Richard

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

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

What is a Statement of Work?

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

The Importance of a Detailed SOW in Real Estate Investing

Streamlining project management

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

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

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

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

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

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

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

Facilitating clear communication

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

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

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

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

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

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

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

Securing financing

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

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

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

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

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

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

Tips for Creating a Detailed SOW

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

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

Conclusion

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Pasha:
Correct.

Henry:
I would say the system works.

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

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

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

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

Pasha:
Quick tip.

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

Pasha:
Absolutely a pleasure.

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

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

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

Pasha:
100%. Let’s do it.

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

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

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

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

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

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

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

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

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

Pasha:
100%, 100% agree with that.

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

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

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

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

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

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

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

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

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

Pasha:
That is correct, yes.

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

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

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

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

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

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

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

Pasha:
Correct.

Henry:
I would say the system works.

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

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

Pasha:
Exactly.

Henry:
That’s awesome.

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

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

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

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

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

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

Pasha:
It can be.

Henry:
Okay, now talk to us about output.

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

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

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

Henry:
Yeah, let’s talk about that.

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

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

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

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

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

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

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

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

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

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

Pasha:
I call it Residential Maintenance System XLX.

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

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

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

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

As a startup founder, effective communication and negotiation skills are arguably the most important skill for success. This short guide provides valuable insights and tips derived from our professional experience and renowned works on the subject, such as Dale Carnegie’s “How to Win Friends and Influence People” and Chris Voss’s “Never Split The Difference.”

1. Prep: Uncover The Black Swans

Active listening helps build relationships and provides opportunities to gather valuable information. Before engaging in a difficult conversation with any of the stakeholders of your startup, it’s a good idea to seek sincere feedback from other relevant stakeholders relevant to the situation. It’s likely that you will uncover unexpected insights that can contribute to your understanding of the situation you are handling with the planned conversation. Actively listening to other parties and gaining deeper insight into your counterpart and their circumstances can also save precious time by ensuring you’re not banging on the wrong door.

2. Emotional Defusion: Use Mirroring And An Accusation Audit

Most difficult conversations are difficult because they contain an emotional charge for one or both parties for one reason or another. Handing this emotional charge right at the beginning of the conversation is a prerequisite for being able to conduct a productive and rational discussion.

To do that, you can use two techniques recommended by Chris Voss. First, you can use mirroring (rephrasing what the other person said and repeating it back to them) in order to showcase that you understand well the position and feelings of the other party.

Second, you can employ an accusation audit. You can take the “blame” for the emotional charge in the conversation on yourself. This diffuses tension and encourages the other person to offer support rather than blame.

3. Connection: Employ Active Listening And Tactical Empathy

Active listening is essential for engaging in meaningful conversations. Avoid the common habit of waiting for your turn to speak. Instead, focus on understanding the other person’s point of view, needs, and desires. By genuinely listening and empathizing, you can establish a connection and incentivize action. Remember, it’s crucial to prioritize what the other person wants, rather than solely focusing on your own goals.

Most decisions are motivated by emotions. Having good rational arguments for what you are doing or what you are trying to get the other party to do is important, but it is equally (if not more) important to make them feel comfortable and understood in your company.

4. Earnestness: Beware Of A Fake “Yes”

Finally, after establishing a healthy emotional climate for the conversation and a mutual feeling of understanding and connection, it is important to lead the conversation toward the desired action after it is over.

That being said, while it is important to be assertive in what you are trying to achieve, it is also important not to be pushy and to see if there is a real desire (or lack thereof) for action in the other party.

In negotiations, there are three types of “yes”: confirmation, commitment, and counterfeit. A confirmation “yes” simply affirms a statement, while a commitment “yes” indicates a willingness to take action. This is what you are usually aiming at.

However, many people use a counterfeit “yes” as a defense mechanism to avoid confrontation. This can lead to wrong expectations, which in turn hinders progress a great deal. Encourage honesty and genuine opinions from your counterparts, even if it means hearing a “no.”

In summary, effectively handling a difficult conversation is a skill you need to acquire if you want to become a successful startup founder. Here’s a short outline of how to do it:

1. Prepare and uncover unexpected pieces of information
2. Defuse emotional tension through mirroring and an accusation audit
3. Establish trust with the other party – listen actively
4. Move the conversation towards a commitment of action, but avoid a fake commitment

When you’re in the market for a new property, one of the first things you’ll want to do is apply for a mortgage preapproval. This process can help you determine your budget, refine your house-hunting efforts, and give you an edge in a competitive market. 

Let’s walk through the basics of mortgage preapproval, how it differs from prequalification, and why it’s important when buying a home. 

What Is a Mortgage Preapproval?

A mortgage preapproval is a preliminary assessment conducted by a mortgage lender to determine the maximum loan amount for which a borrower may be eligible. It involves thoroughly evaluating the borrower’s financial background, creditworthiness, and loan repayment ability. Obtaining a mortgage preapproval is an important step in home-buying as it provides a clear understanding of the price range within which the borrower can search for a property.

Preapproval vs. prequalification

While often used interchangeably, preapproval and prequalification are two distinct terms in the mortgage application process.

• Prequalification: Prequalification is an initial assessment based on information provided by the borrower. It typically involves conversing with a mortgage lender or a quick online application. The lender reviews the basic financial details the borrower provides, such as income, debt payments, and assets, to estimate the loan amount for which they might qualify. Prequalification gives borrowers a general idea of their eligibility but does not carry the same weight as preapproval.
• Preapproval: Preapproval, on the other hand, is a more rigorous and detailed process. It requires the borrower to complete a formal mortgage application and provide the necessary documentation for verification, such as income statements, bank statements, and credit history. The mortgage lender thoroughly reviews and assesses the borrower’s financial situation, creditworthiness, and ability to repay the loan. A mortgage preapproval is a stronger indication of the borrower’s eligibility and provides a more accurate estimate of the loan amount they can secure.

Preapproval vs. approval

Preapproval and final approval represent different stages in the mortgage application process.

A preapproval is a preliminary evaluation conducted by a lender to determine the maximum loan amount for which a borrower may qualify. It gives borrowers an estimate of their purchasing power, allowing them to search for homes within their budget. However, preapproval is not a guarantee of obtaining the loan. Preapproval depends on the borrower’s financial information provided at the preapproval and is subject to further verification and underwriting during the final approval stage.

Final approval occurs when the mortgage lender has thoroughly reviewed all the borrower’s financial information, completed a comprehensive underwriting process, and determined that the borrower meets all the requirements for the loan. This stage typically happens once the borrower has found a specific property and provided all the required documentation to the lender. Final approval gives borrowers the confidence to move forward with the purchase, as it signifies that the loan is officially approved and ready to receive funding. 

How to see what you qualify for

To determine what you qualify for in terms of a mortgage loan, you’ll generally follow these steps:

• Assess your financial situation: Evaluate your income, expenses, and debts to see how much of a mortgage payment you can afford. Now is a good time to calculate your debt-to-income ratio, an important factor mortgage lenders consider when assessing your home loan eligibility.
• Check your credit report: Obtain copies of your credit reports from the three major credit reporting agencies (TransUnion, Equifax, and Experian). Review it carefully for any discrepancies or errors on your credit report that could affect your creditworthiness. If you find any issues, work to rectify them before applying for a mortgage.
• Research lenders and loan options: Explore different lenders and loan programs to find the options that best suit your needs. Consider factors such as interest rates, loan terms, and down payment requirements.
• Gather documentation: Prepare the documents lenders typically require during the mortgage application process. 
• Get preapproved: Submit a formal mortgage application to a lender and provide the required documentation for verification. The lender will thoroughly review your financial information and issue a preapproval letter indicating the maximum loan amount you likely qualify for.

How to Get Preapproved For A Mortgage

Getting preapproved for a mortgage is an important step in the home-buying process, so let’s break down some key details about how to get preapproved even further. 

Collect your documentation

Gather the necessary documents that lenders typically require during the preapproval process. These may include:

• Proof of income: Provide recent pay stubs, W-2 forms, or income tax returns to demonstrate your employment and income stability.
• Asset statements: Gather bank statements, investment account statements, and other relevant documents to show your savings and assets.
• Identification documents: Have your driver’s license, passport, or other documents ready.
• Employment verification: Prepare documents that validate your employment history and stability, such as offer letters or employment contracts.

Know when to get preapproved

Timing is crucial when it comes to getting preapproved for a mortgage. Consider the following factors to determine the right time:

Getting preapproved before you start searching for a home is generally recommended so you’ll clearly understand your budget and can focus your search on properties within your price range. This shows sellers that you are a serious buyer and can give you a competitive edge in a competitive real estate market.

Get your credit score checked

A good credit score is crucial for mortgage preapproval. Once you obtain a copy of your credit report and check it for any errors you can dispute, study your credit behavior to gain insight into what steps you can take to improve your credit score. 

If you have significant credit issues, consider seeking guidance from a credit counselor who can provide personalized advice to improve your creditworthiness.

Receive your mortgage preapproval letter

Once you complete the preapproval process, you’ll receive a mortgage preapproval letter from the lender. This letter confirms the loan amount you qualify for based on the lender’s assessment of your financial information. A preapproval letter is a valuable tool when making an offer on a home, as it demonstrates your ability to secure financing.

Understand how long preapproval lasts

It’s important to note that mortgage preapproval has a limited lifespan. Preapproval letters typically have an expiration date, usually ranging from 60 to 90 days. After the expiration, the lender may require updated financial information to reassess your eligibility. Keep track of the expiration date and proactively provide any requested updates to maintain an active preapproval status.

Mortgage Preapproval FAQs

Before seeking mortgage preapproval, ensure you understand the answers to these frequently asked questions. 

How long does preapproval last?

The duration of a mortgage preapproval can vary depending on the lender. As briefly noted earlier, generally, preapprovals are valid for 60 to 90 days. After this period, the lender may require updated financial information to reevaluate your eligibility. It’s important to keep track of the expiration date and be proactive in providing any necessary updates to maintain an active preapproval status.

What factors are considered for preapproval?

Mortgage lenders consider several factors during the preapproval process. These typically include:

• Credit score: Lenders assess your creditworthiness by reviewing your credit score and history. A higher credit score generally improves your chances of preapproval.
• Income and employment: Lenders evaluate your income stability, employment history, and current employment status to ensure you have the means to repay the loan.
• Debt-to-income ratio: Lenders analyze your debt-to-income ratio, which compares your monthly debt obligations to your gross monthly income. A lower ratio indicates a lower level of financial risk.
• Down payment: The amount of money you can put towards a down payment can influence your preapproval, affecting the loan-to-value ratio and the lender’s risk exposure.
• Assets and savings: Lenders consider your savings and assets to assess your financial stability and ability to handle potential expenses.

Why should you get preapproved by more than one lender?

Getting preapproved by multiple mortgage lenders can be advantageous for several reasons:

• Comparison of offers: By obtaining preapprovals from multiple lenders, you can compare the terms and conditions, including interest rates, loan programs, and fees. This allows you to select the lender offering the most favorable terms.
• Negotiating power: Having multiple preapprovals can strengthen your negotiating position when making an offer on a home. Sellers may view your offer more favorably if multiple lenders have assessed your eligibility.
• Backup options: If one lender denies your mortgage application after preapproval, having other preapprovals in place provides alternative options and reduces the risk of starting the process from scratch.

Does getting multiple preapprovals hurt your credit score?

When you apply for mortgage preapproval, the lender typically conducts a hard inquiry on your credit report. Multiple hard inquiries within a short period can temporarily negatively impact your credit score. However, credit scoring models recognize that borrowers may shop for the best mortgage rates and allow a grace period. Generally, credit scoring models view multiple inquiries made within a 14 to 45-day window as a single inquiry when calculating your credit score. It’s important to be mindful of this timeframe and aim to obtain your preapprovals within the specified period to minimize any potential impact on your credit score.

Can you get denied a mortgage after being preapproved?

Yes, receiving a rejection for a mortgage loan is possible even after you are preapproved. Preapproval centers on an initial assessment of your financial information, subject to further verification and underwriting during the final approval process. There are several reasons why a lender may deny your mortgage application after preapproval:

• Change in financial circumstances: If your financial situation significantly changes, such as a job loss or a substantial increase in debt, it may impact your eligibility for the loan.
• Inaccurate or incomplete information: If the lender discovers discrepancies or inaccuracies during the underwriting process, it can lead to denial.
• Property-related issues: If the property you intend to purchase does not meet the lender’s criteria, such as appraisal issues or title problems, it could result in a denial.

How far in advance should you get preapproved for a mortgage?

The timing for getting preapproved for a mortgage depends on your specific circumstances and preferences. It’s usually a good idea to obtain preapproval before actively searching for a home. This way, you clearly understand your budget and can make more informed decisions. It also gives you a competitive advantage when making an offer, as sellers are more likely to take it seriously if you are preapproved.

It’s important to note that pre-approval letters typically have an expiration date, so keep in mind the validity period of your pre-approval and plan accordingly to ensure it remains active while you search for a home. If your financial circumstances change significantly, you may need to update your pre-approval with the lender.

How long does a preapproval take?

The timeframe for obtaining a mortgage pre-approval can vary depending on several factors, including the lender’s processes, the complexity of your financial situation, and your responsiveness in providing the necessary documentation. Generally, the pre-approval process can take anywhere from a few days to a few weeks. 

It’s worth noting that you may expedite the pre-approval timeline if you promptly provide all the required documentation and respond to any requests or inquiries from the lender in a timely manner. Additionally, some lenders may offer expedited pre-approval services or digital platforms that streamline the process, potentially reducing the overall timeframe.

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

Recessions impact consumers in different ways, depending on their financial circumstances. In most cases, though, economic downturns do some harm to consumers’ pocketbooks. At the very least, signs of a slowing economy lead to changes in spending habits and priorities.

With consumer spending making up two-thirds of U.S. economic activity, penny-pinching makes business leaders start to worry. They know recessions can shrink corporate budgets as cash flows turn into a trickle. Like well-off consumers, larger companies may not be as hard hit. Those most at risk are firms toward the other end of the spectrum, including smaller businesses without substantial financial reserves.

But just because consumers are cutting back doesn’t mean they aren’t spending at all. Well-positioned brands and offerings can still win over customers when times are tough. Yes, it’s possible to grow a business during a recession. Keep reading to find out how.

1. Reinforce Brand Value

When people see their paychecks aren’t keeping up with inflation, they can go into survival mode. Layoffs and reorganizations can prompt the same reaction. Anxiety and fear may surface, driving shifts in shopping behaviors. Someone who used to refuse to go to the dollar store might have a sudden change of heart.

It becomes a game of the survival of the fittest, with more consumers strategizing rather than buying impulsively. Business leaders usually find it best to adopt a like-minded approach during recessions. This isn’t the time to abandon brand strategy in favor of piecemeal marketing ploys. Because what doesn’t change is consumers’ emotional connections with strong brands.

Sure, people are looking for lower prices. But they’re also seeking quality and value when the road ahead seems rocky. Shoppers are more likely to reach for brands that comfort them and deliver on promises. While conventional wisdom says recessions can erode brand loyalty, it doesn’t always happen if there’s enough perceived value.

It’s an approach workwear retailer Dungarees used to expand its business as technology changed shoppers’ habits. The company focused on positioning the brand as the go-to destination for hard-working, budget-minded consumers. Whether people shopped in-store or online, Dungarees reinforced its brand promise of exceptional customer experience, quality products, and value, as Mike McClung, Dungarees CEO, recently told me in an email: “When consumers start paying closer attention to the time value of their hard-earned dollars and focus on longer-term budgets, brands of higher quality start to win the buying decisions. Buying one pair of pants that lasts twice as long for $50 wins over buying two cheaper pairs for $35.”

2. Prioritize Loyal Customers

The definition of growth isn’t limited to acquiring additional customers. Businesses can also expand by leveraging relationships with existing clientele. Even in times of prosperity, the probability of converting current customers is substantially higher than new ones. Companies stand a 60% to 70% chance of conversion with existing clients versus a 5% to 20% chance with brand-new customers.

It goes back to trust and familiarity. People who know what a brand offers see choosing it as less risky. When businesses reward their behaviors, it becomes more of a no-brainer. Take Starbucks as an example. The company’s profits fell 28% during the 2008 recession, prompting a refocus on customer-centric experiences. Although the coffee giant’s focus back then was gathering feedback and streamlining operations, it’s taking a parallel approach this time.

The company’s current emphasis is on making it easier for rewards members to keep buying. This may take the form of 50% discounts on drinks for an extended weekend or extra rewards for repeat purchases. Regardless, existing customers feel as though they’re getting a personalized treat. By growing client relationships, businesses can expand sales even when overall consumer spending is down.

3. Become a Brand Partner

The likelihood of slower sales can be enough to tempt business leaders to slash marketing budgets. However, cutting spending in this category isn’t always a good idea. Nielsen research shows 10% to 35% of brand equity is marketing. And brands that go radio silent typically lose 2% in long-term revenues every quarter. It can also take three to five years to recover those losses if companies restore marketing spend levels when conditions improve.

In challenging economic times, a wiser tactic is to reallocate advertising and promotion dollars to well-performing channels. Some of those channels can be brand partnerships and sponsorships of nonprofit organizations. Companies can get more returns from partnerships that build credibility and extend reach. In the same way, sponsorships of nonprofits boost a business’s visibility while giving consumers a feel-good reason to support the brand.

One example is Panera Bread’s Day-End Dough-Nation program, through which it partners with nonprofits nationwide. Instead of throwing away unsold baked goods, Panera locations donate them to local organizations such as food banks and homeless shelters. “Some other companies may sell their day-old products the next day at a discount,” Udo Freyhofer, Florida cafe manager, said in a statement. “We don’t. I feel good about having fresh items available for our customers while helping out those in need in our community.”

The value of those donations was nearly $100 million during 2021. The program is only one of the company’s community-oriented partnerships, but it is instrumental to the brand’s identity and encourages customer loyalty.

Growth in the Face of Adversity

When consumers slash their budgets, business leaders can feel like the deck is stacked against them. How can they possibly grow sales when economic figures show spending is slowing down? The fact is, recessions usually signal a shift in shoppers’ priorities instead of a complete shutdown. As long as brands can appeal to those needs in cost-effective ways, sustaining growth is possible.

David:
This is the BiggerPockets Podcast show, 783.

Chris:
I will say the purpose or maybe the goal of this conversation is to kind of walk through the home buying process, whether you’re trying to invest, whether you’re just trying to buy your primary residence, whether you’re buying even a vacation home or something. If you’re listening and you’re thinking, “I don’t know if I’m ready for real estate investing,” one, maybe you should be, and two, this is going to be applicable to anyone, no matter what type of home you’re buying.

David:
What’s going on, everyone? It’s David Greene, your host of the BiggerPockets Podcast, here today with my co-host, Rob Abasolo, with a bit of a different episode. Today, Rob and I are sharing the mic with Chris Hutchins, podcast host of All The Hacks, a very cool podcast that teaches people how to hack their way through life, specifically with personal finance. In today’s show, Chris interviews Rob and I getting information that many of you probably never heard about how to save money in real estate through using agents, looking for deals, home inspections, really everything we could possibly think of for those that don’t own a lot of real estate. Rob, how you feeling?

Rob:
Good, good. Yeah, we broke it down really from start to finish. We talk about agents, listings, due diligence, the financing, getting insurance for the properties that you’re buying. This is going to pertain to everyone that’s looking to buy a primary residence, this is going to pertain to everyone looking to buy investment properties. We really do cover everything, and honestly, for how much I’ve heard you speak on the podcast, David, you still amaze me, my friend. You gave one of the coolest tips about disclosures, and that’s all I’m going to say. That is today’s quick tip is just to listen to the entire episode because the entire episode is quick tips, but once you get to that tip about the disclosures, I was like, “Wow, this man is… He’s done it. He has done it. He has figured it out.” Congratulations and kudos, my friend.

David:
Thank you. This episode’s going to be aired on our podcast and Chris’s podcast, All The Hacks, but it was cool that we were interviewed because we got a chance to share some of the knowledge that we have when normally we’re the person interviewing the guests to get to what they know. I kind of liked the change of pace, and I think you will too. Today’s episode is full of actual advice. It’s probably one you’re going to want to listen to two or maybe three times. Make sure that you are using the note app in your phone, or if you still use a pen and ink and paper, taking some notes because there is stuff that is guaranteed to save you money.
Today’s quick tip is listen to all three parts of this episode. There was so much good info in our conversation with Chris that we broke it into three easy 30-minute segments so you can actually absorb all the good intel instead of just being overwhelmed with one long show. If you’re listening to this on the day it airs, then we will see you back here tomorrow and the next day for parts two and three. All right, let’s bring in Chris.
How the turntables have turned. Chris, welcome to our show, and I’ll just go ahead and welcome myself to your show to save you the time there. We’ve got a cool little crossover event going on here today. For those who are unfamiliar, my name’s David Greene. I’m a former police officer who became a real estate investor and is now a real estate broker. I have a mortgage company called The One Brokerage. I run a real estate team, I buy rentals, I write books, and I host the BiggerPockets Podcast.

Rob:
Yeah, and I’m Rob Abasolo. I am the co-host of the BiggerPockets Podcast. I have a goofy YouTube channel called Robuilt where I teach people how to invest in real estate, short-term rentals, tiny homes. I’m a former ad man, if you will, just like Mad Men, the TV show is basically me. I was a copywriter and I quit all that, quit all the corporate dreams about two years ago to focus full-time on real estate and documenting the journey.

Chris:
I’m Chris Hutchins. Thanks for having me and thanks for joining me. I host All The Hacks podcast. As people listening from that side know, I’m all about trying to optimize and upgrade every aspect of your life. I want to do it while spending less and saving more, and I want to really dial things in, and so I’m glad we’re here because I’ve gotten lots of questions about just the whole home buying process and I was like, “Who could I find that knows more about this than I do?” And so I thought, “Let’s do this conversation.” You guys are the pros. I’ve listened to your show, I don’t know, countless times, and I thought this could be really fun for everyone on both sides to go through front to back how do you buy a home and optimize every step of the way.

David:
And for all those listening on BiggerPockets but who haven’t heard about Chris, his podcast, All The Hacks is an award-winning podcast that will teach you to upgrade your life, money, and travel, all while spending less and saving more, which we love because the more money that we save, the more real estate we could buy, which is what most of us are addicted to.

Chris:
So let’s jump in. Someone wants to buy a house. I always tend to ask people before you’re even thinking about this, why are you doing this. I’m curious if you guys have any frameworks you use for thinking about why you would buy a house, what’s important to you. It doesn’t even make sense before we jump into optimizing the entire process.

Rob:
Well, I mean, there’s a lot of reasons to get into real estate. I don’t think that there’s any one particular reason. Some people get into real estate accidentally where they buy a house and they live in that house, and then one day they decide to buy another house and move into that house, and then they have to decide should they sell or should they buy or should they sell or keep the home, and then they become a landlord and then decide, “Oh hey, the flow from this is great,” and then they buy more houses. Some people buy a house and then house hack and rent out rooms in their home to subsidize their mortgage. And then there are also the other side of it where people work nine to five jobs and maybe they’re not making enough money at that nine to five job and they want to create supplemental income, so they get into real estate to help create monthly cashflow. Or, maybe they just want to eventually replace their nine to five income with real estate.
For me, that was really why I got into it. I had a pretty stable career in advertising, never really felt like I was making enough money, and so my side hustle became real estate, and I just started buying more properties as a way to make more money to supplement what I didn’t feel like I was making at my career. What about you, David? What do you think?

David:
There’s a lot of practical reasons why you want to invest in real estate. Even the casual observer sees home prices getting higher and higher and higher. You watch the HGTV shows that show how people can make money in real estate. It’s kind of understood that it works, but not everyone knows the brass tacks of why you can make money with real estate. A lot of it are tax advantages. The tax code, it’s very forgiving for real estate investors, and the money that you make from real estate, you usually pay much less taxes on than if you made that same money at a job because there’s a little bit of risk that’s going to be involved in it. It’s easy to leverage, meaning I can buy a $500,000 house and put maybe 5% down on the loan, so I’ve only put $25,000 of my money, but when that $500,000 house appreciates by 10%, goes up to 550, my $25,000 just made me $50,000 of equity. It’s like I’ve doubled my money relatively quickly where it’s harder to invest in other assets where you could borrow money quite as easily.
And then there’s lots of ways that real estate makes you money. You could buy it for less than market value. You can’t really do that with a stock. You can’t go get a deal on Tesla stock or Apple stock and find some way to get it cheaper. You can add value to the property, you can make it bigger, you can make it nicer, you can fix it out, you can change its use so that it can be rented to people. It creates actual equity which you can’t do with a stock. There’s nothing I can do if I buy Tesla stock to make that company worth more. And then, like Rob mentioned, it actually generates revenue. You can rent out spaces in that home, and when you do that correctly, you earn more money every month than what it cost to own the real estate, and that differences of what we refer to as cashflow and that can replace active income.

Chris:
Yeah, for anyone listening from All The Hacks that hasn’t really got into real estate investing, you guys have done a great job. I’m going to throw out an episode that is about getting started with just $10,000, I think it was episode 730 because I tried to take some notes ahead of time, but that was excellent. I will say the purpose or maybe the goal of this conversation is to kind of walk through the home buying process, whether you’re trying to invest, whether you’re just trying to buy your primary residence, whether you’re buying even a vacation home or something. If you’re listening and you’re thinking, “I don’t know if I’m ready for real estate investing,” one, maybe you should be, and two, this is going to be applicable to anyone no matter what type of home you’re buying, hopefully is what we can get to. I don’t know, that’s a little bit of the why.
For me, I’ve never actually dabbled too hard in real estate investing, outside of like index fund REITs, but I’ve gone through the home buying process as a primary residence and I actually own a fractional vacation home. I owned one-eighth of a home through a program called Pacaso where we bought one-eighth of a home up in Napa. It’s kind of interesting because you can kind of invest, it’s kind of a lot better in my opinion than a timeshare or anything like that so that’s been great. So that’s my experience, and I’ve kind of optimized little pieces of it along the way but nothing like what you guys have. So I’m excited.

David:
Curious, Chris, how well have you done? I think you said you bought a primary residence that you live in, right?

Chris:
Yep. I’ve done that twice now.

David:
And how has that investment, if you just looked at it from a pure investment perspective, outperform some of the other things you’ve invested in?

Chris:
Yeah, I mean, I would say the first time around, yes, but I had the fortunate luck of buying in the Bay Area at the worst possible, bottom-of-the-worst real estate crap. I got quite lucky by timing, didn’t know it was going to do as well as it did. The most recent one, I don’t think it’s been long enough to see anything major differences yet. But the first one, if you layer in taxes and leverage, yeah, it was a great investment, but it’s hard, it’s hard with an N of one in a market that blew up crazy to feel like I know too much based on one success story.

Rob:
That’s how it works though, honestly. It really does work like that sometimes for people where, for me, I think every real estate or every real estate, I was going to say real estator, every real estate investor, they all have this big lofty dream of becoming a millionaire, and it’s super achievable because you can buy five properties that appreciate over the course of five, 10 years and you could just have a million dollars in equity. It wasn’t necessarily because you were a genius or because you were the most, kind of had the most, I don’t know, I already said it, genius strategy, but it happens because you just did it and you kept doing it and you keep doing it consistently, and that’s really the secret sauce.
So yeah, maybe it was by luck that you bought that house in the property or in that market, but what a lot of people end up doing is when that happens, they get a taste for it and then they keep just buying and buying and buying and buying. I think if you do that consistently, no matter what, you’ll always look like a genius 30 years from now.

Chris:
Yeah, but we could have a much longer debate maybe in a future date about debating that strategy, putting it in stock, all these other investments. But I think whether you want to build a portfolio of 20 homes, whether you want to buy multifamily homes, commercial properties, or you just want to buy a primary residence, at the end of the day, you got to find the home, you got to buy the home, you got to decide if it’s a good deal, you got to close on it, you got to fund the purchase, unless you want to buy it with cash which I’m guessing most people don’t. So maybe let’s jump into that process and kick off with just someone who’s like, “I’m not really sure what I’m doing.” You’ve been an agent. Let’s talk a little bit about that process of partnering with someone to help you go through this process instead of just trying to wing it on your own, and when that makes sense or maybe when it doesn’t.

David:
Yeah, and if you’re going to buy a property, you don’t know much about it, you definitely want to use a real estate agent in the beginning. When you’re buying, here’s something people don’t realize, you don’t have to pay your agent. If you’re buying a house off of the MLS, this would be any property you see off Zillow or Redfin, something like that, the seller has already predetermined a certain amount of money they are going to pay the buyer’s agent for bringing you to the property. You have a lot of questions, there’s paperwork you’re not going to understand, you don’t know what the process is, it’s intimidating. You find a real estate agent, and I’ll add they’re not all the same. There’s good agents and bad agents, there’s good lawyers and bad lawyers, good doctors and bad ones. You really want to find somebody who’s good at what they do. They can take a lot of the fear that you have right out of it.
I mean, it’s amazing when you take this scary process and there’s a person like me that does this so often it’s boring to me, like, “Oh, another one of these. I’ve walked this path so many times.” It’s definitely not scary. That’s something that every person who wants to buy a home should know right off the bat. Find a buyer’s agent, they’re going to answer a lot of the questions that you’re going to have and they’re going to protect you in ways you didn’t even know that you needed to be protected. Maybe we can go through what the actual escrow process looks like or the process from start to finish of what to expect would buy in a home if you’d like.
If you’re a little bit more experienced, you bought homes before, one thing that people will look at, especially in a competitive market like ours, Chris, we just realized that we’re neighbors, we live pretty close to each other, probably like an hour and some change away, is you can go directly to the listing agent and you can say, “Hey, I will let you represent me on this deal, but I’m going to need some kind of an advantage. I need you to get my offer accepted over the other people, or I’d like a little bit of a discount on the price if you’re getting to represent me here.” So there are people who buy a lot of real estate that has said, “Hey, I don’t think I need my own buyer’s agent necessarily. I still need someone to handle the paperwork,” but they go right to the listing agent and they look for an advantage, and that is pretty popular in the Bay Area where most listings are getting several offers on all of them.

Chris:
Yeah. Actually, I have bought two homes in the Bay Area and both times I’ve used the seller’s agent. We could talk about that a little bit more because I have some thoughts about it, but maybe rewind a little. You said it’s important, not all agents are the same, you got to pick the right one. Obviously, not everyone lives in the Bay Area, so you’re not going to be the perfect agent for everyone. How does someone find that perfect agent?

David:
First thing to look for, find a person that sells a lot of houses. A lot of agents don’t. In fact, most agents don’t. I’d say 90% of agents sell a couple houses a year or less, and it’s unpopular to say this, the agents get angry because they’re offended right now, like, “Just because I only sell two houses a year doesn’t mean I’m not good.” Okay, I know. However, tell me anything that you do twice a year that you get really, really good at. In general, that’s how life works. If you snowboard twice a year for your whole life, you never really get that good at snowboarding, or it takes you 20 years before you’re as good as somebody that just snowboarded every weekend for the whole first year that they got into it. Repetition really does develop mastery. I talk about that in the BRRRR book that I wrote. So the first thing I look for is an agent that sells a lot of homes, period.
The next thing I want is an agent that owns real estate themselves. At minimum, they got to own their own house, but ideally I want them to own investment property. It gives a completely different perspective when you’ve bought a home and you believe in it and you just get a different set of goggles to look at real estate through. I don’t have any kids. I love kids, we were talking about that before the show, but each of you as a dad, I am sure, sees something different when you look at a kid than I do, right? I don’t immediately freak out when they start putting something in their nose. I haven’t had enough experience of seeing how that could go wrong, right? Rob has seen some of that, so he’s going to have a much different emotional response to that marble or that Play-Doh getting a little bit close to the nostrils.
Real estate agents that own real estate have that sixth sense. They can recognize that’s a bad neighborhood, that’s not the right tenant, that’s not the right floor plan, that’s not the right structure, you really want to go to this house that may not look as pretty in the pictures, but will be a better deal.
The third thing that you want to look for is an agent that understands the financial component of real estate. Many real estate agents are geared to cater to their client’s emotions. They want to be liked. They’re very high on as an eye on the DiSC profile. This is how they make their money by being likable. Most people reach out to the agent who’s the nicest, the friendliest, the warmest. That doesn’t mean they’re the smartest.
So when you’re having conversations, I always want to hear agents that are approaching real estate from a financial perspective. I want to hear them telling me, “This is the part of town that’s being redeveloped. This is the next up and coming area. This is where all the money is going into. This is a property that would function as a rental if you moved out.” Even if that’s not necessarily what you’re looking for, you just want to buy a home. If your agent sees things that way, it is very good to hedge your bets in the future because you never know when you have more kids, need more bedrooms, get a new job, want to move for some reason. You don’t want to be locked into a situation where it’s hard to sell that home or it can’t be used as a rental property if you want to leave it.

Chris:
David, let me ask you something. Does the requirement of having an agent that owns real estate, is that as important if you’re just buying a primary residence? Do you weight that a lot heavier for people that are looking to buy investment properties?

David:
No, it’s the same for a primary residence. Let me tell you why. The first house I ever bought, my agent did not own any real estate, and I bought this house in the very end of 2009, great time to buy real estate, like you were saying, Chris. My agent did not tell me that the property taxes in that area had special assessments assigned to them and were much higher than the normal property taxes. In fact, they ended up being about $250 a month higher. I was expecting 300, they were 550. Now, I was buying this as a rental property, but even if I had buying it to live in, and you got to remember at the time, the total mortgage was like $1,300 so bumping it from 1,300 to 1,550 was a pretty significant chunk. It’s like a 20% increase almost in my overall payment because they overlooked that property taxes were higher.
Now, agents who own real estate themselves would be familiar with the fact that property tax bills come, there’s more expenses than just your principal and interest on your mortgage. They would see angles like insurance can increase in this area because it’s in a flood zone. I really think she missed it because she had never paid a mortgage on her own. She never had her taxes and her insurance escrowed into her mortgage payment.
The next time I bought a house, it was with an agent that had been selling houses for a very long time and sold a lot and owned a lot of real estate herself, and as we went through the process, she educated me. “You don’t want to buy on that part of town because you’re going to pay extra money to get the better school districts. You don’t want to buy over there because the taxes are higher. You don’t want to buy a house like that because with that kind of a roof, your insurance is going to be a lot higher.” I learned so much about investing in real estate just from the person that was getting paid to help me. It was free advice and free knowledge, and it really gave me a different perspective of what to look for and what to avoid.

Chris:
I love it. Okay, so I just sent a link to you and I’m… There’s this guy in Northern California, maybe you know him, Stanley Lo, number one agent in Northern California for 10 years. Looks like and is commonly described in San Mateo County as the Asian Elvis of real estate agents. And so when you first said look for someone who sells a lot of houses, I was looking at, I know this guy. I get the flyers in the mail. He sells all the houses, high volume, high throughput, not just low-income property, all kinds of price ranges. Does that mean that if I were looking for a real estate agent, would he be the right guy? Should I consider him even though it might not feel like someone… Someone’s personality, maybe that’s not the personality I would want as my real estate agent, but do the numbers speak more than a personality? How do you think about that? And if anyone’s curious, greenbanker.com is this real estate agent’s website.

Rob:
I mean, he’s got it down, I will say that. I mean, the marketing, the cowhide blazer and the big circular glasses. I mean, I’m in, personally.

David:
That’s funny because I’d be running the other way the minute I saw this.

Rob:
I’m in.

David:
He does sell a lot of homes, I’m sure, and so he probably does have some experience. My gut would tell me, as someone who has worked with a lot of clients and knows a lot of realtors, this is probably not someone who’s actually going to be representing you. He’s going to have staff that are going to be handling a lot of it. You’re not going to be talking to Stanley, and he’s going to likely make up for a lack of negotiation ability and focus on saving you money or making you money if it’s a listing with his personality. So he’s a great marketer, and the top producing agents are always the best marketers. This is a problem in our industry. The best agents don’t make the most money. The ones that are best at getting the phone to ring make the most money, but that doesn’t mean that they’re the best when it comes to representing you.

Chris:
You want someone that sold a lot of houses, but maybe you don’t necessarily want the person who markets themself as the person who sold the most houses.

David:
Yes.

Chris:
And so it’s that kind of that sweet spot of maybe like the 60th to 90th percentile, but not the very top.

David:
There’s a lot of things people fall for. I sell the most houses in this neighborhood, realtors will use that as a way of saying I’m the best. Don’t fall for that. It makes sense to our perspective when we’re listing to the home. Oh, you sell all the houses in the neighborhood, you know how to get me top dollar. You just don’t realize until you think about it, the buyers don’t care. The buyers don’t care who’s selling that house. They are never going to look at who the listing agent is when they’re writing their offer. They just care about the house.
The buyer’s agent needs to know the neighborhood. The buyer’s agent needs to know the amenities. When you’re looking to buy somewhere, you want an agent that knows the area very well. When you’re looking to sell, it will never matter how many homes in the area that agent’s sold. In fact, the only reason they sell a lot of homes in the same area is they put their sign in all their yards and then they go, we call it farming, knocking on all the doors and meeting all the people, getting their name out there. They’re just able to utilize a listing to build leverage to get more, but there’s no competitive advantage when it comes to representing a seller if you’ve sold other homes in the area.

Rob:
I wanted to add one thing to that, well, A, it sounds like if they’re putting signs in everyone’s yards, it sounds like they’re good marketers, which goes back to what you were saying, but I did want to say that one really important piece to agents just from a consumer side and as someone that relies on agents pretty heavily is them having a really thorough Rolodex of vendors that I can use to help me run my properties, whether I’m living in it or not.
If I’m buying a short-term rental, for example, I know I need a contractor, cleaner, landscaper, pool maintenance person, pest control, and probably a plumber, electrician, and all that type of stuff. So when I’m calling a realtor, and this goes into how many houses have they sold, if they’ve sold a lot of houses over the last five, 10 years, they probably have a pretty thorough Rolodex. I mean, outdated term. If they use the term Rolodex, maybe they’re not with it. But if they have a very big contact list of all these different vendors, that’s what I’m personally looking for in a realtor because a lot of the times I really need a firsthand referral to know that I can successfully either live in a property or execute a rental.

Chris:
Yeah, that Rolodex is interesting. It’s something I never saw in the contract, but once you close, I was surprised that even though it’s not necessarily required, a good agent will spend so much time helping make sure the process from I closed to I moved in, I got the yard done, I even renovated something, they’ve been super helpful there.
We have a lot to go here, but I do want to touch quickly on that negotiating piece that you mentioned earlier, David. When someone’s trying to get into this, what leverage or room is there for negotiating? I did what you suggested. I went to the seller’s agent and said, “Hey, I don’t want to mess around. I know I want this house. I don’t need to go find another agent. I feel good in negotiating. Will you work with me?” It ended up being a great situation because that agent got more commission and was a little bit more biased towards trying to get my purchase over the finish line, and in one case, rebated 1% of their fee back to me. Are there other rooms for negotiation? Are there other tactics someone can use to get a better price or likelihood of getting accepted?

David:
Well, the first thing you have to do is define a win. In a situation where the house is getting 10 offers, a win is just getting it at all. There are times in the Bay Area or other hot markets with restricted supply and lack of inventory that you’re just not going to get a home, period. It’s incredibly hard to get in contract, you’re competing with so many people. In those situations, you’re not going to get a discount from your listing agent, you’re not going to get a better price on the home. You just have to get it.
Now, in other situations, which is what I try to target my clients into, I show them properties that less people are competing with. The listing photos are ugly. It’s been in contract, it fell out of contract. Now the days on market have ticked up and people aren’t looking at it anymore. I look for opportunities to help them get into a property with much less interest, and then we can get them a discount on the price, we can save them some money there. A mistake a lot of people make is they go to the listing agent of an incredibly hot property, they ask for a discount from the listing agent and they go, “No, there’s like 12 other people that want to buy this house. I can get my client a hundred grand more going with a different offer. I’m not going to discount commission just to help you get it.” That’s a big piece is knowing when you have leverage and when you don’t.

Chris:
I want to talk about making that offer now, right? Let’s say someone’s gone through this process, they picked their agent, they’ve figured out what they’re doing, and they find a house and they’re trying to decide, is this a good house. Let’s start with that before we get to the offer. It’s like you have a place in mind. You’re looking at this listing. Maybe you do, maybe you don’t have an agent yet, but what are the things that are really important for someone to be paying attention to when they’re looking at a listing, either online or in person?

David:
If you’re also curious about the things smart buyers look for in a listing, keep listening. The next part of this conversation will drop tomorrow. So make sure you’re subscribed into the BiggerPockets Real Estate Podcast and go check out All The Hacks wherever you get your podcast.