Richard

Andy Walden, Black Knight vice president, joins ‘The Exchange’ to discuss mortgage demand and the housing sector.

By Rieva Lesonsky

Despite how they’re often treated, entrepreneurs are not a monolith. Instead, they’re driven by various motivations and approach business differently. This is illustrated by the annual Small Business Growth Trends report from Keap, which reveals four unique types of small business owners. To get more insight into these entrepreneurial types, I talked to Clate Mask, the CEO of Keap.

Rieva Lesonsky: What were the unique types of business owners identified in your Small Business Growth Trends report?

Clate Mask: Our survey found that entrepreneurs fall into four different segments:

Overwhelmed (28%): These entrepreneurs struggle to manage and grow their businesses and worry about their ability to succeed.

Gratified (26%): Gratified small business owners genuinely enjoy working in their businesses. They feel successful and believe they can handle whatever challenges come their way.

Growth-Focused (25%): This group has achieved a certain level of success and is hungry for more, focusing primarily on growing revenues, increasing profits, and bringing in more clients.

Connected (22%): Connected entrepreneurs wear their small business pride like a badge of honor. They’re deeply committed to their clients and emotionally invested in their businesses.

Lesonsky: Why do you think so many business owners feel overwhelmed?

Mask: Entrepreneurial overwhelm is nothing new; we’re just acknowledging and discussing it more today. The reality is business owners wear all the hats in their companies—set the vision, manage the team, coordinate with vendors, execute tasks, take meetings, respond to customers, answer for all mistakes, and more. They might have a partner or support staff, but the buck always stops with the owner.

The mountain of tasks they’re responsible for puts enormous pressure on them. They rarely have enough time to handle all the company’s needs and never can get around to their wants. When you think about it, it’s actually a wonder that any small business owner doesn’t feel overwhelmed.

Lesonsky: How can overwhelmed small business owners gain more control?

Mask: Investing in systems is critical for small business success and entrepreneurial sanity, and also why we started Keap many years ago. Systems—more specifically, automation—can change everything. Business owners can regain control of their schedules by investing in automation tools for sales and marketing, scheduling, e-commerce, reporting, and more. Plus, they gain the peace of mind that comes with knowing nothing important is falling through the cracks.

Lesonsky: I was surprised only 22% say they’re committed to being deeply connected to their clients and businesses. Why do you think that is?

Mask: Again, this just comes back to the available hours in the day. I think if you asked every small business owner which of these entrepreneurial types they’d like to be, they’d all aspire to be “Connected,” maybe in conjunction with “Gratified” and “Growth-Focused.” But, connecting with your clients takes time, which most entrepreneurs don’t have a lot of. They’re operating in survival mode.

Lesonsky: How important is it for small business owners to pursue growth-focused initiatives?

Mask: “If you’re not growing, you’re dying.” This maxim is not only true for people but also businesses. Even if your revenue is steady, factors like inflation, increased competition, and lifestyle changes can push your spending up. So if you’re not actively pursuing growth in your company, odds are you’re actually losing revenue—or setting the stage to do so.

More articles from AllBusiness.com:

Lesonsky: But if most entrepreneurs are in survival mode, how can they focus on growth?

Mask: There’s no choice—they have to. Prioritizing growth-focused initiatives is a key part of surviving while failing to do so often leads to the shuttering of so many small businesses. So, make sure you take the time to nurture leads, follow up with customers, upsell when possible, and regularly find new customers.

Lesonsky: Any tips for how entrepreneurs can get to the “gratified” stage and genuinely enjoy working in their businesses?

Mask: I’m really passionate about the topic of work/life balance, probably because so much of my early time as an entrepreneur was spent getting the equation all wrong. With the benefit of hindsight and tools to support me, I now truly enjoy working in my business.

I have four secrets to success in this area. Numbers one and two go hand-in-hand: automation and delegation. These two practices get anything off your plate that shouldn’t be there. So even if you think every client quote or phone call needs your Midas touch, you’re better off focusing on your core strengths and leaving your team or your technology to handle the rest.

The third trick to enjoying working in your business is not working around the clock. Yes, you have too many tasks and not enough time. But sacrificing sleep and well-being will only cause you to self-destruct.

Remember that embracing automation and delegation will free up more time for you. Use that time to handle what needs to be done in your business and then the remaining time to unplug, be with loved ones, focus on your physical and mental health, etc. You will only enjoy working in your business when you’ve learned to set boundaries, so it doesn’t consume your entire life.

The fourth secret is getting a business coach. I could beat this drum all day long, but trust me when I say that having a qualified coach who can challenge you, guide you, hold you accountable, and strengthen you where you’re weak can catapult you—and your company—into the stratosphere.

About the Author

Rieva Lesonsky is CEO of GrowBiz Media and SmallBusinessCurrents.com and has been covering small businesses and entrepreneurship for over 30 years. Get more insights about business trends by signing up for her free Currents newsletter.

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Ashley:
This is Real Estate Rookie episode 267.

Andrew:
Whenever I get a property under contract, I always put a request, a public record request, in with the city or the town and request inspection information or housing violations and that gives you all the history on the property going as far back as you request, and that gives you insight into any legal issues that you’re having, any trouble tenants, any issues with the building. Just that alone will give you insight into what to look for when you do the inspection, or it might give you insight into tools you can use for the negotiation and to ask for money off. So that’s kind of one tip that I think a lot of people don’t do, but it’s really important with acquiring and doing your due diligence on a property.

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

Tony:
Welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Want to start today’s episode by shouting out someone by the username of Naftali B and Naftali said, “Great show. Thank you, Ashley and Tony. I really enjoyed listening to your show. You provide great tips, insights, and provide a true path for rookies to start investing in real estate. Keep those episodes coming.” For all of our rookies that are listening, if you have not yet left us an honest rating and review on Apple Podcast or Spotify, please take the two minutes and 17 seconds it takes to do that. The more reviews we get, more folks who can help, and that’s what we like to do here at the Real Estate Rookie podcast, is help people.
What’s up, Ash? How you doing today?

Ashley:
Well, I just want to give a little warning for this podcast. If for some reason you hear fake throw up noises or you hear a bell ringing, my oldest son stayed home from school today and he had three demands for me this morning. He just wanted Tim Horton’s hot chocolate, a Tim Horton’s breakfast sandwich and a bell to ring so that he didn’t have to yell mom and could just ring the bell. I went out and did my little errands this morning and I got the chocolate, I got the breakfast sandwich. I could not find a bell, so I got a cat collar with a little jingle bell on it. So he has a little cat collar that he is shaking or ringing for me when he needs me in his room.
Usually on Tuesdays, Tony and I record all day, and so this is our last one and right before this he said to me, he’s like, “Well, how long is it going to be?” and I was like, “I don’t know, probably an hour and a half,” and he said, “Well, do you think you could just say, “Oh my God, my son is throwing up. I have to go.” I said, “I don’t think I could do that.” He’s like, “You can try it.”

Tony:
So was he fake throwing up in the background?

Ashley:
No, no, no. I didn’t hear it at least and I do have my noise-canceling headphones on, so I don’t know, maybe it did come through the microphone. Or the little cat collar dinging.

Tony:
That’s hilarious.

Ashley:
If you guys hear anything in the background, that’s full disclosure for what it is.

Tony:
I love that he’s like, “I need a bell so I can beckon you when I need something.”

Ashley:
I know. Then I’m even worse for trying to fulfill that request, I guess.

Tony:
I wish Sean would ask me for a bell. I’d be like, “Boy, if you don’t get your foot up and come in this living room …”

Ashley:
Well, the thing is whenever he is sick, he always just like, “I want to go outside in the barn,” or, “I want to go out in the shop. I want to go outside and do this,” or whatever. So the fact that he actually wanted to stay inside, I’m like, “Eh, he must actually really be sick.”

Tony:
Well, cool. Well, we got a good episode for today. We bring on a guest by the name of Andrew Freed, and Andrew’s got a really interesting story. He talks about how he feels like he raced most of his 20s and then had this awakening with what he calls the purple pill, so if you guys want to sit around and figure out what the purple pill is. Then he goes on to outlay how he’s built a portfolio of 18, about to be 24, units over the course of just a couple of years and just the entire story and his framework of about working on himself first to become the type of person that can invest in real estate, I thought was really eye-opening.

Ashley:
That personal development he did as to looking at his life as I’m living the American dream, I have a nice W2 job, I bought a condo, I can do whatever I want basically. He came to that realization where, “Even though I have everything that I’m supposed to …” when you graduate college, you get your job, everything, you buy your house, he’s like, “It just wasn’t fulfilling to me and I realized that I’m actually still living paycheck to paycheck and what happens if I lose my job? I have to go get another job.” That had instilled a fear into him so he talks about that whole progression and how he realized those things and just how he’s been able to grow his portfolio in a short period of time. He has a strategy that he’s doing to implement lines of credits to help him further his strategy, but also stresses on the importance of having reserves and different exit strategies in case you do get over leveraged with yourself.
Well, Andrew, welcome to the Real Estate Rookie podcast. You want to just start off telling us a little bit about yourself and how you got started in real estate?

Andrew:
Absolutely. I first want to mention I’m ecstatic to be here. Bigger Pockets was instrumental in my success in real estate. I found my mentor on Bigger Pockets. I found many syndicators on Bigger Pockets, and I’ve gotten all of my questions answered. So I literally wouldn’t be here today without Bigger Pockets, so I just want to say thank you.

Tony:
Yeah, man, and just really quick, on behalf of Bigger Pockets, you’re very welcome. I think Ash and I love hearing stories like that and even though our podcast is relatively new, we just get to take the credit for all of the other things that Bigger Pockets has done. So we appreciate that, man. But no, seriously, I think Ash and I both, we were products of the Bigger Pockets community before we became hosts. So we know firsthand just how influential of a platform this is and then how many lives have been changed. So Andrew, we appreciate you sharing that as well, man.

Ashley:
I mean, we’re still the biggest Bigger Pockets groupies there are. Still to the …

Tony:
Well, sorry, man, I didn’t mean to get you off track from your story, but I just wanted to comment on that. I appreciate that.

Andrew:
Of course, of course. A little bit about myself. I’ve been in real estate for about a little over two years now. I’m a multi-family buy and hold investor. I’m currently up to 18 units in Worcester, Massachusetts. I’m about to close on a six unit, so I’m about to be at 24 units. I’m also an investor focused agent. My first year I closed about 10 deals and I’m also a W2 certified project manager, which really those skills really fit well with the real estate investor. That’s kind of where I am and what I’ve done over my course in real estate.

Ashley:
When we were at the Bigger Pockets conference, Tony and I did a workshop thing and we had somebody raise their hand and say that they were in their W2 job now they were a project manager and they just felt like they had no skills for real estate and they wanted to partner with somebody but didn’t know what they could bring to the table. It was just like, “Wait, you’re a project manager, tell us a little bit about what you do.” The next question we asked, “So who here would love somebody to manage the rehab project for them?” Every hand shot up in the room, but it’s such a great skill set to have. Do you want to tell us a little bit more about how you’ve used project management into your real estate investing?

Andrew:
Yeah, absolutely. I mean, at the end of the day, it really comes down to being proactive, following up constantly and time efficiency. Some of the principles I live by on a daily basis is the Paretos principle, which 20% of your inputs create 80% of your outputs. Every single day in the morning, I’ll figure out my year goals, I’ll break it down quarterly, monthly, weekly, and what can I do today? What three, five items can I do today to get you to my goals? Those are usually high impact items like walking properties, making offers, talking with brokers, talking with lenders. I avoid time-wasting things like organizing my email and things like that. Time efficiency is at the precipice of being a good project manager, and it’s truly what you really, really … I mean, it’s a great skill to have in real estate as well. I mean, all of us wear 20 hats and we all have the same amount of time in the day, so we have to be very efficient with that.

Tony:
I love the idea of the Pareto principle, and I think it doesn’t get enough love and it’s so easy to be busy and not be productive. I think most people, especially when you’re dealing with limited time, if you’re looking to be a real estate investor and you also have a day job, you also have family commitments, you also have maybe community commitments, whatever it is, you need to be able to be exceptionally productive with the little time that you have available to work on your real estate business. I guess my first question, Andrew, is how did you make the determination or how did you come to decide what was that 20% of activity that was going to produce 80% of your results?

Andrew:
That’s a great question. More or less kind of the activities that get me to closer to my goal. We all need money to buy real estate, so I utilized lines of credit. Maybe that’s locating partners, maybe that’s underwriting deals. It’s whatever next steps I can get to that are going to get me to my goals. I always wanted to be an entrepreneur at heart, I always wanted to control my future. I mean, maybe that was just a result of my last name being Freed, but I really felt the need to really take control of my time and really create the reality that I want. I took many entrepreneurship classes. I even wrote a business plan for my master’s program. But at the end of the day, my entire network have the middle class mindset, get a good job, work for a good company, make good money and I really took that to heart.

Ashley:
Was there one thing that made you … was there a moment where you can remember this was the thing that made you want to change?

Andrew:
I mean, the real moment that really hit for me is when … come around COVID. I did everything right when it comes to achieving the middle class dream. I got a good job at a prestigious organization. I made six figures. I had my own condo in Boston. I really did everything you needed to do to “achieve the American dream.” At the end of the day, I really looked at my life, really looked at my net worth, and I realized at the end of the day, I’m still paycheck to paycheck. Maybe I have six months of savings, maybe a year of savings. But at the end of the day, if they fired me, I would rely on that job six months, 12 months later. That really frightened me. That really frightened me to death, to be honest with you. I kind of ate the purple pill, I read Rich Dad, Poor Dad and that really opened my eyes to the possibility of the world.
I very much drowned my ambition in video games. In video games, I always kind of created the character I wanted, created the avatar I wanted, focused on the skills that I wanted, and I really wasted a majority of my 20s in that state of mind. However, after reading Rich Dad, Poor Dad, I came to the realization that at the end of the day, life is a video game. Why create a character in a virtual reality when I can create the avatar and the person that I want to be in this reality? That was kind of the real turning point for me, and that really kind of gave you the ambition to really go full force in the real estate.

Tony:
Just really quickly, I just wanted to say I appreciate you being transparent about you almost looking for this escape with gaming and I think it’s going to be a different escape for every person, but I think all of us find ourselves getting lost in these things that are entertaining or they make us feel good momentarily, but in the reality they, at least the amount of time we’re putting into it, detract from our ability to achieve our goals long term. Maybe for some people it’s TikTok, maybe for other people it’s Netflix, maybe for some people it’s … who knows what it is, but everyone has their vice that can in the moment feel like a good thing, but really it’s hurting you from achieving the goals that you want in life.
I guess my question is how did you break that habit? Because I think so many people have these things that they’ve established in their lives, these rhythms that they find themselves in, and it’s so hard to break free from that because the momentum’s been building for so long. How did you change your mindset and then change your behavior to say, “Hey, I’m going to break away from this negative habit,” and really focus energy on something more fruitful?

Andrew:
Many people want the rewards of the external environment to give them their dreams, but at the end of the day, if you want the external environment to give you what you’re looking for, you really have to look internal and you have to really cure those inner demons first before you can expect the external world to provide what you want for your dream. The way I did that was I spent a good two to three hours in self-development every single day. I’m trying to create the avatar, the character that I want to create to bring the reality to this world that I want. Every single morning I’ll spend an hour doing Miracle Morning, I’ll meditate, I’ll write, I’ll scribe, I’ll go through my yearly goals and figure out what I can do that day to get me to my goals.
Really the most important thing that really brought me to this next level is just practicing gratitude. All of us are really lucky to live in the United States. We’re literally the top 1% of the 1% of wealthy people in the entire world. So just being grateful for what you have and the opportunity that has given you really has really pushed me to really go after my goals and not rest until I achieve them.

Ashley:
That’s such a great point. I can find myself sometimes just sitting in my car and frustrated over something or stressed about something or just in a bad mood, and if I just focus on a couple things that I’m super grateful for, a smile just appears on my face and you feel that energy build up in you. I remember going to a conference where somebody led a seminar about just how you are positioning yourself. If you’re hunched over and then everybody, sit up, put your shoulders back, and you already feel better about your situation and things like that. I think those are just such little, easy things, but you forget sometimes, you don’t always do it. But Andrew, you’re getting into that habit of doing it every single day, feeling that grateful, expressing that gratitude for what you do have, and it can be the smallest of things.
I remember when my kids went to private school, we did it during COVID so they didn’t have to go virtual and they could go in school, but there was no bus system and I was like, “Every day I’m going to have to drive them to school and I’m going to have to pick them up. Every day.” I had a friend who didn’t even know I was going through this situation who said to me, “Oh, I’m so lucky with this job that I have. I get to drive my daughter to school every day. I get to do that, I get to spend those 20 minutes in the car with her,” and I was just like, “Wow, I’ve been thinking about it so wrong.” You need to be grateful of that I get to … I don’t have anything else to do. I can go and drive my kids to school. I get that time with them and that I’m able to do that where not everyone has that opportunity. I was looking at more of an inconvenience when it really wasn’t.
So I think that’s great. Hal Elrod is the one who writes that book, Miracle Morning, that you were referring to. Great book for anyone that wants to check that out.

Andrew:
I think that’s a great point. I mean, just going back to that, I mean just being very conscientious of where your thoughts go and the fact that whether you’re ruminating on something negative or whether you’re ruminating on something that will get you towards your goals. So that really has been instrumental for me, is kind of controlling where my thoughts go and focusing on things that get me towards my goal and literally pushing that behind you. For your example, you were focusing on the negative, like, “Oh, this is wasting my time. I’m driving my children to school.” But if you just switch that and focus on the positive, “I get to spend time with my children, I get to enjoy them in the morning, I get to enjoy their spirit driving them home,” that really changes the whole dynamic of the situation. It really puts that gratitude in the forefront, for sure.

Ashley:
Andrew, what do you think is the biggest impact you’ve had from this, implementing the Miracle Morning and expressing gratitude and scribing all these different things? Are you actually tracking any of this? Are you looking and seeing, “Okay, I’ve been doing this for 100 days now and I see an impact …” on your productivity or whatever it is?

Andrew:
I do definitely utilize a habit tracker. Every single day. I’ll have my nine, 10 items what I want to do, and I really focus on getting them done in the first two, three hours a day. Once I actually tackle those habits, everything else seems easy. When you really tackle hard things early, hard things throughout the day just go with the flow. That’s kind of been really good for my success is really just tracking those habits, really focusing on them on a daily basis.

Ashley:
When you started doing this, was this before you got your first deal and that’s kind of helped you lead into that? Or was that after? You want to maybe talk about the first deal?

Andrew:
Yeah, absolutely. I mean, this was all before my first deal. I really got into mindset. I really got into habit tracking. I really got into education, learning as much as I could. I think I listened to all 600 or 700 Bigger Pockets podcasts. I really did focus on that, but it really led me into my first deal and the fact that it set me up with the right partners, it put me in the right market and it gave me the right strategy. I ended up utilizing the house hack strategy. I opened up a line of credit on my one bedroom condo in Boston, around $200,000, and I used that as seed money to buy my next seven deals. I bought two house hacks. I invested in two, three families, I bought a five family, I invested in two syndications. I’m currently closing on a six family right now. To your point, those habits gave me the confidence to really go after my dream. I didn’t have to question whether I had the knowledge or whether I knew the right people. It really gave me the confidence to experience failure and really just thrive.

Tony:
Andrew, so many good things that you just said right now. I just want to take a quick second to unpack some of that. You said those habits gave me the confidence that I needed and it’s such an important idea for our rookie listeners to understand because so often we have these goals that we set and the goals seem almost so far-fetched because it’s like, “I don’t know anyone that’s doing those things. I’ve never done that myself. Is it even possible? Is it just a dream?” The question isn’t always like, “What do I need to do to achieve those goals?” The question we need to ask ourselves sometimes is, “Who do I need to become in order to achieve those goals?”
You are the perfect picture of what that looks like because before we even started talking about analyzing deals or choosing your market or doing this or doing that, the technical stuff of about real estate investing, you looked inward and said, “What do I need to do internally with inside of me? Who do I need to become if I want to be the type of person that can invest in real estate?” I just really wanted to call that out because I think it’s such an important concept for our Rookie listeners to understand. Then one other follow up question, when you had this, I guess, enlightening moment, this awakening inside of you and you went through these changes internally, how much time passed from that moment until you actually got that first deal?

Andrew:
I think I read Rich Dad April, 2020, so a month after COVID. I had all this time in my hands and when I was getting sick of video games, like, “Oh, I’m going to pick up this book.” Honestly, that book literally tears were rolling down my face. That book really changed my whole mindset and it really just showed me that I was honestly just avoiding my dream of entrepreneurship because I was scared of failure. When it comes to real estate and getting a deal under contract, you could do all the prep work you want, you could do all the due diligence, you never know what’s going to happen until you’re closing that property and you have that property, you own that property more or less. It’s really important to just be confident in your ability and know that you’re going to tackle any issue that comes your way. That confidence is instrumental to any rookie. I mean, you just have to be confident in your ability to really just anything that comes your way, you can definitely tackle. Sorry, [inaudible 00:20:45].

Tony:
No, no, it’s okay. No, I think it’s another important point is that repetition builds confidence and the more you do something, the more confidence you start to build in yourself to actually do that thing successfully. I think so many people have this … I don’t know, this warped sense of what it means to make progress towards something. But first is that we need to understand, we have to do the work initially to build that foundational level of confidence and understanding, and the second piece is that as you move through these steps towards success, more often than not you are going to make some mistakes and some things are going to go wrong.
Does that necessarily mean that you failed? Not really, right? Because mistakes and missteps, that’s part of the progress or the process towards success. But I think we have this fear that we build up to say if I make a single mistake, it means I’m a total failure. But I’m assuming, Austin, that a lot of that work you did about your mindset and your gratitude and the habits you were building helped you understand that failure and mistakes are part of the process.

Andrew:
Yeah, absolutely. I mean, I learn my best lessons when I fail. When I make a mistake, I know I’m not going to make that mistake again because I’m fully aware of it. I value, I appreciate failure on a daily basis and I know that that’s going to make me a stronger person and that’s going to allow me to take on bigger and tougher challenges throughout my investing career.

Ashley:
Andrew, I want to know what kind of hats you’re wearing in your business. Are you managing self-managing? Are you outsourcing the property management? Are you hiring contractors to do rehabs? Are you finding deals yourself? Do you have a wholesaler? Do you have real estate agent? What does that kind of look like? Because you have a full-time W2 job, what other things are you doing for your business besides just being the investor?

Andrew:
Totally. I couldn’t even change a light bulb, so I absolutely contract out all of that work. But everything else I do, I’m an agent, I source all of my own deals. I’ve gone a majority of my deals on the MLS, but I’ve gotten a few off market as well. I self-manage all of my units, so all of my tenants have my number, they reach out directly to me. For my W2, technically that’s a 40-hour work week so I do that as well. This all comes back to time efficiency, focusing on the 20% of inputs that create 80% of the output and all of my careers or my jobs are really focused on the tasks that are really instrumental towards my success in that particular field.
For example, for my W2, I’m a finance guy. I have to make sure my projects are budgeted correctly and are spending in accordance with the trend, and that that’s essentially what I focus on is the money side of it. Because everybody’s going to poke me once we go in the deficit, everybody’s going to poke me once we’re losing money. So I really try to focus on profitability.

Ashley:
Does you think that it gives you that little edge up because you’re focused on that compared to maybe somebody else who’s not really tracking their budget, that that’s where you’re seeing the real value in your investment is because you’re taking the time to be so detailed and that’s where you’re kind of seeing your return on investment there?

Andrew:
I mean, as you both know, the work is in the due diligence and being proactive. If you do your work upfront to make sure the project runs smoothly, that everybody’s on the same page, that all of your tools are readily available if things come your way, the projects a lot of times just run themselves. As long as you’re monitoring your rehab or you’re monitoring your long-term rental or you’re monitoring your clients, as long as you set them off on the right track and monitor them on a weekly or a monthly basis to get them back on track, that’s really the key to being a successful project manager and really have wearing multiple hats is just being extremely detail-oriented and being proactive.

Tony:
You mentioned, Andrew, about being proactive and doing the work up upfront was what you said. I love that phrase because I think doing the work up front is one of the most important things a new investor can do because if you do the right work up upfront when you’re analyzing the deal, when you’re sourcing the deal, on the back end typically the management becomes a little bit easier. So I’m curious, Andrew, with the 18 units you have right now and plus another six on the way, what does a deal look like for you and where do you see these opportunities coming?

Andrew:
It’s all about systematizing and automating the acquisition side as well as the stabilization side. In regards to the acquisition phase, there are some key metrics that I look at when it comes to buying multi-family units. One of the easiest metrics that I think everybody can utilize with quick underwriting is what is your fall in cost per unit? Say, for example, the unit costs $125,000 and it’s going to cost you $15,000 per unit to bring it to stabilization. Your all in cost for that unit is 140,000. If units in the area are trading for 200,00, 250,000, you barely have to underwrite that deal to know you’ve got a good deal. The other key metric I use is post stabilization cash on cash return. I like to ensure all of my tenants are month to month to ensure there is a quick path to stabilization, but by utilizing those two metrics, I can really underwrite properties extremely quickly and know if it’s a good deal or not.
Then if it is a good deal, then I can kind of dig in deeper. That’s kind of on the acquisition side. Once I actually get a property under contract, I’ll just give you a couple tips of what I do, but this one tip I think will save people thousands of dollars. Whenever I get a property under contract, I always put a request, a public record request, in with the city or the town and requesting inspection, inspection information or housing violations and that gives you all the history on the property going as far back as you request. That gives you insight into any legal issues that you’re having, any trouble tenants, any issues with the building. Just that alone will give you insight into what to look for when you do the inspection or it might give you insight into tools you can use to leverage for the negotiation and to ask for money off. That’s kind of one tip that I think a lot of people don’t do, but it’s really important with acquiring and doing your due diligence on a property.

Ashley:
I want people to really listen to that because that is a great piece of advice I don’t think a lot of people talk about enough. The first time that was introduced to me was purchasing a campground. I actually had the building inspector for that town call me. He got my attorney’s information and asked for my information and called me directly to say, “I heard you’re interested in buying this property and we really want to see it turned around. I just wanted you to know here are all the issues with it.” It had a sewer treatment system if we had all of these things that didn’t pass inspection that were failing and he’s like, “Stop into my office, I’ll give you the history of everything.” He’s like, “I just want somebody to come in who’s actually going to take care of the property and pay the taxes on it,” and things like that.
But it really was … so there was things that obviously weren’t disclosed that we never would’ve known about unless we had gone and got those public records from the town hall there.

Andrew:
Yeah, I mean I got a property under contract and in that report it mentioned the roof leaking. That was a really good point for me to point my inspector on and really focus on those issues. So it’s incredibly powerful, as you mentioned, with doing your due diligence because I mean, every property has the history and most of the time the town or the city has that information.

Ashley:
Here’s another one too that I’ve seen come up too is any health code violations, like problems with the water. If a tenant had called and said that they want the water tested, things like that, or also rats, a rat infestation, calling and saying that there’s a rat infestation, the landlord hasn’t taken care of it, things like that. Just going back through that history and the rat thing had been taken care of, but it was just like, okay, is the whole house … all the wires chewed up from rats living in the walls of that property, and just one more thing to check on.

Andrew:
Then once you actually acquire the property, you do due diligence, which make sure you always get the estoppels by the way, for multi-family [inaudible 00:29:21]. You want to make sure the tenant signs off on the rental amount because that’s almost more important than the lease.

Ashley:
Can you just tell everyone what an estoppel agreement is real quick?

Andrew:
Estoppel agreement is essentially the tenant signing off on the rental amount, who’s responsible for the utilities, whether they’re paid up to date. Get as much information on that estoppel as possible and have the tenants sign off on it because if they sign off on it’s going to be way easier to have that conversation with them when you show them their signature.

Tony:
Can you also spell estoppel?

Andrew:
I can. E-S-T-O-P-P-E-L.

Tony:
There you go, man. I remember the first time I heard it, I had to ask that person that told me about the estoppel agreement five times, because I didn’t understand what language they were speaking in and I had to google it to really understand. I just want to make it easy for the folks who to listen to google that later if they need to.

Ashley:
I feel like that was me because I feel like you’ve asked me to spell it before. Unless we just asked you to spell it because of [inaudible 00:30:17].

Tony:
Yeah, just because that first situation, I know I was so bad at trying to understand how to spell it. Phonetically, I couldn’t figure it out.

Ashley:
At one of your events, Tony, you should do that as a competition, the first person to spell estoppel correctly.

Tony:
That’s not a bad idea. Andrew, go ahead, continue with the stabilization piece on the properties.

Andrew:
Once you actually acquire the property, you know have to stabilizing and when it comes to stabilizing, you just want to make sure you develop the stabilization plans weeks in advance, like what’s your plan to get this to stabilization? And one of the key important pieces of information is ensuring tenants a month to month. As we all know, leases go with the building. If the whole building’s on year leases, you’re not going to be able to stabilize that or get the rents closer to market until a year occurs. So set up your stabilization plan and then develop a welcome letter with how they’re going to pay rent and I like to ensure all of that is automated. I use apartments.com and all of that just automatically deduct from the account on the first of the month, who they reached out for maintenance requests.
Then I also like to set up a meeting with them, really to establish rapport, explain the rules of the property as well as have a conversation about where rents are and where they need to be. I usually utilize the binder strategy to get the rents closer to market. I know most real estate investors kick out inherited tenants, but a majority of my portfolios is actually inherited tenants. I think 11 of my 18 units are inherited tenants and most of them are close to market. The way I really did that was I utilized the binder strategy on day one. I went to them and I explained, “This is market, this is what you pay, what do you think’s fair?” It’s usually human nature to choose the 50% mark. So a lot of times they’ll choose right in the 50% mark and then at that point I explain to them … first of all, I asked them, “Is there anything I can fix in the building that would make your experience better?”
Usually it’s something small like change the thermostat or change my faucet, which I’m always happy to do because that really establishes the rapport up front and that really gets their buy-in for the rent increase. Then I also kind of address what I’m going to do to improve the property and then I go about it, I go about my stabilization plan, I improve the property, come around six months, eight months later I have another binder strategy conversation with them and I get them closer to market. At that point, maybe they’re $100, they’re $200 below market, I’m okay with that, because the turning unit literally costs 10 to $15,000. How long is it going to take me to get a return on investment on $100, $150 difference? It’s literally going to take me seven, eight, nine years.
Before I kind of get tenants, I kind of do that calculation in my head, what makes sense and it’s worked extremely well. As I mentioned, a lot of my portfolio are inherited tenants. Everybody pays me on time, everybody treats my unit right and it’s been a great experience.

Tony:
Ashley, I’m curious because, Andrew, we’ve interviewed a lot of people and I don’t think I’ve ever heard anyone phrase it the way that you just did so articulately is that sometimes keeping a tenant below market rents is better than turning that property and increasing the rents. Ashley, for most of your properties, do you go along that same line of thinking where you’d rather keep that tenant in place even if they’re paying a little bit less in market rent?

Ashley:
Yeah, especially when first purchasing the property because there’s so many upfront cost when purchasing the property. You have your closing cost and you just … maybe there’s some maintenance or repairs that need to be upfront just like your attorney fees, all these things. My property management company, for every new property you add on, there’s an upfront fee, things like that to do. So keeping them in and also the property management company charges a leasing fee, which is one month’s rent, so the turnover of that. You have to pay them to go and change the locks, things like that. I’ve definitely kept people in properties. I usually like to give them an option where maybe I increase their rent a little bit or they have the option to vacate the property. But I’ve rented units out trying to get the max dollar and I ended up getting bad tenants because it wasn’t at market rent so the pool to pick from was very slim and it was people who thought they could afford but actually couldn’t afford and then ended up being non-paying tenants.
That’s a big thing that I’ve realized over the years that sometimes it’s actually better to be a little bit below market so you have a larger pool of tenants to select from. But I’ve heard it other ways too, that the more you push the price, then maybe you’re only going to get the people that can afford it and you’ll get a higher quality tenant. For me, I’m just not investing in high end areas, I guess, where I have that kind of white collar, W2, high income earners to select from.

Andrew:
I mean, just to your point, a lot of my units I’ll allow cats and dogs because if you remove cats and dog, you’re literally removing 50% of your tenant pool. Then as you both know, a lot of these large multis will have pests, will have rats. Right. I actually love cats because if there’s a cat in the unit, you’ll never see a mouse.

Ashley:
That’s true.

Andrew:
I welcome cats. I literally don’t even charge a cat fee.

Tony:
I was just going to say, Andrew, just to clarify because you mentioned the binder method, but can you just in one sentence just to define what that is because you talked about it in passing, but just for folks who aren’t familiar with that method, what exactly is the binder method by definition?

Andrew:
Yeah, absolutely. More or less it’s just you’re having a conversation with a tenant and you’re really just showing them what market rent is, what do they pay, and then you just have a conversation with them on what they think is fair. Like I said, most of the time it’s human nature to choose the 50% mark because even if it’s like … say it’s 2000 is market, they’re paying a thousand, even if they choose 1500, they still know they’re getting a deal. If they have rented an apartment right down the road, the same exact apartment, it’s going to cost them $2,000. A lot of times they will actually implement the rent increase on themselves rather than you having to implement it, which is really key because you want them to buy into it.
If you force it on them, there’s going to be less buy-in and a higher likelihood of them having to be evicted or you having tenant issues. That’s the binder strategy in a nutshell more or less and I like to use it twice. I’ll use it initially and then I like to use it later on once I approve the property, address some of the issues that the tenant have and show them that I am working to make the property better. At that point, the second binder go around tends to be pretty successful as well.

Ashley:
Andrew, do you want to take us through one of your deals for us? Do you have one in mind that you want to kind of go through the numbers?

Andrew:
Totally, totally. I closed on this three family with a partner back in June, 2022 in Worcester, Massachusetts. We got the three family for $500,000. It was relatively turnkey, it was in great shape. The real value add there was rents were far below market. Our strategy there was two of the tenants were on Section Eight month to month and then one of the tenant was just a normal tenant. So we gave them the welcome letter and we met with them and our strategy there was kind of contact Section Eight, request a rent increase and get it closer to market, which was a successful strategy. We actually ended up doing that in two or three months. The last unit on day one when we met them, they said, “I just lost my job, I can’t afford rent.”
But we knew that the second unit was the first unit’s mother, so rather than kicking out, we’re like, “Oh, why don’t you move in with your mother?” So she ended up moving with her mother. We got that vacant as in one month and we rented that for 2150. We rented the Section Eight, brought the second unit up to around 1950, and then the third unit was a one bed, we got around 1250. So the pity on the building is around $2,500 and the current revenue, after about three months of stabilizing the property breaks out to around $5,300. It was pretty good. Honestly, it was way easier than we expected. Just being empathetic and kind to the first floor tenant really cemented ourselves to be able to really stabilize that building in a quick manner. We were expecting to go through an eviction process.

Ashley:
What do you think that property is worth now now that you’ve increased the rent? You purchased for 500,000, what would you say the value is on it now?

Andrew:
That’s a three family, and as we know with residential, those are based off the sales comps approach. In this sideways or downward market, the value is probably pretty close to where he bought it, maybe 10, 20K higher, but it’s a fantastic cash flowing property. But to that point, that’s really why I’m focusing on five plus unit buildings moving forward because I really want to focus on the buildings that have value based on the income approach so I can get rewarded for the great stabilization that I do. If I stabilize these three families, if it produced 3,000 in revenue and then suddenly it produces 5,000 in revenue, the building is really not going to sell for more a lot of times. But these five plus unit buildings, if I increase the revenue from $4,000 to $8,000, I have the ability to … it’s based off the cap rate, it’s based on the income. I could refinance a lot of my money out, I could sell the building, I could 10-31 it. It gives me a lot more escape strategies and it really rewards me for my stabilization ability.

Ashley:
So really it’s how the appraisal is done is what you’re looking for is to using the sales-based approach or the income-based approach and when the appraiser is going to use that on the five plus units, you’re seeing it more of an advantage to you because you’re doing that forced appreciation by increasing the income. Even though there may be properties around you that are still selling for $500,000, but you’ve increased your income on that property, which is going to you … they’re not going to look at those comps for … compare it to that, it’s going to be the income on the property to show its value.

Andrew:
Yeah, and it just allows me to keep up the velocity of my money. I have more ability to take money out of that deal and put that into my next deal, which is that’s essentially how I’ve built my portfolio is utilizing the equity of all my properties. I mean, how long would it take you to save 20%, 25% on a $500,000 property? It would take most people three, four, five years. The only way most real estate investors scale is utilizing their equity and that’s kind of how I scaled and I’m planning on scaling in the future.

Ashley:
Andrew, how did you find your partner on this deal?

Andrew:
I found my partner in my meetup. I actually host a local meetup in Worcester, Massachusetts, and I met them there and I saw they were doing big things. They owned about the same amount of units I had and we just kind of connected. Then one day he just asked me, he’s like, “I see this great deal in the MLS, you want to walk it?” I’m like, “Sure.” So I actually walked the property. It was relatively turnkey, which honestly that’s kind of what I like to purchase is I like to purchase properties that maybe have minor cosmetic upgrades, maybe one CapEx item, but more or less they don’t require a lot of money to stabilize. It’s more on the management side. Rents are way below market. That’s kind of how I focus on stabilizing property and this kind of fit right into that bucket. I walked the property, it looked great, I looked at him and he looked at me like, “Let’s do this,” and split 50 50 and it was a great deal.

Ashley:
That’s awesome. Thank you for sharing that.

Tony:
I also just want to comment, Andrew, on the meetup. I am a huge proponent of new investors leveraging meetups both as attendees but especially as hosts as a way to build their network and their local community. When you made this decision to start the meetup, did you have a big online presence or this massive network of real estate investors you already knew? If not, how did you go about promoting that meetup and getting people to actually show up?

Andrew:
I like to say this was completely intentional, but just like everything in life, it was just a random act. I was actually looking for a mentor was kind of my real goal. I was looking for a mentor. I ran across a local mentor in Lowell, Massachusetts, which is about 45 minutes away from my city, and during one of his meetups he mentioned, “I’m trying to start a meetup in Worcester, but I’m trying to look for a venue. Can anybody help me out?” I really took that to heart and that weekend I went to about six or seven different venues. I took video, I took pictures, I sent it to him and he was like, “Wow, I’ve been asking somebody to do this for eight months. Nobody did it. Do you want to be our first guest at this meetup that I’m starting?” I’m like, “Yeah, absolutely, I’ll be happy to.”
So I ended up being the first guest and after that he asked me to actually host it and that’s kind of how I first started with that mentor. But I mean, more or less it was just trying to provide value to other people and in doing so, value was provided back to me.

Tony:
Ashley, me and you talk all the time about how new investors can find mentors by providing value first. Andrew, what you just described is the ultimate perfect example of a way to provide value to someone that you hope will in term provide value to you in the form of mentoring of some shape or form. The fact that this person was standing up in the room saying, “Man, I’m really stuck. I can’t find a place to do this thing,” and you spent an entire weekend doing it for him and then sent him all the information that he needed, those are the kind of things that endear someone to you to make them want to take time under their busy schedule to say, “Andrew just did this for me. Law of reciprocity says I want to pour back into Andrew now.” Man, dude, you’re such a hustler. I love that story.

Andrew:
Thanks. I mean, be honest with you, I didn’t even want to be a real estate agent. I literally just became a real estate agent to provide value to my mentor, to provide value in the form of commissions and then I could … I’m essentially his employee, so under the auspices of being one of his real estate agents, I can give them a call and ask him any question I want. To your point, when you’re looking for a mentor, don’t think what they can give you. Think what you can give them and provide value to them, and once you provide value, then ask for something in return. But as we all know, these very successful people don’t have a lot of time and if you’re not going to give them any direction, you’re not going to provide value, a lot of times they don’t have incentive other than the goodness of their heart to pour into you.

Tony:
One other thing I wanted to touch on was just the lending piece. What are some things that maybe new investors might not know about the lending side of getting into commercial real estate?

Andrew:
The amazing thing about commercial real estate is it combines finance. If you partner with two or three people, it combines all of your finances together to show you have the DTI to get a loan on that particular property. A lot of investors like myself, after you buy a certain amount of properties and you don’t have two years of rental income, your debt to income ratio catches up with you and it’s really hard to get loans. But a nice hurdle, a nice cheat code to get over that is to partner with people on deals and they combine all your finances together in one package and then that really gets you over that DTI hump. That’s another reason why I kind of went from small residential to commercial so I could really utilize partners to get over that DTI hump for sure.

Ashley:
Andrew, thank you for going through that deal with us. I think there was some great little tidbits in there that everyone can learn from and congratulations on that cash flow. That’s awesome. It sounds like a pretty cool deal just for doing a couple months of increasing the rent.
I want to take us to our next segment. This is the Rookie Request Line. You guys can give us a call at 1-888-5-R-O-O-K-I-E and leave us a voicemail. We may play your question on the show. Today’s question is from Tom in South Carolina. “Hey, guys, love the show. Just trying to get in the process of getting a HELOC on my primary residence. I am just wondering what kind of paperwork you should have already to bring to a local bank if that’s the route you’re trying to take and what you should be bringing prepared to talk about. Love to hear you guys’ input. Thank you.” So basically, Andrew, he wants to know what kind of paperwork, what should he have prepared to bring to the bank to get that line of credit and should he have knowledge of anything else that he should be prepared to talk about?

Andrew:
Well, before you actually apply for the HELOC, make sure you’re actually getting the best HELOC possible. The way I recommend that is kind of identifying all banks in a 50-mile radius and call every single one, see what HELOCs they have available, see what’s best for you because not all HELOCs are created equal. From my first HELOC, I had a ton of equity. There’s HELOCs that offer you better terms at 80 to 85% equity. If you have a lot of equity, those are really good options. If you don’t have a lot of equity, they’re actually HELOCs that go up to a 100%, but those have worse terms. It depends on your needs and how much equity you have on what the right HELOC is for you.
Regarding HELOC, that’s just a normal mortgage. More or less it’s a lien, so it’s everything A normal mortgage would need, your tax returns, your work information, things of that nature. A lot of times the great thing about HELOCs is they’re interest only, and people don’t really realize this, but when you’re actually going for loans, they take into account the minimum payment when calculating your debt to income ratio. So HELOCs, you can actually borrow a lot against it and it doesn’t actually detriment you too much when you go to lenders because they only take into account the interest on that money and not the principle plus interest, if that makes sense.

Ashley:
Can you touch as to how many lines of credit have you done, Andrew?

Andrew:
I did one line of credit on my one bedroom condo in Boston. I bought it in 2015 for 222. It appreciated to around 400,000. So come around COVID, I opened up a 200K line of credit. I utilized that to buy, I think, my next seven deals. My first house hack, I used my line of credit for my down payment on that. I think I did that with an FHA of 3.5% down. I used about 40K from there. Then once I was in that property and I was actually ready to house hack to my next property, I always recommend this before you move from one house hack to another house hack, open up a line of credit on that house hack. They have 100% HELOCs up to three to four families.
I actually opened up a $75,000 line of credit on my first house hack before I moved to my second house hack. I’m actually planning on opening up a line of credit on my second house hack before I move. It’s really important to have the ability to access that equity and as many of us, we got amazing first lien loans. Most of my loans are like 2% to 4%. I want to keep that loan. That is a huge asset, but I want to utilize that equity and I do that via lines of credit. Yes, lines of credit have higher interest rates, maybe seven, eight and a half now, but your overall blended rate across both of those loans, your first lien and your second lien is by far lower than going to the refinance process.

Ashley:
That’s a great point, that blended rate is looking at it in that scenario as to taking the two rates and bringing the average together and comparing it as to if you were to go refinance, pay the closing cost, pay the higher interest rate than that 2% or 3% that you currently have on your mortgage.

Andrew:
When it comes to growing and scaling, I really think of it like a hedge fund more or less. So when I’m actually opening up these line of credits and I’m borrowing at a 7% or an 8%, I just have to ensure whatever I’m moving those money into, it provides a higher return. I’m arbitraging one return from one fund into another fund and that’s really how I’ve been able to scale. Ever since I’ve gotten into real estate, it took me around 10 years to accumulate $250,000 in net worth. In a period of two years, I three Xed that through utilizing arbitrage and more or less thinking like a hedge fund. Like how can I borrow one pot of money and arbitrage that into a higher return? It’s been a very effective strategy for me, and I highly recommend people do that as long as they’re doing it in a safe way.
You have a decent amount of reserves. Maybe you have a 401K to fall back on. Maybe your parents will support you if you get in rough times, but you have to have a backup plan if you are planning to use leverage. Otherwise, it’s not a smart decision.

Ashley:
That right there is a great disclaimer, and I’m glad you said that because I think people get excited about the, “I don’t have to have any money to invest in real estate. I can just leverage this property to move to this property and go and refinance and do lines of credit and all these things.” But you’re right, you still have to have those reserves in place and tapping into other assets such as your 401k, you’re able to draw a loan from your 401k if you absolutely needed to. Or if somebody has a brokerage account, they could take a line of credit against their brokerage account, things like that. So knowing what your actual liquidity is in this situation, if things do take a turn for the worst is where can you pull money from to get yourself out of that bad situation I think is very important.

Andrew:
To really scale and grow in real estate, you really have to utilize the compound effect. For all the property that I own, for all the rental income that I get, I literally have taken, I think, about $200 from my properties in cash flow. I literally just let that recycle and compound, and I really live off my W2 income. I recommend people all the time, in regards to real estate, your W2 is really an asset, right? Because it gives you a flexibility to go after the best loan products. As we all know, in real estate, debt is your highest line item, that’s your most expensive line item. If you can get the best deal in debt, you can actually make deals work that don’t work for other people.

Tony:
Andrew, I’m so glad you touched on recycling that profit back into the business because most people, I think they take money out of the business too soon. For us in our business, we had, I think, 14 properties on Airbnb before we took a single penny out of the business and every other dollar was going back into the business to help fund the next deal, to renovate our existing properties, to make improvements, have better experiences. That decision to hold off made all the difference because now there was a snowball that started to form. Even now, we’re at almost 30 properties on Airbnb, we still take a relatively small salary from all of those properties, and the majority is going back into now mostly people. We’re been hiring a lot of people to help put the systems and processes in place to be able to continue to scale this business.
So if you’re listening and your goal is to build a large portfolio, I think it is prudent to try and reinvest as much as you can back into the business early on so that you can do a little bit better down the road. Andrew, I want to take us to our next segment here, which is the Rookie Exam. These are the three most important questions you will ever be asked in your life. Andrew, are you ready for these three questions?

Andrew:
Let’s go.

Tony:
All right. Question number one, what’s one actionable thing rookies should do after listening to your episode?

Andrew:
Take action. Take action. My biggest advice to new investors is start shooting out offers, cast a wide net. My advice to you for that particular strategy would be look at properties with 40 plus days on market, start writing up offers 50% of list price and just shoot them off, shoot them off. You’re literally casting out a wide net and you’re seeing who’s willing to bite, who’s willing to negotiate, who’s motivated to sell. Once you have somebody on that fishing line, you got to pull them in slowly. Maybe they’ll veer off, maybe they’ll get rid of the line, but at that point you really figure out who the motivated sellers are and you really can go after the properties that make sense.
That would be my advice, is really focus on those tasks that are going to get you to your goal. Does that mean get a line of credit? Does that mean underwrite deals? Does that mean walk properties? Does that mean talk with lenders? Does that mean reach out to brokers? These are the things that get you to your goals. If you’re just posting on social media and you have no deals done, stop it. Focus on the activities that will get you your first deal.

Ashley:
That’s a great point, because even I’ve done this before when I’ve started different businesses or little side hustles, is I get caught up in my logo design, I need to order my business card. It’s like you don’t need any of that to get started.

Andrew:
Get that first customer. That’s the key. Get that first customer.

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

Andrew:
I love apartments.com. Whenever I take ownership of a property, I ensure all of my tenants sign up for apartment.com and they’re set up an autopay. First of all, rent collection. When you own 18 units, you got to chase people down for checks. That’s an absolute time killer. When I set up people on apartments.com, I literally just sign on on the first of the month, I see if their payment’s processing or not. If it isn’t, I just shoot off quick texts. A lot of times it’s just tech issues. They fix it, ba-da bing, ba-da boom, I get paid. My rent collection, I don’t know, it probably takes me, I don’t know, 20 minutes a month. But if I didn’t have that software in place, if I was collecting checks, if I was collecting cash, that would literally take hours upon hours every month. It’s all about time efficiency and utilizing strategies to really automate your management of your properties.

Tony:
All right, Andrew, last question. Where do you plan on being in five years?

Andrew:
Well, first of all, one of my ultimate goals is to help 100 people reach financial independence. If I did that, if I gave to the world that, I feel like I’d given more to the world than what I took and I could really die happy. That’s one of my ultimate goals is really to mentor and help others achieve that financial independence. My next goal, and along those lines, I would love to start syndicating large multi-family. That’s definitely down the path for me for sure. Then lastly, I want to travel. I want to visit 100 countries. I want to see the world. I want to experience everything this world has to offer. That’s kind of what I envision my life to be like in five years.

Tony:
Sounds like an amazing five-year plan, and I don’t think I’ve heard one so … I don’t know, energizing since we’ve been on the podcast, man. So I love that, Andrew.

Andrew:
Thank you.

Tony:
Let me finish up by giving a shout-out to this week Rookie Rockstar. This week’s rockstar is Homer Olivarez, and Homer says, “Today we closed on our first deal. We’re officially landlords. This is the first of many to come, but we officially took our first step towards financial freedom. We can’t think Bigger Pockets and everyone in the forums enough for all the help. This will be our first house hack and we are also first time home buyers.” Now here’s the cool part about Homer’s story. He says, “We came into the closing table with zero money and are actually getting a check written to us for about $580. When they say you can buy a property with low and no money down, we were able to experience it firsthand.” So Homer, congratulations to you on that amazing first deal.

Andrew:
That’s just a testament to everything Bigger Pockets does good community. You guys really make a difference in people’s lives and you probably help millions of people reach financial dependence. You literally work for one of the best organizations I know of and I’m internally grateful to you as well. I would not be where I’m at without you guys, so thank you.

Ashley:
Well, we feel incredibly grateful that we’re the ones that get to sit here and get to interact with the guests because I mean, it’s the guests that give the real value. We just use our curiosity to pick and probe more as to, “How are you doing that?,” because we wanted to that. But thank you, we appreciate that, Andrew. Can you let everyone know where they can reach out to you, find out some more information about you?

Andrew:
Absolutely. You can follow me on Instagram and investorfreed.com. You can definitely reach out to me on LinkedIn or Facebook at Andrew Freed. I’m also an agent in Worcester, Massachusetts. I focus on investment property, multi-family, so feel free to reach out.

Ashley:
Well, thank you guys so much for listening to this week’s episode. Andrew, you brought tremendous value to our listeners and we really appreciated having you on. If you guys haven’t already, make sure you have joined the Real Estate Rookie Facebook group and are subscribed to our YouTube channel, Real Estate Rookie. Please leave us a review on your favorite podcast platform and tell us what you’re doing in your real estate investing career because we love to read them on the podcast. I’m Ashley @wealthfromrentals and he’s Tony @tonyjrobinson on Instagram, and we’ll see you guys next time.

Here’s an excerpt from this week’s CxO newsletter. To get it to your inbox, sign up here.

My favorite franchise at Forbes (besides this one, of course) is our 30 Under 30 List. Launched in 2011 by chief content officer Randall Lane, it’s a testament to the power of entrepreneurship and creativity across all parts of the economy.

We’ve just published our 2023 Under 30 Europe List. This year’s entertainment list includes Italian actress Simona Tabasco from the HBO hit The White Lotus, as well as Rhian Teasdale and Hester Chamber of the British indie band Wet Lag. (If you haven’t heard Wet Lag’s music, Chaise Longue is a good place to start. And White Lotus fans might enjoy SNL’s take.) Here’s the methodology behind this year’s list.

A 19-year-old tennis phenom, three soccer stars and a female racing driver who’s outpacing her male peers are among the athletes highlighted on this year’s list. The 27-year-old creative director of Ferragamo and a “magicineer” bringing cocktail elixirs to life are among the game-changers reshaping fashion, food and the arts. Climate is a central theme on this year’s list of social-impact entrepreneurs while AI infuses our manufacturing and industry list. Then there are the financiers and scientists like Rochelle Niemeijer, who is developing tools to tackle antibiotic resistant infections through her startup Nostics.

I have to give a special mention to Ludovico Mitchener, CTO of PhycoWorks. One reason is that the venture he cofounded with Stefan Grossfurthner combines AI and synthetic biology to develop algae strains that can transform carbon dioxide into new products. The other reason is that his mother is Daniela Vincenti, a friend and former classmate at Columbia Journalism School,, who’s now an advisor at the European Economic and Social Committee. (Such shout-outs are a newsletter writer’s prerogative, no?) As a working mom, I take that as a signal that building our own careers need not come at a cost to our kids. In fact, it might actually inspire them.

Under 30 Europe showcases leadership at its best and is a reminder that there are plenty of areas in which Europe is on par with, or ahead of, the United States. Gender parity is one, but success comes down to what’s happening in companies, not countries. Jena McGregor this week took a look at how Swedish retail giant IKEA managed to achieve the rare feat of reaching near-gender parity in its leadership roles. It didn’t happen because of legislation, which Europeans have long deployed as a tool to diversify boards, but rather through clear targets, training and incentives. And it was achieved at IKEA’s operations around the world. More proof that you don’t have to be under 30 to be a pioneer or game-changer in your industry.

Indeed, Forbes and Mika Brzezinski’s Know Your Value initiative are currently cohosting the 30/50 Summit in Abu Dhabi. (Click here for the live blog.) The event, now in its second year, brings together women from our 30 Under 30 lists and our 50 Over 50 lists to inspire and learn from each other. Here’s a preview of the lineup, which includes former Secretary of State Hillary Clinton, Nobel Peace Prize Malala Yousafzai, Ukraine’s First Lady Olena Zelenska, Sweet July founder Ayesha Curry and actress Catherine O’Hara. Be sure to check back for coverage.

Have a great week.

David Greene:
This is the Bigger Pockets Podcast show 736. Fannie Mae came up with a guideline and said, “Hey, we’re not going to let you refinance anything if you’re pulling cash out unless it’s been seasoned for 12 months.” It used to be six months. This is where that six month rule that everybody looks into that has to do with the Burr method and, well, I can’t refinance for six months. It’s because of a Fannie Mae guideline. Now they’ve bumped it up to 12 months. I don’t believe they’ve said why they’re doing it. My suspicions would be they’re trying to make it harder for investors to buy deals because they want home prices to come down without having to raise rates even more. What’s going on everyone? This is David Greene, your host of the Bigger Pockets podcast here today with my co-host Dave Meyer, doing a special edition of Bigger News.
As you’ve noticed, we are in a beautiful scenic place. We’re here in Denver, Colorado bringing you one of the bigger news episodes where we’re going to be covering what is going on in the world of real estate, what is going on in the headlines and what you need to know about them. We’re going to be trying something new for Bigger News. Dave and I are going to be reviewing the top headlines in the real estate investing space and talking, commenting and diving into how they can affect the real estate market and our position as investors. Dave, nice to see you.

Dave Meyer:
Yes, man, this is a lot of fun. First time we’re doing this in person.

David Greene:
And you’re even more handsome in person than you were on camera. I didn’t think that it could happen.

Dave Meyer:
Wow. It’s all this fancy equipment they have surrounding us.

David Greene:
It doesn’t hurt. This is how hard they got to work to make me look good, but hey, I’ll take it.

Dave Meyer:
I feel like we’re going to break something. It’s a lot of expensive stuff.

David Greene:
Yes, that’s true. When you’re walking through, you have that same feeling like you’re at grandma’s house and you’re in the living room where no one’s supposed to go.

Dave Meyer:
Yes, exactly. And we look like real newscasters. We’ve got our sheets of paper. We need one of those little ear things that they put in.

David Greene:
Yes. I’ll be Will Ferrell and you could be Christina Applegate.

Dave Meyer:
Thank you.

David Greene:
All right, well, why don’t we start with the first headline, what you got?

Dave Meyer:
All right, so our first headline, we need to talk about mortgage rates. I know this is something we talk about a lot, but they’ve been really volatile and just for some history here, obviously we all know mortgage rates went up a lot last year. For a while, it seemed like they had peaked at about 7.4% back in November, and they had fallen down to almost 6%. Now they’re back up to almost 6.8%, and a lot of this seems to be because of recent economic data. There’s just been a lot of things, two things really. One, a really strong labor report back in January and inflation data that was pretty ugly and disappointing, and this to me at least seems like this is a green light for the Fed to just keep raising interest rates. What do you think about that?

David Greene:
That’s what it looks like right now. They’re showing fearlessness when it comes to just being willing to continue raising rates, and we know the reason that they’re doing that is they believe this is going to stop inflation. That’s debatable whether it’s going to stop inflation, delay inflation, it definitely has an impact on the economy in many ways. We can’t predict here, we don’t know, but I would expect rates to continue raising and every time that there’s anything less than optimal in the economy in general, and they think that prices are going to get too high or unemployment is too low, we’re going to raise rates to try to turn that around, which obviously affects our position as real estate investors.
I think this is something that’s very difficult is we typically base our decisions off of a comparable price for a home, and when rates bounce around like this, the value of homes bounce around like this too, it makes it very difficult to just not have a moving target where you can drill in and say well, this is what a house is worth. Have you seen within the bigger pockets community frustration or maybe some hesitancy of people to move forward and pull the trigger where before they may have done it when they felt more stability?

Dave Meyer:
I hadn’t really thought about that point, about the calming aspect of this, but it does seem like for a while in January and February, I think we talked about this recently, that people were starting to get back into the market a little bit. And people were starting to feel like inflation was on a positive trend, mortgage rates were trending downwards, but now that it’s reversed, I do think there’s a risk that there might be some demand pulling back out of the market at least for the next couple of months, but I don’t know yet.
I think it’s just going to be really hard for people who are new to this to jump in with all of this volatility because it’s up, it’s down. It’s really hard to get a beat on it, and unless you’re an experienced investor who has been through something like this or just knows your numbers so cold that you’re can be confident whether your mortgage is six and a half or 7% that your deal is going to work out. I do think there’s a chance that people take a step back and pause at least till there’s some more stability.

David Greene:
We were talking before we recorded about what you call the pump and glide method of driving where my Uber driver was making me sick because they hit the gas and then they take their foot off the gas and the car slows down.

Dave Meyer:
If you drive like that, please stop for all of our sakes. Just don’t drive like that.

David Greene:
Well, it made me think that’s what the market’s doing. Is you’re seeing, we just had, on the David Greene team, a really good February because rates had just come down, so it was like we’re moving forward, and then the rates come up and everything slows, and then it’s moving this back and forth, and investors are having a very hard time getting a grip. So what I would expect for maybe at least the near future in 2023 is you’re going to continue to see buyers jumping in as a group and buyers withdrawing as a group, and you’re sort of playing this game where you’re trying to catch the wave. Maybe you can think of kinking a hose, letting it out, kinking a hose, letting it out, and as long as interest rates keep doing this, we probably just have to get used to the fact that this is how the market’s going to operate.

Dave Meyer:
Totally, and I think inventory is going to be kind of the same way, right?

David Greene:
Yes.

Dave Meyer:
We’re starting to see more people start to list their property.

David Greene:
Because the rates went down. They think they can sell for more.

Dave Meyer:
Exactly. So there’s just going to be, like you said, the pumping glide effect, and unfortunately it just doesn’t seem like there’s a good line of sight on economic stability. Inflation was looking good, took a step back. We’re hearing a lot of layoffs in the job market and tech market. Tech makes up 2% of the labor market, and now we’re seeing that the January labor numbers were actually pretty strong, surprisingly strong, and it just shows that no one really knows what’s going to happen right now, and we all just have to admit that and expect some of this volatility. It doesn’t mean you can’t find deals, but you should not expect things to be clear I think for the next, at least three, maybe six months, and then hopefully by then we’ll at least know some direction, whether good or bad, which way things are heading because it’s just so murky right now.

David Greene:
Now, the good news if you’re looking to buy in this market is that sellers are feeling that same thing. They’re putting their house on the market, then they’re hearing the labor report come out, they’re seeing interest rates go up. They’re also going from greed to fear and they’re cycling. So if you are in the market to be buying a house, whether you just want to live somewhere or you’re looking to invest, you’ve got your eye on a property, you’re waiting on the right time. I always watch the news and I wait for the doom and gloom, and then I go, right, more aggressive offers, and that’s worked for me several times where a seller saw the same news and we’re like, Jerome Powell just said they’re taking this thing to the moon. I need to sell now before there’s blood in the streets. And then three months later, rates came right back down again.

Dave Meyer:
That’s very good advice. All right, well, maybe one day we’ll stop talking about mortgage rates, but that’s not today.

David Greene:
It’s given quite a bit of fodder to get into, right?

Dave Meyer:
Yes.

David Greene:
There’s always some new dramas. Mortgage rates are the Kardashians of the real estate market now.

Dave Meyer:
Yes, exactly. They are. Everyone wants to know. But there are other good headlines for us to talk about. The second one today is about refinancing and really will impact one of your favorite strategies. The Burr method. What happened was on February 1st, Fannie Mae, which is a giant mortgage lender, government backed entity, updated its eligibility policy for cash out refinance transactions to require that any existing first mortgage be paid off through the transaction, be at least 12 months old as of measured from the note date of the existing loan to the note date of the new loan. So first and foremost, can you just explain what that means to everyone?

David Greene:
Yes, so Fannie Mae. You’ve often heard the name Freddie Max, another one. This isn’t going to be perfectly accurate, but in general, they are the enterprise that will buy the loans from whoever your mortgage broker is when you’re getting conventional financing. So because they say, “Well, if we’re going to buy a loan, it has to meet these guidelines.” Now all the mortgage brokers and the lenders go conform to what those guidelines are so that they can sell to Fannie Mae.
This is keeps what we call liquidity in the market. So if I lend you my money and you just kept it for 30 years on that property, I can’t go lend to somebody else. So by lending you the money and then you go sell it to somebody else and Fannie Mae ends up pushing money back in thumb when they buy these notes, the government is able to keep rates lower than they would normally be. Even though rates are higher right now than they’ve been traditionally, they’re still lower than what they’d be if we didn’t have Fannie Mae.

Dave Meyer:
That’s right.

David Greene:
Well, Fannie Mae came up with a guideline that said, “Hey, we’re not going to let you refinance anything if you’re pulling cash out unless it’s been seasoned for 12 months.” Now that used to be six months. This is where that six month rule that everybody looks into that has to do with the Burr method and well, I can’t refinance for six months. It’s because of a Fannie Mae guideline. Now they’ve bumped it up to 12 months. I don’t believe they’ve said why they’re doing it. My suspicions would be they’re trying to make it harder for investors to buy deals because they want home prices to come down without having to raise rates even more. And so this gives an advantage to people that are just a primary residence person who’s going to be going in to buy, and there’s also probably going to be an element of risk reduction for them, because when rates fluctuate like this, it causes a little bit of anxiety in us buyers, but it causes massive anxiety in the lending industry.
So they’re going to take this loan and they’re going to sell this to a pool of people who are going to buy it as a mortgage backed security. Those people don’t want to go invest all their money into interest rates at 7% if they think they’re going to be at 10% later or if rates are going to be going down, they’re going to want to buy more when they’re at 7%. So the pricing of these loans bounces around every time that the rates bounce around. All the people that are making loans right now, they typically have about two and a half years before they break even.
So if I give a mortgage to somebody, the costs that are included in doing that, I usually don’t get my money back for about two and a half years. So they don’t like it when cash out refinances or rate and term refinances happen frequently. They want to slow that down. So this is another way that lenders who are actually putting money into the market to sponsor these loans can protect themselves by not letting someone go in, get a mortgage and then refinance six months later when rates are down by a point and a half.

Dave Meyer:
That’s a really important note because at first my thought was yes, they’re sort of taking aim at flippers and perhaps Burr, but it also really matters that this is their business model and that they need to make money as well, and so they’re probably doing it, I would imagine some combination of it. So what do you think? Is this going to impact Burr?

David Greene:
Yes, I think this is going to impact Burr. People who are already struggling with Burr because rates were going up and values weren’t increasing as fast as they were. So one of the common mistakes I think people make with the Burr method is they assume they got to get 100% of their money out of the deal and that they have to do it in a six-month timeframe, that’s like a grand slam if you can do that. When you compare it to the traditional method where you put 20 or 25%, then you dumped another five to 10% of the property value, and on a rehab, you’re looking at somewhere between 30 and 45% of the property’s value is invested and stuck in it. So if you do a bird and you leave 10% of your money in there, that is still a clear win over leaving 35%.
It doesn’t have to be 100%, but this does make it a little bit trickier there. There’s no doubt about that, that these lending fluctuations are like an earthquake and then the ripples go out all throughout the industry, but we’re having earthquakes every single time the Fed announces something new. It’s like it’s going this way, then it’s going that way. So there’s all these changes that are happening. It does affect probably more Burr than flipping because it’s only is for cash out refinances. This is if you’re looking to take more money out of the deal than what you put in. So a flipper, they’re just going to be selling the note.
They don’t have to worry about a cash-out refinance, but it also makes it even more important to pay attention to what’s going on in the fit. I’ve been saying this is the time in real estate where education information matters more than it ever has before. For a long time, real estate was just the same thing for years, for decades, it didn’t really change a whole lot, and now as we see these changes that are being made at a high level are having massive, massive impact on the way that we’re doing business and what we expect home values to do.

Dave Meyer:
So what do you think people should do? Is there a way to mitigate this or something that you can do to continue to do the birth strategy despite these new regulations?

David Greene:
I think it makes it harder to do buy a house, cash out, refinance, get all your money back, at six months buy another one. That was a supercharged method that people were, I was doing this too, growing your portfolio very, very quickly with the same capital recycling it. These principles work, but you’re not going to be able to execute it at the same speed. What this really does is it benefits people that have a larger portfolio of properties that were accumulated over a longer period of time. So if you bought real estate consistently for the last four or five years, you can still cash out, refinance the stuff you bought four years ago, get that capital, put that back into new properties, and then refinance the stuff you bought three years ago. It makes it harder for the person who’s trying to get started.
So the advice that I’m continually giving is one will keep house hacking because if you could put three and a half percent or 5% down, you don’t need to do the Burr method. There’s not a whole lot of money you’re having to take out of it. That’s one way you can get your portfolio started picking up steam. And the other one is just to decrease your expectations that real estate should never be a sprint. It is a marathon all the time. So it doesn’t really matter what’s happening right now because you’re building wealth over the next 10, 20, 30, 40 years, and as you pick up that steam, you’ll be able to do a cash-out refinance, building, use any of the tools that we talk about without these regulations changing. They’re always tools that affect the short term, and if you can get out of the short term model and into a long-term model, you can operate independently of this stuff.

Dave Meyer:
Yes, and that’s excellent advice. I think for the last couple of years, this low inventory where people have to buy quickly and sell, and there’s just so much going on frenzy and you had to move quickly, at least on the acquisition side. People get ramped up and they feel like they need to do everything really quickly and it’s not necessary. The other thing you can do too is if you want to refinance something quickly, you can look into portfolio loans, as David was explaining, conventional loans, conforming loans get sold and repurchased to people like Fannie Mae and Freddie Mac. Portfolio loans are when the bank hold onto the loan, so maybe they’ll be-

David Greene:
That was a great-

Dave Meyer:
… Emergence of portfolio lenders who’ll be willing to do cash out refis for investors.

David Greene:
That’s a great point. Portfolio loans, you avoid the whole Fannie Mae situation. The other one that I forgot to mention is DSCR Loans. We do a lot of those at the one brokerage, and when you get that loan, it’s not being sold to a conventional lender. It’s being sold in a private markets basically. So some of those DSCR lenders are going to follow the Fannie Mae guidelines because they’re the big dog in charge. What they do, everyone else falls in line, but other ones won’t. So asking a mortgage broker or asking a lender, do you have a DSCR lender that will do this without making me wait 12 months? That’s another workaround also. It’s pretty much just applies to people that want the very best rate and the very best terms they could get.

Dave Meyer:
Absolutely. But I feel like when these regulations happen in a capitalist system, someone fills the void. And there’s going to be a lender, there’s going to be someone who sees that investors still want this type of product and probably will create something like that. It’ll probably take a little while, but.

David Greene:
That’s literally how DSCR loans came to be.

Dave Meyer:
Oh, really?

David Greene:
Yes. Someone like me that has more than 10 properties, I just couldn’t get another loan. I can’t get a conventional loan. So there was enough people that wanted them, and they were like, well, we can’t use Fannie Mae guidelines for this person. What can we do? We can use commercial underwriting standards where we just look at the cash flow of a property we’ll qualify it based on that, and that’s literally what happened. Is this new thing stepped into where there was a need in the market. So don’t panic. Don’t eat panic in Anikins.

Dave Meyer:
Cleaning around.

David Greene:
Wait, and there will be a solution that will come to fruition.

Dave Meyer:
Awesome. All right. Well, that is very good advice and something we’ll definitely be keeping an eye on. For our third point, we got to talk about Chat GPT.

David Greene:
Are people talking about that now?

Dave Meyer:
I don’t know if we’re even a news show. If you don’t mention it, you have to talk about it. Have you used it yet?

David Greene:
No, but everyone else has.

Dave Meyer:
I have.

David Greene:
I’m a little scared to use it. Is that weird?

Dave Meyer:
You should be because you’re going to like it.

David Greene:
That’s what I’m afraid of.

Dave Meyer:
So Chat GPT, if you haven’t heard of it, is called a generative AI platform. Basically what it is you can go on and text, you can ask it questions and a computer program, which has studied 1,000s of textbooks and websites and books. Will use the information from that studying to form unique and novel answers for you so you can have a real conversation with it. Honestly, it’s pretty remarkable to use, and stuff like this has existed before. But I think what’s unique about the recent advances is how conversational it feels, it sort of feels like you’re talking to another human being and it’s not as generic as it used to be. And this is clearly just the beginning and the pace of acceleration here in Chat GPT, and it’s not just Chat GPT. Bing also has a new program. Google is working on one called Bard. So I think it’s likely that these types of interactive AI systems are just going to keep growing and growing and growing from here.

David Greene:
Do you think they’re going to get along with each other, or do you think we’re going to have a rivalry?

Dave Meyer:
Yes, see, everyone always talks about AI versus humankind as the battle that might happen. The matrix. Maybe it’s going to AIs versus each other, and we’re [inaudible 00:17:24].

David Greene:
[inaudible 00:17:24] relevant.

Dave Meyer:
Yes, exactly. It’s like Transformers.

David Greene:
It’s like Transformers versus human, deceptive cons versus auto bots here. Who’s going to win?

Dave Meyer:
Yes, but we’re still going to be the collateral damage.

David Greene:
Yes, that’s true.

Dave Meyer:
It’s kind of fun. And as a data science background person, I really enjoyed playing around with it. It’s pretty fun.

David Greene:
What are some of the things you’ve done with it so far?

Dave Meyer:
Oh, I was asking it real estate questions, honestly. I started asking it data questions which is not very good at yet, like interpreting data. So my job is safe for at least six more months, but it does do a really good job of it… It is what’s called generative AI, so it can have a conversation with you, which is remarkable. And I was curious what your feelings about this and how it’s going to impact the real estate industry.

David Greene:
I am a bit of a contrarian in a lot of ways in general. I think people ask the wrong questions sometimes. When people say, “How do I buy real estate so I can quit my job in two years and never work again?” Wrong question. You’re probably going to get into the wrong deals if that’s what you’re trying to do. Real estate works better over a long period of time, buying in the right locations, letting an asset stabilize naturally over time than it does if you just rush in and try to buy a bunch of $40,000 properties in some turnkey market that end up causing you headaches. One of the wrong questions people ask is, “How do I make this easy? How do I automate this thing so I don’t have to do the work?” And the problem with that approach is once it’s made easy, it can be replicated and amplified at a big scale as someone with more capital resources than you can come in and do it very easily.

Dave Meyer:
Hey, you need a barrier to entry.

David Greene:
Those are so crucial.

Dave Meyer:
Yes, absolutely.

David Greene:
Yes. Imagine if you’re trying to get people across a body of water and you’re the guy that is hired because you know where the rocks are, you know where the sharks are, you know where the areas that you could get shipwrecked are going to be, you know the area very well. You will always have a job. The minute that you remove all those and you just have a big deep water, nice channel, some huge boat can come in and load up way more people than you ever could and take them across and you’re out of work. This is the problem with us always looking for an easy answer. The minute real estate investing became something that could be done at scaled from all the software, the systems, the ways that we were able to do it easily. BlackRock comes in and they buy all the houses.
So I’m worried about AI doing the job of copywriting, doing the job of making your pictures of your property look better, looking at what short-term rental listings are doing well, copying it, and then just blasting it across everybody because then you’re not winning doing the job of what the best people did. You’re just leveling the playing field and now your property will not have an advantage over somebody else’s because you pay more attention to it. That’s my concern for how this could work with real estate investing is if you were a short-term rental operator and you were paying attention to the market and your competition was lazy and they weren’t, you were following the algorithm that Airbnb or VRBO had, you were changing your description, you were getting new pictures taken, you were adding amenities as you saw what was happening in the market, you were the person on that little raft navigating these dangerous waters to help people.
The minute that AI can come in and do that for you, the person who’s not paying any attention to their property gets all the benefits of what the good operator was doing. So one of the ways that I’m looking at, I’m expecting that’s going to happen. I’m trying to figure out what properties can I get into, what asset classes could I buy, what approach could I take that could not easily be replicated? The hacks that we’re always looking for, do you remember when Craigslist was brand new when you would list your Toyota Camry for sale, and then people learned if they put Honda Accord in the description, that it would trigger the search engine of people that were looking for Honda Accords?

Dave Meyer:
Yes. Or everyone would put $1. So everything, no matter what your price actually was, it would just show up.

David Greene:
Yes, it was a way of getting traffic to your page you wouldn’t normally have got. That, I think is just going to happen everywhere, that type of thing. And so I don’t know what the answer’s going to be yet, but when I look at AI affecting real estate investing, it means the masses will be able to do this. So you’re going to have to be extra picky about the property you take. So when I’m looking to buy, let’s say a cabin in the mountains as a short-term rental, I need to that cabin to have something that other people cannot replicate because AI is going to be able to replicate any advantage I might have had in other areas. So AI can’t replicate a view that other cabins don’t have or a location that’s going to be better. These fundamentals are the things we talk about all the time will become more important when technology improves to the point that everybody loses their advantage. What do you think?

Dave Meyer:
Yes, that’s a great point. I totally think so, and I think copywriting is definitely one of them. Anything where content creation I think is going to be really interesting. People who are marketing for properties, for example, sending out mailers, that’s something AI could do really easily and probably write a pretty compelling letter to someone. I think as an agent, it will be really interesting. I read some article about how agents are already using it to write their descriptions of listings that they’re putting up, which doesn’t seem that hard. I don’t know, but put a lot of big adjectives and big fancy words in there, but I’m sure there is some art to it.

David Greene:
I’m sure that’s what they’re doing, and they think that it makes their job better. The problem is every listing’s going to read the same way, so it’s not going to stand out anymore.

Dave Meyer:
Yes, totally. So I think it’s going to be really interesting. I was saying I was asking it data questions, and it doesn’t really do that yet, but I do think that is an inevitability. Eventually you’re going to be able to say, what’s the best cash flow market or something, and it will tell you, and then everyone’s going to go to that, like your point. And so I think there’s going to have to be this contrarian view where there’s going to be have to be some sort of genuine thought leadership where people actually are doing something different than everyone else, and you can’t just follow the herd of what the AI is telling you to do, but you’re actually going to have to be doing the analysis for yourself and doing the hard work, like you said.

David Greene:
It’s a very good point. If you think about how most people make decisions, they watch social media, they watch a podcast, they go on a blog, they hear what everyone else is doing, then they go do it, and for a while, that has been a pretty good, solid strategy. The problem is AI’s going to make this happen so quickly that by the time you hear about what everyone’s doing, it might already be done.

Dave Meyer:
It’s just like Jim Kramer, no offense to Jim Kramer, but these guys who talk about stocks on CNBC. By the time it’s on CNBC, it’s already too late. And I think there’s going to be some element of that in predicting real estate markets, where to buy neighborhoods, that kind of stuff. Maybe I’m just saying that because I do that a lot with my time and I think I can do it better, but I do think they’re at least going to attempt to start doing that.

David Greene:
The other thing to be concerned about or just pay attention to with AI is the version of it we’re talking about now is radically different than what it’s going to be in six months.

Dave Meyer:
Of course. Yes, absolutely.

David Greene:
So us thinking that we can use AI to strategize what we’re going to do, it’s very possible by the time the person listening to this hears it, it’s already evolved way past what’s going to happen. So-

Dave Meyer:
It’s already in the matrix, by the way.

David Greene:
Yes. If there’s someone using AI to build their business an incredible way, how long before AI figures that you can ask it, well, help me do what Grant Cardone [inaudible 00:24:30]. He goes, “Boom, here’s the game plan right here. Go do the same thing.” How do I grow my followers from this to this? And it can just do that for you. So I really think this is going to make real estate more valuable because business I think is just going to be leveled out. The playing field is going to become very, very plain for so many people that are getting into it, but real estate is something that people are always going to watch. One reason why I’m more interested in investing in real estate when I see all the technological advances.

Dave Meyer:
That’s a really good point. Hard physical assets will not be as-

David Greene:
AI can manipulate cryptocurrencies. They’ll build it and manipulate NFTs. I can’t control anything that’s happening. It will not be able to, at least I hope, build another property in the same place where mine is where people want to visit.

Dave Meyer:
Absolutely. All right. So our next headline is about Facebook or their parent company Meta, which will no longer support the ability for sellers, people who want to sell real estate as a business anymore. So you basically have to use your individual personal account. So for example, if you were a car dealer in the past, you could list all of your cars, even though that you’re a business on Facebook now, only an individual who wants to sell a car or real estate in our industry are going to be able to do that. So this brings up a lot of questions. I’m first curious, do you think this is going to impact people who are wholesaling or trying to sell businesses or even looking for tenants?

David Greene:
I think it will, but I think this is a positive change for us in real estate. I don’t want some huge house flipping business or BlackRock to come in and say, “Hey, here’s 400 houses that you could buy in the same forum where somebody’s trying to do a for sale by owner on a property.” So if we’re the investor, we’re looking for the deal, you want to be person to person. I want to be talking to another human that’s not experienced in this, that is not a business that knows more than I do. I want to buy a car from a regular Joe. I don’t want to buy a car from the dealership that has skills and experience, what gives them an advantage. That’s why you go to Facebook marketplace is to avoid getting taken advantage of by the people that know more than you. So I like Facebook getting rid of the professionals out of the mom and pop type of a group, which is cool because we don’t see much of that in real estate. We’re losing the mom and pop feel as institutional money kind of comes into our industry.

Dave Meyer:
Totally. Yes. I think it allows Facebook to almost specialize a little bit more. It’s like if you want to see all the deals that a agent has, go on the MLS, the MLS is [inaudible 00:26:57]. If you want to find tenants, you can market that on dozens of different aggregator websites. It is actually nice for Meta to be able to do this and allow people to sell individual properties or to just be able to amplify their personal businesses and listings in a way that they’re not competing with major businesses. But I’m just curious, do you think this has any risk? It sounds like some of the feedback about this is that if you’re a seller and you have to use your own name, that there might be a security risk there.

David Greene:
Yes, I suppose. But that’s always been the case. If you’re going to use Facebook marketplace, I believe it’s linked to your Facebook profile anyway, so people can find out who you are.

Dave Meyer:
And that’s true.

David Greene:
I don’t think it’s going to be additional risk that wasn’t there before. I’d like to see Airbnb do the same thing. I don’t like when I’m looking for a Airbnb to stay at, and then some big hotel has their stuff on Air. I think most people see that and they’re like, I’m trying to avoid the big expensive hotel and I’m trying to look for a local person to support or more value a bigger space or less money, whatever it would be. When you let the people that are professionals at doing this come in, they just bully everybody else out. They have resources, they have marketing, they have skills, they have experience. We’re trying to create almost a barrier to that, like a barrier entry like we were saying before. So I’m happy to see Facebook making this move. I would love it if VVRBO and Airbnb would take a similar step. I don’t want to see a Hilton listing when I’m looking for a short-term rental stay at in some city I’m going to be visiting.

Dave Meyer:
Yes, absolutely. That makes sense. Do you think this is going to be the resurgence of Craigslist? All of a sudden it’s going to rise to the top?

David Greene:
Yes. That’s what our producer Kaylin said is this going to be the rise of Superman Craigslist going to come right back again. I think Craigslist has so many bugs, it’d be very difficult. That’s why people moved into Facebook marketplace. They got tired of.

Dave Meyer:
But it’ll always be there. It’s like Craigslist, every other technology can move light years ahead and Craigslist will still be there being the exact same website it’s always been.

David Greene:
Yes, it’s Jack in the Box. 2:30 in the morning, Jack in the Box is always there for you. Is it the best experience you’re going to have? No. Are you going to regret it in the morning? Yes.

Dave Meyer:
Yes.

David Greene:
But it is there.

Dave Meyer:
All right. I’ve actually never been to Jack in the Box.

David Greene:
In your whole life?

Dave Meyer:
Never. If they didn’t really have it on the East Coast where I grew up. It’s like a West Coast thing, but.

David Greene:
I had no idea. I just figured it was everywhere.

Dave Meyer:
I’ve never had it.

David Greene:
So do you have a 24-hour place that you guys can go to on the East Coast?

Dave Meyer:
Not-

David Greene:
You’re just going to be hungry.

Dave Meyer:
… Think of.

David Greene:
The 7-Eleven.

Dave Meyer:
They’d have McDonald’s that was like 20-

David Greene:
24 hour.

Dave Meyer:
I grew up in the suburbs, so not there. All right.

David Greene:
Probably a good thing.

Dave Meyer:
Yes. Next time I come to California, we’ll go. So for our last one, we have one more headline, which is the Biden administration released a framework for rental protections. And so you’ve heard of this, I assume.

David Greene:
Oh, yes.

Dave Meyer:
And my take on this, just so everyone knows this, there’s a lot of intention here, stuff that they’re planning to do, but there’s not a lot of meat. There’s not a lot to sink your teeth into form an opinion on. But do you have some thoughts on what has been released so far?

David Greene:
Well, there’s a couple components to it. One of them has to do with my understanding, it’s limiting background investigations that can be done on your tenant. So they’re already starting this in certain places in California where they’re making it illegal for landlords to run a criminal search on any potential tenant that’s going to be coming in. And they’re claiming that it’s unfair to people who have a criminal history that they don’t have the same access to housing that other people do. So it’s slipping into the fair housing ethos for certain jurisdictions, which obviously, it’s just like every political change, it benefits some people and it hurts other people, or it benefits some strategies and it hurts other strategies. There’s always a give and a take. So if you’re somebody who’s coming from that place, you’ve had a hard time getting housing, this sounds like a positive change for you.
If you’re a landlord who has been relying on criminal backgrounds and help make decisions for tenants, it’s going to change probably where you’re going to invest. I would assume in the cities that do enact these policies, you’re going to see less investor demand. It doesn’t mean houses aren’t going to sell, but you’re not going to have as many investors going there. And if this does become a thing that becomes a sweeping regulation, that this is something where landlords have less authority or control or autonomy, I should say, over the decisions that are made. The location you buy in will become extra important and maybe the price point.
So I don’t know exactly how that works out, but this might affect areas where rent is $400 a month more than it would affect an area where it’s $4,000 a month. So it’s another thing to be thinking about if this does pass, location is going to become different. And then probably some other things like Section eight I think would gain some traction. Because if you’re getting paid from the government for your tenant, you’re not as worried about what the individual tenant is going to be up to considering their ability to repay.

Dave Meyer:
That’s really interesting. That is one of them. I’m interested to see what they actually recommend. And the reason I was saying before, what the Biden administration has announced so far is like they’re going to direct the FTC to look into this or the Consumer Financial Protection Bureau to look into this. So we don’t know these specific suggestions, but it does sound like they’re following the lead of California, and that might be one of the examples that they look into. One of the other ones is the FHFA, which is the Federal Housing Finance Agency announce it will launch a new public process to examine proposed actions including renter protections and limits on egregious rent increases. This would only be for federally backed housing, but curious what you think about that.

David Greene:
Well, this is a form of rent control. It’s not like it’s a new thing. We’ve had this for a long time in certain areas, rent control is bigger than others. Again, I’m in California, so Los Angeles has significant rent control. San Francisco has significant rent control. Investors still do very well in those areas, but in certain situations it can become problematic over time. So every once in a while we’ll find a San Francisco listing where the landlord is not able to increase the rent past a certain point. So you’ll get somewhere where fair market rent might be $5,500 a month, and there’s a tenant paying $1,200 a month, that will affect the value of the real estate significant. They want to sell this property, this triplex and two of the units are occupied at $1,200 a month. You can’t get a investor that’s going to go buy that property.
But also, this bleeds into house hacking because it’s not all pure investors. There’s people in San Francisco that just have regular W2 blue collar workers that could not afford to live there if they weren’t house hacking. And now you have two of your units that are not available that can’t be rented out because they’re occupied by below market rents. So I think long-term, if you’re looking at how this could affect if this stuff does pass, this would actually make, because traditionally real estate has done better, the longer that you own it, this can turn the odds against you in some of those cases. So maybe short-term rentals will become more popular.
There’s going to be less long-term rentals which ironically would reduce the amount of housing available, make it worse for renters as there’s less housing available, there’s less supply. So now landlords can charge more because the demand versus supply is all whacked out. So this type of stuff, when it happens, there’s winners and there’s losers in every category. You can’t just blindly follow a mold. This makes the person who’s paying attention to these things, it gives them a big advantage over the person who bought a property 20 years ago and just doesn’t pay attention to the market anymore.

Dave Meyer:
Yes, absolutely. You’re going to have to be pretty nimble and to pay attention to this.

David Greene:
Yes.

Dave Meyer:
I do think this one is really interesting because what the Biden administration said was they were basically looking at public backed properties, which isn’t a huge amount. I think it’s like 28% of the market, but there was also a letter sent to the Biden administration from some members of Congress encouraging a more broad look at rent control. And I do think there’s a lot of studies, I’ve looked into this, there’s a great Freakonomics podcast episode if anyone wants to listen to it, about the pros and cons of rent control. And it just seems like it doesn’t actually work, even for the intended effect, which is like even if you wanted to help provide fair and affordable housing for people, it actually really helps the incumbents, like the people who are already in property.

David Greene:
That’s exactly right.

Dave Meyer:
But for people who are moving to that city-

David Greene:
There’s less-

Dave Meyer:
… Moving into that apartment-

David Greene:
[inaudible 00:35:14] To get into.

Dave Meyer:
It actually goes higher.

David Greene:
Yes.

Dave Meyer:
Because landlords need to compensate for those, the people who stay in their apartments for a long time. So they actually charge more for people who are moving in. And there are some studies in California actually, and I think in Portland also, that goes up. So I understand that there is an issue with affordable housing. I just hope that whatever comes out of this is a evidence backed solution that helps both sides.

David Greene:
Well, my subjective opinion, again, I don’t know this is going to happen. I’m not speaking for anyone but myself, is that these changes make real estate investing less passive than what it used to be. So the idea of passive income buy a couple properties, live off the rent, never work. That’s getting harder and harder and harder to do as we’re talking about, you have to stay on top of the changes that are being made. If Chat GPT comes in and makes sweeping regulations to the short-term rental market, guys like me, we buy short-term rentals. We hire a property manager. We’re like, you do it, I don’t want to hear about it. Next thing you know, revenue’s down by 60% because my proper manager can’t get it booked because everybody’s using the strategies that they used to have an advantage in as a professional.
Well, now there are no professionals because Chat GPT can do it for everyone. Or like we were talking about with rent control. So that makes the people that are investing in real estate have to pay attention to what’s going on with their property. It’s turning it more into you’re a business operator. You’re more of an entrepreneur as you’ve always been an entrepreneur, but it requires more out of you to manage properties than what it did before, which gives people listening to podcasts and reading the news and getting informed and advantage over the people that aren’t paying attention.

Dave Meyer:
Absolutely. Yes. The operational load is-

David Greene:
It’s a great way to inspire.

Dave Meyer:
Yes. It’s just like you have to run a business, but hopefully you already knew that. If you’re going to get into real estate investing, it’s not buying a bond. It’s not buying stuff.

David Greene:
Yes. And the people listening to us right now, they’re fine. Those people shouldn’t be worried. It’s people that don’t know about podcasts, don’t know about YouTube, don’t read books, don’t follow what’s going on. The ones that aren’t hearing this message, that are actually going to be the ones that are at the disadvantage.

Dave Meyer:
Yes. Absolutely. All right. Well, those are all the headlines I got for you. I thought you did a great job putting these together.

David Greene:
Thank you. The production team.

Dave Meyer:
Well, yes. This was all Kalin and Eric, but I thank you. It was really helpful hearing your opinions on all this, and hopefully everyone listening to this got a lot out of it. We’d love to hear your feedback on it. If you like this, please give us a five star review, or you can hit up either David or me on Instagram or wherever to give us feedback. I am at the Data Deli.

David Greene:
I am at David Greene 24.

Dave Meyer:
All right. Well, thanks a lot, man.

David Greene:
Yes, thank you. And if you guys like this show, leave us a comment on YouTube. Tell us what you liked about it. Maybe we missed a headline that you want to hear about. Put that in there. We will look at that, and we will add that in the next show. We really do look at your feedback, we look at your comments, and we incorporate that into the shows we’re doing to make them as good as possible. So thanks for joining me, Dave. I’ll see you on the next one.

Dave Meyer:
All right. Great.

John Kim, analyst at BMO Capital Markets, joins Jon Fortt and the ‘CNBC Special: Taking Stock’ to discuss the all-time high vacancy rate for office buildings, which sits at 12.9 percent.

There can come a time for many established businesses when processes become overwhelming, projects start running off track and tech stacks can get too complicated to function cohesively. All of these signs point to a need for simplification—a “decluttering” of the business and its systems. Taking the time to review what’s no longer necessary, keeping only what adds value to the business, is essential if you want to streamline your processes—but where should you begin?

Below, the members of Young Entrepreneur Council offer a few suggestions about where you can start as well as what you might want to get rid of or reconsider this year and beyond.

1. Take An In-Depth Look At Your Expenses

An in-depth look at your profit and loss statement is often a great place to start. Carve out time to review expenses incurred over a few months and you may be surprised at how many subscriptions and services you no longer use but are still paying for. You may also find that platform fees have increased unexpectedly, prompting further investigation and cost-cutting opportunities. – Jack Perkins, CFO Hub

2. Cut Unnecessary Meetings

Cutting unnecessary meetings is a great way to declutter business operations. We’ve just audited our meeting calendar and identified several recurring meetings that didn’t need to happen or didn’t need to be as frequent. By eliminating meetings that weren’t offering enough value, my team has more time to do focused work. As a result, we’re already seeing more progress in our projects this year! – Diana Goodwin, MarketBox

3. Restructure How You Spend Your Time

In our experience, the most effective “decluttering” isn’t paring back business services or subscriptions you don’t really need but restructuring how you spend your time. We use S.M.A.R.T. goals (Specific, Measurable, Attainable, Relevant, Time-bound) to guide our work. It’s an easy way to prioritize, but even more fundamentally, it helps you understand what’s important and what’s not. – Andrew Schrage, Money Crashers Personal Finance

4. Review Your Company’s Knowledge-Sharing System

One important place to declutter is your company wiki or knowledge-sharing system. Archive old documents or processes that are no longer active. Revise and clean up old project files and delete videos and other outdated marketing materials. This saves space, which you’re often paying for, and makes it easier for employees to find what they need, thus saving time and money. – Nathalie Lussier, AccessAlly

5. Determine Which Projects Generate Low ROI

Cut projects and initiatives that generate low ROI. Passive business leaders continue to expend resources on anything that produces a profit. However, there is an opportunity cost with all resources you deploy. Look at things that have a low ROI and reallocate that labor and budget toward projects that are more likely to generate a higher return. – Firas Kittaneh, Amerisleep Mattress

6. Discuss Obstacles With Your Team

Start by asking your team what unnecessary hurdles they face in their daily operations that prevent them from performing at peak efficiency. As a leader, you may be so removed from the day-to-day that you aren’t aware of bottlenecks, unnecessary meetings and clunky processes. Your teams, however, are acutely aware—and likely have already done the work of brainstorming solutions. – Samuel Saxton, ConsumerRating.org

7. Reduce Your Paper Use

Paper is not your friend. Businesses get so much of it and need so little of it. The first thing to do is purge all physical files. You must keep banking and tax records for seven years but can get rid of all those pamphlets other vendors left you last year that you never considered. You may also want to consider getting rid of old electronics. – Baruch Labunski, Rank Secure

8. Evaluate Your Tech Tools

With the rapid emergence of new tech apps in the business world, I recommend conducting semi-annual evaluations of your company’s tech tools. This will allow you to identify and eliminate redundant or ineffective tools and assess the tools’ compatibility, leading to a more streamlined process and minimizing company expenses. – Samuel Thimothy, OneIMS

9. Simplify Your Processes

To declutter business operations this year, try eliminating unnecessary complications. For this, you should consider fine-tuning workflows and removing unnecessary steps to get the job done. To attain operational excellence, business leaders should pursue simplification. So, it’s best to remove tasks or activities that serve as more of a hindrance than facilitate attaining the set goals. – Stephanie Wells, Formidable Forms

Dave:
Hey everyone. Welcome to On The Market. I’m your host, Dave Meyer. Joined today by Jamil Damji, Kathy Fettke, Henry Washington. What’s going on everyone?

Henry:
Yo! What’s up?

Kathy:
Ooh, excited for a debate today.

Dave:
Yeah. This one’s going to be fun.

Jamil:
I like debates because the last time we did one, I won.

Dave:
You did. We don’t have point, or maybe I’ll sign some points here. I don’t know. Last time was at BP Con and Jamil famously destroyed everyone else and won the right to plan episode of On The Market.
I don’t think we have stakes for this one, but I am still looking forward to a spirited debate, because we have a topic that is definitely controversial right now.
And we’re going to be talking about whether or not we are in a recession right now. If we are going into a recession. We’re also going to talk about whether or not we were in a recession last year. And I am looking forward to this conversation. I have no idea how any of you feel about this, so I think it’s going to be fun to talk about this.

Kathy:
What happens if we all agree?

Dave:
I will pretend I disagree with you to make some drama.

Kathy:
Perfect.

Dave:
Well, unless, maybe I will naturally disagree.

Jamil:
He’ll play devil’s advocate.

Dave:
Yeah, exactly. So that is what we got on tap for you guys. Just so you know, that the reason that this is a debate in the first place is because the way a recession is defined in the United States is by a government entity called the National Bureau of Economic Research, and they do it retroactively. So they basically wait until well after the economic turmoil has happened, and then they say, like, “Okay, this is when the recession started. This is when it ended.” But it could be years after it started.
In the Great Recession, things started falling apart in 2007, 2008. It wasn’t until 2009 that they said the recession started back in 2007, for example. And I know some people believe that this has changed over time and that the government has changed the way that recessions are defined. That is not true. This is the way it’s been defined since 2000 and or back into the 1970s.
But I will just say that, because the way that we define recession is sort of confusing and retroactive. Most people use the definition of two consecutive quarters of GDP declines. That is what most people talk about. And so we’re going to talk about today, whether we think that is an appropriate definition of a recession, and if so, are we in one? Are we not in one? And get into all that.
So this will be a really fun conversation. I think we’ll learn about lot. We’re going to talk about what indicators everyone follows to track if we’re in a recession or not. So we’re going to get into that in just a second, but first we’re going to take a quick break.
Okay, let’s jump into this topic. Before we get into talking about today, let’s talk about last year, because as I said at the top of the show, the traditional sort of commonly used definition of recession, two consecutive quarters of GDP declines, which we saw in 2022. First and second quarter, we saw real GDP declines, but to date we have not heard from the National Bureau of Economic Research that we were in a recession. They still could do that retroactively. Haven’t said it yet.
So Kathy, let’s start with you. What do you think? Were we in a recession last year?

Kathy:
We might look back and say that, that was the recession that everybody was panicking about. We really don’t know, and I think we will look back and it’ll be crystal clear at some point.
But I would say that there were certainly industries in recession. Real estate, one of them. Real estate sales, definitely in a recession, but not everything else. I mean, job growth still strong and we had two consecutive positive GDPs right afterwards.

Dave:
Yeah. It’s very, very strange. Last year was a very weird time because some markets were, I guess we’re going to say that a lot probably over the course of this episode, but we did see those two consecutive quarters of GDP growth. And I should probably say, if you don’t know, GDP stands for gross domestic product. It is basically a measurement of the total economic output of the entire country.
And so we saw in the first two quarters of 2022 that GDP fell on a real basis, which means that it’s actually growing. But when you accounted for inflation, it was actually declining due to the inflation. So that’s what happened last year, but curious to hear from Henry. What do you think? Was that considered a recession?

Henry:
Yeah. So first, let me caveat this. I am no economist. So everything that I think is based on what I see and how I feel. Well, that’s pretty much how I run my life anyway. But when I look back at 2022, I think, so how I judge a recession in my mind is like, “How are people responding to the negative impacts that are happening because of this, quote, unquote, “recession?””
And when I think about 2022, the thing I think about is like, “Well, consumer spending would definitely go down in a recession.” Because people are holding onto their dollars a little tighter, inflation was starting to rise, and so that money means more to people. And it’s more about spending money on the things that you have to spend money on, to feed your family and provide shelter.
So consumer spending typically goes down, but when I looked at consumer spending in 2022, it was up. It was up 5.9% year over year. We went from 141 billion to 142 billion in consumer spending. So if that tells me that if we were in a recession because we had the two negative quarters of GDP, that the news didn’t get to people yet or that people weren’t as impacted yet, or the impact was to come in the future. And if you look at consumer spending now, it’s down just a little bit, but it doesn’t feel like a recession. So I would say no.

Dave:
All right. I think we should all caveat that we are not economists. We’re just playing one on this podcast, but we do, I think, follow it closely enough that our opinions are at least well-informed, I hope. Jamil, what about you? What do you think?

Jamil:
Well, it’s interesting that Henry is using indicators that I think actually matter. How do things feel? What does it look like and what does it feel like? Because I’m 45 years old, just turned 45, and I’ve been through a few recessions. And I can tell you that the ones that I can remember, I actually felt them.
I felt them, regardless of whether I was an entrepreneur or I was in a W2 situation, I felt the recession. I understood that, “Oh, things are different right now.” We’re tightening up. We’re not spending. Life has adjusted and we are making adjustments through it. And so I really do think that we have to look at these types of conversations and take into consideration how the broader country or how we’re feeling as a nation with respect to our economics.
And so the fact that we had two declining GDP quarters consecutively, which is the definition of recession, and yet we have a failure to call it. It’s an interesting thing. Why not just call it? So if this is the indicator, call it. You saw it. It happened. Call it. It’s okay. It’s okay to say the things, right? So the reason I bring this up is because I want to propose new indicators, because if we’re not going to say that two declining GDP quarters are consecutively declining, GDP quarters are a recession, then I propose new indicators.
I propose that you go to a major metropolitan city, you get 10 miles away from the airport, and then you look at the number of UberXs and the number of Uber Blacks that are available at 8:00 AM in the morning. If the number of UberXs is less than the number of Uber Blacks, then we are in a recession.

Kathy:
Yeah. And you could add to that, if you can get a reservation at the restaurant you want to go to.

Dave:
Oh, I see, okay.

Jamil:
Yes. Because it’s about feelings, right? If I can get an Uber Black a lot easier than I can get an UberX, then I know that people are spending money because we got the black cars out there. So how can it be a recession?

Dave:
There’s this very funny recession indicator, I don’t know, it’s historical performance, but it’s men’s underwear, that you could predict recession by men’s underwear. Because men just don’t want to buy new underwear ever, and they, well basically only do it during really good economic times when they’re feeling flushed, unlike every other time, they’re just like, “Wear the same men’s underwear.”

Jamil:
So wait, are we in a recession if you go commando? Is that what it is? “All the men are commando. We are in a recession.”

Dave:
Yes. Basically, yes.

Jamil:
I think you’re on the summer hols with the number of holes in your underwear are the reflection of whether-

Henry:
I think you’re onto something. I only buy my undies when I’m in a good mood, typically financially, because them Duluth Trading underwear ain’t cheap, man. You got to go, you spend $25 on a pair of underwear, you got to be feeling good about life.

Dave:
Whoa.

Jamil:
Damn. Those are some expensive chuddies you got.

Henry:
Yeah, man. Only the best.

Kathy:
And with women, it’s just when Victoria’s Secret is having a sale, that’s when you buy your undies.

Dave:
Yes. Women are more like civilized people who will continue to buy the clothes they need despite the economic situation. Men are like, “You know what? I can cut back on underwear.”

Kathy:
Well, some people, I don’t know if you guys have heard this, but some people are calling this the white-collar recession or the Patagonia Vest recession. Have you heard that?

Dave:
No, but I’m wearing a Patagonia sweatshirt right now, so doesn’t bother.

Kathy:
Obviously people that got hurt or a lot of people have been affected by the rising interest rates and the attempt to create a recession by the Federal Reserve. And so a lot of people have lost, or their net worth has gone down in the stock market, certainly in crypto and short-term rentals, income has gone down. And so they’re saying it’s really affecting those who, the net worth of those who had a higher net worth last year.

Dave:
It kind of makes sense if you just look at the high profile layoffs that have been coming through the economy over the last couple months, they’re tend to be really high paying jobs in sectors like finance and tech are sort of leading the way.
And if you look at the recent jobs report, which we’ll get into in a little bit, there’s actually a pretty strong job growth across the board, but particularly robust in things like hospitality and service sectors that are not traditionally as high paying.

Kathy:
Yeah. So I think the bottom line is you’re feeling a recession. If you lost your job, that’s going to feel recessionary. And we probably know a lot of people who have, who are in the tech space, and certainly again in industries where higher interest rates are affected, and that would be real estate. Anyone in real estate sales is affected.
I have a close friend who just someone we know just lost their job. And that is why we love real estate. The more income producing assets you have, the less you worry about losing your job.

Dave:
That’s for sure. The one thing I do want to say about last year before we get into current stuff is, I’m more current. I keep thinking about this fact that the first half of 2022 is when we saw GDP declines, which a lot of people believe, would say that, “That is a recession. That’s how a lot of people define it.” But economic optimism was still pretty high then, and then it sort of switched.
GDP started growing again in Q3, in Q4 of 2022, but everyone got really pessimistic and really upset about it. So I’m just curious. It’s just this weird thing where it doesn’t seem like people’s sentiment and the data about the economy are actually lined up right now. I’m just curious if any of you have any thoughts about that?

Jamil:
I think, honestly, that’s one of the most perplexing things that we have about this, and probably why we haven’t called it anyways, is that sentiment, optimism has been strong and we’ve all felt that. Even though typically real estate feels a recession first, so it’s first in first out, we feel it, we’re the industry that feels it immediately, and we typically feel it when we’re coming out faster because of mortgage rates declining in an uptick in housing activity.
And so it’s one of these interesting dichotomies is that, again, back to what Henry is talking about, sentiment, the overall feeling. Even though we were losing money in the same quarters that GDP was declining, and I can tell you that and looking back at our P&Ls like, “Oh wow, we lost money on this flip. We lost money on this flip.” Meanwhile, the sentiment out there was still very strong and there were more Uber Blacks available than there were UberXs.

Dave:
All right. Well, along those lines I’m curious, now, it seems to me that sentiment is very low. I think, I feel it, I feel my sentiment has really declined over the last year just about the economy in general.
What do you think, Jamil, are you feeling the economy today is in a recession or are we heading towards a recession, or what are you thinking about the future?

Jamil:
Interestingly enough, I’m again going to defer back to our beautiful friend Henry here and say, I’m starting to feel optimism again. I had the pessimism, I felt this, I felt that, oh my god, especially going into the holidays and two months prior to that from Thanksgiving to Christmas, it’s been miserable in the housing market.
And again, if you’re got flips on the market or you’re selling, you felt that, you felt a lot of pressure. You felt just, “Where is everybody? How come there’s just not a lot of activity?” And maybe I’m just myopic because I’m talking about a market like Phoenix where we really felt that more than say, how Henry felt in northwest Arkansas.
However, after the Christmas holiday, I have not seen as much or felt as much strong investor activity, strong buying optimism. I mean, pendings are spiking. We can’t keep inventory. We just can’t keep inventory on our books. We pick up a house, we sell a house, we pick up a house, we sell a house, and it’s like, “Oh, wow, okay.” I thought we were going to kind of loosen our tighten things up around here, but it looks like we’re putting out more money and taking in more opportunities.
And it’s also interesting that I have friends in the vehicle industry. And so they had situations where their car lots were just swollen full of inventory because they had overbought, because there was a shortage of vehicles for a time, and so dealers were overpaying and buying. And anyone who bought a car last year understands what I’m talking about right now. We very likely overpaid for our vehicle if you bought last year.
Well, I am talking to my friends that are in the car industry and they’re also saying, “Right now, Jamil, we can’t keep inventory on our lots. We just can’t.” And right before the holidays from Thanksgiving to Christmas, we were all tremendously worried and we had no idea what was going to happen if we were going to go bankrupt, if we were needed to get more credit. We were all worried. And after the holiday, things have just exploded.
So right now I’m like, Henry said, I’m optimistic. My sentiment right now, it’s pretty good. I feel things are picking up and housing should be, we were first in, I felt it. We’re first out, I feel it.

Dave:
All right. Well, yeah, by those two indicators, housing and the car market, there’s definitely a pickup in activity over the last couple of months.
Henry, what about you? Are there any indicators or data points that you look at to try and assess the current economic condition?

Henry:
Well, yeah. So there’s the general indicators that everybody looks at. GDP, 2.9%, right? That’s up. Unemployment 3.4%, right? That’s good.

Dave:
Historic lows.

Henry:
Yeah, historic lows, right? January, you got job claims at 183,000, so that’s a nine-month low. So those indicators are telling us, “No, we’re not in a recession.” There are some indicators that may be telling us, “Yes, we are.” But those are the key indicators people look at.
But again, feelings. So not only how I feel, because I feel exactly how Jamil feels. But if you look at how other people feel, if you look at consumer confidence, consumer confidence is super high right now. And part of the reason that that’s super high is if you’ve been paying attention to the stock market over the past few weeks, these earnings reports have been coming out and a lot of companies are reporting beating earnings. You have somewhat, 69% of the companies that have actually reported earnings above their targets.
So that is going to make not only people feel more confident in the economy, but it’s going to make companies feel more confident in the economy. And if companies are feeling confident, then they’re going to go out and continue to spend money. They’re going to invest in new projects and new technologies. They’re going to go out and invest in new jobs in hiring people that are going to help them hit their goals for the next quarter.
So if they’re feeling confident, people feel confident. People feel confident, people spend money. If people spend money, it’s a benefit for us in the real estate space.

Dave:
Well said. Kathy, what do you think?

Kathy:
We are an opposite land. It’s such a strange time to look at the data that we get and be concerned about it. And that data, by that data, I mean 517,000 new jobs created. This beat expectations by double, even triple by some economists. And this is after almost a full year of the Fed trying to slow things down and raising interest rates in an unprecedented way.
So no, you can’t be in a recession when you’re creating that many new jobs when businesses are hiring that many new people and not laying off people. And then retail sales up to 3% in January. So people, they’re spending money and you see it, at least for me, when I go out, and again, I was serious trying to get a reservation, and at certain restaurants you can’t get in, you can’t get in.
So this would normally be great news, but people are panicked by news like this, by good economic news because that means that the Fed may continue to raise rates. But what I want to say about that, is they already said they were going to do that, so don’t panic. The Fed has been pretty clear about what their plans are, which is to get the overnight, the Fed fund rate, the overnight lending rate above 5%. It’s not there yet. We’re four and a half to four and three quarters percent.
They already told us that they’re going to keep raising, so don’t be shocked, they are planning to continue to raise rates and to hold them there. I’ve heard lots of people say, “Oh, as soon as they get to 2023, they’re going to start reversing and lowering rates because it’s going to slow things down.” And that’s not what they’re saying.
They’ve been pretty accurate about what they forecast. They tell people what they’re going to do. And generally, investors certainly stock market investors, listen, and we have a ways to go. They’re going to raise rates a few more times and most likely hold it there for the rest of the year, and especially after these massive, massive economic numbers that have come in, showing that the economy is strong.
So no, I don’t see, we couldn’t possibly be in a recession if the Feds raising rates and we’re having job growth and people are spending money.

Jamil:
Kathy, do you think that there may be just some possibility that we, people are starting to listen to what the Fed’s saying and trust them at their word? And so do you think that there may be just this increase in activity because people are just trying to beat lending costs getting even more expensive, or is this activity real and not just artificially motivated?

Kathy:
Well, rates, if we’re talking about housing and what you’re feeling in your industry and our industry, is rates did go down over December and January, and I think that’s what we felt. At our business at Real Wealth we’re booming again. People flocking. We do one webinar and everything sells, so it’s like, “Yeah, we’re back.” But that was because rates went down and numbers started to make sense again.
Now, they’re going back up again because the feedback we’re getting on the economy is, it’s booming. And generally people get out, investors start to invest back in this stock market and out of bonds. And if they’re buying bonds, rates come down. If they’re not buying bonds, rates go up, and that’s where we’re at.
So we could feel that and we could be having a different conversation next month in terms of real estate going, “Oh, things slowed again because rates went up a bit.” But that’s just our industry, that’s not America.

Jamil:
That’s not the economy overall.

Kathy:
Yeah.

Dave:
I think, Kathy, you made a good point that we’re in this weird situation where good economic news is felt like bad economic news, because it means that the Fed is going to continue to raise rates, and then there’s this pending economic downturn that’s just always sort of six to 12 months ahead of us. At least that’s what it’s felt like for the last…

Jamil:
Do you all feel like we’re being gaslighted a little bit?

Henry:
Man. Yes.

Kathy:
I just think everybody’s panicking. Everybody’s afraid of losing everything. Nobody wants another 2008, no one wants to start over again and lose everything. So there’s been people predicting recessions and housing crashes for the past 10 years. It’s nothing new.

Henry:
Look, I’m with conspiracy theory Jamil on this one. You create the fear, people start panicking, they start panic selling, and then the wealthy take advantage, man. They go out and scoop stuff up, but it just-

Jamil:
We’re just gaslighting everybody playing games to come in and gain.

Henry:
Yeah. Yeah.

Dave:
Well, I think there is truth to that because… Well, I don’t know if it’s conspiracy theory, I have no idea. But I think there is some element that the Fed and the government wants people to stop spending money.
They want you to be afraid, not necessarily because it benefits rich people, maybe it does. But they definitely want that because that will help inflation. If people are afraid and stop spending as much money, then that would help curb inflation and the Fed would be delighted with that to happen.

Henry:
Sorry, I have to go. There’s people with black suits at my door.

Dave:
But I also want to get back to something you said Jamil was like, I do think there is, they call it the dead cat bounce. I do think there is a pretty good chance that Q1 of this year for the housing market looks pretty good and then it slows down again because inflation data came out this week. It was down a little bit, but it was not a very good inflation report generally speaking, and it’s that combined with what Kathy was talking about with the jobs report. It’s just basically giving the Fed a green light to keep raising rates aggressively.
And so we were seeing mortgage rates start to slide on these recessionary fears. But now, I think there’s a good chance the terminal rate, what the Fed goes up to is going to be higher than five and what could be five and a half, and I think there’s a good chance that we see mortgage rates now go up to somewhere near seven, seven and a half over the course of this year, or we go into recession, it goes the other way.
It’s just super hard to tell. And my read on this is when it’s all said and done, if we’re looking back at this five years from now, they’re going to call this whole thing, I don’t know if they’re going to call it recession, but from 2022 to through 2024 is just going to be this weird half recession, half not recession, where some parts of the economy are doing really well and some parts are doing really poorly.
And we’re not going to ever have this, quote, unquote, “recession” where you feel it, like you were talking about Jamil, where everything goes down. It’s going to be this sort of whack-a-mole situation where jobs are up, housing’s down, housing’s down, cars are good. Where we just have this weird thing.

Jamil:
Yeah. It’s a recession mullet, from the front party in the back.

Dave:
I don’t even know what to say, but I like that idea. Do you think that makes sense? Am I off base?

Jamil:
Not at all.

Dave:
It just feels like-

Jamil:
I don’t think you’re off base at all.

Dave:
… we’re all trying to call it a, “recession,” quote, unquote, but the economic situation we’re in defies normal words for it. No one’s calling it a recession because it’s just different than any other economic situation we’ve ever been in.
That doesn’t mean it’s not bad, it doesn’t mean it’s not painful. It is bad and painful. It doesn’t, but there are also good parts of it, so it’s just really hard to fit this situation into our conventional definitions of economic cycles.

Kathy:
I mean, if you boil it all down to what is so different and weird this time around, besides the fact that we had a global pandemic that none of us have experienced before, is that the Fed created over $3 trillion in a matter of eight, what, 13 months? And that is a huge shock to the system, I suppose in a good way, where money went to the people.
And a lot, we talk about the stimulus checks, but those PPP loans, those loans that went to businesses sometimes were in the millions, and it was sometimes to businesses that maybe didn’t need that money, but they got that money and that’s extra and that, where did that go? Usually when there’s profits, it goes to the owners or the shareholders, and then that goes out into the economy.
Generally, people spend it or they invest it, so we’re still in the hangover of that. That was a lot of money that perhaps was spent on buying all cash properties or buying things that without debt. We know that homeowners are in a really, really good position right now because many of them have high, lot of equity still. They have high equity and super low payments.
So that’s just another example of so much money that was easy to get, and if you were borrowing it, it was low debt that people are just not, and when I say people, I don’t want to say all people, but a lot of people still have money. Whether it’s in savings or they have the things that they wanted and bought with cash at the time.
So it’s going to take a while, I think, for that amount of stimulus to trickle down and to trickle out of the economy. And the Fed doesn’t want to talk about that part of it. Nobody seems to want to talk about that part of it, the over stimulus.

Jamil:
Well, I think what’s interesting, Kathy, is that in 10 years they’re going to have a report and it’s going to be all of the things that were bought with PPP loans.

Dave:
Oh, did you see that one recently?

Jamil:
No, I didn’t even know this existed yet.

Dave:
There are some. The government is starting to go after people for fraud, and one of them was an influencer. This woman who was an influencer got plastic surgery with a PPP loan because her business was her…

Jamil:
Is she a stripper or something?

Dave:
I don’t know. I didn’t look into it that much but it was kind of like her business is her appearance. So she basically got a-

Jamil:
Like Henry.

Dave:
Yeah. Yeah. But he doesn’t need money for it. That’s all natural.

Henry:
So you did no market research on that, right? That’s what we’re…

Dave:
Not that I’m willing to talk about on the show. I’m not going to tell you how I know about this story Henry.

Jamil:
Were there Lamborghinis, were there luxury mansions? What got bought with the PPP? You know what I mean?

Dave:
Yes. Yeah. There’s definitely going to be a reckoning for that and a few rap songs, I bet.

Jamil:
Yeah. Yes, probably.

Dave:
Well, so I’m curious how, given, are we all in agreement that I don’t know, I guess my feeling is I don’t know if they’re ever going to call it a recession or not, that’s out of my hands, but I do think this economic uncertainty that we’re all experiencing is at least all of 2023 and probably into next year. I don’t know. Do you guys feel differently about that?

Jamil:
I hope I don’t. I mean, again, as I mentioned earlier, it could be the dead cat bounce or it could just be a return to normality in housing, but I’m optimistic. I truly believe that 2023 isn’t going to be as bad as we had expected it to be.
If I’m looking back at the last two quarters of 2022, I had some definite anxiety about what 2023 was going to look like, and that anxiety is beginning to soften.

Dave:
Well that’s good. I like your optimism. I mean, just by the fact that how wrong economic projections tend to be. The fact that most economists believe that there will be a recession probably just by default piece, that there probably won’t be.
Except I am a believer in the yield curve. I don’t know how much you guys follow this, but that is the most reliable predictor of recessions that we have pretty much, and that does point to a recession. So that one, every time I start to feel some optimism about the economy, I look back at that. I’m like, “Oh, no, we’re screwed.”

Henry:
I think the big caveat there is exactly what Kathy mentioned. I mean, the indicators that we’re using are the indicators we’ve used historically, but historically we haven’t had this pandemic, which created its own problems.
And then yes, we created, the Fed created money, and in order to help people. I don’t want to say that the stimulus was bad or PPP was bad. It was created for a reason. There were people who absolutely needed those stimulus, right?

Dave:
Absolutely. Yes.

Henry:
We’re very fortunate here that we didn’t need those things. But when the pandemic first hit, I remember seeing people at the grocery store, I paid for a lady’s gas who was in tears because she didn’t know how she was going to be able to keep gas at her car. And so the money was created, I think, for the right reasons. And there were tons and tons of people, tons and tons of small businesses who needed PPP funds.
Does that mean people didn’t take advantage of it? Of course, people did. But I think it was created for the right reasons. But that’s this big caveat, I think that’s causing a lot of these, what you call it, whack-a-mole of the economy, industries up and down. We’ve had this huge outlier of a recession.
So yeah, I don’t think we’re going to be in a recession. I don’t think it’s as bad as people think it’s going to be. And who knows, maybe I’m terribly wrong, but I don’t know, it’s hard to believe or follow the indicators when this historically hasn’t happened before.

Kathy:
And here’s where the debate part will come in. I do think that, well, first of all, it’s nearly impossible to predict anything anymore, because we don’t really know what the Fed is going to do or how quickly they’re going to move given the very, very strong economic data.
If they do what they’ve said they’re going to do, they would raise rates throughout 2023 gradually, at quarter percent hikes, which is a lot better than three-quarter percent hikes, until they get to five or five and a quarter percent. So that would be several more quarter percent hikes this year and then holding it.
What we don’t know is how that’s going to impact what appears to be a pretty strong economy from all that money. I’m going to say the economy strong because if you or I took out a $3 trillion credit line, we’d probably be looking pretty good too. And that’s where we’re at. It’s just a still a lot of money circulating out there because of all that stimulus.
So will being at 5% Fed fund rate stabilize things or send us into recession? It doesn’t look like. And most people, most economists are now not predicting it for 2023. That it will be just flat, just a GDP of just kind of maybe half a percent or something like that over 2023, which is great. If we just hold, that would be wonderful.
The question is, what will 2024 be like and is that something that we should worry about? And that’s what we’re going to see in the headlines is, “Okay, this year’s going to be okay, but just wait till 2024.” And that’s the unknown.
So we’re not out of it yet. The recession headlines are going to be with us. How do you deal with it? That’s really the question, is how do you deal with it? How’s it going to affect you? It’s probably not going to be a 2008 type of collapse, although there’s people out there saying it will be, but there’s always people out there saying it will be. So that question mark will always be there, says, “How do you operate and live with that hanging over your head for another year too?”

Dave:
Totally. Yeah. I don’t wish for a recession or want anyone to lose their job, but it almost in some ways would be better if it just got over with, because it’s just dragging this out for a long time. This economic uncertainty and fear that everyone, myself included has, and I just want to say the scenario you’re describing, Kathy, which I think is a reasonable scenario, is probably the worst case scenario for housing prices.
If interest rates go up, but we do not go into a recession, in my mind, is the most likely scenario that could actually lead to a housing crash, because then interest rates are going up that puts upward pressure on mortgage rates. But without the recession to help, just so everyone knows, a recession usually pulls down mortgage rates.
So if interest rates go up, but there’s no recession, that puts the most of all the scenarios I can see happening, that’s probably the one that has the most upward pressure to mortgage rates, which would probably send the housing market down further than I have been expecting over the last couple of six months.
So just everyone knows, that scenario is good for the economy, but could be pretty bad for home values. I know some people are hoping for home values to go down so they can buy cheaper, but that’s just something I wanted to call out.
And then the last thing, the second thing I wanted to say is that what Kathy’s describing, what we’re all describing, what we’re trying to do here is just talking about different scenarios that can happen. I just want to reiterate that none of us know, and we’re just trying to play out and sort of game what different things could happen so that you can think through some of how you would react to these things.
So generally speaking, Jamil, given the uncertainty and these different scenarios that we’re all positing that could happen, how do you react with your own investing, your own money? How are you operating in this uncertainty?

Jamil:
Great question, Dave. I’m operating the way that I would normally operate when I’m, as I’d said on previous shows, I am still very, very bullish on the fact that our inventory numbers that real estate in general is not, whatever we’re experiencing right now is engineered. This isn’t normal market cycles, and we are lacking inventory across the country. So I am going to continue to buy, I’m going to do what I would normally do. I’m just buying everything deeper. I’m doing what I would normally do, but more aggressively right now.
And actually, funny enough, I’m historically known as somebody who doesn’t hold a lot. I’m a wholesaler, so I like to flip paper and generate cash that way. But this last six months, I’ve been buying and holding property because I’m getting stuff at such steep discounts right now and I’m watching inventory and I can see what’s coming around the corner, at least maybe not next year, maybe not two years from now, but 3, 4, 5 years from now. The inventory that I buy today, I’m going to be able to take massive, massive gains on, and I did this back in 2010.
I bought $800,000 worth of property in 2010 that I exited in 2019 for 8 million bucks. I mean, and that was one of the things that tipped the scales of my life, was being able to have that situation occur for me. So I’m trying to bet on that happening again. I’m holding, I’m buying, I’m buying aggressively. I’m going to hold really, really, really, really great assets at great prices, and I’m going to wait five years and see what happens with it.

Dave:
All right. Well, great. That’s very good advice. Henry, I’m sure you’re doing something radically different than what you normally do.

Henry:
Absitively, posilutely not. We are doing exactly what we’ve been doing. I couldn’t mirror Jamil anymore. We talked about it before on another show, but when we talk about investing in real estate, people obviously want to buy low, so that they can either hold and build wealth and get wealth through appreciation and equity.
Cash flow is great, but the real wealth is built through appreciation and equity or they’re looking to buy low and then add value to it and then sell high. And so if this is what you’re in the real estate space for, this is the time that’s for you, because you can buy deep discounts right now.
If you’re in the real estate space because you want to be able to buy and sell, maybe the timeframe that you’re going to look to maximize your sell is longer, like Jamil saying, he’s buying some, he’s holding them for the short-term, but his plan is to sell them when their value is at it’s, quote, unquote, “peak.” When their value starts to go up tremendously.
Also, if you’re in a place where you’re saying, “Hey, I don’t know where to start, but I know I want to get into large scale multifamily, I want to get into a space that takes a lot of capital to get into.” Well, phenomenally you could do exactly what Jamil’s doing. You could buy at discounts right now. You can hold them, which increases your net worth. You’re going to get the appreciation and the debt pay down over the next five years, but then you can leverage that.
Increase your buying power to buy larger assets, then still sell those properties that you bought five years ago at a profit. So it’s one way for you to get in now, where you’re going to get in deep and use that leverage to start to scale.
And then also for us, man, that we are getting such great discounts that we are able to do both. We are able to buy and hold and cash flow very well because we’re buying at a deep discount. Even though the interest rates are higher, we’re still cash flowing because of the depth of which we can buy, but also it’s still profitable doing flips. I’m going to do my first two flips that we’re going to sell here in 2023, are going to be triple digit flips, no pun intended there.

Jamil:
Yeah. Ding, ding, ding, ding, ding, ding, ding, ding. Let’s go.

Henry:
But put to caveat that, these are six-figure net profit flip.

Dave:
So, you’re going to make a hundred dollars, triple-

Henry:
Yes. Yes.

Jamil:
You know how many messages I get on the internet, just game laughing at us for that title. But no, he means hundreds of thousands of dollars.

Dave:
I had never thought about that. Someone else said it to me. I might have read it in one of your comments or something, I was like, “Yeah, okay. I guess there’s a point.” But I knew what you meant.

Henry:
So when you talk about a triple digit flip, we’re talking about a market in Arkansas where the spreads aren’t as big as in a market like Phoenix. And so that’s a big deal in this mid-tier market, especially with interest rates where they are, and with home prices starting to come down across the country, we’re still getting very, very high returns.
I’m turning down projects, that it would typically net like 30K because my time is better spent on the deals that are going to net me 50, 60, 70, 80, and they’re still widely available. I just turned one down yesterday and the wholesaler was shocked that I didn’t want to take the deal because I was going to only make a $30,000 profit. So there are plenty of opportunities still out there, and so our strategy hasn’t changed, but our underwriting is different.

Dave:
That’s awesome. Thank you. I mean, that’s super good advice. And Henry, you’re always just smooth and steady, always doing the same thing. I like that.
Kathy, what about you? Is there anything you’re doing differently or thinking about just in terms of managing your investments right now?

Kathy:
No. I mean, I will speak from the perspective of somebody who doesn’t do business where I live. I live in California, the regulations are ridiculous. The cash flow doesn’t exist. Prices are still extremely high. I know some people invest here, but I don’t.
So I speak from the perspective of me and our members who have to invest somewhere else to make the numbers work. And looking at where that is today, they’re over the last couple of years, it was really hard for us because you’re trying to compete, but you’re not in the market and you need somebody local there, but they’ve got 50 other clients, and how do you get that deal when you don’t live there and you’re kind of relying on somebody else?
And for many of us who invest out of state and not in the area where we live, we like to, I’ll speak again for myself and for people I represent, is something a little newer because you’re not there and so something newer or at least completely renovated is feels safer. You kind of know what you’re getting and you can rely on, this is everything’s already been fixed. I’m not going to have a lot of repairs, most likely on this property.
And that type of property, sort of A, B class property was almost impossible to get, over the last couple of years. And new builders, I started investing with new builds and new builders didn’t want anything to do with investors. So why would I sell to an investor when I can sell to the retail market for more and not have a bunch of rentals in my subdivision?
Well, all of that has changed. So from a perspective of somebody investing not where I live and helping other people build a portfolio, not where they live, this is an incredible time. This is so much better than what we’ve been dealing with over the last couple of years. Now, builders want to work with us and they’re giving us discounts and they’re paying down our mortgage.
So it’s like we’re in the money. This is why we’re so busy right now, because finally, investors like me, out-of-state investors who already have jobs and already are working and they can’t be as awesome as Henry and Jamil. We can’t do what you guys are doing because we’re not there.
So the opportunities for us are so much better, and so I’m optimistic from that perspective that this is the time that I can now get back in and build my portfolio and still get pretty good rates because like I said, you could negotiate, you could negotiate for the seller to help pay down your pay points, to pay down your mortgage.

Dave:
Awesome. That is also great advice, and I think that’s reflected across a lot of other experiences that we’ve been hearing about. People we’ve been interviewing on this show all seem to be, think that there’s great opportunities out there. There’s also a lot of crap out there, I will say. So it really is about finding good stuff.
I will say that for me, I am actually doing a few things differently. I am starting to get into lending because interest rates are really high right now and it’s a good market to be in lending. And the second thing I’m doing, just generally speaking is looking for to put some money into short-term opportunities right now because as if you listen to the show, no, I mostly invest passively in commercial real estate, and I do think commercial real estate is going to be taking a hit in terms of valuations and there’s going to be really good opportunities.
I know, I always say don’t try and time the market, but I’m not listening to my own advice. I’m going to try and time the market a little bit with commercial real estate, but I’m still investing my money for now looking into shorter term opportunities that I can still earn a really good yield for six months, 12 months, and then trying to see what happens.
Just as we’ve been talking about this whole episode, no one knows what’s going to happen, so I’m trying to buy some flexibility with my money so it can take advantage of even better opportunities if they come over the course of the year.

Jamil:
I just want to say that I want to be the first to call Dave the hardest, hard moneylender on the market.

Dave:
Thank you. I don’t really know what that means.

Henry:
The amount of people that are going to DM you asking for money.

Dave:
I should have, that’s a good point, Henry. Sorry. Now, people are going to ask me for money for sure. I don’t have a lot of it, so don’t ask me for that much. You’re better off asking someone else or ask James. He lends out a lot of money.
All right. Well, thank you all for being here. This was a lot of fun. I hope you all enjoyed this debate. As you can see, everyone’s just trying to figure out what’s going on. Hopefully, this helps you understand some of the indicators to look at, some of the sentiment that is occurring in the market right now and how you can prepare yourself for the weird, whatever you want to call it.
You want to call it recession, go for it. You want to call it something else. Whatever it is. It’s weird, the weird economy that we are in right now.

Jamil:
The mullet. Yeah, the mullet economy.

Dave:
The mullet. Exactly. The mullet economy.

Kathy:
The mullet economy. I hope that too soft.

Dave:
I feel like we [inaudible 00:49:02] a graphic for that. All right. The mullet economy. All right. Well, let’s just do a little round of where to find you guys. If you want to learn more about the mullet economy and Jamil, where should people contact you?

Jamil:
You can follow me on Instagram @jdamji. Also, I have a pretty fun and entertaining YouTube channel where I teach people how to wholesale real estate and can crack you up a couple of times, so you can find me on youtube.com/jamildamji.

Henry:
It is funny because you can find a video of Jamil and I in pajamas doing interviews about real estate on that channel.

Jamil:
It was a great interview. People loved our jammy jams.

Dave:
That sounds awesome. I haven’t seen that. I haven’t seen that. Well, Henry, what about you? Where can people find more about you and your pajamas?

Henry:
Yeah. Instagram, best place for me. I’m @thehenrywashington on Instagram or check me out of my website, henrywashington.com.

Dave:
All right, great. And Kathy?

Kathy:
I was going to say Instagram too @kathyfettke, but make sure it’s two Ts because there’s somebody trying to be me and don’t listen to them with one T. It’s two Ts, Fettke. And then probably a safer way is realwealth.com where nobody’s trying to impersonate me there. I don’t think. I don’t think.

Dave:
Kathy impersonators are unbearable on Instagram. It’s ridiculous.

Kathy:
It’s ridiculous. And they’re asking for money, so that’s not me. I’m not asking anybody for money.

Henry:
Kathy, I heard you mentioned a couple of times that you were having trouble getting a reservation for dinner. Did you tell them that you were Kathy Fettke of Real Wealth?

Kathy:
Oh, no. I didn’t use that.

Jamil:
No. Because they thought it was Kathy Fettke with one T.

Henry:
They thought you were… [inaudible 00:50:46]

Dave:
It was the fifth Kathy Fettke that had contacted the restaurant that day.

Henry:
You cannot have a reservation and you cannot pay with Bitcoin.

Dave:
Yeah, they asked, Kathy called the restaurant and asked how their crypto trading was going.

Kathy:
And I’ll help you. If you just give me five grand, I’ll invest it for you.

Dave:
Seriously though, if you are listening to it’s just public service announcement, if someone, any personal finance person, if the four of us, anyone else contacts you and asks you to trade with them, particularly Bitcoin or Forex, read very carefully the username of the person who is asking you, because it is very likely to be a scam. Please report them.
I know, I think I speak for all of us, that we report all the people who impersonate us, but Instagram and Meta is very, very slow to remove them. So-

Jamil:
I wonder why.

Dave:
… just be careful. If you ever see that.

Henry:
Be careful.

Dave:
Oh, I know why. Because there’s stock prices down 70% and they don’t want to reduce engagement even more.

Henry:
Oh, now the people with black suits are at Dave’s store.

Jamil:
Now I’m the conspiracy theorist, right, Henry?

Henry:
Yeah.

Dave:
I mean, I don’t know about that, man. It would be so easy to write an algorithm to stop them for doing that, and they just don’t do it.

Jamil:
A hundred percent.

Dave:
But it’s the same thing, right? Isn’t that what Elon Musk sued Twitter about, right? Was that so much of the engagement is bots.

Henry:
Yep.

Dave:
But they’re just like, “We don’t know what’s going on.” Because then they don’t have to report it to their investors. Anyway, don’t shadow-ban me Instagram.

Kathy:
It’s a love-hate relationship.

Henry:
So good.

Dave:
All right. We’re going to get out of here. See you all next week. Thank you all for listening. 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, researched by Pooja Jindal, and a big thanks to the entire BiggerPockets team.
The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

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