Richard

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.

Don Peebles, CEO and chairman of the Peebles Corporation, joins ‘The Exchange’ to discuss a new property law in Florida that restricts Chinese nationals from buying property in the state, the health of commercial real estate in America, and more.

How can companies make applying for hourly jobs easier? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.

Answer by Sean Behr, CEO, Fountain, on Quora:

Think about the last time you applied for a job. You likely were using a desktop computer, had to click through dozens of pages, upload documents, and answer questions, only to receive a generic “thank-you” email seconds later. It’s hard not to feel adrift in a sea of countless candidates, all vying for the same position but never quite sure where you stand. For hourly jobs, this process can be even more cumbersome, resulting in most candidates dropping off altogether and applying elsewhere.

Happy Applicants=More Candidates

Happy applicants tend to stick around longer once hired and become ambassadors for a company’s brand, but many drop off long before day one due to slow, clunky processes. In fact, Fountain found that 60% of candidates have quit an application because of its length or complexity. Because hourly workers are usually applying to multiple positions at the same time, whoever is first to hire them will win the race for talent.

To overcome these challenges, it’s essential for companies to embrace new and innovative technologies that streamline and automate the hiring process, making it easier to find, assess, and hire top talent. Easy-to-follow steps will increase the speed with which candidates move through the process, and more transparency at each step will help the candidate feel more valued and connected to the organization, while also increasing the likelihood of continued engagement long after they’re hired.

Clear, Consistent Communication Sets the Tone

The timeliness and the way you communicate with candidates will have an impact on how your company is perceived. Every candidate should receive an acknowledgment after they have submitted an application to your company. This should be the case even if you are hiring thousands of candidates at one time.

Delays in contacting candidates or substandard communication can be reported on company review sites like Glassdoor. Job seekers who read these reviews may be reluctant to apply for jobs for fear of a sluggish or nonresponsive application process. In fact, 80% of job applicants list lack of communication or slow communication as a reason for rescinding their candidacy.

Personalization and customization are important aspects of a successful candidate experience. By tailoring the recruitment process to meet the needs and preferences of individual candidates, recruiters can create a more positive and engaging experience. This can include communication style, the recruitment channels used, and the types of information provided to candidates.

Prioritizing the candidate experience, especially for hourly workers, is critical to attracting top talent and ensuring a positive outcome for both the candidate and the employer.

Meet Candidates Where They Are, When They Are Available

With approximately 86% of hourly applicants using their mobile phones to apply for jobs, it’s a major advantage to have applications that are easy to access and complete on a smartphone. By making the recruitment process mobile-friendly, and recruiters can ensure that candidates can access information about the company from anywhere, at any time.

Utilizing technology that makes calendar scheduling faster and “self-service” is another quick way to reduce time to hire and get prospective workers into the pipeline more quickly; especially in a high-volume operation, this type of technology helps keep track of important appointments and sending automatic friendly reminders to alert applicants of due dates or information needed.

Self-service and mobile-friendly technologies can play a significant role in creating a positive candidate experience and meeting applicants where they are. By providing candidates with easy access to information about the job, company, and application, recruiters can ensure that candidates stay engaged with the process.

This question originally appeared on Quora – the place to gain and share knowledge, empowering people to learn from others and better understand the world.

Ashley:
This is Real Estate Rookie episode 298. You guys a $100,000?

Tony:
A hundred thousand… Oh, this is like a paper loss a hundred K? No, this is like Tony wiring a $100,000 dollars from a business bank account into our lender’s account to be able to cover this, it definitely hurts.

Ashley:
My name is Ashley Kehr and I am here with my co-host Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And today we’re switching it up on the Real Estate Rookie Podcast. Ashley is my therapist for today, and I’m laying down on the therapist’s couch and I’m opening up my heart and my soul and my vulnerabilities around a recent deal that went terribly, terribly wrong.

Ashley:
And he says he’s the one laying down on the couch, but it’s actually me cozy with a comfy pillow, my blanket and a chai tea for story time with Tony today. So we are going to all learn some important lessons today. First of all, why you should always get things in writing and what earnest money deposit can actually protect you from or provide some kind of security, I guess. And then talking about pre-approval. So have you gone and gotten a pre-approval for a loan? Have you sold a property where somebody came and brought their pre-approval? What does a pre-approval actually guarantee? Tony shares his experience with that. And then also the timeline of owning real estate from acquisition to disposition of the property and how important that is in today’s market.
So you guys, I’m sure you’ve seen the headlines, you’ve seen everything in the news you’ve seen on social media, everybody talking about what has happened in the market over the past year, the past six months, and what’s going to happen in the future. We’re talking about inflation, interest rates, all those things. Tony shares a story about how he was impacted by some of these variables that are out of his control. Tony, anything you want to share before you break down in our completely vulnerable to our rookie audience today.

Tony:
I just want to tell the rookies, don’t judge me for all the tears you’re about to hear as we’re going through this. I tried my best to keep my composure, but I was just overwhelmed by so much emotion I couldn’t handle myself, but also cool. I loved that we actually learned a lot as you were riding those things off. I was like, “Man, I guess we did learn all that kind of going through today’s story.” But I guess just, I do want to give a shout-out to someone that left to say five star review on Apple Podcast. And we’ve been getting some pretty funny reviews lately. This person’s review is normal, but their username is Hilarious with three exclamation marks L-O-L capitalized with two exclamation mark so…

Ashley:
So they must have been talking about me. They made their username at to talk about me as well.

Tony:
Maybe they made their username and talk about you.

Ashley:
Oh, I’m hilarious.

Tony:
Hilarious LOL says, “These two are great. The show is great for beginners. The hosts and guests provide great insight and actionable advice that really helps get the ball rolling in your investing career.” So Hilarious LOL, we appreciate you. And for all of our rookies that are listening, please take a few minutes, leave us a honest reading review on Apple Podcasts or Spotify, wherever it is you’re listening. The more views we get, the more folks we can reach and the more folks we can reach, the more folks we can impact and help, which is what we love doing here at the Rookie Podcast.

Ashley:
Yeah, Tony, I got some boring banter to share with you real quick before-

Tony:
Yeah, please do.

Ashley:
… our show sponsor comes on. So it was just Mother’s Day and my son made this whole worksheet for me with things about mom or whatever. And one of the things was, “My mom loves to cook and he put in my dad cooks.” But in three other places he put, “My mom is funny. I love how funny my mom is.” So that just made my day. I don’t care if he doesn’t have any recollection of me ever feeding him a meal and cooking for him as long as he thinks that I am funny time-

Tony:
You’re funny.

Ashley:
… that made by day.

Tony:
That’s all the best. I love that. And Sean and I, we actually did some arts and crafts for Sarah as well for Mother’s Day.

Ashley:
I saw the scrapbook. Yeah, it’s so nice, so sweet.

Tony:
She’s pregnant right now. We’re trying to think what’s a good gift for her as a soon a mom to be. I mean like, okay, what if we introduced the baby girl to mommy? So me and Sean went to Hobby Lobby, first time going to Hobby Lobby by myself by the way. And we found the scrap booking aisle and we were at a loss. We were like, “Where do we even start? What do we do?” So we had to ask the Hobby Lobby employees like, “What do people usually buy when they’re making a scrapbook?” So anyway, the nice people that Hobby Lobby helped get us set up and Sarah loved it. And we basically wrote, we created this scrapbook where every page was us introducing our daughter, our unborn daughter to a different aspect of who Sarah is as a mom. And she seemed to really appreciate it.

Ashley:
I saw that post and I thought it was so sweet. And it was so cute as she was showing some of the pages, but I so badly wanted to comment, but I didn’t want to ruin the moment, but I wanted to comment. So this is why Tony has 200 unread messages because he said at home scrapbook.

Tony:
Scrap booking, that’s what it is.

Ashley:
That’s how you return a text to see has 200 text messages that-

Tony:
I’ve got too busy scrap booking. That’s my new passion.

Ashley:
Today, we’re going to have a very different episode. So get cozy, grab yourself a blanket, sit back in your comfortable chair. I’ve got my chai tea. And we are going to take the agony, the grueling pain of someone else’s loss and turn it into our entertainment and life lessons learned today. So I’d like to welcome my special guest, Tony J Robinson, to share how he lost a $100,000 on a deal. Tony, welcome to my show.

Tony:
I think that was by far the best intro to a podcast we’ve ever done.

Ashley:
I wish I could just riff like that every time.

Tony:
If we don’t get an Emmy nomination for that cold open ash, I quit. If we don’t get it, then I quit.

Ashley:
You know what? Good. I did forget my notepad and my pencil. So anytime you say random things, I could look at you, nod, eyes wide open and write something down.

Tony:
That was good. I felt like I was on Oprah or something, or like a Dr. Phil episode. I’m here for it. But unfortunately what you said is true, right? What you said is true. We’re here to talk about my pain and agony today. So I’ll just give the quick backstory we’ll go into, but basically the long story short is that we had a rehab project that we’re going to end up losing a little over a $100,000 on.

Ashley:
You guys a $100,000.

Tony:
A $100,000. And my producers asked me like, “Oh, this is like a paper loss a $100,000.” “No, this is Tony wiring a $100,000 from a business bank account into our lender’s account to be able to cover this.” And it definitely hurts. But talking over with Ashley and our team, we figured it could be a cool instructional thing for all of our rookie listeners as well to know that it’s not always rainbows and butterflies when you’re investing. And sometimes you make the wrong decision and you got to lick your wounds and write some checks and learn some lessons and hopefully move on from it.

Ashley:
And it’s not even only about wrong decisions, it’s about other things that are out of your control too. And that’s why we want to do this episode so that you guys can learn and educate yourself and what are some things that you should be watching for. So we’ll go into Tony’s story, he’ll set the table as to what exactly happened and then we’ll go back through and what are the things he would’ve done differently? What should you be watching out for? There’s no reason to create the same mistakes that other investors have made.
So Tony and I both try to share as much as our wins, also our losses as to lessons learned. You’ll probably hear me rant a lot about property management over the next couple of months as I’m transitioning away from my property management company and the things that I learned that actually hurt me in the long run with my investment portfolio. But today, let’s start off with Tony’s story. Sit back, get your cozy blanket on and relax. And if you are listening to this on a podcast, you might want to pop it open on YouTube to see a tear. Slowly stroll down Tony’s face.

Tony:
The single tier. So let me give some backstory first, listen to how our business structure kind of works. So a big part of how we scaled our short-term rental portfolio was we found properties both turnkey somewhat, but a lot of them were properties that needs to be rehabbed. And what we would do is we have one entity, one business that we use to purchase and renovate homes. And then that entity would basically sell that property to a partner who then our long-term holding entity would partner with.
So basically I have LLC-1. LLC-1 one sells that property, or they find that property, we raise private money to rehab that property. Then once the rehab is complete, it’s a fully furnished, ready to go, turnkey, short term rental, everything down to the forks, the knives, the sheets, everything you need to run that property is inside of it.
By the time you finish the rehab, LLC-1 number one then sells that property to Ashley. Ashley enters into an agreement with my LLC-2 to say, “Hey, we’re going to buy this entity jointly together.” And then Tony’s entity will be the one that’s in charge of managing it long term. So it’s a really sweet deal for our partner because they get a turnkey property, they don’t have to worry about managing it. And it’s a sweet deal for us because we’re able to sell that property as a flip. So we get some cash up front, but then we also get the benefit of manage. You get long term.

Ashley:
Tony, how many of those deals have you done so far? I just want to set the table for experience. Was this the first one you ever did this? Have you done several?

Tony:
In total I want to say we’ve done I think seven or eight of those.

Ashley:
Sp quite a few, yeah.

Tony:
Yeah, we’ve done quite a few and most of them worked out pretty well for us. We had one that we barely broke even on. It was four grand that we made instead of what we were initially projected. And that one was same around the same time as this one. So that’s our business model. We know how to do it. We’ve done it successfully multiple times and we’ve made multiple six figures with that process as we’ve done it successfully. But there were a few things that went wrong with this one that I’ll detail. So I’ll give you guys the timeline and Ash, feel free to jump in as I’m going through this with any questions that you have. We closed on this property at the tail end of February, 2022. So a little over a year ago is when we closed on this property on the front end.
So our rehabbing entity bought this in February of 2022. The rehab itself went pretty smoothly. We finished it in, I don’t know, maybe four or five months, which is our typical timeline for a turnkey short term rental. So say we started it in February, we were probably done with this property by, I don’t know, June or July of 2022. Once we finished the property, we started shopping it around to some of our potential partners, which is again what we normally do. And we had some interest, but people weren’t super stoked about it for whatever reason. And while we were shopping it around, we turned it into a short term rental itself just so we could generate revenue while we were waiting on the partner to potentially flip it to. And when we took that listing live, it got off to a rough start for one reason or another.
So we took the listing down as a short-term rental. We invested another $12,000 into the property just to really take it over the top and we re-list it as a short-term rental. As we’re doing that, we’re still shopping ground, we ended up finding a potential partner to buy it from us. She was someone that we had a relationship with before she had looked at working with us on a previous deal.
So we had a relationship with her. But she was in the process I think, of selling her primary residence or there was something going on in her personal life where she said, “Look guys, I’m super interested, but I need about three to four months to be able to be in a position to actually buy it from you guys.” And we’re like, “You know what? It’s fine. We’re already renting it as short term rentals. So we’re generating revenue there. We can wait 90 to 120 days.” But as we get closer to that timeframe, she starts to go, the responsiveness starts to decrease, and the amount of communication we’re getting starts to slow down as well.

Ashley:
Did you have her put a deposit down? Were you still keeping this property open to other people to invest in it? What happened during that timeframe that she’s asking to hold it?

Tony:
That’s a great question, Ashley. And probably one of our first mistakes was that there was no EMD. We didn’t even have her sign the purchase agreement. It was just like a handshake deal where she said, Hey guys, yeah, I’m super interested and I’m here. But again, just to give some context, this person had participated in our big bear deal that we tried to take down as well. So she had actually wired a six figure check-in for big bear. So we knew that this person was legit. It wasn’t just some person that we didn’t know. So we knew that she was legit. But yeah, probably having them sign the purchase agreement upfront would’ve made more sense. Just so you know, there was a little bit more accountability on both sides. But we didn’t do that. And for one reason or another, after those three, four months had expired, that person came back and said that they weren’t in a position to move forward anymore, didn’t have the desire to move forward anymore.
So now we’re in the back half of the year at this point. It’s like, I don’t know, fall of 2022. So now we have to shuffle to try and find another partner to sell this property to. Luckily, there’s still a ton of interest. The property had been performing really well as a short term rental up until that point. So we had revenue that we could show, we could show how well it’s performing, especially after we invested that additional 12K to really take the property over the top. So we ended up finding a partner pretty quickly at that point. We get the property appraised and it ends up appraising for $580, I think $9,000, which is cool because we had it under contract at 5 85. So we had appraised for more than what we had under contract for. And our numbers going into this, we had initially bought the property for $355,000. That’s what we bought it for.
We put about another, I’d say after we invested that last 12K, maybe like $125 into it. So let me just do that math really quickly. So we’re all in it for $480 and that includes our holding cost, utilities and all that stuff, all in it for $480. But we still have these interest payments from our private moneylenders that are racking up every single month. So every month we’re accruing about 4,000 bucks in interest.
So up until that point, when we got that second appraisal, which came back in December, we had already accrued about $40,000 in interest. So we had our four, whatever. So we were about 4 89 totals what we had at that point. Now the second partner that we had lined up, they were happy, ready to move forward, they end up not being able to get approved for the mortgage. So now this is the second person that steps in to try and buy this property and they’re just not able to do it. So at this point it’s like, “I don’t know, I think that was January, mid-January when we got the news.” So that person wasn’t going to be able to get approved and now we’re resetting and starting this whole process over again.

Ashley:
And Tony, is there really a way to… When you’re flipping a house or even just selling a house in general, I mean a preapproval letter, maybe asking for something like that, what would you have done different in that situation, I guess? And how long did they hold up the deal then when they couldn’t get the financing?

Tony:
That one, honestly, I don’t know if I would’ve done anything differently because whenever we flip our homes, we have a lender that we always use. That’s part of the requirements of buying one of our properties is that you have to use our lender if you’re doing it as part of our partnership. So this is something that we’ve done a ton of business with. This person that was our buyer was pre-approved, but as the underwriters did a little bit more due diligence, there were some things that came up that just the underwriters didn’t feel comfortable with. And there was weeks and weeks of back and forth of trying to get the underwriters to give us a thumbs up, but we couldn’t get there. And then the buyer ended up having to back out. So sometimes you don’t know until you get to that point that a person won’t get approved.

Ashley:
That is so important to talk about is just because somebody has that pre-approval doesn’t mean they’re actually going to get the loan on the property too.

Tony:
And just generally speaking, everyone should be careful. Don’t take pre-approvals at face value. I can go, there are private moneylenders who have websites right now where I can go in and within two minutes of me just plugging in some basic information, I can have a pre-approval letter from a hard moneylender. So just definitely take those with a grain of salt.

Ashley:
The same too goes with cash offers. Like, “Oh, if you need proof of funds, like hey, we’ll give you proof of funds.” You see a lot of hard moneylenders doing that too.

Tony:
So there’s a little bit of both of that. So the second buyer ends up pushing us back, I’d say another, I don’t know, two months or so. We went back and forth with that buyer. So now we’re in early 2023. And for folks that have been paying attention between mid 2022 to early 2023, we saw interest rates go up dramatically during that timeframe. And when we went to go shop this property for a third time, the interest had diminished pretty significantly because hey there were some policy changes in the city of Joshua Tree that took place that spooked some buyers. People didn’t really understand what these new policy changes meant, and they thought that there was a ban on short term rentals.
So we had to do a lot of educating the folks to say that that’s not what’s happening here. And the interest rate increase made it more difficult for us to structure this as a partnership where we were still able to give healthy returns to our investors because when we first had this property in their contract, we were looking at a 5% interest rate. Maybe now we’re looking at a 7%. And that difference between a 5% and 7% can really squeeze returns, especially when there’s multiple parties involved.

Ashley:
And during that time too, were there some changes on vacation home loans too?

Tony:
Yes.

Ashley:
Going from 10% to 15% because I feel like that would greatly impact it.

Tony:
That also hurt.

Ashley:
You’re buying $500,000 houses. That 5% does make a difference in the capital someone has to bring.

Tony:
So the 10% second down home loans are still an option, but they now come with more points attached to them. So even though technically it’s still a 10% down payment, if there’s two or three or four points being added to that, it almost feels like a 15% down payment at that point. So there were all these things that were happening, interest rates going up, loan products becoming less desirable, uncertainty around the policy landscape in that market. So it took us even longer to find that next partner for all of those reasons.

Ashley:
And all things that were not in your control. Yeah, I think is very important to point out, yeah.

Tony:
Yeah, those were things that we just had to roll with the punches on. Now luckily we did end up finding another buyer and we’re hopefully going to be closing here shortly with that person and they’ve been done. But now the final hangup is the appraisal. So remember we had this property appraised in the fall of last year, in the fall of 2022 and appraised for $589,000. That was about six months ago. Now, we just got an appraisal back and appraised for $440,000 is what it appraised for. And if we were to close this month, we’d owe our private moneylenders $510,000. So just between what we are, private moneylenders and the other, that’s a pretty big difference right now. But when you tack on our closing fees and all the other things kind of come to closing, it’s going to be close to about a hundred thousand dollars check that we’re going to have to write to pay this whole thing off.
So it’s definitely been, I think a frustrating experience for us and seeing that, I think our lack of urgency early on has really come back to bite us in the butt. We just saw this situation where the markets that we were investing in had been doing so well, we didn’t anticipate how quickly things would shift, but to lose, we’re talking $589 to 140,000, that’s %140,000 almost $150,000 in equity that we lost over the span of just a few months. And I don’t think any of us saw that shift coming in that market and now we just have to deal with those consequences.

Ashley:
I saw something similar kind of happen. I had done my first flip in Seattle about the same time period, bought it last February, and then we went to sell it in, it was about May, I think, April, May. And it sat on the market for a long time and we ended up breaking even on it. And at one point, it was during the rehab process, we’re like, “Oh my gosh, the comms, I could make a 100% return on my money.” I invested into this like, “Oh my gosh.” And then boom, it drastically changed. So Tony looking, actually the first question I wanted to ask is, did you end up still partnering on this deal? So do you have equity in this deal as a short-term rental? And what will be your return on that? So have you actually figured out your cash on cash return of basically, say you invested a $100,000 of capital into this deal.

Tony:
It’s going to be pretty nominal, right? Because we had to give up a pretty healthy chunk of equity to still make it palatable for that partner. Typically, on our deals we’re going to own like 50%. That’s where most of our partnerships when we do this, we still retain 50% ownership, but because the appraisal came back so low and where interest rates are in order for the deal still to make sense for that partner, we still have to give a pretty healthy chunk of equity. So the returns, it’s going to be terrible, right? We’re almost going to be managing this thing for pennies on the dollar, so our partner’s getting a solid deal because he’s got a really experienced management team that’s going to take care of everything and make it profitable for him. But for us, it’s just one of those things where we got to look our wounds and deal with it.
But I think we still have some optimism because we know that that real estate valuations are cyclical. And we saw Joshua Tree as a market, it was super affordable for a really long time. And then between early 2021 through mid 2022, you saw prices just go on this astronomical tear and now they’ve come back down to a more reasonable rate, not quite where they were before 2021. I wouldn’t say it’s as low as it was in 2020, but definitely not as high as it was in peak 2022. So we’re seeing it start to stabilize, and our hope is that as that market stabilizes over time, we’ll recoup some of that value. And when it makes sense, whether it’s five years, 10 years from now, that portfolio that we have out there are properties where maybe we would’ve liked to have sold them, but we had to hold onto them. We can revisit at that point of getting them sold.

Ashley:
So what are the things that looking back maybe you would’ve done different and then maybe we can go into here’s the things you should be watching out for that maybe you can’t control. But what are the first of all the things you would’ve done different?

Tony:
So there’s a few things. Honestly, I think the first thing is one of the things that I’m most concerned with now as we continue to flip in this market is our… I don’t know what you want to call it. Basically our stop clock from close to close, how much time are we spending? And when that window gets too wide, you open yourself up to more fluctuations in the market. Had we closed in this property, the resale 60 to 90 days after we finished the rehab, we wouldn’t have been as exposed to the fluctuations in that market. If we closed in it in February and we were selling it in July, even in that timeframe, it’s five months, but the market’s going to shift, but is it going to shift as heavily as it did on us this go-round? So I think trying to really decrease that timeframe.
For example, we just finished another turnkey flip and JT and we bought that property nine weeks ago and we already have it under contract to sell right now. We just got it into escrow yesterday. So that’s us learning from that mistake of, “Hey, we want to make sure that we’re protecting ourselves.” And even in that one, I underwrote that at what I felt was a conservative number and prices even dipped bit since then. So I think being able to go quickly from your initial opening escrow where you purchased the property to your closing escrow, where you dispositioned that property, keeping that as tight as you possibly can, that’s one of the big things I’d say we learned.

Ashley:
To close that gap are you taking on properties that don’t need as much rehab?

Tony:
So we’re just not taking on as many so one of the challenges that we had in that market was that we really only had one crew that we trusted to take on our rehab projects. We had tried out a few different crews, but every time we did that, it happened to us twice where we basically had to stop these other crews and in the middle of their jobs and say, “Hey, you’re fired. And then bring back in our main crew to finish it off.”
So what we realize is that it’s probably in our best interest to work at the capacity of our crew and however many jobs they can effectively take on at one time without necessarily slowing down is what we really want to focus on. So this flip that we just had, that was our only project. We just had that one project going and that allowed our team to just burn through that job super quick, whereas before we might’ve had four or five rehabs going on at one time, but they had to spread their resources out across. So really just getting back to the basics of, “Hey, we’re going to do one project at a time, we’re going to knock it out, then we’ll roll into the next one.”

Ashley:
So what’s next for you guys? You’ve taken this loss, very painful loss. Tony’s been sobbing uncontrollably this whole episode if you guys haven’t noticed, but what’s kind of the future? You’ve said you just recently did another flip, but what are some other things that you’re going to be maybe pivoting or changing with your business model, if any?

Tony:
Before I answer that, I just want to talk really quickly, Ashley, about the private bunny, because that was another, not a mistake, but just like it was a rough part of this. I think that was the hardest part for me was our private moneylenders because most of these folks, this was their, actually all the folks in this deal, this was their second time lending to us and that first flip in and out, we knocked it out, they got the return, they were so happy to say, “Hey, let’s roll into the next one.” And usually we’re able to give them their money back in six months, and now we’re going on month 14, I think, with this deal.

Ashley:
So how did you structure it with them and did you have to go and ask for an extension?

Tony:
So our original promissory note stated that it was a 12-month term, but that we had the option to extend beyond that. But if we did extend that, they got an increase in their interest rate. So it went from whatever it was. I think they got an additional point on their interest rate if we had to extend beyond 12 months. But honestly, when I was talking to folks in the up at the beginning, I said, “We haven’t had any deal get close to 12 months, so I don’t even think we need to worry about that, but we put it in there.”
Luckily my real estate attorney was the one that said, “You should probably just have it in there just in case.” And it really came back to save us. But I still had to, we had to communicate to those folks and say, “Hey, look, things aren’t going as planned, kind of here’s where we stand, here’s what we’re looking to do.” And obviously not all of them were happy because sometimes they have other plans for these funds and it’s not something that’s super liquid. It’s not like a stock they can just go out and swap out with someone else. But I think having those tough conversations sooner rather than later is a route I would encourage people to go.

Ashley:
And I think as investors too, if you are listening and you’re planning on being a private moneylender, that it is very important to know that this can happen and your money can be tied up. And Tony has stayed within the realm of his contract, but there may be times where an investor says, “You know what? My loan is like due now, but I cannot pay it.” And then have to go and ask for an extension that wasn’t even in the contract either. And it’s like, “Okay, as the private moneylender, do I go and start the foreclosure process on this or do I wait three more months now for it to sell?” So definitely, I’m glad that you brought this up, it’s talking about the private moneylenders.

Tony:
And most private moneylenders don’t want to deal with the hassle of going through a foreclosure. They didn’t get into this business to be active if their private money lending is typically because they want a passive return. So I think most are probably going to be understanding, but I think how you communicate that situation makes all the difference because my hope is that even though this deal, the timeline took longer than we anticipated, that we’ve still handled it well enough to keep that relationship open for future opportunities. But it definitely does require, I think having some tough conversations. And it reminds me of our guest, JP Desmond, and he lost a quarter of a million bucks across a few flips, and he talked about how he had to go back and have some tough conversations with his private moneylenders around, “Hey, how can we make this still a win-win situation? How can I get you paid back without crushing myself financially and trying to pay all you guys back all this money at one time?”

Ashley:
I wanted to share a story of my own as far as the appraisal and the impact of appraisals have had lately. So there was a property I was rehabbing, I had a hard money loan on it, and I needed to do an extension on the hard money. And it was written in that that was fine. The only thing I needed to do to extend the hard money loan was to have a broker appraisal done where they don’t actually send a licensed appraiser. It is a broker that is somehow trained and certified to do appraisal. So a real estate broker. And I don’t think banks really use them since they’re not an actual appraiser that does them. And this is the first time I’ve ever had that done. And this was back in December of 2022, and the property came back at $327,000 between December and March put there was two houses on the property and in the one house we put in a brand new kitchen, a bathroom, there wasn’t even a bathroom in it before.
And then flooring and then some other finishes and into the property, the actual appraisal in March came back at $320,000, so $7,000 less. And we added a kitchen, a bathroom, and flooring throughout the house. So it was a huge shock to us. So we talked to a couple of people that had disputed appraisals before and we actually went and disputed it and we showed we had that broker appraisal and they ended up matching it. So they did match it and say that it would now appraise for $327,000, and they lend to us on that. I think we had wanted it to appraise at $380,000, the $327,000 and appraised that our hard money on it was only $171,000. So that was more than enough to pay that back. So it was still fine, but it was just crazy, the difference in value from December to March as to how that could change. And it just, as soon as you had said your experience, it’s almost like a very similar timeline and the same thing to happen.

Tony:
Yeah. So I think the big lesson there is to never let Ashley renovate your kitchen because you end up with negative equity as opposed to positive equity. No, I’m kidding. No that was-

Ashley:
No, it’s okay. I think this is the best jam you’ve ever told Debbie, the only jab you’ve ever given me.

Tony:
Yeah, I can’t even take credit for that because Eric, our producer, put in it in the chat, so I’m just reading what he wrote.

Ashley:
Do you know what? The kitchen didn’t have backslash, and actually I’m sitting in that unit right now while we’re recording and it still does not have the backslash. So maybe that’s the big mistake there is you need backslash.

Tony:
Yeah, but I just want to talk a little bit about it, the appraisals as well, because the appraisal process is a very, very subjective process. Appraisals are an opinion of value by the appraiser that’s going out there. And two appraisers could walk the same exact property and come back with different opinions of value. And we had a property that we were trying to purchase last year and we ended up having to challenge the appraisal two times. We had three total appraisals done, and each appraiser came back with a different value of what they thought that appraisal or what that property was worth. So I think to Ashley’s point, being able to challenge an appraisal was really good thing. But just to give some insight, and this is something that my lender shared with me when we got back that $440,000 appraisal on a property that had recently appraised for $589,000.
What he said was that during the 2008 financial crisis, a lot of that was driven by these outrageous appraisals that were being done. And appraisers were in cahoots with lenders to just come up with these property values that would allow people who shouldn’t be getting qualified for mortgages to get approved for it because there was so much equity in the deals and a lot of appraisers were held accountable for their recklessness quote and how they appraised properties. So what you’re seeing now is that as markets start to pull back and sales slow down and things of that nature start to happen, appraisers are starting to become more conservative because they don’t want any blow back on them if there’s an inflated value on specific properties. So the fact that the velocity of sales has slowed down so much in this market, I think hurt us.
But then also there’s this combination of appraisers, thinking back to 2008, understand that there’s risk involved to them personally, professionally, if they overstate the value of some of these properties, that they’re being even more conservative than what they probably need to be. So there’s just a lot of things that come on and I think that that can kind of impact what we’ve got here.
So you asked Ashley kind of like, “What’s next for us?” So I mentioned one piece, right? We are still going to continue to flip. I think that there’s still a need for it. I still think that it’s specifically for the kind of product that we have where it’s a turnkey short term rental where people can take it and day one, they’re 99% ready to go. I still think there’s a need for that, but now it’s just, “Okay, how do we make sure that we’re protecting ourselves?”
So one of the things I said is the time that we’re taking to do projects, we want to make sure that we’re keeping that timeline super short from closing to closing. The second thing that we’re doing is we’re just being a little bit more patient with the volume of deals that we’re doing. So there’s properties that are listed right now that our agents, wholesalers, whoever has sent to us that we think would make good flips. But I told the team like, “Look, we’re not going to buy anything else until we disposition this flip that we currently have.”
So we really have proof of concept on what we think we can get because if we end up getting another property in our contract and we’re tying up more private money and then turns out that the property values go from four $440,000 to $375,000 or $350,000, now we’re back in the same position all over again. So I’m trying to talk internally to make sure that we’re approaching these things with the ultimate amount of conservative or conservatism, conservativeness, I don’t know what the correct word is, but that we’re being conservative and that we don’t move forward until we’ve got our own kind of numbers in house to prove what we think that these values should be worth.

Ashley:
And if you end up doing multiple and then that does happen where it decreases anymore, that’s the couple checks you have to write out instead of just one.

Tony:
Instead of one, instead of one, right. But overall, I still think the business model makes sense. And I think what we’re also trying to do now though is expand to different markets. I think not necessarily a mistake that we made, but we definitely have gone really narrow and deep into one market and now we’re thinking, “Okay, does it make sense to spread that risk out across different markets and can we potentially rebuild the team that we’ve built in this market and take it elsewhere? Can we take it somewhere else?” Because honestly, as a short term rental, that market is still doing really well. It’s just the resale values where we’re seeing this market get hit. So from a revenue perspective, most all of properties are still net positive, but it’s like how can we balance out that equity loss potentially by going into other markets as well?

Ashley:
Well, Tony, thank you so much for being raw and honest and sharing this struggle because you see all of these people on Instagram that only share the wins and never share the bad that actually happens. And there are so many challenges in real estate investing that it is so important to learn from other investors that are willing to share those experiences. And one thing that I have found too is that it can actually be somewhat inspiring and motivating to hear about something that really sucked for someone else as to, here’s Tony, he lost a $100,000, but he’s still going a real estate investor. He didn’t quit. He’s making it work. He obviously had reserves and capital in place to be able to write that check, to pay that. And so these learning experiences are amazing. But also the mindset too as to why have you not got your first deal or why have you not got your next deal? Is it because you are scared of that exact situation happening?
Well, maybe not take on such a big deal at first, start smaller on a smaller scale so that if you do lose, it’s maybe not such a big loss. So maybe you need to look at different markets to be able to find something that’s on a smaller scale or whatever that may be. But as you listen to more and more of these horror stories from investors, there are very few that give up. And one thing too, Tony, is you have different, they’re real estate, but different kind of income streams from your real estate. So you have the flip business. Are you wholesaling some houses too?

Tony:
Yeah, we did-

Ashley:
We do that for a little while, but yeah. Okay. And then you are managing short-term rentals, you are also designing short-term rentals partners-

Tony:
Yeah, we have a cleaning company.

Ashley:
… designer. You’re cleaning, and then you’re also partnering with people to own the short-term rentals too. So I think having these different multiple streams, but the building that foundation first and Tony’s foundation was buying short-term rentals and building that and then branching off and going, Tony didn’t start out with, I’m going to flip, I’m going to buy short-term rentals. I’m going to start a cleaning company, I’m going to start a management company. All from day one. He started out with the one thing short-term rentals that strong solids of foundation. And Tony would like to ask you as our closing question here today on my therapeutic show as to do you think that if you would’ve started all these income streams at once, would you have been able to be as successful as you are today? And would that loss of hurt you a lot more? And do you think that building, that strong foundation had a great impact in you being able to weather the storm of a $100,000 loss?

Tony:
Yeah, I think one of the best decisions that I’ve made as an entrepreneur was narrowing down on one specific niche. And when I made the decision, I literally told myself like, “Okay, if I’m going to do this, I want to commit five years of my life to just this one thing, and I only want to do this one thing for the next five years.” And it wasn’t until I really started to go down this rabbit hole that I started to identify other places where I needed support of that main goal of building my short-term rental business. So design was a critical part of building out our short-term rentals. And then we recognized, “Okay, if we’re doing this really well internally, can we offer this to other people.” Cleaning, we literally just couldn’t find good cleaners in Joshua Tree so we built our own team. And once we had that team built and stabilized, then we said, “Well, hey, if we have these processes internally, can we give them out to other people?”
Property management. We had to build out and become really good at managing short-term rentals at scale. Okay, now we’ve got these systems, can we pass that off to other people? So all of these kind of secondary tertiary subsidiary businesses only came because we were so laser focused on building our own thing first and getting really good at it. So for all of the rookies that are listening, don’t try and do a thousand things at once to start with focus on getting really, really good at one thing, and then naturally you’ll start to figure out where the other opportunities are. So guys, I know this is supposed to be Ashley’s talk show moment where she’s the host here, but I just want to give a few takeaways before I let you guys go. So first thing I’d say, is to make sure that you get all of your agreements in writing.
Again, I think one of the mistakes we made was not getting a signed purchase agreement, was not collecting an EMD when we found that first potential partner. And I think doing that upfront could have alleviated some of these challenges that we ran into down the road. Second, a pre-approval from a buyer doesn’t always mean they’ll actually end up closing. The reason it’s called a pre-approval and not a final approval is because there’s steps in between that pre-approval and when they actually get funded from their lender. And things could definitely change in between the pre-approval and that final process. So just know that there’s always some risk there, and obviously you want to try and do your best to vet that person, but sometimes things come up that are out of your control and that buyer’s control. Second, and this is a big one for us, is to not hold flips for too long, especially in a time where the economy is shifting and moving as fast as it is right now.
The quicker you can be at getting in and out of a rehab property, the better. And this isn’t not just for flips, but even for your BRRRRs. If you’re doing a BRRRR property and you underwrite with a certain ARV and the market shifts on you where you lose $150,000 and your ARV, your BRRRR could be in trouble as well. So whether you’re flipping, whether you’re reducing the amount of time you spend in one single property is going to help you tremendously. And then as a kind of add on to that one is working at the capacity of your crew. I think part of the reason why this one took so long is because we had our team working above their capacity, so they were jumping from project to project as opposed to being able to focus just on one. And again, I think that there’s value sometimes in working in smaller batches, but just more frequently than in bigger batches to take a long time.
So be focused on your crew and what they’re actually able to do. And then two more points here. Appraisals are subjective and you don’t always have control over what that opinion of value is. So as much as you want to research the market and look for comps and do things like that, there’s always still the opportunity or the possibility that the appraiser walks in there and they want to be conservative to cover their own butts. Because remember the appraisers, they get paid regardless of what happens after the appraisal’s done. So they have no incentive to make sure that your appraised value is close to what it is under contract for. They just want to make sure that they’re protecting themselves and giving what they feel is the safest value of opinion. And actually, you can always try and go back and challenge, but just know that appraisers are working subjectively and with the primary focus of protecting themselves from a liability standpoint.
And then last, just to be patient. There were some scary moments I think going through this, especially when we realized how much money we were going to potentially lose here. But losing is part of growing, and I think every successful real estate investor I know has had some failures along the way and it made them better investors because of that. And my hope is that I can take this failure, this loss and turn it into a $100,000 lesson on how to be a better rehabber. So just a few takeaways. I hope you guys get some value from hearing my sorrow and seeing these tears fall down my cheeks and when the next bad flip happens, you guys will be the first one to know.

Ashley:
Thank you guys so much for listening to this week’s rookie reply. I’m Ashley at Wealth From Rentals, and he’s Tony @tonyjrobinson, and we will be back on Wednesday with a guest.