July 2023

In addition to providing capital, should VCs be offering a degree of pastoral care to their portfolio founders?

Well, even when assessed in purely commercial terms, the answer to that question might well be yes. It can take many years to steer a startup business to the point where an exit can be achieved and during that time a lot can go wrong. The entrepreneur can lose focus, burn out or simply find that he or she no longer has the heart or will to give 100 percent to the job in hand. So if a VC wants to see a return on its investment, it makes sense to look after the geese that have the potential to lay the golden eggs.

And according to a report published last week by Balderton Capital – a London-based VC investing in early and growth-stage European businesses – there is evidence that some founders at least are struggling to cope with the pressures and challenges of growing their companies in an increasingly competitive environment. Coinciding with the research findings, Balderton has launched its own “Wellbeing and Performance” platform” designed to provide help and support to its cohort of portfolio entrepreneurs.

I spoke to Suranga Chandratillake, a General Partner at Balderton to find out more.

The Work/Success Equation

It will come as no surprise to anyone that founders of VC-backed businesses tend to be driven people who work long hours. Indeed, 90 percent of those taking part in the Balderton study acknowledged that they pushed themselves to work harder and longer. A slightly smaller subset – 84 percent, to be precise – said entrepreneurs were expected to work hard in order to be successful.

So where do those expectations arise from? Sometimes from investors, it seems. Just over half of the survey’s respondents said investors and board members put them under pressure to be constantly available.

Diminishing Returns And Poor Decisions

This is where things begin to get tricky. People who start their own businesses usually aren’t afraid of hard work and a long-hours culture can become a kind of indicator of commitment. But spending too much time in the office can be at worst counter-productive and at best a bit pointless.

More than four-fifths of of the entrepreneurs questioned said there were diminishing returns from “simply putting in more hours.” And if you step back to look not only at working culture but also the stresses and anxieties associated with running a business, then there is a real danger that performance will suffer. Entrepreneurs are very aware that burnout, anxiety and depression are the bedfellows of poor decision-making.

So how do you get the balance right between working hard and pushing yourself to the point where things begin to fall apart? And if you are one of those people who knowingly stays too late in the office for no good reason but carries on doing it anyway, how do you change that behavior?

As Chandratillake sees it, investors can play a role in supporting founders through difficult and stressful times but this is often on an informal basis. “For many years, as a firm, we have helped founders and CEOs with the challenges they face,” he says. In practical terms, that could simply mean having a conversation that addresses a particular problem.

The firm’s Wellbeing and Performance platform has put something more structured in place. As Chandratillake explains, the initiative is aimed at providing help in three areas – health and wellbeing, coaching and peer-to-peer conversations. But what does that look like in practice?

“We have a physical program run by medical experts,” says Chandratillake. “They will put you through tests and make recommendations – for instance on diet, exercise or sleep.”

Alongside that, Balderton has hired an executive coach who will provide a program of meetings to discuss management and decision-making issues with individual founders.

And finally, Balderton has arranged for startup leaders to meet in groups of between five and seven. “We’ve organized it to bring together CEOs living in the same cities. It’s a program where founders from non-competitive businesses can connect with each other and discuss common problems.”

As Chandratillake acknowledges, the initiative is open only to CEOs and founders in the Balderton portfolio, but he expresses a willingness to discuss similar programs with other VC firms.

A Long Journey

But is this initiative simply a good deed in a wicked world or is it driven by commercial logic?

“We are not being selfless,” says Chandratillake. “We invest in businesses and the journey can take 5, 10 or 15 years. During that time, anything we can do to help the CEO remain focused is a positive.”

The scheme is voluntary and Chandratillake stresses that while Balderton pays for health checks and the coaching, the firm is not involved at a personal level. For instance, discussions with medical professionals or indeed the executive coach are confidential. “So we won’t know about your cholesterol level or anything like that,” he says reassuringly.

That should encourage more founders to take part and it might just provide a spur to adopting habits and practices that improve performance and reduce stress. Given that 72 percent of respondents said they found it hard to prioritize wellbeing and 61 percent said finding support was difficult, external help could prove useful.

David:
This is the BiggerPockets Podcast show 791.

Nate:
The most important investment that anyone makes is their first deal because it gets them over that hump, “I can do this,” and you learn a lot in that process. There are two things that held me back from investing in real estate. One was just like, “How does a real estate transaction get put together?” Then the second part that I really learned a lesson on was how to find and manage a contractor. I made some pretty big mistakes there. So I learned some lessons on how to find contractors and that led to some better experiences down the road.

David:
Hey, hey, what’s up, everyone? So glad you’re here with us today. You made the right decision choosing to listen to this podcast because we are the biggest, the best, and the baddest real estate podcast in the entire world. I’m David Greene, your host of the BiggerPockets Real Estate Podcast joined today with Rob Abasolo, also known as Robuilt. If you’re somewhere cool like YouTube or you like short-term rentals or you like being around cool people, you definitely know who Rob is.
Today’s show, we are interviewing Nate Shields and Troy Zimmerman. These are two folks who were struggling getting their real estate business going until they found each other and had a partner made in paradise. They ended up doing a home run BRRRR and transitioned that into multifamily deals. We get into how they found each other, how they knew the partnership would work, what they did wrong in previous partnerships, and how they are looking for in analyzing deals today. Rob, what were some of your favorite parts of today’s show?

Rob:
I think it’s really nice because we talk about partnerships and we talk about forming partnerships, but really being on the same page not just in the actual day-to-day logistics, but having a long-term vision for where you want your business or your real estate deal to go, that way there aren’t any disputes or any fallouts later down the road. I think this is something that’s missed by so many real estate investors that just very nonchalantly partner up with people, but they don’t ever discuss the exit plan, which can really create problems if one partner is not in a position to sell and the other partner has to sell or wants to sell because life circumstances happen. So we get that story. We get the ins and outs of forming some of those JVs, how to work with some of those investors.
Quick tip. Can I get to the quick tip? Sorry, I’m so excited. All right. Today’s quick, quick tip, pick up the phone and make the dang call. Most of us are not closing deals or getting deals or scaling or getting to where we want to get into in the real estate world because we don’t pick up the phone and just pitch whatever we want to the real estate investor to the property owner. I tell a story of how I called a carwash operator today, and he gave me an offer on a property that he previously told me no on. We get into that a little bit more with Nate and Troy here because this deal that they talk about all happened because he picked up the phone and he made a phone call and it turned into a total grand slam of a deal. Dang it. That wasn’t so quick, was it?

David:
No, but mine go long also, and I was just thinking maybe that’s not a quick tip, but it’s a quality tip. So that’s today’s quality tip for you.

Rob:
It’s a quantity tip.

David:
Let’s bring in Nate and Troy.
Nate Shields and Troy Zimmerman, welcome to this side of the BiggerPockets Podcast. Now, as I understand, each of you work at BiggerPockets, but you’re not used to being on this side of the camera and the microphone. So first question, scale of one to 10, how terrified are each of you?

Troy:
For clarification, I do not, but I live vicariously through Nate who does work for BiggerPockets, so I hear all the stories.

David:
Thank you, Troy. I should have known. You just look exactly like Nate. If you guys go onto YouTube and watch this, you will see. It’s like we’re talking to the same person in two different shirts. It’s like one of those movies like Tom Hardy did one where he played two brothers. You know what I’m talking about, Rob, because every movie, right?

Rob:
I do.

David:
The Parent Trap, that’s what this is. I feel like we have the same person playing two roles on the podcast, but I promise they’re different people.

Rob:
Because that is usually what people say whenever they meet us. They’re always weirded out. They’re like, “Are you David? Are you Rob?” It’s like, “You guys look like brothers.”

David:
Yeah, that’s very … No, not well known fact. That’s why Rob grows his coif. It’s just so we can be differentiated because we look like twins.

Nate:
It’s helpful.

David:
Yeah, he’s tired of getting confused with David Greene. He’s like, “I’m way more handsome than that guy. Stop doing it. He looks like a combination of Shrek and Dana White and I look like Antonio Banderas. Why are you guys mixing us up here?” All right.
So in today’s show, Nate and Troy are going to walk us through a deal that they’re doing that includes a new joint venture, as well as working directly with the seller. We’re going to dive in more later, but first, tell us a few quick stats about this deal. Troy, I’m going to start with you. What property is it?

Troy:
Yeah, it’s a total of 14 units, two quads and two triplexes.

David:
Oh, are these all in the same lot?

Troy:
Essentially. Two of them are on the same street. Two units are just one street over.

David:
Oh, but they’re different parcels that’s owned by the same person.

Troy:
They are, yeah.

David:
Okay. Then Nate, what did you buy it for?

Nate:
We are buying this for 925,000.

David:
You see how I’m using your names just so it makes that the audience think that we’re talking to two different people and they don’t realize it. It’s actually The Parent Trap. Then Troy, what is your plan for the property?

Troy:
We’re going to hold this. We hold most of our property long term.

David:
All right. I’m excited to hear more. We’ll get back to this deal, but first, how did you two get into business together? Did each of you have partners before you met each other? Did you look at each other and think, “Oh, my God, we were separated at birth. We are clearly identical twins”? What was the origin story of this relationship?

Troy:
So Nate and I met after school, after college through some mutual acquaintances and just had a lot of similar interests, liked to play golf, liked to play music, guitar. Actually early on, I was starting my financial planning career, and Nate was working for a security company. We actually started a little side hustle together where we would go out and procure these really great deals from local restaurants and realtors or retail shops, and then we’d package them up into these little coupon books, you’ve probably seen them, and we’d sell them to the community, and then, unfortunately, Groupon happened and, “Ah.”

Rob:
Wait, so did you actually … You were actually creating the literal coupon books?

Troy:
We were, yeah.

Rob:
Wow. That must have been so much work. Was it?

Troy:
Yeah. It was a lot of work. It didn’t last long. We should have seen the internet coming.

Rob:
Probably by that point, for sure, but I bought one or two of those in my lifetime, and I was just going every day. I was like, “Well, I need a cheap meal. I guess today I’m going to Applebee’s for $10 off.”

Nate:
Exactly.

David:
What about you, Nate? Did you guys have any failed partnerships before the two of you made this thing work?

Nate:
So yeah, we both have had a couple of partnerships. I guess I’ll let Troy go first because he started first. So I’ll kick it back to Troy and he can tell the story about his failed partnership.

Troy:
I had a partner in my financial planning business, and all personality and value issues aside, I think there were a few key reasons why that partnership was doomed from the start. Part of that was just difference in equity. So when I was considering going into a business with Nate, it was important that I felt like we had similar skin in the game. This partner didn’t have as much invested in the company, and then beyond that also had different income needs and long-term goals. So while I was trying to grow this business, there was a constant outflow of capital. Also, this person was significantly older than me, so our long-term goals clearly didn’t match up as well.

Rob:
So tell me, Troy, you said that you came in a difference of equity and the money invested was differently. So does that mean … Was equity based on how much money was invested into the company or was equity based on just, “Hey, let’s each own 50%? How much can you toss in? I can toss in this much”?

Troy:
So the way this worked, I brought some of the actual capital to the business, and that was supposed to be in exchange for a very clear defined set of responsibilities that this person was going to take. Just as time passed, that dynamic just didn’t really work. I think there was resentment on the part of my partner feeling that they were being overworked. I think there was also just a clear difference in what we were trying to build long term. So to your point, when I considered a partnership with Nate, I thought those two things, while they didn’t need to be specifically equal, they needed to be closer.

Rob:
Then you also mentioned that the partner who was older and your long-term vision was different, explain that. Do you mean they’re older so they’re looking to cash out faster and you’re looking to build this thing up to the heavens? Give me a little bit of that vision whenever you started that company.

Troy:
I was fairly young. I was in my late 20s. He was in his late 40s. While I was looking at probably a 20-year, 30-year runway, he was probably looking at something like 10. I was young. It was something that I should have considered from the start, but didn’t have that insight at that point in my life.

Rob:
So do you feel like now … I guess obviously you’ve probably found common ground with Nate, but just moving into more businesses with people, is timeline one of those huge factors that you’re looking at?

Troy:
Yeah, even when Nate and I decided to jump into this together, we clearly defined, “Hey, we are holding our properties long term unless it obviously makes sense to dispose of one, to roll it into something different,” but this is a long-term commitment for both of us, and we’re not going to touch anything until we’re close to that retirement age.

Rob:
That’s really cool. Okay. So now, that first partner, have you guys ever worked it out or how did that end up shaking out once you came to the crossroads there?

Troy:
Unfortunately, no, no. That’s a broken relationship. Sad.

Rob:
All good. All good. Well, I’ll tell you what, this relationship right here is not broken, all right? I want you to remember that for the rest of this episode.

Troy:
Appreciate that.

Rob:
I’m looking deep into your eyes every time I’m talking. All right. Sorry, I’ve derailed this enough. David, where do you want to go with this? Do you want to ask more about the actual dealer or do you want to dive more into the partnership logistics?

David:
Well, I would say for someone who is trying to figure out should they partner, should they not partner, who’s the right partner, before we get into the deal, I’d like to get some of your guys’ perspective on what did you do with people that looking back you can clearly see those were mistakes that’s why it didn’t work, and what did you see in each other that made you realize this is a partner that actually could work out in the long term. We could start with you, Nate.

Nate:
I think Troy and I had developed this relationship in our 20s. We were playing golf together. We would have poker nights, play video games. We were just hanging out becoming buddies basically first, and then we had that coupon business that fizzled rather quickly, but we’re both in that visionary mindset. We like talking about ideas, new things, new businesses, all that stuff. So what happened over time, I ended up leaving my marketing job that I had, and I did not like that job at all. So I was looking for an out. I became a real estate agent, and within eight months, I was able to quit my job and went full-time in the real estate.
At that point, I didn’t know what investing was still. I spent a couple years just doing retail, buy and sell. Then a property manager friend of mine shared the latest BiggerPockets episode with me, and this was back in 2015, I think. It was around episode 105. So I think we’ve had a few episodes since then. It just floored me to hear about real estate. So I listened to all the podcasts. I started reading books. That’s when Troy and I talked about a partnership together because we were both interested in real estate.
Troy had actually already had some experience buying rental properties. So we decided, “How are we going to build a business together? Does it make sense to work together? How can we do that?” Really, it was because that relationship that we had had for years at that point that we felt comfortable going into business together, especially because I felt like he had more of a financial mind being a financial planner. I was in the trenches selling real estate every day so I had my pulse on the market, but then he had also had experience on both the commercial side, managing some commercial properties and buying rental properties. So for us, it was just, “Let’s do this. Where do we start first?”

David:
So you knew each other for a while. You’ve gotten to know each other’s character, personalities, and styles, and you believed, “This is a person that I can trust,” and then you made another good point there. You had opposing skill sets. Doesn’t do you any good to have two point guards on the same team. You want somebody who is covering a different base than you. Troy, anything you’d add to that?

Troy:
No, I think that’s true to a certain extent, and yet as I look at our real estate business, real estate is not that hard. So I’ve watched our business change and our roles in the business change as needs have arise. Like Nate said, for a while, he was an agent and it was because of just his ability to access auctions in the MLS at that point. He was the deal sourcer. He would find the deals. Through that, we found our first BRRRR property, went to auction, bought it for 60 grand, rehabbed it, rented it, repeated, refied, repeated. It worked perfectly. It was a perfect BRRRR, and then we never did it again, but it was because of Nate’s role at that time that he was finding the deals. That shifted somewhat and we’ve been able to offload some of the responsibilities depending on who’s curing what at any given time.

David:
So Nate, you started off finding deals. Troy, you were sort of handling the backend of it, making sure everything got done. It’s funny that you said you did a BRRRR and then you stopped. I think so many people that were buying properties from 2014 to 2020 or so had that same experience. We were so spoiled that you could do a BRRRR, get 100% of your money out, be left with a cash flowing rental that had been fully rehabbed and was going to have no capex for the near future and just think that’s normal and it should happen all the time. There’s so many of them that we don’t even need to go do this again.
Now we’re in this market where we’re like, “I’d give my left arm to have anything that cash flowed a little bit and if I leave 10% of the money in the deal, I’d be thrilled with it.” We can’t find those anywhere, and we’re all looking about kicking ourselves in, “Why didn’t I buy more real estate when I could?” What was your mindset at the time when you guys did that deal that prevented you from going after more?

Troy:
I think we dug into real estate a little bit more at that point. We were amazed. The BRRRR strategy is what really prompted us to start the business together, but then I think as we dug in, we realized we wanted to focus more on multifamily, and that’s where we focused our efforts. So you’re right. If I could go back and do 100 BRRRR deals, I’d love to right now, but we were just a little bit focused and changing direction a little bit, and that BRRRR deal allowed us to do. That BRRRR deal actually allowed us to change direction.

David:
What was your experience with that first deal? Did it change how you looked at real estate investing? Did it change how you looked at the partnership? Did it open any doors for you?

Nate:
Yeah. Well, I think the most important investment that anyone makes is their first deal because it gets them over that hump of, “I can do this,” and you learn a lot in that process. So for me, there are two things that held me back from investing in real estate. One was just like, “How does a real estate transaction get put together?” Luckily, I had at that point about two years, maybe about, I think I had about 60 deals to my name just in the trading of real estate for clients. So I felt like I had a comfort level with how a transaction goes. I had contacts. I had attorneys. I had a bunch of different vendor partners.
Then the second part of it that I really learned a lesson on was how to find and manage a contractor. I made some pretty big mistakes there, trusted a referral, and usually that’s a great place to start, but you still have to do another layer of vetting. I did not vet this contractor hard enough and he just took way too long, went way over budget. It was poor quality work on top of all of that. Then it delayed our process to be able to complete the BRRRR strategy, and it led us into basically the fall, which is not a great time to try to rent a property in the upper Midwest.
So luckily, we did find really fantastic tenants, but it did delay our timeline by several months. So I learned some lessons on how to find contractors and that led to some better experiences down the road where I was actually able to partner with some contractors that knew how to work with investors. I knew how to better manage them and I knew what to look out for as well.

David:
Contractors are such a tricky referral because when I get a good contractor, it’s like, “I don’t want you to know who that contractor is. I don’t want to give you my guy. I’m going to give you someone else’s guy that I heard they use and maybe I have their contact info.” Is that the same with you, Rob?

Rob:
Oh, yeah. Oh, yeah. I ruined my contractor in California for myself. He was the best contractor in the city. I’m not even going to say the city because I’ve already ruined that city too, but everyone goes to him now. He’s built dozens of homes for people that I referred out and now I can’t even get a quote for three months. He’s expensive now and it’s a whole thing and I’m like, “Well, I’m happy you’re winning, but I’m now losing because I helped you win.”

David:
Listen to this story. This is just the worst, okay? So I had a cop that I worked with who’s actually a lieutenant, who I was going to sell his house when the time came. He wanted a person to do some work on this house. So I’m like, “All right. I will send him up with my person because this is going to be a listing. This is a perk of getting to sell your house with me.” The guy goes and does the work. This cop shares the information with another cop at the department, this time a captain, and now that guy goes and he does his shower.
Well, the work he does, and this wasn’t a contractor, this was a person that worked for a contractor that did the work very cheap because he wasn’t doing it as a licensed person. So he does that guy’s shower and the shower’s leaking. He then stops replying to the phone calls and text message of the angry captain who’s threatening to get him in trouble for working without license. This is getting ugly. Then captain calls me, who I was also going to sell two of his houses, and he is like, “Hey, So and So stopped replying to me. I need you to give me his contact information like his address so that I can go serve him with paperwork and get him in trouble.”
I’m like, “Look, I didn’t even give you his information.” This is secondhand anger that’s coming from somebody else. I don’t really want to dime this dude out, but I also don’t want to burn my contact with my cop friend who wants me to sell his house. Long story short, he’s pissed off because his shower leaks. I don’t sell either of his houses, and the first cop didn’t come back to me when his house sold, and this was all because I was trying to do a nice thing by hooking someone out.
So I can understand this contractor conundrum that people fall into. It’s very difficult because when you’re getting referrals from contractors, A, you do need to vet them yourselves, B, it might not be the best one, and C, they might have been great for someone else, but they’re not going to be great for the person that they’re referred to. Is that a similar experience for you guys?

Nate:
Yeah, and I’ve got a couple tips that might help people listening or watching this. One thing I learned … So I hosted a real estate meetup and I met a guy who was flipping houses. He was doing several houses a year, and I was going to list one of his flips. So I went to go see it. They were almost finished with the work, and I was able to see this contractor’s finished work, see how the flip turned out, and it was fantastic. I was like, “Who is your contractor?” So that was the one thing. Go see the work. They should let you see the prior work that they’ve done or let you in on existing project that they’re working on now so you can see what the quality is.
Then secondly, this company was big enough where they had both a full-time administrative person and they had a full-time superintendent. So they had their bases covered when permits needed to get pulled. The superintendent or the admin would help with that stuff. The admin would help with the phones and scheduling and all sorts of stuff. So most contractors are actually pretty good at their job, they’re good at what they’re skilled at, but they are not good at the business side of things. So if they have some help there, maybe it’s a partner, a spouse, an employee that can help them with the admin task, that gives me a better feeling of how things might go.

Rob:
That is definitely the one, the biggest flaw, I think, industry-wide for contractors is they’re usually just not very good at business or picking up the phone. If they are good at business and picking up the phone, they’re very, very expensive because they know how to delegate and hire teams. So it’s like two different options. You want the contractor who’s good but bad at being responsive and more affordable or do you want the premium contractor who’s a badass, but also the quote, you have to sell a kidney to fulfill?

David:
Well, there’s some wisdom in that. When you go to a house flipper and you say, “What about this deal?” they’re looking at it with house flipper goggles. They’re looking for how much equity, is there a strong buyer’s market for this property, how quickly can we get this thing rehabbed. They’re analyzing it from their flipper mindset and putting all the inputs into the Excel sheet in their brain. When you go to a buy and hold investor, same thing. When you go to a wealthy person who just wants a place to stick money to save on taxes, they’re looking at it from a different angle. When you talk to a contractor, they’re just wanting to make sure that they do work the right way, they do a good job. They have guys on their team that can handle it. They have subs, they trust they can do that type of work.
When you go to a different professional like a CPA, you get a completely different perspective. It’s challenging to just turn something over to someone and say, “All right. I need you to do this,” because … This is one of my frustrations all the time. I got a house in Florida, some code violations came up from the guy that I hired to do the work, not pulling permits. That guy just backed out of the job. He’s like, “Oh, I don’t want anything to do with it.” Now the city’s involved and I got caught. So I got to go in and get permits issued for the work that’s already done. I got another contractor and I’m like, “Hey, here’s the number for the guy in the city. Can you call him? Ask what needs to be done, meet him at the property, tear the walls apart, show him what’s going on, clear the permits.”
To me, this is pretty cut and dry. That contractor is having the hardest time with understanding he has to make a phone call and ask questions. He’s like, “David, just tell me. What do you want to do? I’m confused. This is such a mess. I need some clarity.” Every time we talk, he keeps saying that and I’m like, “Well, why are you coming to clarity for me? That’s the number for the guy in the city. Just go ask him.” His brain cannot make a connection between getting the answers he wants from a city planner. He thinks he has to get it from a client. It’s just such an example of how real estate can become complicated and messy when it doesn’t need to. Oftentimes, you just got to run shotgun on your own projects and tell people what to do. Is that a lesson that you two have learned, Troy?

Troy:
Yeah. Thinking back on that BRRRR strategy project we had especially, definitely agree with all those points. We haven’t done a lot of construction beyond that because most of our units are buy and hold, but yes, definitely agree with all those points.

Rob:
So you have this budding relationship. You guys have figured out, “We want to be in business together.” How did you align on where you wanted to go? You did mention you pivoted after the first BRRRR, so obviously, there must have been a heart-to-heart that guided your strategy after that. So Nate, can you give us your thoughts and then I’ll go over to you, Troy?

Nate:
Yeah. When we first talked about this idea to own rental properties, our pie in the sky goal was 100 units in 10 years, and we just pulled that out of thin air. It just sounded cool, but it at least gave us a starting point because you got to start with one. So we talked. We set up our LLC. Troy brought the banking relationship with a commercial lender, which we’re still working with that person to this day. So that’s where that all began.
Then I think the next thing that changed some things too in addition to maybe stopping the BRRRR strategy, Troy moved out of states. We were in the Chicago area at the time. He moved to South Carolina. So that changed our strategy a little bit too because he was looking at some properties there. We had one property in particular that was a disaster. We bought a duplex that we made a huge due diligence mistake on. We thought it was owned multifamily and it was not. We did not find this out until the appraisal was done. We had already done quite a bit of work to it. We were not going to be able to pull out our money unless it was a property that adhered to the zoning.
Since it was being used as a two unit, we either could have kept our cash in that deal or we had to revert it back to a single family to pull our cash out. So we had to make the hard decision to pull our cash out of there. We had to revert it to a single family, which cost us another $10,000. Then when Troy had moved to South Carolina, we sourced a property there, and that took us to more of an out-of-state investing mindset because that’s where we do most of our deals now.

Rob:
I want to talk about a little bit of the ins and outs of the partnership in the structure that you have in place. I wanted to just start with this question. Is it hard to actually set up a partnership?

Troy:
No. For us, we probably did the worst thing possible, but we just jumped on LegalZoom and set it up that way and it’s been fine. I guess we haven’t made any changes, so it was pretty easy.

David:
All right. Getting back into this deal that we are talking about here, your 14-unit, I believe we’re with you, Nate. So tell us how did you find this deal.

Nate:
So I’ll back up for just a second and I’ll tell you how we found the market. Five years ago, we were looking for a bigger multifamily deal, and we were pretty agnostic as to what market we were in. We would obviously do our due diligence if we found a deal, but we’re looking at major markets all across the US and, actually, Troy found this 20-unit deal in northwest Alabama, about an hour outside of Huntsville. There was something about it that were giving him alarm bells. This had been on the market for quite some time, and the numbers just looked awful, pitiful, and he’s like, “How could this be? How could this apartment building be bringing in this little money?” It just didn’t make any sense to him. So this is why he’s such a great partner, but he dug into it. He found the property manager. Troy, maybe you want to continue this because you were the direct contact with the property manager at that time.

Troy:
Yeah. I found it on LoopNet. It was, like Nate said, a 20-plex that just looked … The NOI was ridiculously low. Instead of just passing it over, I thought I’d call the property manager and called him up and said, I asked him, “Why are these numbers? Why is the rent so low on this property?” and he laughed and he said, “The only thing I can think of is that I switched property management software halfway through the year, and they only took one of the 1099s and listed it as the income for the entire property.” So he ran through the numbers with me, and after we found out what the property was actually bringing in, it was a slam dunk deal. Best deal we’ve ever done by far.
I think that was a lesson for me. Just pick up the phone. The best deal of your life can be one phone call away. So with that being said, that is how we actually met Robbie. He was the property manager who picked up the phone when I called. We love the guy, and he has been so instrumental in our business. So not only does he manage that 20-unit for us, he brought us a fourplex in 2020, early 2020, and then he just brought us this 14-unit deal completely off market. So for us, our property manager has really been the greatest source of deal finding.

Rob:
So let me get clarification here. If I’m hearing this correctly, you found a deal on LoopNet that didn’t necessarily work out. It was like, “Eh, it’s not that great of a deal.” Then you were like, “But I’m going to call anyway.” You call and then due to a technicality or a flub or a glitch, they’re like, “Oh, yeah, sorry, let me crunch the numbers,” crunch, and then all of a sudden they’re like, “Ah, yeah, we were way off. It actually makes this much money,” and then no one had made an offer on the property because the numbers looked bad at face value?

Troy:
Yeah. It’s shocking that no one had followed up on this. The numbers were so bad that I didn’t think it was possible, and that’s what prompted me to make that call, and it’s been a great deal for us.

Nate:
So that’s what brought us in into that particular market. Then over the last few years, we just remind Robbie, our property manager, “Hey, we’re buyers. So if anything comes across your desk, we’d love to take a look at it.” After BP Con last October, we were pretty fired up like everyone was, and we reminded our property manager again, “Hey, we’re looking for deals, especially if there’s any creative finance element to it. We are buyers right now.”

Rob:
Yeah, that’s huge. I don’t want everyone at home to just listen to this. I was thinking about this earlier on my walk this morning, on my walkabout, if you will. One thing that I realized is I think that the reason most people don’t scale or don’t have success past their first deal or even getting their first deal is because they just don’t ever make a physical phone call. The moment you have to make a call, you just get, “Ah, I don’t know. That’s too much work. I’m too nervous about it,” but it’s just like calling people can lead to so many opportunities.
I saw this carwash, and I’ll say this, there’s a phone number on the door of this carwash, and I was like, “Hey, maybe they’ll sell it to me.” I called him six months ago and he was like, “No, no, I’m not going to sell it, but thank you for reaching out. I appreciate it, but no. No, thank you,” and I was like, “All right. Great.” Walked by today, called him again, and he answered the phone. I was like, “Hey, it’s me. I called you six months ago just following up,” and he was like, “Well, I’d sell it for three, four million if you’re for real.” He said, “You called me six months ago,” and I was like, “All right.” It was not a great price. It’s actually a very bad price, but I made progress in six months because I decided to call, and I almost did it, and I think that if I call him again in six months, maybe it’ll go down to 2.9. I don’t know, but the point is calling over and over again warms people up. It builds rapport. Even if you fail at making those phone calls, it at least thickens your skin a little bit so that you can just do it because it is scary to make phone calls, I think. So kudos to you on doing that.

Troy:
Yeah, and I think especially in today’s market, everyone, the hardest part is finding a good deal, and yet so few people are willing to just take the extra step to make a deal happen.

David:
Well, this is what stood out to me about this. You see a deal on the MLS, the numbers are terrible. We’ve all seen that, “Oh, my God, that house is priced so high. Why do they think they’re going to get that? Those cap rates don’t make any sense.” I hear these statements constantly. We view it like that’s the price, it doesn’t make sense, moving on to the next one. When I see that, I’m not looking at it from my perspective of, “I want an easy deal. I just want to find something that makes a bunch of money, I can write one offer on, put it in contract and be done.” I’m thinking how that listing agent must feel.
This thing’s been sitting on the market for six months, for nine months with numbers that clearly don’t make sense. They probably feel pretty bad about themselves. These listing photos are terrible. They don’t even have an interior shot. Nobody’s going to be asking about this. They’re probably desperate for a phone call. This person probably really wants to talk to somebody about real estate. That listing might be expiring soon and they’ve got nothing to take to the seller. They’re going to lose the listing completely. That’s the house you want to call on. You don’t want to call on the one that looks gorgeous and is priced really low and has been on the market four days because it’s priced low on purpose. It’s going to sell for 100 grand or 200 grand, more than that, and that listing agent isn’t even going to answer the phone. They’re going to give you some automated response that say, “Submit your offers through this portal on this website. You’ll never get to talk to me.” They’re running an auction and your client’s going to be frustrated.
You call those ones that are obviously messed up and you find what you found, Troy, “Oh, the rents are much higher. They’re idiots. They don’t know what they have. These pictures are terrible. The property looks way better than I thought. What were they thinking when they did this?” They want an offer. They want something. They want to start negotiations. They just want to feel wanted. They haven’t gotten attention in six months. All their friends are getting dates and they’re sitting there posting on their Instagram and they’re getting zero likes. Then you happen to leave that one person a comment and they’re like, “Oh, my gosh, I got attention from a buyer. This feels great.” They want to talk to you all the time. Those are the deals that you should be looking for when you’re an investor, but for some reason, we pass them all up and we chase after the same homes that everyone else is. All right. So let’s see. Where are we? Troy, how did you negotiate this deal?

Nate:
So one thing when we’re trying to vet markets in general, and I think it organically started just because it was where we lived, but we were about an hour outside of Chicago. So we’re hour outside of a metro area, decent demographics. When Troy moved to South Carolina, he sourced a duplex there. That was about 30 minutes outside of Charleston. Then when we were looking for a larger deal in a different market, this just happened to be about an hour outside of Huntsville, which is a very, very strong market and has been for years now. It’s really been on fire.
So what we do … For some people who might think that it’s hard to find a deal in your own town, that can be the case, and depending on what your goals are and what you’re looking for, there are plenty of markets out there that might just be on the fringe of a really hot market that doesn’t have the attention yet. So if you just go and do your due diligence and see what’s going on there, sometimes there are markets, and we’ve found this to be true in several markets, where not just one metro area, but there can be two or three in a triangle, and that can be really, really good.
Down in Alabama, there’s Huntsville, and then there’s a bunch of manufacturing in Tupelo, Mississippi, and then you’ve got up until Memphis and Nashville. So some of these markets feed off of each other because a lot of their distributors come from these larger markets and then infill into the smaller markets. So there’s still a lot of good things to be looking out for in these tertiary markets.

Rob:
So that’s the 20-unit. You also mentioned this 14-unit on this deal, Troy, is that the same market as this one? Is it a different market?

Troy:
Yeah, it is the same market. In fact, I think I also mentioned the four-unit complex that we bought. It’s literally on the same street. These 14 units are on the same street that we already own a fourplex. So really familiar with the area, feel good about the property management that’s in place.

Rob:
So I imagine you get to use a lot of the same vendors. So it’s a pretty seamless machine once it’s up and running, right?

Troy:
We love it. Having solid boots on the ground makes you want to continue to purchase and continue to buy in that area.

Rob:
Yeah, 100% agree. Nate, got your take here on the tertiary markets, all that stuff, but can you just take us through your actual buy box and how has that buy box evolved over time?

Nate:
Yeah, I think when we started out, we bought a single family and we did the BRRRR strategy. Then we looked into some duplexes and some larger units. When we wanted to go for the 20-unit, it didn’t have to be a 20-unit, it just ended up being the best deal for us. As we’ve continued to build our portfolio, we like to stay in that mid-size multifamily range because, first of all, it’s a commercial property. We prefer to play in that space if possible, but as we move forward, I think that we’re not … If it was a good deal and it’s in a market we like, well, we’d probably still buy a duplex. We like multifamily quite a bit, but, Troy, maybe you could chime in on what you’re thinking our best buy box is because I think what we’re looking is for a deal in a market that we like and have boots on the ground. That’s our criteria.

Rob:
Yeah, that’s good.

Troy:
Yeah, and I also think our buy box has changed a little bit given the current market environment. I think we are less focused on cashflow right now and more focused on just solid properties that hopefully breakeven, hopefully we get a little bit of cash flow, but solid markets where we feel rents will appreciate long-term taking care of the cash flow problem on its own, but then looking for markets where we feel long-term appreciation will naturally occur as well.

David:
Yes. I’m working on a book right now that I’m hoping BiggerPockets will publish that details the 10 different ways that you make money in real estate, and you just mentioned two of those ways, market appreciation cashflow and market appreciation equity. Trying to bring some clarity to all the different angles that people take when they’re making plays because there’s so much controversy between, “Should you be an equity investor? Should you be a cashflow investor? Does location matter? Should you be adding value?” Really, the answer is, yes, you should be doing all of it, but you typically have to give up something to get others. So I like that you guys are sharing, “This is the strategy that we are using and this is why. So therefore, these are the properties that we’re looking for.” Remind me, what did you pay for this deal?

Nate:
925,000.

David:
That’s right, 925. You said that earlier. Then Troy, how did you negotiate that?

Troy:
Really did not negotiate as far as price goes because it wasn’t off market deal, and this seller was adamant on his price and he said, “If someone can pay me 925, I’m willing to sell. If not, I’m willing to hold.” He built these 14 units. He was the builder back in the late ’90s, and so he has a lot of pride of ownership.

David:
Oh, yeah. I could see this one already.

Troy:
So we didn’t negotiate on the price, but there were some really interesting pieces that happened along the way. I’ve been negotiating with this seller since November of last year. Initially, he thought he wanted to sell or finance. He didn’t want the big tax hit. Worked that back and forth, and eventually just, I don’t know, just walked away. I think he was second guessing whether or not he wanted to sell the property. His heart and soul was in these things.
Let it be for a few months, and in January just thought, “You know what? I’m going to reach back out.” Again, another phone call, right? “I’m going to reach back out to the seller and I’m just going to say, ‘Forget the seller financing. Let’s work on a traditional financing deal. We’ll work with our bank and we’d still love to buy these units.’” At that point, I think he knew he needed to sell. He was in retirement and he agreed to that. So I guess we negotiated in the fact that we got him to accept the deal, accept the offer. So that was good, but we had some different hiccups along the way even after we agreed to the purchase price and the financing piece.

Rob:
Troy, was that at all heartbreaking that you had a seller finance deal option or was it not a huge deal to switch to conventional lending?

Troy:
It wasn’t a huge deal. Obviously, the seller financing piece was attractive in the fact that we thought we could get a lower rate, but it’s not like he was pushing the amortization schedule out to 40 years or anything crazy like that. We also have such a good banking relationship that, believe it or not, we’re getting under six with our bank. So we weren’t too worried about that, but we ended up … This deal actually ended up, a portion of it is being seller financed anyway, and that was due to an appraisal issue.

Rob:
Got it. All right. So just for the people at home because this is a split seller finance scenario, Troy, how does it work if let’s say it’s a million dollar property and the seller is willing to finance $200,000 of it, are you going to the bank and then the bank is just fine with financing only 800,000 and then you just have a private promissory note or loan with the seller at that point?

Troy:
Yeah. So you know what we did? We actually, because it was four separate parcels, we actually talked to the bank and we carved out three of the parcels, and they’re financing that piece. Then the seller is going to be, because he won first position, so he’s taking first position on that fourth piece of property, and we’ve got the mortgage set up directly with him.

Rob:
Yeah, got it. Okay, because otherwise, if it was on all four, the seller would be forced to be on second position.

Troy:
He would have to be second position. He didn’t want to do that.

David:
Did you have two separate purchase agreements?

Troy:
We do. One with him.

David:
That’s for that one parcel that he’s in first position on and then-

Troy:
Correct.

David:
… the other one is for the other three that the bank is financing and they’re in first position. He was okay with that, huh? So he wanted to be in first position so bad that he would get only a quarter of the-

Troy:
Yeah. That was the way he felt comfortable structuring the deal. The great thing is he’s coming in at a much lower rate than even our bank. So our blended total financing package is really pretty attractive right now.

David:
Sometimes when you’re first, you’re last. You probably would’ve been better off getting a bigger chunk all four of those. All right. So that’s good. Now, what was your experience with the seller financing? Did you walk into that expecting like, “Oh, I know how seller financing work. I got my screwdriver in my pocket. I’m going to pull that thing out and I’m going to fix this,” and then you realized it wasn’t like you thought or did it work out the way you expected it to?

Troy:
No. I think we all, especially right now, and there’s some guys out there who are really killing it with the whole creative financing, seller financing models. I think you hear about these deals where the seller wants 0% down, they’re okay with 0% down, and they’re willing to amortize over 40 years and whatnot. I don’t think that was ever an option with this deal. So we were okay going the traditional finance method regardless because the seller’s terms were fairly similar to the banks.

Rob:
So Nate, tell us how did you fund the deal.

Nate:
So we funded it with our lending partner, who we’ve been working with a very long time, and then the other component was the seller finance, and then our down payment into the deal is obviously between our business. Then we brought on two partners, which we have never done before. So we’re doing a JV deal with another group of guys that we like and trust.

Rob:
Okay. So how much money did you have to put in because I imagine if you’re bringing other investors in, do they want skin in the game?

Troy:
Yeah. We ended up putting in altogether right around 30%, 30% of the deal. Part of that was due to the fact that the appraisal came in low, and that’s a whole different story. So we brought a little more cash to the deal. Because we’ve got a few more guys in this deal who wanted to bring capital and wanted to be involved, we did a little bit greater down payment.

Rob:
Okay. All right. You said that you JVed on this. Were there any specific JV things that you had to do or was it still just going on to LegalZoom or whatever website and forming your partnership there?

Troy:
No, we used an attorney this time this one because there were more parties involved. We felt that was probably the better, wiser decision, but really good guys and just guys that we’ve gotten to know and talk real estate with and feel comfortable pursuing deals together down the road.

Rob:
Now, was there anything that you had to do to vet the partners that you brought in? Was there any learnings that you had from your previous, I guess, partnerships and everything because, obviously, if you’re bringing in two new people, that’s two different mindsets and two different philosophies that are coming into your investment? Nate, I don’t know if you’re the person who walked through those logistics or if it was you, Troy.

Troy:
It was probably more my relationships on this deal. These guys were neighbors, guys I went to church with. So I just knew them organically through everyday life, and through that, we all discovered that we had a passion for real estate. Chris and Paul, shout out to those guys, but Paul was building a rental portfolio here in the Charleston area, as well as I think some units up in North Carolina, and Chris, he’s a short-term rental portfolio in different parts of the country. So they both had real estate experience.
We decided, once we realized we had this similar passion, we just started having breakfast once a month talking about real estate. They knew I was working on this deal, and for whatever reason during one of these breakfasts, I just was feeling a nudge to throw the deal out there, and I did and I said, “Guys, what do you think about partnering on this?” Nate and I didn’t need to, but I think it was a chance for us to grow and learn just how to partner and build a deal with more people involved. These two guys jumped at the chance and it’s been great. It’s been a lot of fun.

Nate:
Yeah, and I think for me too, because, Troy, they all live close together. I’m out in Colorado. Troy called me when he had this light bulb moment and he’s like, “What do you think about partnering with these two guys?” Paul and Troy had gone to BP Con, and so I got to meet Paul there. So I definitely had comfort level with him. Then Troy told me what Chris was all about. Then once we did get the property under our contract, we were doing our due diligence trip to Alabama, I got to spend a couple days with Chris and there was no red flags. Again, it goes back to getting to know each other, but I implicitly trust Troy, but certainly had I seen something, I would’ve said something, but everything checked out. It checked all the boxes for me.

Troy:
Well, and beyond that, some of the same principles that even Nate and I pursued when we were considering our partnership, certainly, we did that with these guys as well. They needed to be financially stable. They needed to have some understanding of real estate. They needed to understand that Nate and I essentially found this deal and it’s a long-term hold. We’re not selling this. There’s no quick flip here or anything like this. This is a piece of our long-term portfolio. So exit strategy, everything like that, everyone was in line there. So I think it made a lot of sense.

Rob:
Is there a particular deal structure that you have in place with this JV? Do they get a return faster because they’re investors or does everyone get equal share?

Troy:
No, I don’t think they were interested in a return of their investment quickly. I think they want to own the real estate just like Nate and I. We did carve out because so much of the work, especially the front end, fell on Nate and I. We did carve out just a small piece of the equity for us to hang onto.

David:
So what advice do you have for people who they have a decent friend group, but they’re not sure who’s interested in real estate, who could be a potential partner, they don’t even know how to bring this topic up without feeling awkward?

Nate:
Yeah. I would say when I was a real estate agent, I was always told, “Don’t be a secret agent. Tell everyone that you are in the real estate business.” You need to tell people what you’re up to, what you’re interested in, what you’re learning. Naturally, these conversations will come up. I was getting a haircut the other day and real estate came up. So it’s like people are interested in real estate. Everyone knows something about real estate. They either know that their rent has gone up, has skyrocketed the last couple years, and they’ll vent on that or they know that their neighbors got in a bidding war over a property and had to pay 50,000 over asking, whatever it is. Everyone knows how real estate works.
So a couple things is just don’t keep it a secret. Share it. No matter where you’re at in your journey, maybe you just read your first book or listen to your first podcast, go tell people you. If it’s exciting for you, that will rub off on other people and they might have a connection or maybe they’ll end up being your private money lender or whatever it might be.
Then the second thing is go hang out with people who are like-minded. So go find those meetups. You can just go to meetup.com or go to BiggerPockets and go to the network tab and find those local meetups. They’re happening all the time, all over the place. If they’re not happening, go start your own. That’s what I did. There was one that was an hour for me. I didn’t want to drive an hour, so I started my own.

David:
Troy, anything you’d add to that?

Troy:
No, just to piggyback on what Nate said, I was that secret real estate investor, to be honest, just because of the profession that I was in. I just didn’t talk about it a lot. It’s funny to watch, now that Chris and Paul are actually involved, they are talking about it more than I am, and it’s amazing how many people that we know who have now come up and say, “I heard you guys are doing this. You got to let me know next time you buy a piece of property.”
So I think everyone talks about how important your network is, and shame on me for not realizing that earlier, but it’s true. It’s true, the more people you know … Real estate is one of those things, everyone’s attracted to it. So the more people and the more people you can share the story with, I think it’s going to speed your journey along.

Rob:
Okay, and one question here since I’m always interested to see how these types of things are formatted and everything like that, but with more parties involved on this particular deal, what can you share about communication in partnerships? Obviously, there’s the legal side of it and that’s the ultimate form because it’s all documented, but what about the actual day-to-day back and forth with investors? Troy, is that something that you’ve had to change your theories or your philosophies on?

Troy:
Yeah, not so much my philosophies, but definitely, definitely the practicality of picking up the phone and keeping everyone in the loop and spend more than what I’m used to. Thus far though, it’s actually been an encouraging experience. When you’re, “Man, this deal has had a lot of hair on it that we’re trying to close,” and when you’re talking to these guys, the encouragement that I get from some of these other guys, “Hey, you’re doing a great job. Keep going. We’re going to get through this,” I don’t know. It’s fun to have more energy going towards a deal that we wouldn’t have otherwise, but yes, definitely, definitely more communication now that we have other investors.

Rob:
It’s a beautiful thing when everyone’s excited about the deal, right?

Troy:
Yeah, let’s keep it that way.

Rob:
Yeah, you punch holes along the way and you try to make the deal not work, but just barely survive and then it survives. Then it’s like, “We did it.” If we could survive our own hole punching, then this is going to be a great deal. So tell me, Nate, where does it stand now? I know you guys haven’t closed yet. Are you guys approaching the finish line? How close are you to rounding this one out?

Nate:
Yeah, less than a week. We are set to close. So we’re very excited about that. I guess just to paint a picture, like Troy said, this deal was initially brought to us in November, and the time of this podcast that we’re recording today, it’s middle of May, so that’s a while to work on a deal, but that’s really important about making a deal happen is just be persistent. Good things take time and good deals are going to take a little extra work sometimes, but they’re totally worth it, totally worth it.

Rob:
Could not agree more. The best deals rarely work just at face value. You have to make the deal work. That’s something that I always heard as a BiggerPockets listener, but something that we all believe here at Big BiggerPockets is deals don’t just come out of thin air. You have to make the good deals, right? So I heard David Greene say that a time or two.
With that as we close out, just wanted to give you guys the opportunity to say what’s next. What’s going on after this deal? Do you have bigger plans after this? Are you going to focus on more multifamily? Are you hitting the groove and the 14-unit space? What’s going to come from this partnership?

Troy:
I think to answer your question, Rob, we are buyers right now. This has opened our eyes to the potential of taking down larger deals, bringing in new partners if we need to do that. So we’re full steam ahead. We’re excited about the … It’s a tough market, but we’re excited about the market and the way that we feel there are going to be some significant deals in the next 12 to 18 months. So we’re ready to go.

Rob:
It’s awesome. Well, I’ll tell you what, if there’s one thing … There’s so many things we could take away from this in terms of structuring partnerships, but one thing that really stuck with me and, Troy, you mentioned this at the beginning of the podcast, but it was when you’re getting into a partnership, make sure that you have the same long-term vision. I think that’s so important because so much can change over five years or 10 years, and that is something that I talk about in all of my partnerships, and I want to make sure that we’re on the same page. I want to make sure that my partners don’t want to sell after two years or three years. I’m a big believer of buying and holding forever, and so we put a marker of five years in our operating agreement before we can even talk about it and then really have a heart-to-heart. It’s agreed on that we’re going to keep it for longer than that, but I always like to make sure that I’m on the same page.
So for any of you that are ever getting into partnership as it pertains to real estate or business or anything like that, just make sure that you have the same timeline of the exit, that you have the same exit strategy, that you have the same desires. Do you want to cash flow this thing? Do you want to ride the appreciation? I think it’s so important to cover that at the very beginning, and if you do, then the partnerships are very not nearly as likely to fall out, in my opinion. Would you agree with that, Troy, Nate?

Troy:
I absolutely agree.

Nate:
Absolutely.

Troy:
Absolutely agree.

David:
So we can sum that up. Have the same values, have the same vision, but have differing skillsets as a pretty good recipe to find the right partner and make some progress. What’s next for you two?

Nate:
I think for us, we, like Troy said, we’re going to continue buying. There’s a lot of fear in the market, and that’s usually the signal for me to pounce. I think there’s going to be a lot of great deals, like Troy said, in the next 12 to 18 months. We sat on the sidelines the last couple years just managing our portfolio as the market was just overheated, not that we weren’t willing to look at deals and stuff, but it just so happened that as interest rates went up and there’s more fear in the market and talks of recession and all this stuff, it opens up a window of opportunity for those who are willing to go after these deals.

David:
All right. Well, thank you guys very much. For people that want to find out more about you, Troy, where can they go?

Troy:
Twitter and Instagram, TroyGZimmerman.

Nate:
For me, you can find me on Instagram, Nate_Shields, but definitely hit me up on BiggerPockets. If you are an investor-friendly agent and you’d like to connect with more investors from the BiggerPockets community, I’d love to have a discovery call with you and see if we can help you build your business through BiggerPockets.

David:
Rob, what about you?

Rob:
You can find me over on YouTube at Robuilt, on Instagram at Robuilt. Occasionally, I post weird, funny videos, and on the Apple review platform where you can leave us a five-star review after you do that because you love the show and you want us to get served up to other people and you want other people to achieve financial freedom through real estate. What about you, David?

David:
You can find me at davidgreene24.com or go follow me on Instagram or YouTube at DavidGreene24. Rob, I had a thought. You need one of those little cartoon heads that is like a caricature coif, right? Needs to be very significant, and you need to put it on T-shirts like what you’re wearing right now because these are what you wear all the time, and sell them for $400.

Rob:
Oh, wow. I’m flattered you think I could.

David:
I know you could.

Rob:
Silhouette of my coif and my glasses on my pocket?

David:
Yeah. If people pay that much for Dolce & Gabbana, they would easily pay that much for a Robuilt special.

Rob:
Well, I’m going to send you the first edition, all right? I want you to wear it every episode.

David:
If I wear that same shirt as you, people wouldn’t be able to tell us apart. They’d be very confused.

Rob:
That’s right. So we probably should not do that just for the sake of BP Con. We don’t want people going up to you and being like, “Rob?” It’s like, “No, I can see why you think so.”

David:
Yup. That’s it. Nate, Troy, thanks for joining us today. Guys, go give them a follow and keep up-to-date with what they got going on in the investing world. This is David Greene for Rob Donna Karan New York Abasolo signing off.

Of all the considerations an entrepreneur has to make when starting a business—what to name it, how to price the products and more—the legal considerations are perhaps the most important. From determining a business structure, to complying with local labor laws, to ensuring you prepare for and properly file your taxes, forgetting to account for any of these aspects could lead to disastrous legal consequences down the line—ones that may be impossible to recover from.

To ensure you don’t make any legal missteps as you begin your entrepreneurial journey, consider the advice of those who have experience dealing with the legalities of starting a business. Here, 10 members of Young Entrepreneur Council outline some of the most important legal considerations to make when starting a business and why handling these tasks should be at the top of your to-do list.

1. Accurate Tax Filing And Documentation

Ensure accurate tax filing and documentation from the very first year. Missteps in this area can lead to significant penalties, audits or even legal actions in the future. Also, early mistakes can snowball over time, making them more difficult and costly to correct later. Investing in a competent accountant or tax professional from the outset can be a wise decision to prevent such potential issues. – Yury Sokolov, Finazon

2. Registration For Data Protection And Privacy Compliance

For immigrant founders, it’s really important to have the right immigration status when starting your business and to own the company IP. Some founders register their company in the U.S. for sales primarily and then have their development offshore to protect IP rights to the software. If you are building a data-centric organization, take the legal considerations one step beyond to prioritize registering for data protection and privacy compliance. Validate your customer and product usage data rights and make sure your business is registered in a country or state where you can outline ownership of data as part of your terms of service. – Surbhi Rathore, Symbl.ai

3. Clear, Detailed Contracts And Agreements

When you start a business, it’s really important to create clear and detailed contracts and agreements. These are legal documents that explain the rights and responsibilities of everyone involved in the business. Having good contracts helps prevent disagreements and protects everyone’s interests. It also shows that your business is trustworthy and professional. Contracts make sure you follow the law as well as help you run your business smoothly. It’s a good idea to get help from a lawyer to help customize the contracts to fit your needs and review them regularly. By focusing on clear and comprehensive contracts, founders can keep their businesses safe and build good relationships with customers, partners and all others involved. – Kazi Mamun, CANSOFT

4. Your Business’s Legal Structure

The first legal consideration that founders need to consider when starting a business is the entity’s legal structure. Depending on your business type, desired operations and long-term vision, you’ll need to decide on whether you want to start an LLC, S corporation, C corporation or nonprofit organization. Not only does this decision impact things like taxation and investors, but it also affects your liability as an owner and founder. Always start by limiting your personal liability from the company’s liability. From there, you can worry about obtaining legal counsel, securing appropriate licenses and maintaining the right insurance. But protecting your personal liability must always be the first step. – Ian Blair, BuildFire

5. Proper Insurance Coverage

When embarking on an entrepreneurial journey, new founders must prioritize obtaining appropriate insurance coverage for their businesses. Starting a business involves risks, both known and unknown. Insurance acts as a safety net, protecting you from potential financial losses that may arise from unexpected events or liabilities. By securing the right insurance coverage, you mitigate risks and gain peace of mind. A few reasons why insurance should be high on the priority list includes liability protection, property protection, business interruption and professional liabilities. It demonstrates your commitment to responsible and prudent business practices, instilling confidence in stakeholders and potential partners. – Abhijeet Kaldate, Astra WordPress Theme

6. Employment And Labor Laws

Employment and labor laws are absolutely essential considerations for every founder to take care of. You need to protect the interests of all parties involved—your business, yourself, your employees and other stakeholders. You have to understand the classification of employees, overtime pay and more. You also have to follow fair practices, ensure there’s no discrimination and protect your and your employees’ intellectual properties and contributions. Make sure that you hire the right people to help you comply with labor requirements right from the start to avoid problems down the line. – Syed Balkhi, WPBeginner

7. Intellectual Property Protection

One critical legal consideration that new founders need to prioritize is protecting their intellectual property (IP). This includes trademarks, copyrights and patents. Safeguarding IP assets is crucial for establishing a competitive advantage, preventing others from using or copying your unique ideas, products or brand identity, and maintaining the value of your business. It is advisable to consult with an intellectual property attorney to identify and protect your IP assets through proper registrations, contracts and confidentiality agreements. – Ismael Wrixen, FE International

8. IP Or Patent Violations

When starting a business, it’s important for founders to be wary of intellectual property and patent laws and to make sure they don’t violate any. Intellectual property laws may apply to even the most basic of things that aspiring entrepreneurs are either unaware of or fail to consider, such as the name of the business, the company’s logo, item design, content and so on. Violating these laws would not only lead to the demise of a business before it has even started, but it could also cause the founders to face severe penalties that would haunt them for quite a long time. Research is the key to avoiding such legal complications and helps new founders kick-start their businesses successfully. – Stephanie Wells, Formidable Forms

9. Proper Industry Licensing

One of the most important things to do is get proper licenses for the industry you’re in. This is especially critical because having the right licenses ensures that your business operates legally and doesn’t risk being shut down by authorities. Plus, the added benefit is that you appear legitimate and more trustworthy to your audience and customers. You can show that you comply with industry regulations and build a positive reputation, attracting more customers—something that is essential for success. – Blair Williams, MemberPress

10. Former Non-Compete Agreements

Consider if you still fall under any previous non-competes. Many entrepreneurs are inspired to start their businesses based on their past experiences; however, issues can arise if you are in breach of any non-compete agreements you signed in the past. Think hard about whether or not your new business directly competes with a previous employer. Review the contracts you’ve executed to determine the exact prohibitions and their expiration dates. When in doubt, seek legal advice or start a different business instead. You don’t want to burden yourself or your business early on with such an avoidable issue. – Firas Kittaneh, Amerisleep Mattress

There’s no doubt that occupancy rates are declining for Airbnb properties amid a supply increase, but whether we’re entering an Airbnb apocalypse or just seeing a heated market moderate depends on who you ask. Nick Gerli, CEO of Reventure Consulting, began a viral debate over the future of Airbnb revenue when he tweeted a chart based on data from short-term rental analytics firm Alltherooms, which depicted average revenue per listing falling up to 47.6% in some cities. 

The Airbnb collapse is real.

Revenues are down nearly 50% in cities like Phoenix and Austin.

Watch out for a wave of forced selling from Airbnb owners later this year in the areas hit hardest by the revenue collapse. pic.twitter.com/xjGkj7bFC5

— Nick Gerli (@nickgerli1) June 27, 2023

Gerli suggested the trend would impact the housing market, inducing a “wave of forced selling from Airbnb owners” in the affected cities. But data from AirDNA, a competing short-term rental analytics firm, tells a different story.

For example, the company reported that the year-over-year change in three-month-average revenue for Sevierville, Tennessee, was -9.4%, compared to the -47.6% supported by data from Alltherooms. AirDNA data revealed the largest revenue decline of the cities in Gerli’s chart was in New Orleans, with a -14.9% drop, which was still a far cry from the -37.1% decrease in revenue shown from Alltherooms data. 

What’s the True Airbnb Story?

It’s difficult to say with accuracy. Tax revenue reports from local governments are not readily available for 2023, and Airbnb Q1 2023 financial results aren’t broken down by city, leaving data from the two analytics firms as the best available estimate of what’s happening in these cities—and data from the two sources differ drastically. 

To provide some context, we asked rental property management company Evolve to look at their internal data. “While it’s difficult to get a true apples-to-apples comparison of the data between all three sources with varying inputs and slightly different calculations, Evolve’s analysis most closely aligns with AirDNA,” says Eric Schueller, executive vice president of revenue at Evolve. “We see these changes in revenue as a normalization of the market coming off of the peaks in 2021 and 2022. This is not a market crash—2023 will still bring the most nights ever booked, and investing in a short-term [rental] still remains a sound long-term option for owners.”

Cities like Denver saw tax revenue from short-term rentals peak in 2022 as tourism recovered, but there was also a 21% year-over-year increase in short-term rental licenses in the city as of February 2023. Data from Airbnb and Evolve paint a similar picture—demand for rental properties is booming, and Airbnb had its most profitable first quarter on record, but the supply of available rentals also increased 18% when compared to the first quarter of 2022. New investors flocked to the short-term rental strategy during peak demand, and increased competition is putting pressure on average daily rates. 

“Nationwide, both short-term rental market supply and demand are growing, with demand still hitting all-time highs,” says Schueller. “However, market supply growth is happening at a faster clip than market demand growth, causing total revenue per property to be down year over year.” 

But while the short-term rental strategy may not be reaping the same peak profits for Airbnb hosts in 2023 as in previous years, that doesn’t mean vacation properties aren’t profitable. AirDNA data still shows occupancy rates well above 2019 and 2020 levels. 

But success for short-term rental property owners is both market-dependent and property-dependent. In some cities, there’s too much competition to expect just any short-term rental property to flourish, but a showstopping property may still achieve high occupancy rates and revenues. In other cities, there may be enough demand to support new rentals. “We’ve seen revenue increase year over year for markets such as Mammoth Lakes, California, and Baltimore,” says Schueller. 

AirDNA listed Fairbanks, Alaska, as the top city for Airbnb investors in 2023, where occupancy rates reach 65%, and properties earn an average of $49,000 annually in revenue. The city scored highly for rental demand, a metric based on combined occupancy and booked listing growth rates. Other cities on the list include Evansville, Indiana, and Rockford, Illinois. 

A wave of new short-term rental ordinances in popular vacation destinations has also wiped out the potential for short-term rental investments in some of those areas, although most cities have not limited rentals for more than 30 days, meaning that the medium-term rental strategy is still viable. It’s also growing in popularity—there’s been more than a 30% increase in extended stays on Airbnb since 2019. Traveling professionals and digital nomads are using the platform to book rentals for a month or longer. 

How Will Declining Revenues Impact Investors?

While data from various sources differ, the sentiment from experts at AirDNA, Airbnb, and Evolve is consistent: The market is normalizing rather than crashing. Hosts still stand to make more money now than they did in 2019, before the boom in demand for vacation rentals. 

It’s possible the growth in supply will slow down as hosts on social media outlets issue warnings of #Airbnbust, potentially deterring newbie investors from jumping into the market. In some of the most impacted cities, investors who bought properties when mortgage rates were elevated may opt to sell due to falling occupancy rates and low-profit margins, which would affect the supply of vacation homes. If supply growth slows, it’s possible that falling revenues could plateau above 2019 levels rather than decline indefinitely. 

Airbnb predicts a slowdown in bookings growth and a decrease in average daily rates in the second quarter when compared to last year during the post-pandemic vacation rental frenzy. AirDNA still forecasts demand growth and an increase in average daily rates for the remainder of 2023, but revenue per available rental is expected to decline. 

If you’re looking to break into the short-term rental market, you should be very conscious of the available data for your market and always have a backup plan. There are several paid analytics platforms that can help you estimate the revenue potential for the markets you’re interested in, and Evolve can also provide guidance for would-be rental property investors. 

With more competition, you’ll want to choose the optimal property as well as the right market, so gather local insights on the preferred amenities and number of bedrooms. Research other properties in the area, and make sure yours stands out from the pack. And in case you need to switch gears to remain profitable, calculate the expected revenue for the property in a medium-term or long-term rental scenario. 

Schueller also has some advice for existing vacation rental property owners who are feeling the pain of decreased revenues, including: 

• Set competitive rates: “Leveraging competitive rates adapted to today’s market is one of the best ways for owners to lock in harder-to-win bookings,” says Schueller. “Depending on a region’s activity, this could mean rates should be set differently from last month, last year, or even years past.” Note that listings with the lowest prices have the highest occupancy rates, according to Airbnb. 
• Capture last-minute bookings: Schueller notes that more travelers were booking rentals last-minute over the spring break holiday. “Owners should also use booking trends to inform when to lower rates to capture interest from last-minute bookers and avoid having an empty property,” he says. 
• Set a flexible cancellation policy: A Vrbo study revealed 77% of travelers would be more likely to book a vacation home with a flexible cancellation policy. Travelers can filter out properties without free cancellation, so choosing a flexible cancellation policy may get more eyes on your property. Vrbo data also shows more frequent bookings for properties with flexible cancellation policies. 
• Collect great reviews: Airbnb data shows travelers are more likely to book a listing with a high star rating, so ensure you’re providing a great experience across categories: Provide an easy check-in process, maintain the property’s cleanliness, ensure your listing is accurate, and communicate promptly with guests. 
• Consider getting help from a property manager: Managing a rental property in a competitive market can be overwhelming and may require more effort than you’re willing to put in. Says Schueller: “Ultimately, we find that vacation rental owners that manage their own properties are most successful when they treat their business like their full-time job, so for owners who are unable to dedicate that amount of time and energy, partnering with a property manager who already knows what success looks like is often the better option.”

The Bottom Line

The high revenue that short-term rental property investors captured in 2021 and 2022 may have been unsustainable—while plenty of people still want to travel, the new supply of properties brought by eager investors is driving down the average revenue for each host. It may be too early to tell whether a crash is underway, but most data sources seem to support a revision from the peak rather than a collapse. There’s still an opportunity for investors to profit from short-term rentals, according to Schueller, but it’s necessary to exercise caution, especially in oversaturated markets. 

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

In the latest sign of the explosive growth of one-person businesses, Collective, an AI-powered back-office platform for solopreneurs, just raised $50 million in funding.

The San Francisco startup provides business formation services, S-election, payroll, tax, and bookkeeping services for one-person businesses and a personal dashboard to manage their finances.

Since it was founded in 2020, the company says it has built a waitlist of nearly 100,000 businesses.

“We need to continue to build the platform and scale our operations to handle the demand,” says CEO and co-founder Hooman Radfar. “The space is growing quite dramatically.”

Investors in Collective include Gradient Ventures, Google’s AI fund, Innovius Capital, The General Partnership, General Catalyst, QED, Expa, and Better Tomorrow Ventures, as well as Ashton Kutcher.

The company has raised $82 million in total and says it has increased revenue by 10x since its Series A round in 2021.

CEO and co-founder Hooman Radfar says Collective will use the investment to accelerate the use of AI in its operations.

Collective is using technologies such as Large Language Models (LLMs) to build AI “copilots” to support its team of tax experts, accountants, bookkeepers, and relationship managers. The professionals can use these copilots to whittle down the time they spend on tasks such as bank reconciliation and expense categorization, allowing them to devote time to other business activities. The tool for expense reconciliation reduces the time required by 90%, Radfar says. For reconciliation, the time spent dips by 70%.

Collective plans to create additional AI tools as it scales up, according to Radfar. “It’s unbelievable how good some of this stuff is,” says Radfar. “It’s going to change the game for us and our members.”

The U.S. Census Bureau has found the number of new business applications has remained high since the pandemic, with 436,048 applications submitted in May 2023 alone in the U.S.

For Collective, investing its funding in AI and other new technologies will provide a glimpse of the future of the one-person business—a future driven by rapidly accelerating individual productivity, according to Radfar.

“This not only helps us make our platform better to serve our members but also gives us a lens to see the future for how our members themselves can create value for their customers,” he says.

Radfar believes that, owing to new technologies like AI, the day will arrive when a one-person or very small business will reach a $1 billion valuation.

“It may seem like science fiction but a smart business owner could rely on a workforce primarily made up of different AI-driven applications and maybe some contractors—and create tremendous value,” says Radfar. James Taylor, a global speaker on creativity, has described the trend toward this type of human + machine collaboration as “super creativity,” and has predicted it will transform the world of work in the future.

Ultimately, Collective aims to expand its services through partnerships to help the self-employed by providing access to benefits such as healthcare and financial services that are hard for the self-employed to access affordably.

The thinking, says Radfar, is “We have thousands of members, so how can we turn that ‘collective,’ if you will, into a tool for the individual who’s in our membership?”

David:
This is the BiggerPockets podcast show, 790.

Victor:
So we drafted that offer, we offered 0% interest on a seven-year term. So basically like a car loan, right? And they went for it. So we’re at $6,500 a month with the balloon of the balance due in seven years, so they’ll end up owing about $40,000 at the end of that term, but it’s a phenomenal, phenomenal deal. And that thing is pulling in gross income of about $8,000 a month. So they’re going to let the tenants pay it off, and from there, they’ll have a free and clear asset in a great market that’s going to be a good value play for them to help fund their retirement.

David:
What’s going on everyone? It’s David Greene, your host of the BiggerPockets Real Estate Podcast here today with my co-host, Rob Abasolo, looking stunning and fabulous as ever. Rob, have you been working out? You look incredible.

Rob:
Oh, stop. You know I have. You know I have, and thank you for noticing. I appreciate that.

David:
My pleasure. And speaking of noticing, we noticed three real estate agents in the country that are crushing it for their clients, and we brought them back on the show today to talk about what they’re doing to find deals in today’s market where it can be very tough, but apparently it’s still possible. What do you think people should listen for in today’s episode to help them with their own journey?

Rob:
I think they should be listening for the creative solutions that exist in every single deal. And what I really, really, really love was the final one that we ended on. I knew you could tell, my wheels were turning there. I was like, “All right, which one of my properties can I convert into this amazing real estate model?” And yeah, I think a lot of people will get value out of just going out sometimes, trusting your knowledge, taking a bet, and maybe pursuing a model within real estate that they aren’t super familiar with.

David:
Yeah, I agree. A lot of the times when people share a deal, they just give you this overhead view, “Oh yeah, we bought it. We paid this price. This is the plan.” You don’t get a story that you feel like you could go replicate. Today’s guests actually give specifics on exactly how they negotiated it, how they found it, and what the plan was for the property. So you leave knowing, “Oh, I could go do that.” So you guys are going to really like today’s show, and make sure you listen all the way to the very end, because we talk about why some people are passing up on deals. We talked about a six-figure flip that Kim’s entire database skipped on, and then this investor bought it and made over a $100,000 on one property, and what they missed, so you don’t make the same mistake.
Before we get to today’s show, today’s quick tip. BiggerPockets has a feature called the AgentFinder that you can use to find an investor-friendly agent, like myself, in your area, because I can’t be cloned and there’s only one of me, but there are many agents out there that can help you with your deal. Check out biggerpockets.com/agentfinder to find an agent in the market that you want to invest in. Also, two of today’s guest, Kim and Victor joined us for an insider tips on their markets in episode 766. So go check out that episode if you like what you hear today. Rob, you ready to do this?

Rob:
Let’s jump into it.

David:
All right, welcome all back to the BiggerPockets podcast. The last episode went so well that we decided to do another episode where we are analyzing deals in specific markets that the BiggerPockets audience has been looking to buy. So in today’s show, we’re going to be diving into different opportunities in different markets. Matt, I believe this is your first time joining us, so welcome. Nice to see you here. Let’s start with you. My understanding is you’ve got 12 rentals yourself. You’re a property management company and brokerage, and you’ve been investing in Atlanta since 2010. First question for you, when you introduce yourself, do you find yourself saying, “Welcome to Atlanta,” like Ludacris to every single person that you meet?

Matt:
No. No, I don’t. But I do appreciate being here, David, and happy to be on the show.

David:
Yeah, there’s certain cities that have a song associated with them in my head. Like Rob’s from LA, right? So every time I think of Rob and LA, I think of Kendrick Lamar, The Recipe, it just starts playing in my head. And Atlanta definitely has Welcome to Atlanta, so now everybody else who’s my age is going to start hearing that in their head. You’re welcome for the earworm that you’re going to need to have surgically removed going forward. And we have Kim Meredith-Hampton from Tampa Bay, Florida, another exploding area. Kim Meredith-Hampton is in a co-working space. She’s got two commercial properties, 10 units, and 50 units of short-term rentals. She’s in property management, both long-term rentals and short-terms. Kim, welcome to the show. Did I missed anything?

Kim:
Nope, that’s it.

David:
All right. And then we have Victor Steffen, who is an investor, has been in Dallas-Fort Worth for seven years, has 48 doors across three states: Pennsylvania, New York, and Texas. He does rent by the room, long-term rentals, and others. Victor, welcome to the show that I missed anything there?

Victor:
You got it, thanks for having us again.

David:
Yeah, I don’t know that there’s a Dallas-Fort Worth song that comes to mind. We’re going to have to work on that. Is there a theme song for that area that I don’t know about?

Victor:
Yeah, just George Strait. Put that in a big old bucket and that’ll cover it.

David:
I literally was thinking George Strait, but I couldn’t think of a song he sings. Is he from there or is it just… That’s what people listen to?

Victor:
Well, he’s from Texas. He’s a Texan. He’s a good old Texan boy.

David:
It’s crazy that you read my mind. I was thinking George Strait, but I couldn’t think of a specific song.

Rob:
There’s a song called Dallas Days-

David:
Amarillo by Morning.

Rob:
Dallas Days and Fort Worth Nights by our good friend, Chris LeDoux?

Victor:
Chris LeDoux.

Rob:
Chris LeDoux, there we go.

Victor:
Perfect.

David:
Rob just had to Google that. He knows no music outside of John Mayer at all, he has to pretend.

Rob:
Well, I was going to say, when you said that you think of that song for me with LA, I was hoping you would say California Gurls by Katy Perry, because that’s our song, but that’s okay.

David:
That makes me think of you.

Rob:
Yeah. Yeah… That’s good.

David:
Yeah, if this podcast ever doesn’t work out, that’s what Rob and I’s next podcast is going to be named. California Gurls with Rob and Dave. That’s good. All right, well, welcome everybody to the show. We are going to talk some real estate, but before we get into these deals, let’s get to know a little about the Atlanta market. Matt, we’re going to start with you. What are the long-term benefits to your market?

Matt:
Yeah, Atlanta’s a great market overall. Very diverse economy, a lot of different employers here, a lot of employers coming to Atlanta. As you know, the general population, or a lot of people are moving to the Southeast in general, Atlanta’s just a big hub for that. So we’re seeing a ton of population increase, a lot so in suburbs as well. So not just the city of Atlanta, but you’re basically seeing outward growth in every direction. So all of the suburbs are growing, even the ones that are a little bit further out, where they’ve been typically a little bit more rural and raw land, you’re seeing a lot of new development there. There’s a lot of new construction about an hour outside of Atlanta, just because everyone’s growing outward for affordability reasons.

Rob:
Matt, what is the big economic engine for your area specifically? I know that Atlanta’s a big hub for many things, one of them being the movie scene, but are there a lot of reasons why that economy is booming at the moment?

Matt:
So the movie scene definitely has been huge. A lot of new films here, thanks to the Georgia tax credits. Films, TV shows, everything’s getting filmed here, just because it’s very business-friendly for them to do that, but it’s also business-friendly in general. So a lot of businesses that are already established, they’re Fortune 500 companies, they’re moving their headquarters here or expanding here, and basically coming here because Georgia is a business-friendly state. And it’s not one specific industry, so it’s not segmented to one thing. We’re seeing tech expansion, movie expansion, and everything in between.

David:
That’s right. And I will say, even though no one asked me, I could co-sign all three of these markets. I am bullish on all of them, I think that they’re good places for investors to buy. We have a lot of the one brokerage clients that are getting pre-approved and looking for investment properties in Georgia, not necessarily Atlanta, but the surrounding market around there. I think that is a good long-term market, and I have bought myself in some of the vacation area rental properties, where people in Atlanta would go if they wanted to stay at a cabin, so the mountains up that way. So I like that market myself, and Rob, you brought up a great point. Hollywood is literally moving into Atlanta. If anyone visits there, just talk to your Uber drivers. They will tell you who’s coming into town, what’s going on, and they’re constantly shuttling around movie stars. Matt, did you grow up in that area?

Matt:
So I’ve been here for about 16 years, but I’m originally from California, so happy to call Georgia home and love living here.

David:
You’re originally from California?

Matt:
Yep.

David:
When did you pick up that accent?

Matt:
It does grow on you pretty quick.

David:
It sure does.

Matt:
I think I started saying y’all about after a year, so it was pretty quick.

David:
It’s embarrassing to admit it, but I could be on the phone with a contractor from Jacksonville or Southern Florida, and after two weeks of talking to them, a drawl will start to crawl into my mouth. It’s contagious.

Matt:
It is contagious.

David:
Okay, it’s not just me. You’re making me feel a little bit better.

Matt:
It is a whole lot easier to say y’all, though.

Rob:
Hey, listen, Matt, it’s nice to have a fellow California girl on the pod. Welcome.

David:
All right. And do you have any data on the current shifts in your market?

Matt:
Yep. So right now we’re at 2.1 months of inventory, which is still a seller’s market. Just for a reminder for newer folks, six months is typically a balanced market, so we’re still on a seller’s market currently. We are seeing an increase in inventory, but it’s not dramatic, we’re seeing about 25% more inventory than we saw last year. But the weird phenomenon that we’re seeing here in this market, we’re also seeing in a few other markets, is the number of new listings over here is actually down. So while we have more inventory overall, the number of new listings that are coming to market is actually less than it was last year. So basically what’s happening is listings that come to market and they’re priced correctly, those are moving very quickly. But listings that are coming to market and they’re priced too high, or maybe they need too many repairs, those are sitting a little bit longer, and those can be an excellent opportunity to submit an offer.

David:
I like it. Rob, we need to go buy in Atlanta, this is prime hunting ground for me. So if I hear you right, Matt, what you’re saying is that less listings are coming on the market, but there has been a 25% increase in listings overall, because the stuff that comes on that’s priced appropriately and in good conditions sells quickly, and there’s not a lot of it. But you got a lot of stale product, you got a lot of donuts that have been sitting around for a couple weeks, and no one’s buying them.

Matt:
Exactly. And then they’re tarnished and then nobody wants them because everyone’s used to listings moving very quick. Right now, our average days in market is 12, so if someone sees something on the market for 30, 40 days, they’re like, “Oh, well, there’s something wrong with that.” So the average retail buyer is passing up on that, but it can be a great opportunity for an investor.

David:
I love that stuff. I mean, that’s what creates opportunity, right? As a real estate agent, you’re like, “Okay, you got a bifurcation here.” You have the hot stuff that hits the market that everyone sees on Zillow, and you got eight buyers for every property. But the opportunities in the stuff that’s been sitting there for a long time, I always look for high days on market and most of my books, I write about this as the strategy that you need to be looking at in tough markets. Rob snagged our deal by doing just that. We found a property that had been sitting on the market for a really long time, but it was gorgeous. However, it had an issue where it was very tough to buy because it was five acres of land and lenders didn’t want to lend on it, so it just got passed up, and then no one’s looking at it. And the owners of the home are like, “How come no one wants my house? No one wants to take me to prom.”
And you can show up with a math geek offer to take out that homecoming queen listing that normally would be waiting for a high school quarterback offer that we don’t want to make. I don’t know how well that analogy works, but I like what you’re saying, Matt, and I like your realtor approach here. Because if you’re a buyer looking to buy in that area, that’s the playground you want to be playing in, is these listings that have gone stale that you can write aggressive offers on, right?

Matt:
Exactly.

David:
What’s your advice for people who are chasing these properties that have been on the market for 40, 50, 60, maybe 90 days? Is there an approach that you recommend buyers take when writing offers on these?

Matt:
That’s an excellent question. So what I would tell everyone is you really need to get familiar with the market. So I could present a deal to you and tell you it’s great, but you really don’t know if it’s a great deal deal unless you know the market. So if you are considering Atlanta or any market, I would spend some time and underwrite a couple deals, look at a few deals, and get really familiar with the market as a whole. And then that way, when you do approach one of these listings that’s been sitting for a while and you know it’s overpriced, or maybe it was overpriced originally and they’ve cut the price because it’s been on the market for a while, but they may still be too high, you know, “Hey, I should go on at this number.” Or you have a general idea of what it should trade for and where you need to be with that offer.

Rob:
So tell us about the strategy that people are finding most successful in this market. Because it sounds like there are a lot of properties out there that are in need of work. Is it a market where you’re going out and doing full on rehabs? Or is it a market that you’re going in and cleaning up the listing a little bit, and doing more of a quick cosmetic flip? A wholetail, if you will?

Matt:
Yeah. Yeah, great question. So right now, we’re not seeing a lot of just simple turnkey, buy and hold, working. A lot of it is basically breakeven or negative cash flow, unfortunately, because rates are higher and prices are still elevated. So the strategy that we are seeing working currently in our market is value add. So it could be, just like you mentioned Rob, something where they go in there and do just cosmetic updates. It could be adding a bathroom, it could be adding a unit, it could be a whole BRRRR strategy if it’s severely distressed. It really just depends on what the property needs. But typically, the deals that are working right now are value add deals.

David:
Can you define what you mean by value add deal?

Matt:
Yeah, so like I said, it could be a three bedroom, one bath property, and the market is used to three bedroom, two baths in that area. So a lot of people we’re working with, they’ll buy that property, add a second bathroom, and that brings it back up to market. So you’ve added value by adding another bathroom. Another deal that we can talk about here in a minute that we did is somebody actually added additional units to a property. So people, they’re able to add additional space, whether it’s square footage, bedrooms, that’s going to add value to the property. So anything like that which will add value, or it could just be a very distressed deal, where the average retail buyer says, “Hey, this property needs way too much work. I’ll come in on a 3% down. I don’t have the money to invest in this property to fix it up. I’m not even going to consider it.”
Whereas an investor who has some capital behind them could purchase that property, fix it up, bring it back to retail standards, and then flip it or hold onto it, put a tenant in there and then recognize the value.

David:
So as you as an agent looking to represent buyers, are you filtering these and then bringing it to your buyers and saying, “Hey, here’s a value add thing,” or are you telling them what to look for, they go look for it, then they bring the deal to you to negotiate?

Matt:
So it’s a little bit of both. So we always try to help buyers clearly define their buy box. So every buyer’s going to be a little bit different in what they’re looking for, we can educate buyers and tell them what’s working, what we’re seeing in the market, and help them define their buy box. And once that’s defined, we can bring listings to them and say, “Hey, this fits your buy box. What questions do you have for us? Or is this something that’s of interest to you?”

Rob:
That’s a really great overview of the Atlanta market. Thank you so much, Matt. Kim, I know you’ve told us about your market previously in the Tampa world. Can you just give us a couple bullet points about what’s happening in Tampa right now, and just an overview of the market?

Kim:
Ours is very similar to Matt’s, almost identical. Anything really under 350,400 is selling like hotcakes, it’s not sitting there at all, those are where your numbers make sense for rentals. Also, anything over that 800 are sitting now, and then also the small multi that need a ton of work, and they have overpriced the property, and those are definitely sitting. And you can make an offer, we do that often, which is a lot lower, but some people still haven’t come into reality yet, that we aren’t at our 20%. And then also our current days on market are about 14, so we still are sitting pretty low on that. Inventory is low, it is slowly creeping up. Our median price points have also went up 5,000 since we last spoke, so we’re now at 410. So it’s really crazy, it’s just doesn’t seem like it’s going back the other way, but we shall see.

Rob:
All right, thanks for taking us through that. Victor, what about you, man? Can you tell us really the… What’s the big selling point for the Dallas-Fort Worth area right now?

Victor:
Population growth, median wage growth, job growth. That’s it.

Rob:
Boom. Easy, I love it. All right. Well, do you have it a deal to walk us through in that market? Because as we understand it, everyone’s going to be walking us through a deal in their respective market. Could you kick us off?

Victor:
Yeah, you got it. So it’s one that I really just had fun doing. Irving, Texas is just the northwest side of Dallas, and it’s one of our favorite markets for a variety of asset types, and also management strategies. Specifically, we like looking for multi-family here, and we like to find stuff that you can do a short or mid-term rental strategy on. Irving is very short-term rental friendly, you don’t have a ton of regulation and hoops that you have to jump through, that you’ve got major medical in close proximity. You’ve got the Dallas-Fort Worth International Airport right there, you’ve also got Downtown Dallas, all within close proximity basically surrounding Irving, Texas. So what we found for our client over here was basically a turnkey quadplex that was already ran as a mid-term rental opportunity. It was on the MLS, so it wasn’t like we had to do a lot of off-market banging on doors in order to find it.
And the seller, in the listing description, had that they were looking to retire and spend more time with their grandkids. And when I see that, immediate buzzword is seller-financed, is that going to be an opportunity? So we typically do one, two seller-financed deals per year, this one fit that buy box. We had a perfect buyer for it who had the cash. We submit an offer, and whenever we go ahead and ask our clients like, “All right, if they’re having a trouble figuring out what kind of offer to go ahead and send forward.” We say, “Well, what’s going to make you excited? What’s going to make you say, “This is something that I can really get behind,” and be excited about closing on?” So we drafted that offer, we offered 0% interest on a seven-year term. So basically like a car loan, and they went for it. So we’re at $6,500 a month with the balloon of the balance due in seven years, so they’ll end up owing about $40,000 at the end of that term.
But it’s a phenomenal, phenomenal deal, and that thing is pulling in gross income of about $8,000 a month. So they’re going to let the tenants pay it off, and from there, they’ll have a free and clear asset in a great market that’s going to be a good value play for them to help fund their retirement.

Rob:
Awesome. So tell us really quickly, what was the actual listing price and purchase price of this property?

Victor:
They asked 750, we gave them 750 because they gave us our terms.

Rob:
Wow. Yeah, okay. Great, great, great. So yeah, I guess, if they’re giving you your terms, then yeah, the listing price really isn’t quite scary. And so the investor strategy walking into this was you already knew that it was functioning as a mid-term rental, or was that just your plan to convert it into a mid-term rental?

Victor:
It was already fully functioning, mid and short-term rental property, fully furnished, all furnishings conveyed. So a real rockstar deal. Also, a piece of this that’s important is I know that that client’s goal… Because whenever we do our introductory calls with our clients, it’s going to be, “What’s the perfect deal for you? What’s the long-term strategy?” And for them, their long-term strategy was, “Hey, I want to find a mid and short-term rental portfolio, get up to 25 doors, that’s going to allow me to quit my high paying W2 anesthesiologist,” and this one fit that mold perfectly. They’re going to have almost zero cash flow on it for the next seven years, but at the end of that seven-year term, it’s owned free and clear, and cash flowing aggressively.

Rob:
Yeah, so is it actually amortized over the seven years?

Victor:
Yep, exactly right.

Rob:
Oh, okay, okay. So what is that monthly payment looking like? Because you also mentioned that it is bringing in $8,000 in gross rents. Did you say what the actual monthly note was?

Victor:
6,500.

Rob:
6,500. Okay, all right. So you actually pull some cashflow from that, that’s amazing.

Victor:
Well, a little bit. It covers its debt.

Rob:
Okay, okay.

Victor:
If you wanted to go ahead and reamortize that thing, and stretch it out over 30 years, of course you could cashflow at that point in time, but they’re not interested in cashflow right now. They’re interested in owning this free and clear, and having a property that really just generates consistent monthly income in seven years from now, not today.

Rob:
Sure, sure. And I’m sure the tax benefits really make this one quite the home run.

Victor:
Exactly. Especially for that seller and what she’s looking to do. She has a couple grandbabies, go do your thing, and don’t clean these things anymore like you were doing. So it’ll be a great deal for her, she gets a consistent 6,500 a month, doesn’t have to clean a bunch of short-term rental units.

Rob:
Amazing. Awesome. Okay, well that’s a very strong one to start with. So Matt, I hope you’ve got one that can top that. If not, you’ll be booted off the pod. No, I’m just kidding. All right, Matt. So Matt, take us through your deal next. Name of the deal, tell us the market that it’s in, I think we can probably guess that it’s probably in Atlanta, and then tell us the listing price and the purchase price.

Matt:
Yep. Yeah, so the name of this deal is Cross Brook. The listing price was 750,000 on it, we were able to negotiate a deal at 735. This is not a finance deal as well, which is rare for us. We do one or two seller-financed deals a year, similar to Victor. But when we could do them, they’re fantastic, but definitely not typical for our market, it just depends on the deal. We were able to do that on this deal because this is a very unique deal, where it was a single-family house and a duplex on two separate lots, but they were neighboring each other. And same seller, the seller’s husband, before he’d passed away, actually had built both properties. So she had been occupying the single-family house and she kept the duplex as a rental property. They were severely under rented though, as far as the tenants that were in the duplex, so we were able to get in there. The investor I worked with was able to purchase property for 735, which was the total for all three units.
He was then able to get the rents up in the two units of the duplex, up to market rent. He also took the single-family house and made that a two unit, by converting the basement to a in-law suite, which he rents out separately. And then the duplex actually had a garage, so that it was a raised duplex, and he was able to convert that to a third unit. So now he has five units out of this property that originally had three, so it was a huge value I played for him, he got very favorable terms. The single-family house, since there are two separate parcels, he was able to use a DSCR loan to acquire that one. And then the duplex, we were able to negotiate seller-financed on the reason that he couldn’t get the DSCR loan with it, or I guess he could, but it wouldn’t have been favorable for him, is because they were so severely under rented that the debt service coverage ratio wouldn’t have made sense.
So it made more sense to attempt to negotiate a deal with the seller, and do seller-financed, so that he could get that loan closed, and she could move on, and we could get the deal started and going.

Rob:
Okay. Okay. Great, great, great. And so how did you say you found both of these deals?

Matt:
So this was a non-market deal. So it had been sitting on market for a while at 775, they cut the price to 750, it still continued to sit there, which at that point we offered 735.

Rob:
Awesome. And so when you came in, tell us a little bit about the value that you demonstrated to your client. Aka, how did you help shine up this deal when you walked into it for your client?

Matt:
Yep, so I helped negotiate the seller-financed terms. The client that I was working with is a very experienced investor, but he had never done a seller-financed deal, so I helped structure that. I said, “Hey, let’s make the seller two seller-financed offers, that way she doesn’t… She still has the option to say no, but if we give her two options, her likelihood to say no is less, because she’s going to choose one of those two options.” So we gave her two options for the seller-financed. She chose one that was actually, in my opinion, very favorable for my client, the buyer. And so she ended up accepting that, we were able to move forward, and get the deal closed.

Rob:
Awesome, wow. Wow, that sounds like a really, really good one. David, do you… Any other questions about this deal before we move on to the next one?

David:
Only question is, I’m curious how you worked up the seller financing angle when it was a property that came from the MLS. A lot of the time sellers listing their home on the MLS are not familiar with this and agents are very uncomfortable with it. How did you work that in, and then how did it work? Did you also get a loan on the property and was seller financing second position, or did you just take over the note?

Matt:
Excellent question. So we actually started our 735 offer with a DSCR loan on both parcels, because it was two parcels right next to each other. So we started with DSCR loan, once the lender got ahold of it and they looked at the rents, which again were severely under market, they said, “Hey, in order to get this deal closed, you’re going to have to bring a lot more cash to the table.” And then at that point, the investor and I circled up. We said, “Hey, let’s see if we can offer seller financing and that way we can keep this deal alive.” You can still have cash [inaudible 00:24:56], but not as much cash. And we basically told the seller, “Hey, if you want to close on both properties,” because she didn’t want to sell one without the other, “Let’s do seller financing and get the deal closed.”

David:
So does that mean you took over the note of the seller when you say that?

Matt:
No, so she actually had paid off both properties. So they were both free and clear, so the deal that we worked out was a first position mortgage, five year interest only. And so he’s not paying any principal, he’s just paying interest only for five years. And then there’s a five-year balloon at the end of that term.

David:
Quick tip there. When a property is completely paid off, there are options to do this that do not exist when there’s financing on the property. I should have asked that first, I think I was assuming that there was a note. So did you sniff that out or did your client propose that idea?

Matt:
No, so I actually knew there was no debt because I try to do a little bit of title research when we get in these situations, just to see what options are. So I saw she had no debt. Like I said, her husband actually built both these properties, so he’d actually built the whole neighborhood where this property was at. So I think he was doing pretty well, he built both properties. Unfortunately, he had passed away and left the properties to his wife, and she was ready to go spend some time with the grandkids, so we were able to negotiate the seller financing deal.

David:
Nice. Yeah, I’m bringing that up, because people hear seller financing and they go, “Oh, I’ll just do that every time. I’ll just do seller financing. I don’t want to get a loan for 7.5%, I’ll just take over their loan.” But the stars have to align to have everything pretty perfect. But if you’re aware of it, when the stars align, you don’t just walk right under the stars without thinking about asking. It’s definitely better when you have that option, so good job there.

Matt:
Yeah, that’s why we only do one or two seller-financed deals a year, because the stars really do have to align.

David:
Exactly, that’s a great point. Kim, tell us about your deal.

Kim:
Mine’s at twofer, I’m going to call it a twofer. We actually sold this duplex, and it’s in St. Pete, small multi, basically a two and a three bedroom on each side. We had sold it a couple of years ago and the seller, I guess, put it up for sale themselves. Nothing happened. They reached out to us, and so we actually managed it as well. So we were their first point of contact, which is great, so it’s more off-market. So we got one of the tenants out, we got it fixed up, and we put it on the market for 360, and we had an offer same day. And they actually came back after inspection and said, “This is just too much work for me on the other side. I don’t want to do this, that.” So they canceled that contract. We had one of our… I call him our serial flipper, and we’ve done several deals with him. He came in and offered 300, no contingencies whatsoever. I’ll close in two weeks, let’s get it done, so that’s what the seller accepted.
I guess their daughter was going to college and they needed all the cash, Ivy League or whatever it was. So we sold it to him and during that time, he got the other resident out of the property, and that took them about 30 days because they were month to month, which a great property manager will do that when they put things up for sale, so you can do what you want with the property. And once he got that… Took him about three to four months to get the whole rehab done, and he spent about 125 on it. And after that, we put it up at 545, we had five offers in one day, and we got over ask at… I think it was 556. And I mean, the rest… So he did quite well on that. But yes, we sold it twice, but twofer.

Rob:
Wow. Okay, so you actually helped acquire the initial property. I guess it fell out of contract the first time, then you brought in who you said is a serial flipper, they come in, they put about 125,000 into it. They said, “Hey Kim, it was really great working with you. Can you list it for me?” You then list it, five offers in the first day, and then you end up going over, and selling it for 556. That’s a healthy profit, right?

Kim:
Correct. Healthy? Yeah. I call him a serial flipper because he has a certain price point. He will not do anything that doesn’t at least make him a $100,000, that’s his. He gets the worst house in the best neighborhoods, and this is a B neighborhood too, it’s a great area. And by the way, he made the three bedroom, a four bedroom, so it even made it more enticing because in St. Pete, you can do mid-term or long term, and it’s such a great area. So he had some good options in there, anyone did beyond that, and he knows that.

Rob:
Yeah, I’ve been looking for a six-figure flip, and I’ve been talking to wholesalers and trying to find them, but they are hard to find. At this point, we’re just taking really a lot of things that pencil out, but that’s good for him. So are you the one that’s typically bringing those to him or does he have his own systems for finding, I guess, his six-figure flips?

Kim:
Both. We always have a system in place where any of our owners that we manage for, we have just over a thousand units, and anyone that wants to sell, they get offered out for several days to our investor list. And if somebody doesn’t take it, then it goes on to MLS.

Rob:
Okay, great. And so the MLS is where this deal was sourced as well?

Kim:
It was. We actually put that out to all of our investors and nobody took it. So you’re like, “Wow.”

David:
I have a question there. Why do you think they passed on it, Kim?

Kim:
I just think, I don’t know if it was Victor who said it, but some people… Or maybe it’s Matt, some people don’t want to do all that work. Sometimes they don’t have that mentality to do that. And I mean, we have all the contractors to help them do that, that are all licensed and insured that we can refer to them, and we always help. And so I don’t know, I mean if they’re new people, they definitely don’t… They’re like, “Okay, yeah, I don’t want to get into that.” But that’s usually where you make your most money.

David:
I have referred to that as real estate goggles, I’m wondering if there’s some seen greenway I could move it into it. But when you talk to an experienced investor, like Rob with his short-term rental, he sees something differently than me because he’s looked at more short-term rentals. He looks at the property and he goes, “Okay, the furniture’s terrible. It should look this way. The pink color should look like this. The decor should look this way, and it needs a theme. I bet if you did this or that, let me go look up research to see.” He sees what a property should look like. We typically call it the highest and best use, people make fun of realtors for saying that phrase, but I’ll do that with maybe a floor plan or a way the property is being used. It shouldn’t be used for this purpose in this area, it should be that way. Having those goggles, or having an agent that has those goggles, that can see angles that everyone else is skipping, is crucial. I mean, literally people missed out on a six-figure flip because it wasn’t what they were looking for.
Maybe they were looking for a facelift. They wanted, “Oh, I go in and I put in a new kitchen, and I put a new flooring and paint, and I flip.” And that’s the only thing they see. They can’t recognize that that huge workshop sitting out the back of it, that’s 1,400 square feet, that’s not permitted, but has electrical and plumbing run into it, could easily be turned into an ADU or two ADUs, that not only increases the value of the property, but increases the cash flow of the property. And there’s so many things like that, that when people bring the right set of goggles, they’ll see. And that’s one of the reasons I’m a fan of using agents, to be frank with you. Everyone wants the sexy off-market deal that they can get way below market value, they’re only looking at what I call buying equity. But there’s lots of way that real estate makes money, not just buying equity. Having those goggles can see opportunities. Do you see that, Kim, in your market happening pretty frequently?

Kim:
I do. I mean, obviously, we try to share as much as we can when we send out properties or post them to say, “Hey, this could be this. This could be your cashflow, or this could be the rent on this, or we can make another unit.” Or like with Rob, you could do a short or a mid-term on it. I mean, you want to give them as many options as possible. And again, I think people that are newer in this, they’re a little afraid, and they’re afraid what they don’t know, and that’s that part. I mean, we can garner and help them along during that process, but I don’t know what the answer is to that, and why [inaudible 00:33:26].

David:
Yeah, and I think about how we got in this position in the first place. So this is my hypothesis, I’m curious what you guys think. Podcasts like this started right after 2010, when everyone had PTSD and trauma, and insert your popular relationship therapist line that they’re all talking about. It was a toxic market, sellers were gaslighting buyers, they were emotionally abusive prices. Everyone was hurt from that. And when we looked at why people lost money, it’s because there was so much speculative approaches. They just buy low, sell high. “I know nothing about real estate, but they’re all going up, so I’ll just buy low, they’ll sell for more. It’s that simple.” When you ask someone, “Well did it cash flow?” They didn’t know what that meant, they didn’t understand there was a formula for ROI. None of the fundamentals of real estate were being practiced. So then the education kicked in, and we started explaining to people, “This is how you rent a cash-on-cash return. This is how you manage a property.” And then software started being developed to make everything about real estate became easier.
But people started taking courses from teachers, or gurus, or online creators that would say, “Here is the way to do it.” So this is the way that you look at cash-on-cash return, and you want it to say 10% or more, and then you buy it. This is the way you flip a house. You go 70% of ARV, you do a facelift, you do the kitchen and the flooring, the paint, you throw some mulch in the front yard, maybe the master bathroom, and you throw that thing back on there.” And people learned it from this really square peg, only way to look at it, strategy. And now that the market’s really high and there’s not a lot of deals, you can’t look at it from a perspective of what is the way, you have to say, “Well, what way would work for this property? And am I willing to do that?” And I’m only stopping to make this point, because I think so many people are hearing these podcasts and they’re frustrated. “I can’t find a deal.”
Well, they’re just going on Zillow, and they’re going on Rentometer, and they’re saying, “Here’s the rent, here’s the price, here’s my calculator. It doesn’t work.” They’re moving on the next one, they’re trying to force that square peg into every hole they find to see if it’ll fit, and it doesn’t. You got to look at every single property, almost like your child. Like, “I can’t talk to this kid the same way I could talk to that kid, they think differently.” They have different purposes and make it work there. But when you get that down, you see deals that Matt’s found, that Kim’s found, that Victor’s found. They’re out there, the people that have the right goggles are seeing them.

Rob:
Yeah, I totally agree, man. I totally agree. There are a lot of deals out there right now. I just bought a deal in Austin, and we thought we were going to just do a quick cosmetic flip on it, so we bought it. And once we actually started running the numbers on it, there wasn’t really going to be much meat on the bone, not to the point… With the amount of money that it was going to take to get invested in into it, wasn’t really going to be worth it. And so we started doing exactly what you’re talking about, and looking at the property from every angle. We started thinking, “Okay, what if we add square footage? What if we had an ADU, and start looking at all of the different uses for the property? And when it’s all said and done, we’re just going to rehab it and turn it into a mid-term rental.” So it was in front of me the entire time, but I was trying to get too fancy with it walking into it, and I really just wanted to do that one thing.
But really, after going through it, I think a lot of people find themselves in a deal, and they’re very quick to say it’s a bad deal and they’re going to lose money on it, when there’s other much less sexy options, like just holding it and making a little bit of money. That to me is a lot less sexy than making $50,000 profit on it, but it’s ultimately fine because it’ll cashflow for me every month. I’ll get amazing tax benefits from it, and it’s in Austin, Texas, which is an appreciating market always. So five to 10 years from now, I’m going to be real happy that I snagged it for the price that I got it.

David:
All right, let’s get another end of deals in from everybody here. Rob, you want to start us off there?

Rob:
Yeah, let’s do it. Okay, so we did first Victor, then Matt, then Nick. So I say let’s go back to you, Victor. Walk us through another deal, if you have one, in the Dallas-Fort Worth area. Tell us the name of the deal, tell us the market if it’s different than the one that I just named, and then the listing price and purchase price, and we’ll start there.

Victor:
Yeah, cool. This one I’m actually pretty excited about, because it’s more indicative of something that you can do sustainably and repeatedly, over and over and over and over and over again, it’s not that one-off unicorn like we first visited. And similar to what Kim was saying and what David was saying just earlier, it’s one that a lot of people glossed over, because it doesn’t hit a 1% rule type of a deal. But this one is in Haslet, Texas, which is a suburb of Fort Worth. Great school systems over that direction, a lot of recently built inventory that doesn’t need a lot of elbow grease put into it. So they’re recently built, they lease out quickly, and they’re desirable neighborhoods, all B-grade style neighborhoods. This one was ultimately going to be a long-term rental, it was already leased out for fair market rate, so there wasn’t anything sexy that you had to do in terms of adding value by increasing rents. It was already leased out for $2,400 a month. Asking price on it was a little bit high, it was at 330, and it had been sitting for a couple of weeks now.
So about 21 to 22 days, I think, when we submitted our offer. And similar to Kim over there in Tampa, our average days on market is 14, so it looks like there’s a black eye, it looks like there’s something wrong with this. It’s a 2015 build, right? It’s four beds, 1,800-plus square feet, it checks every one of our boxes for a quote-unquote, beef-style deal, breakeven appreciation focused style deal. We offered 300, got it under contract for 310, already has a tenant in place, already has high-quality management in place, and they’re paying $2,400 a month. So that type of deal is my absolute favorite to get into, because you’ve got something that covers your debt service, it’s in a great area, good school system, it’s going to appreciate nicely, and it’s going to throw off a little bit of cashflow each month on top of your PITI payment. So that one, to me, is the crème de la crème.

Rob:
Oh, very nice. Okay, so tell us this, you said that it already has a tenant in place. What is your stance on inheriting a tenant, and I’ll open this up to everybody here. Is that something that you guys were excited about? I guess it was a tenant with a good history, I presume, right?

Victor:
Exactly. So there’s a lot of different ways and a lot of different, I think, philosophies around inheriting tenants versus getting them out and placing your own. So for this particular one, they were already paying market rate, they wanted to extend, they’re up-to-date on their rents, and we had the rental verification just to confirm that they were indeed actually paying their rents every single month, and they were very happy with the management company that was already in place. So there was no reason for us to go ahead and withdraw them, just to go ahead and have another 30 days on market of placing a new tenant. Also, just the buyer themselves, knowing the buyer, knowing their disposition, incredibly risk-averse. We needed to remove as many variables for this client as possible in order for them to say, “Yeah, this is something I want to go forward on.”
So when we could bring a turnkey deal that was recently built in a good area, that already had a tenant and management in place, so you had no downtime, and you didn’t have the question of, “Well, how long is it going to take to rent, and what’s it going to rent out for?” It was a perfect, perfect deal for that particular client.

Rob:
Awesome. And how did you demonstrate value for the client walking into this?

Victor:
Identifying these deals is something that we go through every single day. So we’ve got a full-time analyst on staff, and just finding these properties, something like this, and having your RAS, your reticular activating system, engaged and being able to say, “Hey, I know a client who this would fit perfect for.” I’ve got my real estate goggles on, and I know that this doesn’t hit a 1% target, but it will hit that PITI payment coverage, and it will be a great opportunity for this out-of-state client who wants to remove as many variables from the transaction as possible.

Rob:
Love it. Awesome, man. Well, it sounds like a pretty killer deal. I mean, getting a little bit of cashflow out of it, inheriting a solid tenant, that same seems like a slam dunk to me.

Victor:
Slam duck is right. And like you were saying before, they don’t have to be sexy. The business isn’t all gunpowder and rock music, so.

David:
But that’s a great example, if your goggles are just cashflow, cashflow, cashflow, you miss an opportunity that, like you said earlier, your first deal, seven years of breaking even to have a paid off property free and clear that’s going to cashflow massively in seven years. Is that a terrible strategy? Well, maybe if you’re 64 years old and you don’t know if you’re going to make it that long. Okay, possibly. But I mean, for a lot of people, that actually makes a ton of sense. And Rob said, when you bring in the tax benefits, you could build really big wealth by having the right goggles to look at your properties through.

Victor:
Well, David, think about this. That property that they’re picking up right now for 750, and paying $6,500 a month on, and they’re going to own free and clear in seven years, that place is going to be worth a million bucks. It’s going to be worth a million bucks in the next seven to 10 years, they’re going to have a totally paid off asset. And the buyer, he’s an anesthesiologist and is 35 years old, he’ll be work optional at that point, especially if he keeps continuing to pick up one deal here or there every single year. So I think it’s a phenomenal option.

Rob:
Yeah, true man. That’s true. Yeah. Okay, so you’ll have quite the setup in seven years going back to that first deal. Very cool. Let’s bring it on over to Matt. Matt, do you have another deal that you can take us through?

Matt:
Yeah, so I have another deal I call Ridgewood. I have a client that I’ve worked with a few times before, he was looking to do a flip, and ended up finding a property off-market, but he did not have all the funds to purchase the property. So I agreed to partner up with him, and act as a debt partner, so I actually gave him some private money to get the deal closed. He paid for all repairs, and then we listed it, and got the property sold once he was done with all the rehab. So I’ve done this with a few clients, and I’ll do it with all clients, but for other clients that are looking to do that, I also have access to a lot of hard moneylenders, and other local lenders that may need… If you do need those resources, they’re available in my network. But this property was purchased for 225, he spent about 85,000 in rehab, and we ended up getting it sold for 410.

Rob:
Okay. And what was the profit on that 410?

Matt:
225 is what he purchased the property for, then he spent about 85 on rehab, and it sold for 410. He did have to pay commissions and selling costs out of that as well.

Rob:
And so when you say that you’re the debt partner on this, does that mean that you are actually the… Are you funding everything, or are you really just funding the down payment and the carrying costs on the hard money?

Matt:
So, great question. So he had $150,000 of his own money, so we kept the… The loan-to-value was really low on this, and so basically I came in, provided 50% loan-to-value, and then he had the capital for all the repairs. So it was minimal loan cost for him, but it’s still a very safe loan option for me. And then we ended up getting the property sold and I made a commission on that, and then he made a profit doing the flip, and was able to do the flip that he otherwise wouldn’t have been able to do.

Rob:
Nice, nice. Okay, so you walked into this, even with the value that you’re bringing from the debt partner side of it, you’re still actually taking the commission from the sale of it as well?

Matt:
Yeah, so one of the reasons that we were able to get the 410 listing price, which was the highest price in the neighborhood by far. The next available comp was 330 in that same neighborhood, so we really pushed the bar in this thing, is because he did the flip exactly right, rehabbed the property perfectly. We went in there with professional photography, a bunch of drone footage, and really put the gas pedal on the marketing in order to get that price.

Rob:
Cool. And did you find the deal on the MLS as well? Did you say that already?

Matt:
So this was an off-market deal, as far as the acquisition, and then we took it to market when we listed the property for sale.

Rob:
How did you find it off-market?

Matt:
Through a wholesaler partner that I have.

Rob:
Oh, okay. Great, great, great. David, anything else on this one?

David:
I’m curious with this connection you have with the off-market wholesaler, how are you working as an agent between the two worlds, where you work for a broker and you’re selling houses for clients, but then you’re also helping clients buying properties through wholesalers?

Matt:
Yeah. Yeah, it’s a great question. So it really depends on the deal, each deal is dependent. Sometimes there’s a marketing fee, other times it’s… I’ll basically introduce my client to them and then if it’s a flip, they agree to let us list the property once it’s done. And then we’re not making any commission on the front end, but we’re making commission on the back end once the property is listed for sale. Other times if it’s a rental, and they’re going to hold it as a rental, they may agree to have this… Property manage the property or something of that nature.

David:
And I also just wanted to highlight, while we’re talking about this real estate goggle thing that keeps coming up, this is a great flip deal. Well, everybody’s stopped looking for flips because they’ve been told buy and hold cashflow, quit your job, is the only way to go. And they’re passing up on six-figures of money that could come in useful to put towards a cash flowing property, right? What if that property that didn’t cashflow would if you put another a hundred grand down on it? But we’re missing that because we’re not looking for value add opportunities and what I call buying equity. So well done there, Matt. I could tell you’re a hardworking guy. Thank you for that. Kim, coming back to you, what about your second deal?

Kim:
I got a very unique and different deal, and actually it was for my husband and I, for our business. And we had been looking for office space to buy for about nine months, and we were downtown, it’s packed down there, paid 700 a month for parking. It just had gotten crazy. So I was desperately looking for something and I really wanted to office hack. I know people probably don’t hear that often, but just like a house hack. And I wanted to make sure that we had room for other tenants in the building, or there were other units, or whatever the case may be. So I found a building on Crexi, which is a commercial platform, and it had been on the market one day. And I went to see it, already another offer on the building, and they wanted 1.475.

Rob:
What? 1.475 million?

Kim:
475, yes. And I said, “I don’t want to pay that.” I’m like, “Okay, let’s flip this over.” It was 4,900 square feet and a two-story building, and actually found out it was one office at the time that we looked at it, but had found out that had really originally been four offices, two up, two down. So I went back home, and I penciled in the numbers. I found out what the square foot price was charging for rents, and it just didn’t make sense. I mean, it was okay, but we were going to be in one unit. So I said to my husband, “This looks like a great co-working space.” And he’s like, “What? No, we don’t know anything about co-working, Kim.” And I said, “It’s not that hard.” And so I did a lot of homework on it, checked the comps, checked out the competition, and we ended up buying it. We negotiated to 1.4, and I also negotiated for a brand new roof of 40,000, and I also negotiated for 5% commission.
So I ended up getting 110,000 at closing, and we spent 225 on our rehab, and now the building is worth 2 million. So I am three months in now.

Rob:
That’s amazing, that that is very cool. So let’s just walk through these numbers really fast. It was 1.475 million, you knocked them down to 1.4, and then you also knocked them down a little bit on the commission, which is 5% instead of 6%, right?

Kim:
I got 70 for that, and then I got another 40 for the roof.

Rob:
Oh, right, right. Okay, cool. And so basically you’re in roughly 1.3, you said you renovated for about 225k, meaning all in 1.5, 1.6?

Kim:
I mean, yeah, I would… Spend like 110,000 or something like that out of pocket.

Rob:
And so now you’ve added three to 400k in equity just from this sneaky little maneuver.

Kim:
And what’s nice is that when you start to pencil it out… Oh by the way, all the furniture I negotiated to.

Rob:
Oh, okay. It was all furniture you wanted to keep and stuff?

Kim:
Yes, to me it looked like a co-working space. So it’s pretty cool, I may be replaced a few things, but all of it was here. And I have 19 desks, and I charge 250 a month for those. I built out two offices, and I have a third one downstairs. So I have three private offices, one’s 850, one’s 1,100, one’s 1,200. And then I offer hot desk, where they can pop in and out, and that’s 100 a month. And then I also offer virtual office space, where basically just have an address, and we scan their bills. And then also beyond that, I also have a brand new sign out front where I have several spots on the queue where they can advertise as well.

Rob:
Well, you’re not really supposed to drop amazing stuff like this at the very end of the podcast, but that’s okay. That’s okay. So I don’t have a… Man. Yeah, you’ve really got the wheels turning up here. But I do want to ask, at what point, because you said the building is now worth 2 million. At what point do you start putting that on a cap rate, and selling it as a business, commercial real estate, all that stuff?

Kim:
Okay, Rob, you sound like my husband. He’s like, “I think we could sell this right now.” I mean, obviously we would make a lot of money, but I’m like, “What am I going to buy next? It took me nine months to find this building.” So I mean, I don’t really want to take any money out of it. Somebody said they think I could get 2.2, because I’m getting ready to put solar on there. I’m like, “Maybe. Maybe that’s a hot commodity.” But again, it takes me three years to recoup that cost, because that’s 100k.

Rob:
Well, I just meant more like, the real estate itself sounds like you’ve forced the appreciation there, but there is a business attached to it. So I do wonder if there’s a little bit more to that purchase price, or a little bit more to the 2 million than meets the eye.

Kim:
Yeah, true, true, true. I mean, because it wasn’t something that I ever… I own two property management companies and a real estate brokerage. I’m like, “What the hell do I know about doing coworking?” But I’m like, “Well, we’ve managed forever, managed short-term and long term, I think I can do this.” And I’m actually running it through my short-term software, because I’ve set up the podcast room in there, set up the conference rooms in there, so they can go in there and book their times. And I mean, it’s working out perfect.

Rob:
That’s amazing.

Kim:
Yeah.

Rob:
That is so cool.

Kim:
So right now, we’ve got about half leased already. We just did our ribbon cutting two weeks ago, and my goal is to be at 10,000 a month, and my note is seven.

Rob:
And you’re at about five right now?

Kim:
Yes.

Rob:
In two weeks? Outstanding.

Kim:
No, no, no, no. A couple months.

Rob:
Oh, oh, sorry.

Kim:
Some of these people. Yeah, I mean, but yes, we officially opened two weeks ago.

Rob:
Got it, got it. Still, that’s very cool.

Kim:
It’s a cool thing. And what I want to mention to everybody here is that, I know sometimes maybe commercial scares people, but don’t let it. And my commercial buildings, I make the most on positive cash flow on those, and I like to do triple net leases, which is where you put those expenses back to the tenants with regard to your taxes, your insurance, all this. So keep it in mind. I mean, there are a lot of buildings out there, like this, that are 2,000, 3,000, 4,000 square feet that are pretty cool to buy. And the rents here are really great because it’s a very entrepreneurial spirit here. So you have a lot of people that don’t want to be in those big high rises and that kind of thing. They want their own building, their name out front. And I mean, it’s something to keep in mind.

David:
Well, commercial properties are designed for the purpose of making money in cash flowing, they’re built for that reason. Residential properties, we have Jimmy rigged them to work that way, but that’s not what they were intended to do. They’re intended to reside in, not have commerce operating, so… And it’s just funny that so much of the information that we’re sharing has geared towards residential real estate as a way to make it make money, and that’s where all the creativity comes in. But it’s a lot easier when you take a property that was intended to make money and you use it to make money, just isn’t going to be passive, like you said. Several years of looking, or nine months of looking, several months of working, a lot of time and energy put into it. But the result is you got that castle that people keep saying isn’t out there.
So my opinion? Drop the expectation of passivity, drop the cookie cutter approach that every single deal needs to look the same thing, and you’re just going to hit control C, and then control V four times a year for the next 10 years, and have 40 properties. Bring the skills you have, like you said, Kim. I understood short-term rental, I understood medium term rental. I took my same software, my same approach, my same skillset, I applied it to this world, and it made sense. I’m thoroughly impressed with all three of you rock stars. You’re doing a great job of representing the real estate profession, and I’m happy to have you here on BiggerPockets. Before we get you out of here, we give you all a chance to tell people where people can find out more about you. How about you, Matt?

Matt:
Yeah, so you can find me on our website, [email protected], or of course on BiggerPockets, biggerpockets.com/agents.

David:
And Victor?

Victor:
Victorsteffen.com. And then of course, on the AgentFinder app on BiggerPockets.

David:
Do people ever get you mixed up with Graham Stephan?

Victor:
Graham Stephan? Not too, too often.

David:
You look nothing like him, and your name is spelled differently, but still.

Rob:
You never know, it could happen.

Victor:
You never know.

David:
Thank you for that. Kim, how about you?

Kim:
Also AgentFinder, and Kim Meredith-Hampton on almost all the social media, and hamptonrea.com.

David:
There we go. And my favorite California girl, Rob, where can people find you?

Rob:
You can find me over at Robuilt… I don’t know. That’s not a California… You could totally find me at Robuilt. There we go. On YouTube, on Instagram, on all of the… On MySpace, Xanga, WordPress. All of them, all right? Find me there, and then on the RSS feed, and-

David:
Pinterest, are you on there?

Rob:
On Pinterest, that’s right. You can find me on Pinterest, and then be sure to leave us a five star review if you enjoyed today’s episode so we can get served up to new audiences and teach them how to do this real estate thing. What about you, David?

David:
There you go. You can find me at davidgreene24.com, or davidgreene24 all over social media, including YouTube. And please do, we love to hear from you guys all, and we really appreciate that you’re listening to us here on the podcast. We know you could be getting your information from anywhere, but you’re choosing to come to the biggest, the best, and the baddest real estate podcast in the world, which makes you smart, and we love you for that. Everybody, thank you so much for being here. This has been a fantastic show. I think typically people don’t get information like this unless they pay for it, we are giving you guys the nitty-gritty. Now, if you guys would like to find an agent that’s on the show or a different agent, you could check out the BiggerPockets’ AgentFinder at biggerpockets.com/agentfinder to connect with one of the guests on our show, as well as other investor-friendly real estate agents.
It’s fast, free, and easy to use. Just search a market like Tampa, Atlanta, or Dallas, enter your investment criteria, and select the agent you want to contact. I am on there myself, out here in California, a bit of a California girl myself. That’s biggerpockets.com/agentfinder to match with these market experts today. Thank you everybody. Can’t wait to see you on the next show for another update, please continue finding deals for your clients and helping people build wealth, especially if they’re one of our audience members. I like to see BiggerPockets people become the winners more than everyone else. This is David Greene for Rob, California Gurls. What is the Katy Perry line, Rob? It’s like some alliteration, right? What does she say?

Rob:
In the song? California girls, we’re undeniable. Daisy Duke’s bikinis on top.

David:
Okay, I’ll try that. This is David Greene for Rob, California girls are undeniable. Daisy dukes and bikinis on top. Abasolo signing out.

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We have advised several of our small business customers to use Google Business to boost their SEO presence. A Google Business Profile is very easy to set up and it helps small businesses rank quickly on local keyword searches. When customers look for small businesses, they typically look for local companies, and Google ranks the optimized business pages. – Piyush Jain, Simpalm

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One simple and effective way small businesses can boost their SEO efforts is by leveraging user-generated content (UGC). Encourage customers to leave reviews, testimonials or feedback on your website or social media platforms. Not only does this provide valuable social proof for potential customers, but it also generates fresh and relevant content that search engines favor. UGC enhances your website’s visibility, credibility and engagement, improving search engine rankings. By incorporating UGC into your SEO strategy, you can organically increase website traffic, attract a wider audience and establish trust with both search engines and potential customers. – Andrew Saladino, Kitchen Cabinet Kings

9. Add A Table Of Contents

One way small businesses can give their SEO a significant boost is by adding a table of contents to their site’s pages, especially if you’ve been producing long-form content. As a result, your visitors will be able to effortlessly access the information they’ve been looking for without having to scroll through an entire page. Not only will it help improve your search engine rankings because you offer a seamless user experience, but it will also give your pages a chance to appear as feature snippets at the top of the search engine recommendations. – Chris Klosowski, Easy Digital Downloads