November 2022

Michael Rehaut, JPMorgan senior analyst, joins ‘Closing Bell’ to discuss the company’s call to upgrade the homebuilders.

David:
This is the BiggerPockets Podcast, show 691.

Ryan:
I developed initially an app just for myself and friends to apply and quickly had landlords coming back to me, some of which were BiggerPockets members as well along the way, saying, “Wait, our side’s just as bad if not worse.” You’re seeing the trickle down effect of me, an independent investor who’s put my life savings into acquiring a property or two to put a kid through college or retire early. And I’m doing it all in spreadsheets. So if you can make it easier for me, I can make it easier for you too. So that began the journey of saying how do we make something that makes it really easy for an independent landlord, independent investor, and then also creates a great experience for their tenant at the same time?

David:
What’s going on everyone, this is David Green, your host of the BiggerPockets Real Estate Podcast, the best, the biggest, the Baddest real estate podcast in the world here today with my super talented cohost, Rob Abasolo. Rob, how you doing today?

Rob:
Hello, hello. It’s Wednesday and I’m feeling good, man, my back… I survived a minor back injury and I feel like I’m at the end of it. I can finally twist… I’m not ready for a golf lesson quite yet. I’ve been saving that for a little bit, but I’m close. I’m close to being able to go to Top Golf again.

David:
Which is how everybody golfs these days. No one actually goes to a golf course unless they’re over 50 years old.

Rob:
No, I actually bought 10 golf lessons. I bought them, I went to the first one, and then I threw out my back. So they’ve just been collecting dust. And that’s how they make the money on you. They want you to bank it and just forget about it. And that’s kind of me at this moment.

David:
I think about that with gift cards all the time. It’s the worst thing ever that you go spend money on a gift card and then you give it to someone. The number of gift cards I’ve actually used is very low compared to the number I’ve been giving. You lose them, you don’t think about it. I’ve had one for In-N-Out Burger in my wallet for four years and I still pay with my credit card every single time because I just forget.

Rob:
Well, there’s a little bit of a psychology there because someone at BP Con, actually two people at BP Con gave me Chipotle gift cards, and I never want to use them because I’m always like, “Oh, I don’t know. Is today the day? Do I want to use my gift card?” Because you just feel like you’re… It’s like credit card points. I’ve got a lot of credit card points I’m just too scared to use.

David:
And who knows why we are… I do that same thing with credit card points. I’m like, “You never know. I might run into a situation where I have no cash and I’m just going to need it,” so they build, they build, they build. Speaking of building, today’s guest is amazing. Ryan Barone built RentRedi, property management software that makes your job as a landlord much easier and frankly makes managing real estate more fun. If you thought that that wasn’t possible, you could be wrong. And Rob and I interview Ryan, getting into how he solved these problems, what the software does, how it makes landlording better, and what’s even cooler is it doesn’t just help landlords, but this software actually helps tenants as well. Makes it easier to be a tenant of a rental property, which only helps your real estate business.
And even more if you wait for the very end of the show, we are going to give you a discount code that you can get access to this thing through a Pro membership, which makes it free for you. Pretty cool stuff. Before we get into the show with Ryan, today’s quick tip is there’s one thing that you shouldn’t be afraid to use and that’s the BiggerPockets tools we have available for you. Be part of the community, manage your properties, start, scale, and manage your entire portfolio with what BiggerPockets has. You got to check it out. We’re more than just a podcast. Go to biggerpockets.com, hover over the little tools bar and you’re going to see there’s tons of stuff that will help you build your business.
Not to include the forums we have where you can read questions that other people have asked and answers that they got. You get a chance to ask your own questions. A very extensive blog. Man, I used to sit there and work in graveyard shifts and do nothing but read the blog all night long until there’s something I actually had to do. I love that thing. So if you’re a fellow reader, check it out. Rob, anything you’d like to add before we bring in Ryan?

Rob:
No, I’m genuinely pretty stoked about this one because Ryan had a really cool origin story for how he even came up with RentRedi, so I always find that these stories are really inspiring because he had a problem, so he’s like, “I’m going to solve it.” And because of that it became this insane platform that really helps people. So let’s hop in.

David:
You got a problem? Yo, I’ll solve it. Ryan Barone, welcome to the BiggerPockets Podcast. How are you today?

Ryan:
I’m doing great. Thanks for having me David.

David:
I am good to hear that. If anyone doesn’t know, Ryan here is the CEO and founder of RentRedi, which is now part of Bigger Pocket’s suite of tools to help you become a better real estate investor, frankly. So if you’re a Pro member, you get free access to RentRedi and I’ve looked at it, it’s very cool, I will say. One of the things that I look at when I’m looking at a sophomore, and I may be like everyone else, but I don’t think I am, is how easy is it to use? Is it intuitively I look at it and I know what to do? If that software makes me work, I hate that. Now some people, nerds, love that. They’re like, “Oh, it’s like a Rubik’s Cube and I get to figure out how to make this software work,” and they get very excited.
I’m the opposite. If I got to try to figure this thing out, I don’t want to put the energy towards it because I don’t make money figuring out software. I make money hitting my KPIs. So for instance, I got Mint for the first time, I’m working on a new book for BiggerPockets, it’s going to have a FI component to it and I’m coming up with a system people use to track where their money’s going. And I was so impressed by Mint, it’s like, “This is…” It works. It just automatically budgets what I’m spending money on, it knows how to classify it, it tells me how much I should be spending and how much I am. It made it easy. And I got to say RentRedi gave me the same vibe the first time I looked at it. So well done creating software that is as friendly to use as your face is to look at.

Rob:
Yeah, and Ryan, I also heard that BP had somewhat of an early tie to help you get the right feedback for the concept. Is that right?

Ryan:
Oh yeah, in many ways, and all along the way. In the very early days I was actually trying to build an app for myself and friends to apply to units, and BiggerPockets played a part in that because I was going to a whole bunch of meetups and trying to talk to landlords about what issues were they having and how could that be solved maybe with some software that made things easier for them or streamlined processes they had. So that played a huge part. In fact, the very first partnership we ever did with BiggerPockets years ago, we only had two subscribers. So it’s been, for me, a long journey of feeling like we were trying to help the same person in a lot of ways just from different angles. From BiggerPockets’ perspective, for me it was always the place you go to get information about how to manage better or how to acquire that property or whatever that might be. And then from my perspective, it was trying to provide some sort of software to streamline those things you were supposed to be doing yourself manually.

Rob:
Dude, that’s awesome. Okay, I love that, because you said you in the early days you had two subscribers and then how many active users are on the platform right now?

Ryan:
So we have tens of thousands of landlords actively managing on RentRedi today. All 50 states, Virgin Islands, Guam, Puerto Rico. So it’s grown a lot.

Rob:
Well congratulations. Let’s back up a little bit, okay. So tell us the idea of how RentRedi came into fruition. What’s the origin story here?

Ryan:
So I was actually in college at the time. I had gotten my first internship and I was all excited to stay in… At the time I was in New York City for college at Pace University. So it meant I got to move out of dorms, get my first apartment, which was going to be really exciting for me. So I went through that application process trying to apply, and I ended up not getting that apartment. They needed letter of employment, W2, bank statements, tax returns. I had two roommates, all of which had guarantors as well. So we ended up not getting that unit and I left that thinking to myself, could I just make a way to make things easier actually for us on the tenant side, to apply to units quicker and more easily?
So I developed initially an app just for myself and friends to apply and quickly had landlords coming back to me, some of which were BiggerPockets members as well along the way saying, “Wait, our side’s just as bad if not worse. You’re seeing the trickle down effect of me, an independent investor who’s put my life savings into acquiring a property or two to put a kid through college or retire early, I’m doing it all in spreadsheets. So if you can make it easier for me, I can make it easier for you too.”
So that began the journey of saying, how do we make something that makes it really easy for an independent landlord, independent investor, and then also creates a great experience for their tenant at the same time? And it grew over time from what was initially saying, “Hey, can we try to solve applications,” to being this completely end to end platform for anything that you have to do in terms of managing the property. And honestly, truly, from those individual stories, pretty much everything on the platform today is from at least one person’s story of a problem they were trying to solve in some way, we were trying to fix that for them.

Rob:
Okay, so if I remember this correctly, you said that you were trying to get an apartment, you were having a tough time qualifying I guess, and you’re like, “I’m going to create a software that solves this for every tenant that’s in this problem.” You do that and then landlords on the other side are like, “Whoa, wait a minute.” I want to even know they find out. Was it because you were presenting the software to landlords and they’re like, “Hey Ryan, this is really cool.”

Ryan:
Yeah, yeah, that’s exactly what it was. I was trying not to disrupt the landlord side of things at first. So everything was sending over email initially at that point. So I said, “Great, I’ll build an app where you enter all of your information, you take photos of all your documents and I still send it over email.” So they were getting this basically packet in the same fashion they had asked for it through just typical pen and paper means, and then saying, “Wait, but the system of managing that in email is not ideal, it’s just what I have. So can you give me…” Initially it was a way to manage all of those in a platform.
And from there it grew to things like pre-qualifications. Initially it was just applications, but it grew to things like pre-qualifications where someone said, “Hey, I had a couple come view my unit, I loved them, I’d love to rent to them, but as soon as I ran the full tenant screening on them, I realized I couldn’t rent to them, so can we get a pre-qualification that lets me figure out how to basically meet with the best five people instead of the first five people that want to view one of my units?”

Rob:
And then do you still have the tenant component of the software or did you completely pivot at this time?

Ryan:
Oh yeah, so it’s still both, still the mobile app for tenants, and in fact it’s grown in a tremendous amount from just applications to paying your rent through the platform, even submitting video maintenance requests through the platform, seeing all of your lease documents and running your tenant screening. Really is trying to help them make everything better. Even during COVID, we had some tenants say, “Hey, can you help me build my credit score because I’m already paying rent through the platform?” So we built in credit boosting so that they basically enable this. They pay on time, they’re building their credit. Landlords are happy because they’re getting their money on time and that’s really what you want at the end of the day. So it became a win-win from everybody, even if it was, in that case, an idea coming from a tenant side of things.

Rob:
That’s amazing, man. So it wasn’t really a pivot, it was just an expansion. So at this time when you were concepting and bringing it and developing it and minor pivots and expansion and everything, what was the marketplace even like for landlords at the time?

Ryan:
Oh, I mean at the time it was, I mean, truly just pen and paper spreadsheets. For me, I wasn’t interacting with anyone that was doing anything other than sending everything over email, paying with checks and cash. So it was truly trying to give something that could streamline a lot of those issues. Even the paying rent portion of that, of dropping a check off to a specific location or paying cash and having to meet someone somewhere just felt like something we could make easier for everyone involved.

Rob:
Yeah, so you were basically solving a bunch of the pain points that a landlord or maybe even a tenant was having on that journey. Obviously there was a software gap here if so many people were excited about what you had to offer. What did you identify at the time as one of the bigger needs that smaller landlords needed?

Ryan:
Yeah, what I ended up realizing was needed was truly an end to end solution that took a lot of the tasks that were manual and tried to automate those without cutting into the margins of a landlord’s business. So the options that it seemed like they had that they were presenting to me at least were either I hire a property manager for 10 to 12%, and that might cut into my margins or I want to manage it myself for whatever reason, or I do it all on spreadsheets, I kept that margin, but now I’m pulling my hair out because I’m doing just absolutely everything myself. So what we were trying to figure out was how do we let you control it all so it does whatever you want it to do, whatever you would do physically yourself manually, but let that basically be a software, almost like a person that you tell to do what you want them to do and they go do it exactly how you want it done.

David:
That brings up a big piece of building a business, is typically I’ve found it starts on the back of the founder. We’re running as hard as we can. At a certain point we’re like, “This is as fast as I can run with all this weight on my back.” The weight is the work, the tasks that have to get done. Josh Dorkin had this issue with BiggerPockets itself when he was working 15 hour days just sitting there writing code or working in the forums. I think there’s an urban legend that to get the forum started, he would create a fake profile and write a question that he would then answer with a different alter ego just to show people like, “This is how the thing should be looking.”
And then there’s this rhythm of, “Let me give it to someone else to do,” because we’ve all heard Who Not How, and we’ve listened to all these podcasts that talk about how you build a company and you got to leverage and you’re like, “Okay.” And then you do and that person sucks. They don’t do a good job. I mean, if you hit it out of the park on your first try, hats off to you, that’s awesome. I never have, and I don’t know many people that did. It’s usually, “Oh, that’s not how I did it at all, and that’s not a very good effort, and why do you need this much time off, and how come you’re never focused, and why is there always a new drama happening in your life every single time you come into work?”
So you take it back on and you start running again, but now you’re trying to do other things that you started when you gave it to someone else and you go through maybe five or six iterations of this, you finally get a good person that can do the work. How did you transition out of, “I do everything,” into, “I’ve outsourced the majority of the tasks that need to be done and I focus on the vision,” and then my follow up question will be what stuff did you focus on once you got it outsourced?

Ryan:
Yeah, so everything that… When we started scaling the team, I think the first thing is trying to get everything out of your head. When you’re doing it yourself or with a partner, a couple partners, whoever you started, whether it’s your real estate business or in my case and myself in RentRedi, you have so much knowledge about what you’re doing yourself, may not be the best way, but it’s the way that. Trying to document that as much as possible so that you can lower what I would call the hit by a bus metric. If you disappear tomorrow or if you were unable to do that particular part of that job, could your team do it?
It’s really hard to do, I’ll be honest. It’s not easy. And it’s not an overnight thing. I think it is a gradual starting of documenting that. But at first I would say get rid of or try to bring on people that are good at the things you’re the worst at. So in the early days for us, we brought on a designer, I’d like to say I’m a pretty good designer, but I’m not nearly as good as some of the designers on our team. We brought on a content writer, brought on a head of growth, and one engineer and one mobile developer was basically the hiring we did.

David:
Did you hire these people [inaudible 00:16:12]?

Ryan:
We did. We did, yes. Yeah.

David:
So how did you find the people that you decided to hire?

Ryan:
For us, it was mostly Angel, angel.co, and the reason I liked that at the time was a lot of people that were looking there were looking for a mission that they were trying to solve. So it made it great that we were all able to come together and honestly feel like we’re a team building that same mission together. And that honestly has stayed really a part of the company I’m really proud of today. I think everyone that’s part of the team I’m really proud of and how much they love what we do and that we get to build it together, and there’s a lot of hard work that goes into it, but a lot of fun that happens along the way. And that’s something that I think anybody can carry into their own business.

Rob:
Yeah, that’s really cool, man. So it sounds like you were staffing up appropriately and then you were hiring people that were doing the things that you were bad at, and this is something that I’m now… I’m starting to hire a lot more people and that is how I approached it too. I hire people to do what I can’t and then once I’m not stressed out about that and I’m not scrambling as much, then I hire people that are good at what I’m good at. That way I can start managing those people and actually focusing on the vision. But obviously in the early days of any startup, I’m sure you were in the trenches a bit, so can you tell us a little bit about what a typical day was when you were building out the entire platform?

Ryan:
Yeah, I mean in the early days it was truly building the apps. I was our first developer for the first two and a half, three years. So it was building out our iOS app and our Android app and our backend, our front end for landlords. My co-founder Ed and myself were answering every chat so a lot of days looked like answering any questions that people had along the way when they were setting up their accounts, fielding any ideas that they had for us that they thought should be built into the platform, and then turning around and making those a part of the platform. So that was at least the very early days of what an average day looked like.

Rob:
And who was running support for you whenever you were building it out? Because I’m sure when you’re developing any kind of service or software like this, there will be a lot of people that are always pointing out bugs or things that need to be optimized. Who is doing all that for you?

Ryan:
I mean, in the very early days it was my co-founder Ed and myself that were answering chats and then we eventually brought on a chat support teammate to help with that, and now we have a team of about five on chat support that answer any questions that both landlords or tenants have along the way, we’ll help… Even if you’re getting set up and your tenant has a question, we’ll help them with any questions they’ll have as well.

Rob:
I’m sure it felt pretty gratifying or pretty relieving when you hired your first chat specialist or support specialist that took yourself out of that role, huh?

Ryan:
I mean it was exciting. Honestly, one thing that I’ve learned, even from one of the people that we’ve brought onto our team is kind of this strategy, they describe it really nicely, of I do, you watch, you do, I watch, then you do. And I think that really was what we naturally did with the chat support side of things. Ed and I were doing chat support, we brought on a chat support person and for a while we were still answering chat with them every day. It was just that we had more capacity because there were more of us to answer, so there was an opportunity for them to see how we would answer certain questions, us to talk about what the best way was to help people along the way. And then eventually now I feel like I learned things from them, the way they answer things.

Rob:
Yeah, that’s right. The student has become the teacher and the teacher has become the student, right?

David:
I’m curious, when it came to the feedback you got from landlords, when they were saying, “Hey, I need this to do this better or I need software that will do this,” what were some of the most frequently requested issues or the biggest problems that you had to solve to get landlords to be more successful so they would use the software?

Ryan:
Yeah, I think some of the most surprising were in the little details. Things like rent collection in general. We added collecting rent to the platform, but then we had a landlord that was in Texas at the time and called us up and said, “Hey, if I have a tenant that pays even a dollar and I’m going through an eviction proceeding with them, it could reset the eviction clock for me. So I need the ability to prevent partial payments so they either pay me in full or they don’t pay me on a unit or a tenant by tenant basis.” So that was a case of us saying, “Oh wow, there’s more to this than just collecting rent.”
And then others that came to us and said, “Hey, I own properties in different states, and in different states there’s different late fee rules about what maximum late fee you can charge, and sometimes it’s a percentage or sometimes it’s a dollar amount. So I need the ability to, on one of my properties, say it’s a 5% cap and on another one I need to be able to say $10 a day up to $50.” And honestly, a lot of those little details that people brought to us along the way have, I think, made the biggest difference because it enables other landlords coming onto the platform to learn from things that they maybe haven’t heard about yet or haven’t read about yet, but other landlords have. And if we can continually incorporate everyone’s, you get the wisdom of the crowd working together on what’s the best way to do this.

David:
So in your opinion, as far as your software, what do you think RentRedi does, what is it that best at compared to your competition?

Ryan:
I would say it’s actually not in the software itself. I would say it’s probably listening to the people that are using it. I think everybody on the team really prides themselves on continually taking ideas and feedback that we’re getting from landlords and tenants both, and incorporating that into the platform so that what we’re building isn’t coming from me or coming from Ed or coming from anybody else on the team. It’s really coming from the people that we’re trying to help. And if they tell us what to build and frankly what not to build at different times, we can make something that’s better for them. We’ll spend our time more efficiently, we’ll build the things that they need. And that’s really where I think the biggest focus is. And I think that applies to anything, whether you’re building a real estate portfolio or a rental platform or anything you’re doing, the people you’re trying to help have the answer of the right way to do it.

David:
So that’s something I find fascinating about what you’ve done because if you look at… People ask the wrong questions a lot of the time. So as an investor, people will say, “How should I buy? What strategy is the best one? Where should I buy it?” As opposed to, “How do I solve a problem? What is the problem I’m trying to solve?” If the problem is people want to travel somewhere, they don’t want to stay at a hotel, the solution becomes, or the questions you’d ask is, what type of property do I want to buy, own, upgrade, whatever, so that someone wants to stay there and would pay more money to stay there? If the problem is how do I keep a tenant happy so they don’t ask for discounts, you ask questions like what can we do to screen tenants better or how can we avoid things that would cause mistakes to happen later?
The people that I find don’t do well with real estate investing are irritated by the fact they have to solve problems in the first place. Their expectation was, “I buy a house, money rolls in, I shouldn’t have to do anything.” And when things go wrong, they take it as a sign from God. I think that’s funny that so many people, as soon as something goes wrong, they say, “That’s a sign from God that I’m not supposed to be doing this,” because there was a problem, which to me is kind of like saying, “I went to the gym, I put the weight on the bar, I tried to lift it and it was so heavy. That’s a sign from God, I shouldn’t be working out. This is a bad idea.”
But what you’re describing are that the obstacles that you encountered were literally what helped RentRedi, ascend and pass a lot of this competition is the way that you answered them. What advice or perspective can you offer on the mindset that the obstacle is the way?That if you approach problems that happen with enthusiasm and joy in solving, you will become wealthy, versus if you just look at these things with resentment and irritation, you’re going to fail?

Ryan:
Well, I think the happiness part of what you’re saying there is huge. You have to love what you do first and first and foremost. You can turn issues into opportunities, and I think that’s the biggest thing, that in a perfect world, nothing would ever go wrong, but in reality, things will always go wrong and at some point something will go wrong. But you can turn that into something that actually is a good thing. Whether it’s someone that is reaching out to us on a rental platform saying, “Hey, here’s a problem I have. Here’s why it is an issue for me.” We turn around and we figure out a good way to apply that not just to them, but for anybody that would have that issue in the future, and we add that. They walk away from that going, “Wow, you just solved my problem.”
And I think the same thing that applies for a tenant. If they call you up saying, “Hey, I have a leaking sink in my apartment,” you could look at that as, “Okay, hey, something’s going wrong, there’s an issue.” But at the same time, if you have a good way to manage that in terms of being able to have a quick response time with them and them being able to understand that there’s effort that goes into your side of actually getting that done and they see the updates along the way, it feels like things are moving faster because they just have a little more insight into that. And then when things are fixed, they walk away from it going, “Wow, if something ever goes wrong, I have someone there for me. I’m not on my own.” And I think that same thing applies whether it’s us or it’s a landlord working with their tenants. I think you can turn all of those into a time where people feel like you’re there for them if something ever does go wrong, and if it doesn’t, then great, no worries.

Rob:
Yeah, totally. So growing this company, I’m sure you’ve honestly probably faced a lot of the similarity that newer landlords go through, a lot of the struggles and really just trying to figure stuff out. And obviously there’s always going to be a steep learning curve when you’re getting into something new. I’m sure there’s a steep learning curve for developing an awesome software the way there’s a steep learning curve for becoming a new landlord. So is there anything that RentRedi does specifically to help lessen that difficult learning curve of becoming a real estate… Like a landlord or a real estate investor?

Ryan:
Yeah, we try to intentionally implement things that you may not think about if you’re doing everything manually yourself. So one of those, for example, is automatically depositing funds to different bank accounts. A lot of landlords will create a different LLC for each bank account, and they’re trying to separate the funds for that. If you’re doing it on pen and paper and spreadsheets, you might not consider that. And when you’re coming onto the platform, that becomes a question we ask you, do you want it to go to a different account because this is a different property, it innately triggers that question for you. Or even depositing, for example, security deposits to a different bank account than rent, which is sometimes required in certain states.
So we try to build those learnings into the platform that may be along the way when you’ve gotten scrapes and bruises and you’ve gone through the ringer of managing so many properties that you have these things that you know, but honestly a little bit back to the documentation point of earlier, can we try to pull that knowledge out of all of these experiences that landlords have had on our platform or even before our platform and try to say, “This is just part of your onboarding experience,” that we ask you the questions about sending funds to different places or setting up auto pay and having insight into that, or even letting you know if a tenant doesn’t have renter’s insurance when your lease says that they should.

David:
Now I understand one of the things that RentRedi does well is it will actually create a profit and loss statement for each property. Can you talk to us a little bit about that feature?

Ryan:
In the early days we were exporting to spreadsheets because we knew that’s what people were already using and they loved. And then we next integrated QuickBooks to allow them to export the information that was coming into RentRedi into QuickBooks. But what we found was it still took a decent amount of setup to actually get that P&L by property, so we eventually today integrated with REI Hub, which is accounting built for landlords, and out of the box gives you the P&L by property and the Schedule E at the end of the year, any tax forms that you may need. So the intention there is can we make it easier and easier to get all of the information you need on your properties just by using the platform that you’re collecting rent through?

Rob:
So I have a question here, just even on the P&L. Is there still a bookkeeping component here that’s necessary to run your rental business or is that effectively the function that you’re using to get to your P&L?

Ryan:
Yeah, so you don’t have to. Certainly if you want to just collect rent through the platform, we have a lot of people that do that and you certainly can, but we provide the option to streamline that further if you’d like to. And even, frankly, if you have even an accountant that you want to have access to that information, you can invite them for free and they can just log into the platform, only see the properties and rent that you want them to see, and they’d be able to do anything they need there, but it’s a lot easier for them. We’ve even had some accountants tell us, “I would pay for my clients to use this because it makes the accounting side that much easier for me at the end of the year.”

Rob:
This is one of those things where when I was first getting started, even in just short term rentals, I didn’t have any of this. I was basically tracking everything on a little dinky Google spreadsheet and I wasn’t automating anything. So just the use of automation, very simple things like how to direct where your money is getting deposited to and then P&Ls and being able to track everything like that, had that when I started. I probably would’ve saved a lot of money in invaluable mistakes that I made over time. So it’s really cool that you’re figuring out not just how to make it a good experience for the landlords, but I know that it’s very important to have a really good experience for the tenants too. I mean, I think the fact that it’s a two-sided software and focusing on both of those components really is going to just make it that much better in the end.

Ryan:
Yeah, absolutely. So if you’re an independent landlord that has three or four tenants and two of those have issues, that matters a lot. Each individual tenant has a lot of importance to you. So making sure that you can have a good experience for them without a lot of effort from you is really important because you ultimately have lower turnover in those units. It’s less headache for you. It should make everything easier for you, even.

David:
As every property manager knows, decreasing the amount of time, attention, back and forth you have to have with a tenant is what lowers the friction in the entire experience of being a landlord. If you can get ahead of problems, if you can give them a way that is easy for them to use. Everybody wants to tell someone, “Just go here and do it.” But when you send someone say, “Hey, go call this number for your answer,” and they get put on a phone tree and a robotic voice asks a bunch of questions and keep saying they can’t hear you, and then you end up with a virtual assistant in another country and you’re just screaming, that wrath is coming back your way at a certain point. So it needs to be smooth if it’s going to be automated.
I personally think automation is a… We talk about it in theory and it sounds amazing, but in practice it is so difficult to do. If you just listen to the people, in this case, the tenant, what they say is, “I just want to talk to a human. I’ve got emotional pain, the sink is clogged, the air conditioner won’t work. I need someone to fix this. I don’t want to have to go through all these hoops. So making it easy for them is incredibly important because if it’s not, it’s coming back to you. As we wrap this up, Ryan, I want to ask you, what was your relationship like with BiggerPockets and how did they play a role in the way that RentRedi was developed as well as where it stands today?

Ryan:
Yeah, so in the early days when we reached out to BiggerPockets for the first time, we had two subscribers on the platform, so we were very, very small. We’ve grown to tens of thousands today, but a lot of that came from the feedback of landlords in the forums or landlords that talked to us that were using the platform. So that really has shaped, we wouldn’t be in the same place today if it weren’t for all of the landlords we worked with, and frankly all of the people at BiggerPockets we worked with. And the really exciting thing today is now that it really feels like we’re joining forces in a big way where basically every Pro member now just has it included.
When they go to biggerpockets.com, they don’t even have to come to RentRedi anymore, they can go to biggerpockets.com and just click manage my rentals, and they’re jumping in to actually manage the rentals through RentRedi. And it feels to me like combining that initial side of things in the early days of feeling like, “We’re both trying to help the same person. You’re trying to provide all the knowledge of what’s the right way to do things, and we’re trying to provide, in the right places the automation and in other ways just guidance of how to manage everything.” But now today, they really join forces and you can just access it by basically being a BiggerPockets Pro member.

David:
Well, I am excited to see this bad boy in action, so I’m looking forward to seeing what it looks like. Before we jump into that, Rob, did you have any last questions or words?

Rob:
No, man, I’m excited to see the tool. Let’s dive

Ashley:
That was really cool to hear and understand how RentRedi got started, but even more exciting, Ryan, I can’t wait to show everyone how it actually works. So you guys, my name is Ashley Care and I have the honor of working alongside Ryan today to show you guys how RentRedi Works. So Ryan, let’s start out at the BiggerPockets page. How do we even get into RentRedi?

Ryan:
So the greatest thing is if you’re a Pro member, you can just go to BiggerPockets.com. It’ll bring you right to the Pro welcome page here where one of the options is to manage my rental properties. The top left option there is to jump in and manage those. From that point, it actually takes you right into RentRedi, it lets you get started, it links together BiggerPockets and RentRedi, those two accounts. So if you already have an account with RentRedi, you’ll be able to just use that as your login anytime. But if you’re starting new, you can actually come into here and you’ll be able to start getting set up and adding in all of your properties.

Ashley:
Ryan, the first thing I love about RentRedi is you have this dashboard that you can customize. So do you want to start telling us a little bit about that first as to what are some of the things as an investor that you want to see right away that you guys can show on your dashboard?

Ryan:
So the dashboard is really intended to be your place to understand anything you might need to do at any time, whether it’s any tasks that you have pending or completed, any pre-qualifications, which are really tenants reaching out saying, “I’m interested in your unit, but us trying to help you meet with the best five tenants rather than necessarily the first five that reach out.” Any applications and screenings. And we automate that screening process for you to make that easy. Or any maintenance or rent that’s coming up. So it’s really your hub, your place for you to see if there’s anything that you might have to do at any given time.

Ashley:
Before we even get more into the software and all of the amazing benefits that it does have to being an investor and using this. Basically just looking at the dashboard now you can tell this is already eliminating other software or platform that you need to have. So you have your calendar on there, you have a task list on there, you have your maintenance request. Instead of going out there and getting all these different apps that do what you have in RentRedi that does all of this for you. So do you think you could take us through actually getting a tenant and what it looks like putting the tenant in place?

Ryan:
Yeah, absolutely. So the top right here of the dashboard is for properties. So that’s really where I would start. This is your place to see anything that’s occupied, even something expiring in the next 90 days, which I think is a perfect case for your point of do I need to go get a tenant? Or anything that’s vacant. So I could come in here and see that, “Hey, 1 BiggerPockets Drive, the lease is ending in the next 90 days.” I could reach out to this tenant and find out if they’re going to renew.
But if they’re not, one of the really nice things is I can jump right into this unit. And to your point about platforms, we’ll actually syndicate out to Zillow, Trulia HotPads, Doorsteps, Realtor.com. We’ll even give you a RentRedi site that you can go throw up on Facebook Marketplace or Craigslist or anywhere else you’d like. But the idea is to make it easy for you to put together this listing of whatever you would like, any photos you want along the way, the rent and anything like that, and basically be able to start getting applications or pre-qualifications in from a tenant.

Ashley:
And this is going out to multiple websites, as you mentioned. So it’s saving you from having to manually go and put each listing onto each website, which can be a huge time saver. And I think that’s going to be a common theme for using RentRedi is just saving time in maximizing your efforts and being just more efficient and effective in what you’re doing.

Ryan:
Yeah, absolutely. And you can always come back in and see… We have these indicators here, they’ll light up in green if you have something listed so you have a nice overview of what’s listed, what’s not, even what units are… Do I have more advanced maintenance coordination features on or do I not? But really the next step in that getting a tenant process would be the pre-qualification. So back on the dashboard, that top right box there is any pre-qualification that someone submitted. So I have one here from DJ who’d like to come to the unit. Says he has a pet, he has a Corgi.
A great point on this one is if I don’t don’t accept pets in my unit, then I might not be able to rent to DJ even if I love DJ. And vice versa, maybe pets are fine, he’s in a good credit and income range is what he reports, so probably a great fit for my unit. So I can accept DJ here if I think DJ is a great fit for this unit, and I can even customize this template here so that every time I come in and I’m accepting a tenant or rejecting a tenant, it says what I want it to say, but this will let them continue on to the next step of actually coming and viewing my unit, booking it on that calendar that you were mentioning and then actually applying to the property with a full credit, criminal, and eviction check.

Ashley:
And with this template, this template is provided by RentRedi, correct?

Ryan:
Yeah, absolutely. So right out of the box when you’re coming in, you have to enter the properties that you want and obviously the information about them and where you want to list to. But the template, like you’re saying of what goes into the pre-qualification and application, is something we’ve already pre-built for you. And I say we, but to be honest, has been a lot of BiggerPockets landlords that have built it for you and a lot of other landlords that have been on the platform before saying, “What are the critical things that I need to ask for in an application to screen somebody and make sure I have the right person in a unit?” So the idea is that whether you’re a veteran landlord or just getting started, you have at least the starting point with minimal effort to be able to get everything up and running and do it at least the way that a lot of other landlords are doing it today successfully.

Ashley:
And it gives you a starting point. Why recreate the wheel and create all of these emails or documents from scratch when you have a starting point right in front of you and you can always tweak them and change them so that they are customized to you and your property, but having that template is just a huge advantage and can save you so much time.

Ryan:
Yeah, absolutely. And to that point on the time saving, one of the things that we try to do along the way is reuse anything we can, cut out any extra work, and this goes for both the independent landlord managing on the platform and also for the tenant. So anything they’re doing in that pre-qualification carries over to the application. So they’re not duplicating any of that work, it’s automatically done for them. In fact, if they’ve applied to other units that are also using RentRedi in the past, they may already have a lot of your applications set up and ready to go, which just makes it that much faster for them to apply.

Ashley:
So let’s talk about if we actually screen a tenant. Can we do that right through RentRedi and what’s that process like?

Ryan:
Yeah, so by default, when you’re coming in and setting up your unit, we have it in there that the tenant will do a credit, criminal, and eviction check when they’re applying to your unit. I can come into one of the applications here just to show that. So you can always turn it off. And for example here I have an example where I had it off for this particular time when they applied, and you can manually request a screening afterwards if you’d like, but most of the landlords on our platform want that as part of the application that comes across. So as just an example of that, I can switch over to, and any landlord can as well, if I come back to the dashboard and go to the demo over here, you can actually see what would it look like when someone gives me an application with a screening and everything included.
So when I come into the credit report here, I can see this is the rental score provided by TransUnion, here are the factors that are going into them ranking in that, and even the things that play a part in their trade lines on their credit report. And then if I go down the left side again, there’s also eviction report and criminal report where I can see anything across the US that has applied to this particular tenant that might be relevant to my decision making process.

Ashley:
And then what is the charge, and is it to the tenant or the landlord or can you choose who picks up the tab on this?

Ryan:
Yeah, so there’s no charge to the landlord at all. We partnered directly with TransUnion on this and we actually get a discount for the tenant in the process. And this is an approach that we’ve tried to take with everything on our platform of trying to take all of this massive group of independent landlords and use that collective bargaining power to go to people like TransUnion and others in the space and say, “Hey, treat us as if we were one massive portfolio.” We’re able to get discounts in the process because of that. So a tenant paying for a tenant screening through RentRedi will only pay $35, whereas they might pay 40 or 45 even going direct to TransUnion for that. So we’re getting a discount even for your tenant along the way when they’re doing this process.

Ashley:
And that’s definitely attractive to a tenant for the application fee to you than to somebody else’s rental. Okay, so let’s say we’ve accepted this tenant. What does it look like collecting rent? Because there’s probably some people listening that are actually receiving checks in the mail, meeting their tenants to pickup cash. How does the process work through RentRedi?

Ryan:
Yeah, absolutely. So there’s a couple different options of how you can get there, whether you want to do it right here from the dashboard with this plus button next to rent, or if you want to go into a particular renter, into a particular property, I’ll do it right here from the dashboard. But I can say, “All right, I want to set up a lease to start collecting some rent for one of my properties.” We can do it for 1 BiggerPockets Drive. So I’ll continue here. It’ll automatically see that I already have Ed Barone in that unit as a tenant. So I can continue here and then I can actually select what I want the start date to be for this particular lease or anything like that. If I want to select, maybe they’re moving in over the weekend even, that’s totally okay. I can even set it up so that it’ll go out to the end of a 2023 and I can customize anything in here.
So we try to have smart defaults along the way. So by default when you’re coming in, we’ll default to the first of the month, we’ll automatically remind your tenant if they’re late on rent and they’ll get a push notification to the mobile app that they have for paying rent, and they’ll also get an email for that. But you can always come in here and customize this as well. For example, if you have somebody that you know always is late, you could add an additional rule to notify them a couple days before, or if you have a grace period and you don’t want to notify them until you’re almost to the end of that grace period, you can always come in here and change this to be when rent is due or when it’s late or days before it’s due or anything like that along the way. But out of the box, you don’t have to change any of that if you don’t want to. We try to set it up in a way that will make you most successful just by going through this process.

Ashley:
And once again, what a huge advantage, especially to a rookie investor just starting out as a landlord, not knowing exactly what to do. This helps give them the default so they can at least see what the norm is or what most people do. And then they can go and tailor it if needed.

Ryan:
Right, absolutely. So it’ll even generate all of the rent for me. And you can see, for example, I chose to have them move in this weekend, tomorrow, which isn’t quite the end of the month, but it’s getting pretty close. Typically if I was doing this on pen and paper and spreadsheet, I’d be doing the prorating of how much I should be charging them for those couple days. But RentRedi will do that for you right out of the box and it’ll mark it as prorated too, just so it’s clear to you and to them that that is a partial month.
But it’ll generate all of the rent that will be due for this tenant over the course of the next year so that you don’t have to think about it. It’s automatically set up within the app, and in fact, the tenant coming into the app when they’re onboarding, which I can pull up here with the mobile app on the right hand side, they’ll have this nice onboarding to set up a payment method, set up auto pay, and they don’t have to even necessarily go into the app every month to pay that then.

Ashley:
And Ryan, think about how many people are probably leaving that $72 on the table just because they don’t want to do the math and figure it out and just be like, “Oh, it’s only a couple days.” But that’s $72.

Ryan:
Right, it adds up. It really does. So even for the tenant along the way, we also try to provide some additional benefits to them too. One of them was credit boosting, and this actually came from both the landlord side and the tenant side during COVID. Tenants were saying, “Hey, rent is my biggest expense. Can I try to use that to my advantage in some sort of way?” And landlords were saying, “Hey, can you give me a way to try to encourage my tenants to pay rent on time more often?” So that’s what we came up with here with the credit boosting. Basically we report on time payments to the credit bureaus if the tenant opts into it. So it becomes a big benefit to landlords because they’re getting their rent on time more often, and it becomes a benefit to tenants because they’re building a better credit score, so then when they go get a car loan or any other kind of loan, they’re maybe getting a much better rate than they would have otherwise.

Ashley:
Yeah, I think that’s another advantage to both sides, as you mentioned, the landlord and the tenant, having this capability because this is kind of something new that’s really hasn’t been done a lot in the past where a landlord could report the payments to a credit bureau.

Ryan:
Yeah, absolutely. And same thing on the renter’s insurance side. If they have renter’s insurance, they can certainly upload it, but if they don’t have it and they need help with that, they can actually get that renter’s insurance directly through us. And if I jump over to a particular unit, say the one I was just adding information for, I can do it either if I’m on the unit or if we go back to the dashboard, there’s the option for renters in the top middle of the screen here, and I can see who has renter’s insurance and I can notify them too. So say it’s built into your lease that they’re supposed to have renter’s insurance. If they get renter’s insurance through RentRedi, we’ll actually keep track of that for you. So you’d come in here and see that either Ed has insurance on the property that he’s living in or he doesn’t, and you can notify him to get that if he doesn’t have it or see that he already has that set up if he already does.

Ashley:
And way to make it easy for the tenant, they really have no excuse now not to go get that renter’s insurance.

Ryan:
Yeah, absolutely. And same thing is true for auto pay. For this particular unit, I had mocked up you and Ed in One BiggerPockets Drive. So if you were splitting rent, saying, “We each pay half of the rent,” I’d be able to come in as a landlord and see Ed’s paying $400 of the 750 a month, or you’re paying $400 and he’s paying 350 of that. So I can see what day of the month is it going to run, how much is it going to run? So I have an idea of when I’m getting my money for anybody that has auto pay set up as well.

Ashley:
That’s super cool too. So what are some of the ways that a tenant can pay? I mean can they pay by credit card, debit card, electronic payments?

Ryan:
Yeah, so all three. So when they come into the app, they’ll have the option for rent here and that’ll take them into anything that’s going to be due. So they can choose anything they’d like to pay or they can set up auto pay for that, and they’ll have the option to either add a bank account, a credit card, or even they can link a Chime account and pay with cash at over 90,000 locations across the US. So they have that option along the way to do whatever they would like.

Ashley:
And the Chime, can you explain how that works? That’s where they’re going into a drug store that’s affiliated with it, paying in cash, and then they’re actually sending the funds.

Ryan:
Yeah, exactly. So the Chime account’s something that a tenant can get just online, so they don’t even have to go anywhere in person. And then they’d be able to go into, like you said, like a 7-Eleven or they have about 90,000 other locations across the US that the Chime app will show you or your Chime account will let you know when you’re getting the account where you can go in your area, and you’d be able to basically walk in with cash and deposit that and be able to pay right through the RentRedi app. So people that are, for example, working jobs where they mostly get paid in cash, it gives them an easy way to still pay their rent without you necessarily having to meet them in a particular place, so then be somewhere to give you the money for rent. It just makes it easy for them to pay you no matter where you are or where they are.

Ashley:
Yeah, I had an investor friend who the first Sunday of every month would drive around and collect rent from his tenants, and my gosh, that sounded awful to have to spend one Sunday a month having to do that.

Ryan:
We hear that so often, too. It’s so common.

Ashley:
So this definitely makes it a lot easier. And I’m sure just there’s a lot of people that are introverted and don’t want you coming to their house to have to collect rent every month. They’d rather just send it electronically. So in our scenario, we have our tenant, they’ve got our lease in place, they’ve paid their first month’s rent, they moved in. Now the long awaited, the 2:00 AM phone call that the toilet is overflowing, all the things are breaking, every landlord’s worst nightmare. How is the maintenance handled through RentRedi?

Ryan:
So there’s a few different options, so we try to make it flexible even though we try to give you some way of doing it your own way. So the three options are basically to do it yourself. We have some landlords that say, “I am the maintenance person as well.” So you get a notification that comes directly from the mobile app. Since tenants have that mobile app on their phone, they can take a video of the issue and submit it in. So you’d be able to come in and see, “I have a leaking faucet.” At 2:00 AM That could mean it’s destroying your kitchen floor and you need to rush out of bed and go fix it. That could mean there’s a little drip.
Being able to actually see a video of what that is, if you get maybe not the most descriptive message coming across, you could come in here and see, “Okay, this is a little drip going into the sink itself. It’s not going to destroy the unit if I come in the morning.”Or vice versa if it is really important that, “Hey, maybe need to hop out of bed and run over there.” So really the first option is being able to see these yourselves. The second is we let you add teammates for free. So if you have a maintenance person, even on one property versus another. Say you have some properties in New York and other in Texas, so clearly different people helping in those different scenarios, you can invite them to only see maintenance in only those units and they’ll get notified for those. They’ll update everything here. It’ll show in real time for you and for the tenants.
Or the third option is you say, “Hey, I don’t have anybody. I don’t want to do it myself. I just want it to be fixed when it happens.” So we have the option, whether you’re on the dashboard here, to come into the maintenance side of things and add maintenance coordination, which is a partnership that we have with a company called Latchel, which will basically source the maintenance person for you. They’ll work within budget constraints that you have. They’ll come fix it, mark it complete for you and everything. So along the way you’d be able to come in and just see the status updates of basically what’s happening on a particular request from the point of a tenant submitting it to the point of it being completed.

Ashley:
So you are saying that you are making it more passive to be a real estate investor of a long term buy and hold property, which is amazing. Not having to take those dreaded calls that something is wrong or even to have to try and figure out, “Oh my gosh, I don’t know who I’m going to call for this. I’ve never had this issue happen before,” is having another option for people to sign up for.

Ryan:
Yeah, absolutely. And this was just another case of those where in the past independent landlords in general weren’t able to access this service. If they had less than 72 units, they weren’t able to get access to Latchel. So we were able to make that same type of move we did with TransUnion and say, “Hey, let’s get access to all of these independent investors that also want to make things more passive for themselves.” So it was one of those great partnerships where any landlord now, if they want to, coming in can say, “Hey, it’s time.” And they can even turn it on and off. We’re coming up on the holidays and some people say, “I just don’t want that call during Thanksgiving,” and they could have it on for that time just to make things easier for them and off another time if they feel like they want to handle it at that point as well.

Ashley:
That’s really interesting. I didn’t know that piece of it, but how convenient. If you do want to be a full self-managing landlord but you’re going out of the country for two weeks, you can go ahead and turn this on for that to take over while you’re on vacation and not have to line somebody up to take your calls. So let’s jump to the last piece of this that I want to know about is the communication. I think having good communication between you, the landlord, and your tenants can really build a good relationship. So an example of this is with the maintenance that we were just talking about. If there’s a maintenance issue and you can’t get it solved, keep your tenant updated on what’s happening with the issue that maybe you’ve contacted the vendor, you’ve set up the showing or set up the repair for this date, or you’re waiting for a part. That constant communication I think is really beneficial. So what are some ways that you can communicate with your tenant through RentRedi?

Ryan:
Yeah, you’re absolutely right. Communication is so, so important, and you have the option right here on the dashboard, notifications at the top middle here. You can send out a notification, and you can choose. Again, they have that mobile app on their phone, which a lot of the time they’ll see those push notifications before even emails, where other people are sending things along. But you have the option to send that either as just an email notification to them, as a push notification, or both. And you can choose, even within there, do I want to notify just a particular unit, do I want to notify everybody at a particular property, or do I want to notify all of my tenants? So for example say garbage day is changing in your county and all of your units are in that area, you could update them on that, or say that leaking faucet turns out that you have to shut off water in a particular property one morning and you want to notify everyone that, “Hey, don’t try to take a shower between 10:00 and 12:00 because there isn’t going to be any water.”
Instead of you having to go door by door and putting up notes for them or things like that, you can send out one of these push notifications and emails to all of your tenants and you can even customize exactly what you want it to say in the header in the body or what you want it to say in the email. You could even link things into the email if you want a link in the email to say anything else that you’d like them to have access to. But that will let all of your tenants know about anything you need them to at any given point and keep that good line of communication open.

Ashley:
And it also avoids having to get on the phone too, because you have everything in writing. Having those records and the log of all of that communication with a tenant can… If something unfortunate does happen down the road, that you have all the communication recorded and in one place to see what that communication was.

Ryan:
Yeah, you’re absolutely right.

Ashley:
Well, Ryan, I just got to say, going through this and I use it for my bootcamp, the Real Estate Landlord Bootcamp that I do with BiggerPockets, and everybody has loved using this, especially as rookie landlords getting started, jumping into this, all of the tools and features it has to really help you get started as a landlord, because there’s so many things you don’t even think of that can make your life easier and RentRedi really has all of those things.

Ryan:
I appreciate you having me on. It’s been a lot of fun and I love hearing about all of your master classes as well.

Ashley:
Thank you, Ryan, for doing the demo and now I’m going to send it back to you guys.

David:
Well thank you very much. That was very cool to see. I feel a lot more confident about if I ever had to be a landlord myself. I’m a proponent of using property managers, but I bet you they would love having a platform like this to do their job a little better. Rob, what were your thoughts?

Rob:
Yeah, man. Very cool. Very easy to use it seemed like. Excited to dive into the tool a little bit more. Ryan, thank you so much for your time, man. If people want to learn more about you or more about RentRedi, where can they find you on the internet?

Ryan:
Yeah, so they can find us at rentredi.com. It’s R-E-N-T-R-E-D-I dot com. We have to spell it wrong because we’re a startup. Or they can honestly now even just go to BiggerPockets.com if they’re a Pro member and log into that Pro account and click manage my rental properties.

David:
I want to give you some props on being a startup and not putting the letters “ly” at the end of a word associated with the industry like 99%. You could’ve called it Rently. That’s exactly right. That was probably staring you in the face. You probably workshopped it. You’re like, “You know what, we’re edgy, We’re not like everyone else. We’re just going to spell it different.” There was no way to work an X into it. That’s another thing that people will do to seem cool and edgy is if you can-

Rob:
In the future.

David:
Yeah, maybe at some point you’ll be able to do that, but thank you for not calling it-

Rob:
[inaudible 01:00:04] version.

David:
Rently or Landlordly or Wealthly or Housely or any other form of “ly.” That’s how you know. I’m in the San Francisco Bay Area, Silicon Valley is very close, so everything just becomes, “Oh, you have a problem? Let’s try to find an app for it and end it with ‘ly.’” And it’s worked. I don’t know why, but it definitely has been happening. So thanks for that. Rob, if people want to find out more about you, where would they go?

Rob:
You can find me at Robly on YouTube. You can find me at Rob [inaudible 01:00:45]. Oh, find me on [inaudible 01:00:47]. Rob Quafly Abasolo. I haven’t had my Quafly this morning, but feeling good, feeling good. Robuilt on YouTube, on Instagram, and then Robuilto on TikTok. What about you Davely? Where could people find you?

David:
Davely, yeah. You could check out my website, it’s davidgreen24.com. It’s going to be remade. I should probably have you look at it, Ryan, since you do coding. You could probably make it way better. So what I need is for everyone to look at it and then message me with what you think it should be different or better, and then maybe I’ll have one of Ryan’s contacts or maybe Ryan himself make the website better for me. Or you could follow me on social media at DavidGreen24, or on YouTube at David Green Real Estate. Thank you for asking, Rob.

Rob:
Let me just say something real fast. In this time that you said that, I just went to your website. It’s pretty good. You really made this seem like it was going to be like 1992 Geo Cities, but it’s actually a pretty nice website. Don’t be so hard on yourself.

David:
Thank you for that. It is going to be remade though, again. I had been so frustrated, if I can vent for a second with… I hired a person and he was a full-time tech person, he was supposed to work for me and about seven months went by and all I got out of it was a website that we then had to redo. So this website’s been 12 months in the making to get that, and now I’m like, “Oh, this isn’t going to work. We have to redo it again to show the…” Because I have so many things going on. It’s confusing. If you’re like, “Well, I’ve heard of the One Brokerage, I’ve heard of the David Green Team, I’ve heard of BiggerPockets, I’ve heard of his books. It’s very difficult to understand what’s the stuff David’s doing.”
And now we have these imposters that are floating around pretending to be me and Public Service Announcement. They’re not just pretending to be me. Now that people on my team are having fake accounts made. So yesterday I got a text message from someone saying, “Hey, is Ricardo Carillo on your team?” And I said, “Well, yes he is.” And they said, “Okay, good. I thought it might be a scam.” And then it turns out someone was impersonating Ricardo Carillo, who’s one of the main loan officers at the One Brokerage, and trying to scam this person out of money pretending to be a person that works for me. So the levels of crap that we are getting into now with these scam artists are significant. So don’t ever go to davely.com. That’s a scam. That’s not me. It’s going to be David Green 24, not david.green, not _David, not David Grene, not Daveed. They always change a little tiny thing on there. So yeah, I have to make a new website so it’s obvious what I’m up to.

Rob:
Well, hey, one final thing before we turn in here, David. If everyone at home enjoyed this episode, if you enjoy us, if you like listening to our weird voices and our weird antics every single week, would you do us a huge favor and consider leaving us a five star review on the Apple Podcast website or wherever you listen to your podcast? It helps us, it helps us rank, it helps us in the podcast algorithm, get fed to new people that are wanting to get into real estate and into financial freedom. So please do us a solid, leave us a five star review, and that’s it. That’s it. That’s my last plug.

David:
Well thank you for that, Ryan. Any last words before we let you get out of here?

Ryan:
No, just thank you again for having me and excited to have RentRedi and BiggerPockets working together.

David:
Great to meet you and thanks for the partnership that you’ve done. You’ve definitely helped make the experience better for our listeners. And hey, if it’s better and it makes some more money, I’m all for it, so you rock. And that was our interview with Ryan Barone, CEO and founder of RentRedi. Rob, what’d you think?

Rob:
Oh man, that’s awesome. And I’m honestly happy for all of the people out there, all the BP Pro members that are going to get this included with their membership if they enroll.

David:
Yeah, it’s a significant portion of any business that you’re running, which real estate is, is what CRM are you going to use? So for me, Real Estate Team, One Brokerage, my portfolio, the CRM’s sort of like… It’s like the language that you speak, it’s very significant. A lot of the way that I’ve built the businesses is off of the foundation of the CRM. So when you get that thing in place, which RentRedi is for landlords, it gives you a lot of clarity on what you need to do. All these questions like, “Oh, what am I supposed to do? What if I forget something?” When you’re working off of a CRM, it’s asking you the stuff and there’s a little box that needs to be filled out so you know you need to go do it. So this is going to be a big stress reliever for a lot of people.
Now, if you’re one of the people who is listening to this and said, “I think I’d like to get into this real estate space here. I think I’d like to buy a property, manage it, and become a millionaire.” Well, we’re going to help you do that. If you go to biggerpockets.com/newpro and you use the code NEWPRO, N-E-W-P-R-O, you can get 20% off your first year of a Pro annual membership, which includes RentRedi. Rob, what say you to that?

Rob:
Yeah, and you’re not just getting RentRedi, Dave. You’re also getting access to the new Rehab Estimator tool as well. So when you’re in there, you’re running your comps, you can actually do it on our calculator and just make sure that you’re dialing in your numbers that much more.

David:
How often do you get asked that question? How do you estimate the rehab?

Rob:
Several days? Several days a week?

David:
Yes, it’s right up there with should I get an LLC or should I own it in my own name? This is one of the trickiest parts is how do I estimate the rehab? Well now BiggerPockets Pro members have a calculator and it’s very cool. I’ve looked at it. You literally put in bathroom, this level of finishes, include shower, sink, and towel rack, and it’s like… Like you do. Or how do you do… There it is. And then boom, here’s a number. And it even asks you by area. So if you’re in Kentucky, it’s going to be cheaper than it is out in California. You get a rental estimator tool. So if you’re like, “I don’t know if this property’s going to cash flow or not,” well the calculator does.
You get a rent estimator tool? “I don’t know what it’s going to rent for.” The calculator knows. This was what made real estate investing hard and it’s now been made so easy by technology and software. So like we say, there really is no excuse. The technology is doing all the heavy lifting for you. And if you like off market deals as a Pro member, you’re also going to get access to the Invelo app that helps you put together campaigns to contact off market sellers and find the ones that are most likely to be motivated. So if you’re interested in this, use the code NEWPRO that you get because you’re listening to the podcast. We love you for that. Also, please consider giving us a rating or review. We really appreciate that. All right, Rob, that’s all I got. Anything else for you?

Rob:
Nope, nope. That’s all. I’ll see everybody, all the new pros on the forums and excited for everybody to automate their life and get their time back. That’s all really want, Dave, is to get our time back.

David:
That’s right. You may have all the watches, but do you have all the time? This is David Green for voice is on a 2 but shirt is on a 10 Abasolo signing off.

Kyle Bass of Hayman Capital Management says the country has allowed its property sector, now the “most speculative sector in China,” to run “unabated.”

Dave:
Hey, what’s going on everyone? It’s Dave. Welcome to On The Market, and joined here by the full force of the On The Market podcast. We have Kathy Fettke. Kathy, how are you?

Kathy:
Wonderful. Glad to be here with you guys.

Dave:
Henry, what’s up, man?

Henry:
What’s up, buddy? How are you?

Dave:
Doing well. Jamil, what’s up?

Jamil:
How you doing, handsome? I’m great. Good to see you.

Dave:
Aw, thanks, man.

Kathy:
Sounds like a dating show.

Dave:
Oh, yeah. James, flatter me. What’s going on with you?

James:
That kind of caught me off guard.

Dave:
Me too. I’m blushing now.

James:
I’m kind of blushing for you.

Dave:
Oh yeah, I know. Jamil, you’re really charming our pants off here.

Jamil:
You know, I try.

Dave:
Well, today we have a great show. We did a version of the show, I think it was back in May, where we asked you all to bring us deals that you are currently working on, and we’re going to do a version of that. So I mean, we’ve all been talking about how there’s a lot of opportunity in the market right now, and we figured it was a good time to bring this concept back so you can share the types of deals that you’re seeing in the market, that you’re actually working on in the market. And I’m pretty excited to hear from all of you guys.
Is everyone ready to go?

James:
Yes.

Jamil:
Let’s do it. I love talking deals.

Dave:
All right. Well, Kathy’s the only one who didn’t respond to that, so let’s start with Kathy. What deals are you looking at right now?

Kathy:
Well, we have a single family rental fund, as I’ve mentioned, and we are rapidly acquiring properties. So one of them is in Gainesville, Texas, purchase price a whopping $80,000, and the rehab about 50,000, so we’re looking at an ARV of 160. This property will rent for about $1,325 right now, but the area is growing so rapidly with all the chip manufacturing that we expect to see rents go up. Plus we’re doing a A-class renovation because a lot of the jobs out there are six figure jobs, so they’re wanting a nice place to live. So believe it or not, $135,000 property will actually be A-class in this area.
So it’s kind of like a BRRRR strategy, but within a fund. So we’ll be raising the money, raising the capital in the syndication, acquiring these properties with cash, renovating with cash. And then I do expect, at least the bank that we’re talking to is expecting rates to come down by the middle of next year, at which point we’ll refi this part of the fund and go do it again. But I don’t know next year if the deals will be as good as we’re getting right now. So the bank may be… it may make sense to just buy some points down and do a refi sooner to be able to take advantage of the market, but that’s just one of what will be a few hundred of the same.

Dave:
Wow, that’s incredible. I mean, that sounds like a really good deal. Just eyeballing it meets the 1% rule roughly there and that 1% rule is assuming usually that you’re putting 80% leverage on it, but you’re holding this in cash, so that must be throwing off a lot of cash.

Kathy:
Yeah, well, initially, yeah. Initially we’re purchasing with cash. The rates just kind of don’t make sense for a fund at this point. But my partner in Texas has a really good banking relationship with a local bank that’s excited to lend to this fund and is quoting in the fives. So we’ll see.

Dave:
That’s great.

Kathy:
Yeah.

James:
What kind of term is that on the five?

Kathy:
I don’t know for sure, I would need to find out, but I’m going to say a five year. But I’ll have the details. We don’t know what the market lev-lending environment will be in six months, which is when we would be doing the refi. So I don’t know the specific terms, but this is at least what that local bank is saying that they would do.

Dave:
And how do you find this deal, Kathy?

Kathy:
Through my partner. As you know, I’m, I guess, a lazy investor, is that what you’d call it? We have people all-

Dave:
That’s called smart investment.

Kathy:
We have teams all across the country, that’s been our business at RealWealth for almost 20 years. So we have partners in different markets who do the work, they find the property. It’s usually a property management company. So they have the teams in place, they have the repair teams, the acquisition process. I think on this particular one it was a wholesale deal and she is just getting bombarded with wholesalers calling, negotiating, and if you got the cash, you’re in business.

Dave:
You mentioned a little bit about chip manufacturing, is that the main draw to the area?

Kathy:
There’s so much technology moving into that, the Texas Instruments and every single day…

Dave:
The calculator people?

Kathy:
Yeah. If you go to growdevelopments.com where there’s a video of this fund and what we’re doing, you’ll see every single day, there’s… I don’t know if it’s every single day, but almost where a company is moving, usually from California to Texas, because it’s just a better place to do business at this time. So many… Caterpillar is moving there. So there’s just all kinds of different companies. But in this specific area, there’s really… They’re just kind of calling it the Silicon Valley of the… I don’t know, it was kind of a funny term, but of Texas.

Dave:
Well, they call everything silicon something.

Jamil:
I know, I’m so tired of Silicon Valley.

Dave:
Silicon Mountains, they call Amsterdam Silicon Canals. It’s so stupid.

Kathy:
I know, and Park City is the Silicon Slopes. But there’s a lot of tech companies moving there just because the cost of labor is so much cheaper and then your employees can live better. Imagine that, living in a… well, renting $1,325 in rent for somebody who would be paying three or four times that in the actual Silicon Valley.

Dave:
And why specifically single families?

Kathy:
Such a good question. It’s an asset class I’m just really comfortable in, and there’s so many deals right now. It is being hit hard with the higher interest rates. So we are able to get great deals and a lot of times that’s where people want to live, they want to live in a single family home. But we’re not walking away from duplexes or fourplexes. We’re just kind of keeping it in the one to four unit.
There’s just a lot of people who prefer to live in a and rent a single family home. And of course as a fund manager, we can sell off homes that really just aren’t performing the way we want them to. You can sell them off individually. So the loans to a fund are unique in that way that you can sell off assets that just really aren’t performing, whereas that obviously more difficult to do in an apartment. But I know James is going to talk about an apartment. I’m kind of jealous about it.

Dave:
I know, it does look pretty good.

Kathy:
It looks really good.

Dave:
We’ll have to hear about that. Well, any other questions for Kathy? Kathy, it sounds like a great deal. Congratulations on this and the larger fund. Love the strategy. I know a little bit about North Texas. I know you’ve been bullish on that for a long time, so I’m sure it will work out well for you.

Kathy:
20 years, 20 years in… Texas is my happy place.

James:
I love this deal. It’s totally bulletproof right now. You’re buying it for 50% off, the rent covers no matter what. If the property goes down by another 30% it doesn’t matter because your rent’s going to cover and if you decide you don’t want to keep it, you can sell it and rack a return. That’s your bullet-proof safe deal in a recession market right now.

Kathy:
I mean, you just nailed it. I’m older than you guys. I don’t know if you noticed, but we’re conservative and a lot of our members at RealWealth are conservative. We underwrote this fund extremely conservatively. We barely accounted for any appreciation at all. We expect it will be there, but I just didn’t want to underwrite it or promise that. But I’m going for conservative right now and I know a lot of other people are looking for that. And that’s why I like it too.

Jamil:
I think Dolf de Roos said, “The deal of a lifetime comes around every week,” but I feel like this is one of those deals of a lifetime, Kathy, it’s a great deal, I would absolutely do it myself so good find.

Kathy:
It means a lot coming from you guys.

Henry:
Oh yeah, that’s a buy all day. Multiple exits, that’s what you need right now.

Kathy:
Yes.

Dave:
All right, Henry, let’s move on to you. What are you working on there in Northwest Arkansas?

Henry:
Yeah, my deal’s actually not too dissimilar from Kathy’s deal. This one is a single family home. It’s in Fayetteville, Arkansas, so it’s in an area of Northwest Arkansas that people love. It’s a little further out than maybe most of the homes around the area. But I’ve actually done, this will be the third deal I’ve done in this little street. And so I’m very familiar with the area, I’m very familiar with how well or not well it does and so that gave a level of comfortability.
But we’re buying a single family home; purchase price is 70,000. It is a two bed, one bath. And again, I talked about this on a previous episode and I just kind of mentioned it with Kathy. I’m looking for multiple exit strategies right now. If I can buy it and underwrite it where there are multiple exits, I’m typically going to buy that deal because I know I can pivot one of two to three ways and still make a profit. So purchase is 70,000, ARV is 180,000. And what we’re doing with this property is we’re going to go… we’re taking a three-pronged approach.
The first approach we’re taking is the wholetail approach, so this means we would just clear the property out of all the stuff that the seller leaves behind, make sure it’s got floor coverings and make sure that the HVAC, all the appliances are working, plumbing works, electrical works, and we stick that thing on the market. The plan would be to stick this on the market at about $125,000. And when you look at the median home price around here, being up close to 300,000 or just under 300,000, more like 200, 250,000, finding a house that’s livable where everything works and you can pay 125,000, that’s still hard to find, even-

Jamil:
And you’re putting it into a condition where it’s financeable?

Henry:
Financeable, 100%. Financeable, buying it for 70, make sure it can pass conventional loan standards and then put that on the market for $125,000. That’s a steal. And then if for some reason that doesn’t work, option two would be to go ahead and do that renovation and do that flip. So to do the wholetail, we’ll probably spend between 2 and $5,000 just depending on what needs to be done. If we were going to flip it, we would probably spend somewhere close between 25 and $30,000, and then we would sell it for the 180. And then if neither one of those work out, we can always just put a tenant in it.
So we’d spend about 20 grand, 15 to 20 grand, put a tenant in it and rent that sucker out for between 1,200 and $1,300 a month. So I’m fairly confident that the wholetail strategy will work. I am not a hundred percent confident that we’ll sell it at 180 given the interest rates keep rising and that buyer’s pool kind of shrinks, that first-time home buyers pool is shrinking and shrinking when that happens. We’d sell it, but we may not sell it for that 180 that we’re thinking, but obviously we underwrote it so that we have a lot of room if we need to come down.
And then very, very confident in being able to rent it out and get that 1,200 to $1,300 a month. So that’s why I like this deal because there’s multiple exit strategies, but there’s a bonus with this deal that made me really love it.

Dave:
And there’s more.

Henry:
But wait, there’s more. So this house, when I bought it, when I was looking at the property, it’s a house, it’s on almost about an acre, just under an acre and part of it is just kind of a lot that was next door. And so I said, “Hey, is this a part of your property too, right?” And she was like, “Yeah, I think it’s a separate parcel.” So when I did look into it, it’s two parcels and it’s already split into two parcels, so we closed on both. I will sell the house without the parcel that it came with because I can get the same ARV with or without that parcel attached to it. And then I own that parcel now free and clear.
And so I can sell that parcel to somebody who wants to either just have the land, to somebody who wants to build something on it because it is a very build-able lot. You have to clear some trees, but it’s super build-able and there’s obviously utilities. And so the plan is we do the strategy we talked about with the house and then sell the lot probably on terms to someone where we take a 2, 3, 4, $5,000 down payment and then have them make payments to us as the bank for owning that lot. So I get to cashflow the lot and/or sell it and make an additional profit, plus the strategies we talked about with the house.

Jamil:
Henry, how do you make that decision when you come to the fork in the road on whether or not to renovate it for retail or renovate it for rent?

Henry:
Yeah, we just go with the easiest first. I want a quick turnaround if I can, so we’re going to stick it on the market as a wholetail first. We’ll leave it on the market for two to three weeks, see what happens. If we don’t get what we want, then we’ll talk about what’s the best strategy given the current environment. Things are changing so fast that things could be different in a month when we look at making a pivot. But the first strategy we’re going to do is to try that wholetail strategy because it doesn’t take much money to renovate it, we don’t have to do anything, we just get it on the market. If that doesn’t look like it’s working, then we’ll either pivot to a rental or a flip.

Dave:
Well, Henry, things are changing so fast that since we started recording this episode, the Fed raised 75 basis points since we… That’s not a joke, that actually just happened.

Henry:
100% true, yes.

Jamil:
Geez.

Kathy:
Well, it was expected, I guess.

Dave:
It was, it was.

James:
Love this deal. Great, great buy. If you can go through any different channel… I mean, these are no brainer deals. Everyone is freaked out by the market right now. This is the definition of a deal where you can get in and out, rack a return, make money, it’s safe in all different aspects. This is the recession deal. I think it’s awesome. I mean, anytime you can go in and wholetail it, that’s a win because you’re buying… A lot of over the last couple years people have been buying on the performa, whereas if you can wholetail it, you bought on the now. You’re buying so deep that you’re buying below the as-is condition and that’s a safe deal to get into, right? If it’s only worth 125 as is and you’re buying it at that 70 grand, that’s a win. And so buy that way it’s safe through any kind of metrics. I think this is a fantastic deal.

Kathy:
And talk to my lender and just keep them all in your own commercial fund. Don’t sell.

Henry:
Okay, give me some money, we’ll do it.

James:
Hey, I’m in.

Dave:
And for anyone who’s listening to this who’s trying to get their first deal as well, I just want to point out that the two deals so far, Kathy’s was for 80 grand? And Henry’s was for 70 grand. So just pointing out that although houses have gotten very expensive, is more expensive to finance, even if you don’t have a lot of cash saved up, it is still possible to get into the market and do deals like Kathy and Henry are doing.

James:
But I do want to say this would not be a great property for a new investor because it’s a pretty deep rehab as well.

Dave:
But still, even still rented, you said what, the ARV is like 160?

Kathy:
Mm-hmm. Yeah.

Dave:
So still achievable for people who might not have a ton of cash.

Kathy:
It’s just hard to do a renovation on a property that’s not where you live. You need a really good team that you trust and you need to be able to oversee it. So obviously in Henry’s case, he’s going to make sure that it’s being done well and he knows the business. What do you think, Henry? Do you think somebody new to the business could do your deal?

Henry:
My deal? Absolutely. It doesn’t need much work at all. I mean, it’s-

Kathy:
Oh okay.

Henry:
We just need to cover up some of the floorings or replace some of the carpet and then that thing would be… I mean, somebody was living in it right now and it was in decent shape, so. I wish we could show pictures of these things so people could get an idea of what these look like.

Dave:
We probably could in the show notes, if someone wants to… if you send them over. And on YouTube we could do that.

Henry:
Yeah, I’ll send pictures.

Dave:
And we could [inaudible 00:16:51] them in the show notes.

James:
Oh yeah.

Dave:
All right. James, let’s move on to you. You’re switching it up, talking multi-family. What you got?

James:
So my deal’s a lot different than the first two that we talked about. Actually our assignment fee is the total of the two purchase together on this deal. But yeah, so this is actually a building that my business partner locked down. It’s a syndication deal that we are closing on tomorrow. Actually the docs were just on my table. I was signing them right before the show. It’s a great purchase. So it’s 58 units in Everett, Washington, which is where Boeing is, great location. They just opened a new airport called Paine Field, which is actually more… it feels like a private airport, but it’s the airport of Snohomish County.
So we’re right next to the airport, it’s 58 units, we paid 11.35 million for this building. We’re going to put in two and a half million into the renovation, which is actually an all-cosmetic turn. It’s very simple. We get in and out. That’s one thing that we do like to do on our bigger projects or syndication deals, is stick to the cosmetics, not the heavy, heavy value add. It just gets a little too complex at that point. So the total project cost with rehab’s going to be 14 million and after it’s all renovated and stabilized, it’s going to have a 16.9 million stabilized value at a 5.2 cap.
So at a cap rate, that’s very reasonable. These buildings we’re trading for the last two years around a three and a half to four cap. And so what we’ve seen is… My partner, he does a lot more of the syndicating and the packaging of the deals and it’s been hard for us to get in that 50 to 100 unit quantity because all the hedge funds have been buying this stuff up at ridiculous margins. And so since we’ve seen the decompression in the market and the market get a little unstable, it has great opportunities in there.
So we syndicated the deal, we raised roughly about 3.5 million to take it down. And then what we were able to do, and this is key for any of these type of deals, is my partner was able to lock the financing on this. For me, I want to stay away from variable rate loans right now, especially in any kind of syndication deal or anything on a variable rate. And so we were able to lock the financing and to get 5.7 on a five-year term and then it can kick up to plus two over a 10 year. But we plan on actually refinancing this out or selling it at the five year because it yields a 19.7 IRR or it’s going to be a 15.8 IRR to our investor clients. So it hits numbers we have not been able to get in a really long time for this kind of location.
It’s a great purchase. It’s kind of funny, as the market gets worse and people get more afraid, we’re actually taking down bigger deals now because we want to go where the margins are. We don’t really care about the money. If we need to raise the money, we’ll raise the money. If we need to put the money up ourselves, we’ll put the money up ourselves. But these bigger deals are actually coming to be more profitable again and they’re giving really good yields. And so it’s opened up a whole another investment window to where we’re kind of getting out of the lower end and we’re going to the high because that’s where the gaps are right now. A lot of people are calling us with bigger buildings to move around, but we’re stoked about the purchase. We’d never be able to get this in two years and now we’re closing tomorrow.

Kathy:
That’s incredible. What are the terms for the investor? How do you carve that out?

James:
Okay, so they’re getting a 6… So this thing stabilize, one thing I forgot, it stabilizes out as 6.19 cap too, which again, we have not been able to get over the last couple years. So then investors are on an 80/20 split and then they get a 6% pref return and then we don’t waterfall this deal. So they’re going to keep the upside in the IRR at that point, so they get a lot of extra kicker on the deal.

Kathy:
Wow. How do we get on your list?

James:
You have to know us. We are not a not big raiser. For us, we’ve been investing for a long time, we like to invest with people that are like-minded. They know us really well, they trust us. So luckily we’re all on a podcast together, we’re all friends so you’re invited to that group. But we do keep it pretty tight. I think that’s important for anybody raising money, needs to realize, is they better be like mind, they better be on your side. They better have the same understanding and the same goal in their investments or don’t take the money; it turns into a absolute headache. Just because someone wants to give you money, don’t always take it.

Henry:
Great advice.

Dave:
James, just curious, with your business, you do a lot of single families, you do a lot of flipping, how big or small can you scale your renovation and construction effort? This seems like a pretty big deal. Can you just keep doing this for as many deals as you can get or do you hit a point where you can’t scale your operations much further?

James:
That is a great question. So what we’ve had to do, because we are in multiple different construction aspects, we build town homes and single family homes. We have our apartment renovations and then we have our fix-and-flip. Those are actually three different segments of construction teams for us. We keep them completely isolated so they don’t share, they’re not mixtures. So our fix-and-flip team, typically we can handle about 20 projects at a time and we don’t go any more than that. But what I’ve done recently is I’ve actually gotten out of third party and brought in more labor on that side to where we’re actually controlling the schedules, which has allowed us to do more projects and keep them moving more efficiently.
Our town homes are all built in-house, so it’s done… we don’t hire out builders, we build them all ourselves, so we manage that process. We have superintendents, project managers and general labor staff. And then we also staff our syndication deals. And typically, depending on the size of the complexes, we do have one roughly about… it’s roughly about 200 doors, down in south King County, that’s actually staffed with its own construction team.
So we have numerous different project managers and then we bring on labor staff behind that, so we can handle quite a bit of projects at one time. Like right now we’re turning about 200 apartment doors right now across different sites. But what’s key to that is making sure that we’re buying in similar locations. We don’t want to stretch out. So if we’re finding deals all in the same geographical location, our team can’t… we are targeting those areas like projects that we already are working on. So we have another 35 unit up in Everett right next to this one so that team can pop right over.
And so that’s kind of where myself and my partner are targeting, “What is efficient?” It’s not about just being able to buy the right buy, what is efficiently work with inside your teams at that point? So we can scale up. I mean at the same time, as the market started coming backwards, we were like, “Well, do we need to cut our staff back because we won’t be buying as much,” but it turns out we’re getting amazing buys so now we’re going to staff up on labor. But by not hiring it out and doing it ourselves in-house, my partner’s been able to reduce our cost per unit by at least 20%. They’re going faster, and then we can staff up and staff down to control the timetables a lot better.

Dave:
Sounds very effective. That’s awesome. Henry, is it the same for you? I know you do a lot of flipping and you do a lot of renovations. Are you scaling? What are you doing these days in terms of your renovation teams?

Henry:
Yeah, so for me running a much smaller operation, the contracting aspect has been difficult. I’ve been looking actually at bringing a couple of the guys that are currently… that we’re currently contracting through on staff to see if that’s going to increase our efficiency at all. We are finding more and more deals. Plus when I’m keeping rentals I’m typically buying undervalue as well, and so those need work too. So it’s not just renovating the flips, but I have rentals that need renovations as well.
And so right now I’ve got more work than my guys can handle. And so we are in the market looking to hire new people, but I’m also trying to think creatively on how can I leverage the people that I have to have them working more efficiently. Dealing with contractors or, said differently, the contracting aspect of the business has always been a more difficult part of the business and it absolutely can limit your ability to scale. Right now I feel like we’re in an okay place. I’d like to have three crews at all times if I’m going to outsource it and right now I have one.

Dave:
Yeah, I mean, I would imagine, as James was saying, it might be easier to start hiring a little bit for these things too. As a lot of construction, at least large scale construction, multi-family is slowing down a little bit, at least in terms of new permits.

Kathy:
And better pricing.

James:
Yeah, better pricing, then look into how you can exchange out your expenses. So what we did on our fix-and-flip, and it’s a new program for me, is I got rid of all my… over the last 90 days, we’ve completely leveled out our construction teams and we rebuilt it in the last 90 to be more efficient for this new market. And what we did is we took our management staff, which is our project managers, which were heavy salaries, they’re around 100 grand a year up in Washington, it’s expensive. But they don’t reduce your bottom line, they just make it efficient.
So what we actually did as the construction slowed down is I replaced my project managers with hands-on general contractors that I’m paying a hundred grand a year. They’re happy to get that money now because they’re sick of running their own business and their workload’s going down, and now they’re project managering and doing labor for me. So I’m sending subs out, they’re coordinating the subs for me at the same time they’re installing windows, flooring, millwork, doors and light framing.
And so what it does is it reduces down my cost, replaces my management cost with labor and management and reduces my overall expense there and things are going substantially faster. I don’t know why I didn’t do this a year ago. We’re just basically right now recruiting generals to be our project managers and then having more of them, but we can run our sites more efficiently.

Dave:
That’s awesome. I mean it sounds like you’ve found some very good people. I’ve never met a contractor that efficient but good for you.

James:
But if they’re on payroll, you can actually tell them what to do every day. It’s amazing.

Dave:
All right. Jamil, let’s get to you. What are you up to?

Jamil:
Well, I just feel like the lazy one here on the panel because my deal’s easy. It’s easy. So I live in a beautiful neighborhood in Phoenix, Arizona. The neighborhood’s called Arcadia. It’s on the border of Scottsdale and Phoenix. Just lots of activity, lots of people, lot of short term rental activity, great hotels. So I like to be in the short term rental game where there’s luxury five star hotels nearby because that tells you that’s where there’s demand for people to want to stay in that type of property.
Well, we are going to be hosting the next Super Bowl here in Phoenix, Arizona. And it just so happens that the first time I ever got into the short term rental game was the last time we had the Super Bowl here in Phoenix. So I’m familiar with what happens to a town when you get Super Bowl activity. We’ve got the Barrett-Jackson Auction that comes every year. We have Waste Management which happens every year and now the Super Bowl. So I feel that for the next, at least 12 months, we’ve got strong demand in the short term rental space.
So I am purchasing a very beautiful home that’s been sitting on the market on my block actually. It’s about five houses to the east of where I live. And it’s a gorgeous 3,800 square foot house that was remodeled in 2010. Now, 2010, if you guys remember it was slate central, so it has really terrible slate floors, gray and purple walls. I understand why the house didn’t sell, the sellers needed to do just a little bit in order for the house to hit that price point. It just so happens that the house was just recently appraised at $1.7 million, which is in line with the comps for the neighborhood.
But these sellers are really motivated, they’re both attorneys and they just want out. They want to downsize, they may be leaving the state, and so they were ready to make a deal. I basically just called off the sign and I shot them the number that I wanted to pay and that was a million dollars and I was very firm with my number and they took it. So now looking at that, at a million dollar purchase with a 1.7 million current appraisal, I believe I’m walking into some equity. Even if we do slide down even further, I’m going to be in a tremendous position when the market rebounds.
But in addition to that, if I leverage and put 20% down, I’m looking at around a $4,800 a month mortgage payment at 6%. My estimate right now after running some numbers is I should be able to net about $500 a night at 20 nights per month, so I should be getting about $10,000 a month in gross rents for a short term rental. Now, because we had been in the space before, my wife was running our short term rental business in the past. Our daughter, who is almost 17 years old, really doesn’t want anything to do with us anymore. So my wife has taken a little bit of a… She’s like, “What do I do?”
And so this would be a great opportunity for her to get back into the short term rental game. So our goal is for her to manage it, [inaudible 00:30:22] going to reduce our expenses on it. I’m expecting to be running it around 25% expenses. So my goal is to cashflow roughly $2,000 a month on this property. And if I’m putting down $200,000 as a down payment, I’m getting $2,000 a month in cashflow and when the market rebounds, I have a few hundred thousand dollars in equity, I think it’s a pretty decent deal.

Kathy:
Sounds like it. Sounds pretty decent.

Dave:
Did I just hear Jamil say he was going to hold onto something and he used the word leverage in the same sentence?

Jamil:
Yeah, both things I’m typically allergic to, but.

Henry:
I was wondering if anybody else was as blown away as I was.

Jamil:
I’m really tempted to buy it out in cash, but my accountants have said, “Jamil, stop it. This is irrational. You need depreciation, we need to spread your money out further so that you can get,” because I wrote another ridiculous cheque to the IRS this year, so I’ve got to do better. And so this is going to be a part of that process.

Dave:
Well, all joking aside, I mean, you have been on the show, said many times that you’re adverse to holding debt. You’re primarily a trader, you’re flipping stuff, you’re not holding onto things. But in this market I think most people would assume you’d keep doing that, not wanting to hold onto something. Obviously the tax implications are big for you, but what is it that changed your mind and makes you feel confident doing it in this market? Is it just such a good deal?

Jamil:
It’s such a good deal and I really believe in the neighborhood. First and foremost, Phoenix, Arizona, the average lot size for our properties is like 7,000 square feet. It just so happens that these two streets where I live, my street and then the one street north of me, we all have half acre lots. And it’s really rare in our neighborhood to get huge lots like this, so there’s a lot of demand for properties on these large spaces. Secondly, I get family coming into town all the time. I thought this would be a great spot for them to stay at when they do come to town. They don’t have to stay in my house, they can stay down the road.
But $700,000 walking in equity. And this wasn’t a friend of theirs who appraised it. It was one of the foremost appraisers in town that gave them an appraisal and so at $1.7 million current appraisal, I think what happened for these guys is they just didn’t… they had the house so customized to their liking that if they had just done maybe 30 or $40,000 in updates to the house, they would’ve gotten their number or they would’ve gotten close to it. They probably would’ve sold this for a million five.
But they didn’t want to spend any money, they didn’t want to do the work. And so I’m looking at it as though I can put in a little bit of cash, update the house so it’s beautiful for a short term rental. And I know as soon as the market comes back, I can put that thing right back on the market and probably make a few hundred thousand. So I’m playing an educated timing bet, like I’m timing the market right now. I know we always say, “Don’t time the market,” but I feel like I’m timing it well, I’m buying this deep and my goal… I’m not going to hold this forever, but I probably will hold it until the market rebounds and then I’ll sell it for a big payday. And in the meantime, I’m going to make great cash flow and my wife’s going to have a good time managing the short term rental.

Kathy:
I just looked up some of the tax benefits you can get from this, so be sure to talk to your CPA about the Qualified Improvement Property, the QIP. It says in 2017 The Tax Cuts and Jobs Act created a class of property called the QIP. So big bonus depreciation there and then cost seg strategies, that some of them will disappear or be lessened next year. So great year to be doing that and to try to be claiming some tax benefits. We’re doing the same thing with one of the Park City properties that we bought and I’ve been furnishing… I’m going this weekend to finish furnishing it and all of that is like accelerated depreciation. Talk to your CPA because it’s different for everybody, but this is a really good year to take advantage of those cost seg strategies and QIP.

Henry:
I think I’m taking this a little personal. The last episode I recorded with Jamil, he said, “Hey, come stay at my house,” and then this episode I’m here like, “Ugh, I got to buy a house down the street because I got to stick people like Henry in it when they come visit.” I’m taking it a little personal.

Jamil:
I didn’t know you were going to pick up on that.

Dave:
Yeah, Jamil, how much did you say it’s going for a night?

Jamil:
I’m expecting 500 a night.

Dave:
All right, Henry, you’re getting charged 500 a night to stay at Jamil’s house.

Jamil:
It’s resort-like though, guys. Half an acre, there’s a beautiful pool, they got a jacuzzi. The entire second floor is only the primary bedroom.

Dave:
Wow.

Jamil:
It’s got mountain views. It’s delicious.

Dave:
Who needs a bedroom that big?

Henry:
If you don’t want me to stay at your house, you don’t have to pitch me on this one, it’s fine, I’ll get a hotel, Jamil.

Jamil:
I really do want you to stay at my house because I’m expecting you to tan by my pool.

Henry:
I’m absolutely getting a hotel.

Dave:
Oh man, that’s the second time today, Jamil. It’s become clear how bad it is to be a seller of unique properties today. Like those weird houses that need a little bit of love, man, they’re sitting on the market for a long time and sounds like you’re getting what, 30 or 40% off because of it.

Jamil:
And I’m just obnoxious on those calls too. Listen, there is tact in how you find alignment with a listing agent. So first and foremost, just for everybody listening, very quickly the strategy I used, I used the listing agent as my agent. So I had them do dual representation, which aligned the listing agent to my side and gave me some extra leverage, because now she’s getting a 6% commission and I’m playing on the fact that I know that she probably hasn’t closed a lot of deals recently, and so a 6% commission right now is going to be huge for her. So she’s really going to bat to help me get this deal done.
Secondly, I actually disclosed that I was the guy… I actually live on their block and because they know me, they know who I am, they’ve seen the production vans and the things in front of my house when the TV show is being filmed, they know that I had the financial capacity to close. And so for them, they’re looking at it like this guy, he can close, he’s legitimate, he’s real. I really played my hand firm and I wasn’t attached to it. So when I gave them my number, they tried to negotiate with me multiple times to try to edge that price up and each time I just swatted back and said, “Nope, firm. Nope, firm. Nope.” And finally it got done.

Kathy:
Well done.

Dave:
All right, well, thank you all for sharing these. This has been super fun.

Kathy:
Well, I just have to share that I found out what it is, it’s not the Silicon Slopes, it’s not the Silicon Beach, it’s the Silicon Prairie. Okay. So maybe where I’m investing isn’t super sexy, but the numbers work.

Dave:
Prairie.

Henry:
Silicon Prairie, I don’t even know what that means.

Dave:
Nothing, Henry, it means nothing.

Jamil:
It means absolutely nothing.

Kathy:
And it means it’s out in the middle of nowhere. It’s the boonies. But that’s where these tech companies are moving, to the boonies, to the prairie.

Jamil:
Sounds nice.

Henry:
For those Silicon Prairie dogs.

Dave:
All right, well, we’re going to take a quick break and after that we’re going to answer a question from someone on the BiggerPockets forums. All right, we have a question from the BiggerPockets forums and a reminder as always, if you have questions for the panel, want us to answer them, you could do that by going to the BiggerPockets forums and posting a question.
So this one comes from Ryan Williams who asks max market rent or stable rent? “Hello. I have a lease ending on my rental property here in Denver and I’m debating whether I should re-list my rental at a max market rate, 200 or $300 more per month than my current tenant’s rent. Or if I should put it close to what I had rented out before, a little below the market rate and hope to fill the vacancy as quickly as possible?” Henry, going to you with this one, I think you usually have a great perspective on this kind of thing.

Henry:
So the question is, do I go for the top dollar rent or do I stay a little above the average and fill the vacancy quickly?

Dave:
Yeah.

Henry:
Yeah. I’m all for the latter in this strategy. Vacancies just cost too much money and the longer it sets, the more it’s going to cost you. And what we’re finding right now and what we’re seeing is when we put properties out there at top dollar, they sit a little longer and then we end up coming down off of those prices anyway having to lower rents. Because we do a strategy where we’ll post it and if we don’t get what we want within a certain time period, we drop about 50 bucks off until we hit that sweet spot. But if you feel like you know where your sweet spot is or you feel like you know where somebody’s going to rent it at, I think that’s where you should try to get it.
But don’t just rent to the first person; you want to rent to the first person who meets all of your qualifications because it doesn’t matter what your rent rate is, if you don’t get a quality tenant, it’s going to cost you more money in the long term. So your tenant selection process needs to be rock solid. But I’m all for coming in a little under that top dollar rent price and getting somebody in at a price where they want to stay.
Because if you get them in a top dollar and rents come down a little bit right now because rents are trailing, are starting to do what prices are doing in some parts of the country, if you get them in a top dollar now and in 12 months they can get a place similar or better than yours for 50, 100, 200 bucks less. Yeah, it costs them a little bit of money to move, but you don’t want to be dealing with that turnover because then that costs you more in the long run anyway.

Dave:
Totally agree. I actually just did this in Denver two weeks ago. I had put it at max rent and wasn’t getting the quality applicant that I was looking for and just like Henry, I just lowered it like 150 bucks, and within a week found a great tenant. No vacancy, worked out really well. Kathy, did you want to jump in?

Kathy:
Yeah, I was going to say it really just depends on the area, and I usually talk to my property manager to see what kind of demand that they have and what they think because if they’re seeing tremendous demand, then it might go quickly at the market rate or a bit above market. That’s what we’re seeing still in parts of Tampa and Florida, where there’s still so much demand. But I generally, as a rule, do like to stay a little bit below the market rent because that does make your tenants so happy that they’re appreciative and want to stay generally a little bit longer.

Dave:
And it just protects you, especially going into a potential recession or job loss, you don’t want your tenants to be stretched. It’s just not a good situation for anyone.

James:
And it always comes down to what Kathy said, it’s just market conditions. What is the supply and demand? Even though it’s just a rental, every asset class is this way. We just listed a flip the other day and we went on the higher side of the market because it’s in a neighborhood where there’s no inventory. Yes, there’s a lot of inventory all around us, but if you want to be in this one specific neighborhood, you are buying our house, that’s it. And it’s a high demand neighborhood. And same with rentals. The first thing is look at where your supply and demand is, what’s your absorption rate, and then how do you… don’t overprice it to where you’re losing a month of income, but also don’t under-price it because you don’t want to give money up if you don’t need to give money up. And if there is no demand or there’s a high demand, you can get that high rent.
Also, dig into the data a lot. A lot of times that high rent comparable may have a unique feature that yours might not have. Is it more walkable? Does it have a better yard? You do want to dig into those things and make sure you’re comparing apples to apples because there is always that outlay or comp for selling, for renting, for whatever it is. And so really dig deep into that comparable and see what the deficiencies are. If your product’s more deficient, then go with the lower rent comp. If you have the same walkable features or upside, then go for that higher number. People will pay for quality of living and we’ve seen that the last two years. And so just dig into the data. The data will guide you on how you should price up your asset for rent, sale or whatever it is.

Dave:
All right. Good advice from everyone. Well, thank you all for bringing your deals. I really appreciate it and this was a lot of fun hanging out with you all today. I’d love to hear how all these work out. So definitely track the performance of each of these deals and maybe we’ll revisit this in a couple of months and see how you’re all performing.

Kathy:
Sounds good.

Henry:
Love it.

Jamil:
Happy to share.

Dave:
Well, on the show you all are performing great. You all did an excellent job. Thank you for being here and for everyone listening, we appreciate you. If you appreciate this show, make sure to share it with a friend, we would really appreciate that. Thanks for listening again, and we’ll see you next time for On The Market.
On The Market is created by me, Dave Meyer, and Kaylin Bennett, produced by Kaylin Bennett, editing by Joel Esparza and Onyx Media, researched by [inaudible 00:43:59] and a big 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.

Spencer Rascoff, Pacaso co-founder and chairman, and former Zillow CEO, joins ‘The Exchange’ to discuss how much home values will fall, how the real estate market can get ‘unstuck’ and what will keep home prices stable, relative to 2008.

David:
This is the BiggerPockets Podcast show 690. I know no one likes to hear this. There’s people hearing it right now and they’re making a face like they just swallowed a bug. It’s just that’s not what I was told. This is my dream. I’m trying to quit my job. I need cash flow. Just take your dream and extend it a little bit longer. All right, so it’s the first thing is you did nothing wrong if they don’t cash the like you thought.
The next piece I want to say is if we can start with that baseline, it would be very similar to me saying if you go to the gym your first week, you’re not going to see results. Would you believe that? Or would you say no, there’s a way of working out where my first week I can see noticeable muscles.
What’s going on everyone? This is David Greene, your host of the BiggerPockets podcast here today with a Seeing Greene episode. If you haven’t seen one of these before, these are shows where I answered your questions directly sent to BiggerPockets to see what I can do to help you grow wealth, solve a problem, overcome an obstacle, or maximize your results. Whatever it is about building wealth through real estate, I want to help you based on my experience and all the information I’ve gathered hosting podcasts like this.
Now in today’s show, we have a cool little bin. I’m actually bringing in some support, so we have other BiggerPockets authors that have come in to help answer questions, and then I throw my 2 cents on top of it like the cherry of a Real Estate Wealth Sunday. This is kind of a special show because we at BiggerPockets are having a discount. This is a Cyber Monday book sale extravaganza. If you’ve ever wanted to buy some BiggerPockets books, but I’ve been waiting on the sidelines. Now is your time to get involved.
In today’s show, you will hear some really good information about things like a 1031 into a syndication. Is that possible? Can you 1031 money into a syndication? And what else can you 1031 money into? While we are on that topic, we talk about what to do with equity in your home. More specifically, how to make sure that your equity is working for you and options that you have to make more money with existing equity. This is a really, really, really important concept, especially right now in the market cycle, as many properties have appreciated in value, but it’s becoming harder and harder to find the next deal. We talk about how relationships can make you money. Pat Hiban gives some very good advice about what you can do to focus on making money through relationships and finding the mentor that will help you get to the next step. All that and more with great conversations from live guests with big goals.
Today’s quick tip is I want to call attention to all the non Robert Abasolos out there. Robert is someone who does not read books. So if you’re not like Robert, you’re a non Rob, this is for you. BiggerPockets is having a Black Friday, Cyber Monday sale, November 25th through the 28th, and everything is up to 60% off. The Real Estate Rookie 90 Days to your first investment book, which is not even out yet written by Ashley Kehr is available for pre-order only for a limited time. You can only get it until Monday. There’s also different bundles you can buy in addition to the books that you could get 60% off on.
For instance, there’s the Rookie Collection, the Classics Collection, the Creative Strategies Collection, the Gifts Collection, or the New Year New Me Collection. Each of these collections have books put together that all have similar threads and patterns to help you with specific challenges that you’re going to face in your journey, and we’re giving them to you for up to 60% off. And you can use any author’s name like mine, David, to get 10% off any books that you’re buying in the BiggerPockets bookstore. Simply go to BiggerPockets.com/store.
All right, let’s get to today’s first caller. All right, welcome everyone to another Seeing Greene episode. We are going to kick this one off with one of my favorite things to do a live coaching call today. We have [inaudible 00:03:34] who is here to talk some real estate with me. Mr. Chi, how’s it going?

Chi:
I’m good, David. Thanks for having me. How are you today?

David:
I’m doing pretty good. Thank you for asking. What is on your mind?

Chi:
What isn’t on my mind? No, no. The chi is strong in this one. So should I start with my goals? Is that okay?

David:
Well, let’s start with your problem and then I’ll probably dig into your goals.

Chi:
Okay, so my first problem is I’ve been investing for about five years since 2017. My first property was an Airbnb, so I’ve managed that for five years. I’ve done some BRRRRs, I’ve done some rentals, I’ve done duplexes. So you can already tell I’m all over the place. My first question is how do you avoid shiny object syndrome when it seems like everything you do isn’t quite profitable? Because the reason I’m jumping is because I tried this and I’m just seeing meager returns, so I keep looking for the next thing.

David:
Okay. Before you even go any further, I can tell you one big piece. You’re not going to want to hear it, but you’re going to need to hear it. Okay, So getting ready for some vegetables. This is Seeing Greene, so this can be broccoli. Green vegetables here. Real estate is not intended to make you a lot of money in year one. This is going to sound like heresy. Everyone’s going to hear this. They’re going to get up in arms because from 2010 through maybe 2016 or so, the market was so low that you could just buy a house that would cash flow very strong right off the bat. That was an anomaly. That is not normal. Good assets usually sell at a price because you make so much money with real estate over time. It’s such a desirable asset. There’s so much competition for it. You very rarely make a lot of money in year one.
This is a buy and hold long term. It’s like planting a tree. Trees do not produce fruit when you first plant them, but that isn’t what gets talked about. Okay? People bring their deals and they hold up the best fish they ever caught and they brag about the ROI on that deal and then we all see it and go, “Oh, that’s what I’m supposed to do. I must be doing something wrong.” And it creates this shame and guilt in our industry that we bought a house, we did everything we said we were told to do and it lost $400 in the first year. So we shouldn’t be real estate investors at all. Or we do what you’re saying, we jump to the next strategy. It’s in my opinion, because everything’s just opinion, that’s BS.
It’s not supposed to work that way. If you buy a B class property, A class property, if all things were equal, it should have probably cash flow for the first three, four, maybe five years. But the next 25 years of owning it, the next 40, 50 years of owning, it’s a cash cow. It is okay to accept delayed gratification in real estate investment because you make money in so many ways. Now I start from that baseline and then I look for everything I could do to put the odds in my favor over the long term. Can I buy it under market value? That gives me a head start. Can I do some value add? That puts a cherry on top. Can I get more than one unit so that the rents will increase, it’s going to cash flow more later, even if it doesn’t cash flow a lot right now? Can I get it in an area where it’s going to be no headache? It’s just like tons of tenants.
Can I improve it in some way? Because I know that if I just buy a turnkey property fresh out the box, it’s not going to perform super great for me. So just hearing that part before we get any deeper, do you have any pushback? What are your thoughts here on that?

Chi:
No, that’s great. You know what? I wish someone mentioned this before I stepped in because I would have then focused more on growing slowly, get some reserves in place, knowing that it’s not meant to cash flow rather than starting hoping for huge cash flow and then just killing myself to make things.

David:
Sometimes we make it cash flow, but it’s not designed to cash flow. They do not build residential real estate for the purpose of cash flow. That’s why it’s called residential real estate. It is built for the purpose of someone residing there. Now us investors have been creative and we have figured out ways to buy single family homes that will cash flow, but it’s not easy and it’s not natural. Commercial property is designed to cash flow, it’s designed for commerce. It’s evaluated as a business based on its NOI. Residential property is evaluated based on a non-business purpose. What did the neighbors pay for their house? That’s not a business way of looking at something. That’s ridiculous. Okay? That’s what a consumer cares about. Well, what did the Smiths pay? I don’t want to pay more than them.
A business looks at metrics like the cap rate and the actual cash on cash return. So if you’re looking to get into cash flow real estate, commercial is really where it’s built for that purpose, but it takes more money to get into that game. You can’t use an FHA loan to buy a commercial property. It’s a little more sophisticated. You got to be able to have a property manager oftentimes that manage it. It’s just like buying a business. It’s harder. Residential real estate is much simpler, which is why everyone’s drawn to it. Then they get frustrated when they get there and they’re like, “But it’s not cash flowing.” That’s okay. It’s not always supposed to. This is why I frequently tell people they should house hack because you get this built in buffer that even if it doesn’t cash flow, but you used to pay $2,500 a month in rent, now you don’t have to. You still came out on top. And over the next 20, 30, 40 years, you make so much money you don’t care about what it did in the first year.
I know no one likes to hear this. There’s people hearing it right now and they’re making a face like they just swallowed a bug. It’s just that’s not what I was told. This is my dream. I’m trying to quit my job. I need cash flow. Just take your dream and extend it a little bit longer. All right, so it’s the first thing that you did nothing wrong if they don’t cash flow like you thought. The next piece I want to say is if we can start with that baseline, it would be very similar to me saying if you go to the gym your first week, you’re not going to see results. Would you believe that or would you say no, there’s a way of working out where in my first week I can see noticeable muscles?

Chi:
No, that makes complete sense.

David:
Okay. So if we can accept it in other areas of life, in your first week of a relationship, you don’t really know the other person that well, it’s not going to be super fun. Your first week at the gym, you’re not going to get big results your first week of being a parent, you’re going to screw up a lot. It’s okay when you start something to not be good at it. Now the thing with if you went to the gym and worked out your biceps for a week and you looked at them and said, “They’re not any bigger, I better move on to a different muscle group.” And you bounce around forever, you never would actually get the result. You see where I’m going with this?

Chi:
Yep.

David:
Now it may be true that you work out your biceps and you’re like, “Well now they’re tired. I can’t work them out.” Well, don’t just stay home and do nothing. Go work out your triceps, go work out your chest, go do something else while it’s recovering. So sometimes you buy a house with a primary residence loan and you got to wait a year before you do it again. Your biceps are tired. Well, there’s other ways you can go invest in real estate or make money in real estate or do something productive while you’re waiting for that year long period. But what happens is in a year when your biceps are ready, got to work them out another time, that’s what’s going to make them get bigger. So part of what you have to figure out is a strategy that you could stick with over time, but shiny object syndrome’s going to show its face. Scratch that itch when there’s nothing that can be done in the space that you’re currently at. So hearing that, what thoughts are coming to mind?

Chi:
I guess I just need to pick a strategy based on my unique strengths, resources, and then go. But I guess my second question then comes into play around your point, which is I spent a lot of years even while investing, just listening, getting in the podcast, just learning, growing. I have a good idea of all the different strategies and how to make them work. But how would I go about let’s say hiring people or finding partners? Because for the very first deal, which was an Airbnb, my big headache was just maybe, well I need to do mails, I need to go door knocking, I need to do all of these things. But this isn’t bringing in any money to then reinvest into the business.
So these are two questions in one. When I spoke to my wife and I said, “Hey, I know all these things we can do that will bring in quality leads.” And she is like, “Then do them.” And I said, “But I’m managing this house. I have my own full-time job. I also am doing two jobs. How can I do these things?” So how do you convince your spouse that, trust me, I have the knowledge and it’s a good investment even though we’re not quite making money to do certain activities, like money producing activities I guess.

David:
So is your spouse not wanting you to do those activities?

Chi:
She doesn’t want me to pay someone else when I’m making money from the real estate.

David:
So she sees the safety and security of just work your job, make your money. We don’t want to lose what we made by hiring somebody else.

Chi:
Yes.

David:
What are the things you want to hire out?

Chi:
I would say something just someone to go and drive for dollars or even drop out flyers for we buy houses just in a neighborhood.

David:
Can you find a person who loves real estate as much as you do and drops off the flyers and can get some equity in the deal so you don’t have to pay them for their time to go do it?

Chi:
I’m sure it’s possible.

David:
Much harder.

Chi:
Okay, go on.

David:
No, no. Is that what you’re saying? It’s just hard to find a person that will do that.

Chi:
Yes. And for some reason, I’ve been so quiet about my investing because I’ve not needed to work with someone, so I’ve been using all of my capital so I’ve not had to say “This is what I’m working on. This is what I’m working on.” And also being from where I’m from in the world, if you start to show your achievements, people start to ask you for money. So it’s just hard. It’s a very tricky line to play where I’m trying not to show what I’ve been doing but without showing that, you don’t get people coming to say, “Hey, how can I work with you? Hey, how can invest with you?”

David:
So you’re afraid that they’ll want to take advantage of you if they saw that you were making money in real estate?

Chi:
Just the people back where I’m from. But the people in Canada will definitely be saying, “Oh hey, how can we work together?”

David:
So the people back where you’re from, how do they play a role in your situation that you have right now with your wife in real estate?

Chi:
I would say the biggest influence is that they’ve stopped me from marketing on Facebook, which is the primary place I market on to both-

David:
But you don’t want other people to start asking you for money when they see that you’re a big shot realtor.

Chi:
Yeah.

David:
Sorry, big shot agent. Sorry. Big shot investor.

Chi:
Yes.

David:
That’s what I’m getting at. Okay.

Chi:
Meanwhile we know that it’s not producing income, right? It’s a nice house. We took everything we had.

David:
Can you advertise on Facebook and not have your face be in the person talking? Can you hire a person and pay him 30 bucks to record? “Hey, if you have a house and you want to sell it, go to this email address, go to this landing page.” Can you do something like that?

Chi:
So that goes then to my wife who doesn’t want to pay for anything.

David:
Okay. The Facebook ads are the thing you want to put money towards. Your wife doesn’t want you to do it.

Chi:
She doesn’t want me to pay for anything. If you want to do something, do it yourself.

David:
This is so tricky for me because I’m not married so I don’t know what this struggle is. My perspective in life is you shouldn’t judge a sin if you’ve never struggled with it. Okay, so I’ve never drank alcohol, I’ve never been an alcoholic. So I don’t have an opinion on what it’s like to be an alcoholic. I can have an opinion on something I have struggled with and the marriage is definitely not a sin, but the same principle applies there. If I’m not married, I don’t like to give advice. What I would probably do if I was you is I would say,
“Listen, I decided to work two jobs. I can either quit one of those jobs or I can work both jobs and we’ll set aside 30% of the money from my second job, which we wouldn’t be making anyways, to reinvest into real estate.” Because now your wife isn’t looking at it like we’re losing money we’ve made. She’s looking at it like if I want to keep the 70% of the money that comes from his second job, I have to let him put 30% of money towards this endeavor. Would that work?

Chi:
Yes.

David:
That’s probably the approach I would take. Just say, “Honey, you know what? I’m so tired, it’s really hard to work two jobs. I think I may need a break and I’m just going to go back to one job.” And she’s going to start thinking like, “Well that’s not good. That’s less money.” And you’re like, “You know what I could do though, if you want me to really keep working this. I need a goal. I want to be able to take you on vacations around the world and real estate’s going to pay for that. Let’s take 30% of the money I’m making from my second job and put that towards investing and we’ll keep 70% for security.”
If you could get her to buy into that and then she can start to see results that come in from the 30% and she actually sees you got a house and you wholesaled it and you made 40 grand or something like that, that’s the time to go and say, “All right, can we put 40%, can we put 50% right?” Can we get to where we’re putting 100% of the money from my second job into real estate and when the results are rolling in, [inaudible 00:17:15], the conversation changes from, I don’t want you doing that to how do we do more of that? Like this. I don’t know why it’s like that. I’ve had so many people in my life that just push back, don’t want to believe, don’t want to listen to the direction I’m asking them to take, fight me on everything. And then as soon as they see the results, it just immediately goes away. “Oh, I’m on board.”
It’s frustrating because they didn’t have faith in you in the beginning when you wanted. But that’s human nature and if you can fast forward how quickly you can get to that point, I think your career can really take off.

Chi:
Awesome. That’s a great idea.

David:
If there was stock in you, I would buy it right now. You’ve got the attitude, you’ve got the work ethic. Everything you’re saying is how can I do it? Not, “But David, this is why it’s hard.” I can promise you if I have a conversation with someone and every single time I tell them this is what could be done and their reply is why that would be difficult or why it wouldn’t work, I can almost guarantee that person will not be successful. When they say, “Oh I could do this or I could do that. What would it take to get there?” If they stick with it, they will be successful. You’ve got the right attitude. I wish more people thought like you, and I can promise you you’re going to be good at this. You just keep asking those right questions and keep pushing forward.

Chi:
Awesome. Thank you. Thank you. I have a second question.

David:
Okay.

Chi:
I recently listened to the Residential Assisted Living one and again, I would say it’s a shiny object, but I would say it’s a shiny object because I’ve run an Airbnb, I’ve bought, fixed and flipped homes, so I understand everything they’re saying and it just makes sense. It’s real estate plus business and they also mentioned that it has the potential to even just one deal can bring you 10,000 and up in revenue. If you go to a really nice area and you buy right and you have the right demographic, you can make even more money even though you have to buy a more expensive house, do more expensive upgrades. Well, the first question I ask was is it even possible to maybe find a really expensive home? Because you say you’ve been knocking it out of the park with your negotiations and getting 100,000, 200,000 in concessions or off the asking price, right?

David:
Yes.

Chi:
Would that be a good idea to find a really nice house?

David:
It works for the purpose of you have less competition so you can get a better deal on the asset. Yes. It would be a bad idea from the perspective of when I buy a short-term rental or a rental property, I can hire a property manager and say, “Go rent it out.” It’s very difficult to do that with an assisted living facility. You have to find an administrator. You have to find an operator that actually has done this before. They have to be willing to do it within your area. It would be easy to find the property. It’d be very hard to run the business. And if you’re working two other jobs and you’re trying to go find off market opportunities, I think you would get swamped. I don’t know for the situation you’re describing that residential assisted living facilities would be a good idea.
Now let’s say you came back to me and said, “David, I found a person. They have three other homes, they manage all of them. They said if I find a house that looks like this in this area, they will pay me $12,000 for rent or $20,000 for rent and I think I can get a property for only $6,000.” Then I would say yes, put your effort towards it because you’ve got the pieces in place. Don’t go try to find the house, which is the easier part and then go try to find the operator, which is the harder part. Switch that around.

Chi:
That makes sense. Okay. I’ve had trouble in the past in attracting investors because I’ve never needed investors. I had a good paying job because I’m a software developer and I got access to a lot of credits from the bank plus my own money I was able to do whatever. Times have changed and my lines of credits have been closed. In fact my full-time job is gone right now. I’m only doing a part-time job, which is my business. Now I have the time actually to take on that role as the operator, find the day to day manager and the only thing I would need would be funds from an investor to partner with me by this property. I’ve also been in contact with the residential assistant living, Lady Isabelle’s team and they do have a course to work us through the whole process. So I can’t get the knowledge, the skills required. I guess how would you go about raising capital?

David:
I wouldn’t be even thinking about raising capital until you already had the knowledge, the skills and the track record. It’s different than what a lot of people say. I don’t mean to crush your dreams. My philosophy is you should not spend somebody else’s money on something until you have a track record of showing that you can do it yourself. Again, I’m going to say don’t let that discourage you. Make that the carrot that you chase. I’m assuming you’re not originally for America. Do you know that phrase when we say the carrot? You know what I mean by that?

Chi:
Yes. Yeah.

David:
Let that be the motivational factor that you say, “All right, I want to get into that space. I’m going to have to learn the business.” Find another person that Isabelle connects you with that is currently operating one. Go sit down and talk to them about the challenging parts of the business, the fun parts, see what they need help with. First off, you’ll tell if you even want to be in that space if you talk to a person that’s doing it. I was a police officer and every time someone would say, “I think I want to be a cop.” I’d say, “Okay, do some ride-alongs.” That’s where you sit in the car with them and you go around to see the job. That’ll let you know if you actually want to be a cop or not when you actually see what the person’s doing every day and what emotions they’re going through.
Do something similar and if you like it, start asking the question of how you could help them see if you could help with their business. When you add value to that person, they start to get comfortable with you. Now at minimum you could probably raise money and say, “Look, I’m going to raise money to buy the house. I’m not going to run the business.” They’re going to run the business and I’ve been working together with them for 6 months or 12 months and they’re the operator and you bring them in to talk to the investor who wants to know who’s going to protect their money. It’s a form of building a team.

Chi:
That sounds like a great idea.

David:
And I have no doubt you’re going to go do it because you’re one of those people that just says, “That’s not hard.” And that’s what I love about you, man. Like the minute I say that to someone else and they go, “Oh, that would be uncomfortable.” They don’t want to do it. You hear that? You’re like, “That’s all I got to do?”

Chi:
Yeah. Let’s do it.

David:
All right. I want you to make sure that you stay in touch with us because I want our entire audience to see the success story that you are going to be. I have no doubt at all and I want them to emulate your attitude and your approach because I think it’s beautiful, man.

Chi:
Thank you. Thank you very much.

David:
Thank you for being here. We’ll stay in touch. All right. In this segment of the show we like to review our comments on YouTube from you, our lovely listeners, see what you like, see what you don’t like, see what your comments are and just see what you’re thinking. So please continue to leave these YouTube comments for me and we will pull them out and maybe read one of yours on a future Seeing Greene episode.
First comment comes from Selvin George, “I’ve discovered BiggerPockets only two months ago and I absolutely love your content. I’m learning new concepts, strategies and ideas at such a fast pace thanks to you. Would you be able to recommend a real estate investor focused agent in the Berkeley area?” Ooh, this is a good one. Okay, so first off, if you’re looking for an agent anywhere, BiggerPockets does have tools to help you. Simply go to BiggerPockets.com. Look for the nav bar on the top and there’s a little option that says find an agent and we call it that because that’s what it does. You can find a BiggerPockets approved agent on that nav bar for you to use when you’re looking in different areas.
Now Berkeley specifically, you are in luck, Selvin, because my team works in that area. The David Greene team works in the Bay Area, Sacramento, southern California. We’ve got California covered. So reach out to me specifically and I will get you in touch with one of my top agents that will help you find a property in Berkeley. We do a lot of business in that area and we know it well.
Moving on. From Another Channel. “The buyer’s market is not back at all. You don’t get a market like that with a 40-60% appreciation in two years. Only have an 8% drop in prices with 7-8% rates. Maybe the thumbnail that said the buyer’s market is back will work in quarter two of next year.” I like this. Another channel. Here is a little spicy. So let’s talk about this. When we say buyer’s market or seller’s market, what we’re really describing is whether buyers have more leverage or whether sellers have more leverage. And this can be simplified. If every property or the majority of properties are getting more than one offer, the entire dynamic of the deal changes. So when there is a buyer competing with a seller, sort of an even playing field, but usually the buyer has the power if there’s only one buyer because the seller needs to sell more than the buyer needs to buy. The buyer has other options to look at. If there’s only one buyer, that means the seller does not have other options to look at.
Makes sense, right? The minute you introduce more than one buyer into an opportunity, all of the leverage goes to the seller. Now the buyers are competing with each other instead of competing with the seller. So as a real estate broker who runs a real estate team, this is a dynamic I’m always looking for. If we send an offer on a house and we get back a seller multiple counter offer or the listing agent tells me there’s other buyers, I’m usually leading my client more towards finding another house unless they love it because we don’t want to be competing with other buyers. If I submit an offer and only one counter comes back, meaning we’re the only person that the listing agent is negotiating with, I like it. It means we have the power. That’s all that a buyer’s market means.
I think that Another Channel’s comment here, and I’m saying Another Channel because that’s the name of the person who put this comment in, is saying that the prices have not adjusted enough to where we should call this a buyer’s market. I think that what they’re trying to say is that the value of the properties is still too high. We went up by 40 to 60%. We’ve only gone down 8%. So that’s not a buyer’s market. Well, what I’m saying when I talk about a buyer’s market is an opportunity where buyers can get a better price. They’re not competing with other buyers. Now if the market hasn’t corrected to where another channel thinks that it should, that’s a completely different conversation. I’m not sure how we even determine that.
Here’s my problem with the comment. When you say that prices have gone up 40 to 60%, but they’ve only gone down 8%. Well first off every market is different. That’s not applicable for the entire country. But second off, the reason that I think prices went up 40 to 60% is because we added 80% of the money in existence to the supply. We’ve increased our money supply by almost doubling it. It’s ridiculous how much dollars we’ve added to what’s going on. So of course that’s going to make asset based prices go up. That would make sense. That’s inflation. So the prices haven’t gone up inherently. They’ve gone up because the value of the dollar has diminished. So if they went up 40 to 60% but inflation was a 80%, then they could have gone up even more. And if they’ve gone down 8%, you can’t compare the 8% to the 40 to 60 they went up. You have to compare the 40 to 60 to how many dollars were in supply before.
I understand this is getting complicated. I’m not trying to make it confusing. My point is when the government messes with the money supply like they have been, it makes it very difficult to know what anything is worth because what a dollar is worth isn’t the same as what it was worth yesterday. Just think back to what you were kids, depending on how old you are, how much did things cost back then? Do you guys remember a time when gas was like a 1.30 a gallon? Not trying to make myself old. It’s not like I was running around in a horse drawn carriage or anything, but when I first got my license, gas was less than $2 a gallon. We actually used change for stuff. When I was a kid you could save coins and it was a meaningful thing. You could go buy a GI Joe with quarters that you had saved up. Quarters mattered. I don’t think coins matter at all. We almost forget that they exist. We don’t even use hard money like that anymore.
So Another Channel, I appreciate what you’re saying. I would probably disagree with you that the buyer’s market is not back. I do agree with you that it’s because we have a 7-8% rate increase that has caused the prices to go down. The buyer’s markets are not based on price in neither a seller’s market. A buyer’s market or a seller’s market is indication of who has the leverage in that negotiation, not the price point that the negotiation is starting at. If you think prices are going to keep going down, I hope they do. I’d love that. I’ll buy a whole bunch more real estate if that happens. But if they don’t go back down, I’m not going to miss the boat because I was waiting for something that probably isn’t going to happen. I’m still buying the best deals I can in the best areas I can, getting the best deal that I can and paying the best price that I can and then waiting. And inflation tends to do when inflation does.
All right. Our next and last comment comes from Gator Gator. “Buyer’s market? You mean banker’s market? I can’t afford the higher rate just like I couldn’t the seller’s, higher price. Landlords, cash buyers and banks control this market.” All right, Gator Gator, I can understand the frustration that is clearly seeping through your comments here. What you’re saying is, “Well, when rates were low, I couldn’t afford the house because the price was too high and now that rates are high, the prices come down, but I can’t afford the house because rates are high. I just can’t ever afford a house.” And here’s what I would steer you to. There’s a reason this is happening, okay? It’s not a conspiracy that the world has against investors to keep prices high so we can’t buy houses because you know who else has this same problem? The people that are trying to buy a house for themselves to live in. The people that are crimping and saving, trying to get every dollar they can so they don’t have to rent.
You know who else has the problem? Renters whose rents keep going up as home prices keep going up and they have to keep paying more than before. This problem is universal. We all have the same thing. Housing is too expensive. Now rather than getting mad about it, I would advise you to ask the question why? Investigate. Go a little deeper. Get your Batman on, the world’s greatest detective. All right, let’s actually ask Batman. Batman, what do you think is going on with high home prices? I’m glad you finally asked. It’s really an issue of supply and demand. There are not enough properties and too many people to want them. A simple understanding of economics would bring a lot of light to the situation. And I like your green light, Dave.
There you go folks. You heard it from Batman himself. Prices are too high because there are not enough homes and too many people that are trying to buy them. Interest rates going up obviously does dilute the pool of buyers that want these properties because the demand goes down as they’re less attractive with higher rates. But there’s still so many people that want them. The demand has not gone down enough to where prices go as low as Gator Gator would like them. So Gator Gator, you got a couple options. You can invest in a different asset class that has different supply and demand fundamentals that might be skewed in favor of the buyers. Problem with that is when things turn around, those assets are not going to increase in value as fast as real estate does, which is probably what you like about it in the first place. You could look for a market where there are less people looking for the same homes as you. That puts the buyer in even more favorable position as prices will have come down further than areas where they haven’t.
Problem with that, same thing. There’s not as many tenants that want those properties. They don’t go up in value as much in the future and rents don’t increase. What we always find when we come back circling around looking at every single option is the reason that homes are hot and everybody wants to invest in real estate is the same reason you’re here listening to this podcast. You want them too. Everybody does. They are far and away the best investment vehicle that we have so far in this country. And now that podcasts like this and books and blogs are putting the secrets out. This used to be the thing that one or two people in town had figured out and they made a lot of money investing in real estate and everybody else was afraid of it because of leaky toilets. Now we have so much software, so much support, so much information, stuff like the forums on BiggerPockets where people can go in and get questions answered. You don’t need to know the old person in town. The secret is out and with that demand has increased.
So it sucks, but we all got to swallow this bitter pill. We want these homes, so does everybody else. We’re competing with other people. That’s the reality. Keep listening to podcasts like this so that you can get the information and we’ll keep you one step ahead of the competition because that’s what I’m doing.
All right, let’s take a look at a video question. Our next one here comes from Brittany being answered by Brandon.

Brandon:
Hey, what’s up? It’s Brandon Turner. You know the guy from the BiggerPockets Podcast for nine years before I stepped away to grow my business Open Door Capital. Yeah, that’s right. That’s me. By the way, Open Door Capital, the name is changing soon, so keep an eye out and ear out for that. But I am here to steal some of David and Rob’s limelight and answer a real estate question. So here we go. Today’s question comes from Brit in Placerville, California. Here’s what Brit said. “I thought I heard on an older episode of BiggerPockets that you can do a 1031 exchange from the sale of a real estate investment into a syndication like Brandon’s company, Open Door Capital. Is that true that I hear that correctly?”
So here’s the long and short answer. Yes, it is possible. Most syndicators do not allow it. It’s complicated to do it. So for example, in my company, we will take 1031 money, but the way to do it is through what’s called a TIC. And there’s a lot of rules and regulations and red tape and paperwork involved in it. We typically don’t do it unless it’s a million dollars or more. Let’s say you wanted to sell a property, you were in a 1031 exchange. And by the way, for those that don’t know what a 1031 exchange is, it’s basically where you sell a property and then you take all the profits from it, all the money you made, and then you buy a new property with it and then you don’t pay taxes. And that’s a very, very short definition of it, but that’s the gist.
So typically you have to own the property that you’re selling and then you have to own the property you’re buying in the same entity, which is why it’s hard for syndications to do it. There are ways to do it. It’s just a little bit complicated. So yeah, if you have a lot of cash, most syndicators will look into it. If you have a little bit of cash, if you’re putting in 30 grand, you’re going to have a hard time getting a syndicator to help you with that. That said, there is another concept that my CPA Amanda Hahn talks a lot about and she wrote the book Tax Strategies for Savvy Real Estate Investors for BiggerPockets. You can get it at the bookstore. She talks about something called the Lazy 1031 Exchange, and that basically means you don’t do it 1031.
The problem with a 1031 is you only have like 45 days to identify the new property and it’s all this paperwork and all this rules. Instead you just sell the property. Just sell it and then you buy a new one. But when you buy a new one, you buy one that has really good depreciation benefits. In other words, it’s getting a little in the weeds here on the tax side, but in other words, you buy a new property or you can write off a whole lot of it as a loss in year one. Well if you do it right and you’d buy the right to have a property, for example, mobile home parks, one of the things that I buy a lot of have tremendous depreciation benefits and so you can invest in it and then you get this massive loss like year one. And then that can actually offset your gain or a good chunk of it that you would’ve paid on the profit of that investment.
So in other words, it’s like doing a 1031 exchange. You can avoid most or all of your taxes without having to go through the hassle of a 1031 exchange. In which case, if you can invest in them with a syndication company and go completely passive, you can literally move from an active investor into a passive investor, make as much money if not more as you were before, and then do way less work. It’s really kind of a cool process. So yes, it is possible and do it. Going active to passive, that’s fun.
All right, hope that was helpful. I don’t know, am I supposed to say anything else at the end of this thing? I don’t know. I guess I’ll throw it back to David.

David:
Well, thank you very much for that, Brandon, and so nice to see you again. Also shocked me a little bit as you were wearing a pink shirt in this video. Can’t help but notice that you have some little book things hanging from your wall in the background, which you clearly got that idea from me, but I will forgive you for that because you are the reason after all why I am on the podcast now. So nice to see you again, buddy.
Couple things with Brandon’s commentary that I’ll add. One, it’s not called Placerville. It’s called Placerville. That is either Brandon’s ignorance of California real estate, which is frankly unforgivable, or more likely his Northwestern accent where they say big and drag and instead of bag and drag and like a normal human being would. As far as his real estate advice though, that was phenomenal. Something people don’t realize is that you don’t need to do a 1031 to shelter your gains. You can also do exactly what Brandon said by having enough depreciation, which we typically call bonus depreciation when you take it in year one to cover your losses. There’s more than one way to avoid paying taxes on capital gains. That’s what Brandon is getting in.
Now we sort of have a situation for the next five years where bonus appreciation is going to be on a step down system where you’ll only be able to use 80% of that appreciation in 2023, 60%, 2024, 40% in 2025 and so on. So if we do lose bonus depreciation for the near future or permanently, then the 1031 will become more important. So here’s a little bit of advice I’ll give to everyone listening. Look up what is called a Reverse 1031. Assuming you have enough capital in the bank, there is a way, and it’s a little bit complicated. You have to use a qualified intermediary to pull this off, which is not that hard to do. If you email me, I can connect you with the one that I use. Where you buy a property first, but you do it very clearly taking title in this Reverse 1031 fashion where it’s not actually you that ever owns it. You have like a neutral third party that owns it. Then you sell the property that you had to sell and use that money to buy the property you bought as a Reverse 1031.
It’s basically a way of not forcing you to sell a property and identify a property in 45 days. You identify the property first, you put it on contract, you hold it in this neutral third party. Then when you sell your property, you take the gains and put them directly into that and you don’t have to pay taxes. You can roll them over in that fashion. So there are some creative elements of ways you can pull off at 1031 because Brandon and I have both learned the hard way. It sucks when you’re up against that 45 day timeline and you end up making a decision on day 44. It always ends up working out that way. So thank you Brandon. Very nice to see you again. Fantastic advice as always, and you’re looking good getting that sun, man. Hope you’re enjoying Hawaii.

Zeona:
Hi, I’m Zeona McIntyre, BiggerPockets author and investor friendly agent in Colorado. Today’s question comes from Tiffany in Martinez, California. “Newbie Investor here. I purchased my first home with 10% down in 2011. Five years later I sold with a profit of almost 200k. There are two ways I see investing the 200k. Option one, purchasing two short-term rentals or option two, a small multi-family to do medium term rental for travel nurses. I like short-term rental because we can do 10% down and potentially have higher cash flow. I like the river town of Guerneville, but I don’t like that the county requires property management. I’m also considering buying out of state. With multifamily properties and medium term rental, I have my eye on one that needs some work, but the location is great since it is across from the local hospital.
Option two intimidates me a bit because the 20% down payment will eat up all of our cash and we would have to take out a loan for construction, but it has high potential for the BRRRR strategy. It’s currently a duplex, but the upper unit is four bedrooms, so I would love to split it into a triplex. Cash flow is important because I would like to work fewer hours as a nurse, but I also see the value in long term equity. What are your thoughts on how to best invest our 200k?”
Hey Tiffany. I would go with option two purchasing a small multifamily unit for the medium term rental strategy and here’s why. With the looming recession, I am seeing short term rental booking slow way down. I believe this is temporary, but I don’t know for how long. If cash is important to you, I would like for you to have multiple units so the whole building is not vacant at once. With two short term rentals in the same town, you’re subject to the same slow seasons, which could look like two vacant homes and paying the mortgages out of pocket. Winter is likely your slow seasons. So if you’re looking to buy soon, it may be a really slow start.
Lastly, as a nurse, you may have an in at the hospital and have an easier time filling the units. Warning, with interest rates climbing, a BRRRR is not a strategy I would recommend for the newbie. This would be great to learn through a partnership with somebody experienced down the road. You can always wait for a more renovated or up to date layout or look out of state in a more affordable market. With 200k, you can get a nice quad and have money left over for furnishing in many markets. If you want to learn more about the medium term rental strategy, we just released a book with BiggerPockets called 30 Day Stay: The Real Estate Investors Guide to Mastering the Medium Term Rental. You can pick it [email protected]/pod30. Now I’ll pass you back to David.

David:
All right. Thank you, Zeona, for your advice there. I’ve got a couple books as well. Long Distance Real Estate Investing, The BRRRR Book, the Real Estate Agent Series Sold, Skill and Scale will be coming out early next year. And then I’ve got another book in the works right now that’s going to be an overall banger. It’s going to be on wealth building from a holistic perspective, including real estate, but not only real estate. And I think it’s going to be amazing. I also noticed that Zeona pronounced Guerneville as Guerneville, so she’s now in Brandon Turner status as mispronouncing California cities, which is very funny because you rarely ever hear about these cities getting mentioned. I’m sure that that was the first time either of them had ever even read those names.
Fun fact here, the city of Martinez where Tiffany is residing in is like 30 minutes away from where I’m sitting right now. I sell houses there all the time. So Tiffany, if you don’t have an agent, reach out. I’d love to help you. Here’s my advice for you. Martinez and a city right next to it, Concord, which I’m sure you’re familiar with, have really, really good options for house hackers. So these were homes that were built a long time ago. They’re older cities. Fun fact, the city of Martinez is actually responsible for the name of Martini. The martini was developed in Martinez at a bar there and that’s why it’s called that. Pretty cool, right? Well, they have these homes that were built a long time ago and have had extensions added onto them. So they originally 1100 square feet, then they built up, so they have another floor. Then they built out, so they have a third thing and they work really good for splitting one property up into several different units.
I can sense a little bit of analysis paralysis going on as you’re trying to go through your options. I’ve got option A, here’s all the great things, here’s the bad. Same for option B, same for option C, and just wheels are spinning. Trying to make the perfect choice to invest your 200 K. Take some pressure off. Buy one with a primary residence loan. Put three and a half percent down, put 5% down, put less of your money down. Move into it, rent out the other two units in that property. Then move out and do the same thing again next year with another primary residence loan. The house that you just moved out of becomes the rental that you’re in analysis paralysis trying to decide if you want to buy. The cool thing is you don’t have to make the perfect choice when you’re only putting 5% down. When you’re putting down 20 or 25%, you got to get it right. You got to get that ROI as high as possible.
You take a lot of pressure off yourself by buying a house as a primary, moving out in a year and making it into a rental. You could do this and you could actually watch, as crazy as this sounds, you could watch your savings grow from 200 to 220 to 250, to 280 to 300 at the same time that you are buying properties because the down payment on a primary residence is less than the money that you can save working as a nurse. So you get the best of both worlds. You get properties that become rental properties with low down payments and you continue to save your money so you get all the security that comes from having money in the bank with the long term benefits of real estate.
Look, it’s staring you in the face. I’d love to help you with this, but if it’s not going to be me, this is a strategy that I would highly recommend that you pursue. You can buy a house a year for the next 10 years, end up with 10 rental properties, plus whatever the heck you want, all while growing that savings at the same time. All right. We have time for one more question, and in this one of my original mentors, Pat Hyman, answers the questions from Kyle in New Jersey.

Pat:
What is up everybody? Pat Hiban here. I have a question from Kyle out of New Jersey. Kyle has done one flip. He says, “I’m 21 years old looking to get into real estate. I work in a heating and air conditioning business and a part-time agent. Did my first flip and I did really well on it. What advice you have for your young guy who wants to do more?” Well, it seems like you got the secret sauce about the flip. I would emulate exactly what you did on the first flip and do it on the second one. I would just keep building. In my book, 6 Steps to Seven Figures, Chapter 5, I talk about building upon a success, and if you’ve had a success, build on that success. Do the exact same thing. Don’t try to start something new.
His second question is, “Do you have any tips on finding a mentor?” I love this question. Mentors and mentees are a fascinating subject, and I think the best thing you could do for finding a mentor is just kind look out there. Look who’s doing it. Who’s doing the flips? Who’s the biggest real estate boss out there? Who’s the biggest landlord, who’s the biggest real estate agent? Call them up. I say call them. Don’t woos out and email them or try to IG them. Call them and say, “What can I do to earn a cup of coffee with you?” And then bite your lip. Hold it. Don’t answer. Let them answer, “What can I do to earn a cup of coffee with you? Or earn a half an hour lunch with you?” And they might say something like, “Hey, donate to my charity.” Or they might say… I don’t know. They could say anything, but you’re giving them an option and get together with them and follow up.
Now, the key with any mentor is whatever the advice they give, act like you are massively paying attention. Write it down. And then when you leave, go home and immediately take action on what they told you. Because if you don’t take action, they’re going to ignore you next time you call. But if you take action and you go, “Hey, I want to let you know that those three books that you recommended I’ve bought, I’ve read them through, I’ve highlighted through. They’re amazing. These are my favorite parts. Thank you so much for that. Can you give me three more books?” They’re going to give you three more books to read. Or whatever it is. Whatever they tell you to do, show them that you actually move forward on it. Huge importance.
“What would your thoughts be on someone thinking of starting a brokerage property management company in the state of Florida next few years?” I don’t know about how the state of Florida works compared to New Jersey, but I would question, why would you do that? Why wouldn’t you just do it in Jersey if you’re from Jersey and Jersey upside down and out and your business is in Jersey and the people are in Jersey? If you don’t know anybody, I think it’s going to be quite difficult to go down there to Florida out of the blue and just open up a brokerage, truth be told. Especially if you don’t have any income out there. Now, back to David Greene.

David:
Doesn’t Pat just have a voice for radio? “And now back to David Greene.” It’s like he was made to do that. A lot of people don’t know this, but Pat was at one point the top agent in all of RE/MAX and then later the top agent in all of Keller Williams, meaning he sold more houses than every other agent in each of those companies when he was there. He’s also one of the founders of GoBundance and an overall great dude.
All right. I don’t think I have anything to add to that advice. The only thing I might say different is I’m guessing, now this is me speculating, that the reason the caller wanted to move to Florida open a brokerage is they see the population is moving there and they’re thinking, “Oh, here’s some opportunity.” I think what Pat was getting at is that opportunity is more than just demographics and what the numbers are saying. It’s more about relationships. And if you don’t have relationships with people in Florida, you’re not going to find people to do business with you. I thought that that was a good point.
The way I tend to think, if you’re a single person, you don’t have a family, you got to worry about, you can go do whatever you want. Build one in New Jersey at the same time you build one in Florida or build one in New Jersey, then start one in Florida, because the skill sets are going to be very similar. You just got to have people in place to run each one. I’ll also say this. If you’re a person who runs a halfway decent property management company, you’ll get all the business. Very, very, very, very, very difficult asset class to succeed in. It’s very hard to keep your attendance happy and your landlords happy. Pretty much everyone hates you all the time. But if you can solve that challenge, if you can overcome that obstacle, you’ll get all the business.
And the last thing I’ll say when it comes to property management is most property management companies don’t make good revenue from their model. Their margins are incredibly slim. Their turnover is very high. You’re constantly training new employees and hiring new people who get burned out because everyone’s angry at them from both sides and there’s not a lot of money to be made. You make your money by the relationships within the business. What I mean by that is you have the landlords who will let you sell their house if you’re a real estate agent and you make money on the listing commission or they will sell their house directly to you if you’re an investor before they put it on the market. So most people that do well as property managers are not doing it for the money. They’re doing it for the relationships. So there’s something there. Like Pat was saying, focus on relationships if you want to make money. I know it sounds counterintuitive, we tend to think money or relationships, but the best money comes from the best relationships.
All right, that was our show for today. What did you guys think? We had appearances from lots of people. We had Brandon Turner, Zeona McIntyre, Pat Hiban, Bruce Wayne. There was a lot of different cameos that we had in today’s show. And I want to know, did you like this or do you prefer the shows where it’s just me? Or do you like a little bit of a mix up? Sometimes we bring in some backup for me, sometimes it’s just me, right? Even Batman has a Justice league that comes in at times. Marvel fans, please don’t be mad at me for referencing DC. It’s all just an analogy.
Lastly, please subscribe to our YouTube channel. Just hit that little subscribe button and then leave me a comment telling me what you thought about the show. What would make it better? Do you want to hear more jokes? Do you want to hear more accents? Do you want to hear different topics? Are you like, “Nope, just the facts, man. I just want to know what’s the information and leave out all the fluff.” Tell us what you like and we will do our best to cater the show for you. If you’re listening to this on an app where you listen to podcasts like the Apple Podcast app or Spotify or Stitcher, please leave us a five star review there as well. Those help us a ton.
I want to thank everybody for joining me today. I love making these and I love helping you all make money. And as a way of showing appreciation for all of you, we are having a Black Friday Cyber discount for all of the BiggerPockets books. You can go to BiggerPockets.com/store and get 60% off certain titles in the BiggerPockets book store. I’ve got a lot of books in there. Long Distance Real Estate Investing, BRRRR, Skill, Scale, Sold, all of it. As well as every single other person that you heard on today’s show, they are all authors and they’ve got books. Grow your knowledge and grow your bank account. If you want to follow me online, I’m @DavidGreene24 on Instagram, LinkedIn, Facebook, even YouTube now. I have a handle @DavidGreene24. So follow me there. Let me know what you thought of the show and leave us a comment. Thanks everybody. I’ll see you on the next one. If you’ve got another minute, listen to another BiggerPockets video.

If you are like me, I suspect you’ve heard a good number of gurus, or even seasoned, well-meaning investors, give the following advice in some form or fashion:

“Systems and policies are essential. If you want a business that works, you need to have systems and policies. You need to have those systems and policies, and you need to follow those systems and policies because systems and policies are absolutely essential to have and follow. Systems and policies!”

While it is certainly true that systems and policies are extremely important as I will elaborate on further shortly. Of course, just saying that isn’t particularly helpful. The “how” part is often missing, unfortunately. So, in this article, I will at least sketch out an outline of how to approach building systems and policies for real estate investors.  

Why Systems and Policies Are So Important

First and foremost, the reason systems and policies are so important is because it’s a massive waste of time and energy to simply reinvent the wheel over and over again. Indeed, even the simple act of making decisions can be exhausting, and so if there is a solution ready to go for a given problem (i.e. a system or a policy), you can execute that solution with little thought and devote your mental energy to something else. 

Systems also make it easier to delegate tasks, as employees and contractors won’t have to continually ask for directions. They also allow you to maintain quality control and standardize outcomes throughout the various parts of your business. Furthermore, they make it easier to stay on the right side of the law as treating someone (particularly a prospective or actual tenant) differently than another one could amount to a violation of Fair Housing.

But the most important reason for systems and policies, at least in this author’s humble opinion, is that they lay the groundwork to scale your business. It’s important to remember scaling is not growth. Instead, scaling is what facilitates growth. Investopedia defines it as follows,

“Scalability refers to the ability of an organization (or a system, such as a computer network) to perform well under an increased or expanding workload. A system that scales well will be able to maintain or increase its level of performance even as it is tested by larger and larger operational demands.”

Growth for the sake of growth is the philosophy of cancer, which, left unabated, will eventually kill its host (the business). Only through scaling (which relies on systems and policies) can the foundation be laid to “maintain or increase” the “level of performance even as it is tested by larger and larger operational demands.” 

Only through scaling can you truly and sustainably grow a business. And even if you don’t want to grow that much, systems and policies will make your life a whole lot easier, shrink your liability and increase your profits.

The Key Point To Remember

I can’t think of anyone who has actually said this, but I do think there is an underlying assumption that many entrepreneurs believe you build your systems, and then you build your business. Or perhaps, you start off by building your business by going from one whim to the next, and then you realize you need systems, so you add those, and then you go back to building your business.

If I could ensure that this article accomplishes one thing, it would be to permanently remove this idea from your mind. 

Business does not work in such a sequential manner. Instead, you should be building your systems and policies in lockstep with your business. It’s an iterative and never-ending process. As you expand your business, you should be expanding and updating your systems and policies. It never ends. Don’t expect it to.

Learning and Borrowing From Others

Of course, that doesn’t mean you need to start from scratch and feel your way through the dark to only learn from hard-fought (and expensive) experience.

There are plenty of good sources to learn from, including here at BiggerPockets. You should be regularly reading articles (on real estate and business in general), reading books, listening to podcasts like the BiggerPockets Real Estate podcast, and attending meetups and conferences. You should definitely be involved at your local Real Estate Investors Association or BiggerPockets meetup groups and ask seasoned investors about their various systems. Trust me, people love to talk about themselves. They’ll open up.

There are also four books, in particular, I would recommend reading when it comes to systems and policies. Any business owner should read through these:

The E-Myth Revisited by Michael Gerber

This book outlines the importance of thinking of your business like a franchise owner would, creating the policies that could be handed to someone else in another market to replicate. 

The Checklist Manifesto by Atul Gawande

Gawande highlights the incredible improvement all sorts of organizations have made by simply having and following checklists for recurrent tasks. You should definitely start making these. We have developed checklists for creating scopes of work, screening residents, moveouts and deposit disposition, analyzing properties, due diligence, and financing properties, etc. Having these and following them dramatically reduces mistakes and oversights.

Traction by Gino Wickman

Wickman goes over creating an EOS (Entrepreneurial Operating System) that covers every part of your business and then hones and streamlines them as best as possible. 

Scaling Up by Verne Harnish

Harnish might as well take the torch from where Wickman leaves off when it comes to scaling. He particularly highlights the importance of creating key performance indicators (KPIs) to monitor and improve performance throughout your company. 

As a bonus, I would also add Getting Things Done by Gary Allen to systematize your own life. 

Of course, if you are a new investor, you don’t need to read all of these before you get started. But I would definitely get on reading them as soon as possible.

Laying the Groundwork

As soon as you can, you want to start building systems, even if that’s before you get started. (Although you should not use a lack of systems as an excuse to procrastinate, again, building systems is a never-ending process.)

You should start by identifying your core processes. As Gino Wickman notes in Traction,

“It’s surprising how productive this step is. This exercise creates clarity of thought that is then put down in black and white…just by calling your processes by a consistent name, you reduce complexity and increase efficiency in the organization.”

So, for example, in our business, we have the following core processes. Yours will likely be a bit different, but this should make it clear what you are aiming for.

• Acquisition
• Financing (private loans upfront)
• Refinancing (bank loans on the back end)
• Accounting
• Rehab
• Turnover
• Property Management
• Maintenance 
• Human Resources (hiring, firing, etc.)

We have then blocked these into several departments. So, I oversee acquisition and refinancing. My brother oversees human resources and assists in acquisition, and my dad is in charge of finding private lenders (financing). Thus, in our main office, we have four other departments that report to us:

• Property management
• Maintenance
• Rehab and Turnover
• Accounting

I don’t have the space here to go over each component of each department, so we’ll hyperfocus on one aspect to give a general idea. In this case, we’ll look at how a typical turnover is handled through the property management and rehab departments.

Our process is as follows, with the department in charge noted in parenthesis.

1. Visit the property and evaluate condition and damages (Rehab)
2. Create a scope of work for repairs during the same visit (Rehab)
3. Do a deposit disposition based on damages noted (Management)
4. Send that scope of work to one or more contractors (Rehab)
5. Evaluate the bids and make a decision (Rehab)
6. Verify work is completed and take marketing pictures (Rehab)
7. List property (Management)

This process requires several checklists and policies embedded within it. For example, we have a scope of work template in Excel for writing up scopes. We have a bid template in Smartsheet we send out to contractors. We have a deposit disposition template as well as a master availability list that shows everyone in the organization where things are at as the property proceeds from the management department to the rehab department and back.

Some of these templates are available free of charge. BiggerPockets itself has a long list of landlord forms, including applications and leases you can get for free. If you are a real estate agent, your brokerage and the MLS should also have such forms.

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As you standardize your processes, you should also standardize your materials. Use the same paint colors (or just a few), vinyl, countertops, appliances, etc., for your rehabs and turnovers. This will make it simpler to acquire and replace these items and also make it more likely you can simply make repairs or do a touch-up rather than a full replacement.

Now, this probably sounds like a lot. It is. You may be just starting, and the idea of having departments could sound ludicrous to you. That’s completely understandable. It was how I would have felt not too long ago. Remember, building systems is an iterative process. Build your systems for you in the meantime, and soon enough, you will be hiring others who you will want to make sure to follow those very same systems. Trust me, you will need to be continuously building and changing your systems and policies as you grow.

Indeed, we have a whole smorgasbord of old Google sheets and Word documents in what we refer to as the “Google Docs Graveyard” meandering about the cyberspace. There will be plenty of false starts and curveballs no matter how well laid your plans are.

The Iterative Process of Building Systems and Making Policies

Again, there’s only so much you can do upfront. As you go, you will run into all sorts of problems that you hadn’t thought of nor planned for. These unique problems, however, are great opportunities to systematize your business. 

Indeed, with each new decision you make, you should attempt to create a system or policy out of that. Don’t just fly by the seat of your pants as problems get thrown at you. Yes, it takes more time in the beginning to systematize and/or create policies. But this is a Quadrant II activity (important but not urgent), as Stephen Covey discussed in his classic book The Seven Habits of Highly Effective People. These are the tasks that reduce the amount of time you need to spend on such issues going forward. 

These Quadrant II tasks “maintain or increase” the “level of performance even as [your company] is tested by larger and larger operational demands.”

These Quadrant II tasks are the ones you need to prioritize.

To give you an idea of how this works, here are a few examples we have had to deal with and the solution we have come up with:

Problem 1: Cockroach infestation at a house three weeks after a tenant moves in.

Policy Solution: If infestation is within the first month of tenancy, it’s on us (they were likely there when the tenants moved in), afterwards, the cost is on the tenant.

Problem 2: Tenant constantly pays late, clogging up management resources.

Policy: Allow for one payment plan per year. Afterward, an eviction notice will be filed, and the tenant will either need to pay the whole balance or set up a time to leave.

Problem 3: A maintenance order takes way too long, and it was our fault.

Policy: In such cases (when it’s not so egregious, we would consider a rent discount), we offer a gift card to their favorite restaurant (which we ask for when they sign the lease) to smooth things over.

Of course, not everything can be systematized or made into a policy. On a recent portfolio purchase, a tenant gave notice to leave to the seller while we were under contract. Their lease, however, went for another six months. The seller had been soft about enforcing lease terms, so the tenant thought it would be fine. And they just got a house under contract to buy and couldn’t afford both the mortgage and the lease. In this case, we asked the seller to prepay two months of their rent, and we would call it good and let the tenant out of their lease. He agreed.

You can’t really create a policy for such a specific situation, but you can for many. And you can create broad outlines of how to respond to really unique circumstances (i.e. if, while under contract, the seller wants to let a tenant out of their lease, we expect to be compensated for it). So, while it’s impossible to cover every scenario, and you certainly need to leave room for flexibility when it comes to many decisions, you can still systematize and make policies for a lot of ground. 

And that will go a long way to scale your business and facilitate future growth (and continued sanity). 

Key Performance Indicators

As you go, you will want to start developing KPIs for each major area of your business. Broad indicators for your company are pretty simple and should include things like:

• Gross Income
• Net Income (after operating expenses)
• Cash Flow (after debt service)
• Change in Income Year over Year
• Occupancy Rate
• Delinquency Rate
• Units Bought this year

But these indicators are very broad and don’t tell you a lot about why things are the way they are. Thereby, you also want to nail down KPIs for managers, or in the high likelihood that you don’t have managers, departments, or areas of your business.

While it’s true that you may not know whether the number you get with any given KPI is good or bad, you know what’s better and what’s worse. So you know which direction things are going and also have something to aim for, which clarifies your (or your manager’s) goals.

Here are some examples that we track for different departments:

Acquisition

• Properties Acquired
• Units Acquired
• Average All-in Price per Property
• Average ARV
• Rehab Estimate
• Rehab Actual/Rehab Estimate

Turnover

• Total Rolling Days of All Properties in Turnover (at end of the month)
• Average Days from Possession to a Finished Scope (for month)
• Average Days from a Finished Scope to Market Ready (for month)
• Projects Completed that Month
• Average Cost of Turnover

Property Management

• Deposits in Month
• Deposits Minus Moveouts
• Percent of Potential Rent Collected (i.e., delinquency)
• Lease Renewal Percentage
• Occupancy Percentage
• Average Rent Increase
• Total Rolling Days of Properties Available for Lease on Market (at end of the month)

Maintenance

• Closed Work Orders (in month)
• Work Orders Outstanding/Closed Work Orders
• Average Time to Complete Work Order (in that month)
• Number of Work Orders that took Longer than 48 Business Hours to Visit
• Call Back Percentage

Those are, of course, just what we do. Yours don’t have to be the same. But they do give you a good idea of how things are going. And while monthly anomalies shouldn’t be surprising (particularly with things like “Average Cost of Turnover”), these aberrations should work themselves out over the long run and give you a good idea of how things are going.

And if you do have managers, they are a great way to evaluate their job performance without micromanaging or blindly trusting them.

One last note here, in order to track your KPIs effectively, you need to have quality accounting. In addition, in order to sell at top prices and get banks to lend to you or just know whether you’re solvent, it’s critical to have your accounting in order. This is not something to skimp on. Make accounting a priority and either learn accounting or, better yet, outsource or hire someone capable of doing it.

I can’t tell you how many times I’ve seen small investors selling a property with horrible accounting. Such a state of affairs not only reduces the value of their asset but it makes it all but impossible to scale.

Conclusion

Systems and policies are essential for scaling, and scaling is essential for growth. But again, the biggest takeaway here is not just that systems and policies are good and necessary, it’s that building them is an iterative process that never ends. 

Don’t be scared or overwhelmed by the thought of them. Every entrepreneur starts with zero systems in the same way every real estate investor starts with zero properties. But in the same way, you don’t intend to stay at zero properties, you should intend to grow your systems alongside your company. Back forth, around and around, forever and ever.

Find financial freedom through rentals

If you’re considering using rental properties to build wealth, this book is a must-read. With nearly 400 pages of in-depth advice for building wealth through rental properties, The Book on Rental Property Investing imparts the practical and exciting strategies that investors use to build cash flow and wealth.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

CNBC’s Diana Olick, joins ‘Squawk on the Street’ to discuss existing home sales numbers slowing, year-over-year price declines in home sales, and the factors weighing on higher-end home buyers.