Richard

The truth is, we’re not quite there yet. While the term “quantum computing” trips easily off the tongues of policymakers, business leaders, scientists and engineers, it could be five years or even longer before this new data-crunching technology begins to make any meaningful impact on our lives.

And here’s the problem? As things stand, companies working in the quantum computing space are engaged in cutting-edge development work at a time when no one can be totally certain what the market will look like in five or ten years’ time. The assumption is there will be customers and use cases but, as things stand, it’s impossible to predict which technologies they will choose to adopt. In the meantime, startups must continue to fund their development work while trying to establish some kind of traction in a market that doesn’t really exist.

So what does that look like in practice? How are young companies finding their feet in an industry that promises to change the world – but not just yet ? I spoke to two U.K. quantum startups about their progress from drawing board to marketplace.

Market Confidence

According to figures published by Markets and Markets, revenues in the sector are expected to come in at around $899 billion in 2023, rising to $4,375 million in 2028. The development of quantum hardware and software is something that governments are keen to encourage. For instance, the U.K. government sees Britain becoming a “quantum-enabled” country by 2033 and has committed £2.5 billion to supporting development over the next ten years.

So there is confidence and consequently, there is VC cash available. For instance, Oxford Ionics – a hardware company with 50 people on the payroll – has raised £40 million so far. Phasecraft – a software startup – has secured £17.4 million in equity finance, plus a further £3.7 million in grants.

Oxford Ionics co-founder and CEO, Dr. Chris Ballance says that despite the risks associated with technologies still under development, it’s difficult to see how machines that perform calculations significantly faster than conventional supercomputers will not have enormous value. “As a company, we have been willing to take a bet on this and we are asking investors to do the same,” he says.”

The key, he adds, is to find the right investors – those who understand not only the potential rewards in the market but also the risks. There is, he adds, a need for a certain amount of investor education. “We are tough with our investors. We will tell them why they shouldn’t invest.” This is not an exercise in gratuitously scaring sources of finance away. It is about ensuring that the investors and the company are aligned.

And as Ashley Montanaro – CEO and cofounder of Phasecraft – sees it, VC finance has been crucial to enabling his company to develop its software algorithms. “There are different ways to fund yourself,” he says. “For instance, some companies offer consultancy. We see that as a distraction. VC finance allows us to focus on the hard R&D.”

Grant funding has also played a part in the Phasecraft journey. “Financially, that’s been important but not essential,” says Montanaro. “But grants are important in enabling collaboration and also in providing validation for what you’re doing.”

Commercial Viability

Perhaps the most crucial aspect of attracting enquiry is the ability to demonstrate commercial viability. In the Quantum Computing world, the basic unit of information is the Qubit. Oxford Ionics controls its Qubits – which are individual atoms – using a proprietary system designed to be scalable.

Ballance says there has been a focus on technology that will scale to meet the demand. The key is the development of reliable hardware that not only provides a sufficient number of Qubits to outperform supercomputers but also a low enough error rate to make the technology useful and workable.

And In one way or another, that’s what all the quantum hardware companies are working on at the moment. While there are a range of hardware technologies that are proven to offer quantum functionality, the tricky part is ensuring the kind of consistent performance that can be commercially exploited. That’s when the banks, the research institutes, the multinational corporations, and indeed all those who will benefit from the technology will begin to buy in.

Finding Customers

But here’s the question. How do those who are developing the technology know what their potential customers are looking for?

“We spend a reasonable amount of time talking to customers, precisely for that reason,” says Ballance. “Typically, we’ll be talking to people with PhDs in Quantum computing. We ask them what they need.”

Styling itself as a quantum algorithm company, Phasecraft specializes in the quantum simulation and analysis of materials with solar panels and batteries being a particular specialism. It is also in regular contact with potential users of its services. “We have a number of partnerships,” says Montanaro. “They include Johnson Matthey, Oxford PV and Roche.” These partnerships are helping the company develop algorithms that will solve real-world problems. In addition, it is working with IBM, BT and Rigetti.

The business models are also being developed. Both Ballance and Montanaro believe the main route into quantum solutions for the majority of organizations will be through a quantum-as-a-service model, using third-party hardware and software. That doesn’t necessarily mean an arms-length relationship with providers. This is a complex area where users and suppliers are likely to work closely together. A few organizations will buy their own in-house systems.

The adoption of quantum computing will depend on precision engineered hardware that can outperform supercomputers on a reliable basis, something that will in turn feed a specialist software industry. Ultimately, some technologies will win through with others failing to gain traction. But with quantum likely to revolutionize functions such as drugs discovery, materials development or financial modeling, the expected rewards mean that startup capable of demonstrating the viability of their technologies have a fighting chance of securing VC capital.

Ashley:
This is Real Estate Rookie episode 322.

Tony:
So we only do welcome gifts at a few of our properties right now and ours are pretty plain. It’s a little note card that we have. It’s a little package of popcorn and it’s like some candies. I personally probably wouldn’t standard include wine as a welcome gift for a lot of the reasons that you mentioned. We have sent gifts like that in the past, but only if we know if we get something from that guest before they check in. So someone’s like, “Hey, my wife and I are celebrating our 10th anniversary.” Anyone who’s celebrating an anniversary 10 years is probably over 21 years old, right?

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

Tony:
And welcome to the Real Estate Rookie podcast where every week, twice a week, we’re bringing the inspiration, motivation, and stories you need to hear to kickstart your investment journey. Today we’ve got a really good rookie reply for you guys. Ashley kind of goes off the rails at one point and she just goes rogue and comes up with her own question. But we get a few good guest questions as well, or rookie questions I should say. So we talk a little bit about mortgage interest and is it a business expense or is it not? We talk about the pros and cons of buying your properties in LLCs or just doing it in your personal name.

Ashley:
I love it how Tony said Ashley has a question and then we have really good questions from the rookies.

Tony:
She’s reading into that guys.

Ashley:
So yeah, some of the things we talk about today are about mortgage payments and how they should be broken out on your tax return and in your own bookkeeping for your profit and loss statement to show your income and expenses. You have your principal that is included in your mortgage payment, and then you also have interest, and then you may also have escrow, which would be your insurance and property taxes too. So we’re going to touch on that and why a bookkeeper can play a really big important key role in helping you decipher that.

Tony:
All right guys, so I want to give a quick shout out to someone by the username of Alyssa A. And Alyssa says, “Favorite podcast. Been listening to The Real Estate Rookie for the last year. One of my favorite podcasts for being a newbie and real estate, always have the best guests, inspiring stories and advice.” So Alyssa, I appreciate the five star review and if you’re one of our rookies and you haven’t taken just a few minutes to leave us an honest rating and review, please do. The more reviews we get, the more folks you’re able to reach and the more folks we can reach, the bigger impact we can have, which is what we want to do here at The Rookie Podcast. So take two minutes, leave that review, and we just might shout you out on the show.

Ashley:
So for this week’s Instagram, shout out, I want to give a shout-out to Dell Collective. So this is an Instagram account that hosts unforgettable stays and so they share their journey about the three different short-term rental properties that they have, and I want to stay at one of them because they’re so beautiful. So if you are looking for design and experience ideas, I’m pretty sure they have a camel I think on the property even that you get to hang out with while you stay there. So definitely check out Dell Collective. They have a really unique Airbnb experience along with some of the different, I guess, amenities that are provided along with your stay and the really cool animals that you get to meet while you stay there. So go ahead and check out Dell Collective on Instagram.

Ashley:
Okay, today’s first question is from Heidi Keywood. “Why is mortgage interest not considered a loss in income or an expense? Is it just the cost of doing business? A $100,000 mortgage costs 50,000 in interest over 30 years, that’s $50,000 you’ve lost, even if the tenant is paying it. I know it’s a tax deduction and leveraging your money allows you to buy more properties and everyone has different goals, immediate cashflow pay down and larger cashflow for retirement, et cetera. But I don’t see interest expenses in the equation in any discussion and that affects how to use your cash. Thanks.”

Ashley:
So first of all, interest expense or interest on your mortgage is an expense and it should definitely 100% be included on your profit and loss statement. So if you’re using the BiggerPockets calculator and you put it in there that you’re going to be using a mortgage, the interest will show up as an expense when it is showing your profit or loss on the property. Your mortgage principal payment, that is only calculated since it is money borrowed against your cash flow. That is not calculated as a loss or as a loss in income or an expense as Heidi had put it.

Ashley:
So 100% it definitely should be accounted for. So Heidi had said that she has seen it places where it’s not included and I’m not sure where those are. Maybe people are posting examples, but it definitely should be included when you are running the numbers as to how you’re going to fund the deal. If she saw maybe properties that were being paid for in cash where there was no interest, that could have been the scenario, but it definitely should be included on your tax return and it also should be included as an expense on the profit and loss statement. And what having a bookkeeper can do is every month when you make your mortgage payment, they will take that say $585 and they will take say the principal that you’re paying is actually only $115 of that, and they will take it and they will allocate that $115 to the mortgage principal to show, okay, your mortgage balance is now this, and then they will also take the interest expense and put it as an expense for you to bring down your bottom line.

Tony:
Yeah, well said Ash. I think the only thing that might be kind of causing some of Heidi’s confusion, and maybe this is something that’s affecting some of our other rookies as well, is that a lot of times you’ll just hear people refer to what they pay monthly for their home as their mortgage payment. So they just use that as a catchall phrase, Hey, my mortgage is X, Y, Z, when in reality that mortgage payment is a combination of your principal interest taxes and insurance. So your PITI. So if you hear someone say, Hey, my mortgage is 2,500 bucks, a lot of times you’re including that interest payment as part of that 2,500. But yeah, it’s Ashley’s point, you should definitely be including your interest as an expense on your P&L. And if you are not or your bookkeeper is not, I would probably go find a new bookkeeper.

Ashley:
Okay, the next question is from Mark Urban. “What are the pros and cons of purchasing in your personal name versus in LLC? And if you go the LLC route, do you put all your properties in one or a separate LLC for each property? I’m relatively new, so pardon, if this question has been asked before.” Mark, we welcome every question here and we are so excited to have you part of the real estate rookie group and that you’re going to be starting your real estate investing journey. This question has been asked before and it gets brought up a lot. Definitely is something that people are unsure about because there is not one defined answer. Is this 100% what you should be doing? We’ll go through the pros and cons. Putting it in your personal name leaves you up for liability that someone can sue you personally if something goes wrong with the investment property, but you can also get better financing by having it in your personal name.

Ashley:
So the bank will give you a better rate and terms because it’ll be on the residential side and not in an LLC. If you put the property in an LLC, it does provide you more liability protection against you personally and your personal assets as long as you are following the rules of having a business that is an LLC such as properly maintaining your books. Downside of an LLC is that the bank loans are not as term and interest rate friendly. So for example, if it’s in your personal name, you can probably get a fixed rate over 30 years. With an LLC, you’re probably only going to get a fixed rate over five years and only amortized over 15 or 20 years. So those are some of the differences. If you go the LLC route, do you put all your properties in one or separate LLC for each property?

Ashley:
So the main reason for most people to put a property into an LLC is for that liability protection. So I would not look at how many properties, I would look at what your total equity is. So if somebody were to sue you, how much equity do you have available where the judge would say, okay, you have half a million dollars in equity, you sell all your properties. If you have them leveraged and maybe you only have $50,000 in equity, then there’s not that much to lose.

Ashley:
So I would look at it more of an equity position. I have LLCs based on my partnerships, but one partnership, the equity got too high for our comfort, so we started a second one, a second LLC, now that properties are going into that. So it really depends on your comfort level as far as how much equity is in that you’re doing the properties. And then there’s also a lot of people that just put one LLC in each property, or I’m sorry, put one property in each LLC, but Tony knows it is very expensive in California to have 20 different LLCs to maintain. You’re paying the, what’s it in California? $800.

Tony:
$800. Yeah.

Ashley:
And is that per year?

Tony:
Per year.

Ashley:
Per year. And then you also have your bookkeeping for each LLC, it’s to file a tax return for each LLC. So that can completely diminish your cashflow if you only have one property in that LLC. So that’s definitely something else to take into consideration. One more thing I will add is if you do go into your personal name, definitely get an umbrella policy from your insurance broker that all encompasses and gives you some kind of protection. So if somebody does sue you personally, they will pay up to a million, 2 million or whatever that umbrella policy is in legal fees or most likely they’ll settle for that amount of money and you won’t lose anything.

Tony:
Yeah. Just to add on to that last piece you said, Ashley, is that a lot of new investors, I think they get understandably, but they get kind of freaked out about the liability that comes along with being a landlord. And for a lot of people their minds go worst case scenario. And the truth is that there’s tons of ways to protect yourself and actually kind of alluded to this, but I think the bigger question you need to ask yourself is how much do I really have to lose If you don’t have much net worth and if someone came after you and there’s maybe a car, there’s not a whole lot for you to risk there. And for a lot of people, especially when you’re just getting started out, a lot of times the protection you can get through your home insurance policy and through your umbrella policy can give you pretty decent coverage, as you said, up to millions of dollars, which hopefully would cover a lot of incidents that happen at your property.

Tony:
To Ashley’s point, we don’t have one LLC per property. We have a couple of LLCs that kind of manage a lot of our holdings and we do that because we feel that’s the right structure for us. But I think the best thing for you to do Mark, is to go talk to an attorney in your estate, someone specifically that and maybe not even in your state, but really more so someone that understands real estate investing and all the different kind of nuances that come along with that and kind of lay out like, hey, here’s what my picture looks like, here’s what I’m worth, here’s the assets that I have, and let them kind of understand, hey, what’s the right way for you to do this? Because I don’t know, some people that spend $50,000 in legal fees for asset protection, but it’s because they’re protecting tens of millions of dollars. I myself today probably wouldn’t pay a lawyer $50,000 to set up asset protection for me because in comparison to my assets, it doesn’t make sense for me to do that, right? But someone that’s got thousands of units probably.

Tony:
So I think you want to weigh the cost against the benefit and see what structure makes the most sense for you, but I think getting some good legal advice is a good first step as well.

Ashley:
So the next question is actually I’m going rogue on this. This is a question that I have for you, Tony, that I wanted to submit today to Real Estate Rookie. So I never ever go on Facebook, but I actually once in a while go on Facebook marketplace and look for properties for sale and I actually found one, so I’ve been logging into check if the guy has messaged me back on it and he did today, but I also just scrolled through my feed and it was just, I’m not in this group, it’s like an Airbnb, VRBO, booking.com host group and it must have came up as a recommendation.

Tony:
Suggestion group.

Ashley:
So it’s a picture of a fridge and it has six different beers and a little wooden crate thing and then a bottle of wine and it says, here’s a choice, beer or wine, have a drink, it’s vacation time. And then the person wrote, “This is a little something that I do for each guest and the refrigerator. I have a nice bottle of wine and a variety six-pack of beer along with a 12 pack of waters.” And then of course, this cute little sign. “I would like to see what other hosts do for their guests as a special little welcome.” So in my brain, the first thing I think of is, Okay, what if they’re underage kids in there and they drink alcohol? I always think worst case scenario.

Ashley:
So I go into the comments and there was actually a mix of them, some just being like, you know what? It’s the person’s choice. This is a very nice gesture. Other people talking about recovering alcoholics, how this may be a trigger for them and that it’s not a good idea to put it in the home. Also, other people talking about liability or saying that it’s actually illegal for you as a business owner to provide the alcohol on the property because you don’t have a liquor license depending on what their state was. So I was just wondering if you have any take on this as to what are your thoughts on it?

Tony:
That’s a great question. I’ll answer with a little anecdote first. There was this podcast I was listening to, and it was a podcast about the court system and this lady was going to the courthouse every day following these different court cases that were happening. But one thing that she called out in the podcast was that as she was in the courtroom, there were TVs in the waiting areas, but the TVs were always only set to the food network. And she asked someone there, she’s like, there’s so many other options, why the food network? And they kind of started rattling off the different possibilities. They’re like, “Oh, well we could put the news but it’s too polarizing. Or we could put sports, but not everyone likes sports. Or we could put a kid show, but not everyone’s in here with kids.” And they just rattled off all these different reasons why all these other options were potentially bad ones and they landed on the food network because they’re like, “Who doesn’t seeing good food getting cooked?”

Tony:
So when I think about from a host perspective, it’s almost that same approach. We’re like, okay, what’s the food network of a welcome gift? So we only do welcome gifts at a few of our properties right now and ours are pretty plain. It’s a little note card that we have. It’s a little package of popcorn and it’s like some candies and we do that at I think two or three of our properties right now and that’s it. And for most people, there’s not a super high allergic reaction to popcorn. We thought about maybe home baked goods but don’t like what if people are allergic to nuts or peanut butter or whatever’s inside of them. So we said, what’s something simple, something generic, something that most people can be happy with. So I personally probably wouldn’t standard include wine as a welcome gift for a lot of the reasons that you mentioned.

Tony:
We have sent gifts like that in the past, but only if we know if we get something from that guest before they check in. So someone’s like, Hey, my wife and I are celebrating our 10th anniversary. Anyone who’s celebrating an anniversary 10 years is probably over 21 years old. So in some of those situations we’ll send a bottle of wine or if a guest maybe has an issue getting into the property because they’re checking coat working, we’ll send a bottle of wine or something like that. But as a standard catch all, give for everyone, I probably wouldn’t do it.

Ashley:
Yeah, we’ve done it twice in our A-frame property and the one was for the first ever guest, and you could tell by the picture they were definitely over 21. And then the second one was for a couple getting engaged where he had just asked us a couple different questions about how he was planning his proposal and things like that and asked, where’s a good place to go get drinks? We’re doing this hot air balloon ride or whatever. And so our manager had given recommendations, and so this was all done ahead of time, so we left them a bottle of champagne, but we actually hid it and then we told him where it was so that after he proposed and stuff and they came back [inaudible 00:18:09].

Tony:
That’s super cool. I do think welcome gifts in general are a good idea because as supply continues to increase on the platform, competition continues to increase, the hosts that really separate themselves through the experiences, the ones that I think will do relatively well. So we’re always kind of reevaluating what can we do to improve that experience for our guests.

Ashley:
Yeah, one thing that I’ve never seen feedback on is that we bought $150 Marriott plush bathrobes and our cleaner takes them home every time and does them as we have, I don’t know, four of them, whatever, but we leave two at a time and does them as part of her sheets wash cycle, and we have never had anybody say that they like them or even use them or what. We found someone in the hamper and everything that cleaner says, but nobody has cared about that. Then we also get at weddings, people sometimes provide flip-flops or whatever, or even slippers for your guests or you’re doing a bachelorette party or bridal shower, whatever, and so you can buy in bulk slippers. And so we actually tried that out too, and people use them, but nobody has ever left in their review or private review like, “Oh, we love this little touch.”

Tony:
We love the slippers.

Ashley:
Yeah.

Tony:
It’s an interesting concept and it’s something that I struggle with as well. I read this book about Disneyland and how they create the magic at Disneyland, and it started to give these little examples of things that Disney does that go above and beyond what a typical amusement park will do, and it’s all with the goal of creating this magical experience. If you walk through a construction zone at Disneyland, you never see the construction because they decorate even the gates that they put up over the construction. If you walk through a different amusement park, you’ll hear the tractors going off in the background, you can see everything that’s going on. Disneyland has people that are going through scraping up gum all day, just all these little things that they do, and no one’s probably ever commented at Disneyland. I love going to Disneyland because there’s no gum on the ground, but they can feel the difference.

Tony:
All these things kind of just combined, it creates a significantly better experience for people when they’re there. So I struggle with that. It’s like, do we invest in these little things that may not themselves create that positive review, but it’s the combination of all those small things together.

Ashley:
What’s your biggest complaint, would you say, as to far something that’s very little, that’s not like you wouldn’t think somebody would even put their time and effort into actually sending you a private note when they read a review.

Tony:
I feel like it’s either something related to cleanliness, maybe a cleaner missed something. That’s probably the biggest beef that most guests have these days. But outside of that, I wouldn’t say there’s anything that’s consistent. It’s usually some one-off thing where it’s like, for example, our AC was leaking at one of our properties and the mini split is right above the bed. So that guest complaint about that, but I don’t, there’s nothing that’s like all the time we get this same complaint. So it’s kind of hard to say.

Ashley:
Yeah, I was trying to think too, and none of our stuff is really about cleanliness or things that need to be fixed or anything like that. It’s more of like, oh, could you add this in? Or we actually got one the other day, they still gave us five stars, but there was like, there’s nothing to do here. And I don’t know if they meant in the house outside or the location of the property, but I was like, Hey, there’s board games. There’s a TV, I’m not sure exactly. There’s a fire pit, there’s a basketball net.

Tony:
We’ve kind of gotten dinged on some of our properties for location as well. And when that happens, there’s the location description on Airbnb. We can talk about the location. We’ve tried to go back and update that so people really get a good sense of where they are. One of our properties, it’s literally as far north-west, it’s in the far edge of Joshua Tree. Literally. If you go the next parcel doesn’t even belong to anyone. It’s all government land. So that’s how far out it is. And initially we were getting reviews from people that were saying like, ah, it’s a little bit far. There’s a two-mile dirt road to get there. So we put that information out into the listing. We say, Hey, you’re going to love being so remote. If you’re really looking for a solitary desert escape, enjoy the two-mile bumpy dirt road on your way to get there to really experience the desert. So we try to hype it up inside the listing so people understand that, but when we do get comments like that, we try and go back and optimize the listing to make it more apparent upfront.

Ashley:
Yeah, it’s so funny. The things we thought were going to be issues haven’t been issues at all. The driveways actually really steep, and if it rains, it can get really muddy and we put in there, we highly recommend bringing four wheel drive and stuff like that. And nobody has complained about that at all, which has been super surprising. But yeah, I was just looking at the review that we got today that kind of made me want to ask you that is the only thing that they complained about was the difficulty of finding light switches. And I mean, this is the tiniest little property ever, and they could have, and I still have the messages hooked to my phone, so I’ll still get like… Sometimes they’ll pop up for me. And so I read it and they had asked our manager who we can’t find it, she responded right away, told them the exact one they were looking for, where it was located or whatever.

Tony:
We do label our light switches, as silly as that sounds, but it’s like we’ll have one sink light, kitchen light, patio light. That way people, because we were getting those questions a lot too, like, “Hey, which switch does this thing?” and, “I can’t turn thing on?” So yeah, you got to dumb it [inaudible 00:24:21].

Ashley:
Yeah, I think the only one we have labeled is the exterior camera, and we give them the option of shutting it off.

Tony:
Really?

Ashley:
Yeah, exterior.

Tony:
Interesting. We literally just argue with the guest maybe two weeks ago, two or three weeks ago, because we said, say in our listings like, Hey, there’s an exterior security camera for your safety and for us to make sure that nothing goes wrong with the property. At this particular property, we had two, one at the front and one on the side that pointed towards the backyard. And for most of our properties that have big backyards, we do that. One on the front and anywhere there’s a point of entry. And she was making this big fuss because the listing only said security camera and not security cameras. And she literally reached out to Airbnb and she was like, their listing is incorrect and they’re watching me. And anyway, we’re pretty staunch about keeping our security cameras on at all times because in case something happens, we want to be able to check.

Tony:
For example, someone literally broke into one of our properties last week. There was one night that was unbooked and our cleaners had cleaned the property on Monday. No one checked in Monday night. The next guest was checking in on Tuesday and the cleaners cleaned the property Monday. We saw them come in, we saw them leave. They finished their checklist. The guest gets there Tuesday and he’s like, “Hey, the property looks a little dirty, and someone left some white residue on the countertop and there’s some weird things happening.” So we went back like, yeah, okay, cool. The cleaners were there. We go through our cameras, and turns out someone broke into the lockbox and stayed the night at the property, and we saw them at two o’clock in the morning. They were literally trying to creep past the camera so we couldn’t see them. So anyway, we never turn our cameras off because you never know what could happen.

Ashley:
So I should start leaving them on. Make them-

Tony:
You should always leave them on.

Ashley:
Well, they have to turn it back on when they leave, which everybody has been super good at that. But yeah, so basically it’s when they’re there, some people don’t. Yeah.

Tony:
Because we had one guest that reached out to us saying that she slipped and fell out by the hot tub. And again, we have a camera that points to the backyard, and we were able to go through all the camera footage, and the only time she slipped and fell was because they were drinking sitting at the outdoor patio table, and she tried to sit down and she missed her chair, but she tried to message us and say that she slipped because it was so wet by the hot tub. So even just for reasons like that, we never turned the cameras off.

Ashley:
So let’s go back to some of our other questions here. The next one is from Julie Glazer. “Is there a way to find out what a property sold for other than asking a real estate agent? Zillow and the assessor’s site does not seem to be accurate. For example, I purchased a property in September, and it’s not updated on Zillow for the price I paid, thank goodness, the assessor’s site had it appraised at 74,000, which is way over what it was actually worth given its condition. I called our recorder of deeds, and they do have an online record search, but it’s $20 a day or $250 a month.”

Tony:
So Julie, first, just to kind of clarify the different data sources here. So typically there are a couple ways you can get data on properties that have sold. You can get it from the MLS, like the multiple listing services, or you can get it from the actual county records. Typically, the most accurate information comes from the county records because those are based off of the paperwork that gets filed when the property is closed. In California, our title and escrow companies collect all the paperwork from the buyers and the sellers, and then they submit all of those final documents to the county. So those are typically your most accurate data sets are from the county.

Tony:
Zillow, if I’m not mistaken, and someone shoot me an angry message on Instagram if I’m wrong here, but I’m pretty sure Zillow is pulling their information from the multiple listing services. So if an agent fat fingers a number or whatever, as they’re kind of finishing things out, you could see inaccurate data on Zillow as well. So just understand that there’s two kind of different ways to pull that information first.

Ashley:
So Tony, where do you think they get it? If it’s an off-market deal and it’s not on the MLS then?

Tony:
Yeah, so there’s a couple places I like to go for data. So first you can go to the county. So Julie looks like you’ve already reached out to them. 250 bucks a month seems pretty steep, but luckily there are other ways to get that information. So there are data aggregators, basically websites, software companies that pull data from all these local counties and they put it all in one place. So Invelo is one option. BiggerPockets has a good relationship with Invelo. PropStream is another option, but both of those data software providers allow you to search pretty much every city county across the entire country and see the same data you would see as if you were paying that two 50 per month. So I think my first recommendation, Julie, would be to go to a website like Invelo or PropStream and set up an account with them. I think it’s like 99 bucks a month or something like that. So you’re only paying one subscription, but then you get access to nationwide data as opposed to just that one little county or city.

Ashley:
And I think some of them have free, I think Invelo, if you’re a BiggerPockets Pro member you get like $50 free to spend on stuff and then PropStream, I think you get seven days free too. So lots of options to just try it out, especially if you just need one thing. For myself, I’ve looked at the county records and you can still pull information a lot of times without having to pay to get the searches or if you actually go to the assessor’s office, especially if it’s a smaller town. Today, my business partner is actually going to the assessor’s office. They’re only open on Tuesdays from one to 4:00 PM And this question actually made me remember, and I just messaged him real quick on my computer and I said, “Did you go to the assessor’s office?” And he’s like, “No, I’ll go right now.”

Ashley:
Thank you. So also thank you Julie for your question so that this reminded us to make this happen or else we’d have to wait until next week. But you go to the assessor in person and you may have to pay a fee still depending on how big the assessor’s office is, but you can get the information from there too. And then also we have a newspaper, I think it’s called Business First or something, it’s in Buffalo, and it’ll actually publish all of the real estate transactions that have happened and what they were recorded at. So you can actually pay a membership to that newspaper, which is probably going to be way cheaper than the $250 a month. And you can go and search and they think they do it every week. Here’s the transactions that happened this week.

Ashley:
And usually it takes a little while. So if the newspaper comes out in January, it may have been transactions from the end of November or December or something like that, but if it was a while ago, you can go through the newspaper too and search or go to your local library and go through the big computers where you click through the pages of whole newspapers.

Tony:
I think the last thing to highlight too for Julie is the assessor’s appraised value. So the assessor’s appraised value, at least in the properties that I’ve purchased, that I’ve researched, that I’ve analyzed, I’ve never seen the assessor’s value match the actual appraised value of the home. Typically, I see that it’s lower. The assessor’s kind of trying to understand, Hey, what kind of property tax bill should you have? And luckily, it’s always lower than what the actual appraised value is. So I would never use the assessor’s website to gauge the value of a property. It’s only more so for your property tax perspective.

Ashley:
Let’s break that down real quick. I think that does get really confusing because when you get your property tax bill, okay, you have the market value and then you have the assessed value, and the assessed value is determined by the assessor along with the market value and the assessed value is usually lower than what the market value is, and that’s what they’ll take that amount and they’ll multiply it by the percentage of the property tax rate, whatever that may be for your town or county. So that is determined by the assessor themselves. This is 100% completely different than an appraisal. So for an appraisal, it is an appraiser who is going out a third party and they’re going and looking at the value of the property, which would be more comparable to the market value of the property, but still there can be a huge difference of what’s listed as the market value.

Ashley:
And also you have to look at when the property was actually assessed by the assessor too. So when was the last time the assessor went around and said, okay, you know what, I’m changing. Your property is now worth this instead of that, and they usually do a whole town reassessment for the property, and you’ll get a letter letting them know that they’re going to be doing this and that. So you want to go outside, make your house look like a dump for the days that they’re going around town, assessing property, your property tax [inaudible 00:33:35] lowered. But just so you know that there is a big difference in that, the appraised value and the assessed value of your property, because I have seen people say like, oh, they’re listing this house for sale for this, but the assessed value only says it’s worth this. There usually is a huge, huge, huge difference, and you want your assessed value to stay low, to be low.

Ashley:
So another thing, yeah, to keep in mind is that when you purchase a property, so at least in New York State, you can’t get reassessed right away. So it’s whenever there is a county or town reassessment that this will occur. And usually it’s the town that does the assessment, and so they will be like, there was maybe when you bought it, there was just an assessment done that year, so you bought it after the assessment was done. So you’re clear for a little while until they do that reassessment, and when they do that reassessment, they would look at what you had purchased the property for and what the condition of the house looks like at that time. So that’s also something to be very cautious of. If you are paying a lot more money for this property, be cautious that when there is a reassessment that your property taxes could increase.

Tony:
It’s cool that New York kind of only reassesses on a fixed cadence for one of the counties I purchased and even where my primary residence is, the reassessment happens at the time of transaction. So what happens, for example, and Joshua Tree will, we own quite a few properties whenever we purchase a property, they immediately reassess the tax value. So our property taxes go up as soon as we purchase that property, but then we also get hit with what’s called a supplemental tax bill. So I don’t know how, I don’t know the math that goes into this, but basically the county is saying, I don’t know if we’re like, hey, this is what we should have been getting on this property for the last timeframe. And it’s not a small amount. It’s like $4000 or $5,000 that’s due that first year of ownership when you buy that property.

Tony:
So I think it really is important for new investors to kind of understand those nuances because imagine you bought that short term… And we got surprised the first time that we did it. We bought that first short-term rental and we’re cashflowing like crazy. Then we get a bill for 4,000 bucks. We’re like, “Hey, we’ve already been paying our property taxes.” And they’re like, yeah, we know. You owe us this too. So then we had to start kind of budgeting for that in our new properties. So just important for rookies to kind of understand what that process looks like.

Ashley:
Yeah, there was a parcel of land that I helped an investor with. He owned the land already for a long time. So it was taxed at… The assessed value is based on it being vacant land. And then he went and did a new development on it and his property taxes for three years after that were still based off of the vacant land because they hadn’t gone and done the reassessment. So here’s a three and a half million dollars property getting taxed on a $20,000-

Tony:
Like empty plot of land.

Ashley:
… [inaudible 00:36:28] value. So there are ways that it could definitely benefit you, but then that year that it was reassessed like woo, a big shoot up. So just so you know to expect those coming. Well, thank you guys so much for submitting your questions for this week’s rookie reply. Remember, you can always leave a question, and The Real Estate Rookie Facebook group, you can send a DM to Tony or I or you can go to biggerpockets.com/reply. Thank you so much for listening. I’m Ashley @wealthfromrentals and he’s Tony @tonyjrobinson on Instagram and we’ll be back on Wednesday with the guest. We’ll see you guys then.

Ashley:
(Singing).

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

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

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

Confidence and Skills-Building

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

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

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

Key Findings

The report’s key finding’s include:

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

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

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

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

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

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

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

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

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

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

Kathy:
Yeah, we’ll see. We’ll see.

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

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

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

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

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

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

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

Dave:
All right, Kathy.

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

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

Kathy:
No, no, I have-

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

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

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

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

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

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

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

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

Dave:
Kathy?

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

Dave:
It is 1.46 million.

James:
Whoa.

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

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

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

James:
“That’s perfect.”

Dave:
“You were right.”

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

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

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

Dave:
That’s all right.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dave:
At the same time.

James:
At the same time.

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

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

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

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

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

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

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

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

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

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

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

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

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

Kathy:
Well, that’s what we have.

Dave:
You do have that in California too?

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

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

Kathy:
Yeah.

Dave:
… a policy essentially from a government agency?

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

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

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

Dave:
Interesting.

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

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

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

Dave:
Was it Fort Myers?

Kathy:
Fort Myers, yeah.

Dave:
Cape Coral? Yeah.

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

Dave:
Wow.

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

Dave:
Interesting.

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

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

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

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

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

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

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

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

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

James:
Yeah, feel good about it.

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

James:
That’s a tough loan to get.

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

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

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

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

Dave:
Wow.

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

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

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

Dave:
Does he do that? He would.

Kathy:
He would.

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

James:
He has three people on his back too.

Kathy:
Right.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

David:
This is the BiggerPockets Podcast show 818.

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

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

Rob:
It slaps.

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

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

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

Rob:
No, Davey. Let’s hit it.

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

Rob:
You almost had 1000 Oaks, California.

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

Mikey:
That was good.

Rob:
You did say the PCH earlier.

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

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

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

Mikey:
Exactly right.

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

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

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

Rob:
Mikey Taylor, welcome to the podcast.

Mikey:
Thanks for having me.

Rob:
How are you doing?

Mikey:
Good.

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

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

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

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

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

Mikey:
Yep.

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

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

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

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

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

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

Rob:
That’s a great car.

Mikey:
Yeah.

Rob:
People sleep on the Prius.

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

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

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

David:
Strong defense.

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

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

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

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

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

David:
This was like 2006 or so?

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

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

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

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

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

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

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

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

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

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

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

Rob:
Do you remember what your first dividend was?

Mikey:
The amount?

Rob:
Yeah.

Mikey:
No clue.

Rob:
No?

Mikey:
No.

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

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

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

David:
Security in an insecure, unstable environment.

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

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

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

Rob:
Oh, that’s cool.

Mikey:
Yeah, it was unreal.

Rob:
How much did you raise?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Rob:
Do you think you could do it again?

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

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

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

Rob:
What is Commune?

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

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

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

Rob:
Okay.

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

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

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

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

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

Rob:
You tear down and you rebuild?

Mikey:
Tear down and build.

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

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

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

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

David:
You could just buy a 5% return.

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

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

Mikey:
Correct.

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

Mikey:
Correct.

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

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

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

Mikey:
Correct.

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

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

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

Mikey:
Correct.

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

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

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

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

David:
The increased risk, yeah.

Mikey:
Correct.

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

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

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

Mikey:
Correct.

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

Mikey:
Correct.

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

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

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

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

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

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

Rob:
Wow. Okay. And so then-

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

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

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

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

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

Rob:
Because you might have to, right?

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

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

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

Rob:
Have you taken over any yet?

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

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

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

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

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

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

David:
You’ve mitigated your risk.

Mikey:
Correct. Correct.

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

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

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

Mikey:
On our equity side?

David:
Yeah.

Mikey:
Yeah.

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

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

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

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

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

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

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

Mikey:
Yeah, we’re still doing that.

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

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

Rob:
Toys”R”Us.

Mikey:
Correct.

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

Rob:
Was it Radio Shack or something?

Mikey:
He was doing Boot Barn and Radio Shack.

David:
Exactly.

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

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

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

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

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

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

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

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

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

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

Rob:
Is that owner panicking if Kmart leaves?

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

David:
Maybe if it’s paid off.

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

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

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

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

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

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

Mikey:
Absolutely not.

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

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

Rob:
Wow, that’s huge.

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

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

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

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

Rob:
I’ve seen it a time or two.

Mikey:
You can get a lot in, yeah.

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

Mikey:
Build out the whole thing.

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

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

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

Rob:
Can you give us an example of one?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Mikey:
Yep. Yep.

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

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

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

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

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

David:
This is also called lifestyle creep.

Rob:
Lifestyle creep.

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

David:
Can you describe what you mean by that?

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

David:
That’s a red ocean.

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

David:
Which is the blue ocean.

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

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

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

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

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

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

Mikey:
Oh, that’s good. That’s good.

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

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

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

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

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

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

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

David:
There we go.

Mikey:
I wouldn’t change anything.

David:
You think Davidgreene24 is okay?

Mikey:
Yeah.

David:
I appreciate you saying that.

Mikey:
I wouldn’t change anything.

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

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

David:
But he’s not Hispanic.

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

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

David:
Boring personality?

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

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

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

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

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

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

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

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

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

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

David:
That’s what he said?

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

Mikey:
My dad ran that too.

David:
That was his favorite English phrase.

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

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

Mikey:
I am.

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

Mikey:
Mikey Taylor.

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

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

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

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

Mikey:
No, I don’t. No, I don’t.

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

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

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

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

Mikey:
That’s right. That’s right.

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

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

David:
Tell him that we said hi.

Rob:
We’ll be right there.

Mikey:
Have you guys interviewed him yet?

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

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

Rob:
Ask him if he remembers doing the podcast.

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

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

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

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

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

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

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

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

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

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

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

Mikey:
No. I can’t.

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

Mikey:
I can’t say the… Yeah.

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

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

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

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

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

Mikey:
That was impressive.

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

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

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

Rob:
Now that is masterful. That is masterful.

Mikey:
Do you tip a barista?

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

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

David:
Thanks, Mikey.

Mikey:
Thanks for having me.

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

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

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

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

1. Attend Events

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

2. Find A Mentor On A Similar Path

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

3. Express Genuine Curiosity

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

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

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

5. Be Clear About What You Hope To Gain

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

6. Avoid Forcing A Connection

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

7. Listen And Absorb

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

8. Focus On Mutual Value

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

9. Ask Them Who Else Might Be Able To Help

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

10. Respect Their Boundaries And Time

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