Greene:
That’s a good point. What I’ve been telling the agents on my team when we talk about this is that things are either going to be easy on the front-end and hard on the back-end, or the other way around. There is no situation where both ever happen.

Andrew Cushman:
Yep.

David Greene:
What we see right now is that just about everybody buying real estate is making money. A lot of that’s not because they’re so great. It’s because inflationary pressure’s pushing things upward, so then everyone runs to that market and they go, “Oh my gosh. Everyone’s making money in real estate. Let me do it.” That’s why a lot of people are listening to a podcast like this. The market is awesome.
Well, inherently in that scenario means it’s going to be harder to get into it. There’s other people that ran there and that’s why it’s good. When you see the opposite, like 2010 when it was very easy to get in, you heard a lot of people that didn’t want to do it because the back-end looked like it was going to be rough.
You just have to accept that this is the way life works. If it’s easy when you first get there, it’s going to be difficult. I tell the agents it’s like working with buyers. It’s not hard to find a buyer that’s willing to work with us right now. Everybody, all the buyers want to work with us, but there’s no houses to sell them, so you get the buyer client, it was easy. Then the job is super hard to put them in a contract.
It’s very difficult to get sellers, and so no one wants to do it. They’re like, “Oh, but sellers, they’re so demanding. They want me to interview against other agents. They call me every day, and it’s easier with buyers.” Well, yeah, but you get a listing, it’s almost guaranteed to sell. It’s easy on the back-end, so that’s just something in life that I have learned.
Don’t forget that because everyone hears talk of real estate is exploding, but their expectations when they get to the party is that it’s easy to get in the door. It’s not. That’s why it’s doing well, so like you guys just said, you got to look at more deals. You have to look for advantages that other people don’t have. You have to have a knowledge base that other people … Literally because multifamily investing has been making people so much money, but that’s why you want to do it, so just expect it’s going to be hard when you get there.

Andrew Cushman:
Yeah.

David Greene:
You know what it is? It’s like saying, “Man, those guys at the CrossFit gym are in such good shape. I want to look like that.” Then you get there and you’re like, “Whoa, this is so hard. What’s the easy workout? Can I do that one?” Then if you go do the easy workout one, you don’t have the benefits of the CrossFit workout, right? You look the same.

Andrew Cushman:
You’re not going to look like the guys at CrossFit gym.

David Greene:
Yes.

Andrew Cushman:
Right.

Matt:
There you go. Andrew, it’s hard work, as you said, and it is but it’s worth it. That’s how you get the shredded body. That’s how you get the awesome portfolio. That’s how you get the lifestyle that real estate can yield is through a ton of hard work, and yeah, it’s hard. Most of it’s fun. Sometimes, you got to pluck out thorns. As we were saying, Andrew, sometimes it gets tough but it’s actually fun sometimes too.
Guys, interesting time to bring this up. Speaking of CrossFit gyms, and thank you for that analogy, David. BiggerPockets and I have put together a phenomenal bootcamp that’s going to make you into the shredded real estate investor that you want to be, the shredded, multifamily investor. It is the BiggerPockets multifamily bootcamp.
You guys can access that by going to biggerpockets.com/events, biggerpockets.com/events. Seats are limited. I believe that the registration closes down on May 15th on that, so check that out now. It’s something you guys can join in on. It is a 12-week program that’s participated in by hundreds of other real estate investors you can network with, you can form small subgroups, accountability groups.
There are folks that have gotten together and done deals together from the last bootcamp, so if you want to meet people that are like-minded that have drank the BiggerPockets Kool-Aid, as you have, that are willing to get out there and do the capital W work that Andrew talked about, the BiggerPockets bootcamp is a great way to meet people, get the tools from myself and my team that’s going to make you successful, and as David said, join the CrossFit gym of multifamily real estate investing that is the BiggerPockets multifamily bootcamp. See you there, guys.

Andrew Cushman:
Our first question today was the five things to commit to learning. You’ll learn all those things at Matt’s bootcamp with BP.

David Greene:
Hello, Jake. I am so glad you could join us on the podcast. How are you, my friend?

Jake Harris:
I am fantastic, David, Andrew.

Andrew Cushman:
Good to see you, man.

David Greene:
Jake has had to wade through the swamp of scheduling craziness, then a bunch of technical difficulties that he had to fight his way through as well. He’s also buying really good properties at a really hard time, and Jake is smarter than just about everybody that he comes across.
He’s got that Elon Musk thing where it’s very hard to communicate with people that are not him because he has to figure out to get a 3D perspective into a 2D brain. He often has this problem when he talks with me. Yet, in spite of all that, we’ve got him here on the podcast. Jake Harris, thank you for joining us.

Jake Harris:
Well, thank you for having me. It’s a fun, pleasurable, nice Friday.

David Greene:
I just realized, you look like you definitely could be my brother. We have the same head and beard thing happening right now.

Jake Harris:
I think we go to the same barber, at least.

David Greene:
That’s probably true. What do you have for us? How can we help you today?

Jake Harris:
I develop some multifamily, and the construction, we’re doing real heavy value-add multifamily deals, and we’re seeing a significant challenge coming in. A lot of projects are blowing up from interest rates. We have supply chain issues, material that’s just not available for many, many months. Andrew, you’d mentioned earlier some questions about your competitive advantage of operations or really forced appreciation items that you have when you’re moving into a market.
What I’m looking at is, the interest rates are making it so that some buyers will no longer be able to buy houses, and they’re going to be renters for longer time periods. Supply will not be coming online because they’re getting blown up from longer time periods, permitting issues, supply chain, all that, so there’s not going to be new supply and there’s now a big swath of new renters that were trying to be homeowners that have now been pushed back into that renter bucket.
What are some of those operations that you’ve seen or the technical details of the operations and forced appreciation on that multifamily value-add that you’ve seen that’s been most successful, given somebody like me that’s trying to get into that space? I’ve never really done the value-add to your thing. I’ve always just built the project.

Andrew Cushman:
All right. Good questions. You bring up a lot of things that are 100% true and I think, if forgotten, is it’s very easy for a lot of us to be like, “Oh my gosh. Interest rates are going up. The sky’s going to fall. Everything’s going down. Cap rates are going up. It’s the end of the world. We got to get out and go back, and I’m going to go work as a Walmart greeter.” That’s not the case because there’s other factors.
Like you said, Jake, as interest rates go up, that makes it that much more difficult for people to purchase a house. What are they going to do? They’re going to go rent apartments. Or they might rent a house, but either way, they’re going to add to the demand of rentals. Then, again, something else that you said. It is getting harder and more expensive to build new apartments.
Same as you, I’ve seen development deals either blow up or get delayed by years because of the supply chain issues, and because of rates going up. That’s taking off the supply side so that increases the demand for rent. Well, it doesn’t increase the demand, but the existing demand is harder to satisfy. Therefore, rent goes up. Then the properties that do still manage to get completed, they have to charge that much higher rent just to get the property to pencil out, and so as new properties come online with sky-high rents, it has a tendency to drag the entire rest of the market up with it.
Yeah, there’s the negative effect of, okay, higher interest rates make it harder as a buyer to maybe underwrite an apartment complex, but it also creates all those other positive factors that you just brought up. That leads to, “Well, okay. Either if I’m not able to, or I don’t have the education yet to take on the risk of development, what do I do?” Okay, well, yeah, that’s the value-add aspect.
What we’re finding, the greatest value-add opportunities right now … I’ll try to go in order of decreasing risk to increasing risk. What I mean by that is execution risk. The context of the question is, is operations. What is under your control? How do you adjust your operations to create value? The risk is, “Well, are you able to execute that?”
The lowest risk, in my opinion, one of the lowest risk value-add strategies, and the one that actually is quite abundant these days, we’re finding it’s not easy but it’s out there. We’re finding amazing opportunities in this, is that many property owners, for a variety of different reasons, have not kept up with the dramatic rent increases of the last 18 to 24 months.
I mentioned, a couple of questions ago, a deal that we had closed last month where the owner of it, it’s a beautiful property. Built, it’s only 10 years old. High-level finishes. It’s a great, great asset, but they had not moved rents at all, not a dollar in three years. That is what, basically, we call loss to lease value-add, meaning the real market rent for a two bedroom at that property should be $1,100, but they’re leasing it at 800, so they are losing $300 a month to that lease.
Once you do the analysis to confirm that that’s the case, that is your lowest risk, highest return value-add strategy is coming in with good management, good marketing, all the things that go into pulling renters to your property and just leasing it for what it’s worth. Bringing the property up to current market rents, like I said, we call that … Some people call it a management play but it’s also just taking advantage of loss to lease. That is, by far, our best return risk ratio value-add that we find, and it is very abundant right now.
It’s more abundant now than it has been in the last eight years, in my opinion, because there are quite a few owners who just did not keep up with the big ramp-up in rents that we had the last few years. An additional benefit of that and another thing that makes it a low-risk activity is you’re not counting on market appreciation to create value. You’re just saying, “Hey, I’m just going to get it up to where it is today.”
If rent growth were to go to zero and flatline for the next three years, your value-add strategy still works because all you’re counting on is just getting it up to where it is now. Again, it’s very low-risk. It’s very typically not capital intensive. You’re talking about a website. You’re talking about marketing. You’re talking about proper staff to handle leasing and all that. It’s very low capital intensive, so that’s another benefit of that.
The second one that we’re finding is very effective in today’s market is adding simple amenities such as dog parks, playgrounds, grilling stations, outdoor gazebos. If we buy a property with a pool, we’ll go in and put beautiful new pool furniture.
Stuff where if you got 100-unit or even a 20-unit property, if you rehab one unit, your return on that investment is from that one unit. If you have a 20-unit property and you add nice landscaping or a nice dog park, the return is times 20 because that affects all 20 families that are living in your property. That’s the next thing that we’re finding is the lowest capital expenditure, and the highest impact, and the lowest risk is, I would call simple amenities. Again, the dog park, the grilling stations, gazebos, all that.
Then also, in the exterior is, just make sure your property looks nice. Seal and stripe the parking lot. What that is, is that’s when they come in, they put the black tar on it. Then they let it dry, and then they paint the white stripes. It’s not that expensive but has a huge visual impact on the property. When a potential resident comes in, they go, “Wow. They take care of this place. Look how fresh and clean this looks.”
Landscaping is, in our experience, one of the best returns on investment also. Also, I think it’s one of the most ignored aspects of property, especially multifamily. We spend a lot on landscape, and we get a huge return on that. It’s hard to quantify exactly, is it $37 per azalea bush, or whatever? No one cares how the inside of your units look if the outside looks crappy, because they’re never going to see the inside because the outside looks crappy. Landscaping and some simple exterior improvements are, I’d say, number two.
Then number three is light to moderate interior value-add, especially if you’re buying properties that are 10, 20, 30 years older. We find we’re getting huge returns on simple things like tile backsplashes. If you do it with your own labor, it might only cost $300. If you have a vendor do it, it might cost 1,000, and you can get 50, $100 rent increases a month. That pays for itself in a year.
If you’re in the South, in the Sunbelt like a lot of listeners are, ceiling fans. Add ceiling fans to the bedrooms, and if you can, the living room. That is huge in places like Florida, and South Texas, and along the Gulf Coast. Think of things that people touch and see every day. Lighting fixtures, doorknobs. Again, those high-traffic, high-touch things that really aren’t that expensive to replace.
We’ll go into a property … That one that I talked about was built in 2011. They had very simple faucets in the kitchen. Beautiful kitchen. Granite countertops, nice cabinets, real wood, cherry wood, all this stuff, and then just like a faucet that belongs in a bathroom. We’re putting in the nice gooseneck faucets where you can pull the little sprayer out and spray the kids to get them out of the way, or wash dishes easily, all that kind of stuff. A couple hundred dollars installed, but a huge impact.
Those are the, I’d say, probably the top three things that come to mind in terms of executing a business plan and operations. I’ll pause there in case you have any follow-up or any additional comments. There’s also just ongoing operations things, but those are the first three big things that come to mind.

Jake Harris:
Yeah, that’s great advice. Obviously, I don’t think I’ve thought about that, the landscape being something that return on investment to every single unit. The percentage of increase versus … Actually, maybe some of those, just raising the rents. You can raise the rents a lot more just by doing some of that landscape.
With that, if you’re doing, maybe the question is, is like are you looking into xeriscape or things that have lower expenses on some of your landscape when you do that? Meaning, less water, or mowing, or expenses and trying to drop some of those ratios as well? Or do you get into that technical detail of that when you’re coming in and enacting a landscape plan?

Andrew Cushman:
We do. Most of our markets, xeriscaping doesn’t really apply because we’re in the Southeast where it rains a lot most years. What we do do is we’ll go … It’s funny. If anyone’s who’s owned property in the Southeast is probably familiar with this, where it’s called pine straw. It’s where your landscapers come in, and they rake up all your pine needles.
They charge you to do that. They take it offsite, they package it up, and then they sell those pine needles back to you as pine straw, and they put that down in all the flowerbeds and, basically, it’s like a cheap mulch. That’s really common in places like Georgia, the Carolinas, and Florida, but there’s a cost to that. It’s like four and a half or $5 a bail for that pine straw. If you’ve got a large property, that adds up to thousands of dollars a year.
One of the things we’ve been doing, and had a lot of success with that goes along with what you’re talking about, Jake, of not only does it have a one time impact of improving the look of the property, but it has an ongoing impact on your NOI, which is there’s a big multiple applied to NOI, is we look at things like, okay, there’s these flowerbeds, and we have to pay for pine straw or mulch twice a year. If we pay a little more upfront and change that over to stone, or lava rock, or something similar, then that ongoing expense goes away.
It saves on watering. You do it once and it’s good for five years. You want to make sure you don’t put something in a high-traffic area where kids are going to throw it through windows, but other than stuff like that, yeah, absolutely. We look at, can we eliminate irrigation? Because irrigation leaks. It costs when you irrigate. There’s problems, there’s maintenance costs on that, so yeah, absolutely, when you’re looking at your upgrades and your operations, you’re considering not only the one time cost but the ongoing, and so yeah, that’s a great example that you brought up.

Jake Harris:
One of the things, and I’m going to maybe add onto a little bit more dynamic of question. In some of our projects, we are charging for internet, bulk, bringing in fiber, doing some things like that. Then we’re getting batch or wholesale rates that we’re then charging to tenants.
With some of these value-add projects that you have, or call it the … Is that a possibility? Are you doing that as well versus some of the new construction? Because we have open, empty walls, it’s pretty easy to do that versus a value-add, “Hey, how can I get more internet charges, or chargeback?” If that’s five bucks, 10 bucks a month and times 12 months, times how many units, that’s a very good toggle of NOI, and at a five cap, it represents hundreds of thousands or millions of dollars in very incremental ways.

Andrew Cushman:
It’s funny you bring that … I literally signed one of those agreements about 20 minutes before we started this podcast, to do that very thing. The short answer is, “Yeah, absolutely.” Like you mentioned, it’s a little easier when you’re building a thing to put whatever you want in the walls. We do try to avoid stuff where you got to go in and cut open lots of walls. That can get really, really expensive.
As an example, the agreement that I signed today, it’s for a company where they will come in at their expense, and they will lay fiber-optic throughout the entire property at no cost to us. In fact, actually, they pay us a fee for the right to do that. Then that gives our property incredible internet speeds.
Then it’s up to that provider to market to the residents. It’s not exclusive. The residents aren’t forced to use it. I tend not to like stuff where we’re forcing the resident to do something and take away their choice. Because I know, as a resident, I don’t like that, so we prefer not to do that with our residents. It gives that provider the exclusive right to market to our residents, so they still have the choice but only one person’s going to be directly marketing to them.
Then it’s set up on a revenue share agreement. For every dollar that comes in, we get X percentage of that, and so every quarter, we get a check from the internet provider who laid the fiber-optics, and like you said, that goes straight to the NOI. Then you apply a four, or a five, or whatever cap rate to that, you just increased the value of your property quite a bit.
Another one we’ve had pretty good success with is washer/dryer leasing. If you look at surveys of tenants and renters over the years, consistently, the top amenity that everybody wants is in-unit washer/dryer connections so they don’t have to walk through the heat, or the rain, or the freezing cold to go to the laundry room, and then find out someone took all eight units and left their crap in there since this morning, and it’s just sitting there.
Everyone wants their own washer/dryer connections, but some people don’t want to drag around the actual units. What we’ll do is we will lease them for maybe $35 a month, and then have that company come put them in. Then we give residents the option to lease them from us for maybe $55 a month, so there’s a $20 margin there, and like you said, times 100 units, or 200 units, or even 20, that adds a lot of value to your property because that goes straight on the NOI.
Some of the benefits of structuring that way is if the unit breaks, it’s not our problem. The company that leased it, they come fix it. If the tenant moves out and the next tenant doesn’t want a washer/dryer, we don’t have to move those things or figure out what to do with them. The leasing company comes and does that. That’s a very easy, beneficial arrangement.
On some of our properties that only have one story, we actually will buy the units ourselves, and then just lease them, and it pays off in sometimes less than a year, so that’s a pretty good return on investment. Yeah, those are two that we definitely, that we do regularly, and there’s other along those lines that you can do.

Jake Harris:
Awesome. Yeah, those are some nice … I haven’t thought about that. Washers and dryers. Little nuggets like that, an extra $20 a month, times 50 units, times 12 months, times at a four cap, boom. Look at that.

Andrew Cushman:
Well, and another really easy one that’s like almost zero dollars, preferred parking. Just have your maintenance guy go out with a couple of stencils and some paint, and number a few parking spots that are right in front of units and say, “Hey, $15 a month, you get your own preferred parking spot.” That’s almost like free revenue. Now, I don’t recommend doing the entire property that way because it can be a nightmare to manage, but if you do a select handful, it’s almost like free extra income.

Jake Harris:
Awesome.

David Greene:
Jake, thank you very much for joining us. Also, I should mention I know Jake from a group I belong to, GoBundance. If you want to get to know me, Jake, and Andrew, who are actually all in that group, you should check out GoBundance because it’s a good time and there’s a lot of smart people there. As you can see, if you join, you’ll become better looking like Jake, just by joining right there.
Thank you very much, Jake, for being here. Andrew, also, thanks to you, my man. This doesn’t feel like a podcast when we do it with you. It feels more like a masterclass. This is what people usually pay money to get taught, and you come on and you don’t hold anything back. You give a lot of actionable stuff, so everybody that’s out there, send Andrew some love. Andrew, if people want to get ahold of you, what is the best place to find you, and how can they help you and your business?

Andrew Cushman:
Yeah, first, of course, connect with me on BiggerPockets. LinkedIn, I’m on there as well. Then the easiest way to get a direct connection is just if you search Vantage Point Acquisitions, you should easily find our website. It’s vpacq.com. There’s a number of ways to connect with us on there.
Anybody who happened to listen to our episode number 571, I mentioned that we were hiring an analyst, and that person came from the BiggerPockets community. We’re adding another BiggerPockets member to our team. They are phenomenal, and we’re super excited about that.
We’re going to do that again. We are actually now looking for a full-time investor relations manager, so if you’ve got strong organization and system skills, you’re detail-oriented, you’re a strong communicator, and you have a general interest in real estate, which I’m guessing you do if you made it this far into the podcast, please go to our website. Click on the little thing, I think it’s says, “We’re hiring” tab and apply there. We hope we can add another awesome BP community member to our team.

David Greene:
That would be great. There’s a lot of talent out there in BP that wants to get deeper into real estate, so if that’s you and you know you have something to add, please do contact Andrew.
If you are looking to invest with us in the deal I talked about earlier in Fort Walton, we are still raising money for that. You can go investwithdavidgreene.com, register. Unfortunately, this is only for accredited investors. People always get mad at me when I say that. That’s not my rule. I would prefer if it didn’t have to be that way. That’s the SEC’s rule, and this is me trying to stay out of prison by saying that, so don’t get mad at me. Get mad at the SEC or whoever it is that makes those rules.
Then, you can find me online at davidgreene24 on LinkedIn, Twitter, Instagram, pretty much everything other than TikTok, where I am official davidgreene because somebody stole davidgreene24, and maybe they stole davidgreene one through 23 while they were at it. I’m not sure.
Hey, we want to hear from you, so if you’d like to be featured on a podcast like this, you want to come in and ask your questions, whatever it is, please go to biggerpockets.com/david. Leave your questions there. We will get you one of these Seeing Greene episodes. We need good questions, and we had great questions today from people like Jake, so please, we want to hear from you as well.
Last thing is, please leave us a comment if you’re watching this on YouTube. It’s really easy. You can hit the like and the subscribe button at the same time, and then go down there and tell us what you liked about the show, what you liked about what Andrew said, if you’d like to have Andrew on more, what type of stuff you’d like us to talk about. We look at those comments, so does our producer, and we make shows based on what we see people saying, so please don’t be shy. Get in there and let us know. Andrew, any last words before we get out of here?

Andrew Cushman:
No, I really enjoyed this. This was fun. I feel like I should be asking some of these guys questions myself, especially Jake here, but this was a good time. I enjoy it.

David Greene:
All right. Well, thank you. Everybody listening, go listen to another episode if you’ve got some spare time. If not, stay tuned for the next BiggerPockets show. This is David Greene for Andrew Hawkeye Cushman signing off.

Andrew Cushman:
You went down the donut hole metaphor. I love it, yeah.

David Greene:
I can make an analogy out of anything. It’s literally the only reason I’m on this podcast. I don’t think I really know anything about real estate.

Jake Harris:
I want to compliment, you were rubbing off on Andrew, by the way,

David Greene:
“Happier than a four-year-old in a Batman t-shirt.” Not bad, not bad.

Andrew Cushman:
Thank you. Thank you.

Jake Harris:
That was awesome, but up there with, “Some things age like wine, other things like milk.” That was awesome too. I wrote both of those down because I’m stealing both of them.

Andrew Cushman:
Isn’t a block of cheese really just a loaf of milk, if you think about it?

David Greene:
All right. We’re way off topic.

Dave:
Welcome everyone to OnTheMarket. On today’s episode, we are going to go deep into a very important topic, how to get started in real estate investing in 2022. We’re going to cover headlines that address the challenging and confusing economic conditions we’re facing, we’ll talk about strategies and tactics that new investors can employ to get a great deal right now, and we will help one of our audience members walk through their first deal.
Welcome everyone back to OnTheMarket today. I have my good friends, Jamil Damji, Henry, Washington, and Kathy Fettke joining me today, and because we are going to be talking about first deals and getting into real estate for the first time a lot in today’s show, before we get started, Henry, can you tell me in 30 seconds what your first deal was?

Henry:
My first deal was a rental property. Found it from word to mouth, just because I was telling people I was an investor, even though I had no clue how to actually be one and somebody heard that and said, “I need to sell this house in 30 days. Can you buy it?” And I said, “Yep,” and I had no idea what to do. Literally downloaded a contract off BiggerPocket, signed a contract and figured out a way to buy it. Boom.

Dave:
I love it. What about you Kathy?

Kathy:
Ooh, 30 seconds. Okay, my dad was distressed, he had invested in an apartment in Marin County and the sponsors sold it and he didn’t know, he was on vacation. So bottom line, he was about to retire and found out he was about to have to pay all these back taxes from the sale of that property he invested in for years.
I was like, “Dad, what do you need?” And he goes, “I just need a new property, a replacement property.” So Rich and I, we were just getting married that year, ended up finding a huge house that met the 1031 exchange, and we said, “Dad, we will take care of this for you, all details.” What we didn’t know at the time, but know now is that we ended up inheriting that house and then all the back taxes were gone. So that was how we did it. We turned it into a fourplex and we shared walls. We house hacked and that’s how we did it.

Dave:
All right, Jamil, what’s your first deal?

Jamil:
Wholesale. I was walking for dollars, tired landlord, had a buyer in my back pocket that I knew would pay a specific amount of money, locked it up, $50,000 less than that, wholesaled it, $47,000 profit after paying the attorneys and title fees. First deal, life changing.

Dave:
I love it. Everyone just keep that in mind as you’re listening to this episode, there are a lot of different ways to get into real estate and we’re going to talk about some of the best ways that you can get in, even in this unusual economic climate. Before we do that, we do need to get to our, between the headline segment and I have some really good headlines that I think help paint the picture for the economic climate new investors are finding themselves in right now. So we’re going to play the game. It’s just called quick take, Super simple, I’m going to read a headline, give you some background information and would love just a quick opinion from each of you about what this means for investors new and experienced alike.
The first story is that the stock market continues to underperform this year. Over the last couple years we’ve gotten really used to the stock market just going up and up and up. As of now, we are seeing that the Dow Jones is down 6% year to date and that is the best index right now. The S&P is down 10% and the NASDAQ, which is very tech heavy, is down 17% year to date, and it doesn’t look like things are getting any better to me, but would love to get your opinion. Kathy, let’s start with you.

Kathy:
Well, the people I listen to and I don’t invest a lot in stocks, just a little bit, but the people I listen to say that you want to be in inflationary stocks, so energy, food, things like that. So the stock markets like lots of things, not all stocks are good and not all stocks are bad. There are different companies that are performing well in this environment.
What didn’t help last week is that the fed chief, Jerome Powell mentioned at the IMF that they were going to be more aggressive. I think he said, “We’re going to move a little more quickly,” and when Jerome Powell speaks investors listen, and it really affects the stock market, which can be much more volatile.

Dave:
All right, Henry, what do you think?

Henry:
Yeah man, the stock market is, right, wrong or indifferent, it’s an investment vehicle that people have used for decades and decades to build wealth. So the stock market tends to react negatively to fear, and a lot of things that drive fear are uncertainty, and boy, the last two to three years has been the definition of uncertainty. The things that have happened in our world are things that no one could have predicted and unpredictability drives uncertainty, which drives fear, which you’re seeing the market respond to that fear. But if you look at the stock market as a whole, it’s similar to real estate.
We all know if you buy real estate now and you hold it for the next 50 years or call it 10 to 20 years, the trajectory line is going to be increasing over time. So if you’re trying to make money in the short term by buying something that may be low right now, hoping it goes back to its pre pandemic highs, then yeah, that’s a gamble, gut if you’re buying quality companies, who are producing quality products or services that you trust and believe in and you hold them for a long period of time, I think that’s, that’s a way to play it “safe.”
So right now it’s going to be a little volatile because the world’s volatile. As things stabilize… hopefully things stabilize in the world, the stock market will fall a suit. So if you’re trying to buy low, sell high in short term right now, probably not the market for you.

Dave:
All right. Jamil, wrap us up here.

Jamil:
Never been a fan of the stock market and even though, as Henry said, it tends to go up over time, for me, I’m genetically engineered to trade. I love the excitement of being in things and trading. So stocks are very much like gambling for me. I do better in Vegas than I do in the stock market, just saying that. So for me, I’m I’m not putting my money in the stock market, I don’t have my money in the stock market, I never will put my money in the stock market. So, “Pfft,” that’s what I think.

Dave:
All right. Well, I do invest in the stock market and just continue to do dollar cost averaging index funds. I don’t do anything fancy, but one thing I do want to point out about what is going on right now, because it is related to real estate, is that we are all seeing bond yields start to rise and I know bond yields are the least sexy, most boring thing in the world, but they control so much of what is going on in the economy. Right now bond yields are pushing up mortgage rates and that will probably put downward pressure on housing prices. It does a very similar thing in the stock market just so people are aware, because it gives investors an alternative to speculative stocks and things. So we saw that over the pandemic, a lot of people didn’t want to invest in bonds because the yields were so low, so they were pouring money into the stock market. Now bonds are starting, gradually, to look more attractive and you could start seeing people pulling money out of the stock market and into the bond market instead because it is a relatively safe investment. So something just to consider for everyone listening to that.
For the second story and headline, I want to talk about today and we’re only going to do two today, is about the housing market and what is going on right now. March numbers are starting to come out and just so everyone knows, we get this data like a month in arrears, so we are still talking about March data, but it is very relevant. The numbers came in and we saw 17% year over year price growth, 17% rent growth, but inventory remains at all time lows on a seasonally adjusted basis. So that is really, really interesting and I think the data point that stood out to me the most is that home buyer mortgage payments, so the average amount a new person if you went to buy a house is paying for their mortgage right now, was up 38% over the year before and that is due to, of course, the rising prices, but rapidly rising interest rates. That number sort of boggled my mind Jamil, let’s start with you. What do you think about all this data from the March housing market?

Jamil:
It makes sense. I’m seeing it in my business. We have tremendous volume, the appetite has not gone away. The secondary home buyers are still very, very much actively buying. You saw a small… a little blip from retail home buyers, as they paused, they gave pause for a moment as rates started to increase, the secondary home buyers came in, gobbled up everything.
The primary home buyers, your school teachers, your nurses, these people were waiting hoping that there might have been an opportunity. Never happened. So they jump back in. Now of course, payments are up. Things are not affordable. We’re not seeing something healthy here, but it’s what I’ve been predicting. I think the secondary home buyer is strong. I think that they are waiting for this opportunity for rates to go up so they can come in and grab more and more inventory off the market and it’s not going to get any better,

Dave:
Kathy.

Kathy:
Well, we are looking at the results of low interest rates. You have low interest rates for an extended period of time, that allows more people to afford to buy and the natural result is higher home prices. So it’s nothing unexpected. What’s really difficult is those prices are up and now interest rates are going up because they need to to slow it down. So right now might be potentially the most expensive time to buy. That’s not stopping people though. Sales are down slightly this past month, but there are still plenty of buyers out there who can afford. That’s really what it comes down to.
We have, actually all of us, a personal friend, I can’t say who, who’s buying a really expensive home in Austin, moving out of a high priced area. So you’ve still got movement happening, people who have made a tremendous amount of money over the past year, people who did pick the right stocks and the right real estate and the right profession , have done really well and are loaded. The consumer is probably the strongest ever. The FICO scores that we’ve seen have been the highest over 740 or whatever. This is not the subprime crisis at all.
So prices are high, but still affordable for some people, but for again, like you said, the daycare workers… This is something I wanted to say last time. I have friends who are daycare workers in Seattle. They’re not experiencing the salary increases that tech people are and they need to take care of these children. Where are they going to live? So there is a separation that’s happening and it’s very concerning for workers who aren’t seeing the kind of wage increases.

Dave:
All right, Henry, what do you think about these numbers?

Henry:
Yes. This is what we’ve been talking about, right? The key things that you said that I honed in are supply and demand. So we’ve still got low inventory. That’s always going to bring more buyers. Yes, there’s higher interest rates. That just means a subsection of buyers get priced out. No matter what the interest rates are, there’s going to be a subsection of buyers that get priced out, that subsection gets larger the higher the interest rates go, but there’s still plenty of people who want to buy.
The other number that caught my eye there was rent growth at 17%. That means rents are higher now too. So people who may have thought, “You know what? I don’t want to buy right now, because I can just rent and save some cash,” and then boom, their rent goes up or they move and they’re paying new market rents at their new place. They start doing the math and reevaluating and going, “Well, maybe I’m okay paying a couple hundred dollars a month more. At least I get to own, even if I’m I’m paying a higher amount than I would be accustomed to paying, at least I get the other benefits of ownership.”
So, yeah, man, people are still going to buy. If the demand is there and the supply is not, that’s why I love this business.

Jamil:
I wonder if we’re going to have a baby boom, of all these single people that are paying all this expensive rent, getting together and moving in with each other just because they need to be able to afford things and now they’re just having more babies because of inflation.

Henry:
Get that tax credit.

Dave:
Oh, you think that decreased affordability is going to lead to a population surge in its face? You never know.

Kathy:
Because babies aren’t expensive at all.

Dave:
Yeah. Very good point. Kathy.

Jamil:
It’s just kicking the can down the road, Kathy, that’s how we live.

Kathy:
Ah.

Dave:
All right. Thank you all for those very quick takes. We are going to get all into how to invest in this confusing economic time, right after this.
Okay. Welcome back to OnTheMarket. For our due diligence section today, we are going to be talking about how to make sense of this very challenging market for new investors or maybe it’s not very challenging. We’ll talk about this, but before we get into it and I ask you all your opinions, I’d like to just set the stage for this conversation and tell the story I keep hearing from a lot of people about their experience and where they are getting stuck in investing. Basically the story goes like this. You’re a hard working adult. You’re trying to get ahead. Maybe you have a full-time job, you might have some kids and you want a good life. You’re not asking for too much, you’re looking for a life where you don’t have financial stress and you want freedom over your time and you’re trying to do well.
You are making good financial decisions, but we all know it’s pretty tough. Savings accounts are pretty much useless. Wage growth has not been really significant since the 1970s and life is expensive shit. You have medical bills, you have student debt, you have all this stuff going on, and then maybe one day, hopefully, you discover BiggerPockets or another investing resource and you’re like, “Yes, this is it. I need to invest. This is the key to what I want,” and I don’t know if maybe this for you was five years ago, maybe it was during the pandemic. As Henry has talked a lot about, you chose to educate yourself financially, whatever it is. Maybe you got to feel excited about investing And then all of a sudden it’s 2020 And you see now this virus that is shutting down the world economy and you’re disinfecting your mail and you’re trying to make bread and it tastes like shit, and you go to Zoom, birthdays and puzzles, and you’re bored and it’s just awful. There’s like murder hornets going on. Australia catches fire, everything is terrible, but you keep your resolve and you’re trying to commit to investing. You’re like, “Once the pandemic’s over, that’s when I’m going to invest.”
But then housing prices take off, they’re at an all time high and it’s super hard to get a deal. Inflation makes everything even more (beep) expensive. The fed announces they’re raising interest rates, everyone’s freaking out. Economists are starting to predict recessions and if all this wasn’t bad enough, some (beep) go and start the first ground war in Europe since the 1940s, causing untold suffering and a huge humanitarian crisis.
So it’s a perfect time to invest, right? Is this a story that resonates with you guys? Do you feel like this is the best… is still a good time, despite all of these challenges to invest? Henry, I’m going to open the floor to you.

Henry:
Again, yes.

Dave:
Should we just end the podcast now? was it just-

Henry:
Right.

Dave:
… [inaudible 00:16:40]

Henry:
Two credits? Look man, yes, all of that craziness and uncertainty and scariness happened and craziness continues to happen, but what we talked about in the last segment is also happening, which is real estate is proving itself to be a phenomenal vehicle, still to build wealth. And yes, it’s scary, but for those of us who were in before all the craziness and I bet if you ask people who’ve gotten in, even after the craziness happened, the good majority of them are in a better financial position today than they were in before they got started because values are increasing, because demand is so high and supply is so low and yes, there’s been a ton of money out there and that’s what’s causing people to go out and buy, buy, buy, because they want to protect that money by putting it into an asset that they feel is going to increase in value over time and history says with real estate, that that’s true.
So yes, it has been crazy and it’s going to… who knows what’s going to happen. If I’ve learned one thing it’s that I know nothing about what’s going to happen in the political environment or in the health, health crisis environment. Like, I don’t know, are we going to wear masks again? Who knows. Are we going to get locked up? Who knows. But I know that real estate has proven itself to be a phenomenal investment vehicle, especially for those of us who have educated ourselves and then taken action on the education to buy quality assets as often as they can.

Dave:
Totally with you, but the fear is real, right?

Henry:
Yes.

Dave:
I don’t feel like it’s as obvious as it was, in 2014, it was a lot easier to find a deal and financing that made sense to you. Kathy, do you think the fears legitimate and how do you get over that fear?

Kathy:
There are so many things to be afraid of and I could tell you that what’s happening today is nothing new. When I was young and that was a little while ago, we were worried that two guys were going to push a button and blow up the world and we had to learn how to drop and roll. Remember that? Stop, drop, and roll to not get blown up. That’s how I was raised. I bought my first house right before Y2K. Everyone thought the world was going to end. There’s always something. My background, my degree is in broadcasting. I worked in ABC and CNN and Fox before when it was just regular news, and I can tell you that was our business model was to scare you. I hate to say it, but if the headline didn’t draw viewers, then we didn’t have advertisers, so it always came down to scaring you.
So just know that and there’s more headlines now. Back then there were five. There were five news stations, that was it and that’s where you could get afraid. But now it’s everywhere. It’s on your phone, it’s on your computer. You just try to search to shop and something comes up. So we’re being bombarded by it. I can tell you when I was terrified and I made Rich change outside before he came in our house and wash everything down, I was probably the most scared person in March of 2020 because I have asthma and I didn’t want to die in aisle of a hospital.
So I understand and I remember Rich just took me and he looked to me in the eye, Rich is my husband, and just said, “You’re going to be okay. You’re going to be okay.” And it’s like, “Yeah,” because I am, and just a shift of belief system that you’re going to be okay and stop looking at the news, just stop. Focus on what you want to create and put all your energy there because the world is always in turmoil, it always has been. This is a horrible war that’s happening, but there have been wars, there’s always wars. For some reason, this one we’re more upset about maybe because we’ve been to these places or they look like us or whatever. There’s been wars in Africa, there’s always humanitarian crisis that’s terrible.
When you build wealth, you can donate to these organizations and you can help more than if you don’t. So focusing on becoming successful is really important and just let all that stuff go and know that you can make money in any market, in any cycle. The only reason you’re afraid, the only reason, is because you haven’t done it and maybe you haven’t learned enough.
So find a mentor or read more books, listen to more podcasts and take the step. This is what I told my daughter when she said, “Mom, I’m too young to buy a house at age 24.” I said, “Who’s your mama? No, you’re not.” So go just the first step, just do the first step, because she was about to go buy a car. I said, “Oh my gosh, the eight hours, you’re going to spend trying to buy a fricking car and now throw your debt to income ratios completely off, just spend that time, spend one hour, one hour, with a mortgage broker. That’s all I ask. After all I’ve given you for 24 years, just do this for me.
And she did it. She went and she talked to the mortgage broker. She came back and she’s like, “They said, I qualify for a $300,000 home.” She was two years out of college with making $26,000 a year. This is not a wealthy person. So she was shocked and it was just taking that step learning a little bit more. Then she’s like, “Mom, I don’t know how to get a mortgage.” Well, all of it is terrifying.
When my friend bought her first house before I was in real estate, I was like, “Oh, that’s too overwhelming for me,” and it is, it’s a lot, but when you do it, when you go through the process, you learn so much. So it might not be the best deal in the world, the first deal you do, but you will learn so much and it might be the best deal.
In the case of my daughter, she found a $250,000 house in Chico, California. It was cheaper and I’m talking California. It was cheaper than what she was paying for rent and then the fires happened, the big Paradise fires. I’m sure you heard about that, was just like the neighboring town. All of a sudden she was getting people desperate for a place to live and she was able to rent her place out. The insurance paid for it all, $3,500 when her mortgage was 1400 a month. She was making $2,000 cashflow at age 24. She’s like, “Okay, mom, I get it now.” She wouldn’t have known that. She wouldn’t have known that if she didn’t just take that first step.
So I always tell people just talk to a mortgage broker just to find out what does it take? What’s the process? What do you need to do? Do you need to fix your credit? Okay, they’ll tell you that. That’s the first step.

Henry:
Ah, Kathy’s voice telling me it’s going to be okay, the next time I’m stressed out-

Jamil:
It makes you feel good.

Henry:
… I’m calling you so you can talk me down. I feel great right now.

Kathy:
Yay.

Dave:
Our next data drop is going to be an audio recording of Kathy just reassuring people that is going to be okay.

Kathy:
It’s going to be okay.

Jamil:
It’s a guided meditation by Kathy Fettke.

Dave:
I would listen to that.

Jamil:
You’re going to be okay.

Henry:
I’m subscribing right now.

Dave:
Now. I do want to move this into practical tips and strategies for investing as a new investor, but Jamil, I would like to hear your perspective on this. From a mindset perspective, how do you advise people that you interact with about getting into today’s market?

Jamil:
Well, I appreciate you asking the question because I agree with both of Henry and Kathy, you get what you’re looking for and are you investing in fear or are you investing in opportunity and possibility? And that’s truly what we can always be doing. So shifting perspective, shifting focus will find you a reality that you’re trying to find. So if you are being crippled by the news, if you’re being crippled by negativity, if you’re being crippled by your own subconscious mind telling you that things are going to be harder for you, than you are ingesting the wrong information. I promise you’re ingesting the wrong information. You need to invest your mind and opportunity and possibility.
Look, life is hard for people right now who made life hard and I’m sorry, if your situation right now is difficult, you have to look at the choices that got you there. That’s just what is happening in reality. You can focus your attention, you can focus your momentum in a trajectory that’s going to get you across the line. That takes time, that takes dedication, that takes adjusting your energy on a daily basis, but the product of that, if you look three years down the road from you just making that investment into the way that you think, the way that you feel and the way that you operate, and then you see what your life looks like in three years, it’s going to be different.

Dave:
This is great advice to all of you. Thank you for sharing this because I do think there is reasonable fear and it is hard to get over it, but advice from people like all of you who have done this before and have gotten to a right mindset to pursue your financial goals is super valuable.
Let’s switch gears here and talk about nuts and bolts. How do you go about investing right now if you’re new in this economic climate? So Jamil, is that to you wholesaling or how would you advise someone if they had to focus in on one strategy, what would you tell them to do?

Jamil:
Well, let’s look at the parameters we’re working with right now. We’re working with rising interest rates, so it’s harder and harder to qualify for a property because the rates are high and you may not have a job right now that’s going to be able to get you that qualified mortgage. So that could be difficult for people in keeping them from taking action. You’re looking at retail inventory out on in the world on the MLS it’s very sparse and not a lot of it pencils out. So it’s like, “Wow, how do I even… I can’t jump into that, it doesn’t pencil. I’m going to have negative cash flow. I’m not going to take action.”
So that’s, what’s crippling a lot of people right now because when you’re looking at real estate from a rental perspective, you have to have some money before you can start doing these things in a great way that’s actually going to move the needle in your life. Why wholesaling is such an incredible tool, you invest in education and understanding and learning how to underwrite property. Once you understand what a deal is now you know what to do now you know, “Okay, I’ve got an opportunity here. There’s equity in this opportunity. There’s so much potential here. I can go sell off a piece of that potential for a large amount of money.”
Look, guys, anyone listening to this, how much would $10,000 change your life right now versus an extra $200 a month? How much would $40,000 change your life right now versus an extra $500 a month? I’m not saying that an extra $200 or $500 a month isn’t good, but an extra $10,000 or $40,000 is much better. Okay? So understanding wholesaling can get you large chunks of money, which you can then use to invest in buying and building a rental portfolio, but first we need money and you’re going to get money by learning how to wholesale.
In fact, Dave, I am so adamant on people understanding and learning how to understand value, I put together this set of rules, they’re the appraisal rules. I went and I spoke to appraisers across the country. I took courses on appraising. I understand how to understand value. It’s the only thing I feel like I’m really good at other than combing my hair in the morning. I am very good at understanding value. I made these appraisal rules and I’m happy to give it away to everybody listening to this podcast. You can find these appraisal rules, you can learn how to underwrite and spot a deal and then when you can spot a deal, bring it to me, bring it to one of my 106 franchises across the country. Let us buy it from you, pay you $10,000 to $40,000 or even more, and then go out and start a better life.

Kathy:
Ooh, that’s a deal.

Dave:
Yeah. Thank you for offering that. I guess that’s a data drop. We’ll need to get the air horn in the middle of the episode this time. Thank you for sharing that.

Jamil:
Of course.

Dave:
Before we move on, though, I do want to bring out one other question about wholesaling because to me, and I’ve never wholesaled a deal, to be honest, is it a relatively low risk way for new people who might be afraid and want to sort of dip their toe in a real estate investing to get involved?

Jamil:
Absolutely because look, you are trading instruments when you’re wholesaling, you’re trading a contract. You are only selling a right to buy. Now that right to buy doesn’t mean that you have to actually buy this thing right now and I’m not telling you to go out there and unethically tie up people and lie to people and put people in bad situations, but let’s be honest, we’re in an inventory crunch, there’s still 15 million vacant gross houses out there in the United States. Okay? That inventory crunch doesn’t exist in this market of distress, in this world of distress where all of these really crummy houses that retail buyers can’t buy because they’re, unfinanceable, that’s where we trade in wholesale. That’s where the potential lies.
So yes, you’re not putting yourself in a risky situation because again, these properties require due diligence, they require time, they require experts to come in, take them and make them vertical and beautify them again and put them back into the retail space. You, my friend, who is listening to this, thinking about getting into wholesale, are providing those people the opportunity to do that. You are adding value to the marketplace, you are serving a purpose.
So by learning how to wholesale, by learning how to underwrite, you are taking a first step into real estate investing without having to buy a house, without having to get a mortgage. Think of that. All you’re doing is understanding how to underwrite and then trading that mind and that contract for a profit. What a beautiful thing.

Dave:
All right. Thank you for explaining that. I think it’s a super helpful topic for our listeners to consider if they are not ready to pull the trigger, but let’s talk about pulling the trigger. If you are ready to buy or you want to do this in conjunction with real estate, Kathy, what would your strategy recommendation be for anyone who’s trying to make their first investment right now?

Kathy:
I actually outlined this in my book. It’s super clear to know where you’re going. What is it you’re trying to achieve? So know where you’re going, and then you’ve got to know where you are. So if I was to say… let’s say you wanted to be in Phoenix. All of us four are coming from different places, it’s going to be a different way to get there.
So the way that you do that is really just sit down and decide, “What am I trying to do? Why would I buy a piece of property? Why would I wholesale? What am I trying to get to?” And is it you’re trying to increase cashflow? Are you trying to invest for the future? Do you have a lot of time? Do you have no time? These are all things that are really important to look at first.
So where are you wanting to be and where are you now? The biggest mistake or a very big mistake is people have no idea how much money they make sometimes or how much they’re spending in taxes or how much they’re spending on dinners and whatever. Awareness is the first step. You hear this a lot in motivational seminars and it’s really true, awareness is the first step. Where are you? And to just understand your finances. Do you have a tax problem? Are you paying way too much in taxes? You’re going to solve that differently than somebody who doesn’t have a job and is paying no taxes and needs to make cash flow. So getting those things really clear, what is it you’re trying to achieve and where are you now? And then what is your path going to be?
It’s going to be different for everyone. That’s why it’s hard for me to give a straight answer here but if you don’t have any money, then you are going to probably… First of all, you’re going to have to get really educated. Like Jamil said, make sure you are one hell of an underwriter, because if you find the deal and it’s a good deal, you’re going to find the money, that’s not going to be a problem.
If you have money and no time, maybe you just need to really understand why are you wanting to buy real estate. Is it for tax benefits? Or maybe you invest in somebody else’s passive income project, maybe a syndication where you get those tax benefits, but you don’t have to do anything, you get the cash flow and tax benefits or you just buy a really already like a brand new rental property that doesn’t need any of your time and energy, but it’s in a growth market and you’ve got great property management in place.
So again, it’s going to be different for everybody, but starting out, knowing what you want and then where you are.

Dave:
So do you think then that given… I totally agree with everything you’re saying, that’s excellent advice because your strategy is inherently personal, it has to be reflect your own personal goals, but do you believe that any and all real estate strategies are still possible and advisable to first time investors in this type of economic climate?

Kathy:
Oh my gosh, yes, of course. Of course, of course. Yes. Yes, but it’s just not going to be the same strategy as maybe last year or the last 10 years, but there’s always, always opportunity. I can’t emphasize that enough. Right now, we’re actually really excited. Like, “Oh, finally, there’s more inventory.” We’ve been in this inventory starve market and it’s not really much better, but it’s a little tiny bit better.
So for the first time in years, we’re actually able to get some properties at auction in Tampa. That has not happened for years. So for the first time we’re having a property tour and going to look at foreclosed homes. Again, that sounds, that sounds bad. It’s not like we’re hoping people will lose their homes, not at all, but there have been some people that were able to take advantage of the foreclosure moratoriums who were already late on their mortgages before COVID, so it wasn’t really COVID related and they’re just coming through the pipeline. But the auctions were just shut down. So there’s more inventory coming On the market, which means there’s more opportunity coming.

Dave:
Great advice. Thank you, Kathy. Henry, what is your strategy tip for new investors in 2022?

Henry:
Yes. Look, Kathy’s 100% right, you got to know what you want to do. Look, I tell people, you have to decide you’re going to invest in real estate. Make a decision and truly make that decision in your mind and in your heart because when you decide you’re going to do something, the Universe gets out of your way, and you start to see options for how that can be possible. When you just say, “Hey, I think real estate’s a great hedge. I’d like to try and own a property. We’ll see how it goes.” Your brain doesn’t start working for you. Your brain just starts going through what it normally goes through, the things it already knows and then when you run into a roadblock like inventory shortage or rising interest rates, or you don’t have the down payment money, all these roadblocks that pop up, then you stop. You just say, “Oh, well, it’s too hard. I can’t. I can’t in this market, it’s too hard,” but that may not be true at all.
Kathy just said there’s a bunch of different ways you can get into real estate investing and that’s still true even in this market, but you have to make a decision in your mind that, “I will buy an investment property in the next 60, 90, 120, six months,” whatever, pick your timeframe and just write it down five times a day, “I will buy an investment property,” because what you do when you do that is you open up your mind to the possibilities of how you can get in the game. Too many people want to know the how before they take any action and that’s not the way things work. Like you can’t have every step lined out for you. And it just says, “Okay.” You open Zillow, and then you search and then you find a house and then you go, “That’s the one,” and then you call the bank and they’re like, “Here’s all the money,” and then you buy a property and then you get a tenant and then it cash flows. Yay. Real estate. That’s not how it works, y’all.
You have to decide, you’re going to invest in real estate and when you do that, it’s like the red truck theory. It’s like you want to buy this pretty red truck and you go out and you buy it because nobody has this truck and you’re going to be super cool guy with the cool red truck and then every other truck you see after you buy that truck is a red truck. There’s no more red trucks today than there was yesterday, it’s just that your brain is open to the idea that they exist.
So if you tell yourself and you make a decision that you’re going to invest, you will start to hear things in conversation, you’ll start to hear things in podcasts, you’ll start to hear some of the great wisdom that Kathy and Jamil and Dave are dropping right now and be like, “Oh, that’s it. That’s how I can do this.” This information was out there before. Your brain just wasn’t open to receiving it and putting it into action. So the step one is the decision you have to make and you got to make it in your mind and in your heart and know that no matter what comes up, “I’m going to figure out how to get this done.” That’s step one.
Step two is just evaluate your situation. Evaluate where you are. Kathy touched on this. Evaluate where you are and what you want. I can tell you something. A lot of you want to buy a rental property and you don’t realize you’re living in it. Tons of you live in a property that would be a phenomenal rental. Three bed, two bath, 1500 square foot, first house. That’s an amazing house. It’s amazing that you bought that house, but it might be a fantastic rental. Maybe it’s a fantastic Airbnb. You have to know the market that you’re in.
So you could potentially move out of that property, rent it out and then use a program like an FHA program to buy a duplex. You know you can buy up to four units with an FHA loan and you can live in one of those units and you can rent the other units or you can live in one of those units and you can Airbnb the other units or you can live in one of those units and you can rent out the rooms in your side and the other side,
I’m not saying this house hacking strategy works for everybody in any situation. What I am saying is it can probably work for a lot of people, but it’s going to require you to get a little uncomfortable, but wealth is built in uncomfortable zones. If wealth was comfortable, everybody would be wealthy. It’s going to take you getting a little uncomfortable. I’ve heard people say, “Hey, I want to buy rental property. How do I get in the game?” And I say, “You should house hack.” “Well, I don’t want to share walls.” Well, that’s a silly thing to stop you from building wealth. Or they say, “Well, my wife won’t want to share walls.” Still, it’s a silly thing to stop you from building wealth.
Does the strategy work for everybody? No it doesn’t, but think about this. If you live in a house that you can currently rent out and then you go buy a duplex, let’s just call it a duplex and you live in one side and you rent the other side and the other side covers your mortgage. So let’s say right now you’re paying $1,000 a month, I know that’s probably low for your mortgage. $1,000 a month, if you live there for 12 months. Let’s say you just keep paying that, but you pay it to yourself. After 12 months, you’ve got $12,000 saved up. After two years, you’ve got $24,000 saved up. Then you can go take that $24,000, you can buy whatever dream house you’re looking to buy. You’ve got $24,000 to use as a down payment. You move into that and then you rent out the unit that you’re living in and the rent from the unit you’re living in, pays for half your mortgage at your new dream house.
You can get to your goals faster if you just look at the situation you have and see how you can leverage it to reach your goals. Yes, it might be a little uncomfortable, but ask yourself, “Am I living in my first rental or can I just go buy a duplex and live in my rental and then have two doors?” I don’t know, man. I think it’s a phenomenal way to get… I did it. And it’s how I live in the dream house that I have right now and it changed my life forever.
This market is crazy and it’s going to continue to be crazy for a little while. So just look at the situation that you have and the tools that you have at your disposal and be a little creative with how you try to find that first deal. Is it a wholesale? Maybe. Is it a house hack? Maybe. You’re going to have to get creative and you’re probably going to have to get a little uncomfortable and you need to be okay with that.

Dave:
That was very well said, Henry. I’m inspired to go start house hacking again, even though I’ve done that a few times at this point, but I’m glad that you brought that up because I think that when when people ask me what’s the easiest way to get into real estate investing? I say the same thing. I always say house hacking because there are just so many advantages. So I agree with Jamil that wholesaling is really good, especially if you don’t have money saved up, it’s a great learning experience, but if you want to actually buy the house, house hacking, super great opportunity. As Henry said, you can take advantage of an FHA loan and put as little as 3% down and in a rising interest rate environment, you get owner occupied financing, and I think that is super important because over the last couple of years, the spread between an owner occupied loan and an investor loan was not that much. I don’t know exactly what it was, but it was not as great as it already is now. Now we’re seeing it it’s at least a point, so that means as an owner occupant your deals, like you can underwrite a deal better than someone who is not owner occupying something. So that is an advantage that you can have over other people in the marketplace.
The other thing is, as someone who has done this and was an awful landlord when I was house hacking, is that it is an amazing learning experience. You will learn more about property management by house hacking than you will by buying out of state and buying down the road for years. You will learn so much living in a property that it will set you up for long term success in real estate, in my opinion.
So I’m with you Henry. I know it’s a little uncomfortable, but again, as someone who’s done this, it’s really not that uncomfortable.

Henry:
It’s not that it’s uncomfortable.

Dave:
It’s’ really not. What’s so bad about sharing walls? Like I’ve lived in apartments. I live in an apartment right now, I share walls with people right now, it’s really not that bad, it’s a pretty normal thing to do. So if you could do that and build wealth at the same time, I’m all for it.
So you guys all have given really excellent input and advice on first things you could do. We’ve talked about house hacking, skills like learning to underwrite and Jamil, very generously is giving away that underwriting document. We’ve talked about assessing your situation. Kathy talked about just talking to a mortgage lender. What a great piece of advice. Just go figure out what you qualify, stop thinking about like what if, you could find out for sure what you qualify for. Before we go, are there any other practical tips, individual pieces of advice that people could do right now today to get them that next step forward towards their first deal?

Henry:
100%. I think you just hit it, is too many times we let what we think is going to happen stop us from the action that we want to take. I’ve heard people say all the time, “I want to buy a rental property, but my debt to income isn’t good, so I can’t qualify right now.” “Oh, okay, well which mortgage lender told you that?” “I haven’t talked to one yet.” “Oh, okay.” Or, “I can’t buy a house right now because I can’t house hack. I can’t qualify for a duplex. They cost way more than a single family home. There’s just no way I can afford that.” “Oh, okay. The bank told you that?” “Well, no. I just know they’re more expensive.” “Well, yeah if they’re occupied with tenants that they can use the rents that that place is making to qualify you for more because that’s income for you.” “Oh, I had no idea.”
I think a lot of the times we have to stop convincing ourselves that we can’t do something before we just go get the answers for ourselves. So take the step. The practical step is go talk to a bank, go talk to a real estate agent, go talk to the professionals in your field and tell them your goals, “I want to buy a rental property in the next six months. What is it that I need to do in order to get that done?” and let them give you the practical advice and let them tell you exactly what you can and can’t do and stop telling yourself what you can’t do based on what somebody on the internet said or one of your friends said that tried to buy a house a few months ago and got beat out. Just go figure it out for yourself. You’ll be surprised at what you can probably accomplish if you stopped saying no to yourself.

Dave:
I am feeling so inspired. I am ready to go do my first deal all over again. I wish I could go back a time and go house hack. Kathy or Jamil, either of you have any last thoughts or advice for first time investors?

Jamil:
Absolutely. So a motto of mine is squat up. Squat up, go find a community, find people that are doing it. Just like Henry just said, there are people living what you are trying to live and they’re nice. Guess what? Most successful people got there because they’re not dicks. Truly. You can go and get advice from people, you can be friendly with people, you can tell people, “I’m new, I’m wanting to learn,” and you’d be surprised at just how many people are willing to offer mentorship or offer stewardship and just be a part of your life, a part of your journey, because they’re just genuinely good people and they want to see others succeed. Community, squatting up, getting with other people that are doing what you’re trying to accomplish. You cannot be not be left behind if you are forcing yourself into the pack, that’s just what it is. Go do it, go do that thing.

Kathy:
Yeah. Absolutely. If you are being negative, being a downer, seeing all the reasons you can’t, this is the only way I can say it, you haven’t arrived yet. You have not adopted an abundance mindset. And when you’re around investors all they’re doing is talking about opportunity. And I’ve been doing this for 25 years and there’s been a lot that’s happened in 25 years, a lot of negative stuff out there, and yet it was 25 years ago that I learned this, that successful people have a different mindset, they see things differently.
So if you are seeing all the reasons you can’t, you haven’t arrived yet. That’s all I can say, there’s work for you to do in changing your brain and changing your mindset to seeing what’s available. And the way you do that is through learning and by doing it and by hanging around people who are where you want to be, because that’s when you go, “Oh my gosh, they actually do think differently.” It’s true. So go get it. Go shift it.

Dave:
Amazing advice from all of you and if you’re wondering, “Where could I find all of these people who are interested in real estate investing?” Well, BiggerPockets happens to be a free website where 2.5 million people who are interested in real estate investing are talking about real estate every single day, they are going on forums, there are incredibly experienced people answering forum questions completely for free and we also have an amazing tool. You can go to biggerpockets.com/agent and find an investor friendly agent in any market that you’re considering. These are easy, practical ways for you to build your network, to build your team, to squat up, as Jamil said, and get you on that path to that first deal.
Thank you. Jamil, Henry, Kathy for this advice, I am personally just feeling inspired even though my first deal was quite a long time ago. We are going to get into some… one of the members of our audience, of our community, asked a question about their first deal and we are going to help them think through some of the challenges they have for this first deal, right after this break
For our crowdSource section today, we are going to be helping a member of the OnTheMarket community. I think this is a milestone for us.

Henry:
We have one now?

Dave:
… Our first episode we were saying this was the CrowdSource that we imagined, this theoretical crowd that was going be interacting with us and talking to us and it exists now.

Kathy:
Woo.

Dave:
And for anyone listening to this who wants to interact with us, Instagram is always a good place to do it where we all have individual accounts. You can find those in the show notes or BiggerPockets like we were just talking about. I posted a question on the BiggerPockets forums, asking people about a prospective deal that they were considering doing. And I got this response from Nico Dandini, who lives in Boston, but is looking to do a deal in Kansas City, Missouri.
The deal is listed for $72,000, and rent is estimated to be $850 per month. So already in my mind, I’m thinking that beats the 1% rule, that baby’s going to cash, that’s really good. What Nico likes about this deal is the price. He has 14,000 saved up for a rental property, but he lives in a suburb of Boston. It’s a pretty expensive market, so the cheaper out-of-state markets are attractive to him and he thinks it looks like, for the most part, it’s in good condition, but doesn’t have any experience working with a contractor.
So his big question and what he wants the help from the three of you about is, “The current price and the price cut by $6,000 on April 8th makes me wonder if there’s something really bad I’m missing. In the Boston area. Houses are going for tens of thousands over asking price without contingencies within a week of being listed. Why did the price get cut? Why has it been on the market for 20 days? What’s wrong with it? What am I missing? Also, if I don’t have enough cash to buy and rehab, I could buy it without a rehab, but given how the price is low and it was recently cut, something tells me I need to rehab something that I can’t pick out from the pictures on Zillow.”
All right, Henry, I love your chuckling. Let’s give you the first crack at this one.

Henry:
All right. I’ve got some super crazy advice for… It’s Nico Was that his name, Mr. Nico?

Dave:
Nico, yes.

Henry:
Here’s some super crazy advice. Numbers sound good. Yes, you’re over the 1% rule, that’s awesome and I like your gut reaction to the price cut. You should trust your gut. If you smell like something’s up, there may be something up, that’s good intuition. Here’s what I would do. If this is something you’re seriously considering, which is investing in a market like Kansas City, which is outside of your area, if you’re truly serious about it, line up this property, so contact a real estate agent or whoever you need to in order to line up a showing, line up some other showings of similar properties in that neighborhood, and then some properties in an adjacent neighborhood. And then here’s the kicker. Go there.

Kathy:
Whoa. Yes.

Dave:
Revolutionary.

Henry:
So buy a plane ticket. Because I hear this a lot. People want to invest out of state, they find what looks like a good deal numbers wise and I just interviewed somebody on the other BiggerPocket show who did a first deal out of state, who didn’t go see the property and is paying the price for that. So if you think about the cost of a plane ticket, yes, plane ticket costs are on the rise right now, let’s say it costs you between flight and a hotel, let’s say it cost you $1,000. Let’s say it costs you $2000, let’s go crazy. Let’s say it cost you $2000 and then you go there and you learn this property has so much distress that the pictures did it no justice. Maybe they were old pictures. Maybe you uncovered that the electrical is just terrible or that there’s a huge plumbing issue. Who knows what could be wrong that you can’t see with pictures and you spent $2,000 and now you didn’t buy a property. Man, you wasted $2,000. What did that $2,000 save you in sunken costs in a property that was going to be a money pit?
Stop looking at the price of getting on a plane and going to see something as what could potentially be a lost dollars and look at them as how many thousands could that save you if you just go put eyes on it yourself. No one is going to care more about your investment than you and you can build an amazing team of boots on the ground who can help you do all these things virtually and that’s awesome, but you’re still putting your trust in somebody who doesn’t have the skin in the game that you’re going to have to put in the game.

Dave:
This is great advice and you might avoid a bad deal, which is as important, if not more important than finding a good deal, but in losing that deal, you might also learn the neighborhood better or find a block that you find really interesting and build a relationship with a local investor. There’s so many other benefits from it even if that one deal doesn’t work out.

Henry:
That’s right.

Dave:
I just did this myself and I hadn’t done it in years and I just felt really invigorated by it. It was really fun, really informative and I just love this advice, but please finish your thought, Henry, sorry to interrupt.

Henry:
It’s also going to be easier to build your core four and build your team when you go get on the ground and go meet these people in person, they’ll take you more seriously than just some guy who called them from out of state and who wants to pour money into their community. Show them that you’re serious. Show them that you not only want to invest, but you care about their community as well and it’s going to help build your team and like I said, this could be a great deal, but go figure it out for yourself because nobody else is going to care like you.

Kathy:
Don’t be a sucker from a high priced market who thinks everything that isn’t Boston prices or California prices is a good deal. This is classic. When I started investing, it’s like I had a big D on my forehead of just dummy because, “Oh, you’re from California. Everything looks like a deal for you.” It may not be and to me, the biggest issue I saw with this question is the fact that you don’t know the condition of the property. You can find out the condition of the property without visiting, although I always recommend really knowing your market, knowing the street level. One street is different than another street, it really matters. But even if you didn’t go, you could get three or four inspections or even one inspection from a licensed inspector who can tell you what’s wrong with the property and how much money you’re going to have to put into it.
So the fact that you don’t know, of course, that’s like I said, fear comes from not knowing. If you don’t know the condition of the property, do not buy it because that could cost you $40,000, you don’t know until you find out. Is there a foundation issue? That will be expensive. A roof? It’s going to be expensive. So yeah, just find out, maybe save yourself the trip first and just pay the $400 for an inspection report and if it needs a lot of work, don’t get it.
Then the second thing is also make sure, I mentioned this before, talk to a property manager because they’re a little bit more honest. They have nothing to gain by you buying a crappy property because then they have to manage a crappy property, nobody wants to do that. So always talk to a property manager or several to make sure that they would verify those rents and that they like that neighborhood. You can look up crime statistics, but again, getting on a plane and going is always a good idea as well, because you can talk to neighbors. You can go to the local Starbucks and say, “What do you think about this neighborhood?” So yeah, just the not knowing is what causes a lot of fear.

Dave:
All right, Jamil, take us away.

Jamil:
I love both of those answers. I’m going to give you some advice that’s not going to require you having to visit the town quite yet. How I would do it is I would go and invest in… If you’re doing this full time, you should be investing in some kind of a resource or a tool like batch leads that can show you where properties are trading for, for cash value. Like where are investors buying properties in that area for cash? So that’s my first data point I want to look at.
The second thing I want to do is if I feel like this actually is a good potential and since you do have the money to purchase this property, you are a legitimate buyer. I would lock that property up with a nice due diligence period. Then, instead of traveling, I would send that deal out with a $5,000 markup on it to other investors in the area and I would see, could I wholesale this property? What are the buyers telling me about this property? Let them go and do the work for you. Let them go be your due diligence. Let them go bring the contractors, let them go do the inspections and tell you why you’re either out to lunch or why you have a good deal.
Now, if you have a good deal, you might decide to take the $5,000 wholesale fee and sell the contract to another investor and let them do it and now you made $5,000, or you may decide, “Hey, all the buyers want this property. I’m going to keep it for myself.” That saved you a plane ticket and might have made you $5,000 or got you a property.

Kathy:
What is smarty pants?

Dave:
This is a perfect way to wrap up the show because we wanted to start the show in a way that showed how there’s different ways to get to your first deal and this is a perfect way to wrap it up, that Nico or anyone else out there listening, there’s so many different ways to get in. You could wholesale, you could go visit, you could buy data. There’s so many different ways that you can approach this. The key is really to take action and hopefully this conversation has been really helpful to all of you listening and helps inspire you to go out there and take action.
Henry Jamil, Kathy, this has been so much fun. As always, you have inspired me and I can’t wait to talk to you all again real soon on the next episode of OnTheMarket. We’ll see y’all soon.
OnTheMarket is created by Dave Meyer and Kalin Bennett. Produced by Kalin Bennett, edited by Joel Esparza, copywriting by Nate Winetrout. Special thanks to Lisa Schoyer, Eric Nutsen, Danielle Daley and Nathan Winston. The content on the show OnTheMarket are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

David:
This is the BiggerPockets Podcast show 606. When you find some awesome deal that somebody else messed up on and you can jump in there and grab it, you should, but don’t never swing your bat until you see eventually could be a home run. Take the base hits as they’re coming, work the MLS deals, find different ways to make money, but do that knowing that you’re not trying to achieve your goal with these base hits. You’re just keeping yourself afloat. What’s going on, everyone? This is the BiggerPockets Real Estate Podcast, and I am your host. My name is David Greene, and this is the Seeing Greene version of the BiggerPockets Real Estate Podcast. On today’s show, we are going to take questions from people just like you that want to know specifics of how to move their business forward, how to overcome a particular obstacle, or how to create a business plan to move to the next step.

David:
We have some really good questions and a really good show for you today. So I hope that you stick around in here the whole thing. If you’re new to this podcast, welcome to the best dang real estate podcast in the world. BiggerPockets is a community of over 2 million members. It’s not just a podcast. We also have a website with an amazing forum where you can go and you can pretty much read any question you would’ve ever thought of when it comes to real estate, as well as ask your own and get answers, an incredible blog section and resources like an agent finder, where we will connect you with a real estate agent in the market that you live to help you buy properties. But more than anything, we want to bring you the information, the education, the insight into making money through real estate, improving your financial position, and gaining more financial freedom.

David:
We do that by bringing in different guests that we interview to hear their story, as well as experts in the field that will teach you what they know that will help you on your journey, and doing shows like this. On today’s show, we go into will small multifamily go the way of commercial valuation? A quick 1031 overview, what it looks like to do a 1031 exchange, if someone should quit their job and go full time in real estate investing and when, and the question of, “Should I buy off market on the MLS or both?” And more. If you’re listening to this for the first time, I want to hear from you. So please leave me a comment below on YouTube and tell me what you think about the show, what made you laugh? What made you cry? What made you think? That’s what I want to know.

David:
Today’s quick tip is in addition to leaving a comment on YouTube, please let Apple, Spotify, Stitcher, wherever you listen to your podcast know that you like this. We want to reach more people and the only way that we can guarantee to do that is to get better reviews online. So please go leave a review, tell everybody why this is a good podcast, what you like about it, so that we can reach more people and you can have more people on the journey with you trying to do the same thing. All right, let’s get to today’s first question.

Brendan Trieb:
Hey, David and BiggerPockets. My name is Brendan Trieb. I’m a real estate agent in park city, Utah, and I’m looking to start my investment journey. Business has been really good. And since closing on my primary residence, which is a town home here, it’s appreciated about 80% in value. So based on my calculations, I could pull out roughly 200,000 in a cash-out refi or a HELOC, and then use that to reinvest. So I could use it to reinvest in a new construction house locally that I feel is well under market value and would probably appraise for at least 30% above the purchase price, but if I do that and keep my current town home as a rental, it wouldn’t really cashflow. It’d pretty much be even. And I’m just worried that I might be over leveraged. The alternative is I pull out that 200 or maybe not quite as much, and I put it into something that cash flows today in a different market that’s better for cashflow. So would love to hear the pros and cons and what you guys think might be a better option. Thanks.

David:
All right, Brandon. Thank you very much for your question here. This is a good one. So let me simplify this. What you’re really asking is, “How much money should I take out of my property and how should I deploy it?” Now you’ve mentioned a couple options, the new home construction. You gave me enough detail that that actually sounds like a very good play. If you’re getting up 30% under what it’s worth, you need to find some way to buy that house no matter what. I shouldn’t say no matter what. Assuming you can make the payment and that it’s going to cash flow, or you can float the risk associated with it, you need to get that house no matter what. And then the question becomes what can you do with the rest of the money? So if I was in your position, here’s what I’d be thinking.

David:
First off, can I make sure that I have stable income? So if something goes wrong with my rentals, because again, we’re in a very hot market. We don’t know if it’s going to keep going up or if it’s going to go down. We don’t know what’s going to happen with rents. We don’t know what’s going to happen with the economy. We’ve never been in a situation where we have put this much money into play at one time. So my personal opinion, David Greene, is that… I’m wearing a lot of green today actually. If you’re watching on YouTube, there’s green behind me. There’s green on my shirt and you’re listening to Greene right now in your ear holes. What I would recommend for people to do is to play it safe, right? So for me, that means I keep working and I keep investing. So I mentioned before, I’m not a huge fan when there’s this much uncertainty in the market to go full-time in real estate investing, quit your job and immediately start traveling the world, living off your rent.

David:
You could. I’m not saying don’t do it. For some people, that’s the right play, but for more people than normal, I think you want to keep consistent income coming in because we don’t know what’s going to happen with the market. Now, for your situation specifically, I would absolutely try to get that new home construction. If I could get that house as a primary residence and put 5% down, 10% down, maybe three and a half percent down, probably could get away with an FHA loan or another low down payment loan because you’re not competing with other buyers if it’s new home construction. So now those loans that every buyer wants to use, but every seller hates to take, there’s no downside to them because you’re not competing with other buyers.

David:
So I would get that one. I’d put as little down as I had to. I would leverage more, and then I would use that money to buy cash flowing property somewhere else. So you’re getting a lot of equity in this new home construction home, offset that by going for something safer with more cash flow. Buy another duplex, triplex, fourplex in area with very stable job growth. Maybe look for a place where Amazon’s putting in a super center or other jobs were mid-level employees are going to be working because those people aren’t usually going to buy homes. They need a place to rent. So that gives you a stable tenant base and add focus on cashflow. So you’re kind of balancing it out. You’re making one play that’s more cashflow high. The other one’s obviously coming with a lot of built-in equity and it’s only going to go up more if they’re building in a good area.

David:
Now you’ve done the best of both worlds. It is true that you’re going to lose some cash flow on the one that you’re refinancing. That’s always the case when we refinance. You just have to make sure that whatever you buy gives you the same or more cash flow as what you had. Now, this is going to give you more debt and it’s going to give you more properties to manage. Let’s just be honest about that. If you’re someone who thinks the market’s going to crash, my advice would be wrong. I’m assuming you’re in the place if you’re looking at buying new home construction that you think the market’s going to continue to rise. Now, to cover your downside, that’s why I was saying, I think you should keep a job, continue selling homes. Maybe let any nerves or fear of what could happen with these investments that’s holding you back, let that drive you to sell more houses, to hold more open homes, to negotiate harder for yourself, to do a better job.

David:
Continue to look to grow your business as the safety net in case something goes wrong with the economy and then make wise choices like you are. You’re in a great position, Brandon. Just want to thank you for your question and for sharing that with us. All right. Question two comes from Catherine Chapman. This is a verbal question. “Asking on behalf of my dad.” It’s funny whenever someone puts that. It’s always like, “I’m asking for a friend,” and we all know what that means. “He recently retired and had a lot of funds in his 401(k). He has a great pension and started teaching as well. So his salary is still pretty high in retirement. He wants to pull out some money for real estate investments, either down payments or cash purchases.

David:
The frustration is of course that will be taxed as ordinary income. Is there any strategy to reduce the taxes on what he pulls out for investment? He’s looking to use bonus depreciation, but it doesn’t look like it can make a dent in a several hundred thousand withdrawal. Any ideas welcome. Thanks.” Okay. Let’s see what I can do to tear this apart. I’m not a financial professional. I’m not CPA. I’m not a lawyer. So don’t take any of this as legal advice. I am going to tell you that this is one where you should get legal advice. So while I appreciate your question, I’m going to do my best to answer it here, Catherine. A quick phone call to whoever runs your dad’s pension could probably help me more than what I can help you with here. Just ask them, “My dad wants to pull out money and he wants to invest it. If we put the profit back into his fund that we pulled it from, can we avoid taxes?”

David:
See, a lot of these funds are structured differently and I don’t know how your dad’s is. When I was working as a police officer, we had our money set aside. If you contributed money that came out of your paycheck tax free, you could put it into a retirement account, and some of those accounts, you could take money out and buy real estate as long as the profit you made from that real estate went back into the account and you never used that property personally. So before you reach retirement age in a retirement account, this is my understanding, you have to treat it like that is another person’s money. Even though it is your money, you just have to treat it like it’s not. So you can borrow from that entity, but you can’t personally go visit the house that entity owns because it’s not yours yet.

David:
You can’t enjoy it and you can make money with the property you buy, but it can’t be you. The entity has to make the money. And then when you hit retirement age, then you could take the money out. Now, I am sure there are some 401(k) financial planners that are pulling their hair out listening to the angles that I’m missing or things I’m saying wrong. I’m sorry, guys. This is probably more than the average person knows, but it’s definitely not as much as you know. But I do think that you can get these questions answered by just giving them a call and asking the question and then structure it in a way so if your dad does take money out, if he puts it back in, he won’t be taxed. Now, there’s also the accounts where you get taxed and then you put your money in, often you can use that however you want. It’s usually only if you’re avoiding taxes before you put the money into the account where they have the more strict rules.

David:
As far as other ways that your dad can reduce taxes, I think a couple challenges he’s going to have is his retirement income is probably going to be determining what he can borrow. So you said he is making good money. His debt to income ratio is going to have to be solid. So make sure your dad doesn’t go out there and open any new lines of credit or get himself into more debt if he wants to be investing in real estate because he is on fixed income. Talk to a mortgage broker first or a lender in some way to find out what his income will qualify him to buy as far as what investment property he can get at. And then when you’re talking about, I believe that you called it bonus depreciation, yes, the way to make that work is you want to borrow as much money as you possibly can and you want to buy a more expensive asset.

David:
So when you’re looking at this accelerated depreciation, what we’re really doing is we’re doing a cost segregation study. That is a way of looking at the property he’s buying, taking all of the materials that will wear out faster than 27 and a half years. So this would be your plumbing, your electrical, your shower heads, your appliances, your HVAC, all of this stuff does not have a useful life of 27 and a half years like the IRS says that the property itself will. And you are taking the depreciation for that in year one or maybe years two or three. You’re taking it in the beginning. So what happens is you have a bigger depreciation right off when you first buy the property. Now, if you can combine that with leveraging to buy the property more, meaning you borrow more and you put down less, what happens is a lot of the time, the money that you put down on a property is similar or close to what you would have paid in taxes if you would not have bought it.

David:
So when you get your tax savings to get close to your down payment, you get a property theoretically for free. So your dad’s going to have to look at buying a more expensive property. He’s probably going to end up looking at commercial property at higher price points, and then he’s probably going to need to not put 50% down or something or not buy cash because the cost segregation studies and bonus appreciation works much better when your higher leverage. This is why Robert Kiyosaki says, “You build wealth by using leverage and avoiding paying taxes.” That’s really what your father is looking to do here.

David:
So I wish I could give you more specific advice. I know I kind of rambled there, but if you go to your CPA or whoever runs that retirement account first, ask them how he can invest, and then you look for a way to invest where you’re buying a more expensive property that will have more tax write offs, combined with more leverage, he should be able to get the most bang for his buck out of what’s in his retirement account. Now, this is also, as always, assuming that your father manages money wisely. So when I say borrow more, he’s not doing something irresponsible.

Phillip:
Hey, David. It’s Phillip from Vancouver here. My question to you is which of my company Left Side Adventures be focusing our efforts on? To give you a little bit more context, we have goals to acquire 100 units in five years. We have nine units after one year. It’s also hot market in New Brunswick, Canada. So properties on the MLS are going for multiple offers over asking. So what should we be focusing our efforts on? Should we be focused on generating off-market leads for the properties, mainly because if we get off market leads, we can go through commercial loans, which takes six weeks or longer to obtain so we have time to actually work with that, to get that obtained?

Phillip:
Otherwise, if we put in an offer through the MLS using commercial mortgage, we’re probably not going to get that accepted, or do we, B, really focus on just doing JVs with money partners who will fund 100% of the deals and just go for those base hits on that MLS? Yeah. So what should we be focusing on efforts on? Should we do both at the same time? Should we go with A? Should we go with B? Your thoughts and insight is appreciated and thanks for everything.

David:
Thank you, Philip. I really liked this question. So to sum it up, you’re saying should we borrow money from somebody who is going to fund us and use that money to buy the deal on the MLS, which is probably not as good of a deal, or should we look for off-market opportunities, which will be better, but harder to find? I think you’re in a really good position to work on both. So how this will probably look is if you look at a graph, you’ve got the vertical one, the Y axis, we’re going to call that success or money, and then you’ve got the X axis, the one that goes horizontal, we’re going to call that time. When you’re trying to get off-market deals, you’re going to spend a lot of time and effort, and you’re not going to make very much money. So you’re not going to see a very big spike.

David:
It’s just going to inch along where it looks like you’re not having very much success, but you’re putting a lot of time and effort into doing this. That’s how every difficult but worthwhile endeavor starts. That’s how my jiu-jitsu life looks like right now. That’s what it looks like when you first start working out at the gym. Every job you ever first start working, you’re not very productive. When you start to do anything, it’s very hard. So you should give yourself a big runway there. Give yourself plenty of time to figure out how to find off-market deals. If you can, finding off-market deals is always a good idea. That is the best way to pursue real estate investing. It’s just the hardest. So people like me tend to buy more of our properties on the MLS because we spend less time looking for them.

David:
We take that time. We earn money in different ways. That’d be another thing for your company to look at. Can we make money through coaching, through educating, through other ways of bringing value? Can you be commercial bookers or commercial agents or something to earn money while you are trying to get your 100 doors that you mentioned? Because as I’m getting to here, you’re going to have to expect to put a significant period of time in without getting a lot of money. So you want to be able to backfill that time with some form of money so your business doesn’t sink, and then just grind away. Use your direct mail, use your SEO, use your word of mouth, figure out what works for you and start to fill up a funnel with off-market opportunities. In the meantime, go for those base hits. I’m going to use a baseball analogy because you used a phrase, base hit.

David:
It’s like saying, “Do I want to go for a home run or do I want to get a base hit?” Well, of course, you want to get a home run, but you don’t control those. That’s a pitcher making a mistake. When you find some awesome deal that somebody else messed up on and you can jump in there and grab it, you should, but don’t never swing your bat until you see it actually could be a home run. Take the base hits as they’re coming, work the MLS deals, find different ways to make money, but do that knowing that you’re not trying to achieve your goal with these base hits. You’re just keeping yourself afloat. What you’re really trying to do is build up your off-market funnel, where you’re going to get big wins and make big money and you just got to give yourself time to do that.

David:
So sit down with your crew, come up with a business plan, ask yourself what you think you need to do, what pieces you think you need and what skills you need to develop. Then once you’ve got it figured out, throw yourself into it with everything you have, building those skills and working that plan. And while you are doing that, look for deals in the MLS and look for deals to JV on. All right. We’ve had some great questions so far. Thank you guys for all of the questions you submitted. If you’d like to submit one yourself, you go to BiggerPockets.com/David, and leave me a video there.

David:
In this segment of the show, I’m going to go over some of the comments that you all leave on YouTube. And this is my way of encouraging you all to leave me some more comments on YouTube. We read these. We take them serious. We really look for what you guys are seeing and what you’re wanting. This is the Seeing Greene style of the BiggerPockets Podcast where you get to see my perspective, but I’m not selfish. I want to see your perspective too. So leave me comments saying what you liked, what you didn’t like, what you want to know more of, what you wish we would cover. Tell me how we can make this show better and I’ll do my best to do that. First comment comes from Tim Stout. “I have no question. I love the content and jiu-jitsu analogies. I am a BJJ black belt and appreciate them.” Well, thank you, Tim. I do need to be honest for the BJJ community out there. That stands for a Brazilian jiu-jitsu if you’re not in the BJJ community. I talk about jiu-jitsu way more than I actually do jiu-jitsu.

David:
It’s very difficult for me just being a busy person between the work I have, the traveling I’m doing. When I catch a cold, I’m coming down with one right now, you don’t want to be rolling around with people when you could be getting them sick, and the injuries that I get, it’s difficult to stay in there all the time. So please don’t think that I’m sitting here saying like, “I’m a awesome jiu-jitsu practitioner.” It’s a lot of fun. It’s also a lot of not fun and I love doing it, but I just talk about it way more than I actually do it. So I just want to be honest about that. No stolen valor here. Next comment comes from Christine. Quick tip. “I usually have the stern intense look in my face when I listen to the show because I’m taking in all the information, but whenever David does the quick tip voice, it brings a quick smile to my face. I chuckle inside and get back to business. This one in particular was one of his best. Thank you for that.”

David:
Well, Christine, we’ve been playing around with how we should do the quick tip with Brandon, not here. I can go high every once in a while, but it’s always been more difficult for me to get my voice as high as Brandon can get his. I feel like it’s probably just an abundance of testosterone that he doesn’t have to bear the burden of like I do. We’ve thought about the Batman version. “Quick tip.” We’ve thought about the Scottish version, “Quick tip.” We’ve thought about a Russian version. “This is the quick tip we give to you.” I’m not sure exactly which direction we’re going to take, but let me know in the comments how you guys would like to hear the quick tip given, and I will do my best to honor that on every episode we have. Thank you very much for the love, Christine.

David:
Next comment, “Thank you for this video. I have one quick question. If I’m looking at a property that’s been on the market for a while, wouldn’t that also mean it would be difficult to sell it for me too when the time comes? Especially because I’m not looking to renovate or fix it up. I’m looking for long-term rental and I can only afford to buy at a price point where the competitions are not as high.” Okay, Miriam, this is a great question and I appreciate you asking this. It could mean, just to sum this up, that if you’re buying this property and it’s been on the market for a long time, that if you try sell it, it might take a long time also. But the only way we know is if we figure out why it’s taking a long time. There are three things that make a property sell.

David:
And this is what I wish every real estate agent would tell their clients and would tell you, but they don’t because if we told everybody that, they would just go find another real estate agent that had a little parrot on their shoulder that said, “Marketing,” or, “Buyer’s list,” which is what every seller wants to hear. But here’s the truth. I’m going to give you guys the brass tacks about what makes a house sell. The location, the condition and the price. Those are the only things that buyers are looking at. So the first thing they look at is location. And you’re the same way. Like, “Do I want to buy a house? Where do I want to live? I want to buy in that city.” Boom, location. What neighborhood? Boom. That’s where you start looking. Then you start to look at the price point, right? You say, “Okay, I can get approved for this much.”

David:
Then you find the house in best condition possible at your price point and that’s the one you want. There’s really not much else to this. So as real estate agents that are trying to make our clients money, I can’t control the location. So really what it comes down to is the condition I get your property in and the price we list it for, and then my negotiating skills come into play if I can get more than one buyer, which I always do, and this is why I’m good at selling homes. So here’s what I want to say. If this house has been on the market a long time, it’s in a bad location, it’s in bad condition, or it’s priced too high. So if you go in there and pay too much, you’re going to have the same problem when you’re trying to sell it, unless the prices have significantly improved.

David:
Okay? If you improve the condition and that’s why it’s not selling, you may be able to sell it quicker, but you’re saying you’re not going to do any work. So just have an open mind. Maybe after you’ve owned it for five years, you can do some work and you can improve the condition. If it’s in a bad location, just don’t buy it. Okay? This is what I always tell people. The only thing about a house that I can’t change is the location. Can’t pick it up and move it somewhere else. I suppose, theoretically, you could. There’s actually a house moving company. My dad had a friend when he was a kid and that was their business is they literally moved houses as crazy as that sounds, but we don’t do that anymore. So Miriam, if the location is bad, don’t buy the house. If it’s an issue of price, get it at a better price or don’t get it at all. And if it’s an issue of condition, consider the fact that you might have to prove that before you sell it.

David:
All right, this next comment comes from Alexis Quiterio. And this message is for my co-host, Rob Abasolo. This was left on the episode we did about how to buy a rental property in 10 steps. This comment came from there. Rob couldn’t figure out how to find his voice notes or how to keep them. They would always disappear. So Alexis is sharing for all of us, how to keep your voice notes from disappearing. You click on settings, messages, scroll down to audio messages, click expire, and then click never. So this came from a little back and forth we had where I would send a voice memo to someone and they would listen to it and they would say, “Oh, this is gold.” And then it would disappear and they couldn’t listen to it again.

David:
So thank you very much, Alexis, for your tech knowledge there. She ends or rounds out her comment by saying, “Thank you for another incredibly insightful episode. You guys have changed my life with this knowledge sharing and I can’t express enough gratitude. PS, David, your analogies have been the reason for many light bulb moments, so never stop.” Ah, well, thank you, Alexis. I always wonder if I’m using too many analogies. Some people don’t like him and that’s what they tell me. So if you guys like my analogies, tell me to keep coming up with more and I will. We might even may be do an analogy challenge where in the comments you guys could say, “David, I want to see you make an analogy out of…” And put something in there. And I will try to figure out how to make a real estate analogy out of whatever you say. Duck-billed Platypus, whatever it is that you come up with, I think that’d be funny.

David:
All right. Our last comment comes from Marlin S550. Sounds like somebody out of the first Fast and Furious movie. “My journey starts today. I’ll keep y’all updated as I progress.” Marlin, ensure to submit questions as you get going on your journey, because I want to see them. Wherever you are at, someone at BP can help. Make sure that you leverage our community here on the forums, on the comments on YouTube, in our Facebook community. Make sure you’re telling people what you’re doing and asking for the help and support that you need. Now, I want to ask you, are these questions resonating with you? Do you like these comments? If you have questions that are similar, let me know. Tell me in the comments on YouTube. And then let me know what are the ticks or trips that helped you as a new investor? What did you have to learn that got you over a hump and what were you struggling with that once you overcame it, you started to make some progress?

David:
Leave a comment below and let me know what you think about. And then don’t forget to subscribe to the channel, click the like button or smash it, if you will, and share this with someone that you care about so that they can learn about real estate investing too.

Tim:
Hello, BiggerPockets. I have a question for you and before I ask, I just want to say thank you to every single person who’s helped make a video on BiggerPockets channel, and then also everybody in the forums, because without both of you, the videos and then watching people apply the knowledge in the forums and walk through the process themselves, I would’ve never had the confidence to start investing in real estate. I started investing in real estate around four or five years ago and I own a fourplex, a mobile home park, two Airbnbs, and I’m closing in on another mobile home park. Sometimes when I’m working my day job, I feel like it’s at the expense of my real estate portfolio and I don’t know when it is time to leave the W-2 job.

Tim:
I, multiple times throughout the year, have felt that when I’m doing my day job, which doesn’t make net as much as the real estate makes, quite a bit less, I feel like I’m spending time working a job that if I wouldn’t have been working that job, I could have actually saved more money, taken advantage of an opportunity that would’ve made money just by having more time working on my real estate portfolio. So I don’t know when it’s time to leave. And oftentimes, I tell myself, “Well, you should stay because you want the most favorable terms with lenders on any deal that you’re doing.” So they like the W-2, so continue it and get more assets while you can with the W-2. But I really am… Especially with this new mobile home park that I’ll be purchasing, I just feel like I almost could make a lot more money by focusing on that full time and moving in houses much quicker. So compared to doing it from afar, I’d be able to go there and do it myself.

Tim:
So I’m wondering when do you know it’s time to leave the W-2 job? And then secondly, when I do leave the W-2 job eventually, I’d like to get my real estate license and show a house, maybe just one or two houses a week. And I don’t know how to set up a brokerage to allow me to do that. I feel like if I work under somebody else’s brokerage, they’ll want me to work 40 hours a week and do showings every day and I’ll have full another job. That’s what that would be. So I would rather just do one or two a week and I’m wondering is that something I should be setting up my own brokerage for when that time comes, list it, maybe connect it through Zillow, I would guess and just take on one or two showings a week? Is that probably the safest and best way to do that? I’ve never worked on the brokerage side or the agency side, so I’m not entirely sure. I appreciate your guys’ time and you guys have a nice rest of your day. Thanks so much, BiggerPockets.

David:
All right, Tim. I’m going to start with your second question first because I can answer that one more succinctly, and then we’re going to move on to the first question, which was when should you leave your job? When it comes to getting your license and working in real estate, there’s a few comments you made that I think are giving me the impression that you don’t have a great insight or understanding into what the job or day of an agent is like. So I’m going to clarify that for you as well as anybody else that might have those same misconceptions. Hopefully, that makes your decision easier to make, and then we’ll move on to the next part of the question. First off, there’s a difference between becoming a broker and owning a brokerage and becoming an agent and working under a broker. You’re probably not going to be eligible to get your broker’s license.

David:
I don’t remember if you said where you are, but most states require you to be working in the industry for a certain period of time, or have a certain educational degree with a certain amount of classes of real estate taking. Most of the time, you start off as an agent. After you’ve done it for a couple years, you’re eligible to then take another test and become a broker. That’s what I did, but that isn’t really what’s important. What you’re describing is you’re thinking if you work for a broker, they’re going to be putting you to work and most brokerages, in fact, almost every brokerage nowadays doesn’t work that way. When you hang your license with a broker, they’re going to take a chunk of your commission in exchange for the value that they bring you. Now, part of that value is that you legally have to hang it under a broker because agents don’t do deals. Brokers, do.

David:
Agents work under the authority of a broker. So when I say, “I listed a house,” it’s actually not true. Keller Williams Realty, the office that I’m at listed the house. I represented Keller Williams with the client. I know that sounds complicated. So we usually just say it’s David’s listing, but as an agent, it’s never my listing. It’s only the broker’s. I also said I was a broker. That’s true. I’m what’s called a broker associate. So I’m a broker, but I use the Keller Williams license instead of my own. Now, when you get your license and work for a broker, you are going to be finding your own leads. So you’re not going to be showing homes. You’re going to be looking for clients nonstop, and then you’re going to be getting a bunch of leads. You’re going to be trying to get them to work with you nonstop.

David:
And then you finally get them to work with you, and then when they want to go see a house, you’re going to show them the house. You’re not in control of when that’s going to happen. You’re working for them and that’s going to be nonstop. And then you’re going to put it into contract, if you are lucky and then your job starts and you’re going to be working on that file nonstop. And that’s just one person. And the majority of them that you work with are not going to be closing and you’re going to do a lot of work and not get paid. So you got to work with a lot of people at one time and manage a bunch of balls in the air. So if what you’re looking to do is get your license and do less work, this is a bad idea. Don’t go become a real estate agent and don’t pursue that world.

David:
That’s an entrepreneurial venture. You are starting a business from scratch. I believe 88% of agents fail within the first 60 months of working the job. It’s very difficult to make it in. So if you’re not completely committed and willing to do whatever it takes, probably not a good idea to get into that world. Now, let’s get back to your original question, which, “Is my job holding me back?” Okay? It is. Yes. If you had more time to put towards real estate investing, you would be getting more real estate. You would most likely be making more money. There are very few jobs that can produce more money than what you can make when you’re investing in real estate, because real estate makes you money in a lot of ways. It makes you money in cash flow and appreciation and equity buildup, in tax savings and loan paydown, there’s a lot of ways real estate will make you money, and then it’s pretty easy to leverage.

David:
You can keep getting more properties and leveraging out the work of managing them to other people. Very few jobs can keep up with that. But there’s a reason everybody works a job. And here’s what I want to just run by you, Tim. So many people look at real estate investing or entrepreneurialism or being a business owner and it’s appealing because they don’t like the ceiling that they have on them where they are right now. They see that in their job, they can’t get higher. They can’t make more money. They don’t have opportunity. This is what everyone talks about. And it’s true. When you work for someone else, you don’t have as much upside. That is absolutely real. The problem is it’s not the whole story because when you work for yourself, you have no floor to protect you.

David:
See, when you work in another company, even if you’re not productive that day or that week, even if none of the work you do turns into anything, even if you’re able to hide all day and not do work, you still get paid. There’s very little consequences for doing your best when you’re at a job where someone else is paying you. A lot of people do a great job just because they have the character to do it and God bless them. I love people like that. The world tends to reward them, but there’s a lot of other people that are unhappy at their job. I’m not saying this is you, Tim. I’m just using this to describe the reality of what it’s like to work for someone else. They’re taking the risk. Not you. They’re paying you even if you do nothing productive. So you have a floor. You can’t fall.

David:
You’re going to get a paycheck no matter what, until you get fired. And most of us learn how to do at least enough work to not get fired and there it is. There we have our chop. Okay? So when you leave that and you go into the world of real estate investing or business ownership or real estate agent or any entrepreneurial venture, the trade off is your ceiling is removed. So you can go as high as you want, but your floor is removed. You can also fall and fail much easier. And I’m not discouraging you from doing this because I did this. I think more people should do it. I am trying to prepare you mentally for where you’re going into so that you’re not completely caught off guard and you don’t feel betrayed when you realize that once you leave your job, it’s not just that it’s harder to get a loan. It’s that if something goes wrong with those properties, there is no money coming in.

David:
So when I left my job, when I was a police officer and I decided I didn’t want to do that anymore, I had some injuries and one of them in particular is becoming excruciating and I couldn’t deal with it anymore, I focused on building up passive income, cash flow for my rental portfolio, so that if I didn’t make it as a real estate agent, I would at least have some kind of backstop to prevent me from falling. I had a form of a floor, although it was not as secure as my job as a police officer. If you’re getting into mobile home park investing, that makes me more optimistic because that specific niche of real estate investing is one of the more safer niches. A short-term rental, man, that’s high risk care reward.

David:
You might have a month go by where no one books your place. Flipping houses is very risky, right? Your deal flow cuts off, or your numbers don’t work out, or your contractor screws up or something happens and you don’t make money in that. There’s nothing safe about it. But mobile home park investing is very safe. In general, there’s very limited vacancy issues. There’s very limited maintenance issues. The tenants are owning the mobile home. So you don’t have to worry about something breaking. They have to worry about that. They’re just paying you lot rent, and it’s probably relatively cheap compared to the other expenses in their life. So it’s not like those people have a hard time making their payments as much as a luxury grade apartment might be. So what I’m getting at here is I am more optimistic about you making this jump if you’re in mobile home park investing than somebody who’s maybe doing some riskier form of investing.

David:
I just want to say when you’re asking the question of, “When should I make the jump?” Don’t do it if you could have a couple bad months of real estate ownership and lose a property or not make a payment. You should have so much money set aside, so much equity in these property, so much cashflow coming in, just more than you would ever need that if you leave your job and you lose the security of that paycheck, you’re going to be okay. And I give this advice because for a long time, people said the safest way to buy real estate was to focus on cashflow. And that is true. We always want to get that if we can, but in today’s market, it’s getting harder and harder to find that and you guys are all seeing that, right?

David:
So the way that we offset that is we make adjustments in other parts of our life so if something goes wrong with cash flow that we can’t control the areas of life, we could control, the reserves we had, the money that we saved, the money that we were earning make up for the areas that we can’t. Hope that advice helps you, Tim and I will be rooting for you on your journey. All right, next question is from Drew Preston. “My question is instead of waiting to save enough money for my house hack and W-2 income for my next down payment on another investment property, I’ve recently been thinking a better option would be to 1031 this duplex into a larger deal. Can you please explain the steps of what a 1031 exchange process would look like for a first timer? Thank you for the awesome content and thank you for your time on this question.”

David:
All right. Drew, this is a great question, especially for a show like this. Now, again, I’m going to start it off by saying I’m not a 1031 specialist. I’m not a lawyer. So I might say something that’s not perfectly accurate. I’m going to do the best I can to answer the question, but you should seek legal advice, and luckily it’s not hard to do. I can put you in touch with the 1031 person that I use or there’s probably some all over BiggerPockets that you could find. Here’s the gist of what’s going to happen. You’re going to sell this duplex and while you have it on the market or when it’s in escrow, you’re going to tell a 1031 escrow company, which is independent and different of the title and escrow company that you’re using to sell the house, that this is a 1031.

David:
You are going to take what you bought for the property, whatever the purchase price was of your seller, you’re going to subtract what you paid for it, you’re going to subtract all of the costs of sale, like real estate commissions and closing costs that you pay, then you’re going to subtract any improvements that you made on the property when you had it, and what’s left is going to be called your capital game. You are going to have to reinvest that amount into new real estate and the debt you take on is going to have to be equal or greater than what you owe on the duplex right now. Here’s one point I’m going to hammer down and super emphasize for everyone listening. You cannot do a 1031, close on your property, get the money in your bank account, then start looking for the next property. If you touch that money, if you have constructive receipt, you’re ineligible for a 1031.

David:
This is why you have to use an escrow company first, because they’re the ones that are going to hold that money, not you. I’ve had people that made this mistake and they said, “David, I just sold my house. I don’t want to pay taxes. I want to do a 1031. I got 150 grand sitting in my bank account. What should I buy?” And oh, I mean, maybe there’s some fancy lawyer that knows some way around this, but my understanding is you just made yourself ineligible. So that’s why I’m telling y’all right now, don’t do that. Now, once the house closes, you’re going to have 45 days to identify potential replacement property. These are the houses you’re exchanging your duplex for. You’re going to have 180 days from the day you close on your duplex to actually close on that new property. Okay? So within those timeframes, you’re going to be working.

David:
So once the property closes, you’re going to identify the properties that you would want to buy in a 45 window timeframe. You’re going to give that information to your 1031 company, and then you’re going to start working to close it. You’re going to have to close it within the 180 days. Hope that helps. And if you do that, you won’t have to pay any taxes, at least for right now. You will defer them to later. Next question comes from John Encwot. “Hi, David. I have a question about the general market for small multifamily, two to four units homes. Where I’m from in Columbus, Ohio, it seems that home appreciation is outpacing rental rates by a wide margin. Because of this, most homes are being sold for much more than can be justified by cashflow alone. It seems to me that small multifamily home appreciation will be held back long term by rental rates compared to single family homes, and that they will be eventually valued similarly to commercial properties based on their income.

David:
This leads me to look to buy single family homes over small multifamily. Even though the cash flow isn’t quite as good right now, I would think higher appreciation will more than make up for it in the long run. I just wanted to get your thoughts. I appreciate all of the Seeing Greene episodes you’ve been doing. They’ve been extremely helpful to get perspective on what’s going on in the market in general.” Well, thank you, John. Here’s my two cents on the question of the single family versus multi. Traditionally, single family has appreciated more, multi-family has been stronger in cashflow. And this is why most real estate investors have got their start in the small multi-family space. The two, three and four unit properties have been largely, “Can’t miss.” If you play Street Fighter, this is Ryu. This is the one everyone starts off learning how to play, and then you move on to something later, when you get better.

David:
We are seeing them go up in value faster than the rents can keep up because people are valuing cash flow more than they did before. So if you know what a cap rate is in commercial properties, the lower the cap rate is, the more people value the cash flow that asset’s going to put off. So one way to look at this is cash in a really rough area or a way that’s very difficult to make it is worth less than cash flow in Malibu, California, where you know you’re going to get massive appreciation. So the lower cap rate is the more demand there is for that stream of income. All right? And I want you to think about multifamily property as a whole, the cap rate’s compressing. People want those more than they ever did before and that’s why they’re paying more for them than the rents they can keep up. Now, let’s talk about why.

David:
Well, for one, they make awesome house hacks and as home prices have increased, people have gotten smarter. Podcasts like this one, websites like BiggerPockets and others have been touting why house hacking is so smart. I’ve written some articles for Forbes about this. The information’s out there. So more and more people are saying, “Hey, I don’t need to live in my dream home. I just don’t want to be house poor. I’ll take the triplex, live in one unit, rent out the other two and only have to pay 1200 bucks a month instead of $4,800 a month.” And that gives more demand for those assets. You also have people that are selling properties and trying to 1031 into something else. So if in my area, if you sell a home in San Jose that you bought for 400,000 and then you go sell it for 2.2 million, you’ve got a ton of money that you now have to deploy and you want some kind of cash flow.

David:
So you’re going to move into a cheaper part of the Bay Area, maybe get into the Central Valley like Modesto, Manteca, Tracy, and you’re going to take your freaking million and a half dollars or whatever you’ve got, and you’re going to buy a couple fourplexes and you’re going to pay more than everyone else because you’re not evaluating it the same way. You’re looking at it like, “If I don’t buy something, I’m going to lose $700,000 in capital gains taxes,” versus the individual investor who’s like, “I’m trying to get an 11% return and I’m stuck on nine.” So they don’t want to go up in price. You just got to think about who you’re competing with for these properties. And then the fact that you just don’t have much inventory at all and there’s not a lot of cities that are zoning for more multifamily, not many people are building these. They’re becoming more rare, which means people are willing to pay more.

David:
So you’ve got to squeeze on that particular asset class. All the new investors want it, all the house hackers want it, all the 1031 step ups want it, all the out-of-state investors want it, everybody wants those. And that doesn’t mean that the tenants are going to pay more in rent because rents can only go up as far as what a tenant can afford. They’re only going to pay market rent. So in most cases, the rent for a fourplex, one unit of a fourplex and the rent for one unit of 150 bedroom apartment are largely the same. They’re looking at bedroom and bathroom and square footage count and then location. So rent comps may be limited by what somebody is charging that owns 150 unit apartment complex a couple blocks down. And then your little fourplex can’t get rents higher than that one, and that one doesn’t need to raise rents as much because they got 150 units to rent out. You only have four.

David:
So as you can see, there’s different dynamics that are at play here that are making it so that rents cannot keep up with the value of the property. Now, your question is at some point, are we going to value multifamily properties like they’re commercial properties? Probably not. We would already be doing that now, except for the fact that Fannie Mae and Freddie Mac will let you get them with a government loan as a primary residence if they’re four units or less. Okay? So that fact alone means that they’re looked at like residential property, even though they are used like commercial property. If Fannie Mae or Freddie Mac got rid of that guideline, I would totally expect for these properties to now be analyzed and evaluated much more closely to commercial property on those same terms.

David:
Now, the last question you’re saying is, “Even though cash flow isn’t quite as good right now. I would think higher appreciation will more than make up for it if I buy single family homes instead of multifamily.” Well, in general, there’s different ways of looking at real estate, right? But what I tend to say is you’ve got a spectrum and on one end it is cash flow and on the other end is appreciation. There’s always someone that can come up with an exception to the rule. I get it. Please don’t hammer me with your exceptions. There’s always an exception. Okay? We’re speaking in general terms on one end, you’ve got cashflow-heavy properties. These are apartment complexes. These are small multi families. And on the other hand, you’ve got appreciation. These are properties in the best locations, the best school districts, the best weather, and they’re very rare. Okay? And then everything falls a spectrum somewhere in between those two polar opposites.

David:
So what I tell most people is you start with cashflow and you need to get cash flow, especially as a newer investor, but as an investor, you always want to be getting cash flow. But the more wealth you get, the more you move on that spectrum from cashflow towards appreciation. Now, please, again, this is a mistake I’ll have a lot of people jump down my throat about. What they heard me say is you jump from cash flow to appreciation and that’s reckless. That’s not what I’m saying. You inch that way. Okay? Think of it like all I bought were fourplexes in the worst part of town and then I could buy triplexes in a better part of town and then duplexes in a good part of town and then high cash flowing, single-family homes in a better part of town, right? You’re moving on a spectrum. As your wealth grows, you are leaning more towards appreciation. It does not mean you are completely gambling on speculation or appreciation. So that will probably happen. Right?

David:
One of the strategies that I like to use is to buy a single family home with a ton of square footage and a funky floor plan that’s not being used well in the best area that I can possibly get it in and then run it as a multi-family. So that’s where I would convert garages or parts of the house to an ADU and a junior ADU and I could get three units out of one property in the best part of town and yes, my appreciation is amazing. I’ve got one project going on right now. So I recorded a podcast for BiggerPockets about a property I’m buying and that property, I paid 2.25. It appraised for 2.65 before I closed on it and after I make the improvements, I think it’s going to be worth right around 3.2. This is in a really nice area and I’m doing what I just described. I’m going to be adding square footage to it, making additional units. So I’m going to end up with a property that cash flows and has a lot of appreciation.

David:
You see what I’m getting at? So I wouldn’t abandon the multifamily. You’re just in a hot space. It’s harder to get them. I would just broaden my horizons and I’d look for wherever the opportunity was the best. If you get a great opportunity on a single family, make it work. If you get a great opportunity on a small multifamily, make it work, but do understand that as your wealth grows, you’re going to be moving more towards appreciation and less from cashflow, but that doesn’t mean you should start at appreciation at the expense of cashflow. You need cash flow first, whether that comes from real estate, from passive income and other investments, from business that you sold, from a job that you have, you need cash flow coming into your life so that you don’t lose your real estate. All right. Thank you very much for your question there, John. I appreciated answering that.

Jake:
Hey, David. My name’s Jake. Thank you so much for taking the time to answer this question. Big fan of the show. So thank you for everything you do. You guys have helped a lot, yourself and Brandon, and all the other guests you brought on. So I got to thank you first for that. I’ll try and make this really quick. So I currently have three duplexes that are in a small town just outside the city in which I live in. And the inventory is super low out there. Inflation is helping obviously increase the price of those homes. Sometimes opportunities like this, you can jump on and you can sell your home and get way more than you thought for them. My concern is that if I don’t sell them today, because the inventory’s so low, that not a lot of homes are selling in that area that come the future when I do want to sell them, there’s not going to be enough comparable properties that sold that are going to allow them to sell for what they would for today, if that made sense.

Jake:
Now, the answer question to maybe ask, “Specifically, why do you want to sell them?” Well, I would like to get myself into the multifamily space and selling these three duplexes is going to provide me to do that because the amount of money I’m going to make from them is going to put me into that multifamily 10, 12 unit, maybe even more, which is where I ultimately want to be. So I’m just trying to decide like, do I continue to have these homes, cash flow the way they are and be paid down the way they are? Because ultimately I don’t really need to sell them. I’m just trying to decide how do I go about getting my foot in the door in the multi-family space, and right now this is an option that I’m considering and I’d love to know if you think it’s a good option to do as well. Thank you for your time and I really appreciate your input and look forward to hearing what you have to say. So thanks.

David:
Hey, Jake, I really appreciate your question. This is a cool one. So let’s start off by breaking this down into some smaller chunks. The first thing is should you sell now because the price could drop? It could. I don’t know that it won’t. I don’t believe that it will. I believe that we printed a ton of money. So the prices going up are not really indicative of the value of your asset going up. You probably didn’t do much to improve the actual property. Your money just became worth less. So the price of your property went up, even though the value of it didn’t, if that makes any sense. So even if we have a recession, prices may not actually go down because everything just becomes more expensive. That’s one thing that I want to highlight. The second is a more interesting part of this question.

David:
It’s, “Should I sell it and move into something bigger now?” I think you’re asking the right question when you’re getting at it there. I don’t like the line of reasoning that says, “I’m going to sell my asset, my duplex, my home, my whatever, because we’re at an all time high and I’m going to put the money aside and wait for the crash and then I’m going to jump in and buy it all.” That typically is like the day trader attitude, and it doesn’t work as well. I have a couple people that I sold their house two or three years ago. I begged them buy another one. They wouldn’t do it. They thought a crash was coming. Home prices have gone up so much and it doesn’t look like they’re stopping. Their money’s just becoming worth less and they lost that on the equity if they would’ve kept their home.

David:
So unless there’s some fundamental reason to think the market’s going to crash, stuff like what we saw in 2005 or in 2006, where it made no sense, right? Or some recession that the country looks like that they’re going to be having, anything absent that I think if you’re going to sell your real estate, you want to put it in something else, because it’s mostly if you sell high, you buy high and if you sell low, you buy low. It’s very difficult to time everything because when you sell, you got to buy into the same market. So what I like would be the idea of selling a couple duplexes and trading that in for a 20-unit property, a 30-unit property. You’re going to be taking on more debt. That’s your risk. Anytime you add more leverage, you are also going to be increasing risk, but if you believe prices are going to keep going up, then that’s the play that you make.

David:
Because instead of having rents go up on three duplexes, which would be six units, you’re having rents go up on 20 to 30 units. You’re also going to be learning to manage an entirely different type of property at a relatively safe level. You’re not going right in at 300 units. Okay? So what my strategy is in general, my big picture is I buy a bunch of single family properties and I bur them or a bunch of multifamily properties like yours and I hold them, but I get real estate, I add value to it and I hold it, and then I sell it and I trade it in like a bunch of small hotels in monopoly, sorry, small houses in monopoly for one big hotel, which would be your 20 or 30-unit apartment complex. That should significantly increase your cash flow. You should be making a lot more cash flow than you were.

David:
You saved that cash flow and used it to buy more duplexes. Once you’ve saved up another three or four of those duplexes from the cash flow from your big apartment, you 1031 them into another big apartment. Now you’ve got two of them or maybe you sell the one you have and the duplexes, then you buy a 60 to a 100-unit place, right? More cash flow comes in, you buy more of these duplexes. You see how you use the equity from one to get more cash flow and then the cash flow from one to buy properties to build equity? And you create this ecosystem, which is how I like to look at real estate. There’s synergy between how all the pieces operate that make them all more efficient and therefore, better wealth builders than if you’re just doing it independently. I hope that strategy works for you.

David:
I want to encourage you to take it. The only caveat is don’t buy in a bad area. Don’t buy into an asset class you don’t understand and don’t buy into an area where you have a bad tenant pool or bad management or anything that makes it hard. You want to make sure if your duplexes are in a good area, you’re only buying a multifamily property in another good area. Thanks for the question. All right, thanks again for taking the time for everybody that sent me a video question or wrote in a written question. I want to hear from you the listeners. So go to Biggerpockets.com/David and submit your question there. People love the videos. So don’t be afraid. Sitting in your car, sitting in your office, sitting at your house, sitting by the pool. We had one guy do it sitting in the spot with his shirt off, whatever it is, send me the video.

David:
I want to hear your question. I would like to answer it. The questions we got today are awesome. This is exactly what I like to see. Please keep them coming. Lastly, if you’re not already doing so, please follow BiggerPockets on YouTube, on Instagram, on Facebook. They’re all over the internet, even on LinkedIn, and you can follow me in all of those same places @davidgreene24. So if you live in California, where I am, I want to meet you. Let me know where you live. We have a team in Southern California. We have a team in Northern California. I bounce around between the two and if you’re not in California, still give me a follow. Let me know what questions you have and hopefully I can get you featured on this podcast. Thanks a lot, everybody. This has been another awesome episode of the Seeing Greene Podcast. I appreciate your time and attention and trusting me to help teach you to build wealth through real estate. At BiggerPockets, we want nothing more than to do just that. Have a great day.

Ashley Kehr:
This is Real Estate Rookie, episode 180. 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, where we focus on those investors at the beginning of their journey. Maybe you haven’t done a deal. Maybe you’ve done a deal or two, and you’re looking to scale. Either way, this is the podcast for you. Ashley Kehr, my co-host, what’s going on?

Ashley Kehr:
Not much. I have my little assistant, Remington James, here next to me. If you’re watching on YouTube, you can see a little bit of his cute little face, but he’s patiently waiting until it’s time to go to the movies tonight to see Sonic 2.

Tony Robinson:
Oh, okay. I love that. Sonic 2, I haven’t seen that. No. Is that with Jim Carrey is it? Isn’t he in Sonic?

Ashley Kehr:
He’s in it. Yeah, he’s in the first one so he’s probably in the second one. Yeah.

Tony Robinson:
Oh, okay. All right. Cool. Cool. I love that. Well, yeah. What else is going on, Ash? What you got? What’s going on in the business? What’s new?

Ashley Kehr:
Yeah, I don’t know.

Tony Robinson:
How’s the MCL? How’s the ACL?

Ashley Kehr:
It’s doing good. I got it straightened out right now. Trying to get it straighter over time. Been going to physical therapy a lot. My physical therapist has become my best friend, is the only person I see every day. But yeah, it’s going slow, but going good. I have one more week left on crutches and then I can at least ditch the crutches and go on, just have my brace on. And I’ll have that on for about another four weeks.

Tony Robinson:
All right. Well, there you go. Progress.

Ashley Kehr:
Yeah. Yeah, yeah. And what about you? Are you doing well after getting over your competition? Are you splurging?

Tony Robinson:
I am. I’ve been-

Ashley Kehr:
What’s your diet look like these days?

Tony Robinson:
My diet has literally been everything though, actually. I’m eating pizza, cereal. I’m rebounding real hard and heavy, but we got another show planned for August. I got a couple weeks off and I’ll start ramping up for that next show. If you guys want to follow along on that journey, be sure to follow me on Instagram, @tonyjrobinson. And if you want to follow Ashley along on her recovery, she’s @wealthfromrentals on Instagram as well.
But speaking of Instagram, today’s question actually comes from our DMs. If you guys want to get your question featured on the show, you can get active in the Real Estate Rookie Facebook group, get active in the BiggerPockets forums, or you can slide into the DMs. Maybe Ash and I will pick your question.
Today’s question comes from Rodney Hill. And Rodney’s question is, “There is one question that stumps me. People say you can do your first deal with no money down. Yet others say you need 20% down payment. I live in Tampa and a 20% down payment is between 30 to $60,000. But an investor gave me advice. Said just get $25,000 saved up and then I should be able to do my first deal. I don’t know if that makes sense or if it’s gibberish, but my question is, should I save 25 to 60K for a down payment on my first rental? Or is there a way I can get into a rental with less than 25% down?” What are your thoughts, Ash?

Ashley Kehr:
Well, I think this is a great question for you just talking about the vacation loan. If he wants to do long distance investing. Or what is the rule on that, 10? Or not 10, two hours away from your primary?

Tony Robinson:
Yeah, typically-

Ashley Kehr:
I think go into that first, because I think that’s the first thing that pops into my head is that vacation loan mortgage and you know that better than I do.

Tony Robinson:
Yeah, totally. It’s yeah, the second home or vacation home mortgage, it’s a 10% down payment. There are some restrictions. You have to be, or the property that you’re buying, the second home has to be, I think typically 60 ish miles at least away from your primary residence. You cannot have more than one in the same geographic area. If you buy one in Tampa, you can’t buy your second one in Tampa.
And then you have to use the property for personal use typically for at least 14 days out of the year. As long as you’re able to check those boxes, you’re able to then rent that property out on sites like Airbnb and Vrbo when you’re not using it.
Now, interest rates on those loans used to be almost in lockstep with primary residences. Now, we’re seeing them to be about a point higher. There’s been some changes in how the government is regulating those. But we’ve scaled a lot of our portfolio using the 10% down second home loans in different markets.

Ashley Kehr:
Yeah. The second thing that would come to mind for this is seller financing. Talking with a seller where you don’t have to put down a huge down payment and you can put down a smaller down payment. And it’s not like they need to keep that mortgage for you or hold that mortgage for you for 30 years. You can make a balloon payment or make it callable in a year, a couple years. Enough time that you can add some value to the property and then go to a bank and refinance all of your money out, just doing the BRRRR strategy. But instead of bringing your own cash or money from a personal line of credit, you’re having the seller hold the mortgage for you.
A couple ways to actually approach that with a seller is to say to them, “I know, have you talked to your CPA or accountant at all about seller financing and often they will say, “No, I haven’t.” And you can say, “Oh, okay. I just didn’t know because of all the tax advantages. If you wanted to maybe talk to them, I’d be interested in doing that too.”
And that usually at least gets the wheels turning on the seller to have that conversation with their CPA because their CPA is going to be your best friend, because they are going to say, “Yes, it is an advantage. Because instead of taking this lump sum of $200,000 in one tax year, the amount of money you’re taxed on is going to be spread out over those payments that you’re getting over three years or however long they’re going to hold the seller financing.”
If you look at the income tax brackets, as you increase your income each year, you’re taxed at a higher rate. If you’re taxed, if they’re only getting 50,000 of that in the first year, they may only be taxed 15%. If they get that whole 200,000, then maybe they’re going to be taxed, I don’t know. I don’t even know what the tax brackets are right now. 35% or whatever.
I’m winging it. I actually was on a call the other day. I had someone look it up while I was talking about the same thing, but so you have their account or CPA sit down with them and talk to them about the tax advantages of doing seller financing. I think that’s a second great option too.

Tony Robinson:
Yeah. I think a third option, I mean, there’s so many options. And I think that’s the beauty of real estate, but a third option is find a partner that does have the capital. And I know the initial rebuttal to find a partner is, “Well, I don’t know anybody.”
And luckily for you, it costs nothing to go out and meet people. Rodney, if you go to your local real estate meetup, if you get active on the BiggerPockets forums, if you get active in the BiggerPockets Real Estate Rookie Facebook group, and you start networking with people and saying, “Hey, here are the kind of deals that I’m looking for.” And you start finding out if there is anyone that would be interested in those deals, but they don’t have the time, desire and ability to manage that property. Or maybe if it’s a rehab, to manage the rehab. Identify what value you can bring to that person and then maybe there’s a way that you guys can work together.
We have interviewed guest after guest, after guest that has done something similar where there’s someone that has the capital, but they don’t have the time, desire and ability to find the deal, manage the rehab, manage the tenants, do all the things that come along with actually turning that property into a solid investment. Build your network, find good deals and see if you can provide value in that way.

Ashley Kehr:
I think that’s how you’ve built a lot of your business is taking advantage of that, where you are the experience. You can manage the properties, you can get the properties, you know everything. And then your partners are the ones that are coming with the money and leaning on you for all of those qualities, all those traits, all that whole skillset.
And for my first property, and even for the first several properties, I took on a money partner. And that was how I got started was just partnering with someone. And we actually did an LLC together where we were partners. And I think that scares a lot of people, is like, “Oh, I don’t want to be tied into a business with someone.”
But Tony, you structure your partnerships with a joint venture agreement where there’s a lot less liability. I think that’s another option too, to look at is you’re not having to open a bank account with this person. And you’re not having to file a tax return together, all these different things. You can do the joint venture agreement, which keeps you a lot more separate. And you don’t have that, you’re not tied together so much, especially when it’s your first deal you’re doing together.

Tony Robinson:
Yeah. Rodney, there are so many ways that you can go about getting that first investment without having to come up with the capital yourself. Hopefully, some of the things that Ash and I pointed out today is some actionable advice for you and for all the other rookies that are listening. But start taking action, man. Build that network, start networking and seeing who you can find that might be able to help you and you be able to help them.

Ashley Kehr:
Well, thank you guys so much for listening. Don’t forget to leave us a review on your favorite podcast platform. I’m Ashley @wealthfromrentals, and he is Tony, @tonyjrobinson. And we’ll see you guys next time.

At 19 years old, Cody Davis purchased his first rental property. Before turning 22, his portfolio included 81 units.

In an interview with David Greene and Henry Washington on the BiggerPockets Podcast, Davis walked us through the steps he took as a bold 19-year-old real estate agent with little to no income and not a single W-2 form, to owning 81 units across eight deals within three years.

How He Purchased His First Apartment Complex

Davis started work as a real estate agent in the Seattle, Washington region after he turned 18 years old. As an agent, he wasn’t successful and rarely made sales.

However, he was good at staying connected with the other agents at his brokerage. A deal for a seller-financed 22-unit apartment complex came across his desk one morning after it fell through with another buyer. The head of his brokerage pushed him to pursue it, despite lacking the financials, experience, and know-how. They assured Davis that other agents at the office would help fund the deal if he could get the seller to leave the table happy.

When Davis approached the seller, he was flat-out rejected. The seller felt they were being dragged along for far too long and pulled the listing altogether. 

Davis was crushed and frustrated. But he had caught a virus: the investing virus.

As a real estate agent, Davis had access to the multiple listing service (MLS). After getting shoved away from the last deal, he filtered listings with “seller financing” and found several properties. One, in particular, was a ~$1.2 million 12-unit apartment complex that had been on the market for 560 days.

Davis contacted the listing agent, cunningly explained that he just had another deal fall through and was looking to make a purchase, asked how they wanted to write up the contract, and began the purchase. The original asking was 20% down with 80% seller financing. Davis came in at 15%, went back and forth, and finally went under contract.

While under contract, Davis negotiated his way to a 10% downpayment. The downpayment now totaled roughly $125,000. 

Cody put on an impressive feat up to this point, but the biggest challenge had not started yet. How does a 19-year-old with hardly any income, assets, or experience negotiate a 12-unit complex with seller financing and fund his end of the deal?

For Davis, it comes down to mindset.

“I was going around and asking everybody for help in the office,” Davis explained. “[I asked] ‘who has a client that is liquid $125,000?’ I don’t need to be the one-man show, so [I asked] for help. I got a lot of help, not just with connecting with people. A lot of people I connected with, I botched the meeting on.”

But botched meetings didn’t deter Davis. He needed to raise $125,000 before closing, and he was determined to do so. Finally, after raising a few bucks from other agents in his office, his mentor helped seal the deal.

By the end, Davis had a secured the property with a non-ballooning, 12% interest note from the seller that covered 90% of nearly $1.2 million, raised $125,000 in equity, and generated net cash flow that equated to over $1,000 by the end of the first month. All at 19-years-old.

A Seller Financed Investing Strategy

Due to his age and financial history, Davis lacked significant leverage in terms of the financial products he could qualify for. He didn’t qualify for FHA loans, and most traditional funding avenues would scoff at his scant financial standing.

He quickly realized that seller financing was his best bet at securing loans. Seller financing is a nifty trick that allows a purchaser to acquire a property without dealing with a bank. Instead, the seller finances the deal, and you pay them back over the course of the note. This allows greater flexibility in financing terms and can significantly lower the barrier of entry. Cody capitalized on seller financing to fund all eight of his real estate purchases.

But it still raises the question of how he was able to pull this off the first time with his lack of finances and general lack of real estate experience? After all, sellers want their money just as a bank would. Lending to an inexperienced, strapped investor seems like a huge risk.

“Instead of trying to sell an idea, I want people to buy into who I am. And so, what I’ve come to grips with and how I operate my business today is that everything that I do, I [have] to get to the table first. And I do that by being relatable. I have to have a relatable story [for] people. I got to be somewhat relatable to get in the room and get people talking to me. Then those same people, whether it’s a seller, whether it’s a buyer, if I’m the broker, whether it is just [another] investor, they will work with me if I have targets,” Davis says.

The entire strategy is built on relationships. He’s fully embraced the idea that real estate is a relationship business. The most successful investors are the ones who build their networks, come to the table with a win-win mindset, and sell people on stories and possibilities, not numbers and ego.

The True Cost of Debt

Davis took on another seller-financed property on his second deal that included a 12% interest rate. At this point, he was up to nearly half a million dollars in interest payments alone. For a young investor moving on to their second property, this seems like a lot, and it was, as Davis acknowledges.

However, he notes that it costs more not to get started than to get started with high interest.

“So basically, [at] 12% interest, I pay 1% on whatever I borrow [per] month. And so, on my first two deals, I borrowed a quarter million dollars, and I was paying $2,500 a month in interest. Most people would say that’s ridiculous, that it costs so much money. I’d argue that it costs a lot more money not to get started. And both assets cash flowed $1000 a month or more [from] day one, net of everything.”

Davis argues that the cash flow spoke for itself. He went from having no assets to an asset with high interest and an extra $1,000 in his pocket each month, and all paid for by his tenants. He also reminded us that at his age, there’s far more waiting for him in the years to come. Especially as his financial background matures, experience and reputation grow, and he’s able to qualify for low-interest financial products from traditional lenders and seek out attractive deals from within his network.

Real estate, after all, is a long-term game with tremendous potential down the line.

Notes to Take

Cody is a shining example that age isn’t a factor when you’re determined to make something happen. For so many, entering the real estate arena is guarded by a high barrier that seems impossible to climb over or breakthrough.

But, even in today’s market, there are creative methods that can be used to penetrate the walls and make progress toward a financially free future.

It takes hard work, bold action, and creativity, but anything is possible. If someone like Cody Davis, a struggling 19-year-old real estate agent, can make the impossible happen, you can too.

Ashley Kehr:
This is Real Estate Rookie Episode 179er.

Dan Sheeks:
Credit card debt, student loan debt, car loans, things like that, those types of consumer debt, they are completely out of control in our country. And I think that’s a direct result from the fact that we do not focus on financial literacy in our schools and in our households in our country. We are a financially illiterate country overall. And so those types of bad debt, the consumer debt, credit cards, student loans, car loans, they are just going to put you deeper and deeper into a hole that’s going to be tougher to get yourself out of if you do want to reach financial independence earlier than age 65.

Ashley Kehr:
My name is Ashley Kehr, and I am here with my cohost, Tony Robinson, and we are on everyone’s favorite, a niner episode.

Tony Robinson:
And welcome to the Real Estate Rookie podcast, where every week, twice a week, we bring you the stories, the information, the education you need to kickstart your real estate investing journey. So my good friend, Ashley Kehr, what is going on? What’s new in your neck of the woods?

Ashley Kehr:
I actually, the speaking of niner, I had to start an entity for just a line of credit I was doing and I just needed a name. It’s an LLC that nobody will ever see the name for. And I actually put niner in the name, just something random. But yeah, just keep collecting those LLCs and having a couple names. Each of my kids’ names are already each in an LLC, so I was like, “What else is there that I could do?”

Tony Robinson:
What else? Tommy boy.

Ashley Kehr:
Niner. Yeah.

Tony Robinson:
What’s some other updates? What’s going on in the business?

Ashley Kehr:
So I submitted an offer last week on a campground, and I didn’t hear-

Tony Robinson:
Congratulations.

Ashley Kehr:
Thanks. And I didn’t hear anything. I did two offers, a seller financing and just a commercial loan financing, 25% down. And I did my seller financing offer super juicy, way higher, showed all the interest they would be making and I didn’t hear anything. And I actually froze, I could not work up the courage to call them. It was one of those things that we always preach, “Just take action. Just do it. Just make the call. Just talk to the person. Ask the person.” And I just could not do it, so I made my business partner do it. I literally sat on the couch hiding as he’s calling and all it was, was they didn’t see the email. She’s like, “Oh my gosh, you did? Oh, I saw the email come through, but I thought it was something you already sent me.” And literally two hours later, they called to discuss it.

Tony Robinson:
There you go.

Ashley Kehr:
I just had this internal fear that was nothing. And I probably should have called them a couple days ago instead of yesterday. So that was really good. I talked over the offers with the guy, and he’s asked me a couple things about… I did two letters of intent, asked me some questions it was like, “Well, it doesn’t matter anyways because I’m not accepting either of these offers.” So I was like, “Oh, okay.”

Tony Robinson:
[Inaudible 00:03:16].

Ashley Kehr:
Then we talked for about another half hour and I think we kind of have come to a deal.

Tony Robinson:
An agreement.

Ashley Kehr:
So I just have to work my numbers a little harder. All this morning, I was in contact with the bank. They definitely don’t want to do seller financing. I even had them talk to their CPA and they’re going to bite the bullet and pay the taxes on it so hopefully it will work out.

Tony Robinson:
Fingers crossed.

Ashley Kehr:
Well see, yeah.

Tony Robinson:
Yeah. How big is the campground or how many units is it? Or how many pads? Is that what they say?

Ashley Kehr:
Yeah, so it’s actually 200 acres but I think to make the deal work…

Tony Robinson:
Holy crap.

Ashley Kehr:
… we’re going to parcel off 100 of the acres that isn’t used and kind of on the back end of the property, and that will kind of make the deal work for me because there’s still 100 acres and still plenty of room to add onto the property if I want to. But it has cabins, it has RV sites, it has tent sites, it has a little wedding venue pavilion, convenience store.

Tony Robinson:
That’s awesome.

Ashley Kehr:
So yeah, it’s a cool little property.

Tony Robinson:
Well, fingers crossed, yeah.

Ashley Kehr:
Yeah, thanks.

Tony Robinson:
Yeah, and then three years from now, when you finally close on it, because those New York policies, we’ll get an update on that.

Ashley Kehr:
I put a July 31st as the closing date so that it’s like, because we’re seasonal here, there’s no camping the winter. So that would be like halfway through the season. So at least we can get some income before the winter months.

Tony Robinson:
Some revenue.

Ashley Kehr:
And if that’s pretty greedy of me to keep the [inaudible 00:04:41].

Tony Robinson:
Yeah, that’s awesome.

Ashley Kehr:
What about you?

Tony Robinson:
Well, yes, same on my side, Ash. We’ve been busy working on the due diligence for this resort we have under contract. So again, it’s a 23 unit cabin resort here in one of the lake towns in SoCal. I got a big packet of 200 pages from the seller yesterday that had all of their financials and reservation data. So I was up super late last night kind of coming through all that and kind of reworking our model based on those numbers. We have our property inspection is actually happening right now at this exact moment, the inspectors out there doing that, and they’re going to be out there tomorrow as well.
And then we’re meeting with our attorney tomorrow to start the syndication paperwork. So things are moving super fast. Our money goes hard in 22 days now so I just want to make sure that we do as much due diligence before that period. That way if we need to pull out, we have that option. So again, if you guys kind of want to follow along on that journey and see what it looks like, be sure to follow me on Instagram at TonyJRobinson and you can kind of see the ins and outs of how we try and pull this deal off.

Ashley Kehr:
Are you going to be sharing it too on YouTube at the Real Estate Robinsons YouTube channel?

Tony Robinson:
Absolutely.

Ashley Kehr:
Yeah, okay awesome.

Tony Robinson:
Our videographer is going to be with us when we go out there on Wednesday. So yeah, if you guys aren’t following us there, check it out.

Ashley Kehr:
I better make sure, are you going to have your videographer come to New York too for that property inspection?

Tony Robinson:
No. He’s [inaudible 00:06:02].

Ashley Kehr:
I better make sure I look good. Well, today we have a great guest on, someone part of the Bigger Pockets Community, Dan Sheeks, and he actually wrote a book for Bigger Pockets called First to a Million. A few of you may have picked it up, it was available this fall. But now he has created a complimentary workbook to actually go through the steps of creating financial independence and investing in real estate. So Dan shares with us some of the things that are in the workbook and how it can really apply to anyone. He kind of wrote it geared towards high school students and it kind of follows them through college as to what they should be doing to have that great personal finance foundation. But really it can apply to anyone. And it’s a great gift. If you know somebody graduating high school or college, it’s a great gift to give them too.

Tony Robinson:
Yeah. I mean, or if you’re just an adult with a kid that you care about, right? Whether your children, nieces, nephews, whoever, I think even you just reading it and kind of having a good framework that you can give to them super, super important. And one of the things that I love most about Dan’s framework is that he encourages people to be freaks. And as you listen through the episode, you kind of get an idea of what that means and exactly why he said that. So lots of really good information I think throughout this one that anyone can take and apply to build financial independence.

Ashley Kehr:
And you guys already know Tony and I are freaky in the spreadsheets.

Tony Robinson:
Yeah, so there’s a lot of that. But before we bring Dan on, I just want to read Ashley, one of the recent reviews that came from the rookie show. So again guys, we really appreciate if all of you could leave an honest rating and review on whatever platform it is that you’re listening to. The more ratings and reviews we get, the more people we can reach and that does help us continue to kind of impact more lives.
So today’s podcast review comes from Genalt. And Genalt says, “Found the Bigger Pockets Rookie Podcast midway through 2020 and I truly believe it changed my life forever. Hearing stories of rookies making it happen in real estate really jumps out at my investing and reassured me that I can do it too. I’d recommend the Bigger Pockets Podcast to everyone who has an interest in real estate investing. So Genalt, we appreciate you and we hope that you continue to have success in your journey as well.

Ashley Kehr:
Dan, welcome to the show, thank you so much for joining us. Can you start off with telling us a little bit about yourself and how you got started in real estate?

Dan Sheeks:
Yeah, kind of the down in dirty is I live in Denver, Colorado, or a suburb just south of Denver. I’ve been in Colorado for over 20 years. I’m a high school teacher, I teach business classes like entrepreneurship, personal finance and marketing, I’ve been doing that for about 20 years. Love my job, love working with teenagers and young people in general, that’s my passion. Also have kind of a side community that I run for young people interested in real estate and early financial independence. And then as far as real estate goes, I bought my first property way back in 2004 as a primary residence. I was house hacking it before I even knew what that was. That accidentally turned into a rental property because I moved out a couple years later and then sold it about 15 years after that. When I met my wife, honestly though, about seven years ago, that’s when she was kind of just getting started in real estate investing and so that’s when I became more serious and we became a team and have really leveled up our real estate investing in the last seven years.

Ashley Kehr:
What was the first thing that kind of piqued your interest about real estate? Was there some moment or that someone said something to you? Or why did you choose real estate investing as your wealth vehicle?

Dan Sheeks:
Well, honestly when I met my wife seven years ago, she introduced me to the Bigger Pockets Community and listening to the podcasts, that idea of passive income just blew my mind, no one had ever explained that to me. Even when I had a rental property previous to finding the community, the Bigger Pockets Community, it never really clicked for whatever reason, the passive income concept. And so when it started to add up like, “Hey, you could build a portfolio of more than one property, several properties, and you could be earning passive income of a significant amount every month to then maybe replace a W2 income,” that just made a lot of sense, and that was kind of the impetus for us leveling up and going forward.

Tony Robinson:
Dan, I think I first just want to say how cool it is that the school that you work for offers entrepreneurship classes to high school students. I did not have that or anything close to that in my high school. So just from my own knowledge, was this something that you created for this school or was it already there and you just kind of stepped into the role?

Dan Sheeks:
The entrepreneurship piece I’ve been teaching that since I got here 20 years ago, 19 years ago. I embedded that into a marketing class honestly, a level two year long marketing class. I devoted a semester to entrepreneurship, it was kind of just what I was passionate about. But then lately, three years ago, my school, we actually have a class now called introduction to entrepreneurship that is a concurrent enrollment class, meaning that it’s aligned with the community college here locally. So our students, our high school students, get college credit while taking that class. So it’s now a little bit more specific and a little bit more driven as far as a focused curriculum, but yeah, I love teaching entrepreneurship.

Tony Robinson:
Dan, I think you just shared a really important lesson with a lot of our listeners and that’s, if you have an interest, whether it’s real estate investing or something else, try and find a way to integrate that interest into your day job. I think everyone is so, and understandably so, everyone wants to leave their day job, right? A lot of people listening have this dream of retiring from their day job and being a full time investor, but it’s going to take time to get there, right? Most people can’t flip that switch on day one.
So if you’re unhappy in your day job, start asking questions if there’s ways that you can integrate your passions and your interest about investing in entrepreneurship into your day job. But maybe it’s not as straightforward as being able to teach a class on entrepreneurship, but maybe it’s, I don’t know, being the person that leads a new project, that’s doing something new that feels like you’re running a business. So I just thought that was a really cool kind of tidbit. I wanted to make sure we highlighted that for the listeners.

Dan Sheeks:
Yeah. I agree 100%.

Ashley Kehr:
Dan, you have this teaching background you’ve invested in real estate now share with us what you have done to kind of tie all this together.

Dan Sheeks:
Yeah. This is kind of where it got exciting for me, when the switch flipped, where I realized what I was learning about real estate investing, but more bigger picture, the early financial independence world. What I was learning there, for my wife and I and our family, I could then share that with the audience I have, which are students in my classroom, which aligns so well with the classes I teach anyway.
And then I also have created an online community to reach young people even outside of my school with these same ideas. It just made sense. Some of my passions are obviously working with young people. I would say 15 to 25 or Gen Z that’s that’s my niche. Personal finance education is a big passion of mine, real estate investing and that early financial independence community that those strategies that can get you to not having to work until you’re 65. So if you add all that together, yeah, I created the Sheeks Freaks Community, I wrote a book and a workbook for Bigger Pockets, which I’m super grateful to Bigger Pockets for getting on board with those and it’s just taken off.

Ashley Kehr:
So tell us more about this book because this is launching, is it today or this week?

Dan Sheeks:
The book itself First to a Million launched last December and the subtitle of the book really says it all. It’s a Teenager’s Guide to achieving early financial independence. But the workbook that goes with it, the First to a Million workbook, which honestly I think is of the two slightly more valuable than the actual book, the workbook is launching right about now, spring 2022. It is a guide or a playbook for the young person or really anybody, anybody who’s new to early financial independence, anybody who’s new to real estate investing, index fund investing, all of those strategies, frugality, mindset, entrepreneurship, the book and the workbook are I think the starting point to really create that foundation to then move forward and create a better financial future for yourself.

Ashley Kehr:
So Dan, I want to ask, how does this compare to Dave Ramsey? So he has his workbooks like The Total Money Makeover, and that’s how a lot of people get onto that financial independence journey is first by paying off their debt and that’s how I got rid of all my personal debt was following that journey. But then as an investor, his plan really doesn’t align with being a real estate investor because he’s like, no debt at all, where I have mortgages racking up left or right. So how does your plan and for financial freedom differ than his and can you tell me a little bit about that?

Dan Sheeks:
I think the way that mine differs from Dave Ramsey or people in that community is very similar to everyone in the FI community that is pursuing early financial independence, especially with real estate. Yeah, I love debt, right? I love good debt, because it makes more money and more passive income. It’s just a way to leverage. So yeah, the strategy I lay out in the book for the newcomer, the young person, are about using good debt and not accruing bad debt. There’s a chapter actually called good debt versus bad debt and how you can leverage money, especially through real estate investing, to build passive income and to grow your net worth quicker than if you were to follow say the Dave Ramsey pathway.
I will say that my book and workbook, they are not for everybody, just like real estate investing isn’t for everybody and even early financial independence isn’t for everybody. There’s a small percentage of teenagers who would actually read my book and then employ the strategies to reach early financial independence. I would never tell a young person what to do, and in my boo. I don’t. I just say, “Here are the options that you are probably not aware of because it’s not adilly discussed in our society.: And then once you know all of the options, you can make the decision that’s best for you. And so if real estate investing is something you have no interest in then don’t do it or maybe do it later. You never know what might be down the road 10 or 20 years. So it’s very different than Dave Ramsey but very much aligned with everything else we know about the early financial independence community.

Tony Robinson:
Dan, you brought up a good point about the difference between good debt and bad debt and I’m hoping we can kind of go down that rabbit hole a little bit. I just actually, our friend of Bigger Pockets, AJ Osborne, he just posted something on his Instagram the other day and it was some news article clipping that said consumer debt had reached like almost $4 trillion. So I guess first, define the difference between good debt and bad debt and how does one go about staying away from that bad consumer type debt?

Dan Sheeks:
Yeah, the statistics are pretty startling, although they’re hard to digest because when someone just throws a big number out there like what you just mentioned, it doesn’t really register. But yeah, credit card debt, student loan debt, car loans, things like that, those types of consumer debt, they are completely out of control in our country. And I think that’s a direct result from the fact that we do not focus on financial literacy in our schools and in our households in our country. We are a financially illiterate country overall. And so those types of bad debt, the consumer debt, credit cards, student loans, car loans, they are just going to put you deeper and deeper into a hole that’s going to be tougher to get yourself out of if you do want to reach financial independence earlier than age 65.
However, good debt is debt that I will take all day every day and you two know very well, it’s debt that you take on but the net effect of having that debt allows you to increase your net worth. And a rental property is the best example by far, you have a mortgage on that rental property, but overall it’s cash flowing positive because you have a tenant in there. And so you are growing your net worth, you are having positive cash flow every month, but if it weren’t for the mortgage that you had for that property, you wouldn’t be able to do that. So I would take that debt like I said, all day, every day.

Ashley Kehr:
So in your workbook, I want to go through, Tony and I had a chance to look through it. And first of all, congratulations on creating this and it has turned out awesome. I want to go through one of the first parts of it. So phase one, can you kind of tell us what that is and the list that it goes into? These are some of the first things you should be doing.

Dan Sheeks:
Yeah. And first I’ll kind of introduce the way that workbook is set up. It is really helpful if someone reads the First to a Million book first and then goes and kind of graduates to the workbook. But in the workbook, it really tells the reader what to do, when to do it, how to do it, and why you’re doing these things. And there are, I think, 19 phases or we call them freak phases, the book and the workbook all are kind of all around a theme of being freakish, which is basically being different with your money and your financial future. So if you’re a FI freak, that’s a good thing because you are doing things differently than the average Joe.

Tony Robinson:
Dan, I’m sorry. Before you go on. I just want to comment on that because I absolutely love that concept, right? I think the vast majority of Americans today have a very warped sense of what it means to be successful financially. And if you’re talking to people in your circle and no one’s looking at you like you’re crazy, then it probably means you’re doing what everybody else is doing and that you’re going to end up how everyone else is going to end up. So you want people to kind of look at you sideways when you talk about what it is that you’re doing and what your goals are and how you’re doing this with your money and how you’re investing this way and doing those things. Because if people don’t understand or if people are questioning you, it means you’re doing something that the mass is aren’t which is probably going to set you up for success. So I just had to pause there, man, because I love that concept so much.

Dan Sheeks:
Tony, you nailed it. I mean, in our society, we’re trained to spend everything we make because spending money is fun and work until you’re 65. And if that’s the path you want, then by all means, go for it, there’s nothing wrong with that pathway. But if you do want early financial independence or you do want to grow your net worth quickly, then you have to do things differently. You need to stand out, you need to be freakish from your core circle and everyone else out there. And that’s what First to a Million’s all about.
So yeah, going back to the workbook, there’s about 19 freak phases, each one is four months long, and it walks the young person through what exactly should you do in this four month increment of time to then graduate to the next freak phase four months later. The workbook is very flexible in that no matter how old you are or where you’re at, high school, college or beyond, you can start the workbook from the beginning and work through the end. You can go a little faster than it’s laid out or a little slower. But freak phase one is kind of geared towards someone who’s in high school, right about the middle of their high school journey. But again, college and beyond it still works. And so freak phase one, which has I would say about 12 different tasks to complete in that four month period is all about again, setting the foundation, getting started on your early financial independence pathway. And if you want, we can dive into a few of those or…

Ashley Kehr:
Yeah, I actually have a question on one. So implement a new freak tweak. What is that? And can you give us an example?

Dan Sheeks:
Yeah. A freak tweak is something around being frugal, right? So it is what is one way that I can help myself save a little money that I’ve never done before that is not going to change my life drastically? So a freak tweak could be as simple as on average, I go out to eat five times a week, I’m going to dial that back to three times a week. Or it could be, At my gym, I have the top tier membership, I’m going to dial that back to the mid-tier membership and save 50 bucks a month. So tweaking something in your expenses so that you are saving a little bit more money.

Tony Robinson:
Can I share one freak tweak that I did when I was in my W-2 job, and it helped me a lot. So like most people, I was an early disciple of Dave Ramsey, right, when I was growing up and I tried to do the envelope system. But it was a pain, right, no one carries cash like that anymore, it didn’t work, right? So what I did was I kind of created my own digital envelope system. So again, people thought I was crazy when I explained this to them, you guys might think I’m crazy too. But I created a bank account with Ally bank, they’re like an online first bank. But what I liked about Ally is that you could create multiple checking accounts and there were no fees for each checking account. So what I did was I had like, I don’t know, like 25 checking accounts and I had one for gas, I had one for groceries, I had one for vacation saving, I had one for utilities, all the different spending categories that I had, I had a subsequent checking account for them.
And what I would do is that I would set up my direct deposit so that instead of all my money going into one account, it would automatically get dispersed across all these different checking accounts that I had. And then I had one checking account that was for spending. So I didn’t have to carry all these debit cards, but if I wanted to go out and buy groceries, I would transfer money from my groceries account, into my spending account and then I’d spend it from there. So it was a way to kind of automate my budgeting without me having to really think about it. Every time I got paid, the money just got dispersed. When an account got low, I knew I had to slow up on my spending. So I literally had like 24 checking accounts and people thought I was crazy for that. But for me and my wife, it was a really easy way to kind of keep our budget in check.

Dan Sheeks:
I love that and that is freakish, Tony, that is absolutely freakish to have any more than two or three checking accounts unless they’re for a rental property or something. I love that, it’s a digital envelope Dave Ramsey system and I applaud that, yeah.

Ashley Kehr:
So Dan, you want to tell us a little bit more about that phase and then maybe we can hop into one more phase and kind of explore it.

Dan Sheeks:
Yeah. So in freak phase one, the the first item, and they don’t have to be done in order. The first item is to read the book First to a Million. Again, that’s kind of the foundation for the workbook. So if they haven’t already read that they should. And every freak phase going forward, all, 19 will start with, here’s a book that you should read in that four month period. I think a couple them even have two books. And so those books run the gamut of investing specific, real estate investing specific, entrepreneurship mindset, the House Hacking Book by Craig Curelop in there, Set for Life by Scott Trench is in there, couple other Bigger Pockets books and then some that aren’t Bigger Pockets. But I think educating yourself is definitely one of the triggers or levers you need to pull to really find yourself success on this pathway.
There’s another book that they should read in freak phase one, which is just a personal finance basics book written for teenagers. First to a Million, I talk about some basics of personal finance but not all so this book kind of closes the gap so that the young person now is knowledgeable about everything around personal finance, at least the basics.
Set three financial goals, implement the new freak tweak that you mentioned, Ashley. Sell a personal item you no longer want. Even teenagers I think have clutter that they’ve accumulated and if it’s something that they’ve never touched or never used, even if you sell it for 10 bucks on Facebook marketplace or eBay or Craigslist, you just increased your revenue for that month. And you’re not going to lose any sleep over getting rid of a guitar that you haven’t touched in five years so why not sell it.
Finding a new fun, free activity. So just a way to increase your happiness without spending money. There’s so many things that we can do and the book lists several that are free, that we can fill our time with without having to spend any money or very little money to do those. And the list goes on and on. Paying bills with your parents every month just to learn the expenses and income, the spreadsheets, the balance sheet of the small business that is a household.

Tony Robinson:
I want to pause on that one, paying the bills with the parents. I think that’s a really interesting concept. So I just want to make sure that I’m understanding that. So what you’re saying is like, so I have a 14 year old son so I think this book really resonates with me and the workbook because he’s getting to that age where it’s important. Luckily, me being an entrepreneur, I have a lot of these conversations with him, but what you’re recommending here is that when I go to pay the utilities bills and the mortgage payment and all these other things to kind of have him sitting there with me as I do that, so he can see, “Hey, this is how the funds of this household are being allocated.” Or is there another way to do that?

Dan Sheeks:
Yeah, you’re exactly right. And don’t just have him there have him run the show, have him sit at the table with your laptop, he’s clicking the mouse, you’re directing him. But at the same time, you’re explaining here’s where that money came from and here’s where it’s going and here’s how often I pay that, and is it a variable expense, is it a fixed expense? Is it an expense that’s going to expire like a loan or is that an expense that’s going to be there forever? There’s no better way to just teach someone, a young person about just the fundamentals of paying your bills and personal finance than actually having them involved. And again, make them the active partner and you’re just kind of in the background giving them some direction, making sure they don’t, spend an extra, the decimal point needs to be in the right place when you pay that credit card bill or whatever. So yeah, getting them involved is huge.

Ashley Kehr:
Dan, what would you say, how can a parent approach their child about taking this on? If they have no interest in this at all, how can they kind of plant the seed that here’s a great book? Because I think a lot of our listeners are going to kind of be in that boat, they’re not going to be the young high school student listening to our podcast. And those of you that are, awesome for you guys, and we love having you here, but for those who have kids that are listening and want their kids to implement this, what can they say to them?

Dan Sheeks:
I get that question a lot, but first, don’t sell your yourself short. I know this podcast has a lot of young listeners because I talk to them all the time in my community. They love your show as do I.

Ashley Kehr:
Oh, awesome. Good.

Dan Sheeks:
But you probably do have a lot of parents as well of teenagers or even younger. And so I get asked all the time, “If I’m a parent, how do I get my teenager to want to learn about these things? I give them the book, but are they going to actually read it? How do I get them to want to open that cover?” And the short answer is you can’t. As Tony knows, you cannot make a teenager do anything, they have their own mind, they have their own interests.
You can entice them or incentivize. But at the end of the day, if they have no interest in reading a book, then they’re not going to. But the advice I give is incentivize them with maybe some money. If you read this book and you finish it and I ask you a few questions and you answer them so I know you read it, then I’ll, I’ll give you a hundred dollars or fill in the blank, whatever amount of money you think is going to do the trick. Or start having conversations about the idea of not working until you’re 65. You could even throw out it as a parent, maybe a challenge, depending on what path you’re on. I challenge you to retire before me because a lot of the people in the FI community are doing exactly that.
Their parents are on that nine to five until you’re 65 grind, but they’re retiring or reaching FI 30s, 40s or maybe even in their 20s. So it’s not a contest, but I think it would be interesting to some teenagers to say, “Oh, you’re telling me that I could reach FI before you and that I could beat you there? That sounds interesting to me. And then using words like financial freedom instead of retirement, phrasing things the right way so they’re more interesting to a teenager. Retirement doesn’t get a teenager interested at all, but financial freedom or millionaire at school it’s much better to have a future millionaires club than a personal finance club. So just phrasing thing in a better way to get their interest.

Tony Robinson:
So Dan, you also, I know we’re going to talk about some of the other freak phase you have in the book, but before we move on to that next phase, I also want to kind of drill down on your four mechanisms of early FI because I think that’s a kind of a good baseline to give folks before we go on to the next phase. So can you break that down for us? What does that mean? What are those four mechanisms and why are they important?

Dan Sheeks:
They’re super important, right? If you do have a goal of reaching early FI, these four mechanisms are exactly how you will get there. And I go over them in detail in First to a Million. So just short list. Mechanism number one is to earn more. Mechanism number two is to spend less. Mechanism three, save the difference. And mechanism four, invest your savings wisely. And I mean, we could go into any of those mechanisms for half hour to an hour. There’s so many different levers within each of those mechanisms that you can pull to maximize those. But yeah, if you do those four things and you do them well, then you are going to reach early FI.

Tony Robinson:
Dan, how important do you think earning more is because like a lot of Dave Ramsey folks, it’s just like rice and beans, don’t spend a dime. And I feel like a lot of the focus in that community is on expense reduction, but I feel like there isn’t a big enough focus on income expansion. So I mean, how do you kind of balance those two things in your approach and why do you feel that income expansion is so important as well?

Dan Sheeks:
I think they’re both super important or maybe even equally important. Earning more, spending, less doing those two things is going to widen your savings gap or your increase your savings rate, which is only going to fuel your journey to early FI. And so earning more, we all have skills or time available to earn more money through a side hustle, a very easy entrepreneurial small business venture. For teenagers, there’s so many things like just working in their neighborhood, raking leaves, mowing lawns, shoveling sidewalks, or there’s so many ways to make a little bit of money online. I was just talking to my class yesterday about companies love to get teenagers input on their feelings and thoughts about different products and teenagers can go online and volunteer to be in different focus groups and they can earn money doing that in their free time. Not a lot, but anything for a teenager or someone young, especially when your income is pretty limited because you are a full-time student, anything that boosts your income in the present is just going to help you learn those skills and save more money to invest later. So yeah, I think it’s super important to earn more,.

Ashley Kehr:
Dan, let’s jump into phase 12 of your workbook. Can you go ahead and kind of explain what this phase is and why it’s important?

Dan Sheeks:
Yeah. So yeah, just kind of picking a random phase. This is a little bit more than halfway through the workbook. Phase 12 would generally happen if a young person is going to college kind of mid to midway through their college, their four year college experience, or if they didn’t go to college, they’ve been out of high school for a couple years. So it’s like every phase that I mentioned, it’s going to have them read a book in this case. It’s the Four Hour Workweek by Tim Ferris, awesome book, especially around mindset.

Ashley Kehr:
Ah, such a good book.

Dan Sheeks:
And so reading that when you’re 20 years old, that can change everything, which by the way, I think one of the reasons I wrote the book is because I heard so often in the FI community people saying, “I wish I would’ve known this stuff earlier.” And of course we all wish we could’ve known this stuff earlier. And so teaching it to young people is one of the main reasons I took the time to write the book and the workbook. So also in freak phase 12, it’s guiding them on a path to buy their first real estate property as they work themselves through the book. But they don’t have to, right, because it’s very flexible and if the young person has zero interest in owning real estate, then it guides them in other ways to build their wealth and passive income. But if they are interested in real estate, it’s going to get them to buy that first property and house hack it right around this phase, phase 12 or 13.
So in this phase, it tells them to choose a real estate agent to help them buy that first investment property, which would be a house hack and the steps to go to make sure you have a great agent to work with. Determine your systems for managing that property is another task in that freak phase. Your systems for managing the property, utilities, expenses, collecting rent, that kind of stuff. Opening a couple bank accounts, a checking and savings account specifically for that property is a checklist item. Starts submitting offers, which is exciting working with that agent and finding properties that you’ve analyzed and the numbers work and finding a right agent obviously is so key.
They’ll help you in that process and then start submitting some offers close on your first real estate deal is a checklist item. And then there’s some items that are repeating in most phases like setting some financial goals for that phase, a new freak tweak, selling a personal item, evaluating your income streams, that appears about every three or four phases, calculating your net worth is again something that comes up about every three or four phases. Networking, shadow someone for a day. These are all things that just build your likelihood to reach FI and some people, a workbook checking things off is just the way to make sure it gets done.

Ashley Kehr:
Dan, I think this phase would actually compliment the Real Estate Rookie Bootcamp where you learn how to make offers and how to purchase a property. So when you’re giving this book to someone or someone’s going through and reading it, what would you say is overall the most important action item of the ones that are repeatable that they’re doing? So the new freak tweak or selling a personal item or finding a new fun free activity. What are one of those things would be something they should be really diligent about consistency?

Dan Sheeks:
Yeah, I think the answer to that question would be networking. It is so incredibly crucial for anyone, no matter what age and no matter what your goal, honestly, to surround yourself with like-minded people and the workbook guides them through what are different ways that you can network, what are different ways you can put yourself out there to find like-minded people, both your age, cohorts and peers, but also people who might serve as more of a mentor role, all of that is networking and the community I’ve built is all about that aspect of bringing together young people who have similar goals but are freakish, right? Their good friends, their core circle at home may not have the same interest but bringing them together in a place where they can connect and network with each other and hold each other accountable and stuff like that. So I think networking is so incredibly important. You cannot put a number or a price on the value that’s going to bring to your life.

Tony Robinson:
Yeah, like I said, obviously, I’m kind of freakish myself, right, but I read the Four Hour Work Week when it first came out, I was in my early twenties and I immediately tried to start selling stuff on Amazon because I was so juiced up after reading it. The Millionaire Fastlane by MJ DeMarco was another really good book that’s kind of in the same vein as Tim Ferris. But the reason I bring that up was because that was me Dan, I felt like the people around me at that age weren’t thinking along the same lines that I was thinking. And I literally remember I had a blog and a podcast and I was like 21 years old about personal development. And I was in a mastermind with these other bloggers and podcasters and they were all like in their 30s and 40s right? Here I am this 21 year old kid and that was my circle, right? Because no one else who was 21 was trying to do the same thing. So I couldn’t agree more that there’s so much value in the network and the community that you build around yourself to kind of keep you juiced up and wanting to move forward.

Dan Sheeks:
It changes everything, it really does. Absolutely.

Tony Robinson:
So Dan, I know we’ve got several phases throughout this entire process. You start at phase one and it goes all the way down to phase 14. But depending on where someone picks this book up, do they always need to start at that phase one or maybe they move through it faster? Is there an element of customization to the phases you have here?

Dan Sheeks:
It’s very customizable. And so in the introduction to the workbook, I explain how to do that. So let’s say someone’s 24 and they pick up this book, but they are still in that beginning stage of learning about early financial dependence, learning about real estate investing and they haven’t really taken any action yet but now they have the workbook. So you would still start in freak phase one. But I explain, instead of doing that freak phase in four months, maybe do it in two. Or maybe take freak phase one and freak phase two, combine those lists and try to get that done in four months. So you’re accelerating the process. In this mindset, what young people sometimes forget, they’re so driven, right? They’re so motivated. They forget that it doesn’t all have to be done today.
And even if takes them five, six, seven years to get to some major milestones, they are still decades ahead of most people out there who never earn a penny of passive income, who never own any real estate except for a primary residence, who never start a business of any kind, that’s the vast majority of people in our country. And so sometimes I try to pull them back a little bit and said, “You don’t have to do everything this year, just take some major steps in the right direction and still allow yourself to have some fun with your friends and do some fun things. You don’t have to be 100% business all the time.

Ashley Kehr:
So Dan, before I take us into our Rookie exam, since this is a real estate podcast, I just want to go into your portfolio a little bit more. What are two or three things that you could you have learned? Maybe it was an obstacle or a challenge you had building your real estate portfolio that you could share with our rookie listeners that you have overcome in a lesson you have learned.

Dan Sheeks:
I think one of the major lessons is that you just got to do it. My wife and I have made a lot of mistakes. Some of them very costly, honestly, but obviously where we’re at now, the net effect is hugely positive. And so, we’ve signed leases with really bad tenants and regretted it, but the lesson we learned while going through the process of dealing with really bad tenants, we know that we’ll never do that again and we have the right systems and processes in place to make sure it doesn’t. Selecting the right properties, we’ve made some bad decisions there. But you can learn everything you want from books and podcasts and blogs and talking to other people who are more knowledgeable than you. But until you actually take action and start doing these things, that’s when you really start to learn.
And so I would say don’t be afraid of making mistakes because you are going to make mistakes. And it’s in those mistakes that you learn so much and you grow and your future, until you make those mistakes, you can’t get to that next level. So know that it’s going to happen.,It’s not going to be a perfect pathway. I mean, every day in my side business of the Sheeks Freaks Community, I make mistakes and I learn so much. But it’s only because of that it continues to grow and strengthen and become a better community.

Tony Robinson:
Dan, before we move on to the rookie exam, I don’t think we touched on this at the top of the show, but just what does your and your wife’s portfolio look like today? We know you started with a house hack, how big have you guys been able to scale?

Dan Sheeks:
Yeah, we have 17 units mostly in Colorado. And that’s a mixture of small multifamily and single family houses. We have three single families in Detroit or just outside Detroit, Michigan. They were all burrs, obviously all long distance. In Colorado, we have two short term rentals that we Airbnb full time and we have a house hack. So we have a three bedroom house and we rent our basement out to a young woman. I think she’s our fourth tenant we’ve had down there. That’s amazing passive income. It’s freakish, right? My wife and I have a one year old son, most couples who have small kids would never rent out a floor or a bedroom or to a stranger although our tenant right now is amazing, she’s awesome.
But in order to get a different result, you have to do things differently. It is a little bit of an inconvenience at times, but overall not really. We would never use our basement. And so she pays us basically 1,000 bucks a month, that’s $12,000 a year to expediate our investments and our net worth and reach our goals even faster. So I’m a huge fan of house hacking, especially for the beginner and the young person, as you know, if they want to get into real estate.

Ashley Kehr:
I couldn’t agree more, such a great way to start into real estate investing. Dan, how long did it take you to build your portfolio? Once you met your wife and you guys started investing together?

Dan Sheeks:
Seven years, we’ve been at it seven years.

Ashley Kehr:
That’s awesome, congratulations.

Dan Sheeks:
Thanks.

Ashley Kehr:
Okay. It is time for the rookie exam now. So being a teacher, I’m sure you should be able to ace this exam. So Dan, the first question is one actionable thing rookie should do after listening to this episode.

Dan Sheeks:
Can I say go out and buy First to a Million, the book?

Tony Robinson:
Absolutely.

Ashley Kehr:
Yes you can.

Dan Sheeks:
I honestly, I mean, I wrote the book and the workbook for that young person or beginner who’s just trying to consume all this different information and maybe it’s not making sense. This is the place to go to start fresh and really kind of sequentially learn what you need to learn. So that would be my advice, it’s a little self-serving I suppose, but it’s the best advice I got.

Tony Robinson:
All right Dan, question number two, what is one tool, software, app or system that you use in your business?

Dan Sheeks:
One of the ones that we found super useful for our, for our short term rentals is an app called Turnover BnB. And it’s a way to find people to clean or even sometimes manage your property with very little effort. So I highly recommend that.

Ashley Kehr:
Cool, thanks for sharing, I haven’t heard that one before. Have you Tony?

Tony Robinson:
Yeah, I’ve heard of it.

Ashley Kehr:
Probably, yeah?

Tony Robinson:
We haven’t used it before.

Dan Sheeks:
Of course, he’s heard of it, yes.

Ashley Kehr:
Yeah. The last one Dan is where do you plan on being in five years?

Dan Sheeks:
Five years. So my wife, she was a teacher as well for 19 years and she retired from teaching about two years ago.

Tony Robinson:
Wow. Congratulations, Dan, that’s amazing.

Dan Sheeks:
Thanks, yeah. So we’re blessed that she is able to be home with our son full-time. She does some property management, she does manage our rentals, our portfolio. And she has a side hustle as a notary signing agent, but all of that is kind of on her own time. So she manages our household. And so in five years, I hope to be either halftime myself or out of teaching altogether, but it that’s a struggle because I love my job and leaving altogether is not something I’m ready to do yet. But we may have another kid in the future as well. And once you have a family things completely change and now I just want to spend every moment I can with my family. And so in five years, that’s probably what I’ll be doing.

Ashley Kehr:
And I think there’s definitely a way to fulfill your passion of teaching and educating people without having to work at a school either and being able to turn it into your own business and, yeah. Well, I’m excited to see what you do and how you grow and congratulations on all your success so far. Everybody make sure you go check out Dan’s workbook, it is currently available on amazon.com. So Tony, do you want to highlight today’s Rookie Rockstar for us?

Tony Robinson:
Absolutely. So if you listeners want to get highlighted as the Rookie Rockstar, be sure to get active in the Bigger Pockets forums and the Real Estate Rookie Facebook Group, we got almost 50,000 people in that group, super active, super engaged. And then if you got a good story, we might share it on the show. But today’s Rookie Rockstar is Patrick Ryan. And Patrick closed on a six unit apartment building which brings Patrick’s total portfolio up to 23 units. And a few quick notes from this six unit acquisition, it was off market so they sent out some postcards, they were able to negotiate seller financing. So the sellers carrying 20% back of the loan and they use that as part of the down payments.
And then on the price, they paid about $72,000 per unit, which is really good because they said most other units are trading around 100K to 125 K per unit. And there’s a lot of upside in the rent as well. But they were able to get $16,000 in cash at closing because of the way that some of the rents were set up. So I mean, it sounds like an amazing deal all together, Patrick, congratulations to you brother for knocking it out the park.

Ashley Kehr:
Yeah. Great job, Patrick. Well, Dan, thank you so much for joining us. Can you tell everyone where they can reach out to you and find out some more information about you and of course learn more about First to a Million?

Dan Sheeks:
Absolutely, yeah. People can find me on Bigger Pockets. I’m there every day, LinkedIn, Instagram, they can also email me at [email protected] First to a Million and the First to a Million Workbook are available on Bigger Pockets and Amazon and everywhere else. Also, if there’s some young people out there interested in the Sheeks Freaks Community, sheeksfreaks.com, you’ll learn everything you need to know there.

Ashley Kehr:
And I have to add, I really think this is a great book for anybody that’s going to a graduation party this spring, this summer, I think for high school graduation, even college graduation. So if you guys are looking for gift ideas, I think this is a great one.

Dan Sheeks:
Yes.

Ashley Kehr:
Okay. Well Dan, thank you so much for joining us. I’m Ashley at Wealth From Rentals and he’s Tony at Tony J Robinson. If you guys love the podcast and you have a success story, a win, please share it with us. You can leave a review on your favorite podcast platform and we will be back on Saturday with a Rookie Reply.
(singing)

David:
This is the BiggerPockets Podcast, show 605.

Christian:
Now I’m learning accounting. I have the right person to teach it to me. I have a CPA, it took me a while to find, but I have the right CPA who makes me go through the steps and learn it before he’ll file anything. While it’s a pain, I’m understanding it. And next year, when I get here, I’m not going to have an accounting problem. I’m going to have a whole new set of problems. And that is what I’m targeting every time. When I’m stuck, I need to make sure I’m not stuck on an old problem.

David:
What’s going on everyone? My name is David Green, and I am your host of the BiggerPockets Real Estate Podcast. The podcast where we teach you how to build wealth through real estate and improve your life through the financial freedom that it can provide. We do that by bringing on different guests that have walked this journey before you to teach you what they did and maybe left some bread crumbs along behind the way so you could follow their path. We also bring in experts in the industry to teach you things like tax savings, bookkeeping, renovation tips, how to find deals, how to find on market deals, how to use an agent, how to get lending, all the pieces that you need to build your wealth through real estate investing. I am joined today by my co-host the amazing Rob Abasolo, who joins me in my interview with Christian Osgood, the partner of Cody Davis, who we interviewed on episode 554 and had a very popular episode.
Now, Cody and Christian are both young men that are somewhat new to the game of real estate, but have had a lot of success by finding off market deals and structuring them wisely through building relationships. This is pretty much a can’t fail approach. If you’ve been trying to find deals and can’t find them, if you’ve been nervous about paying too much for a deal, well, these guys are finding deals, naming their price, and working with the sellers to make it work. It’s harder work, but it is definitely something that has a much higher upside and today’s interview with Christian was fantastic. I loved this conversation. Rob, what were some of your favorite parts?

Rob:
You know, I think it was really nice to find out that you’re never really ready to scale. I think we all try to put all the systems in place and build out the teams and spreadsheets this and all the … I mean, I think kind of what we learned from Christian was that they relatively had a good structure in place, but the only way they could really scale was by throwing themselves into a deal. And he talks about that because his first two deals were two units and then his third deal was a 38 unit building. So I think that right there, he had to learn a lot on the ground. And so we talk about that. We talk about his different partnerships. We talk about networking with people and really getting to know them and knowing their heart and knowing their story and leading with that to close deals versus leading with, Hey, do you want to sell me your property? And they’ve had a lot of success doing that.

David:
A ton of it. And then they also have learned that everything is figureoutable or as they say in today’s show, everything is Googleable. And that leads us to today’s quick tip. You can use Google Maps to find just about any property that exists and then find the owner afterwards using that. Rob, have you ever done this yourself?

Rob:
I haven’t. No. Yeah, it was actually ridiculously simple. I was like, can you just, can you walk me through this? And then he told us the steps and I was like, okay, I guess it’s as easy as it sounds. Just Google it.

David:
That’s it. So make sure you listen to the full episode today so you can learn how to just Google it yourself. All right. I want to make a reminder if you like this show, go back and listen to episode 554, where we interviewed Christian’s partner, Cody, who has an inspiring story. These two are working a method that anybody can use. There’s a lot of good advice here about the right way to contact people, how to make sure that they’re talking more than you, and you’re bringing more value than you’re asking for from them. We get into some of the mistakes that they made in their scaling quickly, so you can avoid those same mistakes, as well as a really good blueprint. Any last words, Rob, before we bring in Christian?

Rob:
You know, I think my favorite part of the show was he talked about a very honest and big mistake that they had in their business, and it was a very vulnerable moment. I was like, man, I wish a lot of people opened up like that, because there’s a lot to learn from these moments. So stay tuned for that.

David:
Yes. And we’re going to be doing more of that. I’m coming after you. You come on the podcast, you’re going to share the good, you’re also going to have to share the bad and the ugly. All right. Without further ado, let’s bring in Christian. Christian Osgood, welcome to the BiggerPockets Podcast.

Christian:
Hey, thanks for having me.

David:
Yes. I think this was probably set in stone from the time that we interviewed Cody. That episode was very, very popular. If you didn’t hear our episode with Cody Davis, go check out 554. And Cody is what 21, 22 years old? How old is he now?

Christian:
He’s 22 now.

David:
22. Okay. He’s grown up quite a bit.

Christian:
He’s done it. He’s old.

David:
He’s buying multi-family properties and he was crushing it and it was a very inspiring show, and you are his other half, as I understand.

Christian:
Yep. On the business side, I am his partner on a majority of the deals that he’s done and we’ve done pretty much this whole venture together for the last 13 months or so.

David:
You’re significantly taller than Cody, right?

Christian:
I am. That is always difficult on the YouTube channel or any filming we have to be really conscious of is Cody actually showing up on the camera?

David:
I ask, because I think I saw on your Instagram, like I think I’m following Cody and he was posting pictures with someone who looked like Groot standing next to Rocket Raccoon. And now I’m seeing this is Groot.

Rob:
Let’s get this man in apple box.

Christian:
There we go. I am Groot.

David:
So let’s start off tell us. Yeah, that’s a perfect reply to what I just said. That could be the intro to this show. So start off telling us how do you and Cody sort of divvy up the responsibilities of what you’re doing? What skill sets do you each bring? How’s your partnership look, and then we’ll dive more into your portfolio.

Christian:
Yeah. Well, important thing is we can both do what the other can do. We have overlapping skills, however, we have different specialties. The way we’ve designated it is Cody brings in as much fish as he can while I build a bigger boat. Cody brings in a lot of fish. So that’s a lot of ship building. We can both sell. We can both raise capital. We can both negotiate deals. However, Cody probably does about 75, 80% of that. I do a lot of the backend accounting, getting the right systems. It turns out when you buy a lot of real estate really fast, there’s a lot of bills to pay. You have to keep track of those things. I have a little better memory for that piece than Cody. Cody is great at driving fast. My job is to make sure that we have the capacity to haul in everything that Cody brings.

David:
That is so well said. In fact, every business venture that I started, I typically operated like the Cody and I needed a Christian, and the times I did not do well was I didn’t have a person in place that could keep up with the mess that I created, frankly. Like I got all these fish, I dumped them in the boat and somebody else has to figure out what to do with them before they rot, they go stinky, someone slips on them. And so I really think that’s like, if you’re going to start a business or a partnership, what you’re describing right now is the first thing everybody needs to work out is if we are successful in getting opportunities, if they’re a real estate agent, that’s leads, people that want to buy or sell homes. If you’re a real estate investor it’s properties, we might want to buy.
That’s the hardest part is you got to fill up a pipeline full of leads and opportunities that you want to be doing something with. Well, the next piece is who is going to clean up this mess, track the accounting, follow up with the contractors, know where money’s coming in and out, help you understanding if you’re even profitable. So I love that you’re acknowledging that, because I think this is where sometimes you get two Christians where both people just want to have everything be nice and clean, but they don’t go get any leads, so you never get anywhere. And sometimes you have kind of how Brandon and I work, where we both just create big messes and that there’s nobody left to clean it up. So tell me a little bit, like how did you guys come to this understanding that this is the way that work was going to be split up?

Christian:
Well, it happened organically. I guess, sticking with the ship metaphor, what we’re going to do is when you have a partnership, you want to make sure the ship is sailing in the same direction. It’s the most important piece. So we have the same goal. We’ve agreed where we’re headed. That was the first thing that we did. That came into existence at the 10X Growth Con. I actually accidentally roomed with him. Someone had a spare ticket, they ended up not going. They had already booked a hotel room. So the two of us connected there over three days. When you’re in that environment, it’s all, hey, 10X let’s set huge goals. So we set this massive goal of, well, I’ve always wanted to hit 30 units by 30. At that time I had two units and I was 29. So it seemed like a little bit of a stretch, but we set that goal together.
Cody was really looking to expand and grow his portfolio to a hundred units, which we’re going to hit here in the next few months. And so we connected on those points and then everything else is just organic. Our first piece was we got to find a piece of real estate to buy. He got me into my second duplex. Then we bought a 38 together, which was an effective way to get to 30 units, huge fan of skipping, or not skipping, but not adding extra steps. So if you want to get to 30 units, the easiest way is to buy more than 30 units. So we started doing that and just a natural progression. As we started doing business, we found Cody brought in a few more deals, I was better at cleaning up the back end and it just kind of evolved into what it is today.

David:
Okay.

Rob:
Sorry. So just to clarify, you went to a conference, someone’s like, hey, I got an extra ticket, here’s a caveat, you got to sleep in a room with a stranger. So you guys were bunking and then, one of y’all were like let’s scale. And then the other person’s like, yeah, sounds good. And then you guys came together as a partnership?

Christian:
Yep. That’s been pretty consistently the entire partnership. Sometimes we’ll find a deal and Cody will throw it in front of me. And I feel like we’re already operating at capacity. He’s like, I love this deal. You want to do it? And I usually say, okay. And if I don’t, Cody goes well with, or without you I’m doing it. And I was like, well, I don’t want to be left out. So let’s do it. There’s certain balances between, hey, do you want to get it perfect or do you want to get it done? And my policy is strive for perfection, but at the end of the day, you just have to get it done, get yourself a new set of problems. So a year ago I had a duplex and not enough real estate. Now I have enough real estate to get started and I’m having to learn how to master accounting and get through all the legal and the pieces that come with that.

David:
This is so good. I mean, you might be what you’re describing as the case study for the right way to scale. So I just had a meeting with my real estate team yesterday and it’s sort of the end of the first quarter so we were talking about what we’re going to do going into quarter two. And I have a lot of newer agents. They’ve been an agent for 12 months or less. And our system has mostly been built on somebody comes to me, they get assigned to a senior real estate agent who’s going to oversee their deal. And then that senior agent leverages out the junior agents to go show the houses, call the listing agents, research property, sort of the senior agent’s the one that communicates with the client and the junior agent’s the one that kind of learns the game by doing all of the work.
And what I’ve been finding is that the junior agents are just very hesitant to go tell anyone they’re a real estate agent. They just want to stay in this very comfortable lane, and they keep saying, I don’t know what I’m doing. I don’t know what I’m doing. You’ve been an agent for 12 months. You know more than almost every other agent in this office, because you’ve worked with like 50 clients in the 12 months that you’ve been here instead of the average realtor might do one or two. But it’s this idea, what we found is that they have this belief that they don’t have all the answers and so they can’t go take action yet. They need to know first exactly what to do before they go tell somebody, Hey, I want to sell your house or I want to help you buy a house or they go hold an open house.
And my advice was, that’s not how you learn. You learn by going and saying, I want to sell your house. And then when you run into something you don’t know what to do you look at the resources you have around you and you talk to your broker and you talk to another agent in the office, you come talk to us and you learn. And then the next time you come across a problem, you have a little bit more confidence to take it on. That really, good entrepreneurs and business people are just problem solvers. That’s it. And you can’t get every single answer that you would ever need. It sounds like that’s sort of how you and Cody are doing things.

Christian:
Yeah. I think we’re programmed to think that way. We go through school, you go through first grade to get to second, second to get to third, you graduate high school hoping to get a high enough GPA for college. You get a first job. It scales to the second. That’s the scripted system for everyone. And so we’re trained to add steps to get where we want to go. I see a lot of people say, hey, I want to be a real estate investor so I went out and I got my broker’s license, and then I worked there for a few years and then I became an appraiser cause I wanted to value properties, and then I became a lender because I wanted to borrow money. The fastest way to become an investor is to go and buy real estate, and you have to learn to get there. So information’s important and if you want that, fortunately you have BiggerPockets. But at some point you need to transition from information to actual practice. The application is more important than the information.

David:
Rob, what say you?

Rob:
Yeah man, I actually kind of want to establish here, well, first of all, I assume that if this relationship is working and the partnership is working, you each like the tasks or the job responsibilities of each side, is that right? Or is there ever kind of any dissonance on things in that you and him don’t want to do?

Christian:
Yes. Well, one thing there’s no such thing as an even partnership, like people are just different. When you have different roles, there’s going to be different workloads. So there’s always going to be some level of dissonance you have to resolve. I’m pretty sure neither Cody or I wants to sit on hold and pay bills. That’s just not a task that anyone enjoys. However, I’m going to remember each and every one we have for the properties better than Cody. I would rather have Cody out bringing in new business and forming those relationships. He’s an amazing storyteller. So when he gets in front of clients, I just know he’s going to land that pitch nine out of 10 times, where I’ll do it seven out of 10. So we’re not always doing what we like to do, but we’re doing what we’re best at. And at the end of the day, we’re moving forward at a very, very fast pace. Not everyone’s done what we’ve done in a short period of time. And I love being able to do that. So when things are difficult or things are out of whack, we have excellent communication, so we know how the other one feels at all times. And at the end of the day, it’s about getting it done. And that’s what we do.

Rob:
That’s really nice, man. So let’s kind of lay this out tactically, because you say you kind of handle the back end and then he’s on the front end, which I think makes sense to me, but to kind of give some good definition here, let’s say Christian, my dad’s got this 30 unit apartment complex. We want to get out of the business. I’ve got this deal for you, and I hand it over to you as a sale, right? We lock it up. How do each of you work in that specific deal?

Christian:
Well, we’ll look at the pieces that we have. If there’s something on the front where someone’s obviously going to be more relatable than the other, we’ll take that sales call. So if it’s someone like we find out, hey they started really young, they did a lot of creative financing, I’m going to put Cody in that position every time because Cody’s the most relatable and his story is absolutely incredible. I don’t know a lot of people who’ve done what he’s done by 22. If I talk to someone who’s started very conventionally, they had a nine to five for a long time, it depends on the story, but if I feel that I’m really going to connect with that person, I might reach out. But again, we typically send Cody because Cody’s going to be the one to land those. In that relationship, we would take a look at the deal. My first thing I always want to do when we’re talking deal is I just want to meet. One of us is going to go out and get dinner, get coffee. We’re going to get to learn who they are, what their goals are, what they want to accomplish. And most importantly the why behind that. And once we have those pieces, we can strategize on how we need to progress.

Rob:
Okay. So you talk a lot about learning the accounting and all that kind of stuff. What is your background? Is it in accounting specifically or have you just been sort of been tossed into the accounting deep end and you’re just kind of learning everything as you go?

Christian:
Definitely the latter. We have a policy of we can’t have the same problems this year that we had last year, that’s how you know you’re stagnant. If I look at 2021 Christian, I go, wow, I don’t have the real estate I want to have. Well accounting for real estate doesn’t matter until you have the properties, right? So we scaled from two units to 71 units. Well now I better know how to account. Quick recommendation for everyone, if you’re buying a lot of real estate for the first time, don’t close it all in November and December, you don’t have a whole lot of timeline to learn the accounting, but we came in, we solved the first problem. I don’t have the real estate I need to achieve my goals. With that problem gone, we had a, hey, I’m not a master of the legal docs.
Well, we had to do a whole lot of that in creative financing and partnership structures. And we got really, really good at it. Now I’m learning accounting. I have the right person to teach it to me. I have a CPA. It took me a while to find, but I have the right CPA who makes me go through the steps and learn it before he’ll file anything. While it’s a pain, I’m understanding it, and next year when I get here, I’m not going to have an accounting problem. I’m going to have a whole new set of problems. And that is what I’m targeting every time. When I’m stuck, I need to make sure I’m not stuck on an old problem.

David:
Man. This is gold.

Rob:
Yeah, yeah, yeah. You’re looking for, I’ve never really heard anyone excited for the next set of problems, which is really funny because you’re just trying to solve today’s problems. And then you’re like, all right. My goal is next year to have a whole nother set of problems. That’s a pretty rare thing to say, I think.

Christian:
Well, that’s how you know you’re moving forward. If your problems aren’t old problems, new problems are good. That’s how you benchmark success. At least that’s how I’ve done it.

David:
I think there’s some magic in what you’re saying right now, to be honest, like this should be one of our better shows because this is what everyone who’s struggling needs to hear. I’ve often wondered why an incredibly intelligent person can go to work for another company and fall into a rut, let’s say if they get hired to be a CPA for another company, if they’re hired to be a CPA, they probably have a mindset and a skillset and they’re already kind of geared towards looking at the world that way. So they have an inherent advantage in how successful they should become. And very rarely do they ever progress through the ranks and go start their own business or become an executive in that company. Most humans, when they go work for someone else, just fall to a rut.
It’s almost like a mindset that encourages you to do as little work as possible, as slow as possible, as easily as possible. Don’t think creatively. Don’t look for ways to make things better, and just stay in that rut and wait for someone else to give you an opportunity. Wait for the boss to come say, I’m going to give you a raise and then, oh, I’ll give my best now. It’s just, there’s something about human nature. I rarely ever go into a Subway restaurant and have the sandwich maker that’s crushing it. Who’s like man, I at the bottom of the totem pole and I hate it and I just got to get my way to the top so I’m going to do the best job I could. Right?
It’s not normal. We don’t see that very often. It’s very rare. But then I also come across the business owner of the Subway and it could be a Subway restaurant, it could be any kind of business, but it’s often somebody who came from another country who had no skills who did not speak the language nearly as well as people here, who had none of the advantages was not educated, doesn’t understand the culture. By all means they should be failing. They should be at a disadvantage. And that person is the most successful one in that company.
And they’re doing things like managing people, making a schedule, ordering the food, doing the payroll, understanding profit margins, doing the marketing, solving the problems, like all of these different things that we typically hire out individually in a company, when someone owns the business, they do it all themselves and magically, they figure it out, like what you’re saying, right? So I come to the conclusion that I believe it’s the degree of responsibility that a human being is willing to take on over their own success or the success of their endeavor that determines how successful they’ll be like you, by your own ambition were not an account. You don’t keep books. That’s not something you had ever done before, but because your company needed that to be done, you rise the occasion and you figured it out.
Rob had a story where one of his children had accidentally snorted play dough right up their nose. And Rob became an ER nurse in that moment, right? Like he came up with the idea of how they were going to get it out. He executed it, it worked out, nobody trained Rob how to do that. He wasn’t like, I’m not going to move forward with having a kid until I know every single scenario there could be. It’s literally the act of taking on the responsibility of raising the kid or starting the business that puts you in the mindset that the solutions start to be made clear. And I’m going to hand it back to you to get your opinion on that. But this is what we’re getting at when we talk about the mindset, are you approaching it? Like it is my job to make as many problems as I can and solve them as well as I can. Or are you approaching it like it is somebody else’s job to take away all my fear, to give me every answer that could ever be there before I start.

Christian:
Yeah. And I think a lot of people have had that moment. For me, I think about high school in science class where you’re paired with all the smart kids and at some point someone might have had a point where it’s, hey, I don’t really feel like learning this right now, so I’m kind of going to let everyone do the work, and I’m just going to play team coordinator. You do this job, you do this job and you don’t do anything. And at the end of the day, that’s the wrong practice. You nothing gets produced if there aren’t producers. At the end of the day, you have to go out and accomplish what you need accomplished. I completely believe in finding the right people, in getting employees, in scaling and creating jobs.
You should have all these roles, but if you’ve never done it, you don’t have a knowledge base, it’s really hard to manage people and lead people if you just don’t know what you’re doing. I think there’s a ton of value in going out and actually learning the accounting myself so that when I hire a bookkeeper and an accountant, when we can scale to that level, I have a basic idea of what they’re doing, and if they leave my company, I’m not totally hosed. Like you just need to learn how to run your business if you want to run a business. I’m not free of time yet. Turns out when you buy a lot of real estate low to no money down, it’s actually a ton of work. So this is not passive income, or at least it’s a ton of work to get passive. But as you’re scaling, you just need to have the ability to know exactly where you’re headed, why you’re headed there, and then just go and knock it out.

Rob:
Yeah. I don’t think you can really ever be really fully prepared to scale. Like obviously there’s a good understanding that you want of the problem, but at a certain point you also have to just believe that you can kind of get through a lot of those problems. It sounds like you sort of went through that. It’s the classic, I guess the adage of like a fish that’s in a very small tank is going to just grow to the size of that tank, right? It’s not really going to get big, but if you give it a really big tank, it’s going to get bigger and flourish, and that seems to be what happened with you, because you said you were in two units and then your next deal was 30 units like a 30 unit apartment. Is that right?

Christian:
My third deal. I started with two. Cody got me into a deal for another two units right across the street from them, which I did hard money, 101% financed, and then did a refinance. That was my first foray into some level of creativity and rehab. Then deal number three, 38-plex Moses Lake. I would not have had the confidence to do that if I didn’t buy the first two deals, but that was scaling pretty rapidly to go from December 2020 at my first duplex to here I am today with 71 units. That was quite a sprint to get where we’re at.

Rob:
Well that’s exactly what I’m talking about. That really proves my point even more. You had two units, your next deal was two units, and so you’ve sort of mastered the art of owning and managing two units, right? And so logically next step is, hey, maybe we graduate to a four, maybe a six, hey, let’s get crazy. And maybe an eight unit and you say, no, let’s do a 38 unit and you jump into that deal. That is a tank that is much larger than what you are currently swimming in and you figured it out. So can you tell us more about the mechanics of that? Because you said 101% financed, how did that deal come across? And was this really the, kind of where your relationship and your partnership started to flourish? Because I imagine that all the problems you were excited about really probably started with this deal.

Christian:
Yeah. So that second deal is the duplex 101% financed, then that gave me confidence to use some creativity, get out of the conventional box. So deal number three to 38, I’d already communicated my goal to Cody on, I want to get to 30 units by 30. And unit count isn’t really a relevant goal, it was just my goal. And once I’ve committed, I’m like, okay, we got to hit it. My options are, I have two duplexes, so I can find 13 more duplexes and keep doing what I’m doing or I can grow and expand. The 38-plex was a stellar opportunity. It was seller financed. And Cody did a lot of the negotiations through just meeting the seller. He identified what they really needed, this property was on market for 13 years at the same price on and off. No one’s figured out how to make it work.
Cody got in front of them and just found out they had a set number that they were looking for on monthly payments. So we came up with a custom amortization schedule that got them the $10,000 a month they needed. And we were off to the races. The seller financed 15% down and we had to learn a new skill. About three weeks before closing, Cody and I looked at each other and went, huh, we should probably raise the $300,000 down we need for this since we don’t have it and none of us have ever done this. And so we had three weeks to learn, okay, how do you make $300,000 appear for the right deal with the right amount of upside? And in four phone calls, we made it happen, and now we know how to do it.

David:
Let’s unpack that for a second. Because as someone listening, you’re going to hear, okay, well I hear you telling me, I should just go make it happen, but I don’t know what that looks like. So let’s try to paint a picture for what happened on those four phone calls, what words were used, what objections were received, walk us through what that was like.

Christian:
So in every deal we are 100% relationship based. In lieu of asking for deals or dialing for dollars, we call owners of multifamily. There’s no list or target. I don’t care if they’ve owned it for one year. I don’t care if they’ve owned it for 30. I don’t care if they’re out of state, any of that low-hanging fruit. All I need to know is that owners know other owners, and if I want to be in this market, I need to know the players. So we just call owners of multifamily property and we get to know them, who they are, where they’re headed and why they’re going there. I communicate succinctly the same pieces about myself, the relatability, the goal and the significance behind what I’m doing. So now we all have a relationship.
It’s the same exact thing when you’re raising capital, I know what pieces people have, so when I make that phone call, I’ve already met with them. We didn’t talk about a deal. I talked to them about what’s happened in their life, what their target is and why they have that target. So for that we call and the phone call starts, hey, based on what you told me, I have an opportunity and I wanted to run an idea past you. And it goes from there. And it’s just an extension of a conversation we’ve already had. And if you’re getting started, that’s the only thing that I think you need to focus on, this is a contact sport. You need more contacts. Don’t worry about the deals, worry about the relationships. And only the relationships. There’ll be a time to be transactional. And if you’re getting started, you’re not there yet.

David:
So let’s role play that.

Christian:
Yeah.

David:
I will be the person who could be a potential investor and you’ve got the deal. So you’re calling me.

Christian:
All right.

Rob:
I’ll be the phone ring, ring, ring, ring.

David:
Hello?

Christian:
Hey David. It’s Christian. How are you, man?

David:
I’m good. Thanks for calling Christian. What’s on your mind?

Christian:
Yeah. Well I wanted to touch base with you. Based on our last conversation, you had mentioned that you’re really, really trying to get more units to your name, and you’re looking for a deal that has both cashflow and upside. I had a unique deal come across my desk, I want to run an idea past you.

David:
Okay. Would this be something you’re bringing to me to buy? Or is this something you’re going to buy?

Christian:
This is something I would actually like to buy with you. I would back this with equity. This would be a deal that we would do together. I found a stellar opportunity. It’s in central Washington where the rest of my portfolio is. My other partner is Cody Davis, who you remember meeting with him. He has a lot more units than I do out here, but this is the single biggest opportunity that we’ve come up with and based on our last conversation, I’d like you to be a part of it.

David:
Okay. Can you sum up what you like so much about this deal?

Christian:
Well, first of all, it’s a seller financable opportunity, which is how we’ve leveraged low down to quickly multiply money. We’re only going to need 15% down to close it. The upside on this is seven figure upside and I am absolutely sure that we can reach this in the timeline we’ve been given. We have five years to do about one year worth of renovation. Cash flow is a little light day one, but we’re going to compensate with a equity bump on the back end. So we’ll offer you two to one on your money in five years, so you put in 100, pay you 200, and as it’s cash flow, you get your percentage cash flow.

David:
All right. Now I don’t quite understand what you’re going to do to add value. Are you saying that they just need to be renovated and made nicer?

Christian:
So first of all, it’s 38 units that today is bringing in about seven and a half thousand dollars. This is ad acquisition. We bought this thing, day one was like a three cap deal.

David:
Okay.

Christian:
Terrible performance, has been mismanaged. Conveniently, we have a property management company. We’ve done this, so we know what we need to do on the rental bumps. In addition, there’s a contractor that I’ve already used on my little duplex. He did a phenomenal job. We took rents on that property from $700 a month to $1,400 a month. They’re beautiful units. We get the highest rent per square foot in Moses Lake. We know how to renovate. We know how to manage. Cody’s already raised rent on 30 units over the last few years in the same market. This is exactly what we’ve done to create value on every other property. It’s just a larger scale.

David:
Okay. So you’re saying that it’s being mismanaged, the rents are not as high as they could be, and you think you can change that.

Christian:
Yes. This property, we started, the septic tanks were trash. Water heaters were either not working or leaking everywhere, there’s a homeless camp on the site. I mean, this had everything wrong with it, but there were all pieces that we’ve dealt with similar stuff on other properties. This was definitely a stretch for us to get, but this pushed us to the next level. We knew we had the requisite experience to make it happen. We just needed the right people to believe in us, to prove concept and make it happen.

David:
So is the plan to bump rents, increase the value, and then refinance in five years?

Christian:
Yep. The first thing we do is we show energy on the property. So we have a whole bunch of bad appliances, we brought all the appliances in at the same time and start bringing them into units. Immediately started renovating all the vacants. They had a ton of non pays, who they just hadn’t made any effort on. After we put energy in the property, we started fixing things up. We repaired electric problems. We replaced appliances. A majority of the non-pay just started paying. We posted notice and asked them to pay and just started receiving rents. We moved in the first six months, we brought the income from $7,000 a month to a little over $20,000 a month in less than half a year.

David:
Okay. So how can I be sure that I’m going to get my money back?

Christian:
Well, we have enough equity in the property day one. I mean, day one, we bought it for two million. It was still, there’s no way you could buy a property like this, that many units, for less than 2.8 million today. I value it a little over three, but we back it with equity of the property, on this particular deal, we had three investors come in, each brought a hundred thousand to the table and we gave them each a 20% equity stake in the property.

Rob:
Honey, honey, that sounds like a really great deal. I think you should invest.

Christian:
What we recently ended up doing on this, you always go in with a clear plan of how you’re buying everyone out. That said, typically equity is going to be a lot more expensive than debt. We recently cashed out one of the investors. He wanted to move his equity into another project that he wanted to invest in. So we moved our pieces, we got him cashed out early, and then we converted the equity from the other two owners into debt through a note. So we basically bought them out with a new note and we pay them out of the new cash flow. So now Cody and I own a hundred percent of the building between the two of us, we’re 50-50.

David:
Gotcha. Okay. And then how are you coming up with the actual people that you’re going to call and propose this to?

Christian:
Google Maps. 100%. I have no software. I have no list. I have no skip tracing. Turns out every single off market property exists on Google Maps because every property’s on Google Maps. First thing we do is we start with location and then we ask two questions. When I have the market I want to buy in, how do I own it, and how do I never lose it? If I can answer those two questions, we can acquire absolutely anything and know that we’re never going to lose it. We can hold it through good times, through bad times, we buy on cash flow for equity growth. The location’s going to help us grow the money and multiply the money. Cash flow makes sure that we can keep it forever.

Rob:
So can you clarify when you say you find it all on Google Maps? Like, what do you mean by that? Do you mean you, let’s say Houston, for example, you’re looking there and then do you just start zooming around and saying, oh, that looks like a multi-family deal or how does that work? What’s that process?

Christian:
That’s exactly it. I look at the roofs. I go, hey, that looks like a 12-plex. I’m going to go zoom in and I’ll drop my little guy on street view and look at it. I’m like, wow, I’d love to own that building. Right now, we have a lot of wholesalers and other people who just grind the phones in the market who are calling saying, hey, can I offer on your property? I have a deal for you. Do you know what your property’s worth? I don’t do any of that. We call and we just ask for a meeting. So I’ll take Moses Lake as an example, because that’s where we started.
When I owned a duplex, I was going to call people with a 12-plex or with a 38-plex. And the phone call looked like, Hey, I just bought a property in your market. I’m a new investor. I have a couple duplexes. I’ve come to the realization that I can’t scale buying two units at a time to where I want to be. Saw your 12-plex here, I was curious how you got started. And then you just listen to them talk. I follow the 80-20 rule as close as I can. They should do 80% of the talking and I should do 20, but I’ve practiced this so I can communicate my pieces, my significance and my goal. I can communicate those really simply, really effectively without a lot of words. So when I’m talking to them, I listen to their story, we have them back and forth. And then I ask to meet them for coffee. It’s never about a transaction, the coffee, I’m going to expand on what they’ve done and how they’ve done it. That’s how Cody and I learned how to do all the creative financing.
There’s two guys in particular, central Washington, we called them, no idea how to buy their big buildings. We just know that they’ve accomplished something we haven’t. After a few phone calls and about a year of work, one of them finally picked us up, put us in a truck, drove us around all of Moses Lake told us exactly how they bought stuff low and no money down, seller financing, and one of my favorite deals we’ve ever done was three side by side duplexes. We did that deal with them, seller financed, 10% down, because we built that relationship instead of going after a transaction. They probably would’ve sold us a duplex 20% down because we have a relationship they’re now invested in having us succeed and they’re willing to get much more creative. But we all do that with Google Maps. I just, I shop the market, I click on the roof. It’s a property that I like, something I would like to own. I call them and I just try to build a relationship.

Rob:
Okay. So to click into that a little bit, you find that property, then you just go and skip trace them or use kind of softwares or services at that point?

Christian:
Nope. Google again. You could find pretty much everyone’s number on Google. We threw a little thing like eight minutes on how we do this on our YouTube page, Cody and Christian multifamily strategy, how to find every owner ever. But most of these are going to be held by LLCs. Not all of them, but LLC, you can drop it into a site like open corporate, which is free. See who owns that LLC. You can usually Google their name in their city and find a phone number. And then you just don’t overthink it. You pick it up, you dial and you let them know your pieces. This is who I am. This is why I’m calling. I want to know how you got started, and start talking, but I have never paid for skip tracing software. We’ve never paid for leads. And I know most of the players in my market and as we expand markets, we do the same thing. I have a bunch of other people who have asked for help getting started, who Cody and I have done some coaching with. It works in every market in the US. Click on a property, find the LLC that owns it, call the owner, Google their name. It’s that simple. Works for people on every level. I’ve talked to people with thousands and thousands of units and their number is just a Googleable event. Googleable. That is a word now.

Rob:
Googleable. Yeah. So it sounds like you’re effectively just a master networker. Like networking is really what got to this point. And you kind of mentioned something a little earlier where you said the 80-20 rule where they talk 80% of the time you talk 20% of the time. Why is that?

Christian:
Well, one, people love to talk about themselves. So you’re giving them room to talk. But when you’re building a relationship, I don’t know why the heck they would listen to you. If you just call them and start just talking about yourself, which is what most people do the first time they make these calls, we call it feature dumping. You’ve practiced all this in your head. You just dump everything in your head onto them. Hey, this is who I am. And this is how old I am. And I have a duplex and I want to be like you and I don’t know how you did financing. Did you ever do seller financing? Everyone does that on their first call, and at some point you just have to get through that. But the 80-20 rule just helps you remember, you can benchmark, okay, am I doing too much talking here?
If they start sharing pieces of their story with you and they really get into their story, you’re starting to build a relationship, and once that gets enough momentum, that’s where you know you need to wrap up the call, close it and basically end with thank you so much for sharing. You’ve done something that I never knew was possible. I appreciate you sharing your steps. I’m going to be in town next week, can I buy you coffee and learn more about how you do this? And if you really want a great closing question, hey, I’m newer to this. I haven’t done what you’ve done yet. How would you recommend I get started? Those are non transactional questions, but that’s how you build a relationship that’s going to get you opportunities that no one else can get.

Rob:
That’s awesome, man. So where this all comes full circle is that me and David are practicing the 80-20 rule on you.

Christian:
Yes. This is the time where I get talk because you guys were nice enough to ask me to come on. But yeah, if I had either of you on our channel, I’d be doing the same thing. I’d be asking questions and my goal is to get you talking and gets you excited about a story, because it’s really fun to share the journey that you’ve been on. Everyone has a story to tell. Your job in that first phone call, it doesn’t matter if they’re going to sell you the property or not. If they are invested in you and you’ve communicated your goal, people are going to want to help you reach there. Especially if you have a great why behind it, people are going to invest in you and they’re going to get creative to help you get to the next level. Whether they have a deal, they have someone else with capital or they have friends who have the deal. If you don’t focus about the deal, the deal comes. My old sales coaches would slap me in the face, but we do all of our transactions by not asking for the sale.

Rob:
You know, I think why this is very powerful and just the genuine kind of authentic side of this is that if you really think about why this works, most real estate investors don’t get to talk about this stuff with their friends and family. Like most of my network, my friends, family, closest friend, best friend, they don’t care at all. Anything I do, they’re like, dude, we get it. You Airbnb, shut up. You know? And so if you contact these different real estate investors and you’re interested in their story, they’re probably dealing with the same thing where their network probably doesn’t really care about their real estate business. And so it’s a very rare opportunity for them to get to speak to someone that’s like, oh my gosh, I’m very interested in what you do. And it helps them feel better about doing it because they don’t ever get to talk about this stuff. I mean that’s how it feels to me. I’m not really sure if that’s true across the board, obviously this is very anecdotal, but we could all probably relate to that in some capacity.

Christian:
It’s a smaller field than we realize, in that small mid-size multifamily, even the larger multifamily, there’s not that many players. So when you get to know the other people and you get to engage and share your story with someone who actually cares and understands and wants to learn what you did, it’s really fun to share. I love doing it. I over talk. I know that’s my weakness, but turns out that’s a weakness that most people in real estate have. We love to share. We love to tell stories. We’re really engaged. We’re entrepreneurial. So you get a lot of luck in that call. When I have friends make that call for the first time. It is so fun when they call you back and they go, oh my gosh, that worked, we’re meeting for coffee, what do we do next? I’m like, yeah, it works. People want to share what they’ve done and talk about their story. And it’s a small enough community where it’s not a difficult call to make and to land that first meeting.

David:
All right. So let’s get into some of the fun stuff here.

Christian:
All right.

David:
Tell me about some of the mistakes that you guys made, things that took a left turn, maybe some quicksand that you found yourself in, and what you did to get out of it.

Christian:
I have an excellent one for this. Most painful lesson we learned, Cody and I talk all the time about how it’s relationship, relationship, relationship, know your partners, know their pieces, know their why. We egregiously missed the mark on someone’s why. We got who they are and they communicated their goals, but we ignored their significance, this was actually on that 38-plex. I talked to him before this call, he said, I could share this story. The only investor who ever asked to be cashed out early, he had another opportunity. However, the reason he really wanted out is we got a message from saying, hey, you’ve failed to hear me and my goals, I don’t want to place capital with you guys anymore. And it was a shock, because we put him in our biggest deal, most cashflow, most upside, this was a phenomenal opportunity. And we wanted him to be a part of it.
Every time we’ve met with him, he’s talked about a few things. He’s a little older. So he is like, hey, I haven’t built portfolio to the size I want, I want unit count and I want to see some cash flow. And this thing will be a cash flow monster when we’re finishing the rental bumps and getting the property stabilized. It already cash flows decently. It’s going to get insane over the next year. So we put them in the best deal ever. We’d communicate on what’s happening with the property and what we’re doing. And every time we met, I thought he was happy. Turns out what he really wanted to do. He never had kids. He wanted to be part of the team. He wanted to contribute. He wanted to coordinate contractors. He wanted to be hands on in the field. At the end of the day, he wanted to feel needed.
And looking back through all the nights that we played the cashflow board game together, had dinner together, it came up in every conversation. He talked about cashflow, he talked about unit account, but he talked about wanting to do more for the team and we focused too much on making him money. So at the end of the day, he just got frustrated. It was, you’re not hearing what I want to do. He missed out on another opportunity because he was involved in this opportunity, and it’s the only client we’ve ever lost. We’re still friends. We still play cash flow. It ended well, we did get him cashed out, but we had a five year note where someone wanted to get out in six months because we missed the reason behind it. And the lesson there, you have to return money to people. You have to make money to raise capital. It’s super important. That being said, no one’s reason is money. There’s a deeper reason for every person. And if you want to play this game at the highest level, you need to learn their why behind everything and it goes beyond money.

David:
Have you thought about going back to that person and saying, hey, I have a great deal, but I can’t take it down myself. I really need your help with this aspect of the deal. Would you want to partner with us?

Christian:
We’ve thought about it. And I am undecided on what the best thing to do there is since we have precedent of having to pull money, it is a consideration. It is not off the table to do another deal and to try to do it right. I would probably do a smaller deal and rebuild that trust. For the time being, he was very, very gracious and he’s good at keeping business and friendship separate. So we’re still friends. He’s still helping me out with a house project. We’re still going to play board games together. I’m probably going to let it cool down a little bit on the investment side, but I am very open to trying that again. We’re going to do it completely differently.

Rob:
So Daniel, if you’re listening to this, Christian is ready. He’s ready to have you back. No, I’m just kidding. That’s not his name. I just made that up. Unless it is and that’d be so awkward.

Christian:
That would be incredible. It’s not Daniel, but we’re open to trying it again. Absolutely. Relationships, we have to do a better job of identifying the why and I’m open to having that conversation again. But the main thing is really identify what you’re doing with someone. If you know who they are, where they’re going and why they’re going there and you know, the real reasons why, you’re always going to be able to raise the capital. You’re always going to be able to find the deal. You’re going to be able to close. You’re going to be able to keep those relationships strong all the way through. That was not fun, having to come up with money to cash someone out six figures when I was illiquid, we had to move a lot of pieces to make it happen. But at the end of the day, we’re always going to take care of our clients. We did make it happen. Everything’s good.
We actually went and called every investor that we have. And we checked in with them. We thanked them. We let them know what their contribution meant for us moving forward. And we asked them how they want to participate. There were a few people were like, wow, this has been hands off. I love that it’s hands off. Just let me know when the next opportunity comes up. I asked some other people who responded with, oh, my gosh, I was waiting for this call. This goes such a long way that you asked me how I’m feeling. I actually would love to participate in the capital raise for the next deal. While it’s not something that we always need, it’s fun to let other people participate, make sure that you hit their targets. And so it was a lesson we learned, we applied it immediately. I always say, get a new set of problems. We had a big problem there. The problem is resolved and we’re not going to make that mistake with anyone ever again.

David:
Well, that’s really good.

Rob:
Let me just say, dude, thank you. That is like very honest. That is a very honest lesson that we can all learn from. I’m already thinking in my head. I’m like, who can I call back and say, hey, I’m sorry. No, that’s really great, man. It’s really honest and vulnerable for you to come out and say that because a lot of the people who come on to BiggerPockets and it is the success stories and hey, everything went well, no one really harps on something like this. And seems like you guys are going to really change a lot of how you interact with potential investors and partners from it. So in the end it’s going to be one of the greatest experiences you’ve ever had, probably.

Christian:
Yep. And as a consequence to going quickly, like you’re, you’re going to have difficult times, stuff will get hard. You just have to learn. And again, you come back and you build a bigger boat and you go back at it again.

David:
It’s really good. What about a mistake from an operational standpoint that you can share?

Christian:
Operational standpoint …

David:
Miscalculating cash flow, renovations that went poorly?

Rob:
Legal paperwork that might have missed? I think your article [inaudible 00:48:15].

Christian:
Oh boy. Oh boy. Yeah. I won’t go into the details too deep on this one. But like I, when we got the 38 structuring everything as equity instead of debt was a mistake. However, we didn’t know how else to do it. So looking back, I’m like, well, we got it done. It wasn’t perfect, but it was as good as we knew how to make it. So operationally, technically it was a mistake. Also, I wouldn’t be where I am if we didn’t do it anyway. A big one was property management. We put property management under one company. The company went under and the communication was horrible. It was a ton of work to get set up and correct all the books. And, oh my gosh, it was just months of pain. Cody and I actually opted to start our own property management company out of that. Our options were find a new vendor or just do it ourselves. I conveniently had someone in my network who was perfect, her name’s Hannah Caldwell. She runs our property management and she is phenomenal. So we had the pieces to do that. But operationally, I didn’t spend time vetting that property manager. That was just a lot of pain. I wouldn’t do that again.

Rob:
I mean, your property managers are the lifeblood of your business, right? Especially once when you get 71 units. So yeah, I think that’s one of the things that you don’t really know until you know how to vet your property managers because really property managers, they kind of run stuff. So it’s a learning experience on how to navigate those people because no two property managers are the same. I mean, not at all. Everyone’s very different on how they run businesses.

Christian:
I got a bonus answer to that question too. Before you close, check your septic tanks. We had a massive septic problem with less than a week after we closed. We closed that thing. We were just told, yeah, the septic tanks are fine, they’ve been pumped. They haven’t there’s poo coming through showers. It was awful. Add that to your due diligence. If you have septic, take a look at it before you close, because that sucked.

David:
You’ve got me going back in time and thinking about every unexpected problem. A huge proportion of them are related to septic things. Always man-

Rob:
We call that doo diligence. D-O-O diligence.

David:
Doo doo diligence. Yeah. Like the lines coming out of the, even single family homes into, to tie into the city sewer are often time needing to be looked at or needing to be scoped. You get literal tree branches and roots that can go through these things, puncture them and leak. You have septic tanks themselves that have been corroded and they’re leaking into the area. Like there’s so many ways that septic can go wrong, but it’s not something they talk about on HGTV. So nobody ever thinks about it.

Rob:
Well, they do talk about it on dirty jobs though.

Christian:
Yeah. If you want to be a good operator, you got to be number one in number two.

David:
There it is. That’s [inaudible 00:51:14]. Very well, Christian. All right, well, I’m going to move on onto the next segment of our show. It is called the deal deep dive. In this segment of the show, we will dive deep into one specific deal that you’ve done. Do you have one in mind? Christian?

Christian:
Yeah. Cody shared a lot on the 38 unit. Now if you haven’t seen his video yet, go back and watch it, because he did incredible. A really fun one because it’s really critical how the relationships came together was the three triplex deal, seller finance, side by side.

David:
Okay.

Christian:
We did that, I believe we closed that December of last year.

David:
So we will fire some questions off about that one. So the first kind of question is what property is it? It is a three triplex deal.

Christian:
Three duplex. Three twos. I sometimes mis say that’s hard. Three twos, six units, three duplexes.

David:
This was what you were talking about when you said that the owners that you knew were driving around, they sold you these on the 10%. Okay?

Christian:
Yes they did.

David:
Rob, next question.

Rob:
How did you find said deal?

Christian:
Well, we built the relationship, we met with those owners a little while back after a lot of calls and a lot of learning how to frame that call. One of the calls Cody actually made was, hey, it’s Cody. I’m the guy who called you a few months ago and botched the call. They’re like, oh, I remember you.
So we finally built that relationship. I closed the duplex that they were actually the listing agent on. That was the second duplex I ever purchased. That was how I started in that relationship. But we came in after close. They finally agreed to meet with us. First thing they did was pop us in the truck, drive around and we looked at a bunch of their portfolio. They have hundreds of units, almost no debt. They’re in their early seventies. And they just talked about, hey, this is how I structured this deal. This is how I structured this. They taught us how they bought a duplex. Then placed the second lien on it as a down payment on a larger building. So they taught us how to buy deal zero down once you build some equity, but they taught us all these different strategies and drove us around.
Those were one of the properties we passed and he mentioned in the car, yeah, we have a couple partners on this that would probably like to be cashed out. This could be a good deal for us. And then we moved on. We don’t make it transactional. So we didn’t bring that up again until a couple months later when we were in office, I was like, hey, you mentioned you had some partners who wanted to be cashed out. Where are you guys at with that? And they proposed, well, how about you guys put an offer in front of us and we’ll play the bank.

David:
Okay. So what did you end up paying for the property?

Christian:
So for the properties, we paid 900,000, so 300 a duplex, seller financed, 10% down. Those guys typically will do 20 or more and you could call them and probably do a deal because we had the relationship and they know we know how to structure these because they taught us how to structure it. They allowed us to play with 10% down, which was a huge advantage.

David:
Okay. So we would normally say, how’d you negotiate it? You just explained that right there. How’d you fund it? You put 10% down of your own money and did seller financing. Did you do seller financing for 10%, so it was half the down payment, or did you do seller financing for the whole thing other than the 10%?

Christian:
Whole thing, so it was 90% seller financed.

David:
Okay.

Christian:
But I didn’t use any of my own money on the 10%.

David:
Where did that come from?

Christian:
So this was from a client, this goes back to learning everyone’s story. So the sellers, we learned what they’re trying to do. We know they’re trying to convert their portfolio over the next 10 years into passive income through notes. So I offered to be their buyer on everything and we’ll start taking on those transactions as we go. The person who funded it, I met him a while back. He had just flipped a property and he was just asking for advice on how to move forward. He had lost money on flips, he’d made money on flips and he is like, you know what? I just kind of want to place this money in syndications or other real estate and just see it double every five years. And we got really deep into that. He has a great job at Microsoft, he doesn’t need the cash flow. He just wants to double every five years.
This deal was under market rent. It was about a market purchase, we might have got a little discount on it, but we knew we had upside in rents. Didn’t have a lot of day one cash flow. We had a lot of upside on future valuation. So when I called him, I had my normal call. Hey, based on our last conversation, had an opportunity, came up, wanted to discuss it with you. We wrote a note that says he funds the entire down payment, $90,000, we get cash flow for the next five years on this as we raise rents, no distributions, no interest, that’s just a hundred percent of it, we paid nothing and we get to cash it for five years. In exchange, at the end of that, we will take his 90 and we’ll pay him 180, which it will do in cash flow, and will probably also do in appreciation. So we’re can refinance and pay him, or we can just sideline money and pay them. But at the end of the day, zero down deal, the properties will buy the property for us, and his collateral is in the event we don’t cash him out, he gets all three duplexes, but at five years ago dollars, and we’re improving him and raising rents. So his collateral is probably better than his buyout.

Rob:
That’s amazing. Well, congratulations on a good deal. I mean, what lessons would you say you’ve learned from this deal?

Christian:
Well, I learned, like I’ve said through this whole call, relationships are everything. We couldn’t have done that if we didn’t know what people’s goals were and what their why was, because that’s a really unique structure. You don’t usually just do a deal and structure it all on the back end of, hey, we’re just going to pay you out one time in five years. That opportunity is not always available. We also learned that a little bit of creativity can take a 10% down deal and make it a zero down deal, and you can cash flow zero down. I’m not a math wizard, I leave that to Cody, but I can afford a lot of real estate for $0.

Rob:
Yeah, but you are on the accounting side of it. So I think he might throw it back to you.

Christian:
Cody looks over the numbers. I make sure we categorize everything in the right slot and everything gets filed. When it comes to doing the math, Cody is a legitimate genius. He is faster at doing math in his head than anyone I’ve ever met. That being said, I account for said math and make sure that everything actually does balance at the end of the day.

David:
All right. Well that sounds fantastic. We’re going to move on to the next segment of the show. It is the world famous, famous for. In this segment of the show, we are going to ask you the same four questions we ask every guest and get your perspective on them. Question number one, what is your favorite real estate book?

Christian:
Favorite real estate book is actually a BiggerPockets book. It’s Brandon’s book The Book on Rental Property Investing. That is the first book I ever read on real estate. I love it because while the application’s more important than the information, that book gives such a broad spectrum of stuff on just about everything. I read that and that was the point I realized, oh my gosh, I can totally do this. That book got me started. If you’re looking for just a broad entry point, that book changed my life.

Rob:
Great. Question number two, favorite business book?

Christian:
Favorite business book. It’s not directly business, but 10X Rule, Grant Cardone, the mindset applied to business has allowed us to do everything that we do. Love the guy or hate the guy, the content of that book is exactly what you need if you want to scale really quickly and scale effectively, it’s all about eliminating the distraction, setting high enough goals, and then smashing those goals way out of the park. That book has taken our business to a whole different level, and that conference is where Cody and I really connected. So for a lot of reasons, 10X Rule is my favorite book to grow your business.

Rob:
Super fair, man. That’s sounds like it was the beginning of a beautiful relationship, the beginning of a beautiful bromance.

Christian:
Yes.

Rob:
Question number three here, what hobbies do you have outside of getting seller finance deals and crushing it in the real estate game?

Christian:
Well, I got a couple guitars behind me. I haven’t played them as much as I would like to this last year, to scale from two to 71 units and leave the nine to five, I’m professionally unemployed right now, it is a heck of a lot of work. So I can honestly say my hobby right now is real estate. Like that is all I do. I talk real estate, my wife will tell you this too. I talk real estate. I think real estate. I think deals. I think systems. I’m having fun, doing what we do. However, once we get a little bigger, we get stabilized and I have a few less projects, I’ll be right back to playing guitar and will probably add to that wall significantly.

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

Christian:
You don’t define the why behind what you’re doing. It’s pretty easy to set a goal and there’s a lot of attainable goals out there. For a lot of people, they’d love to have $10,000 a month, passive income. They’d like to have 20,000 a month. Whatever your goal is, it’s easy to set a goal. It’s not hard to set a timeline on it, but to actually achieve it, you need to have a big enough why behind what you’re doing. For me, one, I want to retire my wife. She works in the school district and she has a really rough school district here in the Seattle area. I want to give her the option to retire. I’m not going to force her to, but I want her to have that option where she gets to go to work. She doesn’t have to go to work.
I also have lived here for 30 years in Seattle. It’s gray, it’s cold. The food’s not very good. The people aren’t that nice. I would like to move somewhere warmer, and I would like to own my time when I do that. Those goals for me are absolutely big enough for us to get huge in scale. Cody and I have a shared goal of we want to share this with a lot of people, there’s a ton of ways out of the nine to five, this is a way that has worked really well for us. The creative financing, I haven’t seen enough people share enough depth on it. So the big why behind the massive scaling and the going fast is I want to share this with as many people as humanly possible. I don’t believe in the gurus who talk about stuff and don’t do anything. So I want to do something incredible. I want to scale the unscalable so I can show other people how to do it.

Rob:
That’s awesome, man. Thank you. I appreciate that. We can tell you’re very passionate about it. So last thing here, Christian, can you tell us where people can find out more about you? Where can people invest with you? Where people learn more about creative financing, a la the Christian method?

Christian:
Well, Cody and I have a YouTube channel where we try to put everything. There’s some people who hold stuff back. We put everything we have on there. Any strategy, we teach you how to look up owners, we use the example of how to find our actual cell number. I mean, I actually share everything. That’s Cody and Christian Multifamily Strategy. You can follow us on YouTube. We post three times a week. Midweek we do whiteboard Wednesdays where we just take five questions from people and answer there. That is an excellent place to get information on how we did what we did. If you want to go deeper, our website, themultifamilystrategy, we have a course, it’s brand new, launched on May 1st, that you can follow the link and find out exactly how we did what we did and create your own multifamily strategy and your path to success. Either one is fantastic. You can follow us on YouTube or follows us there, themultifamilystrategy.com.

Rob:
Awesome. David, what about you? If people want to invest with you, if people want to learn all about your real estate nuggets, where can they find out more about you?

David:
Got lots of nuggets, man, this is McNugget right here. So you could go to investwithdavidgreen.com if you want to invest with me, that’s pretty simple website to navigate. You can follow me online at David Green 24, see what I’m up to. I actually hired a new marketing company. So I’m doing the cool stuff that all the young guys like you, Christian, are doing, TikTok, weird little emojis in the videos, cute stuff, something I never thought that I would ever be doing. So please let me know what you think about how my content looks right now. And please help me to know that my screaming insecurities that this is a terrible idea are unwarranted and people actually like what’s being seen. Christian, I’d like to get your opinion on that as well. Check out my page and tell me what you think.

Christian:
I’ll take a look. What I found with the whole Instagram TikTok thing, you could follow me at Instagram by the way at Christian Osgood, but the content that does the best is the dumbest content. And I hate that. I hate putting out stupid stuff. That being said, if I can reach a million people on TikTok and 1% of them click to my YouTube page, and I know we have excellent content there, it’s worth the reach that it does. But I consider that the garbage part of the funnel, everyone who really wants to learn or cares what we did can trickle down to YouTube where we actually have great content, just like you, David. You have some of the best content on the internet within BiggerPockets. People should watch you there so that they watch you here. Because anything that gets clicked on is invariably my stupidest video does the best. And if I put excellent content, 12 people watch it and like it.

David:
I know.

Christian:
We do a dumb thing where Cody’s wearing a hoodie and says a couple stupid things, quarter million views in like an hour. I don’t get it at all.

David:
It’s a problem. You try to use it as a hook to get people’s attention and then say like, now actually go eat real food over here that’s going to help build you wealth and make you money. Not like just fast food that people can get right off the bat. So if you’re listening to this and you’re addicted to fast food, well, I guess you’re listening to this, you’re not addicted to fast food. So you are doing good. Rob, how about you? Where can we find out more about you?

Rob:
Oh, you can always find me on the YouTubes. Smash that subscribe button. Leave me a comment. Let me know something you learned from my videos over at Rob Built. You can find me on Instagram at Rob Built as well. TikTok at Rob Builto. Hey, if you’d like, if you’d like, just if you want, don’t feel like you have to, but if you want to just head over to Twitter and follow me too, Rob Built channel.

David:
I’ll take a moment to be serious here. Here is what I would like everyone to understand. If you are standing on the edge and you feel like I don’t want to take the leap, I don’t know where I’m going to end up. There are many options that don’t involve you just buying a property and hoping that it works out, especially when the market’s hot and the stakes are higher, because you are going to have to make decisions quicker than you ever did before, unless you’re doing what Christian and Cody do, where you get off deal stuff, off market stuff, and you can make personal relationships. The normal buyer, this is a very challenging time to try to move forward. You’re going to pay more than what you wanted to pay. There’s going to be a degree of value add that has to happen in almost any deal. You have to have a vision for how you’re going to make that property better. The days of look at it, analyze it, see the return you want and buy it are largely over, in most cases.
So do something to make this journey easier for yourself. Get connected with someone else who is doing deals, invest in a deal with someone else and just get your foot in the water. See how it feels. Get used to what the world of real estate looks like. It will help make those fears go away. Get around other people, make more friends that are in real estate that talk about it all the time. Hang out with real estate agents, hang out with real estate investors. Be curious about what they’re doing and kind of like peek behind the curtain and realize it’s not rocket science, just feels like that when you’re on the other end. Don’t think it’s got to be all or nothing. I don’t know what I’m doing, I’m just going to go buy a property. Get yourself immersed into this world. A lot of mystery will go away. Would you two each kind of agree with that advice?

Rob:
Oh yeah, definitely.

Christian:
Absolutely. Absolutely. You just got to get out there and do it. That is the end of the day, nothing replaces actually buying real estate. If you want to be an investor, there’s only one way to do it. Buy something.

David:
Yep. There you go. Get in the position where you can handle that. House hacking’s a great way to go about that. You need to buy a house anyways. You might as well start there. Get some momentum, realize that, oh, I just have to track income, track expenses, see what works, see what doesn’t work, and then go buy another property after that. So, Christian, thank you very much. I just want to highlight to everybody again, reach out to us, contact us, try to figure out how you can get more into our world so you get exposed more to real estate. Follow Christian on Instagram at, is it Christian Osgood?

Christian:
Yep.

David:
Follow Rob at Rob Built, and follow me at David Green 24, and follow BiggerPockets everywhere because they have tons of content that you don’t realize is out there. There’s interviews like this. There’s more interviews on YouTube that are much shorter, hard hitting, get to that point, also maybe more entertaining. There’s some fun stuff that’s out there. So check out BiggerPockets on YouTube, follow their channel and learn as you go. Christian, thank you very much. It was great to meet you. Please give Cody our best.

Christian:
Yes sir.

David:
This is David Green for Rob doo doo diligence Abasolo, signing off. We might have just created a thing. That might get some traction.

Rob:
Doo doo diligence, baby.