September 2022

Ashley:
This is Real Estate Rookie episode 216.

Pat:
And I think the number one rule to being a good mentee is actually taking the advice of the mentor. A lot of people come to me and I say, “Read this book and do this, and do that,” and I never hear from them again. But when I hear back from somebody that’s like, “Pat, I read all three of the books. Here’s a picture of all the notes I took. I did exactly what you said. I went out there and did this and did that,” I’ll be like, “Great. Stay in touch.”

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

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we’ll bring you the inspiration, information, education, and motivation you need to kickstart your investing journey. And I’d usually like to start the shows by giving a quick shout out to the folks that have left us a review. This week’s review comes from Yuri to Wealth, and she says, “Best podcast for people getting started.” Yuri says, “This podcast has helped me stay motivated and want to level up and become financially free. It amazes me hearing other people’s stories, and I always learned a thing or two from every episode. I am so glad this podcast exists.” So, Yuri, we appreciate that. And if you haven’t yet, please leave an honest rating and review on whatever platform you’re listening to. The more reviews we get, the more folks we can reach. More folks to reach, more folks we help. So Ashley, we’ve got a really, really good episode lineup for today, right? Two just absolute juggernaut to the game. One of them is a self described OG, legit real estate investor. So, I’m excited for people to listen today.

Ashley:
Yeah, we have Pat and Tim on today who just wrote the book for BiggerPockets, The Quitter’s Manifesto, and they are going to break down why this is important for a rookie investor to actually take a read. They go through as to how they quit their careers to go into new careers or new passions. And a big thing they brought up several times is that the goal was to not do any obligations but to do your passions, to do what you wanted to do. And I think that’s really awesome and sometimes all of us need that reminder in life.

Tony:
Yeah. That part really struck a chord with me. They talked about moving from 100% obligation to 100% interest, and I feel, right now, I’m 90% obligation, even 95% obligation, 5% interest. So, that part really resonated with me, and more so, they give you some instruction on how to do that. So first, these guys, they run the company called GoBundance. So basically, their entire working life, all they do is talk, and teach, and network with super successful entrepreneurs in all forms of business.

Ashley:
Let’s just name drop and say Brandon Turner, David Greene, [inaudible 00:02:55] and look at them. That’s amazing.

Tony:
Exactly. And there’s a lot of other really successful folks in that group. And both Pat and Tim have a knowledge of things to just open up your mind as an entrepreneur. They talked about journaling and how to make that the most useful. We spent a good chunk of this episode talking about mentorship, and not just the benefits of it, but practical, tactical ways you can go out and find a mentor that I think will really resonate with a lot of the folks that are earlier on in their journey.

Ashley:
And how to be a good mentee too, I think it’s really important that they talk about.

Tony:
So many good things. And they also talk about the progression you go through in your business, when it comes to you’re starting out at the ground level and what it looks like once you’ve built a successful business and how to get there. So, this conversation usually could have gone on for two hours. These guys are phenomenal, a wealth of knowledge, and I’m excited for you guys to hear it.

Ashley:
Tim and Pat, welcome to the show. Thank you guys so much for joining us. Can we get started with Tim, maybe you going first, and just telling us a little bit about yourself and who you are?

Tim:
Sure. Well, I was the least likely to succeed in your class, going back to high school. Barely graduated high school, never went to college, and at 25, I was a part-time grocery clerk, not getting enough hours and trying to do side hustles to make money for my two small kids. Then I found my niche selling real estate. I sold a lot of real estate, I was damn good at it, really concentrated on coming through for whoever I went to work for. And then I also invested a lot in real estate while I was in the trenches. And I sold 17 properties with 52 tenants in 2008 right into the Cali craze, and tapped out and retired. And candidly, I’ve never worked since. So, that’s-

Ashley:
That’s quite the story.

Tim:
Yeah. It was fun. Yeah. So, we wrote this book, Quitter’s Manifesto, about how to quit whatever you’re doing. And Pat and I are the original quitters and we become very, very good at quitting what’s behind us to tap dance to the next incarnation. So, that’s what this book’s all about and we’re excited to share it with your listeners.

Ashley:
Pat, what about you? Who are you? What’s your story?

Pat:
Who is Pat Hiban? I don’t know. I’m in a lot of therapy to try to figure that one out.

Ashley:
Yeah. Let’s dig deep here.

Pat:
So, a little bit different story than Tim. I went to college but I got a 2.3 GPA in sociology. And I found I couldn’t get hired really, the jobs weren’t big for sociologists. So, I got into a job with the least barrier to entry, and that was real estate sales. And started at 21, worked all the way until 46, 47 years old, selling real estate. Sold a lot of houses, made a lot of commissions one house at a time, and just worked my way through the ranks of about five different major companies. Had my own company, had a mortgage company, had a title company, did everything in that realm. And then I just got out, I just exploded, I don’t want to do it anymore. And that was that. Then at that point, I did a four or five ventures that just failed, that I just seemed like a good idea at the time scratching some itch, but didn’t pay and didn’t work.
So then, eventually, Tim and I, along with a couple other guys, started a men’s mastermind called GoBundance. And now, between our women’s group, our men’s group, and our rookie group, we have over a thousand members, 1,020 members, paying members. Just a miracle really. And then I also started investing. I started buying, first, single family homes, then multi-family homes. I think with my company, DAPT Acquisitions, we have about 2000 doors. But some other various commercial real estate, sold a bunch, and wrote a couple of books, and that’s where I am today.

Ashley:
Awesome you guys. So, part of the big reason that you guys are here is to talk about your book. So, let’s start with that, let’s go over that. It seems like you guys have accomplished a lot, you have a great stories, but let’s focus on the book and why did you even decide to write this book?

Tim:
I think the reason we wrote it is we’ve both done what most want to do but don’t know how to, and that is to go from obligation, 100% obligation, to as much as possible, 100% interest, doing things you love to do. And in the book, we have the interest over obligation quotient and we help people get to, let’s say, 80% doing what they love to do, interest, versus what most have to do, obligation. And that’s one of the premises of the book, that’s one thing Pat and I were able to do, is start in total obligation, that was selling real estate and doing the things we had to do daily, to juggling the other real estate to get us to a place where we could do what we want to do pretty much all the time.
And I found when I tapped out at 40 years old, I started doing a lot of time just getting the goods in the mountains, skiing a hundred days a year, doing things I really wanted to do, and that helped me, as well as Pat, start GoBundance, start DAPT, start figuring out what’s on the other side. And because so many are just focused, they’re on the hamster wheel and can’t get out, and that’s what this book does, is gives you the tools to go to what’s next for you.

Tony:
Yeah. So Tim, one follow up to that, I think for a lot of the rookies that are listening, obviously, I think a lot of their goals are to, at some point, focus on the things that interest them and not missed out their obligations. For example, we just interviewed another rookie investor and she said one of the obstacles to her getting started was that the idea of getting to that point seemed so far away that it seemed almost unreachable. So, what is your advice to people that are at the beginning of their journey that hear you guys talking about this wonderful life you’ve built for yourselves, but they don’t quite think that it’s possible to get there?

Tim:
Yeah, we would both say that. When we started, we didn’t think of it as possible. I don’t think either of us had this, begin with the end in mind, we’re going to be rich, we’re going to be spending a lot of time just doing the things we want to do, what we did, and Pat could probably back me up on this, it’s a matter of juggling balls. And we all have the career, the family, all the obligations we have, and the challenge is, how do you throw that new ball in, keep those other balls going and not lose one and not drop the whole thing? So, I think that’s the thing, is just taking… It’s like everybody wants to take the elevator to the top, you got to walk the stairs. And it’s just taking that next stair, whatever that is for you, and you know what it is for you. I shouldn’t say, you know what it is for you, it’s the answer, is getting quiet and seeking advice and getting out in nature to just get quiet enough to get those answers. And that’s the tough part.

Tony:
Yeah, I want to follow up to that. You talk about getting quiet, and that’s something I struggle with tremendously. Because we have so many moving pieces in our business, we’re just like, there’s always things to do, and my mind’s always racing. So, that’s just the way that I live my life unfortunately. So, what are some tactical steps that someone like me can take to find some of that quietness, and how do I get the best out of that quiet time, if that makes sense?

Pat:
Sure. One thing that Tim and I both do is journal. I probably have a hundred journals. I’ve journaled ever since I got out of college basically. No one I knew journaled growing up until I started meeting other successful people, like Tim and David, and find out that they journaled too. And I think it’s a sign of successful people. What happens when I journal is I manifest things. Every idea that I’ve ever had, every company I’ve ever had, every problem that I’ve ever had, I’ve journaled it out and tried to solve the problem in the journal. And sometimes, it doesn’t get solved in there, or it gets solved by a way I didn’t think of or by accumulative of seven or 10 days of journaling about the same thing. But it all passes through there and I think it’s very effective. It’s therapeutic but it’s also very effective in solving problems and in getting off the dime.
And also, I’m like you, Tony. I’m manic at times and I just come up with ideas, and a lot of them they don’t work, but it’s okay, because once I push them on the page, I might come back to it later and be like, “Yeah, that’s a dumb idea.” Or I talk to my wife about it and she’ll be like, “I don’t know. That’s not you.”

Ashley:
Tony, one thing that Brandon Turner has told me that he does is, he’ll get a massage every week and that’s his thinking time. Because you can’t do anything else but lay there and that’s when he has his quiet time to think. So, I would love to do that. So, Tony?

Tony:
That’s not a bad idea. That’s not a bad idea.

Ashley:
Does that mean since it’s for your business, it’s a write off too?

Tony:
It’s a write off. It’s got to be.

Pat:
Absolutely.

Tim:
And I remember when I was in the trenches, just walking outside and taking a walk around the block, if I couldn’t get out, and just getting my heart rate elevated and getting these ideas going through in my head and having a meeting with my board of directors in my head. And then when I had the time, I love the term, getting the goods in the woods, because that’s where all my best ideas ever came from. And whenever I could get out in nature with my heart rate elevated, it was magical and it was like tapping into the universe, if you will, and I come back with just these amazing ideas. I couldn’t wait to have my wife shoot them down, like camps.

Ashley:
Well, you briefly mentioned about the board of directors, can you expand on that a little bit more?

Tim:
Well, there is a piece in this book about having a quit team to help you actually quit, and I think, Pat, you should touch on that. But Napoleon Hill, in this great book, Think and Grow Rich, talked about a board of directors in your head. And if you look at all these different areas of our lives, maybe it’s business, maybe it’s exercise, maybe it’s relationships, having people that are mentors and coaches that help you get clarity of the things that are most important to you. And Pat and I have talked numerous times about this, first of all, both of us have two coaches right now in our lives. We’ve had a series of coaches throughout our lives.
I told you I never went to college, but I wish I would’ve kept score because I know I’ve spent somewhere between 500,000 and a million dollars on education. If you name any of the greats I saw back in the day, Jim Rohn, and Wayne Dyer, and Zig Ziglar, and so many, I could just go on and on with all the different programs I went through, and these people are like my coaches in my head, who I’ll hear their voices. And I think all that helps lead you to beyond what you think is possible.

Pat:
Yeah. And I’ll talk on the quitting. For anybody that wants to quit, we recommend creating a quitting team. And on the team, there’s four categories of people. You’ve got stakeholders, number one. Now a stakeholder would be like your spouse, loved ones, basically, someone who’s going to support you, someone who’s going to say I believe in you, someone who is going to listen to you when you tell them how hard it is, and the troubles that you’re having, and not discourage you. Those are your stakeholders, the people that are in this with you, from a side point of view, meaning, family. And the second one is partners. Now, these are actual people. They could be businesses that you use, suppliers, investors in your company, people like that that are not necessarily owners of the company, but they’re attached somehow. If you do well, they do well.
And they might be able to link you with other people or other businesses to do you a solid so that you do well, and thereby, they would do well, if that makes sense. The third box, and we have boxes in the book for you to fill out names and put at least a couple of names in each box as mentors. Now, mentors are not like this old dude with a beard and long white hair sitting underneath a tree somewhere-

Ashley:
In a blue shirt, headphones on right now.

Pat:
Exactly. This is somebody who actually is in your exact business, we’re a similar business. So, in real estate, this would be like someone who’s been in the… It’s funny, this is relative, I had dinner last night with a guy who owns a big real estate broker and he texted one of his agents and he said, “I’m having dinner with Pat Hiban.” And the guy goes, “Oh, I know of Pat Hiban. He’s the real estate OG, legit.”

Ashley:
That’s quite a compliment right there, right?

Tim:
Now he needs a beard.

Pat:
I was like, “Wow, I’ve been calling a lot of things but never real estate OG, legit.” I was like, “Okay.” So, that’s my rap name, real estate OG, legit. Anyways, so I would be a mentor to that kid. So, somebody who actually has done it and can save you time because they’ve already done it, they’ve already learned the lessons, they’ve already gotten their teeth kicked in so they can keep you from getting your teeth kicked in and save you time so you don’t have to make the mistakes that they made, that would be mentors. And then the last one is coaches. And coaches are different than mentors because the thing that coaches do is they offer the accountability piece. You’re paying them to be a drill sergeant or a personal trainer. You’re paying them to yell at you if you’re not doing things that are going to make you more money.
If you want to get into real estate investing, it would be doing drive-bys of vacant houses where you see high grass, and leaving them notes, or whatever the process is that’s going to make you money. There’s an accountability piece to a coach that a mentor’s not going to… there’s nothing in it for them, they’re not going to alienate you by being a jerk on purpose. But a coach will. A coach, you’re paying money to be a jerk to you on purpose. So, those are the four boxes and we encourage everybody, before they quit or go out in an endeavor of self-employment entrepreneurship, before they do that, fill out two names in each of those boxes.

Tony:
Pat, what a wonderful description of who you need to consult with in your life. And the one I want to drill down on, I think, is the mentors piece. Because for a lot of rookies that are listening, their dream is to find that mentor that’s going to hold their hand and share a lot of the wisdom and lessons learned that that mentor has and pass it along to this new real estate investor. So, if I’m someone that’s new, maybe I don’t necessarily have a big network myself of people that invest in real estate, which is true for a lot of new people, and Pat, I’ll ask it to you first, and Tim if you can follow up, but how can I, as a new investor, find that mentor that’s willing to give me the time and energy of sharing all those lessons?

Pat:
Go to BiggerPockets Convention. Really, that’s how. Here’s an interesting fact, I met Tim at a money convention in Chicago. I’m from Maryland, he’s from California. I was tying my shoes to go for a run in the lobby and he came out in running clothes and was going for a run. And we ended up running together and meeting. We were both interested in money. He had more money than me, he had a lot of real estate, which I didn’t have at the time, so he essentially became my mentor in that. He was also, and is, my mentoring quitting. When I met him, he was 41 or something, and he had just quit. So, I was like, “Wow, this dude quit at 40 years old. I need to run with him.”
But the point is, that’s the answer to your question, you got to put yourself out there with other people that would be your mentor and just grab him in the hall and just start talking to him. And everybody, guys like me, real estate OG, legit people, we’re egomaniacs, we love talking. We get high from talking to people. So, if a young person comes up and asks us questions, we’re not going to be a jerk to them. That’s reality.

Ashley:
Tim, before you go real quick, I want to follow up with Pat real quick on that. So, when you guys went for that run, I want to understand how you treated Tim or how the conversation went. Were you just all of a sudden like, “Here’s my chance, I’m going to drill him with questions,” or was it like, “Let me build a connection, a relationship, with this person and then we go into a mentorship”?

Pat:
So, this might not be the answer you think or recommend. So, first of all, I had happened to be talking to another guy that was Tim’s friend at a social cocktail party, or something, the night before and he’s like, “You got to meet my buddy Tim Rhode.” And so, I knew of him from literally the night before, and I guess, somehow, I might have known that that was him, or something, I’m not sure. But my personality is, and this is not good, I actually have a communication coach that I’m working with that try to change a little bit of this, but my personality is, sometimes, I go too fast into asking questions and it alienates people. They think I’m a private investigator working for their ex-husband or ex-wife or something. No, seriously, I had a woman asked me if I was an FBI agent pretty recently. There’s a story behind it, but I was curious about something and I was asking her too many questions.
So anyway, to answer your question, Tim and I connected over passive income, we connected over real estate, we connected over wealth. The seminar we happen to be at is called Money Matters. So, pretty much everybody there was there to talk about money. So, that’s what I did. We connected after. We grew as friends later, but during that run, it was like, “How many rental properties do you have? How much money…” You know what I mean?

Ashley:
That’s so interesting, and I like to hear both sides of it as to how people build a relationship. And Tim, did you have other people trying to talk to you because of your status at this point during that conference? And why did it end up being Pat that you built this relationship? Or do you have 5,000 Pats around you all the time that you’re friends to all of them?

Tim:
Actually, because of that Money Matters seminar, the next day I went running with David Osborne and Pat, and we became the three amigos. When we started our own mastermind, and that’s turned into GoBundance. And just to take that to the next level, you guys all know Andrew Cushman, he’s a regular on BiggerPockets show. When Pat talks about DAPT, it’s David, Andrew, Pat, and Tim. And Andrew is our horse, and he goes out and finds all the apartments. So, this is really a key piece for all the people that are listening to this is, it’s like we built a team together. We started really small and it was the three of us, and then GoBundance became, from those three, as Pat said, is now a thousand people. DAPT started off as one apartment complex because I knew Andrew from when I used to coach real estate investors and we plugged him in as the one finding all the deals.
So, the point to the listeners is, it’s who, not how. And it’s finding that piece that completes you. And Pat, David and I, together, just took us to another level in our lives of not just finances, but health and fitness, and relationships, and stuff, and we all fed off each other. I would like to touch on the, who did I find for mentors early on, and one was a guy in my hometown, his name was Johnny Viera. And when I changed my identity from Tim List and Sells Real Estate and buys a few rentals, about 2000, I decided I want to go full on into investing and quit listing and selling real estate. So, I made two moves. One, I wrote a plan called Tim is Now an Investor Plan. And two, I reached out to the biggest investor in my area, Johnny Viera, who owned 250 rentals at the time.
And I bought the dude breakfast. And that’s a key point in this, don’t just suck his head, ask what you can do for them. So, I wanted something from him, so I wanted to make darn sure I at least bought him breakfast. And he was so generous. Just like Pat said, he is way beyond. He just threw his cards on the table, or everything he was doing, I’m taking copious notes. And it really helped my investor game. So, I think that’s something that can really help, those around you, and obviously, being into investor meetings and stuff like that. It’s doing the homework, that’s part of those stairs, I was talking about, is doing the things, going to that seminar we went to. What a game changer. That $3,000 has been a $5 million hit.

Tony:
It’s good returns.

Tim:
Yeah.

Tony:
Now, I was just going to say, Tim, on the mentor piece, I want to talk a little bit about the team building too before we move on to that, just back to the mentorship really quickly, I know something that I struggle with is, and I have access to pretty successful entrepreneurs and real estate investors in my network, but I hate the idea of just going to them and asking for things and not being able to provide value in return. And it’s like what value can I give to someone that already has 3000 units? They have their team, they have this, they have that. So, if I’m a rookie, how do I identify ways to add value to these potential mentors? That way, they, I don’t know, maybe give me the time of day.

Tim:
I would find somebody who knows them and knows what they like and finds something you can do to add value to them. Honestly, just buying a breakfast wasn’t enough. It was very nice that he did that, but I would’ve maybe found somebody on his team and find something they’re really into and get him a gift or something like that. But it’s worth it. And it’s okay also just to reach out and say, “Hey, I know you don’t know me, but boy, would you mind spending 15 minutes, 30 minutes on a phone?” Something like that.

Pat:
A great question is, what can I do to earn the opportunity to have lunch with you?

Ashley:
Do you know what the answer would be if someone asked you that though? Because I don’t know what I would say to that, I guess.

Tony:
Same. Same.

Ashley:
Yeah, if someone said that to me. And I think that’s what I struggle with, is I have a lot of people that reach out to me on Instagram and say, “I’d love to work with you. What can I do for you at free time? I can do this.” But I don’t know what to even task them, or assign to them, or what they could send to me, or whatever.

Pat:
The answer to your question is that you don’t have to necessarily really give them something. It’s rhetorical. You’re hoping that they say, “Don’t worry about it, I’m happy to meet with you.” Logically thinking, they could say, “Well give a donation to my charity,” which a lot of rich people have charities that they are fond of or have their favorite charity, if not their own charity. And that works if they ask for that or if you want to do it. The other big thing that I actually talk about in my first book, 6 Steps to 7 Figures, is how to be a mentee, how to be a good mentee. And I think the number one rule to being a good mentee is actually taking the advice of the mentor. A lot of people come to me and I say, “Read this book and do this and do that.” And I never hear from them again.
But when I hear back from somebody that’s like, “Pat, I read all three of the books. Here’s a picture of all the notes I took. I did exactly what you said. I went out there and did this and did that.” I’ll be like, “Great. Stay in touch.” Because it makes me feel good that someone’s actually respecting the advice that I’m giving, because 99% of the people don’t do what you tell them they should do.

Tim:
That’s darn good, Pat. Spot on.

Tony:
I want to talk a little bit about the team building piece. Tim, you had mentioned about DAPT and how it came together, that Andrew was the workhorse that put that all together. So, as I’m looking to set myself up to quit, we talked about the stakeholder, the partners, the mentors, the coaches, but what about the team I actually need once I do quit? What does that part look like?

Tim:
Well, and Pat can relate the to this too, let’s look at three different levels. A, you’re a player in the game. B, you’re a general manager. And three, you’re an owner. And now Pat and I are like owners, but boom, when we were players deepening our bench, one thing that I said all along is, I suck. And my theory is, so many people, they want to do everything, “No one can do it like me.” I never had that problem. All I wanted to do was prospect and list homes back in the day. And one person at a time, I’d get somebody to do everything I don’t want to do. At one point I had five people doing all the things I want to do… or, excuse me, didn’t want to do, to lead me to success. So, I think when as a player, it’s getting the training wheels for yourself, learning what’s your MO, and boy, that’s something.
If you suffer from having to do everything yourself and think nobody can do it better, I challenge you to get out of your way because you’re really limiting yourself. And I’ve always, always, to this day, every single team we have, it’s full of top-notch players, and we don’t do anything, and I rarely did all along, as a player, as the GM, as the owner. I got much off my plate as early as I possibly could to just concentrate on my unique 10%.

Tony:
Tim, I love that. I want to hear from both of you. So Pat, maybe if you can answer first, and Tim, we’ll go back to you. But I think that’s every new investor’s dream, is to be able to build this business where they outsource all the stuff they hate doing, they’re really working in their area of expertise, just the thing that they’re uniquely skilled at doing. But building a team also requires money. And for the person that’s only got one unit, the idea of outsourcing everything doesn’t seem feasible because there’s just not enough revenue coming in. So, as you’re building your business, Pat, how do you know when to start bringing people in? And does it make sense to maybe give yourself a pay cut to start paying someone else to do some of the work that you were doing before?

Pat:
So, the answer is it always does at some point. You should do it yourself for 50 hours, maybe 60 hours a week. If you’re going to make this a full time thing as investing, you should actually work 50, 60 hours a week in building it in the beginning. And just imagine what you could make happen if you actually were dollar productive, meaning, you were actually calling people, or texting people, or leaving them notes, or knocking on the door, or whatever, how many leads you could get as far as houses to buy or whatever it is you’re trying to buy, whatever piece of real estate asset you’re trying to buy, if you did that. And then, because you worked 50, 60 hours a week doing dollar productive activities, meaning, things that make you money, you’re going to have more than one unit, you’re going to have lots going on and you’ll be able to afford to go to Upwork and find someone on Upwork to do what you want to do five hours a week at first, and then 10 hours a week, and then 20 hours a week, and then hire somebody full-time eventually.

Tony:
Yeah, that’s a great example. Tim, do you have anything to add to that?

Tim:
Yeah. When I was selling real estate my first full year in the business, I did what Pat said, I did everything myself, absolute just in the trenches, working my butt off, doing whatever it took to get the job done. I made 70,000 my first year, and I hired Diane McClanahan at 48,000 per year with four weeks paid vacation. She’s the best escrow officer in the area and I grabbed her. And just had this anchor who, as soon as I got it into escrow, I knew it was done and I went into just prospecting and listing. And then my second hire was somebody… as soon as I got the listing, they’d take it from there until it went to escrow. So yeah, doing all the things that I wasn’t good at. And pretty soon it was like, I’d say, “This is my team, here’s my phone number, but you’ll never call me.” They’re amazing, they do everything. And they did.

Tony:
Yeah, I do think that’s a common misconception, not just entrepreneurs or not just real estate investors, but entrepreneurs in general have is that they hear this, the “who, not how” and build the team and do this and do that, but they miss the fact that that’s a gradual process, and that it’s not supposed to be on day one, or day 30, or day 90, or day 180, or day 365, it’s years down that grind when you’ve really built that financial nest egg to be able to afford that team member, where you can start outsourcing things.

Tim:
You got to mop the floors.

Tony:
There You go.

Ashley:
Tim and Pat, my next question is along the same lines, as having the money to pay your team, but before even that, what kind of reserves or what should your financial position look like before you actually quit?

Tim:
Mine was not by the book, let’s just say. I think most people would want a little more in reserves than what I did. When I tapped out at 40, it wasn’t like I had a big massive reserve or big money was coming in, it was barely there. And I believed in myself, and just knew all the things that got me to this place was no longer working with me with my old incarnation, which was selling real estate. And then I want to, just for investing, I knew if I just worked at it and did the same thing I used to do just for I’m going to be the customer instead of the client, that I knew I could make it happen. So, my answer is yes, it’s wise to get money behind you and to have a nice cushy place to jump off. But sometimes, it’s time to just make the move and it’s best for you not to.

Ashley:
Well, thank you guys so much for joining us on the podcast. Can you let us know where everyone can find your book and where they can reach out to you guys?

Pat:
Yeah, that’s easy, biggerpockets.com/quittersmanifesto. Name of the book again is, The Quitter’s Manifesto, Quit a Job You Hate For the Work You Love. Quitter’s Manifesto. So yeah, we’re excited. BiggerPockets has been a great publisher for us and we think we have a really good book that’s going to help millions of people. Everyone that’s read it so far has given us rave reviews on it. So, I hope that anybody listening, go ahead and pick it up. It’s an easy read. It’s what we call an airplane read, which means you could buy it in an airport, read it on your flight, and be done when you land.

Tim:
Thanks for the opportunity, Ashley and Tony, and we’ll see you all at BiggerPockets Conference this fall in San Diego.

Ashley:
Yeah, that’s going to be October 2nd to the fourth, so we hope to see everyone there. If you haven’t checked it out yet, go to biggerpockets.com/events. And if you want to check out their new book, you can find it in the BiggerPockets Bookstore. So, Pat and Tim, thank you guys so much for coming on and we also look forward to meeting you guys there at the conference in sunny San Diego.

Tim:
Look forward to it.

Pat:
Look forward to meeting you guys.

Ashley:
I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson, and this has been another Rookie Reply.

Dave:
Hey, everyone. Welcome to On the Market. I’m your host, Dave Meyer. And I am joined today by James Dainard. James, what’s going on, man?

James:
Just grinding out deals, Pacific Northwest, trying to get more inventory in the door.

Dave:
How’s that going? You pretty active right now?

James:
Yeah, we are staying fairly active right now. What we’ve been doing is fixing all of our systems, pivoting all our systems. And we’re wrapping up all the inventory we’ve bought over the last year. And then we’ve been aggressively … actually, we’ve gotten contracted over on $16 million in deals the last four weeks. I just closed on two fix-and-flips. And they’re all sizes: fix-and-flips, small guys. One big one, I paid 400 for, one, 1.5 for. I just got a duplex for 1.1. And then we locked in a pretty big deal for little above 10 mil, so moving things along.

Dave:
That’s awesome, man. Well, keep it up. That’s great to hear. Today for the show, we have Ben Miller, who is the CEO of Fundrise. And full disclosure, Fundrise is a financial sponsor of this show. But Ben is an incredible wealth of knowledge. It was so fun having him on. I feel like you guys have a lot in common. You’re both deal junkies and just love talking shop about individual real estate deals and strategies. What’d you take away from the interview that you think the audience should listen for?

James:
He definitely is a deal guy, which is always good to invest in a deal guy, because when I said I stayed at the office till midnight, his eyes perked up. He’s like, “Yes, I get you.”

Dave:
He’s going to make you a job offer after this interview.

James:
Hopefully not. I don’t know if I can take on anymore. But it was just nice talking, because as small investors, we go toe-to-toe with some of these big guys. And just to see where their strategy is and how they’ve pivoted out and are doing things, I was really excited to hear about their efficiencies and how, basically, they make the return by being efficient. And that’s the kind of product they’re looking for. They’re not just looking for the best deal, what fits inside the box. And that’s so key in today’s market right now. As the market flattens out, you have to be really good at what you’re going to do to hit your return. And that’s the same with these big guys. The small guys are no bigger than the big guys. They’re doing the exact same thing. How can they be efficient? How can they deploy the money and deploy it in the right area?

Dave:
Yeah, absolutely. And Ben, in addition to talking about these efficiencies, gives some really good advice about what markets he’s investing in, a whole new asset class in buy-to-rent. We had a really good conversation about that, that I was super interested in. And just shares his thoughts on where the market’s going over the next couple of years. So definitely stick around for this interview with Ben. And we’re going to invite him on in just a minute, but first, we’re going to take a short break.
Ben Miller, CEO of Fundrise, welcome to On the Market.

Ben:
Thanks for having me.

Dave:
Thanks for being here. We’re super excited to have you. Before we get into some of the market conditions and what’s going on in your business, would love to just hear a little bit about your background and how you got started in real estate investing.

Ben:
All right. Well, so I’ve been in this business about 23 years. I started out in real estate, private equity, and then moved to the real estate development sponsorship side. So worked for a large mixed use development company in DC. We were building about half a billion of real estate right when 2008 financial crisis hit. And so I have scars and burn wounds from that experience. And after that, I came out of it thinking, “Well, there’s got to be a better way,” and conceived of the idea of raising capital through the internet for real estate. And we essentially invented that concept in 2012. And Fundrise was birthed with the idea of basically creating a future of real estate where individuals can invest in real estate the same way institutions or high net worth investors can. Before Fundrise, large real estate was only available to large investors.

Dave:
So yeah, you have experience, obviously, on the large institutional side of things. And I’m curious, what sort of advantages do institutional investors like private equity or these developers that you’re working with have that retail investors like myself don’t have?

Ben:
I think there’s two. I mean, one is just the type of products you can buy. So if you thought that skyscrapers were great investment, only institutional investors can do that. So there’s certain types of asset classes, like data centers, that basically are only institutional investors. And the separate is just the type of financing you can get, the type of operations. There’s a lot of economies of scale. So from an operations point of view, let’s say we own 20,000 apartment and residential units. That’s very different than owning three.

James:
So Ben, when I was looking at your guys’ fees and structure, because you guys are large and you’re deploying out so much and buying, is that how you guys can control your fees so much throughout, is because you’re just doing the bigger skyscraper deals, the larger deployed capital? Is that how you guys are so competitive in what you charge?

Ben:
I think it’s a combination of things. We definitely operate at scale. And that’s something that we are now. In the beginning, we had to grow into that. And in the beginning, we basically were just subsidized by our investors. So we had lower fees and we were losing money in order to basically get to scale. So our fees are super low, much lower than other institutional. If you were comparing us to Blackstone or Starwood, their fees are five, 10 times higher.

James:
Is that your typical competitor on a deal, like Blackstone or one of the bigger, bigger institutions?

Ben:
Yeah. On the buy side, when we’re buying apartment buildings, we saw Carlisle a lot. Yeah, those types of institutions were … not so much Blackstone. Blackstone buys platforms, but so other private equity funds.

Dave:
For those in our audience who aren’t really familiar with the traditional real estate private equity business model, like Blackstone or some of the people you used to work for, can you just explain how they make money, what their objective is, just in a general sense how this sort of market of raising money for private investors to buy large scale real estate works?

Ben:
Yeah. I love that question. So I put a lot of thought into that because to understand how to disrupt an industry, you got to understand how it works. So there’s really a lot of value chain in the industry. So you start with large pools of money, typically pension funds, so maybe California State Teachers, they run $20 billion … sorry, $200 billion. They have all these advisors, all this bureaucracy. They basically allocate money to private equity funds, or private equity funds raises money from those big pools. And then private equity funds turn around and invest it with real estate companies in local markets.
So there might be a local developer in Seattle who knows all about office or apartments in Seattle. And that private equity fund will back them in sort of a 90/10 deal, 90% from the private equity fund, 10% from the local sponsor. And so it’s really like the whole industry is made up of sort of three major players: the funds that allocate the money, the real estate operator who runs the deal, and then the actual large pools of capital, like the Norwegian sovereign wealth fund, for example, trillion dollars. They have to put that money to work. So it’s actually really a lot of it’s about getting those flows into real estate.

Dave:
And what are the sort of benefits that either an individual investor like myself or James, or someone as large as the Norwegian sovereign wealth fund, why would they choose to allocate funds into real estate private equity when they have every option in the world for where to invest their capital?

Ben:
Yeah. Well, I mean, okay, so these large institutions will allocate their money everywhere. So they typically diversify across every single asset class. And so, real estate typically gets about 10% of all their assets. And so, it’s really about diversification. So that’s how these big institutions think first. First, diversification. And then once they get diversification, they go inside of a subsector, like real estate, or maybe it’s venture capital, and say, “Okay, I’m going to allocate X percentage to this sort of asset class. And inside that asset class, I’m going to find experts who are best at investing in real estate or infrastructure or green power,” whatever the asset might be.
And so it’s a very special problem having to invest a $100 billion. It’s hard for most people to imagine, how is that a problem, right? It doesn’t like a problem. But when you get into it, typically, private equity is achieving pretty good returns. It’s usually beating the stock market, for the last 30, 40 years. And so, that’s why they invest in it, right, because it’s been historically better outcomes than public stocks.

James:
So on BiggerPockets, there’s a lot of active and passive approaches to how people want to invest in real estate. And obviously, on BiggerPockets, there’s a lot of new investors or people like me that we’re trying to grow our portfolios. And we’re very active. It requires a ton of work on our side. I know I was at my office till midnight the last three nights, just getting my hands dirty, getting things done.

Ben:
My kind of guy.

James:
Yeah. I will put in the hours, but it does have some wear, right? And a lot of investors are more passive where they don’t want to stay at the office till midnight worrying about their construction budget or crunching numbers and getting that next deal done. Is your typical client mix more of a passive larger fund, or these bigger institution, or do you have a lot of smaller investors too, that just are … For me, after a certain amount of years, I will be sick of keeping my hands on everything. And I just want to put the money out, right? But we’re just trying to build that huge [inaudible 00:11:08]-

Dave:
No, you won’t, James. You’re addicted. You know you’re addicted.

James:
Probably not. I am a true deal junkie [inaudible 00:11:15].

Dave:
You keep telling yourself that.

James:
That’s the theory, right, the whole financial freedom I’m chasing. Who’s your typical client that goes … is it larger funds, or is it smaller investors also looking for that passive income?

Ben:
Yeah, so we have 350,000 active investors. So we have a huge number of people. And so, that basically it’s hard to describe any one persona. There’s all different kinds of people. There’s a lot of software engineers who want to invest in real estate. There are a lot of financial professionals. I go in to meet investment banks. I was meeting with some investment bank before COVID. I was sitting in the room. And it was their investment banking group. It had the real estate group and it had their tech group. And the older 60-year-old managing partner was trying to ask me about Fundrise. And I was like, “Well, who in this room are investors in Fundrise?” Everybody under the age of 40 raised their hand, so half the room was actually my investor.
So it’s a lot of different kinds of people, but I find the thing about real estate, there are new real estate investors who are interested in learning. They want to get their feet wet. Maybe they want to take a small amount of capital risk. So maybe they’ll invest a thousand. They don’t want to go put $50,000 into one deal. But you know who loves to invest in real estate? Real estate people. So you have all these big real estate people who also like to say, “Well, I have my real estate where I’m active, but I have also other real estate I invest in. Sometimes I invested in Fundrise. Sometimes I help other people in the industry that are rising stars.” So it’s so diverse. And that’s one of the interesting challenges, because we have this range of people who want tons of information and are really sophisticated, and people who don’t know what a cap rate is.

Dave:
That’s a really good point. We talk about on the show a lot about diversification. And I think a lot of people assume that means diversification between different asset classes, like stock market bonds. But I at least, I think James is a living example of diversification between real estate assets, right, like being able to buy single families and short term rentals. And so it sounds like a good portion of the people who are investing in these passive deals might also have an active portfolio and are just trying to balance how they’re spending not just their capital, but their time, right? Because probably people don’t have unlimited time to go acquire deals at the rate James does.

Ben:
Yeah. It’s actually the easiest people for me to talk to is a real estate person. And they get comfortable with investing in things they know. So a real estate person can underwrite real estate, like, “Oh, I get this.” But if I were to bring you machine learning, “Do you want to invest in machine learning?”
They’re like, “I don’t know. I’d have no idea how to make that decision.” So a lot of times people invest in things they understand. And so, a real estate person would start with us and say, “Oh, hey. Actually, you guys really have a deep specification here. I’m interested.” And they might want to invest in a geography they’re not active in, or a product type; as you said, they’re an office guy and they want to go invest in residential.

Dave:
I invest passively, I mean, primarily at this point. And one of the things I like most about it is being able to get into geographies that I’m not in currently. What markets are you heavily invested in? Geographically, are flooding the Sunbelt, just like a lot of people are on this show, or-

Ben:
Like everybody else?

Dave:
Yeah, exactly. You don’t have to give away your trade secrets, but are there any geographies you’re particularly interested in?

Ben:
Yeah, it’s funny. So Fundrise has been around since, as I said, after the financial crisis. And we were all in on urban infill in 2012 and ’13, ’14. Anybody who was in real estate knows that the emerging neighborhood was where everybody was investing. And then 2016, we pivoted and started really investing in the Sunbelt and selling all this stuff in Brooklyn and DC, and so we went heavy Sunbelt. Our 20,000 residential units are all Sunbelt.
And so now, I still think Sunbelt’s where it’s at. It’s just I think it’s all about build-for-rent rather than multifamily. I mean, I think both are good. But yeah, I still think Sunbelt’s got the runway. I still think that an Austin or a Nashville will just keep on building. The only place I’m interested now is new. And really, Columbus is interesting. I think Columbus could be … I mean, not interesting to go to [inaudible 00:16:15] not. I work with somebody from Columbus, so I always like to tool on Columbus. But yeah, I think Columbus has got a huge amount of growth coming that’s really going to be interesting, because of the Intel chip plant they’re going to build there.

Dave:
Oh, okay. I’ve been to Columbus once. It was pretty fun. I had a good time.

James:
Hey, Ben, how often do you guys analyze that strategy and look at pivoting? Because I mean, at some point you made a pivot in 2016. Do you guys audit that once a year for your strategy, or how far down the road are you forecasting when you’re looking at making that … That’s a big change, right, going from what … that’s a totally different type of market, emerging cities to Sunbelt. How often do you guys do that in forecast?

Ben:
Yeah. I mean, back then we did it because we were investing across the country, but mostly in urban infill. And we were learning from doing deals. One of the things you do is if you invest in a deal, let’s say in a new market, you learn a lot. And if it’s going well, then you can actually double down. And so, we were invested in a few emerging markets, which at the time … I remember actually I had a person who used to work for me. And they were like, “You got to sell everything in Florida, because the next recession, Florida’s going to get killed, and New York’s going to basically do great,” because that’s what happened in every other financial … Every other financial crisis, going ’08, 2001, the sort of Sunbelt got killed. And this was totally upside down of how it normally happens.
So if you like an intuitive answer and an analytical answer, analytically, we have a hundred software engineers. So we’ve been building software into our system so we actually start getting real time data from all of our properties and also, I don’t know, like 14 million other properties, some huge number. So we can really see what’s happening on the ground and have a good sense of where growth is, and essentially where rent growth is, and occupancy delinquencies. So, that’s a huge part of it.
And the other part of it’s what I call is top down. It’s really easy to see that when something’s getting really expensive … like if you’re in New York and there was a two and a half cap back in 2017, people assumed rent growth had to go to like $8 a square foot. They just don’t believe that, right? So at some point, the Sunbelt will get too expensive relative to the gateway cities, to the New Yorker and LA. And that’s when it’s over. That’s when it’s topped. And so it’s really a question of, you do bottom up analysis in the weeds, and you do top down analysis, looking at the big picture. You have to do both.

Dave:
And how do you make decisions about that? Do you have an investment committee? I guess I’ll say I hope you’re not just making algorithmic decisions like Zillow was doing, and failing out for a while.

Ben:
Yeah, yeah. Right, right. So Fundrise is 325 people, and so we have a lot of real estate people. And we’re in a lot of markets. So it’s driven by the people first. The software just makes it easier to see the information. But the idea that software is going to replace people in investment decisions, I think that’s a big mistake. That’s not where our software will make improvements. Our software can make improvements on the operations. It’s really the operations where the software can improve, basically all the work that’s done after you buy it. But whether or not you buy it is a human decision.

James:
So you use the software to increase the return, but not analyze the return?

Ben:
Yeah, and manage it. I mean, we actually intend to roll the software out to third parties, probably in about a year, because there’s actually nothing really like it out there. But we built it for ourselves. And we know it’s good. We know it works. And so, we’ll make it available more people, but it’s like, this is going to take time. We just don’t have the bandwidth.

Dave:
You said something earlier, Ben, about build-to-rent and liking it better than multifamily. We just did a show with the national … God, I’m going to butcher this. It was Multifamily Housing Council. And they were talking about just huge demand for multifamily units. And that, I think, bodes well for the future multifamily. But I’m curious if you have a different take. What do you like about build-for-rent as an asset class, going into the future?

Ben:
So we got into that build-for-rent around 2019. We’ve been trying to get into single-family housing since 2017. We couldn’t find a way to do it at scale where it was efficient. And the reason we went into it was we saw our office is made up of mostly millennials. And the millennials are turning 30, having kids, leaving cities. They need more space, and a house. They want a house. And the second thing that happened that we didn’t expect was work from home. And work from home, I think, is the biggest social revolution happening. If you go back a hundred years, people used to work on farms. They moved to cities to work in factories and office buildings. Now, they’re leaving cities and they’re leaving office buildings. It’s that big a social change. And so work from home, I think, is going to drive residential value. It’s going to take a trillion dollars out of office and put it into residential value.
And so if you’re going to work from home and you have kids, are you going to do it from a one-bedroom apartment downtown, or are you going to do it from a house? So I think the house is a better consumer product. It has a backyard. It has light. It’s actually cheaper per square foot. And you’re willing to basically commute, because you don’t have to commute as often anymore, because you’re working from home. So basically, it’s like an iPhone is a better product than Blackberry. The home is a better product than the apartment.
And so we said we wanted to invest in that, but we didn’t want to go buy single-family homes, because basically that would put us in competition with our customer. Our customer wants to buy a home, and they don’t want to compete with a billion dollar institution to buy it. So we said, “Okay, well we can’t compete with our customer. Well, let’s build it.” And if we build it from scratch, we can build it designed to be this new thing. So it’s like an apartment building laid down on its side. It’s got amenities like a swimming pool and a clubhouse, and all the things you would have in a really cool apartment building, but instead in a hundred-unit community where you have a dog park, running trails, all these cool neighborhood features. And we run everything. You don’t have to deal with lawn care. You don’t have to deal with maintenance. So it’s like a really cool product. And I think it’s just going to become a big part of the industry.

James:
Did the build-for-rent have anything to do with implementing the plan, too, and efficiencies? Because we build 50 homes a year in Seattle. We renovate about a hundred homes a year. And I can say renovating is substantially less systematic than building. Building, you go through the plans, permit, you’re hiring professionals. It’s managed all the way through. And you can actually control it a little better. Whereas remodel, every house is so different. Does it have anything to do with that and keeping your deferred maintenance down? Because I know on our new build apartment buildings or rentals, we have way less deferred maintenance and way less issues, because the remodel, there’s always those trades that do things a little bit different, a little bit wrong. And then you have to come back and fix those things. Does that have any impact in making that decision, remodel versus … or was it all about who your consumer was and what they were trying to do?

Ben:
Yeah. Yeah, totally. So you know more than most people about this. So we started out in the remodel. We bought about 50 homes in LA. And it was a nightmare. Every home was different. The permitting was just horrible. We constantly had squatters breaking in. It just didn’t scale it. We couldn’t pull it off. And we were like, “Okay, well, we still think this is a huge macro trend.” And so we went to home builders. We actually also bought land and said, “Oh, this is zoned for 400 suburban apartments. Let’s build 200 single-family homes instead.” And so we went to a home builder and said, “Hey, we want to build 200 single-family homes here.”
And they’re like, “Oh, interesting. You want to buy homes? We build a lot of homes.” And we found that the home builders can build homes for way cheaper, because they build 10,000 homes a year. So they can build homes way cheaper than even if I sat down with a development company and did it. We might build for $200 a square foot, and they’ll build for 150 a square foot. So we partner with home builders. And those home builders basically build us. We’ve built like 5,000 homes so far. And we’ve really built a lot, and we intend to build more. And so the home builder at scale can deliver basically a bespoke product that’s designed for long-term ownership rather than, as you said, the renovations, which are mostly like, make the renovation and sell the house before the deferred maintenance comes home to roost.

Dave:
The type of development you’re describing sort of reminds me of some of these planned communities that honestly I’m more used to seeing older people, retirees live in. Are you appealing to the work from home demographic and younger families? You were talking about the impetus for this being millennials buying homes. Is that who you’re building the product for?

Ben:
Well, that’s who we thought we were building it for. It turns out it’s like everybody. It’s so diverse. Here, here’s one interesting stat. A typical apartment building, 25% to 30% of people have a dog. And in build-for-rent, 70% of people have a dog.

Dave:
Whoa.

Ben:
Right? Because you have a backyard, right?

Dave:
Yeah.

Ben:
So guess what? People who have dogs want to live in a house rather than apartment. So there’s all sorts of drivers for why you want to live in a home with a backyard and more light. So when we compete on apartments.com for renters, you’re selling basically a different experience. And I think for a lot of people, they didn’t even really know that was available, the idea of renting a home that’s not from some random mom-and-pop who’s not going to have that good of a property management capability. So it’s a new asset class.
Real estate, if you go back 20 years or longer, as long as I’ve seen, right, real estate actually births new asset classes every decade. So 20 years ago, there were zero data centers. Now, data centers are a huge part of the business. 20 years ago, cold storage wasn’t a thing, self-storage wasn’t a thing, cell tower rates weren’t a thing. Single-family rental as an asset class got birthed by Blackstone, with Invitation Homes. So these new trends show up, and the old trends like retail and office die. So it’s a key part of real estate, is being part of the new trends.

Dave:
That’s very interesting. James, I’m curious, would you ever build for rent at your scale, or does this only work at scale, like Ben is talking about?

James:
I think it works more for large short plats, because the larger the plat, the cheaper it gets. It’s like when you build a home, if you build a 4,000 square foot home versus a 2,000 square foot home, your price per square foot’s going to be a lot cheaper on the large, because your core areas are still the same. But when you have these big plats, they can really cut the cost down. So we build infill. Our largest sites’s probably 12 units, 12 town homes. We do all town homes, mostly four to 12 unit sites, because that’s what you get in infill. Our build cost around Seattle’s about 275 a foot, from development to finish. And it’s getting you a higher end product, too. But if we look at our tract home, like my clients that are tract homes that are buying more like hundred plat sites, they’re building in the low 200s.
And so it makes a huge difference in your bottom line when you can get scalability. Plus, you get the efficiencies out of the renting, the property management, the maintenance. Everything’s in one central location. And so yeah, the larger the plat, the cheaper it’s going to be.
And the other good thing about the building to rent on these large plats is the typical timeline for purchasing these is to close on permit. When you’re negotiating a lot of these deals, you get a close with the permits, and it could be a year or two down the road. But you can get building day one, whereas in infill, on the smaller stuff, it’s such a hot market that sometimes we have to close half the time that we would need for the permits. And so, you can systemize out the bigger plats just substantially better. But the downside is you’ve got to have Fundrise money. You can’t go buy it. I’m not going to go buy a 100 unit plat, because I’m going to be putting everything into one pot. And so yeah, the bigger the money, the bigger the scale.

Ben:
Yeah, that’s exactly what we found, because we have a mentality we hate to outsource anything. We always do try to do things ourselves. And we started out trying to build these things with our own capabilities, and the home builders just crushing our execution. So they’re building $150 a square foot. We couldn’t build for less than 200 a square foot. And they’re building for 150. I mean, we’re literally buying homes right now in Austin, above Pflugerville, for 130 a square foot. They just have such scale. And they buy like 10,000 countertops. They just have such control over their supply chain.
Now that I understand that business, it’s really a factory. It looks like a real estate company, but it’s actually a factory. And everything is about how something moves through the factory floor. The plumber is coming exactly on time. If you’ve done renovations at home, like one project, there’ll be this massive downtime between when the electrician is supposed to come and when the guy’s supposed to close it up with drywall. And then people won’t come, and it’ll be delayed. You can’t actually close up the wall because the electrician hasn’t shown up. And so, it’s all about coordinating the trades. And you can do that with a home builder in a way that you just can’t do that as … Even a hundred homes, it’s not scale.

James:
Yeah. It’s like the whole premise of the Toyota manufacturing plan, where they build the cars that are constantly moving; or Boeing, same thing, where you get so much more … Because your labor guys go, “Here’s my house. I got to walk next door. Here’s my next house.” Whereas with remodels, you got to drive an hour down the road, and you don’t know exactly when it’s happening.

Ben:
Right, right. So a lot of times people ask me about cap raises and stuff. And we buy on basis. If we can get a C of O for $150 a square foot in Tampa, I’m feeling pretty good about that. And exactly what cap rate it’ll end up leasing up to is … cap rates come and go. I mean, when I started in the industry, you’d be like, “Okay, we build to a 12?”
And I was like, “What? A 12?” Now, people are building to a five, maybe four, maybe a six. So cap rates will come and go, but your basis is forever.

Dave:
So I mean, just for people listening to this, it sounds like there’s not really a good way for a retail investor to go out and get into this asset class of buy-to-rent, with the exception of Fundrise, I guess, they could get in it. Or are there other ways that people can hop on the build-to-rent bandwagon?

Ben:
I mean, it’s really new. It’s a new space. I mean, seriously, there are probably 50,000 units across the country. I think there’s like 50 million apartments. I mean, this is really new. I mean, I’m talking institutions, because they want to do it too, they can come in and co-invest with our customer. I love the idea of a multibillion dollar institution investing next to a $10 investor. That doesn’t happen in normal life. But the platform we built basically is a platform that they want.

James:
And what kind of investor … for the smaller investors, they have to be accredited to invest in your-

Ben:
No.

James:
No?

Ben:
No, no. Anybody can invest, yeah.

Dave:
Oh, cool. So how does that work? Because normally on a syndication, you have to be accredited. There’s a minimum of, I don’t know, usually 50 or 100 grand. How do you get around that?

Ben:
By going through it. So our vehicles are publicly registered. So we actually go to the SEC say, “We’re going to have a strategy to invest in build-for-rent. And we’re going to basically allow the public to invest in it.” They work us over, to no end. And then we get it cleared. And so that’s why anybody can invest in it.

Dave:
Oh, so basically the reason you have to be accredited for a syndication normally, correct me if I’m wrong, Ben, is because they’re unregistered securities, right?

Ben:
Right.

Dave:
It is not vetted by any government entity, like stocks, for example, which are regulated by the SEC. And so you’re saying you register your investments with … is it the SEC, or is it a different-

Ben:
Yes, the SEC. Yeah.

Dave:
It is the SEC. Wow. Are you the only people who do that?

Ben:
I mean, it’s-

Dave:
You don’t have to tell me your trade secrets.

Ben:
No. I mean, I don’t want to say categorically there aren’t people who doing it. But I mean, yeah, the idea of going direct to consumer, registering the funds … I mean, again, that’s a scale thing, right? You’re not going to do it for a 50-person syndication, but with 350,000 investors, the cost to do it is significant, right? I mean, we have 50 accountants in house. We have five in-house attorneys. There’s a lot of grind on it. But across enough people, the marginal cost is almost nothing.

James:
Yeah, because they look under your hood a lot more at that point, right, the SEC [inaudible 00:35:46] the big difference is-

Dave:
You’re feeling violated, Ben?

Ben:
Yeah.

James:
But that’s why so many people set up these syndications with unregistered securities, because I mean to Ben’s credit, that’s a lot of work. And if it’s not worth the headache if you’re doing a 50-unit apartment building, because the cost and the audits and the qualifying is pretty good. But that means that your investor can feel pretty good about putting money with you though, because I mean, it’s getting an extra pair of eyes in audit, compared to a lot of other syndicating platforms.

Ben:
Yeah, yeah. I mean, we’ve been doing it for a while. And our CFO, my CFO was chief accountant at the SEC. So we have expertise. After a while, you know what you’re doing. And just like anything, I’m sure with real estate when you first started … You talked about doing an 80-unit apartment building before we started this show. When you started, you were like, “How would I do that? I wouldn’t know how to do that.” But once you know how to do it, it’s not that complicated. It’s just knowledge. And so, working with regulators, understanding what they care about, giving them what they need. Once you understand it, it’s not rocket science.

Dave:
I can’t imagine what the SEC would do if they looked at my personal real estate investing and the way I’ve kept my books over the last 12 years. I’d probably be in jail. Not that I’m doing anything illegal. I’m just a little disorganized, okay?

James:
We’re going to have to edit this part out. Hey, Ben, have you guys had any problems with inflation and supply chain issues in this build-to-rent? Because obviously that’s been tough for us as builders, controlling our cost. Actually, randomly, it’s been easier for us to control our costs more as a builder than a remodeler. The remodeler has been tougher, because I think the labor market’s less experienced, and so they charge more. But what’s inflation been doing to your returns if the build cost goes up, or how do you mitigate that, or how do you deal with inflation?

Ben:
Yeah. There’s a lot of complexity in what you’re asking, so let me just pick a few things because, yeah, it had a huge effect on everything. I mean, everything was going crazy last year, especially. So I’ll just give you … so the reason we broke through with build-for-rent is we went to these home builders in 2019. And we were talking to them and they were maybe interested, but mostly they weren’t interested. Then March, 2020 happened. If you remember March, 2020, when the stock market collapsed 40% and people were locked down, guess what people were not doing in March, 2020? Buying homes.

James:
Except for me. I was buying.

Ben:
Most people were not. So the home builders had all these homes. And all of a sudden, the industry just stopped on a dime. And they turned around to us and said, “Do you want to buy these homes?”
And we said, “Yes.” So we went under contract for half a billion dollars of homes that summer.

James:
That was a good month.

Ben:
Yes, because then they had to deliver them. We’d go under contract, and they’d deliver … You know home builders, we go under contract, and they deliver them over the next … It took them like 18 months to deliver all those homes. And so yeah, our contract price was like scorchy. And they would come back and they would be like, “I know we’re under contract, but every single cost is going up. Can we talk about this?” So we had a lot of complexity there.
And then they’d deliver … we’re talking about delivering 100 homes a week. We were buying a lot of homes. And they’d deliver them without refrigerators, without a kitchen. We’d go in for the inspection and it’d be missing a kitchen. They would just not be able to get certain things, like in Texas, we couldn’t get door hinges. They would deliver the home and be like, “We put these hinges on,” but you knew the hinges, the hinges opened out. And so you can’t have the hinges open out because then somebody can walk up and just unscrew the hinges and take the door off the house. So there was just all these little things that they had these problems around. We had a person driving around buying refrigerators at Costco so we could actually rent the houses, because we had these houses without refrigerators. So yeah, there was all sorts of chaos happening.

James:
When they say timing is everything, that’s the best time. So you bought it cheap. So the build costs were locked in too, when you committed to that?

Ben:
Yeah. There-

James:
Oh, that hurts.

Ben:
Yeah, yeah. There was one deal we were under contract with, and the builder had a $5 million liquidation. To break the contract with us, they had to pay us $5 million. And they literally just broke the contract: “We’re just breaking this contract. We can’t”-

Dave:
Whoa. It was that bad? Oh, my God.

Ben:
It was that bad. It was in Austin. And the price of the homes had inflated so much, they’re just like, “We’re just walking away from this contract. Forget about it.”

Dave:
Wow. That’s insane. Are you starting to see that level off now? Are things getting better in terms of supply?

Ben:
Oh, yeah. Well, supply chain’s still a little messed up, but the home building industry’s now flipped again, and sales are falling. And I’m like, “Oh, I’ve seen this movie before.” But this time, like last time, there was nobody doing this. Now there’s more money now chasing build-for-rent. So we’re not the only sort of buyer in the space. But yeah, as you know, the market is shifting a lot right now. There’s a lot changing.

Dave:
I know you don’t have a crystal ball, but where do you see things going over the next year or so?

Ben:
Yeah. I mean, in some ways, the next year’s easier than the following. We’ve been saying since January that interest rates are going to be higher for longer. And Powell last week at the Jackson Hole meeting said 4% Fed funds rate for all of 2023. So that means basically you’re going to be borrowing at 6% or more, where you used to borrow at 3%, or at least that’s where we were borrowing.
So I think the industry’s going to grind to a halt. I think most things don’t pencil at more than 4% interest rates, I mean, base interest rates, like the Fed funds rates. And our expectation is the surprise is going to be that inflation doesn’t come down as much as people expect, interest rates stay higher for longer. And it’s almost like people are like, “Well, how can that happen? That’s so bad.” And it’s like, “Because it doesn’t care how you feel about it.”

Dave:
Sorry, but that’s the truth.

James:
Well, and it’s also history repeats itself. That happened in the ’70s, right? It just stuck, and then they had to get it worked through the economy, and on to the next thing.

Ben:
Yeah. I mean, I don’t know what you’re seeing, but we have 300 people, wages. It’s super competitive for labor; food, everything. =I’m not seeing inflation come down in any meaningful way. So why do I think it’s going to all of a sudden just shift? It just doesn’t seem likely to me. So the thing we did, we really slowed down investing back in January, and we started building up cash. So we have like $700 million of dry powder right now. So we were ready and fairly ready for the shift. And then the shift’s going to be you need to go and to invest in credit. That’s another learning, because I’ve been in this for a while. In a financial crisis, all the action happens in the liquid credit markets. Like in 2020 or 2008, you couldn’t really buy properties, but you could buy the paper. And so the paper is where the pricing shifts a lot faster, and you can get way more distress. But that’s a whole different part of the real estate industry that most people don’t see, CMBS, RMBS, asset-backed securities, that kind of stuff.

James:
Oh yeah, because they’ll dump that paper cheap. I remember one of the best deals I ever did in 2009, I didn’t even know how good of a deal it was when we did it, someone came to us … they had a 10-unit in foreclosure, and it was a private lender. And they’re like, “Hey, we want out of this.” They sold it to us for 50 cents on the dollar. And then we were running it like, “Oh, okay, cool. We’re going to be able buy this. We’ll foreclose it. No one wants it.” And it ended up getting bid up.
We bought it a week before the auction. We bought the paper. We took it down to the auction steps. We foreclosed it. And then it got bid up. They were stepping it against us, because we wanted to keep the building. We had no intentions of selling it. And we made like a 300% return on our investment in 10 days, because someone really wanted it. And we had no intentions of selling it, but we’re like, “That was the easiest.” We didn’t have to touch it. We didn’t have to do anything. The guy gave it away. We got it escrowed, and it was just a win all the way around. It’s amazing what that can do.

Ben:
Yeah. So we’re all in the real estate business, but there’s this shadow real estate industry that you don’t know about, where all of the things you do where you borrow money, you buy an apartment building, you buy a house, eventually, most of that asset’s actually financed. And then there’s this whole parallel real estate world of credit markets where people are buying your paper and levering it up too, right? So actually, when you buy a house, you buy an apartment building, you’re borrowing maybe 75%. And somebody behind the scenes has bought that paper and levered it up 10 times as well. And then somebody bought their paper and levered it up 10 times more. And so, the shadow industry of trillions of real estate, just the debt, it’s become much more attractive than the equity.

Dave:
That’s super interesting. Yeah. I actually was just looking last week at investing into a note fund. It seems like a really good place to be investing right now. Ben, I know we only have you for a couple more minutes, so maybe we’ll have to bring you back to talk about note investing and [inaudible 00:46:04] the credit markets. That would be super interesting. But before we go, can you just tell our audience about where … obviously they can find you on fundrise.com, but if anyone wants to connect with you, what’s the best place that they can do that?

Ben:
Well, I am active on Twitter, so my Twitter handle is @BenMillerRise, like Rise, @BenMillerRise dot … So you can hit me out there, LinkedIn, contact at fundrise.com. Anytime anybody emails me at the main email address, I always get it. So I’m always interested in hearing people. You learn a lot. Our actual investor base is constantly communicating with us. And we’re always learning about really interesting things. We basically have people everywhere at this point. And they’re really generous with sharing information. So I love to hear from people.

Dave:
Awesome. Great. Well, Ben, thank you so much for being here. This was a lot of fun, and learned a lot. And we’ll have to have you back on the show sometime soon.

Ben:
Great. Excellent.

James:
It was good meeting you, Ben.

Dave:
Well, that was a lot of fun. James, what did you think about the conversation with Ben?

James:
It made me realize how small I am as an investor still.

Dave:
Oh, dude, don’t even start.

James:
But you know what? I don’t get to talk to these big institutional guys that often. And the only time I really get to talk to them is when I get notified their offer’s way higher than mine. And so, it was nice to talk to them and figure out … but it’s very interesting how they are moving things around, looking at things. And it has the same core principles as us, be efficient, buy the right deal, don’t let your procedures maximize yourself out. So I mean, the core principles were the same. I think the money is different, is what I realized.

Dave:
Dude. You talking to Fundrise and feeling small is how I feel every time I talk to you. So now you know what it actually feels like. Yeah, man, I thought it was super interesting. I’m really just fascinated from an economic standpoint about build-to-rent. Like he was saying, it’s this whole new asset class that just never existed before. Previously, you either built multifamily to rent or you would reuse single-family homes that were previously owner-occupied into build-to-rent. And so, it’s a really interesting phenomenon. And you read a lot about it. But to his point, he said there’s only like 50,000 units. So it’s really not like taking over the market, but that’s something I’m definitely going to be watching for the next couple of years, to see if that makes an impact on the markets they’re doing it in.

James:
I think if we go into a little stall too, and dirt gets a lot cheaper … The reason they’re not doing build-to-rent is dirt’s expensive and build’s expensive. But both those are coming down right now. So maybe it hits a sweet spot and they start doing more and more of it.

Dave:
Yeah, that’ll be interesting. For everyone listening, before we record, usually the guests and us just talk for a couple minutes to get to know each other. And James was telling Ben and I about this 81-unit deal he just did. And Ben was completely amazed at what a good deal you got. Can you just tell us quickly about this deal and how you landed it, because I’m very curious?

James:
Yeah, so we’d been looking. We do small syndications, 30 to 40 units in Seattle. And then we’ve been trying to get into 50 to 100, because what he was talking about, the efficiencies of remodeling property management, it really does make a big difference in your bottom line. And recently what we’ve noticed is those deals are now … they were trading at like a three cap, three and a half cap, because of guys like Fundrise coming in and buying them all. And that has slowed down. And so actually, it was a seller that we gave an offer to at 11.8 million about six months ago, and he turned it down, turned it down, turned it down. He went to market, found his new exchange, got tied up twice at 11.8 … or no. He went all the way up to 12 million at the time. Financing blew up both times. And we just kept … well, actually, our 11.8 number dropped to 10.8, because of the rates and the cost of the deal.
And so we just stayed consistent with him the whole time for six months. And we kept updating our offer, too, saying, “Hey, based on rate, here’s our new number.” And we always had that logic of our number has changed only because of the rate with this guy, because he’s a bigger seller. And we ended up locking it in, though, 81 units. About 10.9 million. We have to put about 25 grand, 30 grand into each unit. We’re going to be doing a soft cosmetic with windows, hitting siding, hitting roofs, but nothing too, too crazy. Mechanicals are good. And we’re excited because we have some more opportunity now. But that’s the key right now, is just stay with your numbers. And if you have to change your numbers, just educate the people while you’re changing so they don’t think that you’re just trying to take one over on them. And it all came together. But obviously I was happy to see that it looked like I blew the return socks off him.

Dave:
Yeah. Ben asked James what cap rate he bought at. He said 5.8, which is just unheard of, especially in Seattle, right? You said a couple years ago it was three, 3.3, or something like that.

James:
Yeah, they were down in the low threes. Now, granted, the 5.8 is after stabilization. So after we’ve done the hard work, we’ll be at a 5.8 to six, right in there. So it wasn’t on existing.

Dave:
So that’s where you’re underwriting it at?

James:
Yeah. Stabilized, we’re at 5.8.

Dave:
But still, that’s pretty damn good.

James:
You know what? And I think we could do better.

Dave:
You’re insatiable. You got to do better.

James:
Got to do better.

Dave:
All right. Great. Well, great job today, James, as always. Always asking good questions and telling really very relevant and funny stories about your own experience. So thanks for joining us. Everyone out there, thanks for listening. And we’ll see you guys next time for On the Market.
On the Market is created by me, Dave Meyer, and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Ascarza and Onyx Media, copywriting by Nate Weintraub. And a very special thanks to the entire BiggerPockets team. The content on the show On the Market are opinions only. All listeners should independently verify data points, opinions and investment strategies.

The Milken Institute’s Bill Lee joins ‘The Exchange’ to discuss economic implications of recent Fed policy and dampening inflation expectations in housing markets.

David:
This is the BiggerPockets podcast show 659.

Luke:
Something that’s big is we give our entire team so much freedom in the sense that if they ever need anything, if they ever want to take a trip, they can ask us, but they really don’t even need to. It’s done. It’s done. So, there’ll be times when anyone on our team, they can say, “This is coming up. This is going to do this.” Perfect. You’re gone. Have fun, enjoy it and enjoy your time with the family. And so, we’ve made sure that everyone knows how important it is to us, that they get their time with their family.

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, the best real estate podcast in the world by far. I’m here joined today by my co-host Rob Abasolo, wearing a John Mayer T-shirt, the first time I’ve seen him in a printed tee or anything that isn’t just a plain black tee that he got out of a plastic package at Costco. Rob, tell me, what do I owe the honor of this privilege to?

Rob:
Okay, I’ll give you the truth here. All right. So, look, I used to be a big graphic tee guy, and then people on the channel would be like, “Where’d you get your shirts?” And then, I watched this video that was like, why I wore the same shirt for the last two years. And I was like, “Man, that’s a great concept. I’m going to wear a black pocket tee every single day.” And then, I moved to Houston and everything is hot. And literally, all my black pocket tees are drenched in the laundry basket right now because I’ve been filming content outside.

Rob:
So, part of it is it’s laundry day, but also, I think it’s time to bring back the pocket tees. I think I’m going to start reintroducing that in the wild here.

David:
So, you’re doing that thing where you try really hard to look like you’re not trying hard by wearing black pocket tees.

Rob:
That’s right. It was a game for a long time because I was really trying to find the best black pocket tee. So, it wasn’t from Costco. I went to some pretty niche online stores to find them and I think I did. And also, I had a kid and I’ll tell you what, black pocket tee, while having a kid who’s always spitting up was just a really bad idea. So, I lost a lot of good shirts due to my son, Rook, but that’s all right. I’m rebuilding still.

David:
Well, on the topic of games, that’s a great segue into today’s show. Rob and I are going to be interviewing Luke Rotvold, a wholesaler, cold caller, and real estate investor, who is crushing it in the Phoenix area. Luke’s got a great system of getting properties under contract, wholesaling or flipping them, and then taking those profits and then putting them into multi-family real estate, where he is building up his cash flow, a cool little system of moving money along a conveyor belt, amplifying it every step.

David:
And part of the success to Luke’s system is turning boring, menial, and routine tasks into something fun by using games. He’s known online for getting people under contract and speaking with leads online in his wholesaling business while playing Madden. And he’s taken those principles and applied them to his company where he keeps his team members engaged and motivated by turning things into a game.

David:
I thought this was fascinating, really smart, and a way to try to take work and make it fun. Rob, what were some of your favorite parts of today’s show?

Rob:
It’s always interesting to find out people systems and his system here, the gamifying everything is really cool. And you could think, “Oh, well, that may not work for everybody.” But when you actually look at his business, he told us he was doing 75 flips a year and about 110 deals a year in total. And I think that’s really impressive. So, really fun to dive into the psychology of this and basically how to make every little aspect that could be looked at as a menial thing, fun and challenging in a good way.

Rob:
So, I think we’ll learn a lot about the way you can set a culture in your company too, and how to make that somewhat of its own game as well.

David:
Absolutely. This is a really fun show. So, I would recommend everybody who’s listening to this one to just share it with somebody else, because this is one of those things that makes people think, “Hey, real estate investing actually can be cool. It can be fun. It’s not just a grind, and it’s not just this crazy scatterbrain just run around and do a million things. There actually is some intentionality that you need to embrace to make some progress.” And we talk a lot about progress in this show and how important that is to the human experience to stay motivated.

David:
Before we bring in Luke, today’s quick tip is, look for ways to gamify your own life. Are you trying to get in better shape? Are you trying to build your cash flow? Are you trying to build your net worth? What are your goals? Are you trying to build a team? Find these principles that would work for you that motivate you and apply them to business. I’m a firm believer that business does not have to be different than your personal life.

David:
What works for you in your personal life will usually work for you in business. So, look for a way to bring those two things together. And speaking about having fun, go to biggerpockets.com/events and get your tickets to BPCON22. It’s going to be in San Diego, one of the nicest areas that I’ve ever been to, and it’s going to be a blast. Rob’s going to be there. And he might even be wearing one of his black pocket tees.

Rob:
It’s almost guaranteed. And I hear, David, you’re going to be giving the keynote there. So, a real special treat for anyone that’s joining. I think we’re not sold out yet, but I think pretty soon, it’ll be sold out. So, you’ll definitely want to grab your tickets again. Again, that’s biggerpockets.com/events.

David:
And you just got Rob scare in black pocket tee. All right. Without any more ado, let’s bring in Luke. Luke Rotvold, welcome to the BiggerPockets podcast.

Luke:
Thank you for having me. I’m stoked to be here.

David:
Yeah. We’re excited to get to know you. So, tell me, what does your portfolio look like right now?

Luke:
Oh, boy. Right now, we’re pretty much going heavily into multi-family and Airbnb. So, I know a lot of people that do strictly just single-family and just because it’s obviously easy and it’s safe. If we go single-family, the only option that we will even think about with it is going to be an Airbnb and then everything else is multi-family. So, right now, we’ve got a 10-unit being built in Sedona. That one’s actually crazy. We’re going to do 10 Airbnbs with that one.

Luke:
So, that’s going to be a pretty wild project, but we’ve got, let’s see, we’re at 39 units. So, 39 doors right now, 10 being built in Sedona. And then, we’ve got a 32-unit new build that’s being built downtown Prescott, which is a couple of hours north of the Phoenix area as well.

David:
Okay. And what about your business?

Luke:
Business-wise, we’re on pace this year to do 75 flips. So, 75 flips this year and we should do right around 110 deals is what we’re on pace for this year.

David:
Okay. That’s pretty impressive. So, let’s hear about how you got started. How did you get into your first deal? What brought you into real estate?

Luke:
Yeah, so, really, I started cold calling. I joined a team. So, that’s how some people have heard a little bit about my story is I started cold calling an hour, two hours a day. And then, obviously, it’s one of those things where cold calling is monotonous. It gets old, it gets boring. So, I started implementing playing Madden while I started cold calling. When I did that, I started cold calling like five to six hours a day, which obviously, when the average person is maybe not even calling an hour or two per day, and then you start calling five to six.

Luke:
Obviously, the amount of contacts that you’re making, the ability to perfect your craft, the ability to get better at what you’re doing is just, should blowing by people at that point. So, once that started, the deal started coming in pretty regularly and started just wholesaling, started on that team. The team that I was on broke apart. And so, then, I went and I started my company with my best friend, Jake Landis. And so, we’ve got our team now.

Luke:
Like I said, started with cold calling, started with wholesaling and we’ve just taken that path at the, I’d say that the average wholesaler takes in the sense that they would like to take where we went from wholesaling to flipping, to keeping properties with rentals into, we’re at the point now where we’re starting to do a lot more developing now. So, that’s the path that we’ve taken if you will.

Rob:
So, when you were playing Madden and making these cold calls, do you ever have anyone that’s sniffed you out on that? Were you ever like, “Dang it?” They’re like, “Oh, what?” And you’re like, “Nothing, nothing?”

Luke:
All the time. Oh, man. Unfortunately, that was the number one thing that I had to try to cut back on. So, this is the path that it went is like, okay, I first started just in arcade mode when I was hopping on Madden and I’d be like, “Okay, I’ll try to just go ahead and see how it goes. And maybe I’ll try playing while I’m calling.” But obviously, the number one most important thing for me every single time was the cold call because I’m working. You know what I mean? That’s why I’m doing this is to try to get deals right now.

Luke:
So, it started with that. And then, I was like, once I got comfortable, I was like, “Okay, I’m going to hop on and do Madden online right now. I’m going to start playing online because it’s more fun and it’s more competitive.” But then, the thing is you only got one pause, so you get one pause a game. So, you’re like, “Okay, (beep) I got to use this pause very sparingly.”

Luke:
So, whenever I’d have a lead where I had to write all the information down, that was when I’d use my pause. But there’s times where you’d start getting multiple, you get multiple leads in that calling session. So, yeah, you had to adapt and figure it out.

Rob:
I’m sure you had to take one for the team, take a few Ls in Madden to close a couple of deals.

Luke:
Unfortunately. But it’s like, at the time then, our average wholesale was probably 25K so it’s like, yeah, okay, 25K, or do I want the extra win right now in Madden?

Rob:
I think you made the right choice. I think the 25K probably pans out in the long run. You mentioned, you were taking five to six calls a day and I think that’s really important. A lot of people-

Luke:
Calling five to six hours.

Rob:
Yeah. Sorry. Five to six hours. That’s really important. I think a lot of people, they hear about wholesaling and they hear about the off-market deals and they’ll only put in one or two hours and they don’t get success and then they quit. But I remember I was talking to a buddy of mine who said that he didn’t get any sales for his first two months or something like that. He didn’t get any wholesale deals and he was working part-time. But then, he finally got his first one and started really data tracking how much time he really needed to put in.

Rob:
And so, he realized he needed to put in an average of 80 phone calls or talk to 80 people before he could close a deal. And so, as soon as he did that, he mathed out, “Okay, it takes me four hours a day to call 80 people and blah, blah, blah.” And he mathematically figured out that for every eight hours, he would get a lead or something like that. So, I’m curious, were you ever at that point where you were tracking exactly your conversions or anything?

Luke:
Oh, 100%. Yeah. There’s no doubt about it. That was actually to me when it started getting real where I was like, “Okay, I got to stay on the phones. I have to.” There’s no question about it. Because I ended up breaking it down to how much I was making per hour while I was on the dialer. And that number when I found out that number, I was like, “Bro, this is insane.” So, to me, I don’t remember the exact number, but it was something along the lines of, I was making $560 per hour that I was on the dialer.

Luke:
That’s what it broke down to for how many leads I would get, how many hours I had to be on the phone, which turned into the lead, which turned into the deal. And obviously, that was the number for me was I was making $560 an hour for every single hour that I was actively on the dialer playing Madden.

Rob:
Wow, $500 an hour. That’s like, let’s see, a full-time salary on that. I think comes out to $1.1 million or something like that. So, that’s a pretty motivating number to chase.

Luke:
Yes, exactly. So, that was when it really all switched for me.

Rob:
So, what was the moment that you started closing enough deals to where I imagine at some point, you were playing Madden, you were closing and then you got so good at this that you’re like, “Okay, it’s time to take this to the next level, ” and just hit Pause from the start. So, what was that transition like when things really started to heat up?

Luke:
Yeah. I’d say that it got to that point where it was like, “Okay, now, once you start closing some wholesale deals, you start having some money.” And so, obviously, the thing is that when most people are starting wholesaling, they don’t have any money. So, cold calling is a good way to start because it is a low barrier of entry, fairly inexpensive versus, say, a PPC or versus direct mail. Everyone knows, if you’re getting started in wholesaling and you go, the direct mail route and, say, you have couple of, goes at it and they all end up empty, that can sink you. That could literally sink you right off the bat.

Luke:
So, cold calling is nice in that sense where it is a little bit less expensive, but once we were able to basically start stacking some cash, then it was like, “Okay, you know what? Now we can start building a team because we can afford to start paying some people on the team.” And so, that was really the main time was, I don’t know if I would necessarily put $1 amount on it, but that was when we started building a team. That was also when we started looking into flipping.

Rob:
Yeah, man. So, I know that you have a few, given the background, I think this led to you creating some gamification strategies for you and your team. Can you walk us through a few of those and how those shaped your business?

Luke:
Yeah. In my opinion, if you are building a business, if you’re starting a business out, I think the smartest thing that you can possibly do, the absolute smartest thing that you can do is 100% be yourself and build your business around you and around what you love and around what you’re passionate about. Because, for instance, you can see behind me right now, I’m a child, I’m 32 years old, but I’m a kid. I’ve got all my sports cars behind me. I’ve got Legos, I’ve got a pirate set of Legos behind me. I think that what we were able to do is we were able to build this business around the things that we love.

Luke:
My business partner, Jake and myself, we love sports. So, the things that we post online and everything with our company, it’s about, we play golf in the office all the time. We’ve got this chipping mat set up. We have sports center on all the time. That’s on 24/7 when we’re in the office. We’ve got a beer tap with kegs in the corner over here. So, we’ve got a cooler with all drinks in it and stuff. So, I think that people need to realize that if you build your business around you, there are hundreds of thousands of people out there that have the same likes as you.

Luke:
They have the same mindset, they have the same things that they enjoy that you do. And so, it’s like you’re going to attract these people. There’s no doubt about it. And so, I think that so many people get, they put themselves in a box of, well, this is how business is supposed to be. This is how wholesaling is supposed to be. This is how real estate’s supposed to be. Again, we wear t-shirts and tank tops and board shorts in here every day. We could give (beep) about what people wear, what we wear in the office. We’re not a super, just, I don’t want to say we’re not professional, but again, we just run things a little bit differently.

Luke:
So, I think that we’ve been able to attract a lot of people that have the same likes and the same similarities as us. Everyone that’s on our team now, we all play golf. We all watch ESPN. We get along, we’ve built such a great bond and such a great team atmosphere. And it’s because we’ve attracted these people from the things that we’ve posted because we’re just being ourselves.

Luke:
We’re not trying to be something that we’re not. We’re not trying to be anything that we don’t like. Everything in our office right now was handcrafted by us. And it’s 100% us. So, I think that’s huge and I don’t think enough people do that.

Rob:
Yeah. It sounds like what it boils down to is building that office culture, that is, I don’t know, very vibrant within the culture. You want everyone to feel like it’s an authentic place to come to work.

Luke:
Oh, for sure. Absolutely. That’s a thing. I don’t know what the percentage is, but I’d say most people still in general don’t enjoy going to work when most of the days that I come in here, my guys are in here early. We don’t ask them to be in here early, but they’re in here early because they love it. They love coming to work. They love having our chipping challenges and then it makes work fun. You don’t even feel like you’re going to work. And again, everyone’s still working. Everyone’s still making money and everyone’s pounding the phones. But again, we make games out of it.

Luke:
We do certain things where it’s like, okay, Hey, we’ve made it a real team aspect, where one of the big things that we did as well is that when we set goals at the beginning of the year and we set goals quarterly as well, but we set team goals, we set personal goals for maybe things that, whatever, I want to lose 10 pounds this quarter or whatever. We take real-life goals that are going to be every single day type things. But then, we also have the team goals. And so, we think that’s extremely important.

Luke:
Because then, when people close deals on our team, there’s no animosity. We had built that the wrong way in the past. And we learned from that mistake. When we were first getting going years ago, we had built the team out where it was in a sense, eat what you kill, every man for themself. And biggest mistake we ever made. No question about it. If you have a team that’s set up that way, I don’t recommend it one bit. There began being animosity between team members and stuff like that.

Luke:
So, now, that we just have it all team-related, when people close deals, everyone gets stoked. Everyone gets jacked up when we take shots, when we close a deal. And so, it’s like we set these awesome goals where we’re going to go on a trip at the end of the quarter if we hit this number. We have fat bonuses at the end of the year if we hit the overall number for the year. So, we’ve really been able to make it a team aspect type thing where everyone gets excited when everyone succeeds.

Rob:
Yeah. I’d actually like to dig into that aspect a little bit because I really like a rev share model in a sense, but that’s not exactly what you’re necessarily suggesting. It’s not like one deal is closed, everyone gets a little piece of it. It’s more, if everyone’s closing a certain amount and then the entire office hits that goal, then there’s a bonus that’s dispersed from there. Can you walk us a little bit through those mechanics?

Luke:
Yeah, no, exactly. Exactly, like you just said, everyone basically has a certain number that they’re supposed to be hitting every month. So, obviously, that number comes down at the end of the year. Does everyone hit their number? Awesome. If everyone hits their number, then that’s great. And then, if our company as a whole hits the number that we set out for, we have insane bonuses that we did.

Luke:
It’s not necessarily rev sharing, but we just threw out a really high number that everyone’s going to get. So, obviously, it makes everyone super amped to shoot for that number.

Rob:
That’s really cool. So, are there times in that culture, obviously, you’ve experimented here with the bonus structure and everything like that, different aspects of culture that you like to implement. Are there times where you can point to where it’s like it wasn’t working or ways that you can identify when certain cultural things aren’t necessarily a fit?

Luke:
Yeah, yeah, no doubt about it. So, we’ve been in business for seven years now. Trust me, I’m not trying to say, sit here and say we have it all figured out. But the last year has really been a game changer for once we restructured how everything worked. The previous years were, they were still good. But the beginning years we made the most mistakes as most people do, because you’re just getting your business going and you’re learning from your mistakes. But yeah, when it was, eat what you kill, every man for themself, like I said, there was a lot of animosity built up between people when someone would get a deal.

Luke:
It’d be like, oh Hey, they’re getting better leads than I am, aren’t they? Well, you told him to call on this list and I’m calling on this list and how come this is happening? So, it got negative. And then, when that started, I don’t know if you want me to go down the road of not fun stories, but again, these are learning experiences. But yeah, we had a guy that was on our team and he was a cancer to the team. Every time we brought in new people, he would come to us and be like, “Hey, I don’t like this guy. I don’t like this guy. I don’t like this guy,” for whatever reason it was. We should have caught that early.

Luke:
We should have caught it early on that the guy was obviously, he was the problem every single time we brought in new people. And we ended up finding out that he had been stealing leads from us for the last six months that he had worked with us. And like I said, the relationship just started getting worse and worse. But then, one day we came in and all this stuff was moved out and he was like, “Hey, I’m going to start working from home.” And we’re like, “What? You’re not going to work from home.”

Luke:
And he is like, “No, I’m working from home from here on out.” And so, we ended up finding out that he had been actually closing deals and using another company in our market to close them. So, he was taking the leads and he was finding it, he was taking the leads to this other company and he was closing them and selling them with them.

Luke:
Because how it raised an eyebrow for us was we were like, “Okay, you’re not getting any leads anymore. What happened the last three months? You haven’t brought any leads in. Something’s got to be going on.” And then, like I said, shortly after, he said he was going to start working from home. And then, we ended up finding out that the leads that we had been working, he had just been taking them and closing them.

David:
In our industry, especially I think we are more prone to that behavior than in a W2 world, we tend to draw the people who have this dream. They want more money. They want financial freedom. They want to see what they can do. It’s that personality that is pulled to real estate. It’s typically not an accountant, CPA type person who’s like, “I really want to be in the chaos of real estate investment.”

Luke:
Right.

David:
So, I’ve noticed this with real estate salespeople to a smaller degree with mortgage loan officers, not quite as much, but definitely with the investor, the flipper, the person that’s willing to cold call all day long that wants it really bad. They’re more likely to be the people that will cross those lines that will gray those areas.

David:
And there’s almost like a bit of a paranoia that you have to develop to do this well, that people that don’t work in the industry will look at it like, “Oh, you’re always afraid of people leaving you.” I’m like, “Do you know how often agents change brokers-

Luke:
Oh, God. Yeah, it’s insane.

David:
They’re constantly jumping. And then, in the investing side, it’s even worse. You get these people that say, “Hey, I see you playing Madden and cold calling. I really want to learn what you’re doing. Can I come work with you?” And their goal is, as soon as I get this down, I’m leaving this guy.

Luke:
I’m out of here.

David:
I’m going somewhere else.

Luke:
Yes, absolutely.

David:
But they don’t just want an opportunity. They want your time, your training, your attention, your emotional commitment. You get to know these people you feel like your friends, it could even be family. You’re sitting out there with these guys right outside your window. You guys are going to war together. It’s going to build this bond. And it stings when one of them leaves, especially if they leave to betray you.

David:
So, first off, I just wanted you to talk a little bit about this reality that doesn’t get brought up in the Disneyland real estate investing persona that gets put out there. Because it’s actually a little more cutthroat than I think a lot of people can realize. And then, what you’ve done in your company to try to avoid that, whether it’s looking for traits in people that you avoid or creating an incentive structure so that’s less likely to keep happening.

Luke:
No. For sure. Exactly like you said, once we did shift that mindset of, okay, we’re bringing people on, but exactly, like what you said, they’re gathering information from you and then they’re out. They might stay a couple of months. Even if it’s a year, they get as much information as they possibly can. And then, when it’s no longer fitting their needs or it doesn’t really make sense, they think that they can start making more then they’re gone.

Luke:
And so, what we’ve done to try to combat that is when we did our last round of interviews, we really asked some deep questions, some deep questions that were going to be, give us a good feel for if these people were going to stay with us or if they were literally just trying to gather information and bounce. One of the things that we said is we just asked, how long are you looking to stay in real estate? How long are you looking to be with us? Just curious.

Luke:
Because, believe it or not, even though you’d think a lot of people are just going to BS you, a lot of people will straight up tell you. We had a couple of people that were like, “Hey, I want to be here for maybe a couple of years. And I’d go try to do what you guys are doing.” So, someone that said that, no, you gave us the honest answer, but that’s the wrong answer. So, no, you’re not working with this.

Luke:
And so, it’s like, yeah, we were looking for the people that said, you know what? I’m looking for a career. I’m looking for something that I can stay at long term. So, that was huge for us. Another thing, we want our guys to grow, we want them to grow with us. So, that was another huge thing that we shifted as well, is that when we go over our goals, the personal goals and the team goals, but when we go over those, we really look to find what is it that you want? You know what I mean?

Luke:
We try to get to the deep questions of what do you want out of life? What do you want out of working here? And so, a really cool example that I can actually use that just actually happened last week. One of the guys on our team, one of his goals was that he wanted to buy three doors this year. He wanted three, wanted to pick up three rental properties, three doors. And so, one thing that we’re huge on is we like to try to fulfill these goals with people.

Luke:
And so, we like to give, we made it very obvious to them that, “Hey, we’re going to be able to provide you guys with options in opportunities that you might not get elsewhere because of how many projects we do come across.” This was only a week ago. We came across a triplex that was a seller carry with interest rates where they’re at right now. Seller carry was pretty attractive. They were asking 880 on it for triplex right downtown Prescott. The seller was asking 880 and they said they had carry at 4.7%.

Luke:
So, we went ahead and jumped on. We lowballed the (beep) out of them. We came in at 650, 4.7% interest and they accepted it. So, five-year balloon. So, it was a perfect time though, where we could see if it was something that he would be interested in jumping in on with us. And so, our team member jumped in on it with us.

Luke:
He threw some cash down to partner on it. And he is a partner with my business partner, Jake, and I on it now. So, it’s just like that. He just added three doors to his portfolio. And that was one of his big, big goals that he had wanted to do for the year of 2022. And it’s already accomplished.

David:
That’s awesome. Rob, same question to you. What are some things that you’ve done to either avoid hiring the wrong people or keep the people that you’ve got in place?

Rob:
This is something that I’m actually, I don’t want to say dealing with, but something I’m going through right now because I’ve always hired very lean and I’m at the point now where I am having to scale and hire more people. And I just want to make sure that the people that I’ve already hired are happy. So, I actually just had a one-year review with my editor, for example, the editor of the channel. And for us, we’ve had a really good, flexible relationship. Things have been going super, super, super well. And I believe he gets paid relatively well for the job that he does.

Rob:
And I think we’ve always been happy with that, but I did want him to have skin in the game because I always feel like having skin in the game is truly where the incentive comes to light. And so, when we had our one-year talk about a week ago, actually, it wasn’t really that long ago. And I said,” Look, I could give you a raise if that’s what you want. But what I would prefer is we’ll keep your salary the same but I’m going to give you a percentage of the ad revenue of the channel.

Rob:
But what I want though with this is you now have a stake in this channel in the success of it. So, if the YouTube channel goes viral, you’re super happy. If it’s tanking, I want you to be bummed about it with me.” And so, this is something I’ve figured out because I think just doing pure skin in the game has not worked in the past for some people that I’ve consulted with on this. But I actually just hired a COO for my education program. And we really went through and through trying to figure out the agreement that worked the same thing.

Rob:
It was a base salary with a percentage of revenue because basically, if he grows it to a certain milestone, he’ll make a lot more money. And so, for me, I think there’s a really nice balance there of just making sure that there is a reason that someone comes to work motivated in knowing that their work contributes to more money in their pocket.

David:
For me, long story short is I’ve noticed that I do better hiring administrators than salespeople. So, most of the problems that come in my business would be a salesperson that comes in and we want them to work a system and be structured and follow a path. And they’re a crazy squirrel that wants to run all over the place and their heart tells them, do it your own way, but their head tells them, I need systems, and it’s been very difficult keeping them passive. We’re going to restructure to where we’ve got a handful of sales leaders that are very talented agents.

David:
We’re going to build administrators around those people rather than growing agents and maybe giving them agents to support them because this has been the biggest problem with businesses. You just don’t realize that when you’re learning about real estate, it’s so exciting. It’s so fun. You’re like, “I just want to do this every day, all day.” But then, when you got to go execute, it becomes boring. It becomes monotonous. It becomes a grind that you learned how to use Madden as an opiate to get you through while that was going on.

David:
And that’s why people don’t become successful is when the luster wears off. And you’re like, “Nope, I’m just getting yelled at, getting hung up on, getting people that are irritated. And I’m just sifting through to find that one gold nugget. And then, I got to have the ability to pounce on it when I find.” It could be like that, getting a deal. We’re starting to see a little bit more deals coming our way because the market is softening. But in general, it becomes very discouraging when you’re looking at house after house especially when you’re new and you’re just analyzing all of them 100%.

David:
This is exhausting and you got to have the energy to pounce when that one comes. So, I want to switch this over a little bit. Luke, if you could give us your four tips that you use to keep people interested so that their mind is sharp, they’re engaged, they’re having fun and they don’t miss the opportunity that comes after those eight hours of calls.

Luke:
Yeah. So, another thing that we do is we incentivize our team for bigger deals. Because again, you got to keep in mind, we’ve got sales team that they are in the trenches and they’re going to be negotiating a deal. So, if they’re negotiating a deal, why not give them more incentive to try to get that deal deeper? And so, obviously, we’re not going to give the deal away. We don’t want to lose a deal because we’re just trying to get it too deep.

Luke:
We’re always going to try to make sure that we get the deal first, but we incentivize them by getting deeper deal. So, we’ll do something where it’s like, “Okay, for your first 100k deal that you get, we’re going to get you a whole new set of golf clubs.” Are you guys golfers?

Rob:
I just took my first lesson a week.

Luke:
Oh, did you? Okay. That’s a couple of grand. That’s a couple of $1000 right there to do something like that. Or your first deal over, whatever, 50 grand or 75 grand. So, we do different things like that. So, you’ll get an electric scooter, you’ll get an electric e-bike. So, we do things like that to really try to make them push, to get them deeper. So, that’s one obviously.

Luke:
Another one is we really make sure that we have an advancement. So, it’s like, “Okay, this is what you’re going to start out at when you join our company.” But we always want to make sure that people know that they can grow in our company.

David:
That’s huge.

Luke:
Yeah. Because a lot of times, I think that one reason why people will leave a company is because they just feel like there’s not any growth for them.

David:
That’s me.

Luke:
They feel like they’ve hit the ceiling and they’re like, “Okay, well, where do I go from here? I’m doing well. And I don’t really know what you guys want from me now because I’m doing everything I can do. And I just don’t.” And they just feel like they hit that glass ceiling. And so, one thing that we’ve really done is we’ve really made it a point that we want you guys to advance in our company. We have an opportunity for growth. You’re starting right here as an acquisition manager, but the next step is going to be a team lead. The next step is going to be a closer.

Luke:
We’re going to have positions all the way up to COO of our business as well. We’re not there yet. Our team’s not big enough. And I don’t think, especially with the market slowing a little bit, we’re just not really at that point where we have those upper management positions filled or anything. Or even really where we’re ready for. But again, I think that just when people know that for the future, I can step into those positions.

Luke:
I’m not going to just stay right here for my entire career with them. That’s a huge thing. And when you say gamifying, it’s like, in my opinion, it’s moving onto the next level. So, it’s like you’ve finished this level and you’ve done really well. So, now you’re moving onto that next level.

David:
I heard Tony Robbins talking about this and it never really clicked, but he was talking about how important the feeling of progression is to a human being. It’s one of our deepest needs. Actually, I think what he was saying is you’re only happy in life when you can feel like you’re progressing. And at the time I heard it, I wasn’t ready to hear it. So, it didn’t really do anything for me. But I started thinking about, actually, I’ll just be honest with this. I started playing a video game on my phone, a Marvel game, and I ended up spending money on it. And I was like, “What the hell am I doing? This is so stupid in so many ways.”

David:
But I actually deconstructed, why am I spending money on this? And they did done a great job in that game of getting it started, where it was fun and then making it too hard to progress at the pace that you want to that you got used to unless you spend money. So, you’re in this pain, I can’t get to this next level unless I spend $10 and then the pain is relieved. And I just caught myself getting sucked into just like, it’s like, “Dude, I don’t spend this much money on food. I don’t spend… why am I doing this?”

David:
And it was that feeling of progression and it unlocked something in my brain. I realized, “This is why you see so many young men that are addicted to World of Warcraft, that in the real world they don’t get that feeling of progression. They feel like they’re getting passed up in that world. They’re at level 74 Warlock. And even though they know it’s not real, your brain thinks it is. It feels real.

Luke:
Like, I am a badass.

David:
In that place, right? And I see this with investors. I’ll often hear investors say, “I have X amount of doors.” And it’s a joke in our world that the minute I hear an investor start talking about doors, they’re chasing the wrong goal. It’s easy to build up doors. Because they have nine doors. What you have is three properties or something. It’s the feeling of progression that they like people to hear. And now, I pay a lot of attention to what am I getting that feeling from. Because I will chase it if I think that I’m going to get ahead.

David:
And there’s a lot of other people that are that way. And if you’re at a company where they don’t have that feeling of progression. It’s almost like you’re forcing them to go somewhere else to find it, to get that need met.

Luke:
Yeah, no, there’s no doubt about that. I think there’s so much truth in that because this is when you just even talk to the team, when you just have regular talks with them, that’s what is important. When you have the sit-downs with them and you say, “Hey, what’s really important for you with where we’re at?” It’s always that next thing.

David:
How about you, Rob? What are some areas where you catch yourself like you feel progression and so you pursue it, but then you look back and say, “Was that even worth doing?” Or are you just a machine that isn’t making those mistakes?

Rob:
I don’t make mistakes. [inaudible 00:36:19]. Yeah. I’m the best. That’s my Ricky Bobby impression. Well, no, I was just thinking about that and I said this earlier about of the rev share model. And I think honestly, you guys are really selling me on this a little bit more simply because there is progression in that type of thing for the people on my team with my COO, with my editor. They’re directly incentivized by the performance and growth of my company. And thus, if they don’t help increase the production, they don’t see progress.

Rob:
But because of our company, because my company is in my channel, it is always growing. I think that’s probably, honestly, David, what I did not like about W2 life is that there really isn’t fast progression. If you think about your typical linear growth there, you get a job and you wait, if you’re lucky a year to get promoted, but it might take two, it might three years to get promoted. Now, you might get, like at my last job, I would get a 3% living wage increase every year or two.

Rob:
I can’t really remember off the top of my head. That’s not real progress. It’s not nothing, but on my salary, it was, a couple of $1000 for example, which, after taxes and everything was like, well, an extra $50, $100 per paycheck.

Luke:
Inflation.

Rob:
And that’s not real progress. Right. Exactly. That’s exactly what I did. It wasn’t even keeping up with inflation. But when you think about leaving one job to go to the next job, your salary jump can be very sizable. You can go from making 50,000 to 75,000 if you play your cards right or maybe 80,000. There are jobs that I went, I was able to jump. Like when I moved from Kansas City to Los Angeles, I was able to double my salary and that’s where I felt real progress. But once I was locked into the W2, there is no progress for one, two or three years.

Rob:
And I think the way you describe that is exactly what my gripe was with my full-time life was that I just never felt like I was really seeing progress because I was like, “Oh, well my employer doesn’t see enough progress to give me a raise or give me a promotion.” And thus, I always felt very stagnant for very many years. Whereas now I’m self-employed, I have different businesses, I have different employees, my revenue does go up every single month. My views go up every single month and I actually see progress.

Rob:
And so, I think, yeah, I don’t know. I probably do chase progress a lot, but maybe it’s because I was so deprived of it working a full-time career. And that’s why obviously, your mileage is going to vary there. And I didn’t mean to get so deep and profound, but I think you’ve just really encapsulated what my issue was with being a company man.

Luke:
Oh, for sure. When it comes to just talking what my main thing that I chase is for progress-wise, it sounds ridiculous, but it’s 100% cash flow. That is literally the number one thing that I find myself chasing is the number that sticks out to me over anything else is 100% directly correlated to my freedom. And the thing that correlates with your freedom for me is my cash flow.

David:
I think because cash flow is such a powerful magnet in our industry. It’s like you throw the word cash flow out and 90% of the people interested in real estate are going to run right after.

Luke:
For sure.

David:
And it’s not bad, obviously, cash flow is incredible.

Rob:
I want to make money.

David:
It becomes scary when someone goes to a bad turnkey provider or a bad market because those markets always look stronger cash flow. If you go to Indiana, if you go to some of these Mississippi, all these areas that turnkey companies tend to work in that have a very low barrier to entry on the spreadsheet, you’re like, “Whoa, this is a 28% return.” And it never works out that way. And it’s not that I’m against cash flow. I’m against cash flow being used as bait to get you on a hook, that’s going to take you in a financial ruin.

David:
And you got me thinking, one of the thing, I think the main reason people want cash flow is they see it as this magic pill to get them out of the job that they don’t like into a relationship that they don’t have, into having confidence. Just cash flow can change everything for you. The other thing I think is it’s easier to measure progress with cash flow.

Luke:
No, I think so too.

David:
Hey, I’ve got this much every month. I can get this much more if I get this many properties. It puts you on that progression system that we talk about. You can do the same thing with equity. And that tends to be how wealthier people measure their successes. How did my net worth grow? But you don’t have as much direct control over equity. You have to make the right moves and watch that it happens. But cash flow, there’s a very strong correlation between I got this many doors, I can get this much cash flow.

David:
So, I’m curious as you’re building up your own portfolio, as you’re growing your cash flow, and as you’re seeing this system of progression and how important we have to have it, or otherwise we’re not going to stay motivated. But at the same time, you can follow the wrong path and feel like, I’m making progress, and then you get all the way to the end. And you’re like, “I don’t like where I went. This was a mistake.” How often do you pull back and look at your overall plan and ask yourself if you like the direction you’re headed?

Luke:
Probably monthly. Honestly, I’d say probably about once a month I really sit back and I’ll look at it and just be like, “Okay. Is this where I want to be? Is this what I want to do? The things that we’re aiming towards, is that what I want out of life and are we going in the right direction towards those things?” So, again, like you said, whether it’s right or wrong, measuring it in cash flow, when I take a look at that, I put it in words of, with this, whatever this number is going to grow to, looking at it regularly, this lets me know where I’m at on paper in the sense of, okay, in a recession.

Luke:
And again, not saying we’re in one, but I’m just saying, if things do come crashing down, this is what I can still hang my head on that. This is where I’m at, where I don’t necessarily have to worry too much if the world explodes and your business falls apart. You know what mean? Obviously, there’s not things that you want to happen. There’s not things that you expect to happen. But there are things that can still come through your mind where it’s like, “Okay, if everything does fall apart, where are you sitting cash flow wise?

Luke:
Because this is what allows you to still survive. This is what’s going to allow you to be like, “Hey, you know what, no matter how bad it gets, this is where I’m at. And I can still go do this. I can still do this and I can still have this type of a lifestyle based on that number.” And so, that’s why I try to stay on top of that number regularly because with the shifting market right now, it’s nice to know. It’s nice to know what that number is.

Rob:
That’s interesting because I would’ve imagined that the, I don’t know. Yes, I agree with a lot of that. I guess I would think of it this way. Your cash flow is your daily tracker. That’s what you’re looking at. That’s what’s on the scoreboard. But you got to look at the season like what the season, where you net out. And that’s where I look at net worth, which again, net worth isn’t something that I’m really looking at and saying like, “Great, boom, box checked.” But that is the ultimate for me, the tracker of the overall success. Because cash flow can change. You can sell a property.

Rob:
There are a lot of times I’ve had a great Airbnb that lease might have ended or I might have sold it or whatever. And I’m like, “Dang, that just took off $7000 of my cash flow. And now I’m back down to, three steps back or whatever.” And again, net worth is not something that I’m like, “Oh yeah, this is it.” But that is how I track really a lot of it because for me, I always say, cash flow makes you rich, but equity makes you wealthy.

Rob:
So, there is a little bit of a dance that you have to play on which one you’re paying attention to. And I think it’s equal, honestly, on my side.

Luke:
I was going to say, I absolutely still pay attention to my net worth as well, but I pay more attention to my cash flow regularly. Like I said, I’m probably paying attention to my cash, checking on my numbers for cash flow monthly. And then, my net worth is probably quarterly where I’m really diving in and saying, “This is where I’m at right now. How am I going to grow this number right now?”

David:
All right. So, let’s summarize your four tips for gamifying things. And I think before I do that, what I love about this is that you’re taking the same things that make video games fun and addicting. You are applying them to business so people can actually make money with that skill, right?

Luke:
Hell, yeah.

David:
You’re taking this thing that is trap to so many people and now you’re using it in the fight for financial freedom and good. So, I like that.

Luke:
Absolutely.

David:
Number one tip, make work a game. When you were using Madden, that would make an ordinary boring task actually seem a lot more fun and challenging. Number two is look for ways to incentivize people and you have to have weekly ones and a quarterly ones, different forms of incentive. Number three is leveling up. That’s where we get into that feeling of progression that’s so important.

David:
Number four is bring in a multiplayer element. So, get other people involved, make them feel like they’re in a group on a team. Anything that you want to elaborate on that before we move into the next segment of the show?

Luke:
No. Honestly, one other thing that we’ve really done with our team as well is we’ve made sure that they all know that to us, one of our core values is obviously just the importance of family. And so, something that’s big is we give our entire team so much freedom in the sense that if they ever need anything, if they ever want to take a trip, they can ask us, but they really don’t even need to. It’s done. It’s done. So, there’ll be times when anyone on our team, they can say, “This is coming up. This is going to do this.” Perfect. You’re gone. Have fun, enjoy it and enjoy your time with the family.

Luke:
And so, we’ve made sure that everyone knows how important it is to us, that they get their time with their family. And again, that’s not gamifying, but that’s just one of those things to us where again, it’s a core value that your family comes first. So, anything you need, go for it.

David:
And if they’re hitting their numbers, if they’re doing their job, if there’s accountability, I see that you’ve got these people that are in your office as we’re recording. I think that’s really important.

Luke:
Oh, yeah.

David:
You know they’re working every day and you track your numbers. So, you see if they’re successful. So, of course, if they want some time off, they can go do it. That only becomes a problem when someone’s not contributing. They’re not helping move the ball forward. And then, they’re saying now, “I need all this time off as well.”

Rob:
I agree. I’m jealous. I’m jealous. You have a workspace with people. I do miss that. The studio gets a little lonely sometimes.

David:
Rob’s coworkers are his children. How old are they?

Rob:
One and two.

Luke:
There we go.

David:
And every once in a while, an exciting thing happens where one of them sticks playdough up their nose and you get-

Luke:
Perfect. There we go.

Rob:
And do reverse CPR. Yes.

Luke:
We had a peanut incident about six months back. So, peanut up the nose.

Rob:
Up the nose?

Luke:
Up the nose.

Rob:
What happened? Did you do reverse CPR?

Luke:
We had to break out the tweezers. Had to break out the tweezers to get the peanut out. I’m like, “Babe, what are you doing?” She’s like, “I put a peanut up there. I thought it would come out.”

Rob:
My sister did that with the bean one time.

Luke:
Yeah. We’ll get you peanuts and beans.

Rob:
She was 32.

Luke:
Yeah. Right.

David:
All right. I’m going to move us on to the next segment of our show. In this segment of the show, we are going to ask you details about a particular deal that you’ve done. Luke, do you have one in mind?

Luke:
We’ve got one flip that we just did.

David:
The first question is what property is it? Was it a single-family home?

Luke:
So, it’s a single-family home, but it has a guest house, five minutes from downtown Prescott. So, it’s in a really, really sought-after area. And so, it is on 1.2 acres. And again, you don’t typically find many houses with guest houses in this area. House is 2400 square feet. Guesthouse is 600 square feet, completely separate.

Rob:
And how did you find it?

Luke:
This was a cold call.

David:
And you mentioned the price. How much did you pay for it?

Luke:
Bought it for 480,000.

Rob:
And how did you negotiate that price?

Luke:
So, the guy wanted 550. He was going to list it on the market for 550. So, obviously, we broke down all the numbers for him. Just let him know that by the time you actually list it and after all the numbers come out, it needed everything. It was really rough. So, after an inspection and everything, we’re like, “Hey, there’s a good chance you’re not going to walk with 500.” So, went back and forth there. We got them down to 480 on the deal.

David:
All right, how did you fund this deal?

Luke:
This one, we did a hard money loan and we did a hard money loan for the construction on it as well. And then, the construction ended up getting a little out of hand on us. So, we actually had to bring in a gap funder. We didn’t have to, but we brought in a gap funder for the extra construction loan.

Rob:
And what did you do with it? Was it a flip, rental, BRRRR?

Luke:
It was a flip. So, yeah, we ended up putting 260,000 into the flip.

David:
All right. And what was this outcome?

Luke:
So, we just listed it last week, which again, in this market right now is a little bit scary, just because we talked about it a little bit before, but the numbers have come down. There’s no doubt about it from where they were versus six to eight weeks ago. So, obviously, that’s something that was scaring us as we were getting closer to getting this thing listed. We’re just watching the market, watching interest rates going up. We’re like, “Okay, we’ll just have to see how this goes.”

Luke:
But we’re pretty confident in our product that we put out. We put some money into our pro projects and we got a pretty good design in our opinion. So, we listed the property for 1.1 mil last week, and we got a full-price cash offer three days in.

Rob:
Wow. That’s awesome, man. What lessons did you learn from the deal?

Luke:
It was a little bit scarier deal, because it took a while because we gutted the entire thing. It was rough. It was really rough. But what I learned, man, we trusted our intuition that this was going to be, just because of what it was. It’s a really cool house. It’s old, unique. It’s got a lot of history behind it. It had a guest house, it was on a big lot. So, it had these things that you don’t find in this area. And so, we’re like, “I think we should be able to push this thing.” And obviously, the market just continued to climb over the past year that we’ve owned this property.

Luke:
So, really, the thing I learned I’d say is that we trusted our intuition that this was going to be a banger and it was. So, we just got through the inspection and they didn’t ask for very much. It sounds like things are moving forward and they waved an appraisal, which was awesome.

David:
All right. On this deal, who was the hero involved?

Luke:
I’m going to say it was our lender. Our lender just kept giving us funds. I think we’d originally said that our rehab was going to be like, I think we said it was going to be like 120. And then, once we started getting into it more, you’ve had those projects where you’re like, “Oh, damn, this thing. Once we’re opening this thing up, we’re going to really get into this.” So, he trusted us the whole way through. We do a stupid amount of deals with him. So, I’m happy that he trusted us, but he just kept cutting the checks left and right. So, it was nice.

David:
That’s nice.

Luke:
Yeah. So, find yourself a lender that will do that. Yeah, exactly. I think it’s super important in my opinion to have a lender that if you want to get to that next level, you got to have a lender that you can just trust and they trust you that you can feed off of. Because if you don’t have that, it’s going to be tough.

David:
And if you want to be Luke and get the same results, remember BiggerPockets can help you do so. There are tons of resources and people waiting to be your hero on the site. Just go to biggerpockets.com. Look for the nav bar, click on Tools or Resources. And there is plenty there that will help you do the same thing. All right. Luke, we’re going to move on to the last segment of the show. It is the world famous-

Speaker 4:
Famous four.

David:
All right. In this segment of the show, Rob and I will fire questions at you and we are going to see how you respond. Same questions we ask every guest every week. Question number one, what is your favorite real estate book?

Luke:
Ooh, favorite real estate book. I’m going to have to go, I say that it’s real estate wise, but The Top Regrets of the Dying. The Top Regrets of the Dying is huge for me because it’s one of those things where again, it lets you know you got one life and it’s about someone who interviewed a bunch of people that were on their deathbed. And just the things that they had brought up that they wish they would have done looking back and the tears that had brought to them.

Luke:
Oh, man, it’s one of those books where every single, every page, you’re thinking about it, and you’re like, “Oh my God, I got to change something. I got to go after it now. I got to do what I want to do right now.” So, that was huge for me.

Rob:
That’s awesome. What about your favorite business book?

Luke:
Favorite business book is probably going to have to be The Monk Who Sold His Ferrari.

David:
Josh Dorkin really likes that book. He’s mentioned it several times.

Luke:
Yeah. That’s an amazing book. That’ll shift your mindset as well. It’s about a big wig, lawyer and just the changes that he made by basically stepping away from his business and taking a deeper look at everything in the macro of life, I guess, and how it changed everything. It’s amazing.

Rob:
And when you’re not finding ways to gamify the game of real estate, what are some of your hobbies?

Luke:
I like to play golf. I like to spend time with the family. We’ve got a boat, so we’re on a little lake in our neighborhood here. So, we’ll take the boat out, take the kids and the dog. So, that’s a lot of fun, in Arizona. I know it sounds really weird. Most people are like, “There’s not lakes in Arizona, right?” So, that’s fun. Golf. I enjoy playing basketball. So, like I said, I love sports.

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

Luke:
Consistency, man. You’ve heard that question when people ask, what’s your superpower? Consistency, if you have the ability to just stick with it, even when things aren’t going well, just pound the phone, whether it’s the phones or whatever it is, pound the pavement and just continue to work. There’s so many people, like you said, that when things get tough, they quit. They’re just like, “You know what? This isn’t for me. I’ll do something else.” That’s not pivoting. If you’re completely getting out of that industry, you’re quitting.

Luke:
And so, we have been able to stay extremely, extremely consistent in the things that have worked for us. And then, once they maybe start to not work as well, we have done a very, very good job of pivoting. So, whether that’s a market shift. That could be anything. Something happens with your marketing sources or whatever it might be, where things are just not working how they used to work.

Luke:
Making those changes, being able to pivot quickly and staying consistent, those are the top two things for me that if you can do those things in any market, in my opinion, I think you’re going to be fine. I think you’re going to do, not even be fine, I think you’re going to excel.

Rob:
Well, very wise words there. Lastly, can you tell us where people can find out more about you on the internet?

Luke:
Yeah, absolutely. So, on Instagram, my Instagram handle is luke_ro_, and on Facebook, just Luke Rotvold. That’s my full name. And then, on YouTube, we are under the Viking Boys and we have a bunch of cold call videos, just live cold call videos on there while playing Madden, which is a blast. So, yeah.

Rob:
Don’t stick to your roots.

Luke:
Exactly. So, yeah, so those are the three places you can find me.

Rob:
Awesome. What about you, David?

David:
You can find me @davidgreene24. There’s a whole lot of imposters, so be careful that you look exactly for the right spelling, especially if you see me follow you. Nothing personal, but I’m probably not likely to be following someone that I haven’t been interacting with before. There’s a lot of people getting taken advantage of. And then, you can check up my YouTube channel @David Greene Real Estate. And Rob, what about you?

Rob:
Yeah, man, I’ve been waiting for you to follow me back now for the last six months. I try not to take it personally, but honestly, don’t know how else to take it at this point.

Luke:
It’ll come soon.

Rob:
You can find me over @Robuilt on YouTube, Robuilt on Instagram. Little curve ball here, Robuilto on TikTok because someone took Robuilt. But then, scammers got a hold of Robuilto on Instagram. It’s a little confusing. So, I’m Robuilt on Instagram and make sure that you, I mean, I won’t send you a message first. I can pretty much guarantee that. So, if you get a message from me that says, “Hey, have you considered forex trading,” it’s not me. It’s a bot.

Luke:
Come on. That’s what you’re actually doing. Let’s be honest here.

David:
Luke, I got to ask you. With your name being Luke Rotvold, how often do people think that you are Luke Rockhold, the UFC fighter?

Luke:
I know. Trust me. Oh, my God. Okay. So, funny story, the first time I ever heard that name, I was at a restaurant with my wife and they had ESPN or something on where they had highlights going on. And I just heard that name over, whatever the speakers. It was something about Luke Rockhold. And I’m like, “Wait, babe, did you just hear that?” And she’s like, “Yeah, I did hear that.” I’m like, “Come on, Luke Rotvold, that’s not a very common name.” Rotvold, it’s a very strange name, is Norwegian.

Luke:
But the first time I heard it, I was shook. I’m like, “What the hell was that?” So, I don’t get that very often. But I think that guy is also 6’4″, freaking 240, yoked-up. I’m not 6’4″, nor am I 240 or yoked up.

Rob:
Not yet.

Luke:
Right. Hey, I can get there. I can get there. You put your mind to it.

Rob:
Anything could happen.

David:
You don’t need to do that. Just get enough cash flow. It’ll solve every problem you ever have. Why get in shape?

Luke:
Boom. Exactly. That’s what I’m talking about. See? That’s exactly what I’m talking about.

David:
All right, Luke. Well, we had a great time talking to you. I really appreciate you sharing what’s going on in your business that’s good, as well as what’s not going well. It’s very rare you get someone that will come in a podcast this big with this Mitch influence, and share, hey, I got taken advantage of, I had people leave me, here’s what went wrong in the business.

Luke:
Absolutely.

David:
So, I appreciate you being authentic there. Everyone, please go follow the Viking Boys and learn more about how you too can make eight, what was it, $5000 an hour while playing Madden?

Luke:
Five sixty.

Rob:
Five hundred and sixty-three.

David:
Five hundred sixty-three dollars an hour while playing video games. You’re not going to get that in World of Warcraft.

Luke:
No, you’re not. No doubt about that.

David:
Rob, any last words?

Rob:
No, that was a really, yes. No, I’d like to make $560 playing video games. So, I’ll reach out on Instagram soon.

Luke:
Boom, do it. We’ll play a little Madden with mono.

David:
All right. This is David Greene for Rob reverse CPR Abasolo, signing off.

CNBC’s Diana Olick on the plunge in mortgage applications and refinancing. With CNBC’s Melissa Lee and the Fast Money traders, Steve Grasso, Tim Seymour, Guy Adami and Dan Nathan.