September 2023

How successful are microfinance organizations in achieving their missions? According to a recent report, one such group, U.S.-based Friendship Bridge, shows clear evidence of achieving its aim of breaking the cycle of generational poverty among rural families in Guatemala.

“We wanted to know, are we helping our clients achieve their objective of getting more education for their children and creating more opportunities for them,” says Caitlin Scott, chief strategy officer at Friendship Bridge.

The report, produced by impact measurement company 60 Decibels, draws on phone interviews with 277 Friendship Bridge clients conducted earlier this year. The 25-year-old organization, which serves 30,000 women a year in Guatemala, provides loans of $400 or so to groups of low-income mostly rural women who would likely not be approved for loans at traditional banks. It also provides monthly educational services aimed at helping their borrowers avoid a cycle of indebtedness. The organization disbursed $25 million to more than 33,000 women in 2022.

Confidence and Skills-Building

According to Scott, Friendship Bridge had long heard anecdotally that clients, who are women with little schooling, were able to send their children through high school or college. But no one had conducted methodical research into what extent clients developed the ability to support their children in ways that opened up opportunities and the ability pursue a better future—and whether Friendship Bridge was helping them achieve those goals. With that in mind, the organization worked with 60 Decibels to investigate the issue.

Results were largely positive and Scott attributes much of that success to the monthly workshops the organization holds. Because about 60% of clients have completed just primary school and 30% have no schooling at all, the organization focuses much of its educational work on the importance for group members to support their children’s education and how to do so. It also discusses keeping a budget and other business administrative skills, financial and preventive health education and issues related to women’s and children’s rights and empowerment.

“We focus on confidence, skills and knowledge-building and creating an environment where they can apply that knowledge in a trusting environment,” says Scott. “That allows clients to feel more confident in their ability to take what they think should happen in their own homes and act upon it.”

Key Findings

The report’s key finding’s include:

Learning skills. Eighty-nine percent of clients say they have learned skills that allow them to support their children’s education and personal development. That includes having an increased sense of responsibility for guiding children’s actions and being better able to help with learning to read and other aspects of their personal development, along with such matters as how to talk to teachers and create a healthy environment in which to do their homework.

Engagement. Ninety-eight percent of clients strongly agree that their children are more engaged in their education than they were at the same age. The vast majority attribute all or most this change to their involvement with Friendship Bridge. Clients also report participating in more decision-making about their kids’ schooling and feeling greater optimism about their children’s futures than before.

More income. Ninety-three percent of clients say they’ve grown business income since starting to participate in the program. Also 38% increased how much they’ve been able to spend on educational costs and 74% increased the quality and quantity of the nutrition they provide their families.

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

Kathy:
Wonderful. Survived a hurricane and an earthquake in the same day.

Dave:
Yeah, you had a little bit of a one-two punch there.

Kathy:
Well, it wasn’t really a hurricane, but for Californians it was like a Category 4, so we survived it.

Dave:
But tell everyone what you told James and I you’re going to go do later today.

Kathy:
I’m going to go surf those hurricane waves just so I can say I did.

Dave:
That’s just so badass. I would be so terrified, but that sounds very fun if you’re competent enough to do that.

Kathy:
Yeah, we’ll see. We’ll see.

James:
Yeah, my roof did spring a leak. I was sitting in my house and all the rain, it was like a slow, slow drizzle. It was actually a normal Seattle day for this tropical storm. It was just rainy and drizzly, but all of a sudden, I started hearing the dribble in the hallway and I’m like, “Oh no.”

Dave:
Yeah, I thought Seattle, like you said, this is just a normal occurrence where it just rains nonstop.

James:
It was like a four out of 10 for a normal Seattle day. It was just a January 18th normal day.

Dave:
Well, I’m glad you’re both okay, and hopefully, it doesn’t turn into anything more than that. We’re going to tangentially actually talk a little bit more about this today because we’re going to talk about insurance costs because we have a correspondence show where Kathy, James, and myself have all brought a relevant news story to the show and we’re going to talk and discuss about the implications of each of them. In addition to talking about insurance costs, we’re also going to be talking about mortgage rates and how those keep going up and new home sales and what Warren Buffett is doing about it. So you’re definitely going to want to listen to each of these stories and understand how they may impact your financial decisions.
But first, we have a little game to play. In this game, we’re going to be talking about housing inventory, which I feel like is the word of 2023 and I have three questions for you and see how well each of you do on this. The first question, James, let’s start with you, is, which month and year had the lowest housing inventory in recent history? We’re talking the last five years.

James:
I’m going to go April 2022 because the market was just … I mean, we were selling everything way over … There was nothing for sale. I think, in our local market, we were down to … It was under half month’s worth of inventory. So that’s what I’m going with. It was the hottest I’ve ever seen it.

Dave:
So this was when rates had already started going up and everyone had FOMO and they were just buying anything that came on the April 22?

James:
Yeah, they were just starting to step on those rates, but then the people with locked in rates were in that frenzy to get the rest to lock in and get closed. So that’s my prediction.

Dave:
All right, Kathy.

Kathy:
I am going to say March of 2022 for the same reasons. It was the time to get in before rates went up and there was already a frenzy.

Dave:
Well, I wanted to guess something around then, but I’m going to guess … I actually don’t know the answer to this off the top of my head, but I’m going to say May of 2020 because that’s when everything just stopped and maybe that what happened. So the answer, Kathy, you’re so freaking good at these, you’re always get them right, is March 2022 was exactly correct. Maybe you cheated or maybe …

Kathy:
No, no, I have-

Dave:
… you’re just really good at this.

Kathy:
I do quarterly housing updates at Real Wealth and I have this Altos Research slide and I talk about it all the time. So that one, I knew.

Dave:
Dang. Okay, all right. Well let’s see if you can do this next one. How many homes were on the market as of July 2023? You can round to the nearest thousand. We won’t ask you to get it exactly correct.

Kathy:
July 2023, I want to say, I’m going to really botch this one, but it was somewhere around 400,000, 420. I’ll say 420, 420,000, but I’m talking single family homes.

Dave:
Okay, and, James, what about you?

James:
You know what? I also just did a market update, so I think it’s about 1.5 million homes if I remember right.

Dave:
Okay. So the answer is 647,000 homes and this is according to realtor.com. And, Kathy, just so you know, the way they measure this is active single family and also condo townhome listings. So only about 650,000 in July in 2023, which brings us to our final question, which is, how many homes were on the market in July 2016? So if we go back seven years, how many homes were on the market? James, what do you got?

James:
Back then, the market was a lot more … I’m going with about a million homes because I would think there’s about 30 to 40% more.

Dave:
Kathy?

Kathy:
This is going to be a wild guess, but I feel like right now we’re about half of where we were, so if we’re … I would say 1.2 million.

Dave:
It is 1.46 million.

James:
Whoa.

Dave:
So we are well under half of total inventory according … Again, this is according to realtor.com in inventory. So as I was joking before that this is the word of the year in the housing market for 2023, it makes sense when inventory or supply really in any sort of marketplace drops that dramatically, obviously, some wonky and weird things are going to happen and we all know what’s happened with this inventory dropping throughout 2023. So pretty good job. You were directionally correct about all of these, so I know these are very difficult. So great job on these.

Kathy:
Directionally correct, I’m going to put that on my wall.

Dave:
That’s what analysts say when you’re wrong, but you want to sound right. They’d just say, “It was in the right direction.”

James:
“That’s perfect.”

Dave:
“You were right.”

Kathy:
“Good for you. You get a trophy.”

Dave:
No, you nailed one, Kathy, and, James, you were pretty close, so we’ll give it to you.

James:
Yeah, I was also really far off on one of them, so-

Dave:
That’s all right.

Kathy:
That’s okay. Just keep selling them, man. Just keep going.

Dave:
All right, well we’re going to take a quick break and then we’ll be back with our three stories to discuss. Kathy, let’s start with you. What story did you bring today?

Kathy:
Mine is from Fortune and it is titled Warren Buffett Just Made a Big Bet on the US Housing Market. Okay, so that should get your attention, right? Because usually he knows a thing or two about where to invest. So this article says, “On Monday, Berkshire Hathaway disclosed to the US Securities and Exchange Commission that it made investments in three major homebuilders, D.R. Horton, Lennar and NVR.” But what should be noted here is that most of the investment went to D.R. Horton. And D.R. Horton is known for creating the starter homes, the more affordable homes, which is what is needed in today’s market. Over the past decade, there has been more household formation than new home creation and any new homes that were being built, generally were in the higher end because you can make a bigger profit from that.
And so this affordable housing, the new supply, it’s just not there. And yet, this is a time when we have a massive Millennial bubble of first time home buyers between the age of 30 to 34, forming families, having babies, pets. They want their first home and that first home is just not there. So when Warren Buffet does something, you should probably pay attention. I really wish someone had given me a little insider information here because stocks have just gone up crazy in these homebuilder stocks. So I look at this like 2012. In 2012, when the market was crashed and there were foreclosures everywhere and people were afraid to buy real estate, Warren Buffet went on CNBC and said, “Man, if I could …” He didn’t say man, but he said, “If I could buy a couple hundred thousand homes and put them on the rental market, I would if I knew a way to manage that.” And then suddenly the institutional investors woke up and said, “That’s what we’re going to do.”

James:
They’re like, “Yeah, we’re going to go do that. Thanks, Warren.”

Kathy:
So it’s just we know … At least, the National Association of Realtors says that over the past decade there is 6.5 million homes that weren’t built that needed to keep up with the household formation. So how quickly can we get there even with Warren Buffett’s money? I don’t know. I just hope they don’t overbuild, because when he says something, everybody jumps in, but this is … Perhaps, this inventory problem will get solved over the next few years.

Dave:
I’m curious if Warren Buffett made any commentary about this yet or is this just through SEC filings?

Kathy:
I don’t see anything in here that has a quote from him.

Dave:
So I was just hoping, he was like, “Yes, we’re going to put all of our money in Spokane,” or whatever. I don’t know. We could all just follow him. Like all the stock traders do, they just follow him around. But in real estate, we can’t just follow Warren Buffett around unfortunately.

Kathy:
I think it’s really everywhere. I don’t know that there’s a specific market. D.R. Horton is nationwide, and nationwide, there’s issues with affordable housing. And I can tell you, I’ve said this before, but it is really hard to create affordable housing in today’s market. Even though the cost of goods has come down a bit since 2020 and 2021 when builder supplies were out of control, prices have come down, but they’re still too high. And in our own subdivision in Utah where we were required to do 30% affordable, it cost us about $850,000 to build an affordable town home, just a town home and we have to sell them or required to sell them for about 375,000. So it’s costing us more than double to build it. So I don’t know how D.R. Horton’s going to do it, but I know that is their thing. That’s what they do. Maybe they’re not as custom as the homes we’re building, but they’re going to get them up somehow.

James:
Well, Kathy, I stayed in one of their units and I can tell you, D.R. Horton’s finished package is not the same, but they build a really good house, especially for that first-time home buyer, entry-level builder. And I really liked this article because Warren Buffett likes to invest in services and things that are in high demand and being able to build efficiently is very difficult right now. These big track homebuilders like D.R. Horton, because they’re buying such huge sites in the middle of the outskirts, that path to progress areas, they’re able to attain dirt a lot cheaper than infill metro. In addition to when they’re building that many homes on one site, it is so much more efficient, which will drive down your costs.
As inventory and housing shrinks and shrinks and shrinks, they need this product because it is affordable and that’s where the market’s absorbing right now. And big builders, they know how to build the right way for the right price that will allow everybody to continue to still be a homeowner because of the cost to build.

Dave:
Yeah, I see this as a good thing. I don’t really know a ton about D.R. Horton in particular and their business model, but I think anything that happens that encourages affordable housing in this country would be very beneficial. Obviously, some people were expecting prices to dip and make homes more affordable, but that hasn’t happened. Affordability across the country is at a 30-or 35-year low and so this is a huge problem that we talk about all the time. And so hopefully, these builders and investors are seeing a path to creating more affordable housing inventory so more people can, like Kathy said, achieve what they want to in terms of their financial situation and homeownership.

Kathy:
Yeah, you make a great point because a lot of people thought with interest rates going up last year that the housing market would crash. There were headlines everywhere about that and everybody was wrong. Because what higher rates actually did was make the market worse and more stuck because you’re just not going to sell your house, you’re not going to put it on the market, and therefore, there’s nothing for sale. The only thing that’s going to be for sale is new homes and that’s why new home sales are up 23% versus existing home sales down 20%. That’s what’s for sale.

Dave:
Yeah, this is an encouraging story, but I think it has to be a bigger trend. I just looked this up, but D.R. Horton, which is the biggest homebuilder in the country by volume since 2022, in the year ending June 30th, 2023, they built 83,000 homes. That’s remarkable. It’s insane. But even if they ratcheted up 20%, which would be big, that’s really not making a dent in the total amount of homes that are needed, especially in this category. And so hopefully, other builders are encouraged and maybe learn something on how to efficiently build these more affordable homes, so that we can get a significant amount of them on the market.
I don’t know what number is necessary to really chip away at that huge shortage, but I think D.R. Horton would need to quadruple in size to really make a difference in the next few years on their own. All right. Well, that’s a great story. Thank you, Kathy. James, what do you got for us?

James:
We’re talking about the squeeze right now. For us investors, we’re getting squeezed on all sides. You’re getting squeezed on your debt costs. It’s a lot more expensive and also insurance and that’s what this article talks about is, Commercial Real Estate is in Trouble. Climate Change is a Part of the Problem and this is reported by Time. And what this article talks about is the cost of insurance, especially in areas that are susceptible to a natural disaster like hurricanes and earthquakes in the same day.

Dave:
At the same time.

James:
At the same time.

Dave:
You’re going to need a whole new category of insurance.

James:
Yeah, I don’t know what kind of coverage you need. Yeah, you need earthquake and hurricane. So that’s causing problems for commercial real estate, especially in retail in those spots because rent growth has been very small, especially since the pandemic and commercial real estate’s already getting squeezed. We’ve been hearing about this for the last six months, right? Rates are going up. Notes are starting to balloon out. And in addition too, cost of insurance is way, way up, especially in areas like Denver because the wildfires or in Houston with the natural disaster and Miami. And it’s a big deal, because from 2017 to 2022, the cost of retail rent only increased by 0.4% annually, whereas the cost of insurance increased by 9%.

Dave:
Wait, did you just say retail? So we’re talking about … You said commercial insurance, but this is not for multifamily, it’s specifically for retail?

James:
It referenced more about retail, but also in multifamily. Multifamily has also gone through the roof. I know in Houston alone, the premiums have spiked dramatically. And so what’s happening to these investors, especially if they bought over the last couple of years, is they’re getting squeezed because they didn’t perform out this insurance premiums to spike this high. Insurance companies are having problems making … There’s been reports that they’re having problems starting to cover these claims and they can be insolvent, which is a massive issue because of all these natural disasters.
And so what’s happening is it is not just retail, multifamily syndicators, especially ones that bought in the last year or so, they did not anticipate this and now their debt costs are also creeping up and so they’re getting squeezed on all sides and it could become a major issue. And it could also hit the residential homeowner too, because as pricing, or like we were just talking about, as inventory shrunk to all-time lows in that April and March of 2022, people were really stretching themselves even with those low rates. And now property taxes have reset, it’s getting more expensive and their insurance is also going up in these areas, flood insurance, hurricane insurance. Insurance companies are starting to drop coverage, which is making it harder to find, right?
State Farm just dropped or they are not going to be issuing any new policies in California and same with Allstate. And now Farmers Insurance is setting limits on California. So as the amount of coverage shrinks, the premiums could continue to grow and it could start to really cause an affordability crunch.

Dave:
Kathy, show us your insurance bill in California. We want to see that.

Kathy:
I won’t. We have a house up the road that we put an illegal deck on and put in windows without permits and didn’t really know that we needed permits for those, but we knew. Anyway, we got a violation. So we still have that property and it’s rented. The insurance on that property went from 2,000 a year to 12,000 a year. So we are absolutely negative cashflow on that and we would love to sell it, but we have to carry these violations and you have no idea what it takes to get … It takes years to get permits for a deck. I know, I know. But insurance, most people where I live in California, they cannot insure to the value of the home. It’s just not there anymore. California mandated insurance that goes to a million dollars. There’s a lot of areas in California where you can’t rebuild for a million.
So it is definitely an issue. It’s a huge issue in Maui. Many of those people that lost their homes were not insured properly. So there’s two parts to this. Make sure you’ve got somebody who understands your policy and what it covers. And believe me, you won’t understand that. As normal people, we’re not meant to understand what’s in that insurance policy. You need an expert to review it to make sure you’re covered 100%. And to James’s point, I interviewed a bunch of people. We actually did a YouTube video for On The Market if you want to check that out, I interviewed a bunch of commercial investors or apartment investors at a Dallas event. And yes, they are getting hammered.
And, Jimmy, you said their costs are inching up. No, no, no, no, they are mileing up. It’s not inches, it’s miles, the insurance. Imagine with my insurance going from 2 to 12 million, I mean 2,000 to 12,000, with these multifamily, you’ve got to put zeros. If they were paying 200,000, they’re paying 2 million or whatever it is. They cannot afford these new expenses because rents are simply not going up in a way to keep up with that and then add the mortgage payments that, again, did not double, almost tripled in some cases. So people in multifamily are in a world of hurt, not all, but many and I’m just thankful that I’m in … We have five syndications in, guess what? Home building.
So for a minute there during COVID, it was a scary thing to be in, a scary investment in new homes because like, “Oh, is this market going to crash?” And no, it just turns out it’s going to be a good investment to be bringing on new supply. Unfortunately, the affordable housing we’re bringing on in Utah still is around $2 million, so not that affordable.

Dave:
So what do operators do in this scenario, right? I don’t see insurance going down, right? It’s not typically something that fluctuates. It’s something that trends upward or shoots upward in this case over time. And if rent, which I believe is … Rent growth is suppressed right now and, at least in my opinion, will stay suppressed for a little while. What happens now?

James:
Well, there’s a couple things you can do as an operator to drive this cost down, but unfortunately if you’re already midstream, it’s a little too late and you have to reperform the deal. Because you can take certain steps with your insurance companies, if you do a certain amount of improvements, it can reduce your insurance liability, right? In Washington, if we install a lot of drainage or any of these areas that have flooding issues and you install extra drainage that will help prevent the building from being damaged, it can actually reduce your cost or certain types of roofing, all these things or retrofitting your building, taking it up to a new standard, so the building’s more secure will help your policies.
But the issue is that costs more money and you need to account for that when you’re in feasibility or you’re going to perform out that deal. And so many of these syndicators might have to look at, “What’s the cost analysis?” If they have to spend a certain amount, will it get their insurance premium down? And they’re going to have to either raise more capital and put more money in the deal to try to drive the premiums down or they’re going to have to absorb it and wait for the rents to keep going, but it’s not … You’re getting squeezed. And so it’s really going to change how people are underwriting in these markets that are susceptible to this.
Like upfront cost, you either need to factor in a higher insurance premium increase or put more money into the building upfront to drive those costs down.

Dave:
And, James, do you think those same pieces of advice are applicable to residential real estate as well?

James:
Yes, I do, because also if you have a short-term rental or any kind rental property out of state, Kathy just mentioned, I mean, that’s a single family house. 2,000 to 12,000 is detrimental to your performance and your cashflow. And so you really have to count for this going forward and it’s going to be an issue across the board and I think it could. For me, I don’t like dealing with those weird variables like that. That will make me stay out of those markets because I like to just buy things that are more stable with more steady growth. I think it could slow the demand in some of these seasonal areas, especially with the Airbnb markets.

Dave:
Oh, yeah. Based on what Kathy was saying, I have an Airbnb in Colorado in the mountains and I can’t get the full property insured, their full replacement cost because of the wildfires. And just in the last two years, we’ve had evacuations and all sorts of things that are … They’re not doing it for no reason. There is risk. And so it’s definitely something you’ll have to consider as a home buyer. And, James, to your point out, if people can’t afford it, home prices might negatively be impacted in those markets.

James:
Yeah. And then also it’s like what’s going to happen with these lenders if these properties start to become very underinsured because people can’t cover their premiums. That could be a major pressure point or they can do that forced-placed insurance, which is extremely expensive.

Dave:
Yeah. I don’t know how this all works out, but something … I wonder if we’ll start to see more … Like in Florida, they have a state insurance. I forget what it’s called, but they have an insurer of last resort basically that’s sponsored by the state government there and I wonder if we’ll start to see that in other places.

Kathy:
Well, that’s what we have.

Dave:
You do have that in California too?

Kathy:
It’s called California FAIR Plan and lender … It’s the insurer of last … It’s California basically.

Dave:
So basically … But you still buy a policy, right? So you buy …

Kathy:
Yeah.

Dave:
… a policy essentially from a government agency?

Kathy:
I don’t know quite how it works. Maybe California backs it. I’m not sure, but that’s what you can get if you can’t get insurance. And it’s not great. It’s not the best insurance. Like I said, it’s caps at a million and, “Find me a house along the coast that you can rebuild for a million.”

Dave:
Yeah, well, this is definitely something we should keep an eye on, because in recent years, we’ve seen this start to go up. I know, in Florida, premiums have gone up 40% in the last few years, as James said. Certain places in Texas. I’m sure in some of the places that have been recently impacted by natural disasters, we’ll see that as well. So definitely something to keep an eye on because it’s one of those sneaky things. For, I don’t know, the first 10 years I invested, I never even really thought about it. It just would go up like 3 or 4% a year and you’d have a pretty good sense of it, but it is becoming a real variable and that can impact your bottom line. As James said, that level of uncertainty is obviously unappealing to anyone investing.

Kathy:
You know what’s interesting though, Dave? I had mentioned I bought a brand new duplex in Palm Coast, which is pretty close to the coast in Florida. But because it’s brand new, our insurance is really low. So I think there is this belief that no matter what you’re going to pay a lot, but if you have a property that was built to today’s standards …

Dave:
Interesting.

Kathy:
… the insurance is much, much lower. So people think that it’s a bad investment to buy a new home because it’s more expensive, but when you add all those factors of less repair costs and lower insurance, it’s really … Actually, we’re cash flowing really well on it. Plus, we got that low rate because we were able to negotiate with the builder to pay points to pay the rate down.

Dave:
That’s a great point. And just going back to the short-term rental I was talking about, your HOA and different things can do things as well. We’re a “fire-safe community” where they do fire mitigation and they built cisterns and all these different things with the intention obviously of saving homes, but it also helps bring down insurance costs if you can show that you, like Kathy said, have a modern home that is built up to modern standards and the community is proactive about trying to reduce any potential risk.

Kathy:
Yeah, and to that point, one of our employees actually bought a home right where that last massive hurricane went through. Which town was it in Florida?

Dave:
Was it Fort Myers?

Kathy:
Fort Myers, yeah.

Dave:
Cape Coral? Yeah.

Kathy:
He just bought a new home there and the storm came through right over him and the devastation …

Dave:
Wow.

Kathy:
that storm caused and nothing happened to his house.

Dave:
Interesting.

Kathy:
So it does matter. It does matter to have a home that’s built today’s standards.

Dave:
That’s good advice. All right, well, for our last story, I’ve got one for you and it’s about something you would never guess, but it’s interest rates and mortgage rates, because although we talk about it all the time, they’re doing something interesting. The Wall Street Journal reported just a couple of days ago last week in the middle of August, the end of August, that the average mortgage rate rose to 7.09%, which is the highest level in more than 20 years. And we’ve been talking about high interest rates, but just for context, up until the last few weeks, we had peaked for the cycle back last November, November of 2022.
And then in 2023, we’ve seen a lot of fluctuations and variations, but it’s mostly been in the mid-6s and the high 6s. Now recently, they’ve shot up. Last week, the reading was at 7.1% and I was just nerding out here before and looking at treasury yields before and they’ve been going up. And so I expect, as of this reading, what is it today? The 21st of August, we’re recording this. I expect that mortgage rates this week will probably shoot up to 7.3 or maybe 7.4. So it is really going up. And I think the really interesting thing here is that it’s happening at a time when you usually see that seasonal decline in housing activity. And so to me, I’m just curious, we’ve seen the housing market be more resilient than I thought it would be, but I’m curious if you guys think that this upward, this new leg up on the mortgage charts will maybe take some wind out of the housing market in the next couple of months.

James:
I’m definitely feeling it slowing things down. And part of that is just that seasonal slowdown, is … I mean, the pandemic made us forget about these seasons a little bit because it didn’t matter, but I’m seeing the showing activity drop pretty rapidly right now. I know mortgage apps are way down week over week and it’s getting expensive. I felt like the market was actually very fluid when the rates were about 6.6, 6.75. It was like that perfect, I think, affordable pricing in there, but as median home prices continue to keep going and we haven’t seen that dip, the rates could cause it to come down because the buyer activity had dropped pretty substantially in the last 30 days, at least in our market. And it sounds like it’s across the board.
Because it is expensive. You run these mortgage, you’re like, “Man, is it worth it?” And if they’re thinking, “Is it worth it?” they’re going to sit on the sidelines for a little bit.

Kathy:
To me, this again comes down to the high-priced versus the low-priced markets. In a low-priced affordable market where the homes are maybe 200, 300,000 a market where Henry’s in, the impact is really not going to be that much. It’s going to be a few dollars, maybe $12 a month in payment difference from what it was just a few months ago. So in those markets, yeah, I don’t think it will matter and it hasn’t over the past 18 months, but in the higher-priced markets, absolutely that payment is hugely different when rates go up. So the big question is, will they continue to rise or they come down? Nobody knows. I think one of the reasons that they spiked is because the Fed is reducing its balance sheet and selling off some of their mortgage backed securities and they flooded the market and the sales were not good.
And the way the bond market works is, if you want to attract investors, you have to give them a good return, right? So you have to give them a better return, which means higher rates. And then if people are scared, then they don’t care. They just want their money safe. And so even if bonds are selling for 2% or zero or whatever, people just buy them because they’re afraid to put their money anywhere else. And that’s not the case today. So what this reflects is that a strong economy combined with the Fed reducing its balance sheet. So I have been in the camp of, “I think rates are going to come down,” and yet, there are so many factors with the big one being the Fed reducing its balance sheet and flooding the market with these bonds which drive prices up.

Dave:
Yeah, I, unfortunately, have been on the hire for longer train for a few months now and think this is probably what we’re going to see for a little while. I think they will come down in 2024, but I think, for now, we’re going to see this. And part of me wonders, James, you mentioned affordability, which is obviously the major factor, but I always am curious if there’s this psychological impact here too where it’s like things are starting to go, rates were peaking, they started to go down, people started to get comfortable, maybe feeling like, “Okay,” they’ll maybe be able to refinance in the next couple of months or next couple of years and things will get even better for them. And now the fact that rates are reversing and shooting back up is just discouraging people, just psychologically even beyond the actual dollars and cents of it.

James:
Yeah, and I think it’s discouraging in two ways, right? Inventory is really low, so what you can buy is pretty disappointing right now when you look in most markets. It’s average. And then the cost of money’s gone up. So people are just like, “It’s not worth it,” and I definitely feel like that is a psyche that … I mean, we see the market. It’s like a seesaw. It goes up. It’s just like this weird quick movement and it’ll go for a two-week run and then it goes stale for two weeks and then it goes for a two-week run. And so it’s very pulsating and it does have to do with the rates. And one thing is, if Jerome Powell starts … If he starts hinting that the rates are going to go up again, then there’s this little surge because people get FOMO. So I think a lot of it is psychological right now.

Dave:
Yeah. That doesn’t sound very good. Average or bad inventory at a very high price, it’s not a very good sales proposition. Hopefully, that’s not what you’re telling your clients, James.

James:
No, well, luckily, we’re looking for the uglies, so we can find those. And then right now, the good thing is, if you’re bringing a really good product to market and it’s in that affordability range, it is still gone. They’re moving quickly, but like Kathy said, the high end is people are being selective. They want what they want and they should.

Dave:
Yeah, yeah. If you’re going to pay a lot of money for something, it’d better be something you like.

James:
Yeah, feel good about it.

Dave:
All right, well, those are our stories for today. Before we get out of here, we do have a crowdsource question which comes from the BiggerPockets forums. And today’s question comes from Travis. He asks, “Can you get a HELOC, which is a home equity line of credit, on a rental property or is it just your primary residence?

James:
That’s a tough loan to get.

Kathy:
You could probably get one, but you’re going to pay double digits for that.

James:
You can. The money’s super tight right now on that product. The loan to value needs to be fairly low on that. I think you have to be below 70% loan to value and so that’s the struggle, is you can’t really tap too much into the equity right now, but their products are out there. Some of the major banks have been bringing that back. Your local banks are looking at it a little bit right now. There is options, but they’re expensive, and a lot of times, you just can’t quite get the money that you’re looking for out of it, so it’s not quite worth it. But credit unions are a great way to go for this.

Dave:
I think one of the things you have to think about is put yourself in a lender’s shoes. They are going to offer the lowest rate on a primary residence because they know, at the end of the day, if you get into financials, bad situation, you’re going to make payments on your primary residence because it’s the place that you live as opposed to a rental property. And so that’s why HELOCs are generally considered great options, because a lot of times, the interest rate is similar to that of a 30-year fixed rate mortgage because lenders see it as very safe. Whereas when they look at your rental property, I’m sure hopefully you’re a responsible investor and make your payments, but they just see it as less safe. And especially in interest rate environments like this, they’re going to be increasing their risk premiums to make sure that they cover themselves. So probably not the best time to look for one, but you could.

Kathy:
There’s a lot of trapped equity that people are trying to tap and it’s hard. I saw a really interesting post on, I think it was Instagram and somebody said, “Yes, I refi’d my rental property from a 2% to a 7% rate because it’s going to challenge me to find deals that make more than 7%.” I thought, “Okay, I’m just going to sit here in my 2%. I don’t need that challenge.”

Dave:
Wow.

Kathy:
But if you’re going to get a HELOC at 10, 12%, whatever it’s going to be on that investment property, the 7% all of a sudden sounds really good.

Dave:
Right, that’s true. That’s a good point. That’s not the philosophy I would use. That’s like those people who go running with a weighted jacket just to make it harder on themselves. Running’s hard enough. I don’t need to make it any harder.

Kathy:
Did you mean my husband? Yeah, that guy.

Dave:
Does he do that? He would.

Kathy:
He would.

Dave:
That makes sense. Rich is a beast. He probably doesn’t even notice this on.

James:
He has three people on his back too.

Kathy:
Right.

Dave:
Yeah, it’s just the whole. All right, well, thank you both for joining us today. This was a lot of fun and thank you all for listening. We appreciate it. If you like this show, don’t forget to give us a review on either Apple or Spotify and we’ll see you for the next episode of On the Market. On The Market is created by me, Dave Meyer and Kailyn Bennett. Produced by Kailyn Bennett. Editing by Joel Esparza and Onyx Media. Research by Puja Gendal. Copywriting by Nate Weintraub. And a very special thanks to the entire BiggerPockets team. The content on the show On The Market are opinions only. All listeners should independently verify datapoints, opinions and investment strategies.

CNBC’s Robert Frank joins ‘The Exchange’ to discuss another month of record high rent in New York City, a shortage of rental inventories in Manhattan, and more.

In a new ranking of American universities, the Wall Street Journal has a surprise. The highest-ranked public university is listed as the University of Florida, and at #4 is Florida International University.

In the recent past, FIU has been ranked among the top 100 universities in the world. That was the highest FIU had ever been ranked and naturally, it brought a lot of joy in Miami and Panther land. So, imagine the surprise at being ranked #4 – and that too for a university that was started in 1972 – and without the endowments of Harvard and Yale.

So how did FIU ascend to a spot so close to the mountain top? Look at the criteria – and it becomes clear. It is a revolutionary way to rank universities and examines the value of education.

The Wall Street Journal employed a comprehensive approach that went beyond merely assessing graduates’ gross salaries as a sole criterion. Recognizing that individuals born into families with substantial financial resources often have greater access to elite opportunities and consequently earn elevated incomes, the Journal considered this important context. Furthermore, it’s worth noting that many other ranking systems tend to overlook the influence of privilege and nepotism within their criteria, potentially skewing their assessments in favor of those with pre-existing advantages.

One of the key factors examined by The Wall Street Journal that has affected the rankings is the value added. This analysis considers the difference between the salary actually earned by FIU graduates and the salaries they would have earned if the student had not graduated from FIU.

Given that many of our students come from families that have never attended, or graduated from, universities, this delta is large – meaning that the value added is huge. That’s why FIU has this huge jump in ratings.

This criterion seems to measure the true value of education and what it should be all about – not about how many privileged students have you admitted and how much money did they make, but how did the non-privileged students do, who are sometimes the first in their families to attend college.

The true measure of a society’s success lies not in preserving the status quo for the elite but in providing opportunities for all. It’s not about maintaining the wealth of the rich, but rather fostering an environment where everyone has the chance to prosper and attain financial security.

If education is about giving everybody a chance, FIU does well. 25% of its students are first-generation and nearly 50% are Pell grant recipients, which is given to students with high financial needs.

I have seen many examples. In one class, none of my students showed any interest in going on a Mediterranean cruise as part of a business course. When asked why, one student, whose family had immigrated from Haiti, told me that he was worried about earning enough money that week to put food on the table. Going to Europe was not on his mind.

FIU is to university education what Unicorn-Entrepreneurship is to venture development – giving the entire pyramid a shot at the brass ring based, not on privilege, but on skills and smarts. Some of my students from underprivileged backgrounds have become Rhodes scholars. Others have built successful businesses. It’s what education should be all about.

MY TAKE: I did not expect a revolutionary ranking system from the WSJ, the bastion of privilege. After a while, you get indifferent seeing the same old rankings where the big surprise may be that Harvard dropped a notch. Let’s hope this new thinking starts a transformation all around.

FIU NewsFIU recognized for first-generation student success programs, initiatives

Poets&Quants for UndergradsRanking: Wall Street Journal’s 2024 Best Colleges In America

David:
This is the BiggerPockets Podcast show 818.

Mikey:
First question we ask is, do we want to own this thing for the next 10 years, and is there demand to own this thing for the next 10 years? But a lot of times we go, “Oh, my gosh. I’m going to buy it now. And what are interest rates and cap rates going to do in four years?” And it doesn’t matter. As long as there’s nothing to force a sale in your time horizon, if you have the demand, it’s staying off, but you’re cash flowing, who cares?

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets podcast here today with my co-host and frequent flyer on the podcast, the handsome Rob Abasolo. We’ve got a banger for you, as Rob would say. It’s slays. It’s fire. What’s all the other stuff that you’re always trying to sound cool saying?

Rob:
It slaps.

David:
Yes, that’s it. Today’s show slaps with Mikey Taylor, a former professional pro skateboarder and friend of Rob Dyrdek, who we’ve also interviewed on the podcast. And Mikey shares a lot. He talks about how he became a pro skateboarder, how he got into real estate investing, how he met with the financial advisor to talk about what he should be doing with his money, how he initially invested in self-storage, then started buying self-storage, then started buying apartment complex, then got a fund, then built a debt fund, built a brewery and sold it. I mean, Rob, this thing was chockfull of good stuff. What should people be listening for to help them in their own journey?

Rob:
Well, what I really liked about this one is that I thought there were a lot of practical elements to what he had to say. He wanted to quit his job, or he didn’t even want to go to college, and wanted to do the skateboarding thing, and his parents said, “No, you need to understand finances and you need to build a budget,” and they made him go to a financial advisor that told him that he needed to start investing in real estate passively.
And he kind of developed that bug of just he got his first distribution, talked about how that was just very addictive for him to just continually do that, how that unlocked in his brain that when everything else goes away in the skateboarding world, he can always depend on real estate, and he just used that to kind of build more and more momentum to now his crazy story, how much money he’s raised, how much money he’s deployed in the multifamily space, the self-storage space. Honestly, just crazy story all around, and I think the craziest story was at the very end, the one he tells us about Rob Dyrdek. So if you want to hear that, stick around until the very end.

David:
This guy has lived about six lifetimes and had six careers in one life, and we’ve got it all condensed and compacted into an episode for your viewing pleasure. Make sure you listen all the way to the end to get Mikey’s four key takeaways that he’s learned from life that are pretty much guaranteed to help you be more successful. Now, you may be noticing that our background looks a little different, that’s because Rob and I are here in downtown Los Angeles at the Spotify studios recording for your viewing pleasure. Before we get to Mikey, today’s quick tip is start with the end in mind. If you raise money, you need to know how to pay back your investor. This can be for a business or a larger real estate deal, but always start with the end in mind. Rob, anything you want to say before we get to Mikey?

Rob:
No, Davey. Let’s hit it.

David:
Mikey Taylor, welcome to the BiggerPockets podcast. For those that are unfamiliar with Mikey, he was a pro skater straight out of high school with a 14-year career who retired at 34 years old from skateboarding, created and sold a microbrewery while still skating, started and runs Commune Capital, which has debt and equity funds. He owns commercial real estate in self-storage facilities in eight states and is a multifamily investor in California. And as a fun fact, he was recently elected to the city council in Thousand Oaks, California.

Rob:
You almost had 1000 Oaks, California.

David:
Yes, I did. I almost did, but I’m not from Southern California, but I caught myself with the last minute.

Mikey:
That was good.

Rob:
You did say the PCH earlier.

David:
You absolutely caught what I started to do. Okay, let me ask you a question while we’re on this topic. Rob said it’s not called the PCH, but everything else you guys state on here is The something. It’s The 405, The 205, The Five. In Northern California, we just say I-5 or Highway 99, but you guys have the. But when it comes to PCH, it’s not the PCH. What? Is there rules to this lawless area?

Mikey:
That’s one of the rules that it’s a locals-only type of vibe. If you know, you know, and if you don’t, then we know you’re an outsider.

David:
You make it complicated so guys like me stand out and you know that I’m not in the in club.

Mikey:
Exactly right.

Rob:
I think you would really love 1000 Oaks in California. It’s a really nice place.

Mikey:
Oh, I didn’t even know why he said that. You picked up on it. Okay. Yeah-

David:
He just thought I don’t know how to talk. I’m reading right off the script here, and Eric could have just put the word thousand, but instead he put 1-0-0-0, which most people read and then it’s like that’s a thousand, and then Oaks is on another line below, so my eyes didn’t get that far. As soon as I saw the Oaks, I was like, “Wait a minute. That doesn’t sound right at all.”

Rob:
Mikey Taylor, welcome to the podcast.

Mikey:
Thanks for having me.

Rob:
How are you doing?

Mikey:
Good.

Rob:
Is there ever a moment where you become Michael Taylor or is Mikey here to stay?

Mikey:
You know what, I felt like running for city council was that defining moment and all the strategists and campaign managers were like, “Hey, Mikey sounds like a young kid. I think it’s time,” and my whole thing was like, “Look, this is what I am.” My brand, if you want to say it as that has been established, and anything different would just be not myself, and so once I ran, and then now especially being a city council member, I feel like Mikey’s probably here for, I think, it’s for life.

Rob:
But they did make you ditch the propeller hat though.

Mikey:
I had to get rid of hat. That was a mandatory.

Rob:
Get rid of the hat, but Mikey Taylor’s here to stay.

Mikey:
Yep.

David:
There is a Michael Sailor. It sounds a lot like Michael Taylor. That’s probably not bad company to be considering. He’s a smart guy.

Mikey:
Yeah, I will take that confusion. Yeah.

Rob:
What did life look like at the beginning of your extreme sports career from a money and savings perspective?

Mikey:
Oh. So when I was skating… Pro skaters don’t make a lot of money. Start with that. It’s not like baseball or football. I was trying to live off nothing essentially, but I wasn’t making that much, so it was really not a lot. As my career started progressing, I started making more, and for the first 10 years, I pretty much tried to maintain spending 20% of my income, and I tried to control my lifestyle inflation as much as possible, and I did pretty good up until having my first child. And when I had my first child, I was in a ’92 Civic hatchback. No power steering. No-

David:
Your child was born in the backseat of the car?

Mikey:
Well, no. It was my wife actually. When we had our first child, my wife looked at me and went, “You can’t do this anymore. I get that you act like you’re broke and you’re driving this piece of crap around. It’s time for you to get a real person car,” and so I sold that, but I got a Toyota Prius.

Rob:
That’s a great car.

Mikey:
Yeah.

Rob:
People sleep on the Prius.

Mikey:
I liked it. I ran it for six years. I think I spent 24 grand on it.

David:
I love how you said, “I ran it,” as if you’re still the Fast and the Furious. Guy’s pushing a Honda S2000.

Mikey:
Yeah, so basically when I was skating, I was just try to keep expenses as low as possible so that I could make investments in asset classes that you typically need a lot of money for. And I just wasn’t making a lot of money, so I almost had a reverse Dave Ramsey kind of model.

David:
Strong defense.

Mikey:
Yeah, that’s right. That’s right. That was it.

Rob:
So where did that come from, the insane frugality? Is that something that was ingrained in you as a kid, or is that just something that happened later on in life?

Mikey:
That’s a good question. There were two parts of it. One, I think fear was a big driver for me. Not knowing what life after skateboarding was going to look like was scary, especially considering I didn’t go to college, I was being paid because I could ride a skateboard. I had no idea how that was going to translate into life afterward. And then I would say the next component is I’m a very routine and I’m actually pretty good at discipline and consistency. So that fear mixed with that part of me just, okay, this is the model that we’re going to follow. I’m going to stick to it.

Rob:
Is that a pretty common way of doing things in the skateboard community, or did you see your friends kind of blowing their cash?

Mikey:
No, skating was interesting because when I became pro, the skate industry kind of blew up. We went from no one knowing who we were and thinking we were kind of lame, and then all of a sudden Tony Hawk at the scene and skateboarding became pretty large, and so we started making more money. And when other skaters started making more, it was like, “Oh, my gosh. I can drive a Cadillac.” The Escalade was the big one. Everybody started getting Cadillacs and no, it was like living the lifestyle.

David:
This was like 2006 or so?

Mikey:
This was 2006. It was cranking. It was just money flying everywhere, but we weren’t making crazy money. It was just we were spending it all.

Rob:
And so did your parents… You were skateboarding, was it in high school, and then was it time for college and you kept skateboarding or what was that whole life like?

Mikey:
Yeah, so my story was I started skating when I was 11 or 12, got to 16 and my parents wanted me to get a job, and I didn’t want to work because I felt like that was going to take away from skateboarding. So I basically went out and tried to get companies to sponsor me. I had a handful that started sponsoring me. They gave me free product. By the time I turned 18, I was in the magazines. I had a couple opportunities to start traveling the world, but that was kind of when I was supposed to go to college, and so I told my parents I wasn’t going to go. They absolutely lost it, were not with it, and I basically looked at my mom and I was like, “Hey, what if I just do this for a few years? This is an opportunity that most people don’t get. I’ll travel the world. I’ll see some things. I could always go back to school.”
And my mom and my dad too, but my mom more so was like, “Okay, if you’re going to do it though, you have to have help. Somebody has to help you with your money.” Money was the big one. And so she connected me with a financial advisor. I was making 800 bucks a month. He was like, “I don’t even know what to do with you.” And then that was kind of the beginning of this whole process.

Rob:
Wow. When you were making the 800 bucks a month, is that when you were spending 20% of it?

Mikey:
No, the first year I spent it all, but I got to a point where in the first couple years I started making, I don’t know, 3000 bucks a month, and then I was like, “Okay, I’ve got a cell phone bill. I’m still living with my parents. Everything else was paid for.” I was doing pretty good not spending money. And then I don’t think my lifestyle really increased much until kids came into play. That’s when it just jumped up.

David:
I’m curious, your parents were very interested in money. You weren’t making a lot of it, but it’s still on the top of their head. Was money a struggle for you guys growing up? Was there not enough of it to go around?

Mikey:
Yeah. See, that’s what’s interesting. No, my dad didn’t make a ton of money, but he didn’t struggle. He was a photographer, had a really healthy view of marriage. I never watched my parents fight over a ticket or a bill that was unexpected. They viewed money as a tool. So that was, I think, the good part. I think where the fear element came in and why it was tied to money was my parents and myself really believed that if I didn’t go to college, I was basically saying goodbye to making any type of money. It was like all doors that were going to be open were now not. And so I think that was kind of the fear driving the money side, like if you’re not going to be able to do anything afterward, you better take advantage of this opportunity.

David:
So where did the interest in real estate come from?

Mikey:
So real estate came from the financial advisor my parents connected me with because his brother was running a storage portfolio and he was telling me about all the stuff they were doing, and it got to a point where I had enough to invest and they raised money from investors. So my financial advisor was like, “Hey, do you want to put some money in storage?”

Rob:
Hey, man. You’re making 800 bucks a month.

Mikey:
No, at this point, I was making more. At this point, I started making more. And he basically asked me that. I didn’t know what to say. I didn’t even know what questions to ask. I was like, “I don’t know. Tell me about it.” So he gave me the, “Well, look. People need a place to store things,” and he talked about human behavior. And one thing he did mention, which I always hung onto, was storage performs during recessions or it’s very recession-resilient. I don’t know why at however old I was, 24 or five years old, that resonated, but I remember going, “Huh. So I can count on this thing when times get bad.”
And so I just invested I don’t even know how much, 25 grand. I can’t even remember. And basically it was on trust with him, and then I started getting a quarterly dividend, and then it happened over and over and over. And by the third one I was like, “This is it. This is my way out. This is how I…” So that was a big moment.

Rob:
Do you remember what your first dividend was?

Mikey:
The amount?

Rob:
Yeah.

Mikey:
No clue.

Rob:
No?

Mikey:
No.

Rob:
But it was significant? Sorry. Significant enough-

David:
Well, when you’re making $800 a month, it probably felt significant.

Mikey:
Okay. So when I invested, I was making more than 800. I was probably making maybe close to a hundred grand a year at this point. My first investment was 25 grand, so no, the dividend was not significant. It was paid-off cashflow, but I think it was the idea of, “Oh my gosh…” It wasn’t even wired back then, the check came. The check came again, the check came again. And even though I was making money with stocks and bonds, there was something about the storage side. I don’t know why.
It just kind of clicked and the fear… And to bring it all home for skateboarders and how this applies to everyone else, I got paid from sponsors, so my sponsors were my employers, and every contract I had was typically a three-year deal. So when I would sign a deal, the only thing through my mind was, “I have security for three years. I don’t know what’s happening after that.” When I got those checks, the dividends, I don’t know why, it just was that aha moment where I went, “Oh my gosh. If I get more of those, I don’t have to be so concerned with not getting my next contract.” It was just… I don’t know.

David:
Security in an insecure, unstable environment.

Mikey:
Correct. Yeah, correct. Yeah, so that fear at the end of the tunnel when my career ended started becoming not as dark.

David:
Okay, so what happens next in this life business adventure that you’re on?

Mikey:
Okay, so I’m skating professionally for about 10 years, I’m following the same path, basically live like I’m broke, invest as much as I can. In 2011, myself and two of my friends had this idea that we could start a craft brewery. We didn’t have any business experience, we just had an idea and felt like we could do it. And so in 2011, we started going to other breweries basically asking if they could make our beer for us and we would just manage the marketing side of it, and after the third or fourth one, we realized there’s zero money in doing that. We had ultimately had to build our own production brewery, and so I went to my financial advisor. I was like, his name is Randy, “Randy, we have this idea. We don’t know what to do. What’s our next steps?” And he was the one that walked us through having to build a business plan. He helped us build that. When we built a business plan, we realized we didn’t have enough money to start the company. So he started educating us on how we would go out and raise money from investors.
He helped us with the legal connections for the PPM and all the documents, but he helped us with the pitch like, “This is how you have to go about in communicating what you’re going to ultimately do, build trust with the investors so that they’ll give you money,” and mind you, this is two pro skaters and a surf filmmaker going into an industry where we had no experience. Think about asking you for a, “Hey, would you invest in my craft brewery? We don’t know how to brew beer and we’ve never done this before.” You’re like, “Pass.” It was hard. So we had a great team that was helping set us up for success, and then we went out and raised money. We raised the amount that we needed to open doors. We opened doors in about May of 2012, and the thing just exploded. We became-

Rob:
Oh, that’s cool.

Mikey:
Yeah, it was unreal.

Rob:
How much did you raise?

Mikey:
We raised two and a half million dollars the first round, and then we had one, two, three rounds after that. I think we were all in maybe 8 million by the end of it.

Rob:
Whoa. Okay, so how does that differ when you’re raising money for, let’s say, a business like a brewery versus real estate? Real estate, you do the syndications, you’re like, “Hey, you’re the GP, LP. As the GP, I take 30%, GP takes 70,” and then you’re not typically reraising and diluting shares, whereas it seems like with businesses and tech and everything, there are multiple rounds where that’s sort of how that works. Is it similar?

Mikey:
There’s a part of it that’s similar, there’s a part that’s different, and I’ll go into the differences, but what I will say, after we sold the brewery, I was expecting real estate to be a much easier thing to raise money for. It was actually not, it was little bit harder actually than the business, and I’ll go into why. When you’re starting a business, you’re using models from other companies that have sold. So it’s more of a, we’re going to build it and everyone’s going to make a ton of money. You don’t necessarily need a proforma of the business that you’re starting to get you to the metric of return, where on real estate, here’s your return, here’s all the numbers that you get there, and so you can’t sell this like, “I’m going to quadruple or even beyond your investment.”
But as it pertains to raises, I would say where it’s similar is for maybe a syndicator who needs to recapitalize their deal or maybe they went over budget, they need more capital coming in. You’re calling your investors and going, “We have a capital call.” It probably is similar to that. It’s calling your investors going, “There’s a capital call. There’s a capital call,” and then if they don’t perform, you then can take it out to basically outside investors and start raising. So then there’s dilution.

Rob:
Aren’t capital calls a bit, I don’t want to say unsavory, but not a great thing to do?

Mikey:
It’s not a great thing to do, but in real estate… And here’s the difference. If you’re doing a capital call on real estate, typically something went wrong. If you’re doing a capital call on a business that you know you’re going to have multiple rounds of capital to get to an exit-

David:
It might be an offensive opportunity that you need capital for, not a defensive mistake.

Mikey:
That’s what it is. In real estate, it’s a defensive mistake. In a startup, it’s part of the process to get you to exit. It’s just expected.

Rob:
That’s just the way it is, right?

Mikey:
Yeah, that’s why you go seed and then you go series A, B, et cetera.

Rob:
So you were planning to exit when you started this company. Can you walk us a little bit through what that process was like?

Mikey:
Yeah, so this was a piece of advice that when we were basically building the business plan and being taught how to raise money, this is something they said that I’ll never forget. When you ask somebody for money, when you’re raising capital, the first thing that probably is going to come out of their mouth, maybe it’s the second, is how do I get paid back? When do I make money? And so you have to very clearly show them where your exit is, or if you’re building a cashflow, a business that’s going to cashflow, how often those dividends come out. Just basically when does money actually be realized? And so with us, we knew that we were going to pay investors back by an exit, and so in our pitch, it was this is the timeframe. Let’s call it 10 years. There’s going to be multiple rounds up to that point. We’re going to exit, and that’ll be how you get paid back.

Rob:
Which is similar in even real estate raising too. You’re basically calculating your IRRs, your internal rate of return, based on the exit, most of the time on a five-year exit, seven-year exit, 10-year exit. So I guess this is pretty similar in that because most of the time investors just want to know what that endpoint looks like.

Mikey:
Right, and you’re totally right. I would say that the challenge is for anybody who runs an open-ended fund, then it gets more difficult to show somebody, “This is when an exit happens, and this is when dollars go into your pocket.”

Rob:
That’s what we’re doing right now, the open-ended fund, and it’s tough because just like you said, most investors, they just want to know what the timeline is, not that they want it now, they just want to know that there is a timeline. So open-ended funds are very tough for that reason.

Mikey:
That is the hard part about them. Open-ended funds, the blessing, you don’t have a capital call need.

Rob:
That’s true, yeah. So you’re developing this brewery, it’s starting to grow, crush it, I imagine. And how did you make it so that it stood out in a way that’s attractive enough to be bought?

Mikey:
That’s a good idea. So when we were doing our research on the craft beer industry, what we learned early on is that no companies really marketed a brand. It didn’t exist. Everything was product-driven. So the normal experience was somebody would go to the store, they’d go to the beer, whatever you want to call it, alley, they’d look for brands and something would resonate and then they’d buy it. We went in going, “Wait a minute. We come from a world of marketing.” In the skateboarding world, the wood manufacturer, there’s two of them. So every kid is riding the same board, but every kid thinks one board’s better than the other because of the experience that the brand was able to communicate to the kid. So our idea was we’re going to build a brand and experience a lifestyle and market the person prior to them going to the store.
So what we did is we raised money from skaters and surfers and snowboarders, and then our marketing was around them. So 2012, when there were no influencers, we made our investors our ambassadors, and then all of our marketing was many documentaries on them communicating the California lifestyle through their lens. So what does California look like through Paul Rodriguez lens? What does it look like through Taylor Knox lens? And so what happened was we had a whole community of people from California that went, “This is my beer because they see California like I do,” and there was no one else doing that. So that was the thing that ultimately separated us. And then to add on top of it, we’re doing it all through Instagram at that time. So no one had social media. Imagine a world where no one has social media, no one understands a brand, and we come in and go, “We’re building a brand. We know how to do it, and we’re promoting it on social.” It just went nuts.
So for context, we became if not one of the fastest growing breweries in California, we had demand in the entire nation and then in the world, we couldn’t get our product out of California. We could not even come close to fulfilling demand. It was the opposite experience that most startups have, and I think in my perspective, it was because of that element where our beer was good, our beer was winning awards, but we were doing something that no one else was doing, which was creating the separation from the many and what helped us stand out.

Rob:
Do you think you could do it again?

Mikey:
Okay, so that’s a really good question. When we sold it, I had two partners. Three including me. One of my partners stayed in the beverage industry, so he went and created a seltzer brands called Ashland. Huge brand. My other partner does a company called Primitive, huge clothing brand, and then I went into commercial real estate. We all are still using the same model. He’s still in the same, let’s call it beverage, but we’re all applying it to other spaces. Yes, you can, but a lot’s changed. It’s not 2012 anymore when it comes to social media. Everybody has it now. So you don’t get as much standout just by being on, you actually have to be better than those around you. But yeah, I think I could do it again, yeah. I mean, I’m attempting to now just in a different asset class or a different industry.

Rob:
Yeah, yeah. So let’s talk about that. You end up crushing it in the brewery world, you sell it. At what point is it… Are these happening at the same time? Are you getting into real estate and you’re doing the brewery thing, or does the real estate come after?

Mikey:
Good question. No. Okay. Investing was happening passively in real estate. It was not active at all up until this point. Started the brewery, sold the brewery, and then I had about a year of trying to figure out what was next. I didn’t know. Actually, I went through a tough period of transition. Sold the brewery, I was no longer a pro skateboarder, I had two little kids. My wife and my marriage was not going well, and I was being hit with identity and purpose challenges as well, so I had basically a year of figuring life out and my wife and I especially had a year of rebuilding marriage, our marriage. Then at the end of ’16, early ’17 is when I came up with the idea for Commune and then started working on building this company out.

Rob:
What is Commune?

Mikey:
We’re a private equity real estate firm. No, about a year. About a year of trial, I would say.

Rob:
So you start Commune, or a year of trial. Do you go right into what… I know you were investing passively into the storage game. Did you decide to just go all in there?

Mikey:
Good question. No, we started with multifamily.

Rob:
Okay.

Mikey:
Yeah. Look, storage. Anyone who’s an investor in storage is going to resonate with what I’m about to say. It’s a phenomenal asset class. They are cash machines. You don’t have to deal with tenants living there, there’s a part of the operations that is, in my perspective, a lot easier. But at the end of the day, it’s a bunch of garages. It’s not the most sexy asset class. And so when we started Commune, I wanted to use what we were talking about with Saint Archer, which is the brewery, what I thought my skill was to try to create a value add or separation on the assets that we were basically going to go buy, and I felt like multifamily and ultimately building out homes was the ultimate experience. Talk about adding value through marketing or brand. I felt like that was the one, mixed with it had, what we talked about earlier, performed well during recession, so it hit the safety or the risk adversity that I wanted, and then I was able to, what I thought, hit a value add.
What that meant for our business model, we were going into markets that the creatives were going into first. So what we see if we’re looking at California, right? Skaters, photographers, artists, they go into the sketchier areas and then they make it cool, and as it’s becoming cool, then you start seeing the home flippers come in and you start seeing all the cool retail, then years later, the big institutions get here. So our whole model in the beginning was follow the creatives, go in and actually create an apartment that the youth wants. If the creatives are going there, what do the creatives want? They want an apartment that they can film content at. It’s really basic stuff, but for our generation, it made sense. They want something that looks good, they want people like them in the community and make it so that it’s current with technology. No keys, make it all keyless entry. And we did really well in the beginning with that.

Rob:
That’s really funny because you remember when we had Barbara Corcoran on the show, that was her exact strategy for when she was building her empire in New York, and she would go to restaurants and she would talk to the waiters and she’d be like, “Hey, where are the hip artists staying?” And they would tell her, and then that’s where she would go and buy real estate.

Mikey:
Yeah. And look, I came from skating. My whole community’s plugged in here. So what that looked like, our first apartment we did was in Long Beach. And in Long Beach, 4th Street is kind of what started to become built out, so we started looking for assets above 4th. It was like 5th, 6th, and 7th is where we were looking. So we got in there, we got in there early. A couple of my partners said, “Absolutely not. Why are we doing this?” And then we ended up building it out and three years later was the hit place to be, and we ended up selling it. We did well on it.

Rob:
Really? When you said value add multifamily, just for everyone at home that doesn’t really know what that means, break us through that process a little bit.

Mikey:
Okay. So value add ultimately means that you’re going to do something to increase the value of the property, but you can do that with a lot of different levels in a sense, somebody can come in and do a light value add, which is typically paint and maybe do landscape, et cetera, or you can do a deep value add, which is basically bringing something down to the studs and really trying to, if you’re looking from a rent standpoint, increasing rent significantly, and then I would say the ultimate value add would be a redevelopment, scraping something and building. And so that’s actually what we do… I mean, 100% of our business right now is complete development. We scrape and build now.

Rob:
You tear down and you rebuild?

Mikey:
Tear down and build.

Rob:
Because I’ve always been told, especially these days, it is rare for that to ever make sense to actually where it’s cheaper, or oftentimes you don’t want to tear it down, you’d rather just fix it up and make it nicer.

Mikey:
Sometimes. Sometimes that’s the case, but there’s cycles, right? There’s points where your yield on cost is going to be close to or less than your cap rate. If that’s the case, then you don’t build because you can buy something at a higher yield than you can build. But in times like this, that’s not the case. Depending on the market you’re in, right? Like invest, you brought it up from the beginning. We invest in California. A lot of people do not invest here. It’s difficult to build. California scares a lot of investors out, but because of that, our markets and a lot of cities are undersupplied, so we typically go into markets that are undersupplied, build more units. Right now we’re in a point where city councils are saying yes to almost everything, and then we get our value add by adding a product that has demand in an area that needs it.

David:
You mentioned when your yield on cost is greater than the cap rate, you said it doesn’t work?

Mikey:
When your yield on cost is less than the cap rate. So basically if your yield on cost, let’s say, is 5% and the cap rate’s 5%, why would you build it?

David:
You could just buy a 5% return.

Mikey:
Correct. You want a spread. So basically on your yield on cost, what most people look for is about a 250 bip or 2.5% margin or spread from build to curtain cap rate. So if cap rates are at, let’s say, 5% right now, you’d want your yield on cost to be, let’s say, 7.5%.

David:
When you’re saying yield on cost, you’re referring to the cost to build?

Mikey:
Correct.

David:
How much money you have to spend and the return you’re going to get on that money.

Mikey:
Correct.

David:
So we’re going to go build a $2 million property, and if it’s going to bring us back a 5% return, then that’s a five cap. It’s a build on cost of five. So what you’re saying is that if that number is greater than what you can buy at, it makes sense to go build.

Mikey:
Yeah. So this is a metric that a lot of the institutional investors look for. Another way to say it is basically that you’re building to a cap rate from a yield standpoint. So if cap rates are, let’s call it, 5%. If you buy an existing product, let’s say, you know you’re going to get an unlevered 5% return, but you can go build it to, let’s say, a 8% yield on cost. That premium may be worth the build.

David:
And that would be called 300 basis points or 3%.

Mikey:
Correct.

David:
100 basis points is 1%, so 250 basis points is the number you said they want to be, which is about a 2.5% increase.

Mikey:
Correct. And then when you start getting into at least some of the bigger investors, if it’s not a big enough spread, they’re not coming in.

David:
Because the time you’re taking and the effort and you got to hire people to make sure it’s going to happen and the market could change versus you just go in, you buy something else, and it’s way less work time and risk.

Mikey:
Correct.

David:
So the bigger the spread is needed to justify the additional risk, time, expense, human beings that have to manage the process, something that could go wrong.

Mikey:
Correct. Anytime you’re taking more risk, you need a premium for that risk.

David:
I’m glad you said that because I mean, we don’t want to go too far down this road, but a lot of people let risks scare them, but if you can quantify risk, if you can turn it into some form of a number, you can bake it into your overall numbers and now it’s not so scary anymore. Rather than looking at risk as something to be avoided, it has to be something that can be quantified, and now there are times where, okay, we’re adding risk, but the reward so much outweighs it that it actually is smart to move forward with that, and I think that stops a lot of people from investing at all.

Mikey:
1000% is you’re almost actually experiencing in some regard the reverse right now where you can go after deals with less risk right now that a lot of people were taking a year and a half ago, but the return is a little bit less than people that are still levering up and expecting a refi in two years. And they’re going, “Oh, I’ll take the bigger return,” because it’s the bigger return, duh, but they’re not including the-

David:
The increased risk, yeah.

Mikey:
Correct.

David:
Which is really what insurance companies have done to make themselves so valuable is they’ve just quantified risk for you. They’re like, “Yeah, all these things could go wrong, but if they do, we’ll cover you for this cost.” They just bake that cost into whatever you’re paying for the property and you know if it makes sense.

Mikey:
Correct, yeah. And even from a pitch standpoint, this happened to me recently, so I’m just thinking of it. We were talking to a potential investor, they had their manager on the line as well, and the manager’s talking to the person and goes, “Hey, just so you know, this is a high-risk investment. You just need to know this is a high-risk investment,” and I looked at him, I was like, “Hey, I just want to put this out there. If you’re saying this is a high-risk investment without any context, you’re going to look at this return and go, ‘Wait. That’s all?’” A high-risk investment was the brewery. That was a high-risk investment. The brewery 12x’d everyone’s investment three and a half years. If you’re expecting that risk and that return with this, that’s not it. This is a risk adjusted return, but in real estate, there’s different risk in that category. So I think it’s really important to know a riskier investment in, let’s say, real estate, does not mean it’s the same as a risk or investment in tech, or-

David:
It’s relative to that asset class, correct?

Mikey:
Correct.

David:
Yeah, that’s a great point. When you say this is a risky investment in tech, that’s saying a lot because tech is sort of inherently risky in a lot of cases. You could say this is a risk-ladled real estate investment. That might not mean a whole lot because real estate, it’s safe compared to most asset classes.

Mikey:
Correct.

David:
Well, hold on a second. You said you’re investing in California and then you described this is why we’re investing in California, because there’s not enough supply, which is one of the things I just think no one looks at when they’re picking a market. They ask, “What’s my cap rate? What’s my IRR?” They’re asking questions on the return they’re going to get. They’re not asking why. What’s the supply demand revenue here? What’s driving that? And a lot of people do look at demand to their credit like, “Okay, people are moving here. It’s a good thing to look at. Okay, jobs are moving here. That is a good thing to look at.”
I just don’t hear anyone in the real estate space say, “This market has constricted supply. It’s hard to build here. It’s already built out,” like what you had said. That’s how you knew in Long Beach where to go. You said, “It was built out to 4th Street, so we started looking at these areas,” which is where the path of progress had to go. It’s not completely speculative when you know what’s driving it to see that it’s reasonable to expect this, and something about your brain picked that up.

Mikey:
I think from my brain, I knew back then where the trends were headed. I have a partner, he’s the smartest person I know, he’s brilliant. A lot of what I’ve learned over the last seven years has really come from him, from at least some of the stuff we’re talking about now. I remember one of the first things he told me, when we’re going to look at doing basically any type of purchase, the first question we ask is, do we want to own this thing for the next 10 years, and is there demand to own this thing for the next 10 years? And if there is and you’re going to hit the rents that you need to hit, it doesn’t really matter what happens in the interim.
But a lot of times, to your point, when we’re looking at new projects, we go, “Oh my gosh. I’m going to buy it now. And what are interest rates and cap rates going to do in four years?” It doesn’t matter because as long as there’s nothing to force a sale in your time horizon. If you have the demand, it’s staying off, but you’re cash flowing, who cares? And so that was a good beginning metric for us: Is there going to be demand for the next decade?

Rob:
Yeah. I mean, it’s having a pretty long-term perspective on your investments.

Mikey:
But even if you don’t. Sometimes we’ll promote or look at a five-year hold, and so when we’re showing investors, we’re showing an IRR based on five years, but what we’re saying is, “Look, this is the plan, but there may be a situation where we can’t sell it in five. If it’s not an opportune time to sell, we’re not going to sell,” and then we extend it to 10 and show them what the return is on a 10-year hold. And if the 10 year hold is still a good return, but if we are able to sell it at five for maybe a big pop, that’s how we go about it. But we need to make sure that if we can’t sell, it’s still a good asset to hold.

Rob:
Did multifamily end up being the foundation of Commune, or did you-

Mikey:
So multifamily was the first asset class that we went into. It was the first fund that we built out, but we were using social media for some of the stuff we were talking about, the brand experience, and we took a pretty big push into financial literacy. We wanted all of the content to be educational and actually a little bit more broad than just real estate. I wanted to make sure that the person that followed me, even if they were an 18-year-old skater, was still getting the basics, how to build a budget, how to build credit, how to have a plan on what to invest in all the way up to some of the stuff we’re talking about, yield on cost or debt yield, something more specific to our industry.
And what happened is very quickly we started getting opportunities, we started getting deal flow from social media, we started getting investors from social media, and the brand started growing at a very sizable rate. Then what happened is my partner who… There’s a part of this story I didn’t tell you. My financial advisor, his brother who was running the storage portfolio. When I came up with the idea for Commune, I brought the business plan to them because I didn’t know what fund management was. I didn’t even know how to build a fund that was different than what we did last. So I brought my business plan to them, they looked at it, and instead of them educating me on what to do like they did with the brewery, they looked at me and said, “Would you ever think about doing a partnership?” And so we created a management company, which was Commune Capital, and then our first fund was the multifamily fund.
They had a storage management company managing the storage portfolio that I was investing in passively, and they had built it over the last 20 years all from kind of the more traditional way of doing it. Our assets are performing, we’ve given a great return, investors have told their friends, et cetera. Well, in about 2019, they’re looking at Commune and it’s taking all of the attention. It’s growing and grabbing people at a way crazier rate than storage, but storage should be doing that because of the historical performance, et cetera. So they actually presented the idea to me at the end of 2019 about merging our companies together. And so in 2020, we did. The two management companies became one, and then the storage portfolio came into Commune. They had a lending portfolio as well. And then since then we’ve done, I don’t know, five different offerings after that.

Rob:
Wow. Okay. And so then-

Mikey:
So a little bit more context. Started with multifamily, then we added storage, which I had been investing in forever into it, then the debt fund. Now we have our second multifamily portfolio, our second debt fund. We’re about to reopen storage, and we’ve done a handful of syndications along the way.

Rob:
What is a debt fund? Does that basically mean that you’re raising money from people and just paying them an interest rate?

Mikey:
It basically means we become the bank. So when people are looking for bridge debt, we basically lend on the commercial asset, and then we take our interest, and that interest is then paid to the investor.

David:
And you’re lending on assets that you have some understanding of in case you have to take it back?

Mikey:
Really good question. Multifamily and storage, yeah. Before we even lend on a deal, we ask ourself, “Is this a deal that we would want to own from an equity position?”

Rob:
Because you might have to, right?

Mikey:
Because it’s not… You might. You will always have assets that become troubled and you have to take over. If you’ve been in the business long, it’s going to happen.

David:
Kind of like motorcycle riders say you don’t dress for if you crash, you dress for when you crash.

Mikey:
Correct. That’s right. So it happens.

Rob:
Have you taken over any yet?

Mikey:
Of course. Yeah, of course. It just happens.

David:
But you know what I love about this idea is it’s sort of a vertical in you’re not learning a completely new business. You understand this asset class, now you’re going to learn maybe five or 10% new information, which is just how to make loans, how to price loans, but if it goes bad, this is a property that we could have bought, we already like it. It’s not a completely new thing. There’s a lot of synergy between it, but it’s another income stream.

Mikey:
It is. Think of it this way: You do want a loan to perform. It is easier when it does, everybody gets their interest, everybody’s happy, right? Loan gets finished, then you got to get money back out, that would maybe be the challenge, but if you lent on an asset that is a good asset and you have to take it over and you understand it, you just took over an asset for potentially 65 cents on the dollar if your max loan to value is 65%. So you can look at it through that lens if you need to take something over, you bought something that you wanted to buy at a discount.

Rob:
I mean, obviously it’s easier just for the loan to perform, but are y’all, at this point with your experience, so good at seeing a distress or a bad property that failed that you’re taking over and being like, “Oh, all we have to do to fix it is this, this, this. Is it always pretty straightforward at that point, or is it a bit of a haul to get your team-

David:
My thought would be if the person couldn’t deliver, something went wrong that you now have to jump in and fix that problem. Is that-

Mikey:
Correct. Yeah, that’s correct. And we didn’t do this always. Now we’re at the point where it’s multifamily storage only. But yeah, there are points… Let’s say we lend on a construction project and it stalls out 70% complete, we have to come in and finish it. It does take time and it does take brain damage, and that’s why I said it’s better when they just pay off. You can get to scale easier and things work a little bit more smoothly when they don’t, but when a project doesn’t perform, it’s not that awful of a scenario, you actually take something over.

David:
You’ve mitigated your risk.

Mikey:
Correct. Correct.

Rob:
And how much have you raised in your debt fund?

Mikey:
So our debt fund, we’ve done about maybe a little over 300 million in loans. Maybe 330 million. And that’s probably right now, I don’t know, maybe we have 50 million raised in that.

David:
And are you borrowing money from other debt funds and then there’s a yield spread between what you can lend it at and what you paid them?

Mikey:
On our equity side?

David:
Yeah.

Mikey:
Yeah.

David:
No, no. Sorry. I was thinking on the debt side, on your debt fund.

Mikey:
No. No, on our debt fund, we’re first position only.

David:
That is the money that you’re lending out money you guys have saved up through your company, or?

Mikey:
Oh, I see what you’re saying. No, we raise it from investors. Yeah, so we’ll go out, raise a certain amount of money, put that into a loan, we get our interest, interest is paid to the investor, we take a split like we were talking about earlier, and then we just constantly go through the cycle.

David:
And if the loan doesn’t get repaid, you have to take it over the investor. It just takes longer before they get their capital back.

Mikey:
Depending on where the project is. Yeah, if the project is, let’s just say, stabilized for whatever reason, well, it’s not that much longer until they start getting paid back, but we do it in a fund. So just because one becomes troubled doesn’t necessarily mean that investor’s not getting a dividend. Maybe the dividend becomes a little bit less through that timeframe potentially, but if you were maybe… I don’t even know if you could, it’d be hard to syndicate, but if you were syndicating loans and one become troubled, then yeah, an investor’s not going to see a dividend potentially.

Rob:
I remember you had a pretty interesting business model. I don’t know if you’re still doing this, but I seem to remember you were buying old Kmarts and turning them into storage facilities.

Mikey:
Yeah, we’re still doing that.

Rob:
Okay, you’re still doing that? So how does that work? You find it… I mean, because Kmarts seemingly don’t go out of business all that often, but…

Mikey:
Okay, so we look for Kmarts, Walmarts, Bed Bath & Beyonds, which go out of business.

Rob:
Toys”R”Us.

Mikey:
Correct.

David:
Have you thought about just following Tai Lopez around and snagging up all of the buildings that go vacant from his businesses?

Rob:
Was it Radio Shack or something?

Mikey:
He was doing Boot Barn and Radio Shack.

David:
Exactly.

Mikey:
This is why it’s the no. There’s actually a lot of big box retail that goes vacant. That’s something that’s completely out there. The challenge is the city. Cities don’t like storage, and they absolutely do not want what used to be a Bed Bath & Beyond that employed a certain amount of people and brought revenue to the city to go into storage. That’s not something they want.

David:
It’s not an amenity for a city,

Rob:
Because it’s ugly or is it because of the actual income side of it?

Mikey:
It’s actually not necessarily ugly because when we do our properties, you’ll drive in and you’ll go, “Oh my gosh. This looks like a brand new Kmart.” It’s a life storage. So from an aesthetic standpoint, there’s not much that changes. What the city loses out on is sales tax and employment. That’s what they don’t like.

David:
You want to move to a new city, they have a big beautiful Kmart that makes it easier to sell houses there, they get more property taxes, the Kmart is generating revenue for all people coming there.

Mikey:
And they get jobs for their residents, that’s a big one.

David:
And all those people are paying taxes on the money that are coming in. And then you get a self-storage facility, which is run very lean. You don’t need hardly anybody. I can see how if I ran a city and you’re like, “Well, do you want to have a new Bass Pro shops, or do you want to have a self-storage facility?” It’s like asking a kid, “Do you want to eat broccoli or do you want to have a Snickers?”

Mikey:
That’s right. So that’s what we do on storage, and when you do it’s really good. We’ve done well with our storage portfolio, but it’s hard to stay focused on one area, it ends up being really spread out. So our properties are all over the place, and then we don’t do a lot of deals. I was telling you earlier, we’re going to do one storage property this year, one conversion. We did one last year, so it’s not a lot. Whereas multifamily, I mean, we have five projects. We’ve got three under development, are currently building out. We’ve got four under… It’s just it moves a lot quicker on multifamily.

Rob:
But how does it work with, let’s say, Kmart or a Walmart or whatever? Because I thought that it would effectively be the person that owns the real estate leases it to Kmart, Kmart signs a five-year lease. They don’t own the real estate. Then Kmart goes out of business or vacates that. Are you then now the next lease holder of that building?

Mikey:
We buy it from the owner. So that might be buying it from a bank, it might be buying it from an actual individual. It depends.

Rob:
Is that owner panicking if Kmart leaves?

Mikey:
You would assume so, but not always, believe it or not.

David:
Maybe if it’s paid off.

Mikey:
Yeah, we get some owners that hold those things for a long time.

David:
But I think what he’s getting at is why would they sell it to you as self-storage rather than just rent it out to Walmart instead of Kmart?

Mikey:
Really good question. What they’re going to attempt to do is get an anchor in fast. That’s what they’re attempting to do.

David:
And see if Target wants to open a store.

Mikey:
Correct. They’re going to put that in. You’re right. But what happens, at least a lot of the properties that we end up getting, they’ve been vacant for a long time. So they attempted to get somebody in, they can’t do it, the property’s been there for a couple years now, it’s starting to become distressed, there’s weeds coming up through the parking lot. Maybe there’s windows being broken that aren’t getting fixed. Then it starts becoming panic mode.

David:
You send all your skateboard friends in the parking lot to just go and cause a big scene, so nobody wanted to rent it? Just unleash your minions to get a better deal?

Mikey:
Absolutely not.

Rob:
So walk us through a deal like that, like a Kmart, which you’ve done, because I’m super fascinated by this. What does one of those deals look like? How many units go into a typical Kmart? I know it depends on square footage, and I guess that’s cheaper to retrofit a Kmart than it is to build a storage unit facility?

Mikey:
Yeah, a lot of times it is. Well, there’s more to it, but potentially, I guess, it would be the best way to say it. What you look for, you typically need something a little bit larger than a hundred thousand feet, and then most of our properties we get in, I would say, between 11 and 1200 units in each facility.

Rob:
Wow, that’s huge.

Mikey:
Yeah, we get a lot in it. Yeah, we’ll double stack them. I’ll show you a video after this. It’s funny, man. You seriously feel like you’re driving into a Kmart and then you walk in and it’s just endless rows of storage.

Rob:
If you’re watching on YouTube, we’re going to B-roll it right now.

Mikey:
Yeah, I’ll send you some clips.

David:
It sounds like the scene in The Matrix where you’re seeing all the pods of little human beings that are all… Matrix clip there in case you ever haven’t seen that movie, Rob.

Rob:
I’ve seen it a time or two.

Mikey:
You can get a lot in, yeah.

David:
So I mean, do you just go hire an engineer to draw out the plans for how it would be converted, hire a contractor to build it out and do you build it out in chunks or do you just build out the whole thing?

Mikey:
Build out the whole thing.

David:
And then the cost of capital probably plays a big role in what you can do with it, right? Because that’s a lot of money that you’re putting to redeveloping and you’re not going to make a ton of money back right away.

Mikey:
Correct. Yeah, and I mean they’re not crazy check sizes actually. Compared to our multifamily, it’s a smaller equity check.

David:
Yeah, you’re not building bathrooms, you’re not building kitchens.

Rob:
Can you give us an example of one?

Mikey:
Yeah, I would say would say the average check size for our storage is, I don’t know, maybe 5 million bucks. So maybe it’s like a total cost of around, let’s call it, 13. Our multifamily, I mean, total cost is usually north of 40.

Rob:
Wow. Okay. So you’re raising 5 million bucks to basically get into this $13 million development or redevelopment. What kind of return does one expect from that? What’s the hope on the cap rate?

Mikey:
Yeah, so it’s going to vary on the time in the project, but I would say we typically want to see a project level IRR north of 20, 23, 24% IRR, and then what that yields to the investor. I mean, that’s changed throughout the years. Right now we’re in a different scenario. The financing markets are different, but right now we’re targeting about a 14, 15% IRR.

David:
It’s still better than most people are getting out of the apartments.

Mikey:
But the apartments, I mean, that’s a heavy lift. You’re talking about a three-year project just to get to build in California and then… What we want to see on a project level, I mean, healthy twenties.

David:
Okay. How do you find out that there’s a vacant Kmart?

Mikey:
A couple ways. We have relationships with brokers. There’s groups that are super good at getting direct to owner. We typically get our stuff through-

David:
You’re going to the person that if I own the building that leased to Kmart and I found out that Kmart’s going out of business and they’re breaking their lease and I’m panicking, I’m calling a broker to be like, “Hey, who do you know that wants this space?” That’s the person you’re going to go build the relationship?

Mikey:
Yeah, so we will get a lot of deals through brokers and then we do have a couple development partners. So we will also get deals from developers that we’ve done this with and they’ll say, “Hey, we got the deal. Do you want to come in on this one with us?” And then we will. So I would say that’s the two sources. And then every once in a while we have had projects where the lending portfolio had to take something over and then we repurposed it into storage. Yeah, that’s happened in the past.

David:
That’s kind of a nice little tool to have in your tool belt when you take this thing back, “Well, we always got the storage play.”

Mikey:
It is nice, it’s just hard. It is so difficult.

David:
Because of the rezoning, the city just fights you on it all the time?

Mikey:
It’s the rezoning part, yep. Rezoning entitlement’s just tough.

David:
Mom burned the macaroni and cheese broccoli again tonight. You got to get the kid to eat the broccoli when they don’t want to, I can see that.

Mikey:
Yep. Yep.

Rob:
So do you know on one of those projects what the total cashflow was for the storage facility? Pre-splits, because I know you got investors and stuff like that.

Mikey:
Well, on our storage portfolio, it’s going to be hard to give you an answer to that. That’s been an open-ended fund and we’ve brought investors in at so many different stages that it’s going to vary.

Rob:
Got it, got it. Okay, cool.

David:
All right, so I understand you’ve got four things that you have learned in the past that you can narrow down to share with our audience. Can we walk through those?

Mikey:
Yeah, we can. I would say the first would be starting with the end in mind, and this happened to me from my mentor. He asked me about my financial freedom number when I was young and I had no idea what that meant, and so what he said, and which ended up becoming very important in my life was, “You have to know what your goal is so that we can actually find the path to get there.” That was huge for me. So trying to figure out what our end goal is and then find the best path to get there is really important to do from the beginning. I would say two, consistency and discipline. That has been the model for me. Anytime I’ve ever tried to hit a grand slam, it’s gone nowhere. If I just focus on singles and doubles, I’ve done really well. So that’s been a big model for me. Three, lifestyle inflation is probably the big one. I think this is something we all fall victim to as we start making more money.

David:
This is also called lifestyle creep.

Rob:
Lifestyle creep.

Mikey:
Lifestyle creep, yeah. Lifestyle creep. As we start making more, we spend more. It’s like we all fall victim to it, but if we can control how much we’re spending, we start making more, this actually gets us to our financial freedom goal faster. So it’s actually really, really important to hold that discipline. And then four, I would say how to make yourself stand out or the separation factor. When we talked about how we did it with Saint Archer, we found an industry that was saturated, had a lot of people doing breweries in especially San Diego, and we figured out how to take an idea out of the red ocean scenario and put us into blue.

David:
Can you describe what you mean by that?

Mikey:
Yeah, so basically when you’re starting something in an industry that’s saturated, it means competition is everywhere. It’s very difficult.

David:
That’s a red ocean.

Mikey:
That’s a red ocean. Blood in the water, it’s saturated. What you need to understand is you don’t always have to reinvent the wheel and you don’t always need to create something new. You can find an industry that’s saturated and actually create a spinoff that then creates separation and puts you in blue ocean scenario. What I like about that actually is you’re going into an industry that has proven demand. You don’t have to build it and hope they come, but then you can create something that makes you different than everyone else, and then it feels like you are one of a kind.

David:
Which is the blue ocean.

Mikey:
Which is the blue ocean. That’s where you ultimately want to be. So with Saint Archer, that would be the ambassadors and social media. With our company now, it’s actually a similar model.

David:
So yeah, for your brewing company, you knew people want beer. Red oceans have proven it, people like to drink beer, but you don’t want to have to go say, “Here’s why I’m better than Budweiser,” or something. So instead you create a marketing plan that nobody else is doing so you’ve got this whole blue ocean of people, “Wow. That’s so cool. I’ve never seen that before,” rather than how do I make a better commercial than the Clydesdale horses for Budweiser.

Mikey:
Correct. So how that applies to everyone, if you’re going to start something or get into doing something, you have to ask yourself, “Why would somebody go to me versus anyone else?” You have to have that one thing that separates you and it’s a really important test and why I think business plans are so important is it forces you to figure out what that is so that you actually have a fighting chance to have something successful.

David:
I like it, man. This is some really good stuff.

Rob:
This is good. We saved the good stuff for the end. So one was start with the end in mind. Two, discipline and consistency. Three, lifestyle inflation, don’t let it creep up on you. And four, make sure you stand out. Have a way to stand out from the competition.

David:
Absolutely. And if you guys would like to learn more about how to have consistency and discipline, check out episode 810 where we just interviewed Greg Harden. He’s actually Tom Brady’s performance coach, and he talked about this very stuff and I’m like, “You know what, this is good because now when Mikey teaches you how to make millions of dollars, you can use Greg’s information to help you get there.”

Mikey:
Oh, that’s good. That’s good.

Rob:
Meanwhile, I’m going to be swimming over here in the green ocean.

David:
You’re getting so much better at this. That’s like your fourth callback to the color green. Very nice. I’ll have to describe what a green ocean is.

Rob:
Awesome. Well, if people want to learn more about you, connect, invest, do all that kind of stuff, where can they learn more about you?

Mikey:
Okay, so my social media is just Mikey Taylor. Our company is called Commune Capital. That’s the same on all the accounts, @Commune Capital. Our website, communecapital.com. And then yeah, reach out. Anything you need, I try to provide any type of information that I’ve been given to anybody who wants to hear it.

Rob:
Mikey is the king of TikToks and Insta Reels, so go check those out. He’s always got nice spicy hot takes, and meanwhile David, maybe we rebrand you instead of Davidgreene24, Davey Greene.

David:
I just don’t know that’s what my audience is looking for. You keep trying to turn me into an infant or a goofball with every single one of your ideas.

Rob:
Well at least put on the propeller hat I bought you.

David:
There we go.

Mikey:
I wouldn’t change anything.

David:
You think Davidgreene24 is okay?

Mikey:
Yeah.

David:
I appreciate you saying that.

Mikey:
I wouldn’t change anything.

David:
The first three guests that we had today were like, “Why is that your social media? It’s boring, it’s dumb. You need to change it.” Then we asked Alex and Leila Hormozi, they’re like, “No, it’s just you. Who cares?”

Rob:
I like that you said that with the Hispanic accent. Hormozi.

David:
But he’s not Hispanic.

Rob:
I know, you were just like, “Alex Hormozi.”

Mikey:
You know what I think? I think your name very… It fits your-

David:
Boring personality?

Mikey:
It fits your personality. Well, no, that’s not… I wasn’t going boring. No, I was going consistent, trustworthy, wise. I was actually going a different direction.

David:
You know what you’re going to get.

Mikey:
I absolutely know what I’m going to get. You’re somebody that I could count on and I know if I would call, you’d be there. I think that name represents that.

David:
So having met me for the in person for the second time now, do you feel like the version of me that you hear in a podcast is the same as a version of me that you get in real life?

Mikey:
100%. Yeah. Yep. You see what you get. That should be the motto behind your name. You see what you get.

David:
You see what you get get. Unlike the other 23 Davids that came before me. The 24th David-

Mikey:
You see what you get or you get what you see.

Rob:
You get what you get, and you don’t throw a fit.

David:
I’ve often wondered, is it you eat what you kill or you kill what you eat? I’ve often wondered about that one too. I’ve heard it both ways.

Rob:
Don’t do the crime if you can’t do the time. That’s what my dad always said.

David:
That’s what he said?

Rob:
Mm-hmm. That’s the only thing he ever said though. It was weird.

Mikey:
My dad ran that too.

David:
That was his favorite English phrase.

Rob:
So if you want get David’s foyer content, go over to Davidgreene24 and you can follow me over, @Robuilt on Threads, on Instagram, on YouTube and everything in between.

David:
Check out our Threads, and are you on Threads, Mikey?

Mikey:
I am.

David:
All right. Go look at… What’s your Thread?

Mikey:
Mikey Taylor.

David:
Mikey Taylor, Davidgreene24 and Robuilt, and let us know in the YouTube comments who has the most interesting Threads of the three of us. Not that it’s a competition, we just want to hear from you guys.

Rob:
But for the sake of this podcast, I guess it is.

Mikey:
Rob’s going to win this one before.

David:
I don’t know that you want to compete with a professional skateboarder in anything. Do you do skateboarding lessons? Can people reach out to you if they want to skate better?

Mikey:
No, I don’t. No, I don’t.

David:
Is there any videos of you skating through a vacant Kmart doing kickflips and what other skateboarding-

Rob:
Well, that was your ad campaign when you were running for councilmen, right?

Mikey:
No. No, we stayed away from that. No, but there are clips of me with other skaters doing tricks in the brewery before we pulled out.

David:
Politics and skateboarding mesh wonderfully. There’s never any animosity between those two groups, right?

Mikey:
That’s right. That’s right.

David:
Last question I want to ask you. We’ve interviewed Rob Dyrdek on the show. Did you and him ever run into each other in your skateboarding careers?

Mikey:
Rob Dyrdek is probably my biggest mentor throughout my whole career. Actually, going to a gala with him right after this.

David:
Tell him that we said hi.

Rob:
We’ll be right there.

Mikey:
Have you guys interviewed him yet?

David:
Yeah, we just had him the show not too long ago.

Mikey:
Rob is the man. Rob is the absolute man. He’s been one of my closest friends since I was 16 years old. He completely mentored me through my career. He’s been huge.

Rob:
Ask him if he remembers doing the podcast.

Mikey:
I will. I’m going to see him seriously in an hour.

David:
We should go to the gala. You like pretty things, that’s all you ever talked about.

Mikey:
I’m going right, I got a suit and tie.

Rob:
I’ll go buy mine right now. I’ll go to Men’s Warehouse. You go in there with 500 bucks, you leave a king.

David:
You see what I mean about this is the stuff he’s good at.

Mikey:
Rob Is the man. Yeah, rob is absolutely the man. Rob Dyrdek is my mentor through skateboarding, right? Rob does his show, Rob becomes an entrepreneur. Incredibly successful. I feel like I’ve been chasing him my whole career and he just keeps setting the bar higher, right?

David:
Yeah, he’s the worst guy to chase. You’re never going to catch that guy.

Mikey:
I want to start my first business, Saint Archer, and me and Paul and Josh, my partners, and I was like, “Okay, we’re going to build this out. We’re going to pitch this to Rob. Rob’s going to be an investor. He loves us, he supports us.” So we build out our business plan. We go to the Fantasy Factory, we pitch Rob on our idea. We’re going to do this brewery. This is how we’re going to market it. He’s looking through the business plan and he looks at us and goes, “You’re telling me other brands don’t market. There’s no marketing, there’s no brand.” We’re like, “Yes,” and he goes, “You’re wrong.” I’m like, “No, dude. That’s true.” He goes, “Absolutely wrong.” We’re like, “Rob.” He grabs the business plan, crumples it up, throws it into the trash and goes, “Do not do this company. If you raise money from others, you’re going to lose everybody’s money.”
Heartbroken. Heartbroken. We leave. I’m so defeated. My fricking mentor just told me we shouldn’t do it. Three and a half years later we sell it. He hits us up immediately, “I’m so proud of, you guys,” et cetera. Fast-forward to a year ago, I talked to Rob. I’m like, “Rob, it’s time.” He’s like, “What do you mean it’s time?” I’m like, “It’s time for us to have that talk about my company now, about you coming in as an investor,” and he goes, “Let’s do it.” So we have him scheduled for let’s say a Thursday. Monday I’m prepping the whole team. This guy is going to destroy us if we do not nail everything.

David:
You kept that crumpled paper, it’s framed on your office wall now.

Mikey:
I was so hot, guys. I walked everyone through the pitch Monday, Tuesday, Wednesday, and basically it made everybody aware if we fumble it, he will destroy us. We get through the pitch on Thursday, hive him the whole deal. I’m prepared. We finish. It’s silent. Rob’s looking. It was on Zoom. He’s looking. He goes… Because Rob can be extra. And he goes, “That was one of the best pitches I’ve ever heard. I love this. We’re going to talk tomorrow.” I hang up the phone, screaming in the office, “We did it.” I was like one of those just the student lived up to the mentor. That was a fun experience. That was about a year ago.

David:
But you’re not done. You’re not going to tell us what happened tomorrow.

Mikey:
No. I can’t.

Rob:
That’s the next podcast. That’s for Patreon actually.

Mikey:
I can’t say the… Yeah.

David:
According to your NDA, you’re not allowed to say whatever happened from there.

Rob:
Then you’re going to say he crumbled it up and he was like, “Goose.”

Mikey:
Yeah. So it ended up being a good meeting.

David:
Okay, glad to hear that. If you guys want to hear more about Rob Dyrdek, his approach to life, how he fits a whole year into one day, check out BiggerPockets podcast episode 700.

Rob:
Dude, it’s so crazy how you memorized those.

Mikey:
That was impressive.

David:
That’s the only reason they keep me around. It’s not for my good looks.

Rob:
That’s nice. What was 692? Do you remember?

David:
What was 692? Yeah, why are we going to take away from Mikey though? We’re talking about Rob Dyrdek, his buddy, right now.

Rob:
Now that is masterful. That is masterful.

Mikey:
Do you tip a barista?

David:
No. I have a theory that today you should only expend energy in areas where is appreciated and if tipping becomes expected, it is no longer appreciated, and now there’s no ROI on my energy.

Rob:
Now, Mikey, with that said, the iPad’s going to ask you a quick question after you swipe your card, so here you go and we’ll catch you on the next episode of the next episode of BiggerPockets and we’ll catch you on the next one. We’ll catch you on the next episode of BiggerPockets. David sign us off.

David:
Thanks, Mikey.

Mikey:
Thanks for having me.

David:
This is David Greene for Rob “Shameless Plug” Abasolo, signing off.

Danielle Hale, Realtor.com chief economist, and CNBC’s Diana Olick join ‘Power Lunch’ to discuss housing and mortgage demand stalling and the state of the overall housing market.

The value of mentorship has become increasingly evident. Many young professionals recognize that having a mentor can be a transformative experience, propelling their careers to new heights and offering the kind of guidance, insight and wisdom that textbooks simply cannot provide. However, the process of approaching a successful entrepreneur about becoming a mentor can seem daunting, leaving many unsure about where to begin.

Here, Young Entrepreneur Council members share tips for how young individuals can secure entrepreneurs as mentors, starting them off on their own paths toward successful entrepreneurship.

1. Attend Events

Visit events that your desired mentor is speaking at, and if you don’t yet have a targeted mentor, attend business events in your community and beyond. Listen to different opinions from different leaders in their field, and find someone who identifies with your needs. Reach out personally; mention something they’ve done that you’ve found inspiring—perhaps a talk they did that gave you insight into solving a problem of your own—and make your ask of them clear and direct. Be upfront about how much time you would ideally want from them, the type of communication style you are looking for and what types of problems you would like their help with. The more information you can provide them with, the better they can evaluate their own ability to help you as well. – Darby Cox, Cox Consulting

2. Find A Mentor On A Similar Path

Choose mentors who fit your ideal lifestyle or, alternatively, fit your actual reality. Too often, young founders and entrepreneurs are drawn to the “shiny object” when it comes to mentors, like the person with the eight-figure exit or the social media juggernaut with millions of followers. In reality, the best mentor is the mentor who lives the life that is attainable. If you have two kids and a mortgage, a single, 45-year-old billionaire is most likely not your best mentor. However, how about the person with a significant other and three kids? The odds are strong that they will have some insights that go well beyond balance sheets. We are all on divergent paths, so choose the proper guide. – Ryan Bradley, White River Consulting, LLC

3. Express Genuine Curiosity

When approaching an entrepreneur for mentorship, it’s essential to express genuine curiosity about their experiences and insights, rather than just seeking them out for their status or connections. Begin by sharing your passion, the challenges you face and your eagerness to learn, framing the potential mentorship as a collaborative journey. Remember, a sincere and humble request, grounded in a desire for growth, often resonates deeply because many accomplished individuals remember a time when they too were seeking guidance and direction. – Javon Frazier, Maestro Media

4. Make It A No-Brainer For Them To Help You

Don’t lead with, “Will you be my mentor?” Instead, start by offering value first. Maybe it’s assisting with a specific project they’re working on, sharing a relevant insight or piece of research or even sending them an online article you think might benefit them. The key is to be genuine and show that you’ve done your homework about their interests and challenges. Successful entrepreneurs are swamped with requests and have limited time. By leading with value and showcasing your dedication, you’ll stand out to them. – Chase Williams, Market My Market

5. Be Clear About What You Hope To Gain

It’s important for young people seeking mentorship from entrepreneurs to be clear and specific. This approach is crucial because entrepreneurs are typically busy individuals with hectic schedules. By being specific about their goals and what they hope to learn or achieve, young people can demonstrate that they respect the entrepreneur’s time and are serious about mentorship. Additionally, it shows that they have carefully considered how the guidance of their mentor can benefit their career. – Chimezie Emewulu, Seamfix Limited

6. Avoid Forcing A Connection

A mentor is someone whom you click with and has the experience to offer you good advice and moral support. Let the relationship form organically. Someone becoming your mentor doesn’t have to be a formalized process. For example, instead of saying, “Would you be my mentor?”, instead say, “Would you mind if I gave you a call from time to time for advice?” This takes all the pressure off you—and them. And remember, a mentor should get as much, if not more, out of the relationship than you do. Many times, a person becomes your mentor without either of you even realizing they’ve become your mentor. The important thing isn’t the label, but the role they play in your life! – Bill Mulholland, ARC Relocation

7. Listen And Absorb

The two ultimate actions young professionals of today must take are to listen like a student and absorb like a sponge. These steps are so critical to grow as a human being and as a professional entrepreneur. When mentors or successful moguls see these two actions, it reminds them of themselves when they needed support, and will make them want to volunteer to help you because you’ve shown a solid foundation and that you are serious. Create the perfect environment, and you will be surprised by how many successful moguls of today will try to mentor you because they started the same way as you. The difference is, they didn’t stop until they won. – Doval Bacall, Bacall Companies

8. Focus On Mutual Value

Highlight how their guidance aligns with your career goals and articulate what unique skills or perspectives you can bring to the relationship. This approach emphasizes a reciprocal exchange of knowledge, making it more appealing for the entrepreneur to invest their time. By showcasing a clear and purposeful vision for the mentorship, you demonstrate commitment and increase the likelihood of establishing a meaningful and productive partnership. – Alfredo Atanacio, Uassist.ME

9. Ask Them Who Else Might Be Able To Help

The best question that you can ask is, “Who do you know that can help me?” When you ask this question, the professional, networking event attendee or cold contact can think about other folks in their network whom they may want to connect you with. I found this extremely useful when building my network for the first time. I went to all sorts of meetups and demo days, and heavily tapped the university’s free resources. Remember, you don’t need just one mentor—you can have a “brain trust” of mentors whom you go to for specific issues. A truly great mentor will understand where the limits of their ability to help are and connect you with those who can fill in the gaps. – Kaitlyn Witman, Rainfactory

10. Respect Their Boundaries And Time

Entrepreneurs are renowned for their hustle and are generally very busy. So, it’s important that you respect their boundaries and refrain from being overly persistent with your demands. Reach out to them in a respectful way and give them time to get back to you. Most entrepreneurs are humble individuals, so they will try their best to get back to you at their earliest convenience—just don’t flood their inboxes with unending follow-ups. Even if they are unable to commit to being your mentor, accept their response gracefully and carry on with your pursuit. This attitude will help you grow your connections and eventually find the mentor you’ve been looking for. – Stephanie Wells, Formidable Forms

Ashley:
This is Real Estate Rookie episode 321.

Andrea:
Still trying to learn all these terms, BRRRR, FIRE, financial free, all these things, terms. But I feel like with this condo that we bought in 2019, it was a two bedroom, two bath. We bought it and it needed a full paint job, which we DIY’d, then we rented it out. Fast-forward four years later, we ended up actually selling that and 1031’d it into our biggest short-term property that we had. But in between there, we also did a cash-out refi on it because we increased the value with the BRRRR. Pulled some cash out and we bought another property with that.

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

Tony:
And welcome to the Real Estate Rookie podcast where every week, twice a week, we bring you the inspiration, motivation and stories you need to hear to kickstart your investing journey. Today, we’ve got a dynamic husband and wife duo, Joe and Andrea DelGrosso, and I really enjoyed chatting with them. We’ve had a few husband and wife duos on the podcast before, and just like the others, I think they’ve just brought a ton of value.

Tony:
There’s one point where we’re going over the numbers for their deal and they invested $29,000 into one of their initial investments. And we did all the math live on the podcast, and their minds were blown when they realized how much they had turned that $29,000 into, and I’ll give you a small hint that it’s over seven figures. So really cool episode. They talk a lot about light bulb moments they had on their journey and they talked a little bit about how to get your spouse on board, which is a big question we always hear. So love talking to Joe and Andrea. What about you, Ash?

Ashley:
They also share their mindset shift moment as to how they started their journey and then how they pivoted to something that they thought would suit what their needs were and what they wanted out of their life. So really interesting to hear how they went through that shift. And then also talking about the short-term rental management stack of what are the pieces of software that they use to run their short-term rentals. And they talk about how they’re able to do a lot of that stuff remotely and also how it’s become more passive. It’s still very, very active strategy, but being able to use some of these software stacks and setting up different things within them has really helped them. So if you have short-term rentals, you want short-term rentals and you’re going to be managing them, this is definitely the podcast for you to listen to.

Tony:
Yeah. And ultimately, Joe and Andrea were able to achieve financial freedom and go full-time into the real estate business with a relatively small number of properties. So if you’re looking for that framework, this is the episode for you.

Tony:
But I just want to share some boring banter, Ash, and some life updates. She’ll be 34 weeks this Thursday, so we’re getting pretty close to crunch time but actually, so Sarah and I, we’ve been dating since we were seniors in high school so we’ve been together for a long time, but we got married in our late 20s. And I come downstairs on Sunday morning, she woke up before me, and she’s got the living room filled with balloons and there’s a bunch of our engagement photos and the day I proposed to her and our wedding photos, and it said, “Happy 1,000 days of being married together.” And it was just such a special thing, and Sarah has always been so good at being creative. Never in a million years would I have thought to celebrate a thousand days of marriage, but she’s a special person like that. So I just got to give a shout out to my wife here who’s eight months pregnant, still doing her best to make other people feel special.

Ashley:
So thoughtful. That’s really what she is and how she does that. And I had seen the pictures you posted on Instagram. Love it and stuff. So yeah, that was really, really sweet of her.

Tony:
Cool. Any boring banter on your side, Ash?

Ashley:
Well, I went to the lake this weekend, and I did a morning week surf session and I faceplanted pretty good. Once someone started videotaping me, I smiled like, oh, I’m so cool, and then faceplant, but actually turned it into a reel on my Instagram. So if you want to go check out the video of me faceplanting and turned it into how you should be joining me in the Real Estate Rookie Bootcamp and you’ll faceplant on your real estate deal if you don’t, but if you want to check that out, you can go to biggerpockets.com/bootcamps.

Tony:
We’re such influencers now. Everything that happens in our life gets turned into social content. Before we get into the conversation with Joe and Andrea, I want to give a quick shout out to someone by the username of Sherry J68. Sherry left us a five-star review on Apple Podcasts. She says, “I love Ashley and Tony. I listen on my long drive to work on Thursdays and look forward to the real estate lessons from their guests. I’m a nurse practitioner and new to real estate, but I took the advice of some of the podcast guests and found myself a mentor, a JV partner and met lots of new people at the local Rookie Meetups and I’m ready to find my first flip. I have my team together and I’ve been writing letters to target populations and feel like I’m almost there. My goal is to do some flips to fund my rentals and keep scaling. I’m so excited to start this new career and I love it. Thank you so much for all the free education. I learn something new in every episode.”

Tony:
Guys, that is why we do the Real Estate Rookie podcast. It’s for stories just like that. So if you haven’t yet, please do. It only takes a few minutes, a few moments of your busy day, but leave us an honest rating and review on whatever podcast platform it is you’re listening to because the more reviews we get, the more folks we can reach, and the more folks that hear this message, the more folks we can inspire to change their lives. So do us that favor. Do someone else a favor and pay it forward,

Ashley:
And congratulations to the person who wrote that review because they took action. It’s easy to listen. The first step is listening to the podcast, but really that second step of actually taking action. So thank you so much for sharing that win with us that you’ve built your team out. That’s really incredible.

Ashley:
So for today’s social media shout out, I want to give a shout out to Lauren.Mattina, so L-A-U-R-E-N dot M-A-T-T-I-N-A, on Instagram. And Lauren is a science teacher and real estate investor, and she’s sharing her journey on social media. So go check out her Instagram page and give her support.

Tony:
Joe and Andrea, thank you so much for coming on the Real Estate Rookie podcast. We are excited to have you both. If you guys can, just tell us a little bit about your backstory and how you got started in real estate investing.

Joe:
Yeah. So I’m originally from Boston. I worked in television so I moved all around. I went out to California for a little bit, and then in 2012, I moved to Knoxville, Tennessee where Andrea and I met at a company we were both working at in television. And then, yeah, I don’t know, I guess we started our story together and started dating and we got married in 2015 and going through life and eventually, we started our real estate journey in 2016, buying a single family rental. And then today, that has now jumped to, we have six long-term rentals and four short-term rentals.

Ashley:
Well, congratulations on that.

Andrea:
Thank you.

Joe:
Yeah, that’s like the 30,000-foot view.

Ashley:
Yeah. So what was that initial moment where you were like, we’re going to buy that single family house? Walk us through those initial conversations. Was there one thing that happened where you were like, I want to do this?

Joe:
Yeah. So I would say in 2016, we were a year in married and we started to make some money from our jobs. We were working really hard. We were both doing 60, 70-hour weeks just grinding. And really what was happening in my industry with TV, streaming started to have a really big impact, and that was just throwing a lot of different curve balls in the industry. We were working crazy hours, and there was just such a grind factor there that we just started asking the question … I don’t know, we just really sat down. I didn’t want to be the 55-year-old, 60-year-old TV producer if I could even make it that far. There is a lot of you get pushed out at a certain age. Andrea was working at some different companies there, and she was working crazy hours as an accountant, and there was just a burnout factor. We were like, I don’t know, is this life? Are we going to be doing this until we’re 65?

Joe:
We just started asking that question, what else? And that’s really when I thought back to how I grew up, and I was one of three sons. My parents, they were teachers, so they weren’t making a lot of money, but one thing they had, they had two or three rental properties and they were really able to give us this great life on a teacher’s salary because they were able to access equity in the properties and they sold some and then bought some. There was always that presence of real estate in the background that I saw growing up. So when the time came for us to be like, we need to add some security to our lives, that was the natural step forward there, was looking into real estate. And I bought the Stock Market for Dummies book, and I literally did not understand it so I was like, we got to do something else.

Ashley:
No day trading.

Joe:
No day trading. I literally have no idea how that works. So no, the real estate, growing up around it, it just was that natural thing for us to ask, how could we get involved in it?

Tony:
I want to circle back to something that you just said, Joe, because I think there’s a lot to unpack there, and I don’t even think you realized this, but you said that you wanted to add some security to your life and your answer to that additional security was investing in real estate. But there are so many people who look at real estate investing as risky, and they’re afraid to put money into this business because they might lose it all, or they’re afraid to go out and get debt because Dave Ramsey says you shouldn’t do that, or they’re afraid to just do all the things that go into being an entrepreneur and building your own real estate business. How are you able to frame going into entrepreneurship as the less risky path?

Joe:
Really, the real estate stuff, it’s not harder than your W2 job. I’ll say that. Everyone thinks it’s this big foreign thing and it’s a different language and all that. It is not trigonometry. It is not Algebra 10. It’s easy to understand. You just got to take that first step. And it just gives such a great piece of security. It’s not like this sexy, crypto risky thing there. There’s a reason why what 90% of billionaires and millionaires in the country own real estate. It’s an asset class that is so forgiving as an investment. You can trip up and make a mistake, and there’s always just time, I feel like, to make it right. We’re definitely not perfect. We’ve made some mistakes, but what I love about this asset class is you can make a mistake and whatnot. You cannot be perfect and you can still do well in it, and it pays you in multiple ways too. All those other investment avenues I feel like didn’t have the different contributions that real estate does.

Ashley:
Andrea, what about you? Do you have any background in real estate at all or was there anything that you found that give you an advantage and what you brought to the table in your partnership?

Andrea:
I had absolutely no experience, no exposure. I came from, I don’t want to say came from nothing. It was a harder childhood. We’ll just say that, and lost my dad young. We had to go bankrupt. And my mom, growing up, I thought if I could make $40,000 a year, I’ve made it because that’s just what our exposure was. So when it came around to real estate, I just rode his coattail on it. He was the one educating. He was the one listening to the podcast. I was completely clueless. I was like, I can keep our books. I can do the bookkeeping. So I had QuickBooks experience. So I felt good about that. I felt good about the DIY side of properties and making sure that they’re taken care of and they look good and people feel at home when they walk in. But real estate business as that industry, completely clueless and was flying blind with him, letting him lead.

Joe:
There was some hard conversations at the beginning and, yeah, no, we worked through it.

Ashley:
I think that you just said two things right there. You made it a point to say I had no real estate business background, but you brought two things to the table. You brought your accounting background, doing bookkeeping, and then you said you did the DIY stuff. You had the eye for that. That is a big thing. I love design and I love rooms. I cannot put a room together to save my life. I love it, but I can’t do it. Other people can do it way better, more efficient than me. Those things may seem like mediocre things, but having somebody take care of your books, Tony and I hate bookkeeping. Somebody coming on board to partner with us to say, “We’ll do all the bookkeeping. We have experience. You don’t have to worry about it,” anything like that, that would have been a huge attribute to our business.

Ashley:
So I think the point is not to limit yourself as to what you’re bringing to the table because all of these skillsets help and they actually can really create this great business, and that is part of the business. Even though you might think, well, I’m not a real estate agent or I’m not doing remodels or something like that or I haven’t had an investment property, all these other skillsets add to the pile.

Joe:
I was just going to touch on those beginning conversations. They were hard in the sense of like, hey, I think we should do real estate investing. I think this will give us the security we’re looking for. And at the time, I think there’s that give and pull of we are saving like crazy. We were really big savers and whatnot. And she’s like, “Hey, you know what? We should use this money to renovate our bathroom or do the floors.” Where I give Andrea credit is she put those wants on hold and it was like, all right, if you think this is the right journey, let’s take the first step.

Tony:
It’s so funny. Me and Ashley talk about this all the time, but my Airbnbs, the flips that we do, they’re all much nicer than my primary residence. We had paper shades. We had fake blinds, the paper shades at our primary residence for two years because all the extra money that we have, we’re putting back into the business. I think it’s a willing sacrifice or maybe not a willing sacrifice, but it’s a sacrifice you have to make if you want to invest into your business.

Tony:
So just going back to the beginning here. So first, you guys have scaled relatively well. You’ve got 10 properties over the course of seven years. It’s more than one property every year since that timeframe. But I want to go back to that first deal. So when you guys made that decision to become real estate investors back in 2016, I’m assuming you guys, based on your DIY background, and Joe, with your dad’s experience, you guys probably knew a lot about investing at that point. Is that a fair assumption or were you guys flying by the seat of your pants? You’re both shaking your heads, no.

Tony:
So Joe, maybe let’s start with you. Why did your experience with your dad or his lessons make it easier for you that first go round?

Joe:
I feel like being around it, my dad’s properties and my mom and dad’s properties, made it easier for me to get into it, but I had no idea what we were doing. I didn’t know how to renovate anything. I didn’t know how to really assess the rent. We didn’t even have separate bank accounts for the property.

Andrea:
We didn’t know it could be a business.

Joe:
We had no idea.

Andrea:
We just were parking that first one to park some money and build some equity and have a tenant pay down our mortgage. We didn’t realize we could make this a livelihood and we can build it into the business that it is today. That took about three years before we had that moment.

Joe:
Yeah. And I think whenever you get really first into real estate, you try to find your lane. It’s like, all right, I thought I was going to love the renovation stuff. I touched a floor and I was like, “No, I’m done. No, I don’t want to do this.” You try to find your lane, and then meanwhile, I feel like we didn’t even really know your DIY skills until that first property and your love of it. All of a sudden, you’re tearing down walls and kitchens and bathrooms and closets and it’s like, I didn’t know you could do that. So yeah, you fall in love with the different lanes.

Ashley:
So let’s start with that first property. It was a single family home. Tell us about it. What was your investing strategy for that? Was it short term, long term? And give us a little backstory to that and then maybe what you went on to next after that.

Joe:
Yeah. So it was a single family condo. It was 150,000. So we just did a 20% down investment loan, pretty straightforward. The money for the down payment just came from us saving like crazy, and we just use it as a long-term rental, funny enough. So that was in 2016. The tenants, our first tenants are still there, which is just wild. That’s seven years later, they’re still going. So it was just a long-term rental, just plain and simple. We probably should have charged more rent at the time than what the mortgage was. We didn’t know.

Ashley:
Okay. So with that property, do you continue on and do long-term rentals?

Joe:
Yeah. So 2016, we bought the first one. And then 2017, we didn’t buy any. We were going through different things financially where, in the TV industry, where we didn’t feel comfortable buying in 2017 or we weren’t able to really. And then 2018 and 2019 is where we bought two more single family long-term rentals. Again, it was just all savings and just grinding and saving every penny we can. Anytime we got a raise or a bonus, we acted like we didn’t. We would take any additional money and just put it into an account to invest, and that I feel like was just a lot of delayed gratification for a young couple in their early 30s. We wanted to buy a boat. We didn’t. 2019 is when we took a big direction or a mindset shift, but those first three years, we bought three properties.

Ashley:
That mindset shift, t us about that.

Tony:
Yeah, because I’m curious. At what point did you guys make the transition from, hey, we’re just dumping money or parking money into this to get appreciation to it actually being a business?

Andrea:
So I’m going to answer that one. He had a job and was running the roads a lot. He was just driving a lot. And he started … The writing was on the wall. We became parents. We had twins in 2019, and it was like, all right, that aha moment. We don’t want to be in the W2 full-time. We realized we already had, what did we have at that point, three or four long-terms?

Joe:
Three.

Andrea:
Three. So then he had discovered BiggerPockets and podcast. This boy, who did not like school education, read 20 real estate books in one year. He would get up at … yes, work in his full-time job, new dad of twins, and he really just took that shift. And he’d come home and our pillow talk at night became what book he had read through that week or whatever. And he was really passionate and really on fire with it.

Andrea:
And so from that, then he started pushing me. He’d send me these podcasts. I’m like, what is a podcast? And he introduced me to Investor Girl Britt, which I fangirled out about all her stuff. I wanted to be her. And so that I feel like was the big shift, was when he consumed all the education, consumed all the information that he could, and then shifted it to me to be like, “Hey, you have an interest in this. Listen to this girl.” And that’s when we bought one of the biggest shifting condos that we’d like to talk about because it was such a game changer for us in so many different real estate points that it hit.

Tony:
Andrea, I got to pause on something that you said because one of the questions that Ashley and I get all the time is how do I get my spouse on board with real estate investing, and what you just described of Joe, Andrea, is the formula that spouses should try and follow. You didn’t say that he came to you one day and said, “Hey, I want to take our life savings and invest it into this hair-brained scheme I heard on this podcast.” You said you saw this guy, who didn’t like traditional education, read 20 books in one year, listen to every single podcast he could get his hands on and would share with you all this information. That is how you get your spouse on board. You show them how committed you are with your action, and that’s what gets them to buy into this idea. So Joe goes on this journey. He gets you drinking the Kool-Aid a little bit. And then you said you stumbled upon this condo. So what’s the story behind the condo, Andrea?

Andrea:
So we bought it in 2019, and again, we’re still trying to learn all these terms, BRRRR, FIRE, financial free, all these things, terms, HELOCs and cost segregate, all these real estate terminologies that we were clueless on. But I feel like with this condo that we bought in 2019, it was a two bedroom, two bath, great part of West Knoxville. We bought it and it needed a full paint job, which we DIY’d. And that’s when he would literally push play on a podcast and then he’d leave while I was painting, and he’d come in, bring lunch and all the things. It was pretty cute.

Joe:
It sounds so evil now, but I remember her being in the upstairs bedroom and she was painting and working on the bathroom, and I literally would hit play and walk out, and I’m like, yes.

Andrea:
It was awesome though. It fired me up to hear other stories. We listened to you all’s podcast. I heard other couples that were successful in this, and it really got my brain going while I was … My hands were busy. I was painting.

Andrea:
From there, we also redid the kitchen. So we essentially did a BRRRR on this condo. We painted the kitchen cabinets ourselves at home after our babies were asleep and after we worked our full-time job for the day. We had a contractor hire out. We redid the backsplash. We knocked down some cabinet. We just did some work. We hired some and we DIY’d some. Then we rented it out. And let’s see, fast-forward to, was it this year we sold it?

Joe:
Yeah. Sold it. Yeah.

Andrea:
Fast-forward four years later, we ended up actually selling that and 1031’d it into our biggest short-term property that we had. But in between there, we also did a cash-out refi on it because we increased the value with the BRRRR, pulled some cash-out and we bought another property with that. So that property taught us so much that we learned about in books, we heard about on podcasts, but until you get in and do it, that’s when we really had our real estate university. Right?

Tony:
Ash, can we just break down all the different ways they just made money off of this one deal? So this is the amazing power of real estate investing. So you guys buy the condo, put in some sweat equity, you rent it out for several years so you’re getting loan pay down, appreciation and cashflow during the time that you’re renting it out. You said you did a cash-out refinance at least at one point after you finished the initial rehab, took that cash, dumped it into another property, held it for several more years, got more cashflow, and then 1031’d that into another larger property. So you got paid four or five different ways off of one condo that cost, you said the purchase price was $150,000?

Joe:
No, it was 129,000. Our down payment.

Andrea:
129,000.

Joe:
Our all in on the deal was like 20,000 or something, not even.

Andrea:
Yeah. That’s just the power of real estate that once you can see, it’s mind-blowing.

Tony:
So $29,000 is your down payment. What’s the value today of those two properties that you purchased, the first one from the refinance and the second one from the 1031 exchange?

Joe:
Gosh. So that was Antler and that was Powdermill, so 1.5.

Andrea:
Yeah.

Tony:
No freaking way.

Joe:
Yeah, they’re both cabins. So the cash-out refi was to buy our short-term rental in Blue Ridge, and then the 1031 sale was to buy another cabin in Sevierville.

Tony:
So $29,000.

Joe:
Yeah. I’ve never really put it that way.

Andrea:
I was trying to quickly calculate those numbers before and I’m like, “Am I looking at this right?” Okay.

Joe:
Well, one way we were looking at it was like some of our long-term rentals are like, we’re going to have those for forever because they’re great quality and they attract great tenants. But this one, we knew was like our beat up property. We’re like, we’re going to flip this thing. We’ll renovate this thing and really just make the most out of it so we can level up. And that was this one.

Andrea:
We top leveled.

Joe:
Yeah. Top leveling, as they say.

Tony:
So we threw around the phrase 1031. So Joe, Andrea, whichever of you, if you wouldn’t mind, just define what a 1031 is and why you guys use that strategy.

Andrea:
So a 1031 is when you take the proceeds from … Essentially if you sell an investment property, Uncle Sam is going to want a piece of your gain, so you have to pay capital gain taxes. A way to avoid that is this 1031 exchange. You basically hire a third party. It’s specific 1031 handlers. I don’t know what their official title is, but-

Joe:
Intermediary.

Andrea:
Intermediary. There you go. So you get the proceeds from property A if you sell it, and they hold all of it. We never saw a penny of the gain from the sale of Bellbrook. They held it. You have a certain amount of days to identify one of three properties that you’re going to buy. You have a certain amount of days then to close on one of three properties. And then once you do, that 1031 intermediary then sends a check to the closing company for your new property. So essentially, it just sideswipes your taxes and it just goes from one to the other. Now those gains are now sitting on this new property that we have. So if we were to just ever sell it, then we have to pay the gains on that, but we can deal with that then, or 1031 into another property. But it’s essentially a tax saving.

Tony:
They call it swap until you drop. So basically, you just keep 1031-ing until the next property, until the day that you die. And I don’t really know what happens after you die. I don’t know if those taxes get passed onto your estate or how that works, but basically, for the entire time that you’re alive, it doesn’t. Oh, see, yeah,

Andrea:
I listened to a podcast on that actually.

Joe:
Defer until you die.

Andrea:
Defer, defer, defer to death is what it was called or something.

Ashley:
What was your biggest lesson learned from doing that and why do you think somebody should look into doing a 1031 exchange?

Joe:
I think we had a little bit of imposter syndrome. We were such linear, very safe, play it safe investors, buy, rent it out, don’t get crazy. We don’t like risk and whatnot. I think really the lesson we’d like to share is there’s just so many creative ways that you can expand your portfolio by accessing the equity in there. And really, that was just huge for us. And just thinking outside that box, no, we don’t have to just play it safe, rent it out and call it a day. It’s like we can access the equity in there to really just blow up our portfolio because up until that point, it was save, save, buy, empty out the account, save, save, save, buy, empty out the account. But since 2019, we have not used a penny of our personal savings to buy a property. It’s all accessing the equity that we’ve created.

Tony:
So I want to ask something, and it ties back to what we talked about earlier, but you said that you went into this with no real understanding of what a real estate business was. You were just flying by the seat of your pants. You have this aha moment in 2019 where you go on this learning binge to learn all things about real estate business. But then, was that the aha moment or the light bulb that went off to transition from long term to short term? Or what was the motivation to ditch the long-term rental space? It sounds like your last several purchases were all short term, correct?

Andrea:
Mm-hmm.

Joe:
Yeah.

Andrea:
Yeah.

Tony:
Yeah, I guess just walk me through the motivation for the change.

Joe:
So I think our plan up until 2019 was like, hey, we were in our mid 30s, we’re going to buy 10 long-term rentals, pay them off and retire in our mid to late 40s. I think that was our plan, nice and safe and whatnot. But then as we got older and our kids were growing up and we had another baby on the way, even before that, I guess, we were like, how can we speed this up? We don’t want to wait another 10, 15 years to get financial freedom. We want to go faster. And that’s when we discovered short-term rentals and the cash cashflow that that offers. It’s three, four times more than what the long-term rentals are. So we’re like this, instead of waiting 10, 15 years, we can speed this up in two, three years.

Andrea:
Thank you, Avery Carl.

Joe:
Yeah, the Avery Carl podcast. I know that was big for a lot of people when she did that original BiggerPockets one, but that played a huge part in it.

Ashley:
So with your short-term rentals, tell us, what is one thing that you would give or tell, I guess, as advice to a rookie investor as to what they should be looking for? So what was part of, when you decided to make that transition, what were maybe some of your criteria or your buy box of this is what we want to do?

Andrea:
In short terms?

Ashley:
Yeah, short terms.

Joe:
I think for us, we’re both very particular about what we want and how we manage our stuff. So I think for us, it had to be within drivable distance to us because we wanted to be hands-on and involved. So then we just literally took a map, drew a big circle, and it’s like, all right, we want to be in the southeast, drivable distance from Knoxville. What drove me crazy was we were doing all this stuff and investing in Knoxville right down the street from Sevierville, and we had no idea that that was becoming the mecca of short-term rentals. And we were like, oh man, we missed the boat.

Joe:
I think we’re attracted to vacation markets. I know some people like to go into the metro markets, but we like the vacation market so we’re in Sevierville, Blue Ridge, Georgia, and then Panama City Beach, Florida. So that was a big thing, being able to drive there ourselves and also me being at a property that we want to stay there with our family. We wanted it to be relatable in that way.

Tony:
And I just want to go back because you mentioned about how can we shorten the time to achieve financial independence and doing it with the least number of properties possible. And we had a coach, Chad Carson, on episode 306 of the Rookie Podcast. He just recently released his book, The Small But Mighty Investor, and it just ties into the whole mindset that you guys just displayed or talked about of how can we do this without having thousands of units or doors that we have to manage ourselves?

Joe:
Yeah, that’s our whole thing. We pride ourselves on being small and mighty investors. We don’t want 500, 2,000 units. We love the people that do that because they’re really inspirational. I love those podcasts and I love listening to those folks talk, but that’s not in line with what our why is. We don’t want to create another job for ourselves like that. I love the small and mighty approach, and I think that’s what we keep to today.

Tony:
So one of the things that Chad talks about is … And we also recently had Mike Michalowicz on the podcast as well. I’ll try and see if I can look up his podcast episode. But I think a lot of being able to scale your portfolio without it dominating your life is being able to set up the right systems and processes to be able to hopefully offload some of that management tasks with someone else. So as you guys have scaled up … because six short-term rentals for long term is not something to sneeze at. There’s some management that goes into that. So how are you guys currently optimizing your own portfolio so that you can do it with the least amount of time possible?

Andrea:
Sure. So for our short-terms, we run Hospitable, which Joe is the brains behind that. He’s automated all the messages. He’s learned and studied and done all those things. We have recently, very recently, within the last two months, outsourced a bookkeeper because it just got out of hand. So that way, I can be able to … I’ve shifted my focus to a direct booking site and trying to do our social media to drive traffic there, but we also, just all the tools that we can use to make anything easier. I’ve discovered ChatGPT which helps us quickly write descriptions for social media or our Airbnb posts, it makes us sound really good.

Andrea:
What are our other tools? Google Drive is another huge one that it’s simple, it’s easy, it’s free, but it keeps us organized. We have a simple spreadsheet out there that me and him access and it’s literally any password or just background with all of the properties. And what other tools do we use?

Joe:
For the long-term rentals, they run themselves. It’s crazy to say, but we bought them right, and we bought them, they’re B class properties. The tenants that are there, we probably hear from them once or twice a year. The six long-term rentals run themselves and it’s great. But yeah, for the short-term rentals, it’s exciting, it’s fun. We do a whole tech stack. It’s Hospitable for property management software that’s messaging with the guests, which is just fantastic because that’s a lot.

Joe:
We have a dynamic pricing tool, PriceLabs, that sets all the pricing so we don’t have to go in there. We got Turo-

Andrea:
Turno.

Joe:
… Turno that connects with our cleaners. There’s so many cool automation tools where these four B&Bs that are just running full steam, we probably have a mandatory five hours a week that we have to be involved. The rest of the time, it’s just running itself on these automations, which is great.

Ashley:
I really hope that everyone listening just wrote down that stack, that tech stack as even just a starting point as to like, okay, here’s some resources I should look into. And even if it’s not that specific brand but something that does something similar. Tony, do you want to share your tech stack real quick for short-term rentals?

Tony:
Yeah, sure. Ours is pretty similar, honestly. So we use Hospitable as our PMS. We use PriceLabs as our dynamic pricing tool. We use Hostfully for our digital guidebook. And we use Breezeway for our property operations software. Breezeway is similar to Turno, but we like Breezeway a little bit more. There’s a little bit more functionality to it. And then we use Slack to message with our virtual assistants and keep the whole team in line. Those five things are the baseline for our software stack.

Ashley:
And when Tony says PMS, he means property management software, just to be clear.

Joe:
Yes. Be careful when you’re yelling about PMS in public. Yes. Yeah, no, it’s pretty funny. Hospitable, it’s funny to see guests interacting with the automated messaging. I’m like, this is great. I remember that first week. I’m like, this is amazing. I could have never been a B&B host or a short-term rental host four or five years ago when this stuff wasn’t around. I would have been terrible. I would have been like, “What do you want?”

Andrea:
Turno has been the game changer for me because I’m the one that manages the boots on the ground. Team members in Turno, we’re not having to send them, “Hey, here’s our check-in and check-outs.” Turno does all of that. It communicates and pings the cleaner and they can send us pictures and text us about supplies that were out. So I’m very thankful for Turno.

Tony:
So Joe, Andrea, are you guys ready for today’s rookie request line?

Joe:
Yeah, let’s do it.

Tony:
All right. And for our rookies that are listening, if you guys want to get your questions featured on today’s podcast, head over to biggerpockets.com/reply and we just might use your question for today’s episode. All right. So today’s question comes from Allie Snyder Dattilio. And Allie’s question is, “For those in business with your spouse, do you typically put both of you on mortgages for your investment properties or just one at a time to be able to max out the number of loans? Trying to get a gauge for how much we could qualify for individually, but how was the DTI calculated if we split the mortgage on our primary residence? Are we each responsible for 50% of that debt?” So Joe, Andrea, I guess what has been your strategy for managing the loans and mortgages for your investment portfolio?

Joe:
So for us, it’s been both of our names on all of the properties. Now I know a lot of people are like, hey, split that up so you can get more of the traditional loans because you’re only granted 10. But we use both of our names for multiple reasons, just from a closing standpoint and being able to get the properties we wanted. As we were always leveling up and buying more expensive properties, we needed both of our incomes on the statement. So that really, we use both of our names really on all of them.

Tony:
Just from my own perspective, I think the goal probably should be to put the least amount of people on the mortgage as possible. If you’re in a position to qualify with one person, it allows you to free up more debt for the next person because yeah, even if both of your names were on the mortgage, technically you’re both tied to that entire debt. So it is easier sometimes to continue to scale if you can split it up that way. Ash, what are your thoughts?

Ashley:
Yeah. That’s what I was just going to say, is even a lot of times they still look at it as, okay, if you have a $1,500 payment and you’re both on the mortgage, they’re not going to split it in half and say, oh, we’re only going to calculate your debt to income. For me at least, they’ve always done it the full amount because you are responsible because if somebody else, that other person isn’t paying it, you still have to pay that full amount, the 1,500. It’s not like you pay your half then they pay their half. So to answer Allie’s question, I would say that it will fully affect your debt to income, and I think that’s an advantage if you can, is to go into one person on one loan, the other person on another loan, something like that too, if you’re able to do that.

Joe:
Yeah, if you can do it, definitely do. Just split it up.

Ashley:
Yeah, when I first started, I pretty much had my husband as a co-signer with me because I barely made any money and he made the money and that was like … So first couple of rental properties that I did on my own is we both went onto them and did the properties together as, I guess, technically a co-signer or whatever, but he was actually on the deed of the property, and that was how I was able to get my first couple of investment loans without using a partner.

Andrea:
I think looking back, if we could go back in time, I would have had him on our first five solo, but then as I grew in my career, I was making more, then we could have transferred. But if we could advise anybody, yes, to your point, split it up.

Ashley:
Yeah. If you can, if you have the income and the low debt and you can get approved by yourself, and that’s such a great tip right there, is try by yourself first and then if they say no, that’s not going to work, then bring in your partner or your significant other or whatever and then bring them on and say, “Well, now, what if we both go onto the property?”

Ashley:
And one thing too with residential is you’ll have to make sure that both people are on the deed. So you can’t have a co-signer if you were getting an apartment or if you were getting a car loan or something, you can have a co-signer who will be liable for it but they’re not actually titled to the property or to the assets such as the car or something like that. They don’t have rights to the actual rental property the person is leasing. So that’s a big thing too, is that if you are going to partner with someone and you’re both going to go on it, then you both go onto the deed too.

Tony:
All right. Well, let’s jump down to the rookie exam. So Joe, Andrea, these are the three most important questions you’ll ever be asked in your life. So Andrea, we’re actually going to start with you. Question number one, what’s one actionable thing a rookie should do after listening to your episode?

Joe:
Really, I think our biggest thing has always just been perspective and writing down what we want. You can’t start a race without understanding where the finish line is, and I think that is super important. Once we really sat down and got intentional with it like, hey, we don’t want to do the traditional path of 65, all that stuff, and we wrote it down. So having that perspective, but then really keeping it as an active perspective. Don’t just sit down once with your wife at the end of the night and write all this down. If you could see my office right now, it’s whiteboards everywhere, and all of our goals are whys, everything, and I see it every day and it’s that active perspective that just helps me remember when I’m in the fishbowl of day to day, this is why we’re doing this.

Ashley:
What is one tool, software app or system in your business that you use? So Joe, you did give us a breakdown, but maybe besides the short-term rentals, is there something else that you use maybe for the long-term rentals?

Joe:
Our hub is Google Drive really. We could not live without that because that’s where everything is shared. We traveled one time, I think early on, and I literally, and I was like, if something happens to us, no one will know where all our information is and our loan information, our contractors, everything. We put everything now on a Google Drive and I think we sent it to my mom before we travel. I was like, if anything happens to us, here, take this. But no, Google Drive is our biggest tool for our long-term rentals. It’s a small portfolio. It’s manageable in that way and yeah, we love that.

Ashley:
What are some of the things that you’re using to manage though? Is it like a Google Sheets or something like that to keep track and how are tenants paying? Is it a check and are you using QuickBooks? You want to give us the glimpse into how you’re self-managing that long-term rental?

Andrea:
Yeah. We use Venmo, so they pay us every month on Venmo, and it’s just six tenants at this point, so it’s pretty easy to realize if someone hasn’t paid. But everything for us is pretty manual on the long-term side because we just set it and forget it kind of thing. They pay us on Venmo and …

Joe:
Yeah, I think as now we’re scaling down the buying, we’re pausing the acquisition side and really focusing on optimizing. I think one thing we want to do is we can incorporate some of the software for the long-term rentals, like a Rent Ready and whatnot that does a lot of that and keeps it a little bit more organized and a little bit cleaner.

Andrea:
DocuSign.

Joe:
Yeah. Rent Ready I think has features like that. So I think that’s something where as we now, we’ve hit financial freedom, we’ve crossed that finish line, we’re like, “All right. Now let’s focus on optimizing some of these things now that we’ve finished a little bit of that race.”

Tony:
All right. Last question. Where do you plan on being five years from now?

Joe:
Five years from now? Right now, I would love to … We recently just paid off one of our first properties, which was huge for us, and it was just such a great feeling. In five years, I want to have a few of the properties paid off. We’ve now recently got into co-hosting, which has been great for us. A lot of people have followed our journey on Instagram and have reached out and DM’d us about hosting their properties. So that’s something we’re really excited to just dive into and take on. So in five years, I’d love to have a boutique co-hosting business, a few more properties paid off and just enjoying our small and mighty portfolio.

Andrea:
And the time freedom with our kids.

Joe:
Yeah. Time freedom has been great. Just even recently, we just took the summer off and I’ve just been hanging out with the kids and just more and more of that.

Ashley:
That’s awesome. How old are your kids now?

Andrea:
The twins are four, and the baby boy is 15 months.

Ashley:
Oh. So yeah, in five years, you’ll have a lot more time freedom. They’ll be a perfect age to go out and do things and travel and everything like that. That’s awesome. That’s exciting.

Andrea:
Yeah. I want to have that freedom to be able to expose them to things that we weren’t at their age.

Ashley:
Yeah. I joke with my kids that they’re getting spoiled because we’ll go on a trip somewhere and usually it’s to a conference. It’s not like a vacation, but we’re traveling somewhere, going to a conference and they’ll complain when I say that we’re flying Southwest and not Delta because Delta has the TV screens. I’m like, “You’re getting to fly somewhere. When I was your age, that would have been so exciting.”

Andrea:
Yeah.

Joe:
Oh, man. We were doing the road trips back in the day.

Ashley:
Yeah, yeah, yeah, really. Okay. Well, where can everyone reach out to you guys and find out some more information?

Joe:
Where can everyone find us? So we are pretty active on Instagram. We’re at Southern Sun Properties. That’s really where we just have a lot of fun there. Everyone can reach out to us. We’re pretty quick on responses and whatnot. Over the last few years, we’ve just let everyone into our journey, and it’s just been fun to see who’s interested in this world as well and we’ve made some great connections through it.

Andrea:
Yeah. We don’t paint the pretty picture that this is perfect. We have shared our fails, our hard days, our hardships, and we just laugh at ourselves and keep it fun and lighthearted.

Joe:
Yeah.

Ashley:
Yeah. Well, thank you guys so much. I know Tony is still trying to figure out the math of turning that 29,000 into 1.5 million. He would have baffled as to why that hasn’t happened with his property yet. But thank you guys so much for joining us on the Real Estate Rookie Podcast. I’m Ashley at Wealth from Rentals, and he’s Tony, @tonyjrobinson, and we’ll be back on Saturday with a rookie reply.

Jonathan Litt, Land and Buildings Founder & CIO, joins ‘Fast Money’ to discuss why he says more trouble is on the horizon for commercial real estate stocks.

“If our objective is to increase productivity, innovation and economic growth in the UK, immigrants are our natural allies.” So wrote Lord Bilimoria in the foreword of Passport to Progress, a new report we recently published here at The Entrepreneurs Network in partnership with ABE Global.

Derin Kocer shows that high-skilled immigrants are more prone to entrepreneurship and have a knack of making economies more productive and innovative. It calls on politicians to make the case for the positive benefits of high-skilled and high-potential immigration.

The report puts forward a number of policy recommendations, inspired by the best existing policies from around the world, to attract top international students, high-skilled professionals, STEM researchers, entrepreneurs and unusually talented individuals.

For example, Canada has been exceptionally successful in attracting high-achieving international students in the past two decades, accounting for a six-fold increase in numbers, realising the benefits of positioning international graduates as the future of its workforce. The report argues that any country competing for international graduates needs to copy Canada in offering graduates a right to work, with their time at university counting towards permanent residency.

The UK’s High Potential Individual visa, which grants two-year work visas to graduates of top universities, is highlighted as a unique and creative policy example. However, the report argues that what counts as ‘top academic institutions’ should be expanded to include graduates from institutes such as the Indian Institutes of Technology. It also advocates for granting permanent residency to advanced STEM students on their day of graduation.

Passport to Progress also makes the case for pro-migration policies, through the establishment of specialised task forces within the Government to actively recruit entrepreneurs and talented STEM professionals. The most ambitious historical example of this was the US’s Operation Paperclip whereby over 1,600 German engineers and scientists after the Second World War, who later led the American space program. Given the historic context this wasn’t without controversy, but a modern equivalent wouldn’t suffer from this.

The report also highlights Israel’s Innovation Labs programmes, which provide migrant entrepreneurs with access to critical technological infrastructure, and New Zealand’s Global Impact Visa, which creates training, investment and networking opportunities for migrant entrepreneurs.

The political context for making the case for more immigration is challenging. As Rob May, Chief Executive Officer of ABE Global, said: “Recently, the central relationship between immigration and innovation has come under attack. Motivated by desires to limit headline net migration figures, the positive effects of migration have once again become clouded in a hostile narrative that finds its fulfilment in the populist rhetoric that any immigration is antithetical to national progress. This neglects the historical truth that the flow of ideas, talent and people has been the cornerstone of security and prosperity.”

But we’re optimists. “Immigration is a story about opportunities. We need more of those stories and Passport to Progress is our contribution to how,” says Kocer. “We hope to unlock a sensible conversation in which the true potential of migration can overcome misplaced concerns,” says May. I would add that the arc of history bends toward more high-skilled immigration, as the evidence mounts. After all, over a third of the UK’s fastest growing companies have at least one foreign-born founder.