Israel experienced the biggest act of terror that has ever occurred in the country’s history last Saturday, when more than 1,000 civilians massacred, thousands wounded, and over 130 kidnapped.

“If you look at this in proportion to the size of Israel’s population, this is the equivalent of ten 9/11’s. That’s how big and how devastating this attack has been,” U.S. Secretary of State Anthony Blinken said in a press conference in Israel this week.

Israel is a small country with 9.5 million people. The magnitude of the losses is huge, and everyone knows someone who was killed, kidnapped, or injured. What would you do in a situation like this? Because this is exactly what Israel should be, and is, doing right now.

The Israeli government, army, and civilians were not ready, and I’m pretty sure that down the road there will be an investigation about how exactly that happened, and how to prevent a future attack. But before anything else, you must understand the magnitude of this attack and the vast implications, some of which are too soon to determine.

Israel has one huge strength – its people. No matter what happens, they will recover and grow even stronger than before.

Right now, the Israeli hi-tech ecosystem, with my startups included, is focusing on helping the survivors and the injured, the soldiers, and civilians that are still under attack, while more than three thousand rockets were and, at the time of writing, are still fired toward the most densely populated areas in Israel.

This week will be hard and challenging in Israel, but later – it will be better. The hi-tech sector will end up stronger than before. Let me explain why. This is also the explanation for why Israel is considered a world leader in building startups:

The Four Cornerstones That Will Help Israeli’s Tech Ecosystem Overcome the War

In general, there are four cornerstones for any startup ecosystem, and the same goes for Israel as a country. Though in Israel there is also a fifth element.

1. Entrepreneurship spirit – this widespread Israeli characteristic relies on a minimal “fear of failure” culture.

At the end of the day, people will embark on the entrepreneurial journey when their passion is way higher than the combination of fear of failure + alternative cost. If you lower the fear of failure, you will end up with more startups.

2. Investors, in particular international ones, which we are blessed with in Israel.

The current government, with its plans to change the judicial system, has hurt the hi-tech ecosystem. A terror attack won’t, at least not for the long term. We might see a slowdown in the investment flow in the short term, but not in the long run.

3. Engineers – the good news is that Israel has a great number of engineers and very good ones that can, and will, continue to drive the hi-tech ecosystem forward.

4. Experience – a second-time entrepreneur has a much higher chance of being successful, regardless of what happened the first time. There are more and more second/third/fourth/multiple times entrepreneurs in the Israeli ecosystem today than ever before.

These four cornerstones are not unique to Israel, they are the same in San Francisco, Boston, London, or Berlin. But Israel has something rare, the fifth element, mandatory military service.

The Fifth Element – Mandatory Military Service

Now, everyone understands why this is needed and I would like to quote Israel’s former prime minister, Golda Meir, who said 50 years ago: “If they would put down their weapons – there will be no more war. If Israel puts down its weapon – there will be no more Israel.”

This mandatory military service has generated strong, resilient, and better-skilled people where it matters. People with perseverance, in leadership positions, ready to work in teams, and with extreme loyalty.

While acting under pressure like in the recent events, the fifth element becomes much stronger, and the result is that we can expect many, many good years for the Israeli ecosystem. Israel will come out of this crisis stronger.

One parting thought from me; tough times create stronger people, strong people create easy times, easy times create soft people, soft people create tough times. Now is a tough time for Israel.

Dave:
Hey everyone. Welcome to On the Market. I’m your host, Dave Meyer. Joined today by Kathy Feki, Henry Washington, and James Daner. Good to have all three of you here. Appreciate you joining us. Coming back from some very fun sounding trips that you were all on. Henry, I thought we lost you to Hawaii permanently.

Henry:
Yeah, I did. I did I think of taking up permanent residence in Hawaii. But, I would just get Allen fever, man. That flight’s a long flight to get out of there. But, we love being there.

Dave:
I feel like there’s this thing with real estate investors, specifically in the BiggerPockets community that they all just wound up in Maui at some point. They all just find themselves there.

Henry:
I obviously went to hang out with Brandon. But then, realized Josh Dorkin lived down the street, walking distance. And then, every night, just random real estate investors show up at Brandon’s house, and then just food shows up and people sit around until one in the morning. That’s just a thing there. I had no clue.

Dave:
Really?

Henry:
Yeah.

Dave:
James, is that on your list of places you’re going to move? Maui?

James:
Absolutely not.

Henry:
Why?

James:
I would go so stir-crazy if I was stuck on an island.

Henry:
That makes sense.

James:
I got to move. I need to be able to move around. But I do enjoy visiting.

Dave:
Kathy, did you do the same thing when you were out there? Did you stay up to one in the morning talking to Brandon about real estate?

Kathy:
Yes. No, probably three in the morning. But yeah, we had a great time.

Dave:
I guess, Kathy’s more interesting than you Henry.

Henry:
It’s not a surprise.

Dave:
Well, we do have a great show for everyone today. We are doing a headline show. We’re going to talk about some of the most important and interesting things happening in real estate today. So, what we’re going to cover today is an update on the major lawsuits that are potentially going to be impacting how agents are compensated and could have all these cascading ripple effects throughout the industry. We have a big update there. We’ll talk about construction trends, which I think, is particularly interesting given how important they are for inventory these days. We’ll also talk about a new type of home called a passive home. And lastly, we will visit our friend, Dave Ramsey, and hear about some advice that he has been giving young landlords, and I want to see if the three of you agree with what advice Dave Ramsey is giving. So, that’s what we’re getting into today. It’s going to be a great conversation. We will take a quick break, and then we’ll jump into it.
The first headline today is that RE/MAX, one of the biggest brokerages in the country has settled in the two lawsuits that have been ongoing and allege that some of the NAR rules and some of the rules instituted by brokers around how, in some ways, or this is what they allege, sellers are forced to pay the buyer’s commission, and how that is not legal or violates antitrust rules. RE/MAX has decided to settle this lawsuit for 55 million. And if anyone is not familiar with these lawsuits, it does have this huge potential to change the industry. It’s too much for us to get into fully here, but we did do an episode with James Rodriguez on this a couple of weeks ago. It was called New Agent Lawsuits Could Have Profound Effects on Buying and Selling Homes. So you can go check that out On the Market feed if you want to learn more.
But basically, it sounded like, these lawsuits are trying to get agents and brokerages to change the way they do business and not force sellers to pay the broker commission. So I’m a little confused by the settlement here, right? Because, RE/MAX, it says, they will “change some of their business practices,” which hopefully they will. But it doesn’t really sound like it’s changing all that much. So, Kathy, let’s start with you. What do you make of this settlement?

Kathy:
Oh, wow. Well, a settlement is a way of saying, “I don’t really want to go to court on this. And I don’t want a jury to decide, so let’s just settle.” It doesn’t necessarily mean there’s any court order for them to change things. But, the question is, will this affect real estate? I guess, for me, the biggest issue is, it is still the buyer at the end of the day, who’s paying for it, right? What could hurt the buyer is if they can’t finance those fees. So, in other words, if now the seller no longer pays for the buyer’s fee in the price of the home, and the buyer has to come out of pocket, could that still go on the closing cost? Could it still be covered in the loan? Because if they have to come out pocket, that hurts to me, in my opinion, the buyer the most.
Also, changes are happening, right? And technology is changing a lot of things. And I think a lot of people thought that realtors would see their fees go down anyway now that people could go find their own property, and go to the open house, and all they really need is some guidance through the contract process. And, anyway, change is coming. It just is actually surprising to me how long it’s taking.

Dave:
Yeah. This seemed like it was going to be one of the more successful, or at least interesting lawsuits or challenges to the status quo. And now, I’m curious if maybe it was overblown and it was just more, yeah, posturing or a cash grab. But, James, you are the most active agent among us, so what do you make of all this?

James:
I mean, as far as I have felt that these lawsuits and threaten of lawsuits, they have made zero impact. Everybody’s still advertising, at least in the Pacific Northwest, the average commission is 5 to 6%, 3% to the buyer, 3% to the seller, and it’s paid by the seller. What Kathy brought up is a good point. I do think it won’t really matter and the financing would change. But yeah, it could have impact on especially that first time home buyer that’s putting down 3%. Now, all of a sudden, if they have to pay another 3%, that’s 100% more they got to come with on a down payment. But I think, this whole thing, all it does is add another level of complexity to a complex deal in general.
In real estate, there’s all these negotiations going on, and now there’s just an extra thing of negotiations where buyers are going to go out, and they’re going to shop, and price out their brokers. And, what it’s going to come down to is the brokers that are going to charge 3%, or what has historically been the average, they’re going to provide a very good service. And the ones that aren’t providing the good service are probably going to need to charge less. And, I mean, I have no problem with that. I just feel like now it’s this open negotiation before you even go into a negotiation. So it’s just another thing that you have to talk to your client about.

Dave:
Well, yeah, I think it could end up that way. But just want to be clear that this settlement doesn’t make that necessary. We don’t know yet if that’s going to necessarily happen. But, I at least thought James, that that was the intention of these lawsuits, is that, that’s what the plaintiffs wanted is for you to be able to negotiate more easily.

Henry:
They wanted money.

Dave:
The plaintiffs, yeah. They just wanted to see if they could get someone to settle.

Kathy:
And they got it.

Dave:
Yeah. Is that all you make of this, Henry? You think it’s going to be over?

Henry:
I mean, based on this settlement, I don’t think anything’s going to change. I mean, they don’t have to change anything. Why would they want to? They’re not incentivized to change. I don’t think anything seriously around the laws is going to. Now should it change? I think there should be some change. I think it’s silly that one side pays for both agents commissions. Yes, and I think that could cause a problem for these buyers who have to go out and find their own agents, right? But, down payments are expensive, closing costs are expensive, and because they’re so costly, there have been programs and things that provide assistance for those as well as you’re able to finance some of those things into the loan. I just think this will be another one of those things where some assistance will be provided to those who need it, or will be able to finance it into the loan.
Now, will it hurt some people? I think, yeah. I mean, any law change, there’s going to be people that it benefits and people that it hurts. I think the issue is people think agents are just opening doors and pushing papers, until you get into a situation or a negotiation where that agent actual skillset is truly needed. And then, they are a lifesaver. Right? And then, you’re so glad you got a good agent and the right representation for that deal. Now, what percentage of deals get done or just pushing papers and opening doors versus the percentage of deals where you really need your agent to act like your advocate and rockstar for you? I don’t have those numbers. But I know I’ve been in deals where I sure I was glad that I had the right representation and would’ve gladly paid 3%, 4%, 5%.

Dave:
No, totally.

Henry:
In that situation. And so, do I think this needs to be looked at and potentially some change needs to happen? I think so. Does it need to happen the way that they’re indicating it needs to happen? I’m not sure. I don’t have the answers for that. But, I do think it’s silly that one side pays for both agents, and I can understand why that’s frustrating.

Dave:
Yeah, I tend to agree with you, Henry. I think, it doesn’t seem like an optimized system for anyone. And I totally agree that agents deserve to make a fair commission off of these things. They’re extremely valuable. It does just seem like overly complicated and this strange weird thing, and some re-imagining probably could happen to benefit everyone involved. I just don’t know what that is. But I will say that I doubt anything’s going to change. NAR is a professional lawsuit destroyer, that’s all they do. They just have so much money.

Kathy:
That’s their expertise.

Dave:
Yeah, it’s literally their whole job is just squashing lawsuits. So I think that they are probably going to succeed at squashing this one too.

Henry:
And, I advocated for agents. And so now, I’m going to play the other side. I think part of the problem is there’s too many agents, there’s way more agents than there are homes available On the Market for sale. It’s too easy to be a bad agent and make a little bit of money here and there. Right? I think, no matter what rules change, the agents who are good, and are doing the right things, and taking care of their clients in the right ways, and great at showing their value will continue to make money. And those that suck, and are just in there to pick up a commission here or there, and don’t really work that hard, and want to pick up all the easy dollars off the ground.

Dave:
Like James.

Henry:
They’re going to struggle.

Kathy:
Yeah, it’s not like one side is paying, it’s the buyer who’s paying. The buyer’s paying for the cost of the sale, right? At the end of the day, it’s in the price of the property. So, it’s not like the seller is coming out of pocket. It’s the buyer at the end of the day who’s paying all the fees and commissions. So, I don’t really care how that’s done. But to me, if it’s lumped into the price of the property, then that’s easier, because it can be financed. But, back to your guys’ point, a good realtor is worth every bit of it. A bad one is a bad one no matter what and is going to screw up your deal.
I just saw that happen recently, where somebody hired their buyer’s agent who’s not from the area, it was just a friend. Please don’t do that. This isn’t a friend industry. Hire someone local who has done a ton of business in your neighborhood, because they’re going to know… In our case, we’re on septic systems. The person that was representing this guy who lost out on the deal didn’t know anything about septic systems. So if you used a local agent, they would know everything about the soil, about the area, the problems that have existed over the past 10 or 20 years that they’ve been helping people in the market. So, to buyers out there, get someone local and experienced who’s done a ton of deals directly in the area where you’re buying.

Dave:
Well, to James’s point, I feel like that’s the fear, is that, if buyers are shopping around for the cheapest available agent, then many of them not knowing the difference between a 1% or a 3% agent will choose the cheaper option, and ultimately, wind up with someone who either doesn’t have their best interest or is not capable of providing the level of service that a home buyer, but particularly, an investor who has their own set of needs is going to need in a transaction.

James:
We do a lot of transactions in the Pacific Northwest. Typically, we’re doing about 250 to 300 transactions a year. When we have to work with discount brokers, and there’s nothing wrong with a discount broker, but I will say, we have more contract issues with all those files, because they’re not properly explaining the contracts to people. People are going for a discount, they’re looking for their kickback, and they think it’s just simple, and then they come back, and they’re upset about something later. It’s like, “Well, read the contract.” That’s the job of the broker is to properly explain the contract and what the client is getting into. And because there’s discounts out there, they’re not getting explained, and then people are upset at the end. So, I will say, it’s going to get transactions a little bit more messier if we start just cutting costs everywhere. But, I mean, hopefully people realize that a costly mistake will cost them way more than 1% on a purchase.

Dave:
Yeah, it’s like the saying, you think a $200 an hour plumber’s expensive, try $20 an hour plumber. You’re better off just paying upfront. But yeah, I digress. All right. Well, we all agree that the importance of agents, if you do want to meet a trusted investor, friendly agent, BiggerPockets can match you with one completely for free. Just go to biggerpockets.com/agents. You put in a couple of stats, information about yourself, and you can get matched with someone who can help you and represent your best interests. With that, let’s move on to our second headline, which is that U.S. housing starts dropped to the lowest level since June of 2020. Basically, from July to August, construction of new homes fell about 11%, to the point where at an annualized rate it would be about just under 1.3 million. And, that is probably not what people want to hear, given that there is such low inventory right now. James, you’re pretty involved in the construction and you do a little bit of that yourself. What do you make of this, I found it, surprising decline in home starts?

James:
I’m actually not surprised about the home starts, because right now, [inaudible 00:15:17] call also did references, permits for single family homes rose by 2%. And so, it was back on the rise again. But what happened is when the interest rates really jumped, builders locked up immediately. And rates started increasing, what, about 13, 14 months ago? Builders froze for a minute, at least in the Pacific Northwest, where our transactions on dirt probably went down by 95%. Builders were walking away from sites. They were very nervous that the market was going to crash. And what it did is it created this big lull in the permits. And so, we’re actually seeing more permits starting to roll out of Seattle right now, because there was just this backlog of permitting, in addition to builders, because cost of money’s gone up, and that cost of construction is still elevated and now pricing is more flat. They’re having to buy this land cheaper and it’s taking a minute for the seller’s mindsets to reset on the new basis of what the land can be sold for.
And so, we had this six month stalemate in the market between sellers and builders too. And now, what we’re seeing is builders are now transacting a lot more, because the values have just compressed and they can work inside their margins. So, I do think permits are going to increase over the next 6 to 12 months. But, there was this weird lull and anytime builders stop buying, a lot of times, the permits aren’t issued for 6 to 12 months. And so, there’s this delay going on.

Kathy:
And, in addition to that, when you really dive into the article, the construction pace of single family homes fell by only 4.3%, but it was a apartment building construction that fell by 26%. And that’s obvious with apartments with higher rates, it is so hard for these builders to be able to sell for what they thought they were going to be able to sell for, and they’re just giving up, they’re like, “Forget about it.” So there were all these headlines about all this new supply that was going to be coming in with apartments, and a lot of that is slowing down or not going to happen for a while, at least until rates come down. So, that’s part of the issue. Single family falling a little bit because rates are a problem. But single family home builders can buy down the rate. And so, they’re still able to keep it going. But with apartments, not the case. If they’re building to sell, they’re not going to be able to sell for what it’s costing them to build. So they’re just pausing.

James:
Yeah. And on that new construction apartments, those sites, they take a lot longer to permit typically too.

Kathy:
Mm-hmm.

James:
And so, what happened is that these builders, they perform at cheaper money, cheaper bill costs, and now they finally got their permits two to three years later and their costs have exploded. And, we bought in two sites, one recently, when there was a 50 unit permitted apartment building, it took them four years to get them to that completion. He marketed it to try to sell it, no one would buy it, because costs are well out of whack. And we just bought it for… I think the seller lost about a million dollars after a four-year project. And we are scrapping his whole permit and we’re building 22 town homes there instead. And so, I think, the multifamily, the math won’t work at all. Those permits are going to continue to decline and not be built out right now.

Henry:
Yeah, I’m seeing similar here in our local market. I’d say, about two years ago, all you saw was new construction apartment buildings going up everywhere. And now, you’re starting to see that slow down quite a bit. And the ones that are up, man, they’ll change hands two or three times before the project is even complete. People are getting into the project, and then realizing it’s not going to work out, and then they’ll get out of the project and somebody else will get into it. And, even on my own projects, I’ve got a multifamily deal that I was building. We were going to build eight units ground up. And, from when I bought the land to now, when I’m at the point where we’re going to construct, the cost to build has gone up so tremendously, and the cost of money has gone up tremendously. I can’t make the numbers work. I can’t make the numbers work if I want to keep it, if I want to sell it.
And so, that’s why we’re actually just selling the land to a developer who can probably build it deeper than I can build it. And then, they can monetize it differently than I can. A, I’m not built for that. But B, when I bought it, the numbers made great sense. Interest rates were half of what they were now. The cost to build was down, it was less than it is now. And, I don’t see how the numbers are making sense. So, I can understand why multifamily is trending down. But, single family construction around here, crazy. There’s new developments going in all over the place. And A, it’s needed. And B, so I was surprised when I saw this article, and then once I dug into it, I can see how multifamily is doing a little worse.

Dave:
Yeah, absolutely. There’s just a huge glut of oversupply in multifamily. No one wants to add on top of that and get into be the last in an already oversupplied market right now. But, single family as everyone knows, undersupplied. So, I think builders are very happy. There’s no inventory. I think we’ve talked about this on the show, but in a typical times, new construction makes up about 10, 11% of all home sales. Now it’s about 30%, just because the existing home market has completely dried up. So, this is an interesting headline. But I think, the more interesting thing is what you all were talking about, keep an eye on single family construction, because I think that is, in my mind, probably going to keep going up.
All right, for our third headline, we are talking about a brand new type of home design. It is called a passive home. It comes from Rode Architects and Passive Home Construction, they created their first passive homes in Boston. Basically, the idea is that these homes are sustainable. They feature airtight designs, I guess, like a spaceship. And they include solar panels and shading to maintain internal temperatures. The idea here is that although it is more expensive to build, they claim 5 to 15% more than a traditional home, that it will save home owners on utility costs in the long run. Henry, I just would love to hear your thoughts about this concept.

Kathy:
It sounds like you have an opinion.

Dave:
I just feel like Henry has something to say here.

Henry:
Yes, look, I get it. I understand that you’re saving on utility costs. But, the cost to build these, I think, are drastically more. We talked about these homes and we looked at some of the architecture. And it’s cool, they do really make the homes essentially airtight, so that you don’t have to have a traditional HVAC system that’s running all the time to keep your home temperature regulated. And, that savings along with the seller savings allows you to… Essentially, these people are making money on their utilities. There was one story of a guy who, he had so much energy store that he was able to give that to his parents and his parents would be able to pay for their utility bills through the savings he was creating through his passive home. And that’s a cool story.
But you think about it, these people could afford probably more home than they purchased. They’re not looking to save money on energy, they’re buying it because it looks pretty, and it was a unique design, and I’m sure that there was some pride element in that. But, the people who need the energy savings aren’t going to be able to afford to build them. So I don’t know how realistic this is.

Dave:
Yeah, I know.

Henry:
For the people who really need it, I don’t know how realistic it is for them to be able to get into it.

Dave:
This reminds me, I don’t know if you guys have heard, it’s used a lot in the tech industry, this concept of crossing the chasm or jumping the chasm, where it’s just basically, anytime there’s a new technology, the way it gets off the ground is by real enthusiasts, like what you’re saying, Henry, which is people who don’t do it for the cost saving, they do it because they’re interested in sustainability, or they like the architecture, they like the design. Basically, probably people who live in Kathy’s community. I don’t know. But, it’s people who are going to support the industry before the efficiencies of scale come in and make it affordable to everyone else. And I feel like, this is just, that’s where this industry is right now. It’s extremely expensive. It’s a proof of concept stage. But, it’s way too inefficient to actually become cost-effective.

Kathy:
Yeah, that’s exactly what I was going to say, is I was nominated or I won the award of top 100 most intriguing entrepreneurs by Goldman Sachs in 2012. And, it was a really cool thing. I got to meet Elon Musk.

Dave:
Cool.

Kathy:
Yeah, it was really cool. And, he had just come out with the really expensive Tesla, the first one. And that’s exactly what he said. He way overpriced them intentionally to help cover the cost of the innovation of it. And, those wealthy people who bought them, first of all, got to have the ego about that, to be one of the first to have it. It’s a beautiful car, and it was original, and I knew lots of people… I mean, yeah, you’re right. I live in an area where everywhere you looked, they had them. And it was a big deal. I remember the doors would go up and the car would dance and all that stuff. So, there’s plenty of people who are willing to pay for that innovation. And the way Elon explained it to us was, “This is what’s going to allow me to give it to everybody.” And he said, “Someday, we’re going to be able to come out with the $30,000 one.” Which is the one I bought.
So, when people put up their nose to me that I drive a Tesla. It’s like, “Yeah, but I paid less for my Tesla than you might’ve paid for your car because of those people.” So I see it the same way. There’s enough people who don’t blink about it. What they’re really looking at is more of a climate change. It’s more of a passion project, and they’re happy to put down the money. I think it’s really cool. And, we bought a lot years ago that was super cheap, believe it or not, people don’t believe it, but lots in Malibu are actually pretty cheap. This one was $99,000. We saw it. And so, we have had this lot and we been looking at all the different ways to put something on there that would be unique and different. But the key is affordable. And we haven’t been able to find the affordable one yet, but we’re waiting, because maybe like Elon Musk, it will come down in price eventually.

Dave:
James, you think you could build this for 5 to 15% over normal build costs?

James:
Absolutely not. There’s no off on the cost. I mean, just your core things. Your heat system typically is radiant versus HVAC, that costs you three to four times as much. Your installation is triple. Your window package is 5X more expensive. Then you have an airtight house. And not only do you have to spend four times as much on your radiant heat system, then you have to buy an ERV system, which is three times more expensive than an HVAC system to recirculate the air. It is so expensive to build these houses. And your premium you get on the backside is not really there. And then, the buyer who’s paying that premium, it usually takes them 10 to 15 years just to get their energy savings back. And right now, they’re buying it with a 7% rate.
And so, they’re essentially just financing their savings down the road. It just doesn’t make sense. We tried this when the built green energy started becoming a big trend in 2010, 11, and 12, we started doing four to five star renovations, where we were putting in triple pane windows, upgrading these things, and we thought we were going to get this huge premium. It was a net loss every time. As far as an investment goes, it just doesn’t make sense to build it.

Dave:
Yeah, I mean, I think we see this all across real estate. This is clearly one focused on energy reduction. But, you look at 3D printed homes, the idea is that eventually they will be cost-effective. But, right now, they’re not particularly cost-effective. But, I’m all for construction innovation, wherever it comes. I feel like, I wouldn’t buy one of these right now. But, I think, the more innovation we see in the construction industry, the better. It’s still pretty antiquated, low-tech industry. And, the more people taking on these projects, the better in my mind. All right, for our last headline, we’re going to be talking about good old Dave Ramsey. So the headline here is Tired of the Crazy Train, Dave Ramsey tells Frustrated Young Landlord to Ditch the Duplex and go get a House. Basically, what happens is a young Michigan landlord named Joe called into the Ramsey show for advice about what to do with the duplex he no longer cares for.
I should probably explain if anyone doesn’t know who Dave Ramsey is, he is a talk show host, personal finance person who gives advice. It’s a talk radio. Obviously, it’s not just on the radio anymore. But, that’s what it is. But basically, he called into the Dave Ramsey Show with a duplex. He bought it with his girlfriend in the fall of 2020, around 164 grand. Lived in it, basically they house hacked it, did some renovations, think they could sell it for a pretty nice about 20, 30% profit. But he’s tired of having tenants and living underneath his tenants. He’s unsure how to handle his investment. Dave Ramsey responded, “I would sell the crap out of this thing.” So, Dave Ramsey suggested, end the house hack, sell your duplex, and invest in a home yourself. Henry, I know you’re a big house hacking advocate. Is this the advice you would give?

Henry:
I would’ve just said, move into the top unit.

Kathy:
You’re the freaking landlord. Do what you want.

Henry:
It’s yours.

Dave:
That is a very simple solution. Yeah.

Henry:
Don’t live under your tenant then.

Kathy:
That’s hilarious.

Henry:
But, look, yeah, I’m a big advocate of house hacking. I did it. It changed my life. But I will say, it wasn’t comfortable. I don’t know that anybody says it’s supposed to be comfortable. I think there are ways that you can do it that are more comfortable than others. But I think the general gist is it’s going to be uncomfortable. Wealth isn’t built within a comfort zone. That’s not how it works. Nobody wealthy got wealthy by being comfortable. Unless your wealth was inherited, then you got really uncomfortable at some point in order to build wealth.
And so, if the goal for this young person was to house hack their way into building wealth, I think it’s a huge first step. If their goal was just, “I don’t really feel like paying a mortgage for a little while, so I’m going to house hack.” Then, you probably accomplish that, sell it, and move on. It depends on what your goal is. Just because they house hack doesn’t mean they want it to be real estate investors for life. That may not have been their goal. But, for me, house hacking was a way for me to take a giant leap towards financial freedom. And, it was an uncomfortable leap. But, Lord, I’m glad I did it.

Kathy:
I’m so with you. I’m so with you, Henry.

Henry:
I had so many problems in my house hack. It was on a septic system, and the septic system just started backing up sewage into my tenant’s place, and then into my place. And so, we had to deal with that issue. I mean, we had all kinds of issues. It was in no way, shape, form, or fashion comfortable. But, Lord, did it give me a giant leap towards financial freedom. So I think it’s silly advice on a financial show to tell someone to sell something that’s probably going to get them to the financial freedom they’re looking for a lot faster than just the savings route that he’s probably preaching to them to do.

Kathy:
Well, Henry, he missed a huge point, and that is, okay, they paid $164,000 for this duplex. If they put 3% down, what was that? The $5,000 that they put down, and they made 35,000. What is that? A 5X on their money? So, that little part was left out of the comment. If they put 20% down, which they didn’t have to, if it was their first property, then they still doubled their money. So, there’s that.

Henry:
Pretty sound financial advice.

Kathy:
So, I agree. And Henry, when I house hacked, we lived on the top floor, and we had to wear socks, and slide across the floor. So, no, it wasn’t comfortable. But it also helped us build wealth. We took that money we made, and we’re able to buy investment property. So, yeah. You know what? You got to be uncomfortable when you’re starting out. If you’re somebody who has a bunch of money when you’re starting out, then maybe you don’t have to be. But that’s not the case for most of us. Most of us have to house hack your way up. So, anyway, at this point, if they’re wealthy enough, yeah, sure, go buy your own home. But I would still put a ADU on it.

Dave:
Or buy a home and just keep the duplex and hire a property manager, and not do the management. There’s plenty of other ways that you could sustain this investment without selling it and going to buy another house.

Kathy:
Yeah.

James:
Yeah, I think Dave missed the biggest concept of that whole house hacking first time home buyer program you can use. You can go buy a house, live there for 12 months, and then you can go do it again, and lock it into finance. It’s the best way to grow your portfolio with the least amount of money. And, they just did a great job. They got the right price. Yeah, you shouldn’t have to live there either. Just go find the next one. And then, make sure it’s a side-by-side duplex next time. That also makes it a lot better.

Kathy:
And they’re probably locked into a really low rate if they bought in 2020. I mean, why would you walk?

Dave:
Can I tell you guys a funny story about house hack?

Henry:
I would love to hear that.

Dave:
So, just this last weekend, I was at a wedding in Portugal. And, it was a friend of mine from Amsterdam, but used to live in Denver where I invest. And, I was talking to this guy. Something came up and I was talking about, “Oh, I own this triplex in Cap Hill.” And he was like, “Oh, where is it?” And I told him the cross sheets. He’s like, “Oh yeah, I used to party around there quite a lot.” And I was like, “Oh, where?” And he gave the address. And I was like, “That’s my house.” And, I was like, “When were you partying there?” And he gave me the years. And I was like, “Yeah, I lived upstairs above that party house.” Because I lived in the 600 square foot, one bedroom, it was a nice place. But, I gave up. It’s this beautiful five bedroom old Victorian in Denver. And he was like, “Oh, man. I feel so bad. We were always just partying until three in the morning. Oh, that’s so terrible.” I was like, “Yeah.”
It was mostly fine, except one time, it was 4:30 in the morning and I had something to do and I faked a police call. I called the tenant and I was like, “Hey, I’m cool. I don’t mind. But the police just called and said that they had a noise complaint.” But it was completely fake. I just made it up. And they were like, “Oh my God, I’m so sorry.” And they wounded up shutting down the party. So, I got to go to sleep. But, they were actually great tenants, but it was so funny, it’s just so random.

Kathy:
Oh my gosh.

Dave:
Yeah.

Kathy:
Why weren’t you at the party, Dave?

Dave:
We used to a little bit. Out in the back porch, we used to all hang out together. But, I tried to keep my distance a little bit. All right. Well, that’s what we got for our show today. Thank you all so much for joining us. As a reminder, let us know where people can find you, Henry. Where should people check you out if they want to learn more?

Henry:
Yeah, best place to find me is on Instagram. I’m @thehenrywashington.com. Or you can check me out online at Www.seeyouattheclosingtable.com.

Dave:
All right, James.

James:
Our easiest way is on Instagram @jdaneflips, or you can check it out on jamesdaner.com.

Dave:
Kathy?

Henry:
Realwealth.com or on Instagram @kathyfeki.

Dave:
All right. And I am @thedaviddeli on Instagram. Or, you can always find me on BiggerPockets. I am quite responsive on both platforms. Thank you all so much for listening. We’ll see you for the next episode of On the Market. On the Market was created by me, Dave Meyer, and Kaylin Bennett. The show is produced by Kaylin Bennett, with editing by Exodus Media. Copywriting is by Calico Content. And we want to extend a big thank you to everyone at BiggerPockets for making this show possible.

The open letter published on Thursday is the latest effort by startup investors to provide support for the state of Israel and its tech community, with 221 firms signed on.

Over 220 venture capital firms have signed a joint statement expressing support for Israel and calling for the global investor community to support the tech ecosystem in the country, which accounts for nearly 20% of its gross domestic product.

VC firms such as Bain Capital Ventures, Bessemer Venture Partners, GGV Capital and 8VC were among those that had signed by Thursday morning, joining a group of early contributors including Aliavia Ventures and irrvrntVC.

In the letter, the firms, mostly based in the U.S., agreed to “stand united” in support of Israel, its people and tech community, which it noted had long been a partner to the global “innovation ecosystem.” It condemned “senseless and barbaric acts of terrorism,” saying the signatories “bear witness to the devastation they’ve wrought” and deploring the loss of innocent lives. The statement went on to call for the return of hostages and normalcy for Israel’s startup community.

The joint statement comes amid a nearly weeklong stretch of historic violence that saw more than 1,200 Israelis killed in terror attacks perpetrated by Hamas, thousands of others displaced, and dozens reportedly held hostage in Gaza. Another reported 1,100 Palestinians have been killed in retaliatory strikes there so far.

“In the spirit of peace and unity, we encourage the global venture community to support and engage with Israeli startups, entrepreneurs and investors as they navigate through these challenging times,” the statement said. “We believe in a brighter and more prosperous future for the region. Will continue to enable the talented entrepreneurs and startups in Israel and abroad to continue their vital work in shaping a better future for all.”

The signatories are far from an exhaustive list of U.S. firms that spoke out publicly on the tragic recent events in Israel. Earlier this week, Insight Partners pledged to donate $1 million to humanitarian aid, while General Catalyst pledged $250,000 and the partners at First Round announced they had personally contributed $500,000, among others. Others set up public fundraisers, such as a page by Vine Ventures (which also signed the statement) that had raised nearly $200,000 as Thursday, or co-hosted fundraising events.

Local Israel-based investors and firms, meanwhile, have participated in recent events first-hand. Aleph partner Michael Eisenberg, a Midas List Europe fixture, posted on X, formerly known as Twitter, about working the phone despite the Sabbath in his role as chairman of civic organization Shomer Hachadash, which organized veterans to drive south to protect farms from further attacks; more recently, Eisenberg said he was leading fundraising efforts while helping to bury a cousin killed in duty in the week’s fighting. About 15% of startup staff across 1,000 companies surveyed by local firm Entrée Capital are currently serving or volunteering full-time, said fellow Midas Lister Avi Eyal — including investors, who have also been called up. “There are countless examples,” he said. “There’s an almost unstated commitment to help out.”

By comparison, a public statement might not seem as directly impactful. Israel-based investors told Forbes they welcomed their U.S. peers speaking up if it meant they continued to do business in the country as usual. (Some Israel-based firms, or firms with presences in the country, were among the signatories.) Ultimately, they said, the most important thing for local startups and the country’s economy is that global VCs keep doing deals in Israel — and the joint statement seems a positive indicator. “Just from a psychological perspective, I think it helps to see the reaction,” said Yuval Ariav, managing partner at Symbol.

The letter’s origins date to Monday night, when Harry Valner, cofounder of U.S. venture firm Seaside Ventures and an active participant in a WhatsApp group of several hundred Jewish venture capitalists, felt inspired to rally other investors behind a collective statement, he said in an interview from Los Angeles. Many firms that spoke up had already been compiled in a Notion document maintained by that startup’s Tel Aviv-based head of community, Ben Lang — but Valner believed that a co-signed open letter similar to one published during the Silicon Valley Bank crisis might help more firms participate. Back in March, nearly 700 firms eventually signed that statement of support organized by the venture firm General Catalyst.

By Tuesday, Valner shared a letter building on the SVB statement template with a small number of other investors, who began circulating a corresponding signature form obtained by Forbes on Wednesday. The number of signatures reached 107 firms by midnight ET, and 221 by noon on Thursday just twelve hours later, when the group went public.

“At the end of the day, the goal is to drive awareness,” said Valner, who added he and others were disturbed by their sense of rising global anti-semitism. “There’s a very special group of funds globally who realize this and are willing to speak up, because it’s not okay.”

In an unstable and rapidly shifting situation, during one of the largest military mobilizations in Israel’s history, signatures and social media posts may only go so far. In addition to the SVB crisis, VC firms and corporations have posted in the past about a number of subjects, from the war in Ukraine to the Black Lives Matter movement, with uncertain lasting results. At irrvrntVC, partner Andrew Gluck said he remembered watching businesses decide how to comment on those protests that followed the murder of George Floyd in 2020, and wondering his place to comment as a white, Jewish man. He spoke to others in his network who felt more personally connected to understand how best to support, he said.

Now, he hoped that more firms would continue to sign the statement in support of Israel in upcoming days, without feeling pressured or shamed. “I think we are inviting whoever feels comfortable to sign this,” Gluck added.

David:
This is the BiggerPockets Podcast show, 830.

David Lecko:
I actually started in 2016 when I worked for somebody who had five rental properties, and I was like, “Why do you have this?” He said, “Well, unlike the stock market that can go up and down, if you get rentals and you buy them right and manage them well, they’ll always make money.” That’s what motivated me to go looking for some of these real estate deals. There weren’t any, nothing was going to cash flow until I found out about going off market and then providing value to somebody, getting a discounted property, fixing it up. That’s actually led me to 2 million in rentals that I have today with a million-dollar equity position.

David:
What’s up everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, the biggest, the best, and the baddest real estate podcast in the world. Every week we bring you stories, how-tos and the answers that you need to make smart real estate decisions now in this current market that is ever-changing. We have a great story for you today. Joining me is my overly eccentric co-host, Rob Abasolo, who is either being a mime or doing ASL for those who are watching on YouTube. Rob, how are you today?

Rob:
Oh, my gosh. Dude, I got home at 4:00 AM last night. Now, I feel like I’m on vacation. Now, I feel like I’m on vacation, because being on a plane with a two and a three-year-old for 12 hours? Hmm.

David:
Today we’re about to speak with David Lecko. He’s going to be describing the strategy that he’s used to build a $2 million portfolio with $72,000 a year in cashflow that he started with only $4,000.

Rob:
It’s crazy, man. On top of that little fun fact, he’s also the founder of DealMachine, which we didn’t really talk about in the podcast today. He’s got a really cool story and really breaks down, I mean, really everything from the beginning, I think it’s going to be encouraging for a lot of people to hear his story.

David:
Absolutely. Today’s quick tip is going to be brought to you by Rob, who actually has some advice to share that came out of today’s show.

Rob:
Hey, when you see an opportunity, take action. You’re going to hear why today at the very end of the podcast. We talk about a deal that I just did because the moment I saw the opportunity, I made the phone call and got stuff done.

David:
There you go. Strike when the iron is hot because it doesn’t stay hot forever. As we know, decisions are made based on emotions and emotions change. When you’ve got the right opportunity, don’t waste your shot. Much like Eminem said, you may never get it again. All right, let’s bring in David. David Lecko, welcome to the BiggerPockets podcast. How are you today?

David Lecko:
I’m great, thank you so much.

David:
Nice, man. Can you give our listeners a quick rundown of who you are, where you invest, and how long you’ve been investing for?

David Lecko:
I actually started in 2016 when I worked for somebody who had five rental properties and I was like, “Why do you have this?” He said, “Well, unlike the stock market that can go up and down, if you get rentals and you buy them right and manage them well, they’ll always make money.” We know Warren Buffet says the rule is don’t lose money, never lose money. That’s what motivated me to go looking for some of these real estate deals, but there weren’t any, nothing was going to cashflow until I found out about going off market and then providing value to somebody, getting a discounted property, fixing it up. That’s actually led me to 2 million in rentals that I have today with a million-dollar equity position and about $95,000 in net cashflow expected this year. Last year was 72, but I did a couple of acquisitions this year. Those properties were acquired over about a two-and-a-half-year period from 2017 to ’19. Then I chilled out for quite a while. I had a lot of appreciation. I’m now re-motivated to go acquire some more rental properties.

David:
All right, I want to ask you, Rob, a quick question. How long do you think we’ll still hear stories about people who heard about real estate from a human? Because now with YouTube and social media, it’s bombarded by real estate. I just realized, that’s how people used to say it. Like, I met a guy in a restaurant one day, mysterious man smelled of rich mahogany and leather-bound books. He told me he had rental properties, and I was so fascinated. Versus what it’s like now. I’m just curious, Rob, what your perspective. Do you think that anyone will ever hear about real estate from a human from this point forward?

Rob:
That’s very funny. I was legitimately just thinking about this because everyone that I follow on Instagram, they are all real estate people. It’s all like, “Here’s five rental strategies you need to perfect in 2022. Here’s how to make $10,000 cashflow.” That’s all my Instagram is. I’m like, man, the entire Instagram landscape has really changed for the real estate industry, but that is really a big part of how people even find out about real estate. I don’t know. I think the days of the coffee shop, meeting with an older real estate vet and they teach you everything and take you under their wing, I feel like those, yeah, it’s getting a little bit more rare these days.

David:
That’s true. Also, I feel like when you talk to someone before they tell you what they actually had versus when you hear something online, now it might be someone with a house they live in and one investment property, but they’re talking about it as if they have 50 rentals. That’s a little different too. It’s easier to find out about it, but you got to dig a little bit deeper to figure out what’s really going on, and that’s what we’re going to do today. David, we’re going to hear all about your expertise in a second here, but give me an idea on what strategy or tactic is working for you right now.

David Lecko:
I’m doing two things right now. I’m paying a driver to look for rundown properties. I’m sending marketing and I’m getting calls back answered by a call center, and then I follow up and do a virtual appointment. The other thing I’m doing now that’s new for this year that I’ve had a couple successes with so far, is actually making offers on properties in the MLS in my market that are over 45 days old and I’m sending 70% offers to those properties. I’ve sent about 500 of those offers and done about three deals, in the last three months I would say.

David:
You’re taking steps just to get the ball rolling. You’re trying to get the conversation going, just get that first date and then see where things go.

David Lecko:
Actually, the on-market listings that I’m giving it 70% off, they’re actually just receiving offers. 70% off as is, and you never know what they’ll accept unless they have a low offer in their hand. That’s actually, I mean they’re signing it and I’m like, “Oh, wow. I have a property on your contract.”

Rob:
I have a question about that. You’re making these offers, presumably if they’ve been on the market for 45 days. We’re getting towards the point where that listing is going to expire. That agent is probably going to lose the contract, is my guess. When you make an offer, how are you actually doing that? Do you have a realtor representing you making that offer, or are you just making that offer to the listing agent and asking them to represent both of you?

David Lecko:
It’s through an agent and I use a software that connects to her email and uses her contract and fills in the DocuSign details. I have a slider that says what percentage do I want to send out all my offers. I usually do 35 per week because she’ll get an influx of emails and texts and she does respond to those. Some of those end up being a counter. That’s how I get the ball rolling. It doesn’t take her time, but we have a process and a tool that we use that allows me to send those offers like that.

Rob:
Hold on. That sounds like the most system and process-oriented way of doing this. I just thought you were calling, “Hey, make this offer.” You actually have this, I don’t want to say automated, but really efficiently laid out to where if you’re going to make 35 offers, are you actually examining all of those properties running the numbers on them, or you’re just like, all right, hey, if it’s 70% and they accept, I’ll then run my numbers?

David Lecko:
The second thing. I’m doing a little bit of filtering, I just want a three-bedroom, two-bath house with a certain square footage. I’m not doing these offers on commercial buildings or I’m not doing it on a two-bedroom, one-bathroom house because I just do want it to actually be a property that I’d probably buy.

David:
We’re going to get into those details a little bit later. Before we move on to the show, just remind me, which area are you buying these in?

David Lecko:
Indianapolis, Indiana.

David:
We’re going to talk about the Indianapolis market as well. We’ll ask you some tough questions, so get yourself prepared for that. Hopefully, it gives you an opportunity to shine. Let’s start with a story. Tell me about a moment before you found real estate, when you knew things had to change?

David Lecko:
Man, my life was actually horrible. I’m working for this company for two years on a product that I actually built before I ever worked there, and I sold it for $10,000 now as a recruitment tool in another industry. The reason why I bought it is because there’s advice from Gary Vaynerchuk, for example, that says, you shouldn’t take the most expensive, the highest-paying job, you should actually go work for somebody that you want to emulate. That’s exactly what I did. I sold this tool I built and it was a low cost, and I was getting paid $55,000. On the first day, the CEO says, “Hey, David. Please don’t share what you make with anyone else on this team because nobody else makes that much.” I was like, “Man, I don’t even feel like that’s that much.”
I took a $20,000 pay cut to get here, and I did though really working a ton and I’m working a ton. I’m the software developer, I’m the tech support, I’m the trainer. When there’s a problem, I’m not actually having anyone else be able to do those things, so there’s no backup. I’m actually the most knowledgeable person that they have. This culminated over two years. I’m learning a lot. There was always these times where I take my computer to the bar with me if I was going to go out with friends, because something’s going to come up, I want to be able to fix it instead of have to drive home and come back. Finally, I’m at my best friend’s wedding and I’m actually in the wedding party. I leave the reception because I got the call, something is wrong and I’m out in my Honda Accord, 10-year-old Honda Accord with my hotspot and I’m fixing this tool.
I was like, man, he was upset, his wife was upset. I felt terrible because I’m missing the reception. I knew that something had to change. I knew that the owner of this company of mine had these rental properties, and so I knew I needed to start taking action towards making a change, towards finding an off-market deal. At the time he said, well, he bought these properties in 2009, which was a great buying opportunity, and I was a little bit discouraged by that. It wasn’t his intention, but I looked at the market and I couldn’t find anything that would cashflow. Thankfully, I went to a meetup and found people that were doing deals all the time. That’s when I realized you can’t just time the market. You’ve got to find deals in whatever market condition exists. You’ve got to figure out how to find good deals in all those conditions.

Rob:
You went to a meetup and you said people are doing deals. As someone that didn’t know anything about real estate or not all that much, you go to a real estate meetup and you find out that people are doing all these things. What kind of deals were they doing and then were they all doing so many types of real estate that it was overwhelming? What was that first experience even like?

David Lecko:
Well, it was pretty awesome, because they actually had a prize that was a random drawing for all the attendees, and I won the prize. It was an iPad, and I thought, “This has got to be a sign.” I’m not super spiritual, but this definitely doesn’t feel bad. This is great. I won this iPad and I immediately sold it for 500 bucks and I used that to start sending postcards to distress properties. I remember, there were people doing a lot of stuff, but the prevailing theme was wholesaling.

David:
I love this. What you’re saying is if somebody’s having a hard time getting started, they need to go to events, win prizes, and then pawn off the prize to get the capital C to get started. Correct?

David Lecko:
Yeah, exactly.

Rob:
I love it. I love it because instead of just having an iPad where you could log into Netflix and hang out and do nothing, you’re like, all right, look, I could have this iPad or I mean, it’s basically a free $500 that I can use to experiment and just do random things with in the real estate world and see what sticks. Somehow you land into the postcard world. How did you even learn about that?

David Lecko:
There was definitely a blog post on BiggerPockets that I saw on driving for dollars. The unique aspect of it was this person was putting the photo of the house on the envelope. That was something that they said gave them a better chance, a better response rate. From this day forward, every piece of mail that I’ve sent has the photo of the house on the property. Not the Google photo, like an actual photo that he took. People called back, still to this day, they’re like, “I got a few pieces of mail, but I called yours because it looked like you put a lot of time in it.” Or, “I could tell you’re really here. I could tell you were local.”

Rob:
That’s cool. You went to BiggerPockets, you figured out the idea of driving for dollars. You’ve unlocked a really great entry point into your real estate career and it seems like it’s working. How did that feel emotionally for you for it to start clicking really, I mean it seems like it’s relatively soon into your career?

David Lecko:
Well, there was a period of time where I was just looking for the rundown properties and I wasn’t sending out the mail yet. I was prepared for it. I had the money set aside for it. What I was focused on was finding the properties. It was so much fun driving up and down and just picturing myself buying this property. It felt really awesome. Two months into that, I had a nice list on a tablet of paper, but my stomach sank to the floor when I saw one of these properties had started construction. I went home, looked up. Sure enough, this property actually recently sold and I looked up the price. I wasn’t an expert on numbers, but I felt like it was way lower than what I would’ve even felt comfortable offering. I knew that could have worked for me. I had this terrible feeling that I didn’t even reach out yet, spent so much time just thinking about these homes that I wasn’t following up.
I realized humans have a lot of follow-up issues in general, and I needed to start nipping that in the bud and doing something. I went to go put those letters together with the photos, and that’s when I realized putting letters takes a long time, and at the time, you couldn’t send out mail one at a time. You had to buy a minimum of 200 with some mail house. That’s what left me doing them myself in my basement, which took quite a bit of time. That was the next struggle for me. I’m glad I did it because I didn’t have a ton of money and I heard over and over the driving for dollars is the best list.

Rob:
Well, there’s something ironic about the fact that you were making this list on a tablet of paper instead of an iPad, an electronic tablet. That’s pretty funny. You find this house, you find out it’s the one that got away, but not really, because you never even tried to get it to begin with. Then you get into this time suck. At this point in your journey, was time something that was very important to you or was that the beginning of your journey where time is all you had? Tell us about the emotions of that time in your real estate career.

David Lecko:
Well, as you know, I was working a job that was time-consuming. I don’t know the exact hours. It had some flexibility during the day, but it required lots of stuff at night and random times when people were using the software and I would need to go and fix it. I was feeling quite burnt out. I did enjoy driving around, but when it came time and I realized how time-consuming this was, it just didn’t feel like I had time. Working 9:00 to 5:00, couple of random things for work in the evenings. Now, I have to not only go out and look for properties, but I got to put them together and there’s not enough time left to go hang out with friends, to go eat dinner or anything else like that that I needed to. I was definitely feeling like the candle was burning at both ends.

Rob:
For sure. I think a lot of people feel that way, especially at the beginning of the real estate career. If you’re working a 9:00 to 5:00 or if you’re working any kind of job, and then when it’s over, you still have to do the real estate stuff to get that going as well. At this point in your career, did you have a very clear why defined, like your mission statement? Did you know what you wanted? I know that you missed some important moments in the best friend’s wedding and everything like that. Had you already defined what your why was?

David Lecko:
I had missed some important moments. I also noticed the owner of the company I was working for and learning so much about, didn’t put in the hours that I was. Now, I got the sense he did at the beginning, but I wanted that. I didn’t want to have to work so much for a small salary that I couldn’t even talk about. I wanted something more. It was definitely, I wanted time freedom, but it probably even goes back to high school where I saw some kids had these really cool cars and I wanted that. I wanted more than what I had growing up. I was driven by those two things.

David:
David, when you look at why you were driven for time freedom, can you trace it down to a specific event that happened in your life, an experience you went through, something you witnessed? I think a lot of us would like to have time freedom. We would rather not have to work for somebody else. If you’re lacking the motivation to get out there and make it happen, because it comes at a price. As you well know, you give up a lot of security, you maybe work more hours in the beginning when you’re trying to build that. What do you think about your story specifically led to you having that fire that you were able to use to get over the hump?

David Lecko:
My dad worked at a telecom company. He had a friend that was a contractor. I didn’t really know what that meant. They were buddies. That friend was not only a contractor himself, but he owned a contracting business. He would place people in different companies like this telecom company, and he would make a portion of their earnings as well. I met him at a breakfast with my dad. He gave me a book called The 4-Hour Workweek. That book taught me that you could build a business so you can earn income that’s not limited by how much time you put into it as long as you’re the one who’s actually setting up the business in the right way. That has to be my moment where I knew there was a better path than what I had been exposed to in the just W2 world.

David:
What about that quest for time freedom led you into our world of real estate?

David Lecko:
Well, it seemed like rental properties were pretty stable. If they were never going to lose money, if they were always going to appreciate as long as you manage well, it seemed like the more rental properties I get, the more secure salary I can have, where a business might have fluctuations, that was intimidating to me. A rental properties is physically, you could touch it, you could see it, you can rent it out for a certain price. Then when I went to the Federal Reserve graph on rent rates, I saw that it never went down. Even in 2008, it stayed constant for a year and it kept climbing up. That’s what seemed like it would give me the security the most secure way.

David:
It wasn’t that you heard someone else talking about it or you heard it on a podcast or a YouTube channel. Was there a certain influencer that caught your attention or did you just sit down and logically think through real estate makes the most sense?

David Lecko:
The time when I figured out real estate would make the most sense was the boss that I had at the final job that I had, had five rental properties. I asked him, I said, “I put my money in a 401k, why do you invest in real estate?” He told me it’s because you’ll never lose money as long as you buy them right and you manage them well. I had seen my 401k go up and down and felt like I had no control, and the feeling of control is just such a good thing. I knew that, that was something I wanted to go after at that point.

Rob:
Yeah, man. Let’s fast-forward a little bit. You go to this meetup, you sell the iPad, you get your postcards out. One of your dream deal gets away and you realize I got to take action. Where did that actually culminate into your first deal? Tell us about how that first deal actually took place.

David Lecko:
I got a phone call and he says, “Hey, I’d like to get an offer on my property.” I just knew after putting in 300 properties over the course of six months that it must be this small house, I remember with a blue tarp over the entire roof. I just knew that was probably it. When I looked it up, sure enough, it was. I didn’t know what to actually say next because I had never done this before, Rob. I just said, “Well, how about I meet you at 6:00?” I got off the phone as soon as possible, and once again, when I met him at 6:00, I didn’t know what to say. I didn’t know what to ask. I said, “Well, let me just take some pictures and I’ll just ask you about things that I see while you’re walking me through the house.”
Then it wasn’t a very big house, it was 600 square feet. I took the photos and then he said, “How much will you offer?” Again, I didn’t know, so I was like, “I’m going to get back to you 24 hours. I’ll have an offer in front of you.” I went home and I was going to offer $10,000 for this house. Now, it was in rough shape. I found out later that he thought I was just going to demolish it, but I ended up repairing it. I’ll tell you that I actually remembered this episode on the BiggerPockets Podcast where they said, “If you don’t feel like you’re uncomfortable making this offer, if you don’t feel like you might be offending them, you’re not offering lower enough. Because there’s going to be problems you’re going to encounter, and if you don’t leave yourself the profit margin, you’re going to find yourself in a bad place where you own this deal that you’re upside-down in.”
Instead of offering $10,000, I remembered that and I offered $4,782. Now, it was specific because I felt like that would help him see I approached this in an analytical way. I actually looked at some of the comparable sales by square foot, and then I subtracted the cost of everything that I knew I needed to do in that house, which was pretty much everything. Then I did subtract $10,000 for my profit, or in case something unexpected came up. I showed him that transparently. I said, “This is how I got to your offer price. I can make you this cash.” Because I actually had $4,000 and he waited a day. I got nervous, but he just said, ultimately, in a super calm voice, “I’ll accept it. Let’s go forward with it.” That’s how we ended up doing my first deal.

Rob:
I just want to make sure I got these numbers right. You offered $4,750 for an entire house?

David Lecko:
It’s 600 square feet. It was the smallest house in the neighborhood. There wasn’t even really a true exact comp because all the other houses were 1200 square feet. That’s right. 4,000 bucks.

Rob:
That’s great. You ended up renovating it yourself or is that what happened next?

David Lecko:
Good thing to know here is in the Midwest, Rob, as you know, there’s these neighborhoods that a house in perfect condition may only be worth 50 grand. You can get in trouble investing in these neighborhoods because you buy a house for 4,000 and you put 45 into it. It’s like, you don’t have a deal. That’s just a house. A lot of times it takes more than 45 grand to repair one of these crazy things. I thought this one could be worth a hundred grand. My plan was get four no interest credit cards. I applied it all on the same day because I was like, let me do it all at the same time. Maybe I could trick the credit bureau so they don’t know I have all these other cards. I did $65,000 renovation and then I rented it out for 99. It’s rented for 1200 now, but that’s how I ended up doing it. I still own the property to this day.

Rob:
Cool. When you took out the credit cards, I mean it’s not like you can just swipe your card to pay for vendors and stuff. Were you doing a cash advance? Did they send you a check that you could deposit into your account or what?

David Lecko:
I think those are really good. I didn’t know about those. The contractor that I found would actually let me swipe a credit card, yes, on his square account that he could use to receive payments. Now, he did charge me the extra 3% fee, but that was the only option I had.

Rob:
Well, you’d probably pay that regardless, even on a cash advance anyways. You buy this property, you rehab it, and that’s it. You were financially free, right?

David Lecko:
No, I didn’t know how to pay off those credit cards.

Rob:
Tell us about some of the lessons from that deal.

David Lecko:
I thought I could get a mortgage because on my account it appreciated for $100,000. Even though it was rented out for a 1% rural property, about 900 or a thousand bucks a month, the mortgage companies didn’t value the property like I did because there was no other house with that small of a square footage, and so I couldn’t get it to appraise, so I was stuck. It’s a good thing that my job actually picked up, my business for my primary income picked up. I ended up using that to pay down the credit cards. If I hadn’t done that, I would’ve been stuck. I would’ve had to go to a private lender or to sell the house or to get some type of bridge funding. That’s ultimately how I got unstuck, was I was able to ultimately pay those off. Another lesson that I learned was working with a contractor. A great way to find a contractor, the way I found him was I asked another real estate investor that I knew from one of those meetups who I should use, so he gave me his name.
Now, he didn’t have a crew ready, but he put one together. AKA, a group of people he hadn’t worked with before. Ultimately, after a month in, I was like, “Yo, what’s going on?” He’s like, “Well, they’re just doing this or that. They’ll start back in a week.” I got that about four or five times. I had a hard conversation with him. I was like, “Look, we’ve got to cut ties. Obviously, this isn’t going to work out.” I had paid him too much. I had paid him 50% of the project’s value. He had not done 50% of the work. I needed a refund if we were to part ways. We met in person. I think if you’re going to have a hard conversation with somebody, having it in person goes such a long way. It shows that you care and you can really read each other’s body language that way. That’s what we did. He ended up giving me a refund on one of those credit cards, and I started searching around for somebody else that could solve the problem.
The lesson there was actually don’t give huge chunks of payments, but do smaller increments. The other lesson was let him pick a due date himself at the beginning, then maybe add on a couple extra weeks and say, “All right, if you want this project, commit to this date. I’ll give you a couple extra weeks of padding. If it’s late, $50 per day from you that it is late.” Those are how I operate now with renovation projects. Two lessons there. Then the third one was I had to ask around for somebody who could bail me out of this project that was halfway complete that had a budget that wasn’t going to work anymore. Sometimes real estate investors have a special guy that can bail you out. When you need help, start talking with other people instead of just trying to figure it out yourself. Those are three lessons from that first deal.

Rob:
Going back to that second one about the timing. David, you have a trick of the trade here. I don’t know if you still do this, but didn’t you used to bonus your contractors based on if they hit their deadline? You would say, if you hit this deadline and you actually get done in time, I’m going to give you 1% more or something like that, or did you fall out of that strategy?

David:
How could you possibly know that since you never read any of my books? This is impressive.

Rob:
Well, I read the one book. I read Burr and I am in the first chapter of Pillars, which is not out yet, but it will be.

David:
Right on, man. Yeah, that’s exactly what I would do.

Rob:
David, I like that way more.

David:
You like what way more?

Rob:
I like the bonus for completing it on time, and I think people would be really motivated by that.

David:
Here’s what I would do. I realized there was a bit of a power struggle going on, and when I say that, I don’t mean in an unhealthy way, just human beings have different incentives. When we are an investor, our incentive is to get the work done as fast as possible, as cheap as possible, and as well done as needs to be done. The contractor’s job is to get as much money as they can, take on as many other jobs at the same time as they can and be held the least amount of accountable. They’re going to take on all these different jobs, they’re going to spread their crews thin. What you get is this clashing of, you said you were going to be done by X and them not wanting to tell you, well, I didn’t bid this right or I didn’t know the details, or the guy that was supposed to be working on it didn’t show up to work, or he ended up sucking. Or I had to put them on another job because we didn’t do that one right so yours fell behind. You never get the truth.
What I figured was I just want to fight my way to the top of the funnel of priorities in their head. When we were discussing the scope of work, I would say, look, this is going to be a contract, which you should be familiar with because you are a contractor. As a contractor, how long will it take you to do this job? They would give me a timeframe, say eight weeks. I’d say, okay, what if I give you nine? Oh, yeah. That should be no problem at all. Well, yeah, it definitely shouldn’t be because you told me eight. Here’s the deal. If you get this done in nine weeks, I will pay you what we agreed upon and I gave you an extra week of some grace. If you get it done less than that for every day that it’s early, I’ll give you a bonus of this much money. If it’s late, this is how much is going to come off the last draw. If they’re like, whoa, whoa, whoa, I can’t guarantee it’s going to be eight weeks.
Well, now you know the truth. You just do a little bit of digging and the truth will come out. If they go, yeah, no problem at all. Now, they’re incentivized to keep your job as the priority because they want to make all the money they were supposed to get and they hopefully want to make more money, which makes you a more important customer than the person who’s complaining that they left some paint on the cabinets or one of the tiles wasn’t laid correctly and they got to send someone back. They’re going to make that person wait five weeks. They’re not going to make me wait five weeks, and if somebody with paint on their cabinets has to wait five weeks, I’m okay with that. I’m not okay with it when it’s me when I got a 12% hard money loan and the market is shifting all the time, and if they don’t fix this thing, then the next thing can’t get done. We all know how the domino effect works.

David Lecko:
I think that’s really smart. Now I’m going to have to read that book to figure out the percentage that you pay as a bonus because I want to start doing that.

Rob:
Yeah, man. It sounds like you guys had similar strategies except David does actually do a percentage of money or whatever. You do this deal and it seems like it’s going pretty well. You’re obviously starting to move into your real estate business here and you talked about driving for dollars. Now, a lot of people can be a little wary about driving for dollars as extremely time-consuming and sometimes not worth the time. What would you say to that? Because I know you’ve built your business effectively on this model.

David Lecko:
Definitely. The advice I was hearing from everyone at that meetup was to go Drive for Dollars. At my time, there wasn’t really another option because just the group that I was with, they were saying that, that’s what I need to do. Then I totally get though that it can be time-consuming. If you’re a doctor, this may not be the strategy for you. It’s great if you have more time than you have money. Because the list is so good, these big real estate investors don’t typically do it because they’re buying these lists that are easy to get and they’re just spending more mail, spending more money on more marketing to those bigger lists, which is required because they’re competitive and they’re bigger lists and they’re less niche.
The driving for dollars list is a list that nobody else has. You’re the one who drove around and found those rundown properties. Plus, if a tree fell on a house that was vacant, that’s not going to show up on any list. You can’t buy that list. It’s hard to get. If you put in the time to do it, you can actually get a deal for smaller amount of money, because there’s less properties you have to market to, and there’s less people that are marketing to that homeowner. Therefore, you’re not going to have as much competitiveness in terms of them trying to shop around and get the best price. That’s why I like driving for dollars and why it’s been a really great business

Rob:
Actually, can you just run us through what is driving for dollars? I want to make sure that everyone at home is on the same page as us because we’re going to be talking about this a little bit more.

David Lecko:
Driving for dollars is a strategy to find a real estate investment by looking around for a rundown property. Then you look up who owns it and send the owner a letter asking if they want a cash offer on their house, and if they do, they call you back. That’s what driving for dollars is. The reason why it works is because that house is run down. They probably can’t sell it on the market. If something happens in their life, they might not have the cash to deal with a medical expense or deal with something that would cause them to have to move. They need to unload that property. Like a pawn shop. When you take somebody to the pawn shop, you’re not getting the top dollar, but you do want to take it there because it’s the easiest thing to do, it’s the quickest way to get cash and move on to the next thing in your life. People do that with their house. People need that service with their house and driving for dollars is a great way to identify those types of properties.

David:
Can I tell you why I like that strategy? Because it’s very difficult to do, which means nobody else wants to do it. There is a trend in our country, in our culture of how do I automate, delegate, systemize? I wanted to do a thing that makes me a bunch of money on its own and I just show up to the money tree and I pull the dollar bill out of the business, but I don’t want to have to pull the weeds, water the tree, shelter the tree, check the pH balance of the soil. I don’t want to do the work of a farmer. I just want it to grow and give me money. There’s become an obsession with that and there’s little tiny ways this will work for a short period of time. We saw it with crypto, we saw it with NFTs. Drop shipping at one point was like, it was like you struck oil and there was all this gold, and then everyone rushes into it, it dries up. It’s not a sustainable thing. You just might get lucky.
The popular way that most people are running businesses like you, David, is they’re trying to automate a system that sends letters that look like they’re handwritten, that hires somebody else in another country to oversee the job, that leverages out the answering of the phone and tries to qualify the leads and then sends somebody else to the house to go negotiate with the person. When it becomes easy like that, it just means everyone else can do it and someone with more money, more experience, more resources than you will just do it better. You end up chasing the same deals that everybody else is chasing, asking how come these strategies that I heard people talk about on the podcast don’t work? Driving for dollars cannot be leveraged. You can’t pay somebody to go out there and just drive around and look for the right homes, at least not effectively.
You have to go do it. When you do that, you find the property that’s not getting bombarded by other people. You find the lead that you actually have a chance to nail down and you get to make the connection with that person. You get to go talk with them, build rapport, use all the skills that you’ve built. Not some employee that is like, I only want to do the bare minimum and I only want to get under contract if it’s easy. They can hit the layups, but they miss the tough shots. That’s what I love about what you’re saying. This is the strategy and I see you smiling because it sounds like this is landing with what you’ve recognized in your business that our listeners can go apply because it’s real and it’s honest and it works. It’s not looking for a cheat code that everybody else has already found. What do you think about that perspective?

David Lecko:
I think it’s absolutely true. I think that’s why it works so well, is because the easy way to do it is to go buy a list of absentee owners or go buy a list of high equity. It’s just the easiest thing to do. People do that. Seeing the property, laying eyes on the property is something that is harder to do, and I think that’s why it’s such a better list.

Rob:
I think there’s always going to be growing pains with really any model if you want to achieve automation or anything at the largest scale, I mean you do. I think that’s always really tough to do. I’m curious, David, obviously you were the one driving around doing a lot of your own deals when you were doing this. How did you actually scale out of that? Because I know you said that time was so important to you, and this sounds like, I know you said it doesn’t necessarily have to be a time-consuming strategy, but when you were starting out, I’m sure you hadn’t figured that out. How did you actually scale in a way that was effective when it came to driving for dollars”

David Lecko:
I just kept doing it and I kept doing deals. As soon as I had done maybe $200,000 of, I did a couple of bird deals where I got the cash out and I could recycle that money. That’s when I realized, all right, maybe my job is worth what you can actually hire somebody to do this for, which might be $20 an hour looking at Amazon driver salaries. We can get into that, but that’s whenever I figured out maybe I shouldn’t be the one driving anymore. That was a couple of years into it after I had done several deals and after I learned a lot of the neighborhoods that I wanted to buy in, knew those by heart already.

Rob:
We’ve actually heard a couple of interesting strategies on BiggerPockets of how people, I don’t want to say automate, but increase their deal flow. We had someone on the podcast said that they give flyers to pizza delivery people and they say, “Hey, anytime you see a distressed property or if you’re delivering to a distressed property, leave this on the pizza box or leave it on the door or whatever.” I’ve also heard of people doing that with UPS drivers and all that type of stuff. It seems like you can get creative with ways of increasing your deal flow. Did you ever go down that route or did you just go straight to hiring somebody?

David Lecko:
I never did the pizza delivery thing. There’s basically three ways that you could hire a driver, and most of them are tricky if you don’t know exactly what you’re doing, which is still what makes driving for dollars great because it’s difficult to scale. Here’s the three payment strategies that people use. They either do per hour or they do per deal added or they do, you get a bonus when I close a deal, like to the pizza guys. People have made it work. I have not. One thing I’ve observed is that if you’re going to give a bonus when you close a deal, that could take three months. These houses have been distressed for a long time, so they’re not going to sell right whenever they get a postcard from you. You need to keep sending postcards. Every basic marketing advice says it takes 10 to 13 touchpoints before somebody responds to your marketing.
You’ve got to catch them at the right time. By the time that happens, the person you trained what properties to look for, they probably have moved on because they have bills to pay, they need to live their lives. Unless it’s like your mom, your spouse, somebody that loves and caress about you and can stick with you for three months without payment, I don’t know that I’d spend time training anyone for this model where you pay a fee just when you close a deal. The other one is per property added. Some people might pay 25 cents to $2 for each property that looks distress that they add. You could do that. It has worked. All three of these have worked, but I don’t like that one because people like security of knowing how much they’re going to make, and we think about jobs in terms of hourly payment.
That’s why the hourly payment is actually the best when you’re going to recruit somebody reliable and you want them reliable. If you’re going to spend time training them, you don’t want to train them and have them go away. I posted a job on Indeed for hourly, and I got a bunch of people responding. I set up five interviews on a Saturday and every person actually did not come to the interview. I texted them, I was like, “What happened?” One person even said, “I moved to Florida.” It’s like, I felt so disrespected, it was a huge waste of time. I knew I needed to change something. I incorporated a test project. Now, I posted the job again. When they applied, I said, “Please send me a two-minute video. Download this app that I use to look for rundown properties. It’s free, no cost. Just add three properties. Text me when you do that. I’ll Venmo you 10 bucks.”
That really weeded out people. If they did that, I knew they were tech-savvy. I knew that they had read my instructions instead of blindly apply. I knew they were serious. Then I pretty much had a 100% show up rate when I scheduled an interview. Finding them, I would incorporate a test project like that. Then $5 more than what Amazon drivers make is fair because the driver that works for you is they’re going to actually be using their own car and paying for their own gas. They will want to work for you because they love seeing that money that’s a little bit more than what they could make at Amazon. It’s a good deal for you as well because they’re paying for the car and the gas. If I were to say a couple of more pitfalls, have a weekly meeting with this person to review the properties they added and make sure that they feel like they’re a part of the team as well. That’ll keep them going week after week and stick with you for a long time.

David:
We’ve covered the bottom of the funnel, the hiring and the delegation of how you’re going to spread out some of the workload. What about the top of the funnel? How are you going to build this list of potential opportunities to pursue?

David Lecko:
I actually was given the advice that if you find a hundred rundown properties, that’s about what it takes to get a deal. Now, as time goes on, I’ve had the fortune of working with a lot of people who scale their Driving for Dollars teams, and I noticed that it depends on your market. If you’re in a lower-cost market, I’d recommend four to 500 rundown properties marketed six times each. If you actually are in the more expensive markets like Seattle, Los Angeles, somewhere in New York State, you may need to add as many as 1500 to 2000 rundown properties before you get a deal. Now, if you’re wholesaling, typically you’re going to get 15% of that value of the property as an assignment fee. You’ll notice that even though you spend more time and money to get a deal in a high price market, you’re going to make a bigger profit. It’s easier to get started in a Midwest market that’s lower cost. You’ll make a smaller profit, but it’s easier to get started.

David:
Why is that? Is that because most people are attracted to the higher profit market, so you’re just competing with a lot more people?

David Lecko:
Wish I had the answer, I just know what I observed.

David:
This is a principle that runs throughout business, that’s pretty good for us to talk about it. I talk to my team about this constantly. This will apply to many things in life, but definitely to business. What I say is, it’s easy in, hard out, hard in, easy out. When you buy an online lead for a real estate team, like the David Greene team, and we go to Zillow and we say, “Hey, we want to buy a Zillow lead.” They’re very easy to get what we call leads. People will say, “Hey, I want to know about this house on Main Street.” They’ll ask a question, but they’re not reaching out to you because they want you to be their agent. They just wanted to know about a house and they were forced to go through these hoops they had to jump through. They’re very hard to close. You got to get a lot of them and put a lot of work in to close anything, but they were easy to get.
When you go to an open house and you meet a person organically and they’re motivated to look for a home and they’re out on their weekend trying to find one and they haven’t found a good agent, you build a stronger relationship with them, way easier to put those people into contract. This happens with a lot of things. The toughest markets to get your foot in the door in will make you the most money over the long term. The easiest markets to get into are easy for a reason. There’s not as much competition, there’s not as much demand or there’s a whole lot of supply. You will make less money later. It’s just this idea of delayed gratification. It’s not that one way is better than the other, it’s just know what you’re getting into. What’s your experience like David, with running the business when it comes to the things that are easier to get the phone to ring? Do they tend to have the smaller amount of margin in them?

David Lecko:
Yeah. I would say definitely the things that are easier to get the phone to ring have a smaller amount of margin in them. The easiest thing that I’ve ever done is pull a list of high equity properties to have 35% or more equity. Then also, they actually expired on the MLS. You can pull that list straight out of a tool and you could start sending postcards or calling them. Of course, they want to sell their house. They listed it and it failed. Everyone else is calling those people. The fact that you’re going to try to approach them, how do you make your deal sound sweeter than the rest? You compete on price and then the margin shrinks. Exactly what you’re saying.

Rob:
I have a question. I guess I don’t really understand how this part works. You said that you’re looking for something that has higher equity, so that means that the owner has a lot of equity in the house? Meaning, in your mind, if they’re a distressed seller, theoretically, there’s more wiggle room for them to come down? How do you even figure out how much equity someone has in their property? It seems like that’s private info now.

David Lecko:
I use DealMachine to go look for these rundown properties. It has public info. It also estimates the equity they have on there. Just to be clear, when I’m driving for dollars, I don’t even look if it’s absentee owner, owner occupied. I don’t look at anything. I just look if it’s distress, I send the letter. When David was talking about do easy things have smaller margin? I was using that as an example, because separate from driving for dollars, I’ve pulled a list of just properties that expired on the MLS with decent equity, and it turns out a lot of other people pull that list too so that the margins are smaller there.

Rob:
Sure. Okay, cool. If you’re driving for dollars, I know that at this point you have a whole system for getting everything out automated offers made, but do you have a target profit or assignment fee or ROI that you’re looking for on a specific property?

David Lecko:
I’m looking for something in the range of perfect condition, $200,000. I want to either do a Burr deal where I put in 75% and that way I can refinance out and have no money in it at all. The Burr strategy, read David’s book, or I actually just want to analyze the rental. Say, well, could this cashflow at least 500 bucks at that price point? Meaning, the difference between what my mortgage payment will be and what I can rent it for would be 500 bucks. Those are two analysis that I look at to see if I want to actually do a deal.

David:
Question for each of you. If you had an opportunity to be all in for zero money on a Burr and you’re still having 25% equity, so houses were 200 grand, you’re all in for 150, $50,000 of equity, but none of your own cash is left, you got it all out. However, it loses $150 a month in negative cash flow in the first year. Is this a bad deal or a good deal and why? Let’s start with you, David.

Rob:
It loses how much? You said $250?

David:
150 a month.

David Lecko:
I’ll say this, I wouldn’t keep it. If it was worth 200 and I’m 150 in, got all my money back out, I would sell it. I would never keep a property that loses money for myself.

David:
Great point. You would just basically take that 50,000 of equity and you’d sell it. Same for you, Rob?

Rob:
I don’t want to keep it. I was just negotiating a seller finance deal last week or two weeks ago, and I laid out the numbers. I said, “Hey, man. Look, this is going to lose on a long-term rental, 200 bucks a month.” He’s like, “Well, the thing about rental properties is other people are paying your mortgage, and so sometimes you got to take a small loss. At the end of the day, the appreciation and the location is all that matters.” I was like, “Look, I understand what you’re saying. I don’t go into any deal where I lose money.” We renegotiated the terms, at least break even.

David Lecko:
Some people will do that deal. I know I could be able to sell it because if you own a rental property in San Francisco, a $3 million house may be only rented for $5,000. That doesn’t even cover the mortgage payment. Could barely even cover the taxes, but people buy them, just not me.

David:
Same question, but now the house is in a prime market in the country, it’s worth 800,000. You’re all in for whatever, 75% of that is, very nice location, but it’s still losing $150 a month in cashflow. However, when you look at the principal pay down, you’re paying off much more than the 150 a month. The appreciation is all but guaranteed and you know that rents are going to be going up pretty significantly in the future because it’s such a gray area with less supply. What’s your answer now on that same scenario, David?

David Lecko:
I still wouldn’t do it because I don’t want to have to babysit a property. I don’t want to have to calculate how much of my active income I have to suck away to actually keep that property afloat. I want to scale properties and the only way to do that is to make sure they all positive cashflow. I think I learned this from the cashflow game that goes along with the Rich Dad Poor Dad book is you can’t get out of the rat race if you have negative cash flowing properties. Now, sometimes randomly you could get the appreciation and sell it, but you’re still not out of the rat race yet until you actually buy cash flowing rental properties that are positive. Again, I would sell that deal, use the cash to buy some cash flowing properties.

Rob:
I really don’t like to lose money on a monthly basis just because I’ve worked so hard to get my cashflow where it is. With that said, I feel like you want me to say I would buy it, so I’m going to say yes. No, I’m just kidding.

David:
I see that there’s a lot more hesitation in each of your answers though. There was like, hmm. It moves the needle a little bit, right?

Rob:
Of course. I guess the caveat to that is like, I would take a deal that loses money if there’s a clear path to not lose money. Let’s say that I’m inheriting a tenant that’s under market like you said, and as soon as they move out, I can increase rents to not lose the money, and that’s going to happen within a year, no problem. I can do that. If it’s like I’m inheriting a three-year lease where I’m losing 500 bucks a month, no, I would never do that. If it’s going to turn pretty quickly, then yeah, sure.

David:
What if this property that we just mentioned at $800,000 can have a cost stake study done and the bonus depreciation is going to save you 50 grand that year?

Rob:
Yes. You see? Now you’re asking a good question.

David:
I guess here’s what I’m getting at, are you losing money if you’re only looking at the monthly income versus expenses or are there other factors at play in the overall investment of real estate?

David Lecko:
Yes, 100%. That’s a very fair point because yes, I think if you knew that you were going to, like you’re talking about Burr, flip it, get out of it in the next three years and you’ve got a ton of equity in there and you’re only going to lose, let’s say 10 or $15,000 in rents, but you’re going to make $200,000 from that flip or something. Totally, I think at that point, it would make sense.

David:
What about you, David?

David Lecko:
I would flip it. I would make the quick cash. Unless it’s making me money $500 per month, I’m not going to keep it myself. I still might do the deal if I was going to go ahead and sell it.

David:
What I hear you saying is that you would create energy through capital gains of a flip and then read or invests that energy into the cash flowing real estate that you know can find somewhere else, right?

David Lecko:
That’s right.

David:
I like it. Great stuff.

Rob:
Is this a preview? Is this the Blinkist of Pillars of Wealth?

David:
Wow. Dude, you’re getting good. This is scary good. I think I picked the right co-host. Look at this, man. That was really, really good. The book that’s going to follow it is just an understanding that most people were taught how to buy real estate using a training wheels model, which was just cash in cash out every month. That cashflow was the only thing that we were trained to look at. Once you get into real estate investing, Rob, like you were just mentioning, you own quite a few properties now, you start to see that it’s not quite that simple. That there’s energy that’s flowing in and out of these assets in many different ways. It could come in through equity that you bought at below market value. Equity where you forced equity. The cashflow doesn’t stay the same every year.
Rents go up in some areas or you can add units to properties to make them worth more. Certain areas tend to appreciate more than others. There’s tax benefits owning real estate. Then I think things also change if let’s say that David’s business that he’s running is bringing in 50 grand a month in profit, well now that $150 a month he might be losing isn’t as significant as when it’s like, dude, I’m on a tight budget. I got to get out of the rat race. For the people listening, we’re not all in the same position and the part you start at is not going to be the part you end up with. It’s okay if your model and your blueprint doesn’t look exactly like everybody else’s. David, for the person who’s starting off here, the real estate investor, who’s the ideal avatar that should consider driving for dollars?

David Lecko:
I think somebody who’s not got a lot of extra cash that they’re willing to invest in marketing. I think that if you haven’t done a deal before, it’s a great way to learn your neighborhood. The combination of those two things would be what I would recommend who should drive for dollars.

David:
What do you think, Rob?

Rob:
I think this is going to make the most sense for the newbie. I think obviously, anybody can enter this, but a lot of the times, people who are already relatively established already have their deal flow established. They’ve already got their deal flow going from people that are driving for dollars. It does seem a little bit more of an entry point for most people. With all that said, I just locked down a seller finance property, driving for dollars as well, like a week ago. Accidentally driving for dollars, I was driving in my neighborhood and there’s a for sale sign with the flag on top of it that said seller finance, and I was like, well, hey, I’m driving and I’m going to make the call and I made the offer.

David:
What a smart marketing strategy for that seller. That’s a smart agent or whoever put that together. That’s a great idea.

Rob:
Dude, it was a dream. It was a dream. 3% interest, 10% down. I mean, 30-year maturity. He just doesn’t want to pay the capital gains. Here’s the best part, everybody, he has 150 units in Houston multifamily, and he is like, “I’m wanting to get rid of them all over the next couple of years.” Guess who’s going to be first in line? This guy right here.

David:
I mean, you never know when you’re doing the right actions and you’re taking the right steps, what that’s going to turn into. I think that’s awesome. Now, David, these days you’re cash-flowing about 72 grand a year and you’ve got more coming. You’re helping other people find and close deals all over the country. Do you have the time freedom now that you were looking for in the beginning?

David Lecko:
100%. I could live off 72 grand if I wanted to. Now, I do spend a little bit more from other active income, but I’ve got the time freedom. What I love doing is getting up at 4:00 and going wake surfing three times a week. That’s something that’s not super cheap, but I’ve got the time freedom and the disposable income to be able to do that. That’s one way I love spending my time freedom.

David:
What kind of a sentence starts off with what I love doing is waking up at 4:00?

David Lecko:
It’s 4:00 PM. I get up. No, I don’t wake up at 4:00 AM, I get up from my desk at 4:00 PM.

David:
Okay, all right. That might make a little bit more sense to me than I love waking up at 4:00 in the morning. Rob’s been spending the last three months dragging himself through broken glass, trying to get to the gym, waking up early and letting us all know the whole time how terrible it is. Then David walks in and says, “My favorite thing to do is wake up at 4:00 in the morning. That’s what I use my time freedom for.” You’ve been able to experience a life you wouldn’t have been without real estate. You’re doing the things you love. They keep you charged up. You’re getting your wake surfing done, you’re experimenting with different barbers. You found the perfect wave to your hair, which I don’t think should be lost on our audience since you do love wake surfing. I wonder what Rob’s equivalent would be. Maybe mountain climbing. The quaff kind of looks like a bit of a, have you tried that yet before, Rob? Since his hair looks like a wave and he likes to wake surf?

Rob:
I feel like mine does also kind of look like in this particular moment, it’s got this bottom cloth and then there’s another cloth on top of it. I woke up like this. I got in at 4:00 AM last night.

David Lecko:
That’s when I was waking up.

David:
That’s funny, David, when it comes to landing these deals that you find the opportunity, you go talk to the seller. What we didn’t talk about are some of the psychological tools, scripts, whatever. What advice do you have for the person who thinks that they found an opportunity, they want to go open a conversation with the seller? Obviously, with your experience, you can write a person off who’s not serious, not motivated. You can also navigate the conversation when it’s a little more complex, but just for the person who’s like, man, I want to go talk to him, but I don’t know what I’m supposed to say. Are there books? Are there podcasts? Are there influencers? Who do you recommend that people listen to, to get better at having those uncomfortable conversations?

David Lecko:
I think Brent Daniels’ Talk to People would be a great person to follow and check out his Cold Calling Scripts on how to talk to people and have those conversations. Because ultimately, there’s only two things that give you money in this business, it’s finding distressed properties and communicating with the owners.

Rob:
I actually did a podcast with Brent not too long ago. Very nice guy. Love the philosophy. Seems very successful. Talking to people, what a novel concept, right?

David:
Right. I think for people that are good at talking to people, the assumption is why is this so hard? For people that are bad at talking to people, it’s like up there with public speaking. What I don’t want is for the people that are nervous about it, they don’t have a natural skill with other human beings conversating, but maybe they’re great at analysis or they have a great work ethic. I don’t want them to be afraid to go initiate contact. It is a skill that can be improved. I think when I read Pitch Anything by Oren Klaff, we had him on the show to talk about him. That was one of the takeaways I had is, there’s an actual science to communication. If you could get this down, people will listen to what you have to say and they will see your perspective and it will greatly increase somebody’s confidence with communication, which is what I teach to the people in my company.

David Lecko:
Communication is the foundation of life. I just started taking a storytelling class for the very same reason. It doesn’t matter if you’re trying to sell something, if you’re trying to entertain friends. The ability to communicate in a way that inspires people to listen and stay with you all the way to the end is the foundation of every relationship or every transaction. It’s just so important to life and I believe that.

David:
Awesome, man. That’s a great, great story and you did a great job of communicating today, so thank you for that. For people that want to communicate with you more, where can they find out more about you?

David Lecko:
You guys can follow me, dlecko on Instagram or if you want to check out DealMachine, get a seven-day free trial. We help people find distressed off market properties and make sure they’re communicating with those owners, which is so important. One of our top customers, and I host the DealMachine Real Estate Investing podcast where we interview people who’ve done their first wholesale deals.

Rob:
Love it. What about you, David?

David:
You can find me at davidgreene24 or davidgreene24.com to see what I got going on and how I can help people build their wealth. Rob, how about you?

Rob:
You can find me on YouTube over at robuilt where I talk about real estate, short-term rentals and life, liberty and the pursuit of happiness, and on Instagram too. All of it. If you want the goofy videos, go to Instagram.

David:
If you’ve got something off this episode and you want to keep learning more, check out BiggerPockets Podcast, episode number 781, where we have a round table discussion with Rob, Henry and I on the beginner’s guide to finding undervalued off-market deals in any market. Episode 731 with Brent Daniels or the Rookie Podcast, episode 241, where Sahleem Lee was interviewed, who went from being a line cook to a long-term investor with 32 wholesale deals. David, thanks for being here, man. Really appreciate you sharing your story as well as the details that you did. We will have to have you on again and follow up with how things are going. This is David Greene for Rob reading his second book Abasolo, signing off.

As a cornerstone of any thriving business’s operations, a company’s human resources department plays a key role in the success of its people. And yet, it can be easy for CEOs to think of their HR departments like their own self-sustaining departments, recruiting and hiring employees without much need for additional assistance. However, just like any other department, HR can experience their own challenges and require the full support of the leadership team (and the company as a whole) if they are to function well.

So what can CEOs do to provide that support? Below, the business leaders of Young Entrepreneur Council share their thoughts and outline 10 different ways company leaders can better support their HR teams and why it’s so important to the overall health of a business.

1. Welcome Every New Team Member (And Cast The Company’s Vision)

A company’s outward customer experience will never be better than its internal employee experience. That’s because apathetic employees create apathetic customers—always. The employee experience begins at the top with the CEO. A critical role of the CEO is to support HR leaders and their teams to set the tone for the employee experience, beginning at (or even before) onboarding. Customers give you their money, but employees give you something far more valuable: their time and their talent. CEOs must make themselves available (even if only virtually and asynchronously) to help welcome every new team member and, in doing so, cast the vision for the organization. Helping every employee feel valued supports not only HR but every other part of the organization as well. – Brittany Hodak, Creating Superfans

2. Be Open To Adapting Policies To Meet Employee Needs

You can support your HR team by being flexible and open to adapting HR policies to meet the evolving needs of your team. Whether it’s adjusting remote work options or leave policies, you need to stay agile to support your employees effectively. You should also focus on employee well-being. You need to make sure that your team feels good, both physically and mentally. Create programs that support work-life balance, mental health and job satisfaction. Happy and healthy employees are key to your success. – Benjamin Rojas, All in One SEO

3. Value The Input Of HR In Strategic Decision Making

One common oversight is CEOs not actively involving their HR teams in strategic planning. To better support HR teams and the organization as a whole, CEOs should prioritize HR’s input in strategic decision making. HR teams possess critical insights into talent, culture and employee engagement, making their involvement crucial for informed decision making. By valuing their input, CEOs can align organizational strategies with workforce needs, ultimately leading to more effective talent management, higher employee morale and enhanced overall performance. – Ian Sells, JoinBrands.com

4. Prioritize Their Professional Growth

I know that CEOs can empower their HR teams by prioritizing their professional growth. It’s vital because HR is the driving force behind your company’s talent and culture. By investing in their development, CEOs demonstrate the importance of HR’s role. Continuous learning equips HR to navigate evolving regulations, technology and talent strategies, empowering them to lead transformational change. This results in attracting top talent, fostering high-performance cultures and championing your company’s mission. Supporting HR is an investment in your company’s future. It cultivates a workplace where innovation and well-being thrive, paving the way for lasting success. – Michelle Aran, Velvet Caviar

5. Maintain Open Communication Channels

We have outsourced our HR function, and it has been very helpful for us. Most of my team is remote, and my HR company is very good at finding out about any issues and resolving them. I provide them with all the input from my end in a weekly meeting. I have made HR easily accessible to my team as well. My team and I are very transparent in terms of communicating with and providing all the data to the HR team. Think of your HR team as your counselor—you don’t want to hide things from them. – Piyush Jain, Simpalm

6. Set The Example For The Whole Company

The best way for CEOs to help HR teams is to lead by example. When a new policy comes into play, be the first to embrace it. When a change takes place, show your support for it. By showing the rest of the company that you support the HR team and are invested in their decisions or changes, you make it easier for others to do the same and give the HR team the best tool to enforce noncompliance. Show your HR team you are part of their team and will support the decisions they make. – Zane Stevens, Protea Financial

7. Bridge The Gap Between Leadership And The Rest Of Your Team

HR teams are the middle layer between the C-suite and regular staff members. Most escalations happen due to the wide gap between management and employees. The simplest way to support HR is by bridging this gap and providing better opportunities for your team to communicate, raise feedback, overcome obstacles or get decisions overruled by middle management. Interact more frequently with your team and provide better communication channels. Hang out in group channels online or join lunch gatherings if you meet on-site. Communicate high-level business goals clearly. Motivated employees can follow the vision and calibrate based on your public road map once you give them the right opportunity and let them speak up. – Mario Peshev, Rush

8. Give Them Access To Useful Data And Insights

One way CEOs can better support their HR teams is by providing them access to data and valuable insights. The role of HR is not just hiring talent and taking care of other administrative tasks—it goes beyond that. Be it helping you increase the performance of your employees through personalized training or overcoming turnover challenges, HR actively contributes to boosting your efficiency through its recruitment, retention, compensation and administrative policies. So, by giving them access to useful insights, you’ll be making it possible for them to make data-driven and informed decisions. – Stephanie Wells, Formidable Forms

9. Check In Regularly And Listen To Their Needs

It’s important for CEOs to schedule regular check-ins with their HR leaders to see how things are going and find out if they’re experiencing any setbacks or roadblocks. This allows them to stay on top of what their HR teams need. You can then take steps to address any gaps they’re experiencing and provide resources and support. By doing this frequently, your HR teams will see that you’re not only serious about hearing their challenges, but you’re also following through with support and answers. When necessary, increase the frequency of these one-on-one meetings. These productive dialogues will ultimately help improve productivity, engagement and accountability. – Blair Thomas, eMerchantBroker

10. Invest In Technology And Software That Will Streamline Their Processes

Supporting HR teams is crucial because they are responsible for managing an organization’s most valuable resource: its people. To ensure that HR teams can fulfill these responsibilities efficiently, CEOs need to provide them with the necessary support. One way to support your HR team is to invest in modern HR technology and software systems that can streamline their processes, improve efficiency and amplify recruitment. These tools can automate administrative tasks, such as payroll processing and leave management, allowing HR professionals to focus on more strategic initiatives. – Eddie Lou, CodaPet

Ashley:
This is Real Estate Rookie episode 329.

Tony:
What was your actual out-of-pocket expense to purchase this duplex?

Clint:
I think I paid 80 bucks for a pest inspection.

Tony:
What was the purchase price on the duplex?

Clint:
It was 256.

Tony:
You’re controlling a $256,000 asset with $80.

Clint:
Yeah, basically. So…

Tony:
That is insane.

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 bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. Every once in a while, Ash and I bring on a guest where we both get to learn something new and today was one of those episodes, where we learned a lot about a special type of loan that allows you to have $0 down, no PMI, and potentially no closing costs if you can negotiate the right way.

Ashley:
But you also had to serve in the military. Thank you to anyone who has served. We really appreciate your service. This episode is for you, or if you know anybody that has military experience or maybe your spouse or significant other even.
But not only do we talk about the benefits of this loan product that you can get, if you are somebody wanting to get into house hacking, Clint, our guest today, also talks about how he was able to house hack his property and how he actually set that up to be beneficial. He also became a 1/6 owner in a really big real estate deal, if you compare his first purchase, his second purchase to his third purchase, the big price difference in that and how he was able to do that strategy. It’s all about partnerships and being able to grow and scale. So, do not forget to visit biggerpockets.com/partnerships.

Tony:
You’ll also learn in Clint’s conversation with us how to build your credit. So, if you’re someone who is either just starting out or maybe you’ve been a Dave Ramsey evangelist for a long time, you don’t have a credit score, you’re like, “How do I get started?” Clint is going to give you the answer and how he did it in his own life. So, really excited for you guys to hear what Clint has to say.

Ashley:
Well, Clint, thank you so much for coming on the Real Estate Rookie show today. Tell us a little bit about life before real estate.

Clint:
Before real estate, I was probably junior or sophomore year in college and basically, I knew I wanted to get into real estate. I just didn’t really know how at the moment. What ended up happening, it was perfect timing, I was in college going to school. I’m in the Air National Guard. I was getting my school paid for, and so I didn’t have many expenses. I was also living at home.
Then this opportunity popped up, where I could go on a deployment. So, I volunteered to go on this deployment and went on a deployment for, I think it was nine months. I was in Jordan for eight months, and then I was in Kuwait for two months. That allowed me to save some money and everything and then I was able to start my process and actually looking at real estate and really taking a hold of it.

Ashley:
With that money you had saved, why real estate? Of all things that you could spend your money on, what made you decide, “I don’t want to invest in the stock market,” or, “I don’t want to buy a new car”? What made you decide on real estate?

Clint:
Before the deployment, back up a little more, I guess, I started a Roth IRA. I put money into it and everything and it was rising up fairly well and everything. Whenever I got back home, COVID was actually starting and everything. Once that started, a lot of the money that was in it just plummeted. I understand it’ll come back up and stuff like that, but I wanted something that was a little more secure. Real estate, in my opinion, is an investment that I know what it is. I know how many bedrooms are in a property, I know how to fix it up and stuff. With an IRA or anything like that, I don’t have any control I feel over what I’m investing in. So, I just wanted the control aspect, I guess.

Ashley:
What was your goal as to how much money to save?

Clint:
Well, whenever I was on the deployment, basically I was just saving as much as I could. I was an E4. So, I wasn’t making a whole lot of money in general. I think it was 38,000, tax-free. That’s what I made over those nine months. But along with that, I think I spent maybe three grand over those nine months. So, I was able to save up quite a bit of money whenever I came home, and then that’s whenever I was really starting to look into buying a property.

Ashley:
Well, Clint, thank you so much for your service. We really appreciate it. Tell us about once you come home and is that when you started looking for properties, or was there a period of time before you decided what you wanted to do?

Clint:
I really didn’t know what I wanted to invest in. My whole mindset at the time was, I’m going to go home, buy a property, then I’ll be out of my parents’ house and everything. That’s what my motivation was at the time. I wasn’t really thinking about it as an investment.
On the deployment, we had lots of downtime and stuff. So, whenever I wasn’t doing anything, I would just be on Zillow or realtor.com looking at properties. I would find all kinds of properties and save them, even though I was four or five months away from actually being able to be back home and those properties would be sold and everything by then. So, it was just constant hold on the market that I was looking at.
Once I got home, I tried to actually make an offer on a property. But first, I wanted to get pre-qualified and everything, and that’s whenever I ran into a lot of issues because I didn’t have any credit. I just had no debt. I paid for my first vehicle in cash. So, I didn’t have any debt or anything like that or any credit cards. That’s my first experience of trying to figure out what it takes to buy a property.

Ashley:
What actually shows up on your credit report when you have no credit? Is it just zero, or does it show super low? What does, “I have no credit” actually look like, I guess?

Clint:
It basically just says NA. There’s nothing there.

Ashley:
Okay.

Clint:
The banker that I was using, he goes, “Either it can be a good sign or it’s a terrible sign.” Fast-forward a little bit, I guess, whenever I started the job I’m working now, I learned about credit. From there, I was actually able to get a credit card and start working on that.

Tony:
Clint, I want to touch on a little bit in a second here how you actually built that credit up to put yourself in a position to start buying real estate, but I just want to take a step back here first. There’s a lot of Dave Ramsey evangelists that love everything that Dave Ramsey has to say. Ash and I talk about this a lot, that there’s a lot of validity in what he says about managing your personal finances, living below your means, and not being financially irresponsible. However, unless you make millions of dollars a year, tens of millions, like Dave Ramsey does, chances are you’re probably going to need some debt at some point in your life, and especially if you want to become a real estate investor.
Just for our rookies that are listening, if you’re currently on your Dave Ramsey kick, I think continue to get rid of a lot of that consumer debt, but also try and be smart about how to start building your credit profile to put yourself in a position to buy real estate. Otherwise, you could be like Clint, where maybe you’ve saved up all this money, but then you go to a bank and they’re like, “You’re a ghost. You haven’t been anywhere. We don’t even know if you’re a real person or not.” Clint, I guess, the question that I have for you is, how did you go about actually building your credit from literally an NA on your credit report to getting to a point where you are in some way bankable?

Clint:
I was on the Dave Ramsey kick for a long time too. In college, I was listening to his podcasts and everything. I would listen to him for hours and I thought he was amazing. He’s really good at debt consolidation for credit cards and stuff, but in terms of buy a house in cash, that’s just not reasonable.
Some of the things that I did in terms of building credit was I got just a basic Discovery credit card. I think my credit limit was $500. So, super small. I had that for about six months before I actually started to receive a credit score. I don’t honestly know the other factors, but it took six months for me to get my actual credit score. From there, I just kept spending about 20 to 30% of that $500 or so, and then you pay it off at the end of the month every time and just don’t let it stack up or anything like that.

Ashley:
Tony, I just want to touch on quick too, and Clint, since you’re sharing this journey about as to… Maybe somebody’s never even looked at what their credit is and one way to do that is to sign up for a free account at someplace like creditkarma.com or you can actually pull your credit once a year I think it is, and you can pull it yourself. You go to, I think it’s… I don’t know, just Google, “Pull my credit through a government agency.” Make sure it’s .gov website you’re going to. You can pull your credit yourself and it’ll show you everything on there. You’re able to do that once a year and it will not have any impact on your credit.
I use Credit Karma and I’ll look at it. It’s not always super accurate, because it’s not actually pulling your hard data, but it’ll break down for you the things that your credit score actually takes into consideration. The first is payment history. It’s showing that you consistently made payments. The next is credit card utilization, so that if your credit limit on your credit cards is say, maybe between three credit cards, you have $10,000 available. The rule of thumb is you want to stay under 30% utilization of whatever that is.
Then derogatory marks. So, if you have anything in collections, you have late payments, bankruptcies. Credit age. If you’ve opened a credit card 10 years ago and then you decide to close that, you no longer have that 10 years of credit history and now, all of a sudden, you have one year of credit history. So, it takes that into an account. Also, the total accounts. How many credit cards do you have open? How many student loans do you have open? Also, hard inquiries. So, this is usually when a financial institution will pull your credit report. The more hard inquiries you have, then the more it can impact your credit score. There’s also soft inquiries, where it doesn’t make an impact at all on your credit score.

Tony:
Ash, that was a great breakdown and I really encourage everyone to be using Credit Karma. A side note, I wrecked my credit score last year because I had an electric bill or a gas bill from one of my properties in Shreveport, the very last one that I sold off. They sent the final bill to the property and I never set up any mail forwarding for that property. Anyway, that property ends up going to collections over a $200 gas bill. So, I had to fight with them to get that fixed.
Clint, I’m curious, if you had to give your credit building 101 for our rookie audience, what would that look like? Would you encourage them to go out and get a $500 credit card and pay it off every single month? What would your advice be to someone who’s in a similar situation?

Clint:
Exactly what I would do. It really hurt me on my first property, not having any credit. What I would do is I would definitely tell someone, “Go out, get an easy credit card that you can pay off,” and just like Ashley was saying, “utilize only 30% of that actual credit limit and pay that off each month.” Also, you can ask for increase in your credit limit basically. It is like those auto increases that happen, you can actually request an increase. That was something that I wanted to do because I wanted to put most of my monthly expenses on my credit card to where I could get at least some points back, rather than just using my debit card and stuff. So, I always was calling Discover every couple minutes… Or couple of months and just having them-

Tony:
Every couple minutes?

Clint:
Every couple minutes, yeah. Can I get an extra grand now?

Tony:
But Clint, you bring up something that I feel like doesn’t get talked about enough, but is putting those regular expenses onto your credit card. We’ve run a lot of our business expenses through our credit cards as well. I’m on vacation right now in Huntington Beach, California, and this entire trip is pretty much covered by our points. We vacationed a ton by using the points that our credit cards give us. I think Ash and I both use the Chase Sapphire card. Love that card. The Amex Gold card I heard was good for travel. So, I just got that one as well. Ash, I think you have the Southwest card too? You’ve got a couple travel credit cards.

Ashley:
I’ve got eight of them. I love travel hacking. I just opened another one recently because every LLC, you can open a couple of them. When they do the $100,000 point sign up bonus, you have to spend $3,000 in the first three months. I can spend that in one week for one of the properties.

Tony:
Right.

Ashley:
But yeah, the travel hacking. Thepointsguy.com is a great resource. Aunt.Kara on Instagram, she talks about it a lot. There’s definitely a lot of travel websites out there that talk about using credit card points. But just as Dave Ramsey would advise not to use them, we also say if you’ve had a problem with credit cards and being able to pay them off, maybe this is not the right strategy for you right now to try the travel hacking with points.

Tony:
But that’s why I think if you’re setting it up, where it’s like these are things that I’m going to be spending money on anyway and I’m just putting on the credit card and then turn around and paying them off. We probably go in every couple of days to pay down most of our credit card balances. So, we try not to let anything roll.
Clint, you do all this work to build up your credit. How long does it take before you become, I guess, credit-worthy to actually get a loan on a property?

Clint:
Well, the second I showed a credit score after having it for six months, it wasn’t a good credit score. It was in the 640 range, somewhere like that. I was actually closing on a house, I want to say it was three months after I showed a credit score. With the VA loan, the lender I used, they can dictate what their credit limits are and stuff like that, but their requirement was a 620 credit score at the time. So, I basically snuck in there with the 620 or the 640. But yeah, I also just got more credit cards as well. I have the Chase Sapphire and then I also have the Chase Freedom, I believe, for daily spending. But I know that you could pair those up together to where you have both of those points. So, that’s what my girlfriend and I are actually doing in December. We’re going to go to Europe and we have about a thousand dollars in points that we can go spend. So, that’s something-

Ashley:
Awesome. That’s super cool.

Clint:
Just get more streams of credit. Definitely, it’s a lot easier to build your credit whenever you have multiple credit cards.

Tony:
We’re going to have someone leave a review in the podcast saying, “I took the advice from Clint telling you and Ashley, and I’m a hundred thousand dollars in credit card debt. This is the worst podcast ever.”

Ashley:
“But I also am going to Europe for three weeks all paid for.”

Tony:
[inaudible 00:16:48]. Clint, I want to go back to that first deal and help me just understand the timeline here. You’re saying that you got that first deal about 90 days after your credit report finally showed something. Am I understanding that correctly?

Clint:
Well, that would be the property I’m currently in. My first property was whenever I didn’t have any credit. I had just come home from the deployment and basically my brother and I were going to move up to Columbia at some point. We were like, “Okay, well, let’s find a place.” We were looking around, we couldn’t really find anything. So, we decided to rent in Columbia. But then after we signed our lease and everything, a property popped up in Columbia. It was a two bed, one bath, just condo, and it was priced at 76,000. So, it was pretty cheap. And-

Tony:
Wait, sorry. Clint, when you say Columbia, are you talking about Colombia, the country in South America, or is this a state?

Clint:
Sorry, no, Columbia, Missouri.

Tony:
Oh, gotcha. All right.

Clint:
Yeah, no.

Tony:
Two very different places.

Clint:
Yeah, very plain here.

Ashley:
You mean you don’t know Missouri, Tony?

Tony:
Never heard of Columbia, Missouri. All right, gotcha.

Clint:
Basically, we moved up to Columbia, Missouri and we signed a lease. Then we found this property. It was very cheap. So, my brother and I were like, “Okay, well, let’s try to buy it and make it an investment property before we even have our own property.” We viewed the property and then we actually said an offer that they accepted, but we weren’t even pre-approved. This was our first time going through this whole thing. So, they waited on us to get a pre-approval letter for five days or so, which now you wouldn’t be able to do that.
Now, the market’s so crazy. But at the time, we ran to our bank and then they were like, “Since you guys have no credit, it’ll be 20% down.” We’re like, “20% down on a $76,000 loan?” It was annoying, but we did it and it was a three-year arm at four and a half percent. So, we were doing that and we got a tenant in, I think it was a week after we closed. Got a tenant in and then they were paying that mortgage and I think we were only cash flowing $25 each. It wasn’t much because it was that three-year arm.

Ashley:
Explain what an arm is in the three-year arm.

Clint:
Basically, with the arm, you have a set rate for, it was a four and a half percent interest rate for those first three years and then after that, it balloons up. You can pay the rest off or you can just refinance, so to speak, into whatever the current rates are for that.

Tony:
I just want to comment really quickly because the arm, the adjustable rate mortgage, is something that it’s a hate it or love it type thing. You see some investors who really hate the idea of an arm because some of, I guess, the potential downside of an adjustable rate mortgage is say that someone bought a property in 2021. Maybe, they locked in a 3% arm and they were cash flowing, whatever, several hundred bucks a month at that 3%. Now, they had to refinance in 2023 or 2024, when interest rates have gone up to seven or 8%. I just closed ReFi at almost 9%. It was 8.7. That arm now could potentially make that deal negative cashflow and unprofitable. So, there are some risks and some benefits with the arm. I guess, Clint, for you guys, what made you comfortable? I know this was your first deal and maybe you weren’t even thinking this far, but I guess, what made you guys comfortable with the idea of using the arm for that first deal?

Clint:
Like I was saying, whenever I went on the deployment, I saved $35,000. So, 20% divided by my brother and me, it really wasn’t a whole lot for me to invest. It was I think seven grand for me or seven and a half. So, I was fine with just making that investment for the three years. Our idea was before the three years was up, we would just sell it for whatever it appraised at and then take our money and invest into something that we actually see long-term.

Ashley:
With the arm mortgage, I’ve done a bunch of commercial mortgages. Well, even though they’re not really called adjustable rate mortgages, they end up going to adjust after a certain amount of time of being fixed rate. Typically, it’s a five-year fixed or 10-year fixed and then they adjust, or the loan actually ends and you have to go and refinance on the loan. But it can go to variable. I recently did my first residential mortgage doing the arm and I actually was just trying to search it real quick because I can’t even remember if it was a five-year arm or a seven-year arm is what we did, but I didn’t find it fast enough.
What we did with that one is we were able to get a way lower interest rate than what we could have if we did a 30-year fixed. So, we’re taking a risk, we’re having a lower payment now, but also I really thought the loan officer was super great and informational at explaining exactly what would happen, your worst-case scenario, your best-case scenario, giving it all to me in writing as to the minimum your interest rate will ever go is 5%. It’s at 5.25 right now for the next five or seven years, whatever it is, which is a great rate right now. You can’t find that anywhere. This was just last June, I think it was that it closed. So, not that long ago.
But then it says your interest rate can go up to 12%. That is the max it can do. When it is that five one arm, the first year, the max. After the five years, that first initial year, it’ll only go up to 6% and it’s that one year difference. Then after that, it will go up to whatever current rates are. With that, we looked at the property and said, “Okay, in that timeframe, we are able to pay off a chunk of that loan and we could go and refinance the lower balance.” Even if it is a higher interest rate at whatever the market rates are, our payment will still be affordable because we can pay off that certain amount of it. That’s the worst-case scenario for us.
Best-case scenario, over those next five or seven years, interest rates have come down and we can go and refinance at any time to get that locked in 30-year rates. Downside, we have to pay closing costs twice, but it would be worth it if you’re saving money long-term on the interest rate. So, this was my first time using that, but I looked at it more and it’s like it’s very comparable to what you’re dealing with on the commercial side of lending. You only get those rates for five or 10 years and sometimes those are even only amortized over 15 or 20 years and not even 30 years. So, you’re just taking the risk I have with all the commercial properties that are in LLCs.

Tony:
It sounds like, Ash, there’s a time and place where the arm does make sense. I love your idea of, “Hey, what’s the worst-case scenario here and could we live with that worst-case scenario?”
Clint, I think it sounds like you used the best option you had available at the time. I think for our rookies, that’s an important lesson as well is that sometimes, you just got to… You’re not looking for a home run on that first deal. You’re just trying to get on base and it sounds like that’s what you did. What was the outcome of that first deal and how did it, I guess, push you into that second deal?

Clint:
Basically, what happened was we were renting it out. Nine months goes by and our lease starts to end that we were actually renting from. My brother, he wanted to move to St. Louis. He needed money basically in order to move to St. Louis and the money that was in this property was tying him up. At first, I thought about refinancing with him to where it was just solely my ownership, but then I was like, “I don’t really know if I want to hold onto this property or not.” Looking back on it, I probably should have, but at the time I was like, “No. Fine, we’ll just…” We saw that prices for those condos had been rising, and so we were like, “Okay, well, let’s just list it on the market and see what happens.”
We listed it on the market for, I think it was just under 90,000, maybe 89 and this was only nine months after we had closed on the property. We got a cash offer for 88 or 89, something like that, nine months later. I think after realtor fees though and everything, I’m pretty sure my brother and I only profited about a thousand dollars each, something like that. It was very minimal, but it was a good introduction into owning real estate and everything like that. The property itself was very easy to maintain. I think actually the first week that we owned it, the tenant was coming in towards the end of the week, and the second she got in, her ceiling fan in the master bedroom was just hanging by the wiring. I was like, “This couldn’t have happened,” but-

Ashley:
Especially over the bed. That makes it even worse I feel like, like, “Oh my God, what if that actually fell?”

Clint:
Well, I was like, “What are the odds of that with…”

Ashley:
Yeah, and this was the first week you said of owning it?

Clint:
Yeah, very first week.

Tony:
Introduction to being a landlord, right?

Clint:
Yeah. I mean, that was a very easy fix, but at the time I had no idea about how to do anything. So, I watched a YouTube video, had my friend help me, and we fixed it.

Tony:
Isn’t it crazy how when you first start investing, everything seems like a crisis? You’re like, “Oh my God, the ceiling fan is hanging. What am I going to do?” Now, it’s just like you send a text and you don’t lose sleep over it.

Clint:
Absolutely.

Tony:
Just going back to the deal, Clint, you said that you and your brother only profited a thousand bucks, but I mean, it’s you guys bought the property, got cashflow during that time, and then were still able to get an additional chunk of cash when you exited. That’s a solid first deal, and it allowed your brother, I’m assuming he made his move to St. Louis after you guys did that? Just to clarify, St. Louis, for everyone that’s wondering, is also a city in Missouri. This is not St. Louis, a country in South America. It allowed you guys to move on to the next phases of your real estate career.
I guess, tee us up now, Clint, for that second property. You didn’t have any credit on that first one, 20% down, you have the arm. Now that you’ve been building your credit while this first deal is running, what does it look like for that second go round with the second property from a financing perspective?

Clint:
The second property, I was looking for a property for me and my girlfriend to live in. At the time, I was just looking for a single family property. I was like, “I just got to get out of renting. If I’m paying my own mortgage, that’s fine. At least, money’s going to be coming back to me whenever I do sell.” So, I was completely fine with just buying a single family property. We looked at a couple and we really liked them, but at that time, with COVID and everything, say the property’s 250, you make an offer, and at the time, the final purchase price would be 290. So, you’re-

Tony:
Half a million, right? Something crazy.

Clint:
Yeah. We were constantly getting outbid and we were honestly getting really defeated about it. I randomly saw a duplex in Ashland, Missouri, which is just slightly lower than Columbia, Missouri. Basically, it was a nice duplex and it was for sale, and I checked it out. The only thing is that it was a bad road in order to get to Columbia where I work. So, I was like, “I don’t really want to do this,” but the real estate agent said, “Oh, well, there’s three on the other side of the highway to where you don’t have to worry about the road. There’s three lined up and that one has a new water heater and new roof.” So, I was like, “Okay, well, let’s go check it out.” I didn’t even go inside. I walked around the sidewalk and then I was like, “Okay, well, let’s make an offer on it and see where it goes,” type of thing.

Ashley:
Clint, what gave you the confidence to just look at the outside of the property and decide, “I know what I can offer on this”?

Clint:
I would say, for the most part, it might’ve been I was looking at properties, single family homes, and I wasn’t going to charge my girlfriend a whole lot for rent because she has student loans and stuff like that. So, I was like-

Tony:
[inaudible 00:29:52].

Ashley:
Don’t try to justify it, Clint. You’re playing favorites.

Tony:
Word. No, I think what’s funnier is that his reason for not charging her was because of the student loans and not because it’s his girlfriend.

Clint:
She’s trying to get ahead and stuff like that. So…

Tony:
You’re a ruthless businessman, Clint. I love it.

Ashley:
My cousin, she started dating this guy that had a duplex, and I was like, “Oh, that’s so awesome you’re talking real estate investing.” Then a year later, she ended up moving in with him and I was like, “So, you’re house hacking now?” He’s like, “Yeah, she has to pay all the utilities because I know she’s going to be using more water and electric than me.” He’s like, “I’m not going to make her pay rent, but I am house hacking because she’s paying me all the utilities.” I was like, “Good job.”

Clint:
But yeah, basically, that was the whole thing. I wasn’t going to make her pay half the mortgage or anything like that. The second I looked at this duplex, I go, “Well, half the mortgage will be paid right there.” So, it was a very easy decision for me to just buy a duplex and then have the other side pay for most of my mortgage, and then I could pay for whatever’s left type of thing.

Tony:
Once you find this property, you fall in love with it, you submit the offer, how are you financing this? Is this another 20% down arm? Is there another option that you’ve discovered? Walk us through that piece.

Clint:
Yeah, I used a VA loan. The job that I work at right now, Veterans United Home Loans, basically they’re number one VA purchasing lender in the country. So, very big on the VA loan.

Tony:
Clint, if you don’t mind, just so I can clarify for our rookies, what is a VA loan? Does that stand for virtual assistant? What is VA?

Clint:
Just it’s for service members and their families. If say, a service member passes away, there’s instances where you could have that spouse survivorship carry on to that VA loan. So, it’s really just a chance to give service members and their families a chance to own a property and everything like that, more specifically, single family homes. It’s meant to be a primary home for service members.

Tony:
Clint, what are the, I guess, advantages? Why would a service member opt to use a VA loan versus a traditional FHA or all the other loan options that are out there?

Clint:
What interests me was with the VA loan, I didn’t have to put any money down, which meant that I could use that money for renovations on the property and stuff like that, which would inevitably increase rent and stuff like that as well. So, it was really nice not having to really put a down payment down. There’s also no PMI insurance throughout the duration of the loan.

Ashley:
Can you explain what that is too, Clint? What PM and I is? PMI?

Clint:
I’m drawing a blank right now as to the actual term.

Ashley:
Property mortgage insurance, I think, right?

Clint:
Yeah, property mortgage insurance.

Tony:
Property or private?

Ashley:
Private.

Tony:
Private mortgage insurance. None of us know. Who knows?

Ashley:
Just explain what it is.

Clint:
It’s basically insurance that the bank has on you to pay until you hit that 20% mark of equity. With the first time home buyer loan, I believe it’s the whole duration of that loan. So, you might be able to refinance after a while into a different loan, but with the VA loan, the big incentive there is there’s no PMI regardless of your down payment.

Ashley:
If you guys listen to the Real Estate podcast, you know they always do their quick tip though. Here’s a tip for anyone that put less than 20% down, if you are still paying that PMI on your mortgage, talk to your loan officer about getting that removed because sometimes the bank will just do a desk appraisal, where they will just say, “Yep, you’re right. You have enough equity in your property where you have more than 20% equity.” Even if you’ve only owned it a year and you haven’t paid down 20% of what you purchased it for, if you have enough appreciation in your area, you can go ahead and get that PMI removed, which oftentimes can be actually quite a few-

Tony:
Big difference.

Ashley:
A couple of hundred bucks at least.

Tony:
Just a quick personal story. We did that on our primary residence when we bought our first home back in 2018. It wasn’t a first time home buyer, but it was some loan assistance product from the builder. We had PMI when we first got the property, and I think it was less than a year. We were able to show that, even though we hadn’t paid down 20%, the appraised value of the home had increased, so that our spread, we had gained that equity through the increased value of the home. We were able to reduce or get rid of the PMI, and then we refinanced to bring down our interest rate. So, we’re actually paying less now for our home than we were when we first bought it, even though the value of the home has increased. It’s crazy. Highly encourage everyone to do that.

Ashley:
Yeah. Do you remember what that difference in payment was, just taking the PMI off?

Tony:
Gosh, I want to say our PMI, it wasn’t too much. Maybe, it was 200 bucks or something like that.

Ashley:
But still, that’s…

Tony:
Yeah, it’s a big difference.

Ashley:
Yeah.

Tony:
Absolutely. All right, Clint, sorry, continue. We’re talking VA loans. So, no down payment, which is fantastic, no PMI. Are there closing costs associated with this loan?

Clint:
Yeah. With my job, I talk to potential buyers that are veterans and such, and a lot of them, they hear 0% down and they think, “Okay, it’s a free loan and I don’t have to pay anything.” That is something that while it is a 0% down loan, you do have closing costs and stuff like that that go into it. In my instance, there was some things wrong with this property. So, I got a credit and basically I got paid $3,000 in order to close on the property. I had enough credits from just the things that were wrong with the property. I didn’t have any closing costs, luckily.
But usually, with a VA loan, closing costs can be a little more expensive, I would say, in terms of conventional. But at the same time, you’re still putting no down payment and there’s no PMI. So, I think it’s something that veterans probably need to be more aware of. Also, this is really besides the point, but this is something that we see a lot is a lot of veterans are scared to get their credit pulled because they’re like, “Oh, I have a great score. I don’t want to hurt my score.” If you pull it once, it might affect your credit maybe three to five points. It’s not like how the TVs advertise where, “Don’t check your credit, it’ll kill your credit.” It’s not that extreme. That’s just a little extra thing, I guess.

Tony:
Clint, I just want to look at the numbers really quickly or recap the numbers on this duplex. With this VA loan, you had no down payment, you had no PMI, and you said you were able to get a credit from the seller to cover all of your actual closing costs. So, what was your actual out-of-pocket expense to purchase this duplex?

Clint:
I think I paid 80 bucks for a pest inspection. That was about it. But like I said, I had the credits from the seller and everything. So…

Tony:
That is fantastic, man. I just want to give some context. What was the purchase price on the duplex?

Clint:
It was 256.

Tony:
Wow, you’re controlling a $256,000 asset with $80.

Clint:
Yeah, basically. So…

Tony:
That is insane.

Clint:
Yeah. Looking back on it, this was one of the biggest blessings I could have asked for. Like I said, I didn’t actually go into the property. I just made an offer without even viewing it. But that was actually the only time I got to see the property before I owned it was the pest inspection and the actual inspection. I showed up for that and was able to walk inside to one of the sides. They were smokers. So, we had to do a lot of rehab, a lot of kills on the walls, and a lot of painting and stuff. But we got rid of the smoke smell and everything and redid all the floors, did a whole bunch, basically turned this place upside down in renovations solely because we didn’t have to have any money put down as a down payment.

Ashley:
That money you saved, you had put towards the rehab, did you do the rehab yourself, or did you put your girlfriend to work, or did you hire out a contractor?

Clint:
Well, it was actually me and my girlfriend for a while. Every day after work, she would go here and paint or do whatever we had to do. I work evenings. So, I would come every morning and just be painting and fixing up whatever we needed to. I attempted to do flooring and bought some flooring off Facebook Marketplace, and I guess I really messed up the square footage because I had maybe enough flooring to do half the living room. So, I had to rip all that out and then-

Ashley:
Oh, no.

Clint:
I hired flooring out, but that was a learning mistake right there.

Ashley:
Well, I have a question real quick, Clint, about you and your girlfriend’s situation. Tony and I love partnerships and we love to plug our partnership book. You’ve talked about your girlfriend paying some rent towards living there, also helping you with some of the rehab, things like that. Do you guys have any kind of agreement in what would happen eventually if you got married? Would she get equity? Would you guys create an LLC and buy more businesses? Do you guys have a long-term plan, or is this maybe just your focus for now?
One of the reasons I ask is because my business partner, he actually dated a girl and he with her dad renovated the whole house. He has such resentment to this day because the house was in her name and he did all this work and put this money into it and got nothing out of it when they ended up splitting up. So, I’m just curious, do you guys talk about those, as morbid as it sounds like breaking up, what would happen and do you guys have future goals together as far as real estate investing?

Clint:
Yeah. Like you said, everything’s in my name. So, I guess, if things came to that, I would keep my property. We have talked about it and basically she does pay some rent. It’s much lower than the area around here.

Ashley:
That she’d pay anywhere else.

Clint:
Yeah, exactly. But she does, and the whole thing is that allows me to save up more money to where I can do more renos. She wasn’t in a position to purchase a property or anything. So, it allowed me to save up enough money to where I could go buy another property and just keep doing the same thing. But yeah, if I was paying her for work, I definitely owe her a couple thousand.

Tony:
Well, Clint, one of the things that I’ve seen or that I’ve heard about the VA loan, obviously all the amazing benefits of it, but there’s also some limitations. Give me a quick gut check here to let me know if I’m correct, but what I’ve heard is that you can only have one VA loan at a time. Now that you’ve used your VA loan on this duplex, you basically can’t use that loan again until you either sell or refinance this current property. Have you heard that? Is that a correct, I guess, understanding of how the VA loan works?

Clint:
Basically, with the VA loan, you’re allotted a certain sum of money. It’s different from a pre-approval, but basically you’re allotted a certain sum. I think in Missouri, it’s $726,000. With the VA loan, it has to be your permanent residence for at least a year. After a year came, I started looking again into buying another property under the VA loan because like I said, if you minus 726,000 minus my 250, you still have over 500,000 left that you can use. So, I was looking into more duplexes or single family or something like that. But yeah, you can definitely have two VA loans at a time. If you bought a hundred thousand dollar property, you could have $700,000 property.
I will say the funding fee can go up after you use it more than once. If you use the VA loan once, the funding fee whenever you’re closing is 1.6% and then every time after that, it’s 2.3%. I believe that’s right. There’s a lot of people that I talk to at work and they’re talking and they’re like, “Yeah, I used it back in 1960. So, I can’t use it anymore.” I’m like, “No, it’s a lifetime benefit. Do you still own that property or?” It’s definitely something that vets need to know about and I think that’s something that they could do in their future if they wanted to buy more than one property and everything and keep it under that VA loan.

Ashley:
Well, Clint, wrap it up for us, what has happened since that duplex? What have you been doing?

Clint:
Since I closed on this property, we renovated it. We got my friends that live on the other side of the unit. I guess, it was last winter, one of the agents that I used for that commercial or that condo, she actually is all over Columbia and she found this seven property unit that was going up for sale along with four acres that were undeveloped. She’s a big investor in Columbia as well. So, I was piggybacking off of her and she said, “If you want, we could try to get some investors in on this and then we could buy it and then go from there.” On the property, there’s seven houses and four acres that are still undeveloped. Basically, we closed on that. That was also an arm, and I think we put 25% as a down payment. So, it was a big chunk of change there. But basically, I now own one sixth of those seven properties.

Ashley:
Cool. So, you leveraged partnerships to get into your next deal?

Clint:
Yeah, exactly.

Ashley:
Awesome. When was this one? When did you close on that?

Clint:
We closed on those seven properties last December. Once we closed on those seven properties, I’m basically just a passive investor with that. The real estate agent I went with, she has a property management group as well. So, she handles a lot of that. I’m just a private investor in that regard. Basically, the whole plan with that is after five years, we will refinance the money that we’ve made in there and then put it towards other properties in the future.
After that property, it just so happened that a property two houses down from me currently went up for sale. It’s a duplex as well, and I thought it’d be perfect. They have a new roof on it, and then they had a newer water heater on one of the sides as well. I was like, “That’s perfect.” That’s a big thing is I want to get away from the big ticket items that might cost a lot. But yeah, along with the VA loan, I’m using that this time around as well on that property. If they would’ve had a VA loan, I could have assumed that loan, which would’ve allowed me to get a lower interest rate.
They bought it last year. So, interest rates were lower then. That was something I was interested in if by chance it was assumable just to keep that lower rate. Also, I’m over 30% disabled with the VA. Anything over 10%, you’re waived the funding fee for closing. Like I was saying earlier, that funding fee can be 1.6% and then every time after that, it could be 2.3% of that loan. So, it’s actually a decent amount of money at closing, but if you’re a vet and you have a VA disability rating of 10% or higher, that fee is waived.

Tony:
The VA loan has worked out really well for you, brother. So, the next duplex, you’ll be able to use that same loan product and ideally, hopefully maybe spend another 80 bucks to buy another property. Clint, I appreciate you sharing all that, man. I think Ash and I both learned a lot about the VA loan process and how it works and some of the nuances that a lot of folks just aren’t aware of. So, appreciate you breaking that down for us.
Before we wrap things up, I just want to go to our Rookie request line, and for all of our rookies that are listening, if you want your question featured on the show, just head over to biggerpockets.com/reply. Guys, you won’t believe how many episodes we had to go through before I could remember that URL for whatever reason, but anyway, it’s biggerpockets.com/reply.
Today’s question comes from Carsine Blakely. Carsine’s question is, “Is there a way to structure a partnership with someone who wants to use a VA loan to buy a house, but they also need a co-signer to fully qualify? This will be a duplex or a quad. How would you structure that contract to benefit both parties,” so you and the person that’s getting the loan, “so that both of you are on title?” What would your advice be to that person, Clint?

Clint:
Gotcha. It would depend on the reason why they’re not being able to qualify in the first place. Of course, there’s credit scores and stuff that you have to meet. In terms of having a co-signer for a VA loan, the co-signer would still have to pay… To my knowledge, they would still have to pay a down payment portion. I don’t know exactly how much, but they would have to pay a down payment in order to obtain the property.
If it was strictly income or finances that were blocking them from buying the property, maybe that individual that wants to be the co-signer, whether it’s a parent or someone else, they could just gift 10,000 or whatever it might be to the actual VA recipient and then work out a deal, aside from everything, as to how income comes to them and stuff like that.

Tony:
Gotcha. One other follow-up question on that, Clint, when applying for the VA loan, if you’re buying multifamily, like how you purchased a duplex, are they able to use the projected rents of the other side to help qualify you for that mortgage?

Clint:
In my instance, I can just go off of what I have. I was able to use what I was getting from my tenants at the time, and that’s what we were able to qualify off of. I’m trying to think, I believe they can only accept, or well, at least my lender was a hundred percent of what the mortgage payment is. Say, the mortgage payment is $1,500, but you’re getting a thousand dollars each side in rent. I think they can only qualify up to 1500 of that. That’s just to my knowledge. I’m not a hundred percent sure on that part.

Ashley:
I’ve heard of some banks similar to that, they’ll do a percentage of what the rental income is of it.

Tony:
All right, before we finish today’s episode, I want to give a quick shout-out to this week’s Rookie Rockstar. Today’s rockstar is Katie Avalos and Katie says, “Closed on our fourth property and third property while living overseas thanks to BiggerPockets. My husband and I live in Germany because he’s currently active duty military and I’ve had the time to listen to the BP podcast and I’m soaking up as much information as possible. The property’s in Jackson, Mississippi. This is our first rehab out of the country. Please wish us luck. But while we keep the current mortgage and pay off the loan for the rehab, it’ll still cashflow almost 300 bucks.” Katie, congratulations to you and your husband and same, thank him for his service to our country.

Ashley:
Clint, thank you so much for joining us and taking the time today to bring us your knowledge and experience in real estate investing. Can you let everyone know where they can reach out to you and find out some more information about you?

Clint:
Yeah, absolutely. It is a pleasure being with you guys. I really do appreciate it. But you guys can find me on Facebook and TikTok. I don’t have every social media any more just because it’s a lot to keep track of. TikTok, I actually do post every once in a while some of the renos that I’ve been doing on the properties. So, if you guys want to see what I do there, you can just go onto my TikTok as well.

Ashley:
Okay, awesome. If you’d like to give Clint a follow, you can check that out in the show notes. Clint, thank you so much for joining us today. We greatly appreciate it. I’m Ashley, @wealthfromrentals, and he’s Tony, @tonyjrobinson on Instagram, and we will be back on Saturday with a Rookie Reply.

Speaker 4:
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