June 2023

It’s been generally accepted in real estate that a “balanced market” has about six months of inventory. In other words, the sales for that month equal one-sixth of the number of listed properties, so, all things being equal, it will take six months to clear that inventory. As Norada Real Estate Investments puts it,

“As a general rule, 5 to 6 months of inventory is considered to be a normal or balanced market. Over 6 months of inventory and we have a buyer’s market. If it is less than 5 months and we have a seller’s market.”

Even the National Association of Realtors states that “Historically, six months of supply is associated with moderate price appreciation.”

What’s immediately odd about this is that housing prices have fallen since last year despite what should be a seller’s market. In May 2023, prices were down 2.2% nationally from their peak in June 2022. At the same time, inventory was only half that of a “balanced market,” sitting at 3.0 months in May of 2023. 

Indeed, just looking at the average days on market in Jackson County, Missouri (the largest county in the Kansas City metro area, where I invest), it becomes plainly obvious that inventory is quite low. It hasn’t taken over a month on average to get a property under contract since before the pandemic.

Nationwide, the trend isn’t much different. In May 2023, the median time on market for a listed property was just 43 days and hadn’t been over three months in many years. 

Gauging This Market is Tough

Now admittedly, this is an odd market, and that may explain part of why prices are falling despite it being a “seller’s market,” given the amount of inventory available. Prices were rising at unheard-of levels prior to the rate hikes last year. Those rate hikes made it much more expensive to buy a home for anyone using debt, which thereby put downward pressure on prices. Yet, because the vast majority of homeowners have low-interest, fixed mortgages, there is little motivation to sell. Thus, while there are fewer buyers at these prices with these rates, new listings are down sharply, which buoys home prices by keeping supply low.

This dynamic is quite odd, to say the least.

Still, one would expect that if a “balanced market” were six months of inventory and such a market tended to bring about “moderate price appreciation,” and instead, actual inventory was half of that, prices would rise or, at the absolute minimum, not fall. 

And remember, prices have fallen in nominal terms. In real terms (taking inflation into account), they’re down by about 10%.

It would thereby seem that our idea of what a “balanced market” is needs adjusting.

Part of the problem may be that historically speaking, the average supply of inventory for new home sales has indeed been about six months, if not more.

However, most home sales aren’t new construction. “Existing homes, unlike new homes, are homes that are owned and occupied before coming onto the market.” And such sales paint a very different picture. (Oddly, though, the Fed’s data for the monthly supply of existing homes only goes back to May 2022.) 

And as far as evaluating the housing market, existing home sales are a better indicator than new home sales. In March 2023, for example, the annualized rate of existing home sales was 4.43 million. The annualized rate for new home sales was only 683,000. And if anything, the gap between the two is normally bigger.

Fortunately, Bill McBride over at Calculated Risk has the long-term data on existing home inventory. And as you can see, since the beginning of the century, with the exception of the Great Recession and its immediate aftermath, the inventory (red line) has barely ever exceeded 4 months.

One could counter that the real estate market has been hot for a while now and was certainly hot in the early aughts prior to the 2008 financial crisis. So just because the past 20 years have mostly been around four months of inventory or less, that may just be because the market was mostly a seller’s market for the last 20 years.

There is some truth to this, but still, isn’t it a bit odd that the only time this century that housing inventory exceeded a “balanced market” was in a real estate-driven financial crisis worse than anything seen since 1929? This strongly implies our concept of a “balanced market” is a month or so higher than it ought to be.

There is also another problem. Prices and inventory aren’t nearly as correlated as we would think. During the financial crisis, median home prices peaked in Q1 of 2007 and then hit their trough in Q1 of 2009 before rising almost without interruption afterward. Yet, inventory levels didn’t fall below six months until 2012. 

Then, as of now, home price appreciation and the inventory levels associated with a buyer’s and seller’s market were inverse. The same was also true in most of 2006. 

Conclusion

Of course, no rule of thumb is ever going to be exact when it comes to explaining a market. There are too many factors involved in a complex economy such as ours for any one rule to do that.

That being said, it should be clear that one, a “balanced market,” is probably closer to four or at most five months of inventory than the normally asserted six months, and two, the number of months of inventory is of limited value when it comes to understanding prices. 

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

Danielle Hale, Realtor.com chief economist, joins ‘Squawk Box’ to discuss the state of the housing market, second-half forecast, and more.

By Neil Hare

On May 11, 2023, crucial changes to the Small Business Administration’s (SBA) 7(a) and 504 loan programs went into effect, aimed at streamlining the loan application process, expanding the number and types of lenders, and relaxing regulations in order to reach more small businesses, especially those in underserved communities.

While these changes may offer much-needed relief to small businesses still struggling in the wake of the pandemic, there is backlash from many who believe the rules signify the end of the SBA’s prudent lending practices and will increase defaults on the taxpayers’ dime.

The SBA has long served as a lender of last resort for small businesses that were unable to access loans through private lenders. The 7(a) loan is the SBA’s most popular loan program and has a maximum borrowing limit of $5 million. Loans can be used for real estate, equipment, acquisitions, and other working capital.

The 504 loan program is primarily used for real estate or land loans, with fixed interest rates and maturity up to 25 years and a maximum borrowing limit of $5.5 million. In the 2022 fiscal year, $25.7 billion in 7(a) loans and $9.2 billion in 504 loans were issued.

New SBA loan measures come with both strong support and opposition

Those in favor of the new rules emphasize the importance of access to capital in running a successful small business in the current economic environment. Traditional bank loans often come with revenue demands many businesses can’t meet, and the cost of that capital has increased dramatically with recent ongoing Fed rate hikes. In addition, many small businesses find the SBA loan application process prohibitively complicated and time-consuming; women, minority, and veteran-owned small businesses have also historically struggled with accessing capital, an issue the new rules promise to address.

In a January 6, 2023 comment letter to the SBA, Penny Lee, CEO of the Financial Technology Association—the trade association representing fintechs—pledged support for the new rules: “Fintechs play an important role in filling the credit access gap, especially when no other options are available and we encourage the SBA to proceed with this initiative. In particular, we believe that by leveraging technology and nontraditional data, fintechs can better serve small business borrowers in the 7(a) program while maintaining the high credit and compliance standards set by established participants.”

Ami Kassar, CEO and founder of MultiFunding, a Philadelphia-based company that helps small businesses navigate the SBA loan process, worries that the new rules will lead to an uptick in fraud and widespread loan defaults over the next three years, all backstopped by the U.S. taxpayer. Kassar’s concern is that fintechs are not beholden to existing banking regulations that traditional lenders will need to follow regardless of these new rule changes.

“These new rules have been carefully lobbied by the fintechs that want to speed up the lending process and get money out the door faster. There will be increased defaults due to relaxed risk analysis and in three years everyone will wonder why,” he says. “The SBA has done no analysis on potential default rates due to these changes prior to issuing these rules.”

More articles from AllBusiness.com:

The new SBA loan requirements and rules outlined

The new rules affect multiple areas of the SBA lending process, starting with the expansion of approved 7(a) and 504 lenders. Previously, the SBA had limited the number of approved SBA lenders to a small handful. Of course, this cap had been lifted dramatically with the PPP program. Under the new rules, there will no longer be a cap on the number of approved lenders, and fintech companies will be allowed to apply for SBA approval. In theory, this move by the SBA will increase the number of loans issued and decrease the timeline of loan applications.

The SBA will also streamline the evaluation of borrowers by eliminating certain criteria. Prior to the new rules, nine factors were considered when evaluating potential borrowers:

• Character, reputation, and credit history of the applicant
• Experience and depth of management
• Strength of business
• Past earnings, projected cash flow, and future prospects
• Ability to repay the loan with earnings from the business
• Sufficient invested equity to operate on a sound financial basis
• Potential for long-term success
• Nature and value of collateral
• Effect of any affiliates on repaying the loan

The criteria has been slashed to three distinct factors: the applicant’s credit report, cash flow, and equity or collateral. The removal of “character and reputation” as a factor for consideration aims to remove the weight of individual bias in the evaluation process.

The requirement for hazard insurance on collateral for 7(a) and 504 loans under $500,000 also is eliminated. This removes a barrier to obtaining small loans and reduces the timeline to obtain a loan.

The potential uses for 7(a) loans are expanded to include partial transfers in ownership. Previously, only full transfers in ownership were eligible for 7(a) loans.

Finally, the “credit elsewhere” test whereby applicants must prove they couldn’t obtain loans at other institutions is being reduced to a “check the box” without corresponding paperwork—another area of concern for opponents of these rule changes.

SBA loan program improvements will expand access to funding

Overall, these new rules are a much-needed boost for small businesses that are still recovering from Covid shutdowns and corresponding supply chain issues and inflation. Many businesses are still struggling to stay afloat and generate enough profit for owners to save for retirement, pay the mortgage, and take a summer vacation.

While examining risk is and always should be an important part of any lending process, expanding opportunities, especially in underserved and underbanked communities, can only help the uncertain economic future we all face.

About the Author

Neil Hare is an attorney and President of GVC Strategies, where he specializes in small business policy, advocacy, and communications campaigns; follow him on Twitter @nehare and on LinkedIn. See more of Neil’s articles and full bio on AllBusiness.com.

David:
This is the BiggerPockets Podcast, show 785.

Dean:
I just take insane action. And I had to fill in a lot of the blanks because it wasn’t like, “Do this, do this, do this.” So I had to kind of fill in the blanks, but I took action and within three months I did my first deal. And just when the wire hit, I was like… I jumped up and I was like, “Woo.” I gave a woo, you know? And I was like, “This is real. This is cool. I can see where this can go.”

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets real estate podcast, coming to your day from Maui, Hawaii, with my co-host and good friend, Rob Abasolo coming to you from H-Town, as he likes to call it when he’s trying to sound cool.

Rob:
The H?

David:
The H, yeah. Is that a new one? I haven’t heard of “The H” before.

Rob:
It is not. It is in fact a very old one. But let me ask you, since you’re also in one of the H’s of the world, have you had a rainbow snow cone yet?

David:
I have not had a rainbow snow cone. I actually ate pretty good. I’m here at Brandon Turner’s event and they fed us pretty well, so I’ve been eating healthy and working out.

Rob:
Man. Yeah, so you got to get the… It’s like a rainbow snow cone and they put the cream on it. They’re everywhere. It’s really, really good. I think there’s a specific name for it. I can’t believe I can’t remember it. But go have a snow cone, man. You’ve been eating healthy, you’ve been working out, you deserve this.

David:
You’re trying to live vicariously through me because you’re waking up at five o’clock every day to work out in this fitness competition you have with Tony Robbins, aren’t you?

Rob:
That’s true. Which I’m handedly losing, because Tony is training for a bodybuilding competition, but that’s fine. All I really wanted was a little accountability and a text buddy that I could text every morning when I wake up and say, “Hey, you working out? I am too, bud. I’m thinking about you.” And it really helps, a little accountability like that helps.

David:
And you got that. That’s what community can do. So if you’re having trouble in your real estate business with your goals, like fitness or relationships, whatever they are, find another person that likes that stuff and jump on the journey with them. And it just does lighten the load quite a bit. In today’s episode, Rob and I are interviewing Dean Rogers, a former NFL player who is now a real estate investor and crushing it in this space, has done over 600 deals in only a few years and has an incredible story, a great approach, and an uplifting delivery. This was really good, Rob. What’d you like about today’s show?

Rob:
It was really nice because it just showed me what my life could have been had I pursued being in the NFL and then going into real estate. But it’s really cool because we talk about Dean’s seven-figure journey into the NFL, leaving that and making far, far, far, far less. And then really ascending the real estate food chain, if you will. So it’s kind of like a riches to rags back up to riches. It’s kind of cool. It’s cool to see the trajectory and how he crushed it. He made some pretty big mistakes that he details really quite in depth in the podcast. Doesn’t hold back. I’m always really… not flattered, but I’m always very happy to hear a guest be vulnerable with us like that when we’re sharing it to the whole platform because I think it just normalizes like, “Hey, failure happens but you can recover from it.” You know?

David:
Absolutely. And then the path for recovery, exactly what he did, how he made alliances and allegiances, where he gets his deals from. This is a great show that he really lays out a blueprint a lot of people can follow. Before we bring in Dean, today’s quick tip, make that extra phone call. You will hear why this is so important in today’s show, but do not stop short. And bonus, treat every deal like you’re using your grandparents’ money. That is fantastic advice and you will hear why as you listen all the way to the end of today’s show. So without further ado, let’s bring in Dean.
Dean Rogers, welcome to the BiggerPockets Podcast. How are you today?

Dean:
I’m good, man. Thanks for having me.

David:
Yeah, we are excited. So for those who are unfamiliar with Dean, his portfolio currently consists of 65 units in Central California. He’s been investing in real estate for a total of 10 years. He’s done a hundred deals a year for the past three years with over 600 total, and has a net worth in his real estate portfolio of almost $10 million. Very impressive, Dean. But that’s not even where your accomplishments start. You also played in the NFL for a while. So tell us how the heck did you become the man we’re talking to today?

Dean:
Yeah. So almost like a childhood dream, man. Grew up always dreaming of playing professional sports, and kind of flash forward through all the stories of how I got there. I didn’t go to a big time football school in college. I always felt like I was kind of underlooked and recruited at each level, from high school to college, then to the NFL. But, hey, once I was in college, NFL teams started to look at me. I was never the biggest. I was never the fastest. I was never the strongest. I was never the most athletic, but I was a good football player and I stayed in the game. I was fortunate not to be injured too much and I was consistent. I was good. I was just that gritty, hardworking guy. And it just played out to where right time, right place people that were looking at me.
There’s about 11, 12 teams that were looking to draft me, and then the moment came. It was crazy, dude. It was the craziest thing. So it was the year of the lockout that I got signed to the NFL. And when the lockout lifted, the Chargers called me and said, “You got your bags packed? Because you’re flying out tomorrow morning.” And like a school girl, I was jumping around the living room. I fly out the next morning and it felt so surreal, because overnight you’re instantly famous, you’re instantly important.
The whole experience, from day one, was kind of like you see in the movies. They roll me in a red carpet, they got the black Escalade outside at the airport to pick me up. They roll me in. I go right up to the owner’s office, I meet Dean Spanos, shake his hand. I sign a three-year deal with the Chargers and here we go.

Rob:
That’s amazing, man. Yeah, and I’ll just tell you, man, I can relate because I used to throw around the pig skin myself. I was never the biggest, strongest or fastest either. I had to actually end my career in the 10th grade because I got demoted to the B team, second string. But that’s neither here nor there, Dean. Tell us a little bit about the NFL. You go into this and obviously this is the dream career for you. Going into it were you like, “This is it, this is what I’m going to do forever”?

Dean:
Oh yeah, yeah. No, it’s kind of what I had planned my whole life for at that point. And I went to UC Davis in college, got a good degree, knew there would be life after football. But I’m here. This is what I’ve spent my whole life for. I’ve been dedicated. I was the guy who wasn’t out late partying throughout the week and on the weekends in high school and college because I took this serious. I was passionate about this and I was willing to put in the hard work. And so here I am. I’m here, and the NFL was insane. It was the combination, if you’ve seen both HBO shows, it was the combination of Hard Knocks and Ballers. So you had the intense cutthroat business side of it, and then you also had the glitz and glamour Hollywood side of it where you’ve got supermodels literally around at almost all times, you’ve got red carpet events, you’ve fan screaming your names and you’re like, “Who am I? I’m not Philip Rivers on the team.”
But still, people are clawing and wanting to get your attention. Your phone’s blowing up all the time, people wanting to get your time, wanting to come to games. It was just nuts. I’d say it was super cool. And for me, my experience playing, what was, I’d say, so fulfilling, was not only making it there, but also getting the validation while I was there that I belong here. And just from the very first play, I roll up, through to while I was there, I had Norv Turner telling me over and over that I was going to have a long career. And now games were actually easy compared to practice. The big thing for me, just to not make my story about the NFL too long, we’ll dive into real estate of course, but the big catch for me was although I was playing great, was living the dream and Norv Turner telling me I’m going to have a long career and I’m here, I’m doing it, the big catch was I got moved from tight end, which is a position I love, and I got an appreciation for blocking and got a pride for blocking. But the other half of the time, you’re catching touchdowns, you’re catching passes.
I love to have the ball in my hands as much as possible, love to score touchdowns. But I got moved from tight end to fullback. And at fullback, dude, you’re a crash test dummy. You are having the biggest collisions on the field, because instead of at tight end, or most of the other positions being one or two yards away from the guy that you’re going to hit, you’re now 10 plus yards, running full speed. You got the biggest, fastest, strongest people in the world, and you’re just trying to kill each other.
And when you’re running at fullback and Iso play up the middle, and in between the guards and tackles is like this narrow, you’re not leading with your shoulder. And if you do, you look weak and you probably aren’t going to make a good block. You got to run full speed, head on to blow that guy up, and that’s what I was doing and was having good success. But I was instantly feeling the repercussions in my head. For the first time, I had to start icing my head in the first time in my life. That’s a problem, you know?

David:
For a non-football follower, what you’re describing is you were basically moved to be a human battering ram to make space for running backs to come behind you in the area you developed?

Dean:
Exactly.

David:
And you’re not just running into normal wooden doors, you are running into missiles of human beings that have been created to blow through things. And there’s this massive… What’s that old saying that goes when a unstoppable force meets an immovable object type of a situation? And you’re doing this all with your head.

Dean:
Yeah. These human beings are handcrafted by God himself with a chisel, chipping away at this granite, and you’re now running into these immovable objects. The impacts were insane. They were huge and massive. And my body was holding up. I felt indestructible myself. I had the best nutrition, the best sports trainers, the best workout plans. I was indestructible myself. But the one thing you couldn’t avoid was hitting your head, and that just started to go, started to go fast.

David:
So you’re icing your head, which I’ve never heard a human being.

Dean:
Same. Same. I didn’t think it was a thing too. I kind of weird. I was like, “I’m going to put the ice here because I need it.” Like, “What the heck, dude?”

Rob:
Well, the good news is you said the big catch about this, right? That I think that’s the name of your upcoming memoir. So we can get that penned pretty soon here. But it’s all going well, you’re doing it. You start icing your head. At some point you’re like, “I can’t do this,” or… What actually made you step away from the team?

Dean:
That was it. I mean, everything else was quote, unquote, “perfect”. Was living out the dream and that was everything I’d hoped and dreamed of. And the other thing that was so surreal, that was so cool, was overnight… It’s just like when you join… in our world now, just when you join a mastermind. You’re now a part of the club, right? By getting signed by the team, you’re a part of the club. And overnight now I am buddies with Philip Rivers, I’m buddies with Antonio Gates.
Philip Rivers is calling me Deno, and he’s got a Southern drawl to his accent. We’re trading stories and talking about stories with Antonio Gates and how he actually spent time in Visalia, my hometown where I grew up, going to a junior college there, and how Kent State showed up at his door the day before he was going to go to Fresno State. He ended up going to Kent State, playing basketball, going to the NFL.
It was just all these cool relationships being built, and it felt like just like us talking now, just guys sitting across from each other having a conversation.

Rob:
Okay, so what was that… It sounds like you were doing pretty well financially being a football player, right? And so, is that something you had to weight the pros and cons on, stepping away? Because I imagine if you break contract or you walk away, it’s not like you get to just keep the salary that was promised to you, right?

Dean:
Exactly. That’s a good way to put it. And I think part of my story that I like to share to bring it back to reality is I walked away from the seven-figure contract. I didn’t walk away with it. I didn’t walk away with a ton of money. And so that was what I had to weigh, is the pros and cons of, “I can live this out. I can get through it, make this money, but what good is it going to be if I’m knocking that many years off my life?” I mean, because, dude, when you’re there, and I had a concussion when I was there with the Chargers, you don’t go run to the trainers and say, “Hey, I got a boo-boo, take me out.” You’re like, “No, I’m not telling anybody about this. I’m going to stay in because I don’t want the next guy to take my spot,” because it’s that cutthroat. You know what I mean? So it just got to the point where I knew that I was going to do serious damage if I kept playing and I had to walk away.

Rob:
Wow. Wow. Were you like, “Okay, I’m walking away from this seven-figure salary, but I’ve already identified how to make seven figures again”? Because I imagine that’s… You’re walking away from millions of dollars, let’s just put it out there. So what was the contingency plan?

Dean:
Yeah, you’re walking away from millions and millions of dollars, and status, and you’re at the pinnacle of everything. Professional athletes, singers and songwriters, they’re kind of held in this pedestal. They’re on this pedestal, so to walk away from that is kind of insane in itself. But I had no plan. There was no backup, there was no rich uncle. There was no connections to what was next. But I just knew I had to leave and I couldn’t look back. I just had to move forward.

David:
And you’re not just walking away from the money, though I would imagine the money’s probably the first thing on your mind. You’re walking away from status, you’re walking away from an investment. You’ve put how much time on the field, in the weight room, like you mentioned, nutrition, and an identity, right? There’s no man in the world that is upset about being identified in the top one of one of one percent of all the other men. And you’ve worked so hard to get there. You’re leaving all that behind too. Was that depressing? Was there a battle going on in ut mind between the angel on one shoulder and the demon on the other? What was that experience like?

Dean:
Yeah, that that’s actually probably the biggest point to make when it comes to athletes and when they retire or whatever happens in their career, they get injured, something like that. The status and money is one thing, but the identity is probably the biggest thing. And I think that’s why so many professional athletes struggle transitioning into life after sports, is because they’ve spent their whole life working to that point. All of their friends, all of their relationships, everybody recognizes them as that premier superior athlete, and then who are you now? Right? I bet even the Michael Jordans and the LeBron James’ and the Tom Bradys. I mean, a lot of those guys stuck around for a long time because that’s their identity. Who else are they? Even if they’ve made all the money in the world, they still want to be that person. So that was hard.
Now, I don’t know what it was, but I’m thankful that I didn’t spend a lot of time thinking about it. I just thought I have to move forward. But I think back to it, I think a lot of my early days in my career after football, I missed huge opportunities when it comes to building relationships and networking because that identity was gone and I knew I needed to create a new one. I needed to become that incredible, awesome person again some other way. And I kind of put my head down and didn’t go out and network like I should have because I was insecure about who I was at that point.

Rob:
Sure. Sure. So by the way, when was this? When did you decide to step away from the Chargers?

Dean:
This was 2012. So 2011/12.

Rob:
Okay. And once you made that decision to leave, what came next?

Dean:
So what came next, I was fortunate to have a good buddy I played college football with. He gave me a call. He said, “Hey, I know you’re done. I got an opportunity for you.” And he basically walked me right in the front door, past all the red tape, to an incredible opportunity at a tech company in the San Francisco Bay Area. And they were pre-IPO, already had 1000 employees at that point and were already… They were about to go into the stratosphere. And he basically walked me past all the interviews, all that stuff, took me right to the hiring manager, got me the job.
Now, based on what he described it literally was the perfect kind of thing of what I thought life after real estate would look like, the type of company, business, type of things I would be doing. The funny part was I went from the seven figure salary to now a $65,000 salary in the San Francisco Bay Area, which as you guys know, is a negative salary. You know what I mean?

Rob:
65,000 per month?

Dean:
No, definitely not.

Rob:
Hey, that’s crazy. Did you have the opportunity to get raises? Were you on a base or a commission or anything like that?

Dean:
That’s what I imagined. That’s what I dreamt of. “Hey, I’m coming in. This is what it is. This is the position. It’s entry level. It’s a good opportunity to get my foot in the door. Don’t be picky. You’re going to show your worth. You’re going to show how good you are.” Now, even though I don’t have any, in perspective of life now, I don’t have any real life skills except football. Don’t have any transferable skills except hard work and good discipline and work ethic, having a lot of energy, all that kind of stuff. I’m going to show my worth and get a pay raise quickly. So I’m working my butt off within that first year and nobody’s running to me saying I’m going to get a pay raise. Nobody’s rushing at me. It ends up becoming about 14 months into the job and I’m kind of talking to my hiring manager about what’s next, where’s the next step from here?
And as you can imagine, living in the San Francisco Bay Area, not having made all the money that I thought I was going to make in the NFL because I had that be a lot shorter than planned, money started to dry up really fast, really fast. And so I’m thinking to myself, “All right, I’m going to get my big pay raise. They saw how hard I worked this first year. I’m busting my butt.” And the big whopping pay raise was a $2000 pay raise, from 65 to 67. I was sick to my stomach, dude. I was so sick to my stomach because I’m thinking, “Dude, at least I’m going to get to six figures now.” Because I keep hearing about all these college kids that come out, go to the Bay Area, get these tech jobs. They’re making six figures, multiple six figures.
I mean clearly, I got skills and talents, they’re going to reward me somehow. But, dude, my stomach almost fell out of my body. I was so sick, and thought to myself, “This is not going to be it. This is getting nowhere fast.”

Rob:
Yeah, unfortunately, in Corporate America… I mean this is very common with millennials. I think back in the day it was a little different. You’d stay at a company, you’d work your way up. And I feel like millennials and the younger generation now, it’s a very common place to just jump around jobs every year or two, because that’s the only way that you can get a real raise these days. That’s how it feels. And so I remember jumping around advertising agencies every couple years and my parents are like, “Son, what are you doing? Are you not good at working? Why are you moving around?” I’m like, “It’s the only way to get more money is you have to just threaten to leave and do that kind of thing.” It’s very frustrating that that is how corporate is sort of built.

Dean:
Yeah, you almost have to leave and come back to make more money.

Rob:
Exactly. The boomerangs.

David:
I mean, as a side note, before we move on into the real estate side, I will say, Rob, you had a great point. It used to just be longevity. You were rewarded for loyalty and staying somewhere. In today’s market, you are rewarded for what you produce and the skills you can build. And so I think people should lean more towards learning new skills, getting good at whatever it is they’re doing, and making sure that the skills they’re building are useful, right? It wouldn’t be super great to learn how to be a great salesperson at Blockbuster. Even though you’re building skills, those are not useful skills. You want to be building skills in a area that are valuable in today’s society.
And unfortunately, you have to pay a lot of attention to what… You can’t just put yourself in cruise control and drive down the highway at a comfortable pace and know I’m going to end up at a destination that I like. You really do have to pay a lot of attention, which is I think why real estate investing and real estate in general has become so interesting to people, because they’re already always thinking about, “What’s the next move? Where’s the next opportunity? Where’s the next… How do I add value in some way?” Those skills translate pretty well into the world of real estate. So Dean, for you, how did real estate enter into your picture?

Dean:
So I just remember that moment was such a big impactful moment for me that I left going back home thinking to myself, “Okay, so I literally just saw what life could be like in the NFL. What else had that potential?” Because it clearly seems that I got to take things into my own hands and write my own story here, because they’re not going to do it for me at this corporate job. So what could get me back to that dream life and live life on my own terms? Because that was a childhood dream. I’m going to put the team on my back. I’m going to get the whole family their own houses. I’m going to financially take care of everybody. That was kind of the dream. And I saw that that was possible with the NFL.
So, I went back home in my 424 square foot studio in San Francisco that I was paying way too much for and thought to myself, “What else do I like?” And again, at 25 years old, you don’t know what you really like. I mean, some people are fortunate to know what their passion is, but, dude, what do I know about the world outside of football in terms of what I like and what my passions are? Only thing I can think of, literally the only thing I can think of, is watching the HGTV shows with my parents, Love It or List It, and the late night Dean Graziosi infomercials about getting started in real estate investing.
That was all I could think of. It was completely blank up there. And I just thought to myself, “Well, maybe I want to be like a realtor, some sort of investor?” I didn’t even know what that looked like. I had no prior experience. My parents owned some rentals growing up, but not… It wasn’t a full-time thing. They were entrepreneurs with their own business in the software space. But I didn’t know what that looked like. I just got on Google. I typed in, “how to get started in real estate”, and lo and behold, what popped up at the search results, at the very top, was Sean Terry, his Flip2Freedom podcast, a free podcast just like BiggerPockets. I was like, “Okay, what’s this?” So I click on it. He comes on, he’s talking about how you can get started in real estate with little to no money.
That sounded great to me because I had little to no money at that point. Money was drying up. And I thought, “What’s the catch? Let me listen a little bit more.” And from the first episode I listened to, I just got so excited about what I was hearing, how I could do certain types of marketing strategies to find properties. And then I didn’t even have to buy them using my own money, I could sell that property to someone else and it was called wholesaling. And I thought to myself, “This sounds like too good to be true. Is this real?” And he is talking about how the pest control guy, who was making $20,000 a year salary, is making multiple six figures. I’m like, “Okay, let me just try this out.”
So, I just take insane action on this free podcast and start following step-by-step what he was saying. And I had to fill in a lot of the blanks, because it wasn’t like, “Do this, do this, do this.” I had to fill in the blanks, but I took action. And within three months, I did my first deal. It was a deal that I got on a contract and I couldn’t wholesale it. What makes this story even more fun is it was in Arizona because Sean Terry was talking about his strategies. I didn’t know anything about San Francisco real estate and I didn’t really have money to market other places, so I just followed his strategies in Phoenix, Arizona.
Got a property in a contract, couldn’t sell it and then I contacted his company by going to his website, filling out his online form like I was a seller. And then his team called me and then I was like, “Well, this is really what’s happening. You think you guys could help me?” And he’s like, “Oh, yeah, no worries. I’ll put you in contact with Sean.” So Sean calls me from his car, gets the scoop and he’s like, “Yeah, we can help you sell it.” He got it sold for 12 grand within like 48 hours. We split it 50-50. I made six grand. I remember sitting in the office in San Francisco and just when the wire hit, I was like… I jumped up and I was like, “Woo.” I gave a woo, you know? And I was like, “This is real. This is cool. I can see where this can go.” And that was proof of concept.

Rob:
See, and what I thought you were going to say… And that’s a really cool origin story too. I really don’t want to gloss over that. I just thought you were going to say that you saw David Greene on an episode of House Hunters, on the one episode that he did, and that’s what caused you to go all in.

Dean:
I wish it was that. I wish it was that. But at the time, that was what popped up. There was amount of information out there in those days, but just grasping on it and taking action and getting that proof of concept, I knew, “All right, I could do this. I can see that there’s potential in this. I’m going to go hard on this.”

David:
It’s a beautiful moment when you get that moment of clarity. I’m sort of at a point in my life right now where I’m struggling. It feels like you’re just in the ocean and you’re getting pulled underneath and you get up to get a breath and then you get sucked back down again. I’m sure that’s what it was in that corporate job of, “I know there’s more, and I know I can be successful. I believe in myself, but oh, man, I just can’t see the way out of this. I don’t know what the path is.” And you’re just pounding forward hoping something opens up and it’s not. Those moments are a part of life and they’re tough. They’re very, very tough. I’m sure you had times, Dean, where you’re like, “Why the hell did I leave the NFL? What was I thinking? Now I’m out here making 65 grand a year.” You’re basically living paycheck to paycheck in this tiny studio.
I mean, you’re a big dude. The bed probably couldn’t… it wasn’t big enough for you, you got the feet hanging off the edge. It’s like the healthy food you want to eat is just really expensive and you feel bad about… It’s a tough, tough life. And then you get that moment where that light from Heaven shines on you an, “Oh, I get it. I see it.” And it’s like the best feeling because your heart explodes with joy. You get all excited and you’re like, “I will run through a brick wall to make this happen now that I know where I’m running.”
I’m waiting for the next stage of what my own development’s going to be like, and I’m in that same place. Do you remember where you were sitting or what kind of thoughts were going through your head that you can describe what that moment was like when you got that clarity?

Dean:
Yeah. I want to touch real quick what you said about those tough moments, because I got a lot of tough moments in my journey, aside from just the beginning. But specifically about the beginning, just to paint a picture for people and why I think this is relatable and I think people’s ears will perk up to this and it will feel real to them, dude, think about that whole identity crisis of shifting, of being in the limelight, to starting over, to living paycheck to paycheck. I remember vividly feeling like a failure because there was a period of time there towards the end, before I did my first deal and started doing deals after that, where our credit cards were starting to get maxed out and there was a month or so where in order to get groceries, I kid you not, we had to use our Target credit card that we had recently got to go buy groceries at Target because the other credit cards were maxed out.
The month-to-month paycheck was real. There wasn’t an abundance or an overflow of money. I had to buy groceries, my wife and I, at Target with our Target credit card and that’s what got us by for a little bit.

Rob:
Thank you so much for sharing. I actually do think a lot of people at home can totally relate. It’s really hard to make a living sometimes, especially when you’re first getting started. You might have student loans, you have rent, and there’s just a lot of things. So thanks for sharing, man. It seems like you’ve come a long way, which is really cool. It’s really cool to hear the story, the origin story, and then the next origin story, which is really cool. Now that you’ve been doing real estate for 10 years or so, I understand that your main strategies are wholesale, fix and flip in single family. And as you were learning about these strategies, were there any low points or learning moments along the way because it seemed like you were sort of taking on a lot there?

Dean:
Yeah. So the first year I’m wholesaling. And the second year I’m wholesaling now a couple properties in my local market in Central California. My now business partner had come to me at the time, I had wholesaled him a couple deals, he said, “Hey, you’re great at finding deals, you want to do some flips together?” And I’m thinking to myself, “That’s exactly what I want to do next. I want to fix and flip. That’s the next level after wholesaling. I’ll make a bunch more money. This will be great.”
Well, at the time, spare you all the details, he said the market was slowing down a bit in Central California. “You did some deals in Arizona, right? You want to do some flips there?” I said, “Well, I got some relationships there. We could find some deals, meet some contractors.” So we buy six houses in the first month. I was ready to keep buying and buying. He’s like, “Let’s slow down. Let’s see how these deals go.” Well, flash forward in that… literally my second year now, and I haven’t made a ton of money. I’ve made maybe 60, 70,000 dollars.

Rob:
Just your salary, by the way.

Dean:
No, on top of the salary.

Rob:
Okay. Wait, yeah, that’s a lot.

David:
You doubled your salary, basically.

Rob:
You doubled your salary, that’s crazy, man. That’s so cool.

Dean:
I did. But in all fairness, it wasn’t just sitting in the bank. I’m reinvesting it in the marketing. I’m doing the things that I should to grow.

David:
Those hair care products can’t be cheap, Dean.

Dean:
They can’t, yes. They get expensive.

Rob:
Thank you. Can confirm.

Dean:
We get into these flips. Mind you, he’s experienced. He’s always got the experience. He jokes to this day at that point he was saying everything he touched turned to gold. “What could go wrong? Let’s just do some more flips.” So everything goes wrong on these first flips. Everything goes wrong. Bad contractors where we had to redo the work. The comps that we took at face value from the realtors, they were good on one side of the street, but the side of the street ours were on were not apples to apples. Everything went wrong. We lost $100,000 on those flips. Four of them went good, two of them went bad and they went really bad. Lost $100,000. I was not in the position to lose $100,000.
And so that was a huge gut punch and a setback for me. The only way to get out of that was to go do more deals. It was the only way. I had to dig deep, fight my way through. Now, you said low points, I got a couple. That was the first one. The next one, which I feel like has got a lot more story to it and learning lessons, is I’m now on the up swing. I’m in the beginning of my hero’s journey. I transition into real estate. I get knocked down, I’m getting back up. I’m Rocky Balboa getting out of the trenches. And I’m about to have my first son. I’m thinking to myself, “Well, I’m living back in San Diego. I’d love to get in some deals in San Diego while I’m doing the stuff in Central California. Real estate’s sexy and hot out here in San Diego, I’d love to do some flips.”
Well, someone that was in my circle of trust, doing deals with other people, of other people I knew, kept presenting and kind of putting deals in front of me. And I didn’t listen to my gut. I knew this guy was kind of a little off in some areas, but at that point on my upwards journey, I really felt like I needed to do a good deal. Like a good deal, I need to make a good chunk of money. I’m about to have my firstborn son. I’ve been fighting out of the trenches, trying to make my way and have a big splash. I want to do a good deal.
He put this deal in front of me that was a new construction deal, something completely out of my area of expertise, nothing I’ve done before. And the thing that was making me feel comfortable about it was he was going to do the project right next door. It was two houses side by side. And I didn’t really listen to my gut. There were some read flags. The big lesson that I’ll tell up front, that is almost embarrassing, is that I didn’t verify any of the information. I literally just took everything he said at face value. I didn’t make the extra phone calls to verify anything. I didn’t do my own due diligence. I literally was just focused on doing that deal because I needed to do it. And I learned it’s better to do no deal than a bad deal.

David:
Okay, this is a great point we’re getting into because while everyone will listen to that and be like, “Man, what are you thinking? You didn’t do due diligence?” Everyone makes this mistake. Really successful people make this mistake. I don’t want to say any names, but I know people that have lost seven figures investing into syndications with very reputable people who were also investing in them, okay? We’re talking about the pinnacles of names in our industry were going in there, and then everyone else hears, “Oh, that’s guy’s investing? Yeah, I’ll put money into that thing.” And it does not seem, at the moment, that you’re doing something reckless. It does not feel wrong.
It’s kind of like… I don’t have a great analogy, but when you’re told the undertow of the ocean can be strong, but you’re looking at it and you’re like, “I’ve been in the ocean so many times, it’s not that bad.” And you just go out there, and 99 times out of 100, you’re fine. And then that one moment, the undertow grabs you and you come out and you’re like, “Guys, I can’t tell you how scary that was.” And we all hear this story like, “I’ve heard about undertow. Why don’t you know about the undertow?” It’s happened to me. It’s happened to people that have been on this podcast before.
It is very easy, when you start hearing about other people who are doing this deal, using these people, and you’re, “Oh, that guy vetted it and that person vetted it, and then I don’t have to vet it.” And then people hear you did it, and then they go do the same thing. And then next thing you know, we have this fantastic ripple effect of everyone that has skipped due diligence and we’re all relying on the due diligence that we think somebody else did. It’s like a phenomena that I see all the time in our world.

Dean:
I’m so glad you touched on that more, because that’s… Just making the extra phone call and doing the extra due diligence will save you so much pain and heartache on that one time where the deal goes wrong. And I think a lot of us are optimistic. We think, “Hey, we’re good people, so other people we’re around are going to be good people too. No one’s going to do wrong to me.” But all it takes is that one wolf in sheep’s clothing, like this person was, that can just totally blindside you. And that’s what happened. So I bought into the deal. I was promised day one, we were going to start moving dirt.
And part of the story that’s worth telling is the money that I borrowed to buy this deal was from my grandparents. These are my grandparents on my dad’s side of the family. They were immigrants from England. They grew up during World War II, where literally bombs were going off in their neighborhood and they had to go to shelters out in the farmland. My grandmom’s got stories of having fighter planes diving down into the fields and shooting at her and her having to dive in ditches. These are World War II survivors that emigrated to the States and were blue collar workers. They sold a house to move close to my parents and they had a little bit of money in savings.
This was not all their money, but it was pretty darn close. And we’re not talking a lot of money based on the type of deals that we do today, but it was a lot of money to them. And so that had a lot of weight to me, and the fact that I didn’t do my due diligence, and realizing this after the fact, was really just super hard on my heart. I just remember once it finally dropped and I finally realized that this person literally scammed me. It was basically a house of cards. All the plans that he was showing to me, all the construction financing that was in place, all these things, all of it was a house of cards.
I ended up making phone calls once I realized, “I need to do something here,” and found out the civil engineer hadn’t been paid. The plans and permits that said were approved, not anywhere close to it. The construction financing, there was hundreds of thousands of dollars that were already withdrawn based on fake receipts.

Rob:
Oh no!

Dean:
I mean, you want to talk about disaster.

David:
Really?

Dean:
Yes, dude. Just sick stuff. I spent the next year renegotiating with all these people, short of begging and pleading, making my case like, “Hey, I know you’re not going to get paid your full amount, but I’m losing hundreds of thousands of dollars here. Can you please do whatever you can to help me out? I’m just trying to see this through.” I had on the top of my mind, “I got to get my grandparents’ money back.” I just remember at the event of selling it, I had to sell some stock that I had got at the corporate job. I had to do whatever I could to get that money back as fast as possible.

Rob:
And did you?

Dean:
I did, yeah. Yeah, yeah. I didn’t get it all back day one. I did have to have additional money left over. I think I did about $100,000 up front and then I had some more money that were stuck in some of my flips, that I had to sell those through to then get the money and just pay them back. It just was an agonizing low point. And my firstborn son is now born and I’m literally living in this moment of being in this low point and not at my best and just feeling really down.
I’m like, “Dude, I made another mistake,” after my mistakes with flips. “Now I got to go fight again. I got to go fight again and find my way out of it.”

Rob:
Can I ask you something about that?

Dean:
Yeah.

Rob:
I’m curious, it sounds like it was a pretty disastrous time in your life, low point like you’re talking about, a lot of crazy things happening. If you could go back and push a button that saves young Dean from having gone through any of that, would you?

Dean:
Oh, my gosh. I would do it, yes. Even though those were good life lessons, I know that it was something that was so simple… I’m not joking, it was so simple. The construction financing that was in place and that was a lean on the property, I have have… and still to this day. I had the main person from that company, I had their cell phone in my phone. I could have sent them one text, “Hey, looks like I’m about to come in on this deal. You guys got everything good to go and ready, right?” And he would have said, “No. It’s all effed up.” It would have been one text message or phone call that would have saved me all the pain and heartache.

Rob:
Yeah. Well, that’s a lesson learned right there. Was there any other really big lesson from this entire scenario that you took away from it?

Dean:
I think the other biggest lesson, looking at the positive side, is I learned that I’m willing to fight no matter what. There were multiple times throughout my journey where my back was against the wall or I got knocked down. And I think with sports, what gave me… The most transferable thing was willing to put in the hard work, when no one’s looking either. Because are you eating the right things? Are you putting in the extra reps? Are you getting the proper sleep? Are you not partying? Are you taking care of your body? Same thing with sports.
Are you studying your playbook, are you prepared for the opportunity are what transferred over again. I wasn’t the biggest, the fastest, the strongest, the most athletic. I had to be consistently good at what I was doing to have that opportunity to play in the NFL. And now, being in the real world where there isn’t really that safety net, you can get scrapes and bruises and cuts, it was up to me to do the work. No one else was going to come save me. It’s for me to put my pants back on, get to work and figure out how to learn from that lesson.

Rob:
Yeah. How has that affected your borrowing strategy when you’re raising money from other people?

Dean:
Yeah. Well, it just helped solidify a belief that I had from day one. I mean, I think morally and who I am as a person is I’m huge, huge, huge on if you’re going to borrow someone else’s money, it is so much more important than your own, so much important than your own. And that needs to be reflected in your due diligence, a lesson that I learned really well. And it also needs to be with how you communicate with that private lender. It needs to be on how you treat it and be a steward of that. You need to be doing good deals.
And if something goes wrong… because that happens, that’s that’s part of the business. Things can go wrong even if you’re doing so many things right. There can be unforeseen things that happen. You got to do everything in your power to communicate well. And if you are in a situation where you have a loser, because I’ve had flips where I’ve lost some money, you got to make sure that they get all their money back, plus the interest day one of closing. If for some reason that’s not possible, you communicate a plan and strategy and make sure that they feel comfortable that you’ve got their best interest.

David:
I’m glad to hear that approach. I feel like in… probably not on this podcast, but in the real estate industry in general, especially in the influencers ecosystem, the common question you’ll get is, “Well, how do I invest in real estate without money?” And then knee-jerk response is, “Well borrow it from someone else. You can just go get their $120,000 and you can put it into the deal.” And for someone that doesn’t have $120,000, they’re like, “Oh, that makes a lot of sense.” They don’t really value that because they haven’t had to work for 17 years to save that money and plan on that being a big chunk of their retirement.
And you just throw it around like it’s nothing. And we’re saying this to people that are new, that don’t have experience investing in real estate, that are the ones most likely to screw it up and lose it and they don’t value it because it’s not theirs. And that becomes the standard bread and butter response to someone that doesn’t have money, which is probably the worst thing that you could tell somebody. You want someone that’s lost their own money a couple of times and understands how it works before they go start scaling and-

Rob:
And how much it hurts.

David:
Yeah. Does that just grind on you every time you hear someone say, “Oh, OPM, just go get it from someone else?”

Dean:
Yeah. No, I think that’s such a good point because if you don’t have the perspective of how hard it was to earn that money, then you probably don’t value it.

David:
It’s such a good point. I made this a comparison that we talk about moving money around, taxing these people and putting it over here, borrowing money from this person, using it in this way because money is very easy to move. But if we applied that logic to other things in life, we would immediately staunchly oppose it. So, Dean, you work out a lot. You’re really fit. Imagine a world where people said, “It is unfair that Dean looks like that and I’m over here with a dad bod, or I don’t have those good looks. It’s not fair. So we’re going to take some of dean’s muscles and put them on this other person and then Dean has to go work out again and earn it all over again.” That person, even if we did that, would not maintain the muscles that they were given from the work you did because they don’t understand the regimen, the hard work it takes to develop that. They’re not going to appreciate it. They’re going to let it fall apart.
Whereas, you, who understands how much work and sweat was put into building that, you’re going to value it more, right? That’s why people like you stay in good shape all the time, and people that are not in good shape usually don’t get in good shape, or if they do for a brief moment, they lose it because they didn’t have to understand the price they paid for it. And I just feel like money is a very similar thing. If you’re not a adopting the habits that build wealth, you just don’t get wealthy. If you don’t adopt the habits that make people physically fit or successful at something, you lose it. There’s no magic trick to just grab it from someone and stick it on someone else and be like, “Ha-ha, there you go. You have it.” Is this a thing? Because I know you’ve got a platform too, people are looking up to you. Do you see this problem with the people that follow you and want to get into the life that you’ve built?

Dean:
Yeah, dude, that’s such a trigger button for me, especially when you relate it to taxes. The thought that I’m going to dedicate my life seven days a week, whatever your work schedule is, however many extra hours you’re putting in, and the people who are clocking in or out, or not even going to work are going to take my money, oh my gosh, are you kidding me? This is insane. I’m putting in the extra work so I can have more. That’s fair, right? If you work more, you get more. If you add more value, you get more value. I don’t know, it’s crazy.

David:
Well, with everything else in life, we understand that. But when it comes to money, all of a sudden we just suspend that logic and now we make an argument why. Because money can be moved so easy. If we were taking fat off of people that were out of shape, from liposuction, and sticking it onto skinny people, there’d be an uproar about that. “This is not fair. I had to do a lot of work to try to get fit, and now I’m just taking on somebody else’s laziness.” So I appreciate you sharing the story.
But I staunchly believe before you ever touch a dollar of someone else’s money, you should be grinding away. You should be risking your money. You really want to appreciate the value of money before you start throwing around somebody else’s. Now you bounced back from that. You’re doing very, very well. Like we mentioned, you’ve done over 600 deals. In today’s market, what are you doing to find these things?

Dean:
Yeah, so, man, when I first started out and I started paying money for marketing, it was just direct mail. That was all I was doing, direct mail, right in the beginning, 2013, for a handful of years, all I was doing for marketing. It went from a deal every other month, to then a deal a month and a couple deals a month, to about a handful of deals a month just from direct mail. At this point, with the way the market’s changed, the more information that’s out there and us doing more deals to get there, we’re doing TV ads, we’re doing radio, we’re doing PPC, which is Google pay-per-click. But, undeniably, the most exciting part of our business in terms of growth opportunity potential that gets me fired up is we get 40% of our deals from other wholesalers, other investors, other realtors, from other relationships.
It became a thing, to where I actually gave it a name. I put branding around it and I call it our Friends with Benefits program. It all started back with… 2020, I started a meetup. The whole concept behind the meetup was, as I said earlier on, I’d been kind of heads down, working on myself. I want to become somebody before I become back out into the world. I need to re-find this new identity, this new success, which was a limiting belief. But I need to be now getting in front of people. Now that we’ve done stuff, I need to get in front of people. Let’s start a meetup.
We start the meetup in February of 2020. We got about 100 people to show up. Great turnout. I’m like, “This is great. I want to add value to other people, the abundance mindset. I want to give value, the law of reciprocity. God will return that in one way, shape or form, and that’s the approach. That’s why we’re doing this.” Well, as you know, the world shut down and I thought to myself, “How else am I going to add value to people?” I quickly got into social media and started sharing about what we were doing. “Here’s what’s working. We’re still doing deals. Here’s the results we’re having.” And I thought to myself, “We’ve done deals with other people. I bet you we could help other people right now.”
So I started saying, “Hey, guys, if you got any deals that you need help with, we can help you on those deals. We can help you from… Literally, if you need help contacting the seller, negotiating the deal with the seller, going on the appointment, getting pictures, getting it under contracts, we’ll help you with all of that. Just bring a qualified lead, we’ll help you.” And slowly, that started to build momentum. Not overnight, but slowly started to build momentum and more and more people started bringing us deals. And then I started sharing on social media like, “Hey, look, we just closed this deal with so-and-so and we made $40,000. We split it 50/50, made 20 each.” This started to catch fire, and I thought, “I love sending friends money. Why don’t I call it Friends with Benefits?”
We made t-shirts with it and all that kind of stuff. Now 40% of our deals come from other people. We’re talking millions of dollars here that come from other people. And you can think of those as free deals for us, and maximized deals for the other people. We have new and experienced people bringing us these deals and we have a reputation for doing this really well. Now we’ll take somebody who’s new or doesn’t have the time to see that deal through, and instead of them kind of squandering the deal or even losing the deal, we’ll help turn that deal into 20, 40, 60. We’ve had even a truck driver bring us a deal that turned into $110,000 profit.
After we handled the cash for keys with the squatters and dealt with all that, it was 105 net profit. We wired him 53,500. I mean, that’s what it’s become and it just lights me on fire, dude. It’s super exciting.

Rob:
That’s amazing. And honestly, it’s very cool to hear you say this because it’s almost like this full circle moment for you where on the first deal ever, you reached out to the podcast and you were like, “I need help with my deal.” And then now you’re kind of saying, “Hey, reach out to me and I’m going to help you do your deal.” You’ve experienced this full circle transition. Do you feel like you’ve arrived? Have you done it? Have you conquered real estate?

Dean:
I do, yeah. I feel like my partner and I, we were just getting together. I was back in the community this past month and we were sitting down with some of our team members and we were telling them. Even though we spent the past 10 years getting to where we’re at now, and we’ve accomplished a lot of great things, the rental portfolio, we’re doing multiple seven figures a year in our active wholesaling and fix and flip business. Even though we’re doing that, I feel like we’re just barely getting started. This is the winning season. There’s been a lot of ups and down. And my success would have been here sooner had I not made those mistakes, in my belief.
But, apparently I needed to go through those life lessons, and I feel like we’re just barely getting started. So I’m insanely excited and I know what feels so good, what’s kind of crazy is I’m making NFL money now, and I’ve got my health. I’m making NFL money now. I’ve got over a million dollars in the bank, and we’re making that much more. It feels incredible. It feels fulfilling, but I know in my heart, because I’ve got these big goals and dreams, I’m just getting started.

Rob:
To be fair, I mean, you’re probably still putting bags of ice on your head because you are still in real estate, right?

David:
No, I was just thinking about comparing, making NFL money in the NFL, or making NFL money out of the NFL. I was kind of weighing very quickly the pros and cons. You make an NFL money in the NFL, it’s going to come with some of those other perks, like the red carpet experience, the craziness, the models that are going to be hanging around. Everywhere you go, you’re going to be recognized, so you’re probably going to get an ego that’s constantly fed. It’s also going to come with some downsides. The constant stress and worry, “What if I get hurt? What if I have a bad performance? What if they draft some stud who comes along behind me?” And then the hardest part for me would just be there is a timeline of how long you can do that for. Father time is undefeated, especially in professional sports.
You are not going to play football forever. I think the average career is probably what? Like three years or so, is that about right? And then you have a great career of seven years, now what do you do? It’s not like those skills transfer into something else. You either go be a coach or you end up coaching Pop Warner high school football, making half of the $65,000 that you were doing. Versus, making that money in real estate. You could theoretically do this as long as you have mental faculty rating. And like you said, this is just the beginning.
You have exponential opportunity to grow. New doors are going to open, new skills are going to be built, scaling opportunities are there. It’s just a superior financial option if you could choose between making that money in real estate, or making it in even a professional sport, which to most people is the pinnacle of achievement in America. You become a professional… honestly, there is nothing better that you could possibly do, and this is even better than that. It’s such a cool, cool story how things turned out. Do you even think about that?

Dean:
Oh yeah, all the time.

David:
That was a good answer. I wasn’t expecting it to be that quick. That was very nice.

Rob:
Yeah, that’s it. Short and sweet. I love it. Yeah, I do. I do.

David:
Side question, Dean, how often do you get told you look like Johnny Bravo?

Dean:
That’s a good one. Actually, not too often. One of my good buddies, he likes to call me Captain America, so that’s the one I probably get the most.

David:
There’s a little bit of that. You and Rob got the same hair, but yours is moving off to one side and his is moving off to the other side.

Rob:
And then your hair is also about two feet above mine in terms of where it actually sits altitude-wise on the planet, because you’re much taller than I’ve stood next to you. If anyone’s ever seen us stand next to each other, just remember I am 5’8″. That is the national average.

David:
That’s right, Rob. You’re very average in every way. And that needs to be acknowledged and recognized every single opportunity that we can get. Dean, any advice for people that are looking to follow the path that you took and where can they find out more about you?

Dean:
Yeah, I’d say the advice I always love to give is just you got to put in the work. No one’s going to do it for you, and you got to be willing to do that. If you don’t want that kind of life, there’s nothing wrong with living the nine-to-five life. But if you’re listening to this podcast, chances are you know there’s other opportunity, you know you have more potential, you’re looking for a better future. So if that’s you, then be ready to take action. Because if you don’t take action right away, you’re going to build the habits of not taking action, of procrastinating, of putting it off, of finding an excuse why you can’t do it and why it doesn’t work for you. But I can tell you right now, real estate, why I am in insanely passionate about it and why I love coaching students to this day, is because of the fact that anybody can do it.

Rob:
Boom, love it. Mic drop.

David:
Where can people find out more about you?

Dean:
Yeah, so I love connecting with people. That’s always the biggest call to action I say is to connect. If you listen to this, you felt like you received value, you feel like you resonate with some of the story. Dude, I’m a real person. I answer my DMs. You don’t have to go through three assistants. I want to connect with people. I always tell people, go to Instagram, Dean Rogers Real Estate, you can find me there. You can always find out more about me at deanrogers.com. You got all my social media stuff on there. You can learn about how I can help you get started in real estate through my coaching program too. I love connecting with people. It’s a passion of mine as well, and just love finding new opportunities through new relationships.

David:
Awesome, man. Rob, how about you?

Rob:
Well, I also handle my own DMs. I don’t necessarily handle them very quickly and I may never respond because there are a lot, but I do my best. Every day I go in and I respond to the ones that are short. So send me a DM over at Robuilt, and hit me up on Instagram as well at Robuilt as well, and be sure to write the lengthiest DM and send it on over to David.

David:
Thank you for that, Rob. Really appreciate it. So if you want real estate advice, message Dean. If you want football advice, message Rob. And if you want life advice, you want to talk about spiritual matters, you want to talk about overall financial stuff, you just want to vent about what’s going on in this crazy market, you can find me, @DavidGreene24. I’m on Instagram quite a bit. You can also go to DavidGreene24.com and you can check out the different ways that I put things together to help investors and connect with people. So please do. This is David Greene, for Dean, Blue Steel, Rogers and Rob, The National Average, Abasolo, signing out.

Startups face numerous challenges on their journey to success, and failing to overcome any one of them could be fatal. Because of that, it’s a good idea to enter the ring armed with a good idea of how to solve these problems.

In this article, we will touch on five obstacles that can hinder startup progress and provide brief advice on how to tackle them effectively.

1. Finding The Right Cofounders

Building a strong founding team is paramount for startup success. Look for partners who complement your skills, expertise, and values. A well-rounded team brings diverse perspectives and mitigates the risk of a single point of failure.

Seek individuals who share your vision and bring added value to your startup. It’s usually a good idea to put active effort into finding these people. Generally speaking, it would be easier to do if you have a rich-enough professional network and you’ve worked closely with different people.

You really want to know your cofounders for a while, ideally years. – Sam Altman

Starting a business together is a bit like a marriage in terms of intensity and overall time spent together. It would be a to embark on such a journey with a person you don’t know.

2. Employing The Right People

Attracting and retaining top startup talent is difficult, but crucial. The quality of your team would to a large degree predetermine your success.

Evaluate candidates not only for their skills but also for their alignment with your company’s values. Early team members shape your startup culture, so hire individuals who embrace your vision. Building a productive and cohesive work environment is essential for long-term success.

3. Finding Product-Market Fit

Investing a lot of resources in your vision without market feedback is one of the easiest ways to fail as an early-stage startup founder. Validating the market demand for your product or service is a significant challenge, but it is a must if you want to succeed.

Engage with potential customers, gather feedback, and adapt your offering based on their input. Regular communication and validation tests are essential for finding product-market fit. Continuously refine your product to meet customer needs and increase your chances of success.

4. Finding The Right Market Niche

There are two parts to the product-market fit. The first one is the product – this is the part on which most founders focus when they can’t find PMF. They iterate on the MVP (minimum viable product) in hopes that their offering would become more valuable.

A lot fewer people consider the second half of the equation, however – the market. It’s almost impossible to influence the market as a small project, but you can change it.

Identifying the right market niche is often overlooked but crucial for startup success. Instead of directly competing with established players, target a small niche with specific demands. Focus on a group of people who can benefit from your solution and can be reached through effective channels. Define very well your MVS (minimum viable segment) and

Building recognition in a niche market sets the foundation for future growth.

5. Having A High Impact With Low Funds

Effective financial management is critical for startup survival. Monitor cash flow carefully and avoid depleting resources before achieving product-market fit. Develop basic accounting skills and maintain clear financial records. This knowledge is valuable when seeking investments or bringing on co-founders. Understand your financial needs and include them in your business plan to support informed decision-making.

In summary, by addressing these five challenges head-on, startups can overcome significant obstacles on their path to success. Building a capable founding team, hiring the right employees, finding product-market fit, targeting the right market niche, and practicing effective financial management are crucial steps toward achieving startup success.

This article is presented by Kiavi. Read our editorial guidelines for more information.

A critical yet often overlooked part of the real estate investing puzzle is crafting a comprehensive and detailed Statement of Work (SOW). Whether you’re a seasoned or a rookie investor, you can benefit significantly from this powerful tool. 

Your SOW helps keep your project on track and can be instrumental in securing financing for a fix and flip property, particularly from hard money lenders. Let’s dive into why a detailed SOW is critical and how to create one.

What is a Statement of Work?

In the realm of real estate investing, a Statement of Work (SOW) is a document outlining the entire scope of a project. A rehab or renovation plan outlines the work to be done. It typically includes a timeline and cost estimate for each task. This document is critical to planning your project and setting expectations with your team, contractors, and lenders.

The Importance of a Detailed SOW in Real Estate Investing

Streamlining project management

The art of successful real estate investing often lies in effective project management. Your Statement of Work (SOW) is vital in facilitating this process.

An SOW is your strategic roadmap. It outlines the work to be done, the timeline for each task, and the budget, providing clear guidelines for all involved. But more than that, it shapes the trajectory of your project, offering a detailed plan that illuminates the path from start to finish.

With a well-crafted SOW, each party involved in the project—your contractor, team members, or other stakeholders—clearly understands their roles and responsibilities. This explicit delineation reduces potential misunderstandings and conflicts, ensuring smoother project execution. Everyone knows what’s expected of them and when, which helps to keep the project on track and minimizes delays.

Additionally, the SOW helps you manage your resources more effectively. Outlining the scope and sequence of tasks allows you to allocate your workforce, materials, and budget optimally, reducing wastage and maximizing efficiency. This element of the SOW is instrumental when managing multiple projects simultaneously, as it provides a clear picture of where resources are being deployed.

The timeline outlined in the SOW also aids in setting realistic expectations and managing them throughout the project. Deadlines for each task can be tracked and adjusted if necessary, keeping the project’s pace and ensuring that the final deadline is met. This aspect is crucial for maintaining a good relationship with your lenders who are keen on timely project completion.

Furthermore, the SOW acts as a point of reference for any potential disputes or disagreements arising during the project. By referring back to the SOW, issues can be resolved more effectively and objectively, ensuring that the project stays on course.

A comprehensive SOW streamlines project management and enhances efficiency, accountability, and resource allocation, all of which contribute to a successful real estate investment project.

Facilitating clear communication

Clear and effective communication is the bedrock of any successful project, and in real estate investing, it’s no different. A comprehensive Statement of Work is a communication tool that ensures all project stakeholders—contractors, team members, or lenders—are on the same page.

Firstly, the SOW sets clear expectations. Outlining the work to be done, the people responsible for it, and the completion date provides clarity. This is beneficial for both team members and contractors. This ensures that everyone understands their tasks, roles, and responsibilities from the start, eliminating assumptions and preventing potential disputes.

Secondly, the SOW helps to maintain transparency throughout the project. It provides a framework for regular check-ins and updates. Compare progress to the planned tasks and timelines in the SOW. This will help you identify any deviations quickly.

Communicate these deviations to the relevant parties. This level of transparency helps keep everyone informed, reducing the risk of misunderstandings and promoting trust among team members.

Additionally, an SOW helps keep everyone’s eyes on the prize by clearly stating project milestones and end goals. Encouraging accountability in this way helps to motivate team members and contractors. They work towards specified goals and can track their progress.

Finally, from a lender’s perspective, a detailed SOW demonstrates professionalism and shows that you have carefully planned your project. It gives them an understanding of the project’s potential. This can help you and your lender to communicate openly. This makes it easier to talk about financing, deadlines, and repayments.

A detailed Statement of Work is a great way to communicate. It simplifies interactions, increases transparency, sets expectations, and builds trust with all project stakeholders.

Securing financing

In real estate investing, securing reliable and fast financing is often a decisive factor in determining a project’s feasibility and success. A comprehensive Statement of Work (SOW) can significantly contribute to this process, particularly when dealing with specialized lenders such as hard money and private money lenders.

These lenders are keenly interested in the intricacies of the projects they finance, and a well-detailed SOW can be the key to unlocking their support and funding. Providing an exhaustive SOW paints a clear picture of your project, allowing lenders to assess its feasibility, risks, and potential returns thoroughly.

Your SOW outlines the overall project plan, the tasks involved, and the timeline for completion, enabling lenders to understand the project’s structure and progression. This insight is invaluable in making lenders feel more confident about the strategic planning and management of the project, thus increasing the chances of them approving your loan application.

Secondly, the SOW breaks down the cost of each aspect of the project. This level of detail helps lenders understand where the funds will be used and how they contribute to the successful completion of the project. Seeing a breakdown of costs can help assuage a lender’s concerns about budget mismanagement or overspending.

Lastly, a well-constructed SOW conveys professionalism and reliability. It demonstrates to lenders that you, as an investor, have put significant thought into the project and understand the necessary steps to complete it. This instills confidence in lenders about your ability to manage the project effectively, thus the likelihood of their investment being returned.

So, the importance of a detailed SOW extends beyond project management—it can play a pivotal role in the initial stages of your project by helping to secure crucial financing. In essence, a thoughtfully created SOW doesn’t just reflect your project’s blueprint; it can also serve as a persuasive tool that reassures lenders about the viability and profitability of your real estate investment.

Tips for Creating a Detailed SOW

Now that we understand the why, let’s talk about the how. Crafting a detailed SOW requires meticulous planning and a solid understanding of the project at hand. Here are some tips to guide you:

• Define the scope clearly: Provide a clear and concise summary of the project. Identify what is and isn’t included in the project scope, and make sure it’s detailed enough to avoid ambiguity.
• Include detailed task descriptions: Break down the project into individual tasks. Describe each task, its objectives, and the expected outcome. The more granular, the better.
• Set timelines: Assign a timeline for each task. It will help keep the project on track and allow for better management of resources.
• Specify the budget: Outline the cost for each task. Be realistic and include a buffer for unexpected expenses. Your lenders will appreciate your foresight.
• Establish milestones: Define key project milestones. They are a great way to measure progress and keep everyone aligned.
• Describe the end product: Describe what the completed project will look like. It will give everyone a clear vision to work towards.

Conclusion

You can’t understate the value of a well-crafted Statement of Work in real estate investing. It provides a roadmap for your project, facilitates communication, and can be critical in securing your project’s financing. Remember, a little time invested in creating a comprehensive SOW can save you a lot of headaches down the line and smooth the path to successful investing.

Don’t underestimate the SOW’s power—harness it, and see your real estate investing journey reach new heights of efficiency and effectiveness.

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

Many companies have driven innovators out the door—and into their own businesses—by restricting creative work to a select, anointed few and closing the rest of the team out of the process of innovation.

Now some employers are taking more energetic steps to hold onto these budding entrepreneurs. When Hewlett Packard Enterprise (HPE) was building the HPE Innovation Law Lab in 2018, Emiliano Baidenbaum, chief counsel for the Americas at HPE’s financial services business unit, and Jeffrey Fougere, Hewlett Packard Enterprise Innovation Strategist, wanted to create a more inclusive approach to innovation within HP’s legal department. The legal department is very focused on generating creative ideas, with events like hackathons a regular activity.

Fougere—a patent attorney—came up with Idea Matchmaker to make innovation easier throughout the organization, working with a team of colleagues in technology and Human Resources to bring it to life. This platform captures ideas submitted by employees in a giant database, so colleagues around the world can view them and connect easily to discuss and potentially develop them. Launched companywide in 2022, the mobile interface is now available to more than 60,000 employees.

“Our team members are the eyes and ears of things that are going on day-to-day,” says Fougere. “They’re the ones who see inefficiencies in our processes, or new opportunities. Giving them the power to conceive of an idea and easily connect with their colleagues to bring it to life is really powerful.”

Idea Matchmaker also uses an automated algorithm to share ideas in its database with team members likely to be interested in them. Every two weeks, each employee in the company gets an email about an idea listed on the platform that they have not seen before.

Initiatives like Idea Matchmaker are part of a broader trend that James Taylor, a global keynote speaker on creativity, describes as “backstage creativity.” By encouraging collaboration among “creative pairs” of colleagues, creative teams and even humans plus machines, companies of all sizes are paving the way to more inclusive innovation, allowing the creation of microbusinesses and innovative business units within their companies, according to Taylor.

“For years, we’ve been sold the fiction of the lone creative genius —the pervasive idea that creativity is purely an individual pursuit,” says Taylor. “The traditional media especially loves the idea of the person on the stage with the spotlight on them, the single scientist that discovers the cure for a terrible illness, or the CEO on the front cover of a magazine, as if that CEO had single-handedly built that business. The single, solitary genius makes for good movies and stories, but it’s a lie, a useful fiction.”

“What you rarely notice when you go and see your favorite band, or watch that tech billionaire give a speech at TED, is the hundreds or thousands of people ‘backstage,’ who were involved in creating that innovative concert or company,” says Taylor. “The truth is creativity is as much about what happens backstage as onstage. Creativity is collaborative, a team sport. ‘Backstage creativity’ is about how you get the best from everyone, not just the superstars in your industry.”

Taylor was once a “backstage creative” when he helped manage the careers of high-profile rock stars and Grammy-Award-winning music artists. Then he stepped out from behind the curtain and became a keynote speaker, experiencing the other side of creative collaboration.

“An audience member only sees the creative artist on stage, but they rarely see the hundreds of people backstage that are just as much a part of making it a successful and innovative show as the person with the microphone in their hand,” says Taylor.

At HPE, Idea Matchmaker caught on so quickly it is now used throughout the company. “It’s about creating an ongoing culture of innovation,” says Fougere. “If you want to engage in innovation but need to browse through thousands of projects, it’s going to be burdensome.”

Given HPE’s size, Idea Matchmaker has helped cut through the organizational layers team members must navigate to get initiatives off the ground. “Once you have an idea, it helps you connect to the right people and get it into actual testing, approval and launch,” says Baidenbaum.

The project is not only about monetizing ideas. The company measures the return on this backstage creativity in other ways, such as the number of connections made on its team and ideas viewed by team members. HP also values idea generation and collaboration because they contribute to its culture, according to Baidenbaum and Fougere. “We used the analogy of a dating app, where a technology like Bumble or Tinder is really powerful because people are using it every day, and it makes the process of finding people effortless and fun,” says Fougere.

In May, Idea Matchmaker hit a much-anticipated benchmark of 100,000 ideas viewed. “That was a huge milestone,” says Baidenbaum. “Some of the ideas have been viewed thousands of times.”

One thing driving Idea Matchmaker’s success is the explosive growth of technologies that lower the bar to entering the creative arena—like low-code and no-code tools that allow non-engineers to birth tech products.

“Traditionally, it’s been so difficult for them to follow all of the steps to bring an idea to life that it’s somewhat limiting,” says Fougere. “Some of those limitations are no longer relevant if we use technology in new ways.”

Now Baidenbaum and Fougere are looking to fine-tune the platform further, to, in effect, ensure that all of the backstage creatives on their team can collaborate effectively, across language barriers.

“We’ve discovered that there is a real limiting factor in people’s engagement in the innovation process, not because of the technology or the idea but about communicating that idea,” says Fougere. “We are trying to figure out ways we could use technology, including large language models such as ChatGPT, to take someone’s kernel of an idea and articulate it in the most persuasive way. We’ve seen some promising results from using some of these tools to serve as a communication or writing assistant.”

How much “backstage creativity” appeals to innovators across big companies remains to be seen and will likely depend on how these organizations capture, implement and reward their ideas—or respond when they opt not to pursue them. The history of entrepreneurship has been driven by founders who left their companies because they found a better way to do things and wanted to profit from their ideas. Some of these innovative types may never feel they can achieve either the freedom or the rewards they seek in a corporate environment.

But for those who’d rather be part of a large team and tap into an employer’s resources, “backstage creativity” could be the way to discover and unleash their hidden talents. Says Taylor, “The first step is to unlock the creativity you were born with.”

Henry:
This is the BiggerPockets Podcast show number 784. Look, I did it. I nailed the fingers on the first try. Take that David Greene. So for reference, what you’re saying is in the last 12 months, you had 218 calls from tenants around issues or potential issues at a property. And of those 218 calls, you only had to talk to someone one time.

Pasha:
Correct.

Henry:
I would say the system works.

Pasha:
Thanks. Or maybe I’m just super lucky. I don’t know.

Henry:
I am taking over the BiggerPockets Podcast today and I have the pleasure of interviewing my good friend, my partner, my student, Mr. Pasha Maleknia. Pasha’s got an advanced degree in information systems. He’s here to teach you how to build systems that save you time and money. Pasha, we know you love board games. So what would you say is more fun, learning a new board game or building a new system?

Pasha:
You’re making it so hard. I would say building a new system. I just like to challenge and just the challenge of it. Of course you’re a nerd.

Henry:
So why should you stick around for this episode? We’re going to be dispelling some myths around system. We’re going to talk about why you’re probably already spending time on systems without even knowing it. Your systems probably just aren’t that great yet. We’re going to talk about the time and money systems can save you, the time and money it saved me, the time and money it’s saved Pasha. And so if you are a beginner, this is a great place to be because you can set your business up for growth in the long-term. And if you’re an experienced investor, you should stick around and listen because we’re going to talk about things that could potentially put more money in your pocket and also help you take care of your tenants without you having to spend so much time addressing those issues yourself. All right, so Pasha’s here with me. He wants to take on the introduction of the quick tip for me. So today we’re going to move into the-

Pasha:
Quick tip.

Henry:
Today’s quick tip is go to biggerpockets.com/resources. There you can download Pasha’s example spreadsheet of how you can implement a system and jumpstart building systems for your own business. Thank you Pasha for sharing that with us. It’s a super cool tool. You’ll actually get to see a piece of it if you’re watching this version of the podcast or you’ll hear me explain what that system spreadsheet is and how he uses it in his business. So thank you for sharing that with us.

Pasha:
Absolutely a pleasure.

Henry:
All right, let’s get into the interview with Pasha. All right everybody, let’s welcome Pasha Maleknia back to the show.

Pasha:
All right, thank you. Thank you, Henry, for having me.

Henry:
Awesome, man. So for a little bit of background, we recently had Pasha on an episode, episode 773, where he shared his incredible story about how he got into the world of real estate investing and how he’s taken that start and catapulted his business. But we kind of left with a little bit of a cliffhanger. Pasha is an expert on systems and how to save yourself time and money with real estate investing and we wanted to dive into it, but obviously didn’t have time in that episode. So we brought him back, especially in this episode, to dig into systems, what they are and how he implements them and how you should be considering and doing the same thing. Because the super secret is everybody already has systems in place, they probably just suck. So let’s talk to Pasha about systems.
So Pasha, obviously, he is a friend of mine, he’s a student of mine, and he’s an excellent real estate investor. So I wanted to start off, Pasha, if you wouldn’t mind by let’s dispel some myths around systems. Because whenever people hear the word system, I think sometimes they think it’s a lot either bigger than it is or more expensive than it is, or that they’re not ready for systems in their business yet. And I don’t really believe any of those things are true. So let’s talk about some of these myths and then you can tell us why they are missing or if they’re missing. Maybe I’m just completely wrong here.

Pasha:
100%. Let’s do it.

Henry:
So the first myth is that systems need to be complex. Is this a myth or is this facts?

Pasha:
Absolutely a myth. As you know, even in bigger corporations sometimes there’s a tendency to build complex systems and it almost always fire backed. I think the best systems that I have encountered are in their simplest form. And you always want to start with a very simple one level type of system that works for you and then start, you can always make it more relevant to a business or to the issue that you’re tackling. But I see this a lot that people start with a perfect system, a very complex system because they love it, but while they’re building it, they want it to be absolutely perfect, but it ends up with a system that never implements.
The simplest form of systems are always better because you can always get a feedback and you can always go back and build it again and make it a little bit more relevant. There is a saying that says: “Your first five systems, always going to suck.” So it’s better to just start it simple, make sure that it’s like, understand why, what is the problem, go back, fix it. And then as you go forward it’s going to be more relevant to your need. But definitely don’t start with a complex system.

Henry:
Awesome. Man, that’s great insight because I think people do tend to overthink systems. I know I did and honestly probably still do in a lot of areas of my business. So the second myth is that you need some expensive software and then once you get this piece of software, that software system is going to fix all your problems.

Pasha:
Oh, man, you’re preaching to the choir. Absolutely a myth, absolutely a myth. I’ve said this a lot almost in all the talks that I go to, all the workshops and everything, people reach out and are like, “Okay, what software do you use? What do you use for this? What do you use for that?” And I always obviously tell them the answer, but it’s like a lot of people want to start from the software. They think software applications or apps are the systems, which is 100% wrong.
Basically you always want to make sure that you start with your core issues of your business first, then you walk that back and then you focus on what system can address that core issue that I have. And then you go out and shop for the softwares or applications for it. An example I could say is going to Home Depot and buy the first five tools that you see from the shelf and then go back home and try to build something with it. That’s not how it works. You always want to make sure that you focus on a relevant tool for your need. And I see this a lot, man. They think they just need to write a check for a big fancy software and they think that all of their problems are going to go away magically. And I always tell them that you’re in for a big surprise because that’s not going to happen.

Henry:
Awesome. Yeah, that’s a great way to look at it. Here’s a fun fact about me. Even if I knew exactly what tool I needed to do a job and I walked into Home Depot and bought that tool, I would suck at that job. I’m just not handy. That’s just not a skillset that I have. And so you also don’t need to be handy to be a real estate investor. Maybe we’ll throw that at the end of the show, pro tip for you new investors.
That’s a fantastic point because a lot of people think that systems mean I need to go buy a piece of software and then I tell the piece of software, here’s all the things that I do in my business. And then that piece of software says, awesome, this is how you should do those things and it doesn’t work like that. A system is really just a set of processes that you implement systematically over and over again and it’s supposed to save you time and money. That can be anything. We talked yesterday when we were discussing this show and you showed me one of your systems that was literally just a Google Sheet. Everybody has access to Google Sheets. So it’s not software you need, it’s processes.

Pasha:
100%. Another thing that I want to add is we are at the age of information technology that it’s the easiest time to build a software and if you have five softwares right now, we’re going to have 20 by the end of next year, I promise you. And if you want to just chase the shiny software application, the newest trend, man, you’re going to spend a lot of money and you’re probably not going to see great return on that. That’s where you want to make sure that you always start from the business, you always start your systems around it, and then you go back and start shopping for something that is relevant to yours.

Henry:
The next myth that I want to talk about is, so I’m kind of going to skip one here because I think we currently already hit at it. Systems are only for large businesses. Obviously we’ve touched on that. We know that systems are meant for any business of any side, it’s just a process. But this one I think is really important is that systems are only for out-of-state investors.

Pasha:
When we talk about systems are only for out of the state, I think that’s not relevant because I think I’m the living example of this. We have about 20 units that almost all of them are within 10 miles radius of where I live, but we kind of urge ourselves to make sure that we never step into any of them because we want to have the freedom of geographical location. We want to be able to be anywhere we want and be able to renovate our homes and be able to manage all of our homes. We already have done the management piece, now we are focused on building our systems around rehabbing them remotely. If you want to be more passive in your business, I would recommend to start just thinking about building the businesses that you have on a platform that is scalable and that is only doable if you have a good system in place. And you don’t have to be out of the state. You can be as close as it can get to you, but you just don’t want to be the elements that is the center of your business.

Henry:
If I’m hearing you correctly, what you’re saying is that systems are meant to save you time and money. And who doesn’t want to save time or money no matter where you’re located? But implementing systems when you are local as well I would think gives you an added advantage, right? Because you’re there in the event something doesn’t go as planned. So it’s easier to hone your systems when you’re local because you can be there to hone it. And then once you’ve got it dialed in, you really open up almost this world of expansion. Because if you’re not tied to the geographic location of where your properties are, even though you’re local, what’s stopping you from picking a different market and expanding your business because you see an opportunity in a new market and now you’re not held back by geographic location? So I think that’s a phenomenal way to look at things.

Pasha:
100%, 100% agree with that.

Henry:
Great. So we’ve established it’s about getting back your time and that’s why I think systems are truly for everybody because most people get into real estate because they feel like it’s a passive business and then we all learn fairly quickly that it’s absolutely not a passive business. But systems allow you to buy back that passivity in your business. And so you can still have a semi-passive business of real estate investing and make it more passive through the use of systems. And then you truly do get time freedom. And that’s really what this is about. It’s about having the time freedom because that allows you to be the person that you’re called to be and not the person that you have to be for money. I know Pasha talks about having his crystal clear why and he calls it his “no BS why”. What does that mean and take us through why that’s important, Pasha.

Pasha:
The no BS why came up when, if you guys actually listened to episode 773, it was like I was in a very dire situation, if you will. And after that I thought to myself why this never came up. My life setting before this thing was exactly the same why I didn’t see that. And one of the things that stood up to me was I was kind of following a why, meaning why I’m doing all of this or why I wanted to have a business, that it was just not original to me. It wasn’t that I never heard about being an entrepreneur before, I’d never heard about financial independence before. I was just listening to other people talking about how they wanted to quit their job or how they wanted to have the freedom of financial dependency on their job, which is great, don’t get me wrong.
And I was listening to it and I was like, yeah, cool, that’s neat. I want that too. But I never took any actions on that because quite honestly it was a BS why for me because I love my job. I honestly do. It wasn’t a big motivation for me to be above and beyond and dig deeper into different business models and try to be an entrepreneur. It’s just one of those things that you want to make sure that whatever reason you come up with is something that 100% aligns with who you are and what your core values are. And this is one of those things that is kind of hard because there are so many shiny whys out there as well that you might actually just stumble across and you’re like, “Oh, yeah, cool, I want it.” That’s not enough. You need to have that. It’s not like I want to have it. You need to have that why.
I think I talked to you, myself, almost every other successful entrepreneur I talk to, there’s a why in their life that comes from the need part. It doesn’t come from the want part. Because everybody wants to have a cool car to drive around. Everybody wants to have a business that generates a lot of money. That’s the aspect that you see on a lot of social media. But the moment that the rainbows and unicorn go away and there are some alligators on the way and there are some challenges on the way, they back out because that doesn’t satisfy their want part.
And that’s the reason that I always recommend to people that actually reach out to me is that make sure that you have your eyes on the why, why you are doing this, and it needs to be so strong. It needs to strongly align with you in a way that whenever you wake up in the morning, you can think about it. It’s already in front of your eyes. It’s something that you just cannot disconnect yourself from it. It’s not like one day you’re not in the mood and one day you are in the mood. It just doesn’t work that way. And that’s why I called it no BS why and it’s really hard to get there. I mean it’s almost, you need to just dig deeper and deeper and deeper in yourself to get there.

Henry:
Yes, I completely agree and I like that you call it the no BS why because I’d never heard it called that before. But I’ve talked about it different with several of my other students and the way I’ve always pictured is people always are, they’re quick to say, “I want financial freedom, or, “I want financial independence,” or, “I want to build generational wealth.” That’s the buzzword, generational wealth. All of those things sound good, but I don’t know that people truly understand what they mean. For me, financial freedom’s not a goal. It’s not your why. Your why is what you get to do because you’re financially free. Financial freedom allows you the time freedom to be the person that you’re called to be, not the person you have to be for money. And typically when you’re the person that you’re called to be, you get to impact other people.
So your why is typically rooted in who you get to be in service of other people. And so when you’re thinking about your why, you’re right, it’s got to be the thing that drives you beyond the good days and the bad days. You said it best, you said, you need it, you need it to happen. So if you’re thinking right now, I want to be a real estate investor so that I can be financially free, that’s great. Take it a step deeper. If you were free today, if you woke up and magically had all the rental property to produce all the cashflow you needed to live your lifestyle and to pay for all your life’s expenses, what would you be doing with that freedom? Whose life would you be impacting with that freedom? That’s where your no BS why lives. Agree?

Pasha:
100%. Absolutely. It’s always like, you see that picture and then you’re like, “Oh, man, wait. So now I have freedom but my family sucks,” or something like, “Now I need to put all of my undivided attention to my family.” And then you’re like, “Okay, this is what I need, let’s go for it.” And then there is nothing that really can stop you because you know exactly where you want to head to.

Henry:
We do this exercise with several of my students and the cool part about hearing people dig into that is who you get to be because you’re free. A lot of people are like, “Well, now I get to retire my parents. Now I get to send my parents on a trip or remodel my parents’ house,” or, “now I get to pay the medical bills for my sick family member who couldn’t afford the proper medical treatment.” These are the things, these are the whys that are going to drive you through the difficult times. Because if your why is only rooted in you and what you want, folks, we are human and we let ourselves down every day.
You know how many times I said I’m going to go to the gym tomorrow and didn’t go? We let ourselves down all the time, but we don’t like to let down other people. And so think about who you get to help, what you get to do with that freedom, that’s what pushes you through. So talk to me briefly here, Pasha, about how people find that why, what drove you, what questions did you have to ask yourself to hit what that why was?

Pasha:
I think for me it was a little bit difficult because I was in a situation that I found myself, I didn’t have a lot of time and then immediately it was in front of me like, what are the most important things for me? But what I would recommend is, one, you need to be brutally honest with yourself. And there’s a word in there brutally, it means it’s not going to be comfortable, it’s going to be an uncomfortable discussion. And sometimes you want to bring in somebody that knows you very well and ask them to help you to dig deeper. It’s more like interrogation even. You want to make sure that you get to the core needs that you want to go after and it’s something that just makes you a blazing why that then it turns into an engine that you need to harness that energy to run your business in your day-to-day life.
But I would say be brutally honest with yourself. If you’re talking about a specific need that needs to be compensated for or needs to be addressed for, what are those needs? Write them down. As you mentioned, it might be addressing your specific members of the family or the situation that they might be left after. It needs to be super tailored about you. So make sure that it’s 100% customized based on your life, based on your values in life. It’s good to look at other people’s why and that’s fine, but sometimes it just simply doesn’t align and you don’t want to just copy someone else. You want to make sure that you tailor it for yourself and you need to just dig deeper and deeper and deeper until… When you get there, you know it. It’s one of those things that, when you hit there, you’re like, “Oh, yeah, that’s it. That’s what 100% aligns with my core value.”

Henry:
Finding your why, Pasha’s step one for finding your why is to be brutally honest with yourself. He also talks about if you want to be rich or why you want to be rich, diving into what that means. We talk about this a lot with people. It’s like, what’s the wealth going to do for you? What’s the wealth going to do for the people around you? And then you talk about when you define your why, is there something that you didn’t clearly know before? That’s a great point because when you are digging into your why and trying to figure out what’s truly driving you, it is uncomfortable. It’s going to raise some questions and now you might have some new information that you need to work through in order to figure out what that why is.
And then this one, I believe, is hugely important. Is it something that excites you whenever you wake up in the morning? That’s a fact. This business excites me to no end. And what I like about this business specifically is getting to share with other people and help other people. I really had a bummer call with a tenant right before this. But knowing that I got to get on here and share real estate investing with all of you guys and chat with my friend Pasha and have him share his knowledge and wisdom with you has really lifted me up because my why is rooted in making sure that I share this knowledge with people. So it gets me excited every day. And so if you answer no to any of these questions, it means that you need to keep digging. And I think that’s great. And all these are coming from Pasha. And so what’s awesome about this is this is Pashas system for having a why. This dude has a system for everything.
So while we’re on that topic, let’s go ahead and let’s dive into systems. Pasha sat down with me and reviewed all of his systems for his business. I was one who didn’t implement a lot of systems, and it’s not because I don’t think they’re valuable, it’s just, I’ve always been a ready, fire, aim kind of operator and then make tweaks as I go. And when I sat down and went over to Pasha’s system, I was thoroughly impressed, so much so that we started to implement several of the systems that he’s using. So I’ve started to implement some of these systems in my business and I’m going to talk to you about those. But later on in the show we’re going to break down five steps of how you can build any passive system with Pasha. So stick with us for that.
But for me, when I sat down with Pasha, I immediately implemented a system for showing my rental properties and a system for keeping an eye on renovations of my properties. And so at a really high level, Pasha had this great system for installing… Essentially you’re installing web-enabled cameras, hooking them up to a mobile hotspot, and then installing a web-enabled keypad door lock and then allowing your tenants who want to see your property. So after our tenants apply, we can now give them a code where they can go take a look at the property and we don’t have to physically go see the property. And what was huge for us is right when we sat down with Pasha about this, we were about to put a property on the market that was about a 45-minute drive away from where the rest of our properties are. And so I was like, man, this is going to save literally just two hours of driving time per appointment already off the top. Plus, if you calculate that, and I do that for if I do 10 showings, that’s, what, 20 hours that you saved in just drive time.
And so we were able to implement this on that property. We showed it virtually. No one ever complained, no one had a problem with it at all. The cameras would turn on when people would enter the room. So we would know when people showed up, we would know when they left. The codes, we would give them all cycles, so everybody had their own code. And it was really so much less time-consuming and less painful that we’ve now implemented it for properties that are even close to us because not only is it saving drive time, but it’s saving the time that it takes to actually open up the property. And we all know as landlords, you set appointments for showings and about half of the people show up, some of them don’t even show up. So you’ve wasted your time even going to a property and people just no show on you. So what a huge time saver for me. We are also using it to monitor our rehab property. So I know firsthand that some of these systems have been a lifesaver in my business.
Pasha, let’s talk about, give us two of your favorite systems and then how they’re saving you time or money.

Pasha:
Oh, yeah, absolutely. As you mentioned, the example that you brought up was a very good one. I think when we were starting this, we realized that when we want to show the property or when we want to have a better monitoring system on the contractors coming in and out, it needs to be something that can be done virtually. So exactly what you mentioned, that’s what we implemented. All the cameras, all the web connections, and all the keypads all together. And they actually are now all in different boxes. We’ve got seven of these boxes that they’re all paired. So all they need to do is to just send it to somebody, just plug them to the electrical plug and then it’s all going to be online. I think that’s really one of my favorite ones. So you definitely took one of the favorite ones for sure.
It saved us a lot of time. It still is saving us a lot of time because it’s just one of those things that you just buy them once and then you keep using them. As you mentioned, you don’t have to be the person that drives all the way there. And tenants love it too, because they didn’t feel pressure. They could go into the unit and they could look at it. My contractors also, it allowed us to understand who is a good contractor who is not. If somebody says, “Oh, I’ve been working here for five days,” they’re like, “No, here’s a log that actually shows you’ve been working here for two days. So let’s wrap it up. And then there are some other people that they actually feel better when you have security in the area for all of the materials.
I mean all of this comes together into, what you mentioned, the pain for business, which is basically how it’s all connected together to solve a problem for you, which for us it was not wasting time and not wasting energy. And it’s also actually kind of funny too. Sometimes we go because these are like two-way communications. So sometimes we go in there with the contractor and we’re like, “Hey, don’t forget to finish that wall. We need to get that done too.” First they’re all afraid like, who’s talking to them, and then they notice. It’s actually pretty funny. That’s one of them.
The other one that I really like is the system that I put together, which is basically the category of the issues that can go wrong in our rental properties. For example, it says if you have a, let’s say, surge or if you have overloading like electrical and then we categorize it into plumbing area, landscaping area, basically handyman stuff, HVAC, things like that. And the problems are basically in here and the solution to them or the remedy is also in front of them. And then at the end it says, if none of these remedies work, then you need to contact this person for that issue. And that person is going to be the plumber, electrician, handyman. And then of course we have another page that has, these are our contacts for electrician, these are our contacts for a plumber, these are our contacts for so-and-so.
Now with something like this, I can just step back and now my virtual assistant that is working remotely can address all of the concerns, not all of them, but I would say 99% of the problems that our tenants have. They receive those, they basically come here, they match them with the problems here, they walk tenants through some of the problem solving and sometimes our tenants are actually able to solve the problem themselves, like the small ones. Obviously if it’s serious or if it’s something that can create a liability, we send a licensed person to fix it. But sometimes there’s some easier stuff that they can do and, man, our tenants love it. They absolutely love this because they get to solve the problem really fast. And it’s great for us because we don’t spend hundreds of dollars for every call. It’s something that can be addressed. I think we address 15% of our maintenance calls with doing something like this.
And if it helps, I’m going to make sure that I send a template so that you can put it into the side notes. But again, this is just like a template. You need to go in there and see what are the things that are applicable to your business and you can build something there. But this is also definitely one of our front winners.

Henry:
This is really cool, Pasha. And so what I want to do is add a little context here for those who are listening or driving and can’t see, and then I want to make sure that I’m thinking about it in the right way. So what Pasha’s got up here is a spreadsheet, and in that spreadsheet he’s broken down a category and I believe the categories are the trades. And we say categories, what we’re talking about is issues. So if a tenant has an issue, something’s not working, you break it down into categories. So there’s that category, plumbing, electrical, is it handyman?
So you figure out the category. If the category is one of those, then in this spreadsheet you can follow along and say, okay, it’s electrical. So what’s the subcategory? The subcategory, if it’s a electrical, it could be the breakers are tripping or it could be flickering lights. And so you find the subcategory of the issue. And then once you find the subcategory of that issue, right next to that subcategory is the remedy or the solve for that problem. And so then you can see what that solution is, try to implement that solution and if that works, the problem is solved. And if that doesn’t work, then your next section is who to contact to get somebody out there to figure out what the actual problem is and get it fixed.
This is like when you call the cable company because your internet’s out and they’re like, “All right, well, is the light lighting up?” And you’re like, “Yeah, the light’s lighting up.” They’re like, “Okay, great. What’s your upload speed, download speed? And you tell them, they say, “Okay, great.” So a lot of these problems are just solved by sometimes your modem isn’t on, right? And so you’re able to use this and it’s just a spreadsheet, it’s just a Google Sheet that you took the time to fill out on the front side with what issues you normally see, and then how you normally solve those problems, and then who to contact if this solve doesn’t work. And what you’ve done is you’ve given this spreadsheet essentially to a virtual assistant.

Pasha:
That is correct, yes.

Henry:
And your virtual assistant takes the calls from your tenants, so you’re not taking calls for toilets and anything. Your virtual assistant, this literally is their training. They just follow the spreadsheet, tell them what to do. If it doesn’t work, then this spreadsheet tells your virtual assistant exactly which contractors to call. Is that correct?

Pasha:
That is correct. And, again, this is an example, guys. You can build it yourself or if you want, again, I’m going to make sure this is accessible to you as well. But the contact here tells the virtual assistant who they need to contact, because I don’t want them to use their judgment for it. I want them to follow this written down system. So, for example, in this case it says, if, let’s say, there’s a surge that it just makes their fusebox flipping, then this is serious, you don’t want to do anything, you want to contact an electrician. And then there’s another page that has the job title and people that are doing that and it ranks them from the first to the last. So, start calling them.

Henry:
And this is great because a lot of people, one of the myths of landlording is that people say, “I don’t want to be a landlord because I don’t want to deal with tenants and toilets.” And you just literally showed me a spreadsheet that deals with the tenants and toilets for you. So it’s not that big of a deal, folks. Can you give us an example or breakdown in some way, how much time or money is a system like this saving you and your business?

Pasha:
Oh, man, a lot, a lot.

Henry:
How many calls is your VA taking and what’s the volume you’re seeing?

Pasha:
We received about 218 tickets or calls in the last 12 months for our properties because we actually kind of expanded and all of them are addressed with my tenants. Now there are some examples that are one-offs that are really weird and it means, for example, we had a thunderstorm. You and I are both living in Northwest Arkansas, so we know that thunderstorms are not that alien here. And then there was a tree that coming like 45 angle about to hit the house, but it didn’t. So obviously this was one of those things that we didn’t have it in our system and then we added it. So if there’s a tree hanging around, call a tree person or tree removal person and now, from then they do it. But that was, I think, the only call that I had to chip in. I was like, “Okay, if that’s the issue, you need to call this person.” But then I built it into my system so if it happens again, then I don’t need to be pulled back into it.

Henry:
So for reference, what you’re saying is in the last 12 months you had 218 calls from tenants around issues or potential issues at a property. And of those 218 calls, you only had to talk to someone one time.

Pasha:
Correct.

Henry:
I would say the system works.

Pasha:
Thanks. Or maybe I’m just super lucky, I don’t know.

Henry:
And it’s not just that too, it’s not just that. But what I want to highlight here is he only had to get on the phone one time, but he said his tenants love this, they’re happy, they’re not feeling a disconnect from customer service through this.

Pasha:
Exactly.

Henry:
That’s awesome.

Pasha:
And that helps us a lot because when your customers are happy, when your renters are happy, the chances of them staying with you is more. So your vacancy actually starts going lower because they know that whenever they have an issue, it’s going to be addressed immediately. They don’t have to call the tenant, call the landlord, sorry, and then landlord calls the vendor and going back and forth. So this is just one of those things that it helps when you have everything in this format. And again, I think you mentioned one thing that I really want to emphasize. This is built on Google Spreadsheet, which is free, available, accessible to everybody and it’s saving us a lot of time. So another thing is just go with what you think you want to do, build a simple, tangible, easy to use system on whatever, even back-up a napkin, and just to start getting it to work.

Henry:
Thank you so much, Pasha. I think that was a great example for people to see that systems don’t have to be crazy expensive and that they can benefit everybody and save you time and money.
All right, so let’s move on to the meat and potatoes of the show. The information people really want to know is what are the five most important steps for building any passive system? The five steps we have here are inputs, processes, outputs, feedback, and the environment. What the heck does that mean? Pasha, give us an example. So what are the inputs for a system?

Pasha:
So if you think about this, all the systems have these input process, output piece. So input can be anything honestly, whatever you want to get into so that you’d be able to convert it into something else. So the input could be any data point that you can find. For example, in the example that I showed, the input is going to be the problem, the issue that the tenants are facing, right? It’s just the data point on the issue. It could be your P&L if you want to have a system that checks your P&L and tells you if you are doing okay or not. The input needs to be really aligned and I think the most important thing about input is the input is the most important thing that needs to be aligned with your core business issue. You don’t want to have extra information coming in, you want it to be right, crisp, addressing the exact problem that you’re trying to solve and build the system around it.

Henry:
Thank you. So input is what you feed into the system and then process. What’s the process? And I like how you related the inputs to the example we just saw. So let’s continue that. Let’s talk about what the process is and then what’s the process from the example you just showed us.

Pasha:
So process is basically the engine of the system. That’s what it is. It could be the step-by-step procedures so that it follows a certain flow chart to get to a certain output. And this example, for example, it’s going to be the remedy section, which is when you walk your tenant through the issues that they have and now you want to basically get it fixed. So you walk them through how you can get the input information and basically add to it or look at it from a different angle or basically change that data input. So, for example, in this case, let’s say, if garbage disposal is clogged and I think, “Oh, the landlords are really familiar with this issue,” is that you want the tenant to go in there, look at the bottom of it if there’s like a fuse button or something or if there’s a Allen wrench that they need to use. All of these walkthroughs and procedures and step-by-step guides, that’s where the process comes in.
And it’s easier to do this. It’s basically the main part that is going to replace you if you want to build a system to replace you. Does that make sense? This is where you would want to have your knowledge extracted from the person that is an expert, usually it’s going to be you, and you want to put it into a step-by-step guide that with that input can follow those step by step so that it will flow through that to the next step.

Henry:
So if I’m following you correctly, the input is the problem, the process is the how you’re solving the problem.

Pasha:
It can be.

Henry:
Okay, now talk to us about output.

Pasha:
All systems need to have a point which basically wants to give you what you need. Now sometimes the output of a system can be input for the next system and this happens all the time, specifically if you want to have a chain of system and if you have a complex business model that you want to put everything together. In this example, the output is going to be a walkthrough that is already provided and making sure that the problem is addressed. So it can be in different formats, it can be in the format of a knowledge repository. Knowledge repository is basically where you put all of your information that are really tangible and valuable to you.
In the example of lead generation, it’s going to be the list of people that… So, let’s say, you start with 1000 people, you have a process that breaks it down to, let’s say, a list of 20. And now that 20 is going to be the output of your first system. That is going to be people that are more likely to be willing to sell their home. Now you have another system that use that and then process it and then sends a mailer to them, for example. But that output is basically what you are going after and what the result of your system should look like. And it can be in different formats and it can be repeatable.

Henry:
It sounds like your outputs can potentially be in different formats even within the same system because with the example we went through, one output might be that the results checklist resulted in the problem being fixed and one output might be that you had to call a professional out and in one of the sub examples you gave, that professional came out and did the work and the output was now you have a new subcategory to add to the spreadsheet so that you don’t have to solve that problem again.

Pasha:
That’s 100% right. So that output can feed to different systems. One of them is the payment system. It’s a feed to a different one, which is like, now the job is done, it needs to go to the payroll system. So you pay them. Again, you don’t want to be the person who writes the check every time. Another one is going to be, the problem is solved, but it was a new one, so let’s go back and add it to the system that we have, which basically is the next system which is the feedback.

Henry:
Yeah, let’s talk about that.

Pasha:
So feedback… Okay, so the input process output is quite common. I would say that even in big corporates when it’s built, when the input is given and when the output is taken, everybody’s like, “Hallelujah, we got there. That’s the system we want.” And, man, I see this over and over again, which they just leave it like that. They’re like, “Okay, cool, the system is working.” And then they just go on to the next one. The problem is you build a system but it’s not a sustainable system because as the context changes, as the input changes, as the business world changes, your system needs to be alert, it needs to understand what’s happening so it can adjust itself.
So a good example of it is going to be identifying KPIs for how your system is working so that you know if your system is actually in good shape or not. So, for example, in this case, again going back to the maintenance system, the KPI for us is, are our tenants happy about addressing their issues or not? So we send out two surveys every six months, basically, every year. So every six months we send one survey and we ask our tenants how do they feel they are being treated, how do they think their maintenance issues are being addressed? And that is a great KPI because it tells us whether it’s something that eventually our tenants are feeling great about it or not. And if they don’t, we need to come back. So that’s our KPI, right?
The first year it might work perfectly, but the second year it might actually not work really well and it’s going to raise a red flag that allows us to go back in there, dig into our system and see what was the issue, what caused that person to not be happy about it. And then we walk it back and then we adjust our processes, we adjust our input to make sure that next time we can address this. So the feedback is basically a loop that goes from your output to the process and to the input to make sure that we update it and stay relevant.

Henry:
Okay, great. So, if I’m understanding, the feedback or feedback loop is what takes your system from being a static system that never changes to a dynamic system that is changing or evolving as your business evolves. So with the example you gave, you measure your tenants, basically you measure if they’re satisfied with the work that’s being done. If you are great, you state the system keeps doing what it’s doing. If you’re getting a lot of feedback that tenants aren’t happy, then you can dig deeper into that feedback and then adjust your system to address those feedback issues and then continue to evaluate and make changes so your system is dynamic. And I’m going to go out on a limb here and I’m going to guess that you have a system that does the feedback for you.

Pasha:
I love that. I love that. You know I do. No, yeah, absolutely. Now you want to make sure that, again, that system, that feedback loop is also working the way that you want. This is like a loop, it’s like a spiral, you can just go down to it. But 100%. And again, start with something simple, just input process output is perfect, but it shouldn’t be like your final destination. Just put some KPI, make sure this KPI is good. If you want, you can always, as Henry mentioned, build another system for your KPI. But at the end of the day you want to make sure that this is not a one linear line. It actually goes back and it feeds itself so it stays relevant. Because if you do that, you’re going to have to spend less time coming back to the problems that are not being addressed by your systems.

Henry:
Fantastic. So to recap, we got the five main components of a system is the input. That is the problem that you feed into the system. You’ve got the process, that’s essentially how you’re solving the problem or how you’re addressing that issue. You’ve got your output, which can be the results of that process and that can be a positive or a negative result. And then you can make adjustments to your process through feedback and measuring the results. And then environment, we didn’t touch on environment, did we?

Pasha:
The environment is basically the context that your system is running in and that’s like the last component that you want to be aware of. Basically in this example, again, if this system is working in homes, I’m just saying like in Arkansas and now you want to manage the same properties in, let’s say, California, you’re in a different context, you are in a different context for input, you’re in a different context for processes, some litigations apply to it, some litigations to the output and that’s where you want to be aware of that, go back in there and adjust your systems to the context that they are running in to make sure that your system stays relevant.

Henry:
Thank you for breaking down that five step process, Pasha, that is great information and I think it really helps not only to demystify systems but make it seem like something everybody should be implementing within their business at some level. Before we go, give us some examples of some wins or some successes or some positivity that’s come from you implementing multiple systems in your business that maybe you didn’t expect.

Pasha:
I think one of them is we were actually in Hawaii and my apartment got flooded, one of the ones that actually we had a tenant in. I’m not talking about a leak or something. It was about to get flooded really bad. I didn’t even notice. It was just on my weekly report that I get from the virtual assistant of what’s going on because I always want to know what’s going on. And it was just addressed automatically. The problem raised, they called, there’s an emergency level on that system, it was a high emergency. They dispatched somebody like a plumber that is really good in mold remediation and all of that. Thank God it didn’t get to any of this because we had this in like the first hour.
And I think, all in all, we spent about $800 and it included a new piece to the water heater, which, if I didn’t have the system in there, I’m pretty sure my travel would’ve been ruined and it wouldn’t be a very pleasing experience for my tenant either. But it was addressed in the first couple of hours and it was completely working fine, which, to me, it was a great win because it showed me that it can work specifically when I needed it to.

Henry:
Yeah, man, that’s a great example because you’re right, no one wants the call when they’re on vacation that one of their units flooded. And it always seems like that’s when you get those calls is when you’re out having a good time. So that’s cool that your system just kind of handled it for you and saved you all kinds of money and did exactly what it was supposed to do. That’s amazing. Thank you for sharing that.
All right, thank you, Pasha, for giving us this breakdown of systems. There are some great information that you gave us because, again, systems, I like to think of it and you kind of put this in my head, it’s that we’re all already using systems, right? A system is just a process you have in your business and a lot of the times our processes just aren’t great. And so thinking of systems isn’t thinking of how can I go buy an expensive piece of software or how do I spend a lot of time and effort to solve big-level problems? It’s just a matter of systematizing the things that are important to you or the things that are taking the most of your time that you don’t want to be taking your time and giving it some inputs, some processes and some outputs, and then providing some feedback to keep your systems dynamic and you can really save yourself, not just time but money. Did I summarize that in a good way there for you?

Pasha:
And another thing that I just wanted to add real quick is sometimes it’s like you might not be the person that is the expert in that area and that’s still fine. A very good example is like, you and I have been friends for years and I personally learned a lot from you, especially when it comes to finding good off-market deals. And I was like, man, this guy knows his stuff. As I showed it to you, we started thinking about all of these procedures and processes, how can we turn that into a system so that even that can be automated.
So, for example, I know that we didn’t get time to get there, but even lead generation right now for me is something that I put together. Again, we tried it, it started with the most simplest way, but right now it’s like, hey, I just sent this zip code that I want to go after. And then there’s actually, I called it LA, so local assistant, that picks it up, processes all the mails. The direct mails are out, all the formats, everything is predefined. But all of them comes from, not from me, but from a knowledgeable person in the area, like you, that can help me get understanding how this should be. And all I do is just take the concept from the thinner and convert it into a system and just let the system work.

Henry:
That’s great information. A great way to think about solving problems. Pasha, thank you so much for being gracious enough to share a template or a blank template example of your, what do you call that?

Pasha:
I call it Residential Maintenance System XLX.

Henry:
Your RMS Spreadsheet. And so if you want to take a look at that spreadsheet template, you can go to biggerpockets.com/resources where Pasha has been gracious enough to share that with us. And so let the people know where they can find you, Mr. Pasha.

Pasha:
You can find me on Instagram, @techierealestate, T-E-C-H-I-E, real estate, all one word. And also the website is 5dayscourse.com. These are the two places that you can find me.

Henry:
Great. And you can find me on Instagram as well. I am @thehenrywashington on Instagram. Thank you so much for joining us. Lots of great information there, Pasha. It’s been a pleasure talking to you and we wish you nothing but the best.

Pasha:
Thank you, sir. Have a good one.