By Rieva Lesonsky

At this point, most small business owners know that digital transformation is necessary for their businesses to survive in today’s continuously disruptive times. And yet, according to David Rogers, a professor at Columbia University and the author of The Digital Transformation Roadmap (available in September), 70% of digital transformation efforts fail. He says that’s because “companies view these efforts as technology problems rather than the organizational challenges they truly are.”

But entrepreneurs can’t let those dreary stats stop them. And don’t assume that failure is a given for your small business.

Rogers says, “The imperative of digital transformation is less understood among small businesses. Some owners have started efforts, while others may not even be sure exactly what digital transformation means.”

In his book, Rogers lays out a framework that companies of any size can use to tackle the barriers to change. He says, “It gives leaders a hands-on tool kit to unlock the potential of every person inside their organization to drive growth.”

I interviewed Rogers (via email) about how small business owners can demystify the digital transformation they must undertake to survive in this digital era.

Rieva Lesonsky: Can you explain the importance of digital transformation for businesses that want to grow?

David Rogers: My definition of digital transformation is simple: transforming an established business to thrive amid continuous digital change.

This is the challenge facing every established business today. They must continuously test, discover, and try out new customer experiences and operating models. The reason is that new digital technologies are driving such rapid changes in customer behaviors, business models, competition, and new entrants in every sector. No matter the size of your business, the fundamental challenge you face is the need to adapt so you can continue to grow.

We see in companies like Netflix that it’s not enough to have one great idea and build a digital business based on it. Netflix’s first business model was streaming content it licensed from others, but once that service proved incredibly popular with customers, the licenses became cost-prohibitive. Netflix had to shift to a model where they created the content themselves, becoming a film and television producer. Then they pivoted to becoming an international network, translating content from all over the world into different markets. Most recently, they discovered that total subscriber growth is topping out, so they’re testing cheaper advertising-based offerings while they revisit how easily they let people share their passwords.

Every company that has grown continuously in the digital era—whether Netflix, Amazon, or Domino’s Pizza—has succeeded by constantly transforming their businesses and approaching them from new directions.

Lesonsky: What are some common reasons digital transformation efforts fail?

Rogers: I’ve been researching this topic for years. I wrote the first book about digital transformation. That book [The Digital Transformation Playbook: Rethink Your Business for the Digital Age (2016)] focused on how companies must rethink their strategies for the digital era. But what I’ve learned in the years since is that even if you do rethink your strategy for growth, it can be very hard to make change happen within your organization.

That is where so many companies struggle. It’s why we see [so much] failure. It is why my latest research focused on digging into the root causes of that failure. Where do organizations get off track?

I discovered five fundamental barriers to change faced by companies of all sizes. These are the key barriers that prevent digital transformation and real innovation from happening:

1. No shared vision. There’s no alignment of everyone in the business around a single view of where their industry is going, what role they want to play in it, and how they will pull together to achieve that outcome.

2. No discipline in priorities. I see companies moving in 100 directions because there’s always a new technology, trend, fad, or opportunity that might be relevant to your business. Most companies lack the discipline to focus on a few strategic priorities and say no to the rest. The worst is when I see companies focus on technology first rather than starting with the customer problems they’re trying to solve.

3. No habits of experimentation. Companies are used to dealing with any new problem or opportunity through planning. Whenever they see a new digital opportunity, they say, “Give me a business case. Show me the benchmarks, and let’s gather lots of third-party data. Then, we’ll do a detailed plan of action and give everyone their marching orders.”

But in a dynamic and unpredictable environment, which is the digital world, that’s a recipe for failure. The only companies that succeed are those that develop a real skill set for constantly testing, making small investments, moving quickly, and experimenting to learn what does and doesn’t work in the market.

4. No flexibility in governance. As a result, companies struggle to allocate funding between their existing core business and new opportunities. They struggle to allocate people. And they struggle because they apply the same metrics, rules, and operating model to new ventures that they use to run the well-established parts of their businesses.

5. No growth in capabilities. I see companies trying to keep up and pursue new strategies for a rapidly changing market, but they’re not investing in the right digital technologies, data, talent, and skill sets. And they are not focusing on building the right digital culture within their organizations.

More articles from AllBusiness.com:

Lesonsky: What are the first steps to take if you haven’t started digitally transforming?

Rogers: The first step is to define a shared vision that must be unique to your business and understood by every employee, investor, and stakeholder.

A shared vision starts with knowing where you’re going and why. Begin by defining your “future landscape”—a shared point of view on how your industry is changing. What do you see as the biggest forces defining the future for your business? It also means defining your “right to win.” That means understanding your company’s unique capabilities or advantages that enable you to play a key role in the digital future and create value for your customers.

But knowing your future landscape and your right to win is not enough. You also need to ensure everyone has a clear motivation for change—because this kind of transformation requires everybody in the company to be involved. And change is difficult! It’s much easier to keep showing up at your office and doing the same job you did yesterday.

That motivation for change comes from two things. One is what I call a “North Star impact.” And that’s a clear answer to this question: “If you can transform, how will that make a difference in the world? How will it change the lives of your customers, your employees, and maybe society as a whole in a positive way?” That’s critical to motivating your employees.

At the same time, you also need another piece of motivation, what I call your “business theory.” This is an explanation of how investing in your digital strategy is going to generate financial returns for the business. And that piece is critical to gain the backing of specific stakeholders: your chief financial officer, anyone in charge of a P&L, and outside investors. All these people need to agree on a theory of how investing in digital transformation will drive financial growth if you want them to be aligned and support the change.

Lesonsky: If you have started, how do you measure success?

Rogers: The key to measuring success in any digital transformation is to first have that shared vision in place. That is, you know where you’re trying to go and why and how your particular digital strategy will generate an impact for the customer and financial gain for your business. With that understood, you’re in a position to know how to measure things and see if you’re moving in the right direction.

Far too many companies try to start with measurement. They just say, oh, we’re going to become a digital company. And then they start looking for generic, off-the-shelf assessment tools that look at things like, “What kind of technology do you have in place?” This is meaningless in terms of business outcomes, which is the whole point of any digital transformation effort.

Again, you have to know the impact you’re trying to have on the customer and how you believe this will generate a return—whether that’s revenue from new products, reaching new customers, or reducing operating costs. There are many ways digital strategies can generate financial returns.

Once you know these [two things], you can start to pick the key performance indicators (KPIs) that will guide your investments and let you know if you’re making progress. I call this defining success. It should include metrics for customer and business impact. If you define success this way, measuring digital transformation is very straightforward.

Lesonsky: What lessons can small, growing businesses learn from the well-known big brands that have successfully undergone digital transformation?

Rogers: Smaller businesses actually have an easier job changing. They can learn a lot from all the mistakes made by bigger, older companies as they tried to transform into the digital era. As businesses get larger, it becomes much harder to drive change.

For small, growing businesses, the key is to be on the lookout for those five barriers to transformation. Make sure you have a shared vision, that you are disciplined in setting clear strategic priorities, that you learn and master the process of experimentation, that you maintain flexibility in your governance (how you manage people working on your existing business versus those working on new opportunities), and that you keep investing in and growing your technology, your talent, and your culture.

But the main thing is to not let myopia set in. For any company, the longer you’re in business and the more successful you are, the harder it is to overcome the natural tendency to define your future by the products that have been successful for you in the past.

Large businesses struggle with this problem, but small businesses face it too. The more you grow, the more successful you are, the harder you have to push back against this mental trap. Instead of focusing on what products have gotten you where you are today, keep focusing on, Who is your customer? What are their problems? And how can you keep adapting and finding new ways to solve their problems and create new value for them?

In the words of Andy Grove, famed CEO of Intel, “Only the paranoid will survive.”

About the Author

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

RELATED: How to Make Digital Transformation Work for Your Small Business

Ashley:
This is Real Estate Rookie episode 320.

Mike:
What Profit First is, is we flip the formula to be sales minus profit, that equals expenses. In practice what you do is every time there’s a transaction we take a predetermined goal profit, remove it from the business, hide it away and then the remainder is what we run our business off of. It’s the pay yourself first principle applied to business.

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

Tony:
Welcome to the Real Estate Rookie podcast where every week twice a week we’re bringing the inspiration, motivation and stories you need to hear to kickstart your investing journey and today we’ve got one heck of an episode for you guys. We have the author, entrepreneur, coach Mike Michalowicz. He’s written tons of high selling books, super popular in the world of entrepreneurship and real estate investing. We had him back on episodes 30 for actually business, so the BiggerPockets Business Podcast. He was in episode 30, he was on the rookie show for episode 132 and he’s back today for another amazing episode. Mike has authored the book Profit First, he also wrote the book Clockwork and we talk about both of those books in today’s episode and you’re going to hear a lot of great information that applies to both real estate investing and entrepreneurship in general.

Ashley:
Yeah. Last time we had Mike on we talked a little bit about Profit First, which we’ll touch on again and then it was Get Different was his other book that we talked about but today our major focus is going to be on Clockwork. So Mike does a great job explaining as to how to delegate and that you want to give yourself time as an entrepreneur. So we’re going to go through creating not tasks for people to do for you but outcomes. So it’s a very interesting take here that Mike will explain as to why he doesn’t like to assign tasks.

Tony:
Mike will also get into, and I guess more so answer the question of at what point should I hire my first team member? How big does my business need to be before I should think about bringing someone on to help? I’m telling you guys, the answer’s going to surprise you 100%.

Ashley:
At the end of the episode, we have limited time with Mike so we literally just drill him with questions and he gives straight answers. There’s no time wasted in this episode, but at the end Tony and I will go through and recap the episode and why it is valuable for you as the rookie investor.

Tony:
All right. Before we transition over to Mike’s fantastic episode, which you guys are going to love. I want to give a quick shout out to someone that left us a five star review on Apple Podcasts. They go by the username of JR Schmitt 2012 and JR says, “This is the best information out there. Thank you for providing so much useful info, I haven’t made that first purchase yet. But I’m in the middle of moving to a new market and I don’t think I would be as confident as I am without this podcast.” Keep it coming guys. So for those of you that are fans of the rookie podcast or even if you just like me and Ashley, just an eeny, teeny, tiny little bit. If you can take just a few minutes out of your day and leave us an honest rating and review. The more reviews the show gets the more folks we can reach and we’re having an impact with this show and our goal is to impact more people, so take a few minutes and leave that honest rating and review.

Ashley:
So this week’s social media shout out is going to go to Real Simple Real Estate Gal. Andrea is sharing her journey, she has an experience in vacation rentals, fixer uppers, commercial and passive investing. So go ahead and give it a follow.

Tony:
Mike, super excited to have you back on the podcast. You were a guest back on episode I think it was 132 if I’m not mistaken, so we’re super excited to have you back. We talked last time about your marketing book Get Different, today we wanted to focus a little bit more on two books that honestly had a really big impact in my business and that’s Profit First and Clockwork. I want to talk about both, but if you can let’s maybe start with Profit First first and just kind of give us the 30,000-foot view. What does it mean to implement Profit First into your business and then I want to get into the details of how we can do that as real estate investors?

Mike:
Yeah. You got it Tony and thanks for having me back. I think it was episode 132B, if I remember correctly. So Profit First the 30,000-foot view is this. 17% of businesses are sustainably profitable which means 83% of small business, companies doing $25 million in revenue or less are not profitable. They’re surviving check by check, which is interesting because every entrepreneur I’ve interviewed has gone into business in part or in whole for financial freedom. So I investigated why are we not doing this? Is there something wrong with us? But that’s when I came across the traditional formula, the gap formula that says our sales minus our expenses result in profit. The problem with that formula, while it’s very logical does not make behavioral sense. It’s human nature when something comes last to defer it, delay it or never do it’s the Mañana syndrome. So most people wait for the profit at the end of the year, it’s not there and they say, “Oh, shucks.” Or a different choice word and then they try to do it next year and then they go oh, shucks again.
What Profit First is, is we flip the formula to be sales minus profit that equals expenses. In practice what you do is every time there’s a transaction we take a predetermined goal profit, remove it from the business, hide it away and then the remainder is what we run our business off of. It’s the pay yourself first principle applied to business.

Tony:
So Mike here’s my question, because most of the folks listening to this podcast are real estate investors and I think I can understand the concept as a traditional business owner that’s producing widgets or maybe it’s like a service-based business. But for someone that’s, maybe their income is not fixed necessarily but say it’s based on the rent that a tenant’s going to pay and there’s this fixed number that’s coming in every month. How do you kind of make sure that you can protect that profit? Because say I want my profit to be whatever, 20%. Right? But I have a water heater that breaks and now that month I have to dip into that but I don’t have the lever to increase the income. I guess how do you handle that as a real estate investor?

Mike:
Well, what we do is we start off with a lower profit percentage. I don’t suggest people go in super aggressive and then they say within a few months, “I can’t sustain this.” And they start stealing from their profit. So what we do is we start off very low, maybe one or 2% of a profit allocation. But there’s also other accounts accepting Profit First. So one may be maintenance or equipment, we know the hot water heater is going to go the question is just when? They have a lifetime expectancy, so we allocate money toward that. You start prepaying for that inevitable expense effectively. The other lesson from Profit First is when you allocate profit, if you don’t have enough money to pay your bills that says that there’s actually a mismanagement in the business. Maybe the rent isn’t at the right price, maybe it should actually be a little bit higher because if you want to have a 10 or 15% profit you must work within the confines of what’s available. So it starts teaching you to observe and figure out how to operate your business, maybe…
And I don’t know anything about hot water heaters. Maybe you can get a used one at half the price and it has a long enough shelf life or service life that it actually is a better move. So it forces us to think innovatively about operating a healthy business. The thing that Tony and Ashley, that most people do is they say, “I’ll be profitable one day, I have to…” I’m putting air quotes around that, “Have these expenses and one day it’s going to magically flip.” But what happens actually is we start getting this momentum of burden. We keep on keeping those expenses, hoping things will grow and as we increase our revenue the expenses increase at the same rate and we never break out of that paradigm.

Ashley:
Mike, I want to ask how should somebody find out what’s a realistic profit for them? They’re starting this new business or they just bought this rental property. What if they say, “I want to make $1000.” But it’s not realistic, they’re going to put themselves way into the hole. How do you go and figure out what’s that realistic profit that you can take each month?

Mike:
Yeah. So I wouldn’t start with a hard number like $1000 per month or whatever. I would look at a realistic percentage or a goal percentage and what I would do is look at my contemporaries and say what are they doing? Now here’s the key, don’t look at the average normal business because most businesses are not profitable. Look at the elite companies in your industry, the people who are really crushing it. What are they doing? And then back calculate their percentages, learn from them and you may be surprised how much business owners are willing to share. So learn what they’re achieving, make that your target and for some new businesses we actually start there. So they start with a very healthy number and they’re forced from day one to run a healthy business. Now, if you’re already established and you’re not profitable making an abrupt adjustment actually could hurt the business. So in those cases we usually start off with a very low profit percentage, one or 2%. The reason we start that low is it’s inconsequential to the operations, if a $5,000 rent check comes in 1% is 50 bucks.
So we’ll take 50 bucks, put that to profit and if you can run that property off of 5,000 you can run off of 4,950. But that 1% is highly consequential in that you start seeing that, “Oh, my gosh. I can take profit first.” Then over time we incrementally move it up which puts pressure on our expense, makes us pursue opportunities for increasing margins and so forth. So we say start slow and let it grow.

Tony:
Yeah. I love that advice Mike and I’ve taken a lot of what you teach in Profit First and applied it to my business and we’ve got 30 properties or so in our portfolio. So I’ve got quite a few bank accounts right now.

Mike:
Yeah, I can imagine.

Tony:
For people that are listening I’d say find a business bank that you like and Mike actually we use the same business bank if I’m not mistaken. But we use Relay Financial and yeah, I know that they recently rolled out a lot of the Profit First tools and we’ve had a relationship with them for a while and I’ve been begging them like, “Guys, you got a lot of this stuff. It’d be cool if the transfers could happen automatically.” And they just recently rolled that out I think a few months ago, so I appreciate you for pushing that on them as well.

Mike:
Oh, it was my joy. I worked in concert with them in implementing Profit First the right way. They’re the only online banking platform or any banking platform that does it. So a little pluggy if you don’t mind, if anyone wants to check it out go to Bank Like Mike. Because that’s who I bank with, banklikemike.com and it hooks you up with Relay. You can get your account set up right away, you can do accounts for different businesses all within one login. It’s a pretty cool setup.

Tony:
Mike. I want to transition to Clockwork because I think that’s another very important concept for new investors to understand and this is more so for our listeners right now. But I think a mistake that a lot of people make when they become real estate investors is that they only think of themselves as investors as opposed to business owners that are in the real estate investing space. I want to push more people to see themselves as business owners that are just buying real estate and not just isolating themselves. So can you define what it means to Clockwork your business?

Mike:
Sure. So Clockwork is where the business owner moves from the operational components to ultimately what I call the design components. We move from doing the work to designing a vision and how I explain this to entrepreneurs in any space is the number one job of entrepreneurs is to create jobs, not to do the job but to be a creator of jobs. There was an interesting statistic and I don’t recall the source, but it was about 15% of the global population will ever become an investor or start a business, 15%. So in kindergarten there was 30 students in my class, 15% if I run the numbers right is about four people. So four people started a business but here’s the most interesting statistic, less than 20% maintain a successful business. So you take that 15% times 20%, we’re talking about 3% total. Which means one kid, one kid from your kindergarten class is running a successful business and it’s you. Every other person is looking for a good job with a good business, so our job is to create jobs for people looking to work for good companies.
So that’s our job, you’re not an investor. You are building something that supports our economy, hopefully supports you very well and it has an opportunity to support other people. Our mission is not to do the work it’s to design that vision, to design the outcomes we want and empower other people to have a joyous experience in doing the work within our organizations.

Ashley:
Mike, a really hard thing for me has been letting go of control. Let go.

Mike:
You sound human by the way. You sound very human.

Ashley:
So how do entrepreneurs deal with that? They’ve become attached to their businesses and now they have to kind of learn how to let go and how do you balance that?

Mike:
So two things, first of all is to realize there’s two standards in the organization. There’s the owner’s perception, this is my standard and there’s the organizational standard and they’re two different things. But a person who says this is my standard, our organization needs to run at that level will constantly be inserting themselves to pull the business up to that level. What we need to do is to actually see what the organizational standard is by removing ourselves. So if we extract ourselves, it will settle somewhere but our job then is to be designers to figure out how do I take it from where it really naturally is without me and move it up through systems. So first the realization is they are two different things and we have to treat them that way. The second thing is… Well, I’ll give it through an example. I do a lot of presentations and I’ll ask an audience who here has a personal assistant? It always shocks me that it’s the minority who does, the majority of hands that go up respond to when I say who does not have a personal assistant.
Then I say, if you’re raising your hand right now you are the personal assistant and this is the first hire I think any business owner should make regardless of the size of your organization is get a PA. Virtual or otherwise, part-time or otherwise, but it’s not about having an assistant taking care of certain aspects of our business or our personal life for us. It’s our training as an owner that we need in the process of delegation, delegation is not the assignment of tasks, that’s called task rabbiting. Go do this, come back and I’ll give you the next task. What delegation is the assignment of outcomes, I need you to help me facilitate our organization in invoicing effectively and we give them best practices. This is what we’ve done historically but get us that outcome as opposed to task rabbiting do in return. It’s help us achieve X and once a business owner starts understanding the assignment of outcomes as opposed to tasks is when we become true delegators and the business starts growing without us and we can actually remove ourselves.

Tony:
Mike, I want to drill down on that a little bit. I love the idea of the delegation piece but how do I know… I guess two parts to this question. First, how do I know when I can afford to start that delegation? Because for a lot of small business owners the revenue is barely enough and to think about peeling some of that away to give it to someone else probably terrifies a lot of people. So first, how do I know when I can afford to do that? And then second, once I’ve made the decision I’m financially ready. How do I know which task to start delegating out?

Mike:
Those are great questions, Tony. So step one is you are ready now regardless of the size of your business and regardless of the income you have coming in. Because we can delegate to a part-timer, a contractual person, a virtual assistant for one hour a week. Again, it’s the training that we get, we start to learn this process. My first virtual assistant helped me three hours a week, they were offshore $10 an hour. I could afford the 30 bucks and actually even the 30 bucks was a little bit of a pinch but that was a great lesson in how to delegate and start building. Whenever I was delegating work and we weren’t achieving the outcomes that we’d agreed to, then I started focusing on what systems are missing and I started to improve the systems. So it makes you a great observer of your business, there is no excuse not to start today. The technique is through what’s called fractionalization, I think a lot of business owners and this is how I behaved. I said I need someone who’s like me, that’s probably the biggest mistake I’ve made looking for another Mike.
First of all, the world does not need another Mike between me and you. Secondly, it’s very hard to find a clone of you Tony or Ashley or me. We’re only one of us but if we break ourselves into pieces we can look at all the individual tasks we have. The first task to assign out is not the one you like least it’s actually the one that’s the easiest to sign out. Again, we need to learn how to delegate out work. So take that first thing off your plate that is easy for someone else to pick up and achieve the outcome you want. Once we start learning that, then we start getting rid of the stuff that we don’t enjoy necessarily and start assigning that as outcomes. My own organization here, we have 20 plus people. 80% are part-timers and there’s a massive market in my experience of people who are looking for part-time work because they’re not looking for a job to support a lifestyle necessarily.
They’re looking for a job to be an expression of themselves or just to get away from the routine of their life or whatever it may be. There’s a big market out there for part-time and contractual help.

Ashley:
Now when you’re hiring these people, putting together SOPs, so standard operating procedures. What are some tips you can give rookie investors when they’re starting to learn how to actually put together SOPs and run their business like clockwork?

Mike:
Yeah. So I’m going to give you an alternative to SOPs and this is a lesson I had when I met with my publisher, it’s Penguin Books. I went to their offices, this was many years ago as I was writing Clockwork and I met with my editor and there was this big book sitting on his shelf and all these other books displayed. I’m like, “Oh, that big one. Is it the Bible? The first one ever printed.” It was covered with dust. He pulled up and he was like in an Indiana Jones scene, blew it and this dust comes off and on there it said, “Penguin Random House SOPs.” I was like, “That’s everything.” It was like this big, I’m like, “That’s the Bible to the operations.” He’s like, “I’ve never looked at it.” That was this awareness that SOPs, while they’re the procedures that you expect people to follow don’t get consumed well and they take a lot of time to develop. The second challenge with SOPs is we’re in such a dynamic environment now, you can write an SOP and it may not even be valid within days.
As an example, we had a shipping SOP here and the day I released the 12-page SOP for shipping products. UPS updated its website and it no longer worked with my SOP and I was like oh my gosh. So here’s the alternative or the enhancement, I call them captures and what a capture is, is when you or someone else is doing the process to record it. There’s basically three ways we do things now, over computer like we’re doing now this could be recorded. We communicate verbally, maybe one-on-one that can be recorded with your smartphone or maybe we physically move something that can be recorded also with a smartphone. So as you do the process record it and give the instruction set over it. That’s step one, step two is you give it to the person that’s now going to be responsible for this and you say this is the best practice we have so far. Your job is to get us to this outcome, whatever the outcome we agreed to and follow this there.
But also improve it over time, then and this is the biggest component and the most important thing that almost no one does. Once it’s been properly assigned and the outcomes being achieved, maybe a few weeks or a few months later go back to that person now responsible for this and say record a training video, explain this process. The reason we need to do this is is the best student in every room is the teacher. Once a person can teach it, they’re showing they can master it. So it’s a way to show their mastery is by teaching it, secondly should they choose to leave you now have their best practice reserved and preserved.

Tony:
Mike, that was a big game changer for me. We leverage virtual assistants in our business, I have a personal assistant here. I have other team members here locally and that concept, that last little piece of having them redo the captures it blew my mind. But it’s been such an effective practice for them to really like you said understand what it is you’re trying to teach them, so I appreciate that piece.

Mike:
Oh, thank you.

Tony:
Last thing I want to call out before we let you go here, Mike. I know that you recently re-released Clockwork, there’s a revised and expanded edition. First, what prompted that and then what are some of the differences between the original version and the new version?

Mike:
Yeah, thank you. So what prompted it is this reader feedback, areas of confusion. Saying, “I don’t really understand how to implement this.” So those were opportunities to simplify. But one of the big ones was a reader emailed me and said, “I love Clockwork, I’m implementing it, but I can’t tell my employees about this because they’ll think that my objective is to sit on the beach drinking Mai Tai’s or something while they’re working in the sweatshop.” I was like oh my gosh, that’s the exact opposite of what I’m looking to achieve. What I’m looking to do is empowerment of our colleagues. As the business can run itself in our absence, that means our colleagues get to elevate themselves to the greatest of their capabilities. It’s the greatest compliment to our team, so that was another trigger to rewrite it. So every section now in Clockwork has a employee component, not just the business owner or the business leader but every single employee has a part of Clockwork I teach in there. Other concepts have been simplified.
I would say, actually I know that 60% of the book is brand new content and then the other 40% has been reorganized. So it’s 100% reorganized to be faster and more efficient and 60% new from the original book.

Ashley:
Well, Mike. Thank you so much for taking the time to kind of give this overview of Profit First and Clockwork. Where can everyone get copies of these books?

Mike:
Actually, it’s been my joy. If anyone wants to get a copy of these books or at least explore them before you purchase them, they’re on all the major retail platforms. But you can go to mikemotorbike.com. That’s my nickname, I think I told Tony this once before. That’s my nickname from grade school, it’s the only PG nickname I ever had. The other ones are too profane for me to ever buy that domain but if you go to mikemotorbike.com that’ll bring you to my website. No one can pronounce my last name, Michalowicz. When you land there, all the books are up there with free chapter downloads. I used to write for The Wall Street Journal, you can get those articles and I have a podcast too.

Ashley:
What’s the name of the podcast?

Mike:
Entrepreneurship Elevated, basically how to level up as an entrepreneur effectively.

Ashley:
Well, Mike thank you so much. This was a wealth of information and we were really excited to have you back on here. So thank you, everyone is going to get tremendous value from this.

Mike:
Ashley, Tony, it’s been a joy. Thanks for having me.

Tony:
All right. Ash, what a great conversation with Mike Michalowicz. You know guys I’ve enjoyed Mike’s writing for quite some time now and to kind of get him back onto the podcast and be able to dive deeper into two of his books that have had a really big impact on me it’s just really super cool. But Ash and I just want to kind of digest and point out some things that we thought were interesting or insightful or useful for you guys based on Mike’s conversation. So maybe let’s start with Profit First first. So I loved Mike’s definition of what Profit First is and why it’s important, so he said profit in his definition or the way that you calculate profit is the inverse of how you typically do it. Right? Most big businesses go sales minus expenses equals profit. Mike’s saying kind of flipped that on it’s head where you go sales minus profit equals expenses. I don’t know, just how did that jive with you Ash as a real estate investor? Because I know for me it was a little tough to kind of accept that initially.

Ashley:
Yeah. So my first question that I had was how do you figure out how much profit to take? So Mike did a great job of kind of explaining that to me as to the best way to do that and that was to take a small percentage. Start small, you can always increase it later on. I think what did he say? Just start with 1%.

Tony:
1%, yeah.

Ashley:
Of what your revenue is, that 1% and then you can always slowly increase it and it almost becomes a challenge to see how much you can actually increase it. But that was the part that I was like okay, so what if I go in and say I’m going to take $5,000 a month. How do I even pick that number? That becomes realistic. So his suggestion of doing a percentage and just starting that percentage small and just getting in that habit of using this formula of taking that profit first.

Tony:
Yeah. I think we didn’t get to touch on this as much in this conversation but one of the other kind of bank accounts that Mike encourages you to have through Profit First is you have your profit hold account like your profit account. But you also have an owner’s pay account and people oftentimes get those kinds of two things confused. But the distinction between the profit and the owner’s pay is that the owner’s pay account is what you pay yourself for the work you do in your business. The profit hold account is what you pay yourself for owning the business and a slight nuance but big difference there. So the owner’s pay is like if you’re still communicating with tenants, if you’re still writing up leases, if you’re still showing units, if you’re still managing contractors, if you’re still talking to guests, if you’re still doing pricing, if you’re still doing door knocking. The activities in your business, you would pay yourself out of the owner’s pay account. The goal is that as you kind of build your business up the allocation percentage for your profit account starts to get bigger. Right?
So you go from 1% to 5% to 10% and the allocation for your owner’s pay account gets smaller. So you go from whatever 50% or 80% if it’s just you at the beginning down to 50, down to 40, down to 30 and then that money from the owner’s pay account starts to shift towards paying your team members. But also now you’re able to start getting money from your business without you actually doing anything. So I love the idea of starting at 1% and then scaling it up from there.

Ashley:
Tony, what percentage did you start with when you started implementing Profit First into your business?

Tony:
Yeah. So we started off probably too high and then we kind of had to pull it down because we still have an owner’s pay account as well. Right? Because there’s still a lot that we do in our business that we’re still pretty active with. So I think right now our profit is at maybe 10%, somewhere in that ballpark is probably what we pull out and the goal is obviously to keep growing that. But we probably started off with single digits and we’ve kind of pushed it up since then.

Ashley:
Okay. Then we kind of transitioned with Mike to his book Clockwork, so this is our first time talking to him about Clockwork. We’ve had him on before to talk about Profit First, so it’s very interesting to hear more about this new concept that he has basically delegation. How to become a leader, how to hold your employees responsible but also you’re self-responsible too as the leader. I think he has a very interesting take on how he’s actually implementing that. So he gives the example of you’re on vacation or whatever and your employee goes like, “I’m stuck here doing all the work while the owner’s off gallivanting on the beach.” And he says, “I want the opposite effect. I want the employees to feel empowered like he’s gone, we can run the business without him. We know exactly what we’re doing, we have control and feel empowered from that.” So I think that was a really huge takeaway from me is that I want to be able to do the same.
Is completely walk away and everyone else is excited that they don’t need me to micromanage or to do parts of the role and for myself when I’m working on a project I actually do struggle when I need to get somebody else’s approval or permission or things like that. It definitely does give you a sense of empowerment when you feel very confident in the work that you are doing.

Tony:
I think one of the biggest points of that conversation with Mike especially about the Clockwork kind of framework, is that even if you are a real estate investor you are still a small business owner and I think that’s something that a lot of new investors forget. They put on this cap of real estate investor and they think that it means DIY everything and I’m a one man or one woman show and I got to figure all this out. But in reality the goal of what you’re doing is hopefully building a business that supports whatever lifestyle it is that you want. For a lot of people the reason they get into real estate investing is because they want more time and freedom, they want more flexibility but you can only really achieve that if you start to build a business around your real estate. So just first, I think that’s a really critical thing. But one of the concepts that Mike called out that I think is worth discussing a little bit more is the idea of delegation and he talked about the task rabbiting versus outcomes.
I think that’s a big mistake that a lot of entrepreneurs make is that when they bring someone onto their team in whatever capacity, full time, part-time, super part-time. Initially they’re just so overwhelmed with a lot of work they’re just like, “Hey, okay. Go knock this out. Okay, go do this. All right, go do that.” But the danger of that is that you condition your team to always come to you for, “Hey, what should I be doing next?” Mike’s suggestion of delegating outcomes as opposed to delegating tasks means that when you talk to your team member, whoever it is that you bring on. Instead of saying, “Hey, I want you to input this receipt.” What you tell your team member instead is at the end of the month when I go to run my books every single transaction needs a receipt attached to it. So very similar kind of ideas there but slightly nuanced in how you deliver it.
Now that person knows okay, once I finish this receipt I got to go to the next one and now every time a receipt comes in I’ve got to grab that. Then they might start to think okay, what’s the optimal way for me to capture these receipts from Tony or Ashley and get them into our QuickBooks software or whatever accounting software we’re using and they start to optimize that process. So that one really jumped out at me Ash about optimizing that process.

Ashley:
Yeah. I think the hardest part for me when bringing people on board, especially VAs and even employees too is defining what task they should actually do to assign on them and then when Mike says, “Well, it’s not about the task it’s actually about the outcome.” But I still couldn’t wrap my brain around as to what even those outcomes were. So something that really helped me was I was looking at what I was doing every single day and Mike talks about if you’re hiring your first person to delegate things to, it could only be three hours a week or one hour a day or something like that. You don’t need to hire somebody full time and that’s a great thing about virtual assistants is that you can hire them for just a little bit of time. I think my personal assistant VA that I just have to random stuff for me, last month I think she only worked maybe four hours for me, the month before that I think it was like 22 hours.
So it can definitely vary and that’s the nice convenient thing and when you’re trying to figure out these tasks, just start small. Even if it’s something you have to do once a month like pay a water bill that takes you literally five minutes. But those five minutes start to add up every single month and if you can find other five minute tasks you’re doing and fill a whole hour through a VA, that gives you back an hour of your time. Honestly the VA will probably do it faster than you, because they’re focused on doing that task where you as an entrepreneur are trying to do 20 different things at one time. You’re about to go pay the water bill and then you get an email about something else and then you’re like, “Oh, yeah. I still have the tab open for the water bill I better go back to that.” And then you get a phone call, all these different things happening and they can probably get it done faster than you actually can.

Tony:
One of the exercises that I did Ashley this last year that I thought was super helpful for me was that, everyone talks about the to-do list and here’s everything I need to do. I started to create a not to-do list, so anytime I found myself doing something that I didn’t want to do anymore I would capture it on the list. So as I started to bring people onto my team, my assistant, my marketing coordinator, our virtual assistants. I was able to say okay cool, this is something that I can delegate to them. A small example would be, we get invoices sometimes from brands that we work with for content or partnerships or whatever we do with some of these brands and some of them send invoices on a monthly basis. So I have to create an invoice for them. They’ll say, “Hey. Here’s what we owe you, create an invoice and we can get you paid.” Not a super time-consuming thing but it adds up to time over the course of a month and this kind of goes into the next conversation about the software that we use to kind of onboard these people.
But I would basically just create a video of myself creating that invoice and then when that person came on board I just shared that video with them. So I was both keeping track of everything that I didn’t want to do while also trying to easily document how to complete that task would be easier to train someone when they came on board.

Ashley:
As far as that list piece you talked about, I’m reading a really good book. It’s called Getting Things Done: The Art of Stress-Free Productivity.

Tony:
I love that. That’s one of my favorite books.

Ashley:
I’ve been jotting down notes. I actually started reading it very casual and then I restarted it so that I could take notes and everything like that. But that’s a great recommendation for anyone that wants to kind of get their priorities straight and maybe we have to get to David Allen on the show to talk about it.

Tony:
To come on the show, yeah.

Ashley:
Yeah.

Tony:
It’s literally sitting on my nightstand right now. I brought a bunch of books to the office and that’s the one that I left on my nightstand so I can… I like to kind of read through it at night before I’m going to bed right now. It must mean something, right? If we’re both reading that book at the same time, we’re at similar places in our lives where we’re just feeling overwhelmed and disorganized.

Ashley:
Usually all of the books that I purchase are because somebody shared them on social media and I don’t think it was you though, it was somebody else I think that shared that book on social media is the reason I bought it. Yeah.

Tony:
It’s a good one. But yeah, Getting Things Done by David Allen. There’s a whole community and there’s the GTD community and there’s a bunch of YouTube content around Getting Things Done. But anyway a really, really good book I enjoyed that one. I guess let me just share with our rookies some of the stuff that I’ve delegated in my business to both virtual assistants, regular assistants and just team members in general. So the content creation, Ashley and I on the podcast we created a lot of content and kind of taking these 45 minute podcast episodes and turning them into things that we can share on social media. I was initially doing that myself and that was a lot of work, so that was one of the first things that I offloaded. I found a virtual assistant overseas, I said, “Hey. I want you to watch this 45 minute podcast episode. Look for the pieces of the podcast that are maybe most insightful, most educating, most entertaining and turn that into a social media clip.”
I’ve got two VAs working for me right now that do that both for our YouTube videos with the Real Estate Robinsons, for all the stuff that has to do with the Real Estate Rookie. I have one of my actual assistant who’s here at stateside, she manages my inbox for me. So every day she goes through all of my emails and she kind of responds to whatever she can respond to. She’ll delegate to whoever she can delegate to and then only the stuff that she really can’t take care of herself she sends me a little list at the end of every night and says, “Hey, Tony. Here are the five emails from today that you actually need to respond to.” Then she’ll actually call me every day at 6:00 PM and we’ll go through those emails and then a lot of times in a quick 15-minute conversation I can give her the information that she needs to go and action it herself. So if you’ve emailed me recently and noticed that it hasn’t taken weeks to get a response, that’s probably why.
But there’s so many things you can do with your team that allows you to kind of free up your time to focus on what you’re most uniquely qualified for. What about you, Ash? How are you using them in your business right now?

Ashley:
Yeah. So I started a property management company this year just for my properties and for any of my business partners, any of their properties. So I’ve been really working on getting myself removed from that business. So I pulled up a list that I made for a leasing agent VA also kind of property management assistant. But I was going to just go through this quick of all the things that this one VA for $10 an hour will be able to do for me and it’s little things that just they’re super easy to do but they take up time to do. So the first thing is on the sixth of every month email tenants unpaid charges reports. So send them to the tenants that anybody that has a balance due, then the next thing is going to be on the 10th of every month email the attorney the tenant information for overdue charges to start eviction process. So it goes through the list of things to include in the email, who to email and then the follow-up. Okay?
And then the next thing, usually I do a Loom but for this one I did a Google Doc and I inserted screenshots. So I just take a screenshot of my computer and I’d put it in there, so I’m playing with what I like better as to doing it all as written out as Google Doc or do it as a Loom video. So one of the reason I’m trying it as a Google Doc is because I am working with this VA company who said, “Okay. Every day software, the internet something is changing.” And he said it’s way easier to go into a 20-page document and to change the one button that they need to now click instead of going and recreating a whole new video. So I thought that piece was interesting, but then also after talking with Mike it should be the person who is doing that role’s responsibility to go in and remake the video and show how the process should be done now. So very interesting.

Tony:
Can I just comment on that really quick, Ash? Because I love that just before I lose this thought. I’ve struggled with that too, but one of the things I’ve been trying to do is to break up my Loom videos into smaller chunks. So instead of doing one 20 minute Loom video that walks through every single step. I’ll do multiple, like a two-minute video, a two-minute video, a two-minute video, that way if one of those steps changes then it’s a little bit easier to kind of go back and swap it out.

Ashley:
Yeah, I do that too in the really small portions. Some of them are even a minute-long, basically how to click this button like here, go here to find this and then click this. But yeah, that’s a really great point to do that. But it is funny recording the Loom videos and talking to yourself while doing it, it’s very awkward to listen to it back. So then a couple other things they’re doing is like, okay, how to put the tenant into like they’re going into eviction, how to set their portfolio now within our system, then another task they’re doing is tenant gives notice to move out. So they get the email the tenant is moving out through their portal, what are the actions that need to be taken so that everybody on the team knows this tenant is moving out and then sending the tenant form for pre move out inspection. Sending it for the actual move out inspection, the start the unit turnover after move out.
So the steps they need to implement, so our maintenance team knows this turnover is going to be happening, here’s all the information that we need on our side. When are you going to schedule it? What’s the scope of work? Things like that, and then once the unit has been turned over closing out the turnover, listing the unit complete and listing it online. Then what happens when a guest card is received? What happens when a rental application is received and then turning an approved application into a move-in. So those are just things that seem really simple to do, but they take up time especially when they’re not things that consistently happen every month. Thank God we don’t have an eviction every month, we don’t have a vacancy every month. We don’t have something that needs remodel turnover every month. So those are just some of those things that I’ve put together that a VA is going to do for me and then also we have a VA that’s been with us for maybe three or four months now who does all of our payables.
So she actually enters all the bills. One thing I have hated so much is opening the mail. So we actually have a company now it’s called PostScan Mail, I think it is and they actually scan in all of our mail and then it just gets forwarded to her and she puts it into our software and enters the vendor, the amount, what property it’s for and then gets it ready to pay. Then at the end of the week, I just go through, I confirm everything and I hit pay, pay, pay, pay and it’s all bill pay.

Tony:
That’s amazing, I got to get that digital virtual mail thing because the mail in my house is getting out of control.

Ashley:
[inaudible 00:41:07].

Tony:
I want to comment on the… So what we just described is the right way to onboard that VA, right? You give them an onboarding plan, you give them SOPs, you give them instruction. We made the mistake when we first hired our virtual assistants of doing it the complete inverse, we hired three VAs all at one time. We had no formal onboarding process, we had no documented SOPs, we had all the knowledge. Right? There was a lot of tribal knowledge between me, Sara and our third partner Omid. But we had no documented resources. So the majority of our day for the first three months was us just responding to every single little question that our VAs had. But a lot of it was because we didn’t equip them with the right information and you thought that I would’ve learned my mistake the first go round, but I didn’t and a few months later we ended up hiring two VAs.
So those first three they did our guest messaging and they were kind of the front of house, and then we hired two VAs a couple of months later to take on pricing for us and unfortunately, I just let both of those VAs go last week and part of it was on me. But we just did not do a good job of really giving them the right understanding of how to manage pricing. So there’s a right way to do this and there’s a wrong way to do this and if you do it the wrong way it almost becomes more of a burden than a help. So you want to make sure you invest a little bit of time upfront before you bring someone on to at least give that onboarding plan. At least plan the first two weeks, and really make sure that once they check these boxes and I feel good about them doing this on their own. Because if you just kind of throw them to the wolves, both you guys end up in a less desirable situation.

Ashley:
Let’s go into a couple of examples of what everyone can use, so we talked about using Google Docs and then also Loom. So loom.com is a website where you can screen record but also talk, so it will record you talking and what you’re doing on the screen. So especially for somebody that is a visual person this is super helpful, instead of… I’ll read you one of the things on my Google Doc. It’s, “After you have the approved tenant by sending approval under the task menu, then start the move and process by clicking the third button down.” I know it’s not easy, and then I include the screenshot of it. But just being able to say and show at the same time, I think Loom is very valuable in that.

Tony:
And Loom also recently updated their product where they have automatic transcripts and the transcripts are pretty good, and they’ll even add automatic chapters to your Loom video. So they’ve made quite a few adjustments or improvements to the product to make it super easy. But the majority of our SOPs are done through Loom, and it’s been a super quick and easy way to train our team up. Another piece of software that we use is monday.com, but really you can use any type of project management software. So Monday is a big one, Asana, Wrike, I know some people use Notion, there’s tons of tools out there. I personally use Monday, I think Aah you use Monday too, right?

Ashley:
Yeah, I do.

Tony:
Yeah, and it is just a really cool place to a capture all of the tasks that need to be done on a regular basis. But we also store a lot of our Loom videos in a library inside of there as well. We have a section for all of our property details, so like hey, what’s the address? What’s the parcel number? What’s the short-term rental permit number? Who’s the mortgage with? Who’s our electric provider? Just all the details about the property we try and put into this Monday project management software as well. So I think having some kind of home base for that is pretty important as well.

Ashley:
Yeah, and that’s another great task for a VA too. Is every time you onboard a new property, what is the information they need to get? Because a lot of information you can find online and consolidate it like who’s the electric company? What’s the account number for the electric company? What’s the contact number for the electric company? Things like that. So as you are implementing this new property, having the list of all that information you want to know about that property and have them kind of piece it all together for you. We just started doing that recently with apartments down to the fridge model number, any warranty on it, pictures of the outside, the inside of the fridge. We’ve gotten so detailed as to what information we need to know about the property and like for the fridge for example, it just helps us know, okay, how long has the fridge been there? Should we just replace it anyways? If we call the appliance place, here’s the fridge model number so they can better assess like okay, here’s the parts we probably need to take instead of running back and forth, things like that.
The last piece of software I want to give you is Otter, which actually our producers use and it is an AI note taker. So if you just want to talk, you don’t want to type anything out. You can talk and Otter will actually write out your notes for you and then you can kind of go through and format them. But that’s another one to try to create your processes and systems to delegate.

Tony:
Yeah. Well, lots of good information. Hopefully our rookie’s got some value from that, right? It’s slightly a different angle, but I think information that’s beneficial about again, building that foundation for your real estate business and not just focusing on being a, “Real estate investor.”

Ashley:
Yeah. Tony and I have deep regrets, so learn from our mistakes of not hiring soon enough and not hiring correctly. So just take a couple tasks, I will challenge you this week to find one simple task. Go on a website like Upwork and find somebody to do that task for you. Like Mike said, even if you’re spending $5 a week that’s a cup of coffee nowadays. But yeah, just find one little thing you can outsource. There’s other websites too like VPM, Virtual Property Management so they’re more real estate specific. There’s Scale Virtually, they’re a little bit more expensive but there are companies out there that will find you virtual assistants. Tony, I think you said Pace Morby just started one maybe.

Tony:
Yeah, there’s a bunch out there. Virtual Staff Finders, another one OnlineJobs.PH, there’s a bunch of them popping up right now. So I think just spend some time kind of sourcing, interview a bunch, you might have to let go of a couple when you first start. But I think the sooner you do this the better and just the last piece I’ll share is some people think, okay, I need 100 units before this makes sense for me. My recommendation is that you hire especially the first virtual assistant on property number one, because if you can let that person grow as your business grows and they really get familiar with your business when it’s at a small level. Then it becomes easier to kind of add more people as you add more units and hopefully you can get to a point where that first VA that you hired is now the person that’s interviewing and hiring your other VAs and I have friends in my life who are at that level with their virtual assistant staff. So lots of ways to leverage your time better if you set it up the right way.

Ashley:
Well, thank you guys so much for listening to this week’s Rookie Reply. I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson on Instagram and we’ll be back on Wednesday with a guest. We’ll see you guys then.

Stijn Van Nieuwerburgh, Columbia Business School professor of real estate and finance, joins ‘Power Lunch’ to discuss key triggers of an urban doom loop, dramatic reduction in office demand adding downward pressure on city tax revenues and bank equity eroding due to debt exposure in properties with declining values.

In my last article, I talked about clarity—what it is and why it matters in content creation. I also provided five questions you can ask if you’re struggling with clarity or want to ensure your piece is as clear as possible.

The goal was to get you started in producing clear, influential content that educates, persuades, and leads to action.

You may be ready for even more clarity if you read that piece. I assure you— your readers are prepared for more clarity now.

To give them the clarity they’re hungry for, put the following 10 ideas to work. By doing so, you’ll create content that builds trust and spurs sales.

1. Define undefined terms and overloaded words

Understanding your audience is the first step to effective communication. Common jargon in one field may be completely foreign in another.

On the one hand, if you’re writing for a specialized audience, like gastroenterologists, you need not spell out or define industry-specific terms like EGD, or esophagogastroduodenoscopy. On the other hand, if you’re writing to patients undergoing an EGD, spell out the abbreviation, define it, and explain the procedure in layperson’s terms.

Several years ago, I worked as a development editor for a technical publishing house. That’s where I learned how overloaded words can be a minefield because, in programming languages, the same word can have different connotations.

For instance, “arrays” exist in the programming languages Python and C++, but the word means different things to programmers in each language. Same thing with “variables.” Some languages like C/C++ and Java have strict rules about what variables can be but in others, like Python and JavaScript, you can make variables anything you want.

If a term has multiple meanings that may confuse readers, tell them which meaning you’re referring to—and give yourself one point for content clarity.

2. Handle new topics as they come up

If you find yourself introducing a new topic while writing, handle it then or tell readers you’ll cover it later. Don’t leave readers hanging.

For instance, suppose you work for a cybersecurity firm and are writing a blog post about the importance of strong passwords. Midway through, you mention two-factor authentication (2FA) as another layer of security. Either explain what 2Fa is right there or say, “We’ll delve into the details of two-factor authentication in an upcoming post.”

When you take the time to handle new topics as they come up, the reader’s flow will remain unbroken. You want your content to flow so well that readers can read straight through, follow your thought processes, nod along with you, and be ready to say YES to the next step in the buying journey.

The alternative is that you don’t handle new topics. When that happens, the reader’s flow is broken, even if momentarily. If the question or gap in their understanding is too large, you risk readers leaving your content to search Google. They might get distracted and never return to your content.

3. Address prerequisites

Include content or pointers to content that readers should understand before they dig into your materials.

For instance, if you’re writing a technical blog post on machine learning algorithms, you might include a sentence in the introduction that says, “Before you proceed, make sure you’re familiar with basic Python programming and statistical concepts,” adding links so readers who need it can explore the prerequisite topics.

If you’re writing an ebook focused on sous-vide cooking, you might note, “This ebook assumes you have a sous-vide machine. If you’re new to sous-vide, here’s a guide to get you started.”

Prerequisites allow readers to get up to speed before digging into your content. Without prerequisites, you risk readers quickly becoming frustrated and clicking away.

4. Emphasize takeaways and key points

Imagine a busy reader scanning your document. What do you want them to stop at, be drawn to, or otherwise engage with? Emphasize those points with summaries, callouts, sidebars, and pull quotes to let readers know what’s most important in your content.

The book Third-Party JavaScript sets readers up well by including a bulleted list of what’s to come at the start of each chapter.

If you’re creating a business report on market trends, you might begin each section with a similar bulleted list or a one- or two-sentence summary of what the section will cover.

If you’re writing an ebook on personal finance, consider using sidebars to explain financial terms and concepts. You might also end each chapter with a summary and key takeaways to reinforce the material.

Throughout your ebooks and other documents, you can also use callouts to highlight key statistics or quotes from industry experts. For its content creators, North Carolina State University provides examples of a few different callout designs.

Emphasizing takeaways and key points lets readers know what to focus on. It’s as if you’re right there on the page with them saying, “Hey, check this out; it’s important.”

5. Provide a sense of forward flow

The next technique, forward flow, is about how you can help readers maintain a sense of momentum as they’re reading. There are four techniques: Segues, connectors, repeated words, and repeated graphics. Each helps readers transition between sections, ideas, and paragraphs and provides an ongoing sense of forward movement.

Segues

The word segue comes from the music tradition in the sense of a transition from one song or melody to another without interruption.

It’s pronounced like Segway®, the upright scooter.

In the writing world, segues are smooth transitions that link two different but related topics or sections. They serve as bridges to guide readers from one point to the next.

For example, in an academic journal article, a segue might look like this: “Having discussed the limitations of the previous study, let’s now explore the methodology of our research.”

In a business presentation, you might say, “Now that we’ve covered our Q2 performance, let’s look forward to Q3.”

Segues give your writing a sense of cohesiveness and let the readers know you’re moving from one point to another.

Connectors

Connectors are words that serve as bridges, linking sentences and paragraphs to ensure the logical flow of your content. They’re critical for guiding readers through your ideas and helping them follow complex concepts.

Here are several standard connectors:

• Therefore
• Moreover
• Also
• Furthermore
• Conversely
• Nonetheless
• Similarly
• To illustrate
• For example
• Yet
• Still

Using connectors lets readers easily follow your thought process. Connectors also enhance readability—another plus.

Repeated words and phrases

Repeated words and phrases are another way to maintain forward flow.

For example, in an article on remote work productivity, you might write these two paragraphs, with connectors italicized:

Paragraph 1: Flexibility is one of the key advantages of remote work. Employees can set their schedules, allowing them to work during their most productive hours. This flexibility can lead to increased job satisfaction and better work-life balance.

Paragraph 2: But flexibility can also be a double-edged sword.

Repeated graphics

Repeated graphics prevent readers from having to look backward.

Suppose your ebook presents a complex graphic on page 6. Then, on page 10, you refer to the graphic again. Instead of making readers turn back to page 6 to see what the graphic looked like, why not present it again on page 10, right when readers need to see it?

Third-Party JavaScript uses this technique. On page 5, the authors present a large graphic

Then, on pages 9 and 10, the authors refer to the graphic again. But instead of making readers turn back to page 5, they repeat the relevant portion of the graphic, making only tiny tweaks to adapt it to the new context.

This technique works not just in books. You can use it in course content, cornerstone blog posts, ebooks, and other in-depth content.

No matter the content, the more you can do to maintain a reader’s forward flow, the more clarity you bring.

6. Use concrete examples and real-life stories

Use concrete, simple, real-world examples and practical stories to illustrate to readers why what they’re reading is worthwhile.

For instance, in the article on cybersecurity for small businesses, you might share the story of a local bakery that lost thousands of dollars in revenue when hackers broke into its online ordering system.

In a business report on employee engagement, you might talk about a company that saw a 15% increase in productivity after implementing the employee engagement program, translating to an extra $2 million in annual revenue.

If you’re teaching a technical topic, as my authors did at the technical publishing house, open each section with a concrete example—before you dive into the training. The example lets readers know that the teaching to come is essential and will result in an outcome like the opening example.

Real-life examples and concrete examples help readers feel trust in your content. Use them whenever you can.

7. Ask yourself “why?” and “so what?”

By asking “why” and “so what” about your content, you can make sure to answer those questions for readers, too.

For instance, if you’re writing an article on time management, the “why” might be to help people become more productive. The “so what” might be so readers know techniques that can save them several hours each week.

Share the “why” and “so what” with your readers by bringing those elements into your content. Here’s an example for an article on the Pomodoro technique:

“By adopting the Pomodoro technique, you can break your work into intervals to improve focus. Intervals are important because they maximize your productivity. You’ll find yourself completing tasks faster and having more free time.”

When you take the time to ask high-level questions about your content—preferably before you begin writing—you ensure that what you’re writing is relevant to readers.

8. Ask what transformation you want readers to experience

Knowing the transformation you want readers to experience also serves as a guiding light for your content. Ask about the transformation before you begin writing so you can design your content to carry readers from their current state to the state they want to be in.

For instance, if you’re planning a webinar on thought-leadership writing, your transformation statements might read as follows.

Current state

Many executives publish generic content that blends into the sea of online sameness; such content fails to establish them as industry experts.

Future state

The best executive thought-leaders post insightful, data-driven content that addresses pressing issues and trends in their industry, offers unique perspectives backed by data and research, provides actionable insights and solutions for readers, and is frequently cited or shared, further establishing their authority.

Transformation

The webinar will guide executives from a state of producing generic, forgettable content to a state where they’re recognized thought leaders. To achieve this transformation involves

• Identifying niche topics where they can offer unique insights.
• Learning how to conduct and incorporate research into their content.
• Understanding the art of storytelling to make complex ideas relatable.
• Learning best practices for promoting their content to a wider, targeted audience.

Building those thoughts into your content will help readers understand and look forward to the promised transformation.

9. Identify your content’s top three takeaways

Takeaways are another guiding framework for your content. They ensure readers leave with the big ideas you want them to have.

For example, the top three takeaways for a white paper on AI in healthcare might be:

1. Understanding the potential applications of AI in healthcare.
2. Recognizing the ethical considerations involved.
3. Identifying steps for healthcare organizations to implement AI solutions.

Just like asking “why” and “so what,” identifying your key takeaways helps you to help readers get what they need and what the content promises.

10. Identify a single top takeaway

Zeroing in on the most critical takeaway can help you sharpen the focus of your content even further.

For instance, the top takeaway for the white paper on AI in healthcare might be to understand the transformative potential of AI in healthcare.

To ensure the paper delivers on its promise, you could open and close with real-world examples demonstrating how AI revolutionizes healthcare.

Can you guess the single top takeaway from this article?

The takeaway is this: Your readers are hungry for clarity. Use the 10 techniques in this article to infuse your content with clarity, build trust with readers, and publish content that sells.

Now it’s your turn. Go forth and produce clear content!

Dave:
Hello everyone and welcome to On The Market. Today I am joined by Kathy Fettke. Kathy, how’s it going?

Kathy:
Good. I’m excited for this interview because I’m a huge fan of Zonda. I watch all their stuff.

Dave:
Yeah. Well, since you’re such a huge fan, why don’t you tell everyone what Zonda is?

Kathy:
Well, I did actually talk to our guest today before the recording, and it used to be Meyer’s Research, and I interviewed those guys a bunch and would follow their information and they really just focus on new homes. They help new home builders figure out where to build their homes and where the market is and the demographics. And all that stuff is really important for investors too, so I figure if you’re a new home builder, you have to know what’s coming because it takes years and years to get those subdivisions up and running and make sure that you’re not timing the market incorrectly.
So I’ve always very much valued the John Burns of the world and the Myers Research because that’s what they do and they help builders. So Myers Research worked with a data company called Zonda, and apparently they merged and now it’s just Zonda. And I’ve been a big fan since they merged and excited to actually talk to someone from within and see how they do what they do.

Dave:
Yeah, absolutely. I think it’s super helpful to talk to these types of people because like you said, builders are sort of on the forefront of the economy and what’s going on with demand and supply dynamics in almost every market. The other part of it, and the reason we’re bringing these people on too with more frequency, is that as investors, the new home market is becoming more and more important. And I don’t know, you operate in a different world than I do in real estate, but for the first 10 years of my investing career, I never really even paid attention to what was going on with new homes because it was just a small part. As an investor, I never really thought about buying new construction.
Now as of the last couple of years, new homes are taking up more and more of the total number of home sales. Normally it’s like 10%, I’ve heard different estimates that’s between 15 and 30% now. Build to rent is a new thing that’s becoming increasingly popular. So I’ve personally tried to learn a lot more about the new home sale market and we’re bringing on guests like Nikolas today to help everyone understand it because in addition to the economic understanding and knowledge, this also might play a bigger and bigger role in our respective portfolios for the next couple of years.

Kathy:
Yeah, I have the opposite experience where when I started investing, I was already busy, but I wanted to buy in certain markets, not where I live, and I didn’t know how to assemble a team and be able to buy homes at a discount and then have a renovation team, and it just was too much for me. So I thought, “Oh gosh, a new home, I don’t have to do anything.” And at the time, it was 2004 when it just made sense. So I actually started with new homes. Of course, when it all depends on the market, when the market collapsed and foreclosures were what was for sale, we pivoted, but we’re pivoting again because it is so hard today to find foreclosures, to find existing inventory. So new homes is what you get, and fortunately you can negotiate with builders because they’re business people, right, they need to make sales. So I think it’s important for investors to not take that off the table and not think, “Gosh, if it’s easy, I shouldn’t do it.” That doesn’t make me a good investor.
The other thing we talked about on another episode is that you can get better insurance rates on a new home, and that matters a lot when you’re doing your proforma. That matters so much today. So it can make a lot of sense today.

Dave:
Yeah, and you just hit on something, then we’ll promise we’ll bring Nikolas in. But you said something about them being business people, and I think that’s something that not everyone immediately understands is that builders have to sell their homes. I mean they don’t absolutely have to, but they are strongly incentivized to sell whatever they build. And unlike a home seller who maybe if they don’t get their price, they’re just like, “You know what? We’re going to wait a year, or we’re just going to pull it off the market. We’re going to wait for more bids.” Builders, that’s not how their game works. They need to be constantly selling money to get cashflow in to pay off their debt, to build new properties, to acquire new land and their business in some ways, sort of like a flipper, is to sell these properties as quickly as possible.
And so we will definitely bring this up with Nikolas, but there’s been a lot of incentives to help buyers purchase new homes, which is giving it a further advantage over existing home sales. So a lot to uncover here and I think we got the right person to help us understand it. It’s Nikolas Scoolis from Zonda, and we’re going to bring him in right after this break.
Nikolas Scoolis, welcome to On the Market. Thanks for being here.

Nikolas:
Thanks so much for having me. Excited to be here.

Dave:
Well, let’s start by having you tell us a little bit about yourself and what you do at Zonda.

Nikolas:
Yeah, so my name’s Nikolas Scoolis. I’m the Manager of Housing Economics at Zonda, which is residential and some commercial real estate data provider as well as consultancy. We work with a lot of the big public builders as well as the investors behind those companies who are looking into invest in secondary and tertiary companies in housing, so like appliance providers, paint providers, etc. like that. My job is a lot of data analysis model building. I build our public facing indices as well as helping with consultancy projects.

Dave:
Awesome. Well, it sounds like you are the guy to talk to. Thank you again for joining us. So your team just released the new Home Monthly Update. Can you just tell us a little bit about this report, first of all, what you’re tracking in it and what the most recent findings show?

Nikolas:
Yeah, for sure. So we released this, as it says, on the new home market, trying to cover all the primary points. So we talk about sales, pricing, supply, and we do so on a monthly basis because we at Zonda have in-house research team and we survey about somewhere between 60 to 70% of the entire new home market each month, and so we’re able to kind of get really valuable insights that way. For example, the census, which publishes a version of new home sales, only surveys about 10% of the market. So our data collection is really comprehensive.
So this month what we’re seeing is a little bit of maybe surprising if you’re thinking about the housing market as a whole, but the new home market has been really, really strong over the last few months, and it’s been really benefiting from the lack of supply on the resale side. Builders also have been able to take advantage of being more flexible, meaning they could bring products to market that buyers may be willing to compromise on because there’s nothing available on the resale side, and they’re also able to maybe build smaller and right size and bring that price down. So we’re seeing really strong new home sales across the country right now. We’re estimating about an annualized pace of about 720-ish, which is a relatively strong historical number, and it’s up about 30 to 40% from where it was in the slowdown last year because last year rates were beginning to rise and buyers were beginning to pull back and there was maybe a little bit of panic, but recently we’ve seen it kind of come full circle and seeing a lot of strength there.
At the same time, we are seeing prices continue to come down and a lot of that has to do with the historical affordability crunch we’re seeing in the market. Obviously, rates just surpassed 7% last week on a national average for a 30-year fixed. That is high when you’re considering where prices are. But we have data that splits the market into price thirds, so we’re talking about entry level, move up, the high end market. And the bottom two price points, which are where most of the people are shopping across the country, are basically just flat year over year.

Kathy:
Are you seeing that on a national basis with prices coming down or just in specific markets?

Nikolas:
No. Yeah, national basis. Some places across the country are actually seeing fully negative year-over-year changes, but obviously prices have appreciated so much over the past two or three years. Calling it negative is almost disingenuous, but we’re seeing prices flatten out. And part of that is of course because of rates, but as I mentioned earlier, builders are building smaller and so they’re trying to keep this top line number down, but we’re still seeing price per square foot go up. So you’re kind of having a trade-off there, but the top line number is what’s important to buyers when they’re trying to pencil out what they can afford on a monthly basis.

Kathy:
Yeah, I was just going to ask that. It seems like over the past decade there’s been under-building compared to household formation, but for builders obviously they want to make a profit and they weren’t really making that profit with affordable housing, so they were building higher end. Would you say that that’s true and is that changing?

Nikolas:
I think it’s broad-based. Obviously you have builders who are targeting different price points. We are seeing the most appreciation on the high end still, but I think maybe there’s less price sensitivity there, maybe less rate sensitivity, because a higher end buyer might be more inclined to pay cash or a larger down payment with a higher portion of the total sale price in cash. But we are seeing a lot of more affordable units come on, and I think that’s just the nature of the beast of the market at the moment.

Kathy:
Yeah, we just saw that Warren Buffet is investing in KB Homes and they typically build starter homes or more affordable homes, so definitely a push there to bring on more affordable housing.

Nikolas:
Definitely. Yep.

Dave:
Do you expect that trend to continue, Nikolas, that more builders are going to be able to build affordable homes profitably and will focus their efforts more in that area?

Nikolas:
Yeah, I think the opportunity is there for them because I think traditionally if you were a buyer, you would be more inclined to historically if you’re looking for a cheaper house, look on the resale side. But over the last few years, because there’s so many people who got new mortgages or refied and locked in a rate at two, two and a half, 3%, there’s very little incentive for anybody to put their home on the market at the moment. And so that entry level price point or maybe a fixer upper or something like that that a first time buyer would be looking to pursue just doesn’t have that option really at the moment. There’s just nothing for sale on the existing side.
So builders have a really, really unique opportunity to dictate their own market, and so even if you look at maybe the square footages being built now, which are even under sub two on average in some markets, like 1500 square feet as an average unit size and some of these projects, that gives opportunity to these buyers to afford something. But it gives builders more margin to kind of push a higher price per square foot and still make good profits.

Dave:
Yeah, that makes sense. Kathy and I were actually talking earlier and we were chatting about how difficult it can be for builders to build affordably and make that still profitable. I’m curious, because your survey has such a wide breadth of respondents, do you see that small builders are also able to build these affordable homes? Or is it really the large publicly traded ones that can achieve a level of scale that a lot of other types of builders cannot?

Nikolas:
Yeah, we’re definitely seeing more success for the big publics, and a lot of that is due to how they can scale. As you said, they can buy more land in bulk, they can afford to hold onto land if they have to, but the privates still do have some flexibility because you can be building in the infill units where there isn’t just much land available at all. So you can be doing these smaller scale developments but in more desirable areas and attracting very good dollar for that because of that.

Kathy:
In the report, it was really shocking that some markets were seeing a pretty strong recovery and one of those was Sacramento and San Francisco. Explain that one.

Nikolas:
Well, I mean there is some strength there right now. Just again, we’re going to deal with the lack of supply and builders being the primary option. Because if you’re just looking broader nationally, we’re only seeing about national pace of existing home sales, about 1.4 per month, even if you’re factoring in the stronger new home numbers relative to that. Still, total housing sales across the country are down about 15 to 20%, so it’s kind of hard to reconcile the two between the strength in the new home market and the weakness in the existing. But with these west coast markets primarily, they were hit so hard negatively last year that a lot of this has to do with the base effect. They were just so down a year ago that doing moderately well now looks extremely good. That’s what we’re seeing a lot. The top five markets for us among major metros were all west coast and that’s because of that base effect.

Kathy:
San Francisco in particular, there’s not a lot of room to build, you’ll be building on the water. I do have a niece who’s a real estate agent there, and she said she has people on a wait list, but there’s just nothing available. And when something comes up, it sells immediately, so fascinating.

Nikolas:
Really tricky stuff for a buyer.

Dave:
I am curious, have you seen Nikolas, the demographics of the buyers change? I know you mostly survey the builders, but are the type of people who are attracted to new construction relative to existing homes changing given these inventory dynamics?

Nikolas:
Yes and no. Obviously, the primary buyers historically are the people looking to start a family who need more space, want to commit to a payment on their own schedule rather than being subject to whatever their landlord changes their rent to. But as we know with the pandemic and stuff, we saw a lot of retirees looking to push into smaller units as well to be closer to their family. We call it baby chasing, moving where their kids are having kids, and we’re still seeing that widespread in some of these hotspot markets.
And from a very slight personal anecdotal experience, I was pursuing with my girlfriend out here in Southern California, a very small two, three bedroom, single level home, and every other bidder on that house was a recent retiree looking to downsize from their old home into this smaller home.

Dave:
Interesting.

Nikolas:
So I think it’s kind of like a weird situation because I don’t think a lot of these people who are looking to move into these smaller homes as a baby boomer or Gen X are going to then further sell their home. I think because their rates can be so low in their current holdings, they’re just holding onto it as a rental unit, and then that’s another unit that comes off the market and further hinders the supply problem.

Dave:
Yeah. Also if they do, they probably have a lot of equity from a previous home that they can outbid first time home buyers?

Nikolas:
We saw that a lot over the last two to three years. People, especially from California where homes are obviously a lot more expensive than Texas or places in Florida or Raleigh and Charlotte have been really big hotspots, you can just basically roll that equity into a rate free purchase if you choose to.

Kathy:
Yeah, BiggerPockets just did an article on baby boomers and I believe I saw that baby boomers hold 50% of the wealth and they’re just a quarter percent of the population or something like that, and they have a lot of cash. I would hope so after 30, 40 years of working that you’ve got some cash built up. So this market doesn’t maybe scare them as much. They’re looking more for lifestyle. Sorry, they’re beating you out on [inaudible].

Nikolas:
I know. It hurts me, but I mean good for them I guess.

Kathy:
So where are you seeing the best incentives and what kinds? I mean I know that a lot of builders are paying to buy rates down, paying points so that buyers can afford the property with a lower rate. Are you seeing that type of incentive or like you said at building a smaller house that might be more affordable?

Nikolas:
Yeah, that’s a really good question because rate buy downs have been super, super important. And that’s another thing the new home side has over the existing side is that builders are willing to work with buyers to get the cashflow going. And so interest rate buy downs, they’re not like a new idea, but those share of projects that we’re doing that over two years ago compared to now has just risen dramatically. We’re currently seeing across the country about 60% of all the projects offer some kind of incentive, and the most commonly that we’re hearing are interest rate buy downs.
And that’s an interesting topic as well because obviously that helps with the immediate affordability relief, but as interest rates keep going higher, it’s kind of a question of how long will that strategy continue to attract buyers? Because if there’s not any signs that rates are coming down in the year or two years, will that still continue to move the needle for people? We’ll have to see. But before that, we would see incentives like closing cost coverages done by the builders or appliances included or something like that.

Dave:
And do you expect those incentives to continue even though … It’s sort of this weird dichotomy where builders seem to be in this position of strength, but they’re also offering a lot of incentives. So do you think those incentives might be going away?

Nikolas:
I think, yeah, if builders have their way, they’ll be dwindling down sooner rather than later. But even though builders’ biggest competition is the resale market, they are still competing with each other. So it is still a marketing expense to say, “Why would you go for that home and that builder’s project when you can come to ours?” We’ll do this little bit to move you over the line.”

Kathy:
Yeah, builders don’t want to cannibalize themselves. They’d rather do an incentive than a price reduction every day because then they’ve just made a new comp that’s not good for them.

Nikolas:
100%.

Kathy:
But it seems like it used to be, “Hey, you’re going to get these gorgeous new countertops or this upgrade. That’ll get you to pay this price,” but now it’s a better deal to get a lower interest rate. Like I’ve said way too many times, I just got a four and three-quarter percent interest rate because the buyer was willing to pay a bunch of points and it really makes the numbers work from an investor perspective. Do you have any data on how many of these new homes are being sold to investors looking to rent them versus first-time home buyers or buyers?

Nikolas:
Not exactly. It’s something we’re pursuing to look into on a larger scale. We’re trying to isolate in the deeds which are investors, but there’s just a lot of gray area in facts because people do … The best way to isolate it out in the deed itself is kind of looking at mailing addresses, but there’s still a bunch of gray area. But obviously we do know investor activity is extremely high, especially from an institutional standpoint, and that is somewhat concerning if you’re a buyer. You’re competing with not only people with big pockets, you’re competing with companies with gigantic amount of cash on hand. It’s a little scary.

Dave:
And is that just true across the board that institutional investors are participating more in the new home market?

Nikolas:
It definitely varies market to market. It has to obviously make sense as a rental for a lot of these places depending on what price they’re paying. So you’re looking at a lot of activity in the more affordable places where there’s room for rental rates to increase at a higher rate. And then obviously on the further end of that, you have full projects that are build to rent. They’re building these projects themselves to just rent them themselves and operate as a landlord, which is obviously a very complicated process because the land price has to be exactly right for it to work, but it does give these builders ad out also. If they need to liquidate, they also have the price appreciation they’ve gained in value of their rental units. So it’s kind of a very interesting prospect, but as I said, it has to work exactly right in terms of land value for it to really make sense.

Dave:
Well, just to clarify, when we talk about your survey and the data, does that include build to rent as well?

Nikolas:
No, this is new for sale.

Dave:
Okay. Okay. So that’s just a different class of sale?

Nikolas:
Yeah, completely different. We do work on a lot of build to rent projects, but these are for sale units.

Kathy:
So we’re seeing builder confidence has been up, but I think it just declined a little bit recently because of the recent mortgage rate increases. Do you see that trend continuing of builder confidence versus a decline in the future?

Nikolas:
Yeah, I think you’re right. I think it recently declined to about 50, which if I’m recalling reading it right, I think it was declined to 50 and 50 is the marker of how they indicate positive confidence or negative confidence. So it’s right on the border right now and I think it’s a cautious confidence. There’s so many dynamics that are good for them, but that price and affordability crunch is still just weighing down on their heads. And especially if rates keep going up, at some point there’s just diminishing returns in what buyers can afford.
So I think it’s kind of weighing those two aspects because if you look at the supply, look at what was happening in the resale market, there’s so much going well for them, but they still have to make sense for people to buy it. They still have to be able to afford it. And so it’s just tricky. It’s a very weird environment I have to say.

Kathy:
It is tricky. I mean I syndicate and we have a development just outside of Reno, and we were so excited because we’re building affordable housing there, and sales came to a stop. It was a shock. Of course, Reno may have got hit harder than other markets, but starting to pick up again. But it is, it’s a crapshoot. You don’t know. We’re also building “affordable” in Utah, but it’s still expensive for most people, affordable for the area maybe. How do you build what would be considered affordable today and how can you build at that price and make a profit? It’s tough.

Nikolas:
Yep, super tricky.

Dave:
One of the things I keep hearing about the new home market is that builders are building more, and this is going to help us alleviate a national housing shortage that depending on who you ask is somewhere between three and seven million homes. But when you look historically, we’re not really at the height of building, and obviously new homes make up a small portion of total inventory. And so I’m just curious, do you believe that there’s any hope that building is going to pick up to a level where it would actually help increase overall housing supply?

Nikolas:
I definitely don’t think they can bridge the gap if resale supply is this little as well. New home market is traditionally about 10% of sales. It ranges obviously. Currently, it’s about 15% and that is the highest we’ve seen in a very long time. And like I said, we’re still down when you’re factoring in total market sales about 20% from where we were last year. So with the resale market and the resale supply being so low, currently the new home inventory of standing inventory makes up about 30%, which is way up. And we’re still so under-supplied, new home building would have to increase to such a dramatic level while resale supply is this low that I just don’t see that being feasible.
I think there are gains they can make, it doesn’t have to be talking in absolute, like any supply improvement is good supply improvement if you’re talking about from the buyer’s perspective. But bridging that gap on the new home side alone is just I don’t see that happening. There’s got to be some kind of incentive to get the people with the low rates to want to move or want to sell and trade in those loan mortgages. And that’s the impossible conversation I think is how do you do that?

Kathy:
What communities, what areas, are seeing more activity in subdivisions? I mean I know subdivisions kind of went down, the count went down, because I think builders didn’t want to take that kind of risk. But are we still seeing areas in the country where builders are coming in, creating big communities? And if so, where?

Nikolas:
Yeah, so the places that we’ve seen the most gain on a year-over-year basis are Austin. Austin’s been a weird market as well because it was so dynamically out of this world hot, and now it’s slowing. It’s still seeing sales, but obviously uncomparable to what we saw over the last couple of years there. Riverside, there’s land there, and also I think a lot of the buildings were building for demand that people were seeing early in the pandemic when they were willing to kind of move out of the higher cost lifestyle markets because of remote work. And then Minneapolis, but all three of those … Or sorry, bar Minneapolis, but Austin and Riverside are still down double digits compared to where they were prior to the pandemic in terms of supply. So we’re seeing gains, it’s just still lower than where we started.

Dave:
That’s super interesting. Are there any places where builders are fleeing?

Nikolas:
Fleeing is a good question. I’m not exactly sure pulling out completely. I think there are markets that are a little bit trickier. Of course the Bay Area is tricky in how they’re going to manage their employment base. Are tech company is going to be able to bring all their employers back? And if they do, obviously that’s very good for housing because those incomes are so high and people will be moving and flowing into it. I think generally there’s room for a builder in any market. It depends on your execution and how you are marketing your product and what you’re bringing and delivering because I think the execution is what is most important.

Kathy:
And even in smaller markets like the tertiary ones, let’s just say, I don’t know, Columbus or Cincinnati or Huntsville or some of these smaller markets, are you seeing builder activity in those areas?

Nikolas:
That’s actually a good point. Boise is one that stands out as being a little scary just because there was so much inflow and so much slowing down in terms of building there. And anytime I look at the numbers on how much things have changed over the last bit, Boise is always a standout of something that’s seeing crazy changes.

Dave:
Yeah. Nothing against Boise, but they’ve certainly been hit hard, not just in new homes but in existing home sales as well.

Kathy:
But if I were a betting gal, I would say it’s going to come back because that money’s coming from California and you’ve still got people retiring who don’t want to do it in such an expensive market and they’re going to go to a beautiful place like Boise. So it’ll probably come back, but it’s going to take a while for that.

Nikolas:
Yeah, relative affordability is one of the biggest drivers there are, just how much farther your dollar goes.

Kathy:
Yeah.

Dave:
Yes, relative being a very key point because people, they look at Boise and they’re like, “It’s not affordable,” and is true for the majority of people. But to Kathy’s point, if you’re a wealthy Californian, maybe it’s extremely affordable.

Nikolas:
Relative is the key for sure.

Kathy:
Or even not wealthy. I mean my daughter is just starting her career and the rents are $4,000 or $5,000. It’s tough.

Dave:
In California?

Kathy:
Oh, yeah. Yeah, and California is so going anywhere else, and she’s looking and that would break my heart. I want her near me, but it’s not just wealthy who live in California, it’s people trying to survive with rents that are just ridiculous. And at some point, you just give up and just go away. You’re just going to go somewhere where it makes sense.

Nikolas:
That’s the current battle we’re living. As I said, we were trying to pursue a house when we were getting quoted rates in 2.8, and obviously the prices are high, but we didn’t find something that worked out or we got outbid. So we’re in this weird flux point. We can’t see ourselves leaving California, but our rent is so under market at the moment, so we’re kind of almost locked into a rental unit, which is extremely bizarre because anywhere we want, if we want to get a different rental unit, it’s like an increase of $1,000 a month, which we can’t justify.

Dave:
That’s crazy. Yeah.

Nikolas:
We could do it, it’s just the trade-off isn’t worth it. And then so we’re saving for a house and there’s nothing available. It’s like-

Dave:
It’s tough.

Nikolas:
It’s very tough for buyers out there.

Kathy:
Well, that’s why you’ve got to invest in property and then you could live in California and rent, but own property elsewhere. That’s been what I’m encouraging people to do for so long because it just doesn’t make sense.

Nikolas:
That’s good advice.

Kathy:
Yeah, especially at these rates to own in California. It’s tough for a starter home or a growing family.

Dave:
All right, well Nikolas, I’m curious, is there anything else you and your team are working on or studying that you think our audience of small to medium-sized real estate investors should know about?

Nikolas:
The other big bit of work we’ve been doing is trying to capture how much square footage is changing, but we kind of talked about the right sizing that’s building smaller, just being able to keep that top line number down. And it really is dramatic how much square footages are declining. We’re seeing basically every market around the country end up being smaller and smaller by average listed unit size. And it’s something I think will keep happening until there’s some kind of pullback in demand because it’s just too small, but I expect that trend to continue, so there’s going to be even more premium on bigger houses on the existing side I think.

Kathy:
Well, I just want to thank you guys so much because you’ve been offering so much information and data ever since it seems like you really went hard during the pandemic trying to help the rest of us understand what in the world was happening. And you’ve been really accurate, so thank you. Thank you for that. And with that said, what are your thoughts about the coming years and where things are headed? That’s a big question.

Nikolas:
Like I said, especially for builders at least because that’s so much what skews our viewpoint, I think it is cautious optimism. I think they’re in a good position with both supply as well as demographics pushing demand forward, but just got to be nimble and flexible and especially on that affordability side, there’s just always going to be that weight pushing back down on you. So we got really good, kind of not good on the affordability side, but I think they’re in a good position because I think that resale supply side is just a problem that’s not going to be alleviated in the near term. I think the lock-in effect is just so brutal.

Kathy:
Are you seeing any government assistance or incentives for affordable housing? I thought I saw something recently with the Biden administration trying to get builders to build affordable.

Nikolas:
Yeah, we’re seeing some more activity in terms of altered zoning ideas. So it’s basically being able to build multifamily in single family areas. And that’s obviously an idea I am pro of, but how much of an impact it will have in terms of alleviating, I’m not sure because typically the multifamily person is a different demand segment than the person looking to buy a single family house. Maybe those are just compromises that have to be made on the buyer side, but that’s something we’re seeing for sure.
One more thing to keep in mind in the near term is how student loan payments coming back affects the demand side because that’s been such a good tailwind for the housing market for the last two plus years. So with those payments coming back, I believe next month, how that impacts demand because a lot of the underlying data, it’s still really strong despite what you hear a lot of people experiencing in the economy. So we’ll see how that has impacts, if any.

Kathy:
And then what about technology that can make the process cheaper? I am going to look at a 3D printed community in Palm Springs on my way to a concert.

Dave:
Oh, cool.

Kathy:
Yeah, it’s going to be really cool. I’m going to get some footage for you guys, for BiggerPockets.

Dave:
Awesome.

Kathy:
But it’s not cheap. I thought, “Oh wow, this is a great way,” but it’s like these homes are in the million dollar range that is not helping. Granted, maybe that’s cheap for California, but yeah, what kind of technologies might be coming around or that builders are looking into that could make it more affordable to build?

Nikolas:
What you’re talking about is something builders have been very interested in for a long time. Basically, since I’ve been in the industry, we’ve been researching it, talking about it. It just is still a little far away because it really has to make the numbers work. If I don’t know you want to call it manmade housing is still cheaper and there isn’t a big price drop, then it’s not going to make sense for builders to fully invest in it. But if it brings prices down, then that’s something they would lean into for sure. It just seems like it’s a really interesting cool idea, but not quite ready for a large scale use yet. Maybe it’s a case by case development basis, like it makes sense for some, maybe not for others, maybe depending on the labor availability, who knows? But it is interesting. I think it’s fascinating how they’re able to do it. It’s really cool.

Dave:
It’s super cool. I hope it gets scaled up. I think right now it’s just too small scale in one-off communities, individual lots. But if they started applying this at a large scale, maybe it could help bring down costs. Let’s hope.

Nikolas:
Yeah, let’s hope. I hope so.

Dave:
Kathy, you got to get us some footage of that. I’m very curious. It’s a whole community you said?

Kathy:
Yeah, it’s a whole community. It’s in the desert. It’s built in a way that it’s fire resistant and you don’t need as much AC because it cools itself. It’s really cool. I will definitely be there. I’m already meeting with the agents there, and we were so excited about it until I saw the price tag. I’m like, “This isn’t helping anyone. It’s still so expensive.” And same thing, Nikolas, the person who presented to me lives in Southern California and can’t afford to own a property there, so was excited about this possibility, but it’s still expensive.

Nikolas:
One thing they do really well though that I’ve seen is the time those developments take, they can be really fast, which is interesting from a builder’s perspective if you’re trying to target a certain market really quickly because it gives them that speed. But again, pricing is still an issue.

Dave:
All right, Nikolas, well, thank you so much for joining us. We appreciate all the work you and your team have done and coming here to share your insights with us.

Nikolas:
Thank you so much for having me. I enjoyed it.

Dave:
And if people want to check out your work or learn more about you, where should they do that?

Nikolas:
Zondahome.com. We publish blog features of the more unique research we’re doing there consistently. And then obviously we have the New Home Market Update, which we’ll release monthly, that has all these stats that can be sent to your email.

Dave:
All right, great. Well, thanks again, Nikolas.

Nikolas:
Thank you so much.

Dave:
All right, another big thanks to Nikolas for joining us for this episode. I learned a lot. Kathy, what were some of your highlights from the interview?

Kathy:
Oh, gosh, just that it’s fascinating that some areas are having a comeback bigger than I thought, and that I think part of that report in certain places, home sales are more robust than they were in 2019, which is a good year to compare things to. So look, this seems very positive from my perspective. I left the interview feeling positive.

Dave:
Good. Well, you’re always the most positive of all of us.

Kathy:
Oh, why not?

Dave:
I’m always glad when you’re feeling good, but I agree. I think in general, I don’t have a good sense like anyone of what’s going to happen six months from now or a year from now. But in the next two or three years, I feel pretty good about the way things are heading. What happens in the short term? I don’t know. I think the one thing that I was a little sad about is just, not from an investment perspective, it’s just like even if builders build a lot, it’s not really going to alleviate the housing shortage problems. And so I really have a hard time understanding how we fix that. If even an uptick in building improved economics for builders we’re seeing right now is not going to get us to that point, I just don’t really know what will.

Kathy:
Yeah, I know California tried to bring in some laws where a new builder, I don’t know if it ever passed even, but that institutional investors and investors would have to wait like 30 days, like you got to let the open market and the first time buyer get in first. There’s ways. Do you charge? I know other countries charge investors higher property taxes and higher acquisition. It’s harder for investors in other countries, but here it’s frustrating because families should come first. And I don’t know how we do that here, but I could tell you from a builder perspective, it makes no sense to build affordable housing. We are getting killed on that in our projects. So why would you go out and do it again if you’re not making money? It’s hard. It’s really, really hard. So there has to be some kind of government assistance or incentive to make that happen.

Dave:
Yeah, it’s a really tough situation. Here in Amsterdam, they make it more difficult for investors. It’s an interesting system. Here, you pay tax when you buy actually, which is kind of interesting. It’s 2% for a home buyer, it’s 8% for an investor. So it’s a very significant increase. And this went into effect since I’ve been living here, and what you see is the percentage of rental properties has plummeted, which has actually been decent for the housing market. It’s still up a lot, but it’s moderated a little bit. But for renters, like myself, I rent in Amsterdam. It’s been a huge problem. And so rather than new home sales being unaffordable, rent just becomes unaffordable. And in my mind, the only solution to any of these things is more supply. There could be these interventions that might put a little bit of a bandaid on something, but I don’t know. They got to figure out a way to get these builders to just build nonstop.

Kathy:
Just incentives to builders to create affordable housing, that’s what needs to happen.

Dave:
Yeah. Well, we’ll see what’s going on. But Kathy, thank you as always for your time and for your insights. We appreciate you. If people want to connect with you, where should they do that?

Kathy:
You can go to realwealth.com, that’s our company, or on Instagram just Kathy Fettke. And I think there’s just one of them, just me.

Dave:
Good, good. No imposters trying to sell you crypto.

Kathy:
Right. They might still try, but trust me, it won’t be me.

Dave:
And I am at The Data Deli, there does seem to be some imposters, but I have a blue check now. I’m very excited about that.

Kathy:
Yay.

Dave:
So just The Data Deli. Well, thank you all so much for listening. We appreciate all of you and we’ll see you for the next episode of On The Market.
On The Market is created by me, Dave Meyer, and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media, research by Puja Gendal, copywriting by Nate Weintraub. And a very special thanks to the entire BiggerPockets team. The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

© 2023 CNBC LLC. All Rights Reserved. A Division of NBCUniversal

Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes, and Market Data and Analysis.

Data also provided by

The #1 VC fallacy in venture development is that getting VC means venture success. The reality is that 80% – 90% fail with VC.

The #2 fallacy in venture development is that first movers dominate. Research, and entrepreneurs like Steve Jobs, Sam Walton, Michael Dell, and Brian Chesky suggest that they do not. You need to be a smart mover, not just a first mover. To develop unicorns, product innovation is not as important as strategic innovation and unicorn skills on an emerging trend.

The 3^rd Fallacy of Venture Development from Lisa Su: Now here is a third fallacy stated eloquently by Dr. Lisa Su, the CEO of AMD, and a Ph.D. in electrical engineering from MIT: “I saw that MIT Ph.D.’s worked for Harvard MBAs, and the truth is that made absolutely no sense to me.”

2 Key Questions

This raises two questions:

· Can smart technologists be trained to start and build more unicorns, and

· How do you teach unicorn-building skills to smart technologists?

With her skills, expertise and talent, Su has made it to the top of one of the world’s most important companies, at a time when artificial intelligence and the need for AI chips is exploding. And she has proven her genius at taking a small, failing semiconductor company and turning it around to one of the leading companies in a key industry.

Three lessons from Lisa Su’s experience for potential CEOs and Unicorn-Entrepreneurs.

#1. Examine your assumptions. There is no reason to give a free pass to Harvard and Stanford MBAs. There is talent elsewhere. Just because someone chose to get an MBA degree does not mean that they are great leaders. What they have learned in full-time business programs can be taught quite easily in executive education programs.

#2. Technical expertise is important in tech-based industries. In tech-based industries, technology skills may be more important than sales and marketing skills. Even great salespeople cannot sell obsolete and poor products in tech-based markets. Nearly every billion-dollar entrepreneur had some degree of technical skills in the emerging industry he/ she entered.

· Sam Walton (Walmart) and Dick Schulze (Best Buy) knew retail.

· Gordon Moore and Robert Noyce (Intel) knew semiconductors.

· Bill Gates, Steve Jobs, and Michael Dell knew PCs – they had played with them as teenagers.

· Mark Zuckerberg knew coding – he was offered $1 million to improve the software he developed as a teenager.

#3. Adding leadership skills to tech experts may be easier than adding tech expertise to MBAs. If the executive has leadership traits and interests, it is easier to teach finance and leadership skills to those who have technical skills than it is to teach highly technical skills to finance experts. The basics of finance can be taught in a few weeks.

Unicorn Skills for Talented Technologists

Using the experience of Billion-Dollar Entrepreneurs, who built businesses from startup to more than $1 billion in sales and marketing, here are eight skills that can help all executives and entrepreneurs, including technologists, develop unicorns:

· Technical and operations skills are a paramount need, and especially in emerging industries, to know how to develop the right products and to stay in the lead in the future.

· Sales skills to sell without wasting scarce capital on wasteful marketing strategies.

· Financial skills to finance right and invest wisely in order to do more with less.

· Launch (or re-launch) skills to takeoff with less wasted capital — before the cash runs out.

· Control, organization, and leadership skills to control the company, find and motivate the right people, and lead to win against formidable competitors.

Finance skills to lead unicorns can be taught in a few weeks. Tech skills to build unicorns and lead the world take much longer.

MY TAKE: Finance and leadership skills and finance-smart unicorn strategies are not the sole prerogative of MBAs, Harvard or otherwise. All entrepreneurs can be taught the needed finance and leadership skills and not be replaced by the VCs as happens in up to about 85% of VC-funded ventures. For corporate boards it is imperative that they abandon their prejudices about pedigree, school, race, and gender, and evaluate potential based on talent, skills, track record, and character.

Scale FinanceReplacing CEOs in VC-backed Companies – Scale Finance

CNNFrom the brink of bankruptcy to a 1,300% stock gain: How this CEO turned around her company. | CNN Business
MORE FROM FORBESLisa Su Saved AMD. Now She Wants Nvidia’s AI CrownBy Iain Martin
Federal Reserve Bank of BostonTo Market to Market
NytimesVenture Capital Firms, Once Discreet, Learn the Promotional Game (Published 2012)

David:
This is the BiggerPockets Podcast, show 815.

Soli:
The homes that we’ve been buying are primarily $100,000 and less. I started investing in 2020. Interest rates were about three and a half percent, and buyers flooded the market. Nowadays with seven, 8% interest rates, I think a lot of people have told themselves that deals just won’t work. Because of that, we’ve been able to make a lot more aggressive offers, less buyers in market, more deals for us.

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets podcast, coming to you from Downtown LA at Spotify Studios where I’m joined by Rob Abasolo and Soli Cayetano doing a real estate podcast. If you didn’t know, we are the biggest, the best, and the baddest real estate podcasts on the planet, and I’m joined today by some talented real estate investors. Today, we interview Soli and we get into how she built a portfolio of properties all across the country using long distance investing techniques and got her start with cheaper price properties that made it easier to scale at scale. Rob, bring us to today’s quick tip.

Rob:
Today’s quick tip, find a way to keep yourself accountable. If you want to get into real estate, document the journey. You can do that so many different ways, but in today’s story, we talk about how if you document it on Instagram and you put it out there for the world to see, then you sort of have to stick to it or else people are going to ask you questions and you’re going to have to report back to them that you never actually did the thing that you said you were going to start to do. So go out there, start an Instagram account, document the journey, and let other people follow along and it’ll keep you on track.

David:
I like Rob being under a time crunch because he made a mistake on the quick tip, but he just kept rolling.

Rob:
Kept going, baby.

David:
For the first time, he got it in one take, everyone, leave a comment-

Rob:
The show must go on.

David:
… on YouTube and let Rob know how proud of him you are for not needing to be perfect. And since you did so great on that quick tip, Rob, I’m going to throw you another one. What’s something of value that people can pay attention to that will help them in their career?

Rob:
I think that’s a very good story in starting small. You don’t have to go out there and buy these mega, crazy expensive houses. You can go out, buy a more affordable house, get your reps in, and scale your way up accordingly, so that you don’t necessarily have to get into a big, scary purchase. I think getting into a purchase takes confidence, it takes courage, and it doesn’t mean that it has to cost $1 million. It can be a $100,000 house.

David:
Thank you very much. We’re going to get to the show shortly here, but before we do, make sure you listen all the way to the end because you do not want to miss the blood battle between Soli and I as we go head-to-head in a brutal fashion with Rob refereeing. Really in a terrible way, you should have stopped the fight many times. You just let it get out of hand.

Rob:
She annihilated you, that’s why.

David:
There you go, so listen all the way the end to hear how that goes. Let’s get into it. Today’s guest, Soli Cayetano has been investing for three years. She has 40 units across Ohio, Georgia, and South Carolina. Her strategy include BRRRRing, flipping, and affordable housing.

Rob:
Fun fact, Soli, I hear you’re going to write the foreword to David Greene’s book if he ever publishes an update to Long-Distance Real Estate investing, is that true?

Soli:
Is there one coming out soon?

David:
At some point, I am going to update it. It was the first book I ever wrote, so I’m sure it could have been written much better.

Soli:
I think the story is that I kept on tagging David in way too many posts and he got annoyed and finally said, “You can write the forward,” and I have a DM to prove it.

David:
Can confirm, Soli likes tag. She likes tag, she’s good at tag.

Rob:
We’re going to show it in the show notes, the screenshot, which is a legally binding, David-

Soli:
Legally binding.

Rob:
… Agreement. I don’t know if you know this.

David:
Every man loves this, the thought of having his screenshot shared for everybody to see. This is a very popular thing to get into.

Rob:
Well, before we get into your story, can you tell us in just a few quick points, what’s working for you in your current market?

Soli:
So, I’m primarily investing in Augusta, Georgia and it’s a lot more affordable market. It’s about two hours outside of Atlanta. I do have properties in Cincinnati and Aiken, South Carolina, which is right outside of Augusta. The homes that we’ve been buying are primarily $100,000 and less, so very affordable market. The one thing about high interest rates, a lot of people are sitting on the sidelines right now. So, I started investing in 2020. Interest rates were about three and a half percent, and buyers flooded the market. It was super, super competitive, so try winning a non-cash offer and it was almost impossible. And so nowadays with seven, 8% interest rates, I think a lot of people have told themselves that deals just won’t work, and so they’re just not going to even try. So because of that, we’ve been able to make a lot more aggressive offers, less buyers in the market, more deals for us.

Rob:
And do you feel like the deals are working at the price points that you’re currently purchasing at more than more expensive premium, mid-tier properties?

Soli:
I think so. I think that interest rates affect proportionally, they affect less the cheaper markets than the more expensive markets from just a dollar amount on a mortgage payment on a $60,000 mortgage it’s, I don’t know, maybe like 100 bucks if the interest rates go from 3% to 7%. But in the Bay Area where I live, if you have $1 million house and the interest rate jumps from 3% to 7%-

Rob:
It’s significant.

Soli:
… That’s probably like, I don’t know-

Rob:
Thousands of dollars.

Soli:
1,000, 2,000, $3,000, and so disproportionately the interest rates don’t affect the smaller markets.

Rob:
So, is that going to be more of a cashflow game going kind of the lower tier interest doesn’t hurt as much, versus the appreciation side of it, or are you still getting the appreciation side of that in some of these markets as well?

Soli:
So, I think we can argue on this, David, of cashflow versus appreciation a little bit, but I think these markets are first and foremost cashflow, but you can find good pockets of appreciation in certain areas. Those are my favorite areas to invest in, are the ones that have the path of progress, there’s a bunch of renovations going on, you can see that they’re about to turn from a class C to a class B, those are the neighborhoods that I like to invest in because you can get both the cashflow from the affordable markets and the appreciation from investing in strategic locations.

Rob:
That makes sense.

David:
Is your position that cheaper markets equal more cashflow?

Soli:
It depends on your strategy, but from a long-term rental perspective, I would say generally.

David:
What do you think, Rob?

Rob:
I guess it’s going to vary depending market to market, but for me, I’ve always been in the mid-tier side of things. I haven’t really done kind of the $100,000 purchases all too much. I’m actually doing one right now as a wholesale in Houston, Texas, but that’s meant to be more of a flip, not an appreciation play for me. So for the most part, my lane is mid-tier, usually all the houses that I’m buying are going to be $300,000 to $1 million and a few a little bit more expensive than that, it just kind of depends.

David:
And are you buying short-term rentals or traditional rentals?

Soli:
Of the 40 units I own, I would say five of them are mid-term rentals.

David:
Cool.

Soli:
I don’t have any short-term rentals. I transitioned all the short-term rentals to mid-term rentals just because the quality of the tenants for short-term rentals in a place like Cincinnati I feel like are maybe a little bit questionable, and then I have 10 flips going on right now.

Rob:
Nice. Actually, going back to what you were saying, I’ve got a buddy who does short-term rentals in very rural markets and he buys houses for $100,000.

Soli:
They do well.

Rob:
They do super well.

Soli:
The Airbnb I bought was $125,000. It was a duplex. We put in about $60,000 of renovation, $20,000 of furniture, so all in for just about $200,000, and I think on our best month we made like $10,000 of rent.

Rob:
Wow.

Soli:
Incredible, right?

Rob:
That’s crazy, and you turned that into a mid-term rental?

Soli:
Yes.

Rob:
Goodness.

Soli:
It was very cyclical. I think that during the summer months it was great. It doesn’t really get that snowy, but it’s not really a place people go in the winter that much, and so we’d have anywhere from 3,000 to $10,000 of bookings, but as a mid-term rental, we can get a steady five to $6,000.

Rob:
That’s so good. What’s the mortgage on that?

Soli:
That’s about maybe $1,700. So, cashflow is about $1,000 a unit as a mid-term, and it stays steady the whole year.

Rob:
I think that’s totally fair. Mid-term rentals really are the saving grace a lot of the times, especially if you are doing short-term rentals. You find out it’s a lot of work and then you don’t necessarily want to switch your strategy until you get a mid-term rental guest. I stumbled upon it on accident. I had a travel nurse come and book my place and I got paid pretty much the same amount of money and it was way easier. They never texted me, they never did anything.

Soli:
They’re great guests and we have a guy who is there for an entire year paying a mid-term rental price, but his home had some… I guess it burnt down or something. So, insurance claim rented the whole place for an entire year and we’re locked in at that high rent.

Rob:
Man, nice. So my buddy, his strategy is buy 100,000 to $150,000 homes more on the $100,000 side. His mortgage is always like, I don’t know, 800 bucks, whatever it ends up being, but he’s booked 90% because no one thinks that it would be a good investment to buy an Airbnb in these towns. And he’s like, “All right, I’ll just be the only Airbnb.” He’s booked like 90% and he basically grosses like 2,500 to 3,300 bucks a month. So, he’s usually cashflowing like 1500 bucks at a minimum.

Soli:
It’s not bad.

Rob:
It’s not bad.

Soli:
I would say bad. Most of my mid-term is cash around $1,000 mostly. Actually, all of them are in Cincinnati, and then long-term, when I bought at 3.5% interest rates, those are like three to 700 bucks, and now in Augusta it’s a little bit lower. We’re like 150, 250 bucks [inaudible].

David:
That’s what I was getting at. When we’re saying cashflow in cheaper priced homes, we’re not only talking about traditional rentals, we’re talking about short-term and medium-term rentals. I would agree with that, that you can cashflow much stronger on cheaper houses if you’re doing medium-term and short-term rentals. Traditional rentals, you end up usually getting a couple hundred bucks, which gets eaten up by CapEx and maintenance. That’s usually when I’m critiquing the idea that cheaper properties equal more cashflow, it’s because the cashflow gets eaten up by the property again, but if we’re talking about running them as a short-term rental rental, I don’t think that same logic applies.

Soli:
Unless you save up for maintenance and CapEx along the way too, or if you’re renovating this property, so that they are lower maintenance and all your CapEx have been replaced, then your 150… My 150 is after all reserves, all CapEx, all maintenance, all vacancies. So, what actually goes into my pocket is probably more like 500, but I’m taking out all of those reserves and putting them into an operating expense account-

David:
You’re keeping 150, right?

Soli:
And I’m keeping 150 into more of an owner pay account.

David:
So, that ends up being $1,800 a year. So over five years, you’re talking about $8,000 or something.

Soli:
It’s not life changing,

David:
That’s my point.

Soli:
But when you buy in the right markets and in the right neighborhoods in those markets, you do get that mix of cashflow and depreciation.

David:
Which is where the wealth comes from.

Soli:
Which is where the wealth-

David:
Once again, we thought we were arguing, but we’re really not. You’re seeing the same thing that wealth comes from the property going up.

Soli:
Yep.

David:
So, I understand that you had just graduated college when you started investing. What was your day job at that time?

Soli:
So, I started working in commercial real estate when I was a sophomore in college, pretty young. I just needed a paycheck basically, and I was helping lease office space for pretty big companies. And so, that was what I did sophomore year through senior year, and then when I was a senior, the pandemic hit, and that’s what really propelled me into real estate. So, I was a senior and I was going into a fully commission-based job as a commercial real estate broker, leasing office space, and nobody wanted office space in 2020. It was like a dying industry. And so, as I sat in my-

David:
Why?

Soli:
Why? Everyone was working from home, but I think as I was thinking about this, I could make $0 for the next how many ever years I was going into a profession that was maybe going to be crushed. And so as it lasted longer and longer, my school was shut down, college was shut down, work was shut down. We didn’t really know what to do, and I started thinking about how I could build some type of passive income, anything, so that if I got $0 of a paycheck for the next year, at least something was coming in.
What was really weird about the pandemic for me is I was always used to hustling and working two jobs, so in high school I worked at a coffee shop and I went to high school, then I went to college and got a brokerage job. So, I was working basically full-time and going to school, and so when the pandemic hit and school shut down and the world shut down, it just felt weird. I had all this time all of a sudden. I tried to cook, tried to… Everyone had their pandemic story about what they did and ultimately decided that I needed something more. So, I looked into real estate investing. I started my Instagram, I posted that I was going to buy a property, and that’s how it took off.

Rob:
Wow, so you started your Instagram account, which is really great, a lot of great content for anyone that’s looking to get into the world of real estate, and was it really more of a, hey, I want to document this journey, you’re pretty excited to just put it out there?

Soli:
Absolutely, I think a lot of people wait to start their Instagram until there is a story to tell, but for me it was just vlogging. I just wanted to one, maybe hold myself accountable, put it out there into the world. I’m going to buy this real estate investment property and watch me make it happen. And then secondly, I was really trying to find a community for myself. And so again, I was stuck at college, but everyone had pretty much gone home. So, I was literally alone, by myself, and isolated because you weren’t supposed to hang out with anybody. And so, my internet friends became my real friends and I talked to them, I completely changed my circle where before I was hanging out with commercial real estate brokers who don’t really prioritize passive income. They’re just always grinding and college students who are partying and not thinking about retirement age. Instead, I was surrounding myself with all sorts of real estate investors who were prioritizing delayed gratification and taking big risks in order to buy these rental properties, and that shifted my whole mindset. My whole circle changed.

Rob:
So then you decide, I’m going to buy a property in my backyard, get started small work, my way up from there?

Soli:
I lived in the Bay Area, California, and so homes there… I think the average home now is $1.5 million or something, and so I was thinking I had about $50,000 saved up from working for three years essentially.

Rob:
Wow, that’s good, that’s a lot.

Soli:
It’s not bad.

Rob:
It’s not bad at all.

Soli:
And I have a full scholarship from my college, and so I didn’t have any debt.

Rob:
Oh man, I’m jealous. That’s cool.

Soli:
Lucky me, I was a very lucky person, but I thought about, what could I buy in the Bay Area? Because usually what people think about is, if I’m going to invest, buy in my backyard, and I was like, “I can maybe buy a condo and then I would be tapped out from a debt to income ratio standpoint and I would have no more money, that would be it.” And so, as I started reading more of the Long-Distance Real Estate Investing book and thinking about how I could make my money go further, I thought maybe I could do the BRRRR strategy. In order to do that, I would have to be in a more affordable market.

Rob:
Cool, so the big shift in your mindset living in the Bay Area was just, “Hey, maybe it’s not as obtainable to live here.” You read this book, you picked up some of the principles that my friend David Greene has outlined and influenced so many people with, and was that scary? Was that like, oh, I could do it, was the book like, hey, man, this seems like a pretty clear strategy, why not give it a shot? What was that even doing your first investment out of state?

Soli:
I think I didn’t know what I didn’t know. So, I went into it a little blindly, but I did a couple things. So, I was listening to BiggerPockets Rookie a lot. It had just come out in about 2020-ish, and listening to just like everyday people buy their first rental property. And I think from that I was like, “If these everyday people can buy real estate, then why can’t I do it?” So, that was more of the confidence piece, and then I think the book was more of the tactical piece. So, how do you go out and find the market? How do you go out and build the team? How do you actually go analyze these deals? And so together, I think it was the confidence, mixed with the tactical that came together and was like, “I’m just going to go do this,” and a little bit of recklessness, just why not? Worst thing that could happen is I lose $50,000 and I’m just where everybody else is starting in probably graduating school with $0. So, I thought worst case scenario, it’s really not that bad.

Rob:
50,000 is a lot to lose, but I think that’s the right attitude. A lot of people get into real estate and they analyze all the things that could go right, but then they overanalyze all the things that could go wrong, and so that always stops them from doing it. Whereas I’ve always been the kind of person, and Brandon always used to say it so well, which is like, “I jump out of the airplane and I assembled a parachute on the way down.” And for me, that’s always how I got to the next property because I was like, “I have no idea,” but other people that presumably aren’t geniuses or all… They can’t all be smarter than me, maybe a couple of them, but they all seem like normal, regular people that are just good and consistent, and you really do have to be a little reckless, I think. It’s a slippery slope.

Soli:
That’s why I like to share on my Instagram too because I feel like a lot of people think about real estate investors and they think older, maybe male or something, but seeing people who look like them and who are younger them really adds a lot of inspiration for people that if I can do it, then they can do it. I’m a totally normal person, no one special, but if I can do it, they can do it.

Rob:
David, what do you say that you’re… On the spectrum of reckless… Following your gut, I guess would probably be a better way to say that, versus the analytics and data analyzation, do you find yourself more on one side, right in the middle?

David:
I’m not as reckless as I think I appear when I’m giving advice, I’m more strategic. I want to line up all the dominoes, I want to have a good idea what I’m doing. I want to know where the pitfalls are and how to avoid them. I know that it could go wrong and oftentimes it does go wrong. We’ve talked about that, but I don’t know that things going wrong ever catch me by surprise.

Rob:
Yep.

David:
That could have happened, I knew.

Rob:
That’s a good way to frame it, for sure.

David:
I don’t like to jump out of the plane and build your parachute on the way down because sometimes you don’t know where you’re landing. Even if you build the right parachute, you’re like, “Well, this is a market that sucks. Why did I succeed here?” And you kind of have to start over, but I do think that there could be benefit in parachute building. So you invested in a market, now you’re investing in different markets, but you learned a lot about the fundamentals of real estate investing in that additional market. So, there’s still value even if the properties themselves aren’t crushing it. You take that information, you go to another market where they will. Now, you can 10X how much money you made in the next five years that you made in maybe the first two or three. So, there is value in taking action, 1000%.

Rob:
I think it’s like… And half the audience is listening to you and they’re like, “Oh my gosh, I’m so glad you said that.” I’m also glad you said that. I think reckless is definitely the wrong term, but I think parachute building to an extent… But taking action, you’re never really ready to take action, much like you’re never really ready to have a kid, but then you have a kid and you figure it out.

David:
You’re never ready to go to the gym. I was like, “I could be in much better shape before I have to go.

Soli:
I think there’s something to putting your feet to the fire though, because unless you’re forced to figure something out, then you’re not going to figure it out. So, I had a really good connection in Cincinnati, which helped me choose that market, incredible market, glad I chose it, but I didn’t have any contractors, any property managers when I went under contract for my first property. But because I went under contract, I was like, “Oh, shoot, I got to figure that out,” and I figured it out. So, it really forced me to take the necessary action.

Rob:
Obviously, this is a big investment for you, getting started into it, doing all that kind of thing, did you have family to fall back on, family to help you, people in your sphere that were willing to co-invest or anything?

Soli:
At first, no. I think I was really adamant on doing it by myself more, maybe from a pride perspective. I don’t have any family members really who invest in real estate, don’t understand it. My dad’s an immigrant from the Philippines, my mom’s from the Midwest. She was a violinist, doesn’t know anything about real estate either, and so that was kind of the background that I came from. I came from very little money, and so all I knew is that I didn’t want to feel the insecurity of not having money, so I needed to go build myself a financially stable future.
So, that was sort of the family background from, I guess, a mentorship background. I had a couple of friends who invested in real estate and the person who introduced me to the Cincinnati market was a real estate broker, and he owned eight or nine rental properties. And so, that’s how I actually ended up picking Cincinnati. He was kind enough during the pandemic to jump on a Zoom call with me, show me the market, show me what areas to look at, where to avoid. He introduced me to an agent and that was in to that market.

Rob:
So, your broker sets you up with part of the dream team here, but how did you find the broker?

Soli:
So, we were actually working with him for a deal in commercial real estate. So, about six months before I bought my first property, it was November 2019, I flew out to Cincinnati for a big build to suit development that we were helping lease up and we toured the market. So, this is how I fell in love with Cincinnati. I went out there, we were wined and dined by all the developers. I think coming from California, California is I feel like maybe a little bit not super friendly to business owners and not really into people running their businesses her a little bit. But in Cincinnati, I was shocked. They were so encouraging of business. They invested, I think it was like $1 billion over the last 10 years. There was Kroger headquartered there, there was General Electric headquartered there. They were giving huge tax credits to incentivize business coming into the area, and it was such a lively city.
So, we heard all about the history of Cincinnati, how it used to be one of the most dangerous cities out there, and then they were having trouble recruiting talent, students to stay in Cincinnati. “I don’t want to be here in the city.” So, they invested like $1 billion to create a thriving… And I was like, “Wow, what a story and what a place,” there’s a lot of young people out there, the food is incredible. It’s very lively, and so from that I think… And I looked on Zillow and I was like, “$100,000 houses? What? That exists out here?” And you just don’t know because coming from the Bay Area, all I did was look at Zillow in the Bay Area and all I saw was $1 million houses. So all of that combined, it was the friendliness to business, it was the investment into the neighborhoods. It was walking around, seeing it was lively, and then seeing that the homes were about $100,000 and the rents were pretty high, all of that together kind of convinced me to invest there.

Rob:
That’s really cool, so you’re ready to go. You’re like, “I’ve got the broker, I’ve got the connections, I’ve got the dream team.” You mentioned that you came from more humble beginnings on the family side. When you went to your family and you were like, “I’m going to do real estate,” were they like, “Great,” or was there a little bit of, I don’t know, dissonance or tension even pitching that to the family?

Soli:
My mom actually followed me on Instagram and I think she thought it was fun because I feel like she’s always wanted be the mom where I call her every week type of thing. And so, I think she felt it was a good way to keep up with what I was doing in life was just to watch me on my stories every day. And so, she knew everything, every step of the way. She’s always been really supportive, and so when I got under contract on my first property and closed on it, I closed on it without seeing it and then I was like, “I should probably fly out there and see what I bought,” and she actually came with me for a few weeks.

Rob:
Oh, that’s nice.

Soli:
So, I think she’s really proud. She doesn’t know much about real estate, but she was really supportive of the journey. My dad, I think, doesn’t understand real estate investing that much, but he’s somewhat supportive.

Rob:
Well, you’re getting into this, investing into real estate, going long distance. Were there any strategies that you used to help keep yourself accountable? Because we were talking a little bit before the podcast, there’s taking action, but then actually holding yourself accountable to the action that you’re taking and getting into your first property is a huge step. So, how did you keep yourself accountable and actually create systems around that and all that stuff?

Soli:
So, to go back and set the scene a little bit, it was again, 2020. Everybody was super isolated, no one was hanging out with each other, and so that’s where my Instagram, I guess, family came into play. And so I kind of put it out there, here are my goals. I think my very early goals were, “I’m going to buy 45 units by 30 years old,” and I’m almost there and I’m 25, but I put it out there. I think I wrote that when I didn’t even own one rental property. So, to me it was putting out my goals, putting out my intentions into the Instagram universe, and that actually held me accountable for taking action. Even though I maybe only had 500 followers at the time, it was 500 people that I felt like I had committed to something and I wanted to actually show them that I’d follow through.

Rob:
I think on the podcast we have the opportunity to share our life and our investments and stuff, and oftentimes I talk about things that I’m doing and I don’t really like doing it because it puts it out in the universe and usually… When I talk about a house that I’m an escrow on, I’m like, “Oh, dang it’s going to fall into escrow.”

Soli:
You’ve got to close on it.

Rob:
And it falls out escrow all the time, and that’s why I’m like, “Dang it, I wish I hadn’t said that on the BiggerPockets Podcast or on the Rob channel,” but I do find that saying it out there kind of formalizes it, it makes it official that you’re actually doing it and people ask you about it. People are interested in your life and they want to know, “Hey, Soli, you said you wanted to do 45 units. How’s it going?”

Soli:
There’s a statistic from a study that was done and it was saying that if you think you want to do something, your chances of actually doing it are maybe like 1%. And if you commit to somebody that you’re going to do, it jumps up to like 60, 65%, and then if you have an actual accountability appointment set, then it jumps up to 95% likely to achieve that goal. And so for me, I was at least at that commitment level on Instagram, but for me, I felt like it was also my own accountability appointment set for myself that I was going to post every day and show up and show people I was taking action.

Rob:
And that’s why I always say David and I are going to do a Zumba class together because I want to put it out there to keep us accountable. Do you know what I mean?

David:
I thought we were doing Orangetheory.

Rob:
That’s fun too, you’ve got to stay in the orange. What did you feel like… So, that’s the whole thing with the heart rate, you have a green, orange, red, and you want to stay in the orange.

Soli:
I didn’t get that one at first.

Rob:
I only know because [inaudible]-

Soli:
You’ve got to stay in the Greene.

Rob:
… Five times a week. That’s right. Well, David, that’s right, you’ve got to stay in the Greene. That’s actually the name of his memoir.

David:
Greene Theory.

Soli:
Greene Theory.

David:
I’m starting a fitness bootcamp.

Soli:
I like that.

Rob:
So now that you’re on Instagram, you seem to kind of have the meteoric rise blow up very quickly. Did you feel the support relatively quickly or was there a ramp up time to actually build your audience and kind of take them through this journey?

Soli:
I think it took a little bit of time, but I do think that everybody loves to hear a good story from rags to riches kind of story type of thing, and so people were following me, I moved to Cincinnati, well, for maybe four weeks for my first property. I slept on the floor of a construction zone. I got food poisoning, I got my window broken into and through all of that, and I didn’t know how to do anything. So, I learned how to use a drill, tried to take cabinets off. People were texting me like, “You didn’t prime the cabinets.” And so-

Rob:
There’s always those.

Soli:
I was like, “I didn’t know you had to prime the cabinets, but thank you.” There was just a lot, I didn’t know anything starting out. And so my Instagram community, they were further ahead than me and trying to teach me how to be a real estate investor, and they were very supportive of I would have daily freakout moments on my stories and we became real friends. And so I think through all of that, I really felt like a true community. I had friends that were in real estate and those were my people. So then when I grew my Instagram, I really wanted to give back because they had taught me so much that now it was my turn. Now, that I had grown my portfolio so quickly, how can I turn around and teach other people how to do the same thing?

Rob:
That’s cool. You’re getting the help, a little reciprocity there between you and your audience because I’m sure you followed people that helped you through everything as well.

David:
So your portfolio today, do you own it yourself or do you own this with partners?

Soli:
So, I only own four doors by myself, and then afterward I had to take on partners to grow my portfolio. So I own the other… I guess, what is that? 36, some of them with one partner, and some of them with two partners. I really liked using partners to grow because I was really stubborn in the beginning doing everything by myself, but as I found partners, they really complemented my skills. So, one thing I was really bad at, we were talking about contractors, and how difficult it is to work with them. I was not fantastic at managing renovations, and so one of my partners actually manages all the renovations right now. And then on the deal hunting side, I was fine at it, but I wasn’t the best at it. And so, I now have another partner who does all of the acquisitions work, and that frees me up to do a lot of the capital raising work for our projects, which kind of coincides with social media and how I raise money on social media, so we’re all able to focus on the things that we’re best at.

David:
So, how do you guys split up the ownership?

Soli:
We just divide evenly.

David:
Evenly?

Soli:
Yeah.

David:
So, you have a partner that finds the deals and analyzes them, a partner that executes on operations with the rehabs, and then you raise the money that goes into the properties, and then how do you manage them?

Soli:
The partner who manages the renovations also owns a property management company, and so it’s-

David:
You pay his property management company to manage the properties?

Soli:
Yep.

David:
So, you’re sort of the capital raiser in this group, which is why you focus more on creating the content that you’re talking about, building a community because that’s where the money gets raised to put into the properties?

Soli:
Right, it’s all kind of symbiotic.

Rob:
That’s really cool. Instagram is a really great place not only to document it, but effectively you’re showing that you’re a hard worker, that you actually are doing this real estate thing, you’re sweating, you’re struggling, you’re succeeding. So, it always feels like it’s a really good place to build trust with potential investors and people that are partnering up. So, did you ever have people just reaching out organically or are you now more on the side of really pushing partnerships and finding investments that way?

Soli:
I would say most of them have come very organically. Social media is a really great way to nurture relationships kind of passively. So, I have a lot of investors who have followed me since the very beginning. They’ve watched me become what I am today, and through that they’re like, “Wow, I’ve been with you for three years.” They know everything about me, they know my cat’s name, my brother’s name, they’ve just been there through it all. And so, I think the credibility is really high, and so people will always reach out and say, “Hey, I would love to partner with you on a deal,” and I think I don’t really want very many active partners anymore. It’s just going to be-

Rob:
It’s tough.

Soli:
You have to be very picky with your active partners. So I can change the conversation to be a, “Hey, I’m not looking for active partners right now, but I am looking for passive partners if you want to be a passive investor inside my deals or passive private moneylender,” and that’s how I get a lot of my… Mostly through DMs, I would say.

Rob:
So walk us through the funnel, if you will, someone sends you a DM, you respond, you chat a little bit, obviously qualify I’m sure on the DM side of things. What’s the next step after that?

Soli:
So, I have them fill out a Google Form, and if you go to my bio, you will find that Google Form, and I’ve had a lot of people just copy paste it because it works. And so, it kind of acts like maybe a CRM, but a super simple one. I try to keep it simple, and it’ll ask them certain things. How much are you wanting to invest? Are you looking for debt or equity? What is your experience with private money lending? What’s your experience with real estate? And then from there, I have a whole list of people that I can actively reach out to one by one if I want to, or I have an email blasting where if I have a deal that pops up, I can say, “Hey, I’m looking for a private lender. These are all the details,” and blast it out to, I think I have 850 people on there.

Rob:
Nice, and obviously warm leads that have reached out. What does it take for you to hop on the phone and really chat with them? Is it like a dollar amount? Are you like, if they’re under 50,000, they go into this bucket, but if they have two to 500,000, then I make the phone call. Do you have a system for that?

Soli:
So, we try to have one lender for every deal, so it depends… Usually, they’re above $100,000, and so it depends on how many deals we have in the pipeline, where we jump how many calls we jump on, but we’ll usually ask for proof of funds to actually prove that they have the money and it’s liquid, and then we’ll jump on a phone call with them if it’s usually over $100,000.

Rob:
Do you get a lot of falloff from people when you ask them for their proof of funds?

Soli:
Not really.

Rob:
Really?

Soli:
I don’t find that people really lie about it. There’s a lot of people who want to invest under $50,000 and I think those are better suited for maybe syndications and I’ve done one syndication, so those are helpful to have those leads in the CRM, just in case I ever do one again, but I would say people are generally pretty honest about how much money they have.

Rob:
Well, I don’t even mean the honesty side of it. I just mean are they willing-

David:
Nervous about sharing.

Rob:
Yeah, because a lot of people get very finicky or defensive about showing a screenshot of-

David:
Bank statements, stuff like that.

Soli:
No, I think it just really comes down to the level of trust and them being with me for… I’ve raised money from friends of followers, and that’s a lot harder because there isn’t that inherent trust built in.

Rob:
Sure.

Soli:
They haven’t been watching me.

Rob:
You’ve got to pitch yourself.

Soli:
It’s actually pitching, right, whereas as if they are a follower and they know me and they’ve seen me and they’ve heard me talk, they’ve seen my face, they know who I am, they know I show up, then I think it’s a lot less of a pitch and more just a conversation.

Rob:
I’ve been in those calls before where it’s an acquaintance and they’re like, “Hey, meet this person. He’s got 200,000.” And I’m like, “Okay, sure.” And then they’re like, “All right, give me your greatest strength and your greatest…” I’m like, “This isn’t an interview pal, I’m sorry.”

Soli:
I just did one like that and I was like, “Wow, I forgot how hard this is,” when they ask for everything, your social security number, your bank statements, your assets, everything. And it’s like when you have that closer relationship… And you don’t have to be an influencer to do this. There are people who I know who have maybe even 1,000 followers, but they’re tight-knit. There are always people looking to invest their money who might just not have the time to invest their money.

Rob:
I think the warmest leads that you have in your system are always going to be friends and family that see you post on Facebook, Instagram, and that’s really how I got my first set of partners was just I was always talking about my properties and they reached out and they’re like, “Hey, I like your properties. How do I do this?” And I was like, “Well, let’s partner up.”

Soli:
My first private lender was my mom, and she reached out from watching me on Instagram, and I would never have thought to ask her for money or to invest in a property ever, but she texted me and was like, “Hey, I’ve been watching you on Instagram. How do I get invested in your next deal?” And I used to have all my money on my first property.

David:
Did you take your birthday money and just say, roll it into this and I’ll make a return on my own birthday money?

Soli:
A little bit more than my birthday money, but she still invested in that deal, and I think that’s kind of when everything clicked for me because I was stuck like, “How am I going to buy my next property without any money?” And then after my mom’s like, “I’ll invest with you,” I think it clicked, I was like, “Oh, I can use other people’s money,” and it’s a win-win. So, she takes her interest payment every year and takes a vacation off of it, and I love that. I’m like, “I get to fund my mom’s vacation and she gets to fund my real estate.”

Rob:
It’s cool, it’s a win-win

Soli:
Huge win-win, and then how it started is I started talking about private money on Instagram. People were like, “How did you buy your next property so fast?” It was maybe three months later, and I said, “Oh, private money,” and then it became a whole education process of what private money is and because a lot of people don’t even know that it’s an option, that education process is what brings people to actually ask you to invest with you.

Rob:
That’s awesome. Well, that’s an amazing story and I really appreciate you sharing it. Now, I’m really excited about this next piece of the podcast because it’s a segment that we’re calling the Battle of the BRRRRs, and you, Soli, are going to go head-to-head with my friend DG here. Soli, you’re team low price points in smaller markets, scale units, DG you’re higher price points in bigger markets, appreciation. So I’m going to ask you first, what are the advantages of each?

Soli:
So, I think that there are a couple advantages. One is the amount of reps that you’re able to take with smaller deals. So, you can buy a $1 million house or you can buy 10 $100,000 houses with the same amount of money and with every single deal you’re going to learn something new. And so when you are doing 10 reps as opposed to one rep, you’re learning 10 times the amount of lessons. So as a beginner investor, especially for me, I was able to do a lot of deals. I think I bought like 25 units in one year, and I learned an incredible amount from that amount of deal flow and all the lessons that came with it. If I only bought on $1 million property and whether it went well or not well, I wouldn’t have learned as much as I did.

Rob:
Very good, solid answer. DG, what are the advantages of each?

David:
I think Soli has got a good point, that when you’re doing cheaper real estate, you get in more reps, which there is value in when you’re learning in doing stuff, but once you’ve learned how to do it, you just need having value than just killing yourself doing $100,000 properties. The advantages of buying more expensive real estate is that A, it tends to be in markets with less supply but more demand.
So, we’re in Southern California right now, everybody wants to live here, which is evidenced by the hour-long Uber drive that we had to take to get three miles to the studio, weather is amazing, very difficult for them to build more real estate out here. We’re staying at a really nice short-term rental up in the hills. There’s nowhere else to build a house. It’s all filled up. So as wages increase and as people move into the area, but there isn’t anywhere to build, your supply and demand get off balances as what you really want as a real estate investor, you find that the prices are going to go up more in areas like that proportionally than in the cheaper areas, which tend to have a lot of land, a lot of areas to build, and there’s not a ton of demand. People aren’t falling over themselves to move into Cincinnati, Ohio like they would be to move into the best parts of Los Angeles or San Diego.

Soli:
It’s the San Diego of the Midwest. Have you heard that?

David:
That’s funny though. I wonder who came up with that.

Rob:
The Paris of the Plains.

David:
San Diego is a great example of a market that everyone wants to live in, and maybe Cincinnati’s the wrong example, but lower priced markets in general are that way because you can’t push prices higher because they’ll just build more homes, there’s plenty of supply. When the prices go up, say 20% on a $1 million house, that’s $200,000, on $100,000 house, that’s $20,000.

Soli:
But when they go down 20%, that’s-

David:
When’s the last time you saw San Diego real estate go down?

Soli:
San Francisco real estate has gone down.

David:
That place was completely mismanaged. San Francisco real estate has gone down, but I wouldn’t consider San Francisco to be like prime real estate.

Rob:
She got you there, she did name one. You said name one, she named it named.

David:
How much is it [inaudible]-

Rob:
Winner of round one, Soli. Two, what are the pitfalls of each in the short run and in the long run? Soli, you first.

Soli:
Should I defend mine or should I try to get his-

David:
You’d be better off to just keep attacking me and keep the attention off of your argument.

Rob:
This is the clip right here. This is the viral clip on Instagram.

Soli:
I think the biggest downfall is the risk. I have a lot of acquaintances, friends who invest in or who flip homes in the Bay Area. You can lose $100,000 on $1 million house and it’s just 10%, but when you’re investing in the Midwest and it’s $100,000, you have to price cut 10% to sell your house, it’s $10,000. And so, I’m a very risk averse person and I try to take minimal risk for maximal returns, and for me that means investing in lower cost markets because I can spread my risk amongst multiple different properties. And on any one of them, maybe I lose $10,000, but I’m never going to lose $100,000 because those properties are only worth $100,000.

Rob:
I like it. David, what are the pitfalls of higher price points in bigger markets in the short run and in the long run?

David:
Well, they’re harder to get into because more people want them. So, like we interviewed Jason yesterday and he was talking about how San Diego real estate where he is, it’s incredibly hard to get the thing in contract at all. So, your returns in the short term are often lower and it’s more difficult to get in because it’s more of a delayed gratification and where you win in the long run. And then it can also be tougher to find contractors that are going to work in those areas because they’re also in demand. So, pretty much every single element that makes real estate investing tough becomes tougher in the higher price markets.

Rob:
Fair, fair, fair. Soli, which of these strategies is better for new investors?

Soli:
Absolutely, I think the cheaper markets, even David agreed that when you’re a complete beginner and you’re trying to get reps in, you’re going to get more reps in a cheaper market. I also really believe that the risk is minimized because you’re not going to lose as much money as if you are potentially investing in a Bay Area market or a San Diego market and those price wings are like $100,000, $150,000. So, if you want to get reps in to learn more about real estate and minimize your risk, I think you’re better off in cheaper markets.

Rob:
Good answer. David, same question to you.

David:
Thank you. Rob, why did you adopt this accent when you’re [inaudible]-

Rob:
I’m a host now. I’m like a ding, ding, fight.

David:
You became British?

Rob:
Fight.

David:
I’d say the better strategy for an investor isn’t necessarily the price point. I don’t know that I would recommend that. It’s probably more the execution, so house hacking can work in expensive markets just like it can in cheaper markets. I’d probably lean away from flipping as a newer investor in general. So, I think strategies like rent by the room, house hacking, trying to add value to the real estate you buy, that’s a better strategy for a newbie. I probably wouldn’t tell a newbie it matters if it’s expensive or it’s cheap. I just think that’s irrelevant.

Soli:
I would agree with that partially. I feel like house hacking, if you really want to dip your toes into real estate and you’re in an expensive market, great way to do it because it’s minimal risk and you’re living in the house. And so honestly though, also turnkey rentals out of state are a really easy way to start as well, and you can do it in cheap markets, you can do it in mid-tier markets. I would say those are your best bet. No, you don’t like turnkey rentals?

David:
I hate them.

Soli:
Why?

David:
You can’t buy equity with a turnkey, you can’t add value or force equity with a turnkey. You usually don’t get market appreciation equity, you can’t force cashflow. All the ways that I look to add value to real estate usually aren’t happening, and you’re buying a property from someone else. You’re basically buying convenience and in life-

Soli:
Do you think though that beginners should always buy value add properties to start?

David:
I think everyone should buy value add properties. I don’t think you should take on a whole new development, but no, I’d rather see a beginner buy an ugly house with terrible carpet that smells bad for below market value and go do a cosmetic upgrade, than buy a house that a flipper already did that on and the flipper makes the $50,000 and they get in for maybe higher than market value and then they have to wait a really long time for it to appreciate. If they do it all, they can’t get out of it. I guess from my perspective, I’ve heard so many horror stories of people that got in on turnkey and couldn’t get out, that has put a little bit of a bad taste in my mouth for that.

Soli:
I’ve had a lot of friends start with turnkey just because they’re nervous and to buy turnkey properties just to feel like, “I’m comfortable with the real estate buying process. I feel like I have an in, in the market.” I just get comfy with that.

David:
They’re buying convenience.

Soli:
They are.

David:
But real estate investors shouldn’t be buying convenience, we should be buying value.

Soli:
They’re buying also maybe a little bit more confidence too. So once they buy one or two, then they switch to value add and they feel like they’re a little bit more ready.

David:
So, would you tell someone to go to 7-Eleven and pay $3 for a soda or go to Costco and buy $3 for a 12 pack?

Soli:
It depends on how many you want.

David:
It depends on how convenient you want it to be, but you’re going to make money by avoiding convenience.

Soli:
That’s true, I bought a BRRRR for my first property.

David:
That’s not turnkey.

Soli:
It’s not.

David:
Which is why you’re doing good now.

Soli:
But I was ready to go all in and I think some people aren’t ready.

Rob:
That’s fair. I wish we would’ve started with this, this is great.

Soli:
We can put this [inaudible].

Rob:
Question four. [inaudible], finish him. Final question, what is the largest number of projects you’ve had at one time?

Soli:
Renovation projects?

Rob:
Yeah.

Soli:
19.

Rob:
Dang.

David:
How many do I have right now?

Rob:
18.

Soli:
Yeah.

Rob:
Ding, ding, got himeth.

Soli:
Where are they, are they out of state and state?

David:
Three in California, three in South Florida, one in Georgia, but if you added up the number of the real estate, I would bet one of them probably costs more than the 19 that you had bought.

Soli:
Maybe true.

David:
That’s part of why I like it because it’s 1/19th of the work to get the same results.

Soli:
I can see that.

Rob:
I don’t don’t know if that’s real.

David:
You don’t think so?

Rob:
Hold on, you think buying one really big cabin is 1/19th of the work is buying [inaudible]-

Soli:
How base the rehab?

David:
I buy one property for 1.9 million and rehabbing it is less work than 19 properties because that’s what we said here is the largest number of projects you’ve had at a… Projects, you’re fixing it up, you’re doing 19 homes at one time, they’re all worth $100,000.

Soli:
This is where I think I personally maybe went wrong or maybe just too aggressive is I think I bought like 25 units in one year, all value add.

Rob:
Ooh, it’s a lot.

Soli:
It’s a lot.

David:
So, what if you bought one value add unit that was the same price as those 25?

Soli:
It’d probably be less work. I’d probably be less stressed.

Rob:
Well, now I don’t know who to give it to. So, we’ll just say that you tied.

David:
I say tie goes to the guest.

Rob:
Tie goes to the guest. I say the win goes to the guest.

David:
The fatality is owned, Soli Cayetano.

Rob:
Well, before we end here, Soli, can you give us a quick snapshot of your total units, portfolio net worth, cashflow?

Soli:
Sure, so 40 units, probably around maybe $5 million. I’m a GP in a syndication, that’s another $5 million, but I like to count that in my unit count.

Rob:
Sure, yeah.

Soli:
Of that, 20 are rented. My proportionate cashflow is around $10,000. 10 are vacant because they’re being renovated and 10 are being flipped. We have four or five under contract right now.

David:
And is that the portfolio value or is that your percentage of the portfolio?

Soli:
That’s the portfolio value.

David:
I got you, then you have your partners that you’re splitting that with, that we talked about?

Soli:
Yeah, some of them are mine, some of them are 50/50, some of them are 33%, so my proportionate portfolio value is maybe like two, maybe plus the syndication percentage.

Rob:
Very nice, that’s amazing. That’s amazing in three years?

Soli:
Three years, yeah.

Rob:
That’s crazy.

Soli:
I started with $50,000 and used other people’s money to build up all the rest of it.

Rob:
$5 million portfolio and a $5 million syndication, which is crazy. People work their whole lives putting all their money into their 401(k) to retire with 2 million bucks, 3 million bucks.

Soli:
I always think about it, if I stopped investing today and they all got paid off, then you’d have probably about two, $3 million of equity and… Well, probably more because appreciation will pump those numbers up and I think I calculated like $40,000 of rent too. It’s a pretty good retirement.

Rob:
That’s amazing. Well, awesome. Well, thanks for coming and sharing everything. Thanks for giving numbers for giving tactical steps on how to raise money. If people want to learn more about you, find you on Instagram or on Threads, YouTube, all of the above, where can they reach out?

Soli:
It’s lattes.and.leases. It’s pretty much on any platform, and then lattesandleases.com.

Rob:
Awesome. David, what about you?

David:
David Greene 24 on all social media and davidgreene24.com for my website.

Soli:
That’d be my advice to David. I think we missed that question, but you’ve got to change that.

David:
Change the name?

Soli:
David Greene 24?

David:
Mm-hmm.

Soli:
What’s the 24 for?

David:
That was my number in high school and it’s easy. What would you change it to?

Soli:
David Greene Invest.

David:
That would be a big difference from 24 to Invest.

Rob:
I think so, yeah, honestly.

Soli:
I feel like people who have numbers after their name only have numbers because David Greene was taken.

David:
Yeah, there was 23 other David Greenes. That’s not a joke [inaudible]-

Soli:
Pretty much, and so-

Rob:
I think you should be Thy David Greene.

Soli:
Thy?

Rob:
Mm-hmm.

Soli:
Or The David Greene would work too.

David:
[inaudible] Cheesiness would work for what people are expecting from me.

Rob:
Thy David Greene, the ultimate BRRRR investor.

David:
Just take a picture in a knight armor and just put that as my profile picture. Protecting investors from bad advice.

Rob:
You’re the knight shining armor of real estate, my friend. We got two minutes in and we’re going to end, baby. Sign us out.

David:
This is David Greene for Rob Cheeseball Abasolo, signing off.

Artificial intelligence (AI) has been around for decades. I won’t bore you with its long history, summarized well in this article. It has even had a significant role in the marketing industry for many years (e.g., predictive analytics used in many advertising platforms). But what has recently caught storm is the use of generative AI in the creation of many marketing creatives. Largely because the technologies are more accessible and easier to use than ever before. I feel the industry is at the cusp of a major inflection point, and you better learn what is going on in this space, or you may be left behind.

Industry Research

There was a very good industry research study completed in March 2023 by Botco.ai, a generative AI cloud chat communications company. They surveyed 1,000 marketing professionals across over 16 different industries and company sizes from 1 to 5000+ employees. The results were fascinating—they learned that a whopping 73% of the respondents are already using generative AI to help create text, images, videos or other content. That was the weighted average of B2B companies at a 78% usage rate and B2C companies at a 65% usage rate (I would have guessed the reverse of that). With me being in the 17% that were not materially using AI today, I figured I needed to learn more here, and fast, to stay competitive with our industry peers.

Content Being Produced by Generative AI

The content getting created by generative AI is broad in scope. The survey respondents said they were using it as follows: email copy (44%), social media copy (42%), social media images (39%), chatbots for customers (37%), website images (36%), SEO content (35%), blog post copy (33%) and marketing/sales collateral (33%). The rationale for using generative AI being: (i) you can improve your marketing performance (58%); (ii) you can improve your creative variations (50%); (iii) it is more cost effective than traditional ways of building creatives (50%); and (iv) it is materially faster creative cycles (47%). I would add the additional benefits of better personalizing the content to the exact user, instead of applying a one-size-fits-all approach to your marketing creatives.

And to be clear, the content being produced by AI is across all forms of creatives: text, images, videos, coding, etc. It is revolutionizing pretty much everything a graphic designer or copywriter or website developer used to do for you. As an example, check out this corporate video produced for my Restaurant Furniture Plus business by Synthesia’s AI technology. It was produced in a couple minutes from a simple copy and paste of our About Us copy on our website, without any human involvement or professional actors involved. That is pretty amazing (and scary if this life-like technology is not used in positive ways).

The Generative AI Tools Most Used

According to the survey respondents, these were the technologies most used by the marketers. ChatGPT (55%) for human-like text. Copy.ai (42%) for natural language processing. Jasper.ai (35%) for copywriting. Peppertype.ai (29%) for full article copy. Lensa (28%) for image editing. DALL-E (25%) for text-to-image generation. MidJourney (24%) for text-to-image generation. I am sure there are many others to experiment with, but these are the ones that the early adopters are using today. I personally played with a few of these. I would summarize my experience as the text based solutions were a lot more impressive in terms of producing high quality output than the image based solutions, understanding we are still early in the learning curve and technology advancements here.

How to Prepare… and What Happens if You Don’t

First, it’s time to embrace the simple fact that you need generative AI and that you can’t ignore it. It isn’t going away. So, slowly but steadily, immerse yourself in some (or all) of the tools above — how they work and what they can potentially offer. And if you are working with a marketing agency, make sure that it, too, is well-versed in all the advancements (if your agency is not currently using AI to improve campaigns, it may be time to look for a new one).

The ramifications for non-action will be swift: you either jump on board or prepare to eat the dust of the other AI first-movers — you will essentially be going into a marketing battle with one arm tied behind your back. Performance will suffer (including lower engagement rates compared to competitors), as will profits.

What Does This All Mean?

Hopefully, you have a better understanding of all the advancements that are taking place in the marketing world today. Will generative AI end up replacing your human teams? Not entirely. I think it will make the humans materially more efficient, and you may need less humans than before, but humans will still be needed for strategic direction and quality control, to protect their brands. For example, if AI generated copy will upset Google and hurt your search rankings, someone will need to review that content and make sure it follows all of Google’s rules. So, think of AI as an augmentation tool built for speed and efficiency, not as a full human replacement. You will still need to engage your marketing agencies or marketing teams, but they will be doing their work in material different, and presumably better, ways.

Every decade or so, the marketing industry appears to go through a rapid period of innovation. It feels like we are in the “early innings” of this most recent revolution, and I am excited to see how these AI technologies improve from here, and what additional AI advancements we will see in the coming years. It is time to pull up your boot straps and buckle in, as it is gonna be a helluva ride! Good luck as you experiment with these technologies on your own.

—

George Deeb is a Partner at Red Rocket Ventures and author of 101 Startup Lessons-An Entrepreneur’s Handbook.