February 2023

Dave:
Hey, everyone. Welcome to On The Market. I’m your host, Dave Meyer, and today I’m going to be joined by two esteemed economists from Moody’s Analytics to talk about rent and housing affordability and multifamily.
We going to have a really fascinating conversation and I think, if you are a rental property investor, a commercial investor, you’re definitely going to want to listen to this because Lu and Tom, who are our two guests today, are really experts in rent growth and rent declines and recessions, and they have a really fascinating and expert opinion on what might be going on with rent growth over the next couple of years.
I’m not going to lead into it much more than that because it’s a fascinating conversation and I want to get into it. I’ll just tell you who these people are quickly.
First guest is Tom LaSalvia, who’s a senior economist in commercial real estate, emerging trends, housing sector specialty at Moody’s Analytics. He specializes in all sorts of things, but he told me before the show that multifamily is his love, and so he offers that expert opinion.
We also have Lu Chen. Lu is a senior economist at Moody’s Analytics commercial real estate division. She has deep knowledge of urban economics and credit risk with special interest in senior housing and urban migration.
We’re going to take a quick break and then we’re going to bring on Tom and Lu to talk about the multifamily market, rent growth and all sorts of other fascinating topics having to do with commercial real estate.
Lu Chen and Tom LaSalvia, welcome to On The Market. Thank you so much for being here.

Lu:
Thank you for having us.

Thomas:
An absolute pleasure.

Dave:
All right. Lu, you recently released an article called Key Takeaways from the 4th Quarter Housing Affordability Update, and this was at least for people like me, a fascinating read. I think our listeners would really like it as well.
Can you tell us a little bit more about your research into housing affordability and what it has shown of late?

Lu:
Absolutely, Dave. So this is really dear and near to our heart. As a CRE researcher at Moody’s Analytics, we care deeply on the housing affordability, which is on many American residents’ mind. We really started tracking this from over a year ago when we had seen a rapid increase in the market rent across the board.
And as we look back into the time series, as we look back into the data points, the most recent update has really shown a burning issue across the board. As we found out, the US is now rent-burdened for the first time nationwide since over 20 years ago, we start tracking this.
Usually when we, say, I gave them metros or the US is rent-burdened and that measurement we use is the rental income ratio. So essentially we measure how much rent each individual renter household is paying for a year, as compared to their median household income. So if the rental income ratio ever reach 30% or above, we call the renter household, rent-burdened.
And US as a whole in a fourth quarter of 2022 for the first time has reached that 30% threshold, and that was over one percentage point from a year ago and it has been increasing for the past year or so, and it only recently has been moderating, but it’s still an upper trending and that 30% is really that symbolic threshold that we care and which also in love with many of the policymaking which has been trying to tackle with this affordability issue.

Dave:
Oh, great. Thank you. I have so many questions about that, but at one of them you just touched on, which was, why 30%? You just said it’s symbolic. Is that all it is or is there some economic reason why having a rent-to-income ratio above 30% is particularly important?

Lu:
Absolutely. Just think about that 30% as a individual person. If I rent a house and have to pay 30% of my annual income on my rental is pretty burdensome, but there are, I mean academic and social evidence supporting that 30%. So Tom, correct me if I’m wrong.
I think HUD is using that 30% from about half a century ago. And Harvard, University has also been backing up, and so quoting a 30%, of course we have a 50%, which is even an severely burdensome threshold, but that 30% is high for average household overall. Tom?

Thomas:
Ultimately, this 30% was decided on when looking in particular at middle to lower income households and ultimately what they may have to sacrifice if they have to pay that 30% or 35% or 40%. So it’s not as though you go from 29.9% to 30% and all of a sudden everything changes.
So getting back to what Lu was saying about a bit of a milestone or symbolic in nature, but that 30% or around that 30% is important, especially in an inflationary environment because the price of everything’s been going up including necessities. So then choices have to be made by the household.
And households need their shelter. They need a place to live, and we often say, “Rent eats first.” And what that means is we’re going to try to keep our kids in our apartment as long as possible without having to upend their lives and move to a different school district or a smaller house, et cetera. And unfortunately, we might have to sacrifice in other areas. And I think that’s the significance of being around that level.

Lu:
And Dave, I’m not sure if you have heard a recent debate on the Federal Reserve bringing back the inflation to the 2% target, and people have been questioning, “Why it is 2%? Why can’t we raise that to 4%?” Because how much different is from annualized growth from two to four percentage point? Probably you don’t feel a dent if you are a little more the average.
But ultimately as turned out of those the two earlier, we have to stick to some kind of a threshold, even if that doesn’t mean too much difference if you are looking at 29 percentage point versus 31. You just have to have something to stick to. And it just turned out that 30% is a consensus where academia, policymaker and society agreed upon that 30%, is that line we want to stick to.

Dave:
Okay. Well, great. That’s super helpful. And just to recap for everyone, we’re talking about the rent-to-income ratio, which compares how much a family has to pay in rent compared to their household income. And it is now, for the first time in the US, surpassed this threshold of 30%, meaning that the US on a national scale is now a, quote, unquote, “rent-burdened nation.”
Lu, you had mentioned earlier that this is the first time this has ever happened. Has there been other periods in the US where rent has been close to this unaffordable or is this a relatively recent phenomenon?

Lu:
We have been very close to the 30% threshold for some time, but I have to emphasize we didn’t get to this point a decade ago or two decades ago. So we first started tracking the national average rental income ratio. We started off at 22.5% and that was back in 1999.
So if you think about that, that was less of one fourth, one quarter of the average, the media income households budget, and now we are close to one third of the budget. And there are period where you can see the rate has been moderating and there are period you have been seeing the rate has been picking up. And I have to say the second half of 2021 up until now is where we see that rapid increase of the rent-burdened across average American household.

Thomas:
Yeah. And I’ll add to this, in that over the last two decades, the general trajectory has been upwards, as Lu mentioned. And what that is telling us is that there is somewhat of a mismatch between the development side of the industry and the demand side.
Population continues to grow, income continues to grow, but in an unequal manner. And when that’s happening, we’re using scarce resources to build certain types of housing or other types of real estate within the country or infrastructure within the country. And unfortunately, little by little over the last two decades, it’s become more and more expensive to afford more shelter.
Now of course, there’s nuance in, and I don’t think we want to lose that in this discussion because you as a household still have a bit of a choice of where you live. Whether which metro you live in or within that metro, which neighborhood you choose, or within that neighborhood, which building and which square footage you choose.
So we’re not saying that every single household is facing this burden, but what we are saying, is that the level of income generally being spent on shelter continues to rise. And that’s true at the multifamily side of things. That’s true at the single-family side of things. And little by little there, again, there needs to be trade-offs, particularly at that middle to lower income side of the income spectrum.

Dave:
That’s super helpful to know and it just seems like we’re seeing this across the board, multiple asset classes, a lot of different markets, which I do want to get into. But I’m curious just a little bit more, to talk a little bit more about why this has been happening more recently?
You talked a little bit Tom about this. It seems like an imbalance in supply and demand in some markets or some places in housing. Not necessarily in rental housing. We’ve talked about that sort of stemming from a lack of construction during post-Great Recession.
Is that sort of what happened in the rental market as well? And also curious, like you said, it’s been close to 30% for a while, but we only recently hit it. Why now? What has happened during the pandemic that caused it to really sort of reach this breaking point?

Thomas:
I’ll start with the former question of-

Dave:
Sorry, that was like a six part question.

Thomas:
No, no, no, no. All related.
The supply side story is quite interesting because there has been a good deal of multifamily construction over the last couple of decades. It’s gone up and down given the different parts of the economic cycles that we’re in. But the point is where the money’s been spent, that I think is really interesting and it really highlights why rent levels are increasing at the rate that they have been in relation to wages.
If you look over those last two decades we keep talking about, somewhere between 80 and 90% of development within multifamily, has been to class A type properties. Not B, C. Not the, quote, unquote, “workforce housing” that’s getting a lot of buzz recently. So I’m leaving outside the whole LIHTC side of things in public side, when I’m saying that 80 to 90% number. But it’s still really telling, right?
Again, these are scarce resources. We know labor is scarce, we know materials are scarce, and when so much of this capital is being devoted towards that type of housing, and rightfully so from the market’s perspective, because they can lease that up still, right?

Dave:
That’s it.

Thomas:
But it those are going to be higher rent places and ultimately it’s going to cause the market to be tighter in the workforce side of things. And we see that in our data very clearly. Class A, a vacancy rates trend around 6%. Class B, C vacancy rates trend around three, three and a half percent. And that just shows you that difference of what’s happening here.
And so you’re really getting this ecosystem effect of housing, where so much of the construction and supply has been in one particular area and that by itself is causing rents to rise in that area, but then it’s causing rents to rise for B and C as well. And it is again, going back to who is this hurting the most? It’s hurting the middle to lower income households the most.
So I think I answered at least some of your first question as to why the supply story is the way it is. But Lu, if you want to add to that and maybe then jump onto that second part of the question.

Lu:
I don’t have much to add on the supply side, but I’ll also continue on the demand side of the story. So if I can represent the millennials, I have to say the demand has remained really strong, as millennials are forming and had a new households in recent years in particular.
So if you think about when the demand side is ballooning, if you have more household entering into the new rental market and housing market in general, and then we have this COVID period which has that shock, which allows people to move around from metros to metros.
I do want to bring a little metro level nuances, because when we say the US national average is reaching that 30% threshold, I’m not trying to say everywhere is hitting that 30%. So there are places which are well above that 30% rental burden, but there are also places where although it’s below that 30% threshold, but you are seeing this increasing trend for the certain metros. And the metros, and if I just call on a few metros, Las Vegas, metros in Texas and Miami, Fort Lauderdale, Palm Beach in Florida.
So all these places in the Sun Belt, they have been seeing the positive in migration coming from people who really enjoy sunshine, enjoying the beach, enjoying more spacious spaces. And when COVID happened, when remote working becomes trendy, become a possibility, become a necessity. And you see people voluntarily moving from California over to places where they have less COVID restriction, lower taxes, cheaper houses. So that migration flow is bringing a lot of metros to a faster track on their rent-burden.
So that demand side is really adding that pressure to this already very tight market. So if we recall what Tom said about the B and C, all those places for the workforce population, and we already having a very tight market and having this shock from the demand side is not helping the situation very well.
So that’s why we are seeing this increasing burden and fast increasing burden, which really started off by the end of 2021, continue on the majority part of 2022, and only recently we started seeing that moderating a little bit.

Dave:
That makes total sense. I’m curious if you see the opposite effect in some of the metros that are losing population. Are we seeing an increase in supply and then a subsequent, some downward pressure on rent growth?

Lu:
Tom, may I start it off with San Francisco?

Thomas:
Hey, you live there, so go for it.

Lu:
Absolutely. So San Francisco was one of the metros we are still seeing, its market rent was 1.6% behind, nearly 2% behind its pre-COVID level. So that’s after we struggle for three years and trying to make up just as everybody else, and we are still having that little gap. Believe it or not.
The reason was, everybody was staying in San Francisco was a really tight market. You have only this little space to build and why we are having this problem, is really driven by the demand. So the shift of demand, people getting pressed out and people got so fed up by the wildfire and people who has luxury of working anywhere. So they left San Francisco, they left the Bay Area, they brought the demand away, and that is creating that much bigger hole to fail.
So on the other hand, not only we are seeing the rent decline, although for many other places we like to say the rent growth has been moderating, but for San Francisco, it was really just we haven’t been able to catch up. That’s one side of the story. And on the other side, if you track the median household income has been increasing and increasing rapidly by people who’s really earning a lot from the tech boom, especially in the first two years of the COVID period.
So declining rent combined with increasing income is really alleviating, at least on the paper. The rent burden for San Franciscoers. So we used to be, if you track the history of the top 10 rent-burdened metros for the past two decades. So San Francisco has been in and out of the picture for quite a bit. So there has been a lot of variation because metros like San Francisco, like Washington, DC. So all these very well established tech metros is very cyclical.
So whatever there is a recession and the tech sector is much more volatile than many other traditional sectors. And you see it’s driving that demand, driving the income growth for the metros. And that’s why San Francisco has been about 30% for some time and then when dot-com bubble hit, it dropped off the list, and then it climbed up again reaching above and beyond 30% and back to below.
So there has been variations, but it’s interesting to see how a metro like San Francisco can be affected by both supply and demand, and in certain cases can be significantly driven by the renter household and their decision.

Thomas:
Yeah. I’ll jump in here and just somewhat not counter what Lu is saying, but I want to bring up the fact that if this is happening in San Francisco, why wouldn’t it happen in Boston, in New York? Some of the other cities that have been known to be very high rent cities. And so it’s a very interesting situation here where we saw all this migration early on in the pandemic towards the Sun Belt and we had all of these Sun Belt darlings of Phoenix and Austin and Miami and Jacksonville and Tampa, et cetera, et cetera.
Little by little over the last, I would say 18 months, we are seeing maybe some of those folks return to some of these northeast expensive cities, possibly as the office comes back a bit. But there’s another part of this demand story for cities like that, and I still think San Francisco is going to have a bit of this. And these are lifestyle cities that are unique in their own right.
And so while one might expect a lot less demand side pressure for a New York or Boston, what we really saw is household formation pick up dramatically in these areas, and leasing activity pick up dramatically in these areas in the last year to year and a half. And what that’s telling us is that there is this quality.
If people really are choosing lifestyle moves, it doesn’t mean it’s all to the Sun Belt and it doesn’t mean that all of the affordability issues are the Sun Belt, because we’re seeing incredibly high rent-to-income ratios in some of the traditionally expensive cities. And Lu, I think you can back me up on that with some of the data that these areas have come back and there is no rent relief for even these traditional northern cold weather cities.

Dave:
Were you saying, you’re saying that there’s household formation, is that possible that it’s these people were remaining in a roommate situation or living together because things were so expensive and now that there maybe is a little bit less competition.
I know rents in Manhattan have exploded, but do you think there’s some reason why household formation is picking up right now?

Thomas:
There is a timeline here that I think is appropriate. Early in the pandemic, we didn’t want to be around other people. We were scared and we also didn’t have to go to the office. So a lot of the younger generation that often, are the ones that populate New York City.
Many of them moved back with mom and dad and slept in their old room or on their couch or whatever that hobby room became or whatever it is. And so we saw this kind of pullback and activity and that’s when all of those huge discounts in Manhattan were being talked about and how if anybody wants to go back to the city, there’s a great opportunity to get a huge discount.
And then a year after that, when everyone had to renew, well all of those kids, all of those people who were on mom and dad’s couch came right back. They’re not the ones that chose Florida, especially that young and hungry group. There’s still value in New York, there’s still value in Boston, there’s still value even in San Francisco I think ultimately, for that type of the population.
And so once things opened up a little bit, once a little bit of a return to the office, that’s when you saw a tremendous amount of activity. And many of those people at that point were still at least a little hesitant to get roommates.

Dave:
That’s it.

Thomas:
And so think about it. Now you have extra households looking for more studio apartments or one bedroom or at least you’re not bunking up, maybe even illegally, which I’m not saying happens, but it may happen in places like New York. Where you’re actually having too many residents within that particular apartment and you’re living in a broom closet, I always say.
So I think there’s this timeline of a pullback and then this kind of back to the city mentality, but back to the city maybe without a roommate at first. I have a feeling that’s going to change, is changing right now. It’s going to continue to change in 2023 as the economy softens a little bit.

Dave:
Okay, great. I do want to get to talking about what happens from here and where you think rent is going to go. But Tom, you mentioned something that I want to sort of go back to, which is that in the market, multifamily market, the supply side. We’re seeing that over the last couple of years, development has been focused on class A properties.
This isn’t a podcast for real estate and primarily real estate investors. When I think about that, that tells me that the risk reward profile for class B, class C construction and development is just not there because these markets tend to be efficient. Do you have any idea why? Why is it not attractive or why are developers not building class C and class B properties at the same rate?

Thomas:
It’s a fabulous question and I have spoken to a good amount of developers about this. And consistently I’m told that B and C just hasn’t been able to pencil in the last 10, 20 years, meaning that the math doesn’t work nearly as well as the math works for class A.
The land costs the same amount of money regardless of what you’re going to put on that land. A lot of the structural development costs the same amount of money. A lot of the red tape is exactly the same that you have to deal with. So I slap on a few more amenities, maybe add a little extra space and a little better lighting and I can up that rent considerably.
And so developers continue to say, “Well, if class A vacancy rates are going to stay around 6%, if I can lease up those properties pretty quickly and efficiently, then I’m going to go that route. I don’t need to build workforce housing because the profitability is more within class A.” At least it has been, I would say in the last 10, 20 years.

Lu:
Or on the other spectrum, if the developers are not building class B and C multifamily, it’s probably better to start thinking or even investing in affordable housing. So there is a term which I started hearing a lot, it’s called the missing middle because if you start constructing affordable housing, there is a bigger collaboration between the public and private sector.
So we have tax benefits, we have government sponsorship, and we have policy which are designated for supporting the building of affordable housing. And then we have this economic incentive to build class A, which left majority of the middle of the renter household be missed out on the market opportunities, because they can’t qualify for affordable housing and they cannot afford class A.
What are they going to do? So Tom, I recently did a very interesting exercise. So there is a kind of a threshold, if we say 50% of the media income household, income is considered as the low income. But if you put 70, 80% of that media income as moderate but still low income, and if you plug that number into our rental income calculation and many more metros will jump up at me, because they all of a sudden become even more rent-burdened.
Because that’s where we are seeing a lot of the missing middles and they couldn’t afford the market rate apartment on the market. And I think that goes back to where I live in California and we have a lot of policies not just for affordable housing, but also to build out additional units such as ADU. Not sure Dave, if you are familiar with that term, it’s Accessory Dwelling Units, which can be attached or detached to a single-family housing unit to hopefully increase the supply for the missing middles.
And there has been a lot of conversions from existing vacant commercial properties and they work with the planning department to rezone a little bit and convert that into a multifamily and hopefully allocating certain units into affordable. So there has been a lot of innovative ways, creative ways of solving and at least trying to address this shortage in supply.

Dave:
Yeah. We talk about ADUs and upzoning a bit on the show because it is a good idea. I’m just curious if it’s enough? Right? Because I know a lot of real estate developers, if it was profitable to build class B or class C, they’d do it. And I don’t know how many homeowners want to build an ADU. Who are willing to put up the cash.

Lu:
I’ll build a ADU.

Dave:
Nice! That’s awesome. There you go. Good for you. It’s a great business, but I’m just curious, are enough home buyer, it just seems more efficient to me to figure out a way to incentivize the people who are professional apartment builders to build the right housing units rather than only relying on homeowners to become real estate investors.

Thomas:
And Dave, I think that’s where we’re headed. I think public-private partnerships incentivizing the private developers to find a way to build this missing middle.
It’s already being discussed at the federal level, state levels, municipality levels, and I think we’re going to just constantly hear about it, whether it’s an expansion of LIHTC in terms of the-

Dave:
What is LIHTC? Sorry.

Thomas:
Oh. No, sorry. So Low-Income Housing Tax Credit.

Dave:
Okay.

Thomas:
L-I-H-T-C. Low-Income Housing Tax Credit. And it basically incentivizes developers if they put a certain amount of units that are at a certain threshold of the area median income, in that building they can get certain relief. And we’ve heard the Biden administration talk about expanding that. We’ve heard even the word MIHTC being thrown around, which would be Middle-Income Housing Tax Credit. And so I think that’s part of the solution.
I think another part of the solution will be we’re finally at an era where zoning laws are going to be relaxed a bit. And I think that’s going to be huge for development not only in the housing sector, but I think all across commercial real estate.
The one maybe a silver lining out of this rapid rise in affordability issues is that it finally has told local leaders that they have to think about what has been working and what hasn’t been working and having very segmented zoning while it’s going to be maybe tough to relax those in particular areas, given nimbyism, it’s going to be needed in a lot of areas and I think it is going to be granted in a lot of areas moving forward.

Dave:
Yeah. I mean ultimately there are so many proposed solutions. Maybe this is just my opinion is that until the supply side issue is adequately solved, they’re all going to be band-aids and maybe they’ll help in the short-term, but it just seems like getting developers to build more or allowing developers to build more of this missing middle housing class could be really helpful.
I do want to ask you though, I’m sure everyone on the show listening, wants to know what you both think about where rent is going now. So Lu, you’ve done a great job explaining how and why rent has skyrocketed. We’re seeing this big rent burdened. What happens from here?

Lu:
There is light at the end of the tunnel. So I want to start it off with a positive note and hopefully also end with a positive note. So 2023, we are projecting there would be a historic amount of new construction coming online on the multifamily front. And there are a couple of reasons.
A lot of the construction, which takes months and up to over a year to finish. And they started off as early as 2021. So that’s where we still have a little bit of the cons, supply side of the issue, the bottleneck on the supply chain, but it really penciled out for the developers.
So the rent was growing rapidly, the interest rate thinking of when federal reserves started rising interest rate in early 2022. So at that point, a few months before that, the interest rate was still relatively low, the margin was high, the cost was relatively manageable, and which inspired that construction to start or existing construction to continue.
And the supply side, we are looking positively, we are going to see an increase in the volume and on the other hand, the demand will stabilize because we are already seeing the softening, the stabilization towards the end of 2022. So this affordability issue, this fear of recession, this hesitation of moving back into the single-family housing market will retain a lot of the rental household to stay in the multifamily market for some time. Fingers crossed, nothing goes south from there. And that’ll help stabilize the rent growth.
So we might already be seeing the peak of the rent-burden across the nation. So 30% might be around the peak that we are seeing. And I did have a sneak peek of file 2023 projection on the rental income ratio. I know Tom going to be laughing at me because we do update on a quarterly basis, but at this point, based on the latest vantage data we are seeing by the end of 2023, the national level rental income ratio should be slide off that 30% peak, not by much. Again, this is a symbolic number, but we should see the moderation of this burden little bit.

Dave:
Okay. That’s really interesting because I think as investors we often, I’ve been saying to people, “I don’t think rent is going to grow for a long time.” Not, I don’t know a long time, but at least for another year or two during this economic uncertainty we’re in.
Are you saying that the rent-to-income ratio is going to fall because rents are going to fall or are they going to sort of stabilize and income is going to keep rising?

Lu:
Just for the record, we are not projecting one way or the other. So we are seeing the moderation of the speed because it really goes down to the metro level nuances. So at the national level, we are seeing the rent growth, going back to where we likely to see the long run average. So it’ll be moderating to a three percentage range, but at the metro level there are places where we might see, start seeing rent decline, but there are also places where we might still see the rent is relatively more stable than many other places.
So we have to realize, it’s not just about the supply and demand, but also on the other hand, the rental market, the rent is quite a key figure. So many renter household, they only renew the rent after at least a year. So that’s their biggest term. So that’s why when you look into the shelter inflation in the CPI report, and even based on the latest reading, it’s still sticky high somewhere in the seven percentage range. And on the other hand, Dave, you probably already seeing in certain places there has been decline in the new visas.
So that is where you see that disparity of divergence, where the CPI data is tracking a combination of the existing rent and also the new rent and which is showing that stickiness. But on the other hand, some of the new leases are showing the discount. So Tom, I know you want to say something.

Thomas:
I think you said it beautifully. I will add not only new leases, but particularly in some of the newest construction when those property owners are trying to lease up those properties, we’re seeing concessions grow a little bit. But I would like to say again, that we are not predicting a widespread level of rent declines based off of what Lu had already said about the stickiness.
But I’ll throw in there from the Moody’s perspective, we don’t at this moment expect a recession. We do expect softening of the labor market, but historically to get rent declines or at least a consistent amount of rent declines over a one to two quarter time span, it requires some stress in that labor market. It requires an increase in unemployment. And right now, I mean goodness, look at the employment situation report from not that long ago, 500,000 jobs at it. So we’re at a two to one ratio of job openings to the mount that are unemployed.
So unless we see dramatic changes to the labor market, and by the way, we are fully expecting a softening, but unless we see dramatic changes, we can’t predict widespread rent declines because people are still having jobs and they still feel relatively confident that they’ll have those. I think part of this still goes with the expectation story, but it is an employment story. So if you want to know what’s going to happen with rent, watch that labor market closely.

Dave:
That’s super helpful. And I do want to unpack a couple of things there before we get out of here. Just to summarize for everyone listening, one of the reasons rent is so sticky like Lu said, is because when you look at rents, there’s different things you have to consider.
There’s what people who are staying in the same apartment is paying and what people who are moving or signing a new lease are paying. And those are sometimes tracked differently and different rent data companies have different methodologies. The CPI has sort of this famously lagging methodology, and so there’s different ways to think about that.
And so I just want to make sure I heard it correctly, is that you think that there could be, or there is evidence so far that people who are renewing or are looking for new leases, there is some signs that rents are softening there, but as a whole, rents are remaining pretty stable right now. Is that right?

Lu:
That’s a fair statement.

Dave:
Okay, great. And then I was just curious, Tom, you just said about historically what it takes for rent to grow down. I mean, I can’t remember off the top of my head, but I do think we did see some rent declines in the 2008 era, not nearly as much as home price declines. I mean a fraction of it. But can you tell us the depth and scope of what happened with rent prices surrounding the financial crisis?

Thomas:
Yeah. We saw a bit of a decline. Lu, if you can help me with the exact numbers, I want to say it’s just one to 2% over a couple of years. But think about that situation from an economic point of view.
Unemployment was around 10% and it stayed there for a little while and this situation’s dramatically different. We saw a vacancy rates increase, well above five, six, 7%. I think we copped out around 8% in the multifamily perspective. And so you have to loosen the market again before you get dramatic rent declines.
So I hope that you as an investor or a lender did not put 7, 8, 9, 10% rent growth on your proforma when you were getting that deal done a year or two ago when rents were growing there. But if you did put the long run averages, there might be a little bit of a hiccup this year here or there. But I think overall that’s where we’re trending back to, going forward. And Lu, do you have those exact numbers?

Lu:
Thank you for buying that time for me to look into the exact numbers. Really appreciate it.
Last summer, summer of 2022 is when Tom and I was really interested. That’s when everybody was sheer giddy into a recession and they saw two quarters of GDP, negative GDP growth, and they were like, “Are we there yet?” So when everybody was talking, and of course Tom and I were interested and we compare and contrast every single recession from the late 1970s, early 1980s when we call it a Volcker period up until the 2020 COVID recession.
So interestingly, if you look at the single-family housing and multifamily housing markets, they play that rhythm very well. So usually you start seeing the single-family housing press getting a slap slashes at the beginning of the recession. It really just signaling we are in the recession and at the same time, multifamily, if you look at every single recession, it’s almost consistently it doesn’t get hit right away.
When will multifamily housing, multifamily rent get a hit? Is where we are almost out of the recession. Why? Because that’s when people are seeking the opportunity in the single-family housing market. So they boosted the single-family housing price to roll, and at the same time, because they played that rhythm really well and multifamily, that demand was shifted and you start seeing, the rent changes, having that bigger impact.
So looking at the Great Recession, just to put the number in there, so we have an idea where we are. So during the Great Recession from 2007 to 2009, the single-family housing price, if you compare the peak with the trough, declined 15% at the national level. And that is CPI adjusted, by the way. And at the same time, multifamily rent growth, which had a declined after 2009, only declined 1.6%. Less than 2% if you compare the peak and trough. So it gave us the idea of the timing and the scale.

Dave:
That’s so interesting. So you’re saying that basically people wait or the decline in home prices sucks demand out of the multifamily market because people want to buy homes while they’re cheap. Is that, did I understand that correct?

Lu:
So when you start seeing the single-family housing market momentum picking up, that’s where you’ll start seeing the demand being subtly shift from the multifamily housing units over to the single-family housing market. And that also, I would hope that could be a leading indicator when we start seeing a massive rent decline across the board, maybe that’s a signal we’re out of this doom.

Dave:
So the multifamily decline is actually a signal that a recession might be ending.

Lu:
I hope. So we still have to run statistical test if that’s a hundred percent signal, but usually that happens along that timeline.

Dave:
Okay. That’s super cool.

Lu:
And if you look at the past recession, so sometimes the NBER will define the recession to end even prior to seeing the multifamily housing then declines.

Dave:
Okay. Interesting.

Lu:
So the timing goes along the timeline of the recession, but it wouldn’t necessarily be prior, if I have made that…

Dave:
No, no, but that totally makes sense. That’s really interesting. It lags the rest of the economy and the home prices a little bit.

Lu:
And also because of the stickiness.

Dave:
Yeah. Interesting. All right.
Well, thank you both so much for being here. This has been fascinating. I have learned a ton today. I really, really enjoyed learning from you both. If people want to connect with you, Lu, where should they do that?

Lu:
I’m happy to share my email.

Dave:
Great.

Lu:
So it’s [email protected]

Dave:
All right. Great. And Tom, what about you?

Thomas:
Analogous to that, [email protected], or you could check out our Moody’s CRE webpage, which has a lot of our insights, and we’ll be able to maybe Dave, we could attach that somehow.

Dave:
Sure, yeah, we will link to that in the show description for sure.

Thomas:
Great.

Dave:
All right. Great.
Well, Lu Chen and Tom LaSalvia, thank you so much for joining us On The Market.

Lu:
Thank you for having us Dave.

Thomas:
A true joy, thank you.

Dave:
Big thanks to Tom and Lu, again for joining us for this episode of On The Market. They are both from Moody’s Analytics. If you want to check out their work, you can do that. They have a great website, all sorts of information about the real estate market, commercial real estate and all that.
I genuinely learned a lot about that. I think that the takeaways here for me, the big ones at the end were that, we say this a lot on the show, but I’m glad to have two economists back me up, that rent is particularly sticky. And although we might see some headlines that rent is going down, it was very likely to be a very modest decline in rents right now.
But I just wanted to reinforce what I’ve been saying for a little while here, that if I were you and buying real estate and underwriting real estate, I would assume very modest rent growth for the next 12 to 24 months. As Lu and Tom’s research indicates, we’ve sort of reached this threshold where people might not be willing to pay any more than they have right now, and we saw this rapid increase in rent and it sort of makes sense to me that the market is going to cool.
I think the other thing I found just super interesting personally was just about that missing middle and how there’s just a lack of building in class B, in class C, multifamily. It’ll be interesting to see if there are more public-private partnerships or better zoning opportunities because it just seems like something that the market needs, that there’s going to be demand for this type of housing and there is a lack of it.
So that’s something I’m definitely going to keep an eye on. Would love to hear what you all learned from this episode. You can find me on the BiggerPockets forums. There is an On The Market podcast if you want to talk about anything you learned or ask any questions, you can find me there or you can find me on Instagram where I’m @thedatadeli. Thank you all for listening. We’ll see you next time.
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 Puja Gendal, 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.

CNBC’s Hugh Son breaks down the housing market as U.S. mortgage rates jump to their highest levels since November.

The biggest mistake people make with their intellectual property has nothing to do with protection. It’s not knowing whether anyone else is going to benefit from their brilliant idea. It’s not knowing whether there is demand for it in the marketplace.

A lot of us get ahead of ourselves. We file non-provisional patent applications, build expensive prototypes, raise money, and start businesses — and then, after all that, find out whether anyone really wants our product. This process is extremely expensive, time-consuming, and, when our assumptions are wrong, painful.

The risk of spending a lot of time and money on an idea that no one wants exists at every level of the innovation ecosystem, including inventors, startups, small businesses, and corporates. For example, the U.S. National Science Foundation awards over $200 million each year to advance the development of new ideas through its Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. The startup companies are funded to do technical research, which is inherently risky — but it’s more often the market-based risks that cause them to fail.

“The biggest risk is that they build something that no one actually cares about,” stressed program director Ben Schrag during an Inventors Groups of America meeting.

When deciding which startups and small businesses to award, the NSF considers how common market-based risks are being managed, and provides training to all awardees on how to better understand their market and customers. NSF also launched a program in 2011, Innovation Corps or I-Corps, that’s devoted to teaching researchers how to test the market before starting a business.

“This is so that [the company] doesn’t spend a bunch of money on R&D to reduce the technical risk, and then realize too late that it was actually a different issue – lack of a customer pain point – that was the most important threat the whole time,” Schrag said.

Test the Market For Your Invention Idea in 4 Steps

There is a simple solution! You need to test the market to determine whether anyone truly wants your imagined product or service first. Is the benefit of your product or service great enough for potential customers to actually purchase it?

There are many benefits to testing for market demand. You can leverage market demand to get other parties to come to the table. It gives you a paper trail of protection. In my experience, potential licensees are less likely to try to work around you when you have evidence of market demand. You can file better intellectual property based on the input you receive by aligning your patent claims with your business objectives.

You must account for the risk that you’re developing an idea that no one wants before spending a lot of time and money. That’s the big benefit of the strategy outline below. It’s an effective way of testing the benefit of your idea before building and protecting it. It allows you to refine or redesign your product, and protect it accordingly, based on the input you receive. Ultimately, it helps you move forward in the right direction by providing critically useful information.

Let the market help you determine when to file a non-provisional patent application.

Here is a simple four-step process inventors and startups can rely on.

Step 1: Learn the most efficient way of manufacturing your product idea and what it’s going to cost.

You will hear these two questions over and over again from interested parties. How do we make it? What does it cost? Prepare to answer these questions.

Step 2: Protect your idea by filing a provisional patent application (PPA).

This allows you to describe your invention as “patent pending” for one year. Filing a provisional patent application with the U.S. Patent & Trademark Office is both affordable and easy to do.

Step 3: Create high-quality marketing material that highlights the benefit of your idea.

Sometimes, all you really need to test the market is a 3-D computer generated model. Virtual prototypes, which are easily made, are very affordable.

Step 4: Reach out to industry experts to get their opinion.

Focus on connecting with a buyer at a major retailer or another end-user. LinkedIn has made it easier than ever to reach out to industry experts, including buyers. Start by identifying the department that your idea would sell in. Then, search for buyers and send a request to connect. Do not pitch your idea right away. Instead, tell them that you are launching a product that you would love to get their input on and ask them if you may send them more information. Make sure to only disclose the benefit of your idea, not your intellectual property itself.

Do you need to make changes to your idea so that it will sell at retail? They’ll let you know. This strategy works with retailers as large as Walgreens, Walmart, and, in the U.K., Tesco.

There are other things you can do to test the market, including reaching out to potential licensees. It’s important that you reach out to the correct person and that you take the time to understand their business. Acknowledge the company’s mission, describe that you’re working on something proprietary, and then be concise and direct with your ask.

“The way to cut through the clutter is by showing you’ve done your homework and you have something to offer,” explained LifeScan Chief Marketing Officer Lisa Rose in an interview.

Don’t get me wrong. Protecting intellectual property is extremely important. Patents, trademarks, and copyrights — the tools provided by the USPTO to protect our intellectual property — are fantastic. But they’re also just one piece of the puzzle. Are you sure you’re using them correctly? The question for entrepreneurs isn’t whether we should use them, but when.

When there is market demand, money is spent — meaning people actually start working on commercializing your product idea. I’ve experienced this firsthand. I couldn’t get any traction with my big idea for the packaging industry until I had a customer that wanted 50 million units.

Everyone cares a little less about intellectual property when there’s sincere market demand. With market demand, everything seems to fall into place. So, yes, while intellectual property is important, it’s not as important as you may be thinking. Make finding a customer for your idea your primary objective.

David:
This is the BiggerPockets Podcast show 731.

Brent:
I think a lot of people just hold on to leads too much because they’re like, “Oh, it’s a lead. I love this lead. I’m going to coddle it and I’m going to keep it here and I’m not going to push them too hard and I’m going to be really nice and I’m going to bring them sweets and I’m going to stop by and I’m not going to pre-qualify them too much. When they’re ready, they’ll tell me their price and we’ll make a deal.” And that never happens. You need to have a conversation of what is the condition, timeline, motivation, price, and the timeline is the most important thing in that because if they’ve made the decision that they’re going to sell that property, that’s who you really get in front of.

David:
What’s going on everyone? This is David Green, your host of the BiggerPockets Real Estate Podcast, the best, the biggest, and the baddest real estate investing podcast in the world. Here today with my co-host, Henry Washington, where we bring you another amazing interview today with Brent Daniels. Brent runs a wholesaling business that is very successful, talks to a lot of people, and frequently puts deals together that other people would let die. And in today’s show, we hear about his rags to riches story and a lot of other information. Henry, first off, good morning and second, what were some of your favorite parts of today’s interview?

Henry:
Hey, man, good morning. Happy to be here. Man, what an incredible story. I think we all love to hear a rags to riches story, because it shows us all what we’re capable of, what’s possible. And what I love about Brent’s story is, man, he went through some lows, didn’t he? And so it’s a wonderful story about how to prepare yourself for what could be the unknown, how to pivot your business if you need to, and then how not to give up but rebuild in a smarter way and leveraging all of the skills. Because all Brett did was leverage the skills that he had built prior to everything falling apart. He just leveraged them in a different way to rebuild himself bigger and better than ever.

David:
Yeah, that’s exactly right. And if you’re following what’s going on in the economy, then you should recognize it’s very likely, I don’t know we’ll see it to the scale of what we saw in ’08 through 2010, but it’s very likely we’re going to see similar things happening to what happened to Brent. So, you better start preparing yourself now for what to do when they happen and how to play those cards, because there’s a lot of people that could be going through very similar circumstances to what today’s guest went through himself. Also, you want to make sure you listen all the way to the end in this one, because you will get to see what a marriage between Henry and I would look like in an alternative universe. Today’s quick tip is brought to you by Henry Washington.

Henry:
Yes, today’s quick tip is to remember to stay grounded. We talk about in this episode, epiphany points, epiphany moments. And you may have already had your epiphany moment when you’re listening to this. It may be why you’re listening to this. Difficult times happen, challenges will happen, but if you can remember back to that moment when you knew you had to make a change, or you knew you were at your lowest and you can see that you’re not there anymore and you may not be where you want to be, but you’re not where you were when you had that epiphany moment, it will help you realize that things are better than you think they are, and you’re moving in the right direction. So, make sure you write down those epiphany moments. Make sure you reference them often.

David:
Great point, Henry. Thank you for that. Let’s bring in Brent. Today’s guest on the podcast is Brent Daniels. Brent is a wholesaler who runs a wholesaling business. He’s been grossing over a million dollars for the last six years, has hacked cold calling, and is here to tell you how you can too. And as a fun fact, he was a Hall of Fame football player at his college, and I thought he was a professional wrestler. Brent, welcome to the show.

Brent:
Well, I am excited. Listen, this is the greatest business of all time, this is the greatest real estate podcast of all time, so I think we’re going to have a lot of fun. I love you, David. I love Henry. I’m honored to be here and excited to share my story and hopefully give some tactics for people that are listening.

David:
Yeah, I appreciate you saying that. One of my favorite parts about your story that I’ve heard so far is the rags to riches element of it. I mean, you went from the lowest of low’s. No offense, it just sounds like horrible, horrible situation, and just fought your way out of that thing to be at a point where so many people are trying to get to right now. And I love these stories, because when you get from a point you don’t want to be to a point you do, breadcrumbs get left, and then other people can follow that path.
And as more people make it out of the bottom and get to the top, it makes the path that much more clear for everyone who’s coming behind. So, we’re going to do our best to try to identify those breadcrumbs today so our listeners can follow your journey. Before we get into it, is there anything specific about how you had it and you lost it and you got it back that you would say sort of highlights what your journey has been like? Any lesson or element or motto that you took or was formed during those times?

Brent:
Yeah, I remember I was driving and my son was maybe 16 months old, this is 2013, and he was crying. He had his fifth ear infection, and those are just horrible, horrible. And so I was trying to listen to the Audible of Dale Carnegie, the guy that wrote Think and Grow Rich. He had another book called How to Stop Worrying and Start Living. And I’m listening to this book, I’ve got a crying baby, and I’m like I’ve reflected a lot, I’ve done a lot of self-work. So, I need to go out and do something. I need to go out and find some way to turn this whole thing around.
And I think it was that moment right there that was like, “Okay, I need to just go out and I need to go into the streets. I need to find property owners that have these older rundown beat up houses and I need to talk to them.” And that’s what changed everything for me. And up until that point, it was just a disaster. I mean I screwed up everything that I could financially and emotionally I think. It’s this walnut size thing in my brain that I go back to whenever I think I’m really cool, or I’ve made a bunch, or I try to get over my skis a little bit, I go back to that day listening to that Audible book and be like, “What? Oh my gosh, life is so much better now.”

Henry:
That’s funny, man, because for me their epiphany moments. I had a very similar epiphany moment in my life. Mine unfortunately was a panic attack, but it’s a panic attack that changed my life. And I always look back at that as this kind of place marker in my life where everything started to turn around. And so I love that you share that. You said this was about 2013?

Brent:
Yeah.

Henry:
And you had never done a deal then?

Brent:
No, I had been in real estate since 2004, so I had read Rich Dad Poor Dad in 2003, and I was like, that was it, right? I mean I feel like there’s two paths there. You read it and you’re like, “Oh, real estate’s going to be my life.” Or you read it and you’re like, “I don’t care about this.” I really think that. And so I got a real estate license. There wasn’t YouTube, there wasn’t podcasts, there wasn’t BiggerPockets, there wasn’t anything out there to really give me direction. So, I didn’t know the vocabulary, I didn’t know what was going on. All I knew was that I had to learn about real estate and there was real estate school, so I’ll just go to that and get a license. So, I did that and it was great. It was great. It was 2004, you know what I mean?
The market was going bananas. Everything was exciting. I was learning how to help people buy and sell, and I have a lot of family here in Phoenix. And so they wanted to move and take advantage of their appreciation. So, when you’re 22, 23 years old and you make $100,000 hundred, you’re like, “I’m the greatest real estate entrepreneur of all time. The good times are going to go on forever. This is going to be incredible.” And I started the natural progression, that is I wanted to open up a brokerage that would be an investment/real estate brokerage. And I was told, “Well, you could buy properties and these loans, I mean, you don’t even have to put much down. And they start at 1% or 2%, and they stay there that way for a while. And when they adjust,” and I had no idea what adjustable rate mortgages were, “when they adjust, you just sell the properties and life’s good.”
And that’s what I did. And in 2007/’08, I bought five properties in 2009, 10. Lost them all. Had a really nice Mercedes, had a really nice Range Rover. Those got repoed. Nothing is crazier than seeing some burly dude with flashing yellow lights, pull your car that you put all your pride and ego into, from your driveway and just leave. So, that was really rough. That was tough, but the tougher part was right before it changed in January of 2008, I signed an office lease for 10 years with a personal guarantee for 9,000 square feet for this brokerage that I was building. And October of 2008, economic world melted, no deals would sell traditionally on the market, short sales still couldn’t be negotiated. And in Phoenix, we dropped 67% in value.

Henry:
Wow, man. That’s intense, because it sounds like what you did was you learned about real estate, decided this was going to be your life, you went all in, you had some success, and then you built this team. A brokerage is a big deal. It’s not something small. Talk to us a little bit about what that brokerage looked like. How many people did you have? What did you put in to build that?

Brent:
Yeah, we had 80 people and I had four other partners. We had office staff and we had everything. And when income is not coming in and you’ve got huge expenses, it goes down fast. And everybody looked to me and the other owners as leaders, and we’re scrambling. We’re 29 years old, we’re 28 years old, I don’t know what’s going on. I’ve never gone through anything like this. So, that was the hardest thing. That was the hardest thing, Henry, was looking people in the eye and telling them, “We can’t keep you around anymore,” and having to let everybody go. And that’s really influenced my business principles to this day. Big time.

Henry:
I mean that’s a big, for lack of a better term, that’s a big gut punch, right? Not just to your personal, seeing your cars get taken out of your driveway, but we talked a little bit about this a week ago. What was it like or what the most painful part? You had to let how many people go? And then what was the turning point in that downturn that made you go, “Okay, this isn’t the end for me?”

Brent:
Yeah, that took a long time. There was a big hangover after that experience, but we had five staff members full-time and we had 70 agents at the time that all had to scatter to other brokerages or get out of the business. And that office lease that I signed as a personal guarantee, the interesting thing is, in case anybody didn’t know this, but if you don’t pay that, they sue you. So, here I am, I’ve never been near a lawsuit before and the attorneys coming and saying, “You owe $742,000 to this property owner.” And I was like, “There’s nothing I can do.”
And then my business partners left, went to California, took the books, so I couldn’t file taxes on time, so I couldn’t do a bankruptcy. So, this thing dragged out and it was like a weight on my shoulders. And one, it was hugely embarrassing because you build up a reputation in the real estate business. It’s not a huge community. And so that all went down and losing all the investment properties and having nothing in the accounts. And then my wife at the time was like, “This is bananas. You’ve got an anchor around your neck. I’m out of here.” So, you throw a divorce in on top of that, and it turned real ugly internally. Really, really, really ugly.

David:
Yeah, that’s something I think we should take a moment to highlight, because that happened to you, but it doesn’t sound like you made any huge mistakes. It wasn’t like you made an obvious bad decision. You didn’t get into drugs, you didn’t go buy completely stupid things. I mean you did what most people do when they’re making decent money. It’s very easy, very easy to do this, and it’s easy for this to happen to anybody. That’s the first point I just want to highlight for everybody listening. The second is that’s why pivoting is so important. You’ve got to be okay building it, losing it, and building it again, because you don’t know what’s going to happen in the environment around you. You don’t know what the government’s going to do. You don’t know what macroeconomic policies are going to do. We don’t know if we’re going to be going to war.
These things happened quick. No one knew that COVID was coming. Nobody knew when September 11th was going to hit. Something could happen the day that this podcast drops. We don’t know. It’s this ability to be able to look at the information and adapt that makes you successful, versus just give me a blueprint, tell me what to do. I just want to take four steps and I want to build up some money. So, as you’re in this situation where things are very ugly internally as well as your personal life, I mean to now have your partner leaving you at your lowest, I can’t only imagine what that’s like.
You already feel like crap. Your self-esteem is taking a hit. You turn to the person who’s supposed to be in the trenches with you and there’s nothing there. They’re like, “Peace. I’m looking for greener pastures somewhere else.” It’s just you. What kind of thoughts were going through your mind? When you would wake up in the day, what was your day like?

Brent:
I was paralyzed, I’ll be honest with you. It’s not like I was like, “Oh, you know what? I read this book and I met this person and everything just turned around and I got back on the saddle and I was riding.” It was like five years of just figuring out how to get by. A good friend of mine, Dustin Monger, who’s an incredible real estate investor, he let me stay. He had a rental property that he was in, and it was just him and his dog. So, he let me stay in his room there. It wasn’t a couch. It’s not that couch story that seems so popular. But I moved all my stuff out of my 4,000 square foot house and I was left with just a few boxes and my bed and I moved in there.
And I was able to get an opportunity with a Remax brokerage that was selling all the REOs, the bank owned properties, and the market went way down in Phoenix and these properties were like 40,000, 50,000. And I was the guy that was answering the sign calls. So, people would call up just on the streets, “Hey, I want to see this house.” And so all day, every day I’d have to drive around town in this beat up old Lexus that my dad gave me a 2000 ES 300 Lexus that was like sand colored, you know what I mean? That had just had terrible hail damage. And I’m riding around in this thing and showing properties and making maybe like 500 bucks, 1,000 bucks after splits trying to do that.
And then as soon as I’d get my head above water a little bit, I’d get a call from the guy’s attorney and they’d be like, “Okay, we’re going to do a financial review. Come in and give us whatever excess that you have.” And it felt like I was going nowhere. And then that’s where it led up to 2013 where I’m listening to How to Stop Worrying and Start Living. I still have it on my Audible. I mean I haven’t listened to it since then. And I decided, you know what, I’m going to just go out and I’m going to knock doors. I’m going to just go out. I know there’s areas, I know this pocket here of properties there’s a lot of fixing and flippers that love this area. It’s still really popular.
So, I’m going to just go see if I can find some opportunities and hope that if I bring it to an investor, they’ll give me a 3% commission. And that’s what I started doing. And that’s how I found my first deal was I knocked on a house and Margie answered. She didn’t want to sell her house, but Carol, the gal down the street, she was a caretaker for it, it was a vacant property and they lived in New York and it was filled with stuff and they didn’t know what they wanted to do. And she gave me an name. She goes, “Let me call her and get the permission for you to call her.” And I said, “Okay.”
She gave me a name, address and phone number. I put that deal together and earned the commission on that. And I realized at that moment, if you give me a name, address and phone number of somebody that owns an ugly house or is in an ugly situation, I can get myself out of this thing. I could do anything. I could really build a successful business. This business and wholesaling and having conversations with property owners that don’t have their properties on the market changed my life. I mean absolutely changed my life. Now we’ve done almost $10 million in income from that, a lot of which I’ve kept because I didn’t build a huge team. Again, I kept it really small.

David:
You went the jet ski model there, but a powerful jet ski it sounds like. So, once you got exposed to wholesaling and you saw what the profit margins look like and how you could do this without all of the baggage that comes from running a traditional brokerage, what were your next steps for picking up steam and building momentum in that business?

Brent:
So, I realized that door knocking in Phoenix was great for my tan and for my waistline, but I was melting out there. It was really hot. Door knocking in August in Arizona is brutal. And I was like, “I need to find air conditioning. I need to be able to get the phone numbers.” And the brokerage that I had joined after Remax had skip tracing. They had this account called LexusNexus. And so we could just put in addresses and they’d give us the phone numbers and then we’d just call them up.
And so I would just drive around town and find the ugliest properties and write down their address. I would just write them down on a pad of paper and a pen, and I’d go back and I’d pull their phone number and I’d just call them and fumble and stumble in the beginning and then kind of figured out a good script that was effective to make people not too afraid to talk to a stranger. And then that’s what really led to the success, because it didn’t cost me anything.

Henry:
No, man, I think that’s phenomenal, because I literally have this same conversation with people about all of real estate is that what you learned is that this isn’t a real estate business, it is a people business. It wasn’t that you were going out and you were finding houses, you were going out and you were finding situations that were attached to houses and then figuring out how to solve those problems. But what’s super cool is that you didn’t have this formal training, you didn’t have some grand plan laid out. You just went and knocked on doors and talked to people. And that seems extremely intimidating for a lot of people for a lot of reasons.
So, what gave you the confidence to just go knock on a door and have those conversations? And then talk to us a little bit about some of the myths that you’ve discovered about knocking on a door and having a conversation about this and how you overcome? Because you said you developed the script, but I’m sure you developed that script because you knocked on a lot of doors and talked to a lot of people. So, what did that process look like of you going from knocking on a door and fumbling a conversation, to developing a script and understanding how to have these conversations with people?

Brent:
Yeah, I love it. They say rock bottom is incredible because it’s a strong foundation. I mean it truly is. What I learned is there’s only a certain amount of distressed property owners in a market. And I talked to Steve Trang about this, and I’ve looked at some of the census and it says 6% to 10% of the real estate market is in distress at all times. So, I didn’t focus on the 94%, I focused on the 6% that were either in distress because of the condition of the property, emotional or financial distress. Those are the three kind of buckets. And so in the beginning, I just looked for ugly houses, just basic, just not even thinking, just looked for ugly houses and eventually they have to sell to somebody. They’re just not financeable for the most part because they’re just in rough condition.
So, they need to take a cash as is offer. And so what I learned first was really laser focus on properties that are in distress. That was number one, because you can waste a lot of time trying to convince somebody that has a beautiful house to sell their property at a discount. It is a waste of time. You’re never going to convince anybody to do anything, and you’re going to go through a lot of heartache having conversations that don’t really go anywhere because people should sell them retail. So, that’s not what I’m talking about. So, you have to filter that down.
The second thing that I found out was in a distressed situation, they’re on Hell Island, and they want to get to Heaven Island, and there’s certain bridges to cross to be able to get there. And I had to go through all those bridges and break down those bridges before it came to my offer. “So, why don’t you list this property?” “Well, I hate realtors and I’m embarrassed and my dogs will bite them and things will happen, and I don’t want to list my property.” “Right. Okay, well, why don’t you rent it out?” “Well, I don’t like tenants.” “Why don’t you fix it up yourself?” “I don’t have money.” “Why doesn’t the family use this as a family rental?” “Well, all the family hates each other and we don’t want to do it.”
So, you go through all these different bridges that would cross them over to getting rid of this distress, until you get to that cash as is offer that we offer as a wholesale offer.

Henry:
I love that. Because what you’re doing, essentially, when you’re having those types of conversations, it’s not just that you’re showing them that your option is a good option for them, but you’re building trust along the way. Because every option you’re showing them actually involves somebody other than you making money in that transaction. Would you say that part of your ability to be able to build trust with the sellers in distress situations had anything to do with the fact that you may have gone through some distress situations back when you had the repossessions and a lot of the issues you were having?

Brent:
100%. And listen, if there’s a better option for them, I want them to go with that better option, because they’re going to do it anyway, right? I mean somebody’s going to talk to them, they’re going to talk to a friend or an attorney or an agent or somebody that’s going to give them a better option to make more. You know what I mean? So, yes, it is, because I went through that and I understand and can have empathy from a real life, real experience, but there’s no trickery in this business. You know what I mean? It has to be the best option for them, or they’re going to cancel the deal, or they’re just not going to sign the deed to transfer title to somebody. So, when I look at it, and what I discovered is there’s three things. There’s speed, convenience, and price.
And the sellers only get to pick two of them. So, if they want speed and convenience, then they have to come down on that price because that’s how you do it. That’s how do inspections and don’t do appraisals and buy it as is and there’s not any repairs. So, when we’re talking to people, talking to these property owners, we go, “Okay, listen, do you want to trade potential equity in this property for speed and convenience? If not, go list the property. Go list it. Go rent it out again, go do whatever else you want.” And it shocks people, that people go, “No, nobody would ever do that.”
It happens every single second of every minute of every hour of every day in the real estate business, is somebody is trading potential equity for speed and convenience.

David:
That is a brilliant strategy when talking to the seller. And I know a lot of people would be afraid to bring it up because their thoughts would be, “Well, I don’t want to tempt them with the idea that they could take this to a real estate agent, because then they’re going to.” The reality is they know that that’s an option. There’s this unspoken battle going on when there’s a negotiation, there’s always unspoken things. Now what the person with the property is thinking is, “I want all three. I want speed, I want convenience, and I want price.”
And they’re trying to navigate this relationship with you or whoever the person is they’re negotiating with, into getting all three things and they’re naive. It’s not going to happen. You understand, well, there’s three things here, and this rule of three, whatever that is, it comes up all the time. It’s like that with contractors. It’s like that with lenders. Is this something that you learned from someone else or is this something that just thousands of repetitions of these conversations led you to realizing this is the way to get to the conclusion?

Brent:
First of all, I learned that from Todd Toback and Tom Krol, and they’re fantastic. I mean when they told me that, it totally made sense. So, it’s not original at all, but from a scaffolding of any conversation with a property owner, if anybody’s nervous because they haven’t talked to a lot of them and they just don’t feel like they know the right questions to ask, it really comes down to pre-qualifying based on the four pillars, which is what’s the condition of the property? What’s their timeline to sell this property? What’s the motivation? And what price do they want? So, the more that I can ask questions around those four things and pull those out of this property owner, the more qualified lead I have. And the more qualified lead I have, the more that I can focus on these people that actually have potential of doing business with me.
And if they don’t have potential of doing business with me, I get rid of them. I move on with my life. But because you talk to so many people out there when you’re being proactive, you get all of these unbelievable people that filter through, and those are the deals that you actually do. So, I think a lot of people just hold on to leads too much because they’re like, “Oh, it’s a lead. I love this lead. I’m going to coddle it and I’m going to keep it here, and I’m not going to push them too hard and I’m going to be really nice and I’m going to bring them sweets and I’m going to stop by and I’m not going to pre-qualify them too much. When they’re ready, they’ll tell me their price and we’ll make a deal. And that never happens.
You need to have the conversation of what is the condition, timeline, motivation, price, and the timeline is the most important thing in that, because if they’ve made the decision that they’re going to sell that property, that’s who you really get in front of. That’s who you really dig in and find out what their situation is and how you can help solve whatever problem that they have. And then that keeps you really focused on the hottest leads that you have in your business. And that’s how you get the consistency to close these deals and get really big deals.

Henry:
Awesome. So, it sounds like you discovered wholesaling when you did a deal. You realized that finding distress, talking to people, is helping you find these deals. You found the people who were going to take the deals off of your hands, generate the income. And so like any good business at this point, it then becomes a question of scale, repeatability. How do I find a way to repeat this? And then really kind of get back to where you were prior to ’08, which is building a business and a team around it. So, you’ve absolutely done that. So talk to us about that transition. What does your business look like today? How did you go from where you were at this point and scale to where you are? And then talk to us a little bit about some of these numbers. What is it that this business is producing for you and how is it different from your business in ’08?

Brent:
I love it. So, once I did that first deal, I’m going to dedicate my professional life to this, honestly, and so from nine to noon every single day, I would just call homeowners. Nine to noon every single day and try to have as many conversations as possible and find as many opportunities as possible. And then that led to doing a bunch of deals, which actually I was able to have a healthy bank account. Actually, BiggerPockets was a huge part of this, because there was a BiggerPockets meetup group at Dave & Buster’s at Tempe Marketplace that I went to. And I invited everybody to come to a Super Saturday, because I was tired of people just kind of being around and just getting theory and staying in an education mode. I was like, “Guys, I want to invite everybody to my office to make calls with me on Saturday morning and we’ll just have a great time.”
And that led to me hiring my first acquisition manager, Billy Bell, because he was doing a part-time and he came in and his third call, he got a $12,000 deal. And I was like, “Okay, this is going to be…” And by the way, that is not common. It takes a while. That’s just a timing thing there. But he was able to get it, and so I started building my business. The best return on investment that I had was making calls and hiring really great callers to make calls when I could afford really great callers. And then that really sped up the process of growing the business. And 1.7 million was the highest that we’ve done, and that was with four people.
And that was with a operator, a lead manager, Jackie, she’s phenomenal. Two acquisition managers, Ryan and Chad. They’re absolute savages. And Jeremy, who is my disposition manager. And now I work two hours in the business a week.

Henry:
So, I’m trying to zoom out here in my mental brain and get the timeline. So, prior to ’08, rockstar, doing it big, brokerage, 80 people. ’08, down to nothing, right? Downhill. Five years passed. 2013, you’re in the car listening to self-help books, boom, epiphany, talk to people. You go start talking to people, you do your first deal 2013. Where is it from 2013 to where you’re hiring these first couple employees. What year is that where you’re having your meetings?

Brent:
Yeah, 2016 was the big year.

Henry:
So, you just did deals on your own for three years, knocking it out of the park and then said, “All right, time to scale this thing.”

David:
So, if you were to give us a rundown of how many properties you have, how much they’re making in a year, what your net worth has grown to, what would you say?

Brent:
So, I have a different strategy rate. I buy my properties cash because I foreclosed on them. So, I’ve got two rental properties, and this is not going to sound amazing, but I’ve got two rental properties. I’ve got a amazing office commercial space here in Phoenix. I’ve got a cabin in the woods in Flagstaff, I’ve got my house. I invested 260,000 into ATM machines, which is a really interesting tax saving strategy. Not like I’m going out putting ATM machines. It’s a fund. You guys had an interviewed Andrew Abernathy who builds Class A storage. I’m an investor in that. Invelo is a partner with BiggerPockets, an incredible technology that I’m an investor in that. And I’ve got my coaching and training businesses and all that. Not to make it a pitch, but I’m at like $8 million in net worth at this point.

David:
I don’t think there’s anything wrong with that at all. It makes perfect sense to me, because you experience the bitter taste of owning a bunch of rental properties, watching how quickly that gets turned upside down and sinks, and recognizing, “I love real estate. I don’t necessarily love the exposure and the mortgages and this side.” And you just decided for you, it’s kind of like food poisoning. You don’t just stop eating food, but you stop eating that food. You don’t want to get involved in that.
You don’t want to eat oysters anymore after you have some bad oysters. So, you’re like, “I’m just going to get into chicken and into steak. And so now you’re investing in other people’s companies, you’re letting them take on the headache of that. You’re taking all the knowledge that you’ve accumulated and your business sense and your love of real estate, and you’re just making money through it. And then not to mention, how well is your wholesaling business doing?

Brent:
Well, that’s it. I mean, guys, I work two to three hours in the business, and that’s mostly on team meetings on Friday. And I get 40 to 60,000 depending on the month and the season and the year passively essentially. And so I think it’s just a different way to look at this industry and a different way to understand that you could build a real business that goes out there and solves the problems of distressed property owners and brings investment into some of these areas and streets. Henry had a conversation the other day about the feel good about solving somebody’s problem. The other feel good is the six S’s that are increased with property taxes when you bring investors onto a street or into a community, right? You’re talking streets and safety and sanitation, schools, services and spaces. It’s wildly rewarding. It is wildly rewarding.

David:
The problem as I see it, is there’s too many people that are operating off of a blueprint that was sold 10 years ago. “Buy four duplexes and retire and live on the beach and have your best life because you worked hard for a year and a half.” And they’re trying to squeeze that round peg into the square hole of what we have right now, and they’re getting frustrated. And it spills over into the comments where they’re pissed off or discouragement or it turns into shame. Like, “That person could do it, but I couldn’t do it. I’m just not good enough.” And there’s this host of negative emotions that’s associated with a strategy that worked when no one knew about real estate. There wasn’t a lot of podcasts, there weren’t books being written. If you didn’t know the old man in town that owned all the deals, that’s was going to show you the way, you just thought real estate investing was impossible.
When everyone in the world thought that every loan was 20% down, those strategies worked. The cat’s out of the bag, it is complicated now. And I’m constantly telling people it doesn’t have to be work a job you hate or buy enough properties to have passive income to retire. There is a spectrum of options in the middle. And Brent, you have highlighted very clearly how you can combine a little bit of business, a little bit of talking, a little bit of a service-based approach, a little bit of commitment and a little bit of real estate together. I just love that you’re giving an example of how you can make it work for you. Henry, you have anything you want to say about that?

Henry:
Absolutely, man. I think that there are a million ways to make a million dollars and even more so within real estate. And what I love that you’ve highlighted, Brent, is that it’s not just about making the money, but it’s about how you protect yourself. And so I appreciate that you’re sharing a story that may not be as traditional in the real estate space, but as far as business and learning and being proactive with how you build a business, I think that you’ve given us some phenomenal information.

Brent:
Thank you. Can I say something controversial? I think you should you have a license to buy rental properties, and to get that license, you have to talk to 1,000 property owners. One, you’ll be able to find unbelievable deals, unbelievable deals, no doubt about it. But two, you’re going to understand what strategy is going to work for you. How are you going to be able to look at all of the different situations that these people have gone through because you’ve had conversations with them, and know what to avoid in your specific marketplace. And I think if you do that, it’s going to save you a ton of the, “I had it all and lost at all,” stories. You know what I mean? Because if it can be avoided, I really hope that it is. But I think that you should talk to 1,00 people before you buy a rental property. And I think that you should consider wholesaling a property before you do a fix and flip, for sure.

David:
All right. That’s fantastic. We’re going to move on to the next segment of our show, and this is a unique segment. We’re going to call this, Don’t Let the Deal Die. In this segment, Brent and I are going to role play. I am going to be a seller here, and Brent is going to try to talk with me to get this deal across the line. In this example, I’m going to be someone who wants to move out of state and I have to sell my primary residence, and it’s going to be Brent’s job to figure out my motivation and my pain point and keep this deal alive. So, I guess, Brent, we could just start it off with you doing the typical ring ring. Yep.

Brent:
Ring ring.

David:
Hello.

Brent:
Hi, I’m looking for David.

David:
This is David Cass, who’s calling?

Brent:
Yeah. Hi David. My name is Brent Daniels. I know that this is completely random, but I was actually calling about a property that I believe you own on 1212 Banana Street.

David:
Oh yeah. How did you know that I own that?

Brent:
Yeah, I’m looking to buy a property in that area, so I just put it on the internet and it came back with your name and number, and sometimes I get lucky and I’m able to talk to you.

David:
Oh, that’s interesting.

Brent:
Have you thought about selling that property?

David:
I don’t know how you heard, but I actually have been thinking about selling, as a matter of fact. It’s so crazy that you called.

Brent:
That’s amazing. And just to let you know, the way that we purchase properties is we buy them completely cash. It’s as is, so you don’t have to put another dime into the property. There’s no real estate agents, any costs there. We pay the title and escrow fees. So, it’s just a clean net offer to you. So, for an offer like that, did you have a price in mind?

David:
Well, I’ve been looking on Zillow and I’ve been kind of thinking about talking to a real estate agent also. I don’t want to give it away, but at the same time, I need to get it sold. I want to leave. This property’s been kind of hanging over my head. You know Banana Street, it’s kind of hit or miss. I’m not really sure. What do you think it’s worth?

Brent:
The condition plays a huge role, and I want to make sure that I can give you as much for your property as possible. So, can you tell me, have you done any remodeling to your kitchen and bathrooms in the last five years?

David:
Well, I have a pretty extensive sense of taste. I’ve got a large collection of roosters that I keep throughout the kitchen. Some are on the fridge, some are on the countertops. I’m not sure if I’m going to include those in the sale yet. It kind of depends on if I want to carry them with me or not. And then also my fridge has been decorated with different magnets I’ve accumulated throughout the years. But I mean, other than that, if I’m just being honest with you, Brent, you seem like an honest guy. It hasn’t been remodeled since we bought it, but it’s got to got that classic feel to it.

Brent:
Sure. And I’m looking at this, it looks like it was built in 1974. It’s about 1,500 square feet, is that right?

David:
Yeah, that’s right. My wife and I frequently talked about making some additions. We were going to add on to it. We never actually did that. So, it’s in its original state.

Brent:
Any issues mechanically? Everything’s working fine. Any issues that I would need to know? Plumbing, electrical, roof, furnace?

Henry:
David, tell him about the air conditioner. You never let me put the air conditioner below 60.

David:
Shh, Henry. Give me a minute. We’re talking business over here.

Brent:
Well, hello, Mrs. David, how are you?

Henry:
Oh, I’m fine. I’m just listening in.

Brent:
Well, that’s great. I’m glad that I have both you guys on the line. I’m going to give you the best cash offer that I can for your property, because I really want to invest in your neighborhood. Typically, we can close these deals, just to give you an idea of timeline, we can close these deals in two weeks to 30 days. Do you think that that’ll be enough for you guys to be able to pack everything up and move?

David:
Wow, two weeks to 30? That sounds really fast. I mean we were expecting it to take about 90 days or so on the market. And what I think that we had wanted to go look at houses out of state, but we were going to sell this one first. What do you think, Brent? Do you think it’s better to sell your house first, or do you think it’s better to start looking for the next one?

Brent:
It’s always great to have a plan on where you’re going to go next so that you’re really comfortable with the decision that you make and the timing in which you make that decision. So, I think that’s a great idea. If you were to sell this, where are you going to move to next?

David:
Well, we’re in Phoenix right now, but it gets really hot in the summertime, and as you heard, I don’t like my wife touching the thermostat. It’s causing some problems in our marriage. We’re fighting about it all the time. The grandkids come over and they’re sweating inside the house. I think it’s good for them because it builds character, but my wife won’t get off my back about it. We really need to move somewhere where air conditioning’s not needed. So, we’re thinking about Fargo probably. We think our money’s going to go a little bit further there is kind of what we had in mind. Did you want to just write us an offer and we’ll kind of talk about it and see what we think?

Brent:
You can buy a mansion in Fargo. That’s going to be really exciting. I mean it’s a big change, but that’s really, really, really exciting. Yeah, I absolutely can put together an offer. I just need to know where you guys are at in price?

David:
Well, Zillow has it at about 350,000. So, we were thinking about listing it at maybe like 345. We’ve heard that the market’s turning around. I heard some talk about interest rates being up, so we don’t want to be greedy, but I was kind of thinking about listing in at 345 and then seeing where it goes. But if you make me an offer, I might take a little bit less.

Brent:
Sure. That’s fantastic. I’m on my computer right now. I’m looking at properties in your area in similar condition that are similar size, and they’re actually going for around 220,000. Is that something that you would consider?

David:
Oh, I don’t think I realized that. That’s a little bit to stomach here. Let’s see. Well, the stuff in Fargo’s only about 150,000, so I suppose that’s not really the end of the world. Well, what are you going to want me to do to the house? Or you don’t want us to upgrade it? Do you need me to fix that jiggly handle in the toilet that we told you about?

Brent:
That’s the best part, David. We take it completely as is. I’ve got my crews ready. They’re going to come in and they’re going to make that house look absolutely incredible and just update it. I’m sure it already looks incredible, but just update it and put it up to 2023 standards. But if we can be around 220,000, that would be a net offer in your pocket. There’s nothing coming out of that. So, I’m not going to come back to you and hit you with a bunch of inspection items.

Henry:
David, we could have 220,000 in two weeks?

David:
Well, hang on a second, hun. Well, let me ask you, Brent, are you pre-approved? Because I’ve been told to only deal with pre-approved serious buyers.

Brent:
And that is really smart advice. But listen, you don’t need pre-approval when you’re buying it cash. This is cash in the bank ready to give it to you. I’m ready to give it to you as soon as you guys are ready to make the decision to when you want to close, when you want to get your money. So, I think it sounds to me that you’ve got some plan to move. You got to find a new place, you’ve got to pack up your stuff. Why don’t we set this for 30 days? We can close in 30 days at a price of 220,000 and then you guys can just be off to Fargo and enjoying that beautiful brisk weather.

David:
We were actually thinking about taking a trip out there pretty soon. Is there any chance that you might be able to close in 21 days, so if we find another property we like, we can use your money to buy it?

Brent:
Absolutely. Absolutely. I’ll tell you what, I am going to be in your neighborhood this afternoon at three o’clock. Why don’t I come by and I can go over the agreement, make sure that you guys are comfortable with every part of the process, and we can move forward and we can open up escrow and get this as done as smooth as possible.

David:
Okay. Wait one second, Brent. Hun, can you make sure that you get the Lysol out and clean down the chickens and the roosters that are on the fridge? We’re going to have company.

Henry:
Not my chickens.

David:
Yeah, just get them in them glistening. We want to make a good impression here. All right, Brett, I do think that that can work. If you could be here at three, we’ll be happy to meet you.

Brent:
Excellent. And so when I come out, is there anything that would prevent you guys from moving forward when I come out? If everything, the price and the terms, and you guys like working with me, if everything is in line there, is there anything stopping you guys from moving forward today?

David:
Well, we don’t want to make any repairs. This is something we just want to be done with.

Brent:
As is.

David:
We want to move on. Yeah. So, if we don’t have to do anything and you can put $220,000 in our bank account in 21 days, I think this makes sense for us and it’s probably a blessing.

Brent:
Fantastic. I am so excited to meet you, Mr. And Mrs. David. This is going to be great. I’ll see you at three o’clock.

David:
Okay. Thanks for calling.

Brent:
All right. See you.

Henry:
Awesome, Brent, that was so much fun. Thank you so much. And you know what? He’s so good at this. I don’t think people realized a lot of the intention behind the tone you had and the questions that you asked. One that stuck out to me as a really big deal is the question you asked at the end. Is there anything stopping you from getting this deal done essentially at the end? That’s something I have not done a good job of doing. And as soon as you said it, I was like, “Oh, that’s a great idea.” Right? So, I love that you were speaking with the end in mind.
Essentially you were saying, “I am coming to get this deal signed. If there’s anything that’s going to stop this thing from getting it signed, let me know what that is now so that I can try to remove that roadblock up front.” Man, I thought that was a phenomenal, phenomenal question. What other intentional questions do you ask? And obviously you changed the words up for the situation, but it seemed like there were some very intentional questions you were asking.

Brent:
Well, first of all, thank you, David. Obviously on most role plays, people go really, really, really brutal. And it’s like in real life, if somebody’s going real brutal, I just move on. Somebody’s not going to do business with you, you move on. So, that was really cool that we could unfold this. But there’s seven parts to the perfect call. The first four we talked about already is condition, timeline, motivation, price. So, that’s what I was asking about. What was the condition? What remodeling have you done to your kitchen and the bathrooms, anything mechanical? And I do that as number one, because people are comfortable talking about their property before their situation or their emotions. And what typically happens, and it happened in this conversation, is once you get the condition and the timeline, they usually, if you do it right, they give you the motivation.
“We want to move, we don’t want to do anything. Fixing up things is a big issue for us. We don’t want to do that.” And then on the price, what I do is I look around and I don’t give you the offer of 220,000. What I said was, “It looks like your neighbors in similar condition, in similar size, are selling for 220,000.” And that’s like the anchor. That’s saying, well, that’s what other people are selling it for is that’s something that they would consider. And at that point they’re like, “No, I would never sell for that. I need at least this price.” And then you could go on to different conversations there. So, we did the condition, timeline, motivation, price. It’s the first four. The next three to really be great on the phone is confirm and approve everything. Oh, roosters fantastic. Oh, magnets, yes.
Oh, you want that price? Great. Fantastic. Don’t cause friction in the conversation by telling them they’re wrong. The other one is to actively listen. And it was kind of tough to do here, because we’re on screen, but it’s like, “Uh-huh. Yeah, sure. Oh, great. That’s great. Uh-huh.” Don’t just be silent when you ask a question because it sounds like an interrogation instead of a conversation. And then the last one is whenever they ask a question, answer the question and then ask a question. Just don’t do that old 80 sales tactic where they’re like, “Well, how much will you give me?”
“Well, how much do you want?” You know what I mean? Don’t just answer a question with a question. That’s old school and people are really annoyed with that. So, answer the question, ask a question. So, that’s really the seven steps, is the four prequel, confirm and approve, active listening, and answer question and ask a question.

Henry:
Another thing that you did well that I think is something to be highlighted is when I chimed in as the wife, you immediately stopped and acknowledged that the wife was there. A lot of the times people just want to talk to the decision maker. They just want to talk to whoever answered the phone. They don’t acknowledge somebody else, but you taking the time to show the respect, to acknowledge the seller’s wife and say, “Hey, I hear you, and I also want to consider your thoughts, opinions, and feelings,” which is essentially what we are doing by doing that, also helps you build that trust. And that trust helps you get deals done.

David:
That’s a very good point. Many times as a real estate agent, I’ve sold one party in the marriage that I’ve been talking to and thought I had a deal, and then the other one wasn’t acknowledged or didn’t get their objections handled or didn’t feel like they were included, and they get in the ear of their spouse and they blow it up. And I’ve learned that lesson that you always have to figure out who are the other decision makers there. And I think Brent, you were getting at that when you’re like, “Let me come to the house and meet both of you.” Build rapport with both of you so I don’t end up with one person who’s an undercover saboteur. That does happen in these deals a lot of the time.

Brent:
And you get advanced agreements before you go on the appointment so you can pull… I would rather know what I’m up against before I go out there, than getting surprised. If they’ve already confirmed that they want this and they don’t want to make repairs and they want to move quick, then that’s the perfect match, and you go and you get that deal.

David:
All right. Well, Brent, thank you very much. That was fun. Thanks for showing us what it looks like in action as well as sharing the story. It’s a fantastic story. I loved hearing it. For people that want to find out more about you, where can they go?

Brent:
My YouTube channel is just Brent Daniels. You can definitely check that out. We put a lot of time and attention and love into that. And wholesalinginc.com. Wholesalinginc.com. We have a ton of downloads and incredible things that you can get there. And those are the two best ways.

David:
Awesome. How about you, Henry?

Henry:
Yeah, as always, man, best place to reach me is Instagram. I’m @TheHenryWashington on Instagram.

David:
There you go. I’m on Instagram as well, and everywhere else on social media @DavidGreen24. You can find me on YouTube as well at youtube.com/@DavidGreen24. Brent, thanks again for being here. This is fantastic. I highly encourage everybody to go learn more about sales, real estate, business and psychology by following Brent. Brent, we’ll have to have you on again in the future. Thanks again, man.

Brent:
It’s an honor. Thank you guys.

David:
This is David Green for Henry my boo Washington, signing off.

The Supreme Court in a unanimous decision Wednesday ruled that a California woman could not use U.S. bankruptcy code protection to avoid paying a $200,000 debt that resulted from fraud by her partner.

The court said that the woman, Kate Bartenwerfer, owed the debt even if she did not know about her husband David’s misrepresentations regarding the condition of a house when they sold it to San Francisco real estate developer Kieran Buckley for more than $2 million.

Buckley had sued the couple and won a judgment for those misrepresentations.

The 9-0 decision written by Justice Amy Coney Barrett resolves a difference of opinion between several federal circuit appeals courts on the question of whether an innocent party can shield themselves from debt for another person’s fraud after filing for bankruptcy.

The ruling cited and reinforces a Supreme Court decision in 1885, which found that two partners in a New York wool company were liable for the debt due to the fraudulent claims of a third partner even though they were not themselves “guilty of wrong.”

Barrett dismissed Bartenwerfer’s grammar-focused argument, which claimed that the relevant section of the bankruptcy code, written in the passive voice as “money obtained by fraud,” refers to “money obtained by the individual debtor’s fraud.”

“Innocent people are sometimes held liable for fraud they did not personally commit, and, if they declare bankruptcy, [the bankruptcy code] bars discharge of that debt,” Barrett wrote. “So it is for Bartenwerfer, and we are sensitive to the hardship she faces.”

The debt to Buckley, which was originally a court judgment of $200,000 imposed in 2012, since has grown to more than $1.1 million as a result of interest, according to Janet Brayer, the San Francisco attorney who represented Buckley in a lawsuit over the house sale.

Brayer said that debt is growing at a current rate of 10% annually and that it excludes attorney fees to which she is entitled to under California law.

“We have been working on this since 2008, and now finally have been vindicated and justice served for all victims of fraud, Brayer said. “Hence, I am a happy girl today.” 

Iain MacDonald, a lawyer for Bartenwerfer, did not have an immediate comment on the ruling, saying he planned to discuss the decision with her.

Justice Sonia Sotomayor, in a concurring opinion joined by Justice Ketanji Brown Jackson, noted that the ruling involves people who acted together in a partnership, not “a situation involving fraud by a person bearing no agency or partnership relationship to the debtor.”

“With that understanding, I join the Court’s opinion,” Sotomayor wrote.

The ruling on Bartenwerfer’s case came 18 years after the events that triggered the dispute.

Bartenwerfer, and her then-boyfriend David Bartenwerfer, jointly bought a house in San Francisco in 2005 and planned to remodel it and sell it for a profit, the ruling noted.

While David hired an architect, engineer, and general contractor, monitored their progress and paid for the work, “Kate, on the other hand, was largely uninvolved,” Barrett wrote.

The house was eventually bought by Buckley after the Bartenwerfers “attested that they had disclosed all material facts relating to the property,” Barrett noted.

But Buckley learned that the house had “a leaky roof, defective windows, a missing fire escape, and
permit problems.”

He then sued the couple, claiming he had overpaid for the home based on their misrepresentations of the property.

A jury ruled in his favor, awarding him $200,000 from the Bartenwerfers.

The couple was unable to pay the award or other creditors and filed for protection under Chapter 7 of the bankruptcy code, which normally allows people to void all of their debts.

But “not all debts are dischargeable,” Barrett wrote in her ruling.

“The Code makes several exceptions to the general rule, including the one at issue in this case: Section 523(a)(2)(A) bars the discharge of ‘any debt … for money … to the extent obtained by … false pretenses, a false representation, or actual fraud,'” Barrett wrote.

Buckley challenged the couple’s move to void their debt to him on that ground.

A U.S. Bankruptcy Court judge ruled in his favor, saying “that neither David nor Kate Bartenwerfer could discharge their debt to Buckley,” the opinion by Barrett noted.

“Based on testimony from the parties, real-estate agents, and contractors, the court found that David had knowingly concealed the house’s defects from Buckley,” Barrett wrote.

“And the court imputed David’s fraudulent intent to Kate because the two had formed a legal partnership to execute the renovation and resale project,” she added.

The couple appealed the ruling.

The U.S. Bankruptcy Appellate Panel for the 9th Circuit Court of Appeals found that David still owed the debt to Buckley given his fraudulent intent.

But the same panel disagreed that Kate owed the debt.

“As the panel saw it [a section of the bankruptcy code] barred her from discharging the debt only if she knew or had reason to know of David’s fraud,” Barrett wrote.

Bartenwerfer later asked the Supreme Court to hear her appeal of that ruling.

In her opinion, Barrett noted that the text of the bankruptcy code explicitly bars Chapter 7 from being used by a debtor to discharge a debt if that obligation was the result of “false pretenses, a false representation, or actual fraud.”

Barrett wrote, “By its terms, this text precludes Kate Bartenwerfer from discharging her liability for the state-court judgment.”

The justice noted that Kate Bartenwerfer disputed that, even as she admitted, “that, as a grammatical matter, the passive-voice statute does not specify a fraudulent actor.”

“But in her view, the statute is most naturally read to bar the discharge of debts for money obtained by the debtor’s fraud,” Barrett wrote.

“We disagree: Passive voice pulls the actor off the stage,” Barrett wrote.

The justice wrote that Congress, in writing the relevant section of the bankruptcy code, “framed it to ‘focu[s] on an event that occurs without respect to a specific actor, and therefore without respect to any actor’s intent or culpability.’ “

How to build wealth among people of color and to do so in a way that’s accessible to a critical mass of people? That’s the question four friends who all met through business school connections started discussing in earnest after the 2020 murder of George Floyd and the spotlight on racial inequities it fostered.

Their answer: boost business ownership by people of color, but with a twist. Instead of helping founders start something from scratch, they decided they’d focus on entrepreneurship through acquisition (ETA)—that is, buying an existing business. “It’s a much lower-risk path to entrepreneurship,” says Havell Rodrigues, cofounder and CEO of New Majority Capital, the Providence, RI, company they formed to boost ETA. “You have cash flow from day one.”

That plan rests, in part, on the predicted silver tsunami of businesses coming on the market. That’s because millions of firms owned by baby boomers will be for sale or bequeathed over the next two decades. “This is a unique opportunity for under-represented entrepreneurs to acquire businesses and start on a path of building generational wealth,” says Allegra Stennett, cofounder. In Rhode Island alone, according to cofounder Darryl Lindie, there are about 20,000 small businesses with employees and 80% lack a succession plan.

Foundation

New Majority has two parts. First there’s New Majority Capital Foundation, which runs two programs. One, called Succession Ready, helps existing business owners thinking of retiring, over a period of five weeks, to get their companies ready for succession. Launched last fall in Providence, it covers everything from alternatives to selling to how to increase a firm’s valuation.

The other, which will launch next week, is bETA, an eight-week accelerator aimed at teaching entrepreneurs of color what they need to know to buy and expand an existing business. (It’s in -person for the first and last few days and virtual the rest of the time, a particularly important consideration for participants who hold a full-time job). That includes doing due diligence, hiring and operations, among other topics. It also covers looking for business brokers. At the end, they get a certification from Babson College, which is delivering the curriculum. It’s launching in Rhode Island, but the team plans to expand nationally this year.

New Majority held an introductory workshop in January for about 100 BIPOC individuals, to provide a glimpse of what ETA involves. About 35 or so of those people will comprise the first cohort.

The Fund

Graduates will form a pipeline for New Majority’s $50 million fund. It will provide up to 100% of financing for making an acquisition, with the ability to help finance around 50 acquisitions alongside banks and other investors. Three are three structures: One is for people able to make a down payment, the other two are for those who can’t do that. (All include 10% seller financing). Those who have the resources for a 2.5% down payment can access a 7a SBA loan, plus a 7.5% equity stake from New Majority and seller financing. Otherwise, they can split debt and equity, plus seller financing. Or New Majority takes a 90% equity stake with seller financing.

The equity, says Kris Schumacher, cofounder, “is designed to be as non-extractive as possible.” That means returns are typically limited, with a structure that allows entrepreneurs to have full ownership in five to seven years.

There’s also a crowdfunding campaign allowing non-accredited investors to invest in the company.

First Plans

The partners first considered the idea of creating a venture studio. It would come up with startup ideas and back founders who could get those businesses up and running. But, they realized, that approach had some glaring problems. First, was the high failure rate for new businesses in the U.S. The other was the likelihood that, because only a few of the ideas would probably succeed, they’d end up focusing their efforts on just a few companies, thereby limiting the number of entrepreneurs able to benefit and start generating generational wealth. “Having just a few people succeed is not going to move the needle,” says Stennett.

Better, they decided, was to offer a soup-to-nuts solution. “We needed a model through which all portfolio companies would have equal support so we could all succeed,” says Rodrigues.

Ultimately, it’s a plan that, the cofounders feel, will work for everyone. “Small businesses are a great driver of wealth creation and a great value proposition for all parties involved,” says Lindie.

Ashley:
This is Real Estate Rookie episode 263.

Tony:
The more offers you put out, the easier it is going to become for you to find a deal that makes sense. If I only submit two or three offers a week, most likely, most of those offers are going to be rejected. If I submit 200 offers a week, I’m probably going to get at least two or three deals that actually make sense. Yeah, I think that’s a fantastic thing.

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

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we give you the inspiration, motivation, and stories you need to hear to kick chart your investing journey. Today I want to shout out someone by the username of Jay Biddle One. This person says, fun, educational and motivational. Ashley and Tony bring fun and motivational dynamic to the world of real estate investing. I enjoy their personal stories, especially when they don’t go as planned. They continuously show you how you need to work through issues that pop up and not give up. Keep up the great work. Jay Biddle, we appreciate you and if you haven’t yet left us an honest reading review on Apple Podcast or Spotify, whatever platform it is you’re listening to, please do us a huge favor and do that. The more reviews we get, the more folks we can help. I honestly love being able to start the episodes by reading some of these awesome five star reviews. Ashley Kehr, what’s up? How you doing today?

Ashley:
Pretty good. It’s just a gloomy, chilly day in Buffalo, New York, but it’s playoffs for the Bills. By the time this airs, we will know what has happened. Yeah, it’s exciting time in Buffalo. Everything that happened with Damar Hamlin and just the Bills Mafia is just amazing support. I was talking to someone the other day about how tragedy brings people together and I think that brought the NFL together, all the different teams, but Bills Mafia, they’ve already been so united and such a great community that it didn’t really need to bring everyone together because everybody was so… I think just having something like that happen really puts into check how short life can be and scary can be. Also, reinforces your why. As to why we’re all doing this. Why you guys are listening to this podcast right now? What you want to happen in the time that you have left. Not to start out the podcast in a downward spiral here, I just thought it was important to mention and not to… Maybe you have a reason that you want to stay motivated. I think that can touch on that.

Tony:
I think it’s a great thing to bring up, Ashley. Yeah, maybe it sounds a little morbid or whatnot, but it is the truth, right” We all never know what could happen tomorrow. More likely than not most of us will see tomorrow, but there’re called accidents for a reason and there’s something that you can never plan for. You have to ask yourself, “Are you waking up every day living a life that is fulfilling? Are you living every day in pursuit of the life that you really want? Are you waking up every day happy?” And so many people don’t. The average person is overweight, unhappy, and underpaid. I feel grateful because hopefully by listening to the Real Estate Rookie Podcast, we are giving people the stories and the resources and the tools they need to start taking steps towards that life that they actually want. I think it’s a great way to start today’s episode actually.

Ashley:
Just to touch on the real life of that stuff is like, “Yeah, there’s the real estate investors, you can really make the life that you want.” There’s also those days like last night where I’m chugging an energy drink and up till 1:00 AM because I won’t be able to sleep unless I finish something. There’s those stressors that are still in your day, it’s almost like an adrenaline rush, I guess, in a sense. Not to say that me and Tony have these perfect real estate, “Oh, we’re traveling. Tony’s in Texas right now, lies.” There’s definitely those days where it’s chaotic, but I love that every day is different.

Tony:
I feel like we’re almost always in sync when we pull these late all-nighters, because I was literally up until two o’clock last night because I was at this conference all day. I still had work to do after I got back from the mixer. I didn’t get back into my hotel room until almost eleven o’clock and I still had work to do. They’re definitely those long days. If I look a little tired during today’s episode, it’s because I only got four hours of sleep last night.

Ashley:
Before you even mentioned that, people were already commenting, “What’s your skin’s care routine, Tony? You’re just glowing.”

Tony:
I was on stage at Rob’s event and we were doing Q&A on stage, and Rob was the one reading off all the questions and it was like, “How do I found find my market? How do I deal with this guest issue?” Rob pulled out one question and it was, “What is your skincare routine?” That question is following me everywhere. I’m happy to officially announce actually on the podcast that I’m now launching a $100,000 mastermind on my skincare routine. If you want to join, there’s a link coming soon.

Ashley:
You do actually need to start a skincare routine.

Tony:
I don’t even have one.

Ashley:
Or you need to do my skincare routine. Do a T-shirt and I’m at the back. It’s like, “Buy a short-term rental property. Cash flow, this makes you glow.” That’s like secret.

Tony:
Something like that. Whatever.

Ashley:
At today’s episode, we have brought our mentees back that you guys are getting to know. We have Brandon, Lawrence and Melanie, and they’re going to share the progress that they made. The questions that they have. Each also gives some advice you guys, that you guys can learn from them as they’re going along this journey.

Tony:
Yeah. I think one common thing we saw from all three of them was a little bit of fear and hesitancy. You’ll get to hear how Ash and I encouraged all three of them to push through that and what they should be doing on the other side. I’m excited because one of them made some really tremendous progress actually. We have probably one of the biggest updates of this whole mentee experience. I’m excited for you guys to see who that is and what steps they’ve been taking.

Ashley:
Make sure you guys reach out and congratulate them after you take a listen because it’s pretty awesome, huge accomplishment. Melanie, welcome back to the show. We are so excited to have you again. Do you want to fill us in and what you’ve been doing the last couple of weeks?

Melanie:
Yeah, thanks Ashley. So good to see you guys. It’s been a good week. I was able to submit an offer this last week, which was absolutely my most important next step. I think that was great momentum for me. I’m still very excited about finding a property, but unfortunately this particular offer was not accepted. Happy to break that down a little bit and talk about the purchase price depending on how far we want to go into it. It started with a little bit of a lowball offer as advised here to be more aggressive and not be so worried and then they countered. We did not accept the counter, but instead wrote back asking for seller financing and then they proceeded with another offer.

Ashley:
Melanie, what market did you end up making this offer in?

Melanie:
This was in Savannah, Georgia, where I’ve been focusing most of my energy. And this was in particular in unincorporated Chatham County, which is outside of the city, still very close to downtown, but just has much fewer restrictions on short-term rentals.

Ashley:
This was the first offer you put in Savannah?

Melanie:
Yeah.

Ashley:
Okay. Yeah, if you want to go through and talk about the deal a little bit.

Melanie:
Sure. This particular property had been sitting about 50 days. It was listed at 250, which was nice and low. It had just been recently updated and had a great interior, just really nice upgrades for photos at least. Of course, I never saw the property and we ended up offering 200 and asking for 5K seller concessions. It was pretty aggressive. My agent was also saying that this was aggressive and I knew that going in, but when I had run the numbers, I was just being really, really cautious and conservative. I was going to put down 10%, about 20K. With current interest rates, just going through traditional financing, I was looking at about 1600 a month for a mortgage and then factoring in property management because I’d be out of state and landscaping. I was looking at about 2100 a month in payments.
Then I started going through what various percentages of occupancy for the month would look like at the average daily rate in that area. I’ve been saying this for a couple of weeks now. In looking at a lot of listings in the area, just clicking through and looking at available listings, so many of them have less than five bookings, which has just worried me a lot. I’ve been talking to a property manager locally and asking him what his average occupancy is and he quotes about 60 to 70%. Even still, I ran the projection at 50, 60 and 70%. At 50% I’d be looking about 100 a month in take-home, 60% occupancy is around 500 a month. At 70%, I’m looking about 1,000 take-home at the end of the month, which is great, but that forces me to be closer to 70%, which I’m just not sure if that’s realistic or viable going into 2023.
When they countered at 235, I considered it 70% occupancy, slightly less income is still, I think, a stretch for what to expect in 2023 as a new Airbnb. I don’t know, I’m open to feedback there. In short, I ended up writing back to see if they could come down on the or at least work with us for seller financing so that interest rate would be lower and make all those numbers look nicer. Again, they didn’t move forward with seller financing.

Ashley:
Did they say just flat out no to seller financing or it was just no to that offer?

Melanie:
It was just no to seller financing. My agent said that he sees that pretty often a lot or most agency he speaks with are as familiar with seller financing. From his experience he sees that most of the time. They just don’t move forward with it at all, advising their clients against it because it’s unfamiliar to them. We decided for all future offers, unquestionably if it’s a seller financed offer, we’re going to add a one pager to the offer just speaking to the benefits of seller financing, which is something that I learned from someone at the BP conference, which I wish I had tried on this particular offer instead of hindsight 2020, of course.

Tony:
Yeah. One follow-up question for me, Melanie. When you’re doing your analysis of potential occupancy, I know you said that you’re looking at the Airbnb calendars, which is obviously a great free resource. Have you utilized any of the pay tools to do some of that analysis?

Melanie:
I had in the past looked at STR insights and I’ve used data.rabbu, which is a free tool. I haven’t paid for AirDNA for example. The reason being, I spoke to this property manager in the area and he recommended that we talk about each individual property, particularly because he said that Airbnb data can be really helpful, but it can also be really off the mark just based on which neighborhood you wind up in. He’s been in the area for eight years and said that for the most part he’s pretty familiar with the streets that do really well. In some sense I’ve just been leaning on my team as a resource instead of data.

Tony:
Getting that local boots on the ground is obviously super impactful. This is the PM that you’ve been speaking with, a short-term rental property manager?

Melanie:
Yeah.

Tony:
Yeah, I would also go out and get some data though to help you make a more informed decision. AirDNA, a fantastic… PriceLabs, another fantastic tool. What I do when I’m comping properties, and I actually just did this for one of my students yesterday, is I go into, and you can go into either platform, but I typically go into PriceLabs and I will download, for example, what’s the bedroom count on that property that you’re looking at?

Melanie:
Three bedrooms.

Tony:
I would look at all the three bedrooms in the city in Savannah, Georgia. I would export all those listings and I would take off the ones that have really bad reviews. If anything less like a 4.6, I’m not going to look at those. I would take off the ones that aren’t active all 365 nights out of the year. If it’s only active half the year, they’re not really running it like a true Airbnb, maybe it’s just a hobby for them. I just start peering that list down. What happens is I go from 400 for three bedrooms in that market down to like 1500, and then I literally click through all 150 of those listings. I open them up and I say, “How does this listing compare to my listing?” If it’s a good comp, I’ll keep it. If it’s a bad comp, I’ll delete it.
That 150 ends up becoming 25 to 30 comparable listings. When you export that data from a paid site like Airbnb or Price Labs, you get to see things like what was this listing’s occupancy over the last 365 days? What was this listing’s average price over the last 365 days? What was this listing’s revenue over the last 365 days? That’s data that you can use to help you make a more informed decision around what do I think this property will do in 2023? Now, 2021 data, I would probably discount that a little bit because 2021 was such a banner year for short-term rentals. 2022 data was a little bit more realistic in terms of what we can probably expect for 2023 moving forward. If you want to discount it a little bit to uncertainty, whatever it is, you can do that. Those are the steps that I would take, Melanie, to really drill down on your numbers and give yourself a little bit more confidence in the analysis.

Melanie:
That’s super helpful, Tony. I appreciate that. I definitely see the value in the data-driven approach. I think two things that are giving me pause, and I keep bringing this up. I think it’s just the cautiousness in me, is that I think it’s hard to account for two variables that aren’t present potentially in the past, which is increased competition and then just the current state of the economy. I know that you can’t measure everything. At some point you’re taking the leap, but those two things, I just am worried about. Maybe that’s just me needing to be a little bit more risk averse and a little bit less cautious because I know I do want to buy, but I want to have some sort of tool to measure for those and to anticipate that.

Tony:
Let me ask you a couple questions, Melanie. First. Those are both super realistic concerns to have about investing right now, is saturation or competition and where is the economy headed? Say you close in this property today, do you plan to sell this property in six months or less? Do you plan to sell it in 12 months or less?

Melanie:
Yeah, I know.

Tony:
Eighteen months or less? How long do you plan to hold this property?

Melanie:
As long as I can. At least, I would say five years, eight years plus.

Tony:
Let’s say that the economy goes into a deep recession today. Do you have recent to believe that that recession will last for five years?

Melanie:
No. You had provided some great information about how long they typically last, in general. I think sometimes I can go to worst-case scenario. I do value just taking a step back and getting some perspective. There’s also a side of me that’s just… I just want to have certainty about making… This is my first short-term rental. I just want to be really sure that I’m taking a leap into a high performing one. I think I will probably look back on that and laugh because the perfectionist in me wants is first one to just be perfectly cash flowing. I’ve heard so many stories about that you really do have to learn and the first one is a learning opportunity and sometimes it’s great and sometimes it’s not. It’s good perspective, so thank you.

Ashley:
I think that’s a really good point right there that a lot of people get hung up on, and even myself included as you want that first deal to be perfect because you want to maximize your profit. You want to maximize your cash flow because you are putting what you have into this property, your first property. It’s your baby. It’s your leap. It’s your jumpstart into real estate investing and you just want to maximize it. One way I see a lot of people get hung up is, “Okay, I have $20,000. Should I put it into one property? Should I get a two mortgages and use it as down payment? Should I put it into somebody else’s deal and be a private moneylender?” They’re just trying to maximize what’s the best use of their capital or the resources that they have available.
For you, it seems like it’s just getting the best purchase you can get. Getting that best purchase price and it’s going to maximize that daily rate and you’re going to have this wonderful cash flow. Think about what are the worst-case scenarios when you run these? When I like to run numbers, I’m looking at how if it is a short-term rental, currently what do the numbers look like right now as is? Then what is the best-case scenario like, “What do you think the numbers could be on the property?” Then what is worst case scenario? At worst-case scenario, are you breaking even on the property where you’re not having to put any of your own money into the property at all? Is it, maybe, you’re putting in a $100 a month into the property, worst-case scenario that it might not actually happen, but would you be able to afford that worst-case scenario and you’re still having that equity pay down that mortgage pay down in the property and building up that equity so that one day when you do sell or, maybe, daily rates change again and we get into another high period of traveling in those daily rates go up or some event happens that then you can increase that cash flow again.
Then what are your exit strategies on the property? I think trying to not focus so much on how do I get the best return because just getting into that first property, even if you break even… My first property, the cash flow was so minimal. I forgot to include snowplowing, okay. I live in Buffalo, New York, and I completely forgot to include the cost of that. That didn’t put me negative, but it still hurt my projections and wasn’t as great as I thought it was going to be. Then it was just an older home, there was repairs. We went through an eviction after a couple of years of having it and just all these little things happened, but I learned so much and once I bought that property, I bought the next property within three months because it just propelled me.
I think that’s the most important thing. If you talk to a lot of investors, I always think of J.Scott. He bought this property with his wife and it was a disaster. They were going to flip it and they had to turn it into a long-term rental. When they actually sold it. I think he made a $1,000 maybe profit so many years later. He’s, “I don’t regret it.” He’s like, “That got me started. I learned a lot of lessons.” Things like that. Just try and keep those things in mind.

Melanie:
Yeah. Thanks, Ashley. The maximizing profit is something I have definitely been focusing on. I have a long-term rental in Denver. I think, especially after just spending a lot of time listening to different investors and different, I guess, podcasts, I think there was a lot of me that thought that I really didn’t maximize my profit. I definitely did my best on that property and I really was very cautious about that one as well. I wish I had done more to maximize what I put into that one. This one feels like, “Okay, I really, really want to be maximizing it.” I really hear you and when you say you’re thinking from the long term, both the learnings and the opportunity to come, that’s probably the best place to focus because the tourism industry is going to shift and bookings are going to increase. It does have an exit strategy for long-term rental. This area is growing, the population is growing. I definitely think there is potential, and maybe it’s just more about trusting myself. It’s just the risk factor.

Ashley:
To clarify, it’s not even your first property. Obviously, this isn’t your first property, but your first investment in a certain strategy because the analysis is so different that if you went and you purchased another long-term rental, you may not have that over analysis on it because you have experience with the one you know what to do. This time you’re more confident because you already did purchase in that property and there’s that opportunity to maximize the profit a little more because of that experience. Yeah, I think taking into the short-term rental, now you’re looking at daily rates. You’re looking at different ways to pull that data from than you would the long-term rental.

Melanie:
Yeah, absolutely.

Tony:
Melanie, as we wrap things up here, I just want to clarify. We talked a little bit, but based on our conversation right now, what do you feel are the most important next steps for you as we move into our next conversation?

Melanie:
I definitely need to take a little bit more of a step back from the fear and worry and just trying to maximize that potential, as Ashley saying, consider other factors, the future, the long-term viability. And from you, Tony, also be pulling in true data from PriceLabs or AirDNA and use that as more of my analysis instead of taking these superconservative approaches. From this conversation, that’s absolutely what I want to take out of it. I also have an interest in maybe seeking out some consumable mortgages in the background, just to take some of the worry about the high interest rate out. That is my plan for next week. I really want to continue making offers. I still like making those aggressive offers. Hoping to stick with that momentum.

Tony:
Yeah. How many offers do you think you can realistically submit, Melanie, between today and the next time we chat?

Melanie:
I think four is reasonable.

Tony:
How about 10?

Melanie:
10? Okay. I like it.

Tony:
Here’s why. It doesn’t matter what it’s listed at. You submit the offer based on what your numbers tell you. I think I shared this with you last time we chatted, I had an offer out on a property at 312. Property was listed at four. They came back at 350. I said, “No.” They came back at 320, I think it was. I said, “No.” They came back at 315. I said, “No.” We’re under contract right now at 312.

Melanie:
Wow.

Tony:
You have the ability to submit the offer at whatever makes sense to you. Ten, I think is super reasonable because there’s probably 10 properties that are listed. Those properties might not just be at the price point, but you submit those offers to the number that makes the most sense for you.

Melanie:
Thanks, Tony. I am going to take that on. Hopefully, I’ll be reporting about 10 offers next time.

Tony:
There you go. I love it.

Ashley:
Thanks so much for coming on with us today and sharing your journey in the past couple of weeks with everyone. We really appreciate it. Let everyone know again where they can reach out to you in case they didn’t listen in the other episodes.

Melanie:
Yeah, last time I said, “Please reach out to me on LinkedIn.” Maybe the less glamorous place to be, but definitely a place where I’m most responsive. I’m at Melanie [inaudible 00:25:17] and would love to share my journey. I think I present, maybe, a overly cautious perspective, but I hope that it’s helpful for some people. I just really value this time with you, Tony and Ashley. Thank you so much for your insight.

Ashley:
Okay, Melanie. Thank you so much and we’ll see you in a couple of weeks.

Melanie:
Thank you.

Ashley:
Brandon, welcome to the show and we’re just going to jump right into it because you have an exciting update for us and let’s hear it.

Brandon:
Yeah, big morning, under contract in a townhouse over in Delano, Minnesota.

Tony:
Congratulations man. That’s fantastic.

Brandon:
Yeah. Came together pretty quick. That was one that the investor had reached out to me on and he actually broke around this morning mid-size apartment complex that he was looking to roll this one into. Came to me at 275 and we’ve eventually settled on 255 and 6% interest.

Ashley:
Are you doing it as seller financing?

Brandon:
It’s a purchase-money mortgage. I’m not too familiar with the term. It sounded like it was more of a bank he works with a lot, offers him lines of credit that he was able to put my name on.

Tony:
Interesting.

Brandon:
Yeah.

Ashley:
Yeah, that’s super interesting. I hadn’t heard anything of that again. Yeah. Brandon, real quick, just in case anyone is jumping in new here and they haven’t listened to the other episodes. Can you just explain real quick what your goal was coming into these 90 days?

Brandon:
The goal of the first 90 days was to finally get a property, been looking for a while and just needed a nod that I was doing things right, that the numbers I was looking at made sense.

Ashley:
What was your most important next step from last week?

Brandon:
From last time it was starting making offers. Don’t worry about hurting people’s feelings because I was worried about coming in too low and then them just saying no and not even encountering, which did not happen once.

Ashley:
Since we last talked to you? How many offers did you put in?

Brandon:
Five of them. Still not as many as I would like. The first three of them actually had some interest, a couple counters and other things just haven’t lined up quite yet. Waiting to hear on some that I’m waiting for more offers as they still have a couple [inaudible 00:27:35] through as they’re about 30 days on market.

Tony:
What would you say, Brandon, was the big lesson that you learned after submitting all those offers in the last couple of weeks?

Brandon:
That they are emotional about it. I don’t know about it. If their feelings are hurt, their agent just comes back and says yes or no or a new number has been the most consistent response. Usually not too far off the asking price initially, anyways.

Ashley:
What would be your advice to rookies who are in the same situation as you and maybe were stuck as to where you were last week?

Brandon:
Yeah, biggest lesson I learned is making offers did work. They got me more responses and eventually got me a property.

Ashley:
Say that louder and again so everybody can hear that lesson.

Brandon:
Making offers does work even if you’re worried about hurting their feelings and it’s way off the asking price.

Tony:
There you go man. We were just talking with Melanie about this as well. The velocity or the volume of offers, the more offers you put out, the easier it is going to become for you to find a deal that makes sense. If I only submit two or three offers a week, most likely most of those offers are going to be rejected. If I submit 200 offers a week, I’m probably going to get at least two or three deals that actually make sense. Yeah, I think that’s a fantastic thing. Brandon, what was the shift in mindset? You touched on a little bit about not getting emotional. What was that shift in mindset you had to make to be able to increase the number of offers as you made?

Brandon:
Biggest shift was just looking at numbers, not looking at pictures of the house in between the analysis on it or the area or what it would be like to own three of them when I don’t own any of them at this point. Just getting analytical about it.

Ashley:
Walk us through what’s next for you? This morning you went and did the walkthrough of the property. What’s the plan going forward?

Brandon:
As of right now, closing sitting on February 1, as there is a tenant in that property already until May 24. That’s next up on that property. Walk through it and there’s a couple of things that could be done, but biggest things looked fine. Windows, furnace and air is older, but it did sit vacant when it was built for about two years. Those things weren’t running as much. Hopefully, a few more years out of those.

Tony:
Is that from your own walkthrough or is that from the property inspection report? Some of these things you’re calling out.

Brandon:
Those are my own walkthrough.

Tony:
Got it. Have you had an inspection done on the property yet?

Brandon:
No. That was something that we had debated on, but with the history of it and being a townhouse, it’s liability on the bigger stuff is a bit more protected just through the FHA stuff instead of having to worry about replacing the roof, sidings and windows and stuff like that. The structural things weren’t as big a concern. It was more looking under sinks for wet spots. How old’s the furnace, the air. What shape are the plumbing fixtures in.

Tony:
Brandon, are you thinking about potentially moving forward without doing the inspection?

Brandon:
Yes, as of right now, that was the plan.

Tony:
Got it. Ash, what are your thoughts on that? Do you typically buy with no inspections?

Ashley:
Yeah, I’m had an inspection in a long time just because I’m usually buying such dumpy, dilapidated properties anyways that I don’t know what difference an inspection is going to make. This old place, it’s going to be gutted. I’m curious as to why did the seller say that that was something they wanted? They didn’t want the inspection, or did you feel pressured that your offer would be better if you didn’t move forward with having an inspector there or just that you have the knowledge?

Brandon:
It was the train of thought, was that if something does come off with the furnace, isn’t any good. That’s not a big deal for me. The water heater’s older, that’s not a big hurdle. That’s materials in a few hours since I’d be able to tackle that.

Ashley:
Since you’re naming off these things, I actually got a text when this podcast recorded that I have to put in a water softener for a property that’s going to be $4,500. Maybe after this episode I can pick your brain on something like that because I was just like, “Oh, here we go, another expense on a property.” Yeah, sorry, go ahead. I just had to mention that because that is such a great resource that you have that you know a lot about the mechanics of a property and you can go in yourself, engage, and I think that’s important to mention that. Maybe somebody thinks they have no experience or no knowledge or way to contribute to a deal, especially if they’re looking to partner to someone. You being able to assess some of these situations, I think, is a great advantage.

Tony:
Yeah, I think I actually would suggest, although Brandon, that you do move forward with the property inspection and here are two reasons why. First, I think that the property inspector, if you find a good one, this is someone who’s highly trained in identifying deficiencies within side of properties. Even though you do have a background in the trades, they do this all day, every day. Their ability to maybe pick up on things that someone like me, Ashley, or yourself might miss is there, right? I think they can work as a really solid set of second eyes for you. Second, if something major does come up in that property inspection report, you now have leverage to go back to that seller and say, “Look, Mr. And Mrs. Seller, here is an unbiased third party that identify this potentially major issue that you and I need to come to an agreement on how we resolve.”
It’s good that it’s coming from the inspector and not just from you, because if you walk it and you point out, “Hey Mr or Mrs. Seller, here’s this issue.” The seller could say, “Well, you’re biased. Of course, you’re going to point those things out because you’re buying this property from me.” The property inspector, they’re like an appraiser. They get paid regardless of whether or not you’re actually closing that property. They have no skin in the game in terms of whether or not you actually move forward with it. Their only job is to report the facts. I do think, especially with you being new in the game, that there probably would be some value in you doing that. Hopefully, it comes back and it’s all clear on things that you feel aren’t a big deal, but it would be a really bad situation or a regrettable situation if you uncovered some major issue after the fact.

Ashley:
Yeah, Brandon, did you get a quote at all as to how much it would cost to have an inspector come to look at the property?

Brandon:
Not for that size unit specifically, but I heard about 380 to about 450, pretty consistently.

Tony:
You’re buying the house for a few hundred thousand bucks, investing another 400 up front to make sure that everything under the hood is working well might be worthwhile. I think that would be my only bit of advice for you.

Brandon:
I do have another question in regards to paperwork stuff.

Ashley:
Yeah.

Brandon:
I’ve been asked this morning if I’d prefer a attorney’s opinion on the title or if I want the full title insurance coverage. Title insurance is about $1,200 and the attorney’s opinion is about 400.

Ashley:
I would do the title insurance because you don’t want to run into the situation where you go to sell the property and somebody who’s purchasing it requires title insurance. Maybe they’re doing some type of financing or they have an investor that wants title insurance. If there is that gap in insurance policy, then a new title company may not come and cover that property and you’ll have to wait a period of time for claims to be made or whatever before they will actually put a policy onto the property again. That would be my opinion on that is I would go ahead and get that title insurance on the property for sure.

Tony:
Totally agree.

Brandon:
Yeah, title insurance would be what I was thinking. I didn’t know if it would be slightly different for townhouses, since it’s a group of 20-30 people that would… If it was land disputes or something like that, would also be fighting that.

Ashley:
Yeah no, just for the fact of an exit strategy for you, I would go with the title insurance so that you have more options of to how people can purchase the property from you.

Brandon:
Okay.

Ashley:
Brandon, have you started to gather a list of things you’ll have to do during the acquisition of the property? Just switch the utilities and things like that? I do have an acquisition checklist that I use if you want me to send it to you. It’s just little reminders like, “Get insurance on the property. Switch your electric. Make sure the property taxes are now in your name.” Things like that, if you’d find that useful.

Brandon:
Yeah, I definitely would. I actually did get started on property insurance this morning because there’s an insurance agent who also owns an investment property in that section of townhouses. He actually reached out to me already.

Ashley:
Oh, awesome. That makes it easy for you.

Brandon:
That was a good reminder. It was something I hadn’t really thought of until this point.

Ashley:
To be honest, and I think I’ve probably said this a couple of times on the podcast, it’s probably maybe my fourth or fifth property, my real estate agent called me the day before closing was like, “You got insurance. You got the utility search?” I was like, “Oh my gosh, no, I didn’t get insurance. I got to do that right now.” That’s definitely the benefit of having a great agent where they can do it for you that day. That’s why I have the checklist is just so every single time it’s the same things over and over again. Tony, I’m sure with you, there’s a lot of things that are repeated and especially with the short-term rentals having to furnish, everything like that.

Tony:
Totally. Just a quick side note. Amazon has the ability, if you have… Maybe, it’s with a personal account, but if you have an Amazon business account to create reorder lists. Literally all of our household essentials, we just have a reorder list. We have one for the kitchen. We have one for the bathrooms. We have one for the bedrooms. Whenever we launch a new property, instead of having to go through and look for all these items, we click three buttons and we’re able to reorder everything for an entire house. Then we have a larger property launch checklist. You guys can actually download that for free if you go to the realestaterobinsons.com/checklist, I think it is. It’s like a bunch of steps that we go through to get our property up and running in a repeatable way.

Ashley:
Brandon, is there anything you’re doing right now to document and keep track of some things that are happening during this process for you that maybe you want to keep track of going forward?

Brandon:
Yeah, right now it’s just on paper, writing down addresses, offers, how many days since I’ve heard from them, keeping track of days on market. Stuff like that. As far as the acquisition checklist, I haven’t done too much about that yet. Other than insurance, which I got around to about this morning. Utilities are in the renter’s name already, and then just have to check everything over with the title company to make sure everything’s good on my end for closing.

Ashley:
One thing with the utilities too, to find out about is sometimes you can put the utilities, you can be listed as the landlord. When that person moves out of the property, the utilities are automatically put back into your name. One benefit of that is around here, a lot of the properties have natural gas. Well, if a tenant moves out and they cancel the gas, to have the gas turned back on, you have to set a day and it’ll be between 8:00 AM and 4:00 PM and you have to be at the property and they’ll come. It’s like a whole wasted day for them to come and turn the gas back on and someone has to be there because they’ll check the stove and stuff like that to make sure that there’s no leaks. You can maybe look into the utilities too and see if there’s that program. Also, it just saves you time so that when people do move out, you’re not having to call and say, “I need to put the utilities back into my name.” Give your information and things like that where it’ll just automatically revert to you as the landlord anytime somebody moves out.

Brandon:
Yeah, that’s a good bit of information. I’ll have to ask about that.

Ashley:
Okay, cool. Well, Brandon, thank you so much for coming on with us this week and sharing your information. We’re super excited for you and can’t wait to see how it goes.

Tony:
Yeah, super pumped for you, man.

Brandon:
Yeah, I’m really excited.

Ashley:
Well, Brandon, thank you so much and we will see you in a couple of weeks.

Brandon:
All right. Looking forward to it.

Ashley:
Lawrence, welcome back to the show. How have you been?

Lawrence:
Thank you so much for having me back. I would probably say the most exciting thing thus far, which I want to congratulate you, Ashley, on your book because I have a copy of the Real Estate Rookie 90 day book and I am so excited to dig into this book, especially chapter nine, which talks about making offers because this episode with me will talk about how I definitely took action to make offers. I’m excited to dig into that book and I think everyone should get a copy of it.

Ashley:
Lawrence, thank you so much. That just made my day. Also, I appreciate all your love across Instagram too today.

Lawrence:
Of course. It takes a village to be a real estate investor.

Tony:
Lawrence, we will send you your check for that promotion after we cut this episode.

Lawrence:
Tony, you just did another joke. We were just talking about that in the last podcast recorded. Tony’s had two jokes for the year now.

Tony:
Now I’m at three.

Ashley:
Lawrence, before we actually get into what you’ve done the last couple of weeks, just remind everyone what your goal is right now, what you’re trying to reach?

Lawrence:
Of course. My major goal is to add a property this year using seller financing, owner financing. Right now I have two rental properties that were used with traditional bank lending. Right now with interest rates being higher, if I’m able to put together an advantageous deal that worked for the seller and myself, I would move forward. My overall goal is to purchase a property using seller financing because I definitely want to utilize that tool and in my real estate investor toolbox.

Ashley:
Fill us in as to what has happened.

Lawrence:
Yeah, of course. Last week my most important next step was to actually put the offer in through seller financing and I submitted an offer. I jumped in and did the offer for 7% because listening to my very first homework from you guys, Pace says that he likes to get properties for no more than 7% down. I was like, “Hey, I’ll just submit the offer and see what happens.” My offer was 7% down payment for the full asking price, 8% interest with a 30-year term, three year hold whatsoever. They countered with a 9% rate and at minimum 10% down. When I ran my numbers in my rental analysis, it was coming to that breakeven. Also, this particular property was redone as a potential flip. Some of the finishes are really more in line for someone to rebuy it.
I have to make sure that I’m not going to have a rental that would be out-priced in the rental market. When they counter with that, I was like, “Hey, is there any way we can revisit it?” He was like, “No, that’s what we want.” The interesting thing was when I first finished my talk with you all, it went pending. I was like, “Ah.” That was my opportunity. It was just pending. Then within maybe 72 hours it came back on the market and that’s when I was like, “That’s my opportunity to submit my offer.” Within 15 minutes the realtor replied and was like, “Hey, we’ll counter with this amount.” Then when I was like, “Oh no, it looks like it really won’t work for me. Is there any way we can revisit it?” He was like, “No, I’m adamant that my seller wants these terms.” Originally, he wanted 20% down, which is a big gap from 20 to 10, and I was offering seven.
Definitely it’s a flip gone bad and they’re trying to recover some funds from it. I get it. Within the last seven days, now the property is on contingent. I don’t know exactly what they’re trying to chase with that property. I definitely did my homework and did that. Moving forward, another thing that we talked about was reaching out to listings that have been on the market for 30 days. I put together a spreadsheet that I can track data where I have one sheet that’s rental properties that are over 30 days on the market. Those I’m going to start to put together on my mailers. I’ve already started to draft them and I’ll be sending those out. Then another sheet on the Excel sheet will be the properties that are for sale that’s over 30 days. Right now, that’s not a long list in my market because it’s such a rural area. That list is less than about seven properties that fit my buy box. Honestly, maybe four to five. My [inaudible 00:45:17] for next time will be to put in those offers for those properties that have been on the market for over 30 days for sale.

Tony:
Yeah, I think for my side, Lawrence, first I just want to congratulate you, even though you didn’t get an accepted offer, you submitted that offer and you got a counter offer back, right. There was some dialogue that was going on between you and that seller. If anything, even though it wasn’t a closed deal, it is proof of concept that there is interest from sellers in your market to potentially explore a seller finance deal. I’m noticing a similar theme between you, Melanie and Brandon, that all of you need to potentially just increase the number of offers you’re putting out so that the conversations you start having start to increase as well. I think don’t let it pass you by, Lawrence, that you did have a bit of success by at least having that conversation around the seller financing.

Lawrence:
A question that I have for you all would be, that was a big numbers difference of them wanting originally 20% down versus me offering 7% and then they’re countering with 10%. Have you all ever encountered that as well? It’s a big numbers difference where essentially they’ll be leaving half on the table, 20% down versus 10% down upfront.

Ashley:
Yeah, I’ve seen people want 50% down and it’s like that defeats the whole purpose of doing seller financing for me. That’s where it comes into play as to what are they going to be doing with the money? Why are they selling? Is it because they need a down payment on a primary residence or something? Or they need to fund their kids’ college? Is this a situation where you could get face-to-face with the seller and talk to them directly?

Lawrence:
Possibly not because a broker does have it. If there’s a will, there’s a way. I may be able to see if I can get in contact with that person because like I said, it truly seems as though it was a flip gone bad in this particular climate of a market that we’re at because it’s a beautiful property. Everything is brand new and like I said, it’s really one of the properties where it will definitely stand out as a rental with more of finishings inside to sell. If I can possibly be able to talk directly with that seller, I feel like I could be able to just do the deal. Again, I don’t want to undercut or burn bridges in such a small town that I’m in with any type of brokers or realtors, but I definitely feel as though we could possibly work something out.

Ashley:
You definitely don’t want to do that and overstep that boundary. I think it’s worth asking if maybe you could have that conversation with the seller and ask that to the broker. I think it’s a lot easier to figure out what their motivation is as to why they want to sell and come to that agreement or have that negotiation in person and just say, “Is there a time that we could sit down together and talk about this? I’d like to see this work.” Then you can figure out do they have a number? I’ve sat down with the seller before who just said, “I need $3,500 a month.” Okay, well let’s slap 25 year amortization on that three and a half percent interest and that gets me to 3,500. Boom. We’re both happy. I think if there is a way that you can find that out, or even just asking the broker as to what is the reason they want such a large down payment? Maybe it’s because they’re scared of doing seller financing and someone not paying.
What are some ways that you could make them more knowledgeable about how this is a benefit to them also and that you are not a risk? Can you give your tax return to them? Can you supply a credit report? Can you give them a sense of security if that is their issue? There’s some way that you can find out why they want that larger down payment. If they need that money for something or if it’s the risk part. I think that may be able to help you tailor your offer to come to an agreement.

Lawrence:
No, that definitely makes sense because like I said, you never know. You really can’t be in the mind of the seller until you actually have conversations and understand. One thing that I would be doing with any of my offers first, seller financing based upon my homework that I learned from Pace was that I would include a performance deed into it. With that performance deed, it pretty much lets them know, “Hey buddy, if I don’t pay, it’s yours. We don’t have to go through this crazy foreclosure process.”

Tony:
Well, it seems like you’re making fantastic progress, Lawrence. Like I said, I know it’s not a deal under contract, but it definitely is a step in the right direction. As we look the next time that we chat, what do you feel are some of the things that you want to focus on to help increase that deal flow?

Lawrence:
Definitely the biggest next step would be to increase those number of offers. That would be a big takeaway to increase the number of offers. Then like I said, I’m going to definitely dig into chapter nine of Ashley’s book about the offers because it’s always good to see stuff on paper. I like to read stuff as well and see those gems that she’s included in that book. I would say the biggest one would be increasing the number of offers and then if I can be able to get directly in touch with sellers, I’ll have a more push for that if possible.

Ashley:
Geez, I hope we put a cap on the affiliate spending I’m doing here on this podcast. No, I’m just kidding. I appreciate it very much.

Lawrence:
You’re welcome. Again, my goal if possible would be to, if I can have a chat with Pace Morby. That would be awesome to be able to run through some things because I know from the videos that I watched with him, he’s like, “You can definitely get a seller to say yes.”

Ashley:
Lawrence, what’s going to be the next step? I think one thing is go back and try to work with the seller more and not give up on this. Are you going to be continuing looking at other deals? Where’s your head at with that?

Lawrence:
Definitely, like I said, I will be sending out those mailers as well. The only thing about mailers is that you never know when they are going to come back and then I don’t want to have to pivot. I would say if I did have to pivot, the only other option would be if I were to purchase another property like owner-occupied, because I have three properties, one primary residence and two rental properties. The only thing about that is my primary has so much equity in it and I’m able to have a equity piggybank, like a HELOC on it. That would be like my final resort if I have to pivot to be able to go and do owner-occupy and put 5% down.

Tony:
Yeah, I think my only last piece of advice, Lawrence, is maybe also look at folks in maybe different situations, because right now you’re looking at people… The listings that have grown stale, things like that. What you need is someone who is in a distressed situation potentially, right? I don’t know if that’s like a divorce or something that’s in probate or some of these other situations where there’s like, “Hey, I just inherited this house.” The houses in where you live, but I live in Buffalo, New York and I don’t want to manage this property from 3,000 miles away. Maybe as you start to think about who you reach out to, maybe start to open up that criteria a little bit and then see if you can find some more folks to chat with.

Lawrence:
Yeah, I definitely know that there’s an opportunity for that because unfortunately we are in a military town and people get divorced and stuff of that nature, or they are not a native of this area and they bought a house, but now they don’t want to turn into a rental. There is some possibilities there that I can definitely probably look in to see if there would be somebody that’s in a distressed situation.

Tony:
It’s just last idea, and this is super crazy, but since you are in a military town… We actually did this for one of our properties in Joshua Tree. There’s a military basin in 29 Palms, which is right near Joshua Tree. We were looking for someone to midterm rent one of our properties while we waited for the permit to come in. We reached out to the base and we said, “Hey, we have a property. Are there any folks at the base that might want to come rent this out?” They literally sent someone out to our properties. They scoped it out. They said, “Hey, here’s how much we can give you for rent.” Obviously, we ended up getting our permit before they placed someone. I wonder if you could go to the base and say, “Hey, is there anyone that’s in charge of people that are leaving this city and they’re maybe getting transferred somewhere else and they need help to sell their property or they need help to do something else?” It might be a little more difficult because they probably bought with VA loans. You’re looking at lower interest rates. Like you said, assumable mortgages, maybe that’s something that you could assume on their behalf. Maybe you reach out to them and there’s something there that you can pull on to get some more insights.

Lawrence:
Yeah no, that’s definitely an opportunity, especially if I’m able to that, easily I can try to see if I can get to as many captains as possible because they normally have soldiers who are in those distressed situations. PCS season is coming up, which is normally when they have a permanent change of their duty station. Other than that, I’m definitely going to keep rocking and rolling. The biggest takeaway that I would give thus far to rookies is that you have to put the offers in. You just have to.

Ashley:
Well, Lawrence, thanks so much for coming on with us this week. Besides that little last piece of advice, can you share something else with us? I feel you’re very much someone that can instantly learn something in a situation and you hold onto that and you’re also very good at sharing what you’re doing.

Lawrence:
I would say, definitely, you always want to make sure that you are adding value to people. I think that’s the biggest takeaway. I have had so many unbelievable and endless opportunities in real estate because of adding value to people. For me, that’s something that has allowed me to buy properties beating out cash buyers or whatsoever. I would say your integrity is very important, and to add value, because we’re all in this together. We have one common goal, and that’s to build a real estate portfolio. None of us can buy every single property in the world.

Ashley:
Tony, this is what I love about our group of mentees is that they’re not only asking questions and they’re grinding and doing amazing things, but they’re also adding value to our listeners. That’s why I love you guys. You guys contribute so much to our listeners too with sharing your journey and also giving the advice and the life lessons that you’re learning along the way. Well, Lawrence, thanks so much for joining us and we’ll see you in a couple of of weeks.

Lawrence:
Awesome. Thanks for having me.

Ashley:
I’m Ashley @wealthfromrentals, and he’s Tony @TonyJRobinson, and we’ll be back on Saturday with a rookie reply.

Speaker 6:
(singing)

Sheryl Palmer, Taylor Morrison Homes CEO, joins ‘Squawk on the Street’ to discuss her thoughts on the state of the housing market.

Mayuresh Patole and Tejas Gawande are on a mission. The founders of Chronicle, which is today announcing a $7.5 million seed funding round, believe the world needs a new way to tell stories. “We are in an epidemic of bad information design,” says Patole. “The tools we currently use to create presentations just make it far too easy to make bad ones.”

The way people approach presentations – from students delivering class projects to huge enterprises publishing critical business information – is rooted in the analogue world, Chronicle argues. “The slide format was created in the 1980s with the advent of the overhead projector,” says Gawande. “Now, 40 years later, the way we work has completely transformed but our presentation tools are still stuck with the same concept.”

Chronicle has therefore developed something different. Its tools help users to create presentations using “blocks” – pre-designed elements that can simply be dropped in and moved around, much like you move the apps on your iPhone screen. The aim is to provide a multitude of new and interesting ways to present information – and to make it easy for users to take advantage of this functionality.

Chronicle-enabled presentations are also far more interactive, enabling consumers to zoom in and out of each area, rather than proceeding through in a completely linear fashion. “We want to enable everyone to create high-quality, inspiring presentations in a new format that is far more engaging and interactive,” says Patole. “Users shouldn’t have to face design challenges they don’t feel equipped for; using our pre-designed blocks they can concentrate on telling their story.”

It’s an aim that will resonate with those familiar with the idea of “death by Powerpoint”; in a world where Microsoft research suggests attention spans may have shrunk by as much as a third over the past two decades, audiences simply no longer have the appetite for lengthy one-dimensional presentations. Some studies suggest 10 minutes of information in its current form is as much as most people can manage to stay focused for.

“I’ve actually got nothing against tools such as Powerpoint,” says Patole. “It’s just that you need to do a lot of work to use tools like it really well; we need to get to a point where users can create visually stunning stories in seconds or minutes, rather than hours.”

Naturally, the proof is in the pudding. Chronicle hopes it has created a new way to build presentations with an intuitive feel that will support adoption. But the founders are realistic that when people have been doing something the same way for so long, persuading them to do it differently will be challenging. “It will take time to change people’s behaviours,” says Gawande. “But we want Chronicle to be the tool of choice for any presentation use case.”

The company’s backers clearly believe Chronicle can follow through on that ambition. Today’s funding round is led by Accel and Square Peg, and supported by a number of business angels from roles at leading technology firms including Apple, Google, Meta, Slack, Stripe, Superhuman, OnDeck, and Adobe.

Shekhar Kirani, a partner at Accel, thinks Chronicle has the determination and imagination to deliver. “Chronicle is re-imagining storytelling,” he says. “The team is obsessed with fixing the problem and making the experience of crafting impactful stories not just bearable but joyful.”

It’s a view echoed by Paul Bassat, founder at Square Peg, who points to Patole’s long-held obsession with developing better presentations. Patole’s interest in the theme began at university, where he spent hours helping fellow students to build their presentations, and has continued through a series of consultancy roles in which he was continually bombarded with poor-quality decks, and dedicated to creating better ones.

“It is rare to find a founder who has such a special connection with the problem,” says Bassat. “Mayuresh is absolutely obsessed and uniquely skilled to craft a new storytelling medium. When he showed us what he means by a new format, it was immediately clear that the opportunity is huge and they are thinking about this very differently.”

Still, the company is some way off commercialising its innovation. It’s currently in a closed beta phase, testing and refining the product with a handful of key clients, with the company’s new financing providing the means with which to build out and accelerate development.

Eventually, the founders envisage moving to a fremium model. Users such as students would access a limited set of tools for free, with larger organisations paying a monthly subscription to use the full range of Chronicle’s functionality. “This is ultimately going to be an enterprise solution,” says Gawande.

Chronicle itself offers evidence of the impact that better story-telling can have – its pitch deck to investors was built using its own tools, helping to convince them to back the company. But the challenge has only just begun; now the company must persuade everyone else to ditch the same old slide decks in favour of a new approach.

David:
This is the BiggerPockets Podcast, show 730.

Rob:
I think this is a very important topic because there is this misconception that you need a lot of money to get started in real estate, and that’s not true. A lot of times you can get started at real estate with low to no money down, but I think $10,000 is a really good achievement for most people because I think it’s an achievable amount that someone can save over time, if they put in some work, if they have a couple of side hustles, if they save their income that they’re making at work, and with that $10,000, I think you can deploy this so many different ways and actually build wealth through real estate.

David:
What’s going on everyone? This is David Greene, host of the BiggerPockets Real Estate Podcast, joined today by both of my co-hosts on the main show, Henry Washington and Rob Abasolo, and we’ve got a treat for you. Today’s show we are talking about what we would do if we had $10,000 to invest and what you could too. We go through several strategies, give a little brief overview of what each of them looks like, then we each pick a strategy and throw it against each other in a Rock ‘Em Sock ‘Em style debate over how to spend $10,000. Before we get into the show a quick tip for you. When it comes to how to spend $10,000 to invest in real estate, there’s ways you can do it for free, and that means valuing your education. Biggerpockets.com has tons of resources to help you do that, including the best forum on the planet for real estate investors. You can also follow my awesome friends here, Henry Washington and Rob Abasolo on social media. Guys, throw your handles out there real quick.

Rob:
Robuilt, R-O-B-U-I-L-T. I did it.

Henry:
TheHenryWashington.

David:
And they give you free content, free information just like BiggerPockets does. Guys, you love education. It’s one of the best ways to invest in yourselves. Do it with the people that you got right here. We also talk about ways that we have saved $10,000 ourselves that people can use to get to that first 10 K. If you’re not there right now, buckle your seatbelts, get ready for a great show. Let’s do it. All right, today we have a special show. We are going to start with the list of all the ways that we can think of to get into real estate with just $10,000. We’re each going to pick one of those strategies and then we’re going to deep dive into the strategy that each of us picked, how we would use them, what we would avoid, and how we would maximize the use of that $10,000, looking out for pitfalls and the kind of returns and timeline that we would expect. Really paint a picture for everybody of how we would invest that $10,000.

Rob:
Yeah, I think this is a very important topic because there is this misconception that you need a lot of money to get started in real estate, and that’s not true. A lot of times you can get started in real estate with low to no money down, but I think $10,000 is a really good achievement for most people, because I think it’s an achievable amount that someone can save over time if they put in some work, if they have a couple of side hustles, if they save their income that they’re making at work. And with that $10,000, I think you can deploy this so many different ways and actually build wealth through real estate. I started with I think… No, no, $7,000. So I think this is a good milestone for most people to hit to actually get started.

Henry:
Yeah, I agree with you and you’re right, there are plenty of ways to get started in real estate with little to no money, but it is going to take some money at some level, especially if you’re going to buy and hold, because having some sort of a cushion, safety net way to pay for things that break is also helpful. So getting to that $10,000 point is a milestone, so I don’t want people to think, “All right, I don’t have to go save money to do this.” You should, it’s a great time with technology to be able to make money and then also think about if you can get in with no little to no money, that 10 K can go a long way towards helping you have that cushion and provide you that safety net as you continue to invest.

David:
Yeah, so on the topic of how you would get 10,000, each of you, what do you recommend? Do you think that there’s a side hustle that you should use to save an extra 10 K? Would you look for a different job? Is there things within the jobs people are working? If someone’s just saying, “Well, I don’t even have 10 K, how am I going to get there?” What advice do you have? Rob, I’ll start with you.

Rob:
Ooh, there’s a lot of things. I mean, for me, my side hustle, when I was getting started in real estate, I built furniture. So it was back when pipe furniture was very popular and I remember looking on Etsy and all these pipe coffee tables, the industrial kind of rustic look. I would look them up and these tables were like 800 bucks, and I remember being like, “Whoa, that’s crazy. $800 for this little coffee table. I can make this on my own.” So I did, and it cost me, I don’t know, a hundred bucks to do. So I was like, “Whoa, what if I built this for a hundred dollars and I sold it to people for 800 or a thousand dollars?”
So I actually started a little furniture building business for about two years, and I was glued to my basement for those two years. I’d be in there up until 4:00 AM at night building custom tables and benches and not a lot of skill went into it. It was a very easy trade for me to pick up. Naturally I’m a little handy, but I was able to learn. I mean, I was able to learn the woodworking craft and make thousands of dollars every single month. Now at that time, I think it was like $8,000 a year that I was making on the side, but to me that was monumental for where I was financially, so I think if you have a trade that you’re good at, figure out how to monetize that trade.

Henry:
I did something very similar, Rob. For my side hustle, unfortunately I didn’t put the money to use in into real estate, but needless to say I did have a side hustle that helped me make about 10 grand. So I would look for places where I could buy Amazon, Walmart, online store returns for pennies on the dollar. So a lot of the times when people return these items to Amazon or walmart.com, they just end up selling those things super cheap wholesale to these auction companies, and these auction companies will then auction them off sometimes for pennies on the dollar to the general public. So I would literally buy all kinds of stuff.
And what I found… I would keep the spreadsheet of what I bought, what I paid for it, and then what I was able to sell it for. I would turn around and sell the stuff on Craigslist or Facebook marketplace. And the thing that generated the most income for me with the least amount of effort was always furniture, specifically kitchen tables, because all you had to do to put them together was screw four legs in. So I would buy them 10, 20, 30 bucks, sell them for a 100, 200, 300, 400 bucks depending on the table. So I flipped a lot of kitchen tables, but lots of Amazon return furniture, not really electronics because that’s kind of hit or miss when you’re doing returns, but furniture was pretty easy to do. So yeah.

Rob:
Maybe we’ll do an episode on this where we bring in people that are very good at side hustles that make $10,000 so that people can maybe learn how to do this and actually start in real estate with that $10,000. That could be a fun series, I think. David, what were your side hustles when you were getting into real estate? I know you were obviously working as a police officer for a long time. But did you have anything that was making you extra income on the side?

David:
Not massive. I would always maximize whatever I was doing to make as much money as I could. So when I worked in restaurants, I would stay and pick up the last tables at the end of the night. You could usually increase your income by 30, 40, sometimes 50% just working another hour or two because normally they trade tables between servers. At the end of the night they want to get everybody off the floor so they can clean up and go home and stop paying them. So they give all the tables the one person. So instead of I get one out of every four or five tables, I get every single table until I can’t handle it anymore. So I would often double the amount of money that I could make just staying late.
Or I’d pick up a shift if I didn’t have anything going on. If I got done with the class or I’d done my homework, and man, there’s nothing happening tonight. My first thought wasn’t how do I go get drunk? And it was like, who would let me work their shift? Sometimes I’d pay them 20 bucks to let me go work instead, and I’d give him 20 bucks and I’d go make 140. And it was still worth it to me. And then when I became a police officer, it was just overtime. I could figure out ways to always have overtime, and I became the person that all the sergeants would call first when there was overtime. I think this is important before we get into how to invest $10,000, because for a long time in the real estate community, we have told people you can make money through real estate. You don’t have to have a job. And I see you guys are smiling where I’m going with this. And for a long time that was true. There was not as much competition for these assets. It was actually a feasible thing to get into.
And I’m not saying you cannot do it. There’s always a way that it can be done. It is incredibly more difficult to do now than it ever was before. Even if someone handed you a house for free and said, “Here you go, you don’t have to pay anything,” you still need money because things break with that house and tenants leave, and there are expenses associated with real estate that you need money, and I think it is a healthier overall financial picture, especially when you’re getting started to make money with real estate and make money with your job and look for ways to make more money and maybe start a business and do some stuff from there within the world of real estate.
Rather than saying, “I’m going to build my financial empire on one pillar, I’m going to have a table with just one leg and I’m going to hope that it never gets knocked off balance, and I’m going to rely on that completely.” So as we go through these strategies, keep in mind these are not replacements for hard work, financial discipline, doing a good job, looking for self-improvement. They are a supplement to it. You guys agree?

Rob:
Oh yeah, 100%. It’s so hard. I mean, it’s still hard work. It’s not just like, “Oh yeah, I did it. I got my first property, I’m going to go to sleep now.” It’s like, “Eh, you’re going to need to sleep less than you’ve ever slept before.” And that’s okay, that’s part of getting into real estate.

David:
Yeah, it’s kind of like I hear people say, “I’m going to get married so that we stop fighting all the time in our relationship,” and I don’t know any married couples that fight less after they got married. You’re not going to stop having conflict when you get a relationship, you’re just going to have a better, deeper relationship. So this get into strategy number one, I will start. The first thing we’re going to talk about is cheap real estate markets. Now most of the time that’s where people’s mind goes when they’re like, “I don’t have a lot of money, so let me just go invest in a cheap market where I don’t need as much money.” Some of the pros of that are, it’s true, you usually won’t need as much money.
There’s often less competition per property. I think that makes it a little bit easier to get into. You’re not going in there against 10 other buyers as often as you’re going to if you’re trying to buy into the best markets that are maybe going to be more expensive. And getting approved for loans can also be a little bit easier because if the house is only a hundred thousand dollars, your debt to income does not need to be as high to get approved for that as if the house is a million dollars. Now, there’s many cons and we can talk about those also. I think the biggest ones with that is that overall, when you’re looking at the big picture, I don’t know that anybody that I’ve met that made really good money in real estate did it in a cheap market. It is often where you go with your training wheels, this is how you learn how to invest, but even if you’re investing in a cheap market and you’re going to keep maybe a Midwest investor, you still move into the better neighborhoods or the better assets within the Midwest.
None of the people I know that do well stayed as bottom feeders trying to make these really cheap deals work because the problem is you don’t get appreciation in cash flow, you don’t get appreciation in the value of the property, and all the money that you think you keeps getting dumped back into it when it needs a new roof, when it needs a new air conditioner, when one of your tenants leave and the cost of repainting and reflooring one of these houses is exactly the same whether the house costs a million dollars or $50,000, but the percentage of your revenue is much higher in cheap houses than it is with expensive houses. And that’s something people forget, that it becomes a much higher chunk of the money that you’re making when you have to go accomplish a turn, get a property ready for the next tenant, and it’s only worth 50 grand. You guys have any different opinions? I know you guys aren’t supposed to be the experts in this, but I’m just curious if you guys have an alternate point of view or if this is what you’ve seen to also.

Rob:
No, I mean it’s a fine line. My first house that I bought was a primary residence in Kansas City and I bought it right before Kansas City exploded. I think the cost of that house was like 159 K, and three years later it was worth 215. So there was some appreciation there, but obviously for me, when we sold it, it was life changing money. It was like 40 grand or something like that, but that’s because Kansas City happened to explode at that time. If I had bought that house a couple years before that, it would’ve been very little appreciation. So I definitely understand the sentiment behind these cheaper markets, cheaper houses kind of thing, because the appreciation’s probably not going to be quite so juicy.

Henry:
I do see people who can be and are very successful in inexpensive markets, but typically what I see when that happens is that they’re pretty diligent about redeploying gains from either flipping properties or gains from the cash flow they are making into paying these properties off because they’re so inexpensive. And then when the assets are completely paid off, they do cash flow extremely well, and you can get to that payoff point a whole lot easier. Obviously in a cheaper market, yes, you’re paying more in expenses, but when you can get those properties paid off, I think there is some absolute huge benefits to being able to do that in inexpensive market.

David:
All right, Henry, if you want to go ahead and jump into the next strategy.

Henry:
Absolutely. Another strategy to think about is partnering. Everybody says, “If you can’t do it on your own, just bring in a partner. That’ll make it all better.” And it can, it can help you when you bring in a partner. I think a lot of the times what we don’t have honest conversations about is when you are new, what are you bringing to the table to an experienced investor to want to partner with you on a deal? There are some rare occasions when somebody just wants to take you under their wing and give you 50% of one of their deals, but that’s very few and far between. So partnering can help you get into deals, it can help you learn the business, but the catch is you have to be able to provide some level of value.
So whether that’s you go and you drive for dollars, and if you’re out and about every day going to work, going to your nine to five, driving for dollars, tagging distressed homes, then that’s a list you now have that you can take to an experienced investor and say, “Hey, if you market to this list, if you get a deal on this list, maybe I can shadow you, maybe I can get a finder’s fee, maybe I can partner with you on that deal,” but at least you brought some value. I think risks obviously to partnering, you can’t just partner with anybody. I think sometimes people get themselves into quite a bit of trouble when they partner with people who don’t have the same core values as them. It’s like a marriage and a partnership. If you’re not aligned on the big core values, then you could see yourself getting into some trouble.
And if you don’t have the infrastructure or the money that some of these other people do, you could find yourself in a world of hurt getting into these partnerships with people you’re not on the same level as. So yeah, you got to be careful with who you partner with and you have to make sure that you provide value, and I think partnerships can be beneficial, but if you’re not going to be able to bring value, it’s going to be a very difficult path for you to find that perfect partner.

Rob:
I think one thing that most people don’t think about doing, because they’re just getting started when they partner a lot of the times, is get a lawyer involved as soon as possible and have them draft up the LLC with you, the actual operating agreement, because me and my partners talked about everything. We were like, “Oh, this is what’s going to happen. If I get divorced, here’s how this works. If I die…” I mean, not to get too morbid, but you have to cover all those things. And we thought we had covered everything, but once we brought our lawyer in, our lawyer was like, “Well, what about these 50 things? Have y’all talked about all of this?” And we’re like, “Oh, no, we haven’t.” So a lawyer was actually someone who… And it cost us money, it cost us about 500 bucks, but they helped define exactly what the vision was and all of the nuclear scenarios that could happen, and I’ve had very successful partnerships as a result.

David:
All right, Rob, what do you think for the next strategy?

Rob:
For 10,000 bucks, I mean, I always tell people these days, maybe consider getting into rental arbitrage. So a very quick explanation of what it is, is you basically go to a landlord who is renting one of their properties on, let’s say, Zillow, Redfin, Trulia, and you basically tell them that you intend to rent their property on Airbnb, and that the way that you make your money is on the delta between the rent that they’re charging you and the rent that you can charge on Airbnb. So let’s say you have a landlord that’s renting a two bedroom, two bath for 1,500 bucks. You are then going to furnish it and you are then going to list it on short-term rental platforms like Airbnb, Vrbo, booking.com, and the idea is that $1,500 a month comes out to about $50 a night. You’re going to have to charge more than $50 a night to turn a profit on that property.
This is actually the very first thing that I did when I was getting into the short-term rental game, and kind of happened by accident, but it was something that I really… I’m very grateful for this accident because it was an accident that was making me one to $2,000 profit every single month. So pros and cons here. Pro, it’s very high cash flow. It allows you to get into a property that you don’t own, you don’t have to worry about the maintenance, and you can cash flow. And anytime that there are issues with the property, like you talked about with the cheap markets, the landlord or the apartment building has to take care of that. Low cash to get in. $10,000, very feasible to get into a rental arbitrage deal for that amount. I think my first rental arbitrage deal was about $3,000, because I really hustled and went to Craigslist free and let go, and I was getting furniture for 10 bucks and it didn’t match and it wasn’t good, but I was just getting started.
The cons of rental arbitrage, I’d say the biggest one is it’s very hard to get a landlord to agree to this, and there are a lot of people that execute this strategy incorrectly, where they don’t tell the landlord about it and then the landlord finds out and what do you think happens? Things hit the fan, landlord wants to evict them. It’s not a good thing. So you definitely want to make sure that you’re very honest with your landlord, you’re going to get 100 nos for every yes. The other big con to rental arbitrage is that there is no ownership of that property and because there’s no ownership, you get no equity, you get no tax benefits, other than typical deductions that you might be able to do furniture deductions and stuff like that.
And then you also have other small risks, like a landlord might want to sell their property after a year and you’ve invested all this time and money and you’re starting to hit your groove and now you’ve got to basically exit that apartment or that home because the landlord has decided to sell. And then there’s always regulation with Airbnb that might hinder your business too. So those are kind of the pros and cons there.

David:
Yep, one of my favorite strategies, next one up is house hacking, this is basically buying a house or the primary residence loan and then renting out parts of the house or most of the house to other people to generate income. The best reason to do this is it takes less money and you get all the benefits of ownership and you of learn how to do real estate investing, but still get into the right neighborhoods, the right areas, the right asset classes. You’re not forced into any of the risks that I don’t like. So you can usually use an FHA loan, which requires 3.5% down or even conventional loans with 5% down, and you can end up owning a house with very little money.
Another one is a REIT or a real estate investment trust. So this is basically, if you consider, it’s very similar to buying stocks that are just based on real estate. So when you buy a stock, you’re getting a share of a company. When you buy a REIT, you are getting a share of a real estate portfolio and you don’t have to do any work. It’s passive, you buy it, the cash flows and the appreciation of that actual portfolio get paid back to the people that bought shares of it, and it can be a very easy way if you want to invest in real estate but you don’t want it to take over your life.

Rob:
Awesome. Yeah. Another strategy here, glamping, glamorous camping. I’ve talked about it every so often, and I really like this for people getting in with not a lot of money as well, because there are so many ways that you can break into glamping for a relatively low cost. So you can buy a tent for $3,000 and go and put that on your land if you have land, or go and rent land from somebody and put it on their land. I know people that have bought Airstreams and they financed them and they went and rented out spots at RV parks. I know a guy that had about 40 Airstreams all around the country. He would go to beach RV resorts and say, “Hey, can I rent the front spot for $500 a month and I’m going to Airbnb.” And they’re like, “Yeah, sure.” So he was always just printing cash that way.
If you already own a home, this is a very creative way to get into it, it’s kind of like a house hat glamping thing. One time I stayed at an Airbnb that was in this Silver Bullet and it was actually behind someone’s house in a neighborhood, so they craned in this Airstream in the backyard, and we stayed in that for a hundred bucks a night or something like that, and they said that it paid their mortgage. So the pros here are that you can get in for less than $10,000. It’s not necessarily going to be easy. You do have to be very stringent with your budget. And then the pros are also that people pay a lot of money to stay in glamping type setups because they don’t want to camp. Typically with camping, you’re freezing outside and you don’t necessarily want to do that. Glamping, it’s a little bit more insulated. You can put a cast iron stove in. There’s just so many ways to do it.
Cons are that a lot of these glamping units are not necessarily built for the elements a lot of the times too. So if there’s extreme weather, you’re always going to have whiny guests or a guest that didn’t read the description. That was actually my biggest con is that I would really lay out what the experience people were getting and they never read any of that. So they would show up and be like, “It’s five degrees outside.” And we’re like, “Yeah, we told you it was. Build a fire.” And then they’re like, “We don’t know how to build a fire.” So you’re going to get a lot of guests that are very temperamental depending on the actual climate. So good and bad here, but ultimately high cash flow, potentially low cost to get into, under the $10,000 if you do it right.

Henry:
I think I stayed at one of your glamping sites.

Rob:
Yeah, yeah, probably.

Henry:
Oh man. Another strategy is lead generation, wholesale, bird dog. It’s had lots of names. But the idea is that you hustle your tail off to find as many under market value leads as you possibly can and then either make money by monetizing those leads by either putting under a contract and assigning that contract to an investor who will close on that deal or passing that lead onto another investor in exchange for a finder’s fee. It is a good strategy to be able to make money if it’s done properly and in accordance with the law, depending on the state that you’re in. But some of the… So the pros are, yeah, you can make really good money doing this. You can range from anywhere making a few hundred bucks to thousands of dollars on a single deal. It just depends on the market that you’re in and the quality of deals that you find.
The cons with this are volume. The amount of volume that you would need to find as far as leads go is going to be quite high. And time. You’re going to analyze hundreds of deals and maybe get one or two that could be viable, especially if you’re doing it on a very limited or no budget to generate those leads. So the amount of discipline that it would take in order for it to produce results is really high. So not a lot of people are willing to put in that type of work or spend that type of money, which results in people typically not getting great results with this type of strategy.

Rob:
And one other thing I wanted to toss out there, and very good news for this one, is that education. And what I like about this is that education doesn’t have to cost 10,000, although it can. Education can literally be free. You can listen to the BiggerPockets Podcast and learn how to get started in the world of real estate. You can go to the BiggerPockets forums, you can go on YouTube University. There’s a lot of free content out there. You can also buy a book. You can buy David Greene’s upcoming book Scale, which is going to be a banger, and that’s like, I don’t know, less than $20 probably. And you can learn how to scale and optimize your business.
You can join a course for under $1,000 You can join a mastermind for under $10,000. So it really depends on what you want, how much you want to invest, but I think investing in yourself will ultimately put you in a network of people that are like-minded, that have also made that investment, that want exactly what you want. And I think you can find partners, I think you can learn at an accelerated rate. And like I said, sky’s the limit. I mean, there’s so much free education out there that you can get started for a lot less than 10,000 bucks.

Henry:
Yeah, absolutely, man. On the topic of masterminds, that is a strategy within itself, investing in a mastermind. So a little different than typical education. Education is you’re learning some particular skill that maybe somebody’s created some course around or there’s some content on the internet around. Mastermind is you getting into a group of other people who are either at the same level or above, hopefully more people above the level that you’re at, and it’s you putting your brain power together, your business resources together. So you’re able to see other people doing what you’re doing at a higher scale, or maybe they’re better at different parts of the business that you’re not great at, and because you are surrounded by these people, either virtually or in person, you’re able to leverage the resources that they have because you’ve all paid to be a part of this same mastermind.
And part of that comes with being able to access other people’s skills, resources, teams, and tools. So there’s a lot that needs to happen within your real estate business for you to get to your goals, and being a part of a mastermind will help you shorten that timeframe because you can just leverage somebody else’s resources or their business practice that helped them generate those resources, and you didn’t have to go spend all that time or money trying to figure out what works and what doesn’t.

David:
A really good point. That’s why I started my mastermind. There’s a lot of people that will say, “I need to find a mentor. I need to find a person who’s going to help me with this.” And they just look for a random stranger who they don’t know and they have nothing in common with, and they try to force a relationship, versus you join a mastermind or a group of people or you make a friends at a meetup or something, and now you don’t have to go ask them to be your mentor. There’s a connection that you already have that makes them want to share what they’re doing. You get a lot of the benefits of that relationship much easier. So let’s recap what we’ve gone through. We’ve got cheap markets, partnering with somebody else, the arbitrage model, house hacking, investing in REITs, glamping, lead gen, wholesale, bird dogging, basically the elbow grease methods, education, and then masterminds.
Now each of these has a risk profile that comes with it, so just be aware. There’s no perfect strategy. It’s not listening to a podcast like this. You’re going to be like, “Well, I got educated and I found the strategy with all upside and no downside.” It’s not like that. You’re learning about the upsides and downsides of each one to figure out which one might work best for the situation that you’re in. So let’s talk about very quickly for each of these strategies, just risk. I’ll start with cheap markets and I will say cheap markets are probably very risky. I don’t know many people that pull this off. Even Rob’s example, I don’t know if I would call it that, a cheap market. It appreciated from 150 to 220. That’s like a 50, 60% increase over that period of time. I mean that was a cheaper than normal market, but when I say cheap markets, I’m talking maybe $80,000 and below. Very, very risky. Rob’s is an entry level market. That is not quite as risky as what we’re talking about. Next up is partnering. What do you think? How risky is that, Henry?

Henry:
Man, I think partnering is a pretty high risk. I don’t think people talk about the high risk of partnerships enough.

Rob:
Interesting.

Henry:
Yeah, everything in life comes to an end, guys, and I think when people are talking about partnerships, they do not, even partnerships that they did a lot of due diligence on the front side, not a lot of people talk about what does it look like when we dissolve or when this partnership ends. And lots of partnerships end poorly, bitterly, and people get burned. So even the best, well-intentioned partnerships don’t do well, but when we’re talking about this strategy where you’re probably somebody new partnering with somebody experienced, man, that’s a big risk in my opinion.

Rob:
Fair, fair. Okay, and then we got arbitrage. This is a tough one. I think if you do arbitrage correctly and you negotiate with your landlord and they’re in on it, I actually think it’s a low risk. If you don’t negotiate with your landlord and you try to hide them, like a lot of people would go out there, a lot of gurus out there, they say to do that kind of thing, that’s a very high risk. But I actually would probably place it on the lower end of the spectrum because if a landlord’s with it and you’ve negotiated and it’s all in your lease and you’ve patted everything, I see really no huge risks, in my opinion.

David:
All right. When it comes to house hacking, I think this is actually low risk, and that’s one of the reasons that I really like it, frankly. It’s probably the lowest risk way I know of in general to get into real estate, and that’s why you’ll frequently hear me saying, I wrote BRRRR, I wrote Long Distance Investing, I do a lot of stuff. I still tell everyone it doesn’t matter. You should house hack one house every single year, everybody. And then REITs is also relatively low risk. That’s another reason I think that I like it, is you’ve got professionals that are very good at managing real estate that do this for a living, that are making decisions and have a lot of capital to be investing in to cover the downside. So I think risks are also probably a little bit lower on the reward scale, but they’re definitely lower risk.

Rob:
And then we got glamping, glamorous camping. I would probably put this at medium to high risk, mostly because the cheaper end, like the $3,000 tents or an Airstream that you get that you need to renovate for under $10,000, they tend to require a lot of work and maintenance and they can break down on you very quickly. Or if you have a tent, like I used to, have out in the desert where it snows, that snow can really cause that tent to buckle, and that’s a very risky thing. So because of the amount of maintenance and costs that go into maintaining it, I’m probably going to go medium to high.

Henry:
Lead gen wholesale I would call low risk, maybe medium depending on the market that you’re in. But the real risk here is the time you’re going to put into it, and if you don’t stick with it… Because let’s be honest, real estate has been around for decades and decades. People have been finding under market value deals and buying them, so it works. It’s just are you going to be able to spend the amount of money or put in the proper amount of time for it to work? So the real risk is just not sticking it out.

Rob:
Then we have education. I’m going to go zero risk. There is zero risk to making yourself smarter. There is only upside on that. Fight me.

Henry:
Masterminds. In all honesty, I think masterminds are a low risk. I think you’ll hear some horror stories or people saying, “I spent $5,000 on this mastermind and I just didn’t get anything.” A lot of it is you have to put in the effort and you are going to get out of masterminds what you put into them. I think a lot of the times people feel like, “I spent money and all the stuff should just come to me and I should have all this value that just comes to me and then I will be super successful.” No, you still got to go apply what you learn and do the work. And if you do that, I think you have very low risk with masterminds.

Rob:
Yeah, you are the biggest risk in a mastermind. If you do not put in the time into it, if you don’t go through all the resources, if you don’t connect with people, if you don’t use what you’ve learned out in the real world, then you can’t succeed. You have to actually go out there and apply the stuff, just like you said. So I think the only risk there is how hard are you willing to work in a mastermind?

David:
And how much do you expect it to just happen for you. Man, if anyone can take anything out of this episode, please just hear that. There is no strategy, there is no mastermind, there is no group, there is no book, there is no nothing that brings real estate and places it on your table and says, here you go, a cash selling property at 70% of ARV, all for you because you took a course. You still got to go out there and take what you want. These courses, these strategies we’re talking about, they just are ways that you can go and do that, but every one of them will always have that in common.
All right, we have gone through all the strategies that we can think of. We’ve talked about the pros and cons of each. Now we are going to choose the strategy that we each like the most and we are going to compare them in a bit of a royal rumble here to see who comes out on top. My strategy, since I’m the host and I get to pick first, I’m probably the oldest, too, is going to be house hacking. This is my favorite strategy. That’s the one I’m going to defend. Rob?

Rob:
I’m going to go with the arbitrage just because that’s how I got started, so why not?

Henry:
I like lead gen, only because David took house hacking.

David:
That’s why I like to go first. Sorry. Sorry Henry, I’m sure you’ll do a very good job with lead gen on its own. The funny thing is you probably could, as we talk about these, combine all three. You could lead gen for a house hack and then arbitrage it as a short term rental. I guess you couldn’t arbitrage your own property, so maybe Rob’s went through a little bit of a kink in there, but many of these strategies can be combined, so remember that also. You don’t have to pick one out of the 10. You can look for ways to work four of these together with your $10,000.
All right, I will go first with my strategy, house hacking, the timeline is relatively short to execute this. So you basically are going to go to a loan officer, you’re going to get pre-approved. They’re going to tell you this is how expensive of a single family you can buy. This is how expensive of a duplex you can buy. And this is how expensive of a triplex or a fourplex you can buy. And now you go to a real estate agent and say, “I need to see homes that are within this price range and multi-family of these sizes that are within this price range,” and you start looking at emails that come in. You can also get on some of the portals and you can start looking on Zillow or realtor.com and trying to see what is out there? You then have your realtors start showing you homes. You see what you think. You see if they’re in a place that you’d want to live, and if the floor plan of the property would work for having several people in there.
Now, there’s lots of ways to house hack. You can rent out the bedrooms, you can rent out parts of the property. You can turn the garage into the house and live there and rent out the house. You can add an ADU in the backyard and the basement downstairs and then rent the rooms out in the main house and end up with six different tenants if you want. This is one of the things that makes it cool is it’s very creative and it allows you to learn the fundamentals of real estate in a low risk way. And then you’re writing offers. So from contacting a loan officer to closing on a deal could be 90 days or less if you find the deal very quickly and you move forward. Or you could take as long as you need to feel comfortable. But there isn’t like pressure. It’s not like you spent all this money and you got to get a return back on your capital. You don’t really spend any money until you buy the house.
The way you mitigate risk with house hacking is by finding ways to get as many good tenants in that property as you can. So there’s a spectrum with house hacking between profitability and comfort, and the further you move away from comfort, the higher of a profitability that you can expect. So do any of the three of us want to be living in a six bedroom house renting a room from ourselves and renting to five other tenants? Probably not. That’s not very comfortable. We’re not going to enjoy that. However, that would be the most profitable way to do house hacking and it would be the lowest risk way as well. Now the other way could be you get a big house and you get to be comfortable and you live in it, you just rent out a ADU in the backyard. That’s going to be more comfortable but less profitable. The cool thing is you get to choose where on that spectrum that you want to be.
And the way that you get your money back is after you spend that $10,000 on your house hack and you live there for a year or two or three, the property will likely appreciate, you don’t know when it’s going to happen, but you know it will happen. It’s much like a jack in the box. When you’re just turning that wheel… You don’t know when it’s going to pop, just like Will Ferrell in Elf, but you know it is going to pop at some point. So whether you got to wait one year, you got to wait five years, you got to wait 10 years, at some point you get appreciation. You can refinance that house, you can sell it, you can move out of it and go into another property. You can house hack another property the next year if you just save $10,000. So you are basically guaranteed to get that money back at some point.

Rob:
Well, okay, so a couple things you said here. I think there is actually a decent amount of risk with the house hack, and I’ve house hacked several times. But you’re talking like, okay, if you have a house with six bedrooms and you live in one of those rooms, the chances of you living peacefully with five other people are very, very, very low. And I think that there is some risk there with the social community management of managing tenants that you may or may not like within your household and making sure that they all like each other too. So I do think that there is that aspect of risk to consider as well.

Henry:
I think some of the risk that comes with house hacking that people don’t talk about is oftentimes people are just buying any deal and not necessarily a good deal and not considering that they’re not going to live there forever. This is especially risky when they’re house hacking in very, very expensive markets. So when you’re still not covering your entire mortgage by house hacking, you’re still paying a large chunk of it and then always assuming that somebody is going to be there to cover part of that mortgage. That doesn’t always happen and you could get stuck with a very large payment that maybe you can’t afford to pay, but you were able to get approved for that loan because of the income that property does generate when it is rented. So I think people substitute due diligence for just getting into house hacking sometimes and needs to understand that it’s not always going to be perfect. And can you carry this note if you had to?

David:
That’s a very good point. I like that. I also like the fact that you pointed out there is risk. I’m not saying there’s no risk. There isn’t a real estate strategy that is no risk. You will never find anything that is no risk. What is the risk and are you suited as a person and in a financial situation to mitigate that risk? And then is the upside worth the downside? I feel like in house hacking the upside is absolutely worth the downside, which is why I’m such a proponent of it. So let’s move on. Rob, it’s your turn. Throw your fighter into the ring.

Rob:
Yeah, so I’m, again, arbitrage. So this is the idea of rerenting something that you’ve rented from a landlord on short-term rental platforms or whatever OTA, online travel agency, you’d like. So with this strategy the timeline to execute really depends on your hustle and how fast you’re willing to do this thing. I have set up Airbnbs in a weekend, but that required me working every single hour of the day to assemble beds and get couches in place and hang photos and deflate mattresses and oh my goodness, I got so much PTSD just talking about it. But let’s just say that you were like, “Hey, I want to get started. Walk me through the process.”
Well, I’ve already told you that you’re going to be negotiating with landlords and you’re going to hear a hundred nos for every yes. So I think locating the deal is probably the aspect that’s going to take you the longest amount of time, and there are a couple ways you can do this, but let’s just say that you went on Zillow and you found property that fit your buy box or your criteria, I guess your rent box or your criteria. You have to start making phone calls to landlords over and over and over again. “Hi, my name is Rob. Here’s what I do. I’m looking to rent this place for my short-term rental business. Is this something you’d be interested in?” And you really have to coach a lot of these very flighty landlords who think that you’re basically going to be throwing ragers at their house every single day when that’s not how it works kind of thing.
So I would say to locate a deal, it could easily take you a minimum of two weeks and a maximum of four weeks. But as soon as you land on that deal, as fast as you can get furniture, you can launch. So nowadays, I kind of coach people to try to get their Airbnb set up within two weeks. I don’t really necessarily tell people to do the weekend thing anymore, because it’s very hard on the soul. A lot of gray hairs on my head from those times. So I would say if it takes you four weeks to locate your deal, it’s going to take you two weeks to buy all your furniture, set it up, assemble it, stage, and get photography, and then you can launch within six weeks of finding your first deal.
I personally think you could do it within the same month if you’re really hustling, but a lot of the times people are calling Zillow and that’s how they’re finding their leads. I’ve actually found success by going to different real estate meetups and talking to other multifamily investors and telling them what I did, and they didn’t know who I was in this instance. And they were like, “Oh, Airbnb, tell me about that.” And it was a lot easier, because we’d already established rapport, for me to pitch them on the idea of renting their units on arbitrage. So mitigating risk is a big one. How do you actually get everything in a way that’s not going to make your business suffer?
And I think at least addendums are really the biggest way you’re going to do this. So I talked about the seller selling their property or the landlord selling their property. We typically negotiate with our landlords for a two year lease in place, and then if regulation were to hit, we also negotiate within the lease that we’re allowed to break the lease at any time. If the city regulates the short-term rentals in that market, we’re allowed to exit that lease. Basically, if we negotiate with the seller to give them more rent in order for them to let us Airbnb their property, we write that all in the lease. So mitigating risk really comes down to just documenting everything that you’ve agreed upon with the landlord in writing as you should. By doing that, we’ve had very, very little issues.
And then how to repeat, build cash back up, and snowball from there. I mean, for me, when I’m looking at rental arbitrage deals, I’m looking to make a minimum of one to $2,000 a month in profit. So we’ll just call it 1,500 bucks. That’s $18,000 a year that you can make from one property. The best way you can snowball is to not spend your money, and this is what I tell people who are starting in real estate, those first few years are very lonely in the bank account. You should not be touching that money. You should be reinvesting it. So theoretically, with $18,000, it’s possible that you could start two more rental arbitrage apartments with that $18,000. So if you add those two to your three, you’re now making $18,000 on each property, and if you save that, then you can do it over and over and over again. So really the way to snowball this is discipline and living like you don’t make money in real estate and then using all the funds that you make to basically get into your next arbitrage unit. And scene.

Henry:
Very nice. I don’t have an arbitrage rebuttal. I’ve been asked as a landlord would I let somebody arbitrage and I just said no, only not to give it the brain power. Now albeit they didn’t have a very good pitch either. I think your pitch is probably a big deal when you’re trying to find a place to arbitrage.

Rob:
It is. It is. And it’s also about concessions. Henry, if you’re like, “Well, why would I rent to you when I can make the same amount of money with the long term rental?” I’ll say, “Okay, that’s fair. You’re making $1,600. What if I gave you $1,800 a month?” “Okay, yeah, well why would I do that if I could just have someone in place with the stability for 12 months?” I’ll be, “All right. What if I gave you a 24 month lease?” “Yeah, but what about the maintenance and the wear and tear?” Then I come in, I say, “Well hey, what if I cover all maintenance up to 200 bucks a month? You’ll never hear from me unless it’s like a major system fail.” So the idea is for me to be non-existent in your life, I’m the easiest tenant you’ve ever had. Because if the place isn’t nice and well kept, I don’t make money, so it doesn’t behoove me to make sure that it’s falling apart. So I think there’s more of a partnership there, I don’t know, than a business relationship in some senses.

Henry:
See, that’s a good pitch.

Rob:
Thank you, thank you. Hey, will you rent me one of your apartments?

Henry:
Absolutely not. Is it my turn? Can I go now?

David:
That’s you, man.

Henry:
Awesome, awesome. Yeah, so I love lead gen as a strategy. The main reason I love lead gen as a strategy is because this is a way that’s going to teach you several skills that are vital to you as a real estate investor in general. It’s also going to get you focused on finding good deals, and good deals are the common denominator amongst almost every real estate exit strategy. You have to have some level of equity in a deal for it to be able to be monetized. So part of the reason why I love this is because you can make a profit on that 10 grand without having to spend a whole lot of that 10 grand. There’s plenty of ways for you to hustle and generate free leads for distressed properties. We’ve talked about driving for dollars, but it’s more about can you get your line in the water in enough places where people are actually looking to sell at a discount?
And if you can get your line in enough places and be relentlessly consistent in your pursuit of those leads, and I think that’s where people fail when they’re trying to find that first deal through generating leads themselves, is the relentless consistency isn’t there. They try one way and they try it at enough volume or they don’t leverage enough other people to help them with that. So what I say about that, if it was me, if I was going to lead gen right now, starting from scratch, I would be on Craigslist marketplace and Facebook every single day scouring the real estate sections, both the for sale and the four rent sections, contacting as many owners as possible and asking if they’d be ready for an offer. I would be also generating niche lists that I could then cold call or hire someone to cold call.
And there are so many third party services out there right now that you can pay someone who they already have people trained to talk about real estate investing to sellers that you can pay maybe a thousand bucks a month and they can call for you, filter you the good leads. And you also can hustle, do some of those calls yourself. There’s very inexpensive ways to talk to a lot of sellers. I think what people don’t realize is that you have to talk to so many sellers in order for you to find that deal. So people don’t do it. And that’s what gives you the advantage if you are willing to make lead gen your job. You go to your nine to five because that’s what you need to do to make money to pay your mortgage and to live so that you can do your job, which is lead gen to find you that deal, which is going to springboard you into real estate investing.
So you can spend a fraction of that money, a third of that money doing different strategies relentlessly, consistently, and then turn that deal into money. Or you can actually buy that deal because there are ways for you to get deals financed if you’re buying a really deeply discounted deal. And trust me, when you get a really deeply discounted deal on the hook, you will be very motivated to go figure out those ways to do it and to get that deal financed. The problem is people want to figure out the financing beforehand, so they get scared. They don’t want to do… And lenders don’t want to talk to you if you don’t have something for them to look at. So getting that good deal and finding that lead is going to help springboard you into real estate investing and you can monetize it because trust me, David, if somebody brought you a phenomenal deal tomorrow in a market you were interested in, chances are you would probably buy it. So it’s about can you put in the relentless consistent effort in order to generate those leads.

David:
Which comes down to can you have a strong work ethic? Do you really want this? If you can’t get into real estate to get around work ethic, “I don’t like working hard, so let me get into real estate instead,” you’re just going to have a hard time here. You had a hard time. The hard work in this definitely pays better, but you still have to do hard work. So to recap here, my method is house hacking. I like that because it’s low risk and I feel like it’s relatively high reward. Rob’s was arbitrage. That’s lower-ish risk with still a pretty high reward. And Henry’s was lead gen wholesaling, which is a low to medium risk. Really, I think probably arbitrage and lead gen are the lowest risk of all because they might require no money. There’s a chance you could get into those and still keep your $10,000 for something different.
But as you notice, there’s always a spectrum. The lower the risk goes, either lower the profit goes or the higher the work goes, and the less work you want to put into it, the lower the return goes and the higher the risk goes. There’s always, always a trade off. And that’s what I’m trying to get at because so many gurus will pitch you on real estate investing strategy and only highlight the high points and not tell you about the low points and then people don’t take action and it doesn’t work. Okay, last question, Henry and Rob, would either of you switch your preferred method after hearing somebody else’s pitch?

Rob:
Not really. I mean, maybe house hacking only because I’ve done it and I love it and I think the faster you can get out of paying your mortgage, the faster you can build wealth. There’s a little soft spot in my heart for house hacks. I would definitely not ever be… That’s honestly probably what I would recommend to most people first, but you got to choose first, so I had to choose a different method.

David:
Does it make you feel, Rob, like when we’re doing the intro and I say all the best parts of the show and say, “What did you like, Rob,” and you’ve got nothing to pick from?

Rob:
And I’m like, “Uh, real estate?”

David:
How about you, Henry?

Henry:
Man, I totally agree. I house hacked and it changed my life and often when I’m talking to new investors, I tell them, “You should buy a multifamily on a low down payment loan every year forever and ever until your spouse tells you I will never live in another multifamily again.” That’s just what you should do.

David:
I love that. I mean honestly rock that thing… It’s like that Honda Civic that you bought in 1989 and is still running. Rock that thing as long as you possibly can, it’s the best way to go. So thank you guys very much. I appreciate your contributions here. And listeners, if you enjoyed this, please consider giving us a five star review wherever you listen to your podcasts, apple Podcasts, Spotify, Stitcher, whatever it is. Those help us a lot. Before we get out of here, Henry, where can people find out more about you?

Henry:
Yeah, best place to find me is on Instagram. I’m @TheHenryWashington on Instagram.

David:
Rob?

Rob:
You can find me over at YouTube or Instagram on @Robuilt, R-O-B-U-I-L-T. Like Rob built it, but one B.

David:
Robuilt, not Robuilt. That’s a very pet peeve of his. When he hears that, his quaff starts to go at an angle. He looks like a dimetrodon, one of those dinosaurs and he gets pissed. Don’t turn him into the dimetrodon. You can find me also @DavidGreene24 on YouTube, Instagram, and all the other social medias, and it’s not like you can mess up my name. I didn’t do a confusing one like Rob, that everyone’s like, “Well, wouldn’t there be two Bs if it was Rob, built, it should be Robuilt.”

Henry:
But you have the E at the end, so-

David:
That’s true. That’s a very good point. Some other imposter out there without the E is probably soaking up all my follows right now. All right, I’ll let you guys get out of here. This is David Greene for Henry “the bird dog” Washington and Rob “dimetrodon” Abasolo, signing off.