December 2022

The San Diego metropolitan area features a robust housing market—with some of the highest historical rent and price appreciation in the United States. Anchored by a growing economy, low unemployment, and a significant military presence, the San Diego real estate market offers investors a stable base with strong long-term growth prospects.

Economic Overview

San Diego, located in Southern California, is the eighth largest metropolitan area in the United States, with a population of about 3.3M people. From 2010-2022, San Diego County grew nearly 7%, but recent estimates show a 0.4% decline in population from 2020-2021. For context, the state of California overall had an estimated decline of 0.8% during the same period.

Wages in San Diego are very high, with the median household income coming in at just above $82,000, compared to a national average of $65,000. Poverty rates are relatively low at 9.5% compared to the national average of 11.6%. These strong economic indicators are partially driven by a highly educated workforce, with nearly 40% of citizens holding a bachelor’s degree or higher. 

One of San Diego’s greatest strengths is its labor market. Unemployment rates remained solidly below the national average for many years pre-pandemic and have returned to very low lows in 2022.

An important economic factor for real estate investors is the diversification of employment in a target market. When an area is highly dependent on one industry, it makes the market more susceptible to economic cycles. San Diego, however, has a well-diversified economy with a strong representation in education, hospitality, trade, professional services, and government.

Housing Prices

San Diego has a strong track record of property appreciation, growing a staggering 270% from the lows of the great recession in 2009 to current day, according to the S&P/Case-Shiller Index. As a result, San Diego has a relatively high entry point with a median sale price of almost $828,000 as of October 2022.

As with many markets, the San Diego market is showing signs of changing course. Since June, inventory (as measured by months of supply) has increased from pandemic lows and has started to level off near pre-pandemic averages.

This shift presents both opportunity and risk for real estate investors. With high-priced markets that appreciated rapidly during the pandemic, the risk of price corrections is considerable. It’s likely that prices will come down in San Diego in 2023. 

However, increasing inventory and price declines mean that the San Diego market has shifted from a seller’s to a buyer’s market. When buyers have pricing power, they should focus on buying properties below asking price to insulate themselves against potential future price declines. 

Rent Trends 

For investors, one of the most attractive reasons to invest in San Diego is the strong rent growth. The median rent in San Diego is above $3,100 and has grown 10% in just the last year alone. While rent growth is starting to slow down, San Diego still has one of the country’s highest year-over-year rental growth rates. It’s a highly desirable place to live, and the demand for rental units is strong.

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Cash Flow Prospects

With potentially falling home values combined with high rents, cash flow prospects in San Diego are likely to increase in the coming months. That said, cash flow is relatively hard to come by as measured by the rent-to-price ratio (RTP). 

Generally speaking, the higher the RTP, the better. Anything with an RTP close to 1% is considered an excellent area for cash flow, but it’s not a hard and fast rule. But that doesn’t mean cash flow cannot be found. There are good strategies for real estate investors to employ to generate excellent returns in San Diego.

Winning Strategies 

According to David Greene, a local market expert, short-term rentals, medium-term rentals, and house hacking are all excellent ways to find cash flow in this market. Traditional buy-and-hold investing can still work but will likely require some value-add work to make the numbers pencil out.

If you can generate a good cash-on-cash return with some of the strategies mentioned above, San Diego could be a winning market for investors, given its reputation for great appreciation. Appreciation might slow down or reverse in 2023, but the long-term prospects remain very strong. 

Getting Started: Invest in San Diego 

To learn about investing in San Diego, partner with a local investor-friendly real estate agent like David Greene, who can help you find, analyze, and close the right deal. 

Here’s how to contact David on Agent Finder. It’s easy:

• Search “San Diego” 
• Enter your investment criteria
• Select David Greene or other agents you want to contact

David is a nationally recognized authority on real estate—he’s an agent, lender, investor, author, and co-host of the BiggerPockets Real Estate Podcast. He’s been featured on CNN, Forbes, HGTV, and more. David is the first to know which strategies work, when the market shifts, and the best areas for investing that will meet your goals.

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

Jim Egan, Morgan Stanley U.S. housing strategist, joins ‘Power Lunch’ to discuss why the housing market is going to get worse, why housing starts and sales are poised to fall even lower and how insurance prices play into the housing market.

David:
This is the BiggerPockets podcast show 697.

Dave:
Are you then recommending mostly long-term buy and hold-type deals for your clients?

Dahlia:
I do. I mean, I just feel like it’s the safest route because people always need a place to live, right? And so your long term rental is just going to be the most stable. And not only that, especially in these markets where you are seeing a lot of short-term rentals and then not enough properties for just regular renters, which is why I’m sure they’ve implemented these restrictions for you guys.

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets podcast. And in case you’ve been living under a rock, we are the best, the biggest, and the baddest real estate podcast in the world. The show’s being hijacked today by my co-host and friend, Dave Meyer, who joins me from Amsterdam to bring you guys an awesome show with a little bit different of a situation than we normally have. Dave, welcome.

Dave:
Thank you so much. Yeah, it’s a little bit of a hijacking, but we also just want to bring some of the things that we’ve been doing on my podcast on the market to this episode to help everyone listening to this episode get some knowledge about what’s going on in the market. We do these regular panel episodes where we get experts from across the industry and do sort of a round table discussion. And so today we’re going to do one with different agents. So we’ve brought in two new real estate agents who are going to be coming to provide their insight, and David is going to switch roles and instead of being the host as he usually is, I’m going to sort of moderate the conversation and Dave’s going to put on his agent hat and help us understand what’s going on in the markets that he operates in.

David:
That’s exactly right. I love getting to do this, I’ve been a real estate agent for a while now, and I’m still intimately involved in the details of the David Greene team and what’s going on in the market. And I buy houses in these markets too, so it’s fun when I get to jump in and give the advice and the council of someone who’s leading others towards building wealth the same way that I have.

Dave:
Were you an agent or an investor first?

David:
Investor.

Dave:
Really?

David:
I’m probably the only one dumb enough to go from being the investor to willingly getting into the real estate agent space. Almost everybody in our market does it the other way. They’re like, “This is driving me crazy. I want to be the person to own the real estate, not sell it.” But it’s that drive to want to share the information, and there’s not really a better way to share information about how to wealth build than jumping in the mix with your clients and walking them through that process.

Dave:
Yeah, good point. It seems to have worked out well for you. And yeah, it’s the best situation for an investor, right? If you are an investor and you willingly became an agent because you knew you had something to offer, I mean, that’s exactly as an investor who you want to be working with. And that brings us perfectly to today’s quick tip. Quick tip. Do I have to say it weird? Do I have to say it like-

David:
Brandon made me say it weird for years and I can make you say it deeper. Yeah. But no, that PTSD that I have from those high pitch quick tips I did, I would never wish that on my worst enemy, so no.

Dave:
Okay, we’re liberated now.

David:
That’s exactly right.

Dave:
Than you, thank you.

David:
Free market.

Dave:
All right, today’s quick tip. There we go. That was as boring-

David:
That’s such a Dave Meyer way of saying it. That’s how you’d expect a data analyst to say quick.

Dave:
I calculated the most efficient way to say quick tip, and then I said it that way. All right. Well, today’s quick tip is to check out the BiggerPockets agent finder. It’s completely free. And as you’re going to learn over the course of this episode, having a great agent is not just about doing all the transactional stuff that is involved in being a real estate investor and buying a property, but it’s also someone who’s a partner with you and helps you navigate these challenging times that we’re going through. David, I’m guessing you agree, but I personally believe you can make money in any type of economic cycle, it’s just about adapting your strategy accordingly. And in this type of environment, it’s more important than ever to find a good partner who’s usually an agent to help you adapt your strategy to meet what’s going on in your market.
So if you want to do that, you want to find a great investor-friendly agent, you can do that for free on BiggerPockets, just go to biggerpockets.com/agentfinder, you put in your market like San Diego, Washington, D.C., or Tulsa. Those are where our guests are from today. You just enter in what you’re looking for, put your investment criteria in, and then you can get matched with agents who can help you succeed. So that is the quick tip. I guess I’ll give a second quick tip because you said I can do whatever I want. And that’s if you like this type of market-based information, these panel discussions, check out BiggerPockets’ other podcast, it’s called On the Market. You can find it anywhere you listen to podcasts, Spotify, Apple, whatever. David, anything else before we get into this episode?

David:
Yeah, last thing I’ll leave people with is when you’re using the agent finder, you’re still going to have to vet the agent to make sure this is a person that you want representing you, so take the conversations that we’re having here today and use them as a form of template or a model that you want to be able to have a similar conversation with the agent that you’re choosing. If you have an agent on there that’s never sold a house, just because they’re on the deal finder doesn’t necessarily mean they’re going to be amazing. It also doesn’t mean that they’re going to suck. You don’t know. You got to have the conversation with them and figure out what they know about the market, what strategies they can recommend, and what they can do to help you on your goal. A lot of people always say, “What am I supposed to ask my agent?” Well, listen to today’s show, hear the conversations we are having, and try to find the closest thing you can to that.

Dave:
David, I love that advice because I just think that’s true of anything. Like finding an agent or anything people, you need to just vet whoever you’re working with in real estate investing. Even if you hire a turnkey company, you do a syndication, make sure you do your due diligence that’s an important part of being an investor. Okay, one more thing, sorry, you told me that I could do what I want with the quick tip and now I’m drunk with power and I’m going to give one more tip. And that’s if you like this show, if you like On The Market, please give us a positive review. We really appreciate them. It really helps us make these great shows that you all love and rely on to become informed and successful investors.
With no further ado, let’s get to today’s interview. All right, well thank you all so much for being here. Super excited for this show. Let’s just start with a round of introductions. Rob Chevez, could you please tell everyone listening a little bit about yourself?

Rob:
Thanks for having me guys. I appreciate it. I’m Rob Chevez out of the Washington D.C. Metro market. I have the honor and privilege of leading The CAZA Group. We’re a team within Keller Williams that will do around $180 million in volume this year. And I run one of the largest real estate investment networks in the country called GRID. And I’m just happy to be here. I’m happy to participate, so I appreciate it guys.

Dave:
Great, thank you so much. Next we have Dahlia Khalaf. Dahlia, could you please introduce yourself?

Dahlia:
Yes. Well, also thanks for having me. I am so excited to be here. So my name is Dahlia Khalaf, I am the owner and managing broker of ASN Realty Group. I’ve been an agent for about 15 years and then a broker for the last two. I also have my own investment portfolio that I personally manage and I primarily work with investors and my real estate firm has just kind of naturally evolved into an investment firm and it’s kind of our niche. And that’s pretty much me in a nutshell, and I’m just super thankful to be here.

Dave:
All right, great. I feel kind of weird asking you to introduce yourself, David, but just for giggles, why don’t you introduce yourself to everyone who probably already knows you?

David:
I am the other David in the David and David shows here, often called Dave and David by real estate connoisseurs who are a little more cultured. But I’m a real estate gadfly. I do a whole bunch of different stuff. I run the David Greene team, so we sell homes all throughout California looking to continue helping the BP community, representing them out here. I have a mortgage company called The One Brokerage, where we help people financial estate all across the country. And then I buy rentals all over the place, write books about real estate, and host the BiggerPockets podcast, which is what people already probably know if they’re listening to this.

Dave:
Let’s hope so. Today we’re going to be talking to all of you. All have a lot of experience, but talking to you in the context of being real estate agents because so much of what’s going on right now in the market is very fast paced and it’s sort of hard to keep up. Even someone like me who looks at a lot of data, data is always in arrears, it’s backward looking. And so we want to hear from all of you about what you’re seeing on the ground in your respective markets and what you’re counseling your clients with and how you’re preparing yourself for this shifting market dynamic. So Rob, I’d love to start with you. Can you quickly just tell me a little bit about the D.C. market over the last couple of years? What happened during the pandemic and has anything changed recently?

Rob:
Well, a lot has changed, but let’s go back in time a little bit. Let’s start from 2017 to 2019. We saw just kind of this modest appreciation at 3% to 4%, which was normal. Same volume of properties was selling year over year. And then in 2020 we saw an 8.5% spike in appreciation, and then we also saw a 5% increase in the number of homes that were selling, so more home sold for 8.5% more. But then the next year was super interesting, 2021, we saw a massive spike. We saw another 8.5% or 8.2% growth in the D.C. Metro market, but there was a 13% year-over-year increase in the volume of homes, the number of homes that sold. So we just had a lot more homes sold, it’s almost like we pulled some of those future sales into the present.
And then year to date, it’s been fascinating because year to date we still have experienced about a 6% appreciation, but we’ve seen a 19% drop in the number of homes sold. So pretty significant. And really we know it’s the second half of this year, it’s really been the second half of this year. When I compared the Q3 of this year compared to Q3 of last year, it’s pretty fascinating. I mean, it’s like a 26% drop in the volume of homes, but we still had a 3% appreciation. So there’s still low inventory in our market was about 24 average days, our market’s 24 days and there’s about a month and a half supply in the D.C. Metro area.
But if you drill even, go down a little bit deeper, what’s fascinating is that D.C., D.C. proper is actually having kind of its worst five-year cycle. And so D.C. is experiencing longer days on market, more inventory than the historical five-year average. And it’ll be interesting to see how this plays out over the next couple years. I think what we’ve done is we’ve gotten to the other side and so we hit this inflection point and now over the next quarter to two, we’re going to start seeing a significant drop in my opinion.

Dave:
All right. That’s great. I want to get to the point where you tell us a little bit more about what you think is happening. So it sounds like you had solid growth for five years with the last two years seeing above average appreciations, I think you said 8.5% in 2020, 2021, which in a normal year in times is pretty high. I mean, that’s extraordinary, but not necessarily compared to some other markets like David in San Diego. What were appreciation rates like over the pandemic? I mean, I assume it was double digits, right?

David:
Well, before the pandemic things were humming along really, really well in that market. California’s a big market, we like to call it California around here. And so a lot of people don’t realize Northern California and Southern California could be different states. They might as well be like North Carolina, South Carolina. So every city’s different, you can’t look at this state and say this is what’s happening, but San Diego’s been one of our crown jewels for as long as I’ve been around. It is massively popular. There’s hardly any reason to see why that would change, the industry’s very solid there, the weather’s incredible there. And so before the pandemic, days on market was at less than two weeks, like houses, even an old ugly house was just flying off the shelves because everybody wants to be in San Diego and inventory was always the biggest problem that we had there.
Now with rates going up, I’ve talked about this before, the higher that a price point is in San Diego, the average price point in the city is about a million, and if it’s in the county it’s about 800,000. But higher price points, the markets become very sensitive to interest rate hikes. When you get a higher rate, if it’s a $200,000 house, it doesn’t have a big effect. But on a million dollar house, that’s massive. And so you sort of see a point where a market can only get to be so expensive if people are using loans to buy the properties.
Now, you also have a couple areas in California where people just pay cash. They don’t care. They’ve got $8 million, they go throw it down on a house, they’re not going to be using financing, so those markets are different than these, that’s just pure comparable sales. And they actually can do better in down markets because people want to throw their money onto a beachfront property in Southern California. If they’re worried that the market’s going to crash, that’s a safe place to hold it. But San Diego in particular has slowed down from what it was like pre-pandemic. It’s actually growing in about 1%, which is not amazing, but that’s actually an incredible good opportunity if you’re looking to buy in San Diego, because it’s been very, very difficult. It’s not crashing by any means, but days on market have about doubled in the last year. So they were around two weeks, now they’re sitting just under four weeks right now, which means buyers actually have a chance to get into one of the most solid markets in the country.

Dave:
Awesome, great. Well, that’s super helpful to understand because already we’re seeing different dynamics in certain types of markets. D.C., it seems like has sort of been the last five years, slow and steady, hasn’t started to come down so much yet, but is maybe at the precipice, whereas San Diego saw this explosive growth and now is, I guess at least approaching flat.
Dahlia, how is it in Tulsa? I think that’s probably one of the markets I’m personally not as familiar with. So curious to learn what’s been happening in your area over the last few years.

Dahlia:
Yeah. So Tulsa is going to be very different from you guys’ markets. We are always a very stable market as long as I’ve been in real estate. So even things that are affecting you guys on the coast and you’re seeing a lot more in terms of price drops and that kind of thing or huge inflate appreciations and that kind of thing, we see some of those things, but on a much smaller scale just because we’re just so stable there in the Midwest. So we saw our median sales price back in 2020 was around $200,000. And now we’re at around $250,000. That’s our median sales price right now. So we saw some really good appreciation these last two years, but what a lot of us in the real estate business here are saying is that this is Tulsa playing catch-up. We were so undervalued for so long and now we feel like we’re getting to where we should have been and just stabilizing.
And then as far as days on market, obviously in 2020 things were just flying, our average days on market was less than eight days. Now we’re around two weeks. So things have slowed down, but they’re still moving fairly well, especially in certain price points. Our inventory is still low back in 2020, it’s still very low. We have less than two months worth of inventory right now. And then obviously the interest rates are the huge factor that we’re seeing between 2020 and now is how that has impacted buyer demand. So those are the main things. I would say, especially our under $200,000 is still moving very well. Once you get over the 220, 230 price point, and I think that’s obviously because it’s closer to our median sales price, things are not moving as much, staying on the market longer.

Dave:
Well, just for context for everyone listening, going from eight days of days on market to two weeks is a dramatic shift percentage-wise, but is still remarkably low in any historical context. Anything really under, I don’t know, 30 days is still pretty low, I guess depending on the market. So it sounds like things generally in Tulsa are still, would you say it’s still a seller’s market or how would you categorize the environment now?

Dahlia:
Now, when I’m talking about that eight days on market, we’re talking about in 2020. Now, if we’re talking about prior to that, it probably was closer to around 30 days, but this was once we started seeing the inventory shortages and all of that. Now, as far as buyer’s market, seller’s market, I feel like under $200,000 is a seller’s market still. That’s a competitive price point. I mean, think about what your entry level price point is in your markets versus ours is just so much lower. But once you get to that 230, 240 and up, it’s definitely become more of a buyer’s market.

Dave:
So, Rob, you mentioned that in your market in D.C., that you think at least D.C. proper, and I know D.C. is a pretty diverse group metro area, it’s comprised of Virginia, West Virginia, Maryland, all over the place?

Rob:
It’s got a lot of facets to it, kind of like California.

Dave:
Yeah. And so you mentioned that you think things are going down. Can you tell us first why you think that? And then secondly, if that’s the case, how do you advise your clients right now about what to buy and how to invest wisely?

Rob:
I feel like what we’ve experienced is tons of momentum and inertia. So we have all this inertia that pulled us, has been pulling us through in 2022, and we start seeing a slow-down. I’m hearing Dahlia say the same thing, there’s a little bit of a slow-down in her market. Same thing with David. And that inertia will start going the other way. And we are already seeing it in D.C. proper, it’s still… Here’s the thing guys, seriously, it’s still a seller’s market. There is in Virginia, in Northern Virginia, there’s a month and a half of inventory, some sub-markets it’s under 30-day inventory. In D.C. proper it’s like 2.4 months, so that is still a seller’s market. It just feels so much different than the 15 days. I think that was the lowest that we had, Dahlia, in our market was like 15 days. It’s now crept back up.
But what I’m seeing is that just like there was momentum going up, there’s now momentum going the other way and there’s no way to time a market like Dave, I believe that if the numbers work for somebody, and depending on what their hypothesis is, and the numbers work, they should buy. And if somebody’s looking to hold onto an asset long term, that they should buy if they can make the numbers work. Rentals increased quite a bit, so it helped calibrate some of those higher prices. And within our market, people have gone just an hour away in places like Front Royal or in Winchester. And the Airbnb market is thriving in that market right now. And so what we do is we just kind of look at where can we get the return and how can we help clients win over the long haul? And over the long haul, things look great, right?
Employment in this area is ridiculously amazing. We’re like a tech hub in this area, we’ve got the government that’s in our backyard. I mean, that’s the thing with the Washington D.C. Metro market is that we’ve always had the government that kind of helps stabilize us and is a backbone to the business. And then we’ve got all these tech companies that are generating a lot of new jobs. And so even though we’re going to see a dip in pricing, which I believe we’ll see a dip in pricing toward Q1 of next year, still incredibly good market over the long haul to buy it. And I went through the whole 2007, 2008 craziness and values came right back and past that. So long term, still a great market for us to be buying into.

Dave:
I’m glad you brought up 2008, Rob, because I wanted to ask you about that. D.C. strikes me as one of those markets that are relatively recession-resilient, I would say, if that’s a term.

Rob:
Sure.

Dave:
And just because of the government public sector jobs, they’re less cyclical and volatile than a lot of private sector jobs. So did D.C. bounce back faster than other areas of the country? Was the dip as severe or how did it compare to other markets back then?

Rob:
So it held better than other markets for sure, especially compared to a lot of the Sand States that are out there, but we still got whacked in certain areas in the D.C. Metro market, like 30%, 35% off market highs. But then by 2009, 2010, you started seeing values come back up. And Dave, I remember in 2012, 2013, because we bought, I’m an active buyer as well, we bought things at such discount. When things started rebounding in 2012, 2013, I felt like things were overpriced and I kind of pulled back some of my buying a little bit, shame on me for doing that, right? But there’d been a 30%, 35% drop and I just bought at pretty low prices, but it came back pretty quickly.

Dave:
All right, cool. Thank you, Rob. That’s super helpful. I mean, think over time, I’ve just seen this dynamic where certain markets are a little bit more volatile, they spike up, they come down, they peak and valley a little bit more, but certain markets, it sounds like D.C. is more of like a slow and steady kind of thing, but that can be very beneficial, especially for long-term investors. David, what about you? You said appreciation’s out to 1%, which is obviously still up, but a pretty big shift. I was actually… Well, I’ll share something I read the other day after, but just what do you think the play is in San Diego right now? What are you advising your clients?

David:
You’re probably not going to, your average person isn’t going to go get nine San Diego rental properties. They’re going to have to put $200,000, $250,000 down on every one of them, then you got to just look for the needle in the haystack to make it work as far as the cash flow is concerned. It’s not really a market where you’re going to make this the meat and potatoes of your portfolio, but I’m very big on what I call understanding portfolio architecture. How do you add properties to your portfolio that compliment each other, that make up for the weaknesses of other properties with the strengths of this and vice versa? San Diego is very resilient. To me, I think it’s the best weather I’ve ever seen and it might be the best weather in the entire world. We just had BPCON there. Every time I go, I’m like, “I could never live here because I would never work. It’s the Bermuda Triangle.”

Dave:
It’s so nice.

David:
It’s so nice. Yeah. People that have money are going to want to be there. There’s no way around that. And weather is not dependent on industry or population trends or whatever technology company happened to go there and bring all the jobs with them and they can’t really build a ton because the city’s built out really far. So the play for San Diego in my opinion, is that if you’re a resident there, you need to be buying a property in house hacking. I think this is the best house hacking market in the entire country as far as what I know. And it’s because it’s got all the pieces that you need, a bunch of people that want to live there that will never be able to afford a home, so they got to be able to rent something.
We all know somebody who moved to San Diego after high school and never came back and they’re still working at a bar, working at a restaurant. They’re not ever going to be a homeowner because they’re stuck in that Bermuda Triangle, they need a place to rent. Then you’ve got the rents that are crazy expensive for you if you’re trying to live there. So house hacking works best in areas where housing is expensive, it gives you this added benefit of doing it. And then you’ve got the fact that it’s got a strong short-term rental market, but it’s very difficult to get a short-term rental occupancy deal from the city. They limit how many people can actually do short-term rentals, so if you want to try to just go buy a property and throw it up as an STR, the odds of you getting picked are low and that’s a very expensive property to hold while you’re waiting, but if you live in the property yourself, you can rent out another part of it as a short-term rental.
It’s sort of a back door that you can get in, which is just another benefit to house hacking. So I don’t think that you’re going to build your entire portfolio full of San Diego properties, but you definitely should have one or a couple if you can get it over a span of a couple years because the appreciation is going to be incredible and it’s not an investment you’re going to have to have significant worry about losing. It’s not an area like, “Oh, fracking went away. So all these properties in North Dakota that were exploding at one point cut off completely.”

Rob:
Dave, the D.C. Metro market is similar. It’s a house hacking kind of market for investors. But then if you just go an hour and a half outside of D.C., you’ve got some beautiful country, you’ve got the Blue Mountains, you’ve got the Shenandoah River, and STRs are where I’m seeing a lot of investors go out to those markets and making the numbers work. And it doesn’t sound like there’s the same hurdles that you have to go through compared to a place like California. One of the rules is in the Warren County area, you just have to be a hundred feet away from your neighbor. That’s it. If you’re a hundred feet away from your surrounding neighbors, if you go through the process, pretty easy to get a permit for an STR.

Dave:
Yeah, that’s awesome. Dahlia, I want to check in with you. What are the top three strategies you recommend right now given what’s going on in Tulsa?

Dahlia:
So Tulsa’s definitely more successful when it comes to long-term rentals right now. Surprisingly, we do have quite a few short-term rentals, although we’re not necessarily a vacation destination. I think the culture has just changed, especially in the last two years, where people would just rather rent a house or a town home or whatever than stay in a hotel to accommodate their family or just to be more comfortable. So we did see quite a bit of saturation with STRs here. And we don’t have all those limitations in terms of getting a license here, it’s very easy. It’s basically, I think $300 for a license for the year. There’s no inspection, there’s no process you go through other than just applying and paying the license fee.
So we saw a huge influx of STRs in the last, I’d say four years. And so now we’re pretty saturated. So I had clients purchase STR in the last couple years, now I’m advising it’s always great to purchase something that would serve great as both, something that’s in a location that would do well as an STR or an LTR so that you have the flexibility to flip back and forth if you need to, you have an exit strategy.

Dave:
Yeah. I mean, I love that point about creating that flexibility. That’s a great way to protect yourself and mitigate risk. I was just curious though, how are you seeing, how is this oversaturation in STRs manifesting itself? What are you seeing that is telling you that there’s too many right now?

Dahlia:
Vacancy.

Dave:
Okay. And are you seeing clients that have bought STRs struggle to make their numbers work?

Dahlia:
And I try to keep in contact with my clients after they purchase. We stay connected. I try to keep a pulse on what’s going on. So far, the ones that had STRs, they’re doing okay, the ones especially that are in more high-demand locations. But I’ll tell you where I saw more of a flip is my clients that bought midterm rentals, specifically catering to traveling nurses, which we saw an influx of those during COVID. But then as things calmed down, those contracts got canceled. And so I did see multiple clients of mine that had bought midterm flip to either short term or long term.

Dave:
Got it. That’s super helpful to know. Honestly, I think you hear a lot about the things that are working, which is always helpful, but it’s great to hear the things that you would recommend people stay away from. That’s really helpful for our audience. So are you then recommending mostly long-term buy and hold-type deals for your clients?

Dahlia:
I do. I mean, if you’re going into it, I just feel like it’s the safest route because people always need a place to live, and so your long-term rental is just going to be the most stable. And not only that, especially in these markets, so especially for you guys, where you are seeing a lot of short-term rentals and then not enough properties for just regular renters, which is why I’m sure they’ve implemented these restrictions for you guys.

Dave:
Yeah, that’s super interesting. And yeah, personally, I know this is a boring thing to say, but I just think you can’t go wrong with buy-and-hold investing. It just works as long as you hold onto it through the cycle.

Dahlia:
If it’s not broke, don’t fix it.

Dave:
Yeah, exactly. David, I’m curious. There is this dynamic where I mostly invest in Denver and there’s this dynamic where they put in a lot of short-term rental restrictions where it has to be your primary residence. So basically you need an ADU or I have a primary, I live out of the country so I could rent out my primary. But for the people who have it, it actually turns out to be even more lucrative in those markets because there’s constrained supply. So do you see people who do this house hacking strategy really do well with their short-term rentals?

David:
Yeah. And you made such a good point. The fact that it’s a constraint supply to many people is a reason they don’t want to invest in the market. “Oh, it’s hard. I wrote an offer I didn’t get accepted. I wrote two, it just isn’t going to work. I’m just going to go out of state. I’m going to go find a market where I can get a house and a contract right away.” But there’s this rhythm to life, I need to come up with a name. If Brandon Turner was here, he’d come up with a name. He was very good at that.

Dave:
Brands everything.

David:
Yes. If it’s easy on the front end, it’s hard on the back end. If it’s easy on the back end, it’s hard on the front end. And human beings have this erroneous belief that they can have both. They think like, “All right, it’s a market where real estate’s appreciating rapidly. It should be easy to get into that market.” No, the fact it’s appreciating rapidly is why it’s hard to get in. And if it was easy to get in, you wouldn’t get on the back end all the appreciation, all the increasing rents. Every real estate agent understands this, you can’t have a buyer’s market and a seller’s market at the same time. You have to learn what makes this market appealing. So if for instance, in the city of San Diego or the area, it is the fact that supply is very constrained, there’s massive demand for it, and it’s very expensive.
So the stakes are high. You can make good money if you do it well, but you can’t just go buy a tract house. It’s got to be a place that’s got an ADU or ideally two ADUs or play you could turn something into an ADU that other people aren’t seeing. It’s got to have something unique about that. And then when you buy it, you’re going to do great on the short-term rental market. There’s a lot of conferences that happen in the San Diego area that a lot of people travel to, there’s a lot of vacationing. I mean, the weather’s so nice, there’s people that don’t go to Mexico, they’ll just go to San Diego even though it’s right there because it’s so, so nice.
But the key that I think every good agent understands is helping their clients see the angle that works on their market. You can’t hear about what works in Tulsa, Oklahoma and go try to do the exact same thing in Washington, D.C. And vice versa, there’s very specific strategies that we talk about on these podcasts that work better in certain locations and in better cycles in the market. And the right agent who’s listening to BiggerPockets, who owns investment properties, who’s working with investors all the time, they’re like the Sherpa that can lead you to the top of your own market’s Mount Everest, that can help you find the deals.
And so those are the questions I just think people should ask. If you’re going to work with us in San Diego, you want to know, “Well, what are your other clients doing that’s working? What are some things you’re figuring out?” The same would go for Tulsa and for Washington, D.C. Don’t try to take that basic understanding that, “Well, I heard this strategy on the podcast, so go make it work,” when the market is not applicable to that specific set of circumstances that the market’s facing. Or, “Well, I want to be a short-term rental investor, but I want to invest in this area because it has the best something else.” Sometimes they’re in conflict with each other and they don’t work.

Rob:
I don’t know if you guys are seeing this in your market, but in our market we’re seeing a lot more sub-twos and lease options, a lot of creative financing. There’s a lot of that happening right now because we’ve had all of these really low interest rates that people have locked in for some time and yet life happens. Death, divorce, drugs, like all the rest and people need solutions. And so I’m seeing a number of my investors kind of shift to some of these strategies. And we just put a property at a contract, it’s a lease option at $1.2 million and they put down $100,000 non-refundable deposit because they just couldn’t settle straight away, but they still wanted to lock-in the property.
And so we’re seeing some of these strategies kind of come back and an agent that understands how to navigate those strategies or has done this before, is more valuable in this marketplace. They see real estate from a 360 standpoint versus just kind of the narrow lens of helping somebody buy and sell, you’re literally becoming a problem solver in a market where people are going to face problems and the right agent’s going to know how to solve those problems for their clients.

Dave:
Rob, can you explain quickly what sub-two is and why it’s becoming more popular?

Rob:
Sure. Well, we all know interest rates had been really low for a long time. People locked in at 2%, 2.25%, 3%. And these loans are out there and life happens where somebody for whatever reason might lose a job. You see all these tech companies that did lay off thousands of people and now they have an asset, not only the physical asset, but the mortgage, the underlying mortgage itself is an asset that becomes valuable to somebody. And sub-two is merely just taking over the payments for somebody in exchange for the deed of that property. And you might pay them some of the equity up front, you might be able to structure it so you pay them some of the equity on the back end. But it’s a way to solve somebody’s problem if, let’s say, not even if they’re behind. Let’s just say they were an expired person who failed to sell the first time, but they need to sell because there’s a job relocation happening and it’s a pretty house.
Well, if they’ve got a really good loan on that asset, an investor like myself might be able to put that property under contract and essentially buy that property with the underlying debt that’s there, so effectively the loan stays in that seller’s name. We effectively almost become partners together in that respect. And so I know our team has completed a couple this past month, we’ve helped navigate that process with some of our sellers. We personally have bought, I bought one last year in the process of buying one right now that way. And it’s just one additional strategy, Dave, that people can use in a shifting market like we’re in today. And as long as you can create a win-win-win for everybody, then you should employ.

Dave:
Thank you, that’s super helpful. Yeah. And you can find those types of deals super beneficial right now and hopefully there’s more sellers willing to do that for investors out there who are interested in it. Dahlia, David mentioned earlier about people trying to find great agents, and I think it’s a perfect example, especially in these types of markets, over the last couple of years, you could just buy anything and it would go up and it looked great, but these are more challenging times. Do you have any advice to people who are trying to find a good agent to work with to help them navigate these times? What should they be looking for in an investor-friendly agent?

Dahlia:
Sure. So I think one important thing is are they an investor themself? Do they own investment property? It just gives them what Rob was talking about. It just gives them insight that a non-investor just most likely doesn’t know. I’ve had, I don’t know how many times where I have someone come to me and they say, “Hey, I was working with this other agent, they were great, but they just don’t get it. I need someone that understands the investment world.” As an investor agent, you just have such a pulse on what’s going on, or at least you should. You should know what the rental rates are like, you should know how long properties are sitting, rental properties are sitting on the market. Is this a good area? Is this a rentable area?
You’re going to have an understanding about, you’re going to have resources, contractors, property managers, creative financing lenders. All these things that a non-investor agent just doesn’t have access to because it’s just not part of their niche. So that’s why I just think it’s imperative to have somebody who is an investor themself and just very familiar with what’s going on in the investment world.

Dave:
Dahlia, were you agent first or a real estate investor first?

Dahlia:
So I was an agent first. I got my license about 15 years ago. It just kind of happened by chance. And not only that, my dad’s an investor, so I always knew that at some point I was going to go that route, it was just getting financially ready for it. But I grew up around it, grew up with my dad buying rental properties, so it’s just always been around me.

Dave:
That’s awesome. Was it hard, did you have to learn or do anything extra to start catering and working with investors once you were already an agent?

Dahlia:
I mean, I feel like it just happened organically because I was already an agent and an investor. I was getting referrals, people that were just referring people to me because they knew that I was doing both and that I was knowledgeable. And so it just kind of naturally happened that way. As far as doing anything extra, not really. I just gained experience working with a lot of investors, especially the out-of-state investors. I’ve pretty much created a very seamless process for them now since I’m eyes and ears for those out-of-state folks that a lot of time never even set foot in the property they purchase. So it’s really just experience.

Dave:
Awesome. What about you, Rob? How have you built out your expertise as an investor-friendly agent and what other advice do you have for people who are looking to find a great partner to work with?

Rob:
So a couple things. One, I love… Actually, I’m going to say it right now, the investor-friendly agent Moniker. Hate that Moniker.

Dave:
Really?

Rob:
Yeah. Only because I feel like what you are, it almost sounds like GoFetch. GoFetch is a friendly investor agent, but really the Moniker is really more of a consultant, like helping somebody understand all of real estate from a 360 standpoint. So I know everybody uses it, it’s just one of my things. But I started off as an investor first, so as an investor first, my wife and I would buy 20 to 25 houses a year, we’d fix up small multi-family properties, we’d then sell them to investor’s turnkey, then we would manage assets for other investors, and we learned the game there. And what I realized was that we had a skill set at that point to be able to guide other people to be able to do the same.
When you put your own money where your mouth is to sell your own asset and to manage your own asset, you understand all the little nuances that help you make a better return on the investments that you buy. And so I really feel that a great agent investor understands those nuances. They’re consultants, like David said, they’re Sherpas, they’re literally guides in the marketplace that can help you build massive wealth. And I think the only way that you’re going to learn how to do that is by doing it yourself. How could you possibly take anybody on a wealth journey if you haven’t gone on the wealth journey yourself? And so I think that that’s a critical component of being able to help other people. You just got to do it yourself.

Dave:
Got it. That’s great advice. And I will never call you an investor-friendly agent again. It’s [inaudible 00:43:50].

Rob:
No, it’s fine. Everybody uses it, can’t escape it. David, you got to come up with something that’s better than that.

Dave:
Sherpa.

David:
Yeah, the Sherpa. We tell our agents, “You’re not an order taker. This isn’t a restaurant where someone says, ‘Can I have a Coke?’ And you run and get it and bring and say, ‘What else would you like?’” All that is people absolving themselves of the responsibility of leadership. It’s easier if someone tells you what to do, you don’t have to think. You want the person at the best restaurants, I used to work in fine dining places when I was in college, where I don’t say, “What do you want?” I say, “Would you like wine tonight?” “Maybe. What do you have?” And then I show them the list and I say, “If you’re looking for something like this, this would be a good pick, but if you want something like this, that would be.” And then you ask me questions and then I show you I know about wine, so now my suggestion sounds like something you’d want to trust.
Real estate should work the same way just with higher stakes and more details. If you’re an agent and you don’t know what’s happening in your market, it’s like being a person that is trying to sell wine and you don’t know anything about wine. You want to be recommending things to people, you want to be advising them, leading them in a sense. And you got to have confidence to do it. And I love the point you made that you should be building wealth for yourself. Ideally, you want an agent that owns properties in that market and is very comfortable with it, because if your motive to become an agent was, “I hate my job, I hate my life, I just want a different one. Maybe I’ll strike it rich.” You’re like the person that move out to California for the gold rush and try to figure out like, “Maybe the face will bless me.”
Those were not the people that did well. The ones that did well had a plan. They were the people that went out there, they sold the picks and the shovels to the gold miners. That’s what you need. You need to be the agent who has a plan, who’s doing it yourself, who’s in it for the right reasons. You have the right motives, you’re trying to help people build wealth because you’re also building wealth. Nobody wants a personal trainer that looks terrible. If you pick a personal trainer, that looks really nice. So if you’re financially unfit, then you’re going to have a very hard time being the Sherpa that can get people to the top of that mountain.

Rob:
Yeah, the agent investor advisor or something. I don’t know.

Dave:
Yeah, you need to lead by example, David. It’s like you can’t just spit theory, you have to also be able to walk the walk a little bit.

David:
Yes, absolutely.

Dave:
Well, this has been super fun, but we do have to get out of here soon. But I would love for you all to leave us with one piece of advice. So could you each give me 60 seconds or less on why you think your market is a great place for investors to consider investing right now? David, your experience. I’ll make you go first. Experience at podcasting, I know you’re all experienced investors and agents. I could just make David, put him on the hot seat first.

David:
Yeah, I dropped so many mics that they actually put it on a stand so that I can’t drop it anymore. I was breaking material with all these great clips. My advice is don’t think I’m too busy to help you with getting a house. That’s something that people just stop reaching out to me when I started hosting the podcast. I’m like, “I have an entire freaking company that’s designed just to help you make money with real estate, with all of the information that I’ve learned that I’ve tried to pass on to my agents to help you. So reach out.”
The second piece of advice that I’ll give is stop looking at what’s right in front of your nose. Whenever we talk about strategies that work, people that built wealth, unless they invested in FTX and they thought that they were really rich, which they’re now regretting, it’s people that took a long-term perspective. The people that made money real estate did it over 20 years, over 30 years, they didn’t buy a house and when one fence board broke, they thought, “Ah, this isn’t worth it. There’s an expense I didn’t know.” They played the long game.
So stop zooming in on what’s happening right now or how to get the perfect deal or waiting for the perfect market. And then 10 years go by and it never came and you lost hundreds of thousands of dollars that you could have made had you just found the best deal you could in the situation that you were in right there and then went and recapitalized so that you could do it again and let time does what it does with real estate. So I’m constantly just trying to be an evangelist for this zoom out perspective that I have. No one remembers what was in their inspection report 30 years ago. You can all ask your parents or your grandparents what freaked you out about buying the house, and they don’t remember. They don’t know the escrow officer’s name, they don’t know the inspection report, they don’t know what interest rates were. What they know is how much money that they made in real estate holding it over a period of time, letting the loan get paid off, and letting inflation appreciate the asset.

Dave:
Love it. And I assume you believe that San Diego’s a great place for that long term, right?

David:
Yeah.

Dave:
There’s been a lot of exodus from California or people say like that, but you still believe San Diego long term is going to perform well.

David:
Yeah, that’s a good point too. Your agent should be able to guide you. I would tell San Diego’s very strong, Orange County’s very strong. There’s a lot of places in San Francisco that are still strong. Like Downtown LA, not very strong. That’s not a place that I’d be aggressively routing offers right now. So not every path to the top of Mount Everest, to use that analogy, is the same. And when weather changes, you’re going to take different paths. Sherpa’s know all of them, so that’s why you want to have an agent that knows your market, so we can guide you away from the wrong areas and into the right.
San Diego’s one where I’m happy to talk about on a show like this because that is as resilient and bulletproof of a market as I’m aware of. And when things are slowing down like they are right now, you want to be in the grade A places. This is not a time to get into D neighborhoods or even C-minus neighborhoods. You can get away with that when the market’s going up, up, up or right after you’ve already had a crash, not when we’re sitting at a point where we don’t know where things are going like right now.

Dave:
Great advice. Dahlia, what about you? What would you say for people who are considering Tulsa, what’s your pitch?

Dahlia:
I mean, the great thing about Tulsa is affordability. I mean, you can get a great single family rental for under $200,000. And stability. Like I said, we’re not seeing the crazy ups and downs, it’s you park your money there. Just like what David was saying, this is not a sprint, this is a marathon. So Tulsa is a great growing market, we are seeing some really good appreciation catch up, it’s just the perfect time to invest here. A few things that I would just like to touch on is if you’re looking to get started, just take that first step. Nobody regrets their first investment purchase, they regret not doing it sooner. So there’s never a better time than now. Get your finances in place, get your lending figured out, find the right agent, which is hopefully why you’re watching this, and learning about all of this great agents on here. And run your numbers, use those BiggerPockets tools. They make it so easy for you to run the numbers and then just take the emotion out of it. And if the numbers make sense, do it.

Dave:
All right, thank you. And Rob, what about the D.C. area?

Rob:
Well, this is our nation’s capital. We’ve got the federal government that’s kind of like the backstop here in this market. We’ve got a lot of growth, a lot of technology growth happening in this market. And I echo what David said. I mean, long term this market has just been stable, just keeps growing, keeps getting bigger and bigger. I mean, a couple years ago I listed my dad’s best friend’s home. His family, his mom and dad had passed. And this was in Arlington, Arlington is a ridiculously hot market in our backyard, and they bought the house, they’d bought their house for $45,000. And I remember talking to him. He said, “I felt like I overpaid for the house when I bought it. And today that dirt was worth $850,000.” So just time, time and a growth market. This is a business that plays out over time. So I echo everything that David said and this market is just a great market to see it play out over time.

David:
Yeah, let me say one last piece before I get out of here. It’s not always about, “Do I invest in San Diego, or Tulsa, or Washington D.C.?” I think that there is absolutely a way you construct a portfolio where you invest in all of those markets and you just construct it in a way that the long-term appreciation you get in San Diego is going to be paired with the short-term cash flow that you can get in Washington D.C., and the cash flow paired with actual odds of scoring and being successful investing in Tulsa.
You find the best properties for what you want to do in each one, you put them together, they all sort of make up for the weaknesses of the others with the strengths that they provide, and you continue to build momentum buying in the right markets and putting it together like a puzzle piece versus thinking, “Ah, I got to pick the best one.” And then you stay in analysis paralysis for six years and then just beat yourself up because you never bought a house for six years. And then every time you listen to the podcast you get guilt and you feel terrible and then you don’t want to do it. You see, this is the spiral that I’m talking about getting into. That’s what we want people to avoid.

Rob:
David, do people have to… Do you think they have to leave San Diego to build that portfolio? I mean, not San Diego, but California’s huge, right? I mean, Northern California is considerably different than Southern California. Can you construct that same portfolio properties there and never leave the state?

David:
You absolutely could because the principles are the same. And in places versus California, you could grab one from this city, or this city, or this strategy and this strategy. It’s a principle that will work. And it doesn’t have to be across the country. The idea would be in Dahlia’s market, you could get something that cash flows, you’re not going to be fighting with a hundred other people, the price points are not going to be massively high, so you’re not making a million dollar mistake, you’re making a $200,000 mistake as you’re learning. And then once you’ve got some momentum, you’re like, “Hey, now I want to go invest in one of these other markets where the stakes are a little bit higher and I could take the training wheels off. Maybe I don’t want to start off there.”
And then the same would be true of individual properties in those individual markets. We all know the markets within our own city where this is where the big boys play, and this is the shallow end of the pool where you can get your feet wet and you can get into with an FHA loan and relatively reduce your risk as you learn the rhythm here, but it’s breaking out of that mindset. “I got to be perfect, I got to find the perfect deal at the perfect time in history with the perfect tenant.” And when nothing is Perfect, and you don’t take any action.

Rob:
I have one more question. I’m sorry, Dave. Just my question for Dahlia because where were most of your investors coming from? Like California?

Dahlia:
Yes.

Rob:
Okay.

Dahlia:
Most of my investors are from California. I have some from Colorado, Texas, some other places, but the bread and butter is California.

Dave:
Okay, great. Well, thank you all, first of all, so much for being here. I would love for you to just tell our listeners where they can connect with you if they want to do that. Rob, where should people find you?

Rob:
Sure. They can go to gridinvestor.com or just find me on Instagram. Rob Chevez, @RobChevez. Pretty simple.

Dave:
All right. What about you, Dahlia?

Dahlia:
So my website is asnrealtygroup.com. You can also find me on my Facebook page @ASNRealtyGroup, and then of course on BiggerPockets.

Dave:
All right, great. And then David, I know you’re pretty tough to find, but where could people seek you out?

David:
I will give you an email that you are guaranteed to get an answer at. Email us at [email protected] [email protected] There’s an E at the end of there, I have a person monitoring that email all day long. We would love to help you with buyer selling in California. I am not too busy to help you buy or sell a house, that’s actually why I exist. So please, like the biggest sting ever is when somebody uses another agent and comes to me and they say, “They screwed it all up. What do I do?” I say, “Why didn’t you ask me?” “I thought you were too busy.” “But I wasn’t too busy to come ask me how to fix it, huh?” So reach out to us first.

Dave:
All right. Well, David, Rob, and Dahlia, thank you all so much. This was really insightful, and hopefully everyone listening can learn a little bit about how to navigate the current market, what’s going on, and what to look for in building when you’re building your team in this correcting transitionary market that we’re in. Thank you all so much for being here.

Dahlia:
Thank you.

Rob:
Thank you.

Dave:
All right. Thank you so much to our panel for joining us today. They all abandoned me, so it’s just me here, Dave, now. And I’ll just remind you that if you do want to connect with any of our panelists today, David, Dahlia, or Rob, or any of the great investor-friendly agents who are on BiggerPockets, all you have to do is go to biggerpockets.com/agentfinder, search for a market like San Diego, Washington, D.C., Tulsa, any other market. Enter your investment criteria, and pick agents that you want to connect with, all of whom are investor-friendly agents.
Lastly, remember, if you do want to learn more about the current events data, news that is impacting the real estate investing market, make sure to check out BiggerPockets’ other podcast called On the Market. You can find that on Apple or Spotify. And lastly, for David, the Gadfly Greene, David Meyer. And just so everyone knows, I had to look up, I Googled what gadfly means, and it means it’s a fly that bites livestock, especially a horse-fly, warble fly, or botfly, or an annoying person, especially one who provokes others into action by criticism. I don’t think David really meant that because he is neither of those things, but I just wanted to poke fun at him. So thank you all for listening. We’ll see you next time.

David:
It seems like everybody got a haircut today. All of you guys’ hair is looking really good.

Dave:
Oh, thank you.

Rob:
This is how I rolled out of bed.

CNBC’s Jim Cramer and the ‘Squawk on the Street’ team discuss shares of Blackstone after the company limited withdrawals from its real estate investment trust.

Dave:
Hey, what’s going on everyone? Welcome to On the Market. I’m your host, Dave Meyer, joined by Jamil Damji today. I was going to ask how you’re doing, but now I know you’re dancing, you’re singing already.

Jamil:
I’m super good. Yeah, this is fun.

Dave:
Last time I saw you, we had a team call on Monday, you were going to Disney World. How was it?

Jamil:
It was incredible. I went to Disneyland with six 16 year olds and I survived. Actually, I have a beautiful family and I got a great kid, and well, we had a lot of fun. I got to ride some rise. I ate Turkey leg, had some Dole Whip, what could be better in life.

Dave:
Yeah, that sounds lovely and I’m glad you had a good time. Well, today we have an episode that we’ve been talking about and wanting to do for a long time, and that’s talking about iBuyers and we have one of the foremost experts I think in the world talking about real estate technology in general. Mike DelPrete, he’s not an investor, but he’s a professor of real estate technology. He knows everything about this, and we had a great conversation, but the conversation, we obviously already filmed it. We sort of go right into it. So before we go into the interview, I’d love to just quickly explain what iBuying is. You’re pretty familiar with the topic, right?

Jamil:
Sure. So what I have seen iBuying as, how it works is, it’s essentially a convenience purchase. So a company will come in and give a homeowner a convenience offer, typically a cash offer, and they’ll provide all of the ease and flexibility that that offer should provide. So cash, quick closing or flexible closing, flexible terms, lease backs, post-possessions, all of the ways that a homeowner can get maximum flexibility, and in return for that convenience, they trade value, they trade some equity.

Dave:
Yeah. And so basically as a seller, you could go on Zillow, sort of the famous one, but there are several Offerpad and Opendoor publicly traded companies. Redfin was doing this for a while. You can go on these websites and it’s like if you’ve ever seen that instant offer kind of thing, like Jamil was saying, they’re just making this convenient for you. And it’s been this sort of hot topic, especially I think in the real estate investing community over the last couple of years because in some ways, and I think people can argue this and we’ll talk about this, it does threaten or you could make an argument that it threatens real estate investors because they’re going after some of the, let’s call, the motivated sellers that real estate investors typically target.
And I’m not going to spoil it, but that’s sort the framework of why we wanted to have the conversation here with Mike and talk about iBuyers because it is a really important trend impacting the world of real estate investing. And I think he sheds a lot of light on how as an investor you should be thinking about this industry. Is there anything else you think our listeners should know before we jump into the interview?

Jamil:
I think, just take notes, because this is an incredibly intelligent conversation about where real estate has been, where it’s currently at, and where it could possibly be going. If you are the kind of person right now that’s trying to determine where should I be, how can I be more forward thinking, how can I be the next innovator? You might find the idea on this episode.

Dave:
Awesome. Well, that’s a great setup. We’re going to get into our interview with Mike DelPrete, but first we’re going to take a quick break. Mike DelPrete, welcome to On the Market. Thank you so much for joining us.

Mike:
My pleasure. Thanks for having me.

Dave:
So can you tell our audience just a little bit about the work you do related to the real estate industry?

Mike:
Yeah, sure. So if we go back in time a little bit, I worked at an internet business that owned a real estate portal, kind of like the Zillow, but it was in New Zealand, so it was the Zillow of New Zealand. And since I left there and returned back to the states, I’ve been studying, well, there’s this question in my mind, which is what are some new ways, new business models that might change how people buy and sell homes? I assume you and a lot of your listeners, people buy and sell homes, it feels antiquated. You’re like, why does it work like this? How come it doesn’t do that? Concurrently, billions of dollars have poured into the space over the past couple years, and there’s a lot of investors and companies and entrepreneurs trying to change that.
So that’s what I’ve been interested in, and all of my work stems from that. So I’m looking for businesses, business models, companies, entrepreneurs that are trying to change how people buy and sell homes. And a lot of that work just comes out as research, reports. I’m a data guy, so I try to find evidence, it’s who’s raised money or issued a press release, but what’s actually working? And then trying to connect the dots between those different data points to enlighten what the trends are, what the insights are, what’s working, what’s not working, and why.

Dave:
Awesome. You’re our kind of guy. That’s going to be a great interview. I’m looking forward to this. But before we jump into some of the recent stuff, I’m just curious, were you in real estate before working in that portal? Were you a tech person or how did this interest pique in you?

Mike:
It’s a good question, and my family asks me that all the time. What are you doing and why? After I went to college, I started a tech business. So I was a tech entrepreneur. I didn’t raise any money, but I built up a company, 40-50 people, and sold it. And that was a good exit and that gave me the freedom to explore my passions a little bit more. And some of that was moving to New Zealand and experiencing a different culture and a work environment. And that’s where I first got interested in real estate or technology in real estate. I’ve always been a tech guy. I haven’t really been into real estate. I’m not that into real estate. I don’t own any rentals. I don’t have a property portfolio. I’m not invested in any real estate stocks, but I think it’s a fantastic area that suits me because it’s huge.
There’s a huge opportunity. There’s a lot of data, just a lot of data all over the place, and it’s hard. The path forward is not clear and it wasn’t clear to me five years ago. I could look at other industries and you can chart out how you think it’ll go. Video on demand or cable television, it’s clear where this is going. But real estate, no idea, all bets are off. And I have a busy brain that doesn’t like to sit around idle and I wanted something, a hard problem to think about. And nothing to me seemed harder at the time than figuring out, okay, what’s going to happen in this space? What are we going to see going forward?

Dave:
All right, great. Well, you seem like just the person for the questions that we have. I actually first stumbled upon your research last year when I’m sure it was a very busy time for you with Zillow’s iBuyer program, famously, infamously, whatever, shut down. So we’re curious just to learn a little bit more about the state of iBuyers right now, because as real estate investors, there’s been, I don’t know, Jamil, what do we call it? Paranoia, fear, something.

Jamil:
I call it paranoia. I would call it fear. I think there’s a lot of misunderstanding about the space and I’ve looked in and dove into a little bit of Michael’s research. And again, just understanding how little of the market right now, it’s actually affecting. It’s such a overestimated fear. The real estate professionals in general don’t understand how to utilize this resource that’s available there. And so I think it’s all of it. I think it’s misunderstanding. I think it’s fear. And I also believe that if we had a better understanding of what their model was and what they were actually trying to accomplish, then we could have a better narrative about it. Because real estate agents think that they’re there to take away their jobs. It’s not the case.

Mike:
Yes and no.

Jamil:
Okay, well, let’s hear it.

Mike:
Yeah, I mean, think, so, if we go back to my question, what are some new models that may change how people buy and sell homes? iBuying is one of many. So we can talk all about iBuyers, we can talk about other stuff. But iBuyers are a clear answer to that question. They’re probably the largest, the most well-funded. And fundamentally, they represent this really radical change to the status quo. At the time when Opendoor, the biggest iBuyer first came to the scene and raised some money, there were other companies, but they were all taking the existing real estate process and just digitizing parts of it. If we can bring this online or automate that, that’s disruption, that’s real estate tech. Opendoor came to the party and they cleared the table and said, nope, there’s a totally different way from A to B.
Instead of listing your home the traditional way, we’ll go in, we’ll buy it from you almost site unseen. You could get a check in the mail by the end of the week and then we’re going to fix it up and sell it off when we’re done. That was a radical proposition at the time. So iBuyers are part of real estate tech disruption, but real estate tech disruption is not just iBuyers, there’s plenty of other companies out there. But to answer your question, I mean, there’s so much to unpack there, but just to pick one topic of what you asked and happy to talk about the business model, but I think if we talk about agents, Opendoor is the largest iBuyer, and they came out of the gate with a bit of an anti-agent message. I mean, the marketing is really clear.
It’s like the traditional process is broken, we’re going to fix it. If you’re an agent, you are the traditional process. Opendoor spends, I mean, even up until earlier this year, they spend tens of millions of dollars on TV advertising campaigns. And the messaging there is sell your home the new fashioned way. So if you follow that train of thought, the old-fashioned way is the traditional way, and that’s agents. So every real estate agent is old fashioned. So there is a bit, to be fair, there has been a bit of antagonism between iBuyers and real estate agents from the get go and continuing to today.

Dave:
So how does that work with a company like Zillow or Redfin, that those are two, I guess, previous iBuyers now that both of them have thrown in the towel. But how was that working and is that part of the problem is that they sort of had this iBuyer business that is potentially antagonistic or adversarial towards agents? At the same time I know Zillow, the vast majority of the revenue comes from agents. I don’t know exactly how Redfin’s revenue comes in, but.

Jamil:
Well, they’re a brokerage as well. And so Redfin is representing buyers hand over fist.

Mike:
Well, let’s get the easy one out of the way first, Redfin. Redfin was technically an iBuyer but just exponentially smaller than anyone else. They’re also their own brokerage. Redfin employs their own real estate agents. So Redfin can go out there, do whatever they want and say, this is what we’re doing, like it or leave it. They can just force their organization to accept this. So it wasn’t a big deal for them. So we’ll put that to the side. But Zillow, yeah. I mean, I think Zillow’s entry into iBuying and their messaging and how they pitched that to agents, it’s a master stroke in good communication. There was such little backlash from that that often gets forgotten. Because so much has happened since then, but it was really well done. And the way that Zillow got around it was they said, yeah, there’s another iBuyer out there, Opendoor, and they don’t want to use agents, but we do.
So we’re Zillow, we want to come in, we want to offer iBuying because we think that’s a pretty valuable solution for today’s homeowners. But we also, we want to work with the industry, we want to work with you, our valued partners, our valued agents, and the way we’re going to do that is we’re actually, we’re going to continue to use an agent on every single one of our transactions and we’re going to pay you a commission on it. Whereas, with Opendoor, consumers would go to Opendoor directly, they wouldn’t use an agent. It was a zero-sum game. The agents lose because Opendoor wins. Zillow was saying, Hey, we’re going to still use agents, we’ll still pay a commission.
And the way that financially transpired was almost this tax that Zillow had to pay agents for every transaction. I forget it, that it was like one and a half percent just to pay those agent commissions. So if you look at the unit economics, Zillow’s were always worse than Opendoor because Zillow continued to pay that agent tax to use agents in order to not upset their existing client base. Zillow generates a billion dollars a year in revenue from agents, they can’t afford to go out there and upset them.

Jamil:
I think in addition to that, though, there’s an important piece to the equation that having a homeowner have an advocate in the conversation. When you look at the way that, I mean, I’ve transacted with Opendoor before and it’s interesting, though, just the way the contracts read. You’ve got your first line item, which is your purchase price or their purchase price, and then all of their credits come out on the last page of the document where you’ve got their technology fee, you’ve got their market risk fee, you’ve got all the different ways that they’re going to change the settlement statement when the deal actually closes. The property then records at a much higher price than what they actually pay for the property. And it’s confusing. It’s confusing to people when they’re looking at the settlement statement.
They say, wait, hold on, you said you were going to pay me 225,000. I’m looking at my settlement statement now, it says 165. So inserting an advocate into that conversation so that the technology can be explained so that the contracts can be explained so that how everybody’s being monetized is explained and people can make an informed decision. I don’t think that’s a terrible thing to have.

Mike:
No, and I think that’s symptomatic of the psychology of this whole space. We’re talking about real estate, somebody’s single largest transaction they will likely undertake in their lifetime. And I mean, I’ve talked about this, right? This idea of loss aversion and whatnot, but fundamentally, the larger a transaction, the more conservative human beings are; the less we want to make a mistake. If I want to try a new coffee shop that opened up down the street, I’ll try it out one day, I spend $5, and if I don’t like it, what did I lose? I lost five bucks. I’ll just go to my normal place tomorrow. I want to try video streaming service. I sign up for Disney plus the first month is either free or 10 bucks. What do I get if I don’t like it? I just lost 10 bucks. Not a big deal. But with real estate, what’s the potential downside if you make a mistake? It’s huge.
Your example, it could be tens of thousands of dollars. We’re talking about video streaming services and coffee are not on Maslow’s Hierarchy of needs shelter is. So, I mean, coffee is on my hierarchy of needs, but real estate, shelter is right. We’re talking about being in the right school district at the right time. We’re talking about safety, we’re talking about being near my parents or something. It’s all wrapped up into that. And that’s why on these high value transactions, people are much more conservative and they have a specialist help them. That’s why we have financial advisors to help with financial planning and wealth management. That’s why there’s divorce lawyers. That’s why there’s M&A attorneys and investment bankers to help out with these high transaction, low frequency transactions where they can be the specialist and provide that expertise. And in real estate, that’s the real estate agent. So bring it all back. That’s why we still have agents, that’s why agents are not going away anytime soon. And that’s why it feels funny to outsource that advocacy to the for profit company you are working with.

Dave:
Yeah, it seems a little bit like a conflict of interest, I guess, when it’s all sort of vertically integrated and they don’t have that much objectivity. I would like to jump back, I guess, a foundational question here, particularly for real estate investors. Because as a group, I guess, I’ll speak for everyone and say felt like iBuyers are competition, too. They were coming in making offers on a lot of the types of distressed properties or value add opportunities that traditionally smaller investors really liked. And that sort has been a threat. But one thing I’ve always just been curious about, and Jamil hinted at this, is what is the volume even? Are they even making a dent in the national scheme of housing transactions or is this sort of overblown and they’re really just of this niche thing?

Mike:
It all comes down to perspective and the tyranny of percentages. So if we start way at the top, I think Opendoor, it’s either Opendoor or all iBuyers, but Opendoor’s market share last year was something like 1.3%. So out of all the homes that were purchased, Opendoor purchased maybe 1.3, it actually sounds too high. I think that was all iBuyers. So anyway, you’re talking like a percent, right? So you can look at that and you can say, oh a percent, that’s a rounding error. It’s totally niche, not a big deal. But then if you translate that percent into an actual number of transactions, you’re talking about 40, 50, 60, 70,000 houses. That’s 40, 50, 60, 70,000 houses. That’s 40, 50, 60, 70,000 families that are looking to move. So there’s a big deal there. And then if we go a little bit further, because that’s national. The iBuyers are not, they’re not really national.
I mean, they kind of are but they’re not, right? So they’ve issued press releases and launched in 50 markets around the country. So there is a growing national presence, but not all markets are created equal. There’s a very high concentration in these top four-ish markets. Phoenix, Atlanta, Texas, and kind of the Carolinas. So Phoenix is ground zero for iBuyers and Atlanta is very close number, well, they go back and forth. So if you look at one of those, Phoenix or Atlanta at times market share, the iBuyer market share maybe five, six, 7%, but it’s peaked above 10

Jamil:
10, yeah.

Mike:
So there’s times when those markets where they have 10% share the markets, one out of every 10 homes is going on Opendoor’s, books. So that’s a big deal. And then you can even get narrower and you can say, okay, there’s a neighborhood in Atlanta and you know what? In there that market share number is closer to 20, 30, it could be even 40%, right? The denominator’s getting pretty small at that point. And Bloomberg has done some research on that in the past. So it really all depends. If you’re a property investor in Minneapolis or Indianapolis, this is not a big deal. They’re not doing anything right. But if you’re a property investor in Phoenix or Atlanta, this is absolutely a big deal.

Jamil:
And I’ll speak to that real, real quickly because I’m in Phoenix, Arizona, and I felt Opendoor coming into the market. I’m a investor. I buy and sell houses. I wholesale traditionally. And when Opendoor came into the space, they were the Silicon Valley wholesaler. They were the wholesaler in a suit and that was what everybody got fearful of. Because they thought, wow, these guys are, they’re sophisticated, they got billions of dollars, they’re going to come in and they’re going to completely disrupt what our business model is. And was there a dent, and did it affect us in the early parts? It did, absolutely. Everybody’s volumes adjusted and we had to get more engineered with our marketing. We had to get more boots on the ground. Everybody had to pivot. If you were going to survive when you had an 800 pound gorilla in your backyard, you were going to have to do better.
You’re going to have to offer more solutions. You were going to have to offer more service, you were going to have to offer more transparency. There was going to need to be a shift in the market. And I think that what Opendoor effectively did for us in Phoenix is it made everybody better. We all had to work harder and do better in order to compete with Opendoor. I’m also going to say this, there are parts about it that I don’t think got better.
For instance, when you look at some of the product, and I’m not knocking Opendoor, I think they’re a wonderful company and I like the people involved in it, and God bless them. But when you look at the product and you see what has come down from flipping houses from the sky, I did a whole YouTube exposé on it and I looked at what does it look like when a mom and pop rehabber whose heart and soul goes into a project when they care about where are we going to put the placement of this shelf because we’re thinking about the family that’s going to live here and where they’re going to put their things and how people are actually going to live in this home.
And when you changed it from the perspective of somebody coming in and their livelihood being the business versus an algorithm deciding that they were going to buy this house and that they were allowed to spend 1% of purchase price in order to renovate it, which is the typical amount of money that they want to spend in a property, what did that project look like when it came back onto the open market? And when you look at how that affects neighborhoods that they’re investing in, I think that the ultimate result wasn’t super positive. And to me, I think that’s a piece that we all need to understand and look at is that when somebody has the choice of selling their home, you might get X dollars from Opendoor and you might get X dollars from this wholesaler or this rehabber, but what is that impact on the community when it’s done?

Mike:
It’s a really good point. It reminds me of a chat I had the other day with an agent friend of mine who was showing their buyer a bunch of homes. Some of those homes were Opendoor homes. And the feedback, again, this is one data point, but it reinforces that. The feedback from the buyer after touring that Opendoor home was, “It doesn’t have any soul.”

Jamil:
Exactly.

Mike:
Right. They don’t-

Jamil:
It’s missing the soul. Michael, you hit it.

Mike:
Yeah, they don’t stage the houses, which is fine. This is what happens when you have, like you said, an algorithm running the business. It’s very data driven and when that occurs, you don’t stage the home. All the paint colors are the same, all the rugs and carpets are the same. Everything’s the same. But that the buyer was looking, they want to live there. I want some character. I want to know what is in the soul of this home and do we connect or not? Yeah, I think that’s a tough proposition.

Dave:
Interesting. Yeah, I mean, I think that’s really helpful context too, to understand the localized concentration here. Obviously, 10% is a lot, especially if you live in those communities, you feel that, and it feels, I’m sure, pretty weird as both an investor and just a home buyer. So that’s helpful in helping everyone understand that if you’re a real estate investor, unless you’re in one of these major markets, you’re probably not competing that directly against some of these iBuyers. Which sort of brings me to my next question is are there going to be any iBuyers in the near future? Because now we’ve seen Zillow drop out, we’ve seen Redfin, which you just explained is not a huge player anyway, but one of the bigger names, at least in the industry. So I guess, Opendoor, Offerpad is still around, are those the two big ones? Because from what I read, they’re not doing great either.

Mike:
Those are the two pure play iBuyers left Opendoor and Offerpad. And Opendoor is about four times as big as Offerpad and by volume. And Offerpads always played by the beat of their own drum. I’ve done some research on this, it’s all online and free. So if you want, you can look at it. But Opendoor is founded by a bunch of Silicon Valley Tech folks. Offerpad was founded by a bunch of real estate folks. And Offerpad has had a different philosophy. It’s not pedal to the metal, let’s get as big as we can, as fast as we can. It’s a little bit more moderate and they’re willing to put more time and money into the rehab of the houses. They’re real estate people. So they get that a bit more and they have a different model. And the result of that is, I think, Offerpad, at least, is just, let’s call it, more moderate. When the market’s swinging wildly up and down, Offerpad’s not going to go up as far and it’s not going to go down as far.
So in the last quarter, Opendoor, lost a lot of money, Offerpad, lost a little bit of money. Yeah. Anyway, I don’t know what the next, I mean, the next 12 to 18 months is a free-for-all. I’m not sure what’s going to happen. Surviving it is simply a matter of how much money do you have in the bank and how much are you spending every month and do you have enough to weather this financial and real estate market storm. I think Opendoor is in the process of pivoting or evolving their model a bit. They’ve launched more asset-like products. So they’re basically Opendoor’s trying to be an iBuyer without actually buying the home. They have this exclusive marketplace and they’re going to sellers and saying, if you want to sell your home, come to us. We’ll charge you a fee, 5% fee.
And right now we’ll rebate 2% of that back to you, but we’ll charge you a fee, we’ll give you a cash offer. And remember, Opendoor only buys a percent of the homes. They don’t have to, nobody’s holding a gun to their head and forcing them to buy every home. But we’ll give you a cash offer and then we’ll advertise your home in our exclusive non-MLS marketplace. And if you’re a property investor, this is where you should start paying attention and we’re going to try to find you buyers. And that could be individuals or that can be institutional investors. And I made this point a couple days ago on a webinar, what I’ve just described sounds a lot like a real estate agent.

Jamil:
Or a wholesaler.

Dave:
Horse to mil, yeah, try to turn you into a robot.

Jamil:
Let’s be real. This is what we do is we sell equitable interest in the house, and that’s exactly what Opendoor is proposing. And rather than coming and the whole thing, oh, we actually have the money to back up what we’re going to do, we’re actually going to close. All these promises go out the window. Now all of a sudden they realize that, hold on a second, we can’t take everything down. Maybe it’s time that we just start selling equitable interest. I mean, that’s what happened, right? It was always the better model anyways, right? Because I’ll tell you what? I didn’t lose money any quarter.

Mike:
Yeah. So they’re pivoting around. I mean, will we have iBuyers in a year, two years, five years? I don’t know. I sure hope so, because if we don’t, that means a tidal wave has swept over this industry and washed away everything new. And we’re back with the 1990s again. And it feels like that shouldn’t be the case. Traditional iBuying is a great proposition for a certain segment of players. I’d like to see more options for consumers, more options for people to buy and sell homes. But it’s definitely, I’d say this, it’s funny in real estate, I think the phrase existential threat gets overused. But this is the existential threat. This is the crisis moment.

Jamil:
It’s not a nuclear disaster guys, we’re talking about houses, right?

Mike:
Well, for these companies it is, it is life or death. And that’s where we’re at now. Opendoor got punched in the face really bad in Q3. They guided to an even worse Q4 and Q1. I mean, the next six months are just going to be pretty brutal. So we have to wait and see.

Jamil:
Well, I’ve got a piece to add to that, because looking at some of the numbers that shook out. Because I was looking at your research, Michael, and again, it’s phenomenal research for anybody that hasn’t dove into what Mike DelPrete is actually doing out there, read it. Read what he’s talking about. Because when you look at the business model in itself, they haven’t accounted for operations. There’s no money to operate. They can’t pay anybody if they’re just looking at the margins that we’re looking at here, it makes no sense. So then I started to think about, well, let’s look at some of the transactions that I’ve in fact been involved in where Opendoor was either a buyer or a seller. And it was interesting because when the market was doing what it was doing, when things were getting a little heated here in Phoenix, Arizona, I’m buying and selling houses.
I’m fixing and flipping houses, I’m wholesaling houses, I’m active. I’m in a deal. And I put this nice remodel, we did a good job on the remodel. I think we over improve for the neighborhood, we put it on the market and of course, market was hot and we started getting multiple offers, but they were reasonable multiple offers, just super reasonable $5,000, $7,000 above list. It made some sense for the market and the heat. Then all of a sudden we get this one offer and it was $75,000 above list. And I thought, who the heck would do that and why? I just needed to know why. So we look and it’s Opendoor buying our fully remodeled house. And I said, if these guys want to buy this house at $75,000 above list, sell it to them. But I need to know why. And so I started looking at who owned the houses in the neighborhood, and a lot of them were Opendoor.
And so it made sense to me that would Opendoor not want to buy this house at $75,000 above list price and set a new comp so that they could add money or equity to all of the other holdings that they had there. And then is that not part of the bigger problem that we’re talking about affordability here in the United States. When you look at the practices and how these things are shaking out, when they don’t make sense, understand why? And that’s the reason I had to look at that whole offer and that whole situation, because it made no sense to me. And the only reason you would want to overpay once is if it was going to make you money 30 times behind it. So how do we make sense of that, and how does the public digest that?

Mike:
We can’t make sense of it. We don’t. I think it’s the question, what’s really interesting here, it’s not so much the question of is Opendoor doing that on purpose or not? Because I think there was some Zillow conspiracy theory about Zillow doing the same thing. It’s the fact that we have to ask ourselves the question. Are they? That’s new. We’ve never been in this position before. We’ve never had a for-profit Wall Street-backed company with billions of dollars and tens of thousands of houses operating like this in the housing market. Effectively like short sellers, because I think institutional investors are long, long term investors.
You buy some AT&T or GE stock, you hold it for 10 years, 20 years, 30 years, that’s it. But now we’ve got day traders, and you see what happens with day traders, with Game Stop and Bed Bath and Beyond and all this craziness, that didn’t exist before. That wasn’t a possibility. But now it is. So the same thing is true in real estate. Now that we have Opendoor operating effectively as a real estate day trader, what are the unintended consequences now? What are the questions we have to ask ourselves now that we didn’t have to five years ago or 10 years ago? And this is exactly one of them.

Dave:
So I’m very curious because during the run-up in prices, the recent rapid appreciation, some of them, Zillow being the notable one, but even Opendoor, they weren’t doing that well in a market that just seemed perfect for them. Absolutely perfect. You could buy something, do literally nothing, and then sell it six months later and make a killing. And they were somehow losing money off this. And to me, it seems like what is the problem? Because is it operational? Because that seems like one problem. The other one that me, Mike, just so you know, I have some training in data science and machine learning. The other part of me is how in hell can they not predict the prices of these houses a little bit better? Because, like you said at the top of the show, there’s just so much data with which you can build AVMs, an automatic valuation model. It just seems like they should be better at this. So do you have any idea why they’re struggling so much?

Mike:
Yeah, the short answer, and I don’t mean to be curt and we can expand, is just their expense base is too high. I mean, at the high points of 2022, home price appreciation is crazy. You look at the numbers of Opendoor and I mean, don’t mean to keep picking on Opendoor but any iBuyer, but the problem is Zillow was out of the game. But you look at what they bought a home for and what they sold it for, and I published this research, it was record high. The difference between what they bought it for and sold it for was like 20%.

Jamil:
And Michael, that didn’t even take into consideration the way that they manipulate those contracts, right? Because it’s not, the recorded buy price is not actually the purchase price. So it was even higher than what you were thinking.

Mike:
If there’s other costs in there or other takeouts then yeah, absolutely. And I mean, they still charge a 5% service fee, but 20%. And you’d look at that and you’d say, wow, you bought something for 300, and then I mean, literally the amount of time between when they take possession of something and then re-list it as about 10 days. So it’s unfair to say the price appreciates 20% and 10 days because there’s a closing period. There’s a lot of time in here. But even if you say two months, three months, that’s crazy home price appreciation. Now the reason that doesn’t fall to the bottom line is because it doesn’t include all of the expenses. So any expense these companies have, all their hundreds of millions of dollars, employees, technology, office rent, salary, all that stuff. It adds up. And I think that’s the fundamental challenge for profitability of these businesses.
It’s also, it’s symptomatic of the fact that it’s real estate and you need boots on the ground. I mean, you guys get this. You just can’t manage this business from your basement. You need hundreds, thousands of people in the field. They’re buying, I forget what it was, 150 houses a day at their peak. There’s so many people in trucks with ladders driving around Phoenix that you can get to fix things up. I mean, you really hit these real world situations. But just to wind it back, I mean, they’re making money. Homes are appreciating, but it’s pretty simple math, it doesn’t flow to the bottom line because there’s just a huge pot of expenses here.

Dave:
That’s crazy. Because that makes me feel like they’re not going to succeed ever. Because if they couldn’t make it work during a time when they were getting all of these market tailwinds, how are they going to make it work in the future when hopefully we get back to a housing market in the next year or two that just grows around the pace of inflation?

Mike:
Well, here’s the thing, and we might not have even talked about this today in this chat unless I brought it up, which is, again, showing the problem. But the thing is, everybody is so focused on the short-term crisis of the iBuyers that we’re all forgetting to take a step back and look at the long term view. We’re like, oh, my God, are they going to survive? Is there enough cash? They’re making so much money on home brace appreciation now everything’s tanking. Are they going to weather the next six months? But we have to remember, if we go back to pre-pandemic times before the market got crazy, the biggest question for iBuyers, and this is something I harped on time and time again, is there wasn’t a credible path to profitability. These businesses were still, they were losing money. It’s like, okay, that’s fine, but what is the path to profitability?
How will you become profitable one day? And that had not been proven yet. There were arguments to say once we get to scale, we’ll be profitable. We can grow our revenues and the expenses grow slower and ta-da, we’re another Amazon. Or we can make money by selling adjacent services, primarily mortgage, title, and escrow. So we get a bigger slice of the pie for each transaction. That was it, right? And we’re going to automate stuff and use technology to bring our expenses down. So you look at all those and I love looking at those, and the evidence wasn’t there. It was like, yeah, I see maybe a little bit on the scale thing, but it’s still too early to tell. And the other ones, I’m just, it’s not flowing through on the data yet. So if we put aside the short term, are they going to survive? I’m thinking we still have that same problem that is still the same problem. We saw what happened when they get to scale and the market goes bananas, that you lose a billion dollars. So there’s a big problem.

Jamil:
The only way they survive, Dave, is through the marketplace.

Dave:
What do you mean? Coming after you, basically.

Jamil:
100%. The only way they survive is buying my company. No, no. Really, the only way they survive is the marketplace. Because, look, if you can change the model where you don’t have to be so cash-intensive, you don’t have to take title down, you don’t have to take title to all these properties. You’re not paying commissions multiple times because, Michael just said, it’s a 10 day turn. They are doing nothing to these houses. You accomplish the exact same. In fact, the house might look better the day before they close and the day they list. Okay, so with that said, the marketplace makes sense. It makes sense, right? It’s like if you look at the car industry, how many of us have traded in a car? All three of us, I bet. We’ve all traded in a car. We all know that we were leaving money on the table.
Every one of us understood that there was a convenience situation here that we were taking advantage of. So what if that becomes the proposition, the value proposition of the consumer? Listen guys, we are becoming your marketplace, you know that we’re just going to take your car and put it on the dealer auction. That’s exactly what’s going to happen with the house, you know that we’re just going to take your house, we’re going to put it in the marketplace auction, you’re going to get what you’re going to get. We’re going to take our fee, bada-bing, bada-boom. We didn’t have to come up with any extra money, we didn’t have to raise funds, there was no cost in capital, operations completely come down. And this starts to make sense.

Mike:
I think there’s a different factor in there. You asked how many of us traded our car in, I traded my car in. I went to a dealer and I traded it in and I was done. That’s different than me going to a dealer, giving them my car. What is that called?

Jamil:
Consignment.

Mike:
Yeah, consignment. Giving them my car on consignment and then seeing what happens with it.

Jamil:
True.

Mike:
So iBuying is the first. They buy your home, done. What you’re talking about now, this marketplace, that’s consignment, and it may be great, but it’s less speedy, it’s less certain, and it’s less simple than the iBuyer proposition. So I don’t know how that’s going to pan out, but we can’t kid ourselves. It is different. It is a different proposition. And sorry, just one more thing. When I trade in my car and I give it to the dealership on consignment, the dealer’s saying, oh, actually, we’re going to sell this to our exclusive network. We’re not going to expose this to everybody. We actually have a set number of buyers.

Jamil:
I think that changes, too. I think eventually what ends up happening is it’s the network and the MLS. I think essentially what’s going to end up happening is they’re just going to become the full scale wholesale operation.

Dave:
Interesting.

Jamil:
And they’re going to change their name to Keyglee, that’s what’s up.

Dave:
Well, it’s funny, Mike, when you were describing these paths to profitability or proposals. It sounds like these companies and it makes sense, given their backing, are following almost more of a venture capital model where it’s like just go rapidly after market share, worry about profitability later. You hear about companies like Uber that was doing this, they were taking a loss. They were subsidizing rides for people just to capture market share. But Uber didn’t own the cars, they didn’t have assets, they weren’t stock holding anything in case things went wrong. And this, it doesn’t seem like, there’s so much risk just going after that market share approach before you have profitability when you’re buying literally billions or tens of billions of dollars worth of assets often leveraged. That just seems crazy. And so what you’re saying, Jamil, is more of the Silicon Valley approach to this, right? They would not touch owning the asset. They would set up a marketplace, like Uber did between drivers and rider. And they’re basically going to take the same approach to real estate.

Jamil:
Imagine if Uber had to own every car.

Dave:
They wouldn’t do it.

Jamil:
I mean, the model wouldn’t make any sense, right?

Dave:
Yeah.

Jamil:
So it’s got to evolve. It’s got to evolve. And listen, I congratulate them for the amount of bravery it took to do what they’ve accomplished. It’s incredible. It’s a great disruption to the business. I think that evolution is necessary in everything. We want to see things change; we want to see things get more efficient, we want to see things become more fluid. I can see that looking at the way that this is panned out right now, that there’s not enough money in the pie to operate. So what’s next? And you hit the nail on the head in the biggest appreciation we’ve seen in the history of housing, it couldn’t survive. So what’s next?

Dave:
Well, Mike, I’m curious. Yeah, we’ve asked you a lot about iBuyers, but is there something else coming down? Is it sounds like iBuyers are trying to evolve or is there something else you see coming down the pipe in terms of real estate tech that might be impacting the industry?

Mike:
Yeah, before we get to that, I want to come back to the marketplace thing as well. The challenge that Opendoor and any other company faces in trying to create a marketplace in real estate is that one already exists, right? It’s the MLS systems everywhere. There is a marketplace, it functions, it’s efficient. Could it be more efficient? Yes, but it does work. There is one place you can go to find all the houses for sale. There’s not one place I can go to find all apartments for rent. There’s not one place I can go to find all cars, there isn’t. And that’s why there’s not one place I can go to find all taxis available in my area. Those things don’t exist. But the challenge is in real estate that does exist, it’s the MLS system. And I get it, you bump into 10 people and you’re going to get 10 different opinions about why the MLS system is broken.
It sucks, it doesn’t work. But at the end of the day, it is a marketplace. It could be more efficient, it’s operating. But I don’t know about you guys, but I’ve bought homes, I’ve sold homes, it works. The MLS system, it does work. I can go to Zillow and have a high degree of confidence. I’m looking at all the properties for sale. So anyway, that’s the marketplace. What’s next? Well, listen, I think the crisis of the moment is home affordability. And I think that will be a new category in prop tech, real estate tech that we’re going to see created over the next six to 18 months. There’s a variety of different ways to address that from rent to own to shared equity-

Dave:
Fractional ownership.

Mike:
Fractional ownership. And I hate fractional ownership if we’re thinking about blockchain and owning like $100,000 worth of a house. But if you can can’t afford 100% of the home, maybe you can afford 70% of it. And some investors come along for the other 30% and they’re in it for the long term ride. There’s a number of different ways companies are starting to do this and I’m excited and hopeful about what the future is there because home affordability is a problem and it’d be great to get some Wall Street money funding companies to solve the problem created by Wall Street money in the real estate market. But that’s kind of where we are. So I think that’s next and I’m interested in that and I’m starting to advise some companies in that area and dig a little bit deeper because I want to be smarter in that and do what I can.
But for all the other, there’s iBuyers, there’s a classic company called Power Buyers that do cash offer and buy before you sell. There’s W2 brokerages, real estate brokers that employ their agents like Redfin, instead of the contractor model. There’s a lot of new models out there and I think there is absolutely value in that model for consumers. The idea of buying before you’re selling that sounds really cool. Why isn’t that the status quo? But the challenges in the current financial markets and real estate markets, those companies are all bleeding. They’ve yet to reach escape velocity. They’re not profitable and it’s going to be really tight. So my hope is that that category survives, and I think it will, but depends how bleak the next year is. I hope it survives. I hope the iBuyers survive and I hope we have some new models that once things start picking up again, they can keep going and keep offering new ideas into the space.

Jamil:
And I wanted to add one little defining piece to the marketplace conversation because I’m stuck there.

Mike:
We can’t get away.

Jamil:
No, but I don’t think it’s just the overall marketplace. I think it’s the cash buyer marketplace. I think the piece of the pie or the piece of the puzzle here, that Opendoor, when they say the word exclusive, what they’re trying to say is this is not going to be subject to a retail mortgage. This is not going to take the time that a regular sale would take. This is going to be a speed and convenience situation. That’s why you’re coming to the cash buyer marketplace. And this is going to be different from your multiple listing system, where you’re going to be subject to all of the nuance that regular retail sale would have.

Mike:
I meanm I can’t help it, but my mind goes to, well, okay, so-

Jamil:
Let’s start it.

Mike:
Opendoor’s going to… No, no, just who has the cash? Opendoor has the cash. So you’re going to be using their cash. So it’s not going to be on Opendoor’s balance sheet, but you’re still using their cash. There’s other companies that are doing that and they’ve announced they have to stop, their lending facilities are drying up or interest rates are becoming too high. There’s too much risk. Like, okay, Dave, I’ll give you my cash, buy your home. But my God, what happens if you work for Meta or Amazon and you just got laid off and you lose your job? It’s too risky right now. So there’s still this huge, I believe, I mean, there’s still a really huge financial risk for that company providing that at the moment.

Dave:
Yeah, it’s going to be really interesting to see what shakes out over the next couple of years. Because you look at publicly traded real estate companies and the best ones are down 30 to 40% like REITs often. Redfin is down 90%. And so these are big well-funded companies. You think, I’m sure, Mike, some of the companies you like or research startups, pre-revenue companies, it’s going to be pretty tough for them to survive. I totally agree with you. I hope they do because I do think there is need for some innovation in real estate and I think there’s so many interesting ideas out there, but none of them have been able to really make a dent yet. And so I’m with you. I hope they survive and I hope that we start to see some interesting new trends emerge as we hopefully in the next 12 to 18 months come out of this correction and into a new era for the housing market.

Jamil:
I think the next thing that we’re going to watch is the feast. There was another brilliant article that Michael wrote where he talks about predators and prey. And I think the next show is going to be a National Geographic basic show where we’re going to watch a whole bunch of companies get devoured by the companies with the money, and that’s the next six to 18 months. We’re going to watch the feast, who’s going to survive and who’s going to get eaten?

Dave:
Basically all the big companies with cash are going to roll up these smaller companies.

Mike:
Yeah. And the asterisk is, but these smaller companies are all losing money, and some of them are encumbered with debt. So it’s like, right now, I’d hate to be in Zillow’s boardroom saying, yeah, I think we should drop 500 million and acquire this business that’s losing money. Really? Can you justify that? And there’s also this question of what are you buying?
Even Opendoor, if we were to buy Opendoor, what they own, I mean, geez, they ended Q3, they own 16,000 homes. That’s pretty good. And they have technology, but these transactional things, it’s not a subscription as a service that it’s not a SaaS model. You don’t have recurring revenue. What kind of do you have there? You’ve got a brand and technology. So I think you’re right. I mean, yes, you’re right and referencing me, yes, there is going to be a feast. I do agree with that, but I’m worried about companies just zapping out of existence or fire sales rather than a smart amalgamation of existing players into something new here. Because there’s questions. Where’s the value? What am I actually buying? What can I value?

Dave:
All right, well, with that grim ending to this episode, I think we have to get out of here. Well, I guess real estate investors will probably be happy to hear that they are not facing tremendous competition from iBuyers, but it remains to be seen what sort of real estate tech we might be hearing about next. But Mike, this was tremendously helpful. You’re a wealth of knowledge. We really appreciate you being here. For anyone who wants to find out more about you or connect with you, where should they do that?

Mike:
Just go to mikedp.com. Look me up on Google, got a website, all my material is there. You can have a lot of fun reading things; mikedp.com.

Dave:
All right, great. Well, thank you, Mike. We appreciate it and hopefully we’ll have you back sometime soon when there’s some new exciting trends to talk about.

Mike:
Sounds good. Thanks for having me. A pleasure everyone. And yeah, have a good one.

Dave:
All right, that was fun. I’ve wanted Mike to come on the show forever and he did not disappoint.

Jamil:
He is a really intelligent person. I loved his perspectives and it gave me a lot of insight and obviously, he’s researched what he’s talking about. He knows intrinsically what’s going on in this business model. And when you see somebody that is so well versed in the data and the model itself, it’s really valuable to listen to them.

Dave:
Totally. I like it because he’s also not an investor, he’s not an agent, he doesn’t work for any of these companies. He approaches it from a much more academic standpoint. And I know he does consulting and private practice stuff, but he is also a professor at CU Boulder, so yeah. Yeah, it’s really cool to just hear this research-based analysis of it and it took a turn. I was not expecting. I did not. I was excited to have you on the show. I was like always am because of the Phoenix iBuyer connection. But I didn’t realize that there is a sort of idea that they’re going to go into and try and automate the wholesaling industry.

Jamil:
It’s exactly what’s happening. It’s exactly what’s happening. And I’ve been, it’s funny, I’ve been calling it for a while. I figured that this evolution was going to take place. I couldn’t see how taking properties down, doing minimal repairs to them, and then trying to get retail value for it was going to pencil out. I didn’t see this playing out well. I’ve gotten a lot of flack. I’ve been making videos about this conversation for a few years and I’ve had multiple people reach out to me and say, “Why are you taking shots?” And I’m not taking shots. I’m just literally expressing what’s obviously happening in the market and we’ve got to look at it, we’ve got to call it what it is. And we’ve got to then assume that a pivot is in place. They are going to have to evolve. What they’re doing right now isn’t going to work. And I think what Michael talks about in this episode was really important.

Dave:
My big prediction now is that the CEO of Opendoor in 2024 is going to be Jamil Damji. You are going to be tapped for that job because it seems like-

Jamil:
I would do a fantastic job of it, to be honest. I think they need to learn from the scrappiness of wholesale. They’ve got to understand this instrument that we’ve made millions of dollars on. And listen, look, I’ve been profitable through the down, and even as the market’s doing what it’s doing right now, we’re still crushing it, right? So iBuyers take notes. Equitable interest is an incredible tool. And figuring out how to monetize that is probably your parachute out of this.

Dave:
Totally. Well, first of all, you should just get a consultant gig and make a lot of money from them, but you don’t seem nervous about it. Why is that?

Jamil:
I don’t seem nervous about it because I have no reason to be. I’m looking at our balance sheets, I’m looking at what we’re accomplishing right now, and while everybody is bleeding because we don’t hold property, because we are truly just delivering the information that exists. Look, your house can trade at this price right now. It is what it is. And buyer, this is how low you can pay right now. Are you interested in purchasing? Yes. Let’s connect the dots. Let’s do the deal. And because of that, we’re still transacting. People still need shelter. He talked about Maslow’s Hierarchy of Needs. Shelter is still there and it doesn’t matter what if we’re in a recession, if we’re in a boom economy, that hierarchy of needs will always be the same. Housing is inevitable because we need somewhere to live.

Dave:
Totally. First of all, never thought Maslow’s Hierarchy of Needs would be referenced on this show, but here we are. And then, secondly, but are you nervous that they might eat into your business? They’re active in Phoenix. If they start trying to mimic wholesalers, Phoenix might be their first choice.

Jamil:
I think there’s a conversation that we have. I truly do. I think there’s going to be a point in time in the future where Opendoor and Keyglee sit down, and I think it’s going to be a good conversation because I think that they could gain so much from what we do. They really could. And if we melded the business model of what we do and the business model of what they do, and we brought those things together, I think you actually have the perfect iBuyer. So I’m not nervous about it. I’m excited for the conversation.

Dave:
Nice. All right. Well, thanks a lot for coming, man. This was a lot of fun. I really enjoyed this episode a lot.

Jamil:
Likewise.

Dave:
All right. Well, Jamil, where should people connect with you if they want to be a part of the Opendoor Keyglee mashup?

Jamil:
You guys can find me on my YouTube channel. There’s a great video that you should check out from back in the day. I posted it with Max Maxwell and I on my YouTube channel. It’s just Jamil Damji or youtube.com/jamildamji. And also follow me an IG. I make funny videos there.

Dave:
You definitely do. You can also follow me on Instagram where I’m @thedatadeli. Thank you all so much for watching. We’ll see you for next episode of On The Market.
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 Pusher Janedoll, and a big thanks to the entire BiggerPockets team. The content on the show, On The Market, are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

Mindy:
Welcome to the BiggerPockets Money podcast, Finance Friday edition, where we interview Josh and talk about rehab overruns, borrowing costs, and the grind it out versus sell your property decision.

Josh:
Really in the last year have had to learn a lot about tracking my own expenses and my own cash flows through the construction process. And with that, because I took out a construction HELOC, there was some flexibility even there too. But now that I have really substantial housing expenses in the mortgage and the HELOC, I am projecting, I am foreseeing that it’s, I’m basically breaking even for the most part when it comes to after tax and stuff like that.

Mindy:
Hello, hello, hello. My name is Mindy Jensen and with me as always is my wheezing co-host Scott Trench.

Scott:
Mindy, the show always takes my breath away.

Mindy:
That was a good one. Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments in assets like real estate, start your own business or decide whether to grind it out and pay off a HELOC or sell your property and start over. We’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams.

Mindy:
Scott, today we’re talking to Josh and I’m really excited to talk to him. He is a younger guy who is on his path to financial independence. He bought a house hack, as we say, you should house hack your way to financial independence, house hack your way to get started investing in real estate, which he did. And he ran into some cost overruns and some time overruns, which happens frequently when you are doing your very first rehab. He has, he’s on the end of that now and now he needs to rent out his property. But he is faced with kind of a big decision. He borrowed a lot of money to rehab the property and now he needs to pay it back. And I think you have some good things for him to look at today, things to consider when he’s running his numbers.
I mean, a lot of our answers lately seem to be now you’re in the grind and we’ve talked to so many people on this show and it seems like 10 years is the sweet spot to go from zero to financially independent, 10 years, 15 years. And I just, I want to make sure that people realize 10 years is kind of a long time. There is a grind aspect to becoming financially independent. We cover it in an hour, but it does take a long time. It is multiple years except for that one guy in California last week who won the $2 billion lottery by himself or herself, I should say him or herself, not to be sexist.

Scott:
Yeah, they’re set for life.

Mindy:
They are set for life.

Scott:
They should write a book.

Mindy:
Their book is much shorter than yours.

Scott:
Yeah. Well, great. Should we bring Josh in?

Mindy:
Yes. Before we do, let’s hear a note from my attorney who says the contents of this podcast are informational in nature and are not legal or tax advice. And neither Scott nor I nor BiggerPockets is engaged in the provision of legal, tax or any other advice. You should seek your own advice from professional advisors, including lawyers and accountants regarding the legal, tax and financial implications of any financial decision you contemplate. Today we’re speaking with Josh, a fairly recent college graduate who bought his first house hack 12 months ago and has been renovating it ever since. Renovations went over budget and over time as they tend to do, but he’s just about finished and we’ll start collecting rent in the new year. Josh, welcome to the BiggerPockets Money podcast. I’m super excited to talk to you today.

Josh:
Thank you. Thank you. Yeah, I’m stoked to be with you all. Thank you very much. Let’s get going.

Mindy:
Let’s get going. So we want to give a quick snapshot of your money situation. We have a salary of about $5,800 a month and additional income from hockey and CrossFit coaching of about $20,000 a year. I’m showing monthly expenses around 4,100, so that’s a $1,400 mortgage, a $1,400 HELOC payment, $131 in gas and electric, $35 wash, 29 water, $29 trash. No vehicle payment, good for you. $147 in insurance, $280 in gas, $193 for trips and adventures. A bunch of random, I’m going to call it $250 in random. I don’t see anything weird there. $317 a month for groceries, $214 for restaurants, bars, and coffee for a grand total of $4,100 in your spending. And then you’ve got additional, oh, and let’s move to investments. We have $21,000 in a Roth. Hooray. And $6,000 in a TSP, $3,300 in a 401k, $21,000 in cash in various earmarked buckets. We have a house hack that is in progress. What would you estimate your equity to be in that property?

Josh:
Yeah, good question. I’ve estimated it at 75%, the after rehab value is 490 and my all in debt on the house is now 382, 383 with the mortgage in HELOC. So about 75% is the all in loan to value. So 20 to 25% equity.

Mindy:
We’ve got the outstanding mortgage of $227,000 at 3.375 fixed rate, which is awesome. A HELOC of 135,000, a family loan of 20,000.

Scott:
What’s the interest rate on HELOC?

Josh:
The HELOCs on a three month float. So for the first three months here it’s on seven and a quarter, and then it’ll go up obviously with rates so.

Mindy:
$20,000 for a family loan, 12,500 in student loans, and then 20% interest credit cards, one at Home Depot with $4,500 on it and one at Lowes with $9,800 on it. And I think that you are sitting in a pretty good situation. Let’s look at your money story. Let’s get a quick little overview of how you got to where you are.

Josh:
Yeah, absolutely. And I’m not sure if it came through or not that student loans is down to only about $2,000. I think you might have said 12,000 there, but just about 2000.

Mindy:
2000, that’s even better. Okay.

Josh:
Yep. About 1900 left in student loans. So thankfully got an employment recruitment and retention bonus that went towards that student loan, student loan debt. So I took advantage of that and so that’s been great. But my money story is pretty complex. My parents got divorced between second and fourth grade. There was a lot that was kind of fallen out during that time along with my dad’s construction business that also fell out. And then there was a recession there as well. So the foundation is a reasonable level of insecurity, but my parents did the best job that they could to teach us money lessons along the way, figure out how to adapt and overcome with your situation. We got taught the envelope method. My mom for a while had the need, seed and greed method. So anything that we absolutely needed, four walls, food, shelter, all that kind of stuff would go in one bucket.
The seeds would be investments for the future and we would kind of share those 50/50, but then if there was any soda or candy or anything that we wanted, anything that we just wanted, we didn’t actually need or wasn’t an investment for the future, that would fall in the greed bucket and we would have to come up with our own funds to spend in the greed bucket. And so that was a good framework. And then I didn’t start college right away after high school. I played a couple years of junior hockey. I fell into a business relationship with a mentor who taught me business. He exposed me to real estate. He really was an influential force in growing my money story.
We would have road trips all the time, crisscrossing the country for our hockey business and just listening to TED Talks and BiggerPockets podcasts and just going through and thinking and dreaming about how to build a real estate empire. So really my interest in real estate got started with that. And then I went to college for finance because I figured that it was applicable throughout life, not just for a job. I wanted to learn how to account, how to manage my own money and know more the ins and outs of the financial world. So that brings me to today I’m a financial analyst for work and I got myself into, like you said, a pretty big bird there so that’s my money story.

Scott:
Well walk us through. So you’re, to understand your position, we got $20,000 in cash. We got about $30,000 in investments and then about $510,000 in property. And that’s your position there. And we just levered against the property we have a couple of personal loans here. Walk me through your cash accumulation rate. Do you feel like cash is regularly stockpiling in your life? You gave us the 5,000 a month in income plus a bonus here and there, plus the side businesses. Is cash tending to pile up and you generally have a surplus that you’re looking to deploy or is that not happening for some reason?

Josh:
I ran the numbers to come up with a three month average, and those are the financial budget numbers that I gave to you guys was kind of a three month average. But before that, quite honestly it was just kind of a hey, I’ll look at my credit card statement at the end of each month, and if it was under $800, I knew that it would put more money in my bank account than what I was spending. So it was a little more running gun up until more recently when I’ve really in the last year have had to learn a lot about tracking my own expenses and my own cash flows through the construction process. And with that, because I took out a construction HELOC, there was some flexibility even there too. So up until recently, yes, I would just kind of come into having enough cash to then reinvest or to put into my IRA or to pay down debt.
But now that I have really substantial housing expenses in the mortgage and the HELOC, I am projecting, I am foreseeing that it’s, I’m basically breaking even for the most part when it comes to after tax and stuff like that. So I’ve been running break even through the construction period and I’m looking forward to when, like Mindy said, in January, hopefully here getting some rents in to then be a surplus. But for really the last year I’ve been running about break even. I wouldn’t say that I’m clearing a surplus each month. A lot of the retirement accounts are from deductions, right. So paycheck, W-2 deductions, so that all hits before I even touch that money so.

Scott:
Great. And I assume fundamentally that’s the first thing we want to solve today is get into a positive situation.

Josh:
Yeah, I want to get into a positive situation. There’s also a question about with my HELOC I have a little bit of room, it’s up to 150. I obviously have those couple credit cards still outstanding. So those are on 0% promotional rates for now. One will clear in January where that’ll start occurring interest, the other will take until next July. But a question I had is, should I draw 6,000 from my HELOC to invest my personal IRA at the start of the year and then kind of cash flow it throughout the year, or should I continue to break even? My break even also is essentially including a break even of $500 a month to that IRA so should I just put that lump sum into the IRA to start the year or should I kind of just still dollar cost average it throughout the year.

Scott:
Well, let me ask you this, your mortgage payment, what is your PITI?

Josh:
The principal interest tax and insurance is 1442.

Scott:
1442. Okay. And what do you expect to rent this place out? Walk me through the math of the house hack once you have tenants in place.

Josh:
Yeah, so I converted it from a two bed, one and a half bath to a three bed, three bath and so both of the bedrooms upstairs have their own ensuite bathrooms in them.

Scott:
How long did that take you and how much did you put into it?

Josh:
I’ve put in almost, I mean, it’s essentially 150,000 from all in on debt and it has taken me, I started rehab really intensely in middle of October, 2021. So it’s been 12, 13 months that we’ve been cooking on this thing.

Scott:
This is a big project. I bet you learned a lot.

Josh:
It’s a big project. I didn’t know what I was getting into. I didn’t know what I was getting into to be completely frank, and I know you’ll ask about my money mistake, but that it was a big project. There’s a lot of learning curve that comes with that. There were some losses for sure, just by not knowing what I was getting into. An example where I didn’t do my due diligence on research to figure out what it actually cost to get an interior of a house painted and so I got ripped off. I got charged too much for an inadequate job, but that’s being naive and being new and figuring it out. Hopefully as you learn, those losses get fewer and fewer and less and less. But yeah, it’s been a big, big process. It’s got new electrical, new HVAC, new plumbing. I took down a wall, I put up a wall, I moved a wall to add another bathroom in one of the bedrooms.
And above all that, then there were structural issues. We opened up one of the ceilings to put in new lights and we found that the joist had cracked. And so the joist had split for the upper floor and so we had to reinforce those and there was a turnbuckle running through the middle of the house. We didn’t know where it was coming from or where it was going. So there were a lot of weird things about it. It’s an 1876 house, but on the back end, those two rooms upstairs, those two rooms upstairs, I’m anticipating very conservatively 750 each and that’s super conservative. Upwards of 1200 for one of them and a thousand for the other. The one has a little bit better and bigger of a bathroom. So on the high end, 2200 a month, on the low end, 1500 a month.

Scott:
Okay, awesome. So let’s plug it in the middle and say 18 for our purposes of discussion today. Does that work for you for?

Josh:
Yep, works.

Scott:
Okay. So you’re going to get 18 and your PITI is 1430. Is that what I heard?

Josh:
Yep.

Scott:
So that’s great. That’s going to make a major difference in your cash flow in a month or two. What is left that needs to be done to get this project completed? How much is it going to cost and how long is it going to take? You say January, but can you walk us through that?

Josh:
Yeah, good question. What I have left is trim work and molding and included in that is a little bit of finished carpentry to install four custom doors to close off another room. So all in, I already have the material purchase for that. It’s just someone’s labor for a week for 40 hours and then it’s essentially done. We’re finished.

Scott:
And do you have a plan to contract that labor? Is that all lined up or what’s going on with it?

Josh:
Yep, that’s all lined up. They’re coming here in two and a half weeks.

Scott:
Awesome. Start to put the property up for rent today.

Josh:
Okay.

Scott:
So start marketing it for tenants. Give them, get the move in date with that. If you feel like you’re actually certain that in three and a half weeks this will be done, put the listing up. Worst case, you just list it, you get it in January, but that’s $1,800 that’s going to evaporate every month that you don’t have a tenant in there. So it’s like an expense going out. So that would be my first advice there. What would the property rent for if you moved out?

Josh:
If I moved out, it would be in probably 2,750 to 3000 range. I’m in a small town just outside the Twin Cities with good access to the city’s industrial centers and business centers. But it’s really a destination town within the Twin Cities. So it has really strong supports for home values. A big lesson I learned is that if you’re going to do a [inaudible 00:17:33], make sure that you do it in an area that can support the housing values, if you go on overruns. My original project, I was only hoping to turn a $250,000 house into a 325. That was the original project. But then walls started getting opened up and the vision started to come more through of what the house could be and obviously that totally changed where plumbing needed to go. And we found that they had cut joists in weird spots to add plumbing upstairs.
And so if we were going to have to move plumbing anyway, we might as well make it really functional. And so I didn’t ever end up, I didn’t intend for it to be this big. I only wanted a base hit and to have a modest rental a year ago, but it’s turned into this bigger project. But I definitely hear you on getting rents in as quick as possible. I’ve actually ordered the next medium term rental book. I think I got the notice that it was getting shipped yesterday. So my plan is to put it up on Furnished Finder. There’s a hospital that’s a mile away and so I was, that was the plan for sourcing tenants come January.

Mindy:
Okay, so you said Furnished Finder, you’re going to furnish these units?

Josh:
Yep. Two bedrooms, I already have the furnish for.

Mindy:
Okay.

Josh:
I already have beds and dressers for, and then the rest of the space been living in it, so. Well I actually only moved, funny story, I borrowed my mom’s camper throughout the summer so that I could live in the camper while they were doing all the sheet rock and painting and stuff inside. So I only moved back inside around Labor Day just in time for the cold weather to set in. But that was a fun experience. Anyway, I’m sorry I interrupted you.

Mindy:
That’s okay. I want to say this delicately, if you don’t have design skills it might be a very good use of your money to hire somebody with design skills because people will look at the pictures of your property and say, oh, it’s just an old IKEA bed with some random old comforter on there and there’s no pictures on the wall or it’s painted some random color. I don’t have design skills so I ask people who do have design skills to help me out with my medium term rental. So I’m not accusing you of not having design skills, I’m just saying if you don’t, you could greatly improve the amount of rent you’re getting per month and the amount of people who want to stay at your house at all just by having a super cute instagramy site.

Josh:
Yeah, absolutely. That’s a great tip.

Scott:
Yeah, I think that’s really good. You’re already in this project for 150, what’s another two grand and advice, whatever to actually have a good chance at bumping those rents? And I wouldn’t just do those rooms. I’d do some of the common areas if you’re going to do rent by the room as well.

Mindy:
Okay. I think that we have covered the rental pretty well. Let’s talk about your HELOC strategy.

Josh:
Yeah, yeah, absolutely. So I’m going, I wasn’t sure if it was a common term to be called velocity banking. I know it as velocity banking. That’s something that I came into my real estate agent slash friend, really friend first real estate agent second who represented me on the project, he just rolled his mortgage into a HELOC as well. And his wife are funneling their entire salaries into the HELOC and then only pulling out little bits of their expenses each month. So every month their property debt goes down a large degree and then it only comes back up with their expenses. I’m not doing it with two salaries, I’m only doing it with my one W-2. But the idea is that my entire W-2 will go into the HELOC and then every month when it comes time to pay water and utilities and pay off the credit card that I use for food that then I only pull out the expenses for that and the rest of the W-2 stays in the HELOC.
So that the idea is that the balance goes down consistently and frequently and it’ll be little by little, but once I add the rents to it, then it’s going down by 1500, 1800, $2,000 a month. And so when I did the math, it works out. Really the question was do I get another HELOC? Do I, or excuse me, refinance my construction HELOC or do I refinance the entire thing into a seven and a half percent mortgage? This was a decision that I was trying to make a month ago because I only had my original construction HELOC was for only 100,000, 105,000, but it was $150,000 project so I had to float a lot of the expenses on credit cards. So I was trying to refinance all of that. And so the decision was trying to figure out, refinance the HELOC into another HELOC or just do the whole thing as a cashout ReFi kind of a thing.

Scott:
Did you use the HELOC to finance construction or have you used the HELOC at any point so far to pay down the mortgage early?

Josh:
Haven’t done that. Haven’t done that because I’ve had construction costs to repay.

Scott:
Okay, so you have not used the HELOC to pay down your fixed rate 30 year mortgage of three-

Josh:
No, no, no, no.

Scott:
Okay.

Josh:
The fixed rate 30 would be paying down 3.3% versus the 7% HELOC. I figure every dollar that I put towards the HELOC earns seven and a quarter.

Mindy:
Okay. So if I was in your specific situation I would not cash out ReFi because you have the 3.3 whatever on your 30 year fixed mortgage. I would leave that alone. That’s $227,000 at 3%. You’re not going to get a 3% mortgage again. So don’t touch that. If I were you, I would not touch that. The HELOC is what, seven and a quarter right now that is going to go up and I would make it a point to pay that down as much as possible. I don’t know about putting my W-2 and rental income into the HELOC and then pulling expenses out. That seems like an awful lot of extra work. I would just spend my money, my W-2 and my rental income on my expenses and everything left over the HELOC as fast as possible. I think that it is creating a lot of extra mental head space.
To be fair, I’m not a fan of velocity banking and I’m not sure that you’re using velocity banking in the way that it is taught, in quotes, taught online where it is specifically for taking out a HELOC, throwing giant chunks at your mortgage and then putting your W-2 back into the HELOC and pulling little bits out for spending. So you’re doing part of it, but you’re not using it to pay off your mortgage. And again, I wouldn’t recommend paying off your mortgage right now simply because you have such a low rate that will probably never come around again.

Scott:
Yeah, when I first saw this I thought you were using velocity banking and I thought we were going to have a long discussion on it. You’re not using velocity banking. Velocity banking is when you use your HELOC to prepay your mortgage earlier. And if you time it correctly, you may be able to save a few thousand dollars in mortgage interest over a long period of time because of the timing of the cash flows and the way that you’re using, the way you can strategically use the HELOC. In my opinion, that is also, that is a very unintelligent move because while you can save a few thousand dollars in interest payments using that, you destroy optionality of your great 30 year fixed rate Fannie Mae insured mortgage with that.
You would never use your HELOC at seven and a quarter to pay off your home mortgage. Perfect. You’re not using velocity banking and you’re using the term incorrectly. Go ahead and keep using that if you want to. Then you and I will have slightly differing opinions on that, but that was my big, you got to stop doing that right away if you’re using the HELOC to pay off your mortgage with velocity banking. It may have been a interesting complex kind of bad trick previously. Now it’s a really bad trick because they swap your mortgage rate for a HELOC.

Josh:
Yep, yep, I hear that. I hear that.

Mindy:
Yep. So should you get a cash out ReFi? No. What I would like to address is the Home Depot 0% card that ends in January and the Lowes 0% card that ends in July. I’ve done these promotions, I’m assuming it was the promotional period where you spend X number of dollars and then there’s no interest as long as you’re making your minimum payments for 6, 12, 24 months. And I’ve done those. If you pay off the entire amount before the end of the promotional period, you will pay 0% interest for the whole thing. If you don’t pay off the entire amount before the promotional period ends, you will owe interest on the entire amount from the very first day you made the payment or made the purchase for the entire time that it takes you to pay off all of the amount. So the way that these promotions work best is if you can pay it off in time.
If you can’t pay it off in time, you’re it, there’s no promotion at all. It’s not like you get a discount or you don’t pay interest on the time for six months when you have it. I’m really flubbing over my words here, but what I want to say is make sure you pay off that Home Depot card before the due date in January simply because, and even if you have to take money out of the HELOC, which I don’t love, but that’s at 7% for however long it takes to you to pay off, what was that, $4,500 and then pay that off as fast as possible. But you’ll be paying much more for the last six months or 24 months or whatever for the entire amount if you don’t pay it off in January. And then the same with the Lowe’s card. I would do both of those and I would make that my top priority to pay off because I like paying 0% interest when I can or 7.25 on the two months that you have to pay because you’ve borrowed from your HELOC.

Scott:
In terms of the way you’re managing your overall cash, you got $20,000 in cash in various buckets and you’ve got a bunch of different debt including the HELOC, you’re almost done with the student loans. What were the interest rate on the student loans again?

Josh:
Four and a half or 5%.

Scott:
And why are you paying off those ahead of the HELOC?

Josh:
I’m really not. They’re just in deferral status right now so they’re not accruing any interest.

Scott:
But didn’t you say you just got a bonus and you paid off the student loans with them?

Josh:
Oh yeah, it was an earmarked bonus. Right. So it was for student loans, it was a student loan forgiveness bonus of sorts.

Scott:
Great. So that makes sense then. Okay, so these are all fundamentals that you’re comfortable with and familiar with. So you’re not having an issue with those types of decisions. Your cash flow management strategies confuse me at first, but makes perfect sense. This HELOC is ruling your life. You are using that to fund your personal expenses and every dollar of income is going into the HELOC and you are, and it is bouncing around but hopefully tending to go down or should start tending to go down once the trim and carpentry work is completed at your house. Is that right?

Josh:
Yeah. Yeah.

Scott:
That’s fine. I don’t think you have a better option than that HELOC in the near term and so I wouldn’t necessarily change what you’re doing there. Is there a reason why you have all the cash into all these different buckets versus just saying, I’m going to have a $5,000 balance or a $2,000 balance, put all the rest into the HELOC, save my seven and half percent on annual basis on that and then continue to use that as my revolver?

Josh:
Yeah, you know that’s a really good question. I’ve thought about that as well myself because all of that cash has an implied loss of seven and a quarter by not being used. And so I’ve thought about that a lot. Keeping those accounts as they are, if anything is just psychological to just know that I have those buckets, but I mean it would be really easy to just throw a big chunk at the HELOC as well so that’s a good point.

Mindy:
Rather than throwing it at the HELOC, I would take the, out of the $21,000 in cash, I would take some and throw it at the Home Depot card.

Josh:
Oh yeah, of course.

Mindy:
Before January. So we’ve got another month and then before January pay that one off. And then with the Lowe’s card, again, make the minimum payments until you said July, pay that one off in July. But then yes, any additional cash that you have, I would throw at the HELOC.

Josh:
And I’m essentially trying to use the HELOC as a checking account. It is, funds are kind of flowing in and out of that. At least that’s the concept, it’s a new setup. So I haven’t actually tested it over months and months and months. So check my thinking too if that’s a good setup or if that’s a little bit of a sketchy setup. I’m trying to flow as many dollars to that seven and a quarter percent as possible and so.

Scott:
I don’t think you have another option that’s economical here. So I need to double check on this. Make sure that you do actually have access to that liquidity because it would be a real struggle if you ran out of liquidity. But if you can, if you have kind of pretty high assurance that you’re going to be able to access that HELOC, then consider winding down that cash position to something smaller, putting it all towards the HELOC and then to Mindy’s point, bumping up the HELOC to pay off the credit cards as they start coming, bumping into that higher interest rate range with that. And then once that’s set up, your game becomes extremely simple and a little tough, but nothing you probably can’t handle. You’re going to be grinding out paying this thing, paying this HELOC down for the next two or three years. And I think you knew that coming into the call.
But that’s the reality of your situation. You got to get that place rented, you got to bust it on these side hustles and keep working real hard at your day job. And you have the potential it looks like on paper here to accumulate somewhere in the ballpark of 30, 40, 50 grand a year with that hustle after tax. 10 of that is going to go to interest on your HELOC over the next year. That’s brutal. And then I always think of the HELOC as a short term so five year debt. So if you have $60,000 in a HELOC, 60 months is five years, that’s a thousand dollars a month. So you have $2,000 a month on top of that you want to pay in order to stay on top of that.
That would be the rule of thumb. And I’d be, I’d say I, Josh am going to feel very uncomfortable about my position if I am not paying down that HELOC by $2,000 a month handily each month next year. Something’s got to change and I got to start using my free time to pay that down because your position is not bad. It’s just you’re into a pretty, you’re into like a grind mode for a year or two here with what you’ve done. And it’s not like you made it, the house hack bet sounds like it was a reasonable bet, it just went way over budget resulting in this big HELOC.

Josh:
Absolutely. I totally over leveraged because of the reconstruction on the house hack right, over leveraged relative to my own income. I need rents to really drive down the balance of the HELOC. That’s really what it comes down to. So yeah, I agree.

Scott:
Now on the flip side of this, do you believe me that, that’s realistic? You could pay 30, 40, 50 this a year starting next year?

Josh:
Oh yes. Yeah, absolutely. I did a whole breakdown of what the cost would be to refinance into another traditional 30 year versus doing the HELOC path and yeah, I totally see that.

Scott:
Yeah, I, interesting. I don’t like the refinance option for you. I would’ve liked it-

Josh:
I don’t, I didn’t either.

Scott:
If we’re talking this time last year I would’ve said definitely do that because then you would’ve refinanced the whole loan into that. But now, you’re not going to get that on the second position mortgage, so you’re going to lose your three and a quarter on your first position mortgage. So that leaves you with the grind solution, which is no fun. But I think it’s something you can handle in this situation and you’re going to come out smiling on the other side of this in two years with mostly pay down HELOC, wonderful mortgage rate, not paying very, very low living expenses and likely a big skill set with which to take on a future project from where you don’t move six walls.

Josh:
Yeah, that’s a good point you make. I mean at what point that this is getting into real estate is something that I want to pursue more and pull more rental properties into the portfolio. What would some indicators be that you would recommend I wait for or look for to go after the next property? At what point would it be too aggressive or at what point would it be just right based on my situation now looking forward?

Scott:
Here’s how I think about it. This property needs to be putting in cash in your pocket on a standalone basis as a true rental if you’re not living in there and here’s how you analyze that. You have to analyze it harshly here. Your mortgage is 1400. Your HELOC is producing $10,000, that’s called $800 a month in interest. And if you believe what I said, you got to pay a little over $2,000 a month in principal reduction on the HELOC because it’s short term financing. That’s a subjective call. I believe that’s how you should treat the HELOC. So if you put those numbers together, that’s 1400 plus 800 is 22, plus 2000 is $4,200 a month, that’s before utilities and all the other kind of stuff. So those numbers look dramatically better if you’re getting 3000, $3,500 a month in rents and you’re not living in there and you just have that mortgage, right. Now, you’ve got a great rental property with this.
The issue with this property is the rehab budget and the HELOC expense that came with it, not the fundamental of the investment. And so what you have to do, what I think you do is okay, if you’re sitting in that position now you’ve got $3,000 a month coming in, you’ve got a $1,400 HELOC and you are easily cash flowing, this property is a standalone investment at the end state unless rents collapse in your area, which is probably unlikely. So that’s a strong position from which to attack the next investment. Is that logic make sense to you? Do you agree with that?

Josh:
Yep, I hear that. And because I’m ambitious and I like to look at the market and I like to think about the next steps, the next plays, the only way I could start this deal was with leverage and to get myself in with leverage. And the only way to do the next deal I see is by doing seller financing and just trying to get someone to, I would need to do a bigger deal than just a single family, but to get additional cash flow to then throw at the HELOC. But even then I would be taking on additional landlord and other responsibilities and so I hear you, I hear you that the plan is aggressive pay down, finding cash as much as possible to drive that HELOC down and then it’s a strong rental after that.

Scott:
And I think if you’re going to take risks, take them on the income side in the next couple, you’ve got the side hustle that sounds pretty strong here. You’ve got job opportunities you can pursue, you’ve got those types of things. Get your agent license, think about things like that, that you can churn and burn hours for income on in the next two years at a higher and higher rate because in my opinion, buying another rental property in this situation, it can work if things go up, but it can also begin compounding against you and your position is not, your position is not one where, oh the next property either accelerates my position or it really will put you in a tough spot if the next property does not go well right now. Versus if you didn’t have a HELOC then I’d be telling you buy another property right now because you’ve lived in the property for a year, it’s time to go to the next house hack, go do the deal.

Josh:
Yeah. But the rehab took a year and now because of the leverage on that, it’s going to take 2, 3, 4 to get out of the debt of it. I hear you.

Mindy:
I agree with most of what you’re saying. I was looking at his situation and wondering what sort of side hustle additional money you could generate. How much does your current side hustle take to generate that $20,000 a year with the hockey and the CrossFit coaching?

Josh:
Yeah, good question. The CrossFit coaching is nice because I go anyway to work out myself, so what’s another hour of being there to coach when I was going to be there anyway. And then hockey coaching is mornings once or twice a week and weekends every, weekends every week I go through their video and I give them practice plans and I talk with them on FaceTime. They’re not in the city. The other team that I coach is in South Dakota, so I coach them remotely and I travel out there once every month or six weeks or so. So it’s pretty easy to scale because I can, as far as private lessons go and coaching goes on the hockey side I can kind of scale that up during the season if I need to and do more lessons in the morning and stuff like that. So that’s relatively easy to scale during the year.

Mindy:
I would say look into that and scale that if it’s relatively easy. I mean if you’re remotely coaching a team in South Dakota, remotely coach a team in North Dakota, remotely coach, there’s 48 other states you can remotely, 49 other states you could remotely coach a team in and I mean that might start to take up too much time, but if you could generate income while watching videos of hockey stuff, clearly I’m not a hockey coach remote, but there’s easy ways to generate more income and there’s really difficult ways to generate more income and I don’t think that signing up to be a Lyft driver is going to be the best use of your time.
But we talked, I can’t remember who we talked to, he was a remote, I want to say remote tennis coach making quite a bit of money just watching people’s or maybe swimming. I don’t remember what he was doing, but he was watching people’s technique and coaching them on that completely remotely. And you can do that as well. Clearly you already are. So add another team or two or three or add another couple of CrossFit days or you’re doing it in the morning, do it after work too or teach a CrossFit class. Is that what you’re doing or are you doing individual coaching?

Josh:
Yeah, it’s with the group sessions. I don’t do any individual coaching for CrossFit, just for hockey.

Mindy:
Ooh, maybe you could. Start your own CrossFit videos where you’ve got a YouTube channel and you’re teaching CrossFit videos and then you are growing that. Do one for, January’s coming up and that is a huge New Year’s resolution is to get in shape. So you start your video business now, you start pumping out videos. Are there workout videos for people who are just starting to get off the couch? I mean focus on people like that. Everybody’s heard about CrossFit, here’s how you do it from a beginner standpoint. I don’t know, I’m not a CrossFitter clearly.

Scott:
I think that all this is correct that now, this is all true. The answer here is earn more income, keep the expenses low, get the rooms filled and grind this debt down over the next two years. Give yourself a two year target, 18 months if you can. And then it’s a hundred dollars a week at a time. A hundred dollars a week is 10 grand over the, five grand, sorry, excuse me, over the course of a year. So if you can get the 500 extra, that’s 25 grand. Surely you can do that with some combination of just the two side hustles we talked about and over time, if you keep this front and center, maybe additional opportunities emerge to that extent so this is not fun. I can give you a path out of this whole situation if you want to hear that as well. So you don’t have to do that for the next year and a half, would you like to hear that one?

Josh:
A path. Yeah, sure. Hit me.

Scott:
Sell the property.

Mindy:
I knew he was going to say that.

Josh:
I’ve… Yeah. Okay, tell me more. I’ve thought of it. I’ve thought of that too, but not in a lot of depth.

Scott:
What’s the property worth?

Josh:
490.

Scott:
And your total debt is as far as I can see, 362.

Josh:
380. Because of the personal family loan too. So yeah, 380, 382.

Scott:
It’ll cost you 7% to sell the property. So what are we looking at? That’s 7%, 35 grand. Sell the property that leaves you with 180 to cover all of the, 80 grand leftover after you pay all the expenses associated with this thing, right?

Josh:
Yeah.

Scott:
Then you have 80 grand, you can pay off the mortgage, the HELOC, your two credit cards that you have there and your student loans. Start fresh with a pile of 50 grand, not have to grind for two years to pay off this HELOC and you can start with anew with a new house hack potentially, you’d have to get creative, you’ll be trading the low mortgage rate for something else, but that would be a path out of this situation. I don’t know what would put you in a better situation in two years, but you’d definitely be more flexible in January if you decided to sell the property today. So there is a path out immediately if you’re actually sure on that property value. Property values are declining in many markets right now, and so I think that would be a conviction test for you on that property value. What’s your reaction to that?

Josh:
Yeah, that’s an interesting thought. I had considered that as well in the summertime when I was realizing just how high the construction costs were going and trying to figure out what that break even had to be and get nervous about if the appraisal was going to hit it, the appraisal hit it, yes. But I listened to the BiggerPockets, I think it was the daily, whichever one’s the little short clips, I think it’s the daily one. They were talking about how rents are not, they’ve peaked, they’re not crashing, but they’re just mellowing out except in four cities and two of those cities are Minneapolis and St. Paul.
And so how much do I want to push that letter? I don’t know. Part of this whole thing was just about exploring and figuring out what I could learn and see if rehabbing and flipping a house was something that was for me and figuring out if being a landlord was something for me. We’ve learned a lot on the rehab and flipping side, but I still don’t know about the house hacking side and being a landlord and renting. So I hear that as an option. I absolutely hear that. I also, I don’t know if I need to be flexible in January, so it’s a good point that you make that I could be more flexible. I don’t know if I need to be.

Scott:
I think that’s right, but I think your choices here are sell it or grind. And I don’t think either’s a bad decision. We talked to another individual similar in many ways to you a few weeks ago, and that individual had like $900,000 in debt across two properties and a ton of consumer debt. And in that case it was clear, we got to sell everything and start over because this is, you’re going to drown in the situation. You aren’t going to drown. You have the ability to side hustle and figure this thing out. You have the ability to get tenants in this place. You can grind your way out of this, no problem, if you choose to, it’s going to be a year or a year and a half, maybe two of hard work and you’re going to be coming out the other side probably in a reasonable position.
Although prices may come down, I would bet rents are not going to fall a lot, but they might fall a little in the next year, yada, yada. Or you could say, I’m going to take this cash, clean up my position and go start another project right now. Both are fine. Just make that a decision, make that a conscious choice and be ready to be happy with it either way you go. I don’t know what the right answer is. You can do both because your fundamentals are going to be strong in about two months here when you get those tenants.

Josh:
Yep, I hear that. Thanks for that, thanks for that idea. And it’s definitely, I hear you about making it a conscious decision instead of just being, hey, this is the plan, this is what I wanted to do, so I’m going to stick with it. But I hear that. I’ll give that some more thought.

Scott:
And you’re not going to come out of it as a loser if you do decide to sell because you’ve got a year of experience and you should, I hope, take on a few more projects like this in the future using the lessons you’ve learned. You’ve been given a very thorough education in this kind of project, so don’t ponder that. Do it a couple more times in future years here.

Josh:
Oh yeah, I’ve learned a lot. It’s been a great journey and a great path through it. I’m definitely glad to be on the better end of exposed walls and new plumbing and to have things put back and looking better so.

Scott:
Well, anything else we can help you with here today, Josh?

Josh:
I don’t think so. We kind of hit all the big topics, big concepts for me. I appreciate both of your time.

Mindy:
I want to make one more comment. So if you are considering selling and you’ve already owned it since October of 2021, now we’re at a year and a month and then that’s two, three months. If you sell it a year and three months if you sell it in January. If you wait another nine months, you could earn some landlording expertise experience in nine months and then sell it and pay no taxes on the capital gains because it is your primary residence, up to $250,000. I believe you’re single.

Josh:
Yes.

Mindy:
Okay. And up to 500,000 if you were to be married. So that is a lot of money to not pay taxes on. It’s also, depending on who you listen to, either the market is going to go nuts next year or it’s going to decline further next year. So maybe it will be better and maybe it will be worse in October of next year. And that two year is to the day. So if you close on October 23rd, don’t close again before October 23rd. And we have a leap year, so give yourself an extra day just in case.

Josh:
I appreciate both of your times and perspectives and this is, it’s fun to hear other ideas and it’s what you guys bring all the time. So I really appreciate you guys and all you do.

Scott:
Awesome. Well thank you Josh. We appreciate it. You have a wonderful rest of your week and we look forward to hearing what you did decide. Please let us know.

Josh:
Yeah. You got it. Thanks.

Mindy:
All right. That was Josh and that was an interesting story. Scott, I have to be honest, when he first applied for the show, I thought we were going to be covering a lot about velocity banking, which is not my favorite way to manage money, but it turns out that he’s just using a HELOC to fund rehab, which I don’t think is our super favorite way to fund rehab. But he did and now we’ve given him a couple of options. I mean, his property sounds great and I think that if he wants to rent it out, I think he’ll be able to generate some good income while he is waiting to either hit the two year mark to pay no capital gains on his, no taxes on his capital gains or sell it now and pay a little bit of capital gains. He’s got a lot of options. He could keep it and generate, start the grind that you were describing.

Scott:
Yeah, Josh is a winning individual here. I really liked talking to Josh and really liked his approach. Now that I can understand it from the end of the episode here, the guy bought a house hack around this time last year, crushed it. Well it went way over his budget, but at the end of the day he added hundreds of thousands of dollars in value to the property, got it appraised at that amount and is on his way to doing a house hack. This is a risk that I think I would’ve taken almost identically to him in the same set of circumstances. It just, it went over budget and the project evolved in a way that got beyond his grasp. Probably would like to stay away from 1870s homes on your first house hack and remodeling project. That’s probably a wise move that folks can learn from, maybe stick to 1950 at the earliest, if not much more recently built.
But those learning things and he now has a really good experience set. The fundamental issue, and I don’t mind him using the HELOC to fund construction costs, the alternative to a HELOC is hard money, and I’ll do that all day. I don’t think there is a better source of construction funds other than cash maybe, although you can argue that’s not good than a HELOC. So I think he did it all right. He’s just now stuck with the reality of this property is going to, if you believe my assessment that a HELOC should be paid back in five years, then that property is going to suck cash out of his life until that HELOC is paid off. And I don’t think you should be buying more property when your current portfolio is sucking cash out of your life. I think you should fix that problem and then buy more property such that each property adds cash into your life.
And if every investor thought that way, I don’t think that they’d be having that much fear of short term market cycles or anything like that because you’re just like, no, every incremental property adds to my net cash flow. I finance it in such a way that, that’s always true. Never using HELOCs without understanding the payback considerations and the short term nature of that debt. And you’re going to be fine to be able to snowball it. And so he’s going to be just fine. I bet you he decides to go and just grind it out for a year or two because he can, because he can hustle and earn that extra income and pay it off.

Mindy:
Yeah, that would be my choice. If I was in his same position, I would first focus on paying off those big box home improvement store credit cards that are at the 0% and making sure that I get the 0% rate, so paying those off before they’re due. And then I agree with what you’re saying, Scott, don’t go buy another property until this one isn’t sucking cash out of your pockets. I would increase my side hustle income, my hockey coaching, and my CrossFit coaching to as many days as I possibly can so that I can generate as much income to throw at that HELOC.
I think that as long, that was a good point that you made to make sure that he does still have access to the money. As long as he has access to the money that could be his emergency fund. He could use that as an emergency fund while he is throwing every single dime he has at that HELOC to bring it down as fast as possible. I would put all the rent that he collects in there. I would put everything in there. And I want to just underline what you said one more time, an 1870s home is not a good first investment.

Scott:
And I agree with everything you said Mindy. While I’m doing that, I’d be extremely uncomfortable about the fact that I’m relying on the HELOC as my emergency fund. So I would not be comfortable or sit or restful or feel like I have a good financial position until that HELOC was largely paid off and I’m not relying on a HELOC as my emergency reserve because that can evaporate with a market downturn. So I’d keep two or $3,000 in cash, but seven and a quarter is high interest rate debt, I’d pay it down. I think that’s right. And I don’t think, I think there’s trade offs involved in not stockpiling cash and not paying it down early.
And as long as his cash flow is strong enough that’s probably going to work for him. So yeah, not a great option. But look, that’s all in the context again of the $80,000 in equity value he created out of 12,000 actionable, that’s after transaction costs, not before taxes. It’s a great point you brought up there. It’s actually a significant tax hit if he sells now. So I wouldn’t be surprised if he does wait until next year.

Mindy:
I would, yeah, I would at least wait the two years if I was going to sell it. But I mean, it could be a really great property if it’s close to the hospital and he can do month to month rentals for travel nurses or other people that are, I’m totally blanking on who uses month to month rentals. If only I had a book like 30-Day Stay Scott. The new book from BiggerPockets Publishing. You can get it wherever books are sold or at biggerpockets.com/store.

Scott:
Awesome. Well that [inaudible 00:55:59] should we get out of here?

Mindy:
Yes. Okay, that wraps up this episode of the BiggerPockets Money podcast. He is Scott Trench and I am Mindy Jensen saying, see you in an hour sunflower.

Jason Snipe, Steve Weiss, Jenny Harrington and Jim Lebenthal join the ‘Halftime Report’ to discuss investment in real estate, the commercial real estate sectors impact on REIT sector and where opportunity lies.

David:
This is the BiggerPockets podcast show 696. That’s not talked about often, but it’s important to note picking your goals is sometimes even harder than hitting them. I remember the first time that I… when I was new in Go Button, the first time I heard someone say, “Well, what do you want your life to look like?”
It’s like, well, better than it is now. What does that look like to you? And it was hard. I don’t know. I don’t know what I want my life to look like. I just know I don’t want to work 20-hour shift as a cop, and I’m always tired and cranky and miserable.
I don’t want to have to do that. I was very good at saying what I didn’t want. It’s more important to come up with what you do want. What’s going on everyone? This is David Green, your host of the BiggerPockets for real estate podcast. Here today with my co-host, Rob Abasolo with a special episode for you.
Today, Rob and I pull back the curtain and show you how the sausage is made. In today’s show, we are going to get into our goals. Rob and I review both our 2022 goals as well as our 2023 goals. We share how we did in 2022 and what our goals are for 2023. But more importantly, we show you how you can prepare your own goals. Now, setting goals sounds simple, and it probably is simple but it’s not easy.
If you’ve ever tried to do this, it’s much more difficult than you might think. And we do our best to give you some very practical advice based on our own experience for how we fight through the fog of not being sure what goals we want, as well as some tactical advice for how you can follow the steps that we take to set your own goals. Rob, first off, welcome. And second, hello. What do you think about today’s show?

Rob:
It’s good. It’s a really good deep dive just on how different we are, but in a really cool way. I think you’re a very astute businessman and I am a creative that doesn’t know what I’m doing and I’m figuring it out along the way. But we both have fun crushing it, and it’s really cool to see, honestly, just hearing you talk about your goals.
I’m like, man, that’s very inspirational. A, that you’re that organized, but B, that you did it all. I’m like, good. I need to do that. I’m in. So, I would definitely recommend for everyone watching at home, listen all the way through, definitely get to David’s part. At the very least, fast forward to David’s part because it’s really cool to see David in his element.

David:
I don’t think you’re giving yourself enough credit. Basically, if we were musicians, I would sit down with a pen and paper and write out my entire verse, and you would be like, “I’m freestyle and just give me a beat.” And you would just spit something incredibly amazing that’s bigger and better than anybody thought.
So, I guess the point here is it doesn’t matter how you think, it just matters that you set goals down and different people are going to do it differently. If we want to help you guys make sure that 2023 is the best year you can possibly have. On that note is today’s quick tip.
My advice here is to make goals, but give grace for yourself. It’s okay if your goal is pivot. It’s okay if your goals pivot. It’s okay if they change. It’s okay if you start on one path and then you switch a little bit and you make a different direction. Also, not every goal has to be the same.
Rob brings up some fantastic insight where he shares he has small, medium, and large goals. We have big vision type goals that are large. We have medium size goals, and then you have small goals, like what’s your most important next step? What can you do right now to start building momentum in the direction that you want your life to go?
There is a systematic approach to this that does make sense and will help improve your life if you use it. We’re happy to bring that with you today. Rob, before we get started, anything you’d like to leave our audience with?

Rob:
Nope. No, I don’t know. You always do this to me. I was like, “Well, maybe I’ll riff for a second.” But no, I’m excited for them to hear the chaotic organized mess that is you and I.

David:
The freestyle rapper didn’t want to riff. Okay, fine. Let’s get into the show. Welcome everybody to our goal setting episode. If you’ve been following this podcast on episode 552, we sat down and we talked about the goals that we wanted for 2022.
Well, in today’s episode, we are going to cover how well we did with hitting those goals, what challenges we faced, how we pivoted, and then what our goals are going to be for 2023. Now, the goal of this episode, you see what I did there, Rob?

Rob:
I did see that. I’m picking up what you’re putting down, David.

David:
You’re getting better and better with these quips, the quippy quaff.

Rob:
Hey, I’m smelling what you’re stepping in.

David:
There you go. The goal of today’s episode is to help you prepare 420-23, because you don’t want to wait until January 1st when you’re drunk at a New Year’s Eve party trying to figure out, oh, shoot, what is my New Year’s resolution going to be?
I suppose this is happening on December 31st for all of those detail-oriented people, the detailed Debbie’s, but you know what I mean? You want to get ahead of this now and start preparing for 2023 so you could set yourself up to achieve those goals, because success does not just happen.
It doesn’t happen by chance. It happens by choice. You got to make a choice to change some things in order to hit the goals that you want. So, for those of you that talk about it, well, don’t worry about this episode. But for those of you that want to be about it, you definitely want to follow along with what we’re talking about. Rob, overall, how did your 2022, how’s it been going?

Rob:
Honestly, it has been a scramble in the best way possible.

David:
So, this is an omelet that came out wonderful? Like a great scramble?

Rob:
Yeah. It’s like, oh, my gosh. The vegetables that I chose, I didn’t know if it was going to work. I didn’t know that the carrots were going to be a good addition to the omelet. This is true. I actually do carrots in my omelet, fun fact. I didn’t know.
And then, at the end of it, I took a bite of said omelet. I dipped it into some ketchup. No, I’m just kidding. That’s a bad call, don’t do that. But I ate omelet, I was like, this worked out. This worked out. That’s an interesting analogy right there.

David:
So, why don’t we start with you. I will ask you about what goals you set. You can let me know what they were and then we’ll dive into how they worked out. Sound good?

Rob:
Sure. Let’s do it.

David:
So, give me a list of what your goals were for 2022.

Rob:
So, I wanted to double my portfolio and I wanted to exponentially increase the amount of subscribers I got on YouTube. I think it was more so just my platform in general. And then, I wanted to start a couple of companies, and then I wanted to double my income.

David:
Okay, good. So, let’s start with your first goal. Did you double your portfolio?

Rob:
I more than doubled it. I went from the 15 Airbnbs and we bought a motel and then a few other Airbnbs as well. And then, you and I bought the luxury property in Scottsdale. So, I mean, all in all, I’d say I probably walked away from 2022 with, I want to say 25 new properties, 25 new doors, I suppose.

David:
Now, I forgot to ask you this before we got into hitting your goals. How did you come up with what these goals were going to be? How did you plan this?

Rob:
This is more complicated than… I wish I could just be like, “Oh, I’d sat down and I wrote it on a piece of paper.” And for me, my whole life, my goals have been set around monetization of myself, like how much money I was making, and I crushed that in 202 and then in 2022 as well.
And that started to understand that monetization and money coming in is obviously a great thing and I hit the goal, but it was very unfulfilling. But what’s more fulfilling for me is, I don’t know, coming up with big goals that I can hit, I suppose.
And I don’t know, challenging myself and getting to be more creative and out of the box. And so, I think moving forward now, even as I start to format what I want for 2023, all of my goals aren’t really monetary goals at all, they’re all just like, all right, what’s cool crazy stuff I can do that’s going to make me happy?

David:
Yeah, that’s not talked about often, but it’s important to note picking your goals is sometimes even harder than hitting them. I remember the first time that I… when I was new in GoBundance, the first time I heard someone say, “Well, what do you want your life to look like?”
It’s like, well, better than it is now. What does that look like to you? And it was hard. I don’t know. I don’t know what I want my life to look like. I just know I don’t want to work 20-hour shifts as a cop, and I’m always tired and cranky and miserable.
I don’t want to have to do that. And I was very good at saying what I didn’t want. It’s more important to come up with what you do want. And this shows up in many aspects of my life. I see it in business where I’ll say to somebody, “Hey, I want us to be able to do this business for the one brokerage.”
And they’ll come back and say, “Here’s all the reasons it won’t work. Here’s all the reasons we can’t.” I’m like, okay, what would have to change so that it would? And then, you see them hit that wall, like I don’t know, I don’t think what would have to change so that could, I just know that it can’t.
And you’ve really… it’s a skill of training your brain to see the way to achieve something as opposed to what is easy to achieve. And coming up with my goals was very difficult. Was it a similar experience for you?

Rob:
Oh, my God, it’s so hard. It’s very difficult for me. David, if I’m being very honest with you, I don’t… it’s really hard for me to set goals because I’ve hit them all. I say this as humbly as possible. But all of the things that I’ve set out to do, I’ve done.
And so, it’s very perplexing to do that when you’re so focused on the one thing and then you do it. And then, if you’re focused on several things and you actually are able to accomplish your dreams one at a time, then I’ve been like this whole year for me, it’s like now what? I don’t know. I don’t know, like I’ve done it.
So, that’s why I’ve really been challenging myself to put into play some medium goals and then some very lofty goals. Because now, I need something really big to work toward, and so we’ll get into that here in a second.
But I think it’s like you really have to categorize the small, medium big goals and really think of your small goals as things as you can hit maybe every week or every month. Your medium goals are something that you can hit every year. And then, your big goals are your five-year plan. Does that make sense?

David:
Oh, totally. You remind me of that meme where the guy goes to talk to the girl and he asks her out and she says yes. And she says, “What do you want to do?” And he says, “I don’t know. I didn’t think I’d get this far.”

Rob:
Yeah, that’s me.

David:
Sometimes, you’re just in that position in life. I think we all are where we know what we don’t want, but we’re not exactly sure what we do. And it actually takes some effort and some discipline and some trial and error if we’re being honest about, figure out what do you want your life to look like? It’s very easy.
In fact, most of the time if I ask that question, if someone else just like it was asked of me, they don’t tell me what they want. I get a list of what I don’t want, but that doesn’t always help you. You got to figure out what you’re trying to get to, which is the short-term goals are typically escape my pain.
How do I get out of this situation? That will typically, for me, be I need to hire a person to do this part of the job because I don’t want to do that. But what do I want the company to look like? What do I want my schedule every day to look like?
There’s certain entrepreneurs that have hit this level where they’re very, very detailed about exactly how they want their life to look and you only get there through setting goals.

Rob:
That’s funny that you say that. For you, one of your small goals is how do I get out of this now and who can I hire? Because for me, my big goals are who can I hire? Because it’s so hard for me to relinquish control creatively, especially to other people. And so, it’s a big thing to work up towards, even though the way you frame it is, it’s actually something that should be a small goal that gets me out of this.
So, I’m actually starting to flip flop now. To be that way, I’m making a couple of hires now. And that to me, every time I make a hire, the stress of the financial aspect of it goes away the moment I hire them. Because I’m like, “Oh, I don’t want to spend the money.” And then, I hire them and I’m like, “Oh, my goodness, what have I been doing?”

David:
And hopefully, your revelation in that area is the same thing that our listeners get. That’s why we’re making this episode. Because you don’t realize how bad things are until you actually slow down and listen. One of the pieces of advice I’d give is people are trying to figure out their goals and they have a hard time, is start with what’s causing you pain, that is your don’t want.
I don’t want to work 20 hours a day. Why are you working 20 hours a day? Because I’m doing A, B, C, D, E, and F. I want to keep A, B, C, and F. I’m okay to let go of D and E, but I need to hire someone to do it. Now, we’ve got to want. My want is to hire someone and we can work backwards from there with actually coming out with a strategy and actions you can take to hire somebody. Would you agree that’s a pretty good overall approach to get started?

Rob:
Oh, yeah, definitely.

David:
So, this is where we’re going to start where what’s causing you pain? And instead of just being a baby that cries and says, “It hurts. I don’t like it. I don’t want this.” Turn your don’t want into a want. And then, you have a plan that you can take which will have individual steps that will start.
And then, it’s okay if your goals pivot, they do all the time. I’ll set out with my goals for 2023. And then, by June, May, July, I’m like, “Ah, I don’t really care about that anymore.” I have this opportunity. It’s okay to take something out and add something else in. Did that happen to you in 2022?

Rob:
Yeah. So, I am not the most detailed oriented and organized person. And so, I’m a very free flowing, I don’t know, visionary, creative guy. And so, I think my biggest problem that I’ve been overcoming as of recently is actually just writing down things. I have all these thoughts floating in the ether, and so I didn’t really know what I was working towards.
I have all these things like, “Oh, I’ll get to that. Oh, I’ll get to this. Oh, I’ll get to that.” And yesterday, I just told myself, I was like, “You know what? I’m going to go get sushi. I’m going to go to sushi bar, I’m going to take my remarkable tablet right here and I’m just going to write down everything that I have on the back burner and actually write, I don’t know, a tangible action step for each one.
And as I started to do that, a lot of the things that I wrote down seemed silly when comparing them to some of the bigger visions that I have. So, there was definitely a lot of reorganizing and restructuring of what I really want. And going back to the hiring thing, I’ve realized that they all require me. And because I’m so bad at hiring people until I get over that thing, I can’t really move forward with any of these goals.

David:
This is why I say all the time that the enemy of business success is typically personal growth. The I’m bad at hiring. I don’t know anyone that isn’t bad at hiring to be fair. And the only way we get out of this pain is we have to prove as a person, which is why personal growth always pops up in podcasts like this and we often call it mindset but it’s the same issue.
So, that’s amazing advice. The therapeutic energy of taking what’s in your head, trying to convert at a motion of feeling, a frustration, a hope into a word, putting it on a document and then letting it grow in detail from there. Is that typically how it works out for you?

Rob:
For sure. And then, honestly, just writing it down that, some of these things I was like, oh, my God, this is so easy. All I have to do is this one thing and then the project moves forward. For example, it’s a long story, but I was building that tiny house village in Tennessee.
A lot of other projects took priority over that one. We’re permitting a 60-unit glamping resort in Arizona right now, and so we took our focus off of it. But there was just one snag with the septic tank issue permit, the environmental permit in our Tennessee property.
All I had to do was make a phone call. And so, literally, I made a phone call today to the contractor that it might be running that build. I think he’s going to… and he is like, “Oh, I’ll just go down to the city today and I’ll talk to him about it.” And guess what, he did it.
And then, we got off the phone with him today and my business partner Clint was like, “Bro, is this happening? Was it really that easy?” And I was like, “Yes.” We hit pause on this project for almost a year because of a septic tank permit that could have been solved with a visit to the office.

David:
My soul is screaming inside because you’re so right. I don’t know how important it is for people to understand this. We have a short-term rental that we’ve been waiting four months, four months of me making payments and getting nowhere. As someone on my team was like, we have to go through this process.
We have to hire an architect. They have to draw this out. We have to submit the plan of the city. We have to wait for the city to get back to us. It took forever to get the architect to draw it up that I had to pay an architect to do this. And I’m just going by with the team member telling you needs to happen.
All right. Long story short, I have one phone call with the contractor. They go, “Oh no, you don’t actually have to do that.” We could just start the thing. I don’t even think we need permits for some of this stuff. And if we do, they’ll just come and tell us we need permits. And I was like, “You’re kidding me.”
You’re telling me that four months have gone by and they didn’t need to. And he says, “Yeah, I thought that’s what you wanted. Why’d you think that?” Well, your team member asked me “What should we do?” And I said, “Hey, we should do this.” And no one asked the question of do we need to.
So, many of your struggles are not as big as you think. It’s a phone call, it’s a person. It’s a tiny little thing that if you put in place and writing down what your struggles are, brings clarity to what could be done. So, remember Rob, to ask me when it comes to writing a book, with that process is like for me because it’s very similar to what you just described for your goals.

Rob:
Dude, genuinely, there is a project right now that I’m trying to get off the ground, like a development project. There’s actually two things in Joshua Tree. One of them, I just have to fill out a spreadsheet, but I have not done that because it would take about an hour to tabulate and I’m just freak out about giving out that hour.
And then, the other thing is we have one small permitting thing, I just have to call the city of San Bernardino and tell them, and then I have to wait on the phone for 30 minutes and then talk to them for 30 and I don’t want to do it. And if I just did it, then this project would be built a month faster.
Same thing with all of our Scottsdale expenses. By the way, I am making progress on that but that’s a long-

David:
Don’t worry about that.

Rob:
Yeah, that is a long spreadsheet that I’m just like, “Oh, gives me anxiety just thinking about adding everything up.” I know that there are calculators and everything. So, when you write it down though, it really is like, okay, tally up Scottsdale expenses. What’s the to-do here? Add up expenses.And then, when I look at that, I’m like, “I’m so dumb. I could really just figure this out in an hour.”

David:
Or, if you had a team member that was capable that you could say, “Hey, do this for me, it would get done.” But then, it comes back down to finding the right people. Finding somebody you have confidence in.

Rob:
Yeah. So, that feeds into one of the other… I guess, one of the goals that I didn’t mention, David, was to actually hire people, so I did make progress on this front. One of the big things for me is I just wanted to make my life easier and something felt wrong. I was just like, “Why am I so spread thin? Why is everything very difficult for me?”
And actually, I went to get coffee at six in the morning, which I’ve literally never done before, but it was the only time my schedule would sync with Brian Dovala. We had him on the show a couple months ago and he was just like, “You need to hire a CO.
He’s like, “I think this is time for you.” And then, I was like, “Yeah. I was like, it’s expensive.” He’s like, “Yeah.” But if you look at the monetary aspect of it today, you’re missing the monetization of it one year from now basically. And so, we got up from coffee and he is like, “I think this was a seven-figure conversation. Let me know in a year.”
And then, I was like, “Okay.” And so, I set out and I hired a COO. And I mean, again, it was expensive. But as soon as I did it, there was that relief of like, “Oh, I don’t have to worry about logistics anymore. And you know what?

David:
So, you’re happy with the hire then?

Rob:
Oh my god, so happy. It’s great.

David:
That’s a big piece of it, is being good, happy with the person that you hired. So, that’s a major milestone that you hit was-

Rob:
Big one. Big, big, big

David:
… hire a COO. You also bought… perhaps the biggest, What you also bought way more property than you were planning on. How did that work come out to be?

Rob:
It turned out to be good. And this is a bittersweet. I’m always grateful for the expansion of my portfolio. Good and bad. Good in that I did it, bad in that. I was just like, okay, I could have done more, I think, now in retrospect. And so, it really gives way for what 2023 is going to be. I doubled the portfolio this year. I would like to probably, if I can, triple it, maybe quadruple it in the next… in 2023.

David:
Is that going to be one of your goals?

Rob:
Yes. So, I will say it basically showed me that I was capable of a lot more than I thought I underestimated myself. And then, when I did it, I was like, “Oh, okay, actually, that wasn’t that bad.” And now, I’m here and I’m like, “Oh, I wish I would’ve done more.”

David:
It comes down to that saying that Brandon used to quote that it’s attributed to Abraham Lincoln that if I have six hours to cut down a tree, I’d spend the first five sharpening my X. Your goal seems incredibly difficult to accomplish until you put them on paper and then say, “Okay, if I want to do X, I need to take these steps to get to X.”
And then, you get four steps of Y and then you’re like, “Oh, that’s actually an hour for each step or a day for each step and I could be at X.” which would be huge and it would allow me to double whatever I’m doing. That’s why we’re having this episode. It’s often much loftier in your mind than what it would be if you got down to doing it.

Rob:
And I guess to wrap up that analogy, I think my axe was a lot sharper than I thought. And we spend too much time sharpening, and that analysis paralysis where I was there consistently everyday sharpening that axe. And then, came game time, I was like, and I was like, “Oh, dang it.”

David:
That tree came down way faster than you thought. You’re like, “Oh, I could have chopped down a bigger tree.

Rob:
And now, I was out of time to go and do it again. I mean, we’re still closing a couple of deals by the end of the year. But at the end of the day, I was just like, “Dang it.” Like, oh, I could swung faster, I guess.

David:
And I’m confident this applies to more. I don’t hear this and think, well, of course David and Rob have a sharp axe but I don’t know how to invest in real estate. Yeah, you do. You can go house hack if you want. You can go buy a primary residence with 3.5% down and just spend your time working with an agent to find one that has two ADUs or a duplex that has an ADU in the backyard.
Or you could even go look to buy an RV and put it in the backyard and rent that out to somebody else out. There’s a lot of small steps that could be taken on this journey. And you take them and you get there quicker than you think. And you’re three months into the year, you’re like, “Okay, I already bought the house, now what do I do?”
You got nine months left to figure out how to expand. When it’s written down, it’s much more simple than when it’s all in your head and it feels intimidating and confusing.

Rob:
Yes, 100%.

David:
So, part of your challenge was like, how do I come up with my goals? You wrestled with that. Part of your challenge was finding a COO, and that sounds like that relieved a lot. What other challenges did you encounter in your 2022 goals?

Rob:
So, this one is the current challenge right now. And I have figured out that I want to triple, maybe even quadruple my portfolio in 2023, after writing it out, thinking this through, ruminating on it for the last couple months. Now, I know that that is my goal.
And so, instead of slowly pacing myself towards it now and sprinting. So, actually, I said I wanted to start a couple of companies. One of those companies is going to be raw built capital, which is going to be my fundraising arm. Remember when I said I wanted to put a really lofty goal out there?
My lofty goal is I want to raise a hundred million bucks in the next five years, that’s my target. 20 million a year seems really achievable. I think it gets… every year will probably be more and more and more. But for now, that’s what I tell myself every day, a hundred million in the next five years.
And I want to continue scaling up my property or my property portfolio. So, what I’ve of encountered was my big hurdle was I had a guy that he’s really great, quoted me on how to structure the fund and how to do everything that came out to $20,000 or something.
Honestly, nominal for the work that he’s going to do. But it just held me up for too long because it’s not that I didn’t have it, but I was just like, “Oh, I don’t have the mental capacity to spend $20,000 on men, $20,000 on lawyers and I don’t want to think about it right now. But after writing it out and thinking that, I’m like, “Okay, that’s what I decided.”
Literally, after I went to sushi, I emailed them, I’m like, “I’m ready to go. Let’s build this fund out.” And so, we are going to be meeting here in the next week or two and putting together all the architecture to officially launch in 2023, which will also come with staffing up and building that team as well. But I’ve already got a lot of those people in place.

David:
Very lofty. What makes a goal that size feel achievable to you?

Rob:
No, that’s not… see, that’s the thing is I’m actually trying to create goals that feel impossible because, which I don’t know. It’s like I want it to feel like I can’t ever get there so that I have something to work towards. Because all these other goals that I set felt impossible and then I hit them all and I was like, “Well, shoot, I don’t think I was thinking impossible enough.”
So, I’m really trying to put a crazy number out there, a scary number so that it gives me, David, at least a year or two to get to a runway to, hopefully, I don’t hit it faster than I think. But I genuinely, I’m like, okay, that’s scary enough to where I think it buys me time to figure out other goals that I might want.

David:
So, one of the ways that we approach making progress on a goal is acronym that Brandy came up with called MINS, which stands for most important next step. So, when it comes to, I’ll let you pick a goal, tell me what is your most important next step for whichever goal you want to use as an example.

Rob:
I want to get 50 units in the next three months.

David:
So, what would be your most important next step towards that goal?

Rob:
Honestly, ask my audience to send me deals.

David:
And it can be that simple. That’s exactly right. And then, do you have a person on your team that sort analyzes those deals and brings the best juiciest ones to you?

Rob:
Yeah, I do. So, typically, and this happens on a smaller scale, I just haven’t asked for it on this larger scale. But they’ll send me a deal usually on Instagram or via email or via BiggerPockets. And then, I send that over to my COO, Clint, and then he’ll go and run the numbers and then he’ll go and talk with the investors and talk through all the financials.

David:
And if you didn’t have a Clint, your most important next step would be find a Clint?

Rob:
Find a Clint. Yeah, that’s right.

David:
There you go.

Rob:
And you know what, even Clint’s starting to get pretty spread thin because the operation is booming right now. So, it’s like now we’re working for towards not just a COO, but an analysis under that to help us underwrite these a lot faster.

David:
To take that off at Clint’s plate, right?

Rob:
Exactly.

David:
There we go. Anything else you’d like to share about your goals for 2023?

Rob:
Let’s see, I have put into place two hires that I needed. This was actually going to be 2023, but after writing it out, I was just like, “Nope, it’s time.” So, I interviewed someone and I hired someone last week to be my content writer. And basically, we’re going to copyright together a lot of the material on my different platforms and everything.
And then, I haven’t announced it yet, but I’m hiring a social media manager too to help me manage, spoiler alert, my social media. And by doing those two things, I will now get infinitely more time towards which will go into next year’s goal of 2023 of doubling my platform.

David:
Wow, man, that is pretty impressive. This is my first-time hearing about this, Rob. I got to say, you seem unstoppable right now.

Rob:
Oh, don’t fall for the calm, Rob. You see here, he’s getting crushed inside. No, I’m just kidding. No, it feels good. It feels good to have been in this situation for the last year in a good way where I’m like, okay, I’m figuring things out. What do I need? What do I want?
And then, now that I’ve figured it out, I’m like, “Oh, man, this feels good.” The outlook is so cool now. Because now I’m like, I can stop worrying about the day-to-day frustrations and start focusing on the tomorrow, not just the day to day. But hey, these people can help run my companies. And then, now I can start leading from a much larger standpoint. So, I don’t mean to get too lofty here, but I’m just like, I feel good.

David:
You should. You deserve to, man. That’s awesome. And I like that you’re just highlighting that the majority of the work is figuring out the vision. Where do I want to go? What do I want this to look like? When you have that, the rest of it falls into place if you take the action.
But if you don’t have a vision, you’re just going to feel like you’re always in a foggy headed state where you’re not sure what you should be doing. And often that’s associated with negative emotions like guilt, shame. You want to hide. You don’t want to talk about stuff because you’re not sure what direction you want your life to look like. But once you’ve got it, man, it becomes very simple.

Rob:
I think I figured it out too, by the way, or partially figured it out. Side note here, which is I said, look, money, it’s something that I chased. I’ve made more than I thought I would make and that box is checked. Cool, great. And then, I was like, “Well, shoot, now, I thought that was going to be the end all be all and it wasn’t.”
And so, my big thing for 2022 was like, well, what is it? What is that thing that’s… I’m a relatively happy person. So, I always like to caveat that, don’t listen to this and be like, “Whoa, he’s not happy.” No, no, I am. But I’m like, “Oh, it didn’t come from that, it came from this other stuff.”
And so, I think one of the things I realized is I was chasing doors a lot and obviously that’s a part of building the portfolio, but what really makes me happy, I was trying to trace back my happiest time in the past couple years and it’s when I launched my YouTube channel, I was building tiny homes a lot more.
I was doing more glamping. I was doing a lot more creative stays and I moved away from that because of just the way things went. And so, I just realized, I’m like, well, shoot, if that was what was making me happier, I think I just need to lean into that.
And so, when I’m launching ROBUILT Capital, my goal for that fund is not to be your typical apartments syndication per se. It’s actually meant to be more of a unique stay fund where I’m going to be investing in RV parks and turning them into upscale glamping resorts or taking campgrounds.
And instead of renting out a space for $20 a night, I want to put a really premium $200 tent on there and create a super unique stay, and so that gets me. So, I’m like, oh, I have not been this excited in a long time. So, I’m now going to be just really putting a lot of time and effort into things like treehouses and domes and really cool structures like that for 2023. And now, that I figured it out, I’m like, ugh, it really is a weight lifted off my shoulders.

David:
Awesome man. Well, make sure you lifted off very slowly because we don’t want you hurting your back again.

Rob:
Oh, well, hey, I worked out for the first time on Monday since I threw out my back and it felt good. And then I went back today and I’m like, man, I’m so glad I’m back in the groove. So, honestly, a big tip for a lot of people’s workout, you never really realize the clarity that you’re going to get from working out. Because honestly, at the end of it I was like, oh, feels good.

David:
All right. So, last question here. What about personal goals as opposed to business goals for 2023?

Rob:
Yes, this is a big one. This is a big talking point between my wife and I. I think she’s slowly coming. She’s getting on board with it, but I want to travel more. I want to travel internationally more specifically. And it’s just really tough with kids.
We got a one-and-a-half-year-old and a two-and-a-half-year-old, not good ages for kids on a plane. Every time we go, it’s absolute craziness. And so, pitching her on a 10-hour flight to Copenhagen hasn’t been going over super, super well. But for 2022, I just want to travel. That’s like my big one. I don’t care. It doesn’t have to be across, it can be in Mexico, it can be in Canada.

David:
You and I might be traveling to Mexico in a couple weeks here. I’m trying to put that together now.

Rob:
Yeah, we need a chat about that today. Hey, not on the pod, David. Don’t tell everybody our secrets.

David:
You don’t want them to travel there to find us? You don’t want to get kidnapped in Mexico?

Rob:
Now, I’m excited. That should be cool. But yeah, traveling more is a big one for me. Before my wife and I had kids, we told ourself we were starting to think about it, I was like, “You know what, I’ve never traveled and I think we should go to 10 countries before we have kids.”
And she was like, “Let’s do it.” And so, we did. We traveled to Japan, to Denmark, to Sweden, to the UK. We went to a lot of places in a year’s time and it was really great. And those were some of the happiest times of my life. So, I just want to go back around the world.

David:
All right. That sounds amazing. Thanks for sharing that.

Rob:
For sure. So, let’s turn it around on you here for a second. You just heard my ramblings. Hopefully, some of it made sense. But what were some of your goals for 2022?

David:
Mine are actually much more systemized. So, the way that I typically work out my goals is I take more or less each of the business endeavors I have going on, combine that with my investing, I make a headline for it on a Google document and then I write down these are the goals that I want for each company.
And then, I save that as a tab open on my browser. And a couple times a week, I just check it and see how are we doing as far as marching towards that. And I often will see, oh, I fell behind there. That becomes an email, a text, a conversation with a leader to say, “Hey, we wanted to hire five more agents. What are we doing?”
Oh, I wasn’t thinking about that. I was thinking about this, okay, let’s put this back on the radar. You’re constantly moving to all these spinning plates and trying to spin them and like you said, my biggest struggle is always hiring. There’s so many people in the world that want to be a part of your company or your enterprise because how they see it would benefit them.
There’s not a lot of people that say, I really want to come and contribute to what you’re trying to do. And if I contribute well, I know that I will be financially compensated as well. So, I think this is every business owner’s struggle. I think this is every person’s struggle and it’s not unique to business.
If you’re in the dating world, it’s not hard to find a person who says, “Well, what does this person have to offer me?” There’s not a lot of people that are going around saying, “I want to find a person that I can really serve.”
But that’s what you need. If you need two people that are serving in business and relationships and whatever, if you want to be successful. So, if you’d like, I can just start with each category and go through and read off what the goals are.

Rob:
Wow, we should have started with you first so that people could stay hooked, because everyone’s gone at this point.

David:
No, I don’t have want to make you feel bad by having this very systemized process. And you’re like, “Well, you know what, I’d get a napkin at a restaurant and I wake up at 6:00 AM one time in the year.

Rob:
It’s a remarkable tablet by the way. It’s not a napkin. It feels like a napkin when you write on it, but it’s a pad. It’s a-

David:
I’ve heard of these remarkable. I’m actually thinking about getting that as a gift for a couple people for Christmas this year.

Rob:
It’s a good gift.

David:
So, my first one has to do with vision. This is the stuff that’s very big picture that I know in general I want to move in a direction. And my vision has been the same the last three years. I don’t always have clarity with how I’m going to achieve it, but I know what I want.
The vision I have is to create an ecosystem that everybody who wants to invest in real estate can come to one place that gets everything they need. They need an agent, they need a loan officer, they need insurance, they need a contractor, they need an appraisal, they need education, they need knowledge, whatever. They can come to one of my companies and be connected to all of it.
Now, that sounds very simple. Actually executing, that’s very difficult. So, the first thing I have on my vision now, this is, I guess, these would be 2022 goals that we’re going over. This is what I had for last year. Was I wanted to buy a commercial building that would be a one stop shop model.
So, literally a physical location where my real estate team would have offices, my loan company would have offices, my insurance company would have office, everyone could be there together. And then, I could get everyone together in one auditorium type of a setting where I could teach everybody at one time and then have a marketing system that would work for everyone.
So, maybe some form of salesforce that we could get connecting everyone together, one hiring division that would be filling it up. That’s still what I’m building towards. I did not buy that building.
And part of that is because I’m not sure if I wanted in a physical location because we’re now operating in so many different states and areas, it’s very difficult to get everybody in one place. So, I think I’ll probably have one physical location for leadership. I don’t know if it’s going to be for every employee.

Rob:
Obviously, you started taking steps towards that. Was there a moment where you’re… that where you made that decision where you’re like, “Eh, I’m good. I want to keep it remote.”

David:
It was everything that I looked at. I could see this isn’t going to work. I wanted to buy a church building but they were too expensive in the Bay Area. Then I was looking in Los Angeles and it was the same problem. Then I was like, “Okay, well, we’re going to… let’s move to the south and let’s put a building there.” And then, a lot of the people were, “Ah, I don’t want to move. I like where I am.”
So, there was every single opportunity that came my way, I could see there was something that would stop it from working. So, we’ve just stuck with the remote thing for now. Another vision I have is to have at least two companies that makes six figures a month in profit.
So, right now that’s the one brokerage and the David Greene team. So, working to maintain that, the profit that comes out of those companies is in the six-figure range. Another is to stay in Gary Keller’s top 100, meaning that I’m one of the top 100 agents or teams in Keller Williams.
And then, my last one from Vision is to maintain BiggerPockets as a world’s best real estate podcast. So, as the face of BiggerPockets, it’s very important that nobody catches us, passes us up. Side note, this is why we love a review from you on wherever it is that you listen to your podcast. Because if you stop leaving those and other people are leaving for the podcast, they like, we will get passed up.

Rob:
But let me just click in on that real fast. I will say if you seeing us on the charts, we’re always number three or number four some, I’m sure we’ve been number one several times, that is very dependent on your five-star reviews and it genuinely means a lot to us.
We read those things and we take them to heart. If you have feedback, send us a message on Instagram or on BiggerPockets, we’ll read it. But we would really appreciate the five-star reviews. It genuinely helps us with the podcast algorithms out there getting served up to new audiences.

David:
Thank you for that, Rob. Very important. All right. I will go through each company here and then I’ll pause and let you see what questions you have. So, the first is the David Greene team. Four goals for that. The first is to hit 250 million in gross sales volume, so, the accumulated total of every house we sell needs to be at 250 billion or more.
I would like to maintain four strong, oh, sorry, we’re at 2023 now, four strong sales leaders. So, those are agents on the team that over that get leads handed to them as opposed to just generating their own and they oversee showing assistance to help them with their job.
I would like to add five new agents to the Northern California location. There’s going to be a few more because I switched to 2023 off of 2022. I would like to add two expansion teams, so this would be agents in different markets that we can refer buyers to.
Typically, there’s a margin where I’m buying a lot of houses, so I’m looking to add an agent in the Smokey Mountains as well as one in either Bluebridge, Georgia or South Florida or Scottsdale. Those are all areas that I believe in I’m buying property there, so I’d like to have a David Green team agent that I can refer people to.
I would like to launch the DGT program that’s actually called Launch. So, when we have new agents come join our team, we now have a video library of trainings that helps new agents get started and acclimated to our system.
And then, release the David Greene Team University DGTU coaching program that will help real estate agents to sell more houses. And that will be tied in with the series of books that I wrote for BiggerPockets to help agents with selling homes.

Rob:
So, my first question is, you said that you wanted to reach 250 million in close sales. Why that number? Is that an achievable number? Is that something that’s like are you guys on the cusp of that? Tell me why you chose that number.

David:
It’s the number that with the group we have, if everyone gets maybe 80% of their potential, that’s about where we land.

Rob:
And then, you said that you wanted to… man, so, what I’ve realized that I’ve already learned so much from you, David. Your goals have goals, that’s what it sounds like. You keep clicking in and it’s like, I want to [inaudible 00:39:09] this and I want four sales managers and then I want these markets.
And then, I want these agents in market. So, I guess, with your four sales managers or your four team leaders, are those all going to be in one office or do you want those spread across the country?

David:
So, this is a great question here. And it is true what you just said about my goals. My brain tends to work that way. I see the big picture and then I click in and those enhance the footage. It just keeps zooming in on the individual details and that’s how I come up with these.
I would like those sales leaders to be a strong core in California. And because the idea is once I have a strong core, when I add expansion agents, they have a mentor they can learn from. It’s like you’re trying to build a culture which is very difficult because that depends on people and you got to get people that are bought in.
I can’t accomplish the goal of adding expansion agents if I don’t have a core of agents that are already established in this system that can teach the new people, like you can’t draft rookies if you don’t have veterans for them to learn from.

Rob:
And so far, are you tracking with… have you been hitting a lot of those goals for 2022? Or, because I know those were a blend. But where did you net out for 2022?

David:
2022, I landed right around where my goals were. So, the goals for 2022 with that company was 250 million in gross sales. I wanted four strong buyers, agents which I have. I wanted to hire a COO, which I did. Kyle was promoted to COO and he’s been doing well.
And I wanted to end with a team leader for the Brentwood location, which is our hub. And Kyle has taken that over and he’s about to promote our first agent to be that. So, all the DGT goals for 2022 were hit.

Rob:
Amazing. Congratulations. That’s awesome dude.

David:
Thank you. And I should also highlight that’s not massive growth mode. I’m more wanting to maintain what I’m doing and have a healthy growth as opposed to blow it up, because you can’t blow everything up at the same time.
You’ve got to let something go if you want to focus on other stuff. So, my method tends to be put all my energy into this thing, get it really big, hire someone to maintain it, move on to the next thing in life that I want to grow.

Rob:
I could take a page out of your book. There’s that phrase that I hear very often, which is you overestimate what you can do in a day, but underestimate what you can do in a year. And that sounds like what you’re talking about, which is you just want steady growth over the year.
You recognize that you can get a lot done, but don’t go too crazy with it. I’m like, oh, yeah, okay, I need to… this is what I’m saying, the small, medium, big goals, which is what your goals of your goals of your goals, that’s what I need to be better at.
So, it’s nice to actually hear your systems because I’m like, all right, if I just write these out even more then jotting them on this remarkable, use my affiliate link by the way. No, I’m just kidding. But yeah, writing them out seems to be your system here works.
So, moving into the real estate side of things, I know we talked about your commercial building, but you also… I have to imagine you had some real estate goals too because you closed on what most people will close on a lifetime you did in a year. So, can you talk about your real estate goals?

David:
Yeah. So, I can skip down to real estate here. So, the totals were the one brokerage marketing goals, book goals, insurance company goals, investment properties, taxes and personal goals. That’s basically what my list is made up of. For real estate itself, 2023 goals are to continue to raise money for multifamily, single family and commercial properties.
Find operators to partner with and buy a minimum of four new properties to add to my portfolio. Now, I will most likely blow that goal out of the water, but that’s a minimum. I’ve got to buy at least four properties.

Rob:
Just for the year of 2023?

David:
For 2023. Now in 2022, my goals for investment properties were to… it was actually very similar. Find operators to partner with, which I’ve been doing with Andrew Kushman. We bought an apartment together in Fort Walton Beach. We’re going to be doing more of that.
People can go to invest with davidgreene.com and they can let me borrow money that I will then pay them a return on as I go invest so I’ll continue to do it. But I wanted to buy a minimum four properties in 2022 and I probably bought more like 16, maybe a little bit more than that.
I bought a whole bunch of them here at the end. So, my numbers aren’t… I have to look at my spreadsheet that tracks those to see where we are. But like you, I blew that one out of the water.

Rob:
So, why don’t we…. I’m just going to redo your goal here because I think if you hit the goal, your next goal has to be bigger. So, I’m going to make you at least, least double your goal for 2023. But if you bought 16 this year, then I think you should set a goal for se 16 and a half, 17 properties for 2023.

David:
Here’s the problem with messing with buying how many properties I want to buy. It’s like Dave Meyer setting a goal for how many sandwiches he wants to eat. That is a tempting thing for me to do anyway. I don’t have to put focus on that goal to hit it. Dave loves sandwiches. He’s going to eat as many as he can. I love buying real estate. It’s really freaking fun.

Rob:
Wait, hold on. Sorry, Dave Meyer, the data deli, Dave Meyer?

David:
Yes, that’s it. That’s where the data deli comes from. Like deli is, he loves sandwiches.

Rob:
Oh, really? Oh, I thought he was just… I thought it came from… he’s like, if you went to a deli, that was all computers and data.

David:
He’s playing on that.

Rob:
Nice. Okay.

David:
[inaudible 00:44:20].

Rob:
Okay, good.

David:
So, that isn’t difficult goal for me to achieve. What I find is I go by 16 properties at one time, and now I have this log jam of trying to do rehabs, talk to contractors, order furniture, find people that can manage them, and then I get screwed up.
So, by focusing on how many properties I buy, I could buy a hundred of them, but everything else would fall apart. I have to intentionally put my focus on business goals because it’s not as fun. But business is what helps me build the reserve so I can go buy 20 properties at one time.
And as I’m waiting for these things to get up and running. I can handle the cost, like I said, of all these properties that are four or five months in and I still am not generating any revenue yet.

Rob:
That makes sense. All right. Okay, cool.

David:
I’ll give you a shortcut. When it comes to investing, here’s the best way to go about it. I talked to my CPA. I say, “It looks like going to make X amount of money this year.” They run some numbers and they say, “You’re going to need to buy X amount of real estate for the depreciation to cover what you bought.” And that’s how I determine my investing goal. Now, that could be four properties, that could be 20.

Rob:
I see. I’m in that same boat. And when I say I want to double or triple my portfolio, this is actually something that you got to me on, which is like, I’m not looking to double or triple it with single family acquisitions anymore. I am looking to just double it with number of doors, but creative doors, like I said, the glamping or RV parks or anything like that, just from a scalability standpoint.
And that is actually a big thing that will be pivotal for me. I just realized when you hammered that in my brain, I was like, okay, the way to scaling is I can’t focus on single family acquisitions anymore. I have to buy them in bulk, if you will. And that has actually informed a big part of my 2023 strategy. So, kudos to you.

David:
That’s why you got to be careful with how you set your goal. Because if you say I want to add a hundred doors, you’ll go buy a hundred bad properties to hit the goal. It’s like I don’t like… with fitness, I don’t believe in setting a goal for how many steps you’re going to take in a day. Because steps is not a great form of exercise. It allows you to check a box and say, “I hit my goal.”
But those people are not going to lose weight because they’re taking steps as opposed to, I’m going to go to the gym and work out really hard for at least 15 minutes, you’ll probably burn way more calories and it will help you. So, sometimes we unintentionally set goals that are not going to help us achieve the life that we want, just to get the feeling of I made progress.

Rob:
So, that’s a good way to put it. So, if I say, let’s say I want to triple, so I’m at 35 doors right now. Tripling would roughly be a hundred or so. I’m not looking to buy a hundred properties. I’m actually looking to buy two or three properties that get me a hundred extra doors.

David:
Or maybe say the total volume of the real estate I own is 15 million, I want to triple that to 45 million. Now, what’s the most efficient, productive, effective real estate I could buy to get to 45 million instead of focusing on the doors, which is a very easy metric to hit.

Rob:
Sure. So more-

David:
So, what you described is exactly right. I’m going to buy three properties, but they need to get me to 45 million

Rob:
Exactly. So, I guess that term would more be like AUM, assets under management.

David:
Something along those lines. Or I want to build X amount of equity, or I want to add this much cash flow to my portfolio, which now forces you to look at the quality of the product, not just the quantity.

Rob:
That’s good. That’s all about framing. So, right now, so, then I guess I want to quintuple my assets under management. Thanks for putting it that way.

David:
Now, here’s what’s cool, because if one of your goals is to pay no taxes and this goal over here, the quintuples it helps you to pay no taxes. Now, you’ve hit two goals with the same action and you’re synergistically increasing your wealth building.

Rob:
Yeah, the goals start compounding. And by the way, if you want to learn more about taxes, we actually did an episode with Matt Bontrager. He is a true book CPA. He’s my CPA. He’s saved me six figures in taxes. That episode is 689. Go check that out. It was, I think, your mind is going to be melted after you listen to it.

David:
Wonderful. The next category I have here is the one brokerage. The goals were to close 600 loans, hire 25 loan officers, hit 250 million in gross volume, hire 10 new processors and get to nationwide service. We achieved all of those except for nationwide service.
We’re about halfway there. And in 2023, we should be licensed in all 50 states. My goals for 2023 with that company are to move our model to a processor pool as opposed to a processor working under an individual loan officer, hit 350 million in gross volume, develop 10 solid realtor referral partners that will send us business and hire 25 more loan officers.
So, if someone’s out there listening and they’re a loan officer and they’re looking for a new broker to hang their license with, I got to hire a minimum of 25 people for that company. And if I hit that goal, all the rest of them will probably be hit as a consequence of that one goal.

Rob:
Very cool. All of that is crazy. You close 600 loans and you hire 25 loan officers. Is that what you said?

David:
No, last year, I already had about 10. I hired 10 more in 2022 and we closed a little bit over 600 or we’re on pace to close a little bit over that.

Rob:
Good for you, man. That’s top tier, man. It sounds like you questioned on all your goals, on all your highly organized, highly systemized goals that now I’m like, oh, shoot.

David:
So, one of the things I’ve learned about when you’re… it’d be easy to say close 2 billion, set a big goal. But here’s what I don’t like about that. I would then go hire a hundred bad loan officers to hit that goal. The customer experience would be terrible.
I wouldn’t be able to manage the hundred people. The company might hit its goal, but the profit would be very low and the reputation would be bad. I look at it like I want to hire five new agents for the David Greene team, why not 50? Because frankly, I don’t think my new COO can handle hiring 50 agents when he is only done the job for six months.
Now, let’s say he does it for two years, two and a half years, he’s probably at a skill level that can handle hiring 50. And that’s when I would make that goal really, really big. And so, it’s not linear growth. You have to time, what are the resources I have and how much time do I need to give this quarterback to develop before I throw them in the game and have really high expectations on them.
So, I don’t want to make it sound like I’m saying set small goals. It’s set goals that you can hit that would cause you to stretch. But those numbers, if we’re still here in three or four or five years, you should be seeing me say, “I want to hire 10 expansion agents. I want to hire 20 expansion.” Each of these companies should get progressively larger goals as we go.

Rob:
I always tell people to scale accordingly. When you’re getting to short-term rentals, for example, don’t go out and buy 15 short term rentals. Well, don’t worry, David, I’m not dogging you. Give me a second. Unless you can handle that, unless you’ve worked your way, unless you’ve earned your rite of passage of real estate.
And like you, you went out and you bought 15 short-term rentals this year because you have a storied pass of being a successful real estate investor, you’ve scaled accordingly. You were able to do that in a way that 99% of people could not do.

David:
And even then, I didn’t do… it hasn’t worked out as well as I’d hoped. So, I had a person in place that was going to help me get these short-term rentals going. They had another job, they were going to quit that job and come work for me. They changed their mind. They didn’t want to.
Now, I’m stuck. I’ve got all these rentals and it’s moving so slow moving them along because I lost the employee that was going to be helping getting them ready. So, if we’re just being transparent, in general, I’m losing about $80,000 a month over real estate that I am waiting to get set up and cash flowing.
If you can afford to lose $80,000 a month, it’s not a terrible idea to buy 15 homes. But it’s definitely not ideal. If I could have, I would’ve gone in there and I would’ve bought two at a time instead of 15 or 16 at a time.

Rob:
But I mean, think about, this works on so many levels though, because if it happened to anyone else, they would’ve thrown in the towel so long, and their mind would be melted. You’re the best in the business. So, at least you can sit down and say, “All right, here’s the fire. I see a fire extinguisher over there. It’s up a mountain.”
“I got to figure out how to get up that mountain.” Or, “I got to hire someone to help me get up that mountain and get that fire extinguisher.” Sorry, my David Greene analogies aren’t quite as good as the David Greene. But all to say, you have also have systems in place.
You have reserves in place. You know how to handle taking an $80,000 loss until they’re all running. And then, all of a sudden, great, guess what? In 10 years, you’re going to look like a genius because you got all these short-term rentals.

David:
And so, you mentioned a couple good points there. Taking the big picture approach when you’re setting your goals is huge. It looks like a loss. It feels like a loss. It’s terrible right now. In 10 years, I won’t even remember this. I’ll be like, “Oh, yeah, I remember back when I did that.” If I listen to this podcast, I won’t know.
Second, by focusing on these other goals I have, the business goals, there’s enough money coming in from other businesses that can float that loss that I’m describing. Then I also have reserves. There’s layers of protection here. And I call this concept portfolio architecture.
It’s easy to look at every individual house as it’s like it’s own thing, but it actually fits within a larger organism. Your portfolio itself is the organism, not the house. So, I try to set things up to where, okay, these are my cash flowing assets that don’t really grow in value very much.
These are my assets that grow in equity very quickly that are supported by cash flowing assets. These are assets that kick off a lot of cash flow that can afford to float at me for the six months while I do this really big rehab and I lose money. But then after the rehab, when I burn, I get all my capital back out.
I didn’t lose anything. And boom, there’s a flesh of capital to go add new assets and new ways. And so, as you stick with real estate and you continue to buy homes, you start to get flexibility. It’s like a football team where our tight end just went out.
Well, we’ll just run a different offense. Our running back is in good shape. Our quarterback’s fine. We can utilize this wide receiver. You’re not like your whole enterprise falls apart because you had one injury to your team. That’s the goal of what we’re trying to get you there.
And house hacking is the best way for people to get started. But it’s not to just look at one individual home, that’s where all your anxiety comes from. Because if you have a bad month, you’re like, “Ah, I’m a bad investor, I should just quit.”

Rob:
Yup, 100%. You got to look at the bird’s eye view level, if you will.

David:
So, thanks for pointing that out. Marketing goals. I’m getting a new website made. So, I have davidgreene24.com, which is better than the old one, but we’re redesigning that again. I would like to develop more engagement through a website we use called Circle that my mastermind members have access to.
So, I want to be engaging with them more through that. I would like my YouTube channel that just hit 10,000 subscribers. So, in this room, I’m the little baby in the room and Rob is the big babysitter that’s crushing me there. So, I just finally hit 10,000.

Rob:
Just let me have one.

David:
You’re definitely got zilla in that realm. And I am the Geico insurance lizard.

Rob:
Wait, you hit 10,000?

David:
I just hit 10,000 like yesterday or something. So, the goal-

Rob:
Congratulations.

David:
Thank you. The goal for ’23 is to get to 25,000. So, I’m definitely, that’s a goal you could help me with or other people by subscribing or just giving me advice about what works for my personality on YouTube. And then, what has been working and I’ll continue to do is weekly YouTube lives.
So, pretty much every Friday night I’m on there for about two hours sharing information about the economy, sharing what I’m investing and answering people’s questions.

Rob:
Well, every person listening to this goes and subscribes to David Greene Real Estate on YouTube, we will quintuple, we will… you will be a much larger star than I. So, everybody, go subscribe to David right now.

David:
So, then if you do that, then you get to come onto the YouTube and ask me whatever questions you want and I’ll help you with your goals and we’ll create this wonderful symbiotic relationship. My goals for 2023 regarding books is just to write one book, which is, I’ve already started it so that should be accomplished in 2023.
And then, to write an eBook. So, that would be a book that I’m thinking about something along the lines of building a financial fortress. Because as we see when the economy changes, which it has very suddenly, the way that you have built your wealth is very important.
When everything’s going great, I built wealth through crypto, I built wealth through NFTs. I built wealth through whatever new cool hack everybody’s talking about, infinite banking or whatever, looks great. The minute that you see things shift, man, how many people lost all of their money because they built a treehouse, they didn’t build a fortress.
So, I’m thinking about writing an eBook that focuses on ways of building wealth that will stand the test of time that maybe take longer to build. But you’ve got Helms deep, the fortress in Lord of the Rings that’s been there for hundreds and hundreds of years and won’t be taken down.

Rob:
Very cool. I need to prick your brain about that because I too am writing, I’m possibly writing a book. I can’t speak too much about it. I can’t speak too much about it, but I need to understand how you do it because-

David:
I can help you with that, writing a book. So, it’s like we’re talking about goal setting books are even easier. So, happy to help you there. The next company is an insurance company that I wanted to start in 2022. We just got licensed two days ago, so we’re probably going to have that thing up and running by 2023.
So, I want to hire a couple insurance agents. I want to buy a couple books of business to get the business started. And I want to incorporate a marketing plan that will include the insurance company with the other businesses I have, that’s my goals for that company.

Rob:
Cool. And so, you’ve laid out the goals. Have you taken… you said it might be launching in 2023, so does that mean that you have actually started taking small goals to get there?

David:
Yeah, so those small goals look like get licensed in the states, we have to be find the… and I don’t know what you call them, maybe just your partner that’s going to get you connected with all the carriers for different insurance. It’s highly regulated, it’s very, it’s like trying to run in sand, trying to get this thing.
Anyone whose insurance understands what I’m talking about. We’re working on branding and names. So, it takes forever just to get the uppity up regulators to say, yes, you could use this name for your insurance company. Once we have the name picked out, we can work on the branding.
Once we have the branding, we can work on the service. When you have the service, you can work on the marketing, you have the marketing, you can work on actually tracking the revenue.
So, that, it’s just a slow process. And that’s why I’m saying once it’s up and running, I’m probably just going to invest some money into buying a book of business so that I can get existing revenue going. I can use that revenue to then hire the new insurance agents I need to help sell. And then, you’ve got a legit company that can actually make progress earning income.

Rob:
Nice, nice. Okay, cool. So, you have that… we have wire framed out an insurance company. We are way more in the beginning stages than that. So, that’s tough, man. That’s cool. I have a lot of respect for you that you’re able to really… you’re so good at business development and that’s such a good skill to have. And that means when you have an idea for a company, you basically know how to attack, launch-

David:
So, actually, a program I’m thinking about putting together in 2023 would be something that would teach people how to start a business. It doesn’t have to be a huge freaking like Fortune 500 company. But you want to start a construction company or a pool cleaning company or a landscaping company or an insurance or a loan, whatever it is.
How you take a skill of doing a thing and convert that into a business that would you hire a couple people, those components. Because I’ve done it enough times now that I’ve started to recognize the patterns and how it works. Very similar to buying real estate long distance, you start to recognize patterns in the pieces that you need, which became that book.

Rob:
And you’re good at it. So, that makes sense. Sign me up.

David:
Thank you for your compliments because I don’t ever feel good. I feel like I suck every single day and it’s very frustrating. So, this is a bit therapeutic for me, Robbie.

Rob:
No, to everyone listening at home, you’re like you’re everyone’s hero and you’re my hero. David.

David:
Thank you for that. I should probably make growing a quaff be one of my goals. It’d be funny if we did that together. Who is it… somebody sent you a picture of us. They molded our basically faces into one, which was awesome. Do you remember who that was? Could we give them a shout out?

Rob:
Yeah, I looked it up. His name is Edward Morden and I’ll try to time it to where when this podcast goes live, I’ll post it on my Instagram and you can repost it. It’s really good.

David:
Good looking out, Edward. That was a very funny picture. All right. My last set of goals are personal goals and those are, I’d like to do quarterly paid speaking engagement. So, I need somebody who has experience booking speakers to speak at different events.
I want to be doing like I’d love it if ideally, I went and spoke somewhere every month, but I don’t have the infrastructure in place to get a person that would book me at those events. I would like to hire an employee for property management, that’s a huge one.
Looking for a full-time person that their job is to work for me and manage my short-term rentals in different states, but having a very hard time. I appreciate, Rob, you sent us over a couple people, just everybody is like, well, I thought we were going to start a business together or I don’t want a full-time job.
I do it on my own. Finding that person who says, “Oh, no, I know how short-term rentals work and I want to make a $100,000 a year. Managing these for somebody else has just been tricky. But I know once I have that person, I can really scale how many short-term rentals I buy.

Rob:
Oh, that’s right man. Host campers. They provide my friend. Well, we’ll get you set up.

David:
If you’re a host camper, let us know if you’re looking for a full-time job. Other personal goals are to work out three times a week to do BJJ, Brazilian Jujitsu twice a week minimum. And to build at least one additional recording studio like this one.
Because what I’d love is to have another place I can stay at during the winter months when California’s cold and not that much fun, that I can travel to somewhere warm without having to record for my laptop. Because like I said, my vision goal is to make continue BiggerPockets being the best real estate podcast in the world. So, you can’t be having subpar performances every time you travel.

Rob:
Well, hey, on that note, BiggerPockets just had… this in October, we had the most downloads ever as a podcast. So, I think we are the best real estate podcast.

David:
But we got to work to maintain that. Once you get a six pack, it doesn’t stay there. You got to keep working. So, if I want to be able to travel and I want the show to be good, I got to invest money in finding a property and building a studio in one of the rooms of that property. So, that’s another one of my personal goals.

Rob:
Sure.

David:
And that’s it.

Rob:
That’s it. We did it. Man, I’m going to pitch to us, hey, can we redo my part? I’m going to go right down everything like David did. But this is, honestly, it’s good because it’s like, I think it shows two different mindsets, or not two different mindsets but two different minds, like we’re very different people but we’re all we’re both going towards the same thing. So, it’s why I always like-

David:
No, I see a world where our paths probably intersect years into the future where your skills and my skills come together and many of our goals will probably align because we have two different approaches, but they’re very complimentary.
You’ve got this big vision that you want to see that isn’t necessarily within the ecosystem of helping clients, but putting conferences together, the programs that you’re running, continuing to grow your followers, you’re much better at that.
I barely hit 10,000 on my YouTube channel. That’s not something I’m good at. I’m definitely, definitely probably is a dumb thing to say, I don’t know why I just did that but I think you know what I mean. When it comes to the details of how you take what the goal is and you break it into manageable actual steps that you can take.
So, I think you and I, I like that… this is one of the reasons I like working with you, Rob, is we have different approaches but the same value system and a complimentary synergy between the two of us. So, that’s another reason why you want to share your goals with other people because you come across other human beings that can help you with them, that you can also help.

Rob:
That’s genuinely… that’s probably going to be a… I wish we had more time to talk about it, but that’s so important, dude. A year ago, I went and spoke at Codie Sanchez’s conference, it was called Uncon and I have probably said this on the podcast.
I was in the green room with all the speakers and they were all millionaires and billionaires and way more successful and smarter than me. And I was just like, oh, my God. And I felt like I leveled up several times just talking to people. And so, you definitely want to find people who are very different, very contrarian to you that are better, smarter, richer, wealthier.
Because you can learn, you can evolve so many times. I feel like just since you and I have met and become friends, I’ve evolved 10 times this year. I’m a completely different person than I was whenever I met you. And it’s just because I’ve really actively worked to surround myself with people that have really cool, interesting ideas and really cool executions of those ideas.

David:
Well, thank you for that, Rob. I appreciate the support there.

Rob:
Well, if people want to find out more about you and all your cool businesses and your insane business development, where can people learn about you?

David:
Please look me up on social media @davidgreene24. I think TikTok, I’m officialdavidgreene. But everywhere else, I’m davidgreene24. And YouTube just came out with handles and I was able to get the davidgreene24 handle before some jerk got it and tried to sell it to me.
So, I’m very happy. I don’t know exactly how they work. I’ll probably have to have Rob walk me through it because I’m an old man who doesn’t know how technology is. But right now, it’s a youtube.com/davidgreenerealestate. But if you look up the YouTube handle, it’s davidgreene24.

Rob:
Awesome man.

David:
Have you looked into the handle thing yet?

Rob:
Yeah, I locked up, robuilt, thankfully.

David:
At a baby. All right. One win for the people that aren’t out there grabbing other people stuff and trying to sell it to us.

Rob:
I know because someone tried to sell me robuilt.com for $18,000 one time and I was like, “No.” And now, I’m like, “Dang it.”

David:
They’re basically terrorists that are just holding your own stuff hostage.

Rob:
They’re technological extortionist.

David:
They steal the keys to your house. They make you buy it from them to get back in.

Rob:
But hey, here’s the good news. I was able to lock up robuilt on YouTube. So, if you want to find me on YouTube, go to robuilt. If you want to find me on Instagram, robuilt. And then, TikTok, you can find me at robbuilto.

David:
But nowhere else, don’t follow robuilto on Instagram with Robert’s pictures because those are fake.

Rob:
That’s true. Yup, they are.

David:
I heard Elon is trying to switch Twitter so that the blue check mark is something you pay like $8 a month and it’s much easier to get. It would be wonderful if every other social media platform adopted that same method and they verified the majority of people that were on there.
I’d even pay like $10,000. I’d pay a lot of money so that people could know you’re actually talking to David, not some rip off of David. So, really crossing my fingers that model changes.

Rob:
Yeah, same. I was like $8 bucks, it’s almost too easy but I think I’m good with it. I’m happy that it’s obtainable now, so.

David:
Maybe they can make a purple check mark that’s more money if they… people’s ego need to be stroked. But the idea is we just don’t want our followers getting taken advantage of by people pretending to be us. All right. Thank you for that, Rob. I appreciated you sharing your goals.
You’ve absolutely crushed the goals you had in the past, so way to go there and thank you for sharing the struggle with the audience. Any last words before we get you out of here?

Rob:
No. I’m really excited for 2023. And you know what, 2022, I still got two months man. I got a lot of goals on my mind that I’m like, I’m going to do this just because I like a good sprint.

David:
Right on, man. Well, thank you very much. We’ll get you out of here. This is David Greene for Rob leveling up faster than a Pokemon Abasolo, so.

Martin Davies, global head of Nuveen Natural Capital, joins ‘The Exchange’ to discuss American farmland as an investment, as an inflation hedge and record increases in farmland value. With CNBC’s Seema Mody.