Richard

Mindy:
Welcome to the BiggerPockets Money Podcast, show number 304, finance Friday edition, where we interview Colton, and talk about making a prioritized set of investment and debt pay down decisions.

Colton:
Here’s a problem noticing overall about your situation, I got student loans here. Some that I might pay off, some that might be forgiven. I’ve got this cash position. I’ve got a little bit 401(k). I’ve got this live in flip project I’m doing. I’m spending my free time flipping furniture that I’m driving around picking up and sending it around, right? I think what I would advise is you make a prioritized list of these opportunities, and then go more all in on your top one or two of them.

Mindy:
Hello. Hello. Hello. My name is Mindy Jensen and joining me today is my co-host, Scott, not just another pretty face, Trent.

Scott:
Thank you as always for the great looking introduction, Mindy.

Mindy:
Scott and I are here to make financial independence less scary, less just for somebody else, to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you’re starting.

Scott:
That’s right. Whether you want to retire early and travel the world, go on to make big time investments and assets like real estate or start your own business, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards those dreams.

Mindy:
Scott, I am excited to talk to Colton today. He has a great set of circumstances with a little bit of a monkey wrench. He makes a great income, but he’s got some student loan debt to tackle.

Scott:
Yeah. Colton has a tremendous… He has positive cash flow, but he’s got huge amounts of student loan debt. He’s got a live in flip going on. He’s got a side hustle. His wife’s a veterinarian about to have a baby. There’s all these different convoluted things, and they’re tugging at different financial strategies. Today, we have to kind of unpack that convoluted situation between life, debt, investment options, house hack, live in flip and two different careers and come up with a prioritized set of initiatives and to design a financial plan around that.

Mindy:
Yup. I think he’s got a lot of great opportunities. We just have to focus on which one is the best for him given his different set of circumstances. Colton, I am required to tell you that the contents of this podcast are informational in nature, and are not legal or tax advice and neither Scott nor I nor BiggerPockets is engaged in the provision of legal tax or any other advice. You should seek your own advice for professional advisers, including lawyers and accountants regarding the legal tax and financial implications of any financial decision you contemplate.

Mindy:
Okay, Colton. Colton and his new wife have a great income, but they took out some hefty student loans to help finance their college degrees. Those loans are now in forbearance, and they’re looking for tips for what to do with the extra cash that they have on hand. I said extra cash in air quotes because as we all know, there is no such thing as extra cash. If you have extra cash, go ahead and send it to me. Colton, welcome to the BiggerPockets Money Podcast.

Colton:
Thank you so much. Great to be here, Scott and Mindy.

Mindy:
We’re going to jump right into it because we have lots of things to talk about. Colton, what is your income and where does it go?

Colton:
Yeah, absolutely. Roughly, we bring in around 11,000 to 11,500 depending on the month. That’s a combination of W2 income. Then, I do kind of a little some side hustle on the side doing some flipping of furniture and things like that on Facebook marketplace. That’s very minor in the scheme of things, but it does pay for some bills here and there, it pays for car payment. That’s kind of the main reason I do it is to pay for the truck. Justify that truck payment a little bit. That’s the income side of things. You want me to go into liabilities or expenses?

Scott:
Is that pretax or post tax?

Colton:
That’s net.

Scott:
It’s net?

Colton:
Yup.

Scott:
Okay. That’s cash coming into your bank accounts?

Colton:
Exactly. Yeah.

Scott:
11.6?

Colton:
Yeah. Approximate.

Scott:
$11,600, okay, great. Yeah. Where’s that going? What are your expenses like?

Colton:
Yeah, we just bought a house in January. The mortgage on that is 2,500. Our utility is a little bit south of 200 to 190, cell phone 98, internet’s 45.

Scott:
Where are you living?

Colton:
Reno, Nevada.

Scott:
Reno, Nevada. Okay.

Colton:
Yeah. Internet’s 45, car insurance for combined is 190, food, it varies on the month but we kind of average about 800. I know there’s room for improvement there but we buy organic and we eat pretty healthy, not to mention my wife’s pregnant so that kind of throws a wrench into things.

Scott:
Awesome.

Colton:
There is no choosing as to what we eat. The baby chooses at this point, at least, for the most part. Gas for the vehicles, we average about 180. We both work remotely. That’s why that number seems pretty low, kind of force ourselves to get out of the house sometimes to actually use that gas budget. We have a dog between his pet food and pet insurance, it’s about 175. That seems also kind of high, but my wife has a veterinarian background so that food is very expensive and pet insurance.

Colton:
Most people don’t have, is an expense that we justify. Our miscellaneous category, it’s kind of random things such as gym, gifts for friends and family, and some household expense up at that at about 400 per month and that varies really depends when you need to buy toothpaste or toilet paper, et cetera, things like that.

Colton:
Entertainment category also varies, it’s about 125 per month plus or minus, depending on the month. We have two cars, as I mentioned. We have a truck and an SUV. The combined car payment on that 624 with a little bit skewed towards the truck, because it’s a little nicer, a little newer. That breaks down to 322 and 302 on the SUV. We have an orthodontic payment that we have at 0% interest that we’re debating, killing with some FSA money. Right now it’s 246 a month. I think the term on that is, I think there’s about nine months left on it. We’re debating if we just keep it at 0%. Keep paying it or just knock it out with some FSA funds that need to be used regardless by the end of the year.

Colton:
Then, lastly, we have subscriptions, Spotify, I think Amazon is amortized over 12 months on that as well at $30, not terrible on the subscription side of things. If my math is right, or if Excel’s right, that’s about 5,603. Then, in August, is when student loans may or may not kick back in. That will be an expense of 20 to 40. It would be our minimum payments if it kicks back in in August. That will be added to our total expenses if that forbearance does not get extended.

Scott:
Great. What are your assets and liabilities? We had a lot of tactical items there to go in, so that’d be fun. We’ll come back to that.

Colton:
Yeah. The assets, our cash position, we try to keep it about one and a half to two months right now, just because we have some things that we’re trying to pay down such as the cars. There is a balance transfer card, which I’ll mention on liabilities that we’re going to strategically pay down here over the next six or nine months. Cash position really depends. We just bought the house too, so depends on home improvement matters as well. We just had a fun irrigation project. That’s a little damping on the cash position.

Colton:
Equity in the house is approximately 100. I mean, that’s really just based on the number that I was looking at as its estimate. We could probably list the house for a little more than that right now, but obviously we’re not looking to go anywhere. I just threw that in there. The truck technically has equity in it. Vehicles obviously are not assets in my but I mean, there’s still, if we needed to, if we could sell the vehicles downgrade and get something cheaper. It’s approximate 14,000 value in the truck. I’d put approximate, probably 8 to 10 value on the SUV. There’s only about 4,700 left on that loan.

Colton:
I have a 401(k). It’s sitting at about 6k with my current employer. I have a rollover IRA. It’s just a traditional sitting at 25. A Roth IRA sitting at 5,500. Then, my wife has a 401(k) at approximately 10 plus or minus 7 check that 100% and then she has a Roth IRA as well sitting at about 6.

Scott:
Awesome. What do we pay your net worth at here?

Colton:
Not including student loans or including student loans, Mint technically says net worth is around a hundred, I think it is, but I don’t put my student loans on Mint because I don’t like to see that number pop up. That was assets. I mean, if you’re including the student loans, we’re technically negative. Negative approximate to 200 to mid-200. I actually haven’t done that calculation exactly which is because forbearance has been in place for so long that that we forgot about our student loans. It’s that the payments haven’t been required for this whole time.

Scott:
Got it. Okay. What are your goals? How can we help you here?

Colton:
Yeah. I had mentioned to Mindy, that I’m looking for some live in flip tips, because we just bought a nicer house that was mid renovation when we purchased it. Kind of curious on because Mindy has some experience on obviously live in flips and that’s her arena. That’s one topic I’m curious is we know some home improvement, how to help on the cost side of things when you’re doing that live in flip. How do you stay sane with your spouse, those types of things?

Colton:
Then, we were we just purchased in January, we put down 10%, so we have PMI. I’m curious about strategies that you might think about when we should think about doing an appraisal, because the market conditions, I think we’re pretty close to that 20% mark, which is kind of crazy. It’s only been about four months since purchasing. I think we got to hit maybe 5k more to be at that position where the PMI might be shut off.

Colton:
It’s the traditional loans. It’s not FHA. We’re not stuck with it for the course of the loan, but we’re kind of curious when might we start thinking about that, so you don’t want to pay for an appraisal, just for fun. Then, also a secondary point is thinking about a potential HELOC once there’s some equity in the property to do some of these renovations. Nothing is in dire need, but the kitchen is a little, it’s old as the house. It’s 21 years going on now. There’s some upgrades that could be done there. Kind of twofold on that as when might we start thinking about getting rid of that PMI?

Colton:
Kind of a naive question is, I assume that we’re paying for that appraisal. I don’t know the process behind that. I’m not sure if either of you have experience of shedding PMI. I know that FI community hates PMI. They’re allergic to PMI, but in our situation, we were comfortable taking on the PMI. Our lender was phenomenal. We got a really good rate at the end of 2021, closed early in 2022. Then, obviously, their rates have gone up since.

Colton:
Sitting at a very good interest rate on that mortgage at 2.99, PMI is only about $100 a month. It can improve our cash flow a little bit getting rid of that 100 bucks off of our mortgage. Yeah, I’m just kind of curious strategies on that point. Then, if we have time, I’m curious if you think that downgrading on the truck might be a good idea to get rid of that truck payment. I think my wife’s pretty set on keeping her vehicle. That’s not on the table at all.

Scott:
How about longer term goals? Is there anything like, what do you want to be in a couple of years from a financial standpoint?

Colton:
Yeah, a couple of years from now, my wife and I foresee paying down loans, targeting mine first because there are some strategies where she could pursue the forgiveness side of things. She’s on that pathway right now. We’re not 100% sure if we’re going to stay on that path because 20 years for forgiveness on her pathway. Well, she’s part of the way through already. Basically, you pay the minimums on that income based program, and then you are forgiven after the set timeframe.

Colton:
Mine, I’m just paying traditional. The goal would be to tackle those student loans on my side and then potentially tackle hers and maybe pay them down faster and just avoid the income-based program payments and get it paid off sooner. The way we’re thinking of doing that is through real estate. We just bought this house and I call it a live in flip. It’s a nicer live in flip. It wasn’t that dilapidated when we moved in. I foresee either renting out this property and moving to another house and doing another live in flip or house hacking to some extent if we can get a duplex or triplex, quadplex.

Colton:
As I mentioned earlier, our family situation has recently changed. We’re due in August. We’ll see if the baby dictates no house hacking or duplex will be fine. I mean, but house hacking, sharing bedrooms is probably not in the picture. We’re in a different stage in our life. I think 5 to 10 years ago, I probably, I could have house hacked a lot more. I could have done what was it a credit card [inaudible 00:15:24] that lives in his living room and rented out every single square foot of his house. It was possible. We’re a little beyond that phase, I think just because of family planning, and just where we’re at in our career and those types of things.

Colton:
Eventually, I think ramping up the real estate side of things and probably with property management, would be my thought. I don’t know if I really want to be on the ground doing all that irrigation, and toilets and all those types of things but we’ll see. We’ll see where things go.

Scott:
Great. Well, that’s super helpful. Thank you for sharing all that. Let me just make a couple of high level observations about your position here. We’ve got the, what? $300,000 plus in student loan debt, is that right?

Colton:
Yup.

Scott:
You’re accumulating cash at a great clip, you’re accumulating 5000, $5,500 per month after tax, right? That’s hitting your bank account right now on average.

Mindy:
Is it?

Colton:
Yeah.

Mindy:
Okay.

Scott:
That’s $60,000 per year, was that $65,000 per year. You’ve got five years. If you want to pay off your student loan debt, you could just do that for five years, and you paid it off, plus whatever the live in flip equity comes in if you’re able to generate equity on that.

Colton:
That’s what the caveat, that’s without student loans. We’ll see what happens with student loans. I don’t know if it will be a five-year timeline necessarily because we have student loans that takes our cash position down 20 to 40 each month.

Scott:
Well, that’s perfect. We need to face this problem head on, right? The bogey in your financial position is the student loans. You don’t include it in your Mint because you probably don’t like looking at it too much and there’s the forbearance and all that, but let’s approach it head on. That’s coming back in August. Maybe it’ll get postponed again, but that’s the elephant in the room for your financial position.

Scott:
I’ll tell you that it’s a lot but what you just told me from a savings rate perspective, it’s not that much. You’re saying, “Hey, yeah, I’ll have the baby in August.” There’ll be additional expenses that come with that. You’ll have to pay interest on the student loan debts whenever they come out of forbearance, but you’ll also get a raise, at some point in the next couple of years. Your wife will make more income at some point in the next couple of years, if she chooses to continue to pursue that or do this, it depends on the student loan forgiveness programs.

Scott:
Sometimes they don’t have quite as much income generation potential on those but you’ll have plenty of options to generate more income, in addition to some additional expenses. I’d say puts and takes on that. I’d still give you five years, maybe less if you get lucky with a couple of things with a live in flip audit. Is that a grind? Yes. But is it insurmountable? No.

Scott:
The other option you have there to eliminate these student loan debts is to invest instead of paying them down. If that’s the case, then you said you’re going to pay 2,200, 2,250 per month on those student loan debts as required payments, essentially, when they resume in August, is that right?

Colton:
Yes.

Scott:
At that point, you’re going to generate $35,000 per year after tax in cash. That’s called 36, 37,000 per year, and after tax cash, again, with the opportunity to potentially expand that to some degree, and again, with the opportunity to have live in flip income. There’s another case there where you invest that and then pay off the student loans in lumps over the next 3 to 5 to 7 years, or 10 years depending on how you want to manage it and that will come with perhaps less linear gratification of paying off one loan then the next, and the next, and the next but maybe more wealth at the end of that 7 to 10-year time period. Have you kind of thought about it with that lens before?

Colton:
Yeah, and we’ve, we even have friends who… Being in the veterinary industry, she’s in one of the industries where you take on a lot larger of loans than the income potential justifies, I mean, there’s a debate on that. It’s a passion industry. A lot of people do it for the passion not for the money. The loans I mean, it’s crazy that there’s similar to being a doctor in human medicine. We’ve talked to people who have kind of done that grind, especially during COVID where they were looking at it as 0% interest, and we’re paying it down that whole time.

Colton:
Retrospectively, do we wish we would have done that? Probably. Were we in a position to do that? Probably not. We kind of checked all the boxes at once. We got married. We bought a house, and now we’re having a kid. We were kind of progressing through our relationship, family planning, all of that. I think, looking forward, we have thought about, we need to kind of do that grand, like you said, and potentially look at some of the buckets that we have, and see if we can pull back on some of them or see if we can increase our cash flow to some extent too because then that would accelerate that process even more, but even at our current position, I agree, we can just grind it in and get it done probably five, six-year mark, maybe faster, if our careers accelerate faster than we anticipated.

Scott:
Remember, all these different things will happen over that same time period, right? You have two cars, both of which are financed, right?

Colton:
Yup.

Scott:
How long is the loan term on those cars? When do you pay off the first one or the second one?

Colton:
The SUV is shorter term. It’s only got 4,700 left on it. I think that would be paid off, if we just kept paying by middle of next year, I think is approximately where we would be at. The truck was a 60-month and I just took it out last February. We’re still looking at four years and change on that. That’s another potential strategy is kill those car payments. Either paying them down or selling and downgrading to something a little, get a beater truck or get a beater.

Colton:
Ironically, I own the Corolla that was paid off before I bought this truck, so that I put down on my notes to Mindy. I was the five friendly Corolla paid off. Then, I decided I wanted to buy a truck because we camp and we hike and we kayak and you know, we cycle and all those types of things. The recreational piece living in Northern Nevada, we wanted a vehicle that was easy to do all of those things.

Colton:
Ironically, in 2021, we didn’t get to do a lot of that because of the crazy fires from California, Oregon, everybody was on fire and our air quality was probably, I think, it was the worst in the world. At the time. There was a lot of news articles about-

Scott:
We had a similar thing here. Probably it wasn’t quite as bad but yeah, we went on a trip to Fort Collins around that time, and it was raining ash from the sky, from one of the-

Mindy:
[inaudible 00:22:55] Fort Collins and it was raining ash in my pool. Yeah. Okay, I’ve got a couple of things. First of all, let’s go back to the student loan thing, because you had mentioned a forgiveness plan that is 20 years long. Are you any sort of timeline into this or have you not yet started the 20-year forgiveness plan yet?

Colton:
Yeah. It would apply to her loans only. All of her payments would qualify and also the forgiveness or forbearance months also supposedly qualify. There’s been some news articles about some servicers not properly applying them and things like that. I think that that’s probably been straightened out recently, but yeah, every payment she’s made since getting out of school has been towards that. I think she’s in the four or five-year mark on that, but really, the calculation is can we pay it down faster than waiting that additional 15, 16 years? Yeah, absolutely.

Mindy:
Yes. You can.

Colton:
Yeah.

Scott:
How much of the loans are hers?

Colton:
Approximately two thirds.

Scott:
Two thirds. Okay. It’s like 100k, 115?

Colton:
Two thirds of 300? No.

Scott:
Okay.

Colton:
She’s in the 200 range. Yeah.

Mindy:
Two hundred.

Scott:
Two hundred.

Mindy:
Yeah.

Colton:
It sounds like [inaudible 00:24:11].

Scott:
Wow, four seats. I’m not supposed to be doing this.

Colton:
No, yeah. She’s in the 200 range. I’m just north of 100.

Mindy:
Okay, what is not, I don’t think what is not really promoted in this forgiveness plan is that you will owe taxes on the amount forgiven and $200,000, taxes on that is going to be a fair penny. That’s not over the course of 20 years. That’s all in one year. I am with Scott, since you are five years into it, if you were 19 years into it, I would have way different advice, but you’re five years into it and you would have already been paying those loans anyway.

Mindy:
I would go with Scott’s advice to try and tackle, I mean, first tackle your loans and see where you are. Continue to pay on hers, when the forbearance is over, start back up with the payments, but tackle yours first because you don’t have any benefits to keeping yours for a super long time. Pay all of yours off, and then look at your financial position. Okay, now we’re seven years into her loans. It looks like we could just knock them out in a couple of years. Do that because 20 years, that’s you having to work for 20 years and pay for 20 years, whereas you could be done with it and on your way to financial independence.

Scott:
I would say, I’m not necessarily at camp, grind and pay them off. I’m definitely in camp grind but it’s camp grind, and then pay it off or grind and invest in alternative assets and ignore the student loans or make the minimums on them. Those are the two options that I see here. As a huge bet, one direction or the other about what’s going to happen over the next 5, 10, 15 years from an economic personal standpoint, to make that decision. There’s no right answer there. I think there’s something we can discuss at this point.

Scott:
I do think that it would be wise if the interest rates are close to pay off your student loan debts first, if you’re going to pay off the debt, and then attack hers, but if you find, “Hey, it took us a year and a half to pay off my student loans of 100,000 and I come back into and now a year and a half later, I got this promotion at work. My income’s at this level. Inflation has been really nice,” but inflation is your friend in this particular scenario because higher inflation means that the debt value is lower than a few years than in real terms than it is today and you’ll hopefully be earning more with that.

Scott:
Those are all positions to think through in terms of paying off, but I don’t see any reason why you guys would have to, in this situation, wait 20 years to get forgiveness on this. In 20 years, you can build a position that’s worth millions of dollars, literally, with compounding and investing. Why would you sacrifice that or box it off into a corner for 200 grand, 1/10 of the amount that I think you could reasonably accumulate with your income over a 20-year period.

Colton:
Absolutely. I agree on that. It’s just kind of an interesting calculation because if you were to go on a standard plan, that minimum would jump up surprisingly. It’s kind of a weird strategy to stay on the income based until mine is paid off. That’s what we’ve determined is the best way to do this. From a tax standpoint, it also throws a wrinkle into it because I don’t think she would qualify on the income base if we were married filed jointly. This year, it was our first test on that is we had to file, married filed separately in order for her to keep that income-based plan, which kind of threw a wrench. We’ll see what 2022 taxes look like.

Scott:
You should think through that once you have your regular strategy because those loans are still accruing interest, right? The pile is getting bigger and bigger. If you do decide to pay it off, that might be biting you because you’re paying more in joint taxes together. If you do decide to pay it off, you’re just going to be piling interest onto the pile. You’re going to pay off in the next couple of years anyways.

Colton:
Yeah, good point. That’s an analysis that we have yet to do, but it’s a point that we were looking towards because of the tax deadline that just passed. We did it married filed separately just for this year, just to kind of keep it a little less complicated. I don’t think we’re going to change it in the short term. I think that that loan minimum would bump up to, because my minimum is 1,590, which is almost a mortgage payment in itself.

Colton:
Obviously, our mortgage is more than that, but I just listened to one episode where the woman in Southern California had a $1,600 mortgage and I’m just like, that’s my student loan payment. I was over there cringing. I’m like, I wish I lived in, I think it was San Diego or wherever she lived in Southern California. She said she has $1,600 mortgage payment. I’m like, yeah, I would take that, but yeah, I mean, I think that the analysis there is there’s going to be restricting our cash flow significantly if we were both on standard payments.

Colton:
I mean, we probably still would have made like, it could be backing into that math by 2,000 or 1,500 leftover if we bump up those student loan payments to standard plan on both, but yeah, I mean, we will do that analysis. There’s definitely an analysis to be had thereof.

Scott:
That’s going to be the right choice. If you decide I’m going to spend five years and pay these things down aggressively, then you combine the income, you get the taxes advantages and aggressively pay them down. If, for example, you go the other avenue and say, I’m going to buy a bunch of real estate and stocks and invest, or I’m going to invest, and try to arbitrage the spread between my interest rate and what I can get from a return perspective, then what you’re doing may make sense because you’ll preserve more cash flow to invest in those types of assets.

Colton:
Yeah, that’s what gives me pause is the opportunity cost to work with that cash be deployed in investments, I think. Could we generate significantly more money by doing investments rather than paying them down on those standard plans? There’s definitely an analysis that happens, maybe is to happen there.

Scott:
Which of you has more time to invest outside of your work activities?

Colton:
We’re pretty even as far as spare time.

Scott:
Okay. Are you both kind of jointly interested in the real estate space?

Colton:
I would say I’m more interested than her. I’m sitting here, listening to BiggerPockets two to three times a week. She’s a FI, all these types of FI, podcasts, things like that. I tell her about it and she kind of just, “Yeah, yeah, yeah. We’ll get there. We’ll get there.”

Colton:
I’m definitely the one that’s the more frugal one, the one that’s saying we should do this. We should have a game plan for this. I think I would be the one sort of starting those conversations, but we did pretty well. I mean, we do our money dates about once a week trying to stay on the same page. That’s something that definitely picked up from you guys. It’s an awesome tip of staying on the relationship page as far as finances go.

Colton:
These conversations have come up on student loans. How do we, do we invest and just ignore them, so to speak, and keep these minimums or do we both go to standard plan? There’s definitely an analysis that needs to happen there, but I don’t know what the right answer is. You just kind of got to pick a path and go with it.

Scott:
Yeah. That’s going to be the big thing is you have to make a large decision with imperfect information. The sooner you make the decision, the better off you’re going to be, either way, right? It’s like, I’m going to either pay down these things aggressively, or I’m going to invest and go all out in that, because you’re going to generate $60,000 in cash this year. It’s a question of whether it goes to student loan payments, or whether it goes to real estate. You’re going to generate at least 35, 40,000 in cash this next year. Where are you going to put it?

Scott:
The question is, if I’m going to sustain real estate as a 10-year plan for my wealth building approach, then maybe that makes sense. If I feel like I’m going to be very casual participant and kind of in and out of that while I’ve got all these other demands on my time, then maybe the student loan payments make a lot more sense. That’s super simple. You just pile on the money into the student loans, and you passively invest in index funds, once you get them paid off and have a little party and then and then go on.

Scott:
Either way, in 15 years, when your student loans would have been forgiven, you will have a much larger pile of money, in my opinion, doing it this way and 10 years of your life with optionality, for your wife at least, that you wouldn’t have had otherwise, or 15 years that you wouldn’t have otherwise.

Colton:
Yeah, it’s kind of funny. The conversation shifted on that forgiveness, because it seemed like that was what she was gung ho about when I first met her. She met with a financial planner. She knew about the tax penalty. She was kind of setting some money aside planning for that. I kind of was scratching my head, like, “Does that really make sense?” You could tackle that a lot faster than 20 years. Even if you had a 10-year timeline on it, you could pay it down faster.

Colton:
Yeah, I think the conversation shifted towards, yeah, we’re going to kill both sides of the student loans, mine and hers. It’s just picking that strategy that we want to go with. There’s a little bit more analysis that I think we need to do there. Then, we need to just pull the trigger and do it.

Scott:
Yup.

Mindy:
Something that we haven’t talked about is the fact that there are 7% interest and their federal student loans. When we spoke with Robert Farrington from The College Investor back on Episode 267, he said for everybody who has already refinanced out of their federal student loans, the forbearance doesn’t apply, but if you have not financed out, now’s not the time to finance out because you have a 0% interest rate, and it’s in forbearance, so you don’t have to make any payments.

Mindy:
Once it comes out of forbearance, and it is currently at the end of August as we record this today on April 26th, but who knows, maybe every time I record an episode about student loans, that next day, the government’s like, “Hey, we’re going to extend it.” It’s probably going to be extended. There you go, Colton. That’s my gift to you and I’ve extended your student loans by talking about them.

Mindy:
Once they come out of forbearance, 7% seems like a high interest rate. I would look at what you could refinance out. I think SoFi refinancing student loans, well, I know SoFi. I don’t know who else refinances student loans. This is one area of the world where Scott and I are actually rather uneducated is because we didn’t have student loans, but Robert Farrington from The College Investor, and Travis Hornsby from Student Loan Planner, both have a lot of information on their websites about student loans and where you can refinance and repayments and things like that.

Mindy:
The forgiveness plans, et cetera, they can help you make a more informed decision about your choices, but I think once you do come out of forbearance, look into refinancing and interest rates are going up, maybe that’s going to be a really great rate. It certainly has helped you over the last two years to have a 0% interest rate.

Scott:
I like the real estate and the house hacking for this as well, right? You add value to your house via the live in flip in a really calculated way and then you cash out refinance or you have the option to cash out refinance, if and when interest rates are, interest resumes, forbearance ends on these student loans.

Scott:
Now, you’re swapping that 7% rate for three and a half or four or maybe 5%, depending on where rates go this year and your home equity on a 30-year amortization period, which may be more advantageous than your payments for your, well, for owner occupant, I think the rates will be, I can imagine the rates jumping past 6%, Mindy, on owner occupant loans this year. I mean, payments last words, but we’ll see.

Mindy:
I don’t know that they’re not there now.

Scott:
For owner occupants?

Colton:
Yeah, they’re close to five and a half right now. I wouldn’t be surprised if they’re at six.

Scott:
I’m going on an investment property at 5.8 right now, but I didn’t realize that was the case for owner occupants as well.

Mindy:
When did you lock it in?

Scott:
Four weeks ago?

Mindy:
Yeah, it’s oh, there’s been a lot of change in the last four weeks. It’s unreal how fast rates have moved, but yeah, I think that’s a good point. Hey, if you’re looking at rates, get quotes early, get quotes often because they’re changing rapidly. That 2.9% interest rate that you have on your house, I would not pay an extra dime towards that because that is, I’m assuming that’s a fixed rate.

Colton:
Yeah.

Mindy:
Yeah.

Colton:
[inaudible 00:37:41].

Mindy:
[inaudible 00:37:41] on that. Your truck is at 1.9%. I wouldn’t pay extra on that. Your SUV is at 3.5%? In my opinion, with 4,700 leftover and you’re generating 5,400 extra in cash, knock it out now, pay it off, and then take that payment and put it towards something else. I mean, it’s six of one half a dozen of the other, but you don’t have to think about that anymore. You casually mentioned that maybe you could get rid of your truck. I don’t see your truck as being a huge burden to you financially.

Scott:
Yeah. I agree.

Mindy:
However, if you want to free up $14,000 or $28,000, take that truck and sell it. Get a tow hitch on the back of the SUV and buy a trailer off of Craigslist. I just quickly looked in your area. There’s one for $1,500. Sell the truck. Get whatever kind of car you want. You have a tow hitch on the SUV.

Mindy:
Now, you can pull the trailer around and still pick up your Craigslist items, still take your kayaks. You’re not going kayaking anytime soon with the baby on the way or biking. Maybe you don’t even need the trailer right away. You probably do if you’re going to do more of that Craigslisting stuff but I think that that would be a personal decision. I don’t think that’s the difference between success and failure financially for you.

Scott:
I agree. You got a really strong income, 11,000 after tax, that’s probably like 175 a year in combined income, and somewhere in that ballpark for pretax, is that about right?

Colton:
Yeah, it’s a little it’s a little more than that, because we have health insurance 401(k) backs out of that. Our employers don’t cover 100% of the health insurance. It’s a little bit more than that, but yeah, it’s a strong position. And I don’t see that as a breaking point. It’s just, it’s an easy target in my mind like that 14k equity in the track could be applied towards other things and then or you can put it in a brokerage account, put it in VTSAX and let it ride, right? There are strategies there.

Scott:
I think you’re in great shape from an overall strength. Ten years looking back, if you look back from 10 years from now, you’re going to be able to accumulate a large amount of wealth If you stick with one of these variations of the plan and crush it and continue to generate that cash flow and put it towards your financial future instead of buying things with that, but you can afford to have a few luxuries along that journey, and still crush your financial goals, because of the income and expense gap you have.

Scott:
This truck may be one of them that’s super reasonable in your position, if that’s something that you’re going to use and enjoy. If you’re not, then I think Mindy’s suggestion is great, and do something else, but you can definitely, both of you have a $500 a month expense, guilt-free, I think in this particular situation. That’ll delay you somewhat, but it won’t change the game for you in a huge way. You’ve got a huge surplus, you can take 10% of that surplus and, and enjoy life a little bit here.

Colton:
Yeah, absolutely. We try not to live this super frugal life, but we try to be frugal where it makes sense. When I was looking at trucks, I went to Toyota and like Chevy and test drove the brand new shiny one for $45,000 and I didn’t see a difference between that one and then the used one that I bought on Facebook. The guy on Facebook was a firefighter. He had 60,000 miles on the truck and it’s like a brand new truck to me. I paid half the price for that truck. That was kind of a frugal win in itself that I was like, “Oh cool. I found this truck that was four years old, not a brand new off the lot but brand new to me.”

Colton:
It just kind of hurts on the car payment because I just haven’t had a car payment in so long. Going from that Corolla, which was very, very frugal, very gas friendly, very, everything about it was cheap. The registration was cheap. Insurance was cheap. Then, everything about the truck is polar opposite. It’s not, crazy guzzler but it definitely is a luxury. That’s just why. It’s low hanging fruit is all.

Mindy:
It is and if it weighs heavily on your mind, then sell it. But I don’t see it as a big problem.

Scott:
I agree.

Mindy:
A moment ago, Scott said that he is on team grind. I am going on record as being opposed to team grind. A lot of people know that my husband has a blog, and he wrote an article called, My Death March to Financial Independence. It was kind of, he published it in 2017 and it was kind of a recap of all the things that we did. We didn’t enjoy ourselves. We pushed and pushed and pushed and pushed and it was a big grind and he was working full time and flipping a house full time. I was momming full time and it was just this like, we never took a break ever.

Mindy:
You have a similar income to what our income was when he was working. It wasn’t any fun. I want to send you that article. I’m going to link to it in the show notes because I think it’s really important to read and remind yourself that life is still meant to be enjoyed.

Mindy:
I’m saying this right here like I live it now. I’m still learning this lesson, but if I can take my years of knowledge and pass them on to you at your age to enjoy your life instead of just push, push, push, if you get to financial independence three years later, but you enjoyed the whole journey. That’s better.

Colton:
Yeah. I agree.

Scott:
Yeah, I would completely agree with that, with the caveat that you need to set up a lane that you’re comfortable swimming in for a number of years, knowing that if you do what you’re currently doing right now, and the student loan debts, for example, remain, with that you’re going to generate $60,000 in cash per year, ideally a little bit more than that with puts and takes over the next couple of years, baby coming in, but also hopefully raises promotions, income increases at work with that. That’s the journey, right?

Scott:
If you want to delay that to six years or seven years to have more of the comforts during that journey, that would be totally fine, but set up the grind and you can use a different word if you want, the journey and the parameters, and you just need to cruise with that over a period of time either investing or paying down the debt.

Scott:
That’s the reality of your situation. It’s not a bad situation. You’re going to be able to accumulate a lot of wealth if you stick with that, but you can’t escape the fact that there’s going to be time that needs to pass while you generate this surplus and put it towards the debt and/or investments here.

Mindy:
Yes. Agree.

Colton:
Yeah.

Scott:
That’s what I call the grind. My grind was brutal all out for three, four or five years to get to the end state. I think I enjoyed my life but I definitely said no to lots of trips and other types of things with that. For me, I didn’t mind that so much, but I definitely wouldn’t go to a place that makes you and your family miserable.

Mindy:
I don’t think we knew that we were miserable in the moment, but reflecting back, we’re like, “Wow, that really kind of sucked.” Yeah, just read the article and you’ll get a sense. I mean, I just reread it and it’s like, “Oh, there’s a lot of despair in here.” You had asked about a reappraisal to get rid of PMI? I am going to send you to your lender or whoever is currently holding your mortgage, it would really, really stink to pay like $700 for an appraisal, only to come back $5,000 short, and you can’t get rid of the PMI?

Colton:
Yeah.

Scott:
That would not be the end of the world because if you think you’re close, you can gamble and do that and then just pay $5,000 more towards your mortgage to get out the PMI, right?

Colton:
Good point.

Scott:
That will get you to your equity level with that.

Mindy:
Okay. That’s a good point.

Scott:
That wouldn’t be efficient, because you’re not really avoiding the interest payments, you’re just speeding them up by a handful of months or whatever. It’s not a great investment but if you think you’re close enough that you’re in the bubble, you want to take the gamble, that’s how you would get around that problem.

Colton:
Even that’s not a breaking point like that $100 cash flows’ not going to change our position very much. Maybe we just wait and when we know, for certain/ that it’s crossed that benchmark, we just do it. Yeah, unlocking that $100 cash flow, pretty minor point but if we kill the ortho pay, that we kill the car payments, we kill that, we take that down 100 bucks, there’s some extra accumulation there that can be had.

Mindy:
Yeah.

Scott:
That’s what I’m talking about where you grind, if you don’t like the term, accelerates, right? You just knock out 100 bucks here, the car payment here, the orthodontist bill here, one of the student loan debt there, right? Then, that all just continues to snowball your cash generation.

Mindy:
I’m glad you brought up the ortho. With the FSA, that is a use it or lose it plan. I believe 250 or $500 rolls over to the next year depending on your plan documents, and definitely read those ahead of time, but I would plan to use that in the last month of the year that you can since it is a 0% interest loan. Just in case something else that’s FSA eligible doesn’t come up.

Scott:
You’re going to have a baby.

Mindy:
Well, but I think they-

Colton:
Yeah, I don’t think we’re going to have any issue spending that money to be honest.

Mindy:
Yeah, well but FS, do you have an HSA plan or a regular plan?

Scott:
He can have both.

Mindy:
Okay. You can but FSA is only for teeth and eyes. You can, but FSA is for teeth and eyes only if you have an HSA plan and it’s for anything.

Colton:
Yeah, it’s a different type of FSA.

Mindy:
Yeah.

Scott:
I did not know that.

Colton:
We actually have an HSA from a prior employer. I just don’t know what the balance is, now that you say that. She has an HSA with, I don’t know, probably 2 or 3,000 bucks in it. That’s why I forgot about it, because it was just sitting there. We might, well, I’m just going to let that one ride, though. That’s an investment account as far as I’m concerned. I’m not going to use it.

Mindy:
I would definitely look into that as being an investment account. I’m not sure how that works with regards to current expenses. I thought you could only use the HSA account for expenses incurred when you had the high deductible plan.

Colton:
Good point. That might be a research point to look into.

Mindy:
Yeah, research opportunity and we’re going to ask that in the Facebook group, HSA expenses question. I’ll just make a note so I put it up there, but yeah, definitely make plans to spend all of that on that just because why pay for that with post tax dollars if you don’t have to. Yeah, going into next year, the baby’s due in August, you’ll probably be able to spend all of that FSA money.

Mindy:
Next year, you’ll have a lot of doctor’s visits just because babies go to the doctor all the time for well checkups and things like that. Look into your FSA for that as well. Now, if you both, do you both have separate insurance plans?

Colton:
Yeah. I might get on hers when it goes up for open enrollment because hers is way better than mine. Her plan says that to have a baby, it’s like 300 bucks. That’s unheard of. It’s this crazy grandfathered in plan that is awesome.

Mindy:
That is fantastic.

Colton:
We’re separately paying through our employers right now because we weren’t married until late last year, but yeah. There’ll be some changes in that arena moving forward, but nothing that it’s going to be too drastic.

Mindy:
Okay.

Scott:
Great.

Mindy:
Then, you wanted to talk about live in flips. I’ve saved the best for last.

Colton:
Yeah.

Mindy:
How do you save on costs? DIY. How do you have time for DIY with the baby? I can’t even remember those days anymore. I had no sleep. I have no recollection of how we did this DIY, but we basically did everything DIY. We popped the top and we hired somebody to add on and then we finished all the interior work. I don’t do roofs. I don’t do cement flat work. I don’t do gutters. You can hire these out way cheaper than you can do it yourself, but Home Depot and Lowe’s teach classes on how to do things and the University of YouTube is an excellent place to learn.

Mindy:
Like you said, you have a basically cosmetic flip. All of these things that, all these jobs you’re going to do, are going to be fairly easy to DIY. Definitely check with your city’s building code to make sure that you can do them yourself. Some cities require that you hire everything out or hire out things like electrical and plumbing. Some cities will allow you, the homeowner, to do the work yourself so long as you live there for X number of time afterwards. My city says I have to live here for a year after I do all the work myself.

Mindy:
We just DIY-ed solar panels. I mean, you can DIY anything you want here in the lovely City of Longmont, Colorado. You just have to live there afterwards. That’s the number one tip for saving on costs. If you don’t have time, or don’t have the knowledge to do it, and you don’t, I mean, learning how to do electric is going to be a tough job. I should say that my father in law was an electrician for 40 years. We had kind of an in. We’ve learned with real help. Electric and plumbing is kind of the same thing. It’s not the same thing, but it’s like they’re easy to do if you know what you’re doing.

Mindy:
Step number one is turned off the source. Turn off the electric, turn off the water, and then it’s not so hard. If you make a mistake, you know real quick that you made the mistake, but I can understand why people would be very leery to do these themselves. If you’re going to do a plumbing job, all the plumbing all at once have the guy come in and the person, I’m sorry, the provider, I don’t want to be sexist, have the provider come in and do all the work at once.

Mindy:
Have all the faucets you’re going to have changed out, all of the work that you need to be done all at once so they’re not coming out multiple times, and you’re incurring multiple charges just to come visit the site. Think about what you really, really, really want to have done. You can paint yourself. You can install flooring yourself. I’m such a proponent of DIY.

Colton:
Yeah. We’ve already passed that route.

Mindy:
I’m such a proponent of DIY, because it’s so easy to do and renting a tool versus buying a tool. I mean, I have every tool just because I’ve used it at least once and it doesn’t all have to be done right now. I mean, you’ve got a baby coming. You’ve just moved in. You’ve got two years in order to hit the capital gains exclusion. Make a plan for how you want to tackle it and then just get to it when you get to it.

Scott:
I also think, in addition to all of Mindy’s great tips, here’s a problem I’m noticing overall about your situation, I got student loans here, some that I might pay off, some that might be forgiven. I’ve got this cash position. I’ve got a little bit in 401(k)’s. I’ve got this live in flip project I’m doing. I’m spending my free time flipping furniture that I’m driving around, picking up and sending around. I think what I would advise is you make a prioritized list of these opportunities, and then go more all in on your top one or two of them.

Scott:
For example, here’s an incongruency in your situation, I’m trying to pay off my student loans, but I’m also trying to flip my house at the same time, right? One strategy is conducive to having a very small cash position, finding all the dollars in your budget, knocking out expenses and keeping that grind consistent and paying off all the surplus into your student loan debt.

Scott:
The other situation calls for a very large cash position so you’re able to make these calls and say, “I’m going to do this project myself and I’m going to buy all the materials and spend these couple of weekends doing it and it’s going to cost me three grand.” This one, I need to do call the plumber and do all of the plumbing all at once and it’s going to cost me 15 grand. It’s going to be much cheaper to do it all at once but 15 grand, right?

Scott:
That’s going to be your challenge here in the next couple of months is you need to pick a framework, prioritize these things and stick with them. There’s no wrong answer or there’s no right answer to it, except to attempt to dabble in all of these different avenues a little bit. You’d be much better off, in my opinion, kind of pick one and go on with that. Mindy, I imagine, all that said, Mindy, did you have a large cash position or make that a component of your situation when you were doing some of these live in flips?

Mindy:
We had a large cash position and the ability to find more cash if we needed to. We also could have benefited from that advice, Scott. Where were you 15 years ago? Because we don’t even do that now. We’re like, “We’ll do it all. We can do everything and we’re going to prioritize. Everything’s number one.”

Mindy:
Then that’s how you get to the position where, on your days off, you’re laying flooring in your daughter’s bedroom, until 8:00 at night while she’s like, “I’m tired. I want to go to bed.” You’re like, “No. I just have three more pieces to put in.” It just kind of exacerbates itself over and over.

Mindy:
I like Scott’s advice even better than mine. Make a list of the things that you want to do, make a list of the extracurricular you want to do. Make a list of all the things you want to do on your house and prioritize one or two at a time because yeah, that baby’s going to come in. You made a comment, “Well, the baby might dictate,” the baby will dictate.

Colton:
Absolutely.

Mindy:
The baby will say, “I demand all the things.”

Colton:
Yeah, Scott, you hit that point. I hit that nail on the head. My wife is going to listen to this and be like, “Yeah, that’s exactly who you are.” Pinball brain, back and forth. We’re going to do this. We’re going to do this. We’re going to do this. I think the student loans we kind of ignore right now just because they’re in forbearance. That’s not something we’re like, super focused on.

Colton:
I think the house is really the focus right now. The flip activity really doesn’t take a lot of my time. It’s actually on an auction site. I don’t like to run around town all day. I buy things on this auction site, put them in my garage, put them together, like maybe an hour to a week and then, people come to your house for Facebook marketplace. That’s kind of interesting… Like last month, I made six, almost [inaudible 00:57:10] for two hours of my time, which is I thought it was a decent ROI.

Scott:
That’s awesome. That’s your hobby, it sounds like.

Colton:
Yeah, it’s kind of a hobby side hustle thing. It’s kind of funny, but yeah, definitely not a huge-

Scott:
If your house is the priority, which makes perfect sense, right? Say, what’s my after repair value? What’s the project plan to get there? That is the first priority. I’m going to talk about the money date each week or each month when I have that and I’m going to go in and say, “Great.” Is the rest of my plan backing into that as the number one priority, right?

Scott:
First thing I would do, if the house is your number one priority, is bump up that cash position from 1.5 to 2 months to 6 months and that’s your first financial priority, because you’re going to need that cash in order to make judgment calls about that project, to execute the project plan, right? That’s totally fine. That makes perfect sense.

Scott:
Once you have the equity realized in the house, what am I going to do with it next? Am I going to cash out refi? Am I going to pay off the HELOC? Am I going to sell the place and go on to the next one? That’s great but I would have no problem as an outsider looking in saying that the house is a good first step there.

Colton:
Do you do the six-month emergency fund before paying off the balance transfer? In my mind, the balance transfer probably needs to be paid off. I mean, technically, it’s August 2023. It’s a sitting at a $6,600 balance. It’s not something we couldn’t tackle in the next four to six months.

Scott:
What’s the interest rate going to be on it right now or when?

Colton:
Right. I mean, it’s 0%, so August of next year, and then I think of bumps to like 19 or 20. Definitely, it’s not something we want to be sitting there [inaudible 00:58:46].

Scott:
We’ll do sixth month cash position right now, and sit on it and use that to fund your house. Then, when the when that comes up, you can decide to pay it off, just like you will with the student loans. You’ll have the cash. You’ll be able to allocate it and say, “But there’s no interest accruing on it right now and you have all that liquidity to build. You could spend the next couple of months building the equity in the house and do that. You’re not going to run out of liquidity unless a catastrophe happens to your family right now. Right?

Scott:
You have to juggle some balls. You can have it all perfect all at once, until you go through, let some time pass and your position but I would build a liquidity position right now and begin using that to attack your number one priority, knowing that you’ll have to allocate 6,600 by the end of the year to this balance transfer in order to avoid accrue in 20% interest. There’ll be no higher use of your dollars than avoiding 20% but it’s not 20% right now. It’s zero.

Colton:
Yup.

Scott:
The return on cash is going to be huge if you’re using it to flip your house or it’s a good bet.

Mindy:
That’s only one month of spend spending. If you have a six-month emergency fund, you use the six-month emergency fund to pay that off, and then you rebuild your emergency fund. I mean, that’s slightly more than one month of your extra.

Scott:
Yeah. Now, once your house is finished as a project, you have another decision plant, am I going to do another live in flip? In which case keep the six to month emergency reserve and maybe move it to 12 months? Because you need a lot of cash to continue doing these projects, especially you take on a bigger one or am I going to sit? Am I going to sit? Am I going to show him his house, refinance to something that gets rid of the PMI or get out of the PMI, and I’m going to start granting the student loan debt.

Scott:
Okay, at that point, I’d go down to 1.2 to 2 months, or what you currently have, essentially, keep a small bank thing and just drive all the excess cash flow to the next highest debt payment. That’s where I think, if you can come up with a prioritized set of investments in a plan for the next couple of years, you’d be much better off, because you’re able to prioritize where things go and build your whole position around those priorities.

Colton:
Yeah, absolutely.

Mindy:
Okay, the last thing I want to tell you before we let you go is you asked about staying sane with your spouse during a live in flip, we generally tend to jump in with both feet and rip out everything and that is not the way to go. The way to go, the way to stay sane with your spouse is to have one room with a door that closes that is untouched. Usually, your master bedroom or a different bedroom if you’re working on the master bedroom where you can retreat away from the dust, because every once in a while, you’ll have a day, and she’ll have a day and the baby’s off schedule and you’re just like, I can’t handle this. I can’t concentrate on this at all.

Mindy:
You go into your bedroom, you close the door, you watch a movie, you eat in bed, you just don’t flip the house that day, and it recharges your batteries but when you’re in the middle of dust and all the walls are ripped out and you can’t find any place to not be in the middle of your flip, it’s really weighing on your conscience. I’ve only had a few days like that in every single house that I’ve lived in flipped and it passes but you just need a space that you can retreat to that is door closed that is untouched on the inside. That can be the first room that you do. You work on that room and then you move into it as a nice space. Right now we’re in our master bedroom and it’s still ugly. I have wallpaper from the 1970s, the foil guy that’s really, really gross.

Colton:
I think that is our master bedroom right now.

Mindy:
Yeah.

Colton:
For us, it’s still the safe space. The rest of the house, the 80% of the house has no baseboards. It just seems like the whole house is unfinished to us because you see like the old paint where the baseboard used to be and it’s just, it’s funny. When we moved in, I came in and sprayed the whole house with fresh paint because the walls were like yellow from nicotine. Disgusting.

Mindy:
Yeah. That’s my house too.

Scott:
Smells like money.

Mindy:
It smells like money, sure did. Nobody else smelled that money, but yeah, now, go in and get the baseboards. Make that your next priority, and it will feel more finished. Maybe she will be more excited about the house in general because it’s not unfinished.

Mindy:
My daughter really hated the fact that we didn’t have any window trim up for a long time. She was embarrassed that we lived in such a disaster of a house. I said to her, then if your friends care. They walk through the house to go to the pool. That’s part of the reason that we got such a great deal on the house is because they had this pool that’s in terrible shape, but it holds water. She can have a pool party. None of the kids care that the house is a disaster because they don’t spend any time in it.

Mindy:
She’s so embarrassed by it. Once we got that finished now she’ll invite friends over. Little things can make a really big difference. That is my advice to you, have a place that you can go, to get away from it all and also put in baseboards.

Colton:
I appreciate it. Thank you.

Mindy:
Okay, Colton, is there anything else we can talk about today for you or answer any questions for you?

Colton:
I don’t think so. I think we hit most of the high points there. Obviously, it’s just picking a lane and going for it like Scott said.

Mindy:
Yeah, I agree with Scott.

Scott:
Yeah, I don’t think you have any wrong or right choices here. It’s art. There’s no, you have to make huge guesses about the economy, your personal situation, interest rates, all this other kind of stuff. I think you pick one that you’re comfortable with. Pick a prioritization, a list of prioritization that you’re comfortable with and design your whole situation around the top priorities and you will be just fine.

Scott:
You’ll be cruising out of this in over the next five to seven years with a significant increase in wealth and/or students debts paid down depending on what you decide with it as long as you kind of keep the income and expenses relatively consistent over that period.

Colton:
Awesome.

Mindy:
Okay. Well, Colton, thank you so much for your time today. This is a lot of fun. I think you’ve got a great position ahead of you and congratulations on your baby.

Scott:
Yeah, congrats.

Colton:
Yeah, thank you so much.

Mindy:
Send me pictures when the baby’s born.

Colton:
Absolutely.

Mindy:
Okay, we’ll talk to you soon.

Colton:
All right. Thanks so much. Have a good rest of your day guys.

Scott:
Bye.

Mindy:
All right. That was Colton with his great set of circumstances, his not so great set of student loan debts, but a good opportunity to pay them back. I think that does some great ideas for him and some great research opportunities for him, Scott?

Scott:
Yeah, I think this theme, this probably applies to a lot of people who are in similar situations to Colton, right? I’ve got some debt. I’ve got some investment opportunities. I’ve got a hankering for real estate. I want to become financially free. I want financial flexibility. How do I allocate my surplus dollars here, once I get into a strong fundamental financial position, which is what he is in his way of have a strong and have a strong positive net household cashflow, and are likely to continue that for many years to come barring a problem.

Scott:
When you have that situation, you can do anything. There’s a lot of good options out there, but you can’t do everything. You have to prioritize a set of initiatives, one by one, and build your strategy around that. That decision, we’ve harped on that, we have done that multiple times throughout the show so I don’t want to beat a dead horse, but you have to make that decision. You have to prioritize it, there’s no right or wrong answer, but once you do, you go from there.

Scott:
This problem is going to affect the $200,000 a year household income family like Colton’s family, and it’s going to impact the $50,000 person who’s just getting started the same way. That’s where we have all these tradeoffs around, retirement account, investing, or building financial runway, or your emergency reserve.

Scott:
You can’t do all of those things. You can’t take all the advice out there, you have to prioritize according to a plan, and then stick with it. The worst thing you can do is have a little bit in all these different areas and diversify away your chance of actually moving aggressively towards any of the financial goals, debt free or long term wealth or passive cash flow or whatever it is you want.

Mindy:
Yeah, ultimately, you can only take that dollar and deploy it in one place at a time. Now, it’s just up to Colton, to decide where is this dollar going to go and sit down with his wife and his weekly money dates, I love that, and decide where are we going to deploy these dollars? Where are we going to deploy these dollars? What’s the best use of these dollars at this time? Then, you can change your mind down the road, but right now they need to just formulate a plan. I think they’re going to have a huge amount of success. I’m just super excited for all the opportunities that they have.

Scott:
Absolutely. You can think about a couple of different situations, though, where, hey, I’ve got a, one case A, I’ve got a paid off all my student loan debt, paid off my house completely, have relatively few investments, and a six-month emergency reserve and five years, it was called seven years. That’s a great position to be in, completely debt free, and have an emergency reserve and are now able to invest.

Scott:
Another great situation to be in is, I’ve got $800,000 in assets that I’ve invested in across real estate and stocks and 250,000 down from 300,000 in total student loan debt and still have a mortgage on the house, right? That’s another position that could be very, very, very strong, but a position that would probably be very weak is, I don’t have much cash, I have a smattering of investments, mostly in retirement accounts, a little bit of home equity, and still have my student loan debt in seven years.

Scott:
That’s the least flexible position with the least promising outcome. You have to make one of those extreme choices in one of those two directions to get to that more positive situation. You can see that playing out with many of the folks that we’ve talked to on BP money where you want an ideal, what is your ideal portfolio and how are you backing into it?

Scott:
A debt free, modest portfolio that can sustain financial independence is a great outcome with that. A optimized for long term value creation portfolio with a healthy amount of leverage, is a great outcome. A mixed bag where I’ve got money in my 401(k), mostly in my home equity, a little bit of cash and relatively few investments outside of that, that’s the middle class trap that’s going to lead to the least amount of freedom. You’re not going to be able to realize that benefits, that financial position until retirement age unless you make very drastic life, and 401(k) penalizing decisions, which is really hard.

Scott:
I think that’s where we come back to make a decision, go into direction. There’s lots of good ways to go about it but have a plan and go with it and know your to make tradeoffs. You’re not going to be able to go down the whole stack, maxing out your 401(k), and having real estate, and having a paid off house, and having no debt and having stocks and get to your end goal soon. You have to make a choice.

Mindy:
Yes. Oh, that’s great. That’s a great wrap up, Scott. Great recap.

Scott:
Mindy’s telling me my rant is going too long. We need to wrap up.

Mindy:
No, I’m saying that’s a good wrap up. That’s what a great way to phrase it. Okay, but you’re right, you’re going on too long. We got to go. Are you ready?

Scott:
Let’s do it. From episode 304 of the BiggerPockets Money Podcast, he is Scott Trench and I am Mindy Jensen saying Get in the Truck, Cock.

Ashley:
This is Real Estate Rookie, episode 186. My name is Ashley Kehr, and I am here with my co-host, Tony Robinson.

Tony:
And welcome to the Real Estate Rookie podcast, where every week, twice a week, we bring you the stories, the lessons, the information, and inspiration you need to kickstart your real estate investing journey. Ashley Kehr, what’s going on? What’s what’s new in your neck of the woods? How are things on the east coast today?

Ashley:
Well, I think I’m going to head over to a property that I recently purchased, and just kind of wander around a little bit. It’s 30 acres. It’s got three ponds and it’s finally a nice day. I’m finally walking kind of [crosstalk 00:00:42].

Tony:
I was going to say, how are you going to wander around? You mean hobble or bear crawl your way through those 30 acres?

Ashley:
Yeah. My son actually hurt himself on a trampoline last night, my youngest one, and he decided last night that he needed to use my crutches. So we put them as low as they could go and, obviously, still not compatible for him. And he just basically drags them around the house that he needs crutches. So at least they’re still getting good use, I guess.

Tony:
There you go. Like mother, like son. I love it.

Ashley:
Yeah. What about you, Tony?

Tony:
Actually, today, my big focus is working on the presentation for our Big Bear resort. So, whenever you do these big syndications, so I’m learning a lot as I go through this process. Whenever you do these big deals, and you have one big meeting where you invite all the potential investors and they kind of see what the deal looks like. So yeah, we’re just working on that, so that way all of the accredited investors that are interested can kind of learn the ins and outs of what we’re doing. So we’re super excited about this project.

Ashley:
Is there a pitch deck you’re putting together?

Tony:
Yeah. Yeah, it’s a pitch deck. Yeah.

Ashley:
Cool. Yeah. I can’t wait to see it.

Tony:
It’s going to be the pitch deck. Yeah. There’s so much upside here, so we’re really excited. So it’ll be a fun day for us.

Ashley:
Are you using a software yet to manage the syndication?

Tony:
So the actual investor’s portal and all that stuff? So what’s been recommended to us is called InvestNext. We [crosstalk 00:02:06].

Ashley:
Did you sign up for them yet? Because, I have an affiliate link. That’s what I was getting at.

Tony:
You do have an affiliate link? Well, there’s some guy that does, it’s called fund administration. So he helps you make sure that your distributions match what your PPM says. So I guess this guy has some kind of relationship with InvestNext. He’s actually creating the account for us.

Ashley:
Yeah. Cool. Well, nice.

Tony:
Yeah. So it’ll be exciting.

Ashley:
Yeah. InvestNext recently just sent me a super nice North Face zip-up, so make sure you get one of those, too.

Tony:
Oh, okay. Yeah, I got to grab one. Are you using InvestNext for one of the campgrounds?

Ashley:
No, I’m setting it up as just a portal to collect names, to create a list of accredited investors, so that when I am ready, I have that list set up, so.

Tony:
Oh, cool. That’s awesome. Yeah. So if you guys haven’t heard of InvestNext, they’re a software tool that a lot of syndicators use to help manage their accredited investors that come into the syndication. Well, I guess technically, they don’t all have to be accredited investors, because some syndications you can allow for non-accredited. But anyway, when you’re doing a big fundraise like this, it’s a platform that kind of helps you manage all the people that are investing. So if you’re doing that kind of thing, be sure to check it out. All right. So today’s question comes from Aaron Nygaard, and a quick side note, if you guys haven’t watched the show Fargo, the main character, his name is Lester Nygaard. So anytime I see the last name Nygaard, that’s what I think of.
So anyway, Aaron Nygaard is today’s lucky guest. So Aaron’s question is what paperwork do I need to close on an off-market deal, and why? If there are cash offers, can it all be done between me and the seller? Do you typically ask for an inspection period? Any help with those questions would be great. So I’ve done a few off-market deals, so I can kind of share my experience. Typically, what we do first, Aaron, is that we’ll get a purchase contract set up. And then once we have that purchase agreement signed between both parties, we’ll take that, here in California, I usually take it to an escrow company. And then escrow is the one that kind of facilitates that transaction between me, the seller, and title. And then they’ll draft up pretty much all the other documentation you need to make it a legally binding agreement.
You can still ask for everything you would ask for on an on-market deal. So you still maybe put an earnest money deposit, you still have your inspection period. If you are buying this with a loan, you can have a loan contingency. So all of the things that go into a regular on-market transaction, from a purchase agreement standpoint, can also go into this off-market transaction. The only difference is that the property was never listed and typically, there’s no real estate agent kind of playing the role of middle man between the buyer and the seller. So you guys make an agreement, take it to title and escrow, they facilitate that transaction. So how has it been for you, Ash?

Ashley:
So usually what I do is I’ll do a letter of intent first. So usually it comes out to one or two pages. And basically, it’s just stating your intent is to purchase this property, located at, the buyer is, the seller is, it’s going to be a cash offer at this amount, the deposit is going to be this, and then if there are any contingencies. So I always put contingent on attorney approval, contingent on if there’s going to be financing, financing, or you sell your own house or something like that. I always put that in there. And then there’s just a couple other things. If you Google letter of intent, you can kind of get a bunch of ideas, a bunch of samples, of what it could look like. It’s really not meant to be a contract. It’s really just to get them to agree to the terms.
And then I take that letter of intent, in New York State, you have to use an attorney for closing. So I take that letter of intent and I send it to my attorney, who actually takes that information and puts it into a real estate contract for the property. And then my attorney takes it from there. And the seller, I’ll recommend them an attorney to use, or if they have their own attorney, I’ll give them a copy of the contract, once it’s executed, for them to give their attorney. And then our attorneys communicate from there. And basically, it’s out of my hands after that, and they take care of everything such as the title work. So definitely the letter of intent is nice, because if they don’t accept your offer, you didn’t waste a ton of time going through a real estate contract at first.
And then I also like to do multiple letter of intents, maybe one seller financing, and then one conventional financing, or a cash offer. And then I present them to the purchaser, or the buyer, that way. And then as far as an inspection, it depends what type of house I’m buying or what property. So I’m trying to buy a campground right now. I am doing an inspection on that property, because if the water lines are bad, that could be a huge expense to me. But if I’m buying a $20,000 dumpy little cabin that I’m gutting anyways, I do not do an inspection. But as Tony said, anything that if you were buying a property off the MLS, you can put any of the same contingencies or things in the contract as you would if you were buying on-market, including furnishings, if you want furnishings included or the lawnmower or things like that, too.

Tony:
Yeah. So I guess the last piece of advice to Aaron would be just go out and find a local, either attorney, escrow company, title company in whatever market you’re in, let them know that you have this off-market transaction, and most should be able to kind of guide you through that process, because that’s how we got started the first time we did an off-market deal.

Ashley:
Yeah, Tony, that’s great advice. And even contacting them before you even start looking for those off-market deals too, so that you have them ready and they can kind of guide you, this is what we would need from you in order to put together a contract, so you know what you could put into your own initial contract or your own letter of intent, too, so. Okay. Well, we have to get out of here, and Tony is actually doing something exciting today. He’s got interviews for a personal assistant.

Tony:
Finally. So if you’ve ever sent me an email or a text message and it took me days or weeks to respond, hopefully that will all change after we finish recording [crosstalk 00:08:25].

Ashley:
Yeah. Well, exciting, Tony, and I hope the interviews go well. Thank you guys for listening. And if you missed out on applying for the position as Tony’s administrative assistant, make sure you follow him at Tonyjrobinson on Instagram to find out about any more new hires he has, and then you can follow me at wealthfromrentals. And I have no idea what I need, so if you listen to this podcast and are a loyal listener and you know something that I need and that you can help with, please message me a DM, slide into my DMs and tell me what I need and how you can do that for me. Thank you guys so much for listening. My name is Ashley and he’s Tony, and we will be back on Wednesday with a guest.

Homebuilders have outperformed, and Evercore ISI homebuilder analyst Stephen King joins ‘The Exchange’ to explain why.

Yes, I admit it. I am scared of a real estate bubble. But I’m continuing to invest anyways. Here’s why. 

Over the past several years, I’ve heard the following claim consistently made by investors both in my home market of Denver and nationwide. It seems by far to have been (and continues to be) the most popular prediction made by investors, both experienced and novice:

“The market is probably going to [reset/correct/crash/fall/decline/etc.] over the next 18 to 24 months.” 

Pundits have predicted a price squeeze or bubble that was two years out on average every year for the last six. Don’t believe me? Check out article after article from basically every major media outlet in the United States predicting a bubble at some point in the last eight years. I’ve even compiled a sampling for your reading pleasure below:

2013:

2014:

2015:

2016:

2017:

2018:

2019:

2020:

2021: 

I could go on.

How Long Are You Willing to Wait for the Impending Market Crash?

If you believe that a market crash is coming, you are either right—or else you might be waiting a long time to get started in real estate investing. People were waiting for the next crash in 2013, 2014, 2015…and every year since up until now. 

Oh, and of course, there were just as many equally well-written and well-researched opinions talking about the housing market’s great health and future growth. These bullish opinions are just as prevalent today. I could easily compile a list of housing market bulls to complement the bears I posted above.

But the point is that I’ve heard about an impending market crash throughout my (admittedly short) entire investing career.

Let me ask you this: When the next crash comes, will prices drop below 2013 levels? Below 2015 levels? Below 2017 levels? How much do those waiting for a crash stand to gain by waiting it out, and how much will those who own property today lose?

How low do prices have to go to eliminate the gains of the last eight years here in Denver? How about your city?

I don’t believe that these pundits have any real advantage in predicting the market on you or me. The thing is, I don’t think anybody knows when the market will crash. Nobody knows if that will happen this year, next year, the year after, in five years, or in 20.

To be clear, I’m not saying that I think the market will continue to go up forever. And the truth is, I’m scared. I’m afraid of two things:

1. I’m afraid that the market will crash and that I will lose a ton of equity very quickly.
2. I’m afraid that prices and/or interest rates will climb much higher and that I will miss the ride if I don’t buy more.

I’m equally afraid of both of these things!

I’m sure that if you have an opinion on the market over the short-to-medium-term (two to five years) future, you have great reasons. I bet you have a bunch of charts, just like those pundits. I’ll bet that you can cite numbers that talk about supply, demand, interest rates, leverage ratios, employment, household income, the stock market, bitcoin, inflation, the trends of the Millennials, the trends of the Baby Boomers, or something else that’s just as important as all of the above.

But I’ll also bet that the fellow who is just as smart as you—but has the exact opposite opinion—has strong data behind his beliefs as well.

The fact of the matter is that if you believe that the market will crash, you could be right! You could also be wrong! Or (and in my opinion, the worst and saddest waste of being able to say “I told you so!”) you could be right and still lose.

The thing is that you don’t know which of those metrics and factors will be the lever that actually moves the housing market over the next few years.

As I hope I’ve demonstrated with the news articles above (and I can anecdotally tell you that I’ve been part of discussions on BiggerPockets about this very topic since 2014), we hear this song and dance about impending crashes all the time as real estate investors.

It scared me when I was thinking about starting to invest in 2013, and it scared me in 2014 when I bought my first property. It scared me in 2015 as I held that first property, and it scared me in 2016 when I bought again. It scared me in 2017 as I held those two and bought a third. It’s scared me as I’ve bought more since 2017, and it scares me as I just closed on a property here in May.

One day, the doomsday prophecies will come true. These pundits (and you, if you agree that we are headed for a correction/bubble burst) will be proven right eventually. But will that be this year? Next year? Five years? What if the correction comes in seven years? What if every metric that you can conceive of screams, “bubble!” and still prices climb? What if the bottom of the correction sees real estate prices and rents much higher than today’s?

Those sitting out will be right, and they will still lose.

That is why I continue to invest—even though I, too, fear a bubble. I believe that over a long time horizon, say 20 or 30 years, prices and rents in my market will appreciate at a rate equal to or greater than inflation. I believe that this will be the case regardless of whether I buy at the top or the bottom of the market today. And I believe that so long as I can ride the tides of market volatility and sustain possible cash flow, that I will not regret my decisions over time.

I also believe that I am incapable of accurately predicting when the market will boom and bust.

I could be wrong on these beliefs, and I constantly reassess the foundation upon which I construct my investing philosophy. But this is my philosophy and approach for now—and the one I have acted on and plan to continue acting on until I find something better.

Given my overall take on investing, I believe that I can maintain a system of investing such that I give myself reasonable odds of winning financially in all three market scenarios:

• I win if the market goes up. If you don’t own real estate, you lose if the market continues to appreciate.
• I win if the market goes sideways. My portfolio cash-flows and I amortize my mortgages and generate a yield even without appreciation.
• I win if the market goes down. I believe you have a reasonable chance at winning if the market goes down if the following are true:

A) You have the personal financial position and stability in your portfolio to make it through even serious market drops, particularly in rent.

This means a substantial cash cushion and substantial cash flow from existing properties. And I have no doubt that a sudden drop in equity will be hard. I try as best I can to mentally prepare for that ride and to learn from folks who have been through the 2007 recession.

B) You have the reputation to convince lenders and potentially other investors to invest alongside you when/if bargains do begin popping up.

Guess what? If you own no real estate, you cannot develop this reputation. I am not investing alongside someone in a recession or depression who has no experience, who owns no rental properties, yet who tries to convince me that they’ve known all along that the crash was coming. A very long parade of people have come through the BiggerPockets forums and every major news company in the country over the past 10 years predicting a crash. 

I am instead going to look for someone with years of experience and the confidence to say, “Sure, I’ve lost some equity, but I couldn’t care less! Every month, I achieve a 10%+ cash-on-cash return, and I’m foaming at the mouth to buy as much as I can now that I see 20%+ cash-on-cash returns everywhere!”

No one can predict when the market crash will happen, how severe it will be, or what its effects will be. For all we know, we might be in for a run of inflation for 3-5 years in the double digits. The Fed might have to spike interest rates to 10%, 15% or higher to combat it! 

If that happens, prices might fall in real estate, but rents might skyrocket. Meaning that buy and hold investors like me see a tremendous run-up in cash flow that we would not be able to realize if we were not in the market the whole time, but also realize an uncomfortably low rate of appreciation during that period.

To be clear, I am not predicting this or any event. I’m just pointing out that this is one of many possibilities that could negate the effects of other market conditions and throw off the predictions of even the best pundits.

Why I’m Not Investing Aggressively

Now, all this said, I certainly do not believe that now is the time to overextend. I buy well within my means, with a rock solid personal financial foundation, and spend very little on my lifestyle. I maintain a high savings rate and have stashed away a large cash reserve. I also own a large stock portfolio (which, by the way, the pundits were finally right about – for the first time in 10 years, we are seeing a sustained drop in equities – I’m continuing to buy my boring old index funds as I write this).

I do this because, just in case the pundits ARE right this time (and we are certainly 9 or so years closer to the next correction than we were in 2013!), I do not want to be caught with my pants down.

Related: 3 Strategies I Use to Succeed in a Cooling Multifamily (or Any) Market

But I am not staying out of the market entirely, regardless of what may or may not be on the horizon. I’m doing this because I believe the best policy is to adopt a conservative, winning formula and to apply it consistently. And that is what I’ve done and plan to continue doing.

I do not believe that continuing to buy is any riskier for me than staying out of the market is. Although I tremble with every purchase. 

Conclusion

Should you wait for the next market crash? I don’t know. Someday, the pundits will be right. I’ve shared what I’m doing and why, and I hope that perspective gives you something to think about.

I’ll caution you, though. I think, personally, that it is unwise to invest a large, lump sum of money all at once in a real estate investment. And when I say large, I mean an amount that is more than one to three years of savings, given your current financial position.

If you do this, it means that you might be investing in a manner that is unsustainable for you. And if you are investing unsustainably, you risk losing a huge chunk of savings, perhaps all of your investment and then some, all in one go.

I believe my system has a good chance of working for me because I believe that I have an excellent probability of being able to buy similarly sized or larger properties year in and year out in my market and sustain a system of dollar cost averaging.

If I wasn’t able to do that, I’d be finding another market to invest in, developing another investment philosophy, or working on my personal financial position outside of real estate to the point where I thought I could sustain my approach in an up, down, or sideways market.

Prepare for a market shift

Modify your investing tactics—not only to survive an economic downturn, but to also thrive! Take any recession in stride and never be intimidated by a market shift again with Recession-Proof Real Estate Investing.

Back in 2002, I made my first deal as a real estate wholesaler.

I was literally walking the streets looking for a deal when I came across a tired landlord looking to sell his property. 

Beforehand, I had already found a buyer and was able to sell the property to them. In the end, after all of the fees and titles, I ended up making a profit of $47k. 

To say this was life-transforming is an understatement. 

If you’re starting in real estate, you might be skeptical about where investing is headed. Reading the news, you can see that both the Dow Jones and the NASDAQ are down 6% and 17%, respectively. 

While I’ve never been a fan of the stock market, I am a trading man and do far better in Vegas than I do in stocks. If you do invest, you probably know that the market tends to react in times of uncertainty. 

And boy, were the last 2-3 years uncertain!

Because the market is so uncertain, be sure to check out the new On The Market podcast featuring Jamil and others as they talk about the market, economic trends, and prepare you for the next stage of real estate investing.

For instance, the International Monetary Fund recently held a meeting. Its chairwoman, Kristalina Georgieva, announced that they would become more aggressive on funding. 

When Chairwoman Georgieva speaks, investors listen carefully. 

With this announcement, plus the uncertainty we’re still facing in other sectors of the economy, bond yields rose, which directly correlates with the economy and explains the rise in mortgage rates. 

But even with all of this going on, you can still start investing in real estate. 

How? Wholesaling. 

Wholesaling is probably the easiest and fastest way to get your feet wet as a new real estate investor. Two big things can help kick start your business: 

1. Tools and resources 
2. Buyers ready to purchase

Let’s look at both of these.

1. Invest in a Tool That Helps You Find Properties 

When it comes to wholesaling, you don’t need to be at a location physically, at least not yet. 

One of the best things you can do is find a tool or resource, like BatchLeads, that can show you where investors are buying properties in a specific region. 

If you see a neighborhood where the market is hot, properties going for cash, or have a lot of attention, that’s a great sign of a hot market. 

With these tools, you can easily find these ideal markets without physically being there. 

2. Let the Buyers Do the Work for You 

You are a legitimate buyer since you have the money to purchase a property. So, if there is a property that has potential, lock it up with a nice due diligence period. 

Instead of flying out to the property, send the deal out with a $5,000 mark-up to other investors in the area. 

This gives you a pulse of what buyers are seeing and what they’re telling you about the wholesale market in that area. Let them do the work for you! 

Let them do your due diligence, bring the contractors, do the inspections, and then let them tell you if you’ve got a good deal or if you’re out to lunch. 

When you have a cash buyer, it helps legitimize you as a wholesaler and when you have a property with potential, ask the buyer what they believe would be a suitable selling price. 

You should also go a step further and learn how to underwrite and comp properties. By doing this, you can get a good idea of what housing is going for in that area.

If you’ve got a good deal, you could take that $5,000 wholesale fee and sell the contract to another investor and let them deal with the property themselves. 

Boom! You’ve made $5,000.

Or you could decide that all the buyers want this property, so you choose to keep it for yourself to sell. 

Either way, you’ve saved yourself some money from traveling, made $5k, or bought yourself a property. 

Despite what’s happening in the world or the stock market, there are so many opportunities to get started in real estate. 

There’s no better time to do so! You just need to take the first step.

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David:
This is the BiggerPockets Podcast Show 614.

Codie:
That’s why I like to buy instead of build as much as possible. And people are all like this, because the secret is we’re not that creative. Like venture capital startups and founders, they’re super creative. They’re coming up with the next Tesla. I don’t have that in me, but I can definitely take a business that creates financial models online, give it a new website and upgrade, some pretty lipstick on the pig and this thing can be a lot more valuable than it is day one.

David:
What’s going on everyone? I’m David Green, your host of the BiggerPockets Podcast, the best real estate investing podcast in the world. I’m joined today by my good friend and co-host, Rob Abasolo as we tackle a very interesting topic. It’s how to make money in business that is related to real estate, not necessarily just real estate itself. Rob, so glad to see you today. How’s your day going so far?

Rob:
It is going really great because for the last week or so, I was a little bit down for the count. A little under the weather, had a throat infection of sorts and I’m all healed. I went to the ENT, they did a procedure. They fixed me. I looked at my doc in the eyes and I cried and I said, “My wife and I will never be able to pay you back for this majesty that you’ve done.” I don’t even know if that made sense, but I’m feeling good. I guess I could have just said I feel good. I feel good.

David:
I recommend you go follow Rob on Instagram at Rob Built and look at… Did you post the picture of the two vials of fluid that they took out of your throat?

Rob:
No. No, I didn’t want to do that to my… I let people message me and ask. I was like, “If you want to see this, message me and I’ll send it.” And I was thinking, oh, it’ll be like three people. And it was literally like 50 people. They’re like, well, I stopped after 50. I was like, “I can’t do this anymore.” But I feel a lot closer and more connected with my followers now. So that’s good.

David:
Yeah, that’s a pretty intimate thing to see what they pulled out of you. And all jokes aside, that must have been horrible to have that much pressure on your throat. You couldn’t swallow, you couldn’t talk, couldn’t sleep.

Rob:
Yeah. It felt like I was swallowing daggers. And then the actual procedure, you’re just getting poked with needles and stuff and oh man, it was uncomfortable to say the least, but it was literally instant man. I was down for six days and then I went, soon as he did that, I was like, “Oh man, I have never felt so good in my life.” And he was like, “Well, take it easy.” I was like, “I don’t have to, I’m back. I’m back, baby. I can podcast again.” I was nervous we were going to have to postpone this.

David:
Well, speaking of never having felt better, today’s guest, Codie Sanchez, is an amazing business person who takes what she learned at Goldman Sachs and other private equity firms about buying businesses, evaluating businesses, analyzing businesses, and now practices that in her world. Now, Codie does own real estate and she often buys businesses involved in real estate, but she also buys and sells businesses that function like real estate. Meaning you look at it, you see what it cash flows, you see what the return on your equity would be, you see how much work it’s going to be and then you go forward.
So in today’s ever increasingly difficult market to find cash flowing properties, we brought you an alternative that is still related to real estate but not directly real estate if you’re looking to increase your cash flow. Rob, what were some of your favorite parts of today’s show?

Rob:
Well, Codie is like the queen of taking a very complicated, I don’t know, idea such as buying a laundromat or buying a car wash or buying a SaaS product and then doing it 26 times and then explaining it to us and making it sound very, very easy and approachable because she talks about her different systems, the questions she asks like, who should I hire? What can I automate? What can I outsource? That type of thing. But she also gives us a really nice perspective on you shouldn’t just be looking to acquire real estate, but maybe some of the companies that you’re already paying, think about acquiring them as well.
So for example, if you own longterm or short-term real estate, maybe think about acquiring the property management company that’s going to manage your real estate since you’re already paying them anywhere from seven to 30% of your revenue, depending if it’s on longterm or short-term. So I thought that was just a really nice, very clean perspective from her. And I honestly felt like we could do this. I’m curious, I sort of want to go buy a bakery now.

David:
Because you’re always talking about-

Rob:
Rob the baker.

David:
Because of our baker’s quadrant. So if anyone doesn’t understand that-

Rob:
[inaudible 00:04:27].

David:
… joke, people refer to a baker’s dozen meaning like 13 donuts. So the baker would throw in an extra one there to get you to come back for business. So a dozen is 12, a baker’s dozen would be 13. Rob, and I have a way of looking at investment property like a matrix that we look at it through where there’s five categories to it. We were trying to come up with a clever way of how we refer to five and quadrant has four. And so Rob came up with the baker’s quadrant and that to this day is one of the funnier things that ever come up.

Rob:
I feel that way about the baker’s famous four because we asked the four questions and then the last one is like, “Lastly, where can people find out more about you?” And I’m like, “Well, that’s not technically a question, but it is a bonus.”

David:
That’s right. Okay. Today’s quick tip before we get into the show, look for fax machines. You want to listen all the way to the end of the show because Codie talks about when she sees a fax machine, what that means to her and where she sees opportunity. Now, it doesn’t have to be a fax machine, but there are many things you can look for in someone else’s business that would indicate there’s an opportunity there. And if you know what to look for, you’re more likely to find it. So as you’re going through your day, if you make up your mind that you’d like to buy a business, figure out what the fax machines are in that business as the red flag that would dry you to that opportunity.
Same thing works with real estate. Same thing works at a lot of things in life. So you’re going to have to listen all the way to the show for this quick tip to make sense, but please do because it’s worth it. All right. Any last words before we get into the show, Rob?

Rob:
No, man. Like I mentioned, I almost didn’t make it today due to the sixth stuff, but I’m so glad I didn’t because I think a lot of people are going to leave this episode wanting to buy a bakery, I’m calling it. I’m calling it right now. We’re going to have a lot of bakers, a lot of real estate bakers.

David:
It’s a bakery revolution. Codie Sanchez, welcome to the BiggerPockets Podcast.

Codie:
Thanks for having me.

David:
Yeah. So you are a very interesting business person as well as human being from our interactions so far. I’m excited for today’s show. Can you tell our audience what you do to make money?

Codie:
Sure. I buy businesses, typically boring ones, things you wouldn’t think about every day, like laundromats, car washes, video production companies. And then I cash flow off of them. Sort of like a bond instead of a stock. I don’t buy companies that I think are always going to skyrocket. I buy a company doing a certain amount of profit, a certain amount of cash flow and then that I want to hold for a long time and continue to reap the rewards of it. So that’s most of what I do. Then I also run a media company called Contrarian Thinking, where we talk about all this kind of jazz.

David:
So it sounds like what you probably do is look for a business with some form of cash flow, much like real estate. You make an offer on it based off of its current cash flows but you see a way to add value to that business to increase it, which would also increase the value and then you have the opportunity to exit. Is that fair?

Codie:
Yep. That’s right. It’s sort of private equity 101, but this is called micro PE. So we do it on a little bit smaller scale and we don’t always have to grow them actually. Sometimes we just want to own them.

David:
Now, did you learn to think this way from investing in real estate? I know you own some real estate. Which came first, the businesses or the real estate?

Codie:
Oh, that’s a good one. No, at least from an investment standpoint, I was investing in businesses first. So I did the traditional route of like Goldman Sachs and how do you know somebody worked there? They tell you immediately within meeting them. But like Wall Street, a bunch of different alternative investment managers and in the private equity sphere. So I’ve done a lot of deals over my years. And I just saw that I was putting together these really big deals with some of my partners in varying PE firms or investment firms. And the main guys were taking home a ton of money and I sort of sat there thinking, wait a second, if they can do this for a hundred million dollar deal or a billion dollar deal, why can’t I take the exact same process, maybe a little simplified and apply it on like a 50,000 or a 100k deal and then scale up from there?
And so that’s what I started doing was just applying it, sort of in a real estate term, applying it on like maybe my first little tiny studio. And then I would go up to a one bedroom and then eventually I made my way to multi-family or industrial or whatever you want to call it.

David:
You know what this sounds like is when we would interview, there was someone that was a CPA or they were a bookkeeper and they worked for a big firm and they said, “Man, our wealthiest clients tend to own a bunch of real estate.” And that’s what got them wanting to get into it. It sounds like you were around people that were doing really big deals, pretty smart and weren’t intimidated by the thought of buying a business and you watched what they did and said, “Hey, I could do too.”

Rob:
Also, I want to point out too that you were like, “I went the traditional route of-

David:
Goldman Sachs.

Rob:
… working at Goldman Sachs and we were putting together billion dollar businesses and a hundred million dollar deals.” And I thought, why not do this on a smaller scale? Usually people start with the worrying businesses and maybe work their way up to something like that.

Codie:
Well, I like using house money, man. I was actually scared on my first deal. If I had to go out right now and I had never bought a business and buy a business, put down my own capital or hell, get a loan on it, it sounds scary I think. I don’t think it sounds as scary to get a mortgage on real estate. We’ve sort of normalized it, but we haven’t really normalized going to get a loan to buy a business with a personal guarantee on your assets. That’s scary. But because I did it first with house money, even though they were bigger deals, I couldn’t let… It’s not like they were like, “Well, I’m going to take your salary, Codie, if this deal goes sideways.”
I was like, “Maybe I could get fired, but I couldn’t lose everything.” And so that’s what I think, maybe not that scared about it. And that’s why we talk about it a lot publicly because I had one CEO who told me, “We get rich quietly here, Codie. We get rich quietly.” And I was like, “I think other people should know about this and now I can’t shut up about it.” And if you guys follow me on Twitter, apologies, you already know that.

Rob:
Can confirm, can confirm. I follow you on all of them, Codie. You’re very active on all the social medias. So I have a question here. When you’re evaluating these deals, obviously there’s like a very specific way to evaluate a real estate deal. If you’re looking at an Airbnb or a multifamily, you’re looking at things like cap rate, cash on cash return, there’s a lot of kind of standard procedures when you’re looking at an Airbnb, for example. If you’re looking at buying a car wash or a laundromat or something like that, is it the same scope of procedure? Are you looking at it the same way that you would any typical real estate deal? How does that differ?

Codie:
Yeah, there’s probably just slightly different terms depending on if it has real estate involved in it too. Lots of people use cash on cash return. So that’s pretty similar. Most people think about valuing a business on a multiple of profit level. So if I make 100k, I want to buy a business for anywhere from, let’s call it two to 7x, my 100k. So for 200 to 700,000. So those are sort of some of the main ways. Typically though, when I think about a deal, because businesses can cash flow more than real estate on the total amount that you put down or the total amount you buy the business for, I’m really more interested in, can this deal make me X amount of money that is worth my annoyance that running any business or buying any business or doing any real estate deal is going to do?
And so I usually think about it like, I need a deal to cash flow me at least a 100k for me to want to do it. In the beginning, that might have been like, I need a deal to make me 2K a month and that would be enough. So you can kind of figure it out this way. In real estate, I think a lot of times, yeah, you want the rent and certainly in Airbnb, you guys do really well, but oftentimes you want the appreciation too. I really just want the cash flow in my deals and I think of the appreciation as like the extra sprinkles on top.

Rob:
Yeah. Actually, that was kind of something I was interested in knowing more about too. Let’s say you buy a car wash, you’re obviously buying that business, but you’re also buying the lot in all of the materials and all the structures and all that stuff too, right?

Codie:
Typically, yeah. So for a car wash, you would. So that’s a pretty real estate or asset heavy business. A laundromat, for instance, you wouldn’t, you just want to lock in like a 10 or 12 year lease, a long lease because they’re expensive to build out. Most of my businesses, you wouldn’t own like real estate on them or you wouldn’t have to. You might own equipment like trucks or tools or machines. But I would say, like the asset heavy ones are things that blur the line like mobile home parks, car washes, RV parks, things that are pretty asset heavy as opposed to most of the businesses, you don’t have to buy the real estate.

Rob:
So on some of these you’re literally buying the business and then it’s just, you’re leasing out the real estate, but you have no association with the actual building that it’s in?

Codie:
Yeah, that’s exactly right. I have a couple friends and I’m sure you guys do that own commercial buildings. I don’t own any commercial buildings actually, but that own commercial buildings inside of them have seen sort of the profits that come from X, Y, Z company. And so then acquire some of those underlying companies as well or a percentage of them. So I think that’s interesting. I might do that if I already owned a commercial building. Basically say, “Well, I’m just going to also own the laundromat that’s in here as supposed to just get the rent from it.” And I might do that for multiple sites or maybe I want to own the, I don’t know, nail salon in there because I have a good operator that might run it.” I like owning those little type of businesses too.

David:
That’s exactly what I started thinking when you were describing this. That’s the perfect marriage is you buy a commercial building, one of your tenants is going into financial trouble. They’re struggling. You see they don’t have enough capital or they’re not managing things well. There’s some problem that you feel confident you can solve. You go in there and you buy their business at a discount and then you manage it. Is that more or less kind of the approach you’re taking?

Codie:
So that’s called a turnaround in my world and I actually think you should never do a turnaround for your first deal. And I think you and Rob could do it obviously because you’ve done a bunch of deals. You run a business like this one is. But for most people, I don’t like to buy other people’s problems. I’m like, I want to buy the nice-ish house on the nice-ish block. I don’t want to flip for my first one. I don’t want to fix because there’s enough margin in buying businesses that you don’t have to think about value add right away.
I actually think that’s one of the things that’s most dangerous if you do it is don’t try to go in and fix something. Because here’s the truth. There’s 2.4 to 2.5 million businesses for sale right now in the US today. Only one out of 12 businesses listed, publicly listed in the US will sell within any 12 month period. Imagine that in real estate that just, it doesn’t happen. That would be wild. If you were on a street, there are 12 houses for sale and only one of them sold, not going to happen. So there’s so many good small businesses, especially sub, let’s call it a million dollars in EBITDA or a million dollars in profit that I think what you should actually do is go out and buy like a kind of normal business. And you can do some value add on top of it but not a ton.
So let’s say, for instance, you own a commercial strip mall or something. Instead of you having to go fix a business, maybe you’ve just had that building for 10 years and you know that most business owners, something like, it’s a wild number, 80% of small businesses in the US that are for sale right now are held by baby boomers. And 50% of all small businesses in the US are held by baby boomers that are nearing or at retirement age. So there’s something like five trillion dollars in assets that are going to transfer from these small businesses to other people.
So you might just have like Dave’s, I don’t know laundromat. I need to use a different example because I don’t always think laundromats are the best deals.

Rob:
Dave’s Hot Chicken.

Codie:
Okay. Nope. Not restaurants. We don’t like restaurants.

Rob:
Okay. No restaurants. Dave’s-

Codie:
No Chipotle.

Rob:
… Car Washing.

Codie:
There we go.

Rob:
Dang it.

Codie:
Yeah. Dave’s Equipment Rental. I like that business. Dave’s Equipment Rental business, it’s in your commercial thing and the guy’s like 65, 70. He’s ready to retire. He’s a great tenant. They pay on time. You kind of see how he runs the business. It seems to be fine. You want to talk to that guy and just ask him, “Do you have a plan? Does your son want to play video games on Twitch all day or does your daughter want to be on TikTok instead of run your business? I could buy you instead. You know me, we’ve known each other for years and I’ll run this business on a go forward basis.” That would be the deal I would look for.

Rob:
Man. That’s super interesting. So I think you mentioned this before, not on the podcast, but isn’t there like a wild amount of people that are just going to close down their business and not even sell it just because they don’t know that they can sell it?

Codie:
Yeah. Everybody always says, and I’m sure people say this on the podcast. They are like, “The business is profitable. Why would anybody sell it? This never happens. People all get all up in arms when I share my deal details.”

Rob:
Oh yeah. TikTok comments.

Codie:
Oh yeah. I know it’s what you call it.

Rob:
Why wouldn’t the owner just keep it for themselves? [inaudible 00:17:14] you want to call it.

Codie:
Exactly. You’re like, “Do you keep every house that you’ve ever owned for yourself even though almost every house has appreciated over the last 20 years?” Probably not. Same thing. But these business owners, why I started is I have an uncle, uncle Eb, who’s since passed, but he owned a plumbing company. And why I started talking about this more publicly or thought it might be interesting maybe, maybe I thought people had thought, I think it was boring was because he had a business that was doing five million dollars in revenue and about two to three million dollars profit. And he had run this business called E B Holmes Plumbing Contracting in Phoenix, Arizona for like, oh you could look it up. It was like 12 years, 15 years, 25 years, a long time.
And basically he started getting a little sick, was looking to retire. He was in his 70s and instead of selling the business because he had no idea you could do that, he didn’t have a college degree. I was too young at the time to really understand this. He wound down the business. So he had an asset that was doing two to three million profit, which means he could have sold it for like six to nine million dollars and he just shut the business down. And that happens every day.

Rob:
That’s crazy.

David:
Yeah. So here’s what’s popping in my head. And you know what, I’m going to give you an example of what I see happening all the time. And then Dr. Codie, I’d like it if you could give me the prescription for this. I and many people I know, many of them work on my team. So they’re entrepreneurial minded. They’re people that like Rob and I, Brandon and I. They’re drawn to ways to make money. They’re not afraid of hard work and they see the value of, we’re going to call it passive income even though owning a business isn’t passive and owning real estate isn’t truly passive, but it’s not directly tied to getting paid per their time.
It’s more getting paid for their ability to make solutions. I think many of our listeners are like that. So that when they’re in real estate, they’re like, “I want to buy that house and that house and that house.” And they try to figure out a way to force that deal, that square peg through that round hole. And it very rarely works out. Well in business, I see it can work out. But then what happens is you’ve got six different businesses you own and you’re the only person trying to do it all. And you’re frantically running from one thing to the next.
To me, it feels like you’re in a submarine and there’s a hole and you stick your finger in the hole like in the cartoons. And then another one pops out over here and now you’re sticking a finger there. And then you’re sticking a toe over here. And then you’re taking a finger out of this one to put it in that one and then the water hits you there. That’s what it’s like when you’re running multiple businesses. And what you realize is I need more fingers. I need other people to sit here and help. And then you try. And then those people instead of plugging the hole or texting on their phone or they’re doing their own thing and you realize, it is freaking hard to find people to help me do this.
And then you’re discouraged because you feel like a failure. You don’t want to tell everybody because you probably [inaudible 00:19:50] on Instagram, tell them about this business that you own. You want to be a big deal and then you’re just getting stressed out and you hate your life and you’re going to bed with anxiety. It could quickly overwhelm you. And I don’t know many people that figure a way out of that. So is the problem that they shouldn’t have jumped in? Is there a approach that you like to take so you avoid that? Do you have a skillset other people need to build? How do you solve that problem of, I own all these businesses but I’m the only one that is doing all the work?

Codie:
Well, one, I would say the most important thing is you need to buy a business that has enough profit for you to put an operator in if you don’t want to run the business overall. So if you are not going to be the one plugging the holes in your business, then you need to have, let’s call it, at least 100K that you can outsource part of the operations of the business to somebody else. And I like to have at least 100K because right around 100K, you can start to hire somebody really good who you can incentivize with equity on the way up or with revenue share or profit share.
And that person will help you plug those holes because they think of themselves as the CEO of the company. They’re operating it. And then you just have to do really good on your hiring. And what is annoying, I think is with all the whole plugging, that’s usually when you have sort of executioners, people who just execute on tasks as opposed to somebody who operates and thinks about the business from the highest level. And so that’s what you want. I sort of recommend that everybody mess around and get their hands a little bit dirty for their first deal in buying a business.
Because if you’ve never led a team before or you’ve never run a business, how are you going to know if you have a good operator or not? I think that’s really hard to do. So that’s what I would say is first thing, make sure you have enough profit to layer somebody on top of it. And then to your point, there’s two ways to play this game, decentralized leadership, which basically means you do a ton of work up front to hire the right kind of people and you put systems in place to monitor them. But mostly it is a ton. It’s like a colonoscopy to start followed by at the end, this person is massively trusted.
You’re not watching their every move. You’re not micromanaging them because you did a lot of the upfront work and now you just have systems in place with KPIs to make sure that they’re still running the company well, option one. Option two would be, you have a process whereby you have your hands involved in a lot of oversight. And that I think is where people get stressed out. Like my businesses by and large do not call me. And instead of calling me, they would call the COO who sort of runs the operations. I have now only two. I used to have three businesses I was actively involved in and now there are only two businesses that really take up my time during the day.
The rest of those businesses are like bonds. I don’t call to check if AT&T is going to pay me the right amount each month, they just pay me the right amount. Then that comes with hiring right and structuring the deal right in my opinion.

Rob:
I think you said a lot of good stuff there because a lot of people, they either want to get into a business or get into an establishing business like let’s say real estate, but they don’t want to work. And I understand that. But I also think that you have to earn your right to not work. And so I get a lot of people, like students of mine that want to start Airbnbs and they just want to go straight to a property management company. They want to hire someone to set it up. They want to hire someone for every aspect of it. And I’m like, “Dude, you haven’t done this yet. You need to learn how to fail several times and you need to fall on your face and you need to understand what it is to manage it, to deal with cranky guests, to deal with water leaks.
You need to do that for at least three months before you go and hire it out and pass it on because how can you communicate with the people that are running your business if you don’t even know how your business runs? So I like that you said that you should get your hands dirty because I think that’s pretty applicable to pretty much every facet of real estate.

Codie:
Yeah, I totally agree. The other thing is, quite honestly, I don’t know, it’s something about real estate and business is less I think because people know that there’s lots of levers you can pull. In businesses, there’s not as many levers you can pull to make changes good or bad or in real estate, I don’t know, correct me if I’m wrong, you guys know more about it than I do. But for some reason, I find sometimes real estate attracts people who are like, “Well, I just buy this thing and then I cash flow on it and that’s it. And then I never have to do anything again.” And I just think first of all-

Rob:
I sit on a beach.

Codie:
Yeah. I think that’s-

Rob:
I buy it and I sit on a beach.

Codie:
No, I think it’s so boring. You’d get so bored and you’re going to be boring because nobody wants to talk to somebody who does nothing all day. And so I actually think people don’t really want that. They just think they want it because they hate what they do. But then when you like what you do, I couldn’t pry you out of Airbnb some way, Rob, out of your cold dead fingers, you would be fighting me because you like what you do.

David:
I just had a very deep conversation with the COO of the David Green team yesterday about this topic. Codie, it’s funny you bring it up. So I realized about myself, I was a police officer. I liked the job. I did not like having to work 20 hours a day. Never having a social life, not being able to be fit, never sleeping. You can’t really have a family and have a good quality of life because your days off are Tuesday, Wednesday. It’s just, it’s hard. I was kind of sold this dream that you buy some real estate and then you never have to work again. Your tenants will fund your life and you’re going to travel, go on boats, sit on the beach. Just walk around with your chin up because I made it. I worked really hard for three years and I’m done.
And that seeped into my mind. I think it came from a lot of places, but overall it’s usually a dream you’re being sold as opposed to a reality because when we buy it’s a reality. And that’s what marketing is, it’s to make things look better than they are. When we take pictures of listings, we don’t show the bad part. You make the house look great. And so I started the David Green team and I figured out how to hire people. It was horribly hard. I got a system going where I had good agents. It became profitable and I thought I’m done. I’m just going to coast into the sunset.
And every time a problem happened that pulled me back in, I was resentful. In my head, I was like, “Why should I have to deal with this? I’m supposed to be over it.” But what I noticed was when you stop paying attention to an organization like that, they were drawn because of me. Your best people are like, “Well, David’s not really around. I’m not really getting the leadership. I’m not growing the way I thought. I’m going to leave.” Now, you got to jump back in because a really good person left or the person who is running it still sort of needs your mentorship unless they’ve done this before.
It’s hard to put on your resume, I ran a real estate team. There’s no college degree you get for that. So you kind of have to grow them from the ground up. And when they would need something and they could tell I was resentful, they didn’t want to reach out. And that’s been the case with every business I’ve had. I don’t have to do everything, but if you just completely turn your back on it, rental properties as well, they fall apart. Your property manager is trying to do the bare minimum that they have to to keep a check coming for themselves. They are never going to be as involved in your property as you would want to be.
And so I came to this epiphany that it was stupid for me to think I was never going to have to work because I made one or two good decisions. What I got was a better type of work. I’m not working 20 hour days. I can wake up when I want to. I can work from the gym. I can work from vacation. I can work with creative elements of my mind that are fun that release dopamine. I get growth. I’m not just stuck in a factory punching some metal like M&M and 8 Mile for the rest of my life. You’re not breaking your body.
There’s a lot of benefits to why to do this, but it’s not you’re just done working. And even if you bought a bunch of rental properties and made a hundred grand a month, you still got to pay attention to what’s happening in them. There’s still a form of work. You’re still going to have to solve problems. And when I accepted that life doesn’t work this way where you just do nothing but you can definitely do better, I got happy again. The resentment went away. I was excited like you’re saying. This became fun. I started like, “Ooh, that’s a really good person. I’m excited to help change their life and I want to see them grow.”
And you start thinking of things just like what you were saying. But there was this block that my expectation was ridiculous. It’s probably like if you’re married and you think, once I get married, I’m done. I don’t have to work anymore. Now I’m in a longterm relationship, I can let myself go. I don’t have to pursue this. It’s probably the opposite. You’re going to work in that relationship, but it should be work you enjoy because you like the person. Is that similar to the approach that you’ve seen?

Codie:
Yeah, totally. I think it’s two sides. What I’ve noticed is yes, I would be super bored if I did nothing. And so I think your reframe of, hey, every chance that I have to engage in this is actually kind of an opportunity is super important. There are some businesses. So I’ve had businesses kind of like the ones you talked about that really require a lot for me. I just sold one. I signed the deal yesterday actually, because it was too much, actually. It was like exactly what you talked about. It was not enough money for me. And then the guy wanted a lot from me. And so I basically said, “I’m out, you can buy me out or somebody else can, but we’re going to sell this side of the business.”
The flip side of that though is I found when you have really good operators and their incentive aligned, humans are like Pavlov’s dog. If you ring a bell and every time you ring a bell, you get a treat, it turns out like when we ring the bell, you start to salivate. That’s like what Pavlov basically taught us. And so I think it’s the same with operators and with people who run your business, you just have to do a ton of work to make sure that your property rental… So for instance, we have a property management company and we own a bunch of, not a bunch. We own some Airbnbs and they get a cut.
They get a cut of the rent or the total income just like most property managers do, but they also get a kind of cut of the overall portfolio. And they get an opportunity for us to put up capital and them to do new deals and them to get equity in those deals if they find the deals. And I learned this from my other friend, Alex, who runs the same thing and now has a commercial loan on his portfolio. And this guy who runs it is more like a CEO than just running a few properties as property manager. So I actually think the key is really finding good people that are better than you.
Like if he brought me in to run this property management company, I would be a mess. Definitely the business would not work because he’s better than me. He’s incentive aligned and he wants to keep making money and seeing this grow because the bell rings and the treat is there every time.

David:
Yeah. That’s such a powerful part of motivating people. I think one mistake that we make in business is we assume everyone’s motivated by the same things as we are, and that’s not the case. And the other part is you assume people… You underestimate the value of motivation. Like what you said is the condition, like when the bell rings, the dog salivates because it knows it wants food. It’s hard if you make someone delay gratification for too long. If you’re like just work and slave away and in five years, this will pay off, but they’re not seeing the milestones, they’re not getting that hit of like, ooh, we made progress.
Most human beings are not like us that are just going to grind away until we get there. You have to set it up to where… Have you noticed that as well?

Codie:
Oh, yeah. 100%. But I forget it all the time, to your point. I talk about all this, like yeah, I get it. But my usual sort of treat that I hand out is cash, right? I’m like, “Hey, if you make this much, here’s how the sort of milestones going to kick in and you’re going to make this bonus or X and X if Y happens.” And then I forget some people just want to go home at 5:00 every day and not have me slack them 24 hours a day. Then other people just really like what they do and want to make a good amount and don’t want to be scared that they’re going to lose their job.
And so I make everybody do those disk things. Not for them as much. It’s for me, it’s because I need to understand this other type of human that isn’t just a total animal nonstop obsessing about business.

Rob:
Yeah. I think you do that, right Dave? Don’t don’t you make everyone take DiSC tests too?

David:
I’m a huge DiSC believer. To me that was the Rosetta Stone that helped me understand why every human being frustrated me all the time is I did not know that I am a very rare profile and my communication style, it’s not like everybody else’s. And when I figured that out and I learned how to talk in their way, all of a sudden they liked me, we got along way better. Our relationship improved. Before that I was like, “Why is only 9% of the population get it and nobody else does?”

Codie:
Yeah. You probably intimidate them too. You’re a big jujitsu doing dude. So add that. I don’t think you’re a wallflower, Dave. I imagine you come out a little strong. Huh?

David:
That’s what I’m told. I probably hear four times a week I’m intimidating. And I’m always like, “Why? What did I do that was intimidating? But they’re too intimidated to tell me. So I still haven’t figured that out.

Codie:
20 years as a cop will probably do it too or however long you said.

David:
Yeah. I actually wrote an article about the DiSC profile on BiggerPockets. So if people search the blog, they can see an article about what we’re referring to. I’m curious, Codie, what are you? What’s your setup?

Codie:
Oh God, that’s really good. This shows a lack of self-reflection. So my profile, I don’t remember what I am. What’s the other profile? That’s like the-

David:
Myers Briggs.

Codie:
Myers Briggs, a 16-

Rob:
Enneagram?

Codie:
No, I don’t remember that one either. The 16 personalities one, I’m not a commander, that’s my husband. This is going to be a really great answer. I can’t remember.

David:
I think you’re a high D. Because a high D wouldn’t care-

Codie:
What’s D again?

David:
That’s the decisiveness. They make decisions really quickly. They’re comfortable in situations they haven’t been before.

Codie:
Yes. Yes. I’m that one, Dave.

David:
Yeah, because a D wouldn’t really care what the DiSC says. It’s too busy making money and making decisions to stop to. But you recognize you need to know for how you communicate with others because you’re a leader. And that typically ends up being… Ds usually end up in the leadership positions.

Codie:
That makes sense.

David:
So a quick rundown is Ds are very comfortable making decisions when they haven’t been in that environment before. They’re very decisive. Eyes are very interactive. Like Rob would have a very high I. They like people.

Rob:
[inaudible 00:33:57].

David:
They’re likable. They’re the most popular people in high school. The social butterflies.

Rob:
Stop. Stop. Stop.

David:
Yes. That’s it. That’s an I. Right? You want to get an I to like you if you compliment them on something or they can tell you like them, oh my God, they love you. If they think they’re not liked, they don’t know what to do. It’s really unsettling. Ss are your stable score. This is the pace that you like to live life at. They don’t like surprises. They hate change. They like predictability. They get the same thing every morning for breakfast. They want to come in the office. If something changes, the first thing they say is, “But I thought we were going to do this.” They’re like the hardest to get along with Ds like me or the Ss because we change everything like, “This is better. Let’s switch it.”
And then they’re like, “Well wait, wait, wait. I thought we were going to do something else.” And Cs are your conscientious score. This is your architects, your engineers, your lawyers, your doctors, the people that like everything needs to be perfect. They’re really good with spreadsheets and data and analysis.

Rob:
Hmm. Yeah. Okay. Yeah. First glance I’m like definitely an I I think.

David:
Yeah. I think you’re an IC because you’re also very good with detail. You catch a lot of detail in a lot of different scenarios.

Rob:
It’s not that I want to, it’s like I would rather hire someone or have someone on my team that’s good at the details because I really run free when I’m not having to be the one keeping track or keeping notes or keeping score. I just kind want to run with ideas. But as you grow and you’re wealthier portfolio, your business, you kind of have to start being more organized or else you’re going to stop making money and you’re going to start losing money. So I’m kind of at that point where I’m like, Ugh. So I’ve hired people appropriately to help me with that I think.

Codie:
Yeah. I think the hard part is for me, well, I just showed you guys, but I have a really bad memory. And so what I’ve realized is we have to have processes and procedures for everything. Otherwise, if you’re running a lot of businesses, you’re going to forget it. And so I’m really not very detail oriented at all and I have to hire for that constantly. Like my first hire is almost always a COO for any business or at least a chief of staff because I need somebody who’s the opposite of me.
Don’t worry about bringing in the sales, don’t worry about fundraising, don’t worry about the growth plan overall or hiring people, but do worry about making sure that we pay payroll at 12 o’clock on a Friday every week. So yeah, I think it’s really important for sure.

Rob:
So yeah, I guess I wanted to dive into that a little bit because I know you’ve bought 26 businesses, you mentioned, which is a lot. And from that you’ve sort of have baked your philosophy or your POV on this down to three questions that everyone should be asking when they’re buying these businesses. Is that about right?

Codie:
Yeah. Actually my executive coach told me these. It really comes down to not just buying businesses whenever you have a problem. I basically ask myself, “Who can I…” Instead of saying… Have you guys read the book, Who Not How?

Rob:
Read it? I own it. But no, I haven’t read it yet.

Codie:
I was going to say, is that better or worse? So none of these ideas are new or uniquely mine, but this Who Not How I think is an incredible… It’s a listen, you don’t actually have to read the book. I would recommend audio. But basically every time that I have a problem, I come into asking myself instead of how do I tackle this problem? I say like, “Who can I hire? How can I outsource this problem or individual issue? Who can I delegate to on this instead?” And I also ask myself, “Can I buy it instead of build it?”
And so we have these series of questions that I’m always asking myself, instead of how can I do this, it’s, can I buy it? Can somebody else run this business for me? Can I delegate this task instead? And I kind of go back and forth between those three or four questions almost every time.

David:
We interviewed the author of that book, Benjamin Hardy on episode 425, if people would like to listen.

Codie:
Oh.

Rob:
Man, you looked that up really fast.

David:
That’s my high D nature. Things have to get done quick.

Rob:
So we’ve talked about who to hire, I guess let’s talk about what can I buy or can I buy it? Because I know that’s something you and I have talked about several times where I’m like, “Man, I want to just go and build this.” And you’re like, “Well, can you just go and just buy something that even if it’s not nearly as good as what you want it to be, that you can make work?” So is there a reason here? I know there is, but what’s your personal reason for always just buying something that may not be working. And is it because of the value add component that you can add to increase the value of your business?

Codie:
I think I just don’t really like risk. So if I can buy a business, I already know that I’m operating with some level of profit or cash flow. And so people might think it’s risky to buy a business, but I actually think it’s much less risky because if I build something, I’ve got to put a bunch of money down on hopes of future dreams, right? I suppose it’s the same with real estate. It’s like, no, I’d rather buy this house that’s done. I could build it, which could mean that it’s cheaper, let’s say to do it, but it’s going to take a long time and maybe I don’t have all the expertise on it. And it’s the same for a business.
So like for instance, I want to own a bunch of financial models and tools for our main business, Contrarian Thinking. That’s the one that I play with the most these days where we basically go and we talk about how to become financially free, free in your mind, free in your bank account. And I want to own a bunch of models. So basically, here’s a due diligence checklist. Here’s a mobile home park model. And I would like to build out this suite of products. And so I was starting to think about, okay, well, I’m going to hire a bunch of my ex analysts. I’m going to have them build out a bunch of these models because I don’t want to do it all.
And then I’m going to put it here and we’re going to have this marketplace of stuff people could pick from. And then I was like, “Wait a second, there has to be some terrible website located on the internet that’s built in the ’80s that’s full of financial models. Those don’t actually change that much. We could slightly tweak them. Why don’t I just buy this business?” So I started reaching out to a bunch. I looked up this one company, I think it’s called E Financial Models, creative name, terrible website, terrible UI/UX. They wouldn’t let me buy it.
He’s based in Zurich, but if you’re listening, still interested, but then I found another business that’s similar to it. And it would cost me in time and hours probably, I don’t know, 100K in a couple months to build out what I want to build. And I think I’ll be able to buy this business for maybe 200K. So you save me three to six months on it. I pay a premium of like two, let’s say 2X on the business, but it’s rocking and rolling day one and it already has income coming in to start profiting off of. So that’s why I like to buy instead of build as much as possible.
And PE people are all like this, because the secret is we’re not that creative. Venture capital startups and founders, they’re super creative. They’re coming up with the next Tesla. I don’t have that in me, but I can definitely take a business that creates financial models online, give it a new website and upgrade, some pretty lipstick on the pig and this thing can be a lot more valuable than it is day one.

Rob:
So on that financial modeling business, are you actually planning to cash flow on that business or is that just like a value add that’s going to be part of the Contrarian Thinking brand?

Codie:
No, I’m going to cash flow on it. So this gets to the point where I guess we could talk about ecosystem or satellite businesses. So in my land, if we think about Contrarian Thinking, it’s a media company similar to BiggerPockets, right? Much smaller scale. But I don’t know if you… Dave, have you guys ever grown through acquisition at BiggerPockets? I know acquisition of real estate obviously, but anything media related?

David:
I believe in general, it’s typically in-house organic.

Codie:
Yeah. So I like to not do that as much as possible. It’s taken us a year and a half to build a 100k newsletter list. We have like 1.5 million social followers across the platform. That’s pretty fast growth, but some of that’s like, you can’t make that happen. You have to get lucky, you got to get viral, whatever. And so for Contrarian Thinking, we have this main newsletter business and this media around it, which is just social media and I’m trying to figure out, I want to own the entire ecosystem of small businesses. So when people think boring businesses, small businesses, I want them to think Codie Sanchez, Contrarian Thinking.
And the reason that I’m building a big social following is because I’m going to buy all the companies on the periphery that people are interested in if they’re investors in this space. So I’m going to buy this marketplace because then I have every financial model you could ever want to analyze any small business and I’ll charge you some percentage on them. I might even allow people to upload their own financial models and then I’ll just take a cut and then I wouldn’t have to keep uploading them. Somebody else could do that for me and I’ll become more of a third party marketplace as opposed to my own.
I also want to buy… Well, I think we just might have closed this yesterday. We’ll see once I get back to the email here. We’re buying like a chat bot service for small and medium businesses. It’s a business that’s been around for 25 years. And basically it’s like say you have a locksmith issue and you’re trying to get a locksmith at 2:00 in the morning. This could be like a real human that would respond to you and say, “Oh yeah, great. We’re going to connect you to Greg.” Whatever, sends Greg over there. It’s a customer service tool. And so I want to buy that company and stick it into my ecosystem.
And if I owned a bunch of real estate, I’d want to do the same thing. I’d want to buy companies surrounding my real estate so that I could increase my revenue and profits and diversify in non-recession or in recession resistant asset classes.

David:
Let’s say there’s a real estate investor who’s doing pretty good with real estate investing or they… Maybe I could say it like this. A lot of people get into real estate investing because they think it’s going to be passive income. And once they get there, they realize to be good at this still takes a skill. Now some people are good with bookkeeping. Some people are good with operations. Some people are great at negotiating. Others find the deals. So whatever your natural skills are, they show up in this world. This isn’t just a cookie cutter type of investment like buying a stock.
So I feel like there’s a lot of human beings that will get pretty good at this but will realize, you know what? I don’t want to have to keep doing this element of the business. I really like this one. Those people will be naturally drawn to owning a business that sort of focuses in that area. What are some ancillary businesses that you think that real estate investors could look into buying to help supercharge their own business and increase cash flow?

Codie:
Well, we have a group called Unconventional Acquisitions, and there were, I would say there were like 10 or 12 guys that started who were all real estate guys. One’s name is Lloyd and he owned a bunch of multifamily units. I think it’s in South Carolina, somewhere where there’s a lot of weather basically and was having to do a lot of roofing repairs continuously to his relatively large portfolio of multifamilies. And so anyway, so he started talking to us about, how do you do this? And we were like, “Well, I’d like to do something called a personal P&L review.”
So basically I say, for yourself personally, where do you spend money every single month? Sort of track any of those businesses that are small enough for you to get to the CEO. And then for your business, do the same thing. Where does your money go? What are the owners that you could actually get to out of your P&L? And so he was like, “God, I’m spending a ton of money on roof maintenance a year.” He’s like, “Why don’t I reach out to this guy and see if he’ll let me buy his business.” And I was like, “Okay, definitely could do that. But Lloyd, you’ve told me before you don’t want to work a ton more and you don’t want to operate this business.”
And he was like, “Yes, both of those things are true.” I’m like, “Okay. So instead, why don’t you reach out to this guy and say, ‘Hey, I calculated that I give you, I don’t know, $200,000 a year in revenue from my properties. I also have friends that have properties of X, which would equate to Y of total revenue for your business. What I’d like to do is I’m going to buy a roofing company. It could be yours, it could be somebody else’s and I could buy one outright or I could invest in yours. And I could invest in yours on a discounted term because I’m already giving you $200,000 in revenue and I could bring you these additional people.
So I’ll put some money on the table, but also give me an earn out for all of the new business that I bring to you and a discount for all the business that I already have with you.’” And so he did that and now he owns part of the roofing company without having to run it. So that would be a lazier person’s way to do a deal like this. And the only thing you want to make sure of is that you’re able to track the financials. I require that I can see into the financials or my CFO can see into the financials of all the businesses we own a certain percentage of so I make sure nobody’s skimming off the top. I’m sure they still are, but not too badly.

Rob:
Yeah. That’s actually really smart. And I think you even mentioned this earlier about you kind of own your own property management company. And that is starting to make a lot more sense to me where I am starting to hire more people in the Airbnb businesses like interior designers or property managers. This is a whole rabbit hole we can go down towards, but it’s starting to make a lot more sense to just absorb, not necessarily companies, but freelancers that have their own business in becoming like, it sounds sort of like what this guy’s doing, like a super affiliate where you do own part of it but you’re the one that’s fueling all the leads that come into that business. And thus you get a payout from that. Is that sort of what this roofing company is?

Codie:
Yeah. I call it a rev share acquisition. So basically you buy something meaningful to you, 30 to 40% of a business, let’s say, and you buy it through the revenue that you’re already giving the business and through because you have a giant marketing bullhorn in your industry through your additional distribution. And usually for small businesses, what is the one thing most small businesses are bad at? It’s usually sales. Distribution is always a major pain point. So you can get access to a business sort of two ways without giving capital. One would be get them more customers so they’ll give you a percentage of the business for the additional revenue or help them cut costs.
Helping them cut costs is I think never as fun and it’s sometimes harder to do. So I like, if I’m going to do a rev share deal with the business, I’ll do it based on how much business I could bring in with them. We just did a deal the other week where we’re investing as, we’re not a majority investor, but a minority investor in a company and they are raising capital and we wanted to be meaningful in it. But the level that they’re raising capital at, the valuation right now is like, yeah, buddy, I want that too for you, but it’s not going to happen in this world.
And so I said, “Hey, listen, we’ll invest in you, but we’re going to invest in you at the last rounds valuation, not this one. And the reason why you’re going to let us in there is because we’re going to be a bullhorn for you. We’re going to be a foghorn for you. And we’re going…” Is bullhorn a thing? I don’t think that’s a thing. Is that? Anybody know?

David:
I don’t know if foghorn’s a thing either though.

Rob:
No foghorn is like the [inaudible 00:48:50]. Isn’t it? [inaudible 00:48:52].

Codie:
That’s [inaudible 00:48:53].

David:
Yeah. A bullhorn is, I think what you talk into and it amplifies your voice.

Codie:
Oh, so both work.

Rob:
No, that’s a megaphone.

David:
So a bullhorn is what, it makes a bull sound when you blow into it?

Codie:
Maybe it’s just the horn of a bull. I do live in Texas.

David:
Yeah. That actually makes a lot of sense, Codie.

Rob:
Okay, got it. You’re right, David. It is an electronic device for amplifying the sound of the voice. I apologize for calling you wrong-

Codie:
[inaudible 00:49:19].

Rob:
… on national podcast.

David:
Because I’m such a big person, I will forgive you for that.

Codie:
Literally and figuratively.

David:
Bring a full circle there, Codie, next.

Codie:
That is exactly right. Anyway, so I think that’s what I would do. I love those rev share deals for people who haven’t done a lot of buyouts because it’s less scary. You’re like, “Oh, I don’t have to give you a lot of money. Just future potential money, that makes it less scary I think.

Rob:
That’s sort of where I think, I’m figuring out where I want to be entrepreneur wise and real estate investor wise, influencer, all that kind of stuff. Because I even… Forget I said that. Editor, takeout that I called myself an influencer. No, I’m just kidding. In this space where I’m at, my platform, it does seem like there are a lot of businesses that I want to build. And I understand that there’s so much time involved with doing that in the real estate space.
Like thinking about a short-term rental product, like a service product and this and that, but it makes so much more sense to just use my platform to be sort of a super affiliate for businesses that I really, really, really believe in because then I don’t have to build the business. I can just send the leads and it’s so much easier to do that kind of in my stage right now.

Codie:
Yeah. Agree. I just wouldn’t use the term affiliate because you want ownership. You guys know this, the hardest dollars are the first dollars. And so even if you’re not materially changing the outcome of a business to like 100x, if you are taking somebody from a business that does a million dollars to two or three, that’s really, really meaningful. And so I think the problem with affiliates just categorically is you get somebody into somebody’s ecosystem but you normally don’t get paid for the lifetime of that client. And for the reciprocal of the one client who talks to somebody else who talks to somebody else. So I really think you want to get actual ownership.
You want equity ownership that pays dividends on an annual or quarterly basis on the same rate as the rest of the owners so they can’t cut you out of deals. Like if they’re paying themselves, they’re paying you too. That’s what I would say. I don’t do affiliate deals for that reason kind of exclusively.

Rob:
Yeah. And I agree, let me clarify. It’s more like, I call it super affiliate, but what I really mean is like, hey, once I get you to X in revenue and if that matches kind of where you’re at, that’s when I’m sort of brought in as an equitable partner in that company or fund or whatever.

Codie:
Yeah. I like it.

Rob:
So we talked about the roofing company, if you’re a real estate investor and you’re looking to broaden your horizons, is there any kind of other real estate niche or anything that they can jump into and diversify outside of something like buying an actual company that you’re spending a lot of money on?

Codie:
So do you mean types of companies or structures of deals or both?

Rob:
Yeah. Both really. Anything in the real estate space.

Codie:
Yeah. There’s a ton of sectors, I think that make sense for real estate. I think you should just go from proximity bias. So like closest to real estate would be normally some of your biggest expenses. So property managers, let’s say, then it might be owning the mortgage company. Then it might be owning the marketing company that does all your social media marketing for your company overall. Then it might be the HR recruiting company that recruits for your underlying real estate company. So I think you kind of go out from like, what’s closest to your business and move that way.
I have another guy that owns commercial property and buys landscaping companies. He’s bought like two or three, sold one for 10 mil. And it’s because they serviced all of his commercial properties. And so he got to know the guys, they showed up all the time on time. They were underpriced often. They weren’t automated. They had no bad systems. My favorite businesses, like every time I see a fax machine, I just get all hot and bothered. I’m like, “Oh, this is going to be so good because they’re still using a fax machine. I can only imagine what their Yelp profile looks like.” I’m real fun at a party guys is what I’m trying to tell you. And so anyway, so-

Rob:
Is that a fax machine back there?

Codie:
No. Nobody’s invited her again. So I like those businesses that you can add just a little bit of technology to that are close enough to real estate. So that’s probably where I’d go first. Last diatribe here is I also might like, you know how, you guys probably just see it. You know how you can see a property probably online or you could drive by it and you’re just like, “That’s a good property. I bet this person does X with that.” I don’t have that muscle for real estate because I don’t see as many deals as you guys do. I’ve sent Airbnbs to Rob and he’s like, “Nope, 30 seconds, let me tell you why.” I’m like, “Oh, okay. Cool. Got it.”
So you get that with deals after a while. So what’ll happen is the second you start thinking, how can I buy the solution to this problem instead of build the solution to this problem? You’ll start talking to other owners and they’ll be like, “Yeah, I’m retiring. I don’t know what to do next. I have this business. I’ll probably hand it off to the grandkids and they’ll burn it to the ground.” And you’re like are on them like white on rice. So it doesn’t always have to be exactly real estate related. It could just be in real estate, you guys know so many people in the community. Use that to your advantage.

Rob:
That’s really great. Well, there’s a couple ways we can go with this. We can actually jump into the deal deep dive and talk about one of them or you can also rip apart one of our deals. What do you think, Dave?

David:
Let’s go to the deal deep dive. I want to hear about a business that Codie has bought.

Codie:
Yeah. Well, let’s go with the recent one. I’m going to pull up some numbers here so I’m not lying to you guys because that’s not a good way to start a relationship.

David:
So we will ask you questions. Codie, we’ll fire them at you and you can just fire back.

Codie:
Oh, I like it. Let’s go.

David:
All right. Question number one. What kind of business is this?

Codie:
This business is a SaaS services business. So it’s a business that does like templated processes for hiring.

Rob:
And how did you find it?

Codie:
A lot of the reason I am so much on social is so that people will send me deals. So this one, one of the people that follows me on social sent me this deal.

David:
Next question. How much was the deal?

Codie:
This business was $120,000 with an additional $135,000 of earn out. So $255,000.

Rob:
Wow. That’s a good deal.

David:
Yeah. 1600s back when it was a Louisiana purchase. That’s funny.

Rob:
That’s a historical deep cut is what we call that.

Codie:
Yeah, that’d be great for TikTok.

David:
That should probably go down as the best real estate deal of all time. Have we ranked best real estate? The Louisiana purchase has to be up there.

Rob:
I think that’s up there. I don’t-

Codie:
Oh, it’s got to be up there.

Rob:
I don’t think that one’s up for a contention. How did you negotiate it?

Codie:
So this one was relatively easy. This business, they’ve been in business for six years. It’s one of the guy’s projects. He has multiple projects. So it’s getting kind of no love and it’s a really cool interface but no distribution on it. So I found it because we used the tool in one of my businesses to hire people and then just reached out to them and was like, “What are you doing with this? What’s happening?” Got to know the guy. I never really just usually reach out to people and say, “Hey, can I buy your stuff? That doesn’t usually work out as well. I just say like, “Oh, I’d love to talk to you. This is a cool business.”
I get to know the guy and he tells me, “Yeah, it’s just one of the things I run, but I’m really focused on this AI such and such.” I’m like, “Great.” And so I ask him a little bit more about the sort of numbers on the business. He tells me and then we start talking sales.

David:
Okay. When you decided to buy it, how did you fund it?

Codie:
This one I bought with cash. Not much. It wasn’t a huge capital outlay and I wanted it to close quickly. So 120k down. And then the earn out is that additional $135,000 that he will get but he’s funding me in seller financing over the course of, I believe it’s two years.

Rob:
Okay. And what did you do with this business?

Codie:
Haven’t done anything yet except started to take over the business and run it. It’s a profitable business. It’s not huge. It probably does something like eight to $13,000 a month in profit. And this business is one that what I want to do is plug it in with this other company that I’m going to buy. And I already have the operator that’s running this new business and he’s going to run both of them and then I’m going to integrate it into everything else that we do.
So it would be like, I guess if you had like a lead gen software or something like that or a hiring software or something like that for your real estate company. I just want to plug it into my ecosystem, make it easier for my company to grow and then I’m going to distribute it through our social and media following.

David:
Awesome. All right. So far, what has the outcome been?

Codie:
The outcome here has just been… Sales are standard. I got this deal at… So if we’re making, let’s split the difference and say we’re making $10,000 a month just to be even across the board. That’s 120k a year and that’s essentially what I put down. So I bought the business for 1x down what the total value of the business is, or I’m sorry, what the total profits of the business is. And then let’s call it another two point, I don’t know, 1x on the, I’m sorry, another 1.1x on the future revenue of the business. So right now we’re profitable buying this business inside of two years if nothing grows.
At the end of two years, every dollar that we make on top of it is gravy. So that in itself would make me happy. But the thing that we’re going to do is connect it with this other company. And then I think this thing could be worth a few million dollars. My target for it, I modeled it out and thought we could turn this into a 5.7 million business sort of with our ecosystem and not buying any other companies. So we’ll see.

Rob:
5.7 million, oddly specific, but I love it. Last question for you, what lessons did you learn from this deal?

Codie:
Couple things. I don’t know if I learned from this one in particular, but first would be keep the deal terms really simple. So this is an older gentleman that was running this company and he didn’t want a bunch of… I wouldn’t give him a full term sheet. Basically I typed out bullet points. So this is what we’re going to do. Nothing else besides these main terms will get snuck in there. And that allowed us to turn around the deal within like 48 hours. And then we papered it with the attorney. So I would say keep it really stupid simple and you’ll close a lot faster and not scare the seller off.

David:
Awesome. All right. Well, thank you, Codie. We don’t get to hear every day about… You know what, let me ask you one last question before we get out of here. If somebody is interested in either buying a business or selling a business they have, how do you find the equivalent of a real estate agent to handle that transaction?

Codie:
Yeah, it’s called a broker. There aren’t really brokers for you if you’re buying a business, you can get on the Rolodex of a bunch of cell side brokers. That’s the norm. So any broker is almost always going to represent the seller. There’s not like buy side brokers unless maybe you’re really big and then you bring them in house. And those are usually called business development guys. So the way that you find them is you go to somewhere like Quiet Light Brokerage, you could go to E-Commerce Flippers, you could look on BizBuySell and they’re going to have a lot of brokers listed that you could work with that are repping deals.
And then you start to develop a relationship with them. Like, “Hey, when you next get a seller that’s doing X, Y or Z, call me if it’s these parameters.” And I do like to develop relationships with them. They’ll give you, especially if you buy something from them once, they know you’re a player, you’re not going to waste their time. They’ll give you a lot of deals.

David:
So would you just Google like business broker?

Codie:
Yeah. Well, I would go to those three. If you’re going to buy online businesses, I’d go to Quiet Light Brokerage or E-Commerce Flippers. But yes, you could just Google business brokers. I would try to be more specific. I might say like, business brokers in this geography. I might say, HVAC business brokers, laundromat business brokers. Kind of like narrow down what your specific segment is because there’s oftentimes specialists and support groups, industry specific groups basically.

David:
So when are you going to buy a business brokerage to make money from businesses that are sold and then get the first shot at businesses that are coming available [inaudible 01:02:03] of the world.

Rob:
Boring business inception.

David:
Yes. Boring business inception.

Codie:
Now everybody knows. Nobody’s listening. Well, funny story actually. So when I was first starting to do this, this is only funny to a nerd, but I reached out to this company called BizBuySell and they have this terrible interface. It’s super 1980s. It’s not optimized. There’s a bunch of trash on the website. And I’m not a billionaire, but I reach out to these people and I’m like, “Hey, has anybody ever spoken to you about buying your business? I’d like to buy BizBuySell.” And I don’t get a response and I kind of like try to get a bunch of different ways.
And then I Google who the parent company is and realize that they’re owned by Core-Mark, which is like a 47.3 billion company. And so I have tried to buy business buying sites, but the really good ones are very valuable. I bet that company’s worth 60 to 160 million, something like that. I’d still buy it at those terms if they would sell it actually. I just need other investors, but I might invest in two smaller marketplaces that I’m looking at right now. There’s not great options to go up against them. We need a Zillow or Redfin for businesses that’s really well done. And it just doesn’t quite exist yet for hard asset businesses. For online businesses, there are some options.

Rob:
I wonder if there’s anyone on this podcast that’s capable of taking that on. I don’t know.

Codie:
Guess we’ll see.

David:
I would like to talk to them because this is an issue that I often have. You know what, here, Codie, I’m going to tie this together. What I love about this and why we wanted you on the show, well, first off you’re awesome at what you do. It is very rare you come across someone that can do what you do. And it also is personable enough to explain it. Typically, the people like you are very hard to understand. They can’t articulate what’s in their head. It’s, you know what I’m getting at. But in this era we’re finding it harder and harder to find cash flowing real estate.
It’s getting increasingly difficult because in general, owning real estate is less work than owning a business. So all this money’s been printed by the government. It falls in the hands of smart people. They have to deploy it. It’s usually less risky and less time consuming to go buy a bunch of real estate than it is to go buy a business where you have to, like you were looking at, you have to oversee it, make sure people aren’t skimming off the top. It’s a little more labor inducive. So that has created this really big bubble in the real… I shouldn’t say bubble, because it’s not like it’s going to pop.
It’s created a very hot market where it’s harder to find real estate deals, but business deals are everywhere. Like you’re saying, there’s all these baby boomers that are aging out. There’s an epidemic of fax machines that are screaming, “Come buy me.” So this is a way that if you’re into real estate and you want to work in this space, that you can become an owner of a business and still find income coming in from something without just buying real estate. So I want to thank you for sharing this. And Rob, for you, how do you guys know each other by the way? I never asked that.

Rob:
I don’t even remember.

Codie:
How did we meet?

Rob:
How did we become friends?

Codie:
It had to be online.

Rob:
Oh, you asked me to come on your podcast like a year ago, I think.

Codie:
But did I just meet you online? Was I just following you?

Rob:
Yeah. Yeah. I think so. You were like, “Oh, this guy builds tiny houses. I’d like to have him on my podcast.

Codie:
Yeah. That’s true.

Rob:
And then I think I ghosted on accident. I was busy.

Codie:
Did you?

Rob:
I was busy learning who I was. And then you emailed me like three more times. I was like, “Fine. I’ll do it.”

Codie:
Ah, I love that.

Rob:
And then I was like, “Oh my gosh, he’s so cool,” once we actually did the podcast and then we’ve been buds ever since.

Codie:
Yeah. And then you came and spoke at my conference, which was rad.

Rob:
That’s right. Ah, man, that was really, really fun. Thank you for having me up.

Codie:
You’re a killer speaker. That’s good.

Rob:
Oh, stop. Stop.

David:
Yeah, you should be on a podcast or something. All right. Well, this has been mind blowing. I love talking this stuff. I hope we can have you back on, Codie, again, to talk about it in a little more depth because I think with the market we’re in, it only makes sense for real estate investors to sort of broaden their perspective, look around a little bit and say, “Hey, I still want to buy real estate, but I could buy some of these businesses that compliment real estate.” That’s a big thing Brandon and I talked about was the synergy, right? If you’re flipping houses and then you go to the burst strategy, it’s not a huge jump. You’re not doing something completely new.
If you run a glue factory and then you want to go start like a lumberjack business, that’s a really bad idea. There’s no congruency between the two things. So what we’re talking about is if you already love real estate, you already know how to value it, you kind of get how the world works. Why not consider running a business that’s in that world? It’s not a huge jump. So thank you for that. All right. We’re going to move on to the last segment of our show. It is the world famous, Famous Four. At this segment of the show, Codie, we ask every guest the same four questions. And I will start. Question number one, if you have one, what is your favorite real estate related book?

Codie:
It’s so cliche to say, Rich Dad Poor Dad. That’s actually terrible. I don’t have any real estate books that I would read besides Rich Dad Poor Dad or actually know where I would go? Dale Carnegie’s biography. Not exactly real estate, but one of the largest real estate owners in the country at his time. And I think anytime you can read the biography of great men who have amassed massive wealth, you walk away learning a ton. I think Walter Isaacson wrote that book, who’s also an incredible biographer, but check my facts on that one.

Rob:
Okay. Question number two. Favorite business book.

Codie:
Ah, this is also a little controversial. It’s not for the political leanings, but Dave, you already know that I like to be controversial, so we’ll just throw it in there. We’ll get everybody canceled early. There’s a book called Atlas Shrugged that lots of people talk about, another one called Fountainhead. And the reason I like those books, they’re novels written by a woman who came over from communist Russia to the US. And the reason I like them is because they were the first books that I ever read that make me feel like it made sense when you love business. I don’t know if you guys or anybody listening relates that like some people just, their eyes glaze over.
And I would love nothing more than to talk business all day. I don’t care what’s on TV. I don’t care about your kids. I don’t want to hear about the dog. The weather’s out of the question, but if you want to talk business strategies, I’m there for it all day. And that book made me realize, oh, maybe there’s other people like that. So I really like that book.

David:
I think that’s what Rich Dad Poor Dad did to a lot of people when it comes to finance and real estate is it was, that is what I’ve been feeling this whole time and now I don’t feel crazy. There’s other people out there that feel it too. And those are always impactful moments when you have that, like, yes, now it makes sense. That’s what the DiSC profile was for me with communications. Oh, that’s how you got to do this. So these are powerful books.
Even if you end up not agreeing with everything that’s in the book, I don’t think there’s anything wrong with reading it, trying to understand the viewpoint of the person that wrote it and seeing if those principles might apply to some other part of your life even if it’s not business.

Codie:
Yes. Agree.

Rob:
Yeah. Actually I will say credit to your conference. When I was there and I was in the green room with all the speakers, that’s how I felt. I was like, “Oh, this is how other entrepreneurs think.” And they all like the [inaudible 01:09:04] were going. Everyone’s talking about the game plan, everyone just super, super successful. And I was like, “Wow, this is…” I felt very elevated being in a room with other people that were like same mindset.

Codie:
I love that.

Rob:
So when you are not buying 26 businesses and working them and hiring the team and operators and doing all that whole thing, what are some of your favorite hobbies?

Codie:
You brought up jujitsu earlier, Dave, but my husband’s really into jujitsu. I actually really like Muay Thai. So we do a lot of Muay Thai, a lot of yoga. I think our saying at Contrarian Thinking is civilize the mind, make savage the body, build the bank account. And so I try to do things every single day that I think are hard physically. That’s maybe one of my favorite things because it makes everything else easier. Then it’s like, oh, we lost some money this month. Okay, whatever, is anybody going to die?
So I would add MMA. I would add yoga. And then I would add, I’m really into lately saunas and cold plunges. I think that’s become a thing now, but those are some of my favorite activities.

David:
So pretty much anything you can do that is hard.

Codie:
Yeah, I don’t like heights. Does that count? Yeah. That’s not my favorite.

Rob:
All right, let’s go skydiving. Set it up.

Codie:
I’ll do it. I just won’t like it, Rob.

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

Codie:
Ego. It’s all about the ability to ask questions. I used to think that I had to be really smart. Private equity is a weird world and lots of people are not the nicest in that space. And so for a long time, I was really quiet and just would nod my head like, “Of course I know what pari passu means.” And then I’d go Google like pro rata, pari passu. What’s that mean? And then I realized, wait a second, none of these people actually know. And the thing that is their Achilles heel is that they’re all pretending that they know everything so they sound smarter than everybody else.
And I realized the smartest investors were like, “Explain that to me like I’m a toddler.” And they had no… It didn’t mean that they weren’t smart. They just didn’t care if they didn’t know all the answers. And so I’m a former journalist and that really opened up my eyes to a lot. I was like, “Oh, if I just ask the right questions, I can get any answer. I don’t have to have all the answers.”

Rob:
I love that. So former journalist, Goldman Sachs ex worker/crazy business owner with 26 owners, really quite the resume, Codie. Thank you so much for joining us. Can you tell us where people can find out more about you on the interwebs?

Codie:
Yeah. I’m Codie Sanchez pretty much everywhere. We’re pretty big on TikTok and Twitter and Instagram. And then Contrarian Thinking, if you want any of the business breakdowns, that’s where those will be.

Rob:
Yeah, definitely go follow her on Instagram, TikTok. Literally Codie went from like, I don’t know, it was annoying. 150,000 followers to like 800,000 followers in like a week. And I was like, “Dang it. Now I’ll never catch up.”

Codie:
That is not going to be on my tombstone. I don’t know that we’re going to care about that in a year or two. So I think you got that. Don’t worry about it.

David:
But we care about it now, Codie, especially Rob.

Rob:
Yeah. That’s right. I won’t sleep until I beat you.

David:
This was always what I had to feel when Brandon was on the show is he would be like, “Hey, follow me.” And he’d get 9,000 followers and I’d get like four, mostly the four people that felt bad, like, oh, but what about David? Just give him a pity follow. And what people don’t realize is I am perfectly fine with the pity follow. I’m not above that whatsoever.

Rob:
True. He is.

Codie:
What, give me the money.

Rob:
We’ll want to say one quick warning to everybody, go follow Codie, go follow, foto or follow me at Rob Built, David at David Green 24. What’s going to happen is you’ll follow us. Immediately upon following us, you’ll probably get a robot that follows you back.

Codie:
Oh yeah.

Rob:
Don’t fall for the robot, guys.

Codie:
Don’t fall for the robot.

Rob:
They’re out there. We’re all working on the blue checks. I don’t know, Codie, you might have a blue check, but me and David are working on it.

Codie:
Yeah. None of us talk about crypto. So there’s your first trigger. They talk to you about crypto.

David:
Yeah. That’s exactly right.

Codie:
Although I hate to say it-

Rob:
You shouldn’t have said it. Now that you said it, it’s out there now.

Codie:
Oh, wow. Also, I think there’s a little bit of Darwinism happening here because I’m like, you guys, if you’re falling for these bots, maybe you needed to once because you’re never going to fall for it again. This is like your Nigerian [inaudible 01:13:24] from Africa calling.

Rob:
You do like some controversial things.

Codie:
Yeah, come on, guys. You got to get smarter than the bots.

Rob:
Yeah. I have a lot of people that will send me the screenshot and they’re like, “Hey, this is Rob [inaudible 01:13:33] 45678. Is this you?” And I’m like, “No, you’re messaging me. This is me. We’ve established that this is my account.

David:
[inaudible 01:13:41] you get is that you, did you make up another fake account, spell your name wrong on purpose, copy all the same pictures from the one you had to the other one just to message me from that one? It’s understandable that they’re confused. It’s just funny that’s the way that they phrase the question to [inaudible 01:13:58].

Rob:
I’m not kidding you. I get minimum, minimum 30 to 50 of those messages a day.

Codie:
Oh yeah. Ditto. The same. My favorite thing is just, I go on another account just because they block you from seeing them. So I can’t ever see my scammers.

Rob:
Yes. They do. It’s annoying.

Codie:
Yeah. So I go to this other account and then I just do a screen share of like the 452 versions of Codie, which is funny because nobody even cares about the one Codie. I don’t know why they think the 400… But somebody out there’s fallen for it. So you got to wake up because if people don’t buy this stuff anymore, I think the scammers go away and then we’re solved. Wait until I get scammed, then I’ll come back on here and you guys can ridicule me mercilessly.

Rob:
Well, everybody cares about the one Codie. All right, let me clear that up for everybody.

David:
Yes. And on that note, thank you so much, Codie, for being on the show, for sharing your expertise, for giving us a new perspective on how we can make money through real estate and enjoy what we do. Again, what’s your preferred method for people to reach out if they do want to talk to you?

Codie:
Where we usually do the most engaging is probably Twitter. So get at me on Twitter, I respond to all the comments on our tweets and I think Twitter is actually pretty fun and you can engage with humans very easily. TikTok, forget about it. I don’t, no promises.

David:
What’s your thoughts on a business person in Elon Musk buying Twitter? It was a good buy?

Codie:
I think you probably know where I’m going. I think he’s crazy for doing it. You couldn’t pay me enough money to buy Twitter with all the nonsense that goes on from there, but I think it’s good for the platform.

David:
Okay. Do you think it was good for him as a business? Do you think that made sense?

Codie:
No. No. I don’t think it’s… Maybe he’s a rocket scientist, so he actually knows how to do a much more difficult problem, which is send rockets to space. I think he can probably figure out how to stop people from corrupting our free speech problem here in the US. So I think it probably makes sense to some degree, but-

David:
I’m curious what type of synergy there is between his goals and Twitter. Because as we were just saying, you buy a business if it’s related to something you already do. So there’s some angle I’m sure Elon Musk is seeing, would you agree?

Codie:
Well, he kind of said when he set out to create Tesla and SpaceX, he said they’re really hard problems to solve. I think we have about a 10% chance of solving them, but they’re worthy problems of solving. So I’m going to start it regardless. And so I think he probably feels the same. Free speech is worth saving. It’s a hard problem, but it’s worth trying to do. And then he said, “It’s not in my nature to give up.” And so that makes me think he’ll probably be successful with Twitter just like everything else.

David:
That is a good point. Rob, what’s your preferred medium where you’d like to be contacted.

Rob:
Oh, YouTube. You can follow me on YouTube at Rob Built or Instagram at Rob Built.

David:
Alrighty. I’m at David Green 24. Facebook Messenger is probably the best way to get ahold of me if you have something important. I’ll give you guys a little secret there. It’s not a secret now that I’ve said it on the podcast, but-

Rob:
Good take.

David:
… Instagram, we get like 700 messages a day. Facebook Messenger, I get two. So if you really want to get a hold of somebody important, that’s the best way to go about it assuming they have the app on their phone. That’s my go-to move if I ever want to get in touch with somebody famous or something is until I have a blue check mark, they don’t know which of the David Greens it is. So I use Facebook Messenger. And then you could follow my YouTube at David Green Real Estate. Very boring just like me. Codie, any last words before we get out of here?

Codie:
No, just go diversify. Try to buy something even if you don’t use money.

David:
There we go. Rob, anything from you.

Rob:
Mm-mm. I’d say go diversify and go make money, oh, even if you don’t have to spend money.

Codie:
Sounds smart.

David:
All right. Well, I’ll get us out of here.

Codie:
Thank you guys.

David:
This is David Green for Rob copying Codie’s ending line. Abasolo signing off.