Richard

Nature is disappearing at an alarming rate, with the built environment acknowledged as a significant contributor to the decline of biodiversity. Scientists are predicting that on our current trajectory of habitat loss and global warming, nearly 40% of all species will face extinction by the end of this century. It’s a scary prospect, one that prompted construction engineer Alistair Law to devise a solution for returning nature and biodiversity to our largest cities.

As a facade engineer at global design firm Arup for several years, Law has worked on some exciting design and construction projects, including Google’s new London headquarters. But in 2013, while living in Paris, he came up with the idea for his business Vertical Meadow, which creates native wildflower and grass meadow living walls designed to green buildings and enhance city biodiversity.

“The concept of living walls wasn’t new, but it was being done in a very controlled way,” says Law. “Most suppliers were pre-growing plants and then sticking them in pots on walls, which looked great on day one but worse as time went on, with the plants often dying. I was more interested in how we could bring greening into cities more meaningfully and integrate it with existing constructed systems?”

Instead of sourcing and transporting live plants to the site, Law’s idea was to grow them from seed in place, reducing costs and making the process more sustainable. After experimenting with different materials, he started testing in Paris and came up with a system for growing grasses and clovers that could adorn scaffolding and other building structures.

The company uses customizable, species-rich native wild grass and wildflower seed mixes that provide a haven for pollinators, insects, birds and butterflies, which it applies to its two living wall solutions; a Vertical Meadow wrap designed for site hoardings and scaffolding and a Vertical Meadow cladding.

“We use 25 species of seed, and we never know what’s going to come out,” says Law. “For me, the joy lies in not being able to control whether you get a daisy, cornflower, or poppy or when they will appear. There’s excitement about it, but it’s also a challenge. It isn’t instant. We tell people this will grow, but this is nature, which can look messy in winter. But messiness is good; it provides a haven for all the caterpillars and other insects hibernating in these grasses.”

The system has been designed to be simple, with a plug-and-play approach to enabling plants to grow in place from seed. A dry product is delivered to the site, connected to an irrigation system, WIFI, power and water supplies, and then switched on to start the germination process. Over time the plants begin to grow and flower, and progress is monitored via simple inspection and maintenance apps.

Vertical Meadow completed its first project in 2016 for Grosvenor at Holbein Place in London’s Sloane Square. In November 2020, the company secured an Innovate UK grant for £100,000 for sustainable development, which was used to redesign its permanent cladding solution.

“We’re just finalizing our cladding system, which can then be applied to existing buildings, with almost everything made for non-combustible materials, which is crucial when dealing with buildings,” says Law.

With his background in engineering, he admits that learning about the nature and biodiversity side of what he is doing now has been a steep learning curve, but he has been helped by working closely with experts from Wildlife Trusts, universities, and leading ecologists, such as Nigel Dunnett.

Last September, it won the CIRIA BIG Biodiversity Challenge Construction Phase Award for its installation on the construction site of Holbein Gardens in central London. With further projects in the pipeline, plans include the installation of living walls under billboards. Following a small fundraiser last year, the company, now a team of three, will seek a larger external funding round later this year.

The introduction of a mandatory Biodiversity Net Gain of 10% on construction projects has raised awareness about the importance of nature in the built environment; however, as Law points out, the construction phase is still largely ignored. He sees the role of Vertical Meadow as creating a bridge between pre-and post-construction, introducing a haven for local invertebrates, bees, butterflies and birds to use to support a more permanent reintroduction of biodiversity.

Law adds: “I’ve been lucky; in my role as an engineer, I’ve worked on some iconic buildings all over the world, but the work I’m doing with Vertical Meadow brings a very different type of gratification. We have to start giving back. That’s the message to get out. If you work with nature, then nature will do its thing.”

Dave:
Hey everyone, welcome to On the Market. My name’s Dave Meyer and I am your host, joined with Kathy Fettke today. Kathy, what’s new with you?

Kathy:
Oh, well, I am just so excited to hear what Brian has to say. He is just a brilliant investor and I think a lot of people are going to learn so much from this interview.

Dave:
Yeah, I’ve gotten to meet Brian a few times now, luckily, but he’s like one of my original people I looked up to when I joined BiggerPockets. He’s just been around for so long and has been so smart and for so long. It’s a treat to be able to talk to him

Kathy:
And he speaks in a way you can understand. He boils it down into basics. His voice needs to be out there more helping protect investors and syndicators because it’s rough waters.

Dave:
Yeah, absolutely. And just so everyone knows, we are going to be talking today mostly about multi-family investing, and that does have implications for the whole real estate investing industry. But just to be clear, what we talk about, Kathy, Brian and I in this episode, is not the residential market. There are differences between multi-family and commercial markets and the residential markets. Brian does a great job of explaining that, but just want to make that clear before we jump into this. But it’s super, super interesting and if you want to just build out your knowledge as an investor, the concepts that Brian talks about that form and inform his opinion about the multi-family market are applicable to investors of all types. Definitely pay attention and as Kathy said, he makes these really important complex topics super easy. We’ve got an excellent, excellent episode for you. We’re going to jump into it in just a second, but first we’re going to take a quick break.
Brian Burke, welcome to On the Market. Thanks so much for being here.

Brian:
Thanks for having me here, Dave.

Dave:
Well, it’s a pleasure to have you on. For those of our listeners who don’t know who you are, could you provide a brief introduction?

Brian:
Yeah, absolutely. I’m Brian Burke, President and CEO of Praxis Capital, longtime BiggerPockets member. I think going on 10 or so years now. My company invests in multi-family housing across the US. I’ve been doing this for in the multi-family side, about 20 years. Started out as a single family house flipper, did about 725 or 750 house flips. But now our core business is multi-family. Our portfolio topped out about 4,000 units.

Dave:
Wow. Well, yeah, when I started working at BiggerPockets, you were one of the OG forum members that I remember really looking up to and you were too modest to also mention your book, The Hands-Off Investor, which is one of my favorite books. Really great introduction to investing in syndications. If anyone’s interested in that, you can check that out from Brian as well. But we’re here obviously to talk about the tumultuous economy and state of the multi-family market. You have a pretty interesting opinion about what’s going on here. Can you give us a brief synopsis of what you think is going on in the multi-family space as we head into 2023?

Brian:
Well, I think we’re in for quite a change in the market from what people have become accustomed to. The prices and rents in multi-family space have really only gone in one direction for about the last 12 or 13 years. And I think a lot of people thought that that was the way it always is and was always going to continue. But I’ve seen this movie before and it’s kind of back in like ’05-’06, right before the big housing crash. I just remember people talking about how, “Oh, my plumber bought a house and made a hundred grand in one year, and so I’ve got to go buy a house.” The whole thing subsequently came crashing down and it’s like when everybody is doing it then you know that there’s probably a problem soon to follow. This also happened in the dotcom bust, the 2000, when everybody was investing in stocks.
Next thing you know it came crashing down in a ball of flames. And what I’ve noticed over the last three or four years we’re getting into this everybody’s a multi-family investor. Everybody’s a syndicator, and the space was becoming overcrowded and overheated and I thought that we’d probably see quite a different looking market coming in not too distant future. Well, that got pushed even sooner thanks to recent actions by The Fed and of course the bond markets that have driven interest rates up. That’s been kind of the spark that lit the fuse, and I think the bomb is starting to go off.

Dave:
Wow, bomb going off. That’s a little bit scary. Can you say a little bit more about that, just generally … Maybe actually, let’s take a step back and just provide our listeners with a little bit of foundational knowledge here. Why is it that you think … Well, first, do you think that the commercial multi-family market is different from the residential market and what are some of the key differences you see?

Brian:
Yeah, they’re completely different and they can be entirely disconnected. And I get this question all the time about, “Oh, you’re a real estate investor, what’s going on in the market?” And it’s like, what the heck is the market? There’s really no such thing as the market. Multi-family trades on a different cycle at different amplitudes than single family, than hotels, than commercial. Even within itself. You could have multi-family doing great in Tampa, Florida, but doing absolutely terrible in San Francisco. That actually might ring true now as a matter of fact. Single-family prices can be falling while multi-family prices are increasing. They’re completely unrelated and it’s really impossible to try to put a nexus between them that’s going to stand the test of time.

Kathy:
Brian, you’ve been really cautious and you have really timed things well. It’s been really incredible to watch you and watch your company grow. I know we would run into each other in events and I would always pull you aside and say, “Brian, what are you, are you working on? What are you doing?” And we would both be extremely concerned about the underwriting that was happening over the past few years and the deals people were doing. They’d come across my desk and I was like, “This doesn’t make sense.” And I would go to you and say, “Is it me? Am I just not seeing the opportunity?” But how have you been able to navigate, let’s just say the last decade and time things so well?

Brian:
Kathy, it’s not you, it’s me. Just always know that. Yeah, I don’t know, maybe I have a sixth sense about these market cycles. I don’t know. But I’ve managed to navigate them fairly well over the years. I basically stopped buying real estate in about ’04 and a half, and then by ’05-’06, the market completely catapulted and it went in the toilet. I managed to avoid the worst of that, managed to somehow be lucky enough to acquire a rental pool of about 120 rental houses in the San Francisco Bay Area in 2009 and ’10 right as it was bottoming out, rode that up until those prices doubled and a half, and sold the whole portfolio as the housing market was starting to slow just a little bit. I’ve managed to figure out the timing more often than not.
Of course I’ve certainly been wrong my share of times, but I think it’s just a matter of staying in tune to what’s going on, recognizing the signals around you. And sometimes it’s not like you can point to one specific data point and say, “Oh, I read it an article that this or that is happening or this is going to be 0.7 and then I’ll sell when it’s 0.8.” That kind of stuff. It’s not like that. It’s just a matter of a kinetic sense of what’s going on around you, being aware of your surroundings. I think maybe this came from my background in law enforcement before I was really a full-time real estate investor, always wondering what’s the next bad guy hiding behind the corner ready to attack you as you come around. I look at a lot of news and information and articles and data points and also just a sense of when things are just getting too overheated or too cooled down.

Kathy:
What was the bad guy this time around, like over the past couple years? What were you seeing around the corner?

Brian:
What I was seeing was two things. A massive interest in acquiring multi-family coupled with high leverage, risky debt. To put that into practical example, when we would go to acquire property, let’s say we’re putting in a bid on a 200 unit apartment building and we crank on it as hard as we can and come up with the highest price that we can and we submit an offer only to find out that there’s 35 other offers, half of them with hard non-refundable earnest money deposits, some of them over a million dollars and asking the broker about the financing structure that the other buyers are doing, finding out, “Well, they’re all using bridge debt, which is high leverage and short term.” And when you see that kind of stuff happening that it’s time to sell and things are topping out. And that’s exactly what we did. And when we put our first property on the market and we had, I don’t know, 17 or 18 offers, we knew that our thesis was more than just a casual observation.

Dave:
You obviously have seen a lot of demand, but that was even according to your timeline, that was even before The Fed started raising interest rates. Is that right?

Brian:
Oh yeah. This all started, early 2020 is really when it started. Then COVID hit in early 2020 and it kind of instantly shut the market off. For about four or five months we just sat on the sideline. We didn’t really want to buy anything, we didn’t really want to sell anything. It just didn’t seem the time was right and then things started to really take off. And it was interesting to watch because come third quarter to fourth quarter of 2020, market activity was way hotter than it was even pre COVID. Rent growth took off a lightning storm. We kind of were able to recognize some of those patterns of what was causing it and how we could benefit from it. And that was the final nail in the coffin, so to speak, for us. And that’s when we made the decision to essentially sell everything that we could, keeping only our highest quality best properties remaining behind in the portfolio.

Kathy:
It seems like multi-family or at least a lot of multi-family deals are sitting on quicksand today just sinking. I mean, what are you seeing out there from people you talk to and what are the challenges that some of these operators are facing?

Brian:
Well, some of the operators who financed conservatively and bought, let’s say any time before 2022, even in early 2021, I’m not really hearing much about challenge. Occupancies are holding very steady. For our portfolio, for example, we’re getting our proforma rents, the rents that we expected to get when we initially underwrote the property we’re getting, in some cases we’re getting more. Occupancies are holding in the mid 90s just like we expected them to do. We’re not seeing really any stress in that regard. And I don’t think any of our fellow owners that are in a similar situation are either. The ones we’re seeing the most challenge is coming from basically two sources. People that bought early this year, call it Q1, Q2 of 2022, paying 2021 prices, but ending up getting stuck with 2022 interest rates, seeing some stress there. Then owners that bought a little bit before this year, maybe one year ago, two years ago, that used high leverage financing and they didn’t get a chance for the rent growth to catch up or their renovations to really reach a critical mass to increase their income enough to cover far higher interest rates.
And one characteristic of that bridge debt is the interest rates are floating and they’re generally floating at a pretty wide margin over the index. SOFR index at the beginning of 2022 was five hundredths of 1%. 0.05 of 1%. And now SOFR is, I think it was like in the mid twos or mid threes even. It’s gone up a lot. If your loan is 300 or 400 basis points over SOFR, you’re now looking at close to 8% interest rates when they probably underwrote to a four or maybe a four and a half and they don’t have the cash flow to cover it. I’ve been hearing a few stories about some operators requesting loan modifications, some requesting forbearance to stay out of foreclosure, only just now beginning to hear talk about people who are reaching maturities or needing to refinance and are finding that to be difficult. I think we’ve only barely cracked the door open on that scenario. That’s going to be the next shoe that drops in my opinion.

Kathy:
I mean, and what does that look like? I mean, are banks being lenient? Are they offering the forbearances?

Brian:
I don’t know. I think so to a certain degree. One thing a lot of people don’t know is I had started a bridge lending company five years ago and we did $2 billion with a B, in loans in that five years, one billion of which was in 2021. I sold that company as well.

Kathy:
Geeze, Brian. You are a baller.

Brian:
But I’ve been talking to some of the people I know in the industry and finding out that, well, first of all in the loans that we made are still doing quite well thankfully, but our lending was quite a bit different than some of this larger CRE bridge product that we’re seeing. But I was just having a conversation a couple days ago with a warehouse lender. These are the folks that do the loans to the people who do the loans. And I am hearing a little bit of talk about a little bit of patience for borrowers who may be running up against a maturity be yet are still paying, but if they’re not paying there’s likely not to be much leniency.
Now the challenge that we have is some of these borrowers aren’t going to be able to pay and as rates have gone up so much, if the cashflow isn’t there, they’re going to have problems. I mean, we had two of the properties, actually three properties that we sold in 2021. We had brokers unknowingly come to us this year trying to sell us those properties because the sellers were trying to get out because they used high leverage financing and they’re having trouble. It’s definitely, I think the cracks are only starting to appear right now.

Dave:
A couple of weeks ago for the people who listened to this show, you might have heard a show where Ben Miller, who’s the CEO of Fundrise was on, James and I interviewed him and he has a similar take as you do Brian about the state of multi-family. And he said he was fearful that there’s just going to be a lack of liquidity and for not just the two cohorts you describe, but also people whose commercial balloons are coming due and who also people who bought five or seven years ago and that people are facing not just banks who are not wanting to extend loans, but there’s just not enough money out there to cover some of the needed liquidity. Are you seeing that at all?

Brian:
I haven’t seen that yet. It certainly could become an issue. I would say that lenders are becoming more conservative and whenever lenders become more conservative, that means that there’s less capital flow, right? This could become an issue. Now I think you’re going to see this issue materialize more in other sectors outside of multi-family to a greater extent. If you have a portfolio of shopping centers or office buildings and you’ve got a commercial maturity coming, yeah, maybe there could be a liquidity issue to refi because values haven’t really gone up. In fact, arguably, you could say that office maybe has become a little bit stressed and capital may be difficult to obtain there. But in performing multi-family assets, Fannie Mae and Freddie Mac are the backstops for the biggest finance years out there in that space. They’re always going to be there. Now to what extent we don’t know.
I mean, they do have lending caps every year. They’re not even going to come close to it this year after two or three years of constantly hitting it. Where it used to be if you wanted to get a multi-family loan from Fannie or Freddie, you better not try to do it in October or in November and December because they were reaching their cap and you’re probably going to have a challenge, but now they’re not even going to hit their cap. If you bought seven years ago, man, you’re going to be fine because values in multi have gone up so much in seven years that assuming you hadn’t previously refinanced and stripped out all your equity, you should have a ton of equity to be able to qualify for very low leverage, probably 40 or 50 LTV takeouts. I don’t see any issue there. Now, if you bought two years ago using 85% to cost bridge debt and maybe it’s a class C property and you’re suffering from delinquent collections and that sort of stuff, then your takeouts could be a little more challenging.

Kathy:
It seems like you’ve been very disciplined in your buy box and obviously, so what are those fundamentals that you follow that have worked so well for you?

Brian:
Well, now the fundamental is a flight to quality. I haven’t always had that as a element of our portfolio. We certainly had our phase of doing class C, maybe even C minus type stuff. I think the experience has taught me to think a little bit counterintuitively from what some people believe is they say, “Well, I want to invest in class C because when the economy goes south, class C does the best because the class B people can’t afford the class B, so they move into class C and class A moves to class B and class A suffers.” That’s the thesis that you’ll hear. You’ll hear, “Oh, it’s workforce housing and everybody needs a place to live.” And I just don’t buy into either of those two theses. On the class part, I feel like in my experience, the class C tend to perform the worst in the downturn because the resident profile is generally the one most impacted by layoffs and wage cuts and other things.
Then what ends up happening is they stop paying rent and then they have really nowhere else to go, so they don’t leave. You have to wait all the way through an eviction and that can take months. And now when they leave, they don’t leave it in the best condition. And now you got all this turnover cost and it just eats you alive. Whereas your class A, they’ll discount their rents and do some concessions, but they’ll stay relatively full. In my experience, class A tends to do better in a downturn. Our buy box has been more of a shift to a flight to quality. I think just looking at things like crime statistics, school ratings, income, all these different factors help guide us to sub-markets where we feel we have the highest likelihood of actually collecting our rent. And that really does make a difference.

Kathy:
And how will you know that it’s time for you to jump back in again?

Brian:
I’ll start to see signals. When you start to see more distressed sales, you start to see a couple REOs coming out, these are bank owned properties, you’ll know it’s really time to hit it. But to get a little bit earlier, I think when you see more and more people talking negatively about the business, that’s probably about a pretty good time. I remember in ’09 when the market was just in the toilet, the residential market was terrible. And I was at a family office conference and I had just given a presentation about what we were going to do next, which was we were going to be buying single family homes to rent out. We’d been flipping like 120 houses a year. And it was great business while there were all these foreclosures. But I said, “We’re shifting to a buy and hold model at least for some of our portfolio.”
This guy comes up to me and he goes, “You got it all wrong.” He’s like, “You don’t know what you’re talking about. This is not the time to buy rentals. This is the time to be flipping. It’s crazy. You’re catching a falling knife. What are you even thinking?” And this guy was supposedly this sophisticated, this guy, family office guy, and it’s like, “Oh yeah, whatever.” Well, I said, “Look, I think houses are going to double in value in the next five years.” “Oh, that’s just ridiculous.” Well, I was wrong. They didn’t double in value in five years. They doubled and a half in value in five years. And that really was confirmation it was the time to do it. When people were telling you it’s the absolute wrong thing to do, that’s when I figure it’s the right thing to do.

Dave:
We’ve talked a little bit about performance in terms of cash flow and whether people are going to default. Where do you see valuations for multi-family properties going right now? Because the data, I’m not involved in the day-to-day in the way you are, but I look at the aggregate data that every commercial real estate investor looks at, the cap rates haven’t really expanded to the point I would expect them to at this point in the cycle. Is that what you’re seeing as well?

Brian:
Yes and no. It’s an interesting, there’s like two parallel universes right now. There’s like reality and then there’s dreamland and there’s just enough people that still live in dreamland to obscure what’s really going on in reality. Here’s what I mean by that. I had a broker in the Phoenix area call me about six months ago. This was just as the market was starting to turn and he said, “Well, what are your thoughts on the market?” And I said, “Well, the mere fact that I haven’t heard from you for in two years and now you’re calling me tells you everything you need to know about what’s going on in the market. Obviously buyers have vaporized or you wouldn’t be calling me” because he’s trying to say, “Hey, are you a buyer, right?” I asked him, I said, “I cannot justify paying 300 a door for 1980s value add product. That’s just not making any sense.”
And he’s like, “Well, now we’re starting to take that same stuff out for 250 a door.” The same stuff they were taking out three months prior for 300 a door they’re taking out for 250 a door. Right there, there’s a 10 to 15% price cut and that was overnight. It was like a light switch. And people may not realize that that happened if they aren’t paying really close attention to the market. Now, the interesting part about that was even though prices fell from where they were in January, February, March, they were still up from where they were in say August or July or August of 2021. There was this really rapid ramp up here in the third and fourth quarter of ’21 and first quarter of 2022. Then second quarter is when everything kind of fell off a cliff.
Well, now you start getting brokers calling and you’re saying, “Look, three cap isn’t a thing anymore.” And, “Well, we’re getting offers and this and that.” And what’s happening is there’s just enough people out there that have a 1031 that they have to close out or they raised $500 million and they got to get the money out because it’s sitting there burning a hole in their pocket. There’s just enough of them. There’s so few sellers that there’s this little minutiae of transaction volume that’s taking place and is still taking place at these ultra compressed cap rates. Well, guess what? As soon as those buyers spend their money and then they go away or more sellers need to sell because they need to sell, then the real pricing is going to get discovered. We’re in this little phase of price discovery where there’s a wide bid ask spread resulting in almost no transactions that transactions that are taking place are just, as you said Dave, they’re still kind of in that high threes, low fours and that’s not going to stick.
It’s just not going to stick. The thing that people got to think about is if a cap rate was 4% and it goes to 5%, you go, “Oh, cap rate’s moved 1%, no big deal.” But guess what? From four to five is a 25% decline in asset value. It is actually quite significant. And I think you’re not only going to see that. I think there’s a really good chance that you see multi-family even in good markets, could be in the high fives or touching in sixes and maybe even go a little higher than that.

Dave:
Thank you for explaining that. I still am just I guess the 1031 money and these institutions that have money to spend, but I just don’t understand the bull case here. Do either of you know a coherent argument about why multi-family values would go up in the next couple years, which would justify buying at a cap rate that’s about what bond yields are right now?

Brian:
Well, the argument I usually hear is, well, everybody needs a place to live argument. That’s one of them, which by the way is BS because just because everybody needs a place to live doesn’t mean they’re going to rent your apartment. They could live with their parents, they could move in with their friends, they could double up. It’s about household formation. Not everybody needs a place to live. I think that plays a part in it. But the other theory that I hear is interest rates are going up, which is going to cause house payments to go up, which is going to cause more people to stay in the renter pool or enter the renter pool, which is going to place more demand on rentals, which is going to force rents up and rents going up is going to force up values. That’s the thesis that I hear.
And certainly one could argue there’s merit to that thesis, that could in fact take place, but it’s going to be difficult because the rents have already gone up. And this is the part that people tend to want to dismiss is that there was a massive increase in rents over the last two or three years. Some markets, I just read Phoenix was up like 80% in five years or something like that.

Kathy:
Wow.

Brian:
And I know that some people say like, oh, that can never continue. And some people say, “Oh yes it can.” I’ve seen both happen and it probably will continue, but it’s going to take a while and there’s going to have to be this leveling off and kind of a chance for everybody. Okay, cool off, just let this set for a minute and then we’ll get back to rent growth later. That period could be six months, it could be six years. I mean, that’s the part that nobody knows right now.

Kathy:
Yeah, I mean, Dave, to answer your question, I also hear inflation and lack of supply and there’s just not enough out there, so we got to get it now. And I could tell you I spoke, I did that debate at the Best Ever Conference in, I think it was February or March, and the debate was are there going to be more sales, commercial sales this year or less than last year? And I was on the side of it’ll be less. The audience voted that it would be more before the debate and I had to just pound it. I’m pounding the podium saying, “Are you not listening to The Fed? Do you not see what’s coming?” The fact of the matter is they didn’t, they had no idea. And we just talked about it earlier, people now know who The Fed is and maybe they’ll pay attention. But just in March I looked at a group of thousands of multi-family investors who had no idea what was about to happen.

Brian:
And it did happen. The sales in the first half of 2022 were greater than the sales in the first half of 2021. However, sales in the fourth quarter of 2022 are going to round out at around 30 billion or … Yeah, 30 billion. Compare that to last year’s fourth quarter was 130 billion. It’s down, I don’t know, what’s that? I’m not that good at math. 70%? It’s a down a lot, right? It’s happening already. And that’s going to continue. I think you’re going to see very light transaction velocity for at least the next couple quarters.

Dave:
Brian, what do you make of the increase in multi-family construction of late? We’ve seen it go up a lot. I actually saw something today that said it’s at the highest rate since 1973, and there seems to be a good deal of inventory that’s going to come online over the next year, I think particularly in Q2. How do you think that’s going to add to this complex market that you’re sharing with us?

Brian:
Well, it’s going to change things only very regionally. There are some areas that really have no development. Case in point, late last year, I bought a three property portfolio of multi-family assets, which you think, “Oh my God, late last year, a terrible time.” Well, but it was a kind of a distressed sale. We really got a good deal on it. But really one of the things that really drove me to it was it’s located in a county that has had a moratorium on multi-family construction for like 15 years, and they’re the newest properties in the county, and there’s only 11 properties over a hundred units in the whole county. And it’s a very populous county, a suburb of Atlanta. I didn’t have to worry about multi-family development coming in and overrunning us. And that was an important consideration. You go to Phoenix, Arizona and they’re building left and right, but that isn’t necessarily a wrong choice.
I mean, there’s people moving there left. What really matters most is looking at construction to absorption ratios, how much is being constructed versus how much is being absorbed and how many people are moving to that area? And this is one of the reasons why I constantly preach buy in markets where people are moving to and avoid markets where people are moving from. It’s kind of almost as simple as that. And Kathy asked about my buy box earlier. That’s criteria number one. But you’re going to see some markets that may suffer from additional inventory. Your question as to why, it’s kind of like, okay, the multi-family market’s starting to suffer. Why are all these builders building stuff? Well, don’t forget that in order to build something, it takes two or three years, or if you’re in California, two or three decades of preparation to get a property to the point where you’re pounding nails.
When things are going great post COVID, you’re like, “Oh my gosh, there’s demand everywhere. There’s rent growth everywhere. We got to build, build, build. It’s becoming too expensive to buy. It’s cheaper to build than it is to buy. Let’s do that.” They start going down that road. You get past the point of no return. And inevitably, and this is why I hate development, by the time you actually finally start hanging windows, the market goes to crap. That’s what we’re seeing. You’re going to have some of this inventory coming online at the worst possible time. That’s going to create some stress in some markets. But you also have a lot of projects that maybe they’re approved and they were about to start, but they haven’t actually started running tractors yet. And those guys might not get financing. And you might see a lot of those properties pushed back or canceled entirely. The jury is still out on how that’s going to affect things, but it’s only going to affect things regionally. I wouldn’t try to put a national opinion on how that’s going to change things.

Kathy:
Would you invest in new construction multi-family?

Brian:
Oh heck no.

Dave:
I love somebody who just gives a straight answer. No, no caveats.

Brian:
Yeah, no. Well, actually, okay, here’s a caveat. When you say, would I invest in new construction, if a project was completed and we had the opportunity to acquire it, yes, and we’ve certainly been in the running on doing this before. We actually had one in contract. Then is kind of a funny story. We had a property in contract, great market, just about to complete construction. We would’ve had to do all the lease up and everything. The seller defaulted on the purchase agreement because they decided they wanted to keep the property because they thought they could sell it for more. And that was middle of 2021. I wouldn’t want to be them and having to explain that decision to their investors today. But I guess maybe I dodged a bullet. I do like high quality assets, new properties have less maintenance requirements, and so I would like to buy newly constructed properties that are done. Would I want to go in and build one? No.

Kathy:
Yeah, too much risk.

Brian:
Been there, done that. Not in the multi-family side, but I’ve built a self-storage facility and it was one of the worst experiences of my life. And it has nothing to do with self-storage. All your self-storage guys, you don’t have to defend your industry. I still believe in it. But what happens is you get past the point of no return, and then everything kind of goes against you. And that’s what happened to me is once I started building, steel prices doubled and that doubled my construction cost. There’s nothing you can do about it. You have to finish and you have to press on. And that’s the problem with development. Things change during the process, and it doesn’t always change in your favor. Sometimes it does.

Kathy:
Investors just really need to understand that new construction is probably the riskiest investment.

Brian:
That’s right. It has to match your risk profile, and you have to be willing to wait. It’s nice to start getting your cash flow returns quickly in development projects. And Kathy, I know you do these. I know this.

Kathy:
And it’s not been easy.

Brian:
It is not easy. It’s hard. It’s stressful. It’s a lot of work. And it’s not instant gratification. I mean, it’s nice to see beautiful buildings being built, but from a financial perspective, it takes a long time to realize the result if it’s realized at all. And I’m too old for that.

Kathy:
I know. I mean, our early projects, we were getting land for 10 cents on the dollar and you could make it work. But I just don’t know how people pay high land costs and high construction costs and high debt costs and make it work today. No.

Brian:
I don’t either. I don’t either.

Dave:
Brian, this has been great, and we do have to get out of here soon, but I have a large multi-part question for you. This is going to be a big one.

Brian:
Hit me, Dave.

Dave:
All right. We’re in the beginning of 2023 and everyone listening is learning a lot from you, but what they really want to know is what they’re supposed to do. I’m going to ask you a two-part question. What should people who want to sponsor multi-family investments do, or what advice would you give them in 2023? Then for people who invest passively, in syndications or in multi-family deals, what advice would you give to them?

Brian:
Okay, so for the first group that wants to be the active participant and sponsor multi-family investments, I will tell you a couple of things. One, it is so much easier to lose a million dollars than to make a million dollars. Always keep that in mind because your primary job, you really only have one job. There’s the old saying, you only have one job. Well, you really only have one job. Don’t lose your client’s money. Keep that forefront in your mind and make sure that when you’re preparing to acquire a property and launch an offering, that you have a very high degree of confidence that you’re going to have a successful outcome and that you’re not going to lose your client’s money.
Because if you do, if you get in too early, it could be the end of your career and you don’t want that to happen. If you want to do this and you want to do this for the long haul, it’s okay to wait until you’re comfortable that you’re going to have the best odds of producing a successful outcome. That’s preferable than to start too early, screw it up, lose your clients, and then now you’re out of business and you’re never going to make a comeback, right?

Dave:
And Brian, is that to you, would that be waiting through what you called the pricing exercise that we’re in right now?

Brian:
Yes. Get through the price discovery. Let other buyers figure out price discovery, start to get some direction to the game. The way I put it is I’m watching this game from the grandstands. I’m not playing on the field right now, but I’m going to place a bet on the outcome of the game, but I’m going to wait until I can see some kind of trend in the score. Who do I really think is going to win this game? Then I’ll place my bets. I’d rather do that than to bet beforehand, before I even know who the players in the game are going to be. I think it’s okay to sit back and watch. For the passive investors out there who are looking to invest in passive syndications, I would say look very closely at offerings that are being launched right now and listen to what the promoters are saying.
And if it doesn’t pass the smell test and you feel like those folks are losing credibility because they’re promoting something that you feel is not appropriate for the time, pass on it and make a note of who those groups are and watch them and see what happens. There’s no reason you have to make a quick decision, watch and wait, and you’ll start to see some of these groups may vanish in the wind. You want to invest with the groups that survive through whatever it is that’s going on right now. Those are the people you want to invest with. Don’t be the test case. Don’t feel like you need to let them learn on your dime. Go with proven skilled operators that have been through a market cycle or that survived this one before you place any bets. This is a time for caution and it’s a time for diversification. Whatever you do, don’t put all your money in one offering with one sponsor and hope and pray because that’s about the worst strategy you can come up with right now.

Kathy:
And to just add to that, Brian, if you’re an accredited investor, take the time and spend the money on having your CPA review the documents and your attorney review the documents. Because a lot of times these documents aren’t well written, that’ll tell you right off the bat that maybe something’s wrong.

Brian:
Yeah, I love the offering documents that are riddled with spelling errors and grammatical mistakes, and these sponsors are going to put their best foot forward while they’re trying to raise money. And if that’s their best foot, just what happens after they get your money could be kind of scary. Yes, review carefully and certainly there’s a whole bunch of red flags. If you want to know what they are, you could read The Hands-Off Investor because they’re all listed in there. I mean, I took 30 years of experience in this business and rolled it up into 350 pages so that people wouldn’t have to make these mistakes on their own. They could see where all the hidden skeletons were in the closets. It’s all listed in there.

Dave:
Great. And Brian, is there anything else you think our audience should know about the multi-family or broader commercial market in the next year that you think they should pay attention to?

Brian:
Well, one thing to pay attention to is what’s happening at other sectors of real estate. For example, net lease, commercial, industrial, office, don’t discount that stuff as either A, not a place to invest because perhaps it could be or B, unrelated to multi-family because they are in some respect related. If those assets start throwing off really attractive returns, capital is going to flow to those assets, and that’s going to mean a longer recovery period for multi-family, it’s going to mean that cost of capital for multi-family projects is going to change. When you start seeing cap rates in say office or retail or whatever, starting to climb into the sevens or eights, you can’t think that multi can hold at a four and not be impacted by the competition of those dollars getting shifted to other asset classes.

Kathy:
Woo. Mic drop.

Dave:
All right. Well, I guess if that was the mic drop, we got to go. All right. Well, thank you so much, Brian. This has been insightful and we really appreciate this. Everyone listening to this and Kathy and myself included, I’m sure appreciate sort of the sober look and a real realistic understanding and you lending your knowledge to us about what might be on the horizon here on the multi-family market. If people want to learn more from you, we mentioned your book or want to connect with you, where should they do that?

Brian:
Yeah, just one thing before I get to that is I do want to say I’m not all negative Nancy. There is going to be a positive side to this. Don’t look at this as this is doom and gloom. This happens. This is a market cycle. We’re in it. It will bottom out. Things will get better and there will be some massive opportunities coming down the line, and those opportunities will be much better than they would’ve been had this not happened. There is a positive side to this. To learn more about the positivity side of it, you can learn more about me on my website for Praxis Capital. It’s PraxCap.com. It’s P-R-A-X-C-A-P, .com. Of course, you can find me on BiggerPockets in the forums answering questions. And I’ve got an article, I think it’s going to be published on the blog soon. That’s going to be along the lines of this conversation. Also check out Instagram, @InvestorBrianBurke, and the book is at BiggerPockets.com/syndicationbook.

Dave:
All right, great. Well, thanks again, Brian. We really appreciate it and hopefully we’ll have you back in a couple months and you can give us an update on the multi-family market.

Kathy:
Yeah, we expect the alert when it’s time to dive in.

Brian:
There you go. I’ll bring it.

Kathy:
All right.

Dave:
We got to get Brian on here once a week.

Kathy:
I want him to be my personal mentor.

Dave:
I know. I invest a lot in multi-family. I know you do too. Having him on is selfishly very just to hear from him.

Kathy:
Absolutely.

Dave:
What do you think about all this? He’s saying there’s this pricing exercise or price discovery going on. What do you think? What’s your gut tell you about the state of housing? A year from now, where will multi-family be?

Kathy:
Well, I mean, I don’t want to even laugh. It’s not funny. I think there will be blood in the streets, and a lot of us could see that. I know a lot of people felt FOMO. I know people who did 20 acquisitions this year, and I would just kind of scratch my head. Again, it me, am I not seeing it? But I think Brian, I’ve just followed him for years and he has so much wisdom and insight that unfortunately I think he’s going to be right, that there’s the positive and negative. The positive is a year from now it will be a good time to buy, and the negative is there will be a lot of loss.

Dave:
Yeah, I think that’s true. I asked that question about what case someone who’s bearish about multi-family right now can make, and I guess what you and Brian shared makes some sense, but to me it doesn’t pass the sniff test. I just think the evidence that valuation, that cap rates are going to expand, I just don’t see how that doesn’t happen and valuation doesn’t fall 15, 20% in multi-family. It just seems like we’re heading for that in the next couple of months.

Kathy:
Market shifts are really a great opportunity to study psychology, honestly, because there’s just people grasping to what they’re hoping will be the case or what has been over the last few years and just able to read the market. It is just an incredible skill to be able to do that. And it’s actually imperative if you’re going … Especially if you’re going to be managing other people’s money. Now in some cases, obviously there’s things you can’t see. We couldn’t have predicted a pandemic and then the supply chain issues and all of that, but sloppy underwriting, that’s more predictable.

Dave:
Totally. Yeah. And it’s interesting what he said, and we’ve had a few other guests on here say the same thing, that they were already starting to feel like the market was frothy in 2019. You can’t predict COVID and can’t predict Russia invading Ukraine, but if they were already seeing the tea leaves as frothy and then you get this frenzy and pandemic, I can see why someone like Brian is like, “Nah, I don’t want any of this.”

Kathy:
“I’m out.” Yep.

Dave:
Well, yeah, I mean, I never root for anyone to lose their shirt, so I hope that there is, that people don’t suffer any significant losses from this, but at the same time, if smart people like Brian and you believe that multi-family valuations are going down, we should discuss that and be honest about that and warn people that to be cautious over the next couple of months and potentially wait until this uncertainty has sorted itself out and there’s more clarity and stability in the market.

Kathy:
Yeah, I love what he said about let other people do the repricing. Wait until it lands and you know what the real values are.

Dave:
Absolutely. All right. Well, Kathy, thank you so much for joining us and thank you all for listening. We do have something for you today. We forgot to mention this up top, but next week, Kathy, James, Jamil, Henry and I are going to be debating a document I wrote called The 2023 State of Real Estate Investing. It’s just a analysis of what happened in 2022, and I lay out a couple potential different scenarios for 2023, and we’re going to debate it. If you want to download that ahead of the debate so you can follow along and maybe form your own opinions ahead of the debate, you can do that on BiggerPockets. It’s for free. It’s BiggerPockets.com/report. Go check that out ahead of next week’s episode. Again, thank you all so much for listening. We’ll see you next time for 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.

As communication technology continues to evolve and a younger generation emerges in the current workforce, many leaders are experiencing delayed or nonexistent response times to business-related emails.

According to a Wakefield Research survey conducted in April 2021, email fatigue leads to around 38% of employees quitting their jobs. This is especially true for remote work environments where employees often manage a growing level of emails, messages, and virtual meetings – often resulting in increased levels of employee burnout and job dissatisfaction.

To help create a work culture with more effective internal communications, here is a list of reasons your employees might not be reading or responding to your emails.

1. Information Overload

Past studies by The McKinsey Global Institute and the Information Overload Research Institute agree that the average worker not only spends too much time managing their emails, but email interruptions can make it difficult for workers to return to previous tasks.

It has also been reported that when an employee is interrupted by an email notification, it takes them an average of 25 minutes to return to their original task. With this, another consequence is often a delay in important decision-making or online silence altogether.

To prevent this, you want to ensure that each communication sent out is clear, relevant, and concise. It is also essential that employees are encouraged to have unnecessary communication tools and platforms limited during office hours to prevent further distractions.

2. Inefficient Workflow

Increased digital noise in today’s fast-paced business environment is challenging workflow efficiency. Employees are required to keep up with daily workflow responsibilities that include the ongoing management and maintenance of digital distractions and notifications.

As a result, not only are emails and other internal communications being missed or set aside and forgotten, but companies are also seeing overall workflow efficiency suffering. To improve communication workflow, consider looking beyond email to transform your communications with employees.

According to SayHey Messenger, secure and compliant instant messaging applications are one way to streamline daily communications, particularly if you have a younger generational workforce. SayHey leverages the phenomena known as “little red dot aversion.” They link increased response rates to the fact that employees are more inclined to deal with something in a timely manner when they see a red notification icon on their instant messaging mobile app.

RingCentral also notes that companies that take advantage of project management software and two-sided communication methods like video meetings, screen sharing, and messaging are more likely to stay productive throughout their workday.

3. Poor Quality of Communication

Along with ensuring that the email communications you send are relevant to recipients, it is also essential that the quality of communication is clear and understandable.

If you find that employees are responding with more questions, are not seamlessly implementing new processes or procedures, or email open rates are lingering – it may be that the quality of your communication methods could be improved.

This not only includes what is written in the email subject line to catch the employee’s attention or the details noted in the body of the correspondence. It could also be the quality of communication tools that your company has in place, whether they are out-of-date or simply not the right option for the business.

4. Poor Timing of Communication

When it comes to effective communications, timing can often be as important as the content itself. Just as a marketer needs to know what days and times their audience is likely to see an email newsletter or social media post, leaders should have a solid idea of the best time to send email communications to their employees.

A great way to do this is to have clear expectations of when employees should be checking their emails and other internal communications. Rather than assuming workers can check their email any time of the day, ensure that they read their company emails at the start of the day. Then, it is suggested that emails be checked in 45-minute intervals to coincide with natural attention breaks.

5. Unclear Policy Expectations

The fact is that only 60% of employees know what their managers expect of them, leaving the other 40% of employees left in the dark often as a result of poor communications.

This is especially the case when managers provide policy and other important updates via email messaging. Not everyone will open the email or read the contents in full, let alone immediately focus on implementing the changes within their daily workflow.

To prevent this, it may be more effective to hold a brief in-person or remote meeting that goes over the new updates or changes, along with management expectations. Then provide a supplemental email that employees may save and reference later.

6. Uninviting Work Culture

If your company has a purely remote work environment, it can be difficult to keep employees engaged and to build a strong work culture. Having an inviting company culture isn’t simply about keeping employees engaged, implementing DEI initiatives, or providing fun incentives for their hard work. Having effective, straight-forward communication methods in place is essential to keeping employees and leaders connected.

When a company has poor communication methods in place, it causes greater unpredictability and instability within the workplace environment. As a result, employees begin to feel uneasy throughout their workday and gradually become more disengaged and unproductive.

How to Improve Email Open Rates Among Employees

Now that you have narrowed down why your employees are not responding (or opening) emails, what can you do to make sure your messages are not only being seen, but also read by each recipient?

First and foremost, make sure every communication sent out is essential to the recipient and has an attention-grabbing headline. Over communication only adds to the digital noise and distractions that employees receive, so only send information out to relevant parties and only the information that is needed.

Also, be sure that your company has the most effective multi-channel communication method in place – this ensures that important and urgent communications are not missed, while general discussions can be quickly reviewed without much distraction. Also consider the use of a mobile application that allows for push notifications, peer engagement, and interactive content.

David:
This is the BiggerPockets podcast show 716.

Greg:
I made plenty of mistakes with real estate too. It could be with contractors. It could be with partnerships. It could be with some properties too, but the way that I always thought about it was lean into the mistakes that you could potentially make, lean into the potential. If it doesn’t work out, you can probably also just sell things, and make it work, but it’s going to be okay. That’s honestly like what I’ve always told myself. If something happens, just keep moving forward.

David:
What’s up, everybody? This is David Greene. That is my partner, Rob Abasolo, spazzing out if you’re watching on YouTube as he tries to mimic my smooth movements of showing the show number.

Rob:
Smoothments.

David:
The smoothments. Man, that’s why we have you. You’re so good at that, and you’re so fast, which is great because you’re terrible at the rest of your job.

Rob:
I know. I know, but my puns are good though.

David:
You’re very punny. Today’s show is amazing as Rob and I interview Greg Colon, someone who is passionate about the fire movement, manages 10 rentals across the country, and shares how he built himself up from a guy who was spinning sides on the corner with painted-on abs, trying to look like Batman, into a real estate investor who has achieved financial freedom. You’re going to love it. In today’s show, we cover how Greg went from almost losing his job to naming his own terms at work, something that all of us would love to be able to do, and how Greg took a precarious position with a partner that went negative, and spun it into something positive as he worked through it.
All that and more on today’s show. Robert, what were some of your favorite parts?

Rob:
I’ve never aired my grievance here, but you always name the best parts of the show. Then you’re like, “What were your favorite parts?” I have this pressure. I can’t… I have to come up with other favorite parts. Those were all mine.

David:
No, you name that all the time, Rob. You constantly complain about it, and that’s why I do it. You showed me the thing that bugs you, and now I have to constantly put you in that position like Brandon used to this to me, right? We wouldn’t have a quick tip, and he’d be like, “And today’s quick tip is brought to you by David Greene. Go.” I’d have half a second to think about what I was going to say for the quick tip. So, now, this is what I do to you. I say every single fun relevant topic about the show, and I’m like, “Pick through the bones of the carcass that I’ve left you, and try to find something juicy to eat.”

Rob:
Exactly. Well, luckily, this was a very plump carcass, because there actually were a lot of very good nuggets in this particular episode. I think Greg has a really great story specifically because he’s a very disciplined investor. He’s very into the fire movement. He was able to achieve that independence very early on in his career, but what I like about his story specifically was he made okay money, but he wasn’t like, particularly… It’s not like he was making multiple six figures, and building his portfolio.
He was making a very average salary, and was able to use that to parlay into 10 plus units. It just shows that with the right discipline, if you’re willing to save, if you’re willing to sacrifice short-term comfort for long-term gain, really building a portfolio in a couple of years or in five years like he did is totally possible. How’d I do?

David:
That’s amazing. Great job. We’ll let you keep your job for another episode.

Rob:
Thank you.

David:
Yes. Yes, of course.

Rob:
My pits are sweating.

David:
Today’s episode is a great blueprint. We go really deep into the details of what you can do to actually improve the position you’re at in practical terms, so you don’t want to miss this episode. Before we bring in Greg, today’s quick tip is buy near a Chick-fil-A, and listen to today’s show to find out why.

Rob:
Hashtag quick fil-A because it’s a quick tip in a Chick-fil-A.

David:
Right. Now, let’s quickly get to Greg-

Rob:
It’s a quick-fil-A.

David:
… before we lose our entire audience.
Today’s guest is Greg Colon. Greg is a 29-year-old software sales representative who has cracked the code on leveraging his hustle to maximize his income, wealth, and relationships. Greg manages nine units, and partners on two short-term rentals across Orlando, Austin, and Maui, and was able to achieve FIRE, financial independence and retire early, at the age of 27 by keeping his expenses low, and maximizing his income opportunities by shifting from salaried consulting to a commission-based sales role. Greg, welcome to the podcast today. How are you?

Greg:
David, I’m doing well. Long time listener. First time caller. Excited to be here.

David:
Let’s start off by letting me ask you what was going through your head when you first decided, “I want to get out of this salaried role I’m in, and there’s got to be a different way to make money that I’ll enjoy more?”

Greg:
I would see everybody graduating college, and taking at the time good jobs, making 50, 60 grand a year coming out of Florida. At that point, you could see the life path from there. They’d be making 3% to 5% raises every single year. You might get your MBA, get a nice $10,000 pay bump on top of that. It just didn’t really sound very exciting for me, so I figured if I made the switch over to a sales career, specifically on the tech sales side, I could really control the outcome of all of the hours that I put into the job, and really leveraging the hustle that I put into it.
If I work 70 hours at, say, Lockheed Martin, I’m only going to be making that certain amount of money, versus if I do it at a tech startup, whatever it could be, the commissions are uncapped. The options are limitless at that point.

Rob:
Now, is that a bit of a risky endeavor, because you’re going from having a solid W-2 income where you’re guaranteed to make a good amount or your base rate, but then you move to sales that’s presumably at least mostly commission. Are you at that point just so excited that you really can control it, or was there any fear switching over? That’s a dramatic shift that you have. I feel like you have to have the right personality for that kind of thing.

Greg:
You do have to have a little bit more of a risky personality, I’d say. I’ll give you a few numbers. If I were to work at a job like a Lockheed Martin or Siemens, I may have made 70,000 out of college, maybe. I took a job at an IT consultant, where I made 42,000 base with an on-target earnings of 60 grand total. So if I hit my number, I’d make 60,000 in total, but I figured I could outwork everybody at the end of the day. I was reliable for my own successes and failure. So if I could outwork everybody, put the hours in, I can’t fail at that point. I did fail a couple times, but I still exceeded the number that I would make by going to some of these other corporate roles too.

David:
Right now, something I want to ask you about this jump, I’ve noticed there’s a lot of people that make it. They go from the W-2 to the 1099. That’s what I call it. It’s really a salaried position to a position that is unsalaried. Most people hate the ceiling of the W-2. I don’t have freedom. I have to be here. I can’t make more money. I can’t. I can’t. I can’t. They don’t like all of the restrictions. Then they leave that world, and then they complain in the 1099 world about the fact there’s no floor.
You got rid of the ceiling, but you also got rid of the floor. “I have no guarantee. I have no safety. I have no paid benefits. I don’t have any money. I don’t have any leads. What am I going to do?” They go from seeing the negative about where they were to the negative about where they went, and they get the same result. What did you do to overcome that fear of, “Well, if I leave the security of the W-2 job for freedom, I’m also losing a guaranteed paycheck every two weeks?”

Greg:
That’s a good question. With most of the sales world, there are a lot of 1099 jobs, so think of insurance brokers. They’re only 1099 at the end of the day. I realized from graduating college that I could take a hybrid role where I had just a base salary, and 42,000 at the time wasn’t much, but it was enough to pay the bills as it stands. So, making that leap of faith for me was pretty easy in the sense where, “If I couldn’t do anything, if I straight up failed, I would have enough literally just to get by, and then I could take a different career path if needed.”
But really at the end of the day, since I was so accountable for my success and failure, I knew that that wasn’t an option, and I had to put all the time in. But most of the time in the W-2 world or the sales world, I should say, they have somewhat of a hybrid approach with how you get paid.

Rob:
I want to backtrack a little bit here, because we glazed over perhaps your most impressive accolade, I’d say, and that’s at the age of 16, you developed or you built a sign spinning company that was making $80,000 a year. Tell us a little bit about that. Is that your company? Were you the one that was actually spinning the sign? Could you do backflips while you were spinning the sign? I want some details here.

Greg:
You’ve done your research, so I appreciate that. I had a sign flipping business, and I called it a very simple name, the Sign Flipper. It started when I was in high school. I was working at Planet Smoothie. Every time I’d make some smoothies, there’s always be that little bit of smoothie left. I would always drink that little bit of smoothie, and I gained like 15, 20 pounds, and it was not a great time. So, I realized that one point, I could start flipping signs for Planet Smoothie. I wore this big smoothie outfit. I figured, “This is a lot more fun than just making smoothies for 40 hours a week,” and so I started venturing out.
I found there was a local AT&T store that had somebody that was standing on the side of the road with a sign just texting nonstop. I walked in the store. I said, “How much are you paying this guy?” I think it was 18 bucks an hour or something. I told them, “I’ll do this for you for $15 an hour. I will guarantee that I’ll get more people in the store than this person ever has.” Lo and behold, I actually did. What I wore was a big Batman mask. I had homemade Batman cape, and I drew on abs. I just was in the hot Florida sun for probably about six hours listening to Daft Punk and just crazy music nonstop, and just dancing on the side of the road, honestly a side of the highway.
Very dangerous looking back now, but it was very fun. Then I ended up having about 13 employees at one point. I’d have the smoothie shop, AT&T, pizza shop, a cigar shop, ice cream. This is all at a young age, and so I was able to learn leadership at that point, but really having that entrepreneurial journey led into my sales career too.

Rob:
That’s awesome, man. You’ve had a lot of success. You’ve taken some risks here switching over to a sales role, and a lot of success doing that. Why were you so driven? Is there a reason behind all of this?

Greg:
There is reason. I think for most people, it all comes down to their formative years when they’re growing up, really between the ages of seven to 12. At that point, I would see my family. We were a nice middle-income family coming from Boston to Florida. I would see my dad who would start up a few businesses, auto repair shops, transmission shops, cell phone shops, whatever, put in the work, and then seize some of the rewards that came with that. At that young age, I also saw that we lost our house at the point in time, and so it really had a profound impact on me.
So, going to school, knowing that we were losing the house, having free and reduced lunch at school, having to basically trade my way up to… If I want to play lacrosse or something, I’d have to buy somebody’s Oakley sunglasses, trade that for an iPod touch, then trade that for lacrosse gear. At the end of the day, I was truly accountable for everything that I wanted to do. It actually worked at the end of the day. For me, it came down to those formative years, and those shaped me to who I am today. I always think back without the pain and suffering that I had at that point and throughout my life that I wouldn’t be where I’m at today.

Rob:
Was there ever a moment in your childhood that you were like, “I am going to change this. I don’t want this situation?” Was that something that came early on, or is that something that happened just as you grew up incrementally?

Greg:
I think it happened incrementally. When I was born in Boston, I was always obsessed with making money in different ways. I would save and invest money along the way too, but I think during high school was when I read Rich Dad, Poor Dad for the first time. Reading Rich Dad, Poor Dad at that age just blew my mind completely. So, just understanding assets to generate money for you, figure out ways to get more of those assets along the way, that was a truly pivotal moment within my mind. I had to figure out new ways to capitalize on that.
I was working, like I said, Planet Smoothie, making 7.25 an hour with tips, and not really making too much money, or take a little bit more of a risk, and be a sign flipper on the side of the road, and try to find more lucrative ventures on the side as well.

David:
Did you find that that sign flipping job was synergistically beneficial, because not only did you earn money flipping a sign, but you burned off all that weight that you had put on drinking these smoothies?

Greg:
David, that’s actually a really good point. I end up losing 20, 25 pounds. I made a lot of money, but the main benefit of this was I was very tanned from being in the Florida sun. I lost all the weight that I put on. I hired a lot of people from my high school as well, so I had a great reputation for always making money and being prone to that too. It was overall a great experience. If I could do it again, I definitely would.

David:
From fat man to Batman in six short months.

Rob:
Have you considered creating a workout program that is revolved around spinning that you could then sell on VHS for 19.99? I mean, I think there’s a seven figure opportunity there.

Greg:
I think so. If I can include shipping and handling with that too, I think we can definitely get these off the shelves pretty easily, but I think people would be very interested in that. It’s either that or jazercise. Rob, you tell me what works better.

David:
No, I think you got a good niche there. You could partner with a fitness company, and create these weighted signs that were like Bowflex could make a resurgence. They come in with this really fancy, huge sign, but it’s cool looking. It’s carbon fiber. They put weights on the side to improve your… Maybe Shake Weight could make a resurgence. You could partner with them, and it could be like the shake sign or something. There’s lots of ways. Then the shake and the smoothie, you could probably work that in together, I think.
You’re a businessman, so there’s lots of ways you can go. Rob can do your marketing. He’s really good at that.

Rob:
Wheels are turning over here. Hey, you guys know that I love funnel marketing.

Greg:
I know. We’ll send this episode to Hormozi, and see if he’s interested. Maybe we can get a co-investor.

David:
All right, so you’ve got this really cool background in different maybe soft skills could be a way to say it. It’s funny because your story reminds me so much of Rob’s where he was doing copywriting for another company who’s working these W-2 jobs. He had a little bit of a background in theater. It was a hobby of his, so he’s really good with voices and talking and communicating. Then all of that accumulated for Rob when he got into real estate, because he had all these skills that would then help him in this new industry. He appears like he just took off right away, but it was actually years of going through the crucible setting him up.
You’re similar. There’s elements in the background that you’ve told us that I can absolutely see what would’ve just made you fearless and bold and creative, and all these skills that you need to be good in real estate. What did that first real estate deal look like, and how did it come to fruition?

Greg:
That’s a good question. My first real estate deal was probably around the age of 25 or so. At this point, I was listening to the BiggerPockets podcast for a few years. I was able to really digest all information, and I realized at that point in time, I had to just take the leap of faith. I found a very nicely-priced property for about $175,000 in Florida. It was a three, two. It needed minimal work, did a little bit of renovation in terms of the flooring, some appliance repair, things like that. I found the property, and realized that it was priced very well compared to the comps.
I had a realtor who helped me at the time, but honestly, I did a lot of the legwork myself. I went in there, repaired the house, ran the numbers. I walked away at the beginning thinking, “If I make $200 a month, I made it.” Over time, that process has evolved. So for me, making $200 was very good. Now, it’s looking for more places that are anywhere from 15% to 25% cash and cash return, but I was able to, at that point in time, just say, “If my bills are covered, I make a few hundred dollars on top, then this is worth it.”

Rob:
How exactly were you able to get into your first deal at this point? Because I think… I can’t remember off the top of my head, but you said basically $40,000 to $62,000. At what point in that financial journey were you career wise? I got to imagine getting into your first deal in general is probably a little bit alarming, right?

Greg:
Yeah. I was about three or four years within my career as it stood. I was following the FIRE principles probably since college itself, so I was always aggressively saving around 60% to 70% of my income, which sounds bonkers, but you find ways to have fun along the way. Around the age of 25, I realized it makes sense for me to take this leap of faith finally versus just staying on the sidelines. I found that $175,000 property with renovations, closing costs, everything. It was roughly about 40,000, 40, 45,000 all in.
I realized no matter what, “If I didn’t know what I was doing, or if I failed, I could very easily just list the property for sale, and still come out ahead.” I had that little bit of cushion of realizing I could make mistakes, and I made plenty of them, but I could take a leap of faith, and it wouldn’t hurt me too much.

Rob:
I remember when my wife and I first had our first W-2 jobs as well. I think I was making 40, and she was making 12 bucks an hour or something nannying. I can relate to that point in my career, where $200 was significant. It was everything to me. What was it like for you? You get into this $175,000 property. You’re like, “If I can make 200 bucks, hits the bank account.” Were you like, “Ah, I did it. I’ve arrived,” or were you just keep throwing it back into the investment pit?

Greg:
At first, I was taking it into my personal account, and getting pretty excited. I mean, that’s a couple nights out a month more or less. But overall, I was very excited, and I want to keep this momentum going. Every time I’d get these properties, I would save the money, and always reinvest it, whether it was back into the house to do some cash out refis or to plan to buy new properties at the end of the day. I’ve gotten to a point where I was buying properties in the past couple years, almost like once a quarter.
I was really trying to make sure I could keep things going at that pace, and reinvest it back into my future. I realized the short-term pain that I was feeling of delayed gratification would be worth it at the end of the day.

David:
It’s very unusual for someone especially your age to have an approach to finances this disciplined. You’re a bit of a free spirit, you could tell, and that served you in these business ventures. At the same time, you’re a very disciplined square bear when it comes to, “What I’m going to do with my money, I’m saving it. I’m buying these properties.” Was there an influencer or an influential person in your life that you looked to and watched them doing this and said, “I want to be like them?”
Alex Hormozi, I know you like him now. Of that time, was it all from Rich Dad, Poor Dad? Where do you think he got this vision of how to execute on what you’re starting to build?

Greg:
That’s a good question. In college, I got into Reddit a little bit, and there was a personal finance, subreddit. I really learned from there the flow chart of personal finance, and that set me off on my journey from that point. I was also very deep into the BiggerPockets podcast. I didn’t even realize there were books. I didn’t realize it was a forum. I just had the podcast. As I was driving an hour to work while I was in college, it was the best thing to burn some time. Even just passively listening to that, that helped me so much along the way.
I didn’t necessarily have a mentor. I didn’t have somebody to bounce ideas off along the way. It was mostly everything I learned from BiggerPockets. I internalized that. At one point, I realized I have so much information. I can’t fail. Even if I do, that’s okay. Mistakes get made. I’m at that right age where make this mistake now versus if I’m 50, 60.

David:
So, you’re pretty immersed into the BiggerPockets culture. You’re listening to other people on the podcast. You’re reading the forums, and you’re seeing these examples of what it can look like to put your money into real estate.

Greg:
That’s right. I mean, at this point, I went to BPCON earlier this year. I have quite a few BiggerPockets books, but the podcast earlier on, I remember it was always Brandon Turner and Josh Dorkin at that point in time. That was the guardrails for where I am today. I think back of those three to five years that I’ve listened to maybe an hour or two of that podcast every day. I probably wouldn’t be where I’m at today without BiggerPockets, so kudos to you, folks. I appreciate it.

Rob:
Thanks, man. I appreciate it. It’s been a great journey that… No, I’m very similar to you, man. I mean, my whole real estate career started on BiggerPockets and listening to David and Brandon in my early years when I was just a wee little Robuilt. I want to jump back into this first deal, because this is a such a big moment for people, especially getting it started as early as you did, and it’s significant. I know you’re investing in everything like that. Obviously, you had a good deal here.
You’re like, “Oh, if I sell it, I’ll still make some money.” But when you bought this house, was it in some particular Buybox? Did you already have that established? This is something that I think a lot of people get into, and they’re just like, “Oh, I’m just going to buy it, and see if it works,” but you seem pretty methodical, so I’m curious.

Greg:
It sounds like you’re asking about the structure and my internal qualification to figure out if this makes sense. Is that right?

Rob:
More so just like your criteria, the market. Does it fit some particular strategy?

Greg:
For me, at that point in time since I was starting out, I realized this $175,000 three, two, it was a nice standard cookie cutter house in the neighborhood. I realized that all of the other properties in the area were going for about 200, 225. So, I knew I was walking to immediate equity just by fixing the house a little bit. For me at that point in time, it was literally just, “Can I pay the bills, and walk away with $200 to $300 on top of that?” Another small inherent benefit that I saw was my Chick-fil-A rule. So, if there’s something by a Chick-fil-A, I will take advantage of their real estate team and all the research that they’ve done.
In this area, in the suburbs of Orlando, you had one Chick-fil-A originally. Over the years, there’s grown to be about three Chick-fil-As. It’s probably a dumb rule using my Chick-fil-A rule, but I realize I can leverage someone else’s expertise, and their real estate team probably has so much more time than what I do. So if I can latch onto that experience, and buy around those areas, it’s going to help me out in the long term.

Rob:
Love that. I have a similar rule. Chick-fil-A falls into it. The other side of it is the Whole Foods rule. If you see a whole Foods go in, it’s like, “Oh man.” Chick-fil-A is pretty good, but if Whole Foods goes in, it’s like that’s a home run. I remember my wife and I moved from our place in LA, and they opened up a Chick-fil-A and a Whole Foods and an Amazon Prime facility all within the same year. We’re like, “Dang it. Why did all this open up after we left?” But hey, this has been good for the neighborhood.

Greg:
No, definitely, the Chick-Fil-A rule works for some. The Whole Foods rule works for others. But I think for me, at that point in time, it was also just figuring out what area’s growing consistently, that there’s more population growth, there’s commercial growth. Then over the years, I’ve always compounded those learnings into my own Buybox itself.

David:
What you’re really getting at there, both Greg and Rob, is you’re trying to find a area that’s going to experience above average growth. A Whole Foods going in, a Chick-fil-A going in, that means that other companies with very smart people have done research that have determined you are more likely to have people moving into this area to support this business. They’re looking at construction, housing starts, demographic patterns. That’s all stuff real estate investors need to be looking into. I personally believe 10 years ago, 20 years ago, the strategy was just buy any real estate.
Anything that cash flows is going to make sense for you, just go do it. It’s become so competitive. The information is so easily accessible, like the people listening to this right now, that you have to do more than just buy a house. You need to get into real estate that’s in an area that, like you said, is going to grow faster. Can each of you, I’m going to ask both of you, speak to your experiences in buying real estate in an area that grew, and buying a real estate in an area that stayed stale, and give some of the lessons that you’ve learned from each of those different options? We’ll start with you, Greg.

Greg:
I’ve bought properties from Orlando, Austin, and Maui as well. In all of those areas, the population has increased. Maui’s more of a vacation rental itself, so you have more tourists coming in. But with Austin and Orlando, there was always high population influxes, especially during COVID. Everyone’s trying to leave California, Boston, New York, whatever it could be. I didn’t really see any of my growth flatten in the areas that I invest in. They were always continuously going up, and I would track the comps at that point in time to see what made the most sense.
In Maui itself, the tourists were coming in droves, so I bought this place about a year ago. At that point in time, COVID was still in high effect. A lot of people weren’t traveling from Asian countries, so I bought this as a hedge knowing that when COVID died down a little bit, we’d have so much more of an influx of people coming in. Using that hedge actually drove up my nightly rental rates quite a bit along the way.

Rob:
Nice. For me, I think most of the places that I’ve chosen have actually grown. I’ve invested in LA. I bought my place in 2017 that has seen, I wouldn’t say double, but it’s pretty close, probably stabilizing a bit now, if not correcting. But, well, I don’t know. I’d have to look into the comps, but LA has always been a good opportunity for me. I’ve bought in Arizona. It’s always growing there. I’ve bought in Tennessee. We’re always growing. Honestly, for me, my slowest growing property across the entire portfolio was my Austin property, which was a condo. It isn’t not grown. I think it’s gone up.
I think we bought it for 279 three or four years ago, and it’s probably worth 350 now, so not nothing, but it didn’t grow as fast as the rest of the portfolio. I don’t really know why I’d imagine more so just because it’s a condo versus a single-family home. But, I’ve always tried to invest in the touristy areas too, where people are going. I know that in Texas, Austin is somewhat of a destination for everybody to go to. No one’s usually itching to go to Houston from a tourist standpoint, but a lot of people are moving here.
I’m going to be investing a lot more in Houston, because I see a lot of people coming out of here from California, and the appreciation still seems to be relatively steady here.

Greg:
I would say even within Austin too. I mean, playing in this market, the duplex that I have, it’s a long-term rental here. I mean, this has seen tremendous value. Rob, to your point, I mean, over the past few years, Austin’s been a hotbed. I bought that property for about 420. Earlier this year, it was worth probably about 850 with driving up the rents, getting all the renovations done on it too. I am seeing in Austin itself now more of a pullback across the board. As I compare the house that I’m in now with some of my neighbors who are trying to sell, you can see the price per square foot going down in Austin, which for anybody listening right now, it’s a great buying opportunity, especially in the hotbed like Austin.
You still have people want to move here to avoid taxes, vacation here, do short-term rentals as it sits. I do believe Austin as a whole still has much more long-term potential, especially with the dropping the prices lately.

Rob:
Long-term for sure. I had such an interesting scenario, because a realtor sent me a property in North Austin by the domain area, and it was priced around 750. It had just undergone this crazy remodel. It looked nice, but every single comp in that area was 450 to 575. If we try to make the offer, and they just would not budge, and I was like, “Oh man, this place is…” That was Austin prices a year ago. So, now that I am actively looking at properties in Texas, Austin is part of my Buybox now. I am seeing those prices drop, but I’m like, “They’re going to drop a little bit more. I think I’ll… Should I wait? Should I wait a little bit?”

Greg:
I mean, I would figure probably the next three to six months, it’s going to drop more in Austin. I mean, with the rise in interest rates, inflation coming in full gear, people getting scared of buying houses in general, I think a place like Austin has seen a big dip lately just in terms of the home prices itself. But I do think for someone who’s going to be doing short-term rentals or even long-term rentals here, there’s so much opportunity that you have sellers who are desperate, and you can start making some deals at that point.

Rob:
Greg, let me ask you something, because you said something at the beginning of the podcast that was really interesting to me. You mentioned some of the hardships growing up, and how you were losing the house. Did any of this come into play for you from a barrier standpoint when you were getting started or ramping up your real estate career? Was there a moment where doubt started to creep in, or did that motivate you to really start scaling up your business?

Greg:
I don’t think I naturally had any doubt. I think it was more or less I knew that I was going to fail at some things. I was going to make mistakes, and that’s okay. I had to constantly tap myself on the back, and say, “If this does happen, it’s okay. Don’t stress out.” I used that constantly as a motivator. So, realizing the pain and suffering that I have at young age, middle school, high school, college, whatever it was, or even at the point where when I was post-grad working my job, instead of going out drinking every weekend, maybe going on exotic vacations, buying a brand new BMW, I always had a 10 -ear vision of where I wanted to be.
I knew at that point in time, that was my main driver. I’ve always been relentless on that, and just making sure that no matter what, keep your eye on the prize, hit your FIRE number. From there, keep growing. Although I hit my FIRE number at 27, now I’m going for my own personal theft FIRE number. I want to make sure I can keep growing it every single year from there, and have that compounding effect, because although I hit FIRE at 27, life changes. You get married. You might have kids. You have different life obligations. Your expenses will go up.
If you can prepare for that adequately, and think of, “Where am I going to be at the age of 35, 45, whatever?” Plan backwards from there. That’s what helped me. That was my constant driver every single day.

Rob:
That’s cool. You’re in sales, or you were in sales. It’s a very high stress job, and it’s really tough to do. I used to be in sales back in the day. One of my first high-paying job was knocking on doors, and selling alarm systems. It’s hard to do that, because it’s a presentation for 30 to 45 minutes at a time. You were very successful at this. So, was there a moment in your sales career where you’re starting to burn out, or were you always just like, “Oh, man, I can keep making money, and I’m going to keep pushing at this?”

Greg:
I burned out a lot early in my career. I mean, there’s only so many 70, 80-hour weeks that you can possibly work. Early on my career when I was 21, 22, I wanted to outwork all of my peers. I realized, “I might not be the smartest person in the room.” I’ll rephrase that. I’m definitely not the smartest person in most rooms, and that’s okay, but I would put the time in to make that work. What would happen would be that after several months, I would burn myself out. After burning myself out, it would take really a couple months to recover from where I was at, but then I’d go back to hitting the grind, and work 70, 80 hours a week nonstop.
I think after probably the third or fourth burnout, by the time I was 25, I just realized I couldn’t do this anymore. I realized that I had an expiration date on my sales career, and it might make sense to think about what the future could hold. So if I could start taking that money to invest it appropriately, so I could step away from this peacefully, that was the goal. I think I learned that at an earlier age than probably most in the sales career. Most of my peers when I was I always call it growing up in the sales world, would buy those brand new BMWs, have lunch out every single day, and have those immediate satisfaction goals versus myself.
I would bring lunch to work. I would have roommates. I would drive my old reliable car that sometimes didn’t work, but I knew that short-term pain was worth in long haul. So, at this point, when I was around 25, 26, I was able to have enough money coming in. Really, it was around $1,500, maybe 2,000 net monthly profit from all the rentals. That changed the way that I was approaching my sales. It was less of a commission breath and focusing on, “I need every single sale,” and just being a W-2 slave versus now saying, “I choose to work. I choose to work, because I want to get these additional loans. I want to get more properties.”
It’s funny when you have that change of mentality, that growth mentality, things just happen for you. When I had that switch, I started closing more deals. I had better relationships with friends, family. I bought more real estate on the side. That compounding effect of confidence just increased over the years. I looked back on all the times that I burnt myself out. I’m pretty happy I did that, because without that, I probably wouldn’t be where I’m at today as well.

Rob:
You mentioned you’re making $1,500, $2,000 a month. That seems significant to me. As someone that was making that previously in my career as well, that’s probably not too far off from what you were saving. At this point, I got to imagine, it’s compounding a little bit, and you’re able to actually use your career earnings and your real estate earnings to start investing more properties. Was there a moment where you’re just really pouring gas on the fire?

Greg:
Within my sales career, I was able to close a lot more deals from the confidence I was having and the lower stress. I’d have bigger commission checks coming in, and I would just every single time throw those commission checks into more properties. I got to the point where really around the age of 27, 28, I was having several thousand dollars coming in on a net monthly profit. I just wasn’t as stressed out anymore. I didn’t have to worry about clocking in, clocking out to work, or making X amount of cold calls, whatever it could be. I just kept putting that fuel on the fire.
I’m still doing that. I want to make sure that I can still acquire more properties, go from the single families, duplexes, multi-families that I have now to then getting into some of the smaller/medium multi-families. If I can keep pouring more gas on the fire, that gives me the ability to peacefully step away and do what I want when the time comes.

Rob:
What’s that turning point for you? What moment do you think… I mean, I don’t know if your bosses are listening, so you can tread lightly on how you answer this. But when do you think… Personally, are you going to just be like, “All right, I’m ready to leave the job.” Is there a number that you’re looking for, because you said you have your FIRE number, and then I think you said you have your fat FIRE number? Is that correct? Did I mishear that?

Greg:
I do.

Rob:
Is that the number that you’re waiting to hit before you leave your job, or is that just a separate thing?

Greg:
It’s a separate thing. It’s just a nice goal to have. I hit my FIRE number when I was 27, but Fat FIRE is about five times that, so I want to make sure I can keep growing from there. In terms of when I think I’ll actually step away and do this full-time, it’s coming near and near, honestly. I think realistically by 2025, I will be fully committed to that point. I do tell my bosses pretty often, “I don’t need this job. I choose to be here because I want to.” Just by having that dynamic at work, it changes the power dynamic overall.
They know that I’m doing this, because I want to get more mortgages, that I don’t need to have every single paycheck. It’s a nice feeling knowing that you’re not stressed out. For me personally, though, I want to make sure I can make that swap over, that transition by January 2025. But with the way that I’m pouring gasoline on this fire, it’ll probably happen sooner than that.

David:
It’s a good position to be in where you can tell your boss, “Hey, I don’t need this job. I want this job.” The implication there is they’re going to make sure they treat you good, because they don’t want to lose you, but there’s also a perspective that would say, “Not everyone can do that.” You actually got to be good at your job if you’re going to play that card. There’s a lot of people that could go to other job, “I don’t need you. I want you in the box,” and be like, “Well, I don’t really want or need you. You’re gone.”
What is it that you do at that job to actually be good enough at it that you could have the ability to approach it that way? I think a lot of people listening think, “I want to be able to tell my boss that,” but if they did, it might work out like I just said. So, what did you do differently at your job so that you had enough power, sway, influence that you could pull that off?

Greg:
I think for this job that I’m in specifically, it was the first six months just completely working my ass off, putting in more hours than everybody else, but not to the point of burning out, but making sure I put the right amount of time in to get some quick wins. From there, it was also understanding the politics side of it. I think in any job, 70% of it is just understanding politics, and at the end of the day, politics is just relationships. I made so many mistakes early on by not understanding politics. I shot myself in the foot, almost got myself fired multiple times despite hitting my sales numbers versus now, I still hit my sales numbers and exceed them, but I have a great relationship with everybody internally.
So, I’m able to operate in a little bit more of a risky sense and more transparent perspective. I think, long story short, David, it’s making sure that you understand the internal politics. You treat people well. You make sure you service others, and be, honestly at that point in the day, indispensable. Make sure that they can’t leave without you. They need you for everything within the business.

Rob:
I mean, I had the same thing. I mean, when I quit my boss, I had this vision of like, “I’m going to swipe everything off their desk, and be like, “Listen here, bub, I’m out of here. You suck. You suck.” Then I was just like, “I’m quitting,” and I cried. But, I think another piece of this is being likable and being a team player. This is something that’s going to translate no matter where you are in life, but I will say that I had the real estate chip always. I always had that bargaining chip with me.
They knew that I was making money from real estate. They knew that I had short-term rentals, and when I quit, my bosses were actually confused as to why I stuck around so long. They were like, “I don’t even know why you’ve been working here so long. You obviously could have quit a long time ago.” It didn’t help that I talked about my financial status on YouTube, but nonetheless. I remember that the reason they kept me around so long, and the reason I didn’t get fired, because I was genuinely not really the greatest employee probably the last year of my career.
I was just nice to everybody. I helped everybody. I always chipped in. I was never mad. When someone gave me work, I did it. Maybe it was a little late, but I always did it, so relatively reliable. I think that’s another piece that people… You can get away with saying that kind of stuff to your boss like, “Hey, I don’t really need to be here. I want to be here,” so long as you are a likable person. I think a lot of people forget that. That’s a really key piece of any career you’re in.

Greg:
I think earlier on, I completely… To be honest, I realized that I wasn’t treating people the right way. I was pinning them against each other in a very unfavorable way, just trying to make sure I could get ahead. It just turned people off every step of the way. Despite hitting numbers, people just did not like that. I think for me, a pivotal moment was there’s a book called The 48 Laws of Power. I don’t know if anybody has read that book, but-

David:
We’ve interviewed the author.

Greg:
Oh, you did?

David:
We’ve had Robert Green on.

Greg:
Oh, man, I got to watch that episode.

Rob:
Oh, your cousin, right? Yes.

David:
One of my cousins, yes. Well, he claims me as his cousin. I don’t always tell people about it. He’s a bit of a black sheep, not quite as successful as the rest of us. Greg, give us some examples of details of what you took out of that book, and how you applied them in the workplace. That’s exactly what I want to know.

Greg:
One of the rules is never outshine the master. I view this in the way of if you do something great, I mean, don’t be a lone wolf. Don’t just say that you did this alone. Highlight those that you won this with. For me, in the sales game that I’m in now, it’s highlighting potentially my manager. It might be my sales engineer. It could be anybody who’s involved with me. Bring up the tide with you. Don’t just take the full success for yourself.
Another one is really at the end of the day, making sure that you court attention at all points in time. This can be a positive or a negative thing. For me, it was making sure that I always added value in every situation, that they would look back to me, and say, “Man, Greg really knows his stuff. Let’s bring him into this idea. Let’s see what he thinks from this.” There were just some small things along the way. I read the abridged version of that book, and it’s helped me so much in my career, where things just don’t naturally come to me when it comes to politics.
No one really knows it until you mess it up. I read this when I was probably 25, and it had massively profound impact on my career. It’s something that I think should be a required reading within college. I think it’s almost a dark art. Some people view it that way of potentially manipulation, but I think more so, it’s a book of relationships, how to treat people well, how to make sure it’s a win-win situation for everybody, and how to get what you want in a very friendly way.

David:
I’ve said many times manipulation has a native connotation, but it doesn’t have to. We like being manipulated when it’s in a positive way. If I said, “Greg, your beard is looking great, and have you lost weight?” In a sense, that’s still manipulating you, but you’re not going to be mad about it, or, “Hey, that was a brilliant business idea that you had.” That’s manipulation. It’s the same as if I said, “That was a stupid move.” They’re just in different directions, things like the 48 Laws of Power, How to Make Friends and Influence People, a lot of the books that are, like you said, relationship oriented.
The book I’m writing for BiggerPockets’ pillars, I’m in the part right now where it specifically talks about how to make more money at work, and this is a big, big part of it, the relationship component. You’re doing this stuff, you just don’t know it. It’s the dark arts when you become aware of them, but there are some people that are naturally good at this, and some people that are terrible. Books are written for the people that are bad at something. When I read Rich Dad, Poor Dad, it did not profoundly change my life, because I was like, “This is common sense. Why did they put this in a book? Why is everyone excited about this?”
I just thought everyone looked at the world the way that Robert Kiyosaki was talking about it, but you hear so many people that are like, “That book changed my life.” The book was meant for them. It wasn’t meant for me. I didn’t need to read that. I already understood it, but How to Make Friends and Influence People, that was written for me. That does not come natural to me like it might to somebody like Rob or Brandon Turner. I’m really glad you shared it. The examples that you gave are also very powerful, because there are so many of us that are trying to figure out, “How do I make more money? How do I get into a sales job? How do I sell more something to get money, because I really want to buy real estate?”
We’re looking at real estate to be the way around the obstacle when really what we need is to make our way through the obstacle, that there’s a personal development. There’s a lesson that you could be learning in life. If you can grab ahold of that, embrace it and get better, then you’ll have the money to invest in real estate. You’ll move into the FIRE movement, like what you were saying, and you’ll get all the perks of what we’re talking about today. Too often on these podcasts, we share the carrot like, “You can have X amount of money every month, and you can get out of the rat race, but we don’t show you the path.”
The path is not going to be easy. Just like if I show you the guy with the six pack and the big muscles, you can have this body. The path to that body is not going to be easy. If you sell it like it’s easy, then people get discouraged. So, looking back on your journey, I love that you shared just now, “This is some of the mistakes I made.” What were some of the other areas in your life that you may have been failing at, things that were not going well, and what changes did you have to make to get the result you wanted to lead to the path you’re on now, which you really love?

Greg:
I’ve made a lot of mistakes. When I say a lot, I’ve a lot. Some of it was, like within work, how I treated people, and trying to make sure that I could get ahead no matter what. That was not a good way of doing things. Another one, David, we talked about getting that point where you have abs and all this. I don’t have abs. I’ve never had abs, but I realized at one point, I was probably about 20, 30 pounds overweight, and that type of mistake. I classified it as mistake. I just didn’t really care about my temple if we want to get a little hippie about it.
This temple theoretically had homeless people sleeping in it. It was getting spray painted. It was just burning alive, and it just made everything else in life not great. So, really focusing on nutrition, for me, was very pivotal. Starting it back into exercising after not doing it for several years was very important for me. I made plenty of mistakes with real estate too. It could be with contractors. It could be with partnerships. It could be with some properties too, but the way that I always thought about it was, “Lean into the mistakes that you could potentially make. Lean into the potential.”
If it doesn’t work out, you can probably also just sell things, and make it work, but it’s going to be okay. That’s honestly what I’ve always told myself. If something happens, just keep moving forward.

Rob:
It seems like you’ve been having relatively good success with what you’re doing. I know you’ve talked about the market that you’re in, and it checked those boxes for you, but I feel like we… I do want to ask about your Chick-fil-A method a little bit here before we wrap up, because I am wanting to know, “Is this something you actually…” Is that a joke, or do you actually go to Google Maps, and then you’re like, “What’s the closest Chick-fil-A to this property?” What does that analysis actually look like when you’re penciling out a deal?

Greg:
It could potentially be the smartest or the dumbest rule of all time depending on who you ask.

Rob:
I think it’s great.

Greg:
Well, there’s different rules. I mean, you have the Whole Foods rule. I have the Chick-fil-A rule, but really at the end of the day, like I mentioned before, they have their own dedicated real estate team for all of this. So, if I can leverage some of the expertise that they have, and buy around there, that’s the goal. That’s what I’ve done in Austin. I’ve done this in Orlando as well. You could say I’ve done this in Maui, because they have a brand-new Chick-fil-A opening up, probably about 15 minutes away from the condo that we have there.
But for me, it’s literally just driving around the area. Figure out what works, figure out what’s close by from a commercial standpoint, and who’s building. If it makes sense, where you have population growth, commercial growth, and a very desirable area, it doesn’t matter if it’s the Chick-fil-A rule for me, or it could be the Whole Foods rule for you, Rob. Either one works for where you envision those properties to be.

Rob:
I asked because I jokingly… It makes me laugh. I do joke about having a Chipotle close to your Airbnbs. In my YouTube videos, I’m always like, “How far is it from a Chipotle?” I had someone reach out, and they were analyzing a deal. They were like, “Hey, Rob, hit pencils out. It’s really good, but it’s not near a Chipotle, and I don’t know. Should I not buy it?” I was like, “Oh, I’m so sorry. It was a joke. It doesn’t have to be by a Chipotle.”

Greg:
For an Airbnb, I would say that’s pivotal. I spent many nights in Airbnb’s eating Chipotle, but depends on the market, I guess.

David:
This is a good segue into the next segment of our show. It is the deal deep dive. In this segment of the show, we’re going to dive deep into a particular deal you’ve done, and learn what went well, what didn’t go well, and how did you put it together. Rob and I are going to take turns firing questions at you. I will go first. Question number one, what kind of property is it?

Greg:
This is a duplex located in the burbs of Orlando.

Rob:
Question number two, how did you find it?

Greg:
This is going to be a longer answer. This was originally a partner deal that I had, a partner deal that went absolutely wrong. I found it, this specific deal, because I bought my partner out of it, and I had to run my own deal analysis on the second go around, and the number still made sense. This was two separate deals that I worked through.

David:
Question number three, how much did you pay for this property?

Greg:
The purchase price of this house was around 390,000. With a duplex in Florida, you have to put down 25% for this house, unless you’re going to live in it yourself. So, I put down as a down payment about $98,000, and with total cash to close is right around $110,000 with closing cost.

Rob:
How did you negotiate it?

Greg:
This was a fun negotiation, buying it from my partner where I already had some skin in the game, and this was, I would say, a creative financing deal that I originally did with my partner, but he was very eager to list us on the market for an inflated price. It was sitting on the market for a few months, and we were just getting nonstop low ball offers. So, I figured at one point, I could call them up, and make a deal with them on the side, and say, “We’re getting all these deals as they sit today. Let’s figure out a joint number that could work out for the both of us.”
It took a long time to get through this just through some of the pains of a failed partnership. But ultimately, I was able to come across a win-win deal that he would walk away with $30,000 net after everything, and I still walked into a deal with massive amounts of upside, both from a cashflow perspective and an equity perspective as well.

David:
Well, you mentioned that it was a partnership gone bad. What went wrong with this partnership? It’s just funny you say that, because the handful of times I’ve ever tried to partner with somebody, it’s just been a disaster. I’ve had terrible… Other than with Rob here who spends money like my rich wife of Orange County, just can’t keep that wallet closed. But other than him, every other deal’s gotten terrible. Tell me, what happened with yours?

Greg:
I originally found this deal. I’ll call it deal number one, where I found an amazing deal where the house is being listed at 320, and the comp for this house, the duplex next door sold for 480. I listed on Facebook. I asked if anybody was interested in partnering on a deal with me. I was low on cash, and I was able to structure it in a really fun way, where I took a 10% management fee off the top and 25% off the bottom, and then 25% on the back end from an equity standpoint. So, I put no money into this deal whatsoever.
I found an old college buddy who had some extra money who turned about $200,000 into 2.5 million in the stock market. So, we went on a buying spree specifically on this house. The problem was when you come across somebody who gets a lot of money very quickly, they might not know the principles that come with it, and to be very safe with how you grow it. He truly went on a buying spree. He bought properties in a few different states. I tried helping him out with some due diligence. I couldn’t keep up with him. Then probably about six, seven months later, he came to me, and said, “Hey, would you be interested in selling this property?”
We talked about not doing that as part of our long-term deal. Then I found out that he owed $400,000 to the IRS, because he didn’t understand the difference between short-term capital gains tax versus long-term capital gains tax. He was in a pinch to sell this property quick, because it was one of his only properties that he had positive equity in. Everything else, he was underwater, and he was going to take a loss on. There was some motivation on both sides to make sure this deal worked.

Rob:
Wow.

Greg:
Pay attention, folks, because these are the freaky tales that you do not hear about partnerships. You only hear the survivor bias when it went great, but God, so many of them go this direction. Here’s the sad thing so far, because we haven’t even got through your deal. It doesn’t sound like the deal was the problem. It sounds like the partner was the problem. The deal didn’t forget to pay its income taxes. The deal didn’t go on a buying spree. The deal couldn’t manage its own finance as well. That was a human being that was completely independent of you that you cannot control, that put you in this position that now they’re putting pressure on you to go sell it.
That is the danger in partnering. You also brought up a very deep philosophical point, which is the easy come, easy go. When somebody makes money too quickly, it isn’t healthy. Someone that shoots themselves up with steroids, and gets huge super fast, their joints can’t keep up with what they’re doing to their body when they’re trying to lift the weight that they’re now able to lift. You tear things and break things. There’s always a negative consequence when you grow too quickly.
I appreciate you sharing that, because we always like to get on a podcast like this, and share our wiz, and brush our shoulder, and let everybody know how great it went. But in this case, the thing’s pretty much outside of your control. It went bad. Jumping back into where we are here in the process, how did you end up funding this particular deal?
I funded this just 25% down truly on my own pocket. I was hitting some great sales numbers myself, so I was able to come to the table with $110,000. It was definitely a little bit of a stressful time depleting the bank account for most of your money, but I funded it all myself personally in my name.

Rob:
You did it the right way though. If you’re investing in real estate consistently, you should feel broke. I don’t fault you for that. What’d you end up doing with that? Was it a flip, rental, BRRRR?

Greg:
I would say this was a typical buy and hold. For this, I put an extra call it $23,000, $25,000 into the house, had to do some new floors, new painting on the inside and the outside, new appliances. At the same point in time in the middle of the transaction, I actually had to do an eviction on one of the tenants too. So, that was an unforeseen cost that I had to incur, but at the end of the day, I put around $25,000 in the property. With the numbers itself, my PITI was roughly around $2,100 with total monthly rents of around $3,800. So, I was netting.
At this current time, I net around $1,700 a month. With an annual net profit of around $20,000, my cash on cash is roughly around 16% each year. I think it’s a win for everybody. The tenants have a good place to live. It’s an inexpensive home. It’s fully redone left and right. It’s a great deal for me, and it was a great deal for the partner who we shook hands with and walked away too.

David:
It was not a great deal for the IRS who was not going to get their income taxes unless you got rid of the property, and so your partner could go pay for it. There’s always another angle in this.

Greg:
Correct.

David:
You mentioned the outcome. You also mentioned how you turned this from a negative into a positive, but my last question for you is what lessons did you learn from the deal that you can share?

Greg:
I would say the biggest lesson that I learned is I could talk about the deal, and I could also talk about the partner too. The deal itself, I knew heart of hearts, is a great deal. The house next door was still having a comp price of 480. So, although the list price of this was 390, and I had to put 25 grand into it, I was still ahead of it. Lesson learned, when you are working with tenants that you inherit, and you need to increase the rent on them, and they get a little bit hostile, just make sure you do everything by the book. Especially when it comes to evictions, do everything by the book.
I did this eviction 100% by myself for everything. I didn’t enlist a lawyer, but I went to the local clerk of courts to take care of things. I also worked with the local sheriff’s department, and just realized that tenants aren’t your best friends. They might be your friend, but it’s a business transaction at the end of the day. You need to make sure that you stick to the standards that you have such as with like a three-day notice. You have a lease for a reason, and you need to stick with the contractual terms that both parties have agreed to. That’s the biggest lesson I learned and I had from the property.
From the partner, I would just say really understand from a long-term goal’s perspective. Think of five, 10 years where they’re at. It would’ve been nice if I learned that he owed $400,000 to the IRS, but it would probably be better for me to understand how fast he was trying to move if he had any other debt obligations to follow. Although that was my first partner deal, I’m not opposed to partner deals at this point. I actually did my second partner deal in Maui, and that is a partner deal gone right in every way.
I applied all the lessons learned from working with a bad partner who would criticize the amount of money something costs, my contractors and me doing work on the side, whatever it could be to working with a partner who we both mutually trust each other with everything we’re doing.

David:
All right, well, thank you for sharing that information, the good, the bad, and the ugly. That’s awesome. All right, we’re going to move on to the last segment of the show. It is the world famous-

Speaker 4:
Famous four.

David:
In this segment of the show, Rob and I will take turns asking you the same four questions we ask every guest every episode. My first question for you, “What is your favorite real estate book?”

Greg:
Man, I feel like every show, people have said Rich Dad, Poor Dad. That was probably the most pivotal book that I read earlier on in my career. I want to say even high school, I read that book. BiggerPockets has a ton of great books that I’ve read as well. Currently reading Crushing It, and they all bounce off each other, and tell a good story. But if I had to give just one answer, it has to be Rich Dad, Poor Dad.

Rob:
RDPD, so that’s a classic. What about your favorite business book?

Greg:
Favorite business book? I alluded to this earlier. I would say 48 Laws of Power. It’s a book that I don’t think a lot of people have read. I would say there’s two variations of the book. There’s the actual book, and then there’s the abridged version, which is 100 something pages. The abridged ver book has helped me tremendously in my career, and I can’t say enough good things about it.

Rob:
Awesome. When you’re not out there crushing the sales role, and expanding your empire, buying places by Chick-fil-A, what are some of your hobbies?

Greg:
I would say the biggest hobby I have is just real estate. I talk about real estate to every single person I come into contact with, even in the sales world, family, friends, whoever it could be. I have a lot of people that can vouch for that. Real estate is my go-to. I do travel a lot for work, so I’m always in Denver, Salt Lake City. So if I can find out good hotels to stay at, good place to travel to, good food, I’m always game for that too.

David:
All right. In your opinion, what sets apart successful investors from those who give up, fail, or never get started?

Greg:
I would say confidence. I think there were many times that I was starting out where I may have not felt truly confident in what I was doing, or I may have had some setbacks or reservations, but the effects of compounding even for confidence is truly mind blowing. I think there’s a lot of people that I know that have dabbled into real estate. They may have been good landlords or bad landlords, but they weren’t truly confident in themselves or their long-term plans. I think the difference between a good investor and a great investor is the confidence that comes with it, and that confidence just compounds over time for everything you’re doing.

Rob:
Great. Well, lastly, Greg, where can people find out more about you?

Greg:
You can find me on Instagram, Facebook, TikTok. I actually figured out the power of social media recently. My channel is Leveragedhustle, one word. I’m slowly dabbling into it, but if somebody wants to give me a follow, interaction, whatever it could be, that’d be great. It’s a long process, but I’ve seen the power that I can do for the folks in BiggerPockets. I hope to replicate that myself.

Rob:
Awesome. What about you, David?

David:
People can find me on the socials as well as YouTube at DavidGreene24. There’s an E at the end of Greene. I’m on pretty much all of them, LinkedIn. Instagram is probably the one I post the most in, Facebook, Twitter. YouTube now allows handles, so you can actually put in youtube.com/@davidgreene24 or your favorite influencer’s handle, and that may take you right to their YouTube page. Pretty cool. I’m learning a lot about YouTube from you, Rob. You’re a bit of the YouTube guru, so to speak. It’s pretty impressive. It’s been influential on me to say the least.
I finally hit 10,000 subscribers. It’s probably one-20th of where you are right now. I was thinking the other day like, “I spend so much of my time on YouTube way more than even watching TV.” It’s completely taken over almost everything. BiggerPockets has an amazing YouTube channel too. If you get done listening to this, you want to listen to another video. There’s tons not just podcasts, but tons of content that Rob and I both make for YouTube as well as other BP personalities. You could look at BiggerPockets’ YouTube channel as well, and just be listening to something all the time.

Rob:
That’s true, or if you just want to watch this episode, and see Greg’s fluffy beard, you can just go to the BiggerPockets’ YouTube channel.

David:
That’s a great point. If you want to… I would rather recommend people actually watch this on YouTube. You’re going to see Greg’s fluffy beard. You’re going to see the very cool background he has. You’re going to see Rob in a hoodie, which is very rare, and also, I have to say, strikingly handsome, right?

Rob:
Thank you.

David:
You’re going to see me making hand gestures every once in a while. If you want to get a little more context, some contour, some flavor behind what you’re watching, if you want to feel like [inaudible 01:01:00] conversation-

Rob:
Ornamentation.

David:
Oh, that’s even better. Go to YouTube, and you can watch Rob and I giving each other signals as the guest is talking frequently. We look like third base coaches telling each other, “Steal third, hit and run, bunt, all kinds of stuff,” and jazz hands.

Rob:
That’s right. Well, before you go… Jazz hands. Before you go and subscribe to me on YouTube at Robuilt, go and leave us a five-star review on Apple Podcast or wherever you listen and download your podcast. It does help us. It helps us get served out to all the masses out there, and it helps us get our word out there to create your own version of financial independence, whether it’s through real estate or… I don’t know. We have so many podcasts that cover so many genres that can help people. Go and leave us a five-star review. Then once you do that, consider going and following me on Instagram at Robuilt.

David:
It’s one of the French benefits that bigger pockets has to offer.

Rob:
Deep cut. Deep cut.

David:
All right, well, thank you, Greg. We want to thank you for being here, for sharing your story ,and showing some of the warts, but not just the warts and the frogs, but, hey, you kissed the frog, and you turned it into the princess that you have today, also for giving a opposing viewpoint to my side that many partnerships go bad. Sometimes they go good. I thought you gave some really good supporting points there, and lastly, painting the picture for how you can transition from a W-2 job you don’t love into being a real estate investor.
It doesn’t have to be a cold jump from one where you go in and quit and jump out of the airplane, and say, “I hope I like where I land.” There’s actually a way to build a path to get where you’re going, and it does start with prudently, wisely, and successfully managing your finances. If you can’t manage your finances, that means you can’t manage yourself, and you’re probably not ready to manage a real estate portfolio yet. It’s like throwing 500 pounds on that bench press bar at your first day in the gym or your second day. It’s not going to go well for you. You need to take it slow as you build and build these skills.
Thank you for sharing the parts of your story. Rob, thank you for being credible and strikingly handsome as always. I always like Rob having me around as my co-host. He’s like the really good backup dancer that makes me the not great dancer look better, because of how sexy he does his thing. That’s exactly right. All right, I’m going to let you guys get out of here.

Rob:
People, watch this on YouTube.

David:
You got to go watch on YouTube if you want to see Rob’s crazy gyrations right now. This is David Greene for Rob, the Whole Food swole dude, Abasolo signing off.

CNBC’s Diana Olick digs into today’s housing data. With CNBC’s Melissa Lee and the Fast Money traders, Tim Seymour, Karen Finerman, Dan Nathan and Guy Adami.

Having a good grasp of the common language of the startup field is crucial if you want to communicate with investors and other stakeholders easily. Moreover, some startup terms are extremely useful as they serve as a mental model that helps you understand the problems and opportunities for your project better.

That said, if you don’t have any background in business it could be challenging to understand a lot of the commonly used startup jargon simply because the individual terms are often explained with references to other business terms and jargon.

So, here are some of the most important startup terms explained with analogies that a ten year old would understand.

1. Product-Market Fit

Product-market fit is when a company makes something that people want to buy. Think of it like a puzzle. The company makes a piece of the puzzle (the product or service) and the customers are the other pieces (their needs and wants). When the pieces fit together perfectly, that’s product-market fit. It’s important because if the company’s puzzle piece doesn’t fit with the customer’s pieces, they won’t buy it, and the company won’t make any money. But if the pieces fit together just right, the company will be successful.

2. Minimum Viable Product

Imagine you want to build a treehouse in your backyard, but you don’t have all the materials or tools to build the biggest and best treehouse ever. So, you start with the bare minimum, like a platform and a ladder to get up to it. This is your MVP, it’s the basic version of your treehouse.

Once you have the MVP, you can test it out and see if people like it. If they do, you can start adding more things to it, like a roof, windows, and a rope swing. This is called iterating on your MVP. It’s like adding more rooms and features to your treehouse.

MVP is important because it allows you to test your idea quickly and get feedback from people, so you can make it even better before you invest a lot of time and resources building something that might not be what people want.

3. Validation

Validating a startup is similar to trying out a new recipe. Consider that you want to bake a cake but are unsure if the recipe will turn out well or if other people will enjoy it. So you bake a small quantity of the cake and serve it to your friends and family. They provide you with feedback on the aspects of the cake that they liked and disliked. You modify the recipe and retest it in response to their comments.

Validation is the practice of testing and receiving feedback. It’s crucial because it enables the startup team to determine whether or not their concept will be useful to consumers and enables them to make the necessary changes before devoting a lot of time and resources to developing a full-scale product.

4. Agile

Imagine you want to build a big Lego house, but you don’t have all the Legos you need. So, you start by building the first room, and you get it as perfect as you can. Then, you move on to the next room, and you build that one as perfect as you can. You keep building rooms and adding on to the house, one at a time, until the whole house is complete.

This is similar to how a startup uses agile methodology for their projects. In agile, a startup breaks their big project into small chunks, called “sprints”. They work on one sprint at a time, and at the end of each sprint, they get feedback from customers and make adjustments to the project. This allows them to get their product or service to market quickly and make adjustments as they go, instead of waiting until the end to make changes.

We hope these explanations made it less daunting to enter the world of startups!

Ashley:
This is Real Estate Rookie episode 253. If you haven’t started yet, make sure you have solid personal finance foundations. This might sound a little harsh, but if you can’t quite manage your own money yet, it’s a big leap and jump to think that somehow you’re going to start managing this business or maybe even someone else’s money, whatever it may be. So track your spending, figure out some goals, reverse engineer them personally if you haven’t already done that yet. My name is Ashley Care and I’m here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast where every week, twice a week, we give you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And I want to start today’s episode by shouting out someone by the username of NickHalden5621. Nick left a five star review on Apple podcast. And Nick said, I recently started listening to podcasts and I really like the way you both conduct the show. The way you ask the questions, the way you share your experiences. It really gives a lot of insight and knowledge to someone like me who is planning to buy his first investment property. Keep up the good work. Nick, we appreciate you. If you’re listening and haven’t yet left us an honest rating and review, please do. The reviews go such a long, long way of helping us reach more folks and our goal is to reach more people so we can help more people. Yeah, so Ashley Care what is up? I wish I had the book in my hand, but I got to looking last night.

Ashley:
I was just thinking that. I actually have it right there. So talk for a minute, keep everyone entertained. I’m going to go get it.

Tony:
All right. So I’m going to keep everyone entertained while Ashley runs away to go grab this. But Ashley has a super special announcement. Ashley has joined the ranks of the Bigger Pockets Elites because now she is officially a published author, the Real Estate Rookie 90 Days to Your First Investment by Ashley Care is printed in her hands and is here to be shared with the world. How you feeling, Ash?

Ashley:
Oh my God, it was so exciting. The book launched for pre-orders on Black Friday and the same day I got the sample copy. So it’s not even the edited version in here yet, but it was just marketing material and I have 13 of these to give out to people just to get a preview of it. But it was so fun. The boys and I, we did a video of us, the unboxing of it and stuff, and it was a lot of fun, but it still feels surreal. So anytime, of course, I have to always agitate, so anytime I go with Daryl or I go with the kids anywhere, it’s always like, ugh, you only want me to come because I’m a published author now. I think they’re getting really sick of it. But yeah.

Tony:
All the fame is going through your head now, huh?

Ashley:
It’s like whenever my kids want to watch YouTube, I’ll just go and put on the Real Estate Rookie Podcast. No, we don’t want to watch you.

Tony:
That is so funny. I don’t think I’ve ever done that to Sean Lowe’s YouTube also. But I should just make him subscribe to the Rookie Channel.

Ashley:
Yeah, yeah. Next time he has his friends over.

Tony:
Okay guys, I got the perfect thing for you.

Ashley:
Yeah, come on, let’s watch this YouTube video. You just have the podcast playing in the car when you pick him and his friends up somewhere.

Tony:
Well, congratulations. I’m super happy for you. I know that it was a long journey to get from nothing on the page to actual book in hand, so I’m super excited for it. I can’t wait to see how well this book does. So Ashley Care, the published author. I am humbled to be in your presence and thank you for having such a lowly person like me as your co-host now. because I’m not yet a published author.

Ashley:
And Tony, don’t feel offended that I didn’t send you one of these sample copies. My mom came over the other night and I was showing it to her and she tried to walk out of the house and I was like, no, this is for events that I’m going to. I have to give them out to Rookie Investors.

Tony:
No, actually I do have one. I have one. It’s downstairs.

Ashley:
Oh, you do? You got one?

Tony:
Yeah, I got one. It showed up yesterday. I forgot to bring it up to the office.

Ashley:
Yeah, you’ll have to thank Savannah then. She was the thoughtful one today.

Tony:
Well, we got a great episode in store for you guys today. We actually have someone by the name of Malia Gudenkauf. And that name might sound familiar because we interviewed Malia’s sister Grace back on episode 161. And they are business partners. And we got to hear Grace’s side of the story initially. Now we’re bringing Malia back to hear her side. But her approach is slightly different than Grace because Grace is really focused on scale and getting those units, whereas Malia is coming from more so of a personal finance background and real estate investing is just kind of one piece of her wealth building strategy. And she goes into what the rest of that kind of puzzle looks like and how real estate plays a role in that whole picture that she’s got.

Ashley:
I have to giggle when you said that. We’ve got this family, two sisters, we got her side of the story, so let’s bring on out. It’s like a Maury spiel.

Tony:
Yeah. And the lie detector test determined that was a lie.

Ashley:
So yeah, I love the personal finance piece that she brings to the table here and just talking about, and Tony and I harp on this, having that strong financial foundation for yourself, whether that’s before you start your real estate investing journey or building that as you are investing in real estate.

Tony:
Malia, welcome to the Real Estate Rookie podcast. We are super, super excited to have you. Before we started recording, we’re actually talking that you and your sister are the first siblings that we’ve had on separate episodes. So if you can, tell us who your sister is first and then give us a back story on who you are.

Malia:
Yes, for sure. So my sister is Grace Gudenkauf and she is the real estate mogul of our family. I am her older sister, Malia. We’ve got one other sister. So we’re one of three girls.

Tony:
That’s awesome. So give us a little bit of your backstory, Malia. What have you been up to and then what kind of brought you to the Rookie podcast today?

Malia:
Yeah, so I will say as myself as a real estate investor, I don’t know a ton about real estate, I feel, and I don’t care to know everything there is because I found the value in partnership with my sister, which we’ll talk about. And I’ve been able to pursue those opportunities because of really solid personal finance foundations. So that’s what I’ve really been up to over the past several years is building my financial education business, which is Little Miss Finance. Started as a coaching business, working one-on-one with individuals, and now I’m really working with businesses to help employees better understand their benefits at work. So I am a personal finance guru, now turned a little bit real estate guru, and I’m excited to chat more about all that.

Tony:
Yeah, I’m excited to dive into the personal finance side of things. And before we go too far down the rabbit hole of your story, I just want to ask one question. Because you’re both a real estate investor and you’re in the personal finance space, what are your thoughts on the Dave Ramsey notion of building wealth?

Malia:
I think Dave Ramsey has helped a lot of people, and I read his book and learned some from him as I started out, because when you’re starting out, it’s kind of like you feel like he’s the only person out there preaching personal finance until you find some of these other outlets. But I will say I have different mindsets and maybe some disagreements with methods that he teaches. So I think there’s some things of value to take away from him, but I have a little bit of a different perspective now that I’ve grown in that field.

Ashley:
And before we get any further, I just want to mention that we did have Grace on episode 161 if you guys want to go back and take a listen. And Grace also is a contributor of the Real Estate Rookie YouTube channel too. So make sure you check out the YouTube channel and some of her videos. So what would be the first thing you would say that kind of made you realize that you wanted to get into real estate investing? Was the personal finance piece kind of first and then it was like, okay, I want to get into real estate and pursue that?

Malia:
Yeah. The personal finance piece coming first for me was huge and it’s kind of what I preach on as well. And it’s really what helped Grace get started in her journey too. Having really solid personal finance foundations, knowing how to be in control of what’s going in and what’s going out of your income, having some savings, paying down debt. And then you get into this world of investing. And I’m very into using your retirement accounts, investing in stocks and bonds. But then as you grow, you realize there’s other paths to build wealth as well, which is real estate. And because I had those foundations and I had saved money and I had paid off debt, it allowed the opportunity to invest in real estate be more flawless.
It was easier to enter. And I felt like I took on a lot less risk because I had those solid foundations in personal finance. So I realize I’m investing in 401ks, IRAs, which traditionally you’re not able to access that money until a long ways down the line. So kind of sifting out what are these other paths that I could build this passive stream of income. And that’s where real estate really came to light.

Ashley:
And was Grace a huge part of this as to you were watching what she was doing or was it kind of the same time?

Malia:
Yeah, definitely.

Ashley:
For a rookie investor that maybe doesn’t have a sister that’s already investing, what would you say is one kind of piece of advice you can give them that maybe you learned on your own or figured out that they can take and maybe turn into an action item to get started?

Malia:
So I think, when I think about my journey as a real estate investor, and as I kind of mentioned, I’m not an investor that’s trying to scale to 30 doors in a year or quit my job to do real estate full time. I’ll probably never be that person. I’m using real estate as a way to grow a portfolio slowly over time as just another stream of income. So for someone who might resonate with that, definitely finding the educational tools. Obviously Bigger Pockets has a huge resource of those. And one Bigger Pockets book that I really love and author is Chad Carson, because I feel like he’s aligned a lot with the small but mighty, he calls it.
People that aren’t necessarily trying to get caught up maybe in scaling so quickly. So finding those resources. But I will say, regardless of Grace being my sister, she was a partner that I found emulated a lot of things that scared me about real estate and she picked up in those areas that I lacked. So I know for me, it’s a special case scenario since it was my sister, but finding someone else out there who’s investing, maybe creating a mentorship with them or coming to the table with money and partnering with them in a way. I feel like that gave me the big hump or the big jump into real estate that I wouldn’t have taken on my own.

Ashley:
I have to completely agree with you on the recommendation of Chad Carson and it was one of my favorite Bigger Pockets books. It’s called Retire Early with Real Estate, a phenomenal book about how he talked about going small but mighty. And I think it’s super interesting for anyone to read, no matter what your goals are. But let’s kind of go over that, your goal. So you identified that you have no desire to build a huge portfolio, that you know what you want and what you’re trying to achieve and you’re using real estate to build that. Can you talk about how important it is to know what you want and then to use real estate as a tool or leverage to get you to that kind of destination in your life?

Malia:
Oh yeah. Yeah. So many things running through my head right now. Personal finance goals in general are so crucial. Otherwise, I feel like you’re always going to be standing at the bottom of a mountain, looking at the top, seeing all these things that everyone else is doing and just have no idea how to get there. You’re going to be overwhelmed into doing nothing. So creating some goals, whether it’s saving, paying off debt or then into investing in real estate is crucial to take those goals. And I’m a big proponent of reverse engineering everything. So I was just listening to your guys’ episode with Jesse Dylan and I feel like I just wanted to say, preach, every two seconds. Everything in that episode I stan.
But for when it comes to any simple goals, reverse engineering things and taking things from, okay, I want to save 10,000 or I want to start investing in real estate. What do I need to do this month? What do I need to do this week? What do I need to do today? And it’s just so much more actionable and bite size to take a step forward as opposed to trying to get to the end goal and being so overwhelmed going nowhere. So the concept of reverse engineering is huge no matter what goal it might be.

Tony:
So I want to talk about the real world application of that reverse engineering. But before we do, can you just give the listeners, Malia, what does your portfolio look like today? How many units do you currently have?

Malia:
Yes. So I currently have four doors, which is compromised of two duplexes. Bought those in April of 2021.

Tony:
All four in April of 2021?

Malia:
All four, yeah. Both duplexes and I partnered with my sister on those.

Tony:
So, let’s talk about the reverse engineering aspect, because you have this unique approach that most of our guests probably don’t take. Most people that we bring onto the show, their goal is to go big, go fast and they want to scale, they want to do all these things. But you’re looking for a more balanced approach and obviously you have the benefit of having your sister in that partnership there. But when you say reverse engineer, what steps did you take when you made that decision to buy those four units? How did that play into that plan? What was the end goal you were looking for and how did those four duplexes fit into that plan?

Malia:
To break it down even more, to have the opportunity to get started and invest in those four duplexes, I was reverse engineering a goal of how much do I want to save in a high yield savings account that’s specified towards having real estate investing opportunities? So with my paycheck, I was investing, I was saving, I was doing all these things, but I didn’t know quite what I wanted do with real estate, but I wanted to have the opportunity to do something when it arose. So that became the exercise of saying, I’m going to save $500 a month maybe from my paycheck in a savings account that’s specific to real estate.
And that’s what really builds up. And when this partnership and this opportunity arose, again, I didn’t have to know everything. I had the opportunity with the partner who knew more and could help me along the way and help me figure it out. But I had the money to show up and say, yeah, I can be a part of this, I can bring the money to the table. So even zooming out a little bit more, that’s how I viewed my reverse engineering when it came to my first real estate goals.

Tony:
So it sounds like, Malia, before you even took the dive into real estate investing, you focused first on your own financial picture. So you talked about your savings goals. What were some of the other things that you felt you needed to get in order with your own personal finances before taking a leap into real estate?

Malia:
So hot take, and I know everyone has different opinions on the concept of being debt free before you begin investing. For me personally, it was important for me to come debt free as one of my first goals with my personal finances before even real estate. But as I think back and I see people who have invested and got out of debt, I still believe that I personally would want to get out of debt prior to investing. Because, I’ll give an example, when we bought these properties, we ended up, we didn’t take anything from it the next month, that cash flow is.
Everyone likes to talk about these big numbers of oh, here’s your cash flow, but it’s still a long term game. So we didn’t take any cash flow away because we were saving for our reserves, so on and so forth. Then we rehabbed something so we were saving back up again. So it was a while until we actually took anything away from the properties. If I had been investing in the name of, oh, I want to use this to get out of debt, I think it would’ve just placed a lot more stress on myself or I would’ve been taking the money right away and not doing justice for reserves for the property. So, one of the big things in my personal finances before investing in real estate was definitely paying off my personal debt.

Ashley:
That is definitely a huge accomplishment right there, and just how you talk about building that foundation. I kind of went through the same thing in paying off personal debt and just kind of refocused my life right there. And it does make it life changing. So besides sitting down and paying off debt, what are some other financial tips and tricks to help somebody kind of build that stable foundation?

Malia:
So, a couple things. One, if you haven’t already done this, and I know I mentioned Jesse Dylan’s episode, but you guys talked about this as well. The simple concept of tracking your spending to have complete awareness of the money coming in and where your money’s going helps you get your arms around your financial situation more than you ever might think. It’s a perfect starting place to just get that pure awareness. From there, you can move forward and look forward to decide what you want to accomplish. And, as a bigger scale, I was listening to a Bigger Pockets back when I first got into Bigger Pockets, maybe in 2020. It might have been David Green or someone in it, said something so simple, yet it was so mind-blowing to me about when you’re working on maybe saving more or cutting back, whatever it may be, focus on your big three expenses. Housing, food, and transportation.
And I think in the personal finance world, a lot of times you like to talk about, if you cancel your Netflix you’ll save $10 a month or these things. And going after those little things are important and they will add up, but also these big three is what I’ve attributed to a lot of my success and ability to save or invest a little bit, larger scale, or move the needle more than a different mindset might be. So focusing on those three things as well as in your personal finance situation will move that needle a bit more and a bit quicker.

Tony:
I just want to share my story, and I’ve shared this on the podcast before, but it was so effective for me when I did this. I asked about Dave Ramsey earlier on Malia and I feel the same as you, right? He’s got some stuff that I think are super sound. I completely disagree with his notion on debt, but his budgeting perspective I love. And when I was in my early 20s, I actually ordered, Dave Ramsey used to sell on his website an actual wallet that had a bunch of different slots to put all your cash in. And in 2009, you could probably get away with that, but in 2020, carrying cash is so inconvenient and I want to Apple Pay everything. So this is a couple years ago and I asked myself, how can I take the idea of the envelope system that Dave Ramsey promotes and digitize it?
And I said, well, what if I just opened a bunch of checking accounts? So when I was still working my W2 job, the way that I set up my direct deposit was that I had money set up through direct deposit to go into different checking accounts. So every month, it would be like X dollars went into the grocery account, X dollars went into the student loans account, X dollars went into my mortgage account, X dollars went into groceries and shopping and all these different buckets that you would typically have, but it happened on autopilot. And then I would carry one debit card, and when I wanted to spend for one of those categories, I would transfer out of groceries into the spending account, I would transfer out of the dining out into the spending account. So it was a way to systematize and really control my spending without having to carry around a bunch of cash and envelopes like Dave Ramsey would. So I just love sharing that because it was so impactful for me to really get my spending in control when I was looking to make that happen.

Malia:
I think something I take away from hearing your story, it’s just the intentionality behind it all. And a lot of people might hear and be like, that’s so much work. Well, would you rather do a little bit of extra work and have all these opportunities on the other end? Just the intentionality is everything.

Tony:
Cool. So Grace, let’s keep moving. So I love the idea of getting the personal finances in order first. I think that’s a great place to start. Let’s talk a little bit though about why you made the decision to partner as opposed to going after this yourself. And if you can maybe give some details of how you structure that partnership to make it mutually beneficial for both you and your partner.

Malia:
Yeah, so I will say, one, I feel like, and I still feel like especially when I’m in the Bigger Pockets world, I’m like, I don’t know everything there is to know about real estate, and I’m sure everyone would agree with that. So I feel like I didn’t quite have the full comprehension, which then translated into confidence to do it on my own, which was nice things to have in a partner. And two, I was able to bring money to the table for the partnership. So if someone’s looking for a partner, I would say, in my case, I was also like, I don’t want to manage tenants. It literally scares me. So if I bring money to the table and you bring management to the table or whatever it might be, that could be a good fit and a good partnership. At the time of our partnership, Grace was still pretty new in her real estate investing journey too.
So it was all equal. We all brought the same money and we all took away the same equity and ownership. As it’s evolved over the past year and a half and her business has grown, what we thought as roles we would all take on have shifted, and the roles I personally were going to take on have shifted to other resources under her business have been able to cover. So, our partnership has changed it a little bit in that aspect. But from the get-go, we did try to be really intentional about creating an operating agreement, which might sound really fancy, but we really, while everyone is in a good state of mind, trying to lay out how this is going to go, who’s going to own what, who’s going to do what.
It’s so much easier to try to discuss that and figure it out when everyone’s in a happy headspace, a good headspace, rather than on the other end of things. So really tried to do that first and foremost, which I think is important in a partnership to have that groundwork and that structure prior to getting into things and maybe things potentially going downhill.

Ashley:
Tony and I love talking about partnerships. That was what we did our presentation on at the Bigger Pockets conference. So along with having that great partnership with somebody, what are some of the things that you recommend maybe as you’re first starting out as a partner and then to do down the road? Okay, maybe every quarter, every year. And is everything written down or is some of it verbal? How are you kind of maintaining and keeping, I don’t know what the word is there, but liability from each other? Yeah, yeah.

Malia:
I will say some of this that I’m about to say is advice that I need to take and go do in our partnership. I think creating roles and responsibilities off the bat about who’s good at what, that’s exactly where we started. And it was written down and you can use an attorney to help check you. And I don’t know if notarized is the right word, but all of that sort of thing. Then I say down the line, open communication is everything, in real estate, in relationships, in all of life. So I think revisiting where everyone’s at, again, don’t wait until something goes wrong and everything starts going downhill to start airing maybe all of your thoughts or frustrations or whatever it be.
The upkeep that you can do checking in on where everyone’s standing, and that’s really where Grace and I got to, is everything’s been great, but I felt like, oh, things have changed. I’m not doing this, so how can we reorganize the partnership so it’s still fair for everyone? So I think that maybe quarterly, like you said, couple times a year, when you’re in a good headspace, it’s so much easier to discuss and revise as you may wish than on the backend when things are already tumbling downhill.

Tony:
Yeah, Malia, I love the idea of revisiting the structure because just like you said, when you enter into a partnership, especially a new partnership, there are a lot of assumptions that are made around who’s going to do what and how the workload may be balanced and who takes on what responsibilities. But once the rubber hits the road and you actually start doing the thing, the reality doesn’t always quite match up with your initial expectations. And if a business partnership goes unbalanced for too long, that is the recipe for disaster. So it is super important to make sure that both partners, A, have clarity at the beginning around what they feel that partnership should look like, but also have an understanding that maybe what we’re agreeing on today might not make sense six months from now or a year from now or two years from now.
And we both need to be willing to come back to the table and have a discussion around what’s fair and what isn’t. So one of the things that we started adding into our partnerships with other investors is an end term. So every new partnership that we enter into, under the joint venture agreement that we sign, it lasts for a predetermined period of time. And the only way that that partnership will continue to exist is if both partners agree to extend that partnership. So there’s a natural end date, just in case, for whatever reason, we can’t come to an agreement on what’s fair and reasonable for both parties.

Malia:
Yeah, that’s so good. I was just going to say the same thing. If you’re uncomfortable maybe with bringing up the conversation on your own down the line, add that as part of your agreement from the get-go. So that end date or even just we will check in every so often. Because in Grace and I’s situation, we were both kind of new to it. We were creating these roles and responsibilities, but at the end of the day we were still new to it, we didn’t really know what we were doing. So it’s important to create that structure and those expectations on the front end to just avoid any miscommunication or downfall.

Tony:
So Malia, at this point, would you say that you’re completely passive on those four units?

Malia:
Yes, so that’s exactly where I’ve transitioned to. The things that I thought I was going to be able to bring to the table, I haven’t so much. I have helped paint and do some rehab and stuff, but I’ve realized as a real estate investor and as a partner, I through and through want to be someone who can bring money to the table, partner up with someone who will manage, do all the other things, and be truly more of that passive real estate investor.

Ashley:
Do you plan on doing any more partnerships at all besides just with Grace building on and using that as a tool to build your small but mighty portfolio?

Malia:
I foresee myself, unless I was to purchase my own home and do a house hack or something like that, I believe that my journey in investing in real estate will continue to be partnerships that I will bring the money and be that passive person. Most likely with Grace just because it’s worked and we work well together, all of those things. But as income levels increase, savings levels increase, I’ve already had opportunities with family members who are looking almost to me maybe as a hard money lender or something like that. So I’ve seen the opportunities, perhaps they’ll be there down the line and I’m open to it if it feels right. But I’ll definitely continue to partner in several ways down the line.

Tony:
So, one follow-up question. It seems like you’re leaning towards partnering with folks that you already know. But let’s say that maybe you’re approached by someone that wasn’t already in your circle and they know that you like playing the role of passive investor, you have the funds or the balance sheet. What kind of things would you be looking for to say, okay, this is the kind of person I’d want to partner with?

Malia:
Oh, that’s a really good question that I haven’t thought too thoroughly about. But obviously someone who has a track record of being a good landlord or real estate investor on their own. The numbers are everything. But I think someone that, it’s hard because I have worked with people I know, so I know all the soft sides, the soft skills of everything that is going to work well. So I think I would want to see just a little bit of a track record that they’ve been able to successfully invest on their own before and they’re just looking for someone to put up some money for them to continue to do that.

Tony:
Yeah, I think it does definitely get tricky when you start working with the folks that you don’t have as much experience with. And again, that’s why we like the idea of having that timeline around, okay, here’s how long that partnership lasts for. Because sometimes you pick the wrong person. They might seem great up front, then you actually start working with them and you maybe see a different side. So it’s always good to have that out if you need it.

Malia:
For sure. Yeah.

Tony:
Malia, I want to transition just a little bit. So obviously you come from more of a personal finance background versus real estate. What are maybe some of the negatives of real estate investing that you’re not super fond of, that you kind of like the stocks and the other types of investing more than real estate?

Malia:
Everyone loves to say, in the shiny object syndrome of real estate is this passive income stream, right? And so we all think we’re going to start investing in real estate to have this monthly cash flow and you’re not doing anything, when we all do know deep down that is a little bit more than that. So that’s my biggest downfall and why I really love to pair investing in retirement accounts, investing in stocks and bonds with real estate, as it truly is passive. You are automating things you can put in the account every month and there’s really little to no maintenance. I’d probably spend an hour or less a year on my investment accounts. So that’s the major downfall that comes to my head right away is just, and like I said, I’m scared of tenants, I don’t want to do all that, which has led me to kind of that passive partner, is that just not so passive. But there’s several different upsides when you compare it to the stocks and bonds and retirement accounts that make them pair so well together as an investment strategy.

Ashley:
I think there’s probably a lot of real estate investors listening to this episode and agreeing with you on some of the nicer things of investing in stocks that things you don’t have to deal with. So I think everyone can relate a little bit to that. What about the people that say though that, well, real estate, you’re in more control. When you’re investing in the stock market, it’s a CEO, it’s a board of directors when you’re investing into their company really that have control of that asset. So what’s your opinion on that?

Malia:
So I do agree, when you’re investing in real estate, you’re in more control. You can scale quicker, you can really often access the funds quicker and it can often allow you to retire earlier than this traditional route of investing in a 401k that traditionally you’re not able to touch until 59 and a half. But to that, I just think having both of them together creates such diversity and a solid investment platform. So, it’s not something that I look into too much. I feel like there’s a track record also in the stock market of having success. So I don’t know. If someone said that to me, I probably wouldn’t really argue. I would just say, okay.

Tony:
Malia, are you an index fund? Isn’t that what you buy? You buy index funds?

Ashley:
Yeah, that’s really the only stocks that I invest in are index funds.

Malia:
Yeah, me too. Team index fund. And I think if someone’s listening and it’s like, oh, investing in stocks is so complicated. I’m a basic financial literacy gal, so I only invest in index funds and that’s often what I try to educate people on. It’s the perfect route to go.

Tony:
Can you just define index funds for folks that aren’t familiar with it?

Malia:
So an index fund, you could buy a single stock like Apple or you could buy basically a basket of stocks. So an index fund we talk about a lot is the S&P 500 index fund. That’s just the list of the 500 biggest companies all being in that basket that you can purchase.

Tony:
So instead of trying to pick the right stock and time the market and do all these other things, you’re just going to put a little bit in every single bucket and then you get the ups and downs balance out hopefully to still give you a net positive.

Malia:
Yeah, in my investment journey, I’m a long-term investor. I’m not a day trader or any sort of thing. I don’t invest in crypto. Long term buy and hold, just like probably my real estate journey. Buy and hold for the long term and keep that zoomed out perspective.

Tony:
Malia, I think it’s interesting because you said you started this journey a few years ago and that would put you in your earlier 20s. I feel like most people in their early to mid-20s aren’t quite thinking about index funds and building wealth long term. What do you feel sparked that in you and where do you see other people who are in that same demographic, those early to mid-20s, where do you see them making mistakes?

Malia:
So for me, the fire lit inside of me when I was a senior in college and I went to free online, or not free online, this was before COVID. In person, there was financial literacy classes on campus and I was just like, wow, that’s a part of life that’s going to be part of my life for forever, yet we’re not talking about it. I didn’t really grow up talking about it at home, I wasn’t talking about it with my friends, and I was just kind of mind blown. I was like, wow, this is really important. So that’s what just got me passionate about learning all of this stuff and it was prior to having a job and earning money. So I really took the education and then put it into practice and quickly realized by this solid foundation education, the decisions I was making were really adding up quick and propelling me forward a lot quicker than I would’ve expected.
So, that’s kind of where my journey started and why I got passionate about it, because it also provides so much opportunity. When you have a solid financial foundation, I was able to start investing in real estate. I eventually left my job to create a business out of it. It just provided opportunity and me to make a choice. And I feel like a lot of people when they’re younger, we just all fall into this YOLO state of mind. And since we’re not talking about it, we think that everyone just lives this way. Maybe with credit card debt, paying off their student loans through the next 20 years, whatever it is, because it’s not being talked about. So how are we supposed to know? That’s so valid.
But I think when I can get in front of young people especially and tell them, I’m so passionate about young people because you are shaping the trajectory of your financial life right now. And a couple years, a couple decisions can make that trajectory so much different. So, for young people, I would just encourage them to better understand what investing $100 a month, what that could truly be over the long term. And taking that bigger zoomed out perspective as opposed to just YOLO today or this year or whatever it may be.

Tony:
Malia, one follow-up question. So when you went to that financial literacy class as a senior in high school, what were some of the topics they were talking about? Was it just like, hey, here’s what the stock market is, or here’s what it means to have a 401. What did you hear that was like, oh man, everyone should be talking about this?

Malia:
I feel like so privileged in hindsight, and I was a senior in college, and the guy, he was just passionate about it as well. So he really had two classes, if you will. One was investing 101 and one was the world of money. So we were talking about buying a car, credit card debt, buying a home. Just all of these decisions and what they mean down the line. And then investing, he was really educating, here’s how you can use these retirement accounts, 401ks, IRAs, invest in index funds. Here’s how you can actually understand it on your own and do it on your own as opposed to maybe thinking you need a financial advisor, all this sort of thing. So he really covered it all. It was several weeks. Each class was like 10 weeks and it was probably 90 minutes a night. I always laugh looking back, because my friends, I was a senior in college. They were like, let’s go out, let’s go to social house.
And I’m like, sorry I can’t. They’re like, oh yeah, Malia has her money class. And they would make fun of me. I’m like, this is important to me, okay? Yeah.

Ashley:
And look at how it’s paid off, right?

Malia:
Yes, yes. I’m very thankful.

Ashley:
Okay, well, Malia, did you want to go through one of the numbers of one of your properties for us?

Malia:
So I can share high level the numbers of the two duplexes that we bought. So at the time we bought the four doors, two duplexes for 250K. I would say at that time they were probably valued at 300K, so we got to buy into a lot of equity. At that same time, Grace was working on our VP of our local bank to say, because of that, can you allow us to put 10% down instead of 20? So there was actually Grace, her partner and myself into the deal.
We each put about 9K at the closing table into the deal. And funny story, I always laugh looking back at this, because I was brand new. I don’t know what we were doing fully and all this stuff. I was at the closing table with my checkbook and they were basically like, okay, we’re good to go. And I was like, we were getting up to walk out, and I nudged Grace and I was like, “When do we pay? When do we write the check?”
We almost got up and left without putting the down payment down. We all started laughing, but I was so confused. I was like, at what point do we pay the money? So, we bought those for 250, four doors, we inherited all the tenants, and we turned one into a midterm rental, which basically doubled our rent. They were all renting for about 750. The midterm rental is now 1600. And I will be completely honest. Grayson, her CPA does all the numbers, so I’m not exactly sure what the cash flow is on all of them, but it was definitely, it was good. I want to say six or 700 bucks a month per unit.

Tony:
That’s awesome.

Ashley:
Yeah, that’s great.

Malia:
That’s probably the least thorough numbers has ever been shared on the Rookie podcast.

Ashley:
This was the first one you bought or the second one you bought, even though they were both at the same time?

Malia:
We bought them both at the exact same time. Yeah. Yeah.

Ashley:
Awesome. Well, congratulations on that.

Malia:
Thank you.

Ashley:
So what is one piece of advice that you could give to somebody that is starting out and they’re a rookie investor, maybe they have already started their personal finance journey. What’s something to maybe overcome analysis paralysis or to actually take that action, take that leap, take that step for someone who’s a similar path as you? Because you’ve been paying off debt, you’ve been saving money, and now to throw it into some investment that maybe you don’t know a lot about yet. How do you kind of overcome that?

Malia:
So, if someone that’s listening has resonated with some of the things I’ve said, I probably still would not be started investing in real estate if I was doing it on my own. So if you feel like you’re someone that’s in that analysis paralysis, you’ve got the good personal finance foundations, maybe you’ve got some money. You’ve got the knowledge, but you just haven’t done it yet. I obviously am a huge advocate for finding a partner and maybe someone who’s a couple steps ahead of you who’s maybe a little bit more ballsy and willing to do that and kind of take you along the way or take your money and allow you to be a little bit more of a passive person. So I am completely victim to analysis paralysis.
And like I said, probably still wouldn’t be starting. So for me, my biggest recommendation is, if you feel like that’s you, then start with a partnership deal. It can be pretty simple. It doesn’t have to be so complicated. It’s also kind of scary thinking about a partnership. But you share the risk, you have someone else share the knowledge, and then from there on, nothing’s permanent. The next deal you could do, maybe now you have that confidence to go do it on your own or whatever it may be. So I’d say consider a partnership if you’re ready, but you’re just still kind of scared. You don’t want to mess up, you don’t want to do the wrong thing, whatever that is.

Ashley:
I think that’s a great piece of advice right there.

Tony:
All right, so we’re moving to our rookie exam?

Ashley:
Yes, this will be way harder than the personal finance.

Malia:
Oh, I’m scared.

Tony:
All right, so these are the three questions we ask every single guest, and these are the most important questions you’ve ever been asked in your life, Malia. So question number one, maybe you touched on this already a little bit actually with what you just said, but I’ll ask it anyway. But what is one actionable thing Rookie should do after listening to your episode?

Malia:
If you haven’t started yet, make sure you have solid personal finance foundations. This might sound a little harsh, but if you can’t quite manage your own money yet, it’s a big leap and jump to think that somehow you’re going to start managing this business or maybe even someone else’s money, whatever it may be. So track your spending, figure out some goals, reverse engineer them personally if you haven’t already done that yet.

Ashley:
Love that. Okay, so the next one is, what is one tool, software, app, or system in your business that you use?

Malia:
I use, this may be very basic. I use this scheduling app, it’s called Acuity. In whatever business, if it’s personal finance, maybe real estate, maybe life. It’s so nice to have a calendar to send people to and say, hey, we want to connect, just go on here. Instead of wasting all this time saying, when are you free? Where are you free? Does this work for you? So my calendar scheduling app has been with me from the beginning and it’s the best $16 a month I spend.

Tony:
I love that. I have Calendly that does the same. And Calendly is cool because it actually has a Gmail integration. So if you have a 30 minute slot or a 45 minute slot or an hour slot, you can just click the button inside of your Gmail and it’ll automatically add the link for your Calendly there. So totally agree. I don’t know why it took so long for people to come up with that, the whole back and forth round. When are you? Anyway, yeah. All right. Last question on the rookie exam, Malia, where do you plan on being in five years?

Malia:
I will say this question always scares me a little bit because I’m scared of commitment and so I’m scared. It’s just hard for me to think. Grace and I, we will go on walks every day and we’ll have a different grand life plan every day. I kid you not. So for me to think five years in advance, I’m like, oh my God, I have no idea. But I would like to continue building my business, Little Miss Finance, and create a really sustainable business model that allows me to do it longer term. In real estate, I’ve bought that one property in 2021. I plan to continue buying real estate. Again, as I’ve made very clear, I’m not trying to scale quickly. So it’s really more of when an opportunity arises financially, I’ll make sure that that opportunity, I can pursue it. So purchasing perhaps another property, maybe two, and growing my financial education business to a really sustainable manner that can continue long term.

Ashley:
And help a lot of people build that strong foundation.

Malia:
Yes, absolutely.

Tony:
Yeah. And for those of you that are listening, if you’ve resonated with Malia’s story on the whole personal finance journey, obviously we have the Bigger Pockets Money podcast with Scott and Mindy as well as the YouTube channel. So be sure to check those guys out because all they do is talk about personal finance all day every day. And Ash and I have both been guests on that podcast, you guys can go back and listen to that and they’ve had a bunch of amazing guests come on that show as well. All right, well, Malia, I think you passed the exam with flying colors. We appreciate that. Before we get you out of here, we want to give a quick shout to this week’s Rookie Rockstar. And if you want to be highlighted as a Rookie Rockstar, get active in the Real Estate Rookie Facebook group or you can post your success in the Bigger Pockets forums.
But this week’s Rookie Rockstar is Rekia Waller Vasquez, and she says, my goal was to get into real estate this year. I refinanced my first house for $225,000. It rents for 1,800. Purchased home number two for 201,000 and it rents for 1,650. Then purchased home number three for 208,000 and it rents for 1,700. So she got in and really just kept moving. And she finished off by saying, I’m a single mom to three kids, ages four, three, and two. Anything is possible. I hope 2023 brings everyone success. Rekia, thanks so much for sharing your story and congratulations to you. That is absolutely amazing. We’re happy to see your success as well.

Ashley:
Yeah, super cool. And thank you so much for sharing. If you guys have a win, we would love to hear it. If you guys could leave it in the Real Estate Rookie Facebook group or send a DM to Tony or I. If you guys have a question, you can always call us at 1-888-5Rookie, and leave us a voicemail. We may play it on the show for a guest to hear. So Malia, thank you so much for joining us today. Can you let everyone know where they can reach out to you and find out some more information about you?

Malia:
Yeah, so I’m most active on Instagram and TikTok at Little Miss Finance. You can find me there. And I appreciate you guys having me on. It’s been a lot of fun.

Ashley:
Yes, thank you so much for joining us and taking the time to share your journey with everyone. And I love that we had the personal finance piece. Actually, before you go, I’d love to pick your brain on what are some good book recommendations? I love reading personal finance books even more than real estate books sometimes.

Malia:
I love books and I’m team books over sometimes YouTube or podcasts when it comes to personal finance too. So I feel like a pivotal book in my life was Your Money Or Your Life by Vicki Robinson and Joe Dominguez. That’s a huge one. I will also say, if you want to get more into investing, one of my favorite ones is A Little Book of Common Sense Investing by John Bogle. So those are two at the very top of my list.

Ashley:
I’ve read that second one, the Little Common Sense Book of Investing. That one is a really great one. The one that I also add that I’m sure you’ve probably read too is The Simple Path to Wealth. I feel like that’s the pretty common one. But yeah, I really enjoy that one.

Malia:
Yeah, that’s a great one.

Ashley:
Okay, well thank you so much for joining us. I’m Ashley @Wealthfromrentals and he’s Tony @Tonyjrobinson. Actually, Tony just got his account suspended for 90 days.

Tony:
I’m back from Instagram purgatory.

Ashley:
He may or may not be on there if you search him, but that’s Tony @Tonyjrobinson. If other ones come up, there’s like 20 other people trying to copy Tony because he’s too cool. So make sure that it’s actually @Tonyjrobinson and spelled just like that. Thank you guys so much for joining us and we will be back on Saturday with a Rookie reply.

Most startups are built through trial and error. Founders build, test, then pivot. This process is essential to build breakthrough products. But it’s not the best way to approach legally. When it comes to legal matters, trial and error can get extremely expensive.

Below are the top five most common legal mistakes for startups and some tips on how to avoid them.

Splitting the Equity Up Front

A lot of founding teams avoid the hard conversation about individual contributions and commitments by splitting the equity evenly up front without a vesting schedule. This can lead to a number of problems and is how you get “Zombie Founders”—holders of significant equity in your startup that don’t contribute anything of value.

To avoid this, have that hard conversation with your co-founders up front and make sure everyone is on the same page. Work out the levels of contribution and commitment each founder can provide, and make absolutely sure that all founders’ shares are vesting with at least a 12-month cliff. This means if one of your co-founders can’t deliver value, can’t give up prior commitments or just loses interest before the year is out, you can let them go without having to buy out their equity, diluting the equity by issuing a ton of new shares or starting a new company.

Not Assigning Intellectual Property

Founders are often too preoccupied with developing their product to keep track of who wrote what code, or who came up with an idea or strategy. This can leave your startup vulnerable to serious legal issues.

By default, the creator of any intellectual property (IP) owns it. The creator must assign that IP to the company for it to become company property. If your startup fails to secure assignments of IPs from everyone involved, an early contributor could come back years later and take a large portion of your business.

To protect against this, you should use a tech assignment agreement, also known as a Confidential Information and Inventions Assignment or Proprietary Information and Invention Agreement. This document should be signed by everyone in your company—founders, employees, contractors, everyone. It states that all intellectual property contributions and inventions of those working on the project belong to the company.

When your startup grows to the size of an enterprise, an early-stage contributor could cause serious damage by claiming ownership of a key part of your product or operational model, costing the company millions. A tech assignment agreement will prevent this risk.

Mishandling Employee Equity

Attracting a strong team with the limited resources of an early-stage startup is incredibly hard. Since you’re likely unable to pay market rates for top talent, you’ll need to compensate them with equity.

Some founders don’t plan for this and split up all of the equity among themselves. Without setting aside an equity pool for employees, they are forced to rely on junior professionals or contractors, slowing down the company’s development.

Establish an employee equity pool immediately after incorporation. High-potential startups can easily collapse when early-stage employees believe they have a piece of the company, only to find out there is no equity for them. They become disappointed and leave. To attract passionate and talented people who want to build something great, they need to have an ownership stake in the company.

Another issue founders may encounter with employee equity is not clarifying the details of the grant. Equity should be vesting, but there are other important details as well. There are two kinds of equity you can give your employees: stock grants and stock options. Grants hand over a piece of the company to the employee, while options allow them to buy that piece at a deeply discounted price.

To avoid nasty surprises or hurt feelings, make the decision early about who gets stock grants and who receives options. Be very clear with your employees about the specific type of equity they are earning. This can also have significant tax implications for the employee, so you want to avoid an unexpected tax bill.

Spamming Everyone with a Non-Disclosure Agreement

Many first-time founders inundate everyone they talk to with non-disclosure agreements (NDA). They think they have a truly unique idea, and they try to protect it fiercely. In reality, this is rarely the case. Execution, not the idea, is the most important factor of startup success.

This often doesn’t provide them the protection they need, and can even turn off potential partners and investors. Refusing to meet with venture capitalists because they won’t sign an NDA marks you as a rookie and can kill a deal before it begins.

Instead of hiding behind an NDA, figure out how to explain your product or service without getting too technical. Don’t reveal the details of your algorithm or proprietary technology, for example, but do explain, in general, how your product works, how you deliver value, how you’re different from your competitors and what you think will be your impact on the market.

Stacking SAFEs

Most startups raise their first capital using the Simple Agreement for Future Equity (SAFE). This instrument is quick and simple, so many founders stack SAFEs without understanding the implications.

Imagine getting to your Series A funding and finding out that all those SAFEs have converted, leaving you with only a small sliver of your company. This could severely limit your ability to raise enough money in the future. Even if you succeed, your personal financial upside is negligible.

To avoid this, always keep a current pro-forma cap table that takes into account the dilution impact of every dollar raised. If you don’t know where to start, Foresight can help any founder learn and improve their financial modeling skills.

Conclusion

You’re investing a lot of time, your own capital and maybe the most productive years of your life into building your company. Inattention to your cap table can rob you of the rewards of your hard work.

Check out this video to learn more. For a deeper dive, read this guide.