November 2023

One of the noteworthy trends in the latter half of the 20th century is the gradual recognition that we, as human beings, bear the responsibility of stewardship for our planet. This realization places a significant responsibility on all individuals, particularly those who wield influence.

One of the ways in which you can have a huge positive impact on the future is to be one of the innovators who can take what’s technologically possible and make it commercially viable.

Another noteworthy point is that sustainability is the area in which governments are arguably offering the most funding for innovation. Fundraising is one of the big challenges for early-stage projects, so being able to rely on alternative funding sources could make a big difference for small teams and projects.

That’s why in this article we cover 5 promising clean technology areas in which we believe there are opportunities for innovative startup projects.

1. Renewable Energy Platforms:

Renewable energy, particularly solar and wind solutions, is a cornerstone of clean technology. The global shift towards sustainable energy sources creates a compelling opportunity for startups to contribute to this green revolution.

А good example in this niche is SunPower, a company excelling in solar energy solutions. Its success stems from addressing the increasing demand for clean energy alternatives.

With governments worldwide investing in renewable initiatives and consumers increasingly favoring eco-friendly choices, startups entering the renewable energy space are met with a growing and supportive market. At the same time, making clean energy technologies commercially viable without governmental help is a huge challenge, which means that starting a business in this niche might be easier than making it self-sustaining.

2. Smart Grid Technologies:

Efficient energy distribution is pivotal for a sustainable future, and smart grid technologies offer a pathway to optimize energy management. Startups in this niche leverage data analytics and advanced sensors to enhance the efficiency of energy delivery. GridPoint is an exemplar in this space, providing intelligent energy management solutions.

The imperative for organizations to reduce their carbon footprint and enhance energy efficiency positions smart grid startups as key players in the evolving landscape. Early-stage ventures have the opportunity to pioneer cost-effective and scalable solutions that contribute to a more intelligent and sustainable energy infrastructure.

3. Energy Storage Innovations:

The rise of renewable energy sources underscores the critical need for advancements in energy storage. The problem is that most sustainable energy generation technologies are dependent on outside factors (most commonly weather). This means that at certain times they generate more energy than needed, and in certain – less. Adequate energy storage is crucial to link painlessly the highly varying energy supply and demand.

Tesla’s Powerwall – a home battery storage system, is a good example of the impact that energy storage innovations can have.

As the demand for renewable energy rises, startups focusing on efficient and cost-effective energy storage would be some of the best-positioned organizations to contribute to the wider adoption of clean energy.

4. Waste-to-Energy Conversion:

Transforming waste into a valuable energy resource is both environmentally crucial and economically viable. Startups delving into waste-to-energy conversion address two pressing issues simultaneously—waste management and sustainable energy production.

The immense volume of organic waste globally presents an ample opportunity for startups to pioneer scalable and efficient waste-to-energy solutions, aligning with the increasing emphasis on circular economy practices.

5. Eco-Friendly Transportation:

The transportation sector is a significant contributor to carbon emissions, presenting a substantial opportunity for startups focusing on eco-friendly alternatives. Companies like BYD and of course Tesla, exemplify success in this niche.

Of course, manufacturing vehicles is extremely capital-intensive which makes the field a hard one for brand new projects to enter. That said, the electric vehicle ecosystem has a lot of needs that could theoretically be satisfied by innovative early-stage projects. For example, fleet management solutions, last-mile delivery solutions, educational platforms, and charging infrastructure software are all software solutions. Hence, they have a much lower barrier to entry.

Ashley:
This is Real Estate Rookie Episode 342. My name is Ashley Kehr, and I am here with my co-host Tony J. Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we’re bringing you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today we’re switching it up just a little bit. You guys don’t get a bunch of questions from the Rookie audience today, but you get to hear from me from my experience. And Ashley’s going to interview me today to talk all about private money lending.

Ashley:
Yeah, we’re going to do a deep dive into everything and anything you need to know about being a private moneylender or getting money from a private moneylender. We’re going to talk about putting together the contract, the amortization schedule, what kind of document you need to file with the county clerk to make it official. We’re going to go through those documents that you need. We’ll give a little tax advice as to things you should consider for your taxes.
And then Tony also tells us how much money he had to pay out of pocket to a private moneylender when his flip didn’t sell. So it’s a jaw dropping amount of money, Tony, so make sure you listen for that. And I think it’s a great example as to the kind of character and trait that you should look for when you are investing with somebody too. And we definitely talk about scenarios where you can protect yourself and also what kind of standards you should have for the person you’re investing with and also as the private moneylender.

Tony:
So today we’re going to dive into one of my secret weapons in my real estate business, and that is private money, raising private money from other people, using that money to fund your deals. It’s been an absolute game changer for my ability to transact on deals and I’m able to scale at a rate that I wouldn’t have been able to if I was just using my own capital. So today we’re going to talk a little bit about what a private moneylender is, how to set those relationships up, how to navigate the water to private money lending, and hopefully give you a roadmap for doing this in your own business as well.

Ashley:
Tony has a lot more experience with private moneylenders, so we’re going to be focused mostly on Tony’s story today to kind of guide you guys and give you an all-inclusive kind of guidebook as to what private money is and how to actually get a private moneylender. So I’m going to be leading the questions today, Tony will be my lovely guest on the show.
First off, I want to start with who was your first private moneylender? When did you take that leap? Because you have talked about your first properties a lot. You went to that bank in Louisiana, they funded the purchase price, the rehab. What kind of made that transition from using bank financing to private money?

Tony:
Yeah, that’s a great question, Ashley. Maybe we should even start just with what the differences are between traditional bank financing, hard money loans, and then private money. Traditional bank financing is what most people think of when they think of going to get a loan. You’re going to your local credit union, your local regional bank, your big national bank, and you are applying for a mortgage with that institution. So that’s traditional banking.
And then you have hard moneylenders which focus more so on the real estate investor, and that’s where a lot of people who are doing the fix and flips or BRRRs are going with the hard moneylender. Hard moneylenders are typically also institutions, significantly smaller than some of the big banks that you’re going to be working with. But typically, these are businesses, right? These are people who make a living, right? These are businesses who generate revenue and profits by lending money out to investors. And hard money’s a good in-between because you’re going to be able to get debt on properties you definitely wouldn’t be able to get a loan on from Bank of America, but it’s typically a little bit more expensive as well. You’re going to pay a higher interest rate, you’re going to pay more fees. And typically hard moneylenders are a bit more rigid in what they want from a borrower and from a property, but it’s a good stepping stone, right? But as a rookie, honestly, sometimes hard moneylenders are tough to get into. They’re going to want more capital down, higher interest rates, and things of that nature.
And then the third type is the private moneylender, and to me this is like the holy grail of getting your deals funded because there’s significantly more flexibility when you’re working with the private moneylender. Typically, when we say private money, we’re talking about an individual or maybe one or two people that are working together. But the benefit of going with private money versus hard money is you get to really kind of have a say in what those terms look like. So how much down payment, if any, the interest rate, the term, all of that is negotiable when you’re talking with a person as opposed to doing it with a business. So at a high level, that’s kind of the differences there.
Ash, I’ve never used hard money. Have you used hard money for any of your projects before?

Ashley:
Yeah, I’ve used one hard moneylender, and I actually did a line of credit with them where I was able to get up to I think it was $1.5 million line of credit. So I was already basically approved to borrow that amount from them. I still had to bring each property to them. They would vet the property and then loan me the money, and it was the max $1.5 million. I couldn’t have more money out than that with them. So I actually did it for three properties, and honestly it was a nightmare. I hated it compared to private money or even bank financing.

Tony:
Was that the hard moneylender that you had recommended to me, the one that … I think I remember this, and yeah, if I recall the person, I remember some headaches with that one. But to go back to answer your other question, Ash, about what caused the transition. As we were building out the business, we realized that we needed to go after properties that needed some work and the ability to get turnkey deals, it was drying up a little bit. We couldn’t find as many good deals just sitting on the MLS that were turnkey, ready to go. So we were kind of forced into rehabbing properties.
So once we made that decision to start going down that route, I definitely didn’t want to go the hard money routes. I said, “Hey, let me tap into my network and see if I can find some folks that might be willing to fund these deals for us.” And luckily, I already had some folks that I knew that were successfully leveraging private money. So you ask a few questions, kind of understand how to set things up. And I had a really, really good escrow officer that I work with here in Southern California, and she honestly educated me quite a bit on the process as well. So it was really just out of necessity that we needed to go down the route for private money.

Ashley:
Yeah. For me starting with private money, it was working for another investor and I managed a lot of his companies. And one of the companies was kind of at a stalemate where it wasn’t really doing anything, and it was collecting interest from loans on vehicles. So this company had created with another business partner actually almost like a loan shark on vehicles. So if you couldn’t get a loan on your car, you could come to them and they would charge you 15 to 20% interest on your car loan and you would pay them. And there was no activity anymore. They had maybe four loans that were still being paid over the amortization, and there was a line of credit with this company.
So I approached him and said, “What if I paid you more interest then your line of credit and I this money to purchase this property?” And so that was my first private moneylender and still one of my private moneylenders today. But very, very casual as in the agreement of that private money. As far as the documentation and stuff like that, there was no actual lien on the property. It was just we had a note payable and a contract between the two of us for that. And that was just because of the trust we have built up. If I was to do it with anybody else, we would do it the property way that Tony is going to explain today, the proper way to do it and not this way.
So Tony, let’s start off with what are some of the documentation that you should actually use when you’re putting together private money?

Tony:
Also, you said something important Ashley I just want to circle back to, but the trust piece. And I definitely do think that that plays a role in how this relationship looks. If you’re lending from someone that you’ve worked with a dozen times, maybe you don’t need to go through all the hoops that I’m going to talk through today. We have a mutual friend Cam and Lexi who flip out in the Midwest, and I know that they typically, their step is a little bit different than mine, and I think a little bit more lax. Amy Maggiore, who’s been on a few episodes of the Real Estate Podcast, I think it was like 636 was her first episode, but if you go back and listen to Amy’s episode, I’ve spoken with her and a lot of times she’ll take the money directly from the private moneylender. So everyone kind of does it differently. So as long as you’re not breaking laws in your state, don’t feel like you have to do it my way. My way is just one approach. It’s worked well for me, that helps me sleep better at night with the way that I have it structured.
But one other thing that makes me think about too Ash is that the trust thing is important because the private money relationship is a partnership. It is a form of a real estate partnership, which if you haven’t picked up the Real Estate Partnerships book, hit over to biggerpockets.com/partnerships. And we actually do have a chapter in the book where we break down the differences between a private money partnership and an equity partnership. So if you want to understand what more of those nuances are, you can jump into the book. We just know there are differences.
But anyway, going back to your question Ass, Ash, about … Sorry, did I just call you [inaudible 00:10:14]?

Ashley:
If you did, I didn’t notice.

Tony:
You guys can cut that or just leave it in.

Ashley:
Or leave it.

Tony:
Yeah, and just bleep it out. But going back to your question, Ash, so there’s I guess really three main documents that I create whenever I’m entering into a private money partnership. We have the promissory notes, we have the deed of trust, and then we have the amortization schedule. And I’ll break down each of those in a little bit more detail.
So first is the promissory note. This is basically the outline of what this loan looks like. So myself and the private moneylender are entering into an agreement about the amount of money they’re going to give me. How long are they going to lend that money out? What’s the term of that note? What is it going to cost me to borrow that money, so what’s the interest rate? What happens if I need to extend? What happens if I’m … Whatever rules you want to put into your note with that person, that’s what goes into the promissory note.
So for us, like I said, typically we’ll have the actual loan amount, so someone might loan us 350,000 bucks, so that’s the note amount. Then we’ll have the actual terms. So how long can I hold this money from this person? How long are they loaning it out to me? We typically set our terms to be about 12 months, not about, to be exactly 12 months. And then we usually have an option to extend, and if we have to extend, there are some incentives for the lender. We always have the interest rate, and that’s an annual interest rate. So say that someone lends us … I’ll use round numbers here. Say that someone lends us $120,000 and they’re doing that at a 10% interest rate. That means over the course of an entire 12 months, they’re going to get back 10% or 12,000 bucks, which would be 1,000 bucks per month in interest that they’re accruing. So that’s how we set up our notes is that it’s an annual interest rate that they’re getting.
And then we also have the terms of repayment. So we typically set our notes up so that we’re not making any monthly payments during the life of the loan. We pay the private moneylender back at the end of the project, that’s either when we sell or refinance the property. But during the actual rehab itself, we’re not making any payments. And again, that’s something that we’re able to negotiate with the private moneylenders. If it was a hard moneylender, it might be different, but private moneylenders, we have that flexibility.
And then we also talk about the … I guess I’ll get into this later with the amortization schedule, but it’s also like how is this loan being amortized or how is this loan being structured from a principal versus interest? Our loans are always … we’re not paying down any of the principal balance during the life of the loan, so that interest is just accruing. So if someone gives us money, their principal balance remains the same, and then we’re just adding interest on top of that every single month. So that’s kind of how we set it up from the note perspective.

Ashley:
Yeah. So with the note, is this something your attorney is drawing up? And what is your recommendation for should you get a sample from somebody else? Should it be specific to your state, the private moneylender’s state, the state the property is in, or does it not matter?

Tony:
Good question. So I had my attorney draft up the note for me. Typically, she’s the one that does it. Actually on a refinance we just did, my escrow company did it for me. So I’d say go to an attorney in the tenure 10-year state or maybe in the state where the property’s at. That probably maybe makes more sense. I don’t know. I don’t know which one is more important, either your residence or the property’s residence. But my attorney is the one that usually drafts it up for me, and I actually have just a template that’s like fill in the blank. So every time I have a new deal, instead of me going back to my attorney, I’m just filling in the specifics of that deal. What’s the amount, what’s the term, what’s the interest rate? That’s typically all the information I need to update. And then that person’s name. So the attorney’s the one that usually drafts it for me.

Ashley:
And what about your name? Are you putting your personal name? Are you putting the LLC of the property? Do you have another company that’s going on the document?

Tony:
Yeah, so we usually put the name of the LLC on the note and usually because it’s our LLC that owns the property as well. So yeah, but we put our LLC on the note. I’ve only had one instance where a lender asked for a personal guarantee where if for whatever reason the entity itself wasn’t able to pay the loan, that I would then become personally liable. But outside of that, typically it’s just our LLCs that are signing for the property.

Ashley:
So you want to move into that amortization piece as to how you’re defining the terms of it. Are you making monthly payments? Are you paying at the end? Is it interest only? What are some of the options you can do as far as that repayment term and how are you putting that into the contract?

Tony:
So I’ll go into the amortization schedule and I’ll finish off with the deed afterwards because the deed kind of ties it all together. But we always create an amortization schedule. So if you’ve ever purchased a home, in your loan, that big loan packet they made you sign, somewhere in that loan packet is an amortization schedule. And that schedule basically says over the term of your loans, say you typically have a 30-year fixed mortgage, you’re going to see monthly payments stretch out over 30 years. And then every single one of those lines for every single month will show the payment amount that you’re making and then of that payment amount, what amount is going towards your principal pay down and what amount is going towards your interest payments. And you guys can just Google like amortization schedule, you’ll see an example of this. But with a usual mortgage, with a traditional mortgage, when you make a payment, that payment every month again goes towards both your principal and a portion goes towards your interest.
When we set up our private money deals, these are typically interest only. So it means we’re not making any payments that go towards principal reduction. So at the end of the term, the 12-month term, we’re paying back the entire initial principle that someone gave us, plus the interest that’s accrued. So it works out well for us because we don’t have to make any payments during the actual loan, but it also works out for the private moneylender because their interest is based off of that principal balance position isn’t getting smaller. So they’re getting a nice big payday back at the end, but that’s typically how we set it up.

Ashley:
Okay. So then the deed of trust, explain why that’s important and how you include this as part of the documentation.

Tony:
Sorry, just actually one other thing on the amortization schedule. I would recommend that everyone include that when they’re talking with their private moneylenders, just for sake of clarity, because it’s very clear both in the notes, but then people can also see it visually in the amortization schedule that they’re not getting any payments during the life of the loan and they can see how much interest is accruing on a monthly basis. So they know, “Hey, if this project goes four months, here’s the interest payment that I’m getting back in addition to my principal. If it goes eight months, here’s the interest payment that I’m getting back in addition to my principal.” So it really lays it out clearly upfront for the private moneylender before they make a commitment to investing with you. It just kind of reduces any ambiguity there.

Ashley:
I do have a couple recommendations. So you mentioned just Googling the amortization. Bankrate.com has a very user-friendly one to generate it, just put in $100,000, 5% amortized over 10 years, and just see what it spits out. There’s also an app, Easy Calculators, which also has the amortization in there for a loan too, or all different types of loan products. You can play with the numbers, even for seller financing, to try to put an offer together. Those are some great resources there.

Tony:
And I’d take the easy route. I just made a simple Excel Google sheet template, so every time now I just go in, I update the loan amount, the interest rate, when it starts, and I’m just able to drop that into the note every time.

Ashley:
So everybody always says to me, “Lady in the streets, but a freak in the spreadsheets,” and here’s Tony, “Here’s a spreadsheet I created.”

Tony:
But it worked out really well for us, right?

Ashley:
Yeah, yeah.

Tony:
So then the third document is the deed of trust. And if you guys go back and listen to Pace’s episode, he does a really good job of breaking down the difference between the deed, the title, the mortgage, these are all separate things. So when we have a private money relationship, we are on title for the property. My LLC, like Tony Robinson’s home flipping LLC, is listed as the owner of that property. We’re then listed as a person that’s on the note, so we owe the Jane Doe $350,000. But then when you look up the county records, even though we are listed as the owner, the person who has the note has a lien against the property. So their private money note is shown as a lien against the property in the same way a traditional mortgage is listed as a lien against your primary residence.
And the way that that happens is through the deed of trust, and it has a different name in every state. In California, it’s called the deed of trust. I think the general name is a mortgage security document. So every state has some sort of mortgage security document. In California, it’s called a deed of trust. So that deed of trust basically takes the promissory note, the debt that that person is giving us, and it ties it to the property. It ties it to the property. And what happens is that if for whatever reason, some worst case scenario, say that we are unable to complete the rehab or we’re unable to sell the property, we’re unable to refinance, or we’re unable to fulfill our duties to repay that promissory note, that deed of trust then gives the private moneylender the right to foreclose on the property, take it from us, obtain ownership, and then they can go out and fix it themselves, sell it, do whatever they want with it. But the deed of trust is that document that really solidifies everything and gives the private moneylender protection in case we ever stop making payments.

Ashley:
Okay. So now you have disclosed all of this, you’ve presented it to your private moneylender. Before you’re putting these documents together, to kind of backtrack, are you agreeing on these terms before you actually put the documents together? Or is this part of your presentation as to, “Here’s the terms I’m offering,” and you are giving them everything right there? Or is negotiating taking place beforehand?

Tony:
Great question, Ashley, and it is usually the latter where we’ve already kind of set up the terms that we feel will make sense for this deal. And honestly, our terms are pretty much the same always. The only thing that will change is the interest rate kind of given where interest rates rather than general, right? When the market was at a 3% interest rate, I think we’re offering folks 10. Now that we’re at 7, 8%, right, we’re offering a little bit more than that, but we typically present to people, “Hey, here’s the amount that we’re looking to raise, here’s the interest rate that we’re offering, and here are the terms of the deal. And if this is something that you’re interested in, reach back out and let us know.”
And what I’ll usually do is when I send out the information, I’ll send basic details of the property itself, and I’ll always include a short Loom video of me walking through both the promissory note and the deed of trust so that way people who maybe haven’t been private moneylenders before have an understanding of what the process looks like. So a lot of the breakdown I just gave right now, I have that in a Loom video. So I’ll send out the details of the flip of the rehab that we’re looking to get funded along with that Loom video. And then I’ll say, “Hey, if you’re interested, reach back out to me and my team.”

Ashley:
As far as the contract, so when the lender agrees already to sign, who do you recommend they put the name of the contract in? So we talked for you, you’re putting it into your company name, but what about for the lender? What is your recommendation? Should someone put it in their personal name? Should they have their own LLC?

Tony:
That’s a good question. No one’s ever actually asked that. And I’d say all of our lenders are doing this in their personal names. So all the notes are their personal names. When you look up on the county records who has the lien, it’s their personal name. So yeah, everyone’s sending it through their personal name. And again, I think that’s because most of the folks that I work with, these aren’t professional private moneylenders that do this a ton. So I don’t know, maybe that’d be a good question for Amanda Hahn or some of our legal folks to see if there’s an incentive from a tax perspective to run it through an LLC as opposed to their personal name. It could possibly be because interest collected I think is considered as active income, so if you’re running that through an LLC instead that’s taxed as an S corp, you might get some favorable benefits. But again, we probably need to pull Amanda Hahn on to get some insight there.

Ashley:
And one other thing we need to talk about too is if you are paying somebody interest, especially if you’re doing it out of your LLC, is that sending them a 1099-INT at the end of the year so it’s reported as to how much interest you paid them, and then it has to be claimed on the lender’s taxes too that they received this income of the interest too. So take into account that you will have to most likely pay somebody to do this. Everybody always forgets to factor into their numbers the bookkeeping, the cost of the LLC, the cost of the tax return.
And also if you’re using private money, we’ll have to file the 1099s and you can do them online, they’re pretty fairly easy to use. But there’s also software that you can pay to do it or you can have your accountant or CPA do that for you too. But something to really think about is make sure that you are filing those when you are using private money and sending them to … If you are doing it in your personal name, I don’t think you have to issue a 1099 though.

Tony:
I did ask my CPA and she said that we didn’t have to and that it was more so up to the lenders, scout’s honor, to report that on their personal tax return. So we haven’t issued any 1099s in our business.
But it does bring up an important point actually about the entity piece. So we have a separate entity. I guess let me take a step back. So the tax advice that I’ve been given is that you always want to separate your rental income from your active income. So rental income, short-term rentals, long-term rentals, all that is rental income. And then things like flipping, wholesaling, that’s all active income. So we have one entity for all of our rentals, and then we have a separate entity for our active income, so our flips. I don’t want to be wholesale as much anymore, only did that a few times. Our events, our coaching program, our media stuff, all that’s in one entity. And again, the reason why was because apparently you don’t want to mix your active income and your passive income into one entity because some of those benefits of the passive investing go away if they’re co-mingled in the same entity with your active income. So from the borrower side, that’s typically how we set it up as well.

Ashley:
Okay. So one of the other questions I have is regarding insurance. So are you putting these private moneylenders as a mortgagee on your insurance policy you would do when you have a mortgage on the property?

Tony:
We are not. Yeah, so we just factor in the cost of the insurance policy. We usually buy a year upfront and we’ll just make sure that that’s done during escrow as well. So the homes are always insured, but some lenders, like real lenders, like actual institutions-

Ashley:
Banks, yeah.

Tony:
-They’re going to want to make sure … Right, they’re going to want to make sure that you have that they have proof of insurance and if they don’t, they’re going to put the lender approved insurance, they’re going to force that onto your property. Again, that’s the benefit of going with the private moneylender is that they’re just more so focused on the return. They’re trusting us to make sure that the asset is insured. And that’s typically how we set it up.

Ashley:
Yeah. And part of the mortgagee side of it too is being listed as the mortgagee to make sure that the bank gets paid out first so that the check actually goes to that and not you too. So I was just curious if any of your private moneylenders had that requirement at all or asked for that, but I think it’s something a lot of people probably don’t even think of or they have that trust that … Is there anything in your contract that states if the property were to burn down or there was the loss of the property, that the insurance proceeds would go to the private moneylender or a portion of it would, or it’s a complete loss, they don’t get anything? If you will rebuild and they have to keep their money in the deal until you rebuild? Anything like that? I’m thinking all this off the top of my head because I’ve never thought about it either that way.

Tony:
Yeah, no, yeah, it’s a good question. So we don’t have anything in the promissory note specifically that dictates that, but here’s the thing that I always tell all of our private moneylenders, it’s like all it takes is one angry private moneylender to go on their Instagram, go on their TikTok, go on their Facebook, in the Facebook groups, wherever and say, “I lent money to Tony J Robinson, and it was the worst experience ever.” And now our ability to raise capital for all of our future deals is significantly impacted. So I’ve always shared with every person that we’ve done a deal with what’s most important to me first is my reputation, and at the end of the day, I’m always going to do whatever I need to do to make our private moneylenders whole.
So we had an episode earlier this year where I shared one of our flips where market shifted, we have a buyer that backed out. By the time we found that next buyer, things just weren’t working out how we wanted them to. We ended up having to refinance the property and it was a flip where we were supposed to make six figures on the actual flip and it ended up turning into a refinance where I had to put in over $200,000 to make sure that we pay back our private moneylender on time. So I’m always willing to take the hit myself personally to make sure that we’re mixing the private moneylenders whole so that way I can continue to raise money from people down the road.

Ashley:
Well, what if everyone isn’t as ethical as you Tony? If you are lending the money, would you suggest somebody ask that question as to what happens if this happens? The place burns down, or even in your situation, maybe let’s go into that. How are some ways that you can protect yourself as a private moneylender? So in your contract, what are some things in place where people who are lending you money feel safe and secure?

Tony:
First thing I’ll say is that I think that’s why a big piece of a successful private money relationship is the preexisting relationship where it’s like you’ve met this person a couple times. You’ve maybe seen some of their track record already. You’ve got a good sense of who they are as a person. If someone just walked up to you and you’ve only had one conversation at a meetup, maybe don’t give them $500,000 to go fund their very first flip. So I think have a little bit of not common sense, but have a little bit of, I don’t know, vetting this person and vetting that to make sure that this is someone that you want to get into bed with. But I think if a private moneylender really wants to protect themselves, just look at what a hard moneylender does because hard moneylenders do this as a true business and they’ve perfected the art of protecting themselves because that’s their first priority.
So hard moneylenders typically want down payments, right, they’re not going to let you fund the entire thing. Whereas for us, with our private moneylenders, that’s a requirement for us. We want to make sure that whoever we’re working with trusts us enough to fund the entire deal. Hard moneylenders typically charge higher fees or maybe don’t even work with new investors at all, right? If you’ve never done a flip, some hard moneylenders don’t even want to look at you, right because they’re like, “Hey, there’s too much risk inherent in that.” So I think if private moneylenders want to protect themselves a bit more, just go fill out an application for a hard moneylender and see what all those things are that they’re looking for and see what you can pull into your own private money relationship, and it’s a great way to steal from someone else.

Ashley:
Okay, let’s keep rolling with questions to be asked. And this one would be from somebody lending you money. What happens if I want my money back beforehand, so before you sell the flip or before you refinance?

Tony:
So it’s a question that’s probably one of the top two questions that come up. And so the first one is like, “Hey, what if I want my money back sooner?” Second question is, “What happens if you can’t sell this property for what you think?”
So on that first piece, like what happens if I want my money back sooner, the way we’ve set up our notes is that once it’s inside, you can’t touch it until the project’s done. And we communicate that very clearly upfront to say like, “Hey, this isn’t like a stock that you can just kind of trade in and trade out whenever it’s convenient for you. Don’t invest this money if you aren’t comfortable with the idea of it being locked up for at least 12 months. If you know you’re going to need this money back in four months, don’t do the deal. We’d rather have someone tell us no upfront, then get into the deal and down the road say, ‘Hey, we want to change things up.’” So we communicate that very clearly upfront that you can’t.
And then like I said, that second question that always pops up is, “Hey, what happens if you guys can’t execute your business plan?” And like I mentioned earlier, our goal is to always make our private moneylenders whole, and whatever means we need to do to make that happen, we’re willing and ready to do. So like I said, that last flip, we came out of pocket over 200,000 bucks to make sure we completed that refinance and paid that person back. And if we need to sell it for a loss, we’ll do that. Luckily, we haven’t had to do that yet, but whatever steps we need to take, that’s what we’re willing to do to make sure that those lenders get paid back.

Ashley:
And hopefully everybody that lends money to an investor is an investor like you where they’ll do everything to get paid back.

Tony:
Well, just real quick Ash because we also had … I wish I could remember what episode, maybe our producers can help us out. But we had, gosh, was it JP Desmond I think was the one that lost the money on those flips?

Ashley:
Wasn’t it like half a million or something? It was a lot.

Tony:
Yeah, it was a good chunk of cash that he had and his flip kind of fell apart, and he basically just refinanced or restructured that debt into a longer term. So I think he was paying them back over three years, even though the flip had already fallen apart. So there are always ways, again, assuming you’re working with someone of high character, that they really does want to make sure that they protect that relationship, there are always ways to try and make that person whole again. Ideally, best solution is you go into it, you knock it out, everything works perfectly, and everyone gets paid back on time and on schedule.

Ashley:
And that was Episode 279 if you want to hear that story. Okay. So now Tony, what happens if you can’t sell? You’ve kind of alluded through this throughout the episode. What are some maybe restructuring ideas somebody can put together or different extra strategies they could maybe present to the private moneylender?

Tony:
I guess I’ll give you two different scenarios. So I already gave you the first one where we basically just refinanced the property ourselves and came out of pocket a significant amount of cash to get that refinance done. But we had a second rehab where we didn’t want to complete the refi because rates had just gone up and the amount of cash we’re going to have to put down plus the increased interest rate, it just didn’t make sense for us. So we were able to negotiate with that private moneylender to extend his note for another year, give him a slightly higher interest rate. And even though the monthly payment was going to be higher than what it would’ve been if we refinanced, our overall profit at the end of the year would’ve been higher because we didn’t have this big cash outlay to complete the refinance while still giving us time to hopefully see what rates do over the next 12 months. So he was happy and willing to refinance because it meant that he’s still collecting that interest, and for him, that’s better than it just sitting in a bank doing nothing.
So that was the second option. It’s like if you approach that private moneylender and if they’re not in a rush to get those funds back today, then just give them that option and say, “Hey, let’s extend for another XYZ,” whatever period you want to pitch to them, see if they’re open to it, and then you just redraw the documents to make sure that everything’s lined up with those new terms of that deal.

Ashley:
Okay, Tony, this all sounds wonderful, but how do you find these people to give you your money?

Tony:
Great, great, great question. So there’s two different ways to go about it. Actually honestly, you should be doing all these things, right? So let me kind of break it down, right? I’ll talk the kind of in-person activities and the digital activities.
So from an in-person perspective, what I think every aspiring person that wants to raise capital should be doing is they need to build their network. And not in a self-motivating way, but just understanding that the more people that you know, the more people you are able to provide value to, the higher your chances, the higher your opportunities of finding the right person to fund your deals. So say that I’m a rookie starting from zero. The very first thing I would do is look at my local city, look at my local area, and try and find some of those real estate meetups that are happening in that area.
And I would go to as many of those meetups as I can for as often as I can, and not necessarily with the intention of pitching everyone right away to say, “Hey, will you be my private moneylender?” But just talking to folks and understanding what their motivations are, understanding why they’re looking at potentially … What motivated them to come to this meetup. And what you’re looking for are people who understand the value of investing in real estate, but don’t necessarily have the time, desire, or ability to do it themselves. That is your ideal person to be a private moneylender because it means they’ve got the capital, but maybe they don’t want the headache of managing a rehab. That’s just not what they want to do. They don’t really like the idea of tenants and shopping for deals and giving 10% to a property manager doesn’t make sense, so they’re still wanting to use real estate to give them those good returns, but they don’t want to do the work themselves. I think that’s the ideal person for you to work with.
And you can kind of pick up on those things based on the language that people use. If someone mentions that they have a stereotypical high-paying job, doctor, lawyer, I don’t know, engineer, software engineer, anything that’s super high six-figure salary, but they’re like, “Man, I work 60 hours a week and I barely have time for my wife and kids, but I really want to do this real estate thing.” Those are cues without them saying, “I’ve got a ton of capital,” that you can pick up on to say that. Or people that maybe have … For example, I have folks, some of our private moneylenders that invest using their 401ks and they’ll basically take a loan out against their 401k at a relatively low interest rate and then re-lend that money out to us where we’re paying them 5X what they’re paying on their 401k loan. That’s another cue to look for.
So I think the goal is to get out to these local meetups, network with people, understand what their motivations are, and then when you meet that person where goals might align, it’s a simple question of like … Sometimes I find deals and maybe this is a good fit for you, maybe it isn’t. But sometimes I find deals that I present to some folks that they’re able to fund. “Is that something that you might be interested in? If I find a decent deal, would you mind if I send it to you just to give it a look over? And if it’s not a good deal for you, no sweat, but maybe there’s a chance we can work together?” Super unabrasive, very disarming, but just float that idea. And they might say, “Yeah, sure, send it my way,” or they might say, “Ah, I don’t really think I want to do that.” No harm, no foul. So that would be my first step, Ashley, is going to some of those local meetups and building your network out that way.

Ashley:
I want to touch on one more thing is I feel like having a private moneylender relationship, it’s almost like a testing ground for partnerships. So maybe even before jumping into creating an LLC or a joint venture agreement with someone, maybe that’s actually your first kind of baby step is to where they are just lending you money on the deal and they’re just a debt partner instead of giving them any kind of equity or ownership in the deal, to kind of test just how that relationship goes with the person before you go ahead and build out a huge real estate portfolio with the person not knowing much about them.

Tony:
Yeah, I couldn’t agree more Ashley. And honestly, two of our private moneylenders have transitioned to becoming equity partners for us, and the majority of our private moneylenders have done multiple deals with us. We’ve had a few that were one and dones like, “Hey, I lent you money, but now I went out and bought my own property.” But the majority we’ve done business with multiple times, and it is a really good way to kind of build that relationships with folks. And it’s really cool because if we’re in a private money relationship and you’re really good about letting us do what we’re supposed to be doing and you check in at the beginning of the deal, we check in with you at the end of the deal, and you’re just all thumbs up, that’s a good sign to me that you’ll probably be a good equity partner as well.
But say we do a private money relationship and you’re calling me every other week saying, “Hey, Tony, the floor, is it in yet? Hey, Tony, is the back-splash in? Hey Tony, the cabinet’s in? Hey Tony, what’s the paint color?” That’s you kind of stepping into my world of work and not necessarily the person that I want to partner with on an equity deal. So I think the private money relationship is a really good stepping stone to potential long-term equity relationships. Or it could just be, “Hey, this is going to be a good private money relationship. We’re both going to be happy. This person’s going to continue to work their high paying W2 job, and I’m going to continue to use their excess funds to give them a better return than what they get leaving it in the bank or put it in a CD or wherever. And it’s a mutually beneficial relationship for all of us.”

Ashley:
Well, Tony, thank you so much for the wealth of knowledge for everyone today. I’ve thoroughly enjoyed having you as a guest on the podcast. Thank you guys so much for listening to this week’s Rookie Reply. I’m Ashley at Wealth from Rentals, and he’s Tony at Tony J. Robinson. Don’t forget to check out our new book at biggerpockets.com/partnerships. We’ll see you guys with another guest.

Speaker 4:
(singing)

The travel industry is inherently diverse, with a myriad of niches and evolving consumer preferences. This diversity creates fertile ground for early-stage startups to thrive within specific niches within the broader TravelTech landscape.

Let’s dive into five areas where startups are identifying gaps in the market, leveraging technology to enhance travel experiences, and catering to the increasing demand for authenticity, personalization, and sustainability in travel.

1. Travel Experience Platforms

One of the most significant shifts in travel is the move from destination-focused journeys to experience-centric exploration. Startups are capitalizing on this shift by creating platforms that curate unique travel experiences. For example, Travelstride connects adventurers with a myriad of experiences, from cultural immersions to thrilling adventures.

New innovative startups that are able to tap into this demand have a promising space to innovate because of the multitude of niches within this space. Startups could focus either on locations or on types of experiences in which they are experts to add the most possible value for travelers.

Example business idea – a hyper-local adventure hub: a platform that connects travelers with hyper-local adventure guides who curate experiences based on the traveler’s interests. These guides, sourced from the community, offer personalized insights and take travelers on offbeat journeys, providing a genuine taste of the local culture and landscape.

2. Peer-to-Peer Travel Exchanges

Peer-to-peer travel exchanges are gaining momentum as the sharing economy grows. Platforms like BeMyGuest enable travelers to connect with locals for authentic experiences, fostering cultural exchange and transforming the way people perceive and engage with travel.

The success of these startups is rooted in the desire for more meaningful interactions and a departure from standardized tourist experiences. Travelers are increasingly seeking local insights, and startups facilitating these connections are well-positioned for growth as they have the opportunity to redefine the travel narrative by facilitating meaningful interactions between travelers and residents.

Example business idea – a cultural immersion marketplace: a platform where locals can offer immersive cultural experiences to travelers, from traditional cooking classes to guided tours of hidden gems.

3. Personalized Travel Planning

Personalization is a driving force in the modern digital landscape, and travel is no exception. Startups leveraging artificial intelligence to deliver personalized travel planning are disrupting traditional models. AI is the main driving force behind this trend, as it allows scalable technology to cheaply understand the context and needs of the individual traveler – be it budget, interests, or time constraints.

Despite the relatively recent shutdown of Utrip, the niche is likely to see a lot of growth in the coming months and years thanks to the increasing number of developers building apps on top of the OpenAI API. In our experience, being on the cutting edge of a new technology is one of the best ways to ensure impeccable startup timing, which is one of the most important startup success factors.

Example business idea – collaborative travel planning app: an app that allows groups of travelers to collaboratively plan their itinerary. The app considers each traveler’s preferences and constraints, facilitating a democratic and personalized travel planning process. This ensures that everyone in the group has a say in the itinerary.

4. Digital Nomad Support Platforms

With the rise of remote work, digital nomads are redefining the way people approach travel.

Startups are emerging to support this growing demographic with platforms offering resources such as co-living spaces, coworking memberships, and networking opportunities.

Nomad List is a prominent example, providing valuable information on remote work-friendly cities. The success of such platforms stems from the increasing trend of individuals choosing to work from anywhere, and startups facilitating this lifestyle are tapping into a burgeoning market.

5. Adventure and Expedition Planning

The promise in adventure and expedition planning startups lies in meeting the demand for transformative and offbeat travel experiences. Modern travelers seek more than conventional sightseeing, and startups organizing extreme adventures cater to this desire for unique and thrilling escapades.

A good example is tourradar – a travel marketplace offering extreme experiences, from treks through unconventional landscapes to challenging expeditions.

Business idea – AI-powered custom expedition builder: a platform that allows adventure seekers to build their customized expeditions. Users can choose destinations, activities, and difficulty levels, and the platform connects them with local guides and necessary resources to bring their unique adventure to life.

If you’ve spent any time researching investing in real estate (or stocks), you have probably heard people throw around the phrase: “Time in the market is better than timing the market.”

The old saying originated from Ken Fisher, a billionaire investment analyst and financial advisor, and while Ken was actually referring to the stock market with this now-famous quote, the same concept is very much applicable to real estate investing as well.

Many investors are tuned into cycles enough to where they find success with timing the market, but spending more time in the market is a simpler, more sustainable approach for the average investor.

Why Try to Time the Market?

The primary draw of attempting to time the market lies in the potential of maximizing the profits and cash flow on your deals. By purchasing a property at a low point in the market cycle and selling at a high point, investors will capitalize on significant returns compared to if they were to buy in the middle of a market cycle.

In addition to the upside in profits, a lot of investors are able to mitigate risk when they buy their real estate deals during market downturns. If you can successfully time the market and buy deals close to market lows, you will protect your portfolio from substantial losses.

Risks of Trying to Time the Market

For any investor who thinks they have the ability to time the market, it can come with great risk. None of us have a crystal ball, so this strategy is impossible to execute consistently.

The real estate market is influenced heavily by interest rates, job markets, and other conditions unique to local economies. Most of these factors are outside of an investor’s control and are very challenging to forecast.

To time the market successfully, you need an unemotional approach and a little bit of luck. Anybody who attempts to time the market should not expect consistent results.

Hypothetical Scenarios

To fully understand the impacts of buying at different points in a market cycle, let’s mock up a couple of scenarios. We’ll use the Las Vegas market for this example, as it saw some of the most drastic price swings over the last couple of decades.

Scenario 1: Timing the market perfectly (buying in 2012, selling in 2022)

This example represents an absolute best-case scenario, where you buy at the absolute bottom in one of the hardest-hit markets and sell at the most recent peak.

The median sales price of a previously owned single-family home in Las Vegas was $118,000 in January 2012. Meanwhile, the median sale price of a previously owned single-family home in Las Vegas was $405,000 in August 2022.

Had you perfectly timed the bottom and bought a home in January 2012, and then perfectly timed the top and sold the home in August 2022, you would have realized a 243% return on your investment over approximately 10.5 years. 

Scenario 2: Timing the market horribly (buying in 2006, selling in 2012)

Let’s take a look at somebody’s failed attempt at timing the market. They bought a home at peak pricing, assuming prices would continue to go up, and then sold the home at the bottom. 

The median sale price of a previously owned single-family home in Las Vegas was $315,000 in June 2006. Meanwhile, the median sale price of a previously owned single-family home in Las Vegas was $118,000 in January 2012.

Had you perfectly timed the top and bought a home in spring 2006, then perfectly timed the bottom and sold a home in January 2012, you would have experienced a loss of 62% on your investment over approximately six years.

Scenario 3: Time in the market

In our final scenario, let’s consider somebody who bought 20 years ago and who has simply held on during the waves of the market. 

The median sale price of a previously owned single-family home in Las Vegas was $184,300 in Q3 2003. The median sale price of a previously owned single-family home in Las Vegas was $410,000 in Q3 2023.

Had you bought a home 20 years ago and ignored the several drastic market cycles that followed, you would have realized a 122% return on your investment over 20 years.

Time Horizon

Time horizon is a huge factor here, as the general direction of real estate has always been up.

Looking back all the way to the year 1960, the median home price in America was only $11,900. Today’s home prices, according to the Case-Shiller Index, are about $311,000. So, buying a home in 1960 and holding on to it through 2023 would have generated a gain of over 2,500%!

For the most sophisticated investors, timing the market absolutely can supercharge your returns. But for real estate investors as a whole, each investor needs to carefully consider their financial goals, risk tolerance, and investment horizon to come up with a strategy that makes the most sense for them.

The most successful real estate investors should focus on buying real estate deals at below market value, regardless of market conditions. This way, if they mistakenly buy a property close to a market peak, they will have some equity left in the deal as they weather a downturn.

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Ashley:
This is Real Estate Rookie, Episode 341. My name is 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. And today, you’re definitely going to get a kick to help you get started. We’ve got Dan McDonald coming onto to the podcast, and Dan, I think, is a great example of how to get started as a real estate investor with a low risk strategy in an expensive market. So if you want to check either of those boxes, you’ll really love today’s episode.

Ashley:
Dan will go into how he was open with communication and involving his then-girlfriend, now wife, into the house hacking experience as they toured different properties and finally purchased their first house hack. And so as of this recording, they have had two house hacks, so he’s going to share how he was able to make that possible within two years of purchasing those two properties. He also talks about the renovation on them, how he funded them, how he found them, and other things that you need to know if you are going to house hack.

Ashley:
At the very end of the episode, one of the last questions we ask him is, what are the tips that you would advise someone who wants to get started in house hacking? That, if anything, is the must-listen-to of this episode.

Tony:
Last thing I love about Dan, and you’ll hear this, is why he’s not necessarily planning to quit his job anytime soon and maybe what you can learn from that. So really great episode. Excited to get to it with you guys. Now, if you guys haven’t yet, please do just take a few minutes out of your day and leave us an honest rating and review on whatever platform it is you listen to the podcast, if you’re on YouTube, if you’re on Apple Podcasts. The more reviews we get, the more folks we’re able to reach. And honestly, the more folks we can reach, the more folks we can help find deals just like Dan did, right? He listened to Craig’s podcast episode, then he read Craig’s books, and now he’s doing this thing himself. So the work that we’re doing here on the Rookie show really is changing lives, and we can reach more people when you leave that rating and review. So take a few minutes, do that for us, please.

Ashley:
And also something else really exciting for Tony and I, our Real Estate Partnerships book has released on Amazon and Barnes and Noble and other bookstores throughout the world. So if you have purchased our book, we would love for you to leave us a review on whichever platform you bought it from, the BiggerPockets bookstore, or from Amazon, Barnes and Noble, et cetera. And thank you to all that have purchased it. We’ve heard great feedback so far and really, really appreciate it when you guys share that with us.

Ashley:
Dan, welcome to the show. Thank you so much for joining us today on Real Estate Rookie. Can you start off telling us a little bit about yourself and how you got started in real estate?

Dan:
Yeah. Well, thank you both so much for having me. Definitely excited to be here. So yeah, my name is Dan. I currently live about 30 minutes north of Boston, so pretty expensive market, to say the least. But yeah, I’ve been house hacking for almost four years at this point. Had two duplexes appear, and it’s just been a great experience so far. I still have my W2. I’m not really in any immediate rush to leave that, honestly. I’m one of the few that kind of seems like I want to reach FI, for sure, but I want to reach it while I’m at my W2 and hopefully still happy with that, and then just kind of pile it all on.

Ashley:
Dan, what is your W2? Does it translate to real estate at all?

Dan:
Unfortunately, it doesn’t really. So I have my master’s in marketing research, and it gets confused a lot with actual marketing, but it’s legit the studies behind it more. So I don’t create any campaigns or anything. Everyone will do that for me, or design something, and then I’m getting the research on it. So I’m the guy with the surveys and data analysis and stuff like that. So, it helps to look at numbers.

Ashley:
Yeah, find information on property, analyze a market. I feel like it’d probably be pretty useful with your skillset.

Dan:
Yeah, I do work with one company, I’m not allowed to say which one, but a pretty big home improvement company that I get to, I definitely spend a lot of time myself there, so it’s like, oh, I kind of know why you guys are thinking this stuff, or man, I should suggest something else. So yeah, it is helpful.

Tony:
Dan, I want to ask, you said that you house hack and this is the Rookie Podcast. So for folks that maybe aren’t familiar with the phrase house hacking, what is that strategy, and maybe give some insights into why you chose that as your investment vehicle.

Dan:
Yeah, so house hacking, the reason I love it so much is it’s basically taking a property and essentially living in part of it and renting out the other part, but you can be so creative on what that actually means. So for me, it means a duplex. My wife and I live in a unit, rent the other side, but you could buy single family, rent by the room. You could buy a single family and build a detached garage apartment or something. There’s just so many options. It really depends on how creative you want to be and how uncomfortable you want to be sometimes, too, but my wife and I definitely took the traditional route of duplex. We completely live in one unit with no roommates, and then downstairs is a rental unit, so we feel like we kind of have our own space, which was a big important factor for convincing her.

Tony:
Just one follow-up for you, Dan. I guess why was house hacking maybe the strategy that you chose? Because there are pros and cons to it, and you touched on it a little bit. What are some of the pros you see? What are some of the cons you see? And ultimately, what made you choose house hacking as a strategy for you?

Dan:
Yeah, so I definitely got to give credit where credit’s due. I originally heard of house hacking through Craig Curelop. I was actually in Craig’s fraternity in college. So we both went to school in Boston and knew him for a little while before he graduated. And like you do with all kind of people in your fraternity or whatever from college, you follow them on Facebook and you see what they’re doing and stuff. And I could see Craig starting to build up this real estate empire. And then I saw him working for BiggerPockets and I’m like, what is this company? And then I just went right into the rabbit hole and was like, oh, man, and started to hear more and more about it and then read his book and stuff. So for me, it was really like, and I still really believe this, that it is the easiest point of entry for rookie real estate investors.

Dan:
It’s like, for me, the prices are just insane around here, so it’s very hard for me to come up with 20% on a quarter-of-a-million-dollar house or more is going to take me some serious time. So for this, it was, okay, how do I get something? How do I stop paying rent and build an asset and start to build this business without literally waiting 20 years or something to save up the 150 or $200,000? So for me, that was really the main focus was I need a place to live no matter what. So I’m already paying expensive rent. Why can’t I be paying myself? Why can’t someone else be paying me? So it was really just that point of entry that I think is, to this day, is definitely the easiest route to start off.

Ashley:
I just want to mention real quick that Craig Curelop was a guest on here, too, the Rookie Podcast. He was Episode 195, and you did mention his book, Dan, which is the House Hacking Strategy, which is available on biggerpockets.com and in the bookstore, if anyone wants to check that out after they hear Dan talk about all the amazing benefits of house hacking and want to get started themselves. So let’s kind of go into that first deal of, okay, you’ve decided you want to do house hacking. What are the next initial steps you took? What made you actually start investing compared to maybe somebody who says, yes, I want to start house hacking and then never takes action? Explain those steps for us.

Dan:
Yeah, I think what’s really important, well, for me, one of the biggest first steps was convincing my wife, well, my now-wife. Back then, she was my fiance or girlfriend at the time. I can’t exactly remember, but she was definitely close to me.

Ashley:
Your girl.

Dan:
She was my girl. So yeah, that was definitely set in stone. So convincing her, for sure, because we both grew up the same way, but she’d never heard of this. Real estate wasn’t like her go-to. She sees the benefits, but she’s not obsessive like I am. So convincing her this is what we would do for here and this is why it’s better versus that traditional starter home that everyone wants to buy and then they become house poor and it just seems to drag on and on. So that was definitely step one for me, but really, two, I had to understand my finances. I had to understand what it looked like for me to house hack around here, because obviously if you’re house hacking north of Boston or in Boston or whatever, Massachusetts in general, it’s a much different ball game than maybe Tennessee or Georgia or whatever. So I really had to study my surroundings and understand, okay, what markets should I be focused in? What’s actually realistic for me? Because obviously I would love to house hack and get paid to do so, but is that realistic around Boston?

Tony:
Dan, you hit on something that I’m sure caught the attention of many of our listeners, and you said that you were able to get your fiance on board with this idea of house hacking. Me personally, I think house hacking is probably one of the hardest strategies to get a spouse on board with because at least with non-house-hacking type investments, you’re not sharing walls with your real estate investment itself. There’s a little bit of separation there, but with house hacking, you’ve got one side, your tenants are on the other side. So what steps did you take, Dan, and what was that journey like for you and your fiance at the time to get her from maybe knowing nothing about real estate investing to saying, yes, let’s move in next door to our tenants. What was that conversation like?

Dan:
Yeah, so one of the bigger things, not to make it a marriage podcast, but definitely compromise. I mean, definitely realize that, because she’s putting up her money, too, and there is a little bit of that trust there that’s a little bit of blind trust, and she’ll admit it, too. She will support me, she will trust me. She trusts that I have put in all this effort to study this and listen to a million podcasts, and I can run the numbers and stuff. So definitely, definitely show her you’re serious, show him or her you’re serious about this, and then bring them along for as much as they want to be. So I brought her to every open house. I wasn’t going to buy a house without her ever seeing it. We went to every open house together. I communicated with her the types of things we need to look for, the types of things we need.

Dan:
And to be completely honest, I don’t know if she ever really was 100% there until we got our first duplex, and we were able to see, A, the numbers and how much sense it made financially, but also build a place that was actually better for us. We essentially had to do a lot of cosmetic stuff to it, and it was nicer than what we were living in before.

Dan:
So some of those updates weren’t the most financially savvy thing I’ve ever done, but it was like, okay, what will make her excited about living here? I want to get her into a place that for rental-wise, people are going to love it, but she’s going to love it, too, and she’s going to want to live here. And I think that’s really important. If you’re telling your partner, like you’re going to live in the basement together and then someone’s going to rent out a beautiful upstairs, then good luck. And if you find that person, maybe you should marry them because they’re very, very willing at that point. But my wife, God bless her, she supports me, but she’s not looking to live behind a curtain like Craig did for a while. So you got to tread lightly.

Tony:
Dan, you hit on some important things that I want to make sure that we’re highlighting for every single person that’s listening. This is something I’ve been saying for a while now, but if you have a goal of investing in real estate and your spouse is not on board, the first question you need to ask yourself is, have I earned that person’s trust? Have I earned the right to get my spouse to be on board with this desire that I have to invest in real estate? Because if you’ve never really put your mind towards anything in your entire life, why would your spouse or your girlfriend want to get on board, or your boyfriend, want to get on board with this idea? If you’ve jumped around from a different business idea every 30, 60, 90 days and none of them have seen any level of success, why would they think that this one will be any different?

Tony:
But what you said, Dan, was she trusted you because she saw that you poured in a bunch of time into educating yourself, listening to the podcast, reading the books. She knows that you have the analytical skillset, so there’s already some natural ability that you have to be successful in this. And then the third thing you did was you involved her in the process. Okay, we went to every single open house together. So you built the foundation of trust by yourself, and then you slowly brought her in. And I think that’s the path that people should take when they’re trying to get their partner or their spouse on board with real estate investing.

Ashley:
My cousin, she just got engaged yesterday, actually, and when she started dating her boyfriend, he owned a duplex. And after a year dating, she moved in with him, and she was just complaining, “We need a bigger place. I don’t have a closet,” all this stuff. And I said, “What are your plans this weekend?” And she named two places they were going out to dinner, they were going to, I don’t know, a concert something. I was like, “What trips do you have planned?” And she’s planning all these trips. And I was like, “Do you enjoy that? Do you love all that?” And she’s like, “Yeah, I do.” And I said, “Do you know why you can do that?” And she’s like, “Well, my boyfriend pays for me.” And I said, “Yeah, do you think he could pay for that if he has this huge house mortgage now?”

Ashley:
And she was like, “Oh, yeah.” It clicked with her, and now she just got engaged in Scotland, and they just bought this beautiful huge house and everything, and it was that delayed gratification that she had to suffer and live in a small little apartment and have a tenant downstairs for a couple years, but it is remarkable what can actually happen. And it may not seem like that much, but it actually can add up to a lot down the road. It’s almost like you think of compound interest. It’s all these compounding effects of house hacking and be able to cut those living expenses out can really add up in the long run to save for that big beautiful diamond ring she got.

Tony:
Yeah, Ashley, I just got to add one thought to that. I feel like part of the reason that delayed gratification is so difficult is it has a lot to do with the community that you find yourself in. So when my son, he’s almost 16 now, but we were one of the late ones to give him a cell phone, like a smartphone. And when we first gave him a cell phone, he had one of those old school Nokias. They still make them, but they’re like newer versions. And he was so embarrassed about using that cell phone that if he had to call us, he would go into the stall in the restroom to make the phone call. I could hear the echo of the bathroom whenever we talked to him. The reason I bring that up is because he was so embarrassed to use that cell phone because everyone else at the school already had the cool iPhone or whatever it was.

Tony:
So he was the red herring or the one that was left out in that group. But imagine if everyone in his junior high was also using that same cell phone, it wouldn’t be that big of a deal. So the same thing happens for us as adults. We get so influenced by the people that are around us that if no one else is practicing delayed gratification, if everyone else is spending today and thinking about tomorrow second, it becomes harder for us to develop the right skillset ourselves. So for all of our rookies that are listening, I think a very important next step for all of you is building that community, is integrating yourself with people who are going on the journey that you’re trying to go on. So that way, doing weird things like living, maybe not as weird as Craig about living behind a curtain in the living room, whatever, but doing these weird things that real estate investors do to achieve these long-term goals, it becomes easier when everyone else is doing it with you.

Ashley:
Okay, so Dan, let’s talk about your why. Why did you want a house hack? What was your end goal? For my cousin, it was the big beautiful house at the end of the road and the diamond ring. For Tony, it was his son to finally get an iPhone.

Dan:
So for me, my why, it definitely plays a lot into my background. So I grew up in a small farm town in Connecticut, middle class, two very loving and supportive parents. My dad really instilled this notion in me of a strong worth ethic and all his financial savviness, and he was a great saver and worked extremely hard. And because of that, he was able to retire at 50 years old, but this was after working two jobs for 30 years that he absolutely hated. For him, he had this very admirable work ethic, and I can’t take that away, but it was a lot more working harder versus working smarter.

Dan:
And that’s essentially, in his eyes, was the only way to do it. I’ll just work, work, work, and then I’ll be able to save, and then I’ll retire. But he would tell me all the time, too, it’s not what you make, it’s what you save. And up until a few years ago, I was like, I really held onto that idea tightly, that if I just work as hard as I possibly can, if I just save as much as I can, I’ll be fine. And I’m not saying that’s the wrong way, but it wasn’t until he passed away a couple of years ago, and it just was like this total wake up call for me. He died within a year of being diagnosed with cancer, and he was only 60 years old.

Dan:
So that’s so young, and I was so thankful for everything that he’d done for my family and me, and I was really happy that he got to experience retirement for as long as he did because most people don’t even retire by 60 anymore, but it was just this eye-opening moment where it was like, okay, how can I work smarter? How can I stop being obsessed with working harder?

Dan:
And real estate was always something he wanted to do. And he got his license when he was my age, but he never did anything with it. He’d always look at listings on Zillow, always make us drive by every house for sale on vacation. Even when he had the means to, he didn’t do it. He never took that initial step. So for me, it was like I swore to myself that I wasn’t going to let all the lessons I’d learned from him passing away be for nothing and result in nothing. So I swore I would take that and make it, the lowest point of my life, turn it into the escalator for my success and really just focus on, okay, I want do all the things he did for his family.

Dan:
I want give them education. I want to be there, I want to support them, I want to help them, but I want to change it up a little bit and just focus more on working smarter and not necessarily harder. And I struggled with that my entire life. I still do. I’m still trying to get away from this mentality that if I just work harder, it’ll automatically lead to more success, but I know that’s not the case. It doesn’t always work out that way. So that’s for me has really been like, I love my job. I don’t have any plans to leave it, but how do I still get all the things I want without relying on any one source of income and just focusing on working smarter and not harder?

Ashley:
Yeah, that’s great. I think that people get caught up in, I have to leave my job because that means you’re financially free and you made it in real estate, but that’s not really the case. What the goal is oftentimes, and you may not even realize it, but it’s that you have the freedom to do whatever you want. So if you all of a sudden wake up one day and decide you want to leave your W2, you can do that. But it’s that freedom that allows you to make these life decisions day to day that aren’t based on money, is that your real estate is funding your life that you can make those decisions and not have to worry about money, which for a lot of Americans, that is a huge impact on every decision they make every day, what their finances are, leads to a lot of the decision-making.

Ashley:
And imagine taking that factor out, where there’s so many day-to-day decisions that you can now make without even having to think of the financial impact. For example, here’s just something that is a very small realm. Your son is sick. You have to take off the day of work to go pick up your son from school. Maybe you have a job where you’re a waitress, you get paid from tips, and now you are missing a full day’s pay where you’re not making anything, or there’s a lot of jobs where you don’t have sick time or paid time off or things like that. And you really have to, and even if you do, you really have to pick and choose which days you’re going to use those, that certain time off, and things like that.

Ashley:
But imagine not having to even think about that implication and just being like, oh, okay, I’m not going to do any work today. I’m just going to go get my son from school, or maybe you can work from home, whatever that may be. But that is just a huge revelation, is once you realize that you can make decisions not based on money, how much freedom you actually have to kind of pursue the life that you want.

Ashley:
So Dan, let’s get into your first property then. So you and your girl are out touring houses and everything, and you finally pick one out. Run us through the numbers on that.

Dan:
Yeah, so the first property was a duplex. It was a two-one on each unit upstairs and downstairs, and we actually didn’t get it the first time. So this was listed for 475, and we went in at 501, and we didn’t get it. This was literally a couple weeks before the world shut down for COVID. We’d been searching and hunting for months now, putting in offers and getting blown out of the water.

Dan:
And we get a call literally as the world shut down that week, March 2020, that the guy who actually got accepted lost his job and that he was pulling out of the deal and if we wanted it, it was ours. So it was a very scary decision. I was like, well, it doesn’t look too great right now to own something, or we don’t know, we could lose our jobs tomorrow. Do we really want to buy something for half a million dollars? But I knew the numbers, I knew I needed to just jump in and that I just had to jump in. There was no other option for me, just get after it, and I would figure it out no matter what.

Tony:
So I guess a couple questions to drill down on there. This property, it was 475, but you initially offered 501. Why was that? Why go over asking price? The reason I ask this question, Dan, is because I think for a lot of rookies, anytime that they think of going over asking, they feel that they’re overpaying, and it’s a common misconception. But I’m just curious, why did you come in at 501 when the asking price was 475?

Dan:
Yeah, so I was going for the Price is Right style, just putting that one extra dollar than the person on my left and hoping it worked out. But for all I know, that guy could have put 502, but for me, it wasn’t… We knew, I had spent the time running the numbers and knowing what would work, and obviously if I got it for less, of course, the numbers would’ve been better, but I knew exactly what I could offer, and I also had a lot of trust in my agent, and I definitely think that’s super important. Find an agent who’s house hacking or has house hacked or knows that stuff very well because my agent not only knew the area, knew the market, knew what was realistic. He wasn’t going to say, “Put in 450.” You don’t stand a chance. We had known, we had seen the market been playing out for very… Everyone was going over asking price.

Dan:
It was impossible. One of the houses we looked at went 100,000 over asking price, not something I was going to bid on, but we just knew what to expect. Our expectations were more realistic than some people who just assumed that they can get in a house and like, oh, that asking price, I can totally get it for 50 grand less or whatever. And that wasn’t the case. And for me, my strategy, 100%, is buy and hold. So even if I overpaid, which, yeah, I mean I could have, it didn’t matter as much. I don’t do anything for the short term. My portfolio in real estate, my portfolio in the market, my 401k, all that stuff. I am thinking about it long term. So I don’t care. I’m focused. I know this is an expensive market. I’m focused on appreciation. The cash flow here is not amazing.

Dan:
It’s not enough to retire off of unless I get quite a few properties, but I know that house that I paid 501 for is now worth about 700, and that’s just in three years. So it’s like, I knew that going into it, and I was like, okay, if I got overpay a little bit, this isn’t… And people do need to do the math, too. By then, you’re probably talking to a lender, and they can tell you. It’s not a crazy difference in your mortgage if it’s a couple grand over or even 25 over. It wasn’t like a night and day difference. So that’s just math, too. It’s just like, okay, can I afford this for a couple, 200 extra a month or something, or 300 extra? And if you can, then you got to kind of know there.

Tony:
I guess one point I want to make, and I totally agree with you, Dan, but what a lot of new investors make the mistake of confusing purchase price with the actual value of the property. Those are two separate things. I could list a million dollar property for $300,000, and say you buy it for $400,000, you went $100,000 over asking, but it’s a million dollar property. Was that a bad buy? Absolutely not.

Tony:
And the inverse is true as well, where I could list a $200,000 property for a million bucks and someone might buy it for six. Is that a good deal because they got a $400,000 discount on the purchase price? Absolutely not because the property’s only worth 200. So as a real estate investor, at times, you have to separate, I think, your emotion from the purchase price and instead fall back on your numbers. What is the purchase price that makes this specific deal meet my investment criteria? What does the purchase price that allows me to get the return or appreciation or tax benefit or whatever my goals are? What is the purchase price I need to be to achieve those goals? So as a rookie, if you can separate your emotion from the purchase price and instead focus on your numbers, it’s an easier way to make decisions about investing.

Ashley:
So Dan, now that you’ve got this property, moved into it, was it vacant when you purchased it?

Dan:
Yes. The downstairs actually had been vacant for a while. I don’t think anyone had lived in it for a while. And the upstairs was an older woman who was actually moving out to a nursing home anyway. She’d been in there for 18 years and been paying nothing, so we didn’t even get to see it. Also, too, unfortunately because of COVID, she could technically not let us in. So luckily I had an agent I trusted, like I said, and he made sure that he put in the clause that we will not actually close on this house until we get in upstairs at one point.

Dan:
And they tried to call the cops and force her to let us in, but it wasn’t happening. So luckily she was moving out relatively around the same time anyway. So we just had to wait. It delayed it a little bit, two or three weeks, and we had to wait until she got out so we could actually go upstairs and see. And of course ,I was like, okay, what is this going to be like? This could be the worst ever, but we still had that option to pull out even if it was, so they knew that. So yeah, it was completely vacant, which was awesome. We knew we were going to live in the bottom floor, rent the upstairs, but it did need a lot. It was definitely a light fixer upper, for sure.

Ashley:
So did you guys move in and then how long did it take to do that rehab? Did you guys do it yourself? Did you hire contractors?

Dan:
The rehab was, luckily, there was nothing major-major except for some water issues, which we can talk about, but it was mainly cosmetic. So I’m talking like it needed new kitchens. It needed new bathrooms. Every single thing needed to be painted, every single thing. Nothing crazy, but it was still very expensive, and especially up here, too, it’s crazy how much you can spend on basic stuff. I was doing Home Depot cabinets and stuff. I was not doing custom-made, anything like that, and it was still very, very costly renovation. But we knew that, and we wanted that. We were looking for that, whereas my wife definitely had a hard time getting past that because we also saw a lot of turnkey duplexes and stuff, but we’d be paying top dollar. And I was really, and I tell people this all the time, too, really focused on how you can add value to it as quick as possible so that when it does come time to refinance, you’re so much closer than where you were.

Dan:
Because we were putting down 3.5%, so we didn’t have a lot of equity. So it did take about $50,000 to completely renovate it, but it got it to that point where my wife was like, wow, a bathtub that I’m the first person using it. That’s insane. We were coming from a old duplex in Boston that was not glamorous by any means. It was a good deal for rental in terms of price, but it was like, I don’t know why everyone tiles the ceiling in Boston. So if you go to these old places, tile, floor, wall, ceiling, yellow, blues, greens, not normal colors. It’s the weirdest thing.

Tony:
That’s crazy. I don’t think I’ve ever seen tile on the ceiling in a residential property before. That’s crazy.

Dan:
Yeah, it’s pretty common. I don’t know if it was cheap back then, so people thought… These are also bathrooms that don’t get renovated ever, but I don’t know if people were like, wow, this tile’s so cheap. Let’s stick it everywhere we can.

Tony:
Let’s put it everywhere.

Dan:
Yeah, literally.

Tony:
You got tile in the closets. Well, one question from me, Dan. You said the renovation was $50,000. How did you fund that? Was that out of pocket? Did you have an additional loan? Did you have a partner to bring that? How did you guys fund the $50,000?

Dan:
Yeah, so it was definitely a mix of everything. When I came back to Boston, I went to grad school in Georgia, I came back to Boston. I knew I wanted a house hack as soon as possible. I saved as much as I could. I got as many side hustles as I could, focused on that, knew that I would only be able to cover that 3.5% down for sure between my wife and I, which luckily, that’s the thing that people don’t get is. When something’s $500,000, 3.5% is less than 20K. I think it’s like 17,000 or something. That’s not terrible to save. 120,000 or a 100,000 is rough. So we did that grinding there for a couple months, and then I actually got, a small portion of my dad’s life insurance, my mom gave to me to do the renovations and stuff.

Dan:
So that was honestly 100% the thing that really got me going there. And I know there are plenty of people that kind of discredit that and everything, but for me, it’s all about just don’t waste any opportunity to get. So for me, yes, I knew that that 50K was a blessing and anyone would be lucky to have it. I would’ve easily given it back a million times over for my dad, but this was something I was not going to waste, and I knew he always wanted to do real estate. So I loved it. I was like, this is much, much better for me to really get in, essentially.

Ashley:
This is actually a huge pet peeve of mine is how you said that people may discredit it because you got that money from the life insurance. I can’t stand when people do that. It was like, oh, this person inherited this money or this person, their parents were really well off, gave them this money, or whatever that opportunity is that they took advantage of. How many people are out there that get those same opportunities, get ahold of that same money, and just blow it? I almost think sometimes it’s harder when you come into money like that, so easily, that it’s way easier to just blow it and not use it, where your hard-earned money, you’ve had to scrape and save forever. It’s easier to go and use that to build your future or whatever. Yeah, so definitely don’t discredit yourself because I think there are probably a lot more people who get these kind of opportunities and they don’t take advantage of it by investing or using it to build their future, for sure.

Tony:
The statistic is wealth is gone by the third generation or something crazy like that. Most people can’t handle wealth that’s passed down to them.

Dan:
Yeah.

Tony:
I also want to touch on the side hustle piece, Dan, because you said you kind of side hustled your way into saving up for that down payment. We had an entire show on side hustles. It was, gosh, I can’t remember the episode number. Maybe our producers going to help us out here, but what were the side hustles that you worked on, Dan, or that you leveraged to save up that 3.5%?

Dan:
Yeah, so I mean, I’ve definitely been a bit of a serial side hustler. I have tried everything, DoorDash, Uber Eats, building stuff, literally selling stuff, whatever I get my hands on. I did retail. I worked at Banana Republic for a while, which wasn’t fun. Literally, I’ve tried it all, and I never really stopped. So when I graduated undergrad, my first job was $38,000 a year in Boston, and I was living with my girl, who was making I think 60 maybe then or whatever. So she wanted a little bit bougier of an apartment.

Dan:
She didn’t understand that literally… We’re young. We should just be spending it all anyway, but me trying to keep up with that, making 38K a year in an apartment that it was like 1100 for each of us, I was like, all right, dude, you got to do something. It doesn’t matter. This can’t be your only job. And then I went back to grad school and luckily got a raise and stuff, but I’ve tried it all. Honestly, the one that has really stuck with me is called TaskRabbit, and I don’t know if you guys are familiar with it or not. It’s not in everywhere.

Ashley:
We don’t have it in Buffalo, but I’ve heard a lot of people talk about it, because I’ve looked to see, and yeah, we don’t have it yet.

Dan:
So for me, I like to try to, and this goes back to my problem with just working harder and not smarter. I have been doing TaskRabbit for a couple years. I’m finally at the point where I’m actually retiring from my clients, even though I should have done it already. I should have done it probably two years ago. It served its purpose, and now I’m just dragging it on, but it has been super beneficial, and I definitely encourage people to think of what stage of side hustling they’re in. Are they in the I need cash now, or I need it in a month, or I need it in a year? Because I do regret spending so much time doing that.

Dan:
And yeah, sure, I can go out and make 50 bucks tonight, but it’s not scalable. I’m trading my time for money. I’m doing awful stuff, mowing lawns, moving furniture, doing essentially whatever. I’ve had some pretty interesting tasks on it, but it’s like that one has definitely been enough to really, and that also helped, too. We did get into a little debt when we got the house, the first one, and that helped us really kind of get out of it. So I do essentially owe it a thanks, but I definitely think it’s time to retire and focus on stuff that’s a little more like, A, I enjoy, and scalable.

Tony:
So our episode was 294 where we interviewed two of our previous guys who came back for a second episode to talk about how they side hustled their ways into some of their deals. But Dan, just really quickly, what is TaskRabbit, maybe for those that aren’t familiar, and just ballpark, how much would you say someone could project to earn on a monthly basis using TaskRabbit as a side hustle?

Dan:
Yeah, so TaskRabbit, I will say, is great for the I need cash right now stage, and I recommend it. If it’s in your area and you’re comfortable, I totally recommend it over an Uber Eats or DoorDash or something. But essentially what it is it’s kind of like a handyman app. And I say that and I definitely don’t want women to get discouraged or anything because there’s so many tasks on it that you can do anything. If you feel comfortable with it, whatever. If you want to mow lawn, cool. If you want to, they have literally mowing, moving, getting rid of stuff, cleaning, organizing. They have rental property management, which I’ve never actually been picked up for, but I am open for it. They have a list, a pretty big list of essentially anything you could do. So if you feel comfortable going to these people’s houses, doing whatever, and you set your own hours, you set your own pay.

Dan:
So I do think it’s great. I’ve done it for three years. And for me, it’s always been after my 9:00 to 5:00. So doing it nights and weekends, I’ve probably made about $12,000 doing it and honestly could have realistically made more. I started off being a little too obsessive with it. The first month I made $1,600 or something because I was just like, I’m going to fill up every hour I possibly can, but you’re trading time for money. You’re working your butt off for sure. You’re literally doing stuff that no one wants to do, like build IKEA furniture and stuff. So that’s why you’re getting hired all the time super easily. And then the clients, realistically, once they know you’re pretty much that guy or person who will just do help with this or that or whatever, they just essentially keep your number there. So I built a small list of clients that keep me busy enough and stayed off the app for the past probably two years.

Ashley:
We had Honey Money Rachel on an episode, and she actually talked about how she uses it when she furnishes her short-term rentals to put all the furniture together, that she found a great guy off TaskRabbit that comes to do it, does all these little things for her when she puts together her short-term rentals.

Tony:
I actually just opened up the app just to kind of see what are the options. so you can get help moving, general mounting, TV mounting, furniture assembly, furniture removal, minor home repairs, yard work, indoor painting, cleaning, plumbing, errands, light carpentry, packing and unpacking, organization, even personal assistant work. So there’s a lot of different things you can do in TaskRabbit. So I just wanted to highlight there because I think a lot of folks are in the boat of like, man, I just need to hustle up some extra cash to get this first deal done. And there are so many options out there, guys, so many options out there. So do what Dan did, find a side hustle, grind it out after work, weekends, and there’s no excuse not to save up, what was it, 17.5 is what you had to save for that first deal? You guys can make it work.

Dan:
And I also know that, I follow Rachel on Instagram, and I know that at one point, she literally hired someone off TaskRabbit and then mentored them. They were like, “Oh, I’ll help you, I’ll help you,” I think it was like bushes or something, “if you help me talk me through how you buy all these houses and stuff.” And I’ve tried to do the same thing with clients. I have a client who I work for his whole family, and he’s got some rental properties in the area. So I’ve definitely built up the relationship to be like, “Just so you know, I’m an agent, I am an investor. I want to buy more properties. If you ever want to dump off any of these, shoot me a text, happy to talk.” So it does also help, too, to build those connections.

Ashley:
So do you want to tell us real quick about your second property that you got and just kind of run through that?

Dan:
Yeah, absolutely. So the second one was a duplex, which was essentially two streets over, and it was a four bed, two bath is the unit I’m actually in. And the first floor is a two bed, one bath. So that one was, we purchased that last September.

Ashley:
So is you lived in the first one for a year, that year occupancy?

Dan:
We lived in it for closer to two. Yeah. So I will say, too, obviously being in inexpensive area, and something I’ve definitely struggled with is just the comparison. You go out there and you see everyone else buying a million properties, or people telling you should house hack every year on the dot and stuff. And it was really hard for us. I couldn’t save that fast. I just couldn’t save what we needed for the prices continuing to go up, and it was like it wasn’t in the cards, so it took us a year and a half or something, but it worked out very well because this house, which I had at first written off, and it was my agent who kind of came back and said, “Do you know this is literally two streets over to you? Your life would be much easier.”

Dan:
I was like, you’re totally right. I’m going to self-manage these. I was like, why am I not thinking of that? We wanted a bigger place anyway, and this was definitely bigger. It was like, okay, we weren’t as obsessed with the second one as kind of the best deal possible. We really were like, we want the next one to be five years. We want to start a family in this house. We want to be comfortable. And that’s the thing, too. Again, it’s as much as you want it to be, you don’t need to be so gung-ho on, I need a $500,000 a month in cashflow. What if you just want to live in this area? I can’t afford this area right now with a single family, four bed, two bath. I’m in a four bed, two bath right now, so why not?

Ashley:
Okay, so you moved into that one and now you have, was that one vacant, too? And did you have to do any rehab with that?

Dan:
Yeah, yeah. So unfortunately where I live, both of our properties are actually 1940, which is babies compared to the rest of Boston and the area. Everything was born when the British were invading. It’s crazy how everything is so old here.

Ashley:
Tony just can’t even imagine houses like that.

Tony:
My whole neighborhood didn’t even exist until 2017.

Dan:
Oh, man, you can’t even. The stuff, you see the basements, it’s straight out of horror movies. But literally, this one was 1940, but it still needed some definitely, again, cosmetic, but unfortunately it was bigger. So it was like, okay, it needed a little more, but they had actually, the previous owners had done a little bit more. So our first one, it was smaller, but it needed every little thing. This one, we didn’t have to paint every single room. We had to paint most of them, but not every single room. So it was like, yeah, it definitely needed some love. And that was like 55,000.

Dan:
So we’re right around the same. And I use the same contractor, built a good relationship with him. My wife and I try to DIY everything we can. Like last summer, I replaced the deck boards. We did that together at my first one, paint what we can, we try to do what we can to save. Tried to give my upstairs bathroom a little more love. We ran out of money to do the tiling in the shower and all that, but I was like, all right, let me see how I can actually make this a very nice place to live on a bit more of a DIY budget.

Ashley:
So Dan, before we wrap up here, what are your best tips for people who want to start house hacking?

Dan:
I’m going to make the assumption, I could absolutely be wrong, but I’m going to make the assumption that most people listening to this want to start house hacking are relatively new and younger, maybe in their mid-20s, early 20s or whatever, which likely means that they probably need some help financially. So I definitely think that side hustle, I think do it as smart as you can, though. Ask yourself, like I said, do I need cash now, next month, or in a year? And really focus on what’s going to be best for you. And for me, I just needed the money immediately. So I found the one that could get me the most immediately. Don’t mess around there. Definitely spend some time researching that, but obviously know when to get out. And then really, you got to be a pro at analyzing these deals. And I really tell people, so I’m an agent now, and I primarily like to help people house hack, but I tell them, try to analyze 100 deals before you even talk to an agent because it’s so easy.

Dan:
Everyone wants help house hacking and stuff. And then, like you guys were saying before, there’s a chance they never ever do it. So I think that gets you serious. I think that sets those realistic expectations and helps you build kind of a buy box. And I think that’ll just, once you do talk to an agent, you’re going to look serious. You’re going to be like, I know this. I know the area. Help me get to that finish line. Help me kind of tweak some things, but really focus on that. And then that’s super important. That plays into you really needing to work with someone who understands house hacking. I tell people, “Interview three to five agents,” and I don’t tell people, if I talk to someone, I say, “Go out, go out, talk to other people. You need to see what else is out there. You need to know what realistically type of relationship and vibe you have with someone.”

Dan:
And there’s so many options out there. It’s a little challenging. So definitely kind of build that up, and then leverage your W2 as much as you can. Like I said, I’m not trying to escape the rat race tomorrow. My goal has always been by 40 to reach financial independence, but just to have options. If I still like my W2, I’m still going to ride that out. I don’t care. Literally, I just want the options. So I’m setting that goal. I’m setting it not close enough that I have to just sprint, but enough to build the momentum. So ask yourself, how can you leverage that? How can you make those connections there?

Tony:
Dan, what a great way to wrap your story there, man. I think that’s a nice little bow to put on it and perspective, I think, for a lot of rookies that are listening. So I want to take us into our next segment here, which is the Rookie Request Line. And for all of our rookies that are listening, if you liked your question featured on the show, head over to biggerpockets.com/reply and we just might use your question for the show.

Tony:
So today’s question comes from Mel Sims, and Mel Sims, would an umbrella policy be beneficial or necessary if I were to house hack a multifamily or a single family home? Or is an umbrella policy mainly used for investments where you are not a resident? So I guess to add on another piece of the question there, Dan, I guess, how are you protecting yourself from a liability perspective with your house hacks?

Dan:
Yeah, so I will say for sure, I haven’t. I probably will eventually, but I’m not in an LLC yet. Both of them are in me and my wife’s name. And that being said, yes, I did bundle up on the insurance as much as possible. So I do have an umbrella policy. I had it when I was living in the first house, still have it living in the second house. I personally think that obviously there’s loopholes either way. If someone’s really determined or figures out the right way to get to you, they realistically probably will be able to, but I definitely think that, yeah, having that umbrella policy is pretty crucial. I know mine’s for I think a million dollars or something, and it’s really not that much extra. I don’t really know. My insurance is, I think it’s relatively cheap, so I’m not overly concerned about it there. So I recommend it, personally. I know some people may be a little like, eh, but I recommend it.

Ashley:
On my personal assets, like my primary house and even our vehicles that are in our personal name that aren’t used at all as investments, we still have an umbrella policy that covers those personal assets and anything that’s in our personal name.

Tony:
All right, let’s go to our Rookie Exam. So Dan, these are the three most important questions you’ll ever be asked in your life. Are you ready for question number one?

Dan:
Absolutely. Let’s go.

Tony:
All right, man. So what is one actionable thing rookies should do after listening to your episode?

Dan:
I think they should, if house hacking is the route that they’re going, find five markets that they are potentially interested around them. And I don’t mean Georgia, California, New York, Massachusetts. I mean five towns around them that they could potentially, not meaning this is it and over with, that they could potentially house hack in. Start with that. Try to find those areas.

Ashley:
What is one tool, software, or app that you use in your business?

Dan:
I love RentCast. I definitely am at the point where… It’s hard because when you’re beginning in house hacking, real estate investing in general, there’s so many things you can spend money on, and it can add up really quickly. For me, I like RentCast because although I’m not going to claim it’s like 100% accurate, but I have found, at least in my area, I haven’t pressure tested it. I did pressure test it a little bit more to an out-of-state area, but I found it to be pretty accurate and free.

Dan:
So basically when you’re running, doing that 100 houses, I said, 100 house hacks, I said, to analyze, you’re going to need to know the rents. And after a while, you will become a pro. I just know the rent for a three bed, two bath in my area or whatever. But you’re definitely going to need to start off kind of plugging in, looking at Zillow and all that stuff. And you can totally look at Zillow and do the market research route, or you can use RentCast, which is free. I do like that one. You could get a little more accurate and do Rentometer, which I know you pay for, but I’ve just been doing RentCast. I think once you get to the agent side, they’ll help you figure out the exact price.

Ashley:
Yeah, that’s interesting. I’ve never heard of that one before.

Tony:
Yeah, I was going to ask you, Ash. Yeah, RentCast, it’s a new one. All right, question number three. Where do you plan on being five years from now, Dan?

Dan:
Five years from now. So I just turned 30 two weeks ago and like I said, I’ve always been shooting for 40 as my FI target. I’ve got it written next to me on my whiteboard. That’s always my goal. So I’ve been trying lately to figure out what the heck the next 10 years look like and it’s been a struggle because there’s so many options. But for me, five years, I want to hopefully continue to grow in my W2 because I like it, but I want to move from that side hustle stage that I talked about, where I don’t need cash right now. I want to build a business. I want to build a brand. I want to generate revenue as an agent and really focus on helping people house hack. I’m obviously biased towards that way, but just focus on that and build that as a brand as one. So I’d really like to continue to focus on that and hopefully help as many people there, especially people who think that you can’t do it in expensive markets.

Tony:
Yeah, you’re lighting the way people like myself. I live in California, another super expensive market, so it’s never about can I invest in this market? The question is always, what strategy makes the most sense to invest in this market? And that’s kind of how you go about it. All right, man. I want to finish things up by giving a highlight or a shout-out to this week’s Rookie Rockstar. And if you guys want to be highlighted as a Rookie Rockstar, get active in the Real Estate Rookie Facebook group, get active in the BiggerPockets forums, leave us a review on the podcast. Those are all places that we go to pull these Rookie Rockstars.

Tony:
So this week’s rockstar is Jamie Joseph. And Jamie says, “We just closed on our second property using the house hacking strategy, bringing us to four doors.” They started this journey back in September of 21, and they’re super grateful for the BP community and all the resources like the books, the podcast, and the forums because it’s given them a wealth of knowledge to invest and create generational wealth. So Jamie, congrats to you on this newest house hack.

Ashley:
Well, Dan, thank you so much for joining us on today’s Real Estate Rookie Podcast. Can you let everyone know where they can reach out to you and find out some more information about you?

Dan:
Yeah, thank you guys so much. Most active on Instagram, househackandhustle is my username there. Also, that’s the website, too, if you want to go househackandhustle.com. But yeah, definitely just feel free to shoot me a DM or whatever. Love connecting with people and, yeah, spreading the good word of house hacking.

Ashley:
Well, for everyone listening, if you think that you have an amazing story to share and you want to tell everyone how to become a real estate investor and how you did it, you can go to biggerpockets.com/guest and fill out our guest form to be a guest on an episode. I’m Ashley at wealthfromrentals, and he’s Tony at tonyjrobinson on Instagram, and we will be back with a Rookie Reply.