December 2022

Back in March and again in August, I noted that “We are undoubtedly reaching the limits of affordability for Americans,” which should “cool the real estate market” and likely “cause a correction” but without the unpleasantness of a crash. 

This, in my humble judgment, is still the case as the real estate market is—unlike in 2008—buoyed by much more qualified buyers with substantially more equity in their homes and long-term, low-interest, fixed debt versus the teaser rates of the early to mid-aughts. A chart of mortgage originations by credit score should drive that point home.

However, I was clearly wrong about one thing. I didn’t believe there was sufficient “political will” to really tackle inflation. That still may be true as the Fed could quickly abandon its current course. But given the litany of rate increases and the signals of more to come, it would appear that high-interest rates will be with us for quite some time. 

Indeed, the 3% mortgage I got on my personal residence last year would be more than twice that now. As Dave Meyer put it, the Fed has made it clear that they want a housing correction to take place to reduce inflation and address near-historic levels of unaffordability. 

So, where does that leave us now? 

A Housing Correction and the “Sellers Strike”

This is what the number of new listings looks like in the Kansas City Metro Area, where I live:

New listings in September 2022 were down almost 600 from 2021, a 12.9% decrease. They were down a full 15.5% from 2020. 

Thus, despite the rate increases, inventory only crept up from 1.5 to 1.7 months in September 2022. A balanced market is six months, so this is still considered a “seller’s market.” (Although I would argue with this, given how odd the current market is.)

It’s important to look at year-over-year (YoY) comparisons here as new listings follow a cyclical pattern and always fall off during the winter. For instance, the year-over-year trend for new listings nationally fell 23.6% YoY in October.

However, homes for sale are still up 5% from last October. This increase in inventory came in large part due to fewer sales and nearly 20% of buyers backing out of signed contracts. There are also some rather amusing headlines, such as “average sale-to-list-price ratio fell to 99% in September.” It had been a shade over 103%, which is, well, not exactly typical.

Overall, this is what Bill McBride calls “the sellers strike.” There simply aren’t very many good reasons for homeowners to try and sell their house right now. So, they don’t. Therefore, we should expect this trend to accelerate and be with us for quite some time. 

Americans Are Staying Put

Of late, Americans have been substantially less likely to move than they had in years past. As The Hill noted in 2021:

“New data from the U.S. Census Bureau shows just 8.4 percent of Americans live in a different house than they lived in a year ago. That is the lowest rate of movement that the bureau has recorded at any time since 1948.

“That share means that about 27.1 million people moved homes in the last year, also the lowest ever recorded.”

Even before the pandemic, record lows were being set. The reasons for this are many, including an aging population, fewer children, and, of course, housing being so expensive. 

In that same vein, the number of new home listings was also falling even before prices went through the roof and the recent interest rate hikes.

The average duration of homeownership went up to eight years, an increase of “about three years over the last decade,” according to The Zebra. The change in the median length of stay is even more dramatic. It has almost tripled from about five years in 1985 to 13.2 years in 2021.

If you think about it, it makes sense. Why move, particularly now?

Most homeowners (approximately 95%) have 30-year, fixed-rate mortgages. Anyone who took out a loan in the last five years has a rate below at least 4%. Why would you ever voluntarily pay off such a loan?

And as we have seen, fewer and fewer people are.

Interestingly enough, the same thing is happening in the rental market. 

Tenants are renewing their leases at a record level. In April of 2022, over 65% of tenants renewed their lease versus just over 56% in 2019, according to RealPage. 

This also makes sense if you understand that the giant rent increases you hear about are just for new listings. For example, back in April, when the year-over-year rent increase for new listings was 16.9%, NPR found that the average tenant was only paying 4.8% more than the year before. 

The reason is that very few landlords are willing to raise rent all the way to market on current tenants. Increasing the rent much more than 5% often inspires a tenant to leave just out of spite. So, if rent is (or at least was) going up 16.9% elsewhere but only 4.8% where you are, you’re likely to stay put.

So, is the United States—birthed in a fight against monarchy and entrenched aristocracy—regressing to a realm of feudal serfs bound to the land they currently inhabit?

Well, for the time being, sort of.

Opportunities In This Very Odd Market

The Homeowner That Rents

The “sellers strike” has and will continue to buoy the housing market as long as interest rates are high (at least by post-2008 crash standards). At the same time, it is likely cooling the rental market, and I suspect many homeowners who need to relocate are choosing to rent out their homes instead of selling them, and thus the volume of rentals is increasing.

Asking rents are starting to moderate. From a high year-over-year increase of 18% in April, they are now down to just 7.4% in November and only 1.2% higher than in October. 

Even still, rents are quite a bit higher than they were even a few years ago, so continuing to hold rentals as a landlord should do fine in the near term.

Furthermore, for any homeowner out there who needs to move for a job relocation or whatnot, the best play is likely to rent your current home and then find a rental where you are moving to. After all, the softening rental market will help you in finding a rental equally as much as it hurts you in renting out your current residence.

And again, why pay off your 2.65% loan on your current home to get a 6.95% loan on a new one? That is not a particularly lucrative form of arbitrage right there.

I suspect the “homeowner who rents” will become much more common in the next year or so. And while such ideas may come naturally to the readership of BiggerPockets, they likely won’t naturally occur to the “normal” homeowner despite it being in their best financial interest. So please make sure to enlighten others about their options in this high (by recent standards) interest rate environment.

Subject To

The next major opportunity is a bit more rife with uncertainty, and this is the infamous “subject to” strategy.  

“Subject to” just means that the purchase is “subject to the existing financing.” Effectively, the buyer assumes an unassumable loan. 

Or in other words, the buyer takes the deed to the property and makes the loan payments, but the loan stays in the seller’s name.

The advantages to the buyer, in this case, are obvious. If you can “assume” a loan at 2.85% on a property, how much does the purchase price even matter? 

There are several problems, though. First of all, you need to seriously build rapport with the seller in order for them to trust you to pay their mortgage on a house they no longer own. After all, if you don’t make the payments, it’s the seller’s credit that will take the hit.

Secondly, virtually every mortgage and deed of trust has a “due on sales” clause. This allows a bank to call the loan due the moment the property transfers ownership. In the past, banks have very rarely done so. It might be different this time around, though. Would a bank keep a 3% mortgage on its books when the going rate is over 6%? 

All we can really say is that we don’t know for sure. If you do employ this strategy, you should have a plan B to refinance or sell the property if the bank does elect to call the loan due.

Lastly, holding a mortgage without the corresponding property will seriously affect a seller’s debt-to-income ratio and make it very difficult to buy a new property. At the same time, as a subject to buyer, I would never want to pay off any mortgage made between 2018 and the middle of 2022. Thus, there could be a long-term conflict and even an ethical issue that wasn’t present so much when subject to’s first became popular in the early 2010s. 

Even though you may not have a fiduciary duty to the seller, you should be very clear about what the ramifications could be with the seller upfront. I would recommend even coming to an agreement or something to that effect about how long you will keep that mortgage in place before refinancing or selling.

Conclusion

As long as rates stay high, the “sellers strike” should continue. Expect very low rates of new listings for the foreseeable future. The real estate market will soften and decline a bit, but without a strong incentive to sell, the sellers strike, amongst other factors, should keep it afloat. 

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

David:
This is the BiggerPockets Podcast Show 701.

Eric:
That one point right there makes the decision much easier. If I would’ve just realized the tax implications in year one, I would’ve probably started out with a BRRRR model versus a fix and flip model, because once you cut the profit in half for Uncle Sam, it starts to make the $400 a month. I mean, in four years you’ll make that money back.

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, the biggest, the best, the baddest real estate podcast in the world, here today with another fire episode with another flame co-host, Rob Abasolo. How are you today, Smokey?

Rob:
Hello. Hello. They call me the baddy of the real estate world. So that’s interesting that you say we’re the baddest show. It all makes sense.

David:
Yeah. In fact, I thought they called you Little Baddy, but maybe that’s just when you’re rowdy.

Rob:
That’s my stage name. Yeah, exactly.

David:
There you go. Today we have an amazing show for you with a person who runs a very successful real estate business. Eric Brewer shares tons of information, stuff that he learned from his career in the military and then his career selling cars, and now with this all inclusive business where he wholesales, he flips, he holds some rentals.
He basically spends over a million dollars a year to generate leads, works them through a funnel, and then figures out which ones will be kept and sold and dispo’d, all kinds of creative ways that you can make money in real estate. Rob, what were some of your favorite parts of today’s show?

Rob:
Man, so Eric is the master of the pivot, or as Ross Geller would say, the pivot!

David:
Pivot!

Rob:
Pivot! Dude, he’s pivoted. He walked us through his whole journey and every single time he sensed a change in the market or in the buyer sentiment, it seems like he was just super quick to get a read on it and pivot his business to still remain active and profitable and everything like that. So I think we could all take a page out of that book and understand how important it is to be able to be adaptable when the market is changing.

David:
Absolutely. That’s one of the themes of today’s show, not just what the market’s doing, but what you can do differently in this market that will work that did not work before. To me, when I listen to a podcast, that’s the number one thing I’m looking for, tell me what’s happening right now, tell me what I can do differently or better that will work right now so I can keep an edge on my competition, and today’s episode definitely delivers.
Before we bring in Eric, today’s quick tip is, remember that real estate is a relationship business and you need to be focused on the relationships, not just the deal. When we say something is transactional is where people put the value on the transaction, not the people in the transaction. Real estate does not work well, much like dating, when you treat somebody that way.
So in anything that’s relationship based, remember to focus on the person, their goals, treat them the way that you would want to be treated, and you’ll find the money comes your way versus just focusing on the deal and treating them like a means to an end. Eric gives some very good examples of that in today’s show. And without any further ado, let’s bring in Eric.
Eric Brewer, welcome to the BiggerPockets Podcast. How are you today?

Eric:
I’m doing well. How are you?

David:
I’m doing fantastic. Thank you for asking. So we’re excited to talk to you today. Before we get into it, can you give us a brief rundown of what your real estate business and your personal portfolio looks like?

Eric:
Yeah. I’ve been investing in real estate since 2006. Currently, we are operating in two core markets here in South Central Pennsylvania, and we also run a market in Ohio. We do a balance of wholesaling, fix and flip, and turnkey.

David:
Okay, so you got a lot of stuff going on.

Eric:
We got quite a bit, yeah. 30% or so of our business is wholesale, 30% turnkey, 30% fix and flip. Then we have a portfolio of about 70 to 75 rentals. It was closer to a 100, and then at COVID decided to sell off some stuff. Regretting a little bit of that now, but at the onset of COVID with the uncertainty that was going on at the time, we sold off a few rentals.

David:
Okay, and do you have business partners? Is that the we?

Eric:
No, I just include everybody that works with me.

David:
Oh, that’s interesting. We’re going to have to ask about how that’s structured. Before we get too deep into that though, tell me how did your journey into real estate look? What was going on in your life? What made you decide to get into real estate? It was clearly the best time in history. 2006 is notorious for being the best time to start a real estate investing career.

Eric:
Before getting into the real estate business, I had spent about eight years in the automotive business. And at the tail end of my career in auto sales had just reached a tipping point where the hours had got to me. I was moving in the direction of having my first child and just really knew that I couldn’t be a great dad and a great car manager and had to make a decision.
So obviously chose to hang up my car salesman shoes and took a few months off just doing some soul searching to figure out what my next move would be and made the selection it would be real estate and thought that it would be wise to start my journey in real estate on the finance side.
So I looked into mortgage businesses and did a couple interviews and ended up … My first job in real estate was basically cold calling for refis in 2006, and did actually really well with it. I was surprised at how easy it was in comparison to me grinding out two and a half hour appointments with car buyers to make 300 bucks on a new car. I was literally spending 45 minutes on the phone calling someone and making a couple thousand dollars on a refi.
And after doing that for, I don’t know, four months or so, my mentor from the car business reached out to me and said, “Hey, I’m thinking about getting into real estate, and I thought of you. Would you like to have lunch?” And we had lunch a couple days later and immediately following the lunch that we had, we made a decision to start flipping houses in February 2006.

Rob:
So you decide to leave behind a somewhat lucrative but tedious business in the car world. You get into real estate, you say, I want to flip my first house. What was that house actually like? Did you know anything going into it about ARVs or comps or budgeting? Walk us through that journey a bit.

Eric:
So the first house that we bought was a bank owned property. I walked the house. My partner had bought a couple rentals and had a real estate agent. And the real estate agent got us into the house, met me there, and we were talking about ARV. I don’t think we called it ARV. We said, what could it sell for after we fixed it up? I didn’t even know what ARV meant. And he gave me a number and we did the math.
And he was really, really well spoken in Spanish and we met a contractor there. The number that I got was $12,000. So I did my math based on $12,000. We ended up negotiating, buying a house from the bank. I met the contractor back there three, four weeks later to tighten up our rehab budget, brought up the number of 12,000 and he said, “Yeah, what about materials?” And I said, “Well damn, I thought that was in the 12.” And he goes, “No, it’s never in that. That was a labor number.”
So now I’m staring down the barrel of what I thought was a 12,000 rehab that’s more like 22. And we got the rehab done and ended up selling it and making a little bit of money, a little, maybe 3 or $4,000, and it was a good learning experience. I understood better on day two how to estimate a rental budget, but the first one I royally flubbed up.
But it was a $90,000 house, so luckily for me in South Central Pennsylvania, $90,000 was very inexpensive. There was more buyers for that stuff than there was homes to buy. So we ended up selling our way out of it.

Rob:
So you go into several flips after that. How long did it take before you started graduating to a little bit more expensive flips, or were you always in that $90,000 wheelhouse for a while?

Eric:
So most of the time in the very beginning we stayed at or around the, and this is crazy to think, 80 to $125,000 property. Now back in 2006, I don’t know what the median was, but it was probably close to that, which if you think about it, it’s a smart decision, but definitely, I wasn’t smart about it back then. It just so happened that that was the stuff you had the best chance to buy on the MLS.
There was less competition because in our area, that house was probably in the city where the taxes are higher, the schools maybe aren’t as nice as what someone might get in the suburbs, and some of the locations can be a little dicey. But for me, we would buy homes for 25, put 35 in them and sell them for 99. I mean, that’s the only place I can get inventory.
And back then, when we first started, I was buying 90% or more of my deals on the market, on the MLS, and that’s where the available inventory was. There was more competition on the higher priced suburbia stuff that didn’t need a full rehab. So we really started on the MLS and buying less expensive stuff.
And then coming from the car business background, I would say we actually sucked at buying homes. We sucked at renovating homes. What we were really good at is selling. So I didn’t sell much of my stuff on the MLS when we started. I would run, yes, I’m going to say newspaper. I was in the business when people still actually ran newspaper ads. We would take out a half page in the Sunday news with color ads and we advertised no money down, monthly payments, to generate a bunch of inquiries.
We’d get 30, 40 leads a week. We’d send them over to a lender, have them pull credit, get them pre-approved and if we got three or four qualified buyers a week out of those 30 applications, that was a good week and then we would sell. Not long after our first full year in business, we did 150 flips. Did 70 some our first full year. Second full year, we were north of a 100.
But we did a really good job of running ads. It’s the same thing I did in the car business. We’ll put a zero down payment on the windshield. People drive by and go, “Yeah, how do I get that Chevy Blazer down there for 299?” We literally took what worked in the car business and said, I think we should run these same type of ads for our house, and it worked.

Rob:
Wow. Okay. So if I hear you correctly, you started off with a flip. You didn’t really know too much. You underestimated the reno in your first one. 365 days after that, you had completed 150 flips. Is that right?

Eric:
It was the second full year.

Rob:
Oh, the second. Okay.

Eric:
So our first full year we did 70 couple, I don’t remember the exact number. It was north of 70. And then the second full year we were over a 100 plus. It was probably closer to 150. Then every year after that, we were right around 200. So by our third year we were doing 200 a year.

Rob:
I’m always just super interested in this part of the story, and I think a lot of people at home, because I think we understand the general concept of going and buying a house. You fix it up, you sell it, you make a profit, you take that profit and then you use it to buy your second house. And then hopefully on your second house you make a little bit more profit and then you take that money and then you go and you buy a third and maybe even get a fourth one concurrently.
But how does one actually get from, let’s say 3 to 5 to flip 50 because doesn’t that require some level of funds and funding and private lenders? That just seems impossible.

Eric:
So it would be under normal circumstances. I was very blessed that my partner was the owner of the car dealership that I worked at, and we didn’t deal with private lenders. I had one private lender as my business partner.

Rob:
Oh, I see. And so what was his role in all of this? Was he just like, hey-

Eric:
We worked side by side. In the beginning, we were driving out to bank owned properties, kicking in back doors, crawling in windows because someone lost the key in the lockbox and walking through properties with flashlights, trudging through wet basements. I mean we did all the crappy stuff that you had to do to buy a property and we did it together.
Literally for the first five years in business, I didn’t look at a budget, I didn’t look at cash flow, I didn’t look at any of that crap. I was blessed to have a partner that managed the backend business aspects, the finances, all of that stuff. All I had to do was go out and buy good deals, get them into construction, get them out of construction, and then work my face off to get them sold. So the hardest part about my job between 2006 and probably 2012 was I literally worked all the time.
The big difference between real estate and the car business, I had more control over when I worked. I could check out for two hours to go pick my son up from school, take him to basketball practice, pat him on the butt, tell him to have a great practice and then go to the parking lot and make 30 phone calls. Where in the car business, you literally have to stand at the car dealership and wait for some sucker to come in to buy a car. With real estate at least you can work sort of from anywhere.
Certain things, it was hard for me back then. I don’t know what the cell phone situation was in 2006. It certainly wasn’t like what we’re dealing with in … There was no Matterport. There was no FaceTime. I think the MLS capped you at six pictures. So you literally had to go to the house and look at it to make a decision about what you could pay.

Rob:
I think I want to say that 2006 was right around when the iPhone came out, the first one, the very first iPhone that’s ever existed.

Eric:
2006, I think I was straight up Nextel. Remember the little … the push to talk Nextels? So yeah, I mean my job, I didn’t worry about any of that stuff. I literally didn’t have to worry about it. And frankly, now I worry about that stuff every single day. We manage an inventory of, excluding rentals, at any given time we might have a pipeline of 45 to 60 properties. And cash flow is a really big influencing factor when we make a decision about will we wholesale something.
I don’t mean to jump ahead, but what we’re noticing right now is there’s a bigger gap. For the last two years, if I looked at what I could wholesale something for versus if I took it down, fixed it, flipped it, there was not much different. I was getting close to my projected income on a fix and flip and I was wholesaling the property.
So I’m like, you know what? I’m not going to go through the hassle of doing construction and funding this deal. I’ll wholesale it and make 25,000 bucks because if I fix and flip it, I stand to make 40. That to me is not … Normally, if it’s north than 50% of what I can make on a fix and flip, I’ll wholesale it.

David:
Now I know Eric, you’ve done several things in life it sounds like that have led you to this point. We briefly touched on selling cars and you did mention some of the things you didn’t like about it, but certainly there were things you learned doing there that set you up for success in this world, like what you just said, I would go in the parking lot and make 30 calls.
I’m a real estate agent, I own a mortgage company. I understand it is pulling teeth to get salespeople to contact possible clients for anything. It’s the hardest part of my job is someone comes to me and they say, “Hey, I want to be a real estate agent, David. Teach me everything.” And we say, “Okay, you’re only going to have to call five people a day.” And that’s like, you’ll maybe get five a month and then it’s like three of them is going to be their mom.
I don’t know what it is that creates such fear of calling people and talking to them, but you didn’t have that and I think it probably played a big role in putting you in the position where you can have this wholesale business and this flipping business and this deal volume that you’re doing that everybody hears and they go, I want to have Eric’s life, but they don’t want to make those 30 calls.

Eric:
Yeah, and there’s lot of other stuff that comes with it. I’ll give you a quick story about the car business. So the first two years I was there, I worked my way up through the service department. I started actually as a lot porter, which is a glorified term for park cars. And the whole reason I applied there is because it was a Mercedes and a Toyota new car franchise. I was like, I literally get paid to drive around Mercedes and brand new Toyotas all day, sign me up.
So I worked my way up through the service department and then that was my first glimpse into sales. I didn’t realize it at the time, but when you take your car and you drop it off with what’s called a service manager or a service advisor, it’s a sales job.
They’re going to compare your car in the mileage and the condition to what is the epitome of safe and then they’re going to make recommendations about, hey, you have 54,000 miles on your car, Dave. Have you considered getting a 60,000-mile service? This is what it includes. We could take care of it while you’re here. It would only cost an additional $448.
By the way, we noticed that your back brakes are getting a little bit low. You could let it ride for a little bit and they may start to squeal. And when you notice that, make sure you call me or we could go ahead and take care of it while you’re here today.
I’m sure that’s not how it sounded when I was doing it back in 1996, but I sold a lot of stuff and it’s only because the technician would come to me and go, “Hey man, these people ought to really get this stuff done.” I’d go, “Well, explain that to me. What is a timing belt?” And he’d tell me. I’d go, “Okay, I’m going to go call them.” And I would just call them and tell them that stuff and then say, “Do you want to get it done?” So I sold all this service and I got awards and stuff. I had no idea what I was doing. I was just following instructions.
And eventually I caught the attention of the sales manager who ended up being my business partner in real estate, and he’s like, “Man, customers really like you. We’ve had a couple people wander out to the sales floor and say, ‘Hey, you guys do such a good job in service. Eric’s working on my car.’ Next thing I know we’re selling them a brand-new vehicle. You ever think about getting into sales?” And I was like, “Sales? I’m not doing sales. You pressure people into doing stuff. I’m not cut out for that.”
So he kept working on me and June 17th, I don’t remember the year, was my first day in sales on the sales floor. So I transitioned from service to sales on June 17th. Typically, back then at this particular dealership, if you sold 20 cars in a given month, you would be salesman of the month or at least in competition.
So I start June 17th, I don’t know the difference between a spark plug and a muffler. I don’t know how to do a great walk around. I don’t know how to do a test drive. I’m like, I’m just going to go talk to everybody. I didn’t know what a buyer looked like. I didn’t know what negative equity looked like. I didn’t know what kind of shoes you should be wearing if you were a good credit customer. All these other salespeople did, they’d go, “That guy can’t buy. They’re probably buried in their trade. They’re upside …” I just went and talked to people.
I sold 21 cars between June 17th and June 30th and didn’t have a clue. So in my brain I went, all I did was talk to a bunch of people, I brought them inside, I got them excited about this Toyota Camry. And then I went and got a manager and said, “Hey, these people really like the car, can you close them?” And I was salesman of the month, sold 21 cars. And then every month after that, I never sold less than 20 cars. Most months I sold 30 cars and I was salesman of the month and made a crap ton of money at the age of 23.
And I think what happened to your point is most people hate car salesmen. So there’s nothing more uncomfortable than walking up to a stranger that you know hates your guts and can’t wait to lie to you and ask them can you help them, because they’re going to tell you no, I’m just looking, and you know they’re not just looking.
So you get this thick skin as a car salesman and when I showed up in real estate, making 30 calls to me was no big deal. So I think the car business, as a matter of fact, right now, it’s a big place we hire from.

David:
I can see why. It makes so much sense.

Eric:
It’s the resiliency that’s required to be in the car business. And frankly, other than the last two years, most car salesmen have to sell a crap ton of automobiles to make six figures.
When I made that decision, I remember saying out loud to my business partner who was my mentor at that time, “Dude, we just made $20,000 on this house. We make $300 a car.” We were just shocked. I remember saying this that I can’t believe we did that for so long. He was in the car business for 20 years by the time he made the transition.

David:
But there’s value that you got out of it that wasn’t just the money. So you learned about human psychology, you learned about working a system, you learned how to be different than other people. Every other salesman was pushy, you were not being pushy in a sense. You were probably listening much better. I can tell that’s something about you is that you listen to what other people are saying and then you have an intuitive nature to see what they really want and then you just offer it to them.
It was brilliant when you said, hey, this could happen with your car. These are common issues with timing belts. Do you want us just to take care of it now? Because if you don’t know about cars, which no one does and you hear that, what you think in your mind, you didn’t create pressure Eric, but the question created pressure because you’re thinking, well, if I say no, am I actually leading myself to having a huge problem later? I don’t know enough about cars to trust that I can say no. Yeah, just go ahead and take care of it. It’s only $1,500, right?

Eric:
Yeah.

David:
Whereas if you didn’t bring it up, the pressure’s never there because they don’t even know that it’s a potential issue. That is a much smarter way of going about it that doesn’t make you feel slimy. And that’s what I’m noticing about you, just talking to you now, I’m not shocked that you have a sales based business that is doing good volume and you like yourself. You’re not the slimy wholesaler that everyone’s worried about.
If we could take one more step back in your journey, I want to ask you about the army and what lessons you learned in the army that helped build the resiliency to be able to succeed in the car business that allowed you to have the fortitude to go succeed in real estate.

Eric:
So at the time, here’s what was going through my head in 1994 when I went to Fort Knox for bootcamp. And at four in the morning I had just got a buzz cut, I had hair back then. They shaved my head, made me drop off anything that resembled the outside world, jammed me into a school bus, took me out to this building in the middle of nowhere with 50 other men.
Just threw us in bunk beds, waited just long enough for everybody to fall asleep and then turned all the lights on and started screaming and yelling at us at five o’clock in the morning and dumped all of our beds, threw them out the window, made us go out in front of the building, stand in a formation when no one knew how to stand at a formation. And we did pushups until 75% of the people either quit or puked.
And at the time I was like, what in the hell am I doing here? Literally last night, my mom made me a freaking peanut butter and jelly sandwich with chocolate milk and celery with more peanut butter on it and now I got some grown man that kills people for a living screaming at me. Why am I here? This is horrible. And you just got through it.
And the next day it happened again. The third day it happened again. And really what they were doing now that I understand it, is they were tearing us down as individuals and everything that we did, we did together. We won together, we failed together, everything we did together.
So now looking back on it, I understand what they were doing is they were stripping us of our personal identity and they were making us a group. They were making us a team and everybody counted on each other and we won and lost as a group. But at the time I didn’t know it, I tried to figure out a way to not be the guy that got the other 59 guys in trouble.

David:
That’s exactly-

Eric:
And I did a pretty good job of that. I was like, I know what you guys are doing. I’m going to fold my socks because literally, you’d have to fold your 12 pair of socks and they would come through and they checked everybody. Take 59 guys, four pairs of socks, so they’re inspecting 240 pairs of socks.
And if one of those suckers wasn’t folded by the exact measurement, the whole 59 people were getting their socks dumped outside, January in Fort Knox, Kentucky, it’s flipping cold. And then you’d have to go outside and do pushups. And then they’d bring you back in, make you fold all your socks again and they’d inspect you again.
So at the time what it taught me was the value of process, the value of the predictable outcome. Everybody does things the exact same way. You don’t say apple when you’re trying to spell out a letter, you say alpha. You don’t say Billy, you say bravo. Everybody speaks the same language. So there’s very efficient communication and there’s very minimal miscommunication in the military because there’s an SOP and a process for everything.

David:
I can imagine your brain because what’s happening is, like you said, the way that you always approach life, your instincts, your habits, the literal neural pathways that tell you, oh this happened, you do this, most people are living without realizing it, a slave to habit in some form.
That all gets torn apart and you’re rebuilt in a way that would make you a more effective soldier or person to be a part of that unit. And I think a lot of today’s culture looks at that as a negative. We throw words on it like abusive and toxic and stuff like that, but in a sense that keeps you alive and it makes everything run much smoother.
And it actually sets you up for success in other team-oriented environments, which is where I’m going with this, because you’ve said many times today, we do this, we do that, even though you may be the leader or the brainchild or you may be playing a bigger role than some of the other people, maybe not, but my guess is whether you ever do or don’t, it’s always a we.
Real estate’s freaking hard, man. Those of us that are doing it know this is very difficult and you need people on your team to win. You’re now in this position that you’ve built a business that is team oriented. Was that happenstance or do you think that some of the background of what you got in the army led to you having a brain that was rewired to succeed as a team?

Eric:
It’s a really good question. And I would say that all of my life experiences have led me to the way that I behave now. So I had someone that was 24 years old, I was at a mastermind three months ago and he said, “All right, if you could go back to being 24 years old or 25 years old in real estate, what’s a piece of advice that you would give yourself?” And my knee-jerk reaction was none. And he said, “What do you mean none?” And I could almost hear what he was thinking. “You mean you haven’t learned anything from when you were 25 years old to now?”
And my response was, is that if I were to change, and here’s where I knew I was old and he was young, I said, “It’s kind of like the movie Back to the Future.” And he looked at me and went, “I don’t know what that is.” And you remember Back to the Future, if he went back into history and he interrupted that interaction between his mother and Biff, that his dad would’ve never saved his mother from Biff and then she wouldn’t have fell in love.
So I said, “Literally, I’d be concerned if I went back and gave myself a piece of advice about what to do at that particular age or when I was early in business, it would’ve changed my experience and my experience is what has led me to where I am today. So I wouldn’t change anything. I wouldn’t give myself any advice. I’d want me to go through …”
Real estate is hard and I’m glad you said that because I think too often people don’t talk about that. I actually don’t love real estate. What I’ve realized I love is I love building meaningful relationships and then nourishing those relationships to get the most out of myself and to give the most to that relationship in exchange.
It just so happens that if you do what I just said in real estate, you should have a pretty good experience. You should make pretty good money, you should be able to get people to come work for you, you should be able to get them to stay and work for you. And if you do it correctly, which I’m still working on, you should be able to create a lifestyle for yourself that requires far less work at some point than what you did in the beginning.
So I think there’s a lot to be said, that real estate’s hard. We don’t talk about it as often as we should. I wish I could go back and keep 40% of the 4,000 deals I’ve done since 2016, I’d be in a much different position. But it required a different level of discipline for those 16 years to not flip that house, keep it as a rental, make a little bit of money each month, not make the $25,000 rip that I made flipping it and say, hey, I’m going to live with getting all my cash out and I’m going to make $400 a month. If I had the stuff that I bought between 2008 and 2012 and I kept 25 to 40% of that inventory, I’d be at peace right now, I think.

David:
So this is such a good point, especially when we go back in time and hindsight’s 20-20. The problem is at the time you’re looking at it like, how do I want to describe … Real estate, it’s hard for us to imagine right now because it is such a competitive asset class, everyone wants it. We’re all fighting over houses. No one has a great deal. Even in a slow market like this where nobody takes it, we’re still scouring looking for the deal. They’re just harder to find because rates went up, so the cash flow has gone down.
But at the time you were doing this, nobody wanted real estate like that. I don’t know how to describe it. It was not super popular. It’s trying to imagine a band that everybody cares about right now that in 10 years no one will even remember. It’s kind of like that, but in reverse. There wasn’t a big appeal to keeping properties.
What you were doing was you were saying, okay, I could have 400 a month or I could have 25 right now. That sounds like a pretty simple decision to make. One of the things that I’ve done with myself, because we still have challenges like this where we don’t know what’s in the future and we don’t know what we should do is I’ve learned to look at money differently.
Instead of seeing, okay, I can have 25,000 cash in the bank or I can have $400 a month in the bank, I say I can have $25,000 in the bank or I can have $25,000 in the property. Instead of calling it cash, I call it energy. If the energy’s in my bank account, we call it cash or money, if it’s in the property, we call it equity, but it’s the same thing.
Now it works differently because when the market shifts, you lose equity in a property and when the market goes up you can gain equity in a property. So it’s more volatile in the property. In the bank, it’s more functional, you can use it for more things, but still it’s energy that behaves differently depending in the environment that you keep it in.
And I think learning to look at it like that has made the decisions easier because I didn’t feel like I was losing on the 25,000 cash. In fact, I would see now, all right, $25,000 rip that’s going to be taxed at 50% for capital gains over the short term. That’s actually 12,500. Then I have to figure out where I’m going to go invest it.

Eric:
That one point right there makes the decision much easier. If I would’ve just realized the tax implications in year one, I would’ve probably started out with a BRRRR model versus a fix and flip model, because once you cut the profit in half for Uncle Sam, it starts to make the $400 a month. I mean, in four years you’ll make that money back.

David:
Even if the property didn’t appreciate. That’s right.

Eric:
Correct. And then the equity only matters when you sell it. And if you’re not selling for 10 or 15 year cycles, you can time it much like a lot of people did. And I sold off a couple of my rentals just after COVID, because I looked at it and I was like, this is an abnormal set of circumstances. Property values are up 40% in one year. I’m cashing in.
And seven months ago, I regretted that decision. Right now I’m not so upset with it because we’re seeing some of that 40% be given back. It’s market specific, but I was looking at a heat map the other day from realtor.com and the amount of inventory in certain places across the country is alarming. In Arizona, it’s up 145%. In Pennsylvania where I am, it’s up 2%.

Rob:
Wow.

Eric:
Not much change in inventory here. So that’s one of the benefits of where I am. In 2006, people in Las Vegas, Phoenix, Arizona made a gazillion dollars. But then with the flip of a switch, anybody that had flips hanging out there were screwed. Literally the value changed.
I had 10 or 12 flips in the pipeline. I remember the day, it was eerie. And buyers’ agents and lenders were calling me like, “Hey man, our deal’s falling apart.” I was like, “What’s up? Something with the inspection, the appraisal?” Like, “No, the bank is out of business. They literally closed their doors at three o’clock today. There’s no deal.” And I was like, “What do you mean they just closed? You can’t just close. What do you mean they’re closed?” Like, “Yeah. Yeah, they’re done. They’re out of business. Everybody’s fired and they went home for the day forever.”
At some point we’ll probably talk about novations, but coming out of that in 2008, that’s how I discovered novations because prior to 2008, nobody was using FHA financing. It’s one of the things I’m seeing in the market right now. It’s funny knowing what I know now that every 10 or 15 to 20 years these cycles repeat themselves.
So if I knew that, I think to your point, back then, real estate was a really well kept secret. There was only this small little circle of people that knew about it. It’s probably because someone in their family grew up that way. They taught them how to do rentals, here’s this tax code that nobody talks about. We don’t want to bring a lot of attention to it because if we do that, they might change it.

David:
That is exactly right.

Eric:
Which we’re seeing now, right? Once everybody finds out about it, you go, oh they’re exploiting it, we’re going to get rid of that.

David:
Call it a loophole and call them a greedy and throw a millionaire on there and yep.

Eric:
Yeah, once too many people make enough money and they see it that, that needs to be corrected, they’re going to change it, which they’re probably going to change-

David:
Well, they’ve already changed bonus depreciation. That’s stepping down lots of things.

Eric:
Yeah, that’s a big impact. There’s a lot of people that would make a decision to buy a property, maybe pay a little bit more than they wanted to, but the bonus depreciation would say, you know what? I’m getting all these tax advantages. I’ll go ahead and pay what you’re asking for it.
I mean that’s the one thing, had I known that back then, I would’ve said it doesn’t matter what it’s worth in four years because I’m looking at a 20-year deal. What’s it worth in 20 years? And for the last 100 years, property values double every 20 years. So I know it’s going to be worth double. Whatever I pay now in 20 years it’s worth double.

Rob:
So Eric, I mean you talked about you sold some of your portfolio here during COVID, but you had one really big pivot in your career and that was in that 2008 era where you were crushing it on your home flips and then all of a sudden maybe you weren’t crushing it as much and you completely changed the direction of your real estate career. Can you tell us about that pivot and why it came to be?

Eric:
Yeah. So it’s happened a couple times. When we started, we were almost exclusively MLS. And then that, the tough part is in 2008, it got really hard to sell a house and predominantly because there was this flood of inventory coming, so there was a ton of competition. And the hardest thing to do in late 2008 was to get a stinking mortgage. There was this opposite reaction to the very forgiving, probably irresponsible lending that was happening for a couple years leading up to the recession that banks made a very corrective set of measures to get super tight. You had to have a 700 credit score and 15% down to get a mortgage unless you were using FHA in 2008.
In 2010, I started doing installment sales agreements. I had people that would come to me in 2009 with a 640 credit score and $15,000 down getting declined by lenders. They didn’t have enough, maybe they couldn’t prove their overtime or they hadn’t been on their new job for two years. It was really, really hard to get a mortgage.
So these people are coming to me, they got 15 grand down, they want to buy my house, they have the ability to pay, they have good income, we started doing installment sales agreements. I had over 140 installment sales agreements by the end of 2011.
And I was getting 15 to $20,000 down on $150,000 property. They were paying me 8 to 10% interest and I was borrowing it from the bank at 5 to 6%, because again, fortunately I had a business partner that was able to leverage his wealth and go to the bank and say, hey, we’re going to structure these deals at 80% of appraised value. We already have basically a highly qualified tenant. So we don’t have any maintenance, we don’t have any of that stuff. And our advance was lower than 80% because we had their down payment plus the equity we already had booked into the property.
So we did installment sales agreements. That was 30 to 40% of my sales for two years on the heels of the crash. In 2011 and ’12, there was more investor activity back in the market and I started to see it become more and more challenging to buy properties on the MLS. So I had to pivot to direct to seller between 2012 and 2015. Now my business is 90% direct to seller, virtually zero MLS activity.
In 2000, about four years ago, I pivoted into turnkey. Got away from retail fix and flip, pivoted into turnkey because rates were coming down and there was a lot of investor activity. I think the Wall Street Journal calls them laptop landlords, people that buy turnkey across the United States. They find qualified rehabbers, good property management companies and they buy turnkey real estate. They leverage it and they utilize the Fannie and Freddie product up to 10 loans in their own name.
And it’s the most desirable rental product you can get on the market. It’s 30 years. Typically, it’s at a discounted rate and you can get up to 10 properties in your own name. And now just in the last six months, that turnkey business has vaporized. So I’m back to pivoting again because the property that was cash flowing $300 a month for this out-of-state investor with the rates where they are, it’s negative cash flow. At an increased rent, the same price, the interest rate has had that big of an impact on cash flow and those buyers have stepped aside for now.
So I’m back to, full circle, selling my properties retail to probably FHA. That’s the thing I was saying, right now for flippers, if you’re not selling your properties to FHA, VA borrowers that need 3 to 6% sellers help and have minimal down payment, you’re missing the highest paying buyer in the marketplace right now.

Rob:
And why is that? Can you explain the math there a little bit, or why is that the uncovered niche?

Eric:
So we all know the market the last two years, right?

Rob:
Yeah.

Eric:
Ridiculous. Probably the most lucrative real estate market we’ll ever see, ever. And if you were an FHA borrower that needed 6% sellers help and had a $500 deposit, you couldn’t probably find a real estate agent that would take you out and show you homes. There’s no way you could buy a house. Anything that qualified for FHA financing, they were getting either cash offers or conventional no sellers help, appraisal waivers, no inspections. As an FHA borrower, you were at a significant disadvantage.
So those people now with rising interest rates, it’s created the opportunity for them to be able to buy a house. So they’re not comparing 7% to three and a half percent because they weren’t active at the three and a half percent rates. They were not an active buyer because the market would not allow them to purchase.

Rob:
So Eric, basically, if I’m hearing you correctly, there’s a very large group of people in the United States, people who are just married or are trying to move, they’ve had no shot at entering the market over the past two years and now they actually have a chance. Interest rates are a little bit higher. Maybe they’re going to be getting something in the sixes versus in the fours, but they still really want the house.
Whereas on the flip side of this, investors are paying 7 to 8%. The cashflow is a lot smaller now, they’re just not penciling out. So they’re not getting quite as competitive because they don’t know where this market’s going to go necessarily. Whereas maybe the homeowners are fine, they want to buy the house so they’re willing to take the risk a little bit more. Is that more or less what you’re describing?

Eric:
Yes. There’s a window because what do you think is going to happen to investor activity the instant rates drop down in the fives?

Rob:
Oh yeah, they’re going to be getting back at it.

Eric:
It’s going to go bananas again, right?

Rob:
I’m seeing a little bit of an opportunity here. It’s like I feel bad, all right. Maybe it’s like I shouldn’t feel bad, but the market has been so dang competitive. Sellers have been so very confident, so they’ve been raising those prices and now there’s terror lurking the streets. And I’m making some pretty aggressive offers like 3, 400K under asking. And I feel bad because I’m like, ugh, but it is genuinely the only way that these deals pencil out.
And I’m actually fine with it. Even on some of these deals where I was used to getting a 20 plus return cash on cash, some of these deals I’m getting a 10 to 15 and I’m like, well, I’m actually fine with it because I think in a year or two when rates go back down, I’ll refi and then it’s going to be the greatest deal ever.

Eric:
That was one of the pivotal moments for me as an investor is when I got less concerned about what I was paying in relation to asking price and what I was paying in relation to the value.

David:
So true.

Eric:
And it’s one of the things that gets in investors’ ways, I’m not paying over list. Well, who cares what list is, what’s the value of the property?

David:
Yes.

Eric:
And can I make money out of it? Is it a reasonable deal? Does the deal make sense? I mean, it took me years to get past that where someone would say I need highest and best and I’m like, screw you.

David:
You know what’s funny, Eric? That you’re saying it took years to get past that, but in the car world, nobody pays sticker price.

Eric:
Well, the last two years they have. They’ve been charging 25 grand over sticker. Back in the day, 2018, you had to sell a house.

David:
You had to work.

Eric:
In order to be a list agent and get multiple offers, you had to price it really well. So I actually would get annoyed when people would put up, I had 17 offers in two days. It’s like, dude, you didn’t do that. Tell me what you did to negotiate those seven offers and find the one that delivered the most value to the seller and how you got it to close on time. Don’t tell me about the offers because none of that credit really belongs with us.

David:
Or house sold in two days. That’s like yeah, it popped up on Zillow, everybody was looking for it. You didn’t do anything special.

Eric:
We didn’t have anything to do with that. If you literally were active in real estate the last two years, you could make money in spite of yourself. It was really hard to get a deal, it was super easy to sell it. We’ve seen 180 degrees now. It’s getting easier already today to get a deal. I know when I go to sellers’ houses, it used to be I’m getting five other offers a year ago, now it’s like, I hope you guys can help me.
But then once I get the deal, I got to work like a dog to go out and find somebody that’s crazy enough to buy it with interest rates at 7.5%, and it’s got to be a good deal. They’re going, you know what? If I brought it to Rob and I was like, Rob, you want to buy this? He’ll go, yeah, I’ll buy it. I don’t care what the rates are, but it better be a good deal.

Rob:
Yeah, a hundred percent. I mean, it has to work, right?

Eric:
Yeah.

Rob:
So Eric, tell me this because I know that you said that you’re selling directly to sellers. How are you actually marketing to get sellers, A, into your system, and what is your deal flow process even looking like at the moment because I know there’s a lot changing right now?

Eric:
Mail’s our number one. It’s the thing that we spend the most on. It generates the most leads. And my average profit per transaction is the highest off of television. Then direct mail, PPC. We stopped doing cold calling. I’ve been fighting that battle for three years. I just finally threw my hands up and said, no one likes to get a cold call, no one likes to do a cold call, we’re just going to stop it. But we have a fair amount of success with texting and we’ve been able to operate inside of compliance.
So that’s generally where we spend the majority of our marketing dollars and we generate about 320 to 350, what I call net leads a month. Inside of our funnel, we expect to make same day contact or live answer with those people around 90%. 65% of those people, we expect to get an appointment with. 90% of those appointments we expect to confirm and show the day of the appointment. And then we look to achieve minimum of 25% contract at appointment. We do all in-person appointments.
So that generally nets when you go through that funnel, would have net us, from net lead to contracts, about 10%. So our goal is to write about 40 contracts a month and I’ll close 32 to 35 of those. You’ll have some fallout, some title issues, seller change their mind, deals that don’t work for one reason or another and ends up getting released. So gross 40 contracts, close 32 to 35.

Rob:
All right. So let me ask you a couple questions here because I think a lot of people are going to have … The way you’ve described it makes perfect sense, funnel marketing 101, but when you say you’re getting a lead at that very top of the funnel, what is the ideal scenario that happens with that lead? You put, let’s say a TV commercial, you do all the process you just talked about. That lead, what are they doing? Are they getting to you to buy one of your homes that you already have listed and ready to rock? Are you wholesaling it to them? What’s the final product that they’re getting when they connect to your company?

Eric:
Sorry. Sellers or buyers?

Rob:
Well, I mean just in regards to your specific business, what is the final output of your funnel?

Eric:
Yeah, so now … And I learned this through some of the data aggregates that we work with. Shout out Audantic, they run a bunch of our data sets for us. You know who buys the most property as an investor in every market all across the country? What demographic of investor buys the most inventory? First time investor. It just so happens they pay the most.
So the largest volume of homes are sold to a first time investor in every market and they actually pay the highest percentage of “value,” however you calculate that. They pay the most money and they buy the most. But what does everybody teach you about wholesale when you’re going to go out and try and sell the property? Pull a buyer’s list. Where does your buyer’s list come from? Someone that’s already bought a property in that area, in that zip code or in that school district in the last 12 months. Well, the guy that’s buying their first investment property is not on a list anywhere.

David:
That’s true. You got to go find them.

Eric:
Right? So you got to look at, what we found is, it’s called a DINK. Dual income, no kids between a certain age that makes a certain amount of income is the most logical person to buy their first investment property. And then on the back half of it, there’s people that are more between my age, 45 to 60, that are at the tail end of their professional career, are looking at their 401k and going, that’s not going to cut it.
So now they’re looking to start to produce tax savings. They’re tired of paying Uncle Sam. So if they get a rental property and they depreciate it, it’s going to chip away at their tax bill. If they put enough of these properties at the age of 45 into a portfolio, 15 years from now they could have $2 million in equity that the tenant paid down for them.
So what you have to do is get a data set for predictive analytics for potential investors because they’re going to buy the property at a high enough price that you can get it under contract with the seller and still exit that property and make a reasonable profit.
The problem most people have is they’re locking up deals today at 2021 prices and buyers are paying 2023 prices or what they think they’re going to be. Sellers are still operating on the misconception that we’re still in a market that we were seven months ago, and buyers are forecasting how bad it can get six months down the road. So sellers still want a little bit too much, and buyers are willing to pay a little bit too little.

Rob:
Well, we’re always willing to pay a little too little.

David:
Well, that sums up the market in general, and it also has to do with understanding that in the business, you have to pivot. You cannot just copy a blueprint that you saw other people do and say it works when everything is going great. You learned this lesson when 2006 became 2008. You learned you had to pivot. Now what you’re describing are techniques that people have to use to pivot. It is easier to buy something than it was, it is harder to sell it the last, God, like eight years.
If you’re a real estate agent, getting a listing was incredibly difficult. Finding a buyer client was incredibly easy. And then getting that buyer into contract was hell and selling your listing was the best thing ever. It’s changed. Sometimes now we’re like yeah, give me some buyers that are willing to buy something. I don’t want another listing because like you said, sellers have the idea in their head that their house is worth what it was at the peak. And with rates doubling or more than doubling in some places, buyers are not going to pay that.
And there is a problem with communication between those two sides. And that’s how real estate works. And then we have this lag while sellers have to have their expectations adjusted and buyers aren’t going to budge. It gets to the point where the market will reset, we’ll have equilibrium and then boom, something will change, we’ll have another. This could go away very quickly, just rates drop. Imagine how fast all the stuff you’re talking about how, oh, I need five people on the dispo side.

Eric:
Five and a half percent solves all of that crap.

Rob:
Yeah. So Eric, tell us, because you’ve explained funnel marketing really great, I just wish we could do a whole episode on this. I’m very giddy about it because if people just understood the simple, I guess metaphor of hey, it’s a funnel, your customers go from top to bottom, the more you lead them to the bottom of the funnel, the more conversions you have on that final product. That could make so many millionaires out of the listeners if they can just master this.
So now that you’ve talked us through your funnel, obviously you’re getting a lot of leads, can you tell us a little bit about your qualified leads, the distressed ones versus not? And can you explain this seesaw concept that I know that you’ve mastered as well?

Eric:
Yeah. I hate the Q word, qualified. I think most people that do direct to seller have gotten so good at disqualifying sellers, they’re actually able to disqualify qualified sellers now. We’ve been so protective over what we think our version of motivation sounds like, that when a seller calls in, if they don’t say, I’ll take 60% of Zillow, I’m behind all my payments, the house is a wreck, I just want to be done with it in 30 … Literally, I talk to people and they’re like, “Yeah, if they’re not looking to sell in 60 days, we don’t even attend the appointment.”
You know one of the problems with that? When you ask someone, are you looking to sell in the next 60 days? I think a fair amount of those people are actually answering a different question. What they’re answering is, am I ready to move out of this house? And they might be ready to sell today, but they’re not ready to move. Or they don’t know that they can move because you haven’t come out to the house and made them a reasonable offer and help put those pieces to the puzzle together.
So too often we go through this. Here’s what someone has to qualify in order for us to go to an appointment. They’re a decision maker and they’re asking less than 200% of retail. So I could care less about what they ask for the property. I’m more interested in, are you a decision maker and are there any circumstances surrounding your situation that might contribute to you being willing to sell to someone like me at a price that might be a reasonable discount.
And then again, even with that being said, people are like, well, you’re closing percentage might suck. No, we’re historically, year over year, north of 25%. In a whole year, I can’t achieve 30%. But we literally attend any lead that has a pulse and make an offer. Have you ever bought a property, Rob, that you didn’t make an offer on?

Rob:
No.

Eric:
This goes back to the funnel, if you want to buy more homes, what should you do?

Rob:
Make lots of offers.

Eric:
So is turning a “unqualified seller” away contribute to us making more offers or take away from making more offers? It takes away.

Rob:
Yeah, it takes away.

Eric:
So every time you “disqualified” a seller … And I tell you, anybody that’s listening to this, go back and look at your pipeline from six months ago. Do a data scrub and look how many leads that you disqualified six months ago sold to someone at a price you would’ve gladly paid. I bet it’ll make your stomach turn upside down.
So we have this little box of what we believe “motivation” looks like. I would tell you, particularly in higher price point properties, we’re solving first world problems. And I’ll use this analogy. I’ve had a pretty successful business career. Real estate has provided me with some amazing opportunities in regards to income. I barely graduated high school, didn’t go to college. It’s amazing, right?
If I go to Chick-fil-A and I’m waiting in line for seven minutes, I’m in distress. If you came to the back of the line, you’re like, Eric, if you pay double, you can skip the seven-minute wait and we’ll get you your food right away, I’m paying double every time.
But when we have someone that calls in with a property to sell, we look for are they behind on payments? Is it vacant? Do they have issues? When they might have a set of first world problems that we’re not even aware of. Convenience becomes a source of distress for people that aren’t in financial crisis, but we don’t look for that stuff. We disqualify someone if they don’t have visible signs of these five or six points of motivation that we think would historically drive someone to sell us a property.
So to answer your question, the seller’s seesaw for me is, when you look at property conditions, so if on one side of the seesaw is condition and the other side’s motivation, as condition deteriorates, motivation and distress goes up.

Rob:
Nice. Okay, cool.

Eric:
The problem with qualified is we’re making a decision about qualified or unqualified normally after a five-minute phone call, and you’re asking a very high impact question, when do you want to move? What’s the least amount you would take? And we’ve had a very low impact relationship with the seller so far.
So it’d be like the equivalent of going out to a bar or a nightclub walking up to a young lady, buying them one drink and asking them if they want to get married for the rest of their life.

Rob:
It rarely happens.

Eric:
That approach might work for some people, but that’s what it’s like getting a seller on the phone and saying, are you looking to move in the next 30 to 90 days, and what’s the least amount that you would take? You can’t look for high impact transparency from people until you’ve had a high impact conversation with them. And that doesn’t happen in five minutes over the phone when they called you off a postcard. It’s just not. You’re a stranger, they’re not going to be open and honest with you at that point.

Rob:
Yeah, especially if you’re just calling them out of the blue or you’re texting them out of the blue. Why would they let down all their barriers and all their guards to someone that’s just trying to basically, in their mind, swindle them into selling their property. You got to build a little bit of trust.

Eric:
Yeah. So that’s how I look at qualified versus unqualified. It’s just a bad set of terminology in our book because too often we’re … So the other thing I realized is when I started in this business, I did acquisitions and at some point I was managing acquiring properties, managing renovations, selling them. I started to become more selective about the seller appointments I would attend.
So as the owner of the company, we start to become more and more selective about the seller appointments we’ll attend. And then once we hire people, we don’t go back and undo that process to say, hey, I got two acquisitions agents now, the best thing they can do every day is go to a seller’s house, make an offer, and ask them to make a decision.
So we have this buy box for what qualified is, and we’re very strict about what we’ll go to and make an offer and I mean, quite frankly, it costs us tons of opportunities each and every month because we’re over qualifying.

Rob:
So can I ask you this, where do novations fall into your seesaw strategy? Do you think you could just give us a brief explanation of what a novation is?

Eric:
Yeah. So the novation is a wholesale style transaction, but we’re exiting at retail price. So by wholesale, what I’m saying is, we don’t have to put our cash in it, we’re not rehabbing it, we’re not closing on it. So that’s what makes it wholesale style. But we’re able to pay a good bit more for the property because we’re selling to retail buyers.
So if you think about wholesale, I always say we’re looking for a needle in a haystack. It’s that 10% unbalanced seller seesaw. We’re looking for someone with high distress. That normally comes with a property that needs at least a little bit of work, and then once we buy it at a discount, we have to sell it to a cash buyer because an assignment’s not a financable transaction to a retail buyer. You can’t get an FHA loan on an assignment from a wholesaler. It won’t work. It’s not a financable, insurable transaction.
So we have to sell to an investor cash buyer. So we’re buying one needle in a haystack and then we’re going out and trying to sell that needle to another needle in a different haystack. That’s a cash buyer that’s willing to do a bunch of work to a house and then hope that they make a couple bucks versus novations allow you to, now I can actually make something out of the haystack.
How many people do you think call in an average funnel and they have a decent property that they would sell a little bit below retail? A lot.

Rob:
Yeah, I was going to say more than getting the people that are willing to sell for a lot less.

Eric:
And we turn those people away.

Rob:
Yeah.

Eric:
So basically novation means replacement. So general wholesale is I buy a property, I sign my interest in the property to a end user. Novation means replacement, so when we replace our agreement, we alleviate the seasoning, we alleviate the arms length transaction, and now it becomes a financable transaction to the end buyer because I’ve conditionally released my original A to B contract, which now makes it a financable transaction and I can sell it to an FHA, VA, Fannie Freddie borrower, and I can still make my spread in between.

Rob:
Is it a little bit more of a micro, I don’t know, wholesale transaction? Whereas if you’re a typical wholesaler, you’re going to go and find, let’s say something a 100K under, you’re going to sell it to a flipper. They’ll put 50K into it so that they can make a $50,000 profit. Whereas with the novation, it sounds like you’re finding someone, just a regular person, house maybe needs a little bit work. You get a much smaller fee to sell it to another basically buyer, like a normal buyer, not a flipper, and they make a smaller fee.

Eric:
So it’s actually, normally, the fees are more.

Rob:
Oh really?

Eric:
The average novations, we’ve taught it to … I think it’s just shy of 300 people that I’ve taught novations to, our average profit’s $26,000. If you look at normal wholesale profits across the country, most people are between 15 and 20K, because when you sell a property to an investor, they’re looking at how much is my rehab? How much can I sell it for? I got carrying cost. A retail buyer’s not looking at any of that. They’re going, can I afford it? Am I approved for it? How does it compare to the other two homes on the market? If you fit in that sweet spot, they’re going to buy your house.

Rob:
And they may be willing to do some of that work and rehab over time. They’re not super worried about-

Eric:
Yeah. So imagine this, and this is what really pumps up the numbers, is you can still get a deal at wholesale price. And if you understand novations and the contracts and the language and the scripting and the legality of it, you can buy it at wholesale price, get permission from the seller as long as you’ve disclosed your intentions and sell it retail without ever closing on it. You can’t do that in a standard assignment. You can only assign it to another cash buyer that’s going to pay their version of discounted price.
Versus you can get a property under contract at a wholesale price that is in a financable condition and take it to the open market or the MLS and sell to a retail buyer. So now you’re buying it wholesale and exiting it retail. Those spreads are huge.

Rob:
Yeah.

David:
Yep.

Eric:
Then the other. So there’s two opportunities, you can lock up the same deals that you’re buying now at wholesale price, but rather than being handcuffed to a cash investor buyer, once you understand novations, you can take them to the open market and sell it to a retail buyer.
The second way that you can positively impact your profit and your volume is the deals where the seller won’t take your MAO. But let’s imagine, on a house that’s worth 220, this is the value no one talks about in wholesaling. They talk about after repaired value, they talk about rehab, they talk about MAO. When do we ever say what’s it worth in its current condition to a retail buyer? Never, because as a wholesaler, we can’t get to that buyer unless I close on it. Now I need transactional funding. Now I got seasoning.
Some people do wholetail, but wholetail requires you to pay for the property. If you have a property that’s worth 229 in its current condition and the seller will take 200, are any of you locking up that deal currently? Probably not. Because by the time I close on it, I clean it out, I do all that stuff, my $20,000 or $30,000 spread’s now 8 grand and I’ve tied up 200 grand. I’m not doing that.
But with a novation, if it’s worth 230 in its current condition, you can lock it up with the seller for $200,000, which is well more than they’ve got offered by any other investor, take it to the MLS at 229, pay out 4 to 6% commission total, net 220, make a $20,000 profit and give the seller the 200 that they wanted when everybody else offered them probably 140 or 150.

Rob:
Okay. I don’t know, it’s very interesting, it seems like there’s probably a lot less tension in these kind of conversations, whereas maybe sellers are used to, like you said, getting super low balled and then they’re just like, ugh, I’m tired of these low balls. If you come in with a reasonable offer, then they’re like, well, that’s actually not bad, I’ll do it.

Eric:
Yeah, and it goes back to the balance, right? It’s like they’re kind of motivated, they’d prefer to sell this way or a little bit different than what they’re accustomed to with a real estate agent, but they’re going to say things like, Rob, this sounds good, but I’m not going to give it away. David, this sounds good, but I’m in no hurry. That should be a trigger for you to go, this sounds like a good novation opportunity for me.
And if the property’s in good enough condition that you could sell to a retail buyer without a laundry list of inspection repairs, either on an FHA, VA appraisal or a home inspection, that is an ideal novation opportunity. It’s a property that’s in good wholetail condition that you can’t buy at wholesale price and you don’t have to close on it, go through seasoning, funding, all that stuff. You can take it to the retail market, sell to a finance buyer and never have to close on the property.
I call it wholesale 2.0. This should be the new way of doing business. Again, we go out normal wholesale, you’re looking for a needle in a haystack and then you’re selling that needle to another needle in a different haystack. You got to find a super distressed seller that has a house that’s all messed up that’ll sell it to you for 50 cents on the dollar. Then you got to go out and find a cash buyer that’s willing to fix it up and make a couple hundred bucks a month cash flow or to make 25 grand flipping it.
Now you can shop and when you take your deals to the MLS, which is what I mean by the open market, it’s the best buyer’s list in the world. Remember I told you about, if you go back and look, new investors pay the most for real estate. Think about me, the first deal I bought, what did I tell you today? I screwed up. I paid too much because I didn’t understand that there was materials that I had to add into the rehab budget that I got from my contractor.
I was a first time investor. I paid too much because I wanted a deal so bad and I was trying to figure out a way to make it work, which is a bad situation to be in as a buyer, right? The best situation to be in is, it’s not for me. That’s when you get the best deal, when you’re okay saying no. So where do you think most first time real estate investors shop?

Rob:
MLS.

Eric:
MLS. It’s the best buyers list in the world. So this gives you the ability to take your deals to the MLS.

Rob:
I’m going to re-listen to this because there’s just so many nuggets throughout this episode from a masterclass on how to pivot when you’re detecting market changes to really just owning a new space like this or wholesale 2.0. I know the concept’s been around, but I like that you’re calling it 2.0, because with the market changing right now, it makes total sense that this could be a new path for people looking to get into the wholesaling business specifically, because if you’re trying to sell a property to a flipper right now, they’re probably being pretty cautious, is my guess. They’re probably not going to be taking the same deals they were three months ago, whereas going direct to seller, which is the greatest buying pool right now, it’s like yeah, it seems like a good opportunity.

David:
And the seller hasn’t really had that come-to-Jesus moment where they recognize, oh, my house isn’t worth it.

Eric:
I think it’s just now starting to sink in. We bought two homes this week in pre foreclosure. I haven’t bought another property in pre foreclosure in 18 months. They didn’t have to sell it to us. They could take it to the market, it would sell. They weren’t getting foreclosed on. You couldn’t even start foreclosures until, I don’t know, 6 or 12 months ago. You couldn’t even start the process because of COVID. Some of that’s catching up to people right now. The options have been reduced a little bit versus what they were six months ago. So we’re at the onset of sellers starting to come back to planet Earth.

David:
And as long as rates stay somewhat stable, we’ll find this equilibrium. The problem is they freaking tinker with it so much that every time you start to think the kid’s ready for bed, somebody gives them sugar and then they’re bouncing off the walls again.

Eric:
I think even if they just stop raising rates and everybody would just sink into the reality that 7% is a good number, you’d see buyer confidence go back up.

David:
Yeah, we need stability. People don’t like when they don’t know, is the car going to be worth 50 grand or 20 grand? Nobody wants to buy when they don’t know what’s happening. It’s a great point, Eric.
All right. Well, this has been a fantastic show. I’ve thoroughly enjoyed hearing your insights on what’s going on and more than just your insights, but practical applications of how to take this information about the changing market and apply it to the offers you’re writing, the way you’re having conversations with sellers, the people that you’re hiring, how you’re structuring your business, and how to pivot when these things hit.

Rob:
Eric, if people want to learn more about you and your business and what you have to offer and all that good stuff, where can people learn more about you?

Eric:
So the best place to find me, if you want to follow me on Instagram is Eric Brewer Invest on Instagram. If you want to learn more about novations, you can go to brewermethod.com.

Rob:
Awesome, man. Thanks.

Eric:
Thank you.

David:
We’re going to let you get out of here because we would talk to you all day long and we could probably turn this into two or three shows. I thought it was a fantastic time. But thank you very much for sharing what’s going on in your world and your business.

Eric:
I appreciate you having me.

David:
This is David Greene for Rob Pivot, Pivot-

Rob:
Pivot!

David:
… Pivot Abasolo signing off.

Ashley :
This is Real Estate Rookie episode 243.

Mark :
So the first thing that I feel like everybody should be doing on the Airbnb profile, that first line, and this is general copy talk. Everybody talks about the hook in copyright. And the hook is just basically getting someone’s attention so they take action, right? The first line is you should be saying, “Hey, I’m Mark, founder of X.” You can’t put a direct web link in there. Airbnb will spot that. The bots will spot that, but you can get creative. So I always used to put, “Hey, I’m Mark, founder of X. Check out our online reviews. They’re rather good,” or, “They’re really good.”

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

Tony :
And welcome to the Real Estate Rookie podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And this week I want to shout out someone from the rookie audience that goes by the username irissaid, and Iris’s review says, “By far my favorite real estate investing podcast. Ashley always knows how to ask the best questions that a rookie would want to hear, and Tony brings so much advice and knowledge from his own experience. Both have a great chemistry and I love their personality.” So Iris, we appreciate the honest rating and review, and if you haven’t yet, if you’re a listener, you’re part of the rookie audience, please leave us an honest rating or review on Apple Podcasts or whatever platform it is you’re listening to. The more reviews we get, the more folks we can help, and that’s always the goal here.
So Ashley, I’m super excited for today’s episode. Our guest is actually someone that I’d known online for a little while, then he and I actually met at a conference last summer and when I heard him speak, I recognized or I realized there was a big gaping hole in my business. And today’s episode is all about how all investors can fill that big gaping hole that exists in their own businesses as well.

Ashley :
I’ve got to say, Tony, you’re starting out talking about meeting online, meeting him in person, and then a gaping hole. Where is this going?

Tony :
This is for the aftermath.

Ashley :
But isn’t it funny how many people you meet in your network that are from online? Growing up, and especially when there was AIM and AOL, you don’t meet people online. Your parents drilled that into you. You don’t go and meet them in person. And honestly, that’s been some of the best friendships that I’ve connected with and have people in my network is meeting them online, and it’s just so funny how things have changed. And obviously meeting them in a safe, public place or at a conference or something like that.

Tony :
Yeah.

Ashley :
When Tony slides into your DMs and invites you over to his home, it’s probably a spammer. Do not go.

Tony :
Yeah, totally. And yeah, can we just touch on, if anyone’s getting messages from either me or Ashley or Sarah or anyone asking you to… If we just hit you with a, “Hey, how are you?” and then the conversation quickly flows into crypto, just know it’s not us. It’s a scam. But today’s episode is not about getting scammed. Today’s episode is, again, a good buddy of mine, his name is Mark Simpson, and he’s here all to talk about direct booking. And when we talk about direct booking, it’s for all of those folks that are in the short-term and medium-term rental space that rely solely on Airbnb and VRBO to get all of their bookings. And Mark in today’s episode highlights the dangers of doing that as a short-term rental investor and also gives you a really clear framework on how to build your own platform outside of sites like Airbnb and VRBO, and how he’s had millions of dollars worth of bookings come through his websites to help other hosts do the same thing.

Ashley :
And I really don’t know a ton about this, so this was super informational for me. Tony was like a kid at a candy store, word vomiting over everything he was saying and asking really great questions and follow up too, and giving some personal stories about his experience with just bookings through Airbnb. And then the difference between using direct booking and how he’s setting it up. So this is a great episode for short-term rentals. Medium-term rentals, this can even be used for. Or even if you are somebody looking to book a property sometime in the future as to where other places you can go besides Airbnb. And I think with Airbnb making all of these changes recently, maybe it is going to be an advantage to somebody to actually go ahead and start setting up this direct booking site. Mark, welcome to the show. Thank you so much for joining us today on the Real Estate Rookie podcast. Why don’t you go ahead and give us a brief overview of who you are and what you do?

Mark :
Yeah, thank you very much for having me. So my name is Mark Simpson. I founded a company called Boostly back in 2016. As you can tell from this accent, I’m over the pond in the United Kingdom. Born and raised here, born in hospitality, raised in hospitality, which is really weird in this industry. So many people fall into it from other investment strategies or from other careers, but I was born in it. And so ever since I can remember, I’m just so used to having strangers in my house in our family business, which was a bed and breakfast. It was a 14-bedroom bed and breakfast right in the middle of nowhere in the United Kingdom, right in the woods. And that was the appeal. So we had lots of guests coming to stay with us because we were in the middle of nowhere with farm animals. We had highland cows. I don’t know if you’ve ever seen or heard of a highland cow before. Those big cows with horns and shaggy hair.

Ashley :
Oh yeah.

Mark :
That was us. That was us. That was our appeal. And bizarrely, there was a niche of people, there was an army of people who would travel around just to go and visit highland cows. They would come and stay over us just because of them, which was bizarre. But I grew up in this little bed and breakfast. I grew up and I wanted to, in my teenage years, do one thing and one thing only, and that was escape. I wanted to be a soccer player, but there was one problem. I’m crap at playing soccer. So I resorted to coaching soccer and then had an amazing opportunity to come out to America, so that was pretty much 2000 to 2010 coming to America, five months, got my visa, came out, traveled all over the States, coaching it, doing youth development, and then eventually ended up back in England, back in London, fell into sales and marketing for Yelp. It was Quip at the time before they got bought out. And that’s where I learned all about social media, marketing, emails, SEO, you name it.
And then eventually in 2012, my parents, who had had the business about 25, 30 years at this point, they needed one of me or my siblings to come into the business. I was the oldest out of the four, and it was ideal. And I just took all that stuff I learned in London and put it into the business. And for four or five years we just focused on marketing it, taking that offline word of mouth, putting it online. And it worked really well. When TripAdvisor was popular, we got to the top of TripAdvisor in the north of England for most recommended places to stay. Our social media was popping and it just all resulted in 80% year on year of our bookings that came in was from direct. So 20% was Airbnb, 20% was booking.com, 20% was Expedia, 80% of it was direct bookings, and it went really well.
And then in 2016 I started a Facebook group called The Hospitality Community, which is still active and live right now and people come and join it from all over the world. And they were coming in because they were frustrated with Airbnb, booking.com, and they wanted to learn around diary bookings. And that’s literally what I’ve been doing every day since 2016, helping people figure out this whole world of hospitality, guest experience, diary bookings, and which is why we’re here today, so thank you for having me.

Tony :
Yeah, Mark. Super excited to have you, brother. And you just recently posted something, I think in one of the Facebook groups, about a statistic about all of the direct booking websites that you’ve helped create. Do you know what I’m talking about? Would you mind sharing that figure with our listeners?

Mark :
Yeah, so this is really exciting. So for the last four years we’ve been building direct booking websites using WordPress. And for the last four years, I know that these websites work, but it’s just me saying, “Hey, these work, trust me.” And so about two years ago we created a really cool piece of technology where we were able to track every booking that came from one of our websites. And in 2022, so we’re about 11 months in now to 2022, we’ve generated and tracked £2.5 million, which is around about $3 million worth of direct bookings that our websites have generated, which is an amazingly high number. I would love it to be double. My goal is to get that double next year. But it just shows that you can do this yourself. There are ways to making your own bookings and it’s just a case of having the foundations and the blueprint in place to make sure that you’re enabled to do so, which is hopefully what we’ll dig into today.

Tony :
Mark, that’s a tremendous achievement. And I think more and more people need to be aware that… Let me put it this way. In any other business, people spend money on marketing, but in the world of Airbnbs, everyone relies on the platforms to drive all of their revenue. But can you think of any other industry where 90% of the folks in that industry don’t spend anything on marketing? And it just doesn’t exist. And I think the message that you’re driving around really taking ownership of your business and not relying on these platforms is a step that’s often overlooked by a lot of new and seasoned investors in this space.

Mark :
You’re a hundred percent right. I honestly can’t. And I’ve tried and tried and tried, and if anybody knows in the comments, please let me know because I can’t think of any other industry where you can go take a couple of pictures, upload your business to a said listing site and be pretty much guaranteed to generate revenue. And it is a blessing and a curse. And let’s not get it wrong. We’re not here to slate Airbnb. They’ve built a fantastic business model, as did VRBO, which is the Expedia group, as did booking.com, TripAdvisor before them. And they’ve enabled anybody, any rookie, any real estate rookie to get started on the platform, literally throw up a couple of images. And there are specific dates in your calendar, doesn’t matter where your market is, that you know could just sell out five times over because we’re in the industry of making experiences. We’re in the hospitality industry and we create memories.
I say this a lot and I hope that people start to realize this is every booking, there’s a story behind it. So every reservation that you get, whether it’s a staycation or workcation or whatever, there’s a story around it and it’s all about making memories. And so because of that, you can get a lot of bookings very easily from one platform. But the curse is that because it is so easy, and all these spinning plates that you’ve got, it’s very easy to go, well, that’s the market ing sorted. I’ll just leave that to them and you’ll just go, sorted. And then because of that, you are then reliant on one platform, let’s just say Airbnb. And when you are over-reliant, you are then culpable to anything potentially bad happening. And there are so many examples of those bad things happening in literally this year, but over the first three years of this decade at least.

Tony :
So Mark, I’m so glad you mentioned that, that you become reliant, and not just reliant but almost at the mercy of, is probably a better way to say it. And we took a new listing live over the summer. It was an older property we purchased, we rehabbed it, one of my favorite rehabs we’ve ever done. And the property, we listed it, it was doing well. And our fifth review came back as a one star. Not anything I think that we necessarily did, just disgruntled guests, we couldn’t get the review removed, so our rating went from a 5.0 to a 4.3. And when that happened, the bookings just immediately slowed down. And we’ve been fighting and struggling to breathe life back into that listening. And as that was going on, I kept thinking, man, had we just had our own direct booking website, it would’ve been another way to get the revenue coming in.
And when I look at other listings that are doing really, really well, especially in Joshua Tree, because Joshua Tree is a very trendy, Instagramable, social media heavy market, some of the best listings in that market are booked out months and months in advance. And it’s because they’ve built this massive following off of Airbnb and off of VRBO. So they’ve got the big Instagram following, they’ve got their own direct booking website, they’ve got a YouTube channel. They’re doing these other things to drive traffic to their listings outside of just waiting for Airbnb and VRBO to pass those bookings onto them.

Mark :
Yeah, a hundred percent. Again, you’re right. And my goal is to help one million hosts to never have to worry about getting a bad review on Airbnb, never have to worry about the algorithms again. Because when you are so worried about that, you then become reliant on the guest as well. And when a guest books with you via an OTA, you can’t really control who that person is. As much as there is inquiry-only mode, instant book is everything now, and Airbnb force you to go down that route. And because of it, anybody can book. And when that happens, we talk about it a lot when we say customer avatar, and customer avatar is just fancy marketing spiel for your ideal guest. And ideally with the properties that you’ve got, whether it’s in Joshua Tree or Upper State New York or in the Smokies or wherever, you’re going to have your ideal guest. Now, the ideal guest for the area, but also the ideal guest for your property.
And then once you figure out… I talk about it in the book there at Playbook, it’s all about you’ve got to identify, you’ve got to locate and you’ve got to attract. And when you get all of them down, then everything becomes so much easier to the point, like you’re saying, you can build a social media following, your website copy is a hundred percent speaking to your ideal guest. So everybody who walks through the door, it’s an instant five star. You never have to worry about a one or two star coming in. And then you don’t have to worry about it on Airbnb because you are dictated, because that one bad review knocks your ranking down to say 4.3 average, which then means super host is going to be harder to achieve. And every three months, you’re fighting an uphill battle, and this is review five. That’s guest five. That could be potentially five weeks in and you’re thinking, ugh, should I just switch this to a long-term? Should I just forget about this?
And that’s crazy, but that’s the short-ism that you get when you are so reliant on one platform. So yeah, it’s all about putting in that sort of blueprint, those foundations. And this is why I’m really excited to come onto this podcast, because this is where I guess a lot of people are getting started in it and it can feel so overwhelming. So I just wanted to break it down and go, hey, let’s do this, this, this, this, let’s get an actioned and then everything else just becomes so much easier.

Ashley :
Let’s talk about that then. So your software, what is the most important piece to this and how can everything be linked? Okay, so you need to do some marketing, advertising, you need to draw people to it. How are people booking it? How is it tracking? When are days booked, when aren’t they booked? How are people paying for it? How are you taking those common things that make Airbnb and VRBO work so well and then putting it into your own website here in the software?

Mark :
Yeah, a hundred percent. So I talk about never build your house on someone else’s land, but before you build that house you need to have a solid foundation in place. Now, the problem is, and this is the problem, and so many people listening to this or watching this will be able to go, yeah, that’s me. So what happens, property number one, you go and list it on Airbnb, just Airbnb. And then what happens, you’ll maybe get something like Hospitable as a smart messaging tool. Hospitable used to be called SmartBnB. Now it’s changed to Hospitable. But you got SmartBnB or Hospitable because you wanted that smart messaging automated feature that just makes it more automated. And then what you do, you go, well, I’ve got my Airbnb listing. Let me just go and create one of these VRBOs. Let me go create one on there, but I’ve got to link my calendar. So what am I going to do? I’m just going to go grab my Airbnb iCal link and I’m going to paste it into VRBO so I don’t get a double booking.
So then what you’re doing, you’re doing exactly what Airbnb wants you to do and you are building your foundation on the Airbnb land. Instead, what you’ve got to do is you’ve got to hit a hard reset. And what you’ve got to do, first thing, even at property number one, and there’s a lot of people who will push back on this, but I swear by it. You’ve got to go and get, from property number one, a property management software tool. It’s otherwise known as PMS, PMP, and there’s good and bad news. So there’s some fantastic technology available. When I first came back into my family business in 2011, they were using pen and paper and Tippex. It was a mess. We had 14 bedrooms, we had three holiday cottages. The phone would ring, a guest would book in, my dad would forget to take the booking. And then literally I walked home, came in from being a weekend away, my mom was frantically running upstairs, she was stripping and changing her bed and her bedroom because a guest had arrived. My dad forgot to put the booking in. So it was a crazy time.
So by getting his technology, it means that life is so much easier for a newbie in the business. So a property management software tool, fantastic. The problem is, there is 1,140 different solutions around the world. That’s crazy. There’s too much. There’s too choice and it’s just a case of getting overwhelmed. What we have been doing over the last four years is we’ve been creating a blog post on the Boostly website, B-O-O-S-T-L-Y. And on there, what we did is we interviewed 100 hosts and we said, “Right, who are you using for your PMS? What’s the pros? What’s the cons?” And we built out a really cool blog post. It’s probably our most viewed blog post. Just head to boostly.co.uk. You’ll go and find it. So there’s about 14 of the top ones. So go to there, go and pick one. There’s tons of different contenders. You’ve got Hostly, you’ve got Host Away, you’ve got Guestly for Hosts. Hospitable now is classed as a channel manager PMS because they do all that linkage. You’ve got Uplisting. There’s tons of them.
So go and pick one. And once you’ve got the property management software, everything becomes easier because then what you do is you link your Airbnb to the PMS, number one. You can go and link VRBO to the PMS. That’s fantastic. Then you can go get booking.com and anything else they can link to. And the cool thing about that is that instead of you linking it to Airbnb, you’re linking it to your foundation that you’re starting to put in place. So that’s step number one. Everything works off the property management software tool.

Ashley :
Mark, I have a question for Tony real quick actually on that. Tony, which one are you using and what do you recommend?

Tony :
Yeah, the same exact one that Mark recommended. It’s Hospitable. Yeah, we honestly only dabbled with the few options when we first started. It was either Hospitable is a big one, Your Porter was another popular one that some of my friends were using. And then OwnerRez the third one. And OwnerRez I think by far probably is the most powerful tool, but it was also the most complicated to get set up, and as a newbie in the space that just didn’t have the brain power to make that work. And Hospitable at the time offered a good mix of automated messaging along with all the other tools that you want from a channel manager, so that’s the one that we use in our business.

Mark :
The funny story about Hospitable is that they were powered by their community to turn themselves into a PMS and their channel manager for. And I know Pierre and I know Matt really well behind the scenes because with Boostly, what we do now is we partner with all these providers so we can do that trackable booking that we told you about. And for years they were saying to me, “Listen, we’re not a PMS. We’re not a channel manager. It’s our community.” Because they’re going out and saying to everybody, “Oh yeah, I’m with SmartBnB, Hospitable. We’re the channel manager.” And they’re like, “We’re not a channel manager,” but they’ve changed because of that. And this is what I love about that platform. I love it because they are so young and fresh and so they’re able to pivot really quickly. So right now, they’re adding in payments, so Stripe payments.
So again, the reason why you have a PMS, a property management software tool, and if somebody… So say Tony wants to come and stay at my place and he’s like, “Hey, I’ve seen you on Instagram, fantastic. I want a book with you. I want to book direct. How do I book direct?” And you’re like, “Well, I don’t know. I haven’t got any of the systems in place.” But if you’ve got Stripe set up, with Stripe, you can create an invoice, you can create whatever and I can send it to Tony. And you can pay me direct via there, and then you just go on manually, in your own property management software tool, mark it off on the calendar and it’s down as a direct booking, which is lovely. So the second thing to put into place is having a payment gateway.
Now, Stripe is the easiest. There are so many other options and a good buddy of ours, Rafa, I know Rafa is looking at getting into crypto and all those cool things, but Stripe is the easiest. And the one thing I love about Stripe, a couple of Irish boys set it up. They’ve got a history in hospitality. They grew up in a hotel. So I think it’s just a fantastic little easy fit, super low-cost, takes two minutes to get set up and it links into every single good PMS. Yeah, that’s what I will say.

Tony :
I love Stripe. Have you used Stripe at all before, Ashley, for anything?

Ashley :
No, the only thing that I really collect payments from is for the liquor store, but we use a POS system called Corona. Yeah.

Tony :
So we’ve used Stripe in different parts of our business and I love Stripe as well. Super easy to set up. It integrates with a lot of different platforms. The only thing I don’t love about Stripe is that if you have a longer lead time between when you process the payment and when that service or product is actually delivered, Stripe has a tendency to hold a certain percentage of your funds in reserve. So for us, for our events under the Real Estate Robinson and Short-Term Rental Summit, our average ticket is sold between 70 days to 60 days before our event. And when Stripe sees that there’s a long delay between purchase and sale, they hold 10% of all your money in a reserve account in case there are any chargebacks or things like that. So that’s the only thing I don’t like about Stripe. Other than that, it’s a fantastic tool and it does definitely work and integrate with a lot of different platforms.

Mark :
Yeah. That’s the payments down, which is step number two. Should we go onto another biggie, which is another part, which is when I get the biggest pushback on in all of this? Do you want to move on to that one?

Ashley :
Yeah, what is that?

Tony :
And if I can tee it up, because I think this is the question I had for you, Mark, when we first started working together. And was, everyone knows Airbnb. Everyone knows VRBO. No one knows Tony J Robinson’s rentals in Joshua Tree, California. Why would someone go onto my website and book direct where they don’t know me, they don’t know who I am, they don’t know my business, versus going on to a reputable platform like Airbnb or VRBO?

Mark :
And this is a two-parter. And this is mostly, I feel like 90% of the hosts that I speak to, and it’s the problem that we’ve created, but it’s also a thing that Airbnb have created as well. They are fantastic at building brand loyalty. I know not one person who walks around going, “Hey, I just booked a VRBO. I’m a VRBO host.” Well, people walk around saying, “Hey, I booked an Airbnb.” They are Uber in this industry. And as much as I try to stand on my little soapbox here and say, “Don’t do that. Don’t brand Airbnb,” people are doing it, right? And because of that, and this has been done by design. All you have to do is load up YouTube, type in TED Talk and type in Joe Gebbia. He was one of the co-founders of Airbnb. He’s since recently left, but on his TED Talk he spoke about how Airbnb built for trust and it’s been done by design, and this is a hundred percent done from the offset what they wanted to create. Because this is literally, they’ve got millions of people walking around branding their business on a daily basis.
So that’s issue number one. But as a fix, we simply brand our business. So you say if anybody comes up to you at a party or an event or whatever, “Hey, what do you do?” Say, “Oh, I’m a short-term rental host. My business is X,” whatever you want to call X. And by doing that and by keep spreading the word, then you start to build that brand loyalty. You get a domain name that fits, you brand it, whatever that may be. And to answer the question directly, how do you build that trust when a stranger is on your site? There’s two things that you can do. Number one, there’s a software, an accreditation service called I-PRAC. I-PRAC. And my British accent is so dodgy that I’m going to have to spell it for you. So it’s P-R-A-C. So i-prac.com.
They are the world’s leading accreditation software platform tool. And what that means is that when a guest books with you directly, the guest is instantly covered with the I-PRAC guarantee, that if they come to your property and your property is for whatever reason not there, then they will ensure that that guest has got a place to stay. It’s part of the guarantee that you have by joining them. Now, not everybody can join. You have to fill in a form and prove that you say you are. But once you’ve got that verification, they’ve got some fancy technology in the blockchain that means that you get a badge on your website, a badge that you can use on your social channels, even, if you want to, your Airbnb and VRBO listings, but it shows that you’re a proper and true business.
And the second thing is Superhog. So this is guest verification. Now there’s Superhog, there’s Proper, there’s all these different types of insurance that is available. But by having that, when a guest books and a guest verifies who they say they are, your property is uncovered for $5 million. Okay? Now, one of the things that I always get a pushback on this is, well, Airbnb make it easy with AirCover. Now, you’ve always got to remember this. When Airbnb create anything, the main people that they are benefiting is Airbnb. So you’ve got Airbnb dynamic pricing. That covers Airbnb. That benefits them. And it’s the same with AirCover. AirCover is just fancy marketing spiel. And it is there and it is a lot better than what it used to be, and that is being amended to make sure hosts are a little bit more protected.
But there’s some really worrying news that’s coming out with Airbnb and AirCover in when a host puts a claim in, if a host puts, let’s say, five claims in out of 30 bookings, Airbnb are turning around and saying, “Hey, you are using this far too much, naughty Mr. Airbnb host. We’re going to actually pause your listing, cancel your listing and suspend your listing,” which is crazy. But also as well, there’s just other really worrying stories coming out. ‘Cause at the end of the day, what you’ve got to remember is that an insurance company is going to try and get out of X, Y, and Z payments and they’re going to delay the process as much as possible. So what you need to do is you’ve got to make sure you’ve got a third-party coverage that’s going to cover your back as well. Because you don’t want to…
For example, somebody comes to my property, they smash it all up. I then report it to Airbnb. Or even if it’s just a minor breakage. Let’s say they smash the TV. And I am not going to place that claiming at Airbnb until the guest has left the review. Because I’m afraid that if I turn around and go in the review, “One-star review, guest broke the TV, didn’t tell her, da da da da,” then the guest is then going to use that as leverage to then write me a crappy review that means that my algorithm tanks. You are so worried about the review that the guest is going to leave that you’re just going to end up going, “Ah, you know what? It’s only a cracked TV. I can go and get another one of them,” and it shouldn’t be like that. You know what I mean? So by having that third-party coverage, i.e. Superhog, superhog.com, then you’re no longer worried about putting in a claim for things like that.
And so that is the other two things. So you have the I-PRAC for the verification of you as a business, so it gives that extra level of trust. And then you get the Superhog, which is again for the guest verification, so you know the guest who’s coming in, and that means you are covered in your property.

Tony :
Ashley, let me ask you a question. Have you ever booked direct?

Ashley :
No, I haven’t.

Tony :
Neither have I.

Ashley :
I’ve never even booked on VRBO either. I’ve only booked on Airbnb.

Mark :
You’re going to make a British man cry right here.

Ashley :
Mark, a question I have about that stuff is how are those things being paid for? Is this paid on the host side? Is this fee covered on the guest side? How are you getting this much coverage?

Mark :
So with I-PRAC, for example, the host or the business, you pay an agency rate and it’s based over a year. It’s an annual subscription. Let’s just say for example if you were going to sign up for a Netflix subscription for you, it’s the same sort of thing, so you pay that. When it comes to Superhog, it’s actually built into the guest side. And the cool thing is as well, if you use Superhog correctly, it can actually be a revenue generator for you as a business. Because when a guest verifies who they say they are, you can actually end up generating revenue from the insurance company that works alongside Superhog and the guest verification. With Stripe, obviously there is a percentage to pay per booking, but that is a very low percentage in comparison with the commission costs.
And commission costs is something that I think is really important to note, and this is very time-sensitive, because very recently, in the last 48 hours, Airbnb announced that on the platform now they’re going to get rid of cleaner fees, they’re going to get rid of all those things, and they’re just going to have state taxes, whatever those taxes may be. This is to fall in line with booking.com and the Expedia group. Now, there’s definitely something behind this and I would love to think that this is all swings and roundabouts and roses and lovely things that’s all for the good. But booking on Airbnb used to be 3% commission to you, the host. And then they charged the rest of the percentage to a service charge to the guest. Very recently, when they bought Hotel Tonight, it’s their pivot to taking on booking.com and VRBO. 2017, Airbnb had 15% of the whole market. The prediction is, by 2025, they’re going to have 60% of the market. They are not going to just catch up with booking.com and VRBO. They’re going to overtake them massively.
And to do that, what they need to do, they need to get rid of that niggling thing that is in the way and that’s the service charge. So they’ve already started, as soon as you try and connect your Airbnb account to a property management tool, they say, “Hey, you are a professional host. Let’s get rid of that,” and you’re whacked up to 14% commission, right? My worry and my fear, we talk about they’re trying to become the VRBO of the taxi industry. My fear is that they’re trying to become the Amazon of the world where if I sell a product on Amazon, I have to spend up to 60% commission for everything that I sell. It’s crazy. And they dictate everything. I don’t get any data. I don’t even get a name of who buys anything, a book or whatever on Amazon, but I have to go down that route. I don’t have a printing company behind me. I can’t print all these books off, so I have to go through Amazon to do it.
Now, the way that it’s going is that if Airbnb continue to dominate this industry, and we’ve got so many people who are branding themselves as Airbnb businesses, Airbnb could easily turn around in 2025 and go, you know what, Mr. And Mrs. host? This relationship that we’ve got here isn’t fair. We’re generating 80% of your revenue. I feel this 14% commission is not right. Let’s bump that up to 20. Let’s bump it up to 25, 30, 40, 45. We think this is a 50/50 relationship. And you know all this data that you get? The phone number? The name? You’re not going to get that. You’re just going to get this little NFT notification, whatever they’re going to do in the future. You know what I mean? Which is worrying, because then you literally have no way of communicating with your guests. You’ve got no way of potentially generating a repeat booking, a repeat guest, a direct booking.
So we have to start doing these things now. We have to start sucking up a little subscription fee here and there, because if we don’t and we continue to let them dominate the way that they are dominating, then this game’s going to get so much harder. So this is why it’s really important everybody watching this puts us into practice at property number one. Don’t wait until property number 10 or 20.

Ashley :
Something that I did think of, back to that question you asked me, Tony, if I have done a booking off of a direct website, I haven’t, but I’ve done almost word of mouth. So it’s actually very common around here for lake houses that the same families re-rent them every single year, so these people don’t even have any kind of online presence and it’s just word of mouth. But imagine how much further those people could take it if they have these same families that are coming in, they’re putting up a website, those families share it with other families that are going through and they still have no need to be on Airbnb or any other platform too?

Tony :
Ashley, that’s a great point and an example came to mind as you were talking about that, and it’s AutoCamp. Have you heard of AutoCamp?

Ashley :
No, I don’t think so.

Tony :
Mark, have you heard of AutoCamp?

Mark :
No.

Tony :
So AutoCamp, it’s a resort, but instead of it being like a traditional hotel, say, all they offer is Airstreams. And they’re in places like Yosemite. They opened up in Joshua Tree. I think they’re in Utah somewhere. But that idea of doing the whole Airstream thing was really popularized on Airbnb. That’s where a lot of these unique stay started to originate. And AutoCamp took that idea and they said, hey, we’re going to do this at scale, but you actually can’t book an AutoCamp Airstream on Airbnb. You can only book direct through their website. So it’s an interesting model, right? They’re taking something that was popularized by Airbnb, yet they’re saying, if you want to book this, you actually can’t get it from there. You have to come direct to us. And I haven’t seen AutoCamp on Expedia’s website, on booking.com. I only see them direct book. So it’s an interesting thing, right? You can build it out, it just takes a little bit longer.

Ashley :
I opened Airbnb the other day and it went right to… I was viewing it as a guest and I wasn’t in my host account, and this beautiful property popped up and I looked at it and it was somewhat close to me. And I went through their listing and it was like, check us out at this website, follow us on Instagram. And it was their brand and they had four or five other properties and I went and looked them up, I started following them. But do you think there are people out there that are putting their listing up on Airbnb but directing people to their website? I don’t know what Airbnb monitors, but are there people out there saying, “Hey, if you want a 20% discount, go to the website to book directly?” Or…

Mark :
Now you’re making me happy. And this is literally what this book is about. The book I wrote, Playbook, I’ve got 101 tips in there. And one of the things I talk about, and it’s what I talked about on the Bigger Pockets podcast, it was 680. I spoke about how to optimize your listing to drive a guest from Airbnb to your direct booking website. And it is a simple walkthrough, because there are so many cool little checkpoints on your Airbnb listing that you can do so. And it’s not going against any T&Cs. It doesn’t hurt your algorithm in any way, shape or form. And that makes me happy. You made me cry earlier when you’re talking about you’ve never direct booked, but that little story there that’s made me happy.
And the cool thing is about the story about the lake houses, that is a direct booking. It doesn’t have to be on a fancy website. A direct booking is when somebody reaches out to you on the phone, on the email, your website or social medias, just say, “Hey, how do I make a booking?” And the problem is that, as hosts who are so reliant on Airbnb, you get overwhelmed ’cause there’s 101 different things that you could be doing. And so that’s why I put that book together. So when you open it up, just like a playbook, like a coach’s playbook, you open it up and go, right, I need help on social media. Follow it, implement it, you’re sorted. And there are so many case studies, there are so many stories, which makes my world happier because, again, proof is in the pudding. Nearly $3 million worth of direct bookings generated this year. And that’s just tracked. That’s not including phone calls, emails, WhatsApps, social media messages, emails, letters, you name it. That’s things we can’t track, but it is happening.
And the good news is that direct bookings year on year is increasing. So obviously OTAs take up tons of the overall amount of bookings, but direct bookings are increasing as well. COVID has sped that up because there was a point in time, especially in the UK, if you wanted to book in the UK, you couldn’t on Airbnb or booking.com because they shut out the calendar. But there were still people that needed accommodation. I know you’ve just had the amazing and Sarah [inaudible 00:37:37] on talking about medium-term rentals and about how they help place insurance people, displaced people, healthcare workers, et cetera. Those were all needing accommodation in the UK during 2020. They could only book direct. And this is the cool thing is that all it takes is some simple proactive marketing.
The problem in this industry, too many people are reactive. They’re literally sat there waiting for the ping notification on the phone going, “Oh, I’ve got an Airbnb booking.” But instead, you should be being proactive and doing 30 minutes of new business every day. It amazes me how many people, when I say just do 30 minutes of new business, the first thing every business owner should do, not just hospitality, everyone. Doesn’t matter if you’re a PT, hairdresser, first thing you should do, 30 minutes of new business. And people look at me like I’ve asked them to go and run a marathon. They’re just like, I’m not doing that. It’s 30 minutes. It’s like an episode on Netflix. You could do it while watching Netflix, so it’s so easy to do.

Tony :
Mark, I want to talk about the direct bookings increasing, but I want to tie it back to what, Ashley, you had mentioned about the Instagram handles being in the profiles or on the listings. And I think, Mark, tie back to where we initially started this first little conversation was about the trust piece. I feel like if someone can go to your listing on Airbnb and you have your Instagram profile that gives the story of who you are as a host, who you are as a business, and maybe there’s a link in there to your direct booking website, it still builds the trust. And then maybe if they saw you on Airbnb, but now you’ve got this cool Instagram profile and there’s a link in there to go book direct, maybe that does build the trust for them to actually book with you directly.
And the other thing you mentioned, Mark, about the direct bookings increasing, what do you think? I don’t know. Is it getting easier or harder do you think to build that presence of your own direct booking platform? As Airbnb and VRBO gains more popularity, do you think that’s going to make it easier or harder for hosts moving forward to build out their own direct booking platforms?

Mark :
If I have my way, it’s going to be easier. And the whole thing is that we have to start doing something now. It is so easy. The thing is that we make it seem so hard, and when we think it’s hard, we get overwhelmed. We just go, “I’ll just deal with it another day.” And the really cool thing is that your Airbnb profile, so not the listing, but your profile is an untapped real estate of Airbnb that nobody uses. I’ve been onto so many listings, ’cause I do a tons of marketing reviews. So every month in the hospitality community group, I pick one person at random, I do a marketing review. And when I do this review, I look at everything from social media to their listing sites. And I always look at Airbnb and I look at the profile, and so many people in their profile just put, “Hey, I’m Bob.”
It’s like, Bob, calm down. You’ve got 400 characters of description that you can use here to present yourself as a professional business. Now, I love, Tony, yours and Sarah’s. Your Airbnb profile gets straight into that. You explain exactly who you are, why you do it, and then from there, people can go and find out more about you. So the first thing that I feel like everybody should be doing on the Airbnb profile, that first line, and this is general copy talk. Everybody talks about the hook in copyright. And the hook is just basically getting someone’s attention so they take action. The first line is you should be saying, “Hey, I’m Mark, founder of X.” Now, you can’t put a direct web link in there. Airbnb will spot that. The bots will spot that. But you can get creative. So I always used to put, “Hey, I’m Mark, founder of X. Check out our online reviews. They’re rather good,” or, “They’re really good.”
So what’s the first thing that you do? They’re going, “Oh, I’m going to go find these online reviews.” So I’ve given them my name, I’ve given them the business, I’ve told them where I’m located. So if they went and Googled business name and location, the way that Google works, it’s going to show you your business website because it’s there. The keywords are very low. Now, the cool thing that we’re doing at the moment is I’m showing people to put check out our IG, which is Instagram. And then you put the little at symbol and then you put the handle straight afterwards. So everybody now knows what IG means and they know the apps and they’re there. And again, you’ve been driving them from Airbnb, they’re going to have literally… They’ll have the Airbnb app up on the phone and they can instantly then open up the Instagram right next to it and they can come and find you.
And then if you’ve got your Instagram listing optimized, as in a pinned post saying, “Hey, this is how you book.” So it’s being differential and being direct and showing this is how you book, having a pinned post showing it, whether it’s a video or whether it’s a post. And then you’ve got a Linktree in your bio. So many ways we can do this. You’ve just got to start.

Ashley :
Mark. I want to take us to the pricing part of this. So if you’re using Airbnb, they have their pricing tool, it’s like their dynamic pricing, or Price Labs I think is another one where you can integrate it to figure out how much you should charge per night. And I’ll be completely honest, there’s three or four other short-term rentals in the area that I have my Airbnb, so there’s literally no data that comes up when looking at any of these things. Also AirDNA, there’s no data from those, so the easiest way for me is just going on Airbnb and looking what other people are charging. But for somebody who’s in this huge market, how are you able to incorporate this with doing direct bookings? And where is the data being pulled from, I guess, too?

Mark :
Yeah. Well, there’s Price Labs, there’s Wheelhouse, there’s Beyond Pricing. There are so many cool tools available now that wasn’t around when I first got started. This is that my biggest regret as a hospitality owner is that every year when it came to pricing, we would just put the price of a dollar. We had a set price for the whole year, which is mental, but we didn’t want to upset our loyal customers or whatever. Very typical Yorkshire mindset. And if I say Yorkshire mindset to you, you’re going to think what’s he talking about? Anybody who’s been to England, you’ll know what the Yorkshire mindset means. We would just basically just go, right, that’s the price this year. And it’d be a set fee of £80 a night, which is madness. But now with pricing tools, we have got access to the technology that was only available to the Las Vegas casinos, the Marriotts and whatnot, and it’s available to everybody. Doesn’t matter if it’s property one or property whatever.
And where they get their data from is where everybody gets their data from. From the booking sites, from the listing sights, AirDNA and all that cool stuff. They’ve got access to so much data. And the main thing that I want everybody to take away from this is never, ever, ever, literally slap yourself on the wrist if you ever go onto Airbnb and go, “Oh, I’m going to check out their pricing suggestion. I’m going to see what they suggest I charge,” because they’re only going to benefit one person and one person only, and that’s Airbnb. You need to use this third-party tool, and it’s so cost-effective, it’s so cheap. Whether it’s Price Labs. Wheelhouse is free. You can’t get more cost effective than that. And then you’ve got Beyond as well. There’s loads of cool ones.
And you’ve got to take it with a pinch of salt, so do your research on that. I always say to everybody in the Boostly community, go and get active on Price Labs. Go get a listing on Wheelhouse, go get a listing on Beyond, and use it as a guide. Don’t use it as the be all and end all. Yes, you can set your price rule sets, et cetera. But Ashley, for your scenario, it’s literally a case of going on, look at what everybody else is charging, and then look at what you offer as well and go, right, well I’m going to charge this because I know that I can charge this because I offer an extra whatever that may be. The amenity may be a hot tub, it may be whatever. Whatever it may be.
And then you use it as a guideline. You’re not going to have a set price throughout the year because there’s going to be set dates in your calendar that you know could sell free or four or five times over, because that will go up or down. Now, the more you go down this rabbit hole, yes, you can then pay Price Labs, Wheelhouse, Beyond for their pro services that does this all automatically and you literally don’t have to worry about it, or you can do a combination of the two. But the main thing is, never, ever, ever use Airbnb’s suggestion because it’s only going to benefit one person and one person only.

Tony :
So Mark, Airbnb’s goal is to make their pricing as competitive as possible. And the way that they want to really scale their business isn’t necessarily by getting hosts to charge more. It’s by increasing the supply of hosts on the platform. If they have a larger inventory of available listings, that’s how Airbnb continues to scale. Or to your point earlier, Mark, maybe it’s now they’re charging the host a little bit more for being on the platform, but their goal is to always be super competitive when it comes to pricing. So if you listen to what they’re suggesting, you will always, always, always price yourself lower than what people are actually willing to pay.

Mark :
Do you want to hear what my Airbnb prediction is for next year or maybe the year after?

Tony :
Yeah.

Ashley :
We would love to.

Mark :
I don’t know if you’ve watched this, but have you checked out the Spotify Netflix series?

Tony :
No.

Mark :
If not, go and check it out. It was created in Sweden, but it was dubbed in English and it was really interesting ’cause it told a six-part story from every single angle, from the founder to the CTO to the coder to the artist. And one thing, I think it’s episode five, that was really controversial, is when Spotify wanted to charge an extra commission to the artist to get their song appearing higher on the list. All right? Now, let’s bring this back to hospitality. Booking.com have done this for years, so you pay a flat 15% fee, but if you want to get an extra boost in your listing visibility, you then up that commission from 15% to 18% to 20%. With everything that’s been happening very recently, they are moving towards that model. I can pretty much foresee it in my mystical meg ball, and I hope to pin this and come back to this when they do it and go, “Told you so.”
Airbnb will turn around and go, “Hey, Mr. host. At the moment our algorithm is based off price, review and availability.” They don’t care about Super Host by the way. Everybody, every quarter who puts up that little super host badge saying, “Hey, I’m a super host,” guess what that’s doing? That’s branding Airbnb on your social media channels. It’s genius branding, and it does one thing or one thing only. And I’ve got this set post I put out every three months and saying, “Super Host means nothing,” right? And they all come back to me saying, “Well, it means I get more visibility on their platform.” No it doesn’t. They care about price, they care about reviews and availability.
And there’s going to be a case and point in time where everybody’s got the same price, the same reviews, the same availability. So then they’re going to go, “Well, Mr. host, Mrs. host, how can you get more visibility on our site? You are struggling with bookings. Here’s what you can do. It’s called Airbnb visibility boost. Let’s knock that 14% up to 20% and we’ll whack you up here.” And that’s what’s coming. And it just makes so much financial sense for them because they know the hosts that are desperate, the hosts that just rely on one platform will pay for extra commission to get that booking. Now, that is a bad thing. So this is why you’ve got to start doing all of this now. Go and get the playbook, put it all into practice, and you’ll never have to worry about an Airbnb algorithm change again. You’ll literally go, “Oh, that’s cute. Let me now go back to running my business and I’ll just [inaudible 00:48:45] because that’s just a nice little change, so…”

Ashley :
It’s like social media. If you have a huge Instagram following, and then all of a sudden social media goes down, you have no way of reaching your platform, all your followers, the people that you engage with, and it’s just gone. Instagram controls all that. The same with Facebook or Snapchat or any of those. And that’s why it’s so important to create… The most common thing I see is create an email list so that if one of those programs go down, that software, then it’s creating that email list that you have it, so capturing emails from people, giving away free stuff or whatever that is. And having your own website too, and being able to reach people in a more way you can control.

Mark :
Can I give you a Boostly top tip for 2023?

Ashley :
Yes, please.

Mark :
Which you’ll all love. So there’s a company called Stayfi, and again, my British accent is awful, so I’ll spell it. It’s S-T-A-Y-F-I. Now, this is not my company. I’m not affiliated by them. I just love them. And what they do, and the best way of describing what they do is when was the last time you were in a Starbucks or an airport or a Marriott? If you wanted to use their Wi-Fi, what did you have to do? You had to give up your email address to use the wifi. And I’ve been talking about building an email list since 2016. I bang on about it and there’s so many pluses to it, but Stayfi is fantastic because there’s been nothing for the short-term rental industry. I dabbled with something in 2014. It wasn’t ready. Stayfi now makes it ready.
So when you get a guest come and stay at one of your properties, and if you’ve got a larger property that sleeps, let’s say, 12 to 14 people, if you’re doing it right, you’ll get the guest’s, booker’s information: name, email, phone number. And there’s so many other ways of doing it, right? But this is the cool thing is that you don’t just get the booker’s information, you get everybody in the party’s information. ‘Cause to use the Wi-Fi, they have to give up their email, and they readily do it because everybody wants Wi-Fi. Everybody wants their Wi-Fi. So you’ve got 14 people. Now just imagine that the guest booker, he’s booked it for a friends and families meetup. That guest is never going to go back to Tennessee again. He’s never going to go back to Gatlinburg or wherever it may be. But that doesn’t mean that somebody else in the party.
And by getting all those 14 guests’ data, if you do this regularly, do it over a year, you can easily get a thousand emails. Now the cool thing about what Stayfi are doing next year is that they are building an email CRM, but they’re also building in text messaging and they’re building templates and automation that just makes it so easy to collect but also then distribute and use. So as a prime example-

Tony :
Even if there aren’t going back to Tennessee, if you have properties in other places, if you have properties in multiple markets, now you’re able to market those other options in them. And if they enjoyed their stay with you in City A, there’s a good chance they’ll enjoy that stay with you in City B.

Mark :
And that’s called Building a brand. Yeah, building a business. That is it.

Ashley :
Yeah. I actually just pulled it up real quick, and it’s so easy. They send you a device, you plug it into the router and then when the people try to sign into the Wi-Fi, they just put in their information. It’s very easy. Why not do it?

Tony :
So Mark, you’ve been fantastic by the way, and every time we chat I always learn a little something new, man. So I’m glad we got to share your vast knowledge with the rookie audience here. So I want to start to wrap things up, I want to move into our rookie exam. These are the three most important questions that we ask every single guest that comes on to the show, so we’ll jump right in. Question number one, Mark. What is one actionable thing a rookie should do after listening to your episode?

Mark :
First thing everybody should do is go and check out property management software tools. And I don’t care if you’re at property one or property three. Just go and implement it in your business right now. PMS. Go get that.

Ashley :
So the next question is, and we might already know the answer to this, what is one tool, software, app or system in your business that you use?

Mark :
I’m going to say obviously PMS, but also as well what I have built with the family business, which was The Granary, and also Boostly, is a really good email marketing software tool. I use MailChimp and it’s fantastic. M-A-I-L-C-H-I-M-P. And it’s free. It’s free to use for the first 2000 subscribers, and it’s that place where you start to build that list. So important to do, so please do it soon.

Tony :
All right, Mark. Last question. Where do you plan on being, or where do you plan on Boostly being five years from now?

Mark :
Everywhere. Yeah, I want to continue just making sure that Boostly is visible to all. Doesn’t matter how you take in content, whether it’s blogs, whether it’s books, whether it’s Audible, audio, whether it’s video. I just want to make sure that Boostly is everywhere, because if I can help, my big goal is to help one million hosts cut down on their reliance on Airbnb. And that means that I need to make sure that it is visible everywhere. It doesn’t matter how people take in content on all the platforms. So yeah, it’s just continually striving to make sure we are everywhere.

Ashley :
So Mark, for our next segment, we usually highlight a rookie rockstar, but we wanted to switch it up this week. And we want to ask you, what is your advice for somebody who they’re just starting out in their journey and they want to become a rockstar in 2023? You as an entrepreneur obviously have become successful. You’ve got your hands in many things to put together these websites. What kind of advice would you give to somebody who has identified what they want to do, how they can actually take action and become that rookie rockstar?

Mark :
So I’m going to give the same advice that somebody gave to me in 2016, and that’s imperfect action applied at speed is the key to success. So many businesses are destroyed on procrastination. So imperfect action applied at speed is the key to success.

Ashley :
That’s great. I like that. Well Mark, thank you so much for joining us this week. Can you let everyone know where they can reach out to you and find out some more information about you?

Mark :
So the best place and the only place is this one. It’s The Book Direct Playbook. Go and find it. Audible, Amazon, wherever it may be. Go and find it. And once you get that, you get access to my Instagram, you get access to a course and all that cool stuff. So go and grab that. Come and say hi. I do love an Instagram DM, so come and say hi in the DMs and if you’ve got any questions at all, just throw them at me and we’ll see how we can help.

Ashley :
And I know you guys love to slide into people’s DMs, so make sure you guys follow Mark on Instagram. What’s your Instagram handle, Mark?

Mark :
It’s @boostlyuk, B-O-O-S-T-L-Y-U-K.

Ashley :
Well, thank you guys so much for joining us. I’m Ashley at Welcome Rentals and he’s Tony at Tony J. Robinson, and we will be back on Saturday with a rookie reply.

Here are some weird but important facts. 

My friend and marketing expert, Perry Marshall, pointed this out:

• Plans for construction of the Empire State Building started in a boom time, 1929. It was completed in a bust, the Great Depression, in 1931.
• The Willis Tower started construction during a boom in 1970. It was completed in a bust, the energy crisis of 1973. 
• The Petronas Towers started in the boom time of the 1990s. They were completed just before the dot-com bust of the early 2000s. 
• The Burj Khalifa broke ground in 2004. It was completed in the worst financial crisis since The Great Depression, in 2009.

What do these buildings share in common? They’ve all been the world’s tallest buildings at some point. Coincidence? I don’t think so. In fact, there was an entire study done on this in 2008 and an Investopedia definition to boot.

Right now, most of the world’s large skyscrapers are set to be built in China. It just so happens that China’s economy has had the fastest GDP growth of all major nations over the past few years. It’s also potentially heading for a serious downfall in the coming years. Coincidence again? Nope.

People make big expansion plans when things are going well. They contract their plans, cancel, and downsize when things are going poorly. But as real estate investors, you should do the exact opposite. 

A lot of investors are going to make disastrous moves in the next 2-3 years. In chaotic economic times, that’s what happens because most investors don’t really get how economic cycles work and how to take advantage of them. Most importantly, many don’t know how to avoid making foolish decisions that can tank their portfolios. 

If investors don’t understand these cycles, we can’t possibly make the best strategic decisions about how, when, and where to invest.

Hedge fund manager Howard Marks wrote an outstanding book, Mastering the Market Cycle – Getting the Odds on Your Side. I recommend you pick it up. 

But until then, I recommend you internalize one of his most important concepts: The worst of deals are made during the best of times. And the best of deals are made during the worst of times. 

Are we entering the worst of times? I can’t say. I won’t predict the future. However, I can see signs of a massive contraction in the real estate investing realm all around me. You can see them, too. Credit markets are tightening, price growth is falling drastically in several of the boom markets of the pandemic, interest rates in the multifamily space are surpassing cap rates, large firms are constantly changing their price forecasts for the worse, and consumer confidence is way down.

Things sound rough. But I encourage you to keep your head on straight and prepare for opportunities. Investments you may not find when everything is rosy and all signs are pointing up. 

Investing With A Downturn In Mind

I’ve been to several recent conferences, and I’ve been on dozens of investor calls. It’s funny. I’m getting the same question everywhere: “How are you investing differently in light of the current economy?” 

I don’t mean to sound snooty in reply, but I say something like: “No different at all. Smart real estate investors always invest with a downturn in mind.”

What steps can investors take in good times and bad to invest with a downturn in mind?

• Invest in a diversified portfolio of recession-resistant asset types. 
• Perform rigorous due diligence and say no to almost every opportunity you review.
• Set up a system to acquire off-market deals from (typically) mom-and-pop operators.
• Conservatively underwrite your assets and look for what can go wrong more than what will go right.
• Structure your deals with conservative, fixed, long-term debt.
• Look for hidden intrinsic value and execute proven strategies to raise both income and asset value, creating a wider margin of safety between debt and income.
• Plan to hold for the long haul. Then wait for the ideal time to market your portfolio to the right buyer. These are sometimes institutional investors who pay a premium for their stabilized assets or portfolio. 

In all fairness, I’m a commercial real estate fund manager. I have a particular bias toward what we do best. You should modify these answers to best fit your situation.

Conclusion

So how does this apply to your situation? As I said, my niche is diversified commercial real estate. While I love what we do and believe in it with all my heart, you are likely in a different situation. But I believe these boom and bust principles should apply to whatever you’re doing. 

So how are you investing with a downturn in mind? Are you investing differently now, given the looming economic contraction? Are you prepared to make “the best of deals” in any upcoming “worst of times?” I know I am.

Run Your Numbers Like a Pro!

Deal analysis is one of the first and most critical steps of real estate investing. Maximize your confidence in each deal with this first-ever ultimate guide to deal analysis. Real Estate by the Numbers makes real estate math easy, and makes real estate success inevitable.

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

David:
This is the BiggerPockets Podcast show 700.

Rob Dyrdek:
The first thing that I did is I began to look at my life as this ongoing daily, weekly, monthly and yearly rhythm and I began to design my time, right? It eventually scaled to the point today where I track every bit of my time and tag it and it pumps into a dashboard so I could tell you exactly where I spend every single hour of my life over the last three years.

David:
What’s going on everyone? This is David Greene, your host of The BiggerPockets Podcast here today with a special edition, our 700th podcast here today with my lovely co-host Rob Abasolo. Rob, how are you today?

Rob Abasolo:
Wow, man, I can’t believe, you and I, we’ve sat behind this microphone 700 times. It’s just crazy, man. It feels like I’ve only been doing this for a year.

David:
Yeah, but with you, a year flies by so fast it’s like it’s only been 11 months.

Rob Abasolo:
That’s right.

David:
Well, the cat’s out of the bag. There’s no shock who our guest is today unless you’ve been living under a rock you’ve seen. We have Rob Dyrdek of MTV’s Ridiculousness, Rob & Big, top skateboarder in the world, business entrepreneur venture, owner of Outstanding Foods, a whole bunch of other stuff that we would use the whole episode if we talked about all of Rob’s accomplishments. And he is here today to talk with us about real estate, wealth building and more importantly, tracking your quality of life. Today’s show is nothing less than stellar epic really. You definitely want to listen all the way to the end because Rob’s last little, I don’t know what you want to call that, his grand finale is an absolute mic dropper.

Rob Abasolo:
His magnum opus.

David:
The magnum opus, that’s exactly what it was. He left us speechless. And I’m just humbled that Rob was here to share so much of what’s going on in his personal life, his philosophy for how he attacks life. He really pulls back the curtain and shares things that most people wouldn’t do. It’s very easy to let yourself just be seen as an incredibly successful person who never struggles with anything. And Rob is very, very humble and transparent and it was a joy to be able to interview. What were some of your favorite parts, Rob?

Rob Abasolo:
Man, just a master, honestly. It’s cool because a lot of people think when you’re super successful and wealthy and you’re crushing it, that you’re just good at this stuff. You’re just naturally born this way. And he actually talks about how when he first started, he knew nothing and he failed. He actually started a bunch of companies. They were making money then not breaking even, then he shut them down. And through all that, he kind of became this master business man, but it didn’t always start out that way. And that’s what I really like about this, is that it’s just honest. It’s a honest look at a true genius.

David:
Yeah, he’s one of those people that doesn’t stumble through life just hoping he figures it out. If life has passed him anything, he’s dissected it, analyzed it, understood it, and then tweaked it and replicated it to a huge level, which is why he’s been able to have so much success with his business ventures, the Dyrdek Machine, all of his production endeavors that he’s put out there, as well as the system he’s come up with that he shares today.

David:
Before we bring Rob in, we have a brief quick tip for you. I just want to ask you a question. What are you tracking? I talked a little bit in this episode about an epiphany I recently had with tracking and the work I’m putting together for BiggerPockets to help you be more successful by utilizing this incredibly powerful force. And Rob expands on that and really hammers it home. So as you listen to the show, you’re going to get exposed to this concept of tracking. And you’re also going to hear Rob Abasolo talk about why he doesn’t do it, which I bet many of you, including he, can relate to. So make sure you ask yourself that question, “What am I tracking and what matters to me?” as you’re listening to today’s show. All right, let’s get to Rob.

David:
Rob Dyrdek, welcome to the BiggerPockets Podcast. It’s great to finally have you here. You’ve been on my wishlist and you came in just in time for Christmas, so thank you for that.

Rob Dyrdek:
No, hey, thank you for having me and making me feel honored and feel like a gift. Thank you for making me feel like a gift.

David:
Well, thank you for being the gift that you are for anybody who’s had insomnia, wasn’t able to sleep, maybe ate too much food and was struggling with some acid reflux, Ridiculous has been there for all of us. And I don’t know how you’ve taken America’s Funniest Home Videos, rebranded it, made it cool and kept it fresh and exciting for as long as you have. So first off, just props for being able to take a show that’s pretty simple and just keeping it cool all the time.

David:
But we’re not here to talk about Ridiculousness. You’ve done so much more than almost every human being on the planet has any idea you’ve accomplished. And that’s what I really want to get into today, is what’s going on in that head of yours, what are you doing, what are some of the things you’ve learned, because I know that’s going to benefit all of us. So let’s start with your journey if you don’t mind sharing us. What was your early days of your entrepreneurial journey like? How did you get into business making money and kind of taking charge of your own life?

Rob Dyrdek:
I like to say I was raised by entrepreneur wolves, right? Because the first move I made at 11 years old is I called the local skate shop that had a ramp in the back that you had to pay to skate. They were having a contest and I said, “If I got 10 people to pay and skate, would you let me skate for free because I didn’t have any money.” And they were like, “What? This is ridiculous. Just come down here, we’ll let you skate.” And so when I skated that ramp, I was able to skate that ramp so good at such an early age that they were telling me I had so much potential and I didn’t even know what the word meant. They sponsored me based off of that very first time when I was 11 years old and went to the skate shop.

Rob Dyrdek:
Now, the person who owned that skate shop was a guy by the name of Jimmy George who was a 19 year old serial entrepreneur. And so not only did I watch him run that skate shop, but then he built a distribution company. Then I started watching him build clothing companies and other retail stuff and then the other influential skaters in Dayton started to build companies. So for me, I just looked at building a company was part of my natural path and that’s what I would do also on top of being a professional skateboarder. So I quit high school, turned pro at 16, moved to California and then started my first company when I was 17. So that’s sort of like what sort raised my mind, if you will, in sort the entrepreneurial mindset in the early nineties when it really wasn’t something that was more broad as it is today.

David:
Yeah, I believe that you talked your parents into letting you drop out of school so you could go become a professional skateboarder as well, right?

Rob Dyrdek:
Yeah, no. And to this day she’s still mad about it. Look, I’m 48 years old, worth hundreds of millions of dollars and she is still angry, still angry that I was able to talk her into convincing the counselors and my father to let me quit high school. You know what I mean? She’s still mad about it.

Rob Abasolo:
Can you tell us a little bit about how that conversation actually came to life? Did you sit them down at the dinner table? Had they seen the writing on the walls previous to that? Tell us about that day.

Rob Dyrdek:
Yeah, and look, we have two different memories or two different versions of it, me and my mother. The truth is I’ve done a lot and a lot has faded in including the details of that exact process. But really I was building a case of like, hey, I was giving the value of long term, I can always go to college. I will take night classes and get my diploma, have enough credits to graduate because I was only a few credits away. And then it really came down to convincing both this counselor, the principal and my parents that this was going to be the better thing for my future. And at the end of the day, it was pure salesmanship that convinced all of them that, “Well, we might as well let him give it a shot.”

Rob Dyrdek:
And I left. That was my last year of school. And then I immediately went to Europe for the world championships and got fourth place in the world championships in Germany. And it kind of validated it for everybody, “Oh look, he was almost a world champion.” So it was an unusual form of salesmanship at a early age.

David:
Now this is just part of the crazy life that you’ve lived up to this point. You went and became one of the best skateboarders in the entire world. This was really at a time where… I was never a skateboarder so don’t let me say anything incorrectly here, but I don’t remember there being a whole lot of opportunity to learn skating at a high level, right? At one point, basketball was a new sport and there wasn’t really anyone to learn from. Now you’ve got so much basketball, you could be in camps from the time you’re five years old learning how to play the game. So you almost had to go out there and figure out, “How do I get better at skateboarding?” without a ton of examples. At least there wasn’t YouTube videos you’re watching every day like you can right now. Did something happen in your mind that you think led to the entrepreneurial journey as you had to learn how to do something as creative as skateboarding without a whole lot of direction that you could follow? Or do you think this was just something that was in you already?

Rob Dyrdek:
Well, I mean, you got to think about what it is as a sport, right? It’s really about failing over and over and over and continuing to make adjustments until you finally get it. Then it turns from this constant failure and adjusting to actually find success. Then it’s about mastery, right? And it goes a step further. So if you can imagine that process, if I began to apply that to a lot of different areas of my life on top of the fact that now you are in this space where you’re thinking entrepreneurial, you’re always thinking about different angles and different ways for things to, whether that be deals for when I was first developing a designing shoes or even the first company that I created, I always put a lens of creativity into the way that I looked at business and deal making that I think for sure is from sort of the creative outlet and the expression side of what skateboarding gave to me at an early age.

David:
I mean, you were very unique in the sense that you didn’t just focus on your craft of skateboarding. You then said, “Now I want to get into business,” and this is all at a super young age. What were some of those initial early business ventures like for you? And then where did you go? How many businesses did you actually have at one time before you realized it gotten out of hand?

Rob Dyrdek:
Oh, I mean, in that era there was a lot of moving parts in that evolution, but it started at below zero. You’re talking about a guy that didn’t understand money in any way, shape or form. He just left high school, was bad in math. I had no even concept of anything other than if you work really hard and have big ideas and they become successful, then the money will come. That’s really the energy I took into everything. The problem with that is that led to making a lot and losing a lot of money because you were never totally sure what was making something successful, right?

Rob Dyrdek:
So some things you would create with a group or partner or start yourself and they would find success or not work and finding what those through lines were was the thing that was most difficult for me I’d say in my 20s into my 30s because I had record labels and skate shops and I had signature products that were super successful and I had skateboard accessories that I would start. I was doing all of these different companies and some were working and some were not and I was confused by it because I never ever thought of myself of like, “Hey, there’s so much you need to learn.” Instead I just thought you could will your way to being super successful that it really wasn’t about this is this incredible process of learning and what you want to do is guide your evolution to building a skill set of building and creating businesses so that long term you get better and better at it. I didn’t discover that even as a concept until I got into my late 30s.

Rob Abasolo:
Man, yeah, I totally get it, man. When you’re in the trenches of a bunch of different companies, it’s sort of like you see what works, you see what doesn’t, and it’s really hard to just prioritize because you’re just trying to get through the mud. But was there ever a moment in the beginning of all of this, like an aha moment or a light bulb moment where you’re like, “This is working.”? Like, this company right here is working where you really wanted to focus on a specific one?

Rob Dyrdek:
Well, it happened in more of a nuanced way, right? So when I was offered to have a Signature Shoes, a signature pro model, so your own signature shoe, Michael Jordan style, when I was 22 years old from my clothing sponsor, Drawers Clothing was going to create this new company DC shoes. And so they offered me a signature shoe. That signature shoe gave me the opportunity now to make a lot more money that I can invest in a lot of different things. But watching the journey of that shoe company be built from an idea stage to being sold for $100 million was probably the bigger aha moment to me of like, “Wow, there’s actually a cycle here where these guys that were just my friends all just made $30 million.” You know what I mean? Like, “I want to be in the business of building assets that are acquirable” is sort of what my mind began to see when I watched that entire process happened.

Rob Abasolo:
I actually have always wondered this. So you got a shoe, your first shoe, right? Did you ask for 20 pairs of that shoe that you could wear for the rest of your life? Do you still have that first model that ever came out?

Rob Dyrdek:
Look, there is nothing as incredible as having a signature shoe. It is the most incredible. And look, I went on to have 36. I have one of every single pair and almost every single color saved to this day. You know what I mean? It never got old. It’s something that I became quite obsessed with, like just the shoe design process. And even in my journey with DC where I made millions of dollars in my 20s and being entrepreneurial, is I did a deal with DC that like, “Hey, if I design shoes and present them to the sales team and they get chosen, can I get a 2% royalty on that one instead of a 5% royalty that I got on my signature shoes?” And so they said, “Sure, no problem.”

Rob Dyrdek:
And at one point I had a-third of the entire line and 30 different shoes that I was getting paid off of, right? That’s one of the first places that I made a ton of money. But yeah, when you get into the world of creating something on paper that ends up on someone’s foot that you see walking around, it’s really special and you want to make sure you have some keepsakes of your signature shoes.

David:
Now I understand, Rob, you didn’t just have a business, you had several businesses. In fact, it seems like once you realized, “Oh, I know how to make money through business,” it sort of became a whole bunch of new skater tricks that you had thrown into your arsal and you’re just like starting businesses all over the place. I don’t know if that’s an accurate reflection of what it was like, but tell me, did you catch a bug and just started like, “I’m going to do this and I’m going to do that”? Was there a greed component? Was there a fear of missing out component? Was it just so much fun that you just wanted to keep doing it? What was motivating you? And then how many businesses did you have at one time?

Rob Dyrdek:
Well, look, I like to say that I was fueled by the joy of creation, right? I’m a creator and I loved creating all these different things. What I was blind to is creating business requires seeing business multi-dimensionally. And it’s beyond the product and the brand and it’s the operations and the financial side and the leadership side and market side, market timing. There’s all these different aspects that I didn’t fully understand. And I didn’t think I needed to know. I just thought I would keep making cool stuff. That trailed into a lot of different areas, right?

Rob Dyrdek:
As I continued to create, then I created Rob & Big and now had this platform and then I started ROGUE STATUS, a clothing company and had all these multiple signature products. The bigger I created my television platform and saw the impact of that, I began to do partnership deals with all these different brands and Monsters and Red Bulls and Chevys. And then I’ve said, “Well, look at this. I should just create a show that’s just about promoting brands that I create and doing brand partnerships.” And then I wrote the concept Fantasy Factory owned my integration rights. So now not only am I building two or three companies a season and promoting them through the platform, I’m doing multiple brand partnerships with the Chevys and the Monsters and Microsoft and all these different companies and I’m getting paid as talent on the platform.

Rob Dyrdek:
So I really began to see what the potential was of being a multi-platform brand as yourself. And then I launched Street League and Wild Grinders on Nickelodeon. I had just done so many different things that it was almost like I was pulling myself tight where I was doing so many different things in so many different directions, but I was basically breaking even with the cost structure of how the entire integrated universe work together. So I’d be making a ton of money on this thing and losing a ton on this thing. And it really just ended up where I got 12, 15 different companies and two different shows and a professional skateboarding league and a cartoon on Nickelodeon and all these brand deals, but I’m basically breaking even.

Rob Dyrdek:
I think that was really more of the epiphany of like, “You’ve got to put structure to why you’re doing all of this. What is the unified theme in all this? And then what are you learning and growing into on a long term basis?” is what I grew into eventually having as sort of my aha moment in my mid 30s.

David:
One of the issues real estate investors have that I’ve noticed is we tend to focus on metrics like the return on investment, which we usually only look at the cash-on-cash return when we talk about ROI. And because we’re only looking at that number, we forget about all the rest of the investment we’re putting into the opportunity.

David:
So for instance, you can say I bought this property and it makes me an 18% return and all the other investors get jealous because they’re only getting a 6% on theirs. But what isn’t talked about is this is a short-term rental that you’re managing yourself and it’s basically become a full-time job and there’s an energy component where you’re dealing with frustrated people and now you’re in a bad mood and you’re taking it out on your relationship or your kids. You’re not focused on what you’re doing because you’re thinking about what could go wrong. Yeah, your return is higher, but there’s time, there’s energy, there’s emotion, there’s other resources that are going into that deal that because we don’t measure, you don’t factor in to the actual thing and it makes it look like you’re doing much better than you are.

David:
I would imagine in a scenario you just described where there’s this much creativity flowing out of you, time, energy, you’ve created an empire and you’re breaking even and that much mental calories are being expended to do it, that that had to be an aha for you, that like, “What I’m tracking isn’t right because I’ve ended up in this wolf… I got the wolf by the ears sort of scenario here.” That had to have an impact on just the way that you structured your life where you valued things. Am I way off with that or was there a moment that you realized, “I’ve been going about this all wrong”?

Rob Dyrdek:
Yeah, and look, I think it’s a great analogy because I think it is the… I preach like try to build a real estate portfolio where your cash pays for your living expenses, right? It’s this beautiful model to live a very peaceful life and be able to hold your property through cycles and never be over leveraged and these sort of fundamentals of real estate investment. Yet that is the optimism, tip of the spear happy version of saying it because it’s like, “Oh of course, I would love to have passive income and live my whole life just chilling.”

Rob Dyrdek:
And so real estate is a perfect example of like, then they go and buy a building, then the pipe breaks, then the renter stops paying rent. It is utter and complete mayhem that sucks the soul out of you that then you get caught in the wrong end of a market cycle, then basically you can’t afford to take the loss anymore and now you got to get out of it and lose your equity that you’ve spent your whole life saving up to get into it. That is when you don’t understand all of the different layers, if you will, what I like to refer to as everything is multi-dimensional and you’ve got to look at everything in your life as an ROI on energy and time.

Rob Dyrdek:
But to your point, what happened to me in that era is I realized above all I just wasn’t happy. I just wasn’t happy. And it’s like I didn’t know what I was doing all of this for. I had accomplished so much, but what was the end game and what did I even want money for in the first place?

Rob Dyrdek:
I ended up finding a book called Start at the End. It was a business book that essentially said if you want to create a company, you should decide what you want out of that company from the very beginning. If you want to build a company and sell it for 25 million, then you need to know how much revenue you got to create and what it trades at and who’s going to buy it. If you want to create a business that does a million and kicks off 200,000 in profit that you live off of, then you got to build the plan backwards from there. That changed my entire view of not only business but then I turned that back on, “I’m going to treat my life like that.”

Rob Dyrdek:
And so then I decided, “What is happiness to me? What is money to me? What do I want money for? What am I doing all these companies and all these shows for in the first place?” And ultimately I realized it was I love to create and I love to take risks, but I want the sustainability and security that comes along with living this lifestyle that I see for myself. And that’s really when I discovered multifamily real estate as sort of, “Hey, this is the perfect balance for me,” is I need real estate that can create this tax efficient cash flow that I don’t operate by doing it with a group and having great operators.

Rob Dyrdek:
And then my goal is to get that grow that takes no time and energy. Then focus on keeping my expenses low as I grow that portfolio and then taking risks in my own ventures and things that are related more to the Start at the End mentality that I’m going to build to sell. Which in turn took me from breaking even to building a company and selling it for 190 million, having two of the companies that I invested in early stage selling for 200 million, it’s like where it’s just in a short amount of time.

Rob Dyrdek:
This wasn’t like some like, “Hey you did this over 20 years.” I had made a few hundred million dollars from being broken even in less than five years. You know what I mean? That’s the significance of the amount that you can accomplish when you design an entire vision for your whole life and then create pathways and plans to achieve the ideal version of your existence and then go chase it with that energy instead of chasing all these things and not knowing what you’re doing them for.

Rob Abasolo:
Yeah. So there was a moment. Because you had a lot going on, you’re breaking even. Obviously, that ends up catapulting you into a lot more success, but there was a moment there where you had to walk away from a few of these companies, right?

Rob Dyrdek:
Oh, look, literally, in that era, I think I had 13 operating companies at the time and I got rid of all of them. I got rid of all anything that I had. I put all my money to cash and then the only thing that I kept was my professional skateboarding league and then the label that was Superjacket Productions where we hadn’t even built the company yet. You’ll see a lot of times where celebrities have a production company and they have a producing title on their show and it’s just for show. You know what I mean? And that’s what ours was. Superjacket Productions. We produced it, but we didn’t. It was just the name of what me and my partner named the company as executive producers.

Rob Dyrdek:
And then what did I do? I looked at, “Okay with the Start at the End mentality, where’s the opportunity here?” Well it’s actually to build and sell a production company because I have the unfair advantage of having a television show on air, right? So what did I do? I looked at the trade value of a production company. It’s six times EBITDA. “Okay, how do you create EBITDA?” You’ve got to own the production, you’ve got to get margin from the producing the show, finishing the show, editing the show and the music in the show. And then if you have three years at EBITDA, someone will buy you for six times EBITDA. And that literally is the plan that we built. And of course, our goal was to sell that business for 50 million. And now that we had that clarity, we were able to focus how we grew that business and ended up selling it for 190 million.

Rob Abasolo:
Okay, so you have 13 companies that actually they’re sustainable, right? They’re just breaking even and then you’re like, out with the old, in with the new. And so then you go on to create this company. Where’s the real estate aspect landing at this point? Are you doing the real estate stuff concurrently with the production company? When did you actually get into that first deal?

Rob Dyrdek:
Yeah, so 2014 would’ve been the first deal, right? So if 2013 was sort of the discovery and the development of the beginning of the end and then the first deals started happening there, then now I’ve wrangled in my core spending and was continuing to grow my ordinary income and then I was literally just investing in new ventures that had that Start at the End structure and real estate, multi-family syndicated real estate only. I didn’t put one diamond in public equities or anything, like strictly chasing that depreciated cash is where I started back then.

Rob Abasolo:
Oh okay. Cool. And so the syndications, that was sort of appealing to you because it was very passive. So you could still, I imagine, focus on the production company but you still of reap a lot of those tax benefits, right?

Rob Dyrdek:
Well yeah. I mean for me, when you look at it, depending on the operator, you can 1031 exchange them, right? In this era over the last seven years, eight years, there have been significant returns, right? We’re talking 42, 43, 35, big IRRs for this sort of wave that multi-family’s been on. But I’ve always been focused on the cash and driving up the cash. But then along the way I really learned what’s a quality operator, right? How do you leverage? How much do you have in each one of the deals yourself? Are you vertically integrated with your management or do you outsource it in your property management?

Rob Dyrdek:
All these things that lead back to the quality of the actual operator. Have you ever lost a product through the cycle? Have you owned through the cycle of 2008? All these things that I began to see. But the appeal of that is I don’t mind giving up management fees in 20% of the carry because I don’t have to… There’s zero effort in energy. That was what was really the most appealing to me because I had had rental properties when I was younger and it just sucked the soul out of me. Sucked the soul out of me.

Rob Dyrdek:
Man, I remember I’m getting a call that the basement had flooded. We were trying to figure out the basement flooding and then there’s floating to the surface, it’s like eight dead rats. It’s like, “What? Now we’re in the rat game?” It’s that type of energy had always kind of turned me off of real estate. And it was only after I had met somebody as I was laying out, “This is the vision that I have for my life. Where do you see me investing in order to support this vision?” And this individual suggested specifically, “You need to do multifamily and you need to do it in syndication and you need these type of operators.” He guided me there in a pretty significant manner that proved to be the anchor of my core philosophy to this day.

Rob Abasolo:
Sure. sure. So obviously you’ve got some pretty specific viewpoints here on your operators. Are there any nonstarters for you for someone running this indication? Is there something that operators kind of offer to their different LPs that you’re like, “Ugh, I don’t want to be a part of this” or, “This isn’t the deal for me”?

Rob Dyrdek:
Yeah. I mean, look, for me, if you don’t own the management, you’re not vertically integrated with management, that’s where the arbitrage is and the quality of keeping those buildings healthy in my mind. I would never do a deal with somebody that over loan the value beyond 65. You know what I mean? Somebody that would get their initial loan and then try to pull cash out by refinance and now being over leveraged, I would never do anything like that. I would never do a deal with somebody above a 20% carry. A lot of these guys that syndicate now have much higher fees than some of the more experienced operators. So for me that’s sort of how I look at it.

Rob Dyrdek:
But I’ve really found when you are regionalized and then you are vertically integrated from a management perspective, that’s when you can optimize for excellence and you really understand how to keep that building occupied and maximize the rent growth and any value add that can be done on an ongoing basis. To drive that rent growth I think is what’s been more clear to me than anything. What I would never do is somebody that has a deal… I have so many people that approach me that are just early in the game because of riding this new wave that’s been hot for the last decade and will be like, “I got this building. We’re going to build it and sell it and it’s going to do a 27% IRR.” Because in this game everybody’s selling you the IRR all day long because they’re like, “It’s never going to go down.” They’re not even thinking about what would happen if you get clipped in the cycle.

Rob Dyrdek:
And it’s really cool. You know what was beautiful about the pandemic as it relates to this sort of world, is it stress test all the operators that I have buildings with, right? Because in that first couple months when the national average was 30% delinquencies and all the buildings that I were in were at like 5%, that gave you a real clear indication of the quality of those operators and the quality of the product if you will versus some of the other people that were holding on for dear life in that first four or five months of the pandemic there before obviously the stimulus kicked in and everything sort of gave us a double bubble, really a triple bubble, gave us a triple bubble kind of where we’re sitting at right now.

David:
I was going to ask you about what you’re tracking and we’ll get to that, but I’m fascinated by what you just mentioned. It’s so odd to me that the economy is this huge, incredibly important thing. The way that the Fed handles money, it just never gets talked about, right? It’s like we’re ignoring the huge macroeconomic forces and we’re just zoomed in on these little tiny details of a deal. And so I always ask this question. Most people aren’t very comfortable answering it, but if you don’t mind, I’d love to get your opinion on how do you look at the way the government intervened with the quantitative easing and the printing of the money when we were… We basically shut our country down for almost a year and minimally were affected for the significance of what we should have been feeling from the impact of what we did. We actually had an incredible run up where everyone felt wealthier, especially if you owned assets, you were raking it in, right? And now we’re getting the first hint of, “Oh, this might not have been that good,” but the decisions are made three years ago.

David:
It’s hard to kind of tie it together so could you share your perspective as someone who is responsible for managing assets and protecting wealth and creating wealth for other people, how you see what happened with the economy, where we are and where we’re going?

Rob Dyrdek:
Yeah. And look, I’m not an economist. I’m a generalist. But when you look at it bigger and what that stimulus did and that double bubble, it needed to be done, in my opinion, right? Sure, there’s a lot of different ways. The same way that putting pressure on everybody and driving up in the rates to put pressure on everybody to fight off inflation. These are all extraordinary circumstances that are already in an already stressed cycle, right? Because you got to think, all the recessions that we’ve lived through, they didn’t talk about the recession for two years coming in like a giant cloud and this continual recession talk. They came out of nowhere. The bubbles popped and now we are in deep dark waters.

Rob Dyrdek:
And to me, I believe what has been happening on the core fear, if you will, of everybody who’s in all of these different asset classes. We are talking even in the venture space, we’re talking in the art world, we’re talking in luxury goods. All of every single asset class inflated to such an unrealistic level that then everybody’s talking the economy tight. Nobody’s talking about their revenue being down, they’re talking about preemptively striking by laying people off now and preparing for just in case revenue is reduced, right? It’s this super unusual way which to me is actually taking pressure off of the bubble that we’re in and the overall sort of inflated asset class on all aspects. We’re naturally sort of easing everything and it’s going to take something extraordinary like a Chinese invasion of Taiwan or Russia with a nuclear weapon. It’s something that shocks the world that then hammers it down into recession in my opinion, not as an eco economist, but through the lens of a broader way of seeing how the previous cycles that I have lived through have gone through.

Rob Dyrdek:
And again, I don’t build my life through the lens of worrying about whether or not a recession is coming or a cycle’s coming. What am I doing? Some of the buildings I’m in now, I did it like 50% leverage. You know what I mean? These are 10, 12 year holds that are going to be through the cycle no matter when it is. And then I keep a substantial amount of cash at all times. I don’t own any public equities.

Rob Dyrdek:
I have all of my buildings, my personal real estate, I still have a lot of capital draining personal real estate to be fancy and then my core venture business. And then I keep a ton of cash always. I have that in whether it’s California tax free munis or other cash efficient ways that kick off cash.But I built my own personal financial system that’s built around weathering any cycle because I believe in the United States’ resiliency in the long term and the economy long term even though if you read Ray Dalio’s latest book, the Principles for the Changing New World Order, you’ll be sad and freaked out. But it’s still the idea that you can control your money, your universe with a lot more probability based off of what you choose to invest and how you choose to deploy that capital that may not be smartest to your traditional money manager or the way that someone would suggest to you, but you’ve got to create it in a way that makes you most comfortable. And to me that is keeping a ton of cash at all times.

David:
Yeah, there’s a dance that you’re describing where you have to have a lot of cash at all times and at the same time you have to recognize inflation’s going to keep coming, America’s resilient. We’ll probably do what we did last time. Again, we’ll probably print more money. It’ll create assets going up. So you also have to invest. And I frequently said this is the challenge of today’s market, is it’s not as simple as do nothing or go all in. You almost have to, in a weird way, be able to do both.

David:
And so what I’ve said is you have to continue earning money. You can’t just stop. This is not the world where you, “I worked for 10 years. I worked for 20 years. I sold my company. I’m just going to ride off into the sunset and do nothing all the time” because things change so fast. So I agree with you. I think Ray Dalio’s video about the Changing World Order is scary. But other countries are still putting their money into American real estate. They’re putting into American businesses. It’s coming here, right? We still are the cleanest shirt in the dirty laundry, so to speak.

Rob Dyrdek:
Hey, but even to that point, think about we’re the only culture in the world where it’s being ambitious and driven and entrepreneurial is part of our DNA.

David:
[inaudible 00:39:13].

Rob Dyrdek:
No, it’s our part of our DNA. The rest of the world is they take siestas and whatever. We’re like, “We could build it bigger, better.” We are that. And our economy is still so much… It’s still by far the biggest economy in the world. And again, I’m not an economist. I’m an economist of the Rob Dyrdek family office and the Rob Dyrdek personal energy. I still look at the way that I invest capital as, “What’s it going to provide me from a mental capacity and mental health perspective?” and owning public equities doesn’t matter if I miss out on the growth of a market. It doesn’t matter to me because I like the stability and comfort of the cash that comes along with the equity growth depending on the cycle and the real estate side, right?

Rob Dyrdek:
And for me, I was investing in buildings that were getting 7, 8, 9% cash. I haven’t even seen any for a long time now since we’re in this deep crunch. But even the last few that I did, we’re talking, they’re 4.5%, 4%, much smaller but I’m still deploying millions of dollars into it as long as it’s not over leveraged and it can still create a, call it 11, 12% IRR over a 10, 12 year period, right? Because at the end of the day, I know that that’s my strategy. And then the other buildings that I’ve had since 2014, ’15, some of those are doing 12% cash right now. So I look at it as each year and every building that I buy or invest in is like a wine, and it’s almost like you see all these vintages of the different eras and those vintages are tied to rates and cap rates and leverage. It’s so fascinating when you look at them from that lens.

Rob Dyrdek:
And then for me, especially when you began to see some of the compounding in the 1031 exchange from your basis standpoint, you really begin to see the snowball effect that can begin to happen if you play this game for 30 or 40 years versus trying to use it as like, “How can I make money off of this and build my wealth quickly in this space?” I think that’s the problem with the real estate flipping market and then even value add rental properties. There’s this dance with like, “I can do this quickly and build up a big basis to get rich off of” rather than looking at it more from this long term sort of compounding lens that a lot of the younger real estate investors today wouldn’t look at it from that lens.

Rob Abasolo:
Yeah, I couldn’t agree more. I mean, definitely it’s never an ideal time to just print cash out the wazoo, right? But to your point, Rob, we didn’t want to the world to collapse during the pandemic, right? Absolutely we’ve had so much time to prepare. We’ve been talking about the recession and the crash and the great crash of 2022 literally for a year and a half now. And so I think that it’s all about going into something. The people that are going all in and trying to get rich quick versus build wealth slowly, I think they’re the ones that are going to get burned, right? Those are the people that are like, as much as I advocate for building your life through real estate, trying to take the quick approach can quickly turn the opposite once those housing correction numbers come in. Because I know a lot of flippers right now that are into a six month flip right now where their ARVs and their comps were based on six months ago and they’re kind of hurting right now. You know what I mean?

Rob Abasolo:
And so I tend to advocate for really trying to never use your cash flow. I mean, when I got started I wanted to subsidize my life with my cash flow just like you talked about. But now I’m just like, “Well, I like the cash flow to just go back into that machine.” And then the equity, that’s really what’s going to matter in 30 years, just like you said, compounding over and over and over again.

Rob Abasolo:
It’s slow. It takes a lot of discipline. A lot of times I do like to… I wish I could use my cash a little bit more, but I’ve been preparing also keeping a lot of cash on hand. I keep a 20 in my wallet every day now.

Rob Dyrdek:
[inaudible 00:43:51].

Rob Abasolo:
I’m just kidding. But yeah, I’ve been really keeping the cards close on my chest for this moment actually, because now sellers are getting kind of nervous. I’ve made several offers that were 300, 400K under in the last two weeks and it hasn’t been a “hell, no” from all the sellers. Whereas a year ago they would effectively not even respond to my realtors. So because I’ve been keeping a lot of that cash, I’m ready.I’m ready to jump in. I’m really excited for it.

Rob Dyrdek:
Yeah. And look, I think for me, I still make a lot of ordinary income, right? And then I make a lot of long term capital gains from these acquisitions and these big sort plays on the venture side and how much money I make from shooting TV from the ordinary side. So when I look at peace of mind, I look at the cash and my living expenses like, I’ll make over a hundred million, but I’ll still keep my personal lifestyle expenses in the 2 million range, right? So then I will pay my blended tax rate that’s long term capital gains, fully depreciated and ordinary income and then deploy that capital into buildings and into cash reserves to just keep cash and/or my venture projects, right? Because I’ll invest, call it between a million and 10 million in each of my venture deals, right?

Rob Dyrdek:
So it’s this sort of piece of mind for me in the system that I’ve created that is always about being able to capitalize on the opportunity but have a system and a principled way of operating that is recession-proof and cycle-proof and pandemic-proof is really what I try to implore in people and as they’re trying to find essentially financial harmony. You know what I mean? You’re really trying to find what is the balance of where money does not disrupt you or stress you out, but actually fuels your balance and the harmony in your life. And that takes you to design a way that you understand and manage it fundamentally in a way that if you do get scared and save extra cash knowing there’s going to be opportunity because you’re an expert in the market, it’s like those are the type of things you got to look at.

Rob Dyrdek:
And for me, I remodeled and sold a house in my neighborhood. I own a ton of houses in this neighborhood and land and I’m building a house. I bought this house for 6.9 and sold it for 9.6 in two years. I got multiple offers and sold that thing in one day and broke a price per square foot in this neighborhood, right? 1,429 square foot for this particular neighborhood. It felt like it was four years ago. You know what I mean? This was last month. You know what I mean? It was like the market had already turned, the rates are through the sky and I’m like, “All right, let me just throw this thing on the market.” Multiple offers above asking and I’m like, “What year is this?” You know what I mean?

Rob Dyrdek:
And in the sense of knowing that the winds has changed, the market had shifted, but back to this idea that the right product and the right area is always going to trade at a premium and at a pace that is different, it’s that fringe product that people get killed on because it’s cheap in and cheap out and gets murdered in a cycle. And that’s the thing in real estate that people just don’t… They know the word location, location, location, but they don’t understand really how important that means in the sense of the quality of the real estate product that you’re even looking at.

David:
I’m so glad to hear what you’re saying. It just goes to show if you understand overall wealth management success in life, that these principles that we talk about in real estate, show up even if you’re not a real estate expert, you’ve mentioned taking the long term view, I could not agree with that more like the vintage of a wine. The best deals that I have are the ones I bought the longest to go. It just works that way. The best returns come on as the oldest stuff you have. And that takes delayed gratification and the avoidance of relying on real estate to create your income, right? It’s like how you sort create icing on the cake, but you still got to work hard. You still have to create, you still have to do hard things for the money that you want right now.

David:
And then the other thing you just mentioned, which is avoid that, the siren song of that $50,000 house and a D class neighborhood, but on a spreadsheet it looks like the ROI would be so great. It’s like that flea market thing that you’re like, “Yeah, I know I’m not supposed to buy from a flea market, but that one might be the one thing. That CD might not be scratched” or whatever the case would be, right? And then you always end up regretting it.

David:
I love your point because when you’re in the right location, the people buying your house did not care what interest rates were. Straight up. It just doesn’t matter to them, right? Money is a different thing to them than it is to other people. You have something to say about that?

Rob Dyrdek:
Yeah. And look, it’s a gated community in Beverly Hills that has a hundred homes. You know what I mean? So to get into one that’s been done really nice and is nearly impossible, right? So you got to fight for it when it pops up. But another thing that I think real estate investors have to be thoughtful of is the way that real estate values spread, right? It goes from the high value areas, the great neighborhoods are where that initial acceleration of value starts. And then it slowly makes it way out to the smaller cities and around the bigger cities. And then it’s like, “Oh, there’s where the value is.” But make no mistake, it seems cheaper because the market’s cheaper, but it’s going to take a bigger hit and have a lot longer road to making it back when you start investing in B class, C class regions that at the top of a cycle that feel cheaper. You know what I mean? I think you can see that happening all the time and then it’s like it’s the first place that takes the biggest hit.

David:
That’s exactly right. Yeah, I’m glad to hear you saying that because especially for the newbie, man, they’re just always tempted by that. “No, it’s safer. It only costs $35,000” and I’m like, “I bet if you look at the title history of that freaking thing, it’s changed hands every 18 months because nobody wants it after they buy it.”

Rob Dyrdek:
That’s it, man. And that world, that’s the world that I think this bigger sort of wave of like, “Real estate. Real estate. Real estate. All great fortunes have been made in real estate.” They haven’t been made flipping $80,000 houses. You know what I mean? It’s been compounded and build wealth over time is how they did it. You know what I mean? I’ve seen so many people go through it.

Rob Dyrdek:
Even when you think about the 2008 cycle, right? What was happening in 2008? It was the kid making 40,000 a year had a… Well, at least out in California. The kid making 40,000 a year got an all interest loan and had to put down like 5% for a house for 300,000. He sold it for 450,000 and then bought a $600,000 house. I watched people that had no business owning $800,000, $900,000 houses out here flipping their way into the house and then losing all of it. You know what I mean? Thinking like, “Oh, I’m going to keep doing this over and over.”

Rob Dyrdek:
I watched a friend become worth millions. This particular person was a personal trainer. I watched them begin to get in and over leverage all the assets to keep buying more, be worth millions, and then lost all of them to zero because of not understanding how dangerous that leverage could be. And in that era, everybody was a mortgage broker, right? Everybody was selling mortgages. Everybody had a big house with a ton of equity in it before that thing imploded. The same way now, the big wave for this cycle has been everybody’s a real estate agent. You know what I mean? That’s sort the other arbitrage of the money that’s been being exchanged in sort of the flipping world, if you will.

David:
Yeah, we saw similar patterns happen in the NFT space and the cryptocurrency space. Bitcoin caught on and then there was a whole bunch of other like… I mean I’m not a crypto expert, but there was a bunch of people just made a coin, like, “Let’s just make up a coin and let’s just say it’s worth this.” FTX is in the news right now. That was a huge scandal. When you look at how that thing fell down, it’s almost laughable. This guy made his own coin and then leveraged against the coin that he created that he gave his own value to go borrow money to buy. How on earth did that get this far? His company paid to have the naming rights to I think the Miami Heat or to some stadium. Wild, wild professional things that was just based on a complete sham. And I love the point you’re saying, these fundamentals of building wealth don’t change. You don’t get around it. You can’t cheat your way through this.

David:
Now another thing that you’re very, very big on that I think is incredibly valuable to share, just like what we talked about, is rather than just making sure you invest your money into scarce resources that are not easily replicable, like a coin you could just create on your own, is the understanding that your other scarce resources are your time and your energy. You cannot just create more energy or more time. You have what you have. They have a huge impact on the quality of life you’re living. You’ve mentioned that several times. “How do I optimize my quality of life?” Can you tell us what your system is for making sure that you get the most out of the other resources you have other than just money?

Rob Dyrdek:
I mean, look, I kind of look at my entire life as one big integrated system, right? That system is basically exchanging time and energy for everything. And so the first thing that I did is I began to look at my life as this ongoing daily, weekly, monthly and yearly rhythm and I began to design my time. It eventually scaled to the point today where I track every bit of my time and tag it and it pumps into a dashboard so I could tell you exactly where I spend every single hour of my life over the last three years, right?

Rob Dyrdek:
And what that does is when you get to that level of designing time and then continually optimizing time, time slows down for you and now you understand the value of your time in a very clear and deep manner that it makes it so much easier to say yes and no to things because you’re looking at it through the lens of first, second, third order consequences for committing to something beyond just committing to just going, “I’m going to go to this movie tonight” versus, “I’m going to start this new company. Okay, what is the time long term that this is going to take from me?” But if I design my time, track it all and understand it, that is then calibrated through qualitative and quantitative data.

Rob Dyrdek:
So every single day I track how I feel zero to 10 about my life, my work and my health. And by putting a number to how I feel about my life, my work and health, this now gives me over the long term insight to what things would pull and take energy from the quality of my life through the lens of what’s happening in my work, how I’m taking care of myself and what’s going on in my life. And if you can imagine, I’ve done that since 2014. My numbers used to be so low and I would see these same things that were constantly bringing me down and I just slowly began to get rid of them and optimize my time against my energy and then became a more evolved, happier human being. And then along that way I began to see like, “Oh man, if I stay committed to my health, the results are a much more organized, efficient use of my time and higher qualitative numbers.”

Rob Dyrdek:
So I began to track in my every single day, “Did I get up at 5:00? Did I brain train? Did I meditate? Did I get in the gym? Did I eat clean? Did I take my supplements and did I not drink?” And by tracking that every day, you can imagine when I look at my life, I look at a percentage of how disciplined I was, so quantified discipline. I look at how happy I was through a qualitative numbers. And then I can look at exactly where I spent my time over the time of those triangulated numbers to drive home how truly happy I am when I stay disciplined and focused on an ongoing basis. Way more complex than you expected, but that’s just how far it goes. You know what I mean?

Rob Abasolo:
Okay. So you track things like mental things, you track obviously how long do you spend watching Robuilt YouTube videos, you track your fitness, all that kind of stuff. How do you actually do it? Is there a system? Is it a spreadsheet? Is it a mobile app? How does one get started tracking?

Rob Dyrdek:
Yeah. So for me, I just basically used everything in my Google Calendar. So I tracked all my time. And then in my calendar daily schedule, then I say how long I slept and then I have an aura ring that tells me the quality of that sleep, I have a number. Then it has a readiness score that I track. Then I put in like, “Did I do my core six?” I just say yes or no. And then I ask my wife to give a rating every day so I have insight on her. And then I weigh myself every day so I have body composition to tie against all of that. But I had a programmer come in and write a script over top of my Google Calendar that pulls all of that data and then puts it into a Google Sheet so I have it all in dashboards on an ongoing basis that I just did for myself.

Rob Dyrdek:
And so again, I know how effective this deeply intentional way of living and really using qualitative and quantitative data for motivation and insight to live a better future present experience. And so one of the big projects I’m on now is building a software that anybody can build their version of it and begin to create that discipline by design and be able to create more of a harmonious high quality existence through their own framework, but having the support of a software, because the way that I do it is pretty complex.

Rob Abasolo:
Okay, I have to ask. Do you track how much time you spend time tracking?

Rob Dyrdek:
No. And again, I should because then it’s like, “Oh my God, I just wasted my whole life tracking tracking.” But again, it takes no time, right? It’s about five minutes in the morning when I get up because it’s all fully automated. It seems hard to you because you’re like, “Oh my God, think of what are all those things you just said? How could you even do that?” But it’s effortless, yeah, because it’s systematized and automated. And then just all of these, my entire life, I refer to it as the machine mindset. How can I either design, automate and optimize every single aspect? It’s either create a system or hire a body to get back more time and energy, right? And I just do that over and over in every single aspect of my life.

Rob Dyrdek:
I shoot 252 episodes of television a year. It is 4% of my time. And to give you an idea of how much 4% of your time is on your scale, that would be if you just did one thing a day for an hour, that’s 4% of your time. And for me, I have optimized the way that show is created, ran, shot and delivered to where it takes this very minimal amount of energy and effort. And then I tie that back to the ROI of what I get per hour from an ordinary income standpoint, which I can tell you I will never make that much money per minute in anything I do anywhere in my life for the rest of my life.

Rob Dyrdek:
But if you look at those two together, if I shoot 252 episodes a day for 42 times a year, basically four times a month and for five hours a day, and you then divide that into the amount of income that I make from that, then you look at my real estate income and the amount of time and energy I put into that, those are two extraordinary ROIs on time and energy as it relates to earning money. You know what I mean?

Rob Dyrdek:
And when you think about life through that lens and you think about the energy it takes and time it takes to earn money, it really, really shifts your perspective on where you should be dedicating your time and energy to earning income and how you can continually look for ways to do it in a more efficient, more optimized way regardless of what you do. You know what I mean?

David:
I recently had an epiphany on what you’re talking about, not nearly to the level you are. This is very good and humbling for me, is like every time I start to think I’m doing something good, you see the black belt at this thing. So it helps keep you in perspective, which is also awesome you’re sharing this for all of us because it gives us something to work towards. But it was just on the importance of tracking.

David:
So I’m writing a book for BiggerPockets right now that’s just about how a basic blue collar way anybody can build wealth if they want to, how you can develop the discipline to save money and delay gratification, how you come up with a plan for paying off debt, putting money aside than how you get good at making money. There’s actually a skill and a pattern that you can pick up like what you were describing. You came up with a plan to build this production company. That wasn’t an accident that you came up with working backwards, all right? They sell for six times EBITDA. How do you build EBITDA, right? That’s a great question to ask. Most people don’t put a plan and work backwards. They just keep stepping forward hoping that they step into the right opportunity and it happens for them not knowing where they’re going.

David:
And then you invest the difference. You don’t just like, “Ugh, should I pay $12,000 for this late night infomercial on how to flip $80,000 house program? Because I don’t want to have to learn how to earn money and save money to invest it. I just want to be able to do it without that.” One of the epiphanies I had was how important tracking is, especially if you’re not disciplined naturally in that area. So for me, I make enough money that I don’t really have to track where I spend that money. And I never really thought enough about how important tracking was because it wasn’t a struggle for me. I don’t like spending money. Like you said, you make a hundred million, you live off 2 million. If you stop tracking your money, you wouldn’t go broke. The habits you have would sustain you. But other people are just not naturally good at money or no one’s taught them how money works. This is a huge struggle. They don’t know where their money’s going.

David:
I recently realized that I have struggles in other areas where I do need to track what I’m eating. There’s certain people that just don’t struggle with food. All they ever want to eat is kale and celery and they don’t need to track how much kale they eat that day because that’s all they eat. But if you’re someone who’s struggling in that area, tracking is incredibly important. In fact, I’ll never be in good shape or fit if I’m not tracking what I’m eating, when I’m working out. That’s the thing I have to do.

David:
And Rob, something clicked where I was like, “Oh, if I could get people who are bad with money to track their money, they would see the results that I get when I’m tracking what I’m eating or I’m tracking like… Whatever your struggle is. You don’t spend enough time in your relationship, you got to put more time into it. What you’re describing is you’re tracking everything. You’re like, “If it’s important to me, I freak and track it. I don’t leave it up to fate. I don’t want to wake up having a bad week and I lost seven days of my life and I don’t know why. And I can’t fix it because I don’t know what went wrong.” You’re actually tracking the things that would lead to a better life.

David:
I don’t know. This book I’m hoping will help a lot of people because it’s just focusing on, “Where’s your money going? Do you know what you’re spending money on? Do you look at your credit card statement and know how much of it went to rent, how much of it went to food? How much of it went to dumb (beep) that you didn’t need and didn’t even make you happy anyways? You traded eight hours of your life to get the money that you spent on that pair of shoes that you don’t even think about anymore, whereas that could have been going towards paying off debt or something else.

David:
Is there anything you can share with the audience just on how important tracking has been in the quality of life that you feel you’re leading?

Rob Dyrdek:
Let me say a couple things to this. You see it in the power of tracking and this thing that you need to see it, you need to be motivated by you checking off the box and looking at it. It motivates you, it keeps you honest, it drives you for something that’s more difficult to stay consistent and disciplined at, right? And then your goal through that process is to go from trying to be disciplined to it being a habit, to it being intuitive, right? That is the process we’re trying to drive all aspects of our existence. But you cannot change one part of your life without changing all of it. You are a fully integrated, multi-dimensional being. And having measurement and tracking in all aspects of your existence is the only way that you can grow into the ideal version of yourself that only you can design, define and then build the measurement to get there. That’s the holistic side.

Rob Dyrdek:
Now, from the financial side, it was my Achilles heel. Why I was so lost in breaking even is I never even looked at the money. Money was too hard for me. I just gave all my money to people to invest it for me. I had no idea if there was a rate of return. I knew nothing. I had no plan. I was the person you are writing the book for. And then the moment I learned money, I began to understand my expenses, I began to track it. In my case, I basically hired a CFO consultant to build a personal financial model and began to treat myself like a business and began to build strategies and plans for the money I would earn and then what I would do with it and what it looked like post tax and where was I going to spend it.

Rob Dyrdek:
Once I finally had that clarity, then I finally understood why I was keeping my expenses low and what the purpose of investing this money was and how I expected it to grow to eventually keep me in this place that gave me financial freedom, right? Because at the end of the day, if you can have the hope and the energy that you’re leading to a place of financial freedom, that is what you’re seeking as opposed to earning income till you retire. And you need to design that, track that and measure that because the universe will conspire. When you begin to have that organized thought and begin to put that type of energy and organization into how you’re measuring where you want to get to, man, the universe conspires to bring more opportunity and more income and different things and different investments that come along that help accelerate you towards that end goal that is ultimately financial freedom.

Rob Dyrdek:
And if you can track and know that like, “Okay, it’s 20 years from now” and then you have two good years and now that 20 years just went down to 12 years, guess what’s going to happen? You’re going to be even more motivated to spend less and invest more and get there even faster. And then you’re like, “Oh my goodness, I’m five years away,” right? And then when you get to five years, you have reached financial freedom which gives you financial harmony, personal security, self-worth, belief in the ability to create your own reality and you’re just getting started. You’re not just going to stop right there. You have learned so much into that point about money and about wealth that you are going to continually see where like, “No, I can grow it to here and then I can eventually do this and all these things you never thought possible.” That’s what happens when you build a framework of growth, letting measurement be your guide especially on the financial side and then you grow into it over time.

David:
Wow. I feel like Papa Doc at the end of 8 Mile right now. You just save the best rap for the end. That was really, really good. I’m actually going to spend some time thinking about that. Thank you, Rob. I know you attract every single minute of every single day, so we’re going to be respectful of your time. We’re hoping we can have you back some time. Thank you for being here. Thank you for sharing so much of what’s actually happening in your personal life. This isn’t the stuff people get to hear if they just watch you on MTV or anywhere else that you’re on TV. So we appreciate the transparency and what you’re sharing here. Robbie Abasolo, do you have any last words for we let Mr. Dyrdek go?

Rob Abasolo:
I don’t, man. I’m inspired. I’m horribly bad at tracking because I’m scared of the results, but because of this episode, I’m going to do it. Because every time I track something, I would realize how bad I am at the efficiency side.

Rob Dyrdek:
Hey, but that’s where it is. You also get to begin to see where the growth is. Then you get motivated by getting more and more consistent and seeing your numbers grow. That’s where the motivation is born and grown rather than being afraid where you just let life happen. Live it with intentional, track it, measure it, and grow into it. And you will be extraordinarily disciplined.

David:
Rob Dyrdek for president, everybody.

Rob Dyrdek:
Thank you, guys. [inaudible 01:10:22] it here. Appreciate it.

David:
All right, thank you Rob. Last question. Where can people find out more about you if somehow they’ve been living under a rock?

Rob Dyrdek:
It’s just robdyrdek everything. Dotcom, Twitter, Instagram. It’s just robdyrdek living life in a harmonious high quality way.

Rob Abasolo:
Oh wait, also you have a podcast, Rob, right? What’s the name of your podcast for everyone at home?

Rob Dyrdek:
Yeah, my podcast is Build With Rob. Essentially, it is basically everything that we’ve talked about today. I even recently did a podcast on financial harmony and what it means, but it’s really about living with that machine mindset and learning how to systematically fuse art, science, and magic to manufacture an amazing existence. A little short 25 minute episodes of just sort of my philosophy on an ongoing basis.

Rob Abasolo:
Well, that’s amazing. Well, just don’t ever come for Robuilt that name is taken.

Rob Dyrdek:
I see it. I see it.

David:
All right. Thank you Rob.

Rob Dyrdek:
Appreciate you guys, man.

David:
And that was our show with Rob Dyrdek. Rob Abasolo, the other Rob, what are you thinking?

Rob Abasolo:
Hmm, mine melted several times. I feel like I was watching the podcast out of my body. That’s always when we have a really good guest on the podcast, I always feel like I’m not really here. I’m like floating above my body, watching myself just transform into the next level of Rob. So I’m excited. I’m excited to transform into Rob Dyrdek.

David:
What does your cloth look like from an angle looking straight down at it?

Rob Abasolo:
Honestly, lots of volume, but that’s just mostly because of my conditioning routine.

David:
Yeah. We need to see a YouTube video on that in the future by the way. That’s whatever everybody asks, the one question. By the way, do you make videos where you start off by saying, “Everybody asked me” and then answering the question that no one actually asked but you wanted to make the video at? Have you ever done that before?

Rob Abasolo:
All the time. Are you kidding me? It’s the greatest hook ever. Look, I’d say the most common question that I’m asked is… Blank. And then it’s like… Yeah, I mean it’s probably true. I don’t track it. If I tracked it, it could be true.

David:
I think for some reason I don’t mind the most commonly question I’m asked as, but everyone always asks me, it always gets under my skin. Because it’s always like everyone asks me, “How do you get amazing abs like this?” Everyone always says, “How are you so incredibly better than every other human being?” And you know, “The truth is…” And then they sell you on whatever their course is.

Rob Abasolo:
Yeah. Okay, well now I know. Now I know [inaudible 01:12:32].

David:
But you know who did not do that was Rob Dyrdek. He didn’t have to tell us anything about himself because his actions speak for themselves, the level of success the guy has, the lessons he’s learned. I think a lot of people probably for their first time were being exposed to, he’s not just the funny guy on Rob & Big, right? He’s incredibly smart, brilliant level business acumen.

David:
What’s cool is someone who’s so good at the thing, then doesn’t value it. You never hear Rob talked about how much money he makes as a way of saying, “This is where I get my value from.” He’s almost saying, “Yeah, I have to have financial harmony. Now that I have all this money, it cannot actually affect me negatively.” He’s tracking, “How do I feel about the money that I’m making?” And he’s putting more of his emphasis on did he work out, did he train his brain, did he eat his supplements, did he get enough sleep, did he drink any alcohol that day. It’s not that it has nothing to do with making money, which would be very tempting because he’s so good at making money to always focus on it.

David:
Was there anything that you took away from this that you’re going to implement in your own life moving forward?

Rob Abasolo:
You know what? There’s a couple times in the last year where I looked at my bank account and it was the same and I was like, “Wait, I thought I made money this month.” They were break even months for me. I mean, I don’t want to get into it, but basically it was just like I was investing a lot, I was deploying funds, I was just really trying to grow my businesses and just carelessly doing that. I didn’t realize that I was breaking even. And so that actually kind of lit a fire under my butt to track. And I’ve been more carefully tracking.

Rob Abasolo:
And then now I’ve recently fired a bookkeeper. I just hired Matt Bontrager, we just had him on the pod a couple weeks ago. I just hired him. He’s going to be officially doing… Not him specifically, but his company’s going to be doing my books.I’m actually more wanting to get super in the weeds of financial tracking with real estate a lot more than I have been because it gets a lot harder in the future if you don’t start a lot sooner. So yeah, it’s inspiring to see that there is merit to actually tracking everything else in life too. So yeah, I’m into it.

David:
Awesome, man. Well you did a great job today. Rob gave a fantastic interview. This was just a great time. So hopefully we can have him back and hopefully we can get more great guests like that.

David:
If you enjoyed today’s show, please do us a favor. Leave us a rating or a review. If you can log in to wherever you listen to podcasts, whether it’s Spotify, Apple Podcasts, Stitcher, whatever it is, and leave us a five star review, that’s all that we would ask for. We bring you the content for free and it really, really helps us get guests like Rob, because he’s not going to come on here if we’re not ranked at the top of our genre, and that’s what we got to do to stay there.

David:
Thank you listeners for always being here and spending your time getting your education from us. Rob, if you’re listening to this, thank you for being on the show. And Rob Abasolo, thank you for being such a vibrant thing.

Rob Abasolo:
Thank you. Thank you. Thank you.

David:
All right. This is David Greene for Rob, the other Rob, Abasolo, signing off.

Andy Walden, Black Knight VP of enterprise research, joins ‘The Exchange’ to discuss what’s keeping homebuyers away from purchasing, what pent-up housing demand means for the market next year and more.

Dave:
Hey everyone. Welcome to On the Market. I’m your host, Dave Meyer, joined today by Henry Washington, Kathy Fettke and James Dainard. How are you all?

Kathy:
Great.

Henry:
What’s up?

James:
I’m doing good. How are you?

Dave:
I miss you guys. I feel like it’s been a while since we all were on a show together.

Kathy:
Yeah, it’s been way too long.

Henry:
Don’t let it happen again.

Kathy:
Yeah, you should fly out this weekend.

Dave:
To me?

Henry:
No big deal.

Kathy:
No big deal.

Henry:
Just a flight from Amsterdam.

Dave:
Just a casual 30-hour round trip to go to Jamil’s party. But it does sound very fun.
Well, today we are going to do a really fun episode where we’re going to talk about our biggest mistakes for 2022. I don’t know about you all, but when I read a lot of investing news or hear about a lot of investing content, it glorifies a lot of the stuff that goes right and omits a lot of the stuff that goes wrong. But I think it’s really important for investors anywhere to acknowledge that things do go wrong. And today we’re going to share what we did wrong in 2022 and what we learned from it. You guys ready for this?

James:
All right, I’m ready.

Kathy:
Yeah.

Dave:
All right, great. Well, actually, in the first section here, we’re going to just start, not about your specific business, but let’s just talk about mistakes that happened in the news for 2022. What was a big whiff from this past year? It could be anything, some business, some economic thing. Kathy, let’s start with you. What do you think the biggest mistake that happened across the news or economic spectrum in 2022?

Kathy:
There were so many, but I’ll just focus on one. It was really interesting, I was lucky enough to have Rosie Rios stay at my house, the 43rd treasurer of the US, and she was here on November 11th. I remember that because 11/11, great day. And that was just a couple of days after FTX fell apart. Right. And I didn’t really know much about it, but I had the former US Treasury of the US at my house. So we were just talking, having dinner, and she said, “Do you know the biggest story right now?” And I’m like, “What? Twitter? I don’t know. What is it?” She goes, “Well, yes, but FTX.” And again, I didn’t know what that was, but she was literally with CZ, who is the founder of Binance, which was the competitor of FTX and the one who kind of basically pulled the card that had the house of cards fall because they pulled their money out.
So I heard the story before it was a story in the news and learned a lot about it from the inside because she had just come from Portugal for the crypto conference that was there and was with all of these people right before the collapse. So fascinating, fascinating.
The amazingness of this story is, oh my gosh, I just want to see the Netflix version. It’s so much corruption. Anybody who still believes that there isn’t corruption within the government, within government agencies and oversight committees, just please study this story because it goes deep, it goes really deep where the politicians that FTX was funding were also in charge of oversight of crypto. I mean, come on guys. So it’s still happening, with Maxine Waters being one of the politicians who received donations from FTX and is still now on the House Financial Services Committee that will be overseeing the hearings for this. It’s just wow. It’s unbelievable. So yeah, just know that there’s big companies that fund politicians who also, those politicians, oversee the oversight of those companies. It happens all the time. So you’ve just really got to look deeper.
It’s why I love real estate, it’s just so simple, it’s just you buy a property and there’s just not a whole lot of complication. Obviously, there’s regulation in our industry, but real estate investors just want to, generally, stay out of that web and kind of be doing their own thing. It just brings me back to why I love real estate. You can lose your money in real estate too. If you’re an equity investor, you have the most risk if you have to sell your property. If you hold your property and the cash flow’s, asset values just don’t matter, with real estate, obviously. But if you are flipping, and we all know this, or you’re building houses like we are and you’re an equity investor and you have to sell at a certain time, well, yeah, you can certainly lose your equity. But at least that there wasn’t all this hanky-panky going on. You guys, I just can’t believe it.
And I’m not against crypto. This is not a story about Bitcoin, and I do want to say Bitcoin is, in my opinion, it’s an investment in a coin, a real… It’s not real. It’s crypto still, but it’s been mined and it’s protected. But this was trading, this was just trading. And they were market makers. I know a lot of real estate investors that do this too, but this was really big, where FTX, he created another company that his girlfriend ran, Alameda Research. And basically they would trade back and forth this coin that they created. And every time Alameda Research and FTX traded it back and forth, they would raise the price and then, of course, investors were like, “Oh my gosh, this must be a value,” when they were just making the market. Right. I’ve seen investors do that where they’ll go into a market, buy a few properties with cash to set some kind of appraisal value there. So it happens in every industry and you got to be careful about that.
But it’s fascinating that so many big firms didn’t see it. Jim Cramer saying that Sam Bankman-Fried was going to be the new J.P. Morgan, even though Sam Bankman-Fried didn’t find anything, didn’t create anything except a fake crypto. So anyway, it’s amazing that… And again, if you look, FTX, I believe, was financing Jim Cramer’s show. So always look at who the sponsors are, just be aware. And then, other huge firms like SoftBank and BlackRock investing in FTX when it turns out now that they’re looking at the books that they didn’t have books, they didn’t know who their employees were, they would just send emojis when someone sent in money that they wanted reimbursement, they didn’t have a receipts, so it would just be, “Yeah.” So the fact that these big, major, major companies invested, it just seems like a complete shell company when you look at it like, “Okay. Was it just for donations to political endeavors?” I don’t know. All I know is that I hope that there is oversight as a result of this and that people start to look into what they’re investing in a little bit deeper.

Dave:
Yeah, I think the really remarkable thing here is that Sam Bankman-Fried was sort of billed as the virtuous person in crypto and that he was altruistic when really it was just a glorified, not a Ponzi scheme, but it was just a glorified scam. It was just a fraud.

Kathy:
Definitely a Ponzi scheme. Yeah.

Dave:
Yeah. So yeah, it’s pretty remarkable. And if you want a good follow on Instagram or Twitter, look at the Inverse Jim Cramer ETF, it’s basically a ETF where they take the opposite of what Jim Cramer says and it outperforms Jim Cramer just way more. It’s very, very funny.

Henry:
I love that there’s an actual ETF meant to mock someone.

Dave:
I don’t think they’ve actually created it, but someone tracks the stocks and just does the opposite. And-

Henry:
Please, please, actually make this an ETF we can buy and trade.

Dave:
It’s so funny. Yeah, it’s very funny.

Kathy:
And when you have a company in The Bahamas, and again, like you said, he was this altruistic guy, supposedly, and yet, there, he was living in a $30 million mansion in The Bahamas. They were, apparently, on lots of drugs. And I don’t know, they were a polyamorous group, and not that that matters, hey, whatever makes you happy, man. But it’s just so funny that they were living a very wealthy lifestyle, wild, and I guess, what some people might dream of a rock star lifestyle, when the world saw them as kind of hippies that were just doing good things for the world and giving all their money away.

Dave:
Yeah, it’s a little ridiculous. Well, that was a big issue. We’ll see what happens with crypto. I’m no expert here, but I do think, per your point, Kathy, that it’s likely that we see institutional investors back away from crypto for a bit. I feel like they were just starting to get comfortable and now you see that there really is, without regulation, without predictability, without accountability, a pretty risky asset class, even riskier than we all thought it was, which was already pretty risky. All right, Henry, what’s your big mistake from 2022 in the news?

Henry:
Man, I feel like every new Year since 2020, the new year is like, “Oh, is that what you did 2021? All right, hold my beer,” ’cause it’s been crazy. There’s been a lot of crazy stuff that happened. I mean, first of all, I think Putin got a little more than he bargained for with that war in Ukraine. I don’t think that that’s going as smoothly or easily as he thought. So call that a mistake, whatever you want, but I don’t think anybody really expected the results that are happening from that.
You look at crypto, to kind of piggyback on what Kathy said, you talk about FTX, but it’s the crypto crash in general, right, it’s happening across the board. And I think a lot of people are learning a lot of lessons about how to make smarter investments, me, especially, I have a crypto portfolio, I still have one, but I have since consolidated my investments down to the two coins that I think are really going to matter in the future and that’s Bitcoin and Ethereum, but I was on the bandwagon of buying all these different coins for all these different super cool technologies that I got that I thought were going to be a thing.
And when you look at history, like the dotcom boom, if you looked at the dotcom boom, there was all these different types of dotcom companies that people were all high on. And at the end of the day, it all came down to two or three and everything else kind of fell to the wayside. And this seems very similar.

Dave:
So you’re not buying the dip on FTT right now?

Henry:
No, no, I am definitely not buying the dip on FTT. I am staying far, far away. But I am still in, I don’t want to mislead anybody here. I am still in investing in crypto, I’m just trying to be a little smarter about it.
The other thing is both hedge funds and iBuyers realizing that they overpaid for lots of properties and they’re getting their butts handed to them right now as the market is shifting. And you’re seeing iBuyers get out of the business or go under. And you’re seeing hedge funds dumping properties that they bought recently. And so, I think, obviously, they realized they’ve made a huge mistake in the price points they were willing to buy homes at. And huge mistakes in foregoing a lot of the inspections and repairs that now these properties need in order for them to actually get the value that they want out of them and they can’t afford to do them or sell them where they want to. So big mistakes on all fronts.

Dave:
All right. Those are good ones. Yeah. It’ll be interesting to see how that plays out through a dip if those companies survive. James, other than dropping your computer on the floor last night, what mistakes did you see generally in 2022? And just so people know, James is having some computer issues today, so if he sounds like a robot, don’t blame him, he’s just all technical issues.

James:
I’m just struck when it comes to technology, I just break and drop things. But I was going to bring what Kathy talked about because obviously that’s been the biggest meltdown we’ve seen. I mean, it was kind of like this thing that happened that was just in the back of my mind like something really bad is going to happen with the crypto and with how accelerated and how much growth it had.
But I think the biggest story of the year, at least for me, is the thing I missed the most is we knew inflation was going at a rapid pace, we knew our economy was out of control, and at the beginning of the year, they were saying they were going to do minimal rate hikes and it could be a soft landing. And we all, or at least I bought into that Kool-Aid for sure. And I guess I’ll talk about that a little bit more later in the show. But that was the biggest miss of the financial year because the rates have increased the fastest we’ve ever seen and it is causing mass issues in all sectors of our economy, whether it’s credit card debt, housing and just cost of money in general.
That was definitely the biggest, I think it’s having global impact across everything and it’s going to start causing things like this FTX to kind of be exposed and we’re going to see some more ghosts in the closet coming up because of all this. But I think common sense should have dictated that we should have anticipated rate hikes a lot quicker and a lot faster, but we never thought that they were going to go up at the fastest they’ve ever been. And it is definitely breaking some things. So I think, for me, that was the biggest miss I had of the year was drinking that Kool-Aid thinking that it was just going to keep riding out for another 12 to 18 months when everything, we had hit this peak pricing, everything, logically, was saying that something’s going to stop. And then, the rates, they did, to the rates, what they needed to do to start slowing things down.

Dave:
Totally. I agree. Well, actually, the news or policy mistake I was going to say is that the Fed continued buying mortgage backed securities into September of this year for some inexplicable reason, even though they were raising interest rates and inflation was over 9% in June. So yeah, I think there were some interesting monetary policy decisions, often contradictory monetary policy decisions that happened this year. But okay, so those are some of the broader things that we saw.
I’ll also say, I made a big mistake casting Jamil on this show because he didn’t even have the guts to come on here to talk about the mistakes that he made.

Henry:
Oh, shots fired.

Dave:
No, I’m just kidding. Jamil has actually been very open and honest about some of its mistakes this year. If you haven’t listened to some of the stuff over the summer, he’s great about that, just have to get a shot in because he couldn’t make it today.
But with that, we’re going to take a quick break and then we’re going to get into the specific mistakes or regrets that you have in your own investing decisions from 2022. We’ll be right back. All right, Henry, let’s start with you. What was one of your biggest mistakes in 2022 related to your personal investing portfolio?

Henry:
Yeah. Good. Glad you started with me because I’m not going to talk about something super broad, I’m going to talk about something that’s probably all happened to us regardless of market and economic conditions and that is, I bought a property, luckily it’s a buy and hold, it’s a duplex. And I got very excited about the purchase price point and underestimated the amount of renovation that that property was going to need and when I was going to have to spend it. So we had tenants in it, the tenants were paying okay rents and the plan was to keep them and then we would make minor modifications as they moved out. And they moved out immediately. And what we thought were going to be minor modifications ended up being, I don’t know, I think we planned on spending like 15 grand and we’ve probably spent closer to 70.

Dave:
Whoa.

Henry:
And-

Dave:
What was it? What were the mods that you missed?

Henry:
So we had to completely replace the stairs because it’s a duplex, but it’s an up-down, so you got stairs to the top unit. They were in worse shape than what we remembered and maybe that’s because they did more damage after we bought it, not really sure, so we had to completely replace those. And you know, lumber and labor both, this year, weren’t always at great prices. We ended up completely remodeling the inside of both units. I made a lot of rookie investor mistakes by not properly estimating the renovation, not properly estimating the timeline. And then, I didn’t pick great contractors. I’m on my third contractor with this property.

Dave:
Wow.

Henry:
It’s been a year and we haven’t had anybody living in it.

Dave:
Wow.

Henry:
I mean, it’s just costing me money hand over fist right now. Three contractors in. We’re still redoing some of the work that was done from the first contractor. We were ready to almost get this thing listed and then we started testing the water and then we had a big leak from the top unit down into the bottom unit. So then, we had to tear up floors and tear up drywall, fix plumbing issues, redo the shower. It’s like it’s just one thing after another. It feels like we keep starting over. So lots of rookie mistakes, but the mistake isn’t that I bought it because if I had to do it again, I would still buy it, I would’ve just paid a whole lot closer attention to what the actual true rehab cost was going to be and planned for that rehab on the front-side. I didn’t anticipate it being on the front-side. I anticipated small rehab repairs down the road and then it hit me in the face on the front-side. So yeah, that was definitely my biggest flub from a property perspective this year.

Dave:
Well, first of all, sorry that sucks. That does not sound like a fun experience. But what did you learn from it?

Henry:
Yeah, so I learned that the fundamentals matter no matter how experienced you are. The more deals that you do, the more comfortable you’re going to get. Right. And so, you’re going to walk into properties and it’s easier to overlook things when you’re comfortable because you feel like you understand a lot of the nuances of the business. And so, I’ve got to stick to the process of properly evaluating every property on the front-side and anticipating the repairs if they happen on day one. Right. And does it still make sense to buy this deal if I have to make these repairs on day one versus when tenants move out?
And then, I mean, the other lesson I learned is that I’ve got to be more diligent in vetting contractors on the front-side. I just wanted to get somebody in here quick to get it done, I didn’t properly vet everyone that got in there to do the work and it cost me on the backside because now I’m fixing problems that should have been fixed months ago that we didn’t even know were problems. But I know that had I selected the right contractor, paid a little more for the right contractor, we probably wouldn’t be sitting in this place. What do they say? If you think a-

Dave:
It’s like, “If you think a $150 an hour plumber is expensive, try a $15 an hour one.”

Henry:
Yeah, exactly, right. So I went with a contractor that had decent rates and if I’d have went with one that was more expensive, maybe I wouldn’t be in this boat. But I’ve had horror stories of contractors that were expensive too. It’s just more about vetting them as a company and vetting them on their quality of work.

Dave:
That’s a really common question about how to vet contractors. In retrospect, is there any red flags that came up that you feel like you should have seen coming or do you have any tips for anyone listening to this about how they can really do a good job vetting potential contractors?

Henry:
Yeah, so I think my biggest mistake here was the contractor I hired, when I did vet them, most of the work that they were doing for me was paint work and finish work and the problem that I ended up having with the work that they were doing wasn’t on the paint work and the finish work, it was on the plumbing. So I just made some assumptions that because the work that they were doing in some of these other trades was good, that they were also doing a decent job at some of the plumbing work and electrical work that they were doing. And this is the second property I’ve had plumbing issues from the work from this contractor.
So it’s about, not only do you need to vet your contractors, but every trade is different. So if it’s a general contractor, you need to know who they’re subbing their work out to, you need to know if they’re qualified to do those kinds of things because plumbing seems to be the hangup with this contractor, even though everything else seemed fine. So I made some general assumptions based on the work that I did see about new work that they were doing and it turned out to bite me in the butt.
So the general tip would be like you have to have a scope of work and then, you have to get into the details about how that scope of work is going to be handled across each trade. Because I did vet their finish work and I did vet their paint work and it was very good, but I didn’t look into what kinds of plumbing jobs they had done in the past and what kinds of success they’d had, talked to any other customers who had used them to do different types of plumbing work. And I bet, had I done that, I would’ve found a similar issue.

Dave:
All right. Well, sorry to hear you had to go through that experience, but thank you for-

Henry:
Still going, it is not done or rented out. So we are currently getting my butt kicked.

Dave:
Hopefully, this isn’t on your 2023 list of mistakes also.

Henry:
Currently getting my butt kicked.

Dave:
Sorry to hear that.

James:
That’s just what happens sometimes, you get the domino effect going through your project where it doesn’t matter how many projects you’ve done. I mean, I really loved what Henry said with staying disciplined going forward, just staying on your systems because once you break your system because you’re just trying to get things done and trying to get someone out, you can end up just bringing in the wrong person and it domino effects and the project just never goes away. It’s like you cannot get it to the finish line. I mean, we’ve all had these, I probably have a handful of them going right now, where it’s just like, “Why won’t you go away?” I just want to get rid of this house and you’re just stuck at the one-yard line.

Henry:
Ugh, man, every time the phone rings and my contractor’s like, “Hey, let’s talk about such and such property,” I’m like, “Ugh, I don’t… Just do it. Whatever you’re about to say, just fix it, just fix it. Something is broken, it needs fixing, just fix. Don’t even tell me, just fix it.”

Kathy:
I think anyone who’s ever owned any real estate ever has gone through this. It’s one of the reasons why the property managers that we work with and that we refer people to have in-house people that they rely on and trust and have worked with for years instead of contracting out. It’s so hard to know who you’re going to get. But yeah, I would love. That could be a whole show that I think James could host, right?

James:
I’ve been ripped off for millions of dollars over the years. It’s part of the game. You are going to run into bad characters, bad actors in the market and you just got to… But putting the right paperwork together, it’s really, really important. I once hired a fake contractor.

Henry:
You hired FTX contractors?

Kathy:
He paid them with FTT.

James:
He had a fake ID, a fake business, fake referrals. And then, we were referred to him from one of our clients. And then, all of a sudden, I had my job site, we had permits on the job, they were fake permits. And he gets shut down, Elle and I shuts this down. And then, we start digging into it and [inaudible 00:25:40] like, “This guy’s not even a real person.” And he disappeared. It was like a $250,000 loss for ourselves, some people we knew. The guy just left in the middle of six projects.

Henry:
It almost seems like it would be more work to be a fake contractor than to be an actual contractor.

James:
But we had the right paperwork in line, we had our construction contracts and even though it was fake, we ended up being able to get a judgment. Now I haven’t got paid anything from it, but I have a big judgment on this guy to where if he ever does get a real job, I can get some of my money back or maybe negotiate it later. But vetting them and putting them under the right paperwork and contracts is huge, you have to do it in today’s markets, especially in today’s climate with everybody starting up construction businesses everywhere.

Henry:
Kathy makes a great point, yes, this has happened to everyone. That’s the reason I wanted to bring it up is because it has happened and it will happen to you if you’re in the business. So you’ve got to remember to stay disciplined. You have to remember that your processes and procedures are there for a reason. And you can’t get comfortable. When you get comfortable, you get kicked in the butt. And we’ve all been there, in some aspect, in real estate and so, I just want people to remember that you have to stay disciplined, not just to your numbers, but to your process.
Like this contractor that I’m having the plumbing problems from, they’re great, I love them, they’re great people. Just because you like them doesn’t mean that the work is going to be done right. So you truly have to vet the work that somebody has done in the past or the work that they’ve done for you, right, to know whether you want to use them again, regardless of if you like them or how they handle business because, just because they handle business well and just because you like them doesn’t mean they’re going to do a good job.

Kathy:
And if you’re like me and you have no clue how to vet any work that any contractor’s done, how would I know? You can bring someone else in, you could bring an inspector in just to check it out. Or there’s companies that actually do that called builder control companies that can. You have to pay that extra money, but if you just don’t know because you’re not a contractor and I wouldn’t have a clue on how to vet any contractor, then bring in someone who does.

Dave:
I mean, it sucks when it happens, but if there weren’t contractors, what would real estate investors even talk about? We would have nothing to complain about. There’s nothing to even do.

James:
The fed.

Dave:
Yeah, the fed and bad contractors keep us all in a job, so we appreciate it. Well, James, let’s move over to you. I know in Seattle, you’ve been facing some difficult market conditions up there.

James:
Yeah.

Dave:
What was the biggest regret or mistake in your personal investing in 2022?

James:
Well, I think on a concept basis, the biggest regret I had was, like Henry was talking about, not being disciplined, we were out buying projects before we could even get going on them because we just wanted to get it locked down and done. And they’d sit there for a month or two, sometime, before we could get our guys ready to go. And that’s just a mistake. And housing, for us, is inventory, we’re bringing it in, we want to get it back out the door in that sector of the business that we did. And it was just, once you start doing that, it breaks bad habits, you start going over costs. You have to run this a business. And I think that was the biggest mistake I made as far as the concept goes. So the worst thing I bought though was, this is a bad one, it was… So we just lost 380 grand on a house.

Dave:
On one house?

James:
On one. In this, talk about the house that would not go away.

Dave:
Henry, you could have bought three houses for that.

Henry:
I was going to say that’s like seven houses [inaudible 00:29:33].

Kathy:
I’m sure he feels a lot better, guys. Yeah.

Dave:
Sorry [inaudible 00:29:37].

James:
Again, like when we were just talking about how contractors can rip you off, bad things happen, this just happens on real estate. Right? I always say, if I’m buying 10 properties and I lose money on one of those, the 10% of those, I’m doing a pretty good job as an investor, actually. You have to expect this because everything can go wrong.
So we bought this property, it was on a hillside, killer location, killer views. Started demoing it. The biggest mistake we made is myself and my partner didn’t walk this property, one of our contractor guys did, or our project manager did. As soon as I walked inside, the day we bought it, I was like, “Oh no,’ it was really, really crooked.
And so, we get full permits, we end up jacking the house up on the foundation. And then, what happened is we didn’t realize, in the hillside, they had brought in so much fill dirt it just caved in, and the foundation basically gave way, city red-tagged us again. And this is after permitting and waiting.
We were 17 months into this project by the time we had just gotten there because the permits alone, this is, I think, something that all people should know is when you’re buying in an environmental critical area, locations, you have to be careful, and not only that, you need to anticipate for some serious debt costs because permits are really long on these. You can wait three times as long for these kind of permits as a regular permit.
So we waited about 12 months to get our permits. We spent $120,000 jacking this house up, reciting the whole thing, all the windows. And then, it gives way. And then, they kick us back in in the city, because we’re in an environmental critical area, they want more engineering, more piles, they want to go back in for review and it’s going to take another nine months.
And at that point we go, “Well, forget it.” We scrapped the house and then, we permitted a brand-new house. So we still had to wait the nine months, but we kind of looked at the math on it, we were like, “”Well, this isn’t going to work no matter what.” And so, we exited the project to build new and we got right to the home stretch and the values were doing really well. It was definitely worth, in the spring, like a 3 million, 3.1 million.
And then, the Fed started stepping on the gas for rates. And as we know the market has came back 10%. And so, when you are flipping, the rates have gone up, we’re down 10 to 15%, so when you’re buying higher-end properties, it’s awesome when it’s awesome ’cause if you’re appreciating rapidly, you’re getting really big hits on the way out the door or really big pumps when you’re ready to sell. But when the market’s doing the opposite, you get really big clips.
And what happened is we lost 15% off that property. And so it went from being a $3 million property down to a $2.5 million house fairly quickly in a 90 to 120-day range. And so, when you lose 600K in value, I kept the project for over 36 months, we rehabbed it, tore it down, and then built new, it was just all ending bad. And it’s amazing that we only lost 380 grand to be perfectly… It should have been a $700,000 loss if the market didn’t pump up-

Henry:
It sounds like you’re about to sell it for lot value.

James:
Wait, no, I don’t even think I could give this lot away. That’s the other thing I definitely learned, we’ve built on all sorts of different things, flats, corner lots, hillsides, when you got hills like this, when you’re that steep of the hillside, it’s just not worth building. Someone couldn’t give me a free lot on a hill, I won’t touch it. It requires so much more cost, so much more time and so much more energy. It is never worth going on a hillside, at least in Washington.

Dave:
So are you saying if the market hadn’t reversed course at a bad time, would you have walked away pretty much even?

James:
Yes. If we would’ve got it to the peak of the peak in the spring, we probably would’ve made like 80 grand.

Dave:
That’s pretty impressive.

James:
I mean, we had almost a million dollars in this product. Talk about the worst or dead time on our money, for three years, a million bucks, we made nothing, we end up losing money on the way. But that is the way it goes.
Like we also hit a lot of home runs. One of the things I learned in 2006, ‘7 and ‘8, when you’re doing well, you need to put away your money. You have to be running with a solid reserve because at some point the songs, it just stops and when it stops, it goes back the other way. And there’s always going to be this little painful period that you got to deal with. And so, luckily, we learned that in 2008 and we have great reserve set aside and we got to pay the bill. And at least we got a million bucks back that we could go then deploy and buy more deals with and then we got to make it back up.

Dave:
Well, I do really appreciate your attitude about it. I think in any business, real estate is no different from any other entrepreneurial pursuit where you take some losses, you make bad hires, you make bad investments, things go sideways, that’s just part of being an entrepreneur. And it sucks when it happens. But you have to sort of embrace that. Risk is a two-sided coin. Right. You don’t get a return without taking on some risk. And so, that means you’re not going to hit everyone out of the park. But most of the time if you’re doing things right, you are averaging way more than you would if you weren’t taking on those risks.
But James, I wanted to ask, you said that one thing you regret and what you attribute, one of the causes is that you or your partner didn’t walk the property and you let a contractor do it. Have you continued with that practice or are you walking every deal now?

James:
No, I still buy basically site unseen. But this one was… We buy lots of properties at auction, I mean, I don’t mind rolling the dice a little bit on that. But what I won’t do is buy homes site unseen with conditions on there. If there’s an ECA rating, a environmental critical area, I’m not messing with it because that that’s way too big of a roll of the dice. And then, if it’s also on a big hillside, not going to mess with it.
There’s a really good property I can get right now in one of the best neighborhoods, best street in all of Seattle. And I can’t get inside though because it comes with a tenant that they want me to get rid of or facilitate, it’s a squatter tenant. Well, basically wait the seven, eight months to get them out of the property. And then, also, I can’t get inside. This one has an ECA rating, so I won’t do the deal. I’m like, “If I can’t get inside and look what’s going on in the foundation, I’m just not doing it.”
But other than that, I will still buy site unseen. I mean, some of the homes we buy are so packed full of garbage, you really can’t see anything anyways. But I stay clear from a couple, the roll of the dice, there’s certain things I just won’t roll the die on, which is environmental critical areas and hills.

Dave:
Nice. That’s great. I mean, just another example of knowing your buy box really well. And I know James has a very broad buy box, but it’s just important to know that there’s certain things you’re not willing to do. And sounds like you’ve learned that from some tough lessons, unfortunately.

James:
And I’m shrinking my buy box right now as the market gets a little scarier, as it transition. If you know what you’re buying, it’s a lot easier to get in and out of the market. So stick to what you’re good at and you can navigate any market.

Dave:
Great advice. All right, Kathy, what about you? What’s your biggest investing mistake of the year?

Kathy:
It’s a perfect segue, stick with what and stay within a tight buy box. I would say the biggest mistake is that I knew that interest rates were going to go up and I still didn’t refile all my properties when interest rates were at record lows. And I’m just so embarrassed to even say it out loud. And in addition to that, why didn’t I buy more? I know that it was the top of the market, but in the markets I’m in, it’s still fine. Those prices haven’t gone down.
So early in January, when I knew that the Fed was warning they’re going to do seven rate hikes, it was very obvious what was going to happen. And that would’ve just been a really good time to get busy and just to buy some really good deals, lock in those low rates, refi everything. We did refi a few but not everything and we’re not going to see those two, 3% rates again. And I didn’t know rates were going to go up quite as dramatically, which I have said live on this show that I didn’t think they were going to go up as dramatically as they did, and I do think they’re going to come back down, but not to that amazing opportunity that we had to lock in, two and 3% rates. I mean, wow. So that’s a regret.
And on a professional side, my job kind of for the last 20 years has been to find really cool deals, kind of get in front of the path of progress and share that with our network. And I knew about the deals, I knew about the Golden Visa Program in Portugal last year and I was in Europe last year and checking it out. And it took me a year to get that going. And in the meantime, prices in Portugal went up like 35%. So I feel bad for people who follow me that I didn’t get that out a year ago when that was a really good deal. It’s still a great deal.
Actually, my daughter now works for the company that we met with when I was in Portugal and she did her first webinar last night on how to get the Golden Visa, which basically means if you buy property in Portugal, then you get residency and then after five years, you can apply for a passport and you’re kind of grandfathered into that. And then, you get access to healthcare, almost free healthcare that’s really, really world class and university for your kids. I mean, there’s all these benefits for having an EU passport. And anyway, she did this webinar last night. And what’s so cool is when you offer something to people and it’s exactly what they’ve been looking for and they didn’t know how to find it.
So we’ve had people, I don’t know if you know this, this is a little bit off topic, but there’s people who got moved to America because they’re good at something, say technology or whatever, they’re from another country, and they live in America for, say, 20 years, but they never got a passport. They’re not American citizens. And then, when they’re done, where do they go? They go back to home, which isn’t home ’cause they haven’t been there for 20 years. So there’s a lot of people in California who aren’t Americans and don’t really have a country.
And so, we had 30 people on the webinar last night who were thanking us like, “Thank you. I didn’t know I could get a passport.” And basically, with this program, you have to invest $280,000, but then you get that back in five years, so it’s almost like free to become an EU citizen and get all those benefits. So anyway, a regret is that I just didn’t jump on that faster either and solve a lot of problems for people and help them make a bunch of money. But they still can do it. They can still do it now. We’re looking at areas that haven’t popped yet, that haven’t had that 35% growth yet.

Dave:
Well, having just come back from Portugal a few days ago, might be your next customer there, it’s so nice there. It was lovely.

Kathy:
Beautiful.

Dave:
Yeah, people are great, beautiful country, amazing food, had a great time. But it’s funny what you said about refinancing. I was reviewing some of my goals for this year and one of the goals I wrote out at the beginning of the year was like buy as much real estate as I can for like 3.5% or under. And I didn’t do that very well like in certain terms of individual deals, I was mostly investing in or completely investing in syndications.
And I was thinking to myself like, “Knowing what I know now about the market and having come down, do I still wish I bought more in Q1 of 2022?” And I was like, “Yeah, I still wish I had locked in 3% interest rates,” even knowing that, in some markets, my price would’ve gone down on paper for five or 10% or whatever it might wind up being. That was just such an incredible opportunity. And to your point, Kathy, we might never see that again in our lifetimes. So I share that regret with you as well.
All right, well thank you all for sharing this. Appreciate your candor and honesty about some of the mistakes that you made this year. We are going to take a quick break and then we’ll be back with a question from the BiggerPockets forums.
Okay, so our question is about interest rates, specifically mortgage rates in 2023. Kenny Simpson wants to know where we think mortgage rates are going to go next year and if we could see specifically VA or FHA rates somewhere between four and 5% for conventional property at some point, he didn’t say specifically, but let’s just say at some point in 2023. Kathy, since you just hit on this, let’s start with you.

Kathy:
Well, we can all pray. We could do rain dances too. I don’t think we’re going to see 4%, I hope so. Either would be wonderful. I don’t see anyone predicting that. Could we get into the fives? Maybe the mid or high fives? Yes, that’s possible. I hear a lot of experts saying that’s probably where we’ll land around, I don’t know, 5.7 or six and a quarter, somewhere in there, next year. So that’s great. And that’s great. Let me just really, really emphasize that. 5% would stabilize the market. It’s probably exactly the rate that the market needs.
We actually had pretty good new home sales this last update, just this last month. It was kind of surprising how many people are still buying new homes-

Dave:
It’s crazy.

Kathy:
… at today’s rate. So just imagine when rates go down just a little, it’s going to be a frenzy. And that’s why I keep saying, that’s why we started our single family rental fund because I think we’ve got this six-month window. And man, when rates go down to… What? Again, if the Fed is trying to create a recession, which it’s trying to do, that generally means rates are going to go down, you just got to see that’s how it works. And when that happens, people are going to dive back into real estate because 5% is good and normal and it’s stable and it will be actually stable for the market, it’s a good thing. But getting to 4%, if we get to 4%, it means we’re in a really nasty recession, so maybe we shouldn’t be hoping for that.

Dave:
That’s a good point.

Henry:
I agree. But forgive me, my brain, it just works simpler sometimes. And I feel like in 2020, the ship was staring down the ocean and then, we were like, “Oh, there’s a giant iceberg called COVID.” And so, the Fed turned the levers that it had this way, and so everything went this way and we were like, “Oh crap. Now we’re way off course.” And so, they’re cranking it back this way and things are correcting and we’re going to land right back on a course that we were on in around 2019. We’re just getting back to where things were. Values of homes are coming back down to those rates that they were around then in some markets. And interest rates, I feel like will probably land right around where they were in about that time. I was buying property between five and six and three quarters percent interest, that’s just what things were, and I feel like that’s probably where we’ll end.

James:
Yeah. No chance we’re down in the fours by the end of the year. I think best case scenario, we’re going to be mid, high fives by the end of the year, like Kathy said, which is great. You can work on… I really don’t care what the rates are, to be perfectly [inaudible 00:46:14], I just want them to be stable. That’s where you get in trouble like, all right, rates are 10%, on 10%, I can adjust my math at that point. That’s just what you’ve got to deal with. Rates are 4%, adjust the math. Just stability is what I’m looking for.
I’m burnt out on the appreciation growth that we saw for two years. What was that? That was nuts, right? We’ve never seen housing increase this, we’ve never seen the returns we’ve made. It also is not a healthy way to invest, you’re just buying stuff and guessing and you’re becoming undisciplined like Henry says, and then, it just goes up and then you make a bunch of money and you look good.
And so, stability is a good thing. And I do think that rates will get stable, like in about six months, we’re going to start to really see the stability of it. But by the time we get stable, I think we’re going to be low sixes, best case, high fives, and then we’re going to probably be there for a year or two, kind of in that realm. And again, that is okay. Then it all comes down to the plan. Does the math check out? Because you can put the right plan in play. And then, what are you going to do?

Dave:
Yeah, absolutely. Well, I agree with all of you. I think that the most likely scenario is we’ll see rates about a year from now, end of 2023, probably in the low sixes, is probably my best guess. If you just look at what happens in a recession, to Kathy’s point, bond yields fall, that brings down mortgage rates. We saw that. That’s already happened. Like rates were up in the sevens, now they’re consistently bound, 6.6 already, and inflation hasn’t even started to come down in a significant way yet. So I think that’s a good thing, to your point, if we can get to a stable area somewhere between five and six and a half, I think that provides a really good backstop for home prices in the US and hopefully sets a good foundation for further more predictable growth, to your point, James, in the near future. So let’s hope. But man, to your point, Kathy, if they get in the fours, something’s gone terribly wrong.

Kathy:
Yeah.

Dave:
Jerome Powell will not have a job if mortgage rates are in the fours.

Kathy:
How does he still have a job? I mean, come on. Anyway.

Dave:
All right. Well, thank you so much for joining us. This was a lot of fun. This episode’s going to come out on a Monday, I think, and if you join us on Friday, we’re going to do the inverse of this show. So we talked about our regrets for 2022, and on next week, we’re going to go to 2023 and talk about what our goals are for the coming year. So definitely tune in for that.
All right, thanks everyone for listening. If you like this show, hopefully, you don’t regret becoming a subscriber of this show in 2022, and if you didn’t, make sure to give us a five-star review on either Spotify or Apple. And we’ll see you on Friday for our goal show for 2023.
On the Market is created by me, Dave Meyer and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media, researched by Pooja Jindal, and a big thanks to the entire BiggerPockets team. The content on the show, On the Market, are our opinions only, all listeners should independently verify data points, opinions, and investment strategies.nnd ddd.

Speaker 5:
Come on.

David:
This is the BiggerPockets Podcast show 699.
Frequently in life you’ll find the majority of people you find do not have a high standard for excellence. It’s a matter of the heart. And what I mean by that is that what’s in our heart will determine the actions that we take. If you feel a sense of obligation to do a really good job, you’re going to look for answers, you’re going to anticipate problems, you’re going to solve things without bringing problems to other people. If your heart isn’t a place where you’re saying, “I just want to get paid and do as little work as possible,” you’re going to bring people problems instead of solutions. You’re not going to anticipate what could go wrong. You’re going to cut corners in your work.
We’re coming up on 700, so stay tuned, we’re going to get there. My name is David Greene and I’m your host of the BiggerPockets Real Estate podcast here today with a Seeing Greene episode. In these episodes, if you haven’t seen one before, I take questioners from you, our listener base, and answer them for everybody to hear. And we have a heckuva show today. Heckuva is spelled H-E-C-K-U-V-A if you weren’t sure. You’re going to love it.
We get into how to give up control over projects or people not doing things the way you want. This is an excellent question that we answer, and sometimes you have to go dark green to find the light. Listen all the way to the end and you’ll know what I mean by that. Why an off market deal may not always be as good as you want it to be or you’re hoping it will be and how to evaluate that. And if someone is thinking about BRRR the right way. So we have a very interesting and cool BRRR question from Suzanne who’s like, “Am I crazy here? Everyone’s telling me that I should go this way, but I think I should go that way.” We answer that question and I think you guys will really enjoy that. All that and more in today’s show.
First off, thank you guys for being here. I really love the people that listen to the Seeing Greene episodes. Many of you have reached out and said that you like these. So if that’s the case, please let me know and leave us a comment on YouTube telling me you like these shows. Second off, today’s Quick Dip is we at BiggerPockets want to help you stay accountable to meeting your goals. The new year is right around the corner as crazy as that sounds. If you want to make sure you hit your goals, you’re going to need two things. One, you got to know what those goals are, so write them down. I did a goal setting episode with Rob Abasolo where we went over our goals for 2023 as well as how we did in 2022. So check out that episode if you want some advice on how to write down your goals. It’s harder than it sounds.
And two, you need accountability because if you leave it up to yourself, you’re probably going to fail. So find another accountability partner. And if you don’t have one, we want to be that accounting partner for you. You can check out how to find goals on episode 696 and you can subscribe to this channel so that you’re listening to it frequently so that you hear about our goals as they’re being done and make sure you stay on track to hit yours as the year progresses. All right, let’s get to our first question.

Eli:
Hi David, hope this finds you well. Thanks so much for the show you do in answering our questions. My name’s Eli. I’m very early on my real estate investing journey. I just purchased my first property back in January of 2022. It’s a five-bedroom, two-bathroom south of Salt Lake City in Utah and I purchased it as a house hack, which works well for me as a strategy because I don’t have very much capital right now to make down payments.
In a previous episode of this podcast, I heard you mention that buying a house per year via house hacking with a low down payment is a great way to get a good return on equity, and it’s a strategy I’d like to continue to implement. However, one of the major blockers that I foresee to doing this is debt-to-income ratio. My understanding is that I should be able to use the signed leases from my tenants as additional income to sort of cancel out the debt taken on from the mortgage of the property, enabling me to house hack again in the future. I do have a W2 job as well. I’m wondering if you could talk a little bit more about the logistics and the debt-to-income ratio concerns of repeatedly house hacking and any other advice you’d have for someone seriously looking to purchase a house a year and get good return on equity and build a portfolio with minimal upfront payments. Thanks so much and I look forward to hearing your thoughts.

David:
Thank you for that, Eli. You are asking great questions. So before I answer it, I do just want to commend you on your strategy. Don’t have a lot of money? Not a problem at all. Do exactly what you’re doing. House hack every single year. You’re going to learn the fundamentals of how to be a landlord. You’re going to start building equity. If you’re buying a house in that area of Utah and it’s that big of a house, you’re going to gain equity over time. You’re going to be very glad you bought that property. So well done making the most of what you have.
Now let’s get to the brass tax of your question. I can tell that what’s behind the concern is not being able to qualify for future properties. You’re concerned about the debt-to-income because what happens if you’re not aware, well you’re aware, but if our audience isn’t aware, is that when you take out a loan for this property, that now becomes debt against your name that we compared to your income and create a ratio there and you have to have more income than debt to be able to qualify for new properties. When you bought this property, you took on more debt. So it affects the ratio when you compared to the income that’s coming in.
Now here’s one area of potential concern that we should be looking at. I am a loan broker but I’ll admit I don’t know every single detail of how loans work. So you should reach out to me, I’ll connect you with somebody at the one brokerage and they’ll actually look into this for you. But my understanding is that you can’t use the income from tenants if it’s your primary residence, which is what a house hack is. So you’re going to have trouble if you need the income from those leases to cancel out the debt you took on when you bought it if you’re living in the house, which you probably are, if it’s a house hack.
Now you’ve got a couple options. You could move out of the house and now make it a rental property, which is perfectly fine as long as you’ve been occupying it like you have. They’re not going to come check on you for that in most cases. And even if they do, you don’t have to stay in the house. You just had to intend to occupy it. And if you move out, it’s not your primary residence, now you can use the income that’s coming in from those tenants. You also have another room to rent out because it sounds like you’re staying in the fifth bedroom and renting out the other four. Then you can buy your next house and move into that one. And the one that you bought the first year becomes a rental property. The cool thing is you didn’t have to put down 20 or 25%, you put down the lower down payment.
There may be a loophole. In some cases we may have some loan products for you that would allow you to use that income, but most of those loan products require you to put 20% on in the next house. So that’s the struggle that you’re going to get into working this strategy. But it’s okay, there’s ways around it. You just got to figure out a way to not make it your primary residence when you want to include the income. Reach out to us. One of the guys on my team would be happy to talk with you about this and come up with a strategy so you can keep replicating it. I love what you’re doing, man. Keep your foot on the gas pedal.
All right, our next question comes from Rose Moore in Illinois. Rose has herself in a little bit of a conundrum. “Thanks so much, David, for all the education that you provide. I have learned a lot from these shows. I have a tenant in one of my units and I’m worried about her. She moved in February of ’21. I’ve been informed that 911 was called on February 15th because a neighbor found her on the floor unresponsive and the paramedics took her to the hospital. Again on March 9th, the police was called for a welfare check and the fire department had to kick in the door to gain entrance. The door is currently damaged and has to be repaired. I don’t understand why she’s living by herself if she’s having all these problems. I’m worried something serious may happen to her. I also learned that she smokes too and I’m afraid she may accidentally cause a fire. What can I do to protect my property? Please advise.”
All right, Rose. Well first off, I’m sorry that you’re in this situation. This definitely doesn’t sound like a fun situation to be in. Regarding what you can do to protect your property, I’m not aware of anything from a legal perspective that you can do here. Even though it does sound like she’s at a bit of a risk to be living by herself from a humanitarian standpoint, it’s good that you’re concerned, but from a legal standpoint, there’s nothing that says she can’t do that. I don’t think she’s in violation of her lease because she’s living by herself. As far as the door getting kicked in, I would contact the fire department and see if they have any kind of a reimbursement policy where you could get some of that money or if your insurance is going to cover it. If not, that’s probably going to fall on you.
Regarding the smoking, that’s something that you’re going to have to check to see if it was included in your lease. If it doesn’t say anything about not smoking in the home, she’s able to smoke in the house. And even though that is a fire concern, that’s not something that you can tell the tenant she can’t do. Because there’s not any obvious answers here of what you can do to protect yourself, here’s my advice for you. This is something where you should talk to a property management company and see if they have an attorney they can recommend or talk to other investors and see if they have an attorney that they can recommend and ask them if you have any legal grounds of either adjusting the lease or implementing something that’s not in the lease to protect yourself and the situation with this tenant. I don’t think anything is going to stand out here.
I might ask the tenant if she has family members and say, “Hey, I need an emergency contact since the last time you were alone, you passed out on your own and the fire department had to come. I want to be able to call somebody if something like that happens again.” And ask her if she’s comfortable with you stopping by to check on her or the property a certain amount of times. She doesn’t have to agree to that though, and that’s what I want you to understand, is there’s a very good chance she’s going to say, “No, leave me alone. I’m paying you the money for the house. I’m going to stay here.” I don’t know that you need to be incredibly worried about the house catching on fire. I would definitely make sure that my insurance was healthy and it was going to cover that. And I’d probably open up the dialogue and just explain your concerns and see what she’s open to.
At minimum though, this is a good lesson because the next time that you have a property to rent out or maybe this property, you might screen for tenants differently and you can adjust the lease to say things like no smoking or ask a lawyer if there’s a way that you can put a welfare clause in there where if you’re going to rent to somebody else who might have health problems or be older, that something is worked out where you can send somebody by to check on the property and make sure that nothing crazy is happening, right?
Coming from a background in law enforcement, I’ve seen things that other people don’t necessarily see. A lot of these older people end up being taken advantage of. And I’ve seen situations where gang members in a neighborhood literally moved into old people’s houses and in a sense held them hostage as they used that house for criminal activities. And these old people were threatened that if they called 911 they’d be in trouble and they were just basically put into a bedroom and locked in there on their own and a little bit of food was given to them and water and their house was just taken over and there was nothing they could do.
So sometimes people like this are in a situation where they could be taken advantage of and I can see why you’d want to check on the property and make sure that nothing like that’s happening. Don’t let this freak you out. It doesn’t happen all the time. More than likely, nothing like that’s going on with your house and you’re just a caring person that cares about your tenant and a lot of that care is now bleeding over and to worry about what could happen with the property.
I’m not hearing anything in here that’s necessarily causing me great concern. I think that there’s a lot of landlords that have tenants that are in situations like this. If it’s really bad, she may end up being admitted into a hospital or other healthcare facility at some point, in which case you’d be out of that lease and you could pick another tenant that would be better suited for the property and for your own business purposes. Thanks for reaching out Rose. If anything else turns up, please let us know. Go to biggerpockets.com/david and give us an update or ask another question. We’ll follow up with you there.
Our next question comes from Suzanne Johnston out of Lubbock, Texas.

Suzanne:
Hi, I’m Suzanne and here’s my question. I bought a property in May, 440,000 at the time. It appraised for 172,000. I have finished the renovations on that house. With the market softening as it has, I’m sure it’s still will appraise between 200,000 and 220,000. I had planned on BRRRRing that property and taking the proceeds out and invest in my next property. However, since then I have decided that I want to scale a whole lot faster than I have been. And so I’m planning on using hard money for my next property. That being said, I’m still inclined to BRRRR that property and put the money in reserves even at the higher interest rate. My interest rate, if I didn’t say, was 5% at that time.
So I guess I’m asking am I being stupid? But basically my thinking is that I do not have an amount that I’m quite comfortable with in reserves anymore because I’ve bought two very [inaudible 00:12:37] properties in the last six months. And so I’d like to have more money in the banks and be in more debt. I just wanted to make sure that makes more sense to somebody other than myself. And so anyway, I guess just let me know. Thanks. Bye.

David:
Hey Suzanne, so I have good news for you. No, you’re not being stupid at all and I actually really appreciate you for asking this question because it gives me a chance to provide a different perspective on this than most people would look at. I personally think people are more interested in interest rates than they really need to be. It creates this false sense of security. “So everything’s going wrong in the market, but at least I got a good rate and I can feel better about myself.” It just isn’t really practical. Furthermore, on this property that’s worth 200,000 or 220,000, you’re going to refinance 80% of that. So maybe you’re going to be getting a loan for 160,000. On a loan amount that small, let’s actually run the numbers on that very briefly so I can make my point here.
Okay, you said you’re at a 5% interest rate on a loan of 160,000 which would mean that your… Actually your loan amount might be even less than that, but we’re going to just compare at $160,000. Your principal interest is right around $859. That bumps up all the way to like 8%. What did I say it was? So we were at 859, it’s going to go up to 1,174, so about $300 a month more, okay? Nobody likes that. If you’re trying to maximize your cash flow, of course you don’t want to do that. Now I also don’t know you’re going to get an 8% rate. It might be less. Who knows? The point is $300 is not going to make or break anyone’s portfolio. It’s relatively speaking an insignificant number in your overall wealth building journey. It doesn’t change your life.
Now if you’re looking at the ROI on the property, that 300 could be pretty significant, okay? You’re like, “Well, I was getting a double digit return and now I’m not. And that can emotionally hurt, but if you zoom out and you look at the big picture, it’s not that big of a deal on a loan amount that’s that small. Now having that extra cash in the bank, the peace of mind that that would provide you, that probably is significant in your life.
In your wealth building journey, if you have more money in the bank and you feel that you’re more prepared to weather a storm, you’re okay if something breaks in the property… Nobody likes living paycheck to paycheck, that’s terrible when you don’t have money in reserves. And that will have a significant impact on future properties that you buy, how much you like real estate investing, the peace of mind you have, how well you sleep at night. Your overall experience is probably not going to be a whole lot less because of $300 a month. It would be a whole lot worse if you didn’t have any money and you were no reserves and you were just praying to God. Nothing goes wrong.
For that reason, I don’t think you’re wrong to follow your instincts here. Refinance it, put the money in the bank, get the peace of mind. That’s actually probably the prudent thing to do. Defensively, that’s the right move. Even though offensively you might lose 300 bucks a month, it’s better defense. And worst case scenario, you just wait a couple years, rents go up by that $300, you’re right back to where you were.
But you know what’s likely to happen? Rates are going to come back down and you’re going to refi back into a 5% or a 4.5%. You’re going to be right back where you were and you got the peace of mind during that whole period of time. People forget rates don’t go up forever. They don’t go down forever. They fluctuate. So it’s okay to put that money in the bank, wait if rates go down, refi. If they don’t, just wait a little bit longer. But overall, the defensive move is almost always the right move to make. So trust your gut, you’re thinking the right way. And thank you very much for sharing with that with us, Suzanne.
All right, thank you everyone for submitting your questions so far. I freaking love these episodes. Are you liking the Seeing Greene? Man, I got to fire my tech guy. I can’t believe that we were recording in blue this whole time. It’s not called the Seeing Blue BiggerPockets podcast. It’s Seeing Greene.
All right, now that we are seeing green, let’s get to the comments. In this part of the show, I like to read comments that you all have posted on our YouTube channel about the show so everybody can hear what is being said. And I want to encourage you to go to YouTube and leave me a comment on today’s show. And while you’re there, subscribe to the channel and hit the notification bell so you hear when we’re doing an episode like this.
Our first comment comes from the EffortlessApproach. “The best investment I made was getting a brand new Subaru going on seller appointments, and that changed everything. The seller treated me with way more respect rolling up in a new car compared to my chipped paint one. Come on, perspective is everything. It’s literally earned me 10 times more money than if I didn’t have it. My old car had a bad axle, I had anxiety anytime I drove it in the snow in Colorado. Once I got the new car, I went on appointments more than ever, which equaled more deals I wouldn’t have had, especially those times I had to drive an hour away to make sure I get the deal. That’s the worst advice is to not get a new car. It starts every time.”
This is hilarious. It sounds like this is a real estate agent who’s talking here. I like the boldness. Now it sounds like this car gave you confidence, which probably led to your business in being improved more than just having the car. And I’ll say if it had a bad axle and you were holding your breath every time you had to start the car, it’s not that you needed a brand new car, it’s that you needed a new car for you. You shouldn’t be driving around in anything that you don’t trust if it’s going to start when you want it. So congratulations the EffortlessApproach for your new car, your new confidence, and your new progress. Please keep going. Consider checking out the books I wrote for BiggerPockets for real estate agents. They are cold Sold Skill and Scale.
Our next comment comes from Alan Hernandez. He’s talking about episode 684, which was a live call with Parker. “The moral of this interview and a reminder to myself is that you can’t be too quick to leave your job. Quitting your job can be a major strategic blender if you bounce too soon. Hunker down folks and milk that W2. P.S. I promise, jobs start to suck less when momentum builds when working on building your dreams and your earnings are higher than all of your bosses put together. Keep grinding folks.”
Alan, thank you for sharing that perspective. That’s very cool. Now, should everyone keep every W2 job they have? No. Is it good to have the goal to replace enough income that you can quit your job when you want to? Yes. But what we’re talking about there is freedom. The freedom to quit if you want to quit, the freedom to do work in different areas. And the point here isn’t that you need to quit your job to go build that freedom. The point is that working your job can speed up the process with which you get to freedom.
My personal opinion is what really matters is what you’re spending your money on. If you don’t love your job, you should be saving money more than everyone else. The next book I’m working on for BiggerPockets is a lot about this, is what do you do with your money and what does that say about you? If you love your job and you want to work there every day, I can understand why you might not save money as much because you have no goal that you’re saving towards. But for everyone listening to this that doesn’t love their W2, use that as incentive to save even more, to live beneath your means so that you can get enough money that you invest that you can eventually change that scenario. Alan, thank you for sharing that.
Our next comment comes from Kurt Anderson. “The live coaching call was pure gold. I probably skip one out of every three or four episodes, but if I’m confident that you do that every episode, I wouldn’t miss a single one. One man’s opinion.”
Thank you very much for that, Kurt. I love the live coaching calls too. They’re harder for us to do from a logistical standpoint. We have to schedule the people and get them to be there, make sure their internet is working and it has to work around my recording schedule, but they come out really cool. So if you guys would like to be on a live coaching call, please go to biggerpockets.com/david and let us know by submitting a video that you’d like to be on a live call. We plan on doing more of these real life scenarios in 2023 to help you navigate the market conditions that we’re all facing as they change more rapidly every month.
Francois Boizo. “David, you were very encouraging and uplifting to the dog trainer and the new investor. You did not take the hammer and bang it on his head, rather you saw an accident opportunity of what he called a mistake or failure. Awesome man. Failure is not the opposite of success. It is a part of success.”
Oh boy, that’s good. I’m going to give you a custom analogy I just thought of right now, Francois. Yeast, I’ve never had it, but probably tastes gross and probably isn’t that great for you to eat raw. But if you put yeast into bread, it makes the bread way better. Failure may be the yeast of life. You need some of it within the bigger picture to make your success better and make it even possible. But if all you have is failure all by itself, it sucks. So thank you for the encouragement you gave me when we were talking to the dog trainer. I remember that show too, and I remember seeing his eyes light up when he realized it wasn’t that he had failed, it was just a different opportunity that he could be taken advantage of and I hope he’s making more money now than he ever was before.
GoneWiththeShirt. “OMG, that is exactly my situation too. Thank you so much, David, that you gave those great advice. I’m too shy to be on camera talking to you, but I knew someone else will ask my questions and today is the day. Now I’m much more clear on what to do.” Not exactly sure which of the shows you’re referring to, but I’m very glad to hear this GoneWiththeShirt. That’s very good to hear. I’m also very curious to know what on earth your YouTube handle came with. GoneWiththeShirt’s kind of funny. It was probably the show that we did with Parker it sounds like. But this is the point. We make these shows so everyone here can hear that they’re not alone. You’re not the only one going through these problems. When your deal doesn’t go the way you thought, it doesn’t mean you did it wrong. Everyone’s deals don’t go the way they think. My deals don’t go the way they think.
I just found out… Here’s a crazy story of what’s going on in my own portfolio and I’m experienced, okay? I had a short term rental city inspector set to go to a property that I want to get a short term rental permit for in South Florida. We sent them to the house while construction was still going on. Not only did we not get the permit because the house was under construction and clearly not ready to be licensed as a short term rental, but they also went and tagged up all the work that was being done by the contractor there and now said, “You have to go redo all of this work so we can come check on it.”
That sucks. It’s going to set me months behind, it’s going to cost more money. I’m going to have to go talk to the contractor, figure out what they were doing. It even happens to me. This stuff happens all the time. The more you listen to episodes like this, the less crazy and less discourage you feel hearing it’s not just you, it’s all of us. But hang in there. That property will become profitable. 10 years later I won’t care about what I went through right now. I’ll be very happy that I own it. And real estate investing is all about planning for the long term.
Our last comment comes from MissyQ, “My 2023 goals. I’m going to flip my first home in 2023 after I buy my first home. I’ve been engulfing myself in learning all that I can so that I can be prepared.” That was from our goal setting episode, and I would like to encourage all of you to use this podcast as your accountability partner. We talked about how important it is to have an accountability partner when you’re going over your goals. Keep listening to this. Set the notification bell, like the video and keep tuning in because you need to be putting it at the front of your head what your financial goals are. We tend to push those to the back all the time. Life keeps throwing stuff at you and you tend to get caught up in PTA meetings and kids’ homework and paying bills and things breaking that need to be fixed and holiday events you got to attend and drama that’s going on in your friends’ life and you forget all about your financial future. Well, episodes like this can help at stay top of mind.
Another piece of advice I’ll give you is considered buying some AirPods and subscribing to YouTube Premium. That’s what I did. Now, I don’t get paid at any kind of affiliation fee by YouTube or Apple, but what I do get is the gratification of knowing that I’m helping you. What I’ve done is anytime I’m taking a walk, I’m taking a run. If I’m going to the grocery store, anywhere, I put in my AirPods and I listen to different educational programs on YouTube. Oh, I just said programs, but I sound like my grandma. Nobody says programs anymore. What do you call? I guess a YouTube channel. I just couldn’t think of the word at the last minute there. Don’t say programs. That makes me think of Golden Girls and Matt Locke and Murder, she Wrote.
But I do listen to different people on YouTube that are talking about the economy, economics, real estate, finance, interest rates, the Fed, all the stuff that you guys depend on me to know so I can give you the information. And I’m not taking extra time in my schedule to do it. I’m taking time that I already had to be walking through the grocery store or waiting at the DMV or running whatever errand I had to run and I’m listening while I’m doing that. I highly encourage everybody else to consider doing the same thing and listen to podcasts like this.
All right, we love and we so appreciate your engagement so please keep that up. It’s very encouraging to see. I’d also like everyone else here to like, comment and subscribe on YouTube if you haven’t done so. And go and give me a five star review on whatever app you listen to podcasts if you’re not on YouTube right now. Those reviews really help when it comes to making sure that we at BiggerPockets stay at the top of the charts and I want to make sure that happens.
Our next question comes from Kevin in Phoenixville. First time I’ve ever heard of Phoenixville. “Should I consider selling this unit that I know has no major issues given that it’s newer and give up such a low rate, 2.5%, to purchase three to four other units while borrowing at the current 5% interest? Alternatively, I could use a HELOC to tap the equity, but suspect that would be a bit more expensive than the 5%.”
Ah, so this is a question of how to scale, Kevin. So let’s dive into this. First off, don’t let the rate make the decision, okay? It doesn’t matter if you’re at a 2.5, go into 5, go into 8, go into 12. It doesn’t matter. What matters is the overall cash flow that you’re going to get having one property versus several. So if you can sell this one that’s making X cash flow and reinvest irregardless of the rate at Y cash flow, if Y is more than X, it’s probably a good move to make. Then the next thing you could look at is the equity. “How much equity do I have in this property? Can I increase that by going over several properties?”
Now, if the value of real estate continues to decline, going from 1 to 3 could amplify your losses. But if the value of real estate goes up, going from 1 to 3 will absolutely amplify your gains. So that’s the question you have to ask. Do you think real estate’s going to go up long term? If you do, I’d say yes, sell it. Buy three more. They may go down a little bit in the short term, but eventually they’re going to be worth much more. If you think real estate’s never going to go back up and it’s going to go down for a long time, or not just for the near future but for the long future, the far future, now is not the time to make that move.
But I do want to highlight that looking at the interest rates isn’t what’s important. Because if you could buy more properties at a higher rate, but they cash flow more because the price rent ratio is in your favor or they’re in a better location where the rents are going to increase faster and they’re increasing on three units as opposed to one, then it is a good move to make. In most cases, selling a property for more good cash flowing solid properties in great locations is almost always the right move. But make sure you’re analyzing from an overall cash flow perspective and not the interest rate.
All right, our next clip comes from Jared Haxton in Prescott, Arizona.

Jared:
I’m a relatively newer listener to the podcast, but I have devoured every episode that has come out since May of this year and I just signed up for the pro membership. So the extent of my real estate history is doing two of what you dubbed sneaky rentals by turning my primary residences into rental properties. That leaves me with two rentals and a primary residence right now.
I work in IT, but I spend all of my free time and travel time listening to BiggerPockets. So apparently, I need to be doing more to get into the real estate arena, and that is actually what brings me to your doorstep today. I decided to take some action and I have found myself with the exclusive opportunity to put together a deal on a piece of off market commercial industrial real estate that I have somehow maneuvered my way into.
So as quick as I can, here are the details. The two owners are in their late 60s and 70s and want to retire, and in their words, ride off into the sunset. It’s two parcels that total about four acres with a 6,400 square foot office building. There are 13 different tenants that pay anywhere from 2,600 a month down to $50 a month, and they’re confident that they can get $2 million for all of it. If taxes and insurance remain the same for the next buyer, the total net cash flow is about $9,500 a month. They really don’t want to finance any portion of it themselves, but said it wasn’t a full on deal breaker if they carried a small part of it.
There is about an acre of open land that I’m thinking could be used for mini storage and the location has some nice things going forward as well. I walked in there like I had done this a thousand times before, got all the info, condensed it all, researched a bunch of stuff, posted in the BiggerPockets forum and made some really cool connections and got some great feedback that I decided to add to my pitch preparations.
I am very aware that I know almost nothing about this. Regardless of what happens in my first deal here, I want to maximize the training opportunity and run down every path that I possibly can. I figure if none of the roads hold a solution for this deal, at least I have traveled a lot of paths and that will undoubtedly come in handy for my next deal.
So I have a flurry of questions in my head, and it looks like this. What do you think of this deal on the surface? How many different ways could I come at the financing since I don’t have any meaningful capital of my own to contribute? I’m local and I’d love to manage the property on the side, but I’m not sure if that actually matters to anyone. If the owner got their $2 million, it would have around a 4 or 5% annual return baked in, but rates are pushing to 7s. Are there any cool ideas on creative financing that would at least be valuable for me to travel down as a newbie or they might even have a chance of working?
There’s nothing like being in the pressure cooker of my first live exclusive deal to accelerate my learning curve. So I’m ready to turn the heat up and try some stuff. You guys are doing an incredible job out here and I can’t wait to hear any thoughts you have on this. Thanks. Oh yeah, and if you ever want to do a live coaching call, I am 1000% on board and available at any moment of any day. Thanks.

David:
All right, thank you for that, Jared. Let’s talk about the positives of the deal. It sounds like you’re interested in this because it’s off market. That might be the only reason. Because when I’m listening to you talk about the actual metrics here, I’m assuming this is triple net based on the way you’re describing it. A 4 to 5% return without a huge amount of value add and quite a bit of labor, like if you’ve got some properties that are going to be rent for $50, I don’t know how that’s really beneficial to you.
So I’m just kind of trying to turn this over in my head because you gave me a lot of information there. It was all really good stuff. I don’t love triple net in a highly inflationary environment. And the reason is the lease terms are usually set in place to go up, if they go up at all, by 2 to 3%. 4% is high. Oftentimes they’re locked in place for the same amount every single year. And that’s fine if there’s no inflation or inflation is low, but when inflation is at it like it is now, which who knows how to measure it, but personally I think it’s probably in the 30 to 35% range is based on how much money that we’ve created that wasn’t there before, the price of everything else is going to be going up much faster than the price of your properties. That’s one thing I don’t love about the deal.
Now, if you were coming and saying, “Hey David, it’s a 20% return right off the bat,” so even though it’s not going to keep pace of inflation, I might be more excited. But 4 to 5% isn’t that exciting either. You could get a better return than that on a lot of stuff. You could invest in residential.
Now let’s say you said, “Well yeah David, but I got a bunch of cash I want to deploy and I want to put it into one property. So if I can buy this one for 2 million, put $400,000 to work.” I’d say “Okay, that might make sense for you,” but you’re saying, “I don’t have a ton of capital. I actually need the money from someone.” And so I think, “Well, let’s figure out how you could get someone to partner on this deal.” But no one’s going to be excited about partnering on a 4 to 5% return when it doesn’t have big value add to it. So you’re not going to be able to find a partner most likely.
And then I thought, “Well what if he needs the tax benefits and there’s a lot of depreciation that he’s going to get out of this triple net property? That would be a reason.” But you haven’t mentioned anything saying that you’re a real estate professional or that you need to shelter income. So as I’m running through this scenario, nothing about this deal is really jumping out at me as something that you should be excited about. And then I wondered, well why is he looking into it this deeply? And I think it’s because you found an opportunity that’s off market. You’re talking directly to the sellers. And there’s a good learning lesson there, because just because something is off market does not mean it’s good deal. In fact, many times off market can be bad deal. Think about the Zillow Make Me Move feature. Do you think you were getting a great deal on a Make Me Move? That’s something you have to literally pay such a high price to get the seller to consider selling their home that you’re getting ripped off just to get that property.
For a long time it was so hard to get anything at a reasonable price that if you could go off market, you were guaranteed to get the property because you didn’t have to bid with 12 other buyers. And I think the phrase off market became synonymous with better deal. And in many cases you do get good deals when you go off market, but that’s not going to be a 4 to 5% return, okay? So off market doesn’t mean good or bad, it just is. Now you got to analyze to determine if it’s good or bad, and the numbers here are telling me bad.
So if there’s something that I forgot you said in the video or that wasn’t mentioned, I don’t want to turn you off from buying this deal, but if the only reason that you’re looking at it is because it’s off market, I don’t think that this is worth pursuing. I think those two older gentlemen probably don’t know what the market’s worth when they say that they can get 2 million for it. They may not know what interest rates are doing right now. They may not understand that the market isn’t super thrilled about a 4 to 5% return. They may not realize that triple net properties are not the flavor of the month like they are in some economic environments where they’re considered really safe. There’s actually a lot of people that are holding money waiting for the market to continue going down so they can get better deals. And this doesn’t sound like a great deal. So you’d have to get it at a much, much lower price or with incredibly favorable terms.
The other thing I want you to be careful of, I know I’m going on this one for a long time, is that when you buy a triple net property, and this is the lesson I had to learn the hard way, you often don’t realize how much money you have to spend every time a tenant leaves, okay? On the property that I own. It’s not uncommon for the tenant to request 80,000 to $120,000 in improvements to that actual unit before they move in because they need to take that space, whatever it is, and have it converted to work for their business. If you don’t have enough cash to buy this place, you’re probably not going to have enough cash to deal with those problems when they pop up and I’d hate to see you end up in foreclosure, which just makes mean that this asset class isn’t the best place for you to get started. I’d rather see you start with something like a house hack where you can put 3.5% down and learn some of the fundamentals and ways you can exercise your creativity in real estate in a much safer way.
The other problem with triple net properties is that the only time you can get out of that 2 to 3% increase in lease ups is when the tenant leaves. So you’d be happy the tenant left, but then you got to go dump all the money into getting the property ready for the next tenant and there goes all of your profit. So in general, I wouldn’t be looking at a property like this unless it was an incredible deal where you’re getting it far below market value and the cash flows were way stronger than they’re at now unless you bought it for tax purposes.
However, do not let this discourage you. I love your attitude, I love your energy. Keep going. Find another deal and send us a video here on biggerpockets.com/david for us to review. Also, I want to let you know I love the fact you’re using my sneaky rental strategy where you buy a primary residence and you turn it into rental property without having to put 20% down. Keep doing that. Maybe just look for ways to maximize that. Find some fixer-uppers, find some houses in better neighborhoods, find some people that are looking to sell or they think the market’s going to crash so they’re willing to take a discount on their home before the market crashes. And then when it doesn’t crash or if it doesn’t crash, you will have gotten a better property in a better location for less money down that you could still make cash flow.
Our last question comes from Michael Roetzel in Arkansas. “I have three rentals currently. I have sold a few in the past. One flip under renovation and one house under contract with the idea of it being a long term hold. I’m looking for advice on the renovation mindset. What do you say to a person who has trouble with wanting too much perfectionism and control?”
So funny that you say that Michael, because this is something I’m dealing with in my own life. It is not uncommon for me to see employees that work for me or people that are in my business or people that are working for me like a contractor or an insurance provider anything that just don’t care as much about excellence as I do, all right? So luckily I don’t have that problem with BiggerPockets. My producer Eric is awesome. He does an incredible job producing these shows and we get along and we work very well together. But that’s because he has a very high standard that he expects from himself and he knows that I have a high standard, and so we get along. Frequently in life, you’ll find the majority of people you find do not have a high standard for excellence. It’s a matter of the heart. And what I mean by that is that what’s in our heart will determine the actions that we take.
If you feel a sense of obligation to do a really good job, you’re going to look for answers, you’re going to anticipate problems, you’re going to solve things without bringing problems to other people. If your heart is in a place where you’re saying, “I just want to get paid and do as little work as possible,” you’re going to bring people problems instead of solutions. You’re not going to anticipate what could go wrong. You’re going to cut corners in your work.
And the problem is the people that are trying to do as little work as possible and still get paid are always clashing with the people that are trying to do the best job possible for different reasons. And this is probably what you’re experiencing and it’s very likely what I’m experiencing. And as people listen to this, they’re either in the camp of, “Yeah, why does everyone suck?” and they don’t try very hard. Or they’re in the camp of, “Why is it never good enough? And how come no matter what I do, you always say, ‘I could have done it better’?”
This as a struggle that has been going on with human beings for the as long as time’s been going on, right? I’ll talk to one performance coach or one psychologist and they’ll say, “Yeah David, you just expect too much of people. You have a problem where you want everybody to be like you.” And I’ll talk to another one that will say, “Yeah David, you don’t expect enough of people. You need to be raising your standards. And if people want to play in your world or they want to live at where you are, they need to step up their game.” And I don’t know if there is a right answer to this. I really think it comes down to what’s going on in the heart.
My advice to you for someone who’s dealing with too much perfectionism control is the same advice that I’m giving to myself. Rather than continuing to try to push certain human beings in one of my businesses that do not want to step up their game, I need to just make sure that they’re doing good enough and put my energy somewhere else where people do respond to it.
So here’s an example of that, okay? Let’s say that I have a group of loan officers, an individual team on the one brokerage, and I see them and they just kind of lolly gag through the day. They do their job, they help their clients, they don’t make mistakes, but it’s kind of the bare minimum, okay? They wait for the underwriter to come back with conditions, they go get answers. And I go to them and I’m like, “Listen, I want you anticipating what the underwriter’s going to say before you submit that file. I want you to think like an underwriter so that we get the stuff they need before we submit it and four days go by and they kick it back to us and then another three days go by that we get it from the client. Now it’s been a week, we could have closed a week earlier.”
And they’re, “Ugh, why is it always not enough? No matter what I do, David’s never happy.” When I get that type of energy, instead of banging my head into that wall, I just need to be grateful that I have them. Let them stay in the position they’re at in life with the understanding that they’re never going to be a top producer. They’re never going to be the one who gets the best clients. They’re not going to be the one that I go personally recommend somebody to. They’re not bad. They’re doing their job. And frankly, they’re better than their competition and they know that. They’re just not excellent, right? I want them to be Olympic level black belt stuff. That’s how I’m always trying to be.
And I get very frustrated when I’m pushing people that don’t want to be pushed. And they get frustrated too, because they didn’t sign up for this job to be pushed. They signed up for this job to be who they are. And that’s who they are, they’re one of those people that says like, “Yeah, I just want to have fun or I just want it to be easy. I don’t want to have to work out on my comfort zone.” Instead, I need to just let them stay and find a different team within the one brokerage that’s craving my direction and craving my leadership and really wants to hear how can I get better and put my energy there.
I’m going to give you the same advice. So frequently on my rehabs, I’m not happy with the contractor or I’m not happy with my employee that’s managing the contractor. And I just gave an example earlier of how one of my employees sent someone to one of the houses that was under construction and was told by the contractor like, “Hey, you’re good to go. Send them.” And it turns out it wasn’t good to go. Rather than getting angry at all those people, which is just not good for them and it’s not good for me, I’ve just accepted, “Rehabs aren’t going to go as good as I think. Let me put my energy towards something else that wants it.”
And I would give you the same advice. There’s people in your world, there’s part of your business, you’ve got several things going on. You have three rentals that you already own. You have a flip under renovation and another house under contract, right? There’s someone out there in this world that does want to pursue excellence, the agent helping you find the next house, or the property manager that’s managing the houses that you already own, okay? There’s something out there where people are perfectionist-based and you’re just better off spending your time with them and doing less deals or putting less of your business as significance in the area where people don’t think like you.
I can assure you of this, you are not going to find a person that cares about your deals as much as you do, and that’s what you want. You want them to be paying attention to every detail the way that you do. And if you really want to go deep, perfectionism and control often come from dark places that aren’t necessarily positive. They feel positive to us because we see how it would benefit us. But sometimes perfection and control comes from a parent that you had that you were never good enough for and you were always trying to get their approval and you thought you had to be perfect and now you’ve taken that standard and you put it on everybody else and they never asked for that. And you’re making other people feel the way that that parent made you feel.
Or sometimes they come from a place of absolute fear that you’re just terrified of what’s going on in the market and you can’t control any of it so you look for what you can control and you put way, way, way too much emphasis on that and you’re making people unhappy that are around you. There’s probably no right or wrong answer. This isn’t a black or white issue, though it feels that way to people that want everything to be perfect. It does feel black and white. But if the people that you’re dealing with, they’re not on the same page, they’re just not going to respond and you’re going to waste a lot of your energy and constantly be frustrated and not enjoy this wealth that you’re creating.
So what I’d like for you to do is think about how to enjoy the wealth you’re creating, how to enjoy the journey that you’re on, how to see the things that you’re happy about. Let that make you feel good instead of the stuff that’s going wrong that makes you feel bad. And as I’m talking to you, I’m also talking to me. So thank you very much, Michael, for making me have this deep dive that I just did in front of 250,000 people on a Seeing Greene episode. I think it’s going to help me.
All right, that wraps up our show for today. And what a note to leave it on. You guys just got a personal therapy session with David Greene going into the dark green places of my mind. What color is dark green? Is that like a forest green? Why don’t we call dark green, right? That’s what we should call it whenever I go into those deep, deep places. Anyways, I enjoy you guys being here with me. I appreciate you guys being here with me, and I hope that sharing what’s going on in my world, what’s going on in my businesses, the problems I’m having, and the issues everybody else is having makes you feel better about your life. It’s better than watching an episode of Keeping Up with the Kardashians and feel good about yourself because you’re actually learning how to make money and find more freedom. So thank you for being here with me.
One last thing I’d ask for, if you could please leave me a five star review on Apple Podcasts or Spotify, wherever you’re listening to this podcast, as well as subscribe to our channel and leave us comments. We read them. And as you see, we put them in episodes and we take them serious. So I love you guys for being here. Thank you so much for joining me. If you’d like to follow me, you could find me online on all the socials @davidgreene24. Please go give me a follow there on Facebook, on Instagram, on LinkedIn, on Twitter, on wherever. You can also find me on YouTube @davidgreene24 now. They included handles, so follow me there, see what I got going on. Let me know what you think and make sure that you listen to another BiggerPockets Podcast when you’re done with this one. Remember, YouTube Premium, those AirPods, best investment you can make. Thanks guys. I’ll see you on the next episode.