September 2022

Dave:
What’s going on, everyone? Welcome to On The Market. I’m your host, Dave Meyer, and today we are going to talk about the rapidly changing housing market. In just the last couple of weeks, the data has been showing a pretty sharp decline in housing market activity and the media headlines calling it a crash or a correction have just increased a lot over the last couple of days. So we decided to invite the full panel on today and we’re going to have just a general conversation about the housing market, what everyone is seeing in their local markets and in their local businesses.
And then we are going to compare and contrast today’s housing market in 2022 to what happened in 2008, because that’s what a lot of people are saying, right? They’re saying, “There’s a crash. It’s going to be 2008.” And some of the data line suggests that a housing decline could be possible. So we’re going to learn what we can from 2008, compare and contrast, and see how this market might perform similarly or how it might perform differently to the great recession. So you’re definitely going to want to stick around for this one because the panel drops some incredible insights and advice for how to navigate a situation like we are in right now.
We got the whole fam together today: Kathy, James, Jamil, and Henry. I love having all of you guys here. How’s it going?

Kathy:
Good. Good to see you all.

Jamil:
It’s cracking.

Dave:
I feel even in the last three weeks or whatever, since all four of us were on a show together, the housing market has changed really dramatically. So we decided to bring everyone back to have a conversation about what is going on, what you would even call this weird housing market we’re in. So we’re actually just going to start and I’ll provide some data updates, and at the end of this I’d for each of you to tell me what this data means to you. Are we in a correction? Is the housing market crashing? Is it something else? What words, what emotions are you feeling? Let’s have a little bit of a session on what’s going on in the housing market.
So here is the data that we are seeing right now, at least over the last couple weeks. And I’m using Redfin data. They actually provide weekly data, which is really cool because a lot of the other data sources lag and are just looking at July. And what we’re seeing as of the last couple of weeks is that year-over-year housing market data is still up. It’s up 6% year-over-year and that’s really important because the housing market is seasonal and year-over-year data is kind of the gold standard in measuring the housing market. So that points to a housing market that is still relatively strong.
We’re also seeing that inventory has started to peak and active listings are going down. Both of those two things, when inventory stops growing and active listings go down are things that put upward pressure on the housing market. So those are some of the data points that sort of point to the housing market is okay or there’s a bit of a slide right now, but it’s not too bad.
But on the other side, we are seeing some other data that is a bit more concerning, or I don’t know if anyone’s concerned about it, but is putting downward pressure on the housing market. Specifically, we are seeing that days on market are still pretty low, but they’ve gone up in the most considerable way that they have in two or three years. We are seeing that 7.7% of homes had a price drop, which is a record high. And I think most notably the thing that most people are looking at when they’re saying the housing market is correcting or crashing is that month-over-month data from June to July was down 6%.
And so like I said, year-over-year is sort of the gold standard. But when we’re in a transitionary housing market we are right now, it is important to look at what’s going on on a month-over-month basis or even week-over-week if you can. And we’re seeing that housing markets in a lot of markets, they peaked in June and they’re starting to come down. And again, that is not year-over-year, which is sort of the gold standard, but that is month-over-month. And so we’re seeing that normally housing prices each year start to go down in August or September, but this year they sort of peaked in June and they’re starting to go down, which is a considerable departure to normal seasonal patterns and is therefore notable.
So that is really the data that we have to analyze here. And with that, let’s try and understand, let’s go to the panel and figure out exactly how you all feel about this. Kathy, are we in a crash, a correction, or something else?

Kathy:
Well there’s definitely a crash, but it is not what people think that means. There’s a crash in home sales for sure. Sales are down. It’s very hard to sell things today at higher interest rates and high prices. There’s not the huge demand that there was because fewer people can afford that or they’re just on the sideline because they’re afraid. So yeah, there’s a crash in sales and still a crash in inventory because again, new listings are down. People aren’t in a hurry to sell their home in this market for good reason, especially with what are they going to buy, something more expensive than what they have at a higher interest rate?
So it’s not a price crash. Maybe for people who bought in the last six months, they’re seeing their value of their home go down. But most people didn’t buy a house this year to sell it this year. If you’re a flipper, you did, and you are probably feeling some pain. But if you bought a house to live in this year and it’s gone down in value, are you freaking out or are you saying, “No, I got a pretty low payment here”?

Dave:
All right, so crash feelings, but not in necessarily crash level pricing.

James:
Crash-ish.

Kathy:
Yeah, The people feeling the pain are the people in the industry, people who try to sell homes, that’s hard right now. If you’re a realtor, you’re probably wondering how you’re going to get through this year. And mortgage brokers are getting laid off left and right. Construction workers are still busy because there’s a lot of homes that are trying to get completed. But people working in the housing industry, flippers are probably having a more difficult time than they did just six months ago. It’s a different market. But, yeah, so it just depends on who you are and what you’re doing in real estate.

Dave:
All right. Henry, is your word crash-ish?

Henry:
No, no, no. And obviously the caveat is real estate is market-specific. So there’s some difference in different areas of the country. I mean, I wouldn’t call this a crash. What I’m seeing is more of a correction and a slow down, but definitely not a crash. And I’m just speaking from the experience that I’m having. When we list a home, we’re still getting it under contract in five days. It’s not sitting long. And I think that’s due to that we have population growth here that’s probably unlike a lot of places in the country, and we also have housing shortage. There’s just not a lot of supply. And our supply for the last, I would say, three months was going up by about 100 houses a week and then it’s plateaued, it’s stopped. So we’re not seeing the growth in houses coming onto the market. So inventory is flattening out.
And we do have less buyers because the interest rates are higher, but there’s still plenty enough because we have population growth. There’s still new people moving here every single month because of the types of jobs that are here require butts in seats. And so when you’ve got population growth and shortage of inventory, yes, less people can buy, but you have new people coming in every month who still can buy because they’ve got these big salaries that these companies are paying people now to start working for them.
And so I think what we’re seeing, especially in this market, is more of a correction. We have seen price drops, and where we’re seeing price drops are on higher end houses. So houses that have more room. If a listing is listed for $2 million and they’ve got a million and a half worth of equity in it and they drop by $30,000, it’s really not affecting the seller, but it is going to do something to the numbers as far as houses that are taking a price reduction. We’re not seeing a ton of price reductions on the first-time home buyer types of homes, those single family, three bed, two bath, 1500 square foot homes, those things don’t have a chance to have a price drop. They’re gone.
So, no, I haven’t dropped… Have I dropped? No, I haven’t dropped price on anything. I’ve considered it, and then boom, you get offers in it and it goes. But I focus more on the first-time home buyer product, but we are seeing price drops on the much more higher end homes. And I think that’s just because people were shooting for the stars and hoping to land on the moon because values were still going up. And so if they didn’t get the price that they were dreaming about, then they just drop it to the price that they were expecting to get in the first place. To me the price drops aren’t, “Hey, I thought this house was worth 200,000 and the market’s telling me it’s only worth 150.” No, the price drops are like the house is worth 200, but I’m going to shoot for 225, and then if I don’t get 225, I’ll drop it to 210 and I’ll get 210, and it’s still more than the 200 that it’s worth. So no, I don’t think it’s a crash, it’s a correction to me.

Dave:
All right, well I think your market is the kind of market, at least according to my analysis, that is still poised to do well I would say, and definitely want to echo what you’re saying about list prices. People are definitely listing very aggressively, but still even to date, the sale-to-list price, which is a good way of measuring if sellers and buyers expectations are on, it’s right at 100%. So sellers are still getting what they ask for on average across the country. Now, let’s head to Jamil and James who are in more bubblicious markets, should we say, or ones that maybe a little bit riskier. Jamil, what do you think correction, crash, something else altogether?

Jamil:
I believe the housing market is in a standoff. I think that everybody’s got a gun pointed at each other here and there’s really no chance at victory for anybody. This is the reason why: When you look at Phoenix, Phoenix is one of those markets that was the poster child for the run up in 2006 and for the dramatic crash in 2008. And looking at the statistics, I love looking at Phoenix because it really gives us what this looks on a micro level. And then you can look at what the housing market’s doing on a macro level. So back in 2006, in Phoenix we had one house for every 80 people. All right, one house for every 80 people. Think of that. Now with respect to inventory, we have one house for every 360 people.

Kathy:
Whoa.

Dave:
Wait, can you explain that? How does that make sense? Where do people live? Does that not include apartments or something?

Jamil:
I think that’s just talking single family. That’s just talking single family. Because I think what’s happening is we’re seeing that the housing starts have dramatically plummeted, right? Back in 2006, we would have anywhere between 4 to 5,000 housing starts a month. Right now, those housing starts have gone down to about 2500 housing starts a month. So that’s nearly half. When you look at days on market, in 2008 the average days on market was 110 days. So that we had all of this inventory, we had a total of 49,000 houses on our MLS in Arizona at the peak of 2006. Right now we have 19,000 houses available on the MLS in Arizona. That’s down 61% from where we were at our peak.
So when you’ve got such dramatically low inventory, I think what we’ve seen and why we have this little pain point is investors. That’s who’s panic selling right now. The people who are fixing and flipping or the folks that need to sell immediately, they’re the ones that aren’t realizing the full potential or the full profits that they might have been able to extract from their deal. So they’re selling for less. You’re seeing those dramatic price decreases happen, and they’re happening for sure. We’re seeing them here in Phoenix. I look at the MLS and every day it’s price decrease, price decrease, price decrease. On all of my flips right now we are dropping price, but we’re still coming out profitable on those flips, and we’re still going under contract within 30 days of listing our house. Even in this correction.

Dave:
How much are you dropping price just out of curiosity?

Jamil:
Typically our average price reduction is about $10,000.

Dave:
So percentage-wise, like 2 or 3% or something that?

Jamil:
That’s about 10%. No, that’s about 1%. Because our projects are in the million dollar range.

Dave:
So pretty small relative.

Jamil:
So, small. Small price reductions and we are going under contract and they’re still going under contract within 30 days. I don’t see how that’s still a painful situation. I’m not hemorrhaging money on hard money. I’m not sitting on inventory choking out because I’m stressed out and overwhelmed. None of that’s happening. And I’ve made such incredible profits leading up to this time right now that I’m padded and cushioned to even break even for the next six months if I had to in order to stay in the game and keep my trades.
And so I think what we’ve seen happen, Dave, is we’ve seen that investors and people who had to sell, rushed to the market to list when they started hearing grumblings of a housing correction because of the rising interest rates. And now what we’re experiencing is these houses have jumped inventory and now that inventory can’t be replaced. And so we are going to see that number go from 19,000 dramatically low, dramatically decrease. And I predict that within the next six months that number will go back to dangerously low levels of inventory. And we’ll probably get back to that point where we have 6 to 8,000 houses listed in a month in Phoenix. And that’s going to be trouble.

Dave:
Yeah, just to clarify for people what inventory means, there are two components of it. Inventory is not just the number of houses that get listed for sale. That’s actually known as new listings, and that’s what Kathy said was actually dropping. And inventory is a reflection of how many properties are for sale on the market at a given time. And so inventory over the last couple of months has been going up because demand is falling off and so houses are sitting on the market longer, but it wasn’t because new listings were dropping.
Now new listings are dropping and so that’s counteracting the decline in demand and I think that’s why a lot of us are seeing inventory start to level off. Of course, we don’t know which way it’s going to go, but that’s sort of the dynamic at least in the data that’s going on right now. All right, James, Seattle. What’s happening up there? Are we in a crash or correction or are you going to say we’re in a standoff like Jamil?

James:
I think we are in a snapback is really what comes down to. If you look at Jamil’s market, my market, even Boise, all these peaked out markets that spiked, in Washington, a lot of our really strong markets, they appreciated 20 to 25% in March alone, which is a huge run up. And what we’re seeing is it’s just pulling back naturally. And I do think we are in a slide. I think it’s completely different 2008. 2008 was the breaks got hit on us. All of a sudden subprime mortgages went away, there was no money out there. And it just hammered us. It was very drastic and quick.
This feels this slow, slow slide, because what we’re talking about 6%. We’re up 6% but last month we were up about 10% and it’s just this slow slide back. And really I think the people that think it’s crashing is they bought it at the wrong time. If you bought any type of short term investment, whether it’s an Airbnb, a fix and flip, or those high yielding investments during I would say February to April, you are going to have problems. That is the reality of it. Just like the same type of good timing if you bought… If you bought four months after the pandemic hit, that’s good timing. You hit the same gas, but the brakes are getting hit right now, and what we’re seeing is we’re about 20 to 25% down from peak.

Dave:
Whoa.

James:
Yeah. I mean, it came right back down. There’s a house that I have listed actually with, we did My First Flip with Ashley Kehr from Real Estate Rookies. We bought this property in Bothell and when we performed at the deal, the comp was from 18 months ago, exact same house for a million, 50. During this remodel, it went all the way up to 1.5 in a six-month period. The value skyrocketed almost 40%, which is absurd. And I remember calling Ashley, I go, “Hey, we got to get this thing on market, because it can’t start going the other way really quick.” And I was joking with her and then it went the other way. And we sold that house. We listed at 1.2, so about 10% below what the peak was. We got it pending. That buyer fell apart because of financing at 1.1.
Now we’re at a million, 50, which is the same value that it was 18 months ago and we’re getting one show in a week max. And so there’s certain markets that come through and it really just comes down to where is the market at? When did you buy it, and kind of pushed through. But that’s where you hear all the crashing because people also broke a lot of rules and they weren’t really paying attention to what true real estate rules were. And those deals are coming backwards. The stuff that is crashing is homes that were always negative or had deficiencies that people bought acting they didn’t have deficiencies. That stuff is down 35%. But other than that, it’s really just the general market is just kind of leveling out.
There’s other markets, like Capital Hill in Seattle is one of the most expensive markets in Seattle. It’s had a little bit of issues with a crime and it had a weird kind of stigma for a while. And so during this peak, when me and Ashley’s Bothell one went up 24%, Capital Hill was actually very steady. It went up 10 to 12% during this time, which is the best market in Seattle. But it kept steady. We’ve seen no price change in that neighborhood. We listed six town homes last weekend. We sold all of them. We sold all six of them in three days. And so the markets that were steady and good and healthy, they’re fine. Deficiencies, spiked. I mean, it’s just like anything, hockey stick up, it comes the other way. And I definitely have seen that and I do think it is starting to level out but I predict that we might see some of those markets that really jolted come down to pre-pandemic pricing. I think that’s kind of where it’s going to level back out.

Dave:
Wow. Pre-pandemic, like in Boise and Reno, some of those really hot markets, you think it could come down that far?

James:
I think, yes, I do. I think in 12 months there’s going to be some markets. Because here’s the reality: Some markets are not supposed to be expensive. Where people live, they’re supposed to be affordable. And as you know we have some factors going on.

Dave:
What are you saying about Boise?

James:
I like Boise. I would definitely live in Boise, but you get this slow slide back and I just think as we see inflation going up and people, there’s an erosion of capital right now, of disposable income. There is right now one in six Americans are behind on their utilities. That’s a big deal. That means people are struggling to make payments, and in 2007 and ’08, they were at one in five. So there’s other signs of affordability issues which are going to cause the market to be flat because people can only buy what they can buy. People can only sell for what they can sell for. So there’s going to be just be this kind of stagnant market for the next, I think, couple years. But I think it’s just going to be this slow slide, not this sudden jolt. We’ve already seen the sudden jolt and now from here it’s more steady.

Kathy:
I wonder about the Boise market because a lot of that growth came from California, and right now California is facing a pretty severe drought. We can’t water our gardens for two weeks at all. We invested a lot in our yard and probably going to see that all just turn brown, and Boise has no water issue. So I’m also curious about those kinds of factors, if more and more people are retiring in California are able to move and are thinking maybe I want to be in a place where there’s water. So who knows? Who knows what the future brings but that could keep Boise prices up possibly.

Dave:
James, I was just going to say, man, you’ve probably had so many good deals and the one that’s fallen apart you did with the Bigger Pockets podcast. Pretty public one to take a loss on.

James:
Yeah, luckily though you, but you have to pivot as investor, right? It is what it is. The market is Mother Nature, you cannot fight it. You have to participate in it, you got to adapt to it. So just pivot and change things. So for that deal especially, we’re not losing money right now. We’re still making money. But if we sit there and we don’t make a change, as the market flattens out, that means longer hold times, you got to stop the bleeding.
So actually, I just paid off our hard money loan yesterday on that and because I had some liquidity come in, I called Ashley, I’m like, “Hey, I could just pay this off,” because now we’re not in a hurry to sell it and if we’re not in a hurry we can wait. Because I do feel good about our list price, but we don’t want the hard money and the debt expense to force us into a different situation. And so we just paid off the loan and now we have no debt, and now we’re going to wait for that buyer. Because if it doesn’t sell for a million, 50, that means we are actually getting close to pre-pandemic levels in that specific neighborhood, which is a great neighborhood. It’s right outside Seattle, suburb, good schools, everything is good about this neighborhood. So that’s a little scary to look at.

Jamil:
James, I believe first and foremost, everybody listening to this podcast right now, rewind what James just said and understand that he just gave you a look inside the mind of every one of your fix and flip investors out there right now. If you are wondering where they are, what their temperature is, what they’re feeling and what they’re thinking, you just got the most true example of what that thought process is. And here’s what I want to say about it, James. I think you’re a little bit over. I think you’re overthinking the pain part, which makes sense. I get it because you have to insulate for your projects moving forward, and I think that you will be positioned well to do that because of the pivots that you’re making right now. But I also believe that it’s not going to turn out to be as bad in six to 12 months as you’re planning for right now.
But for anybody out there that wants to do business in fix and flips, that wants to sell deals to fix and flippers, this is what they’re thinking. And if you can structure your deals in ways to give them enough runway so that they can stay in the game with you and they can continue to do projects, because they also don’t want to lose their trades. I think, James, for you right now, one of the keys is making sure that you retain your highly talented team but do so in ways that isn’t going to hemorrhage money. Would you agree that that’s a concern?

James:
Yeah, well it’s about working smarter and working in the certain market conditions. You have to keep your team but you also have to pivot and change thing and give different roles and responsibilities out. Because at the end of the day it doesn’t matter if it’s declining or flattening, it’s a different market than what it was 24 months ago. There those are three different types of markets. And so you just have to prep, move your pieces around, pivot and then make your adjustments.

Dave:
All right, this has been a great conversation. Thank you. It sounds the general consensus here is that things are adjusting. I think James probably the most bearish. I actually am feeling a little more bearish right now too. I’d say we’re solidly in a housing market correction. I don’t think we’re in crash territory, but the data’s definitely turning a little bit faster and more dramatically than I think I was personally expecting. And like you all said, different asset classes, different markets are going to perform differently, but on a national level, I do think we’re heading back towards at least very, very modest year-over-year growth and possibly even negative on a national level in the next couple of months.
I do want to turn this conversation to all the research you all did and just for everyone listening, what we’re going to talk about for the remainder of the show is how this housing market is different than 2008. You’ve now heard everyone’s, all the panelists opinions about what this market is and where it might go. But with all of the media coverage and about a crash, we wanted to analyze how the housing market is different from 2008 and we’re going to go through five different topics and sort of break down, compare and contrast different points about the housing market. But first we are going to take a quick break.
All right, so let’s get into our compare and contrasting of the 2008 market to the 2022 housing market. Myself and each of the panelists researched a single topic to talk about and how it’s either the same or perhaps different from 2008. And I’m going to go first and I probably took the easiest one. So thanks for letting me get away with the easy homework everyone. I’m going to go with consumer debt and mortgage quality. So as we all know, subprime mortgages was one of the main issues that led to the 2008 crash. Basically irresponsible debt was given out and I want to just show some data about how different it is now. So, the first thing is that the median credit score, I’ll ask you guys… Actually, I’ll have you guys guess. Does anyone have a guess what the median credit score for a mortgage is right now?

James:
680?

Kathy:
740.

Henry:
640.

Dave:
It is 773 is the median credit score right now. Yes. And that is actually down. It was up to 780 before, and what’s the highest? It’s like 850, but anything above 720 is considered excellent credit. So I thought this was an extremely telling point because credit scores, they’re not perfect, we all know that. But they are a very good indicator of how able you are to pay your mortgage. And a 773 credit score is phenomenal. There was also some other data that showed that anything below a credit score of 620, that’s considered a subprime mortgage. That’s like someone who has at least a relatively decent chance of defaulting on your loan.
Back in 2004 and 2005, the total number of mortgages that were originated that were below 620 was 14%. That’s what it maxed out at. It is now below 2% right now. So when you think about the main thing that brought us into the depths of the 2008 crisis, and listen, 2008 there was a drop off in demand, but in my mind what made it really bad was a lot of the foreselling, all the foreclosures, that kind of stuff. And so when I saw this, I thought that to me, although I am seeing the market go down, sort of like in my mind puts a stop gap on how bad things can get because you’re not going to see people who are going to default on their mortgages because lenders basically have cleaned up their act and are starting to lend to people who are actually qualified to pay back their mortgage.
I mean, it’s unbelievable. Kathy, you might know because you were doing this, isn’t there something that, what do they call it? It was ability to pay a requirement.

Kathy:
Nina Loan?

Dave:
No, not a Nina Loan. They now implemented this thing you have to believe that they can reasonably pay back their loan, which it’s crazy that that didn’t exist before. Unbelievable.

Kathy:
It’s crazy. Yeah. And when we were giving loans to subprime borrowers who already had bad credit, it really wasn’t too hard for them to walk away from a home. They had shown a history of not paying bills.

Dave:
All right, so my compare and contrast to 2008 is mortgage quality. Mortgage quality now much better than it was a decade or a decade and a half ago. I think this will probably overlap a little bit with what you brought, James. Can you tell us what you think about the 2008 market and how it’s a little bit different or maybe the same?

James:
Yeah, the 2008 market, when we were going through that, it was definitely a completely different thing. It was the whole banking market had stalled out and just… It was this skyrocketing of defaults and everybody threw in the white towel all at once, and it was like people just gave up. And that’s why we saw this skyrocketing of foreclosures and people just did not care. Whereas right now people have worked hard, they bought some properties and they can afford them. And like you were just talking about, the quality of mortgage borrowers are much better. A lot of people learned a lot of lessons in 2008 and so did the banking market.
But what we have seen, is we have seen an increase in defaults in foreclosures. There’s a 219% increase, basically from the beginning of… Or we’ve seen a 219% increase in foreclosures in the last 12 months. But the big thing is we are at a fraction of what it was in 2008. In 2008, they were at 1.8% of all housing units were in foreclosure. Right now we are at 0.12. So there’s this dramatic difference of defaults going on because people haven’t given up. It’s like right now, people just can’t go buy something new. They spent all their money and so things are flattening out.
We’ve seen some pull back to get into the affordability factor, but it’s more like people still want to go buy, they still want to own homes, they still want to get settled in, they want to maybe move into a different market and it’s really not that bad. Yes, we’ve seen the increase in foreclosures and I actually think we’re going to see an even larger increase because there was a moratorium for two years. There was no foreclosures going on.
So we’re going to see that scary percentage increase ratchet up over the next 12 months, but we would have to be almost 10 to 15 times the amount of homes in foreclosure to match 2008. So there’s a lot of runway on that at that point. And so the foreclosure is just totally different in general. I mean, we were swimming in foreclosures in 2008. You would drive down a street and it was like… Door knocking was very easy and you could be very inefficient. We could hit 80 homes in a six-hour period because they were so clustered together. Right now our guys are still driving everywhere. It’s just not the same type of market.

Dave:
That’s incredible. I mean if you listen to the episode, I think it was in June or July that Jamil and I did with Rick Sharga who’s sort of an expert on foreclosures. he was saying it’s starting to tick up and that numbers sounds scary, but to your point, it’s still like 1/15th of what it used to be. And he was saying that a lot of the mortgages that are ticking up were people who were in default prior to COVID and the moratorium and now they’re restarting foreclosures. And it’s not necessarily even, I’m sure there is an increase, but it’s not necessarily even a huge increase of new people going into foreclosures. It’s people that were previously in it. But awesome, that was very helpful. So far on the lending/foreclosure side, we’re seeing mortgages are better. Not a lot of foreclosures relative to where we are. Let’s move on to Kathy. Kathy, what did you bring to show and tell today?

Kathy:
To my topic was inventory. And I love this topic because it really comes back to the fundamentals of supply and demand. That’s really at the end of the day why so many different markets behave differently. It all comes down to supply and demand. Interest rates are of no issue. In 2009 and ’10 and ’11, interest rates were lower but then there was tons of inventory but no one was buying. So it really comes down to the fundamentals, supply and demand. So when you look at where we were in 2007, there was 3.7 million homes in the inventory. And then today you fast forward and yes, it has gone up. In the beginning of this year there was only 860,000 homes in inventory. So that’s what… I should do my math, but three, a third or even close to a fourth of the amount of inventory at the beginning of this year, it has gone up.
It’s almost doubled. And that can be scary when you see headlines. And please do not get your facts from headlines. You are getting bad advice. It’s only meant to scare you. So just stop looking at headlines please and listen to data because you’ll make bad decisions if you just listen to that. So where we are, yes, inventory’s gone up dramatically as it should and as it needs to. And if you could just say, “This is a good thing,” then it won’t be so scary. We’re at about 1.3 million in inventory today, but we still need to be closer to 2 million. So we’re still way under. So that’s on the supply side. Every market’s different. Different markets are going to be behaving differently, depends on jobs, population, but overall we still don’t have enough homes out there for the people who need them. So let’s talk about the people.
If you go back to 2007, 2008, that was 14 years ago. Do you think that the US has grown in population since then? Well the answer is yes, it absolutely has. There was about 300 million people in 2008. Today, fast forward, it’s 332 million. That’s almost 30 million more people. So how many people live in a home? 2, 3, 4? You got to have homes for these people as the population grows. So again, you fast forward from then till now, you have right now less than half the supply of what we had then. But you’ve got 30 million more people. So just throw everything else out the window and just look at that. Supply and demand. People need a place to live. They’re not investing like a stock. They want a roof for their family.
So then on top of that, let’s look at the generations and the demographics between then and now. And we know that millennials are the largest generation today. I talk about them all the time. I love you guys. 1981 to 1996 is generally what we consider millennials. There’s 82 million of them. That’s a lot. That’s a lot. There was only 65 million or so Gen Xers. So again, you go back 14 years and the oldest of the millennials were 27 years old. So this massive group of people, they’re not looking to buy homes. They were just trying to figure out what happened to their world. And as the Gen Xers that were the home buying age.
So here we had all this supply flooded the market with way too much construction without the demand that the youngsters hadn’t grown up yet. And there was all this talk about, “Oh, millennials are going to never buy houses.” Well they were 27 and the largest group of them were like 16. So it was just misinformation, bad headlines, ignore the headlines. And just know that today we have the largest group of people ever who are now at home buying household formation age and the inventory’s not there for them.
So it’s really a crisis, but it’s not the crisis that people are talking about in the headlines. It’s not a housing crash, it’s a housing inventory crash where we didn’t prepare well and preparation would’ve been helping builders build. And of course I’m going to say that because we’re in the development world and we would love some help because what’s needed is more supply, more affordable for sure. And it’s just not there. If you go to the supply. And what happened since 2008 that we were building, we were starting 1.6 million homes in 2002, 2003, 2004. 2005 was 1.7. We were just starting all these new homes when the buyers weren’t there, it was silly. So then when the market just crashed, then from 2008 to 2015, it was 400,000 a year starts down from 1.7.
So again, a huge correction and bringing on new supply just when these millennials were growing up and ready to start homes. So we did not bring on new supply. Just this last year we got a little closer, 1.1 million in new homes, but not enough to meet this demand. And there’s not a lot of lot supply either. When you go online and search new homes. It’s kind of scary because it says there’s 10 month supply out there. And that’s what a lot of people are using to say we’re oversupplied. And what they’re not looking at is the fact that there’s really only one month supply of new homes available because those are the completed homes that can actually be sold. The rest are seven million in some stage of construction, which has been delayed and delayed and delayed and delayed. And then you’ve got two and a half months supply that hasn’t even started. So that 10 month supply number is not what you think it is. And yet a lot of people are using that as a headline to say that we’re oversupplied. We’re just not.

Dave:
Wow. You just dropped so much knowledge. And that’s an incredible amount of data for everyone just to take in. And obviously that’s hugely important. It’s just the basic supply and demand. And if there’s more demand than supply, that will definitely at least put a backstop on some of the slide that we’re seeing. Even if you think the housing market is going down. Jamil, I mean that’s sort of dovetails with what you were saying before, right? About inventory in Phoenix.

Jamil:
Yeah, I apologize, guys. I thought I was doing inventory. So I literally have the exact same research and data that Kathy has.

Dave:
Just tell us again.

Kathy:
Let’s hear it, man.

Dave:
Let’s make sure it really sinks in with everyone.

Kathy:
We’re like twins.

Jamil:
Well, you know what, I love it. But they do marry each other very well because construction starts, that tells us sentiment. That tells us how confident builders feel about the housing market and where they think they’re going to be in a profitable situation. So when you’re looking at construction supply, I like to look at it from a micro perspective. So just looking at Phoenix for example, looking back at 2006, we were issuing 5,000 building permits a month. And that tells you where the builders were. That tells you where they thought the housing market was going. That tells you what they were thinking demand was coming from. And obviously it was coming from a lot of speculation. There was not the population, there was not the demand that truly was there to absorb all of that inventory.
Now you look at Q1 at 2022, and on a micro level, again, here in Phoenix, Arizona, they’re issuing two point 5000. So 2500 building permits a month. That’s half. That’s half of what it was back in 2006 and in the peak. And when you look at it nationally, in 2005, we had 1.7 million housing starts. 1.7 million as compared to right now in 2022, where we’re at 1.1 and that’s up from 400 to 600,000 housing starts that you had leading up to this ramp up that builders just actually started to increase their construction. So when you’re looking at it from construction starts and construction supply, we’re not there. We are so dramatically different from what led up to the 2008 crash to what we are experiencing right now in 2022.

Dave:
All right. So far we’ve heard that mortgages are better, foreclosures are way better, inventory is lower, and construction has just been very slow over the last decade or so. So the total housing supply is probably way lower than it was in 2008. Henry, what did you bring for us? Round it out. Is there any ways we’re similar to 2008 or what do you got?

Henry:
Not in this category. I’m talking about appreciation and growth rates. So I mean we’re talking about a huge recession in 2008 where values of homes dropped 20% or more in some markets and they dropped so rapidly that… When we were talking about crash earlier, you asked us was this a crash or was this a correction? To me, crash means things are dropping so fast that no one’s going to buy because who wants to buy while they’re falling? They’re going to wait until the bottom. That’s not what we’re seeing right now.
And so if we’re comparing appreciation and growth rates from 2008 to now to try to see if we’re in a similar boat, I mean absolutely not. We’re still seeing values increase. Even through this slowdown values are increasing anywhere between 2 and 6% in certain markets month-over-month. It’s crazy. And so it’s because you have to look at, everybody’s kind of touched on it, but the things that drove the housing market crash in 2008 don’t apply here.
And I know we as people human nature, we naturally want to compare things and we want to use history as a teacher so that we can put ourselves in better positions for future decisions. But this is completely different. Global pandemic kind of started this, which caused money to flood the market and people had more money and then all of a sudden you didn’t have to be physically tied to your location to do work anymore. And so people were like, “Let’s move.” And everybody was moving and they had all this money.
And so before the banks were lending money to people who couldn’t afford homes or couldn’t afford the expense of the kinds of homes they were buying, which caused a huge problem. But that’s not what happened during 2020, 2021 when people were, especially 2021, when people were bidding up on houses and removing contingencies. You did see houses sell for 20, 30, 40, 50 grand over asking price, but not all of those houses were appraising for over that asking price. People just had the money to pay the difference. That’s not a crash. That’s people saying what they’re willing to pay for. That’s what the housing market is.
People decide what they’re willing to pay for homes and they were saying, “I think this house is worth more than what it’s listed for to me.” And so no, you just can’t compare the two. And so as a appreciate… There was no appreciation in 2008. I think one quarter things dropped 12%. That’s insane as far as a price drop goes in a quarter. And here we’re still seeing prices rise. If you look at the data for July, 2022, you’ve got the median home price grew by 16.6%. And you said earlier in the show, we talked about sellers.
Sellers are still getting what they’re asking for. You said it’s at about 100% that people are still getting what they’re asking for. And so if the median home price is growing and sellers are still getting what they’re asking for, that means values are increasing. And so no, this is a completely different correction. I don’t think it’s a crash. I don’t know that it will crash. But what I do know is that the factors of this are so far different than what we saw in 2008 that we really don’t know what’s going to happen. Jamil’s right, it’s a standoff and we are just, we’re having to take our time and try to pick the best entries we can based on our financial conditions.
And I think that’s what buyers are starting to do too. The ones that are buying are saying, “Hey, I don’t know what next year’s going to bring. I just know that I think it’s the best time for me to try to get in and own something.” And so follow the fundamentals of investing if you’re an investor and that is you try to buy at a certain percentage under market value to give you some cushion. But, man nothing, this 2022 correction is just night and day different than what happened in 2008. We’re still seeing appreciation across the table.

James:
The only thing I want to add to this is I agree with everybody, it is totally different market. The foreclosures, the appreciation’s different, but the only thing I have seen a similarity in is the buyer sentiment right now. Like, when we were listing and selling homes in 2008, there was just as many bodies out there and it was the same type of buyer. They’re opportunistic, can they get a good deal on something? And the buyer sentiment is very, very similar. And until that turns, that’s where we’re going to see… That has to change for the market to actually start getting growth back in. But people are buying, I mean, I’m a buyer, my sentiment’s changed, but I still contracted $16 million in real estate last month for myself. We’re buying apartments, we’re buying development, we’re buying fits and flip. We’re still contracting, but you’re just being cautious and then that… But the sentiment is very, very similar.

Dave:
Well, James, one of the questions I wanted to ask was what are some of the lessons for those of you who were investing in 2008, what are some of the lessons that you learned? I’m curious, can you help us understand what changed buyer sentiment in 2008? How did growth start coming back?

James:
Well, growth started coming… It was a very steady… I mean, part of the growth started with the government. They offered that first time home buyer tax credit and it was just kind of this building block through. But I felt like the sledge hammer came through in 2008, which this is not that. And so it’s going to be a different turn too in the sentiment. I think it’s just going to be time. And then also what will change is the unknown. We have the Fed jumping around saying, “Hey, we don’t know what’s going on.” I mean, soon as the Fed changes its message going to, I think then once they give us a stable answer and that this is what they think and here’s the actual plan, not just we’re trying, then the sentiment will start to go.
Everyone’s just kind of freaking out. But it is definitely making for some good buys though. Again, we contract contracted 80-unit building. I haven’t been able buy an 80-unit building in Seattle in three years because the hedge funds are buying them all. And so the settlements, and I sound little… I’m definitely cautious, but I’m buying and being cautious. And I think that’s who’s there. The real buyers out there looking at your listings, the real investors out there looking. Yes, they’re cautious. They should be. And at the end of the day, it’s probably not going to change until the Fed gives us more consistency and everyone feels safer.

Dave:
Yeah, that’s a very good point. I totally agree. I think that the Fed is really the big question right now. And until we get some stability there, it’s just a lot of uncertainty. Kathy, you were around in 2008. What were your major lessons that you learned?

Kathy:
Oh, so many. So many. The big one was I didn’t listen to my own advice that I was giving everybody else. And so we did really well on our cash flow properties, but we took a really hard hit on a couple of properties that really just didn’t make sense and there was no reason why we should’ve bought them. We had construction properties and those would’ve been fine, but they were short term notes. And when it came to refi out of the construction loan, there were no lenders left. Nobody would lend to us at that point, which is kind of hard to imagine, but that’s how it was. Banks were failing left and right. So we were already past 10 loans at the time. Before that you could get unlimited loans and then suddenly it was limited to 10. If you were over that you were at a luck. So we had to hand those new construction properties back to the seller and we lost all our money on that.
We also bought in Boise, which at the time wasn’t ready. It wasn’t where it is today. And there was only like two major employers, and that was really tough. We couldn’t get those properties rented. So I’ve learned since to just stick with what I know, which is be in markets that are really well diversified with lots of different kinds of employers. That’s really helpful in a market that’s slowing down. You could see job losses and a slowing economy, but there would be a diversification of employer. So that’s super important. All of our Texas properties fared well. They did amazing during that downturn. Rents went up. Over time, values went up. So had I just stuck with what I was telling people and just stayed in diversified markets where they cash flow, it would’ve been fine.

Dave:
So just stay in your lane. That’s good advice.

Kathy:
Stay in your lane.

Dave:
All right, Jamil, I know you’ve talked pretty openly about taking some pretty big lumps in 2008. What did you learn from 2008 that you’re applying to your strategy now?

Jamil:
Well, it’s funny. Kathy and I, I know we’re kindred spirits because we have extremely similar thought processes on how to survive and thrive in today’s situation. So my biggest downfall in 2008 was A) getting outside of my core competencies and my investing strategy. I went from wholesaler to multi-family development and I got creamed because I was over leveraged because I was counting on lenders to take me out of deals.
When you’re accounting on a third party to get you out of a situation, regardless of what that situation is, you have no control, because that person can change their parameters, that person can change their mind, that institution can change their parameters, that institution can change their mind. Things can absolutely get away from you if you have the survival of your business model dependent on a third party. And so for me, the thing that I learned the most was I have to be in control. And in wholesale, I get to be in control.
And so the thing that… And I almost made the mistake again, we all heard that episode where I was so excited to be contracting a 12 and a half million dollar multi-family building. And I had an opportunity to wholesale that building and make a great profit. But what did I do? I did the same thing I did in 2008 and I decided I’m going to puff my chest out and I’m going to get out of my lane and I’m going to roll the dice at being a multi-family investor again. And what happens? Half a million dollars lost in earnest money. And forgetting that if I put my destiny, if I put my financial future in the hands of a third party, I could absolutely get creamed.
And so moving forward, my strategy will always be one that I can control. Stay in my lane with respect to what I know, right? Wholesaling is a safe way to real estate invest and also stay away from leverage.

Dave:
All right. Very good advice and some painful lessons I think all around. Henry, were you investing in 2008?

Henry:
I was not. I was not.

Dave:
I mean, I turned 21 in 2008, so I was just… You can imagine. So I was not investing at the time. But I guess I will say that I graduated college around that and learned a similar lesson to Jamil, just trying to take control of your own life, because it’s very difficult to get a job in 2009 and sort of inspired me to get into real estate investing because I wasn’t able to find employment in the way that I wanted and just decided to take things into my own hand.

Henry:
So to answer your question, I was not in real estate as an investor in 2008, but I was in real estate as a homeowner because I had been working at my new job out of college for a year or two. And I then decided I was going to be a homeowner and I bought a condo in 2007 in Virginia Beach, Virginia.

Dave:
Okay, how’d that do?

Henry:
So shortly after I bought it and everything went crazy, this was a new condominium complex at that. So they were still building new buildings and selling new units. And so by 2008 they were selling brand new units for less than what I paid for mine. And then I was looking to move to where I am now in Arkansas and I couldn’t sell it obviously because why would they buy mine when they could buy a brand new one for less? And so I actually got hit and had to short sale my property. So I was in real estate, I just wasn’t at it as an investor and I got burned.

Dave:
Man. Well good for all four of you taking lumps and getting back on the horse. It takes some guts for sure. How long did it take you to buy another house after that, Henry? Were you scorned for a while?

Henry:
Yeah. I mean it was on my record for the seven years and so I didn’t buy anything again until, gosh, 2015.

Dave:
And now look at you, buying houses left and right.

Henry:
Absolutely, buddy. Raking them in.

James:
I do think we’re going to see a rapid increase in short sales. I know I’ve already prepped for my business to start facilitating them. So it’ll be interesting to see if those come back.

Dave:
Like as an opportunity, you’re preparing your business to buy them?

James:
Yeah. In 2008 to ’10, we actually probably closed like 600 short sales as a facilitation. Because we were a fee business, we were just trying to make money so we would negotiate for brokers and investors and write offers ourselves. But it’s just like that with that, the utility stat, people can’t keep up the bills. Even though people have great interest rates, a lot of buyers stretch themselves when they bought. And so I do think there is going to be a gap of people where they paid a high price, it’s an affordable payment, but they can’t keep up with the inflation in the economy and they’re just going to want to go.
Also, a lot of people bought homes they didn’t really want, but their balances might be too high. Nowadays, America likes to file bankruptcy, so they just be like, “Hey, move on to the next thing.” That’s the scary part about America and what could happen with inventory.

Dave:
Wow. All right, so thank you all. This has been really insightful. Basically, I guess if I could sum it up, I think we’re all sort of in agreement that we’re heading towards some sort of correction, perhaps a standoff, but very different housing market from 2008. And this is just my opinion. I think all the stuff that we talked about sort of puts a backstop on the declines that we’re seeing. The housing market, it’s starting to slide. It could go negative on a national level, but I think the odds, personally, I just think the odds of seeing housing prices decline anywhere near what they did in 2008 is a relatively low probability. Sounds like you guys all agree.

Kathy:
I just want to say I’m stoked. I haven’t been as excited for a long time. We haven’t been able to find inventory and right now there’s this massive need for rental property, massive need, and all this sudden we’re getting discounts on houses. So I’m all in. We’re going. I’m starting a rental fund.

Jamil:
Bye, bye, bye.

James:
I like it.

Dave:
All right. Thank you all so much for listening to this episode of On The Market. We would really appreciate it, all of you, if you like this episode or you just love On The Market or any of our esteemed panelists to please give us a review on either Spotify or Apple or give us a thumbs up on YouTube. It makes a huge difference for us. We want all five stars as Henry is pointing out. So please do us a favor, throw us a review if you this show and we’ll see y’all next time.
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David:
This is the BiggerPockets Podcast show 661.

Matt:
Also, finally understand that fear is going to be a real factor for no matter what in the market is. There’s never going to be this no problem market, that there’s nothing in your way and it’s completely clear, and there’s no competition, and the deals are cheap, and the money’s free, and whatnot. That’s utopia real estate. Not going to happen. Don’t wait for utopia real estate to happen. Just find a way to make deals work today and be conservative enough that the deals will work out. If you hold long enough and you do the correct business plan, as Andrew said, it will eventually profit if you hold for the long term.

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, coming to you live from Scottsdale, Arizona, where I am checking out investment property and hanging with a couple of my buddies, having a little getaway for the David Greene team and the One Brokerage leadership, and we have an amazing episode for you today. I’ve brought back my good friends, Andrew Cushman and Matt Faircloth, to talk some more multifamily masterclass, wonderfulness and they did not disappoint. This is an episode you will listen to more than once because it is so freaking good.
Basically, we had them on a previous show, and it went so well that everyone said, “Hey, if I want to get started in this right now, what do I need to know?” So we brought back Andrew and Matt to say if you were starting right now from zero, from scratch, with no experience but knowing what you know now, what would you do? They did not disappoint. This is a fantastic episode, where we cover everything from where to find deals, how to underwrite deals, how to choose your market, how to operate the property, how to build a brand, how to communicate with brokers, how to collect acquisition fees, when not to collect them. Everything that you could possibly need to know to get started we cover in today’s episode. You’re going to love this.
Before we bring in Andrew and Matt, a quick word from BiggerPockets for today’s quick tip. Go back and listen to episode 571. This is when I had these two on last, and they gave such a good performance that we brought them back for a followup. So when you get done listening to this, go back and listen to episode 571.
Furthermore, if you’ve got questions that you would like to ask, come to BiggerPockets Conference in October. It’s going to be in San Diego. You should bring all the questions that you can possibly think of and hit us with them. We should be on stage or you could have opportunity to talk to me and the other BiggerPockets personalities. It’s going to be a blast. Make sure you get your tickets and I will see you there. All right. Onto today’s interview.
Andrew, Matt, welcome back to the BiggerPockets Podcast. It’s nice to see you two again, and we have a fun episode planned for the day. How are you, each of you doing?

Matt:
Fantastic, David. Thanks for having us again.

Andrew:
Yeah, I’m excellent. Family’s good. Business is good. Got my espresso, and there’s a swell on the way.

David:
All right. So in today’s show, we are going to be talking about, “If I had to start from zero, if I was just getting started in multifamily today, what would I do?” which is really cool because we’re hitting the point of how would you get started, but it’s coming from the perspective of very experienced investors with a whole bunch of knowledge in their brain. It’s like that idea where people say, “Would you rather know what you know now or have to go back to where you were in high school?” and you’re like, “I want to know what I know now when I was in high school,” but that’s not ever the option. You can’t do both, but in today’s episode, it’s like you can.
So this is going to be being in high school and having a future person show up at your high school, step out of their spaceship and say, “Here’s everything that you should do to become rich and multifamily.” So let’s start with you, Matt. Step one, what’s the first thing that you would do if you were starting from zero?

Matt:
I’m sorry. I’m still fantasizing on talking to my younger self in high school, David, but yeah, but getting beyond that, what I would start with is I think too many people start with doing a deal. I think those that are just getting started with multifamily or real estate investing in general, they’re out there just trying to find a deal, “Okay. I just want to get going. Let me go and evaluate a duplex.” To be honest, the Matt that started investing in real estate 17 years ago did that. I looked at a land deal, that I looked at a single family home, that I looked at whatever come across my plate. I think that what I would do if Matt were to start again today would be to evaluate my goals, my skills, what do I bring to the table, what am I great at and how can I manifest those greatnesses through real estate, what unfair advantages do I have over the other person that’s starting as well in this business.
So I would take personal inventory and also take a realistic goal set. I mean, listen, I get it. We all want to make a billion dollars next week. I got it, but set realistic, achievable goals for what you can really tackle and maybe a deal is a good goal for the first year, a deal, maybe two, but set those goals and take personal inventory. That’s what I recommend and that’s what I would do if I were starting again.

David:
I love that. That’s something I’ve noticed just this pattern in real estate investing in general, that whenever I have something of value today, a lot of equity in a property, really good cash flow in a property, options to do a cash out refinance or something, it’s almost always from a decision I made somewhere between three to five years ago. That’s just the way it works. What everything I’m buying right now will benefit future David in five years tremendously. It’s like every time I buy a house I’m just loving future me. It’s not going to do a ton for me right off the bat, but it will later.
I think that’s a tough thing to swallow because who wants to work off of a five-year timeframe when you’re being told, “Get into real estate investing. It’s going to change your life,” and you’re like, “Oh, I want to lose weight right now,” type of thing, but that’s not really how the asset class is designed. What about you, Andrew? Do you agree with that point, and then is that the same thing that you would do if you were starting off?

Andrew:
Yeah, I do, and actually, I got a couple things to add to that. So David, what you were saying, I call that current self and future self, right? If I’ve got something amazing from Cheesecake Factory and I’m like, “Hey, I could save half of this for tomorrow,” I’m like, “you know what? Future self is going to be really happy with me if I do that for a number of reasons.” So I actually frame a lot of things exactly how you just said, current self and future self. Many times, it might not feel great for current self, but future self is going to look back and thank you, right?
So I do frame things a lot in that way, and then I also would step back and say, “Okay. If I were starting today, there’s a piece of advice out there that probably 99.873% of BiggerPockets pockets listeners and can recite, and that’s Warren Buffet says, “Buy when everybody else is fearful and sell when everybody else is greedy,” right?
So guess what? Right now, people are getting really fearful, but the problem with that advice is everybody can recite it but very few people can actually do it because what we do is we confuse fear with reasons, “Oh, well interest rates might be doing this and I don’t know what prices are going to do,” blah, blah, blah, blah, blah, and those are rational justifications and those are true things, but that’s also what makes it so that no one can actually put that advice into work.
So what you have to do, if I was starting today and it is a much more scary environment than if I was starting five years ago, there’s no denying that or much more uncertain, I should say, is not say, “Well, I’m just going to wait a couple years and see how it shakes out,” because then you’re going to miss everything, but to buy when other people are fearful, you just have to adapt the strategy to the market and pick the right strategies and look towards, “All right. Are prices going to be down 10% a year from now?” Maybe.
None of us really knows, but if I’m looking at future self, my future benefits looking five, seven, 10 years down the road, if I pick the right asset in the right market, I’m going to benefit when I get there, and probably even in the interim. Therefore, if I focus on that and learn to focus on that with that mindset, then that gives you the ability to buy when others are fearful.
I think that’s the first step right now with the current is to tune out the market and the noise, address the fact that, yes, there are some real uncertainties, but factor those things in and move forward. So that’s the first thing I would do in terms of mindset.
Then Matt mentioned goals and deciding who you’re going to be. I would decide, “Okay. Am I going to build the stack method and am I going to go for a fourplex and then go to a 10 and then go to a 20 and do this with just my own money and build a portfolio that I can manage and live off of or am I going to try to build a business? Am I going to try to get to 2,000 units? Am I going to try to hire people? Am I going to syndicate?” Figure out what the end goal is there and then start working backwards.

Matt:
Just to add onto that, and I think that we could expand on that further, but that, though, you and I took two different paths, Andrew. We’ve gotten to know each other fairly well. I was that guy buying a single family home, duplex, whatever, and scaled up through the space, which is certainly one way to get started because some would say a four-family, a five-family, a 10-family, whatever, that’s still multifamily. It doesn’t have to be 100 units to be multifamily. You can scale that way or as you said, you can go and swing for the fences and maybe join somebody else’s team or become a part of a larger conglomerate that’s taking down bigger deals, but there’s no right answer. They’re both ways to get in and ways to get going.
Start small. People that are starting small I just tell them, “Listen, a good goal is to double your portfolio every time you do a deal. Just double up, double up, double up, double up, and you’ll grow real fast that way or go and take down bigger deals and maybe don’t get the lion’s share in the beginning, but you’ll get at least a foot in and you can say you were part of a transaction that took down 100 unit, 200 unit multifamily, and slowly scale and build your own team with the lessons you learned there.”

David:
Couple things that came to mind when you were talking there, Andrew, is the first is the Batman’s story, oddly enough. So if you read the comic books of Batman, they’re a little different than the movies, but Batman’s motivation was he was very afraid when he was young and bats were his phobia. He got afraid of them. So rather than letting that fear control him, he said, “I want to harness this and make my enemies as afraid of me as I was of bats,” and that’s why he took on this identity of Batman. In the comic books, he was much more known for using terror tactics. They weren’t just he fights better and he has cool gadgets. He would hit you in the darkness. He would make noises that would make you afraid. He wanted the criminals to be afraid. That speaks to the power of harnessing fear.
As you were talking I thought, “We always ask people what sets apart the successful investors from those that give up, fail or never get started.” I think what no one said but is really good is your ability to harness fear because opportunities only come when everyone else is scared, at least the best opportunities come in that point, right? If you can’t learn to operate in fear, you’re probably never going to make a lot of traction.
The best deals I’ve ever bought were when I first got started, 2009, ’10, ’11. Hindsight, everybody says, “I wish I could go back to that point.” No, you don’t, man. Nobody was buying houses at that point. Everyone was calling me a fool. I think the other time is right now. I’ve ramped up and I bought a lot and I’m getting a lot of backlash, “You’re buying too early, you needed to wait. We have a huge recession coming. You shouldn’t be buying.” Who knows? They may be right, but very well also maybe that because I bought now, the market’s going to run up when interest rates come back down, and the economy starts to do better, and you look really good, but either way, you got to be able to operate in that spirit of uncertainty because if you think about when everything is best, when the deal is the most ideal, if everybody in the market felt good, it would be like Black Friday.
That’s when the TV or the PlayStation or whatever is at the very best price it’s ever going to be, but how many people actually get that amazing big screen TV or that PlayStation when they’re lined up with every other psycho on Black Friday? Right? Your odds of landing it are so small when you’re in the big pool of people that are rushing in. So I think that’s such good advice for someone who’s getting started is understand you’re going to be afraid. It’s normal to be afraid, and you’ve got to harness that fear rather than wait for it to be gone because if you wait, you’re going to find yourself lined up on Black Friday with a huge mob of people around you and probably getting stepped on.

Andrew:
So the second point is once I’ve got my mindset figured out, and once I’ve decided what my end goal is, “Am I buying small properties? Am I buying big properties? Is it a business? Is it my own portfolio?” is picking a market. So the first thing I would do, and I’ve read this, is go read your book, Long Distance Real Estate Investing. It is geared towards single family, but the same principles apply to multifamily. So I’d read that book and be like, “Okay. Cool. I can invest anywhere long distance. Let’s pick a state. Oh, crap, there’s 50 of them. Now what?” There’s a lot to choose from.”
So what I would do is I would go to the Harvard Joint Center for Housing Studies website, and there is a beautiful map on there that shows migration trends by county across the entire United States, both net and then inbound. It color codes it, and you can see all of the counties in the US that have the strongest population growth. They’re the darkest blue. I would go select markets that are in that dark blue color because the number one positive fundamental for multifamily, the strongest tailwind, which, David, as you’ve recently clarified, the tailwind is the one that pushes you forward and helps you out, right? The strongest tailwind is population growth, people moving to an area. That ensures your multifamily success almost more than anything else.
So I would go to that website and pick markets that are blue and start there and then narrow down and say, “Well, okay. Hey, the Florida Panhandle is dark blue. I like visiting the beaches there. All right. Well, let’s check that out,” right? Florida, as everyone knows, no income tax, very business-friendly. So you start narrowing it down from there.
I joked about visiting the beaches, but again, what are your goals? How easy is it to get there? So people ask me all the time, “Andrew, how do you invest in the southeast and live in California?” There are five direct flights a day to Atlanta from Southern California. It’s a four and a half hour nonstop flight. If something pops up urgent, I can literally be there the next day, no problem, even though it’s a couple thousand miles away.
So that’s the next thing I would do is pick that market or multiple markets because you want to get it down to a short list that you’re probably going to eliminate a few from, and then start asking those questions. Is it easy to get to? Is one of those markets a market that you already know really well? So for example, maybe you used to live in Dallas and now you live in Washington State, and Dallas shows up as one of those high potential markets when you look at that map. Well, that’s another positive factor for maybe why you should pick Dallas. You already know the market or maybe you’ve got an aunt or a cousin or family members that still live there and they can be your initial work-for-free boots on the ground.
So those are the things that I would do to pick a market. Again, that dovetails with what my goals are. If I’m just trying to build up 20 units and I can drive to them once a week and check on them, then I’m probably going to be in my own backyard, but if I’m looking to build a larger portfolio and just really go where the returns are, those are the first few things that I would do. Then once I’ve narrowed that down to maybe a short list of three or four larger metros, I’d really start diving into what are the economic drivers. Are they things that are favored going forward or things that might be on the decline going forward?
Also, I would be looking for economic diversity. A very, one newbie trap to watch out for is you’ll see towns that have great economic numbers, but then you find out it’s because one plant got built there three years ago and it doubled the population and doubled the workforce, but guess what? If that plant shuts down or scales back down, then all of a sudden you’re going in the other direction. So you want to have a diverse workforce.
I would look for counties and cities that have high education, medical facilities, transportation, logistics, tech. All of those things that are growing are favored by the current political environment like anything green energy. We just got a whole another slew of tax benefits for that kind of stuff. Pick markets that check all those boxes and then move on to the next steps. Matt, I know you probably have a few other things to add to that, so I’ll pause and hand off to you.

Matt:
You said all the good things already, Andrew.

Andrew:
Oh, I did. Well, there you go.

Matt:
No, no, no. Everything Andrew said, amazing. Underscore a few things that he said that I want to just highlight for our standards when we look at markets. Yes, population, but as Andrew also said, population, that’s a good leading indicator, but go to why. People move to markets. Used to be just for jobs, right? Now, some people can work remote. A lot of blue collar middle income folks can’t work remote, but there’s some folks that can. So lifestyle becomes a factor, right?
So let’s say, for example, I’ll pick market. Asheville, North Carolina is a fun place to live. There is hiking. There’s all kinds of beer breweries, and all kinds of fun. Now, maybe prior, you moved to Asheville because there was a job there, but now, “Well, I can work 50% remote so I’m going to go and pick a job that allows me to work from home so I can enjoy the lifestyle that a certain city like Asheville,” or pick any number of cities that have a good lifestyle benefit and also a growing economy may have as well. So that becomes a factor too.
For us, job diversity, as you said, certainly not one plant, but we also look at the industries that are driving a city. So if there is a city that you like, but it’s driven by 50% the oil and gas industry or driven by 50% auto, well, let’s look what happened to Detroit that was driven a ton by the automotive industry. Once that industry dries up or starts to move or relocate to other places, that really affects that town. So for my company, for the DeRosa Group, we won’t invest in a city if there is more than 20% of that economy driven by a certain industry because if a recession hits, it’s not going to hit everything across the board. It’s going to hit certain industries more than others.
I don’t have a crystal ball, so I can’t predict what any recession would look like. I can take a guess, but if I invest in a city that is economically diverse, the recession’s certainly not going to affect that. Every industry, the same. Might affect some more than others, and even hit that city a little bit more than others, but there’s other industries that won’t be hit as hard, and if that market’s diverse, then it’s certainly going to get blended out a little bit better.

David:
All right. Andrew, to follow up to what Matt just said, what is the biggest mistake people should look out for when they’re choosing their market?

Andrew:
The biggest mistake to watch out for, and it’s really, really common, and candidly, I made this myself when I started out, so everybody listening, please don’t make the same mistake I made. Do not pick a market because it’s cheap. It is often very cheap for a very good reason. Again, I’ve said this before, I’d probably get a T-shirt now, but the grass is greenest over the septic tank. When I look back over the decade plus of doing this, the best returns and with the least amount of headache were in the mid price range, the C plus to A minus, not the stuff where, “Well, I can buy this 1975 property in Podunk, Iowa for 30,000 a door. Why would I go pay 130 a door outside of Atlanta for the property in the same age?” Well, because in Atlanta, you’ve got a huge diverse job market. You’ve got population growth. You’ve got much higher rent. There’s all kinds of reasons. So don’t be seduced by the siren call of cheap markets.

Matt:
Just to back you up there, Andrew. It’s so well-said because you got to realize, unless you really are the only buyer for a market, if you whisper to a seller’s ear, “Hey, I want to buy your property.” “Okay. Great. Let’s work it out,” and there’s no other competition, then yeah, you set your price, but if there are multiple buyers for any property or if it’s a property on a free market, the market’s going to determine the price. If a property is only selling for 30K a door, that means that is the absolute most that that seller could get for that property. Some people view it as an opportunity, and unless you have insider information like the winds of change are coming through that market and that property’s going to be the next Hoboken, New Jersey or the next Savannah, Georgia or the next something amazing or the next Austin, Texas, then you’re really gambling probably with other people’s money, and that’s not a good thing to do.
So I agree with you that there is a reason why cheap properties are cheap. You can’t be enamored by, “Oh, the price is low.” Well, likely, the rents are going to be low. The economy’s going to be weak. Make the list of the reasons why that property is low priced.
I will just agree with you, and also, I’ll add one more factor on the biggest mistake people make on properties, and that is they go and start making offers too soon without building their backstory of why the market’s amazing because if you’ve never heard of never been to, not sure too much about Albuquerque, New Mexico, but you start bidding on properties there and you get so cursed to land a deal, then you got to go tell your investors why Albuquerque, New Mexico is amazing. If you don’t have that data and you don’t have a property manager lined up, and you don’t have who your closing attorney’s going to be, and have the data in place on how you’re going to build a business plan around a deal, going in early and making offers before you’ve really established your presence and build your foundation is I think yet another, and it’s up there with buying properties because they’re cheap, that’s yet another mistake, David.

David:
All right. Moving on. Let’s say that someone is ready to start looking at properties, and thank you, Matt, for mentioning there that writing offers too early is a pretty big mistake. I would agree with that. Usually, when you first get into a market or at least when I do, the first several buyers are usually not great. Usually with hindsight, they end up being just an average. It wasn’t usually terrible, but even doing my best, I end up with a mediocre deal, but then after you learn the market a little bit, that’s when the good deals start to come.
So I would say go in light. For the first one that you’re going to do, you don’t want to spend all your money. You don’t want to go in super huge. You don’t want to have this huge big vision. The first deal, just go in knowing, “I’m putting the boat in the water and I’m waiting to see where the leaks come, but they’re going to be somewhere so I’m not going to start with a battleship.”
What would you say? Andrew, you started last time, so Matt, we’ll start with you first on this one. When you’re ready to start looking at properties, what would you be doing if you’re starting today from zero?

Matt:
I would go and buy myself an airplane ticket and go to that market and actually physically go look at the market. I cannot tell you, David, how many people I’ve met that are like, “I can’t seem to get a deal and here’s the market that I picked. I’m looking at all these opportunities and nothing just seems to add up.”
I said, “Well, how many times you’ve physically been to the market?”
“Oh, I’ve never been there.”
I mean, get it. It’s like, “Well, how do you know what the good neighborhood’s bad where you could get duped by everybody? You don’t even know what the real opportunities are, where the construction’s happening, where development’s happening.”
So go to the market. Brokers are going to take you way more seriously if you look them dead in the eye and buy them a cup of coffee or whatever and talk about what your goals are, talk about what your plans are, what your resources are, what you can bring. They’re going to remember you as opposed to just somebody that sent them an email saying, “Hey, send me deals.”
So I would physically go to the market as my first move. Once I feel like I’m qualified to start making offers and I’ve picked the market and I’ve done my research and built my backstory, then I would go to the market and do tons of homework, lots of window shopping, and maybe tour some apartment buildings. Do what they call a secret shop, where you just go and show up and maybe pretend like you want to move there like, “I’d love to look at a two-bedroom apartment for me and my wife,” or whatever or maybe don’t. Maybe just tell them that you’re interested in investing there and they’ll probably show you around anyway. So do everything you can to get to know that market like the back of your hand.

Andrew:
Yeah. I 100% agree with that. There’s so many good reasons to do that. Then I would also add in that you hear people, “Oh, how’s it going?”
“Oh, I can’t find a deal.”
“Well, how many have you looked at?”
“Three.”
“Okay.”
So go into it with the mindset of looking at deals as like dating. You’re going to have lots and lots and lots that don’t work out, but those ones that don’t work out help you better realize and appreciate the one that really does, right? All the dating apps came out after I got married, so I can’t keep straight. If you swipe left or right is good. I think swiping left is bad, but you’re going to want to swipe left on probably a thousand deals before you swipe right on one because the majority of them aren’t going to work, but the more you look at that don’t work, the better you’re going to spot the one that does.
So go into it with the mindset of, “I am analyzing this deal to educate myself on the market, to educate myself on the state of operations, to give myself material to have better conversations with brokers, and if I get lucky, I might get a deal out of this.” That’s the approach to have is you’re looking at deals with those other things as your main goals because, really, you can’t directly control whether or not you’re going to win a deal, but you can control your approach to it and how many that you look at. Eventually, you will get the one that works.
So how would I actually go out and find those deals? I would go look at the MLS for my chosen market. I would go to a website called Crexi, C-R-E-X-I. Everyone’s heard of LoopNet. Go there. Really, you’re not looking for hot deals on those places. You’re looking for listings so you can start figure out who to call to start relationships. Then also, go to the big broker websites and sign up for their email blast for those markets, right? Berkadia, Cushman & Wakefield, CBRE, Marcus & Millichap, Colliers. Go join their mailing list so that you get everything that they process in that market. Again, it’s going to be the listed stuff, but you’re doing that to learn the market and figure out who to start relationships with.
Another thing I would do is those big brokerage houses I just mentioned are awesome, but in my experience, many of our best deals come from the smaller, local, and regional brokers, the ones who only cover one market. Those guys might not have the volume of a Cushman & Wakefield or Marcus & Millichap, but they do tend to dig up really good deals, and on the flip side, they may not have the volume, but they’re probably also not sending that deal to a mailing list of 50,000 investors.
So you build a relationship and track record with a local or regional broker. That can have a lot of benefits. So I highly recommend figuring out who they are, and you’re going to do that just by keeping … Matt, you said go to the market, right? That’s how you find out who those people are. You’re not going to see them on headlines on Biz Now or the Atlanta Chronicle or whatever. You’re going to have to talk to people and mingle, and that’s how you find those out, and those are some of the most valuable sources.
Then like I mentioned, call and talk to those brokers. When you’re looking at those thousand bad deals, don’t say, “Oh, this doesn’t work, left. Oh, this doesn’t work, left.” No. Call the broker and say, “Hey, thanks for sending this to me. I took a look at it. It looks like a great asset and a great market, but unfortunately, it doesn’t work for me because it’s in a flood zone,” or “The crime rate was too high,” or whatever that reason is that shows that you’re a legitimate buyer who took the time to look at it and give them feedback.
The number one way to annoy brokers is to just not respond and not call them back. Call them and tell them no. They appreciate that because now they know they don’t have to follow up with you. So if I was starting off today, I would make a very strong point to always, especially with the little things, if I say I’m going to do something, do it. If I say, “Hey, thanks for sending this deal. I’ll get back to you in two days,” I’ll get back to them in two days.
So in regards of screening those properties like, “Okay. Andrew, great. I look at these thousand deals. What do I do?” We cover that in super detail on I think it was episode 279, where we went through that whole screening process. So I’d go re-listen to that, but you’re going to check for parameters like the population growth and crime and flood zones and all of those kind of things, but that’s what I would do in terms of looking at properties and finding deals.

Matt:
David, just to underscore something Andrew said, somebody taught me a mantra a while ago that if you take a broker seriously, they will return the favor. Yeah. Although their deal may be double the price on what you can pay for it, although it’s in the worst part of town with lots of crime and it’s 10 feet under the flood plain level and everything like that, take it seriously. Give them feedback. Don’t throw rocks at it, “Oh, it’s overpriced. Send me an off-the-market deal.” No, because it’s their livelihood. I think that people forget that that this broker is feeding their family on that deal and they hope that somebody will buy it, and they’re not trying to just slip somebody a bad deal. They’re trying to market a deal that’s on their plate that they’re trying to push. It is what it is. It’s their livelihood too. If you show them respect, they’ll do the same.

David:
Well, the brokers in multifamily are usually representing the sellers. It’s not like residential where you have your own agent who represents your interest and the seller has their own. So you have to realize they’re being paid from proceeds that come from the seller. They have a relationship with the seller first. It’s not necessarily a situation where they’re supposed to be advocating for you. Just if they’re mismarketing a property, we would call it mismarketing from the buyer side, but from a seller side is they would say that they are cleverly marketing a property, right? They’re trying to get as much money as they can and actually get it sold.
So that’s why we tell people you’ve got to understand due diligence, especially if you’re moving into the multifamily space because you don’t have that hand holder. You don’t have that agent that theoretically is going to be looking out for you nearly as much. They’re expecting you to know what you’re doing and to be doing your own due diligence. It’s a different way of doing real estate. So it’s a waste of time to get angry and say, “Oh, this trailing 12, it’s crap,” or “Oh, this proforma is garbage.” Just expect it’s going to be garbage because the seller is the one paying them, not you. The seller doesn’t think it’s garbage. The seller thinks it’s amazing. They’re like, “Wow. This is clever accounting. This is why I want you to be selling my house,” right? To a buyer, we think it’s unethical.

Matt:
Put everything below the line.

David:
That’s exactly right.

Matt:
Just rent real estate taxes. Those are all of my income and expenses. That’s it. Now, I don’t expect much from brokers aside from, but I still treat them with respect, but you still got to run your own numbers and do your own analysis and do your own due diligence, and a lot of brokers can be very kind.

David:
They’re the gatekeeper. You got to treat them with respect.

Matt:
Yeah, but a lot of brokers can be kind to you and you can end up getting duped and think that they represent you because they act like they do, but they actually don’t. Don’t forget. They actually represent, really, they represent the deal. They want the deal to close. Their primary objective is to get the deal to closing above all else.

Andrew:
It’s also a bit of garbage in, garbage out, right? A lot of times the brokers can’t get a straight story from the owner or the seller, and they’re doing everything they can to just get an honest listing, and not all sellers are forthright even with their own brokers.

David:
Okay. Moving on. When it comes to building your team, Andrew, we’ll start here with you, what is something that you would be doing right now starting at year zero?

Andrew:
So what I would be doing right now is the exact same thing I did 10 or 12 years ago is I went through the process that we just described. I picked Atlanta, and I would still pick Atlanta today, by the way. It’s just everything is even more true now than it was back then. So all right, I’ve picked Atlanta. I’m looking at deals. Well, how am I going to manage these things? How am I going to get loans on them? So those are the next two pieces of the team that I’d be working on or the two pieces of the business that I’ll be working on simultaneously with looking deals. If you do it right, it’s very synergistic.
So every time I’m looking at a deal, let’s say I just picked Atlanta and I’m going all those websites, I’m starting to call brokers, but in the context here is I’m going to use third-party management, right? So Matt, if you want to talk more about self-managing, please jump in. That’s just a business choice. Again, it goes back to what your goals are. For me, it’s third-party management.
So I’ve picked Atlanta, and now I’m like, “Okay. I got to figure out who’s going to manage these things.” When you’re calling the brokers and you’re giving them feedback on the deals that you’re looking at, if it’s a deal where there’s at least some potential, and you’re ending the conversation with, “All right. Let me go back and do some more underwriting. I’ll come back to you,” or maybe you’re getting to the point finally, “Hey, I’m going to put in an LOI.” The question that you want to ask is if you were broker, if you were going to buy this yourself, who are the top two or three people you would hire to manage it for you? You write those companies in those names down.
Then at the same time you say, “Hey, Mr. Broker, who is your favorite loan officer or lender to work with in this space?” Add those people to your list. Over a pretty short period of time, you built a substantive list of recommendations and referrals for management and lenders. Those are going to be your two key because the money is made in operations, right? So your manager is an absolute key player in the success of your business, and if you don’t have a lender that you can rely on to close, you’re never going to get in the business. So those are, to me, the two most important pieces of the team and you build that from referrals.
So what I did, and again, what exactly what I would do again today, I would build that list and then I would take that list, I would go research on the internet, what is the reputation of these property managers and these lenders? Are there stories of the lender backing out the last minute? Do all the properties managed by this property management company have zero star reviews? All those kind of things. Narrow it down, then do phone interviews with them, and then getting back to, Matt, what you started with, when I narrowed that list down to two or three, I go to the market and have lunch or dinner with these people and do an extended casual interview and then I pick one.
That process is what has led for us, we found all of our lenders that way, referrals and narrowing it down, and then the property management company that today manages our entire portfolio is the first one we ever picked, and they’ve worked out phenomenally well because we took the time to go through that rather lengthy process to build the list, narrow it down, in-person interviews, and they’ve been an amazing partner. So that is exactly what I would do today to figure out who’s going to manage for me and who’s going to lend for me. I would do a similar process, maybe not quite as thorough, but a similar process for your insurance broker, contractor attorneys, contractors, all those kind of things, and all those people.

Matt:
Yeah. I think property managers are the key to any real estate asset. Property manager can make a mediocre deal really good by running it super efficiently and they can also make a really good deal mediocre worse by taking your business plan and disregarding it and wrapping it around a tree and completely screwing everything up. I’ve seen both, right? So I completely agree with you there.
A few notes on self-management, right? Anybody listening to this that has a goal set for going out and buying anything north of say 30 units should not consider self-managing. If you’re going to start really small, like I said before, double up every time you do a deal. Well, you could start that equation at four units and maybe that’s a house stack that you live in, and then you do four, then you do eight, then you do 16, then you scale your team as you grow into larger assets.
At DeRosa Group, we got up to about 115 units managing ourselves, and then we get out of that. We get out of self-managing because we saw where we were growing as a company. We’re growing into larger and larger assets. I knew that self-management was not something that was going to be able to keep up with the growth of our acquisitions. So we let it go.
That said, self-managing taught me so much as a landlord, as a property owner, right? So I learned just the human side of the business. I learned interacting with people, strategies for collecting rent, leasing strategies, management strategies, how to handle maintenance, and how to handle preventative maintenance, not just wait for the tenant to call and say, “Hey, there’s a bunch of water coming from the ceiling in my kitchen,” how to set those preventative maintenance things up. I still use those lessons in the larger multifamily world that we’re in now.
So if there is a plan in the listener’s goals to start small, I highly recommend self-managing in the beginning so you can learn some of the ropes as you scale up, but plan to hand those reigns over to somebody else eventually, but there’s no better classroom than self-management in the beginning on small stuff.

Andrew:
Well said, sir. It’s almost like you’ve done this before.

Matt:
I know. It’s almost like I’ve got the battle scars to show you and all the lessons I could teach you, not you, but just that I’ve learned that this business has taught me really in self-management.

David:
That’s why we have you two here to talk about what people need to know if they’re starting from zero. I didn’t ask you guys this earlier, but I wanted to circle back to it briefly before we move on if you could give me an answer. When it comes to looking for deals, how much time would you put into every individual deal that crosses your plate with analyzing it if you were starting with the knowledge you have now at zero?

Matt:
17 hours. No, just kidding. So 17 hours per deal and no less.

David:
I noticed that new investors-

Matt:
No, no, no, no, no. I don’t need it. It was an opportunity for a cheesy joke and I walked through it. So what we do is we do a phase one and phase two analysis. So you got to determine some go/no go points for a deal. Obviously, if it’s in the market that I want to be in, if it’s in the neighborhood of the city that I want to be in, if it checks all the location boxes and checks the deal size boxes, then we do a phase one analysis that has to do with crime stats, that has to do with comparison of the rents collected on site currently versus what we believe or know the market to be.
We do a Google Street view drive-by just to make sure that there’s not a methadone clinic right across the street. We do just things … You know what it is? Andrew, I’m sure you’ll agree with me on this one. I look for something that can be an absolute no automatically. I know flood zone is a no for you, right, Andrew? So the flood search would be one of Andrew’s phase ones and that. So you want to poke a hole in the deal. I want to get the deal to a no, and if I can’t get it to a no through any of those things, then it goes to phase two, which we spent a lot more time on it, but that phase one analysis can take anywhere between 30 minutes to an hour at the most.

Andrew:
Yep. We’re not too different. So that screening process that we talked about previously, that’s a 15-minute deal. That’s checking your parameters, boom, boom, boom, boom, boom, and just like Matt said, we’re looking for the reason, a hard reason to say no. If it passes screening and it goes to that phase one quick and dirty underwriting, that was episode 571, I think, we went through that in real detail, that’s about 45 minutes. Then of course, if it passes that, now you’re going to dive in deep. If it doesn’t pass that, you’re done with it.
The one caveat I would say is if you have the luxury of more time and your true goal is just to really learn the market, then you might want to spend more time diving in deeper just for that purpose, but if you’re trying to swipe left on that first thousand deals, 15 minutes to screen it, 45 to do a quick underwriting.

David:
I love your point with that.

Matt:
Well, let me proof in the pudding. Andrew, how many deals does your company underwrite last year in 2021, off the cuff?

Andrew:
Oh, five or six hundred, I think.

Matt:
Yeah. It’s around the same with us, right? So if I were to spend really 17 hours on 500, I’d still be underwriting 2021 deals right now, right? So there needs to be a method to get a lot of these deals to nos because not every deal is going to work in that. So the two-tiered approach I think is necessary because there’s just certain criteria you have that are just not going to get met. So it’s an easy way to disqualify it.

David:
I love the point that the value in doing it when you’re new is you’re learning from doing it, but you hit a point where you are no longer learning by just doing whatever activity it is in your business. If you’re a real estate agent, sometimes going on a listing employment with a not very motivated seller is good because you get practice giving your listing presentation and you get feedback from someone and you learn to read people, but once you’ve got that, stop going on appointments when the person’s not motivated. You’re looking for motivation. So that’s a very good point. If you were starting from scratch, analyzing a deal can have some value for you because stuff pops up you might not have learned or you get better at it.
Everything in life is a skill. The more deals you analyze, the better you become at analyzing and the faster you can do it, but once you’ve got that skill down, find nos. That was also a great point that you made, Matt. You’re looking for a no. That’s a hard no, and that’s where you start, “Let’s get rid of all of that. “I couldn’t find anything wrong with it. Okay. I guess I got to dive a little deeper. Let’s go into a little more granular detail. Shoot. I still couldn’t find anything wrong with it. Now I got to start to get excited about this.
Let’s go into the third step. So Andrew, do you remember what episode we did where we actually walked people through the process that we have when we’re evaluating multifamily property, the three-step or-

Andrew:
Yeah. It was I said the quick analysis, the 15-minute analysis, that was I think 279, and then the quick and dirty 45-minute underwriting was 571. Then I don’t recall what the episode was where we went deeper into it.

David:
So check out those if you want to see exactly. You start with what we call the big rocks and then you scale down. When you get to the sand, if you still can’t find anything wrong with that deal, that’s where it’s time to start moving forward. Okay. Another part of running a successful business is building your brand. So I think, Andrew, you’re up first on this one. What are some things that you would keep in mind if you were starting over with building your brand?

Andrew:
So I’m ancient. I started this before all the social media stuff, and Matt is more of the expert on that and literally wrote the book on raising money, but for building a brand, I would say the key things, one of the most important things that a lot of people don’t consider when they think about building a brand, a lot of people think brand is, “Okay. What’s my logo going to be? My colors got to match, I got to wear the same shirt on every podcast,” all that kind of stuff, right? No. Part of your brand is how you communicate and being consistent with that.
If you’re going to have investors, are you going to give them monthly reports, quarterly reports? What kind of data are you going to give them? How are you going to do that? Part of your brand is, are you aggressive? Are you conservative? How reliable are you in those little things? Brand is not just Instagram and Facebook. Brand is your reputation in the market with the brokers, your reputation in the market with the lenders.
So if I was starting off and I’m like, “Okay. I’m going to build my brand,” I want part of my brand to be when people think, “Okay. Hey, that Andrew guy, he’s new, but, man, you know what? Every time he says he is going to call me, he does, and he gives me great feedback, and he just seems like a reliable guy. I’m going to show him this deal.” So I think of brand in terms of those things. That’s the base. Then Matt, you’re the expert on how to actually get that out there to the public.

Matt:
Yeah. Oh, thank you. Again, whether you’re going to use social media or any of those kinds of ways, you can’t say, “Oh, I’m not going to use social media. I’ve already got all my investors lined up so I don’t need social media.” That doesn’t mean you don’t need a brand because as Andrew said, a brand is really how the market views you, and it’s the things the market can expect from you, and that market also means those that you do business with. So it’s important to sit down and think about, “Well, what do I want the market to rely on me for? What are the things that we stand for as a company?” If you choose to use social media, you don’t have to say, “Hey, my brand means this, and the things I stand for are these things.” Just tell them without telling them. Tell them as a part of your story, continue to talk.
One of the things that the DeRosa Group stands for is transparency. So we put that out regularly in our YouTube. I’ll tell any investor directly what’s going on. We put the cameras on inside of apartments that have been completely destroyed by tenants and stuff like that. So we talk about the good, the bad, and the ugly of this business and that’s transparency. So that is something that you have to define on what it is you want to stand for in building your brand.
Then you got to stay consistent. So if you decide, “I’m going to put this out on Twitter or put Instagram posts out to build my brand or to build the eyeballs that are watching for me,” decide what you want to commit to on posts on social or articles you’re going to write for third-party sites or posts you’re going to do on BiggerPockets, whatever it is, and then stick to it.
So pick your message that you’re going to stick to your brand and then make a commitment on the regular times you’re going to release those to whatever mediums that there are, and do it over and over and over and over and over and over and over again. I committed to myself years ago that I would do two YouTube videos a week, and I haven’t stopped doing that for nine years since we started our YouTube channel. It’s just religion. We just do it two times a week all the time. You can add other social media feeds onto that. So that’s how you build a brand.
Whether you have a deal, and by the way, and the last thing, don’t wait to post on social about what you’re doing until you have a deal. That’s the biggest mistake I see. You see people post a deal and it’s like, “Man, I haven’t heard from you in four months. Now all of a sudden you’re posting all over social media now that you have a deal.” I think that people see through that. I think that if you’re constantly wanting to be seen in your market as the one that knows a lot about real estate investing, then you should be posting whether you have a deal or not, writing articles, putting out concepts. Don’t just wait till you have an opportunity to put it out because people are going to see that. They’re going to see that that’s really just trying to sell and are all sizzle no steak.

David:
Matt, when it comes to OPM, what’s something that you would definitely keep in mind starting from zero?

Matt:
Finding the OPM before you got the deal, right? Yet again, David, the biggest mistake that people make, and that’s social media post, but also emailing and making phone calls to prospective equity that may want to passively invest in your deal. The mistake they make is putting that deal out there to their base once they’ve got a deal instead engaging their base well ahead of the time that they have the deal and say, “Hey, let’s talk about real estate investing. Let’s talk about what capacity you may have,” and really formulating what equity capacity their database of potential investors may have before they go look at the opportunity. So many people I see wait till the deal comes in, then they start soliciting equity. So the biggest tip for OPM is have those conversations. As soon as you pick a market, you should be talking to equity on top of that.

Andrew:
Yeah. Matt’s right. I mean, the minute you decide you’re going to go into this business, start telling people about it and start finding out who might be interested in your next deal. Also, try to raise money from pessimists because they don’t expect it back. That’s definitely helped. No. The reality, I just, but the truth of it is underpromise and overdeliver. You may not get a few people who invest in your deal if you say, “Hey, mine’s a 14% return,” and they’re like, “Well, all these other emails I got say 20% return.” If you think it’s going to be 16%, give yourself a high probability of exceeding expectations and say, “You know what? We think this is a super solid 14,” and know that you got an 80% chance of beating that. So underpromise, overdeliver.
Matt, you touched on this earlier. No matter what, be transparent. If a deal’s going bad, tell your investors about what’s going bad and what your plan is to address it and how it might affect them. Do not hide anything. Be fully transparent.
Then the third thing is whatever you do, never go silent. If you go silent, everybody will assume, often correctly, that there’s not a good reason for that. So even if it’s, “Man, I’m just so busy. I got all these great deals. They’re all crushing it. All my investors are making way more than we told them. I’m just too busy to write the report this quarter.” Absolutely not. Never ever miss your communication. Matt, you said you’ve done your YouTube twice a week for nine years straight. That’s how if I was getting started I would approach my investor communications.
You want your investors to be like, “Oh, it’s the 26th of the month. I’ll be getting my updates today because I have for the last seven years straight.” So those are the things I would do. I would make sure that I underpromise so that I have a high probability of overdelivering, and I would be absolutely transparent, and then be consistent and reliable and never ever, ever go dark or go quiet.

David:
Awesome. Okay. What about long term planning? If you guys were starting over from scratch, what would you keep in mind? Andrew, we’ll start with you on this one.

Andrew:
Matt touched on it earlier, and that’s look beyond the first deal. You’re not looking to get rich or retire on one deal. Your first deal is the start of the business. Even if you’re just looking to, hey, do a few deals on your own, build your own portfolio, one deal is not going to be it. That first deal is just the start. So begin with that end in mind and look at the first deal and the second deal and the third deal as stepping stones or even building blocks in doing that.
Then we don’t have a lot of time to get into this, but if I was starting out net right now, a key thing is I would go educate myself big time on the debt markets, how they function. Commercial debt is very different than residential debt. I would go out and educate myself on how that works, what kind of loan options are available for the types of properties I’m looking at. How do you educate yourself? Podcasts, books, but talk to lenders, say, “Hey, I’m looking at this deal. Here’s my business plan for what debt options are there.” They will educate you. So I would do that and make sure that the debt that I choose fits my business plan for that property.

Matt:
Yeah. Just to go further on, and by the way, there’s newsletters you can subscribe to. You don’t have to become as smart as Andrew is. No. It’s not possible with regards to finance and debt and everything like that. There are newsletters you can read. So for neophytes like myself, I read newsletters so I can use words as smart as Andrew does that he knows automatically about these things. All joking aside, Andrew and I probably read a lot of the same publications on these things in that. So you don’t have to become an expert on it, you just have to be plugged into the streams of data that are out there on finance.
Ask any mortgage broker if they can give you access to some of the newsletters and the reports that they get because a lot of times they’re public and ask them. A good mortgage broker will spend some time educating you on how debt for multifamily works because it’s very different than debt for single family or small multi. Debt for multi gets a lot more complex and it’s worth taking the time to get educated on.
Next, the money in multifamily, yeah, you get a reasonable acquisition fee, and then I think that may be why some people are enamored with multifamily because if you design the deal properly, you get a little shot in the arm when you close, but let’s be clear. We’re not doing the deal for the acquisition fee. We’re doing the deal to create long-term wealth for our investors and for ourselves by joining them in the long game of this multifamily project, which is manifested through asset management, which is bringing about the business plan that you’ve designed when you bought the property.
Multifamily is not about the acquisition. It’s not. It is about the long road. If you play the multifamily game right, the check you’ll get when the property sells or when you do a disposition years down the road will be multiples larger for you. If you do right by your investors, that check will be multiples larger than any acquisition fee you could ever take in buying a deal.
So do the deal for the back end and for doing right by your investors and sticking your dismount, nailing that business plan exactly, which is achieved through the part of multifamily ownership nobody wants to talk about it. Everybody else talk about finding deals and funding deals, but really, the money is in asset management.

Andrew:
Yeah. Well said. Then that’s another big difference from single family is in multifamily, the money is absolutely in asset management. Going back to, Matt, what you said about the long term. I don’t know if you remember, but you and I, about five or six years ago, maybe even longer, we were sitting in the hallway at a GoBundance event in some mountain town in January. There were some challenging acquisitions and part of the conversation was like, “Man, when does this really pay off because this is a lot of hard work.” Where we land is, well, it really pays off five to seven years down the road when all the acquisition and the asset management pays off. So again, have that mindset going into it is-

Matt:
You were right about that deal. You were right. I remember I was like, “You know what Andrew said that it’ll pay off eventually with you rent buyer investors and do asset management properly and run a good business plan and it’ll pay off in the long run.” I had faith that you were right about that and you were. You do right by deals and run a good management strategy and it’s going to hit.

Andrew:
Right. So the acquisition fees and the management fees, you’re not going to get wealthy off of that. That pays your bills until you’ve built a successful personal portfolio or a successful multifamily business. Then five plus years down the road, that’s when it starts to really, really pay off.
Another thing I would say is, and I’ve fallen prey to this probably maybe, I don’t know, maybe, Matt, you have or not, but don’t compare yourselves to others, right? I mean, I have a perfect example. I have a friend in Texas who I had just bought a deal and he was in the loan business and he sat down and was like, “Hey, how are you doing this?” I explained the whole syndication process and all of that, right?
Then the next thing I know, he quits, and as of today, I think he’s literally done six times as many units as I have. It’s hard for me to not be like, “Man, why haven’t I done what he did? What the heck?” Don’t get me wrong. He’s a brilliant guy. I mean, that’s part of it. I mean, the guy, he just knew. He just needed a little nudge and, bam, he put the pieces together and knocked out of the water.
So it’s good to look at people like that who are ahead of you as inspiration and say, “Okay. Maybe I want to get there,” but whatever you do, don’t compare and say, “Oh, why can’t I do that?” because there’s always someone who’s bigger, better, smarter, faster, prettier, handsome, well, especially handsome if we’re talking about me, but to compare yourself and feel bad about, but rather, look and say, “Okay. I want to be there and I’ll get there someday as long as I stick with it.” Then of course, always listen to BiggerPockets, and don’t make snow angels in dog parks.

Matt:
I don’t know whose metaphors I love more, Davids or Andrews, honestly. I mean, maybe I can put it to a vote, but both your metaphors actually are cracking me up.

David:
Andrew’s got a book of jokes that I think that he reads before he comes on these podcasts because they’re always just one liner dad joke that just hits and he never uses the same one twice. It’s like 500 dad jokes for life or something, and before Andrew goes on any podcast or he goes on, he arms himself with five good ones. That’s how I feel like it works. My analogies are always-

Matt:
Yeah. I’ve heard a few of them before. I’ve heard the grass is greener over the septic tank before. So Andrew does recycle. He does recycle. So going back to comparing yourself to others, man, somebody gave me a good piece of wisdom, which is comparison is the thief of all joy, and it’s also the thief of a lot of education because if you look at that person that you were talking about, the mortgage broker that’s now done 8x more deals or whatever, maybe it’s brought the phone call.
Instead of throwing shade at him and being like, “Man, how’d you do that? They must be doing something wrong or whatever,” call him up, “Hey, tell me. Let’s collaborate,” or whatever, and I’m sure you did that because I know that’s something, that you would call them up and ask the question, but to the listener, if you see somebody growing like crazy that you know personally and throwing lots of stuff on Facebook or whatever about how all these acquisitions they’re doing, have the courage to give them a call and say, “Hey, help me/ show me how you’re doing that,” and most generous people in the world and most successful people are extremely generous are going to give you at least a couple of tips, and take those and glean them and then go and pass them. Go do more deals than they’re doing. All joking aside, just go and walk your own journey and don’t worry about what the guy next to you or gal next to you is walking.

David:
All right. Let’s sum up what you guys would be, keeping in mind if you were getting started over right now. Number one, begin with the end in mind, both with your business as a whole and on each deal. Number two, understand debt and how big of an impact it has on your success or failure. Like Andrew mentioned, remember that commercial debt and residential debt are not the same. Underpromise and overdeliver, always a good key to live life by. In multifamily especially, the money is truly made in operations, so don’t just focus on acquisitions at the expense of operational excellence.
The real payoff is five to 10 years down the road, so delay gratification. Don’t compare yourself with others, especially on social media. Like Matt said, comparison is the thief of joy. I will add on that. It can also be the source of joy if you are comparing yourself to people who are not doing as good as you to feel good about yourself. That is just as bad because if you start to depend on, “Oh, I’m doing better than that person,” then you’re going to feel like crap when someone comes along who’s doing better than you. So leave both of them alone and just stay in your lane.
Never do a deal just to get the acquisition fee. Do great deals and the fees and profits will follow. I will follow up with that and say be careful of who you’re doing your syndication with because there are other people out there that make their living off those acquisition fees and can be very tempted to stretch that deal past where the buttons on the pants are actually comfortable holding to get that money, especially if they’re on tight times.
Then finally, stay tuned to BiggerPockets, where we teach you all this stuff for freaking free. Can’t be any better. Guys, this has been an awesome interview. I’ll give each of you a chance to get a last comment in before I let you go. Matt, let’s start with you.

Matt:
So David, everything you just said, amazing. One thing that I wanted to get out there earlier that I didn’t get a chance to say is that people that are listening, maybe listening to this saying, “Well, right now’s not the right time and I’m going to wait for the right time to invest in real estate,” here’s the deal. I shot a video on my YouTube channel in 2016 about the potential multifamily real estate crash. We are always trying to predict a future in the world, but guess what? Everybody’s crystal ball is broken. Nobody knows what the future’s going to hold. Nobody knows there’s going to be a recession, if there’s going to be this, there’s going to be that. There’s always the right time. Find the right deal and find something that works in today’s economy and give yourself a little bit of conservatism and a couple of outs and understand that there’s going to be a way for you to make it work in today’s market.
Also, finally, understand that fear is going to be a real factor for no matter what in the market is. There’s never going to be this no problem market, that there’s nothing in your way, and it’s completely clear, and there’s no competition, and the deals are cheap, and the money’s free, and whatnot. That’s utopia real estate. Not going to happen. Don’t wait for utopia real estate to happen. Just find a way to make deals work today and be conservative enough that the deals will work out. If you hold long enough and you do the correct business plan, as Andrew said, it will eventually profit if you hold for the long term.

Andrew:
Well said. Yeah. What I would add to that is, and we talked about this, of taking the fear and turning it to your advantage, and then also, it will and should never completely go away. You never want to get to the point where you’re just like, “Oh, I’m going to buy these deals,” and you don’t give it any second thought, right? It’s good to once in a while second guess yourself and wake up at 3:00 in the morning and go, “I’m going to check those rent comps one more time,” because especially if you’re using other people’s money, and again, that fear doesn’t drive you, you’re using it to make yourself a better business person.
Then also, keep in mind, more so in my experience than any other type of real estate, getting started in multifamily is the hardest part. It gets easier the more you do it and the bigger you get, but the toughest part is the part that we just talked about, finding your market, getting over that fear, getting to know the market, making those phone calls, “What kind of property am I going to look at? How do I analyze them?” Actually, just doing all of that unknown stuff that once you get the first deal and then the second and then the third, you have those relationships, you have those skills, you have that team, you have the funds, it gets easier and easier and easier.
So if I was starting today, I would just approach it with the mindset of knowing, “Okay. This first part is just going to be grueling, but after that, it’s going to get easier and easier.”

David:
All right. Andrew, Matt, I really appreciate it. This was a fantastic show just like every single time that we guys have you on. It is a literal master class in multifamily investing. So thank you very much for sharing your knowledge. I also want to say, I would say my opinion multifamily investing probably is at the flavor of the month right now. I think short-term rentals are dominating in that space, but real estate is cyclical. It will have its day. Now is the time to be learning stuff. Arm yourself with knowledge because you’re going to be seeing, especially in my opinion in the next three to four years, I think a lot more opportunity in multifamily than what we’ve had in the last maybe 10 or so.
So bookmark this episode. Listen to it. Arm yourself with the information and be ready because opportunities will come. Thank you guys very much. This is David Greene for Matt “Captain America” Faircloth and Andrew “Hawkeye” Cushman signing off.

Mindy:
Welcome to The BiggerPockets Money Podcast show number 334, Finance Friday edition. Where we interview James and talk about figuring out your FI number and determining when you can live out your retirement dreams.

Scott:
I don’t even know if you necessarily need to build a real estate empire. I just think your boogeyman here is that more than half your spending is going towards your rent. And so if you buy a primary residence that is a duplex, or it works for Airbnb and you just live in the carriage house and use that as your home base to get your mail or something. Now, all of a sudden that barrier goes away and a bunch of the options that you want to enjoy in retirement become accessible right away. You just happen to work eight hours a day while you’re living in those retirement locations.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and with me as always is my shining example of what to always do, co-host Scott Trench.

Scott:
You’re always right Mindy. What did I do?

Mindy:
What a humble man. Scott and I are here to make financial independence less scary, less just for somebody else. To introduce you to every money story, because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, like this episode, go on to make big time investments in assets like real estate, or start your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, I am excited about today’s episode. I really enjoyed talking to James. I think he is facing a dilemma that many people are facing. I know that I want to retire early, but I’m not quite sure what my numbers are. I’m not quite sure when I can actually retire. So we have created a FIRE planning sheet that gives you some questions that will help you as you answer them. Help streamline your thinking a little bit based on my numerous experience with all these people in the FIRE community.

Scott:
I think that the reality of his situation is James has finished or is two thirds or three quarters of the way through this grind to FI that almost everybody has to go through some version of. And towards the end of that, do you really have to wait the last five years to fully reap the benefits of FIRE? Can you start layering them in sooner than that? And I think that’s really the crux of today’s episode. And it’s a fun problem and something that we hope many people have.

Mindy:
I need to tell you what my lawyer makes me say. The contents of this podcast are informational in nature and are not legal or tax advice and neither Scott, nor I, nor BiggerPockets is engaged in the provision of legal, tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants, regarding the legal tax and financial implications of any financial decision you contemplate. And one more thing before we bring in James. I just wanted to note that the FIRE planning sheet will be linked to the show notes. James, welcome to The BiggerPockets Money Podcast. I’m so excited to talk to you today.

James:
Thank you.

Mindy:
Today, James is joining us to talk about finance. He is 49 years old and lives in a high cost of living area. Single with no kids and he does not plan to have any. He is considering his next steps and deciding if he should move away from his career and start a new journey in a lower cost of living country. Before we chat with him, let’s go over his numbers. He has a net worth of approximately $730,000. Yay, James. His salary is $7,100 a month, including a bonus that happens once a year. His expenses are $2,100 for rent, $80 for electric, $20 for water, $80 for internet, $80 for cell phone, $1,200 for credit card and $184 for gifts for his mom. Normally I would be like, hey, what do you mean $1,200 for a credit card? Let’s break that down. But his grand total spending is $3,700 a month and he’s bringing in $7,100 a month. I don’t really think that spending is his problem. And I don’t think we need to really dive deep into that area of your life.
I think that you have your expenses down pretty much as long as these are accurate. Going into your investment types we have a 401K of $465,000. That’s fantastic. A Roth IRA balance of 138,000. HSA of 45,000. After tax brokerage account of 69,000. Cash reserves of 20,000. Normally I’d be like, wow, that’s a little low, but that’s what? Six months expenses. I think that’s fine. And additional emergency funds of $43,000. So I think that you are doing pretty well in that regard. Also, you have a 401K match that I … Before we started recording, I’m like, “You get an 8% match?” 14% of his salary is contributed to his 401K every year. Does that max it out?

James:
It does.

Mindy:
Okay. Good for you. HSA is 2.3% for a total of 24%. And post tax is after tax 401K 9% of his salary, 16% of post tax income. 8.1% to a Roth IRA. Additional saved surplus, 15.9%. Total 40%. So, James, what are you calling us for? Why on earth do you need our help?

James:
Well, mostly to figure out what the end point is. What the goal is. I had started my financial independence journey just knowing that I needed to embrace the rigor of doing it and I don’t think I had ever imagined that I might achieve an end point. But I’ve started to realize that, oh, I’m closer than I imagined I would ever be. And so I need to decide where the jumping off point is.

Mindy:
Okay. Let’s look at your money story. Very briefly, let’s look at where you started with your journey to financial independence and how you got to where you are now.

James:
Sure. When I was 28 is when I really started coming to terms with my personal finances and getting control of them. They were out of control completely before. And so I initially just developed a budget, which was difficult for all of its own reasons, being the first time to do it. And then I started paying down credit card debt and then staying in good standing with my student loans. And then fast forward 10 years to 38, then I had gotten a new job and had a pretty good salary and realized that I needed to get started with actual investing. Now that I had my budget under control and a good job, then I just needed to start the investment journey. And here I am today at 49.

Mindy:
Awesome. You have mentioned that you need some help with defining your goals. And I think that this is something that we have spoken with several people recently about, and I think this is something that people struggle with. So I have created a sheet that I am going to walk you through. First of all, when do you want to retire?

James:
Well, good question. Sooner would be great. With my financial planner, we are estimating out till 55, which is earlier than she’s comfortable with. But she came up with a plan and it has a good confidence of success. But I’m just wondering, okay, well, are there some things that I’m not thinking of or that she’s not thinking of that might open up a door sooner than 55?

Scott:
What does retirement look like?

James:
Yeah. I thought about that over the last couple of years with the whole theme of retire to something. And I really liked the way that I was living before the pandemic. Hanging out with friends, going to brunch. And being in Washington DC, you can just go to all of the museums all the time. There’s always new exhibits. And so it’s free activities to fill your time with. I was thinking about joining a museum’s membership and then just letting their event schedule fill out my social calendar so that I’m mixing with different people and being exposed to things that I wouldn’t normally go to. So that’s mostly it.

Scott:
And that’s in, did you say DC?

James:
Right.

Scott:
Okay. Why do you want to retire and where do you want to retire? Is it Washington DC?

James:
Well, that’s a good question. I had always imagined that maybe I might retire to the Pacific Northwest, maybe Portland or maybe a second tier city like Baltimore or Philadelphia. But then over during the pandemic, what came into my awareness was people going to Portugal or lower cost of living countries. And that’s just fascinating to think about. I don’t really know how that would work out from a life perspective, but it’s fascinating to think about because the cost of living is supposed to be so much lower.

Mindy:
When Scott asked you what your retirement looked like, you said museums in Washington, DC. So I think a really great homework assignment is to really think about, “Okay, I have all the money that I need. I’m going to quit my job today. What are all the things that I want to do?” Watch that movie, The Bucket List. I actually really like that movie because it gets you thinking about all these different things that you want to do. The Pacific Northwest is great. How do you handle rain? I lived in the Pacific Northwest for 15 months when I was in second grade so weather didn’t really affect me because I was in second grade. It rained for 12 months. It snowed one day and then sporadic sunshine for the other three months over the course of 15. It can be really depressing. So if that is something that you don’t do well with, the Pacific Northwest may not be for you. But lucky for you, you can go check it out. Go during one of the really rough months and see how much you like it.

James:
That’s one of the things is that, especially over these last 10 years of pursuing financial independence, I haven’t traveled or anything. And so there’s a list of places that I need to go look at. I need to go to Portugal and see whether I might like it. I need to go to Philadelphia, see if I might like it. Portland, the same story. So yeah, I haven’t been to any of these places.

Mindy:
Okay. So that is another homework assignment. That’s a fun homework assignment. That’s not like doing pages three through nine in your math book. That’s, I get to travel. Okay. Go to Portugal and check it out.

Scott:
Let’s take a step back here and zoom out. You’ve got $730,000 in net worth. The vast majority of that is going to be in your retirement accounts, your 401K and your Roth IRA, with a small amount in after tax brokerage and a healthy cash reserve and emergency fund. At the 4% rule, we could say that that might generate $29,000 a year, which is actually fairly close to your monthly spending. So you’re not very far away at a 4% rule threshold and you have a nice cash cushion on that. You also, at the highest level, you earn what? $170,000 a year if you’re in your bonus? 165, 170?

James:
Right.

Scott:
And you spend less than half of your take home pay on that or around half of that take home pay. So we’ve got a really, really good base here. You might not be able to retire tomorrow and generate that passive income at the highest level, but you could take a job for half pay and live in Portugal next month if you want to do that and still be able to accumulate wealth.

James:
That’s one of the things that I’ve also been thinking about is not making a hard cut and going into retirement and being completely job free, but doing something else that might be interesting or just taking a side step into something that’s 50,000 per year and remote that I could do internationally maybe.

Scott:
Yeah. I think that’s a really good option for you right now because I think you’re like, “Hey, I’ve been working towards FI for a long time. Now I’m starting to bubble up a number of options that I’d be happy with. I’d be happy in the Pacific Northwest. I’d be happy in Washington, DC. I’d be happy in Portugal.” Does your work require you to come in multiple times a week or is it full-time in person?

James:
No. Right now it’s full-time remote still and we’re likely to stay remote at this point. There are some events that are on the horizon that might turn out in some different way next year. But for right now we’re all remote. But I can only work in the United States remotely. I can’t go to another country.

Scott:
I think that’s very fair. Your employer has to set up as a different agreement with that. But could you travel to another country and just happen to work for a month or two while traveling?

James:
Yes, I can do that.

Scott:
What is your living situation like right now? You said you rent?

James:
Yep.

Scott:
And where are you located?

James:
Oh, I’m in Silver Spring, Maryland.

Scott:
Silver Spring, Maryland. Awesome. I am from Howard County, Maryland. Right around the corner. It’s where I grew up.

James:
Oh, okay.

Scott:
Awesome. And does your lease allow you to Airbnb your property if you were to travel for a little bit?

James:
I don’t know that. Yeah. I don’t know.

Scott:
Okay. Well you can see where I’m going with this right? I think you know that you need to continue to be investing for retirement in order to build that wealth over the next couple of years, to really have a solid nest egg that could totally support you without work with a good variety of lifestyle options, but you’re not really far away. You’re probably coast FI currently. You probably don’t have to contribute anymore. And by the time you hit with your spending with, if you keep it this low by 59 and a half you’ll be able to begin withdrawing and you should be set. And then social security will kick in and yes, you can count on at least some social security. A good chunk of it. You might get to count on 75% of what you think you can get would be a fairly conservative thing. But you’re going to have a pretty good setup as long as you don’t do anything drastic like start spending down your retirement portfolio right now with that.
So you’re pretty close. But I think what’s more important is you’re grinding and you don’t have to be grinding. You can actually start reaping some of the rewards of that flexibility you’ve created right now if you just start experimenting here. My instinctive approach is see if you can Airbnb out your rental for a little bit with your landlord’s permission. If you give him a little higher security. Well, if it’s not in the lease, probably can just do it. If it is in the lease, you want to maybe talk to the landlord, say, “Hey, can I …” If there’s no rule against it, can you not? What is he going to do? But if there is, maybe you can say, “Hey, can I do this? I’ll split some of the income with you. I’ll give you a higher secure deposit, whatever.” Or she. And then can I go and travel to Pacific Northwest for a month or two and stay there? Can I go to Washington DC? Which is only a 50 minute drive for you. And then can I go to Portugal for a month or two and just see what it’s like to live and work there. You’re not going to change your benefits or your address. You’re just happen to take a two month vacation. A working vacation. So anyways, what do you think about some of those thoughts and suggestions?

James:
Right. No. I think those sound like good ideas. And I have wondered about that. So I think about maybe lowering my cost of living, lowering the housing costs and so I think of maybe Philadelphia or something. And then I step along the path and I realize, oh, I need to actually go check it out. But then when I think about it, I can tell that this past decade of being so focused on building my accounts, I’m a little tightfisted to actually pay for housing somewhere else because I’m paying for housing here. Airbnbing this apartment would help with that. But it’s funny to me just to observe how cautious I am about doing additional spending, even though it accomplishes trying Philadelphia on and seeing if it would fit. But yeah, those are good ideas. I just haven’t made any plans to do them. And then given the pandemic, I’m still feeling that out.

Scott:
So this leads me to two reactions to that. One is house hacking. That would be a potentially great move for you if you were open to that. And if you thought about that, how do I buy a house that gives me maximum flexibility? That’s a perfect Airbnb for when I’m traveling and not there and maybe even has a carriage house or something that I can rent while I am living there with that. That might be a really good … If your goal is truly as soon as possible to move to Portugal or DC or the Pacific Northwest and get out of Silver Spring, then that’s a really good move while you’re living in one of those areas is just to buy a property that makes a lot of sense as an income property, take advantage of that and think through that.
Another option, and I just read about this today on the news, is this concept of exchanging your home. So there’s literally a site called Home Exchange. I forget which news source I saw it on. But it’s like, “Hey, I want to go travel to Portugal and perhaps someone from Portugal wants to travel to Silver Spring. Great. We can just swap houses. We have relatively similar houses. We’re going to vet each other similar to how Airbnb would vet it and go from there.” That was a new concept that I didn’t know about until previously today, we recorded this end of August, in the news. But that might be an option for you that would also help you avoid having to spend too much money.
And then third would be Airbnb. I’m going to Airbnb out my current place and I’m going to not spend too much more. Just the spread between, am I getting a little bit more rent from Airbnb than I am in this? And now we get to test out a couple of things and I think you’re at the point where you can make some big decisions and say, “I’m going to enjoy my life for the next five years. I don’t have to grind it out to retirement. I’m coast FI. I can start reaping the rewards of this, even if I can’t quite totally check out at this point.”

James:
Yeah. I’ve been wondering about that. And I’ve been estimating in the projections, maybe doing some partial income from 50 to 60. And I have wondered about whether buying a house or something might in some way make sense. It’s obviously missing from my budget because I’ve never really … As much as I’ve read about real estate, I’ve never been able to feel like I understood it enough to feel like I wanted to get involved with it. I’ve just been very cautious about that. So it’s mostly just a big question mark that I don’t really feel like I know enough about to make a good move.

Mindy:
I have a website for you. It’s called biggerpockets.com. We will teach you how to invest in real estate. We have a forum, we have books, we have podcasts, we have information, we have videos, we have YouTube channels. We have information in whatever medium you choose to consume it and a blog. We have so much, I can’t even remember all the things we have. Biggerpockets.com. Your source for real estate investing information online. Did that sound like a commercial?

Scott:
A little bit. I don’t even know if you necessarily need to build a real estate empire. I just think your boogeyman here is that more than half your spending is going towards your rent. And if you go and take off to Portugal, you’re going to still have to pay $2,000 a month in rent. And so that’s got to be a huge mental hurdle to overcome, to start enjoying some of the flexibility that is just right there at your fingertips. And so if you buy a primary residence that is a duplex or it works for Airbnb and you just live in the carriage house and use that as your home base to get your mail or something, now all of a sudden that barrier goes away and a bunch of the options that you want to enjoy in retirement become accessible right away.
You just happen to work eight hours a day while you’re living in those retirement locations. You might find that you can do that in multiple different places around the world for a time period and your employer may not care. I don’t know what your relationship is there. I don’t think that would be a problem at BiggerPockets if people did that. In fact, I think that people would just do that and not even tell me. And it would be totally fine. I’d never know and be great for them. And so I think that’s how I would think about it at the highest level. And that’s why I would suggest real estate. You can build a rental portfolio. You’re in a great position to do that if you chose to do that. You’d have to bring down your 401K savings a little bit, but I don’t necessarily think you need to to achieve FI. You just need to do something with your primary residents that’s more flexible.

Mindy:
I have a fourth option for housing. Before we started recording, we spoke of your mother and her housing. Perhaps you could have that as your home base while you travel and then you don’t have your own apartment at all. If you’re going to be in the Pacific Northwest and then in Philadelphia and then in Portugal … And all these Ps. If you’re going to be all these places, why do you need a home base at all? Why do you need your own space?

James:
Right. Yeah. I hadn’t thought about that. I don’t know if that would exactly work. She’s many states away and in a remote area of her state. She’s in a good situation for her. It’s just not easily accessible and there’s no additional space to … I could put my things in storage and that kind of stuff and I guess use her address, but it wouldn’t practically … I don’t think it maybe would work quite work out.

Mindy:
Okay. For some reason I thought she lived closer to you.

James:
Oh no, no, no. We’re many states away.

Mindy:
Many states away. Okay. Well then that’s just an option.

Scott:
Mindy telling you to move back in with mom. Love it. Fantastic. That’s what that’s all about here. Yeah.

James:
Well, I have wondered about some really exotic things that I’ve read about. I read something about … I guess, people who do RVing in their retirement years, I’m not interested in that at all, but I guess they set up a domicile in Texas or North Carolina and somehow that satisfies some legal requirement to have a domicile. Whatever on earth that is. And then they just travel around. It seems like maybe that would be something that would work, but that’s very exotic. I haven’t really looked into it.

Mindy:
It’s not that exotic. My parents do this. They have lived in an RV for the last 15 or 16 years and they live in South Dakota. They have South Dakota license plates. They have a South Dakota address, which is a Mailboxes et cetera that will mail all of their mail. Because you have to get credit card bills. You could get them online, but not my parents. And they have South Dakota driver’s licenses. The requirements to be a South Dakota resident is that you have to sleep in South Dakota one day out of 365.

Scott:
This is a really good point. This is actually a huge nuance. I don’t know how … Are we going in the right direction that you want to go in terms of flexibility and being able to live in various locations around the year or are we going way off the goal that you wanted to get here?

James:
Well, I think it’s in the ballpark because one of the things that I had also imagined years ago is just moving from city to city and just getting the flavor of those places. Maybe for six months live in New York and six months live in Boston, six months in Philadelphia and just hop around and just do that until I get bored with it and then do something else. I had wondered about that. I don’t know if I’m really that adventurous, but at the same time, I wouldn’t know until I try it.

Scott:
If you want to do that, then I think again, it comes back down to flexibility of primary residence and I think we’re right on with this. You have to do some research, figure out where your home base state needs to be. I’m a complete novice in this. I have a lot of research to do and I’m going to do this after the show. And I want to learn about South Dakota. Oh, you have to live there one day a year. Very interesting. Can I do the same thing in a state with … I don’t know about South Dakota, maybe it has no state income tax, but could I do that in Florida that has no state income tax? That’s a huge tax break.
And I’m going to live in Pacific Northwest for a month or two, then Boston, then DC. Okay, great. Now when I do that, my effective rent is probably going to be three, four grand in each of those cities. So what am I going to do with my home base residence to help either offset that or have some place where I can … How am I going to think through those challenges? And that’s where an Airbnb in my home state might make a lot of sense if we can do that because you can put down a low down payment, get a fairly low interest rate mortgage, although they’re certainly fairly high right now relative to where they were six months ago and think through that.

James:
Yeah. When I thought about that years ago, I was really just thinking that I would actually just move and I wouldn’t have a permanent residence somewhere else. I would just move to these different places. I don’t know how practical that is.

Scott:
I think changing your address 10 times a year is going to be really inconvenient. To me it just seems like you need to have a place where your mail goes that is your residence if you think through this. And ideally that place is either super low cost or potentially generates income for you to a certain extent. That would be how I’d think through that. I think literally moving all of your belongings every month would be very expensive and very, very inconvenient potentially. Your HR department will be very good friends with you by the time that’s over as well.

James:
Yeah, no. They definitely don’t love that. Which is why I was thinking on the order of six months in any one place. So it’s just a couple times a year. But still it’s a big hassle. And then there’s the tax filing. You’ve got to file in both states.

Scott:
Well, apparently I would wonder aloud if Mindy’s parents really just file in South Dakota where they sleep one night a year?

Mindy:
They do. That is their state of residence. And they chose South Dakota for several reasons. No state income tax. Then there’s a lot of states … Not a lot. There’s like three or four states that have no state income tax. But I think South Dakota is easy for them to get to and the residency requirements of actually sleeping there one night is something that they could do. I mean you could essentially sleep there on January 1, 2022 and December 31, 2023 and satisfy the requirements without being there for essentially two whole years.

James:
Yeah. You could probably just stay overnight between connecting flights as you through the state.

Mindy:
Yeah. That’s one way. So have you calculated your FI number? Have you sat down and run the numbers and figured that out?

James:
I have. Yeah. This is something that maybe I should have mentioned earlier. My expenses are $43,000 per year.

Scott:
Yeah. 3,700 a month, right.

Mindy:
Okay.

James:
Yeah. So I multiplied by 25. I like to do a little bit more because the 4% rule, they’re recommending closer to 3%. So I really try to think more towards between 3.3 and 3.6. So I usually multiply by 28 just to try to land in a ballpark. It’s between 1.2 and 1.5 million, which is also what my financial planner ends up estimating at 55. So I’ve calculated the number. And so I’m just wondering, okay, but is there some wiggle room? Are there different decisions? And then Portugal’s super low cost of living just sits out there. It’s this very exotic thing. Or just getting a roommate. The easiest way that most people end up taking care of their housing expenses is they have a significant other that they split housing costs with. So if I just had a roommate, maybe that accomplishes something similar.

Scott:
Can I just something about the 4% rule? I think it was correct, or I think it was more correct to worry about the 4% rule being not conservative enough at the beginning of this year. When the valuations were super high and bond yields were super low. Your mixed stock bond portfolio can’t support that. Inflation’s at 10%. I think that now, three quarters of the way through the year, the scary part, there could certainly be further declines in the market in overall sense. There could certainly be inflation looming. But we’ve now seen that get eaten up. So people who were at a 4% rule are now going to be under that. Their portfolio may not be able to sustain that at this point in time. But as far as going forward, if you’re meeting the 4% rule, I think that now we can go back to that as a rule in a general sense.
I think there may have been a period there for a few months where, okay, I’m a little concerned about the combination of really high stock valuations, really low bond yields, and really high inflation, and this rule not being appropriate. But I think inflation’s going to start coming down over the next couple of months. And I think that stock market valuations have come down pretty substantially and bond yields are much higher now. So I would just put that bug in your ear as, do I really need to go down to the 3% rule at this point in time or am I just scared? Because rightfully so, we were all scared earlier this year when it was like, how can this possibly be sustainable? Now, sure. It could go up, down, it could stay sideways. But I think there’s more question marks about where the economy’s at. So anyways, that’s one point. And then second, I think that from an investing standpoint, you’re likely to hit that 1.5 million mark within the next seven to eight years with your current savings rate. Would you agree with that?

James:
Yeah. Probably around 55 is what the projection seems to suggest. But definitely between 55 and 60 solidly for the 1.5.

Scott:
Do you think that there’s anything you can do to accelerate that meaningfully or do you think that just let’s play that game and that’s a great outcome?

James:
The only thing I think I can do is to reduce the housing expense. So to move in with the roommate and then that would save about $600 per month. So that’s 7,600 per year. I think that’s all I could do to boost it.

Scott:
I like the option of living in all these different locations at $2,000 a month for the next five years and enjoying your life very much, even while you’re still working much better than living in with a roommate in Silver Spring and grinding it out until financial freedom for this. I don’t know about you, but that seems like a much better approach to me.

James:
Yeah.

Mindy:
I agree. James, how do you handle risk? How do you handle stock market declines? Do you remember back in March 2020 when it bottomed out and people were like, “Oh my goodness. What’s going on?” How did that feel?

James:
So that didn’t feel awesome. But I’m pretty steady. I’ve been working with my financial planner for the last 10 years and reading all of the financial planning articles that came across my phone all those years. And I’m pretty steady. I’m fairly relaxed about it. There’s no danger of not having a job or anything like that. So with that being secure, the money’s invested for the long term and so it goes down for understandable reasons. You just wait and you don’t react to it. Everything is in ETFs. I don’t have anything in individual stocks or anything like that so there’s nothing that I’m particularly concerned about. So I just wait it out. And then of course in March 2020, there were lots of other things to be distracted by so that was only one among many things I was concerned about.

Mindy:
Yeah. That’s a good point. When the stock market was going down, there were so many other things to also be concerned about. It’s hard to know where to put all of your attention. Have you listened to episode 125 with Fritz Gilbert of The Retirement Manifesto?

James:
I don’t think so.

Mindy:
Okay. So you are within five years of retirement and Fritz decided five years before he was going to retire he was going to write his retirement manifesto. This is what I need to be doing five years before retirement. This is what I need to do four years, three years, two years, one year, six months, the month before I retire. And it’s a really great checklist and overview of all the things that you may or may not think about when you are on your retirement journey. You’re winding down of your career. So I am going to give you more homework to listen to episode 125 and to read the retirementmanifesto.com/theultimatepretirementchecklist which we will link to in the show notes because it’s got a whole bunch of hyphens and stuff in it. I would also invite you to run your early retirement numbers on a couple of calculators.
There is one at networthify, N-E-T-W-O-R-T-H-I-F-Y.com. An early retirement calculator. When can I retire? You plug in the numbers and it tells you how long it will take you to retire. And there’s a FIRE simulator at seefiresim.com that I would also encourage you to go and use because the numbers … I’ve seen your spreadsheet. You like numbers. You will have a lot of fun playing with these numbers in ways that are, because you’re a numbers person, so solid for you to look at. I would also send you to episode 323 with Jess from The Fioneers. We talked about the concept of coast FI, which Scott has brought up a couple of times.

Scott:
Love it. I think those are great resources. James, what else can we help you with today? What are some of the big questions that we haven’t covered or that you’d like to go deeper on?

James:
I’m not sure there’s really anything else. We’ve touched on a lot of stuff. Different ways to do the housing costs to control the cost of living. Different ways to build lifestyle changes in and then also coast FI which I have been wondering about. I think that’s pretty much it. It sounds like it confirms that the possibility exists and is relatively soon at sometime within the next decade, might be within the next five years so it’s good. That agrees with my financial planner and I was just looking to hear if there were alternate ideas that I hadn’t stumbled across.

Scott:
I think you’re doing a great job. You’ve got a really good income. You’ve got really low expenses. That gives you a ton of flexibility and ability to coast towards early retirement with a very high probability at age 55. And I think that you have more than that, an opportunity to start living in the here and now with this. You can achieve a big chunk of that retirement dream while earning income if you think about that primary residence and how you can live in various locations over the next couple of years. So I’d be really interested to hear what you choose on that front and how things go. Personally I like the grind it out and get a roommate much less than the live it up and go to a couple of these different places and keep saving at generally the same rate. You could even bring it down a notch and go from 3,700 to 4,000 or something like that and probably be fine. You’ll still hit FI.
I would also just want to leave one parting shot about this 4% rule thing. If we go to the 3% rule, for example, that assumes … Let’s say the 3.3% rule. That says I’m going to accumulate 33 years worth of spending is what that says. And that’s before social security, before my emergency reserve, before any other earned income. It assumes you never earn another dollar after age 55 from any source in any sense. And it assumes you don’t adjust you’re spending if things go bad, whatever. So that says, if you’re at 55, that’s going to last you until your 88 even if you just put it in a big pile of gold or something that matches inflation and spend it down one bit at a time. So it’s so conservative that it’s like, really? I think that there’s some thoughts to have around that as you’re thinking about what do I want out of my life over the next little bit. And you’re going to have some boosts to that that may make you feel a little bit more confident as you approach traditional retirement age there.

James:
Yeah. I have also thought about that. I know that all of the projections are very conservative because my biggest fear that I talked about with my financial planner is to, of course, run out of money when I’m old. Being 85 and on the street and starving is not a solution. But there are things that I haven’t done. I haven’t been traveling over these 10 years when I’ve really been focused on building my accounts. And that would be nice to do. I actually took my first trip to Germany about 10 years ago and realized that I like traveling to other countries and experiencing that. So it would be nice to have some of that built in too. But I’m out of practice. I’m unfamiliar with the spending and so there’s a little bit of just hesitance in doing the spending. But yeah, those are all good things to think about.

Scott:
You’ve got to free up the housing constraint as well. By the way, right now, great time of travel to Europe. Dollar is as strong as it’s been relative to the Euro in memory. You’ve got a great window opportunity right now on a relative sense.

Mindy:
Okay. One more episode I’m going to send you to is episode 243 with Ramit Sethi. He talks about letting go of your financial tightfistedness and embracing spending. And I struggled with that. I still struggle with that. And that was a great episode to give you a different point of view. And you’re not going to just instantly start spending. I didn’t. But you will hopefully get some great tips from Ramit who is apparently a master at spending. But he can afford it. He can afford it.

James:
Right. Okay. Yeah, that would be great.

Mindy:
Awesome. Well, James, thank you so much for your time today. This was a lot of fun and I hope this was really helpful for you.

James:
Thank you. It was. I appreciate the time and all of the ideas.

Mindy:
Great. Well, we will talk to you soon. Have a great day.

James:
Thank You.

Mindy:
Okay. That was James. That was a lot of fun. I really, really enjoyed seeing his eyes light up at the, ooh, I should go check out all these places and see if Portugal is really where I want to live or Philadelphia or the Pacific Northwest or, or, or, or. So that was exciting, Scott.

Scott:
Yeah. I thought it was a really fun conversation and it’s great to see, hey, these things I want to do with my life, I can do them now. Why not? If you moved to Portugal, what do you do every day for eight hours there? Yeah, I don’t know. During the meat of the day. Could you not just work and earn an income there and then enjoy the most of Portugal right now? I don’t know. That seems like a potential plan to me. So I think it’s fun and I think it’s worth really seriously considering achieving those dreams in the here and now if you have a flexible situation like James definitely has.

Mindy:
I liked what you said in the intro. You don’t have to wait until you get all the way to the end of FI to start layering in some of the things that you want to do. I like that layering in. You don’t just jump in with both feet. You start adding a little bit at a time. I think that’s great advice for James.

Scott:
And by the way, I’d be giving different advice if it was, I’ve got a hundred grand in net worth right now and want to make it there. Okay, well then you need to get into this grind mode and consider continuing to keep those expenses very low. Otherwise, you’re going to be in trouble at that future state and you’re really going to be reliant on social security or these other types of things, but that’s not his case. So it’s just a different spin based on where his situation was and his ability to coast to that outcome.

Mindy:
Absolutely. The suggestions we make in the show are for the specific set of circumstances that we are being presented by our guest. If you have a different set of circumstances you’d like us to review, we’d love to talk to you. You can apply to be on the show at biggerpockets.com/financereview. And I want to plug again the FIRE planning sheet that I mentioned in the beginning of the show, just because I think it’s really, really helpful for people who are wondering what the next step is. Looking for a little bit of suggestion on how they can figure out what their FIRE number is, where they want to be. Is this even attainable with my current savings rate and all the questions that you have with regards to financial independence. I do feel a little uniquely qualified to comment on it since my husband actually did quit his job.

Scott:
Job. Yes, he’s [inaudible 00:42:38] FI which is a great strategy. So Mindy did a great job with this and there are five key questions for me in this that really gets the root of this is why do you want to retire? What do you want to do when you are retired? When do you want it by? Can you do some of that right now? And what your retirement goal looks like, is that what you’re doing with your weekends and your free time and your vacations to a large degree? And then lastly, have you run your numbers? What are the numbers that are needed to support that dream? Are you on track to that? Do you have a plan to get there? What’s that going to look like?
There’s a whole bunch more that goes into it like how do you feel about risk? What would you do if your net worth did plummet 50% like you know is going to happen in the next 50 to 100 years from a stock market decline. Some point we are going to see that. Where do you want that to be? What are the nuances and specifics? How do you think about cash flow versus appreciation? Are you willing to sell off part of your stock portfolio? A lot of people have a real hard time with that in a practical sense, even though the 4% rule talks about that. They would be much more comfortable spending income that the portfolio is generating than selling off principle. So lots of things to think through as you get into this and a really good resource there.

Mindy:
Yeah. Lots of things to think about. And this is not an end all be all questionnaire. This is just something to get you started thinking on all the things that you need to consider before you jump ship. Okay, Scott, should we get out of here?

Scott:
Let’s do it.

Mindy:
From episode 334 of The BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying toodaloo kangaroo.

CNBC’s Steve Liesman and Diana Olick join ‘The Exchange’ to discuss how housing markets factors into inflation as well as the supply and demand trends for rentals.

David:
This is the BiggerPockets Podcast Show 660.

Rob:
But one of the really hard lessons that we learned was that the transition of ownership was a little bit tricky. We hadn’t really hashed out a battle plan with the seller because we were so focused on closing the deal. There was always stuff happening. As you know, deals start to fall through and then everyone’s got to be like, hey, we’re all on the same team. You really want to sell it. We really want to buy it. Let’s renegotiate. How are we going to make this work? And so we had like five of those moments I felt like through that whole process. We were like, oh shoot.

David:
What’s going on everyone. This is David Greene, your host of the BiggerPockets Real Estate Podcast. Here today with my partner in crime and partner in business, Robert Abasolo. Rob, so nice to see you today. And I can’t help but notice you’re a little dressed up. You got rid of the black pocket tee and you’re actually looking fit, trim, and sharp in a shirt with buttons and a collar.

Rob:
That’s true, man. I think I have mentioned this to you before, but I did this whole thing for two years where I saw a YouTube video of this guy that was like, why I only wear one shirt. And I was like, I like that. And so I decided to just rock the black pocket tee for the last two years on the channel. And I was like, you know what? I think I’m tired of looking like a schlub, like a minimalist schlub. So I decided to fork out some dough and buy a couple button downs that’s all.

David:
Well, and you can afford it based on the cash flow you should be getting from your new acquisition, which is what we are talking about on today’s show. This is a deep dive episode where we are getting deep into the details of Rob’s newest deal. It’s a lot of D’s right there. You bought a hotel. Well, you’ve actually bought a kind of boutique hotel. Tell us a little bit about what people are going to learn about as they listen to today’s episode.

Rob:
So I’m pretty open about this stuff. I’m a very transparent person. So we’ll be talking about the hotel, why I even went the hotel route after being such an accomplished short-term rental operator that’s so anti-hotels. You’ll get to hear my pivot on why I’m doing that.
And then some of the really big hardships and mistakes that I’ve made on this deal, which I just want to be honest about and put it out there because I think for me, I embrace mistakes because they make me better. And I just want everyone to know that it’s okay to make mistakes and to fail because that is how we get good at the thing that we call real estate.

David:
That is a great point. And if you listen to today’s show, you will learn about the mistakes Rob made, how he overcame them, how he found this deal, how he structured the deal, how he negotiated the deal, what he likes about the deal, how he’s designing the deal and how if everything goes well, he should make over $5 million when he exits this deal.
Fantastic episode, make sure you listen all the way to the end to get all the juicy deets. But before we get into those juicy deets, today’s Quick Tip is brought to you by Rob Abasolo himself.

Rob:
So if you’re ever going to buy any kind of property that’s outside of your typical asset class, ask yourself what is the battle plan as soon as I close on this property? I think a lot of people are like me and we jump in because we’re not scared to just tackle something head on, but at the end of the day, you’re going to sign those closing docs, and then you have to actually run that business or asset class that you just purchased, and you don’t know what you don’t know.
So before you get into a deal and you focus all your time on closing the deal, focus on everything that’s going to happen the month after you close that deal because it will save you a lot of headaches. Take it from your friend, Rob.

David:
Very nicely done. Great job there, Rob. All right, let’s get into the interview. All right there, Mr. Abasolo, let’s get into this thing. So first off, in your opinion, you’ve probably been investing in real estate for quite some time, but to an OG like me, I’m thinking you’re kind of new to this game.
So it seems like you’ve done pretty well since the time that you’ve been in real estate. Can you share with our audience how long you’ve been investing in real estate and what your journey was like to get to where you are right now?

Rob:
Yes, I do, I will. And let me just say it is an honor to be a guest on the BiggerPockets Podcast. It’s been a dream of mine for a long time. So thanks for having me on.

David:
I did make myself sound like an old man right there. Well, tell me about how you’re using computers to buy houses.

Rob:
What it is this Airbnb you speak of? All right, reeling this back in. So I’ve been doing this for about five years, probably just a little bit over now. And I have really, I’ve done a lot in the short-term rental space and it’s always been an interesting journey. I think for me, I’ve wanted to diversify as much as possible for just … I’m very curious.
And one of my favorite things really about BiggerPockets is how creative people can get in real estate and extrapolating that further into just the actual Airbnb space, I’ve always been very appreciative of how creative people can get with their spaces. What can you Airbnb? You can Airbnb at air mattress in your living room. You can Airbnb a potato in the middle of Idaho. You can Airbnb a cabin. It doesn’t really matter, it’s whatever your imagination is.

David:
You love that potato.

Rob:
I do. It’s so good. It makes like 70 grand a year. I’m jealous. I’m going to build a potato [inaudible 00:05:13]-

David:
I love how often you bring it up.

Rob:
I know. It’s just, I’m so jealous that I didn’t think of it first. But this is exactly what I’m talking about because someone would see that and they probably were selling it for 20 grand, and then everyone was like, no, I would never pay for that. That’s a stupid price. Then we have someone that comes on and they … Actually we should bring her on. We should bring her. I think her name is Kristen Wolfe. I’m going to make that an initiative here.
But effectively, I like how creative things can get. So for me, I started in the rental arbitrage space for, I think my first three or so listings. And then I bought my first house. In that house, I had a tiny 279 square foot studio that I rented that was making pretty good income on Airbnb.
And then I thought to myself, what if I built a tiny house in my backyard? And then I thought, what if I built a tiny house in Joshua Tree and then a small home in Joshua Tree? What if I put a tent out in a national park or an Airstream or a tiny A-frame?
And so I kept really leveling up as much as I could because every type of new listing I could come up with, I was like, this is great, this is fun. And it was so fun because no matter how wacky you get with your ideas or whatever you put out there, there is a target market for that. There’s a target market for a vintage Airstream. There’s a target market for a tiny A-frame, or a tiny house. And for me, I think I get a lot of joy out of fulfilling that bucket list item for people.
So in my five years, I went from zero to 15 units. For all of those 15 units, for the most part, I think I had partners on a lot of those because I was pretty broke when I was getting started out and I was doing pretty well. And I was putting myself out there on social media and people would reach out and say, hey, Rob, I’d say that you’re pretty good at this. Would you mind taking an investor? And I’d say, sure.
And so that’s how I was able to scale up pretty quickly. And I was pretty passionate about it and I still am, but I’ve started to realize as I was acquiring all these different units, the scalability was getting a little tougher because I was getting so engulfed in the actual A, the self-management, but B, the setup. Setting up an Airbnb takes a very long time. I don’t know, have you ever set up one of your Airbnbs, or no?

David:
Going through that right now. I was lucky enough that almost everything I purchased came furnished and was used as an Airbnb before. So those ones are going pretty quick, but the ones that I bought in Florida that were not used as an Airbnb, it’s definitely a log jam right now with ordering furnishings and getting the cable and the internet turned on and getting stuff fixed so we can take the pictures. I’ll actually let you go into everything that goes on to that because I’m just getting exposed to this now.

Rob:
Well yeah, and you saw a sneak peek of how I do things in Scottsdale, when we were setting up our 6,000 square foot spansion, our Spanish mansion. You saw a little bit of … I mean, that was a little bit of a different beast compared to your typical 2,000 square foot home, but that’s a pretty good indication of how I do it.
It’s not just coming in and putting couches here and hanging a picture frame. For me, it really is a process of where do things go? How do we get rid of boxes? Who’s going to do what? Are all the drawers filled? Do we have can openers? It’s a very analytical process, which is very odd because I am not necessarily the most analytical person.

David:
You appear that way in those environments. I thought I’m watching Banksy looking at a street corner and figuring out the mural that he’s going to paint here. That’s what it was like to watch you in action.

Rob:
Honestly, that is kind of how it felt walking into that house, but admittedly, that mural was very beautiful and I didn’t have to do much to it. It wasn’t much of an open canvas because it was already an architectural house that was just anything we would’ve done to that place would’ve been perfect.
But all to say, even that house took a little bit longer to set up than we thought. We thought we were going to set it up and say, let’s do this thing. And it took about a month to get all the furniture in and everything, due to the supply chain issues and everything.

David:
I think what short term rentals have done to real estate, real estate has traditionally been, especially commercial real estate because this is where investors used to operate. Commercial real estate was for investors. Residential real estate was for people that just want to live in their home.
Then we started buying rental property en masse after 2010, when there was all this opportunity and all of these foreclosures. And now it’s gone into this whole new stratosphere where we’re doing short term rentals and we’re competing with hospitality industries. And what I’ve noticed is real estate’s always been part art and part science.
It used to be much more heavily geared towards the science element. The spreadsheet would tell you almost everything you needed to know about that triple net property or that big commercial multifamily property you wanted to buy, while Airbnb has allowed the art side to play a much bigger role in what’s happening. How do I design the house? How do I market the house? How do I furnish the house?
These are all things that are not numbers you can put into a spreadsheet to determine a return, but the art will affect the return. Is that something that you think you’ve been able to harness to be so successful as a short term rental investor?

Rob:
For sure. I think short term rentals in general are a very visceral thing for me. I walk into a place and I know if it’s going to work or not. Or I see photos on Redfin or Zillow and I know if it’s a dud or not.
Now I do genuinely believe that any house in a good market can perform well, if you put a little bit of love and TLC and passion into the design side of things, but certainly some houses they make for better properties in general and they’re more Instagrammable.
So I’m always looking for something that has a bit of that potential in, I don’t know, the category sense. Airbnb just changed their website design and they have categories at the very top. So for me, I’m always looking at how can I best fit those categories.
And this is something I’ve really been doing over the past five years until somewhat recently, which is moving into where I am now and that is focusing a little less on the single family acquisition.

David:
All right. And so as you’re focusing less on the single family acquisition, where are you shifting that focus to?

Rob:
It’s a bittersweet moment for me because I cut my teeth on buying single family residences and doing that. Obviously I still will. I still work with a lot of investors and we partner up, they’ll fund the deal, they’ll finance the deal and I’ll go and find the property and set it up and everything with my team. But we just started to realize how quickly that started to gobble up our time, if you will, to source the deal, analyze the deal, overanalyze the deal, get in touch with the realtor.
In this crazy competitive market, you can do all that work and still not get it, even if you put in a really good offer. Then you got to go and do it again. And then traveling and doing all the remote setups as well, was really, really tough for us because we’re a pretty scrappy team. There’s only three of us really right now.
I mean, it’s expanding relatively quickly on a lot of different fronts, but for us, it’s just really tough because I think in a perfect case scenario, what I started to realize was if I find it, I can effectively set up at least one Airbnb a month, but if I was just really firing on all cylinders, I could probably do two with my current team, and that’s great. If you could do two every single month, that’s 24 in a year. That’s certainly not anything to walk away from, but that’s the max.
I can only do 24 short-term rentals in a year working with investors, and I’m also splitting it with those investors and I’m having to work with them and get info and analytics and answer questions. And really that side of it too has been very … And rightfully so they want the information.
So it does slow down the process to work with the one-off investor, because it can be a little tough to just get everyone on the same page and get money moved around. And in this market, you need to act very fast, make offers and think last kind of thing, which is terrible advice, don’t ever do that, but this market is crazy.
So I think honestly, this all started to come to a head when you and I were talking about partnering up and then I was like, “All right, man, let’s buy this campsite with 10 units on it or something.” And then you were like, “Dude, it’s a good return, but that’s a job. 10 units is crazy.” And you’re like, “What if we just started acquiring luxury properties? And that will cost the same as this 10 unit camp site you sent me.” And I was like, “Okay, sure.”
So I started giving a lot of thought to that and that was the beginning of you and I partnership where we bought that house in Scottsdale. And setting that up was a bear, but it wasn’t the work of setting up 10 properties that equal the same amount monetarily. And I think the moment that hit me, I was like, okay, I think it’s time to rethink how I approach short term rentals.

David:
Yeah, that’s awesome. I remember that conversation we had where we were fleshing out our options and you said, “Well look, we can get …” It was a ridiculous number, like 40, 50% ROI on these $400,000 houses, let’s just buy 10 of them. I was like, “Okay, we could do that, and then for the next year, this is all that we’re doing is we’re trying to manage these 10 properties we bought. What if we just bought one for 4 million that could do less, maybe cash flow right up front, but it had a bigger upside. And with that time we would make more than the cash flow that we were giving up.”
And it was, I almost remember seeing you freeze for a minute. The little Apple rainbow thing was spinning and you’re like, “Wait a minute. That’s not how I was ever thinking. Tell me more of this, how we would make more money with the time you speak of.”
And I remember when I had that first same epiphany that we often look at ROI, it’s very seductive to just find the highest ROI you can find, and it feels like progress to the human mind so we like to chase it. But in real estate, ROI is never pure unless you’re investing in a REIT or into someone else’s syndication.
With the money that you’re putting into the deal, you’re putting in time, effort, mental energy. You’re thinking about it. You’re having to go find people to do work. There’s some frustration that comes when things break or a guest isn’t happy. And there’s a cost outside of just your capital. It’s very easy to forget that because we tend to only look at the ROI when it comes to the capital.
And when I had that revelation, I realized, oh, I need to think way differently about how I’m investing. So as you’re newly born, you just got jacked out of the matrix and you’ve opened your eyes for the first time-

Rob:
I took the red pill, if you will.

David:
Yeah, exactly. Now you’re in Zion. Tell me what type of thoughts you’re thinking. What types of properties are starting to catch your attention? Where’s your mind going with your investing strategy at this point?

Rob:
So fast forward to about … I guess not fast forward, but let’s go back to about two months ago, and I get this very mysterious Instagram message from somebody. And they were like, “Hey, I don’t know if you’d be interested in this. I follow your channel, but I’m actually selling this hotel in New York. And it’s a split motel. It’s a seven unit motel, I think with 12 tiny home cabins and then two bedroom cabins and then full size, and then four RV spots.”
And then I was like, oh, I get a lot of messages like this all the time and it’s really hard to respond to all of them because when someone says, hey, I got this house, you interested? I’m like, maybe, but you didn’t give me much information to analyze if I want the house. So probably not.
But this person actually wrote it out and I was like, okay. Well this is sort of around the time where I’m like, okay, how do I scale? How do I scale? I’ve done the one to 15 units. I’ve proven I can do that. And sure, I could go out and continue to do that.
And as a matter of fact, I worked out a deal with an investor who wants to buy 100 houses with me and my business partner. And he runs a fund and he was like, “Hey, if you can get us a 10% return after your equity split and everything, we’re happy, we’re good to go.” And we were like, “Great.”
So I had to tell him, I was like, “By the way, from a scalability standpoint, this is really difficult and it’s going to take about two years to do that.” And he was like, “Yeah, that’s fine.” And we were like, “Okay, cool.”
So we worked out that deal with him, but that’s even scary to me because my partner brought that to me and he was like, “Dude, this is it. This is the holy grail.” And I was like, “Man, that’s 100 houses we have to buy. That is really hard.”
So when I got this Instagram message from the guy who was selling this hotel, I was like, this sounds interesting. It was a little scary because it’s a whole new asset class, motels and hotels. I know a lot of people have done them and they all say good things and they all do super well. We just had Heather Blankenship on the podcast and she just did the same thing. She buys these.
And I was like, okay, I know that a lot of people do these and everyone that I’ve talked to is always really scrappy and very savvy with this and I consider myself relatively scrappy and savvy, scravvy if you will. And I was like, okay, let’s pursue this. So I said, “Hey, sure. Let’s talk about it.” And he’s like, “Here’s my realtor/broker’s info. Give him a call and let’s see.” And I was like, “Great.”
So I shot this over to my partner, connected them and then we started just talking about all the different logistics and really figuring out if we wanted to do this because you have to also keep in mind as a real estate investor, I’m kind of anti-hotel as an Airbnb guy. All of my videos are about hotels are evil and Airbnb is the way of the future. So there’s a little bit of dissonance here with changing my investment strategy.
But ultimately we are going to renovate this hotel and we are going to still list it on Airbnb. It’ll still be an Airbnb property, but we’ll also be hosting direct bookings.

David:
All right, so I definitely want to ask you about some of the hurdles that you’ve encountered, because anytime you move into a new asset class, it’s guaranteed mistakes will get made, things will hit you, that you didn’t see coming. You just have to accept that.
But before I do, I want to ask about how you’re analyzing the property. So you have a large degree of comfort and confidence when it comes to analyzing a short term rental, but a hotel’s a little bit different. Was the process similar? Did you have to learn a completely new system? How did you figure out the revenue this thing was going to make?

Rob:
A few different ways. This was a little bit tough, definitely. The concepts are similar, but it’s a whole different animal because you’re analyzing 20 units at one time and deciding is there a taste for this, or is there a desire for this in the market.
And so we started looking around at all the different motels and hotels in the area. They weren’t really that great, but they seemed to be booking up very heavily. And the owner left us with his proforma and his books. The numbers looked pretty good and he said, “Hey, I’ve only been running it for this amount of time, but based on what I know in the area, it should make X and this much and it should be this kind of return.” And we were like, “Okay, well thank you. We appreciate your opinion here. We do have to verify this. Everyone can say a high number.”
So we started looking into the seasonality of hotels and we just had to get a little creative. So we started calling different motels and hotels in the area and asking like, “Hey, what’s your busiest season? What are the dead seasons? Is it true, I hear that this is a really great touristy spot. Are you usually booked up?”
And all of them were basically like, “Oh yeah, we are booked up for the next three, four months straight. Then it’s one or two months of a dead zone, and then it gets crazy after that.” Then we were like, “Oh, okay, good.” And so we had to get really sneaky with that and asking the different locals about the seasonality and really trying to figure that stuff out.
So basically we had to analyze that, and then of course I had to also do the Airbnb analysis as well. So I have my own way of doing this, but basically I had to go and see what’s my competition because whenever I’m buying in any market, I’m running several audits. I’m doing an audit on Redfin and Zillow just to see in general what things cost.
And then I also have to run an audit on Airbnb to see who my competition is and how good is my competition? Is my competition design-forward? Are they small? Are they big cabins? What’s the theme? Are they booking? And we found a couple of, not as great Airbnb listings that were booking like crazy. So I was just like, okay, all I have to do is figure out how to renovate and run a 20 unit motel, and when I do that, I should be successful.

David:
So when you were analyzing the revenue streams, are you looking at how it’s going to book on Airbnb? Is that where most people are booking this hotel? Or is it also something where SEO becomes a factor as people are looking for a place to stay in this area?

Rob:
It’s probably going to be a little bit more on the SEO side simply because right now it is completely direct bookings, they are not on Airbnb. And so actually, I like this because I know that based on the bookings … And we’re getting bookings now and they’re coming in. We were actually trying to stop the bookings, which we’ll get into in a little while because we wanted to renovate the place, but it’s booking right now.
And based on how much it’s booking, based off of this little dinky website that we inherited, I mean, it works and it books and everything, but it’s not the greatest and the SEO is okay, but there’s a lot of work to be done there, but somehow people find it.
We’re trying to figure out how the heck are people finding our motel. I have no idea. I’m thankful that they are, but for sure there’s an SEO component. I actually just think there’s not a lot of options in the area. And so when you type in motel in Tupper Lake, there’s just not a lot, ours pops up.
Oh, there was one other thing that we found when we were analyzing this market, there’s this other hotelier, that’s a fancy word for saying hotel investor, and they actually just bought a motel down the road at the same time or right before us and they were doing a full renovation of that property.
And so we looked into this person and basically everything they touch turns to gold kind of thing. And so we were like, oh, okay. So if this person bought a hotel and they want to renovate it, clearly they’ve already done the market research for us. They’ve figured out that this is a good spot to invest in.
So we used that and then we took projections and we also took past data and then we looked at Airbnb comps and we called around and we got a sense from the different locals and the different motels in the area to find out when our hot season is and everything like that. So it was a little bit of what they call internet sleuthing, but also general Airbnb research as well.
And based off of that, there were a few things that were also working in our favor. The owner was willing to finance. It needed a lot. This is the ultimate BRRRR, man. I mean, it needs a full gut remodel on the whole thing. So based on the fact that it was actually doing pretty well in the current state that it’s in, which is not Robuilt standard, I’ll put it that way. I was like, okay, well, if we make this nice, it should book a lot more and we can also raise rents.

David:
I guess the person brought you the deal, so they said, “Hey, do you want to look at it?” So you probably weren’t looking at that area already, but now that you’re in that area, what do you like about that location that would cause you to buy more property there?

Rob:
I’m not sure that I would necessarily go the single family route out there and I’ll tell you why. That area is very rural. It’s not secluded, but it’s very rural and there’s a vendor shortage there. It’s tough to find people to hire. So for me, when I’m buying an Airbnb, I’m always looking for the Airbnb Avengers.
And so I’m looking for my cleaner, for my handyman, for my pool service guy, for my landscaper, for my pest control person and I need backups for all of those. And we have found that it is tough to find vendors in that market, just like a lot of the other markets I’m in, where we’re out in the middle of nowhere, basically.
So from a single family resident standpoint, I wouldn’t really do that, but because it’s a hotel and there are economies of scale, we have it in our budget to actually just hire a full-time onsite manager, very similar to mobile home parks or RV parks, or even storage facility units, where there’s someone that is dedicated and it’s their job to run that place.
So that alleviates some of that dream team that I need to hire because we now have a full-time staff. We provide that full-time staff housing and then a relatively, I think fair price to live there. And actually, funny enough, we were striking out left and right. We were not able to find people to help us. And we’re like, uh-oh, we just bought this hotel and no one can actually work on it.
And we had Heather Blankenship on the podcast and she talked about this group of people called work campers. And these are people that travel around and they’re effectively nomads, digital nomads, or they’re always just looking for places to park their trucks that have campers and basically camp at the place and make money and that kind of stuff. So I was like, okay, let me try that.
And we posted an ad on one of the Facebook groups and someone was like, “Oh my God, this sounds exactly like what I would love to do. I used to work in hospitality and I used to work in hotels for the Marriott and stuff. So I know exactly what you need for this job.” Me and my partner were like, “Yeah, it’s a little too good to be true. There’s no way.”
And we interviewed her and afterwards we got off the phone and I was like, “That’s too good to be true, right?” And he was like, “Yeah, I don’t believe it.” And I was like, “I don’t think so either. There’s no way that she’s perfect, our first candidate.” And we called all the references and all the references gave glowing reviews and we were like, “Man.” Sometimes I do get lucky on the first try, but it happens less and less at scale.

David:
This is a legit problem and I’ve run into this myself, not as often, because typically my investing strategy is usually to find the best market, the hottest market, where I see a lot of growth headed and try to get there early. But a handful of times I have bought in rural areas or maybe vacation destinations where the only people that are going there are going to vacation. There’s not a lot of people who live there as their primary residence, and so you don’t have a workforce.
And when there’s a problem, like you said, pest control or … I remember running into this on one of my properties actually in the Smoky Mountains that has a pool. And in the middle of escrow, the seller could not get the pool fixed before we closed, but I had to close because of a 10-31.
So I was in a situation where if I close, I’m inheriting a problem, if I don’t close, I’m inheriting a bigger problem, because I’m going to lose over seven figures in taxes here. And we close and there’s not a person that does pool repair for months. It’s really bad. I’m like, I’m going to have to find a person and fly them out to Tennessee to look at this. It’s that bad because there’s not a big workforce.
So it is absolutely something to take in mind when you see an area and it looks amazing, sometimes there’s reasons why that opportunity’s there. So if you’re listening to this and you are someone who’s willing to travel and do that kind of work, please message me, because I’d like to put together a system of traveling work campers, like you said, that could go to some of these remote areas and charge a premium to do stuff like fix roofs or fix pools, whatever the problem would be.
But until something like that is going on, make sure you put that in your underwriting because I’m sure … I mean, how much did your butt pucker when you realized, oh there’s not people around here that can do this work and I just bought a 20 unit hotel?

Rob:
I think the proverbial butt was puckered the entire process because we knew nothing going into this really about motels. We were just really leaning on the fact that we are a couple of smart guys that fail and learn from our mistakes and get smarter. That’s how I think of it. So we sort of expected it.
Every time we buy, it’s exactly what you just said, there’s this opportunity and you’re like, this is crazy, this is too good to be true. And then you find out that it’s smack-dab in the middle of South Dakota or something and then there’s not a civilization around for 50 miles, and you’re like, uh-oh, what have I done?
That was us this whole time because we were like, okay, New York is obviously a very populated state, but out here it really is, not a ghost town or anything like that, but it’s tough to find the work. So I think we were expecting it. We always find these houses.
There’s a lot of accounts that I follow like, Cheap Old Houses or Mid-Century Modern Hunt kind of thing and they have all these amazing, beautiful, character-driven homes or these amazing mid-century modern beauties, and then they’re like $200,000. I’m always like, oh, this would be the greatest Airbnb. And then it’s in a place where the population is negative three. So that’s always the tough part.
So we bought this knowing that the vendor shortage was real, but actually just like you said, we actually have a contractor who reached out to my buddy and I think he was a fan of the channel and he’s like, “Hey, I’d like to be involved in your projects.”
He was working for a construction company and he was just on salary and I think he wasn’t getting promoted in the way that he was hoping to. I can’t really recall off the top of my head, but basically he’s like, “I’ll come work for you guys. If you guys pay me to come and do the work, I want to prove myself, and then I’d like to start getting some equity on some of these projects.” And then we were like, “Are you willing to move to New York?” And he was like, “Absolutely.” And we were like, “Great. You’re in.” And he’s been really great.
So we actually flew our contractor out to New York and he’s living there right now. He’s cleaning everything. He’s maintaining everything. He’s meeting with contractors. He’s budgeting. He’s getting the timeline set for the next six months. And honestly, without him, it’d be pretty tough. And that’s why we were relatively confident going into this deal because we knew we had a contractor that could run the show for us while we were gone.

David:
Yeah, that’s huge. That’s why I was saying if I had a system of a traveling contractor that you could put a business together that they’re willing to do that and they could stay in the property and then they could work on it, man, that’d just be huge for the BP community, if there was people that we knew could do that, especially if you’re someone who lives in an area where wages aren’t as high.
If you live in Malibu, this probably doesn’t make sense to you, but if you’re in Louisiana, Mississippi, you don’t make as much money, but you can work on projects in Southern California, in New York and some of these more expensive areas. That could be a really good way to make some … It’s a business idea I’ve been tossing around for a while in my mind and you definitely are highlighting the need for it.
So let’s talk about renovations because that’s a huge, huge part of opportunity in today’s market, especially is the market’s been so hot, even fixer ups, you couldn’t find them. And then when you did find one, good luck finding a contractor, because they’re so busy working on the people that are putting their houses on the market and the people that just bought one that needs work, as well as all the investors that are flipping houses and doing BRRRRs. They’ve been in short supply, but as the market cools off, you actually have an opportunity to get a contractor.
So what’s your renovation model look like here? What’s your budget on this? What’s the strategy going forward? How much effort are you putting into the renovation to add value?

Rob:
So this is a tough one because you can’t really extrapolate your single family home knowledge to a 20 unit motel. Everything gets a lot more expensive on bigger properties, but luckily our contractor, he’s worked on these types of projects. He’s worked on every type of commercial development, and so it has been extremely helpful for us in budgeting all of this.
But effectively right now we’re looking at an entire gut renovation, there’s not much that we’re saving from this property, like the seven unit motel. It was painted this very bright aqua blue, which I don’t know why this color follows me around, but that was also the main central color in our Scottsdale house that I was like, no, we have to remove this color. Why does this color exist?
So the hotel is this very bright, vibrant blue, and then everything on the inside, it’s in disrepair, not every single unit, but a few of them. My business partner went to go for inspection and final walkthrough and he called me at midnight after he was done and he was like, “Bro, there is a hole in the ground.” And I was like, “What do you mean?” He’s like, “In the middle of this motel, there’s literally a hole in the ground.” And he shows me and I’m like, “How is it booking? How does anyone stay? This can’t be safe.”
So we have effectively gone into this knowing that there will be nothing really salvaged except for maybe a couple of wood walls that are currently in there. But yeah, this renovation is going to cost us in the neighborhood of about $800,000.

David:
Okay, $800,000. And then what did you purchase it for?

Rob:
We bought it for $825,000. So we’re spending just under the purchase price to get it flipped.

David:
There should be a title for that when your rehab is higher than your purchase price. That’s definitely a specific type of deal.

Rob:
Yeah.

David:
Is this a BRRRR situation? As far as hotels are valued, can you refinance it once the upgrades are done or do you have to wait until revenue is a certain point for a year or two before you can refinance to get that capital out?

Rob:
Yeah, because it’s seller financed, we actually worked it out to where we are going to be financing it on an amortized schedule over 20 years, but it’s going to balloon in three years. So we’re hoping that by the time it’s stabilized and rents are up and there’s a history of rents, exactly what you just said, we can go to a commercial lender.
Hopefully interest rates won’t be like 27% APR and basically refi, cash out, pay our investor back. This was a really opportune timing because we actually had an investor who had about, I think $800,000 set aside, I want to say and we had been trying to find a project for him. He wanted to build a treehouse village with us and we were like, okay, let’s do that, but it was hard to find land.
All the places that I wanted to build treehouses in, I have talked about them a lot on the channel in different places and I’m not going to say I ruined the market for myself because that’s not possible, but more attention has been brought to a lot of the different places. And so I was just like, okay, we were striking out trying to find-

David:
I believe it.

Rob:
It’s happened-

David:
That happened to me when I talked about Jacksonville five years ago, it was within a month, all of a sudden stuff was disappearing off the MLS very quickly.

Rob:
Yeah, I’m not going to say I’m that cool, but-

David:
BiggerPockets is a powerful entity.

Rob:
But there have been markets that I’m like, well, honestly, I haven’t even opened up Redfin in Gatlinburg in about six months, not because I’ve ruined it for myself, but because everyone has ruined it for ourselves. And so now it’s like impossible. I mean, you bought a bunch of stuff there. I’m honestly very impressed because it’s a tough market out there, although I do see some price cuts coming in every so often. But we were trying to find this land-

David:
As a side note, don’t lose your thought, it’s important to note that real estate investors, now that we have podcasts like this information that’s readily available, everyone’s talking on YouTube, the word spreads really fast.
I mean, imagine 60 years ago, first off long distance investing was not even a thing that you could do safely or that you would do. And second off, you would’ve never known about the markets you should be investing in. Everything had to be local. And now I’ve noticed this trend since I’ve been in this educational space, that real estate investors are like locusts that just move from area to area.
So when we had the crash, you noticed everyone moved into the Phoenix, Arizona and Las Vegas markets and started scooping up properties because they got hit really hard. And then that sort of dried up and they moved into Memphis, Memphis was the big thing. And then after Memphis, it was Atlanta. Everybody was in Atlanta. And then I got into North Florida, and so a lot of people moved into that space and there was a lot of cash flow opportunities.
And then they moved on from Atlanta and it became Huntsville, Alabama was really, really big, and then Austin, Seattle. So those tech hubs started to catch on and then it moved into the Idaho area and Nevada. And now we’re seeing the Smoky Mountains was super popular for the last several years. But there’s absolutely patterns where everyone hears that everyone else is buying and then they all go.
And the reason I want to highlight this is it’s very easy to be the last person to the party and you don’t know that you’re the last person to the party. You could be getting into a market that’s already sort of peaked thinking, oh, this is what everyone’s doing and you’re all happy. And right when you start the game of musical chairs, they turn off the music and you get left stuck.

Rob:
That’s true and it compounds. So it’s a compounding effect where everyone talks about it. More people talk about it. Oh, I heard this and I heard it’s a really good market. So all to say, this is actually a really great side note because I really like the term, real estate investors are locusts. We totally are. It’s not like I just find a market and I’m like, I have done it, I’m a genius. I’ve heard it from someone else. I’m one of those locusts.

David:
It’s human nature, we all want to cross the river at the same time as other gazelles. We don’t want to be the one out there crossing the river.

Rob:
We want to emulate success. And that’s what I always say, emulate the greats, go find someone that you really like and go emulate their strategy because there’s a reason they’re successful. And I think that happens a lot on BiggerPockets, where we have a lot of these titans come on and it’s like, whoa, I want to just do what they did. That’s sounds good to me. I don’t have to do anything else. And so a lot of my portfolio and a lot of what I’ve done is just come from listening to the success stories of a lot of other people.
But yeah, I mean that basically all to say, I was trying to find land to build this treehouse village for our investor and he had the money lined up and we just couldn’t find land that fit from a zoning standpoint because we have to go legit, we have to get conditional use permits and engineering and all that stuff. And so it’s hard to find something for an investor at scale like that. So it was taking a little bit of time.
Then all of a sudden this deal popped up and I was like, well, it’s kind of in the same budget that the investor had. It’s not quite as wacky or cool as a treehouse village, but it is a tangible thing. Because I think when you’re working with investors, honestly, what it comes down to is how quickly can you deploy their money? I’ve had a lot of investors that they want a very specific kind of thing that they want us to execute and I’ll say, “Well, look, we can do that, but it can take five to 12 months to find that exact thing. And so are you okay with an alternative? What if I find this type of project, would you be okay with that?”
Most of the time they say sure, because no one likes to have a million bucks in their bank account for a year, you want to deploy money. If you’re a good investor, you’re trying to make yourself broke as often as possible by sending all that money out of your bank account into some new asset.
And so this investor had his money sitting and we were like, great. So we went in and we bought it and a few trials and tribulations along the way, if you will, if want to talk about that for a second, some of the hard lessons that we’ve learned.

David:
Well, you said it was 20 units, how are those 20 units actually broken up? I’m picturing a building that has a condo building type hotel, like the Hilton that you would go to and it’s just 20 different rooms. Or is this more of several different types of properties all on one location?

Rob:
Yeah, so it’s the latter. It’s a seven unit motel and those are all in the middle of the property. And it just looks like a very long mid-century modern cabin, a log cabin that’s painted that bright blue I was telling you about. And then all along the edge of the property, there are 12 tiny cabins that are, I mean, I can’t say off the top of my head, but I want to say like 200, 300 square feet. And then there are two, two bedroom cabins on the back of the property. I think it’s on four acres. And then there’s four RV spots. And so those four RV spots we’re going to eventually build out decks and put Airstreams on there.
And the reason I like this strategy, by the way, is because obviously I like glamping and I’m working on permitting a 60 unit glamp site in Arizona and I’m a big fan, but it takes a long time to permit this. We’ve been working on the permit for the Arizona glamp site now for about six months to about a year, depending on a few different variables there.
But basically, this place already has all the entitlements. So we don’t have to go and run permits for all these tiny homes or anything. It already came fully permitted. So the four RV spots are already permitted. We can just add our Airstreams on there. It’s not going to be a big deal. Or we’ll just open it up to the public to bring their RV and just make our lives a little bit easier probably.
But one of the really hard lessons that we learned was that the transition of ownership was a little bit tricky. We hadn’t really hashed out a battle plan with the seller because we were so focused on closing the deal. There was always stuff happening. As you know, deals start to fall through and then everyone’s got to be like, hey, we’re all on the same team. You really want to sell it. We really want to buy it. Let’s renegotiate. How are we going to make this work?
And so we had like five of those moments I felt like through that whole process. We were like, oh shoot, this is going to kill the deal. And then we would renegotiate and then the seller would actually give a little. And so we did that a lot and we never really formally said, hey, what’s the current schedule for guests? And when are they checking in? When are they checking out? Who are they? What’s their information? How do we get this information? What kind of CRMs are you using?
We closed and effectively the owner was like, “All right, well here’s all the logins, have fun.” And we were like, “Oh shoot, we didn’t even talk about this.” And now in retrospect, obviously this will never happen again because now anytime we negotiate this, we will negotiate that the owner of the hotel or motel that we buy stays on board for a month or two to help train the new staff and pass over everything.
This is not something I blame the seller for really, I think I blame equal parts here on both sides because I was kind of hoping that he would just want to help. This was his baby and I was like, “Hey, would you stay for a week or two and help us transition.” And he’s like, “Oh man, I really got to get back home to family.” And we’re like, “Are you sure? Because we could really use the help.” And he was like, “No. No, I’m sorry.” And we were like, “Okay.”
And so basically we did the worst thing you could do. And I hate saying this, but I am a honest and transparent person, but this was 4th of July weekend and days before we had to cancel on a few guests and they were not happy about it and I was not happy about it. And we did our best to reason with them and say, “Hey, I am so sorry. We just bought this. We didn’t even know this booking existed until we closed.” And it was that kind of thing.
And some of them took it okay. One lady was like, “Oh well, I’m going. I’m going anyways. Try to stop me.” And we were like, “Literally, no one is there.” And so basically we actually ended up working it out with her because the owner was like, “Well, hey, I keep an extra set of keys here. If you want to let her in, she can just stay.” And we were like, “All right.” I mean, even if she destroys the place because she’s not vetted or did not give us her information, we’re remodeling it anyways.
And so that was one kind of oopsie on our spot, it was just not having a battle plan for transition of ownership. This is something that’s not super clear or tangible, and so for anybody that’s working to do this, you definitely want to have a lot of conversations outside the negotiation with a seller on how to freaking run the property, because if you try to figure it out yourself, I’ve learned the hard way it’s going to be very difficult.

David:
Well, I’m really glad you’re bringing this up because, and really this is a trend in general with the hospitality industry becoming bigger in our space, hotels are a mix, just like an Airbnb is, of real estate and business. It’s not like you’re just buying a single family home and renting it out to someone with a year long lease. That’s still a form of a business, but it’s much more passive. When you’re buying a hotel, the revenue is higher because there’s more work that’s going to go into it.
So if you were buying a pure business, like you were buying a software company or you were buying a pool maintenance company, like I mentioned earlier, it would be customary to negotiate into the terms of that deal that management is staying on for this period of time to help with transition. You see this all the time.
Patrick Bet-David just sold his insurance company and part of that was he had to stay for a year to get the new people trained up that bought it because they don’t want it to immediately run into the ground. Imagine that you’re flying a plane and someone says, okay, I’m coming in to take over flying the plane, but they don’t know anything about how to fly that plane. You want the pilot sitting in the co-pilot seat for a while till they get it down.
And this is the first, from my understanding, legit business that you had bought, so I can understand it wouldn’t have occurred to you to even think about. Well, you think you’re buying real estate and you’re like, well, I’ll just have my team go out there and get it ready. This is all happening in your subconscious. And then you close and yay, and then, oh no, what do we do now? There’s no one there. I didn’t think about that. There’s no employee that’s on the property. How are we going to do any of this? Well, I need time to get it ready, then these bookings. So that’s probably a terrible feeling, just the pit of your stomach sink like, oh no.

Rob:
It was because basically my business partner/COO who runs operations, he was running this and he was really spread thin also trying to learn how to buy a hotel. So it’s not his fault. Okay you know the phrase, you don’t know what you don’t know? It’s very true. You don’t know what you don’t know. We did not know. And I empowered my COO to do this and he did really crush it. He crushed the negotiations, most of the actual coordination of all this stuff, but this didn’t really translate for both of us. We were like, uh-oh, we dropped the ball here.
And for me with the way I’ve empowered my team, it’s like, you own this, you’re running it. But when something like that happens, it is ultimately a reflection of me and my management for not having been more involved and asking those types of questions. And so that’s just a management failure that I’m like, okay, cool, I get it now. I failed there. I’ll make it up on the next one and we’re going to crush this. So it’s not anything that’s detrimental to the bottom line, but it is detrimental to the bottom line of my heart. You know what I mean? No, I’m just kidding.

David:
Well, that’s how you know you’re the right person to be doing the deal because the reason it hurts your heart is you have a standard and you miss your own standard and high standards are the hallmark of success. That’s why you want to do business with people that have high standards. That’s what makes people good at anything. Tom Brady is a better quarterback than other quarterbacks, because he has a higher standard for what he expects.
So if you hold high standards and you push yourself, it is inevitable that you will feel the way that you’re feeling right now, Rob. So I’m not judging you for that. I totally understand. I think that it takes some courage to come up and share these are all the mistakes I made with our audience. So I just want to thank you for that.
And anybody who’s listening to this is like, oh see, that’s why I would never do whatever I’m going to do, that’s okay to make mistakes. You have to make these mistakes. It’s going to make you a better overall investor and business person in the long run.

Rob:
Well, that’s why I always say you don’t become a real estate pro by everything going right, you become a real estate pro by everything going wrong. So I recognize that. And I’m far enough along this where I’m like, okay, it’s not a big deal because I’m going to be better for it.
I will say though, the reason it affected me as much as it did was because my philosophy, what I teach to my Host Camp students and everybody out there is never cancel. No matter what it takes, you never cancel on a guest because these guests made reservations. They plan their life around this, and then if you cancel on them, everything’s booked and then you really end up putting them in a bad spot. And so this directly just breaks my number one non-negotiable, but we did everything we could.
We started looking at flights. The flights weren’t going to get in time. It’s out in the middle of nowhere, so it’s not like you could just fly to Tupper Lake. And so it was all this stuff where we were like, okay, all right, it will cost us four grand to get out there. We can rent a rental car. We’ll go to this airport. We’ll go here. And then we’ll get in at four o’clock. We’ll check them in, if they check in …
And so you know that Zach Galifianakis math meme? That was us. And ultimately, it was going to cost us money to go out there and it wasn’t even going to work. We put out ads on Craigslist, we need a one day worker to help us with this stuff and it didn’t work out. So that’s okay, lesson learned.
Another thing for us was that, I mentioned this earlier, we … Oh, and also want to say to the credit of the hotel owner, we did kind of hash things out a little bit on Instagram and he was like, “Look, here’s how I felt. I didn’t realize that this is what you needed, but I’m happy to actually go back out there and teach you the systems and teach whoever you hire, how to run this hotel.” And I was like, “Great. Okay, awesome. Sorry for making you mad.” All that kind of stuff. So we squashed that bug too, because I was a little miffed by the whole scenario or the whole situation myself.
So anyways, that’s that big one for us. The next one is we didn’t have the Airbnb Avengers. We were kind of hoping that the owner had a Rolodex of all the different vendors and he did not because A, it’s really hard to find the vendors out there. So what did he do? He did it all himself for six months. He was the cleaner, the pool guy, the pest guy, the plumber, the electrician and everything.
And so I think he burned himself out so much. I think he had intended to buy it, I don’t know for sure, and then say, okay, I’m going to clean it up, remodel it, I’m going to hire my teams, and then I’m out. He couldn’t do any of that. He couldn’t hire anybody. And so he said, “All right, I’ll just do it until I find someone.” He never found someone. And after six months, I think he was just like, I’m out. This is terrible.
And again, this is just speculation on my part, because this is how we’re feeling now where it’s like, oh, there are no vendors. He was the vendor. So that was our tough thing is now we’re having to hire a full-time property manager. All good there. Our contractor’s out there, all good there.
And the contractor, it’s his job to go out to supermarkets, hotels, motels, mom and pop shops and just start asking people, asking the cashier, asking the owners of those businesses, hey, do you know anybody that’s looking for work? Hey, do you happen to know any handymen in the area? Do you know any cleaners in the area. By any chance, do you know a pool guy?
A lot of these relationships and these vendors have to come creatively. And that’s what a lot of people don’t understand about Airbnb. They think you can just go to TaskRabbit and hire everybody, which I do. I hire a lot of TaskRabbit people, but sometimes you need a human touch that an app isn’t going to help you with, and so you have to take it to the streets, as they say, to go find the people that are going to be running your operation.

David:
Or the woods in this scenario for this project.

Rob:
Right, or the mountains really. It’s actually on a lake, so the woods, the lake, the streets, all of it. So no vendors, but we’re working on it.

David:
So we’ve got a couple hurdles you’ve already had to overcome in this deal. There’s the lack of vendors, like pest control people, handyman. Hey, there’s a big rat running around, what are we going to do? You have to figure out that problem.
You’ve got the renovation that you’re walking into that’s very significant. And the lack of local people, contractors, that can do some of that work. It sounds like you narrowly avoided a big problem there, but that’s still something that’s going to be popping up in the future.
You’ve got the management issue like, okay, I bought this place and now how am I going to run it? And you’ve had to overcome that. Any additional ones before we move on, that you can share of things that went wrong, that you just weren’t expecting?

Rob:
Yeah, just one big thing and that’s there’s no roof. No, I’m just kidding. There are no automations in place at this motel, which is really big for an Airbnb business. The reason I have no issue running 15 Airbnbs is because I’ve got automations. I’ve got automated messaging, automated check in, automated reviews, automated pricing. All that stuff is all automated, and so it helps chop out 80, 90% of the work involved with running those Airbnbs.
And there’s none of that for this hotel, and rightfully so, because typical hotels, you got someone behind the counter. They go and they check you in and boom, you’re good to go. But we are wanting to make this a very hybrid boutique hotel, Airbnb experience type of thing.
So, as I said, we hired a property manager and this actually goes back to the whole, oh, it’s a job. And the thing with that campsite was there wasn’t anyone living on site and I don’t even think that was really an option because it was so far out in the middle of nowhere, even more than this hotel. Whereas this, our automation is hiring a full-time staff member to run that motel for us.
So it won’t really be like running 20 units, it’ll be like running a business that we’ve empowered someone to actually do most of the work for us. And we’ll be supporting with the bookkeeping. It’s our job, we told the property manager, we are going to do everything we can to automate as much as possible about this motel. We are going to try to automate check in. We’re going to try to automate cleaning schedules. We’re going to try to automate supply deliveries and inventory checks and all that stuff.
So you have to tell us, hey, this one thing, I keep doing it, it sucks up 40% of my time. Is there anything we can do about it? And then we will figure out what we can do to automate that. And so we told her we’re here. We don’t want it to feel like you’re managing 20 units. We want it to feel like you’re managing a couple at a time, because at the end of the day, my contractor, he’s out there right now and he had to clean 10 apartments or 10 units two days ago by himself. And I was like, dude, you are the man.
So I think with a little bit of automation with the check-ins and checkouts and with the cleaning scheduling and all that stuff, I think we’ll be in an okay spot.

David:
I appreciate you sharing that. That’s some really good stuff there. One of the cool things when you get into bigger real estate is that excess revenue that it generates can be used to hire the people to run it. You hit the sweet spot, where if it generates enough revenue, you can hire someone to do the work and make it more passive.
When you’re playing in the smaller spaces, it doesn’t make enough revenue for you to pay somebody to manage it, so you end up managing it yourself. So kudos to you for moving on that. Before we get you out of here, let’s talk about the numbers on this deal. So you said you bought it for, was it 825?

Rob:
We did. We bought it for 825 and it actually started, it was either 950 or 925. I’ll go 925 for now. And so those numbers didn’t really work for us when we first started. So we really went back and forth quite a bit. And so 825 at the end of the day. And I think I said this already, but it was amortized over …
Oh, the seller was willing to finance it, which is why we were down to do this because I think if we had to go and get commercial lending, it would’ve mucked up everything with the investor and trying to get everyone on the co-signing and everything. So seller financed and then 30% down, which was relatively hefty for us, but it was worth it. And here’s the cool part, oh man, I love this part, the interest rate is 2.75%.

David:
Yeah. That’s nice right now. That’ll make a deal work.

Rob:
It’s not like we got in right before the rise of interest rates, this was as it was all happening. So they originally, I think wanted 7 or 8%, which is, it’s not totally unfair. I actually think that’s-

David:
That’s where market rate is right now.

Rob:
And I think that’s actually pretty common for owner-financed things because it’s usually with the owner finance, you have to concede a little bit. You have to give them the price they want and the down payment they want and the interest they want, because they’re like, hey, I’m financing it, so you got to be on my terms.
So I think what it came down to the phrase that comes to mind here, it’s like, you can either have your price and my terms, but you can’t have your terms and your price. And so we went back and forth on this and effectively we bought this at an 11 cap, which is pretty good. We were really happy with that.
And after our budget of $800,000 to renovate this place, we’ll be all in from a cash standpoint, 1.1 million, but if you’re talking about the actual total price here, we’ll be all in at, I don’t know, like 1.7 for this whole property. And we’re hoping that rents will be in the neighborhood of about a million dollars gross with a net operating income of $750,000.

David:
Oh, that’s solid.

Rob:
Yeah, it’s really good. That’s best case scenario, pie in the sky. If I come out there and I do my thing and I hit my marks the way I usually do, that’s the best case scenario. And so obviously if we sold that at a 10 cap, it’s a pretty good deal.

David:
Appreciate you sharing the details. Is the plan to sell it? Is that what you think you’re going to do once you improve performance?

Rob:
It is hard to say. I mean, right now we have that balloon at three years. So it would make sense to either refinance it or resell it. I don’t know. I don’t know. If I sold it, let’s say we sell it for seven mill or something like that at just a 10 cap, then I got to figure out what to do with that seven mill, go into the next thing.
So I think I would like to maybe just ride out the cash flows on this. I think the $750,000 net operating income between me, my partner and the investor will actually be pretty good. It’s a nice little cash flow thing. So we’ll see. I mean, everyone always says, oh, I’m going to hold it and then they get a really juicy offer and it’s like, all right, I guess I’ll sell.
But for now, theoretically, I think I would like to add to the cash flow of my business because I have never paid myself from cash flow. I always reinvest it. So I’d like to think one of these days I’ll actually pay myself for all this stuff.

David:
Well, the cool thing with a property valued as a commercial deal, like this one will be is that you win in two ways with cash flow. A, you just get more money, which is always good and you increase your return, but B the property will be valued based on the improved performance of the cash flow. So if you decide you want to sell it, it’s not like you gave anything up. You actually made it worth more by focusing on improving the cash flow. So it’s kind of a win-win no matter how you look at it.

Rob:
Yeah, and then just the apocalyptic kind of nuclear scenario. And this would really just be, I mean, if we just really didn’t change much, it’s I think about a half a million dollar gross with the NOI of 250. And so we’re going to really design this. I mean, this is going to be a very boutique, aesthetically-driven, beautiful property.
We’ve met with our interior design designers on it. They’ve presented the mood boards. It’s going to be a whole different property by the end. So I’m pretty confident that we’ll hit our marks on the investment side. But honestly, any scenario from the 500 to the million dollar mark for us on the gross revenue, it’s a pretty good scenario for us.

David:
All right. Well, thank you for sharing that. Thank you for sharing some of the obstacles. Thank you for going into such amazing, beautiful depth on this deal. I learned a ton listening and I’m sure everyone else can say the same.
If you guys enjoyed this episode, or if you want to know more about this deal, first off, go to BiggerPockets’ YouTube channel and leave us a comment. Let us know what you’re thinking as you hear this. Rob, if people want to get more intricate detail about this, where can they find out more about you?

Rob:
So I did a YouTube video on this, on the Robuilt channel, it’s called, I Just Doubled My Airbnb Portfolio Overnight, which is another cool thing that I didn’t really talk about, but 15 units, bought a 20 unit motel, I got 35 just like that. Over the course of one month, I doubled my short term rental portfolio.
And that’s a really cool thing to be proud of. I think I’m like, okay, that’s cool, I did it. Because I worked so hard for five years, and then in one month it all changes. So you can go to YouTube and you can watch that video, give it a like, shoot me a comment. And then you can find me on Instagram @robuilt. What about you

David:
Follow me @davidgreene24. I have a very boring name, but that makes me easy to find. And let me know what you’re thinking. You can also message me through that BiggerPockets system. I do my best to try to keep up with that.
Rob, this has been fantastic. Really appreciate you sharing all this stuff. I’m going to let you get out of here. This is David Greene for Rob hotel, motel, Holiday Inn Abasolo, signing off.

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