The Blank Street founders talk cold brew, the surprising reason they’re not opening in Los Angeles, and—yes—the trolls.

This is a story about coffee. It’s also about V.C. funding. But it starts with coffee, two young immigrants and a single coffee cart in Williamsburg. That’s the origin story behind Blank Street, founded by Issam Freiha and Vinay Menda, which suddenly feels inescapable. Though the company was founded in 2020, there are already something like 45 locations in New York City plus outposts in Boston, Washington D.C., and London.

The pitch was simple: in a world of precious, pour-over coffee, Blank Street would be a more affordable alternative—coffee served from a grab-and-go, postage-stamp sized café on every corner. The smaller footprint would help keep real estate costs down while the drinks were made by a hulking Swiss machine—meaning Blank Street could employ less workers per shift than their competitors (but pay them more). Venture capital funds loved the pitch. And in 2021 the founders raised $67 million dollars from the likes of Left Lane Capital, General Catalyst, and Tiger Global (who’d backed Allbirds).

It was an exciting time. But also a strange time. Online trolls accused Blank Street of being a tech company masquerading as a local coffee shop, and suggested the chain’s rapid expansion came at the expense of mom-and-pop shops. But V.C. funding had been all over the coffee space for years. Intelligentsia was bought by Peet’s in 2015 (before being absorbed by a German holding company). Nestlé, meanwhile, acquired a majority stake in Blue Bottle in 2017 for a reported $425 million. Why were people so eager to hate on Blank Street? (The founders have a theory. Read on.)

For the new Forbes series “Cereal Entrepreneur,” Blank Street founders Issam Freiha, 28, and Vinay Menda, 31, set the record straight over Cocoa Pebbles.

MICKEY RAPKIN: Before we start, I have to ask—Issam, did you just put protein powder in your Cocoa Pebbles?

VINAY MENDA: (laughs) He’s actually training for the Olympics.

ERIC RYAN: What?

ISSAM FREIHA: I’m training for cycling. I do think it’s possible by 2028 to take a stab at it. I’m originally Lebanese. There’s a lot of work to get the country into the Olympics with the Cycling Federation. But I do have a path if I focus enough on it.

RAPKIN: You’re running a coffee start-up with something like 100 locations. Vinay, are you worried he’s not focused enough on the coffee?

MENDA: If Zuckerberg can learn how to fight jiu-jitsu, I think Issam is going to be fine. It’s very meditative.

Morning Shot

RAPKIN: OK. Let’s get to Blank Street. When did you realize third-wave coffee was too expensive and there was room to disrupt?

FREIHA: I’ve been a coffee nerd for 15 years—popcorning-green-coffee-beans-in-my-kitchen type of thing. It came super natural to me to want to look at something within the coffee space. It’s been dominated by incumbents for the last 50 years. We were thinking about the mission from day one: Let’s figure out how to do high quality, specialty, third-wave coffee at a way more affordable price globally.

MENDA: By having smaller spaces we’re able to save some money on fixed costs to deliver the product for a cheaper price.

RYAN: That is the secret ingredient to most successful startups. How many successful companies were created off of youthful ignorance that allows you to see what other can’t.

RAPKIN: Is there something you’re glad you didn’t know?

FREIHA: VAT taxes in the UK. (laughing) If you had told me about how much accounting has to go behind the scenes before opening in the UK, I would’ve been like, “Yeah, maybe let’s open somewhere else.” But opening in London was one of the best decisions we ever made. The price resonated super well from day one.

Price Sensitive

RAPKIN: Let’s talk about the price of iced coffee. A friend of mine joked that he just got approved for a mortgage on a cold brew. If you’re leaving a tip, iced coffee is approaching $7 dollars.

FREIHA: (laughs) There was this Tweet the other day. I saw someone ordering an iced coffee beverage on DoorDash and end up paying—with delivery and fees and everything—$14 dollars for it. Cold brew elevated both the quality but also the price for coffee across the board. It’s a slower product to create, you’re brewing it overnight typically in-store. We do it at a central facility where we created this thing called the cold brew shot. It’s a way to reduce the price.

RAPKIN: I’m surprised to hear you’re a coffee nerd. Only because the initial Blank Street pitch felt like: This isn’t the best cup of coffee you ever had, it’s going to be good enough. I think you actually said something like that in an interview.

[Editor’s note: In an interview with the New York Times in 2022, Freiha said: “We donʼt need to be the most amazing cup of coffee youʼve ever had. We want to be the really good cup of coffee that you drink twice a day, every day.”]

FREIHA: In reality, what we meant by that— The way the sourcing works is most of your beans get graded on this thing called a Q Grade, which is similar in the wine industry where sommeliers rank wines. Anything that’s above an 82 or 83 out of a 100-point scale is called “specialty coffee.” We source at an 85, 86, 87. Beyond that level it’s very, very difficult for the average coffee consumer to know the difference between an 86 or a 92. What we meant by “it’s not the best” is that it’s not like the 95, 96 point thing.

Adventure Capital

RAPKIN: Let’s get into the V.C. part of this. Every headline seems to mention Blank Street’s V.C. haul. As if that makes the company somehow inauthentic. Is that because you didn’t pitch Blank Street to the public as coming from two guys obsessed with coffee?

MENDA: I think it’s just because, like you said, we opened our first retail store in February 2021. And by the end of 2022 we had 50 stores. We moved very quickly. I think when you see a company raising money—you see that level of growth—it’s very easy to connect those things together. Blue Bottle took ten, 15 years to get to that point. We started scaling from the very beginning.

RYAN: Does that perception bother you?

FREIHA: It’s not human to say that, like, it does not bother you. Reading things that aren’t necessarily about the customer experience or the brand or the products— Yeah, it’s not great. But ultimately our vision from day one was like, “We’re not going to be doing this if we don’t believe that this could be a way better ritual at scale for people.” We knew we could do this in one store. But the real question was, Can you do it in a multitude stores and cities for millions of people?

RAPKIN: Most of your drinks are made on this Swiss machine called an Eversys Machine. Can the average customer tell the difference between a cappuccino made by hand and one made by your machine?

FREIHA: No, no way. Right now, there are Michelin star restaurants using our machine.

RYAN: The machine is such a hero. In a lot of ways you are competing against the home coffee machine just like Southwest Airlines decided to compete against driving. Are you investing in proprietary machinery yet?

FREIHA: No, the machinery will never be really proprietary—not anytime in the short term. The magic of the machine is finding the right blend of coffee, calibrating it super well, making sure each shot is consistent and being on top of cleaning it.

RAPKIN: Boston is such a Dunkin’ town. We think of Ben Affleck— Was there any interesting feedback from that local Boston guy?

FREIHA: Boston really loves Blank Street. (laughing) I would say the one funny feedback that we had in Boston was— People want gigantic-sized drinks from Blank Street. We’re a specialty coffee shop. From a caffeine perspective, I don’t think it’s responsible for us to be selling a 32-ounce cold brew. But you would have people asking for our cold brew with no ice whatsoever, filled to the very, very top. And then a separate cup of ice. That was probably the main feedback that we still get every single day.

RAPKIN: Would you do that for a customer?

FREIHA: Yeah, we do that. From a hospitality perspective, we really want to empower baristas.

Meet Cute

RAPKIN: The Blank Street backstory sounds like it was written by ChatGPT. Two immigrants open a coffee truck in Williamsburg that gets V.C. funding? Let’s talk about how you two met. Did you really go to high school together?

MENDA: We did go to the same high school in Dubai. But at different times. We actually met in New York. He was at Columbia, I was at NYU, and we met through mutual friends. We started working together seven years ago on our fund while we were still in college. Technically speaking, I hired him as my intern. (laughing) Now he’s my boss.

RYAN: I love that.

RAPKIN: Your fund, Reshaped Ventures, invested in Sweetgreen, Postmates, and Sonder. I read somewhere that you were managing $100 million in funds. True?

MENDA: We invested a lot of money over a long period of time, but that was over six years.

RAPKIN: Where did all that cash come from? You started the fund in a dorm.

MENDA: In the very early days, we were raising money from anyone who would give us money. I think our smallest check was $2,000 dollars. We had hundreds of investors. Over time we got larger families, family offices, some institutional investors as well as some real estate developers. I think the fact that we were so young— It was just so crazy that random kids would be pitching you to invest in a startup. People were like, “You know what? Maybe let’s take a risk.”

RAPKIN: Issam, you come from a culture where coffee is meant to be enjoyed leisurely—not on the go. What did your family think of the Blank Street pitch?

FREIHA: My parents, growing up it was them having 15 cups of Turkish coffee a day or some crazy number. I’m not too sure about the health implications of doing such a thing. But they’re quite attuned at this point to the Blank Street experience. I mean, my mom orders the cappuccino six times a day now.

Innovation Caffeination

RAPKIN: I’m curious about your subscription plan—

MENDA: The Blank Street Regulars.

RAPKIN: For something like $18 dollars a week, subscribers can get a cold brew or whatever every two hours—up to 14 drinks. At one point the program was $12 dollars. Was it too successful at that price?

MENDA: The original plan—which was a beta test—was $12 dollars a week. But some drinks were free and some drinks were one dollar. People ended up spending $18 a week anyway. So, we made it an all-in program. We have a cheaper tier at $8 or $9 bucks for certain drinks, and have a more expensive tier at $19 for unlimited everything.

RYAN: That’s brilliant to build recurring revenue intro your business model. How’s the program doing? What have you learned?

MENDA: We only officially launched the program about a month ago. We have roughly 2,000 members right now and we’re growing every single day. People on the program would normally come to us—without the program—maybe two or three times a week. But with the program they’re coming six times a week. It’s really making this a daily ritual. We’re excited to scale it into London, into Boston.

RYAN: You’ve innovated on the business model. In this labor shortage I could see entrepreneurs being inspired to apply your approach to other food and beverage categories. But do you think the real breakthrough is from the consumer perspective—like they’re getting drinks faster? Or the business model?

FREIHA: They really go hand-in-hand. You want a super frictionless experience. Ideally you’re on a corner. You walk into one door, you order, you pick up, and you exit through the second door. That’s just a super smooth flow versus a midblock store. But if you’re opening in a residential neighborhood, people want to sit and linger. They want power outlets, they want Wi-Fi. We can adapt to those things. It doesn’t always need to be a transactional store, grab-and-go store.

RAPKIN: I thought Blank Street didn’t want people to linger? That seems like an evolution from the initial pitch.

FREIHA: 100%. It comes from customer feedback. When we’re opening in residential areas, if I’m working from home, I want to be able to work from a coffee shop as well and be able to linger a bit more. As long as we’re not materially changing the prices by making some of these decisions, we’re happy to do it.

California Dreamin’

RAPKIN: Let’s talk expansion. There were some reports that Blank Street was slowing down now.

FREIHA: From a macro perspective, we’re not scaling back too much. But from city-by-city, we’re being a lot more selective. In New York, we’re definitely pulling back. But we’re growing in London, we’re growing in D.C. and in Boston. We’re looking at new markets for next year.

RYAN: It sounds like you have been very thoughtful on how to pace growth. It’s not easy and companies are more likely to suffer from “indigestion” by trying to swallow too much growth vs. “starvation” by growing too slowly.

RAPKIN: I live in L.A. When will Blank Street open here?

FREIHA: No, we’re not going to see it in L.A.

RAPKIN: Why not?

MENDA: (laughs) One day.

FREIHA: It’s my happy place in the world. The cycling in L.A. is probably the best in the entire U.S.

MENDA: We’re worried that if we open in L.A., half the company will want to move to L.A.

FREIHA: That’s definitely one part of the issue.

The conversation has been edited and condensed for clarity.

David:
This is the BiggerPockets Podcast show, 8 29. These pillars are the three things that I recognize if I can succeed in each of these three, how well I keep the money I’ve made, how much money I can make, and then how well I invest it. Wealth just happens much like if you get your diet right and your workouts right. Physical fitness will just happen. What’s going on everyone? It’s David Greene, your host of the biggest, the baddest, and the best real estate podcast in the world, the BiggerPockets Podcast. Every week, we are bringing you the stories, how-to’s and answers that you need to make smart decisions in today’s ever-changing real estate market-

Rob:
You know what, David? Listen. Let me jump in here. Let me do the intro. You take a seat, you always do the intros. I just want to pop in here and say, listen, I’m really excited about today’s episode because I’m getting to dive into your mind. So we’re taking the interviewing pressures off of you turning them back to me, and I’m excited specifically because if you are at home listening to this and you’re struggling and you’re spinning your wheels and you’re not getting anywhere, you’re going to get a ton of value from today’s episode. One thing that I will let you do, David, before we get to the episode is today’s quick tip, what you got, pal?

David:
Thank you for that. Thank you for that, Rob. If people have ever struggled with shame for feeling like they’re not making the progress that they want in real estate and their wealth building journey, this show is going to hit you right in the feels. This is going to be aloe vera for your shame burn, but before we get into it, today’s quick tip is simple tracking gives you power.

Rob:
Speaking of power, quick tip number two, the long anticipated book by our friend David Greene here, Pillars of Wealth is coming out soon. So you’re going to want to pre-order that book because when you do, you’re going to get a ton of extra content and goodies that are going to set you up for some solid wealth building. So if you want to get your hands on a copy and pre-order everything, and if you want to find out everything there is to offer, head on over to biggerpockets.com/pillars. I’m not used to, this is such an honor to be interviewing my hero.

David:
No, you’re just stalling because you’re nervous to have to be the guy that reads to start.

Rob:
No, I’m excited. I’m excited. David Greene, welcome to the show.

David:
Thank you. Thank you. It’s an honor to be here, longtime listener. Not quite first time caller, but I’m a big BiggerPockets fan. I’m glad to be on.

Rob:
Well, listen, this is a full circle moment for you because I’ve learned so much about real estate from you and it’s really cool to be interviewing you right now. So I understand that you have a new book coming out, but before we get into that, I want to set the stage for folks at home. If you’re listening, it’s because we know that you’re a real estate investor and oftentimes with guests, we always focus on the investing part of their journey, the part that they’ve already become very successful at. But often I know it feels that we skip over all the things that they did before they started investing. So today we’re going to lay the foundation on everything that it takes to build wealth.

David:
Back in the day with baby Dave, when I still had hair, I weighed about 150 pounds. Things were a lot different. I started off working in a sandwich shop called Togo’s, and then I got a job at a restaurant and I was a busboy, and I eventually made my way up to waiter and I would track the money that I made working in that restaurant every single night. Now, I was doing that because to me it was insane how much money I was making busing tables. So I would look at the dollar per hour I was making, back then minimum wage was probably like 5.50 or something an hour, and I got this job at a restaurant and I left with 30 bucks, six servers all tip me $5, and I was like, this is doubling the money that I probably made for my six-hour shift. This is crazy. I got paid for twice as many hours just because I got tips and none of the other busboys even thought it was a big deal. Something clicked. I immediately started thinking, “How do I get more of these?”
“Well, I’d have to be a waiter. How do I get promoted? A waiter?” And I went to my boss and I asked some questions about what I would need to do to be promoted, and that was sort of the beginning of as I started to figure out you are in control of your destiny when it comes to work. But I also realized that the other people I worked with were spending the money just as fast as they need it. It’s easy come, easy go. Anyone that worked in restaurants, they understand how that is. So I would come home every day and I would write out a little piece of paper, $35, $40, $20 to track how much money that I made.

Rob:
Wow, okay. From the get-go, were you just stashing that away? Did you splurge ever? Did you ever treat yourself or was it sort of one of those instantaneous things where you realized you were the one that was writing your paycheck? And so did that just motivate you even more?

David:
Well, I was working a lot and I say working, let’s be honest here, working in a restaurant’s, not like climbing down into a coal mine-

Rob:
Unless the restaurant is in the coal mine.

David:
Yeah, I suppose that’s possible.

Rob:
And that’s a very niche group of people, but they might be listening,

David:
But I would say I was sacrificing my time to be there. It’s not climbing into a sulfurous mountain and carrying around rocks, like some of the people in China have to do, but it’s definitely somewhere you don’t want to be. You’d rather be somewhere else. And I looked at it like, if I have to give up my time to be in this place to make money, does it make any sense to go spend that $35 that I just made on a dinner that I’ve lost? Effectively, you’re sacrificing six hours of your life for a dinner that lasted for 45 minutes or maybe an hour, and you have nothing to show for it. Soon as the toilet is flushed, it’s gone. And my brain saw connection between if I’m making a sacrifice, I want to make it worth it. Saving became the vehicle to do that.

Rob:
That’s got to be so hard in that industry because it is such a social industry where waiters went out pretty much after every shift, maybe for a drink or two, whatever. Did you not really have a social life at the restaurant where you pretty much turned off from the social component of kind of waiting?

David:
No. I think my friends became the people I worked with. There was a group of us that were all kind of young guys and we had gone to different high schools in the same city. We’re all the same age. So I would go to work, you’d work a six, seven, maybe eight hour shift at a restaurant. I’d get off, I’d go to the gym, I’d work out. I had my gym buddies, I had guys I played ball with. You have ways that you can have a social life that don’t have to involve going to a bar, going to a lounge, going to a club.

Rob:
Well, awesome man. Well, I am super excited. I can’t wait to talk more about this book. The title of your book is Pillars of Wealth: How to Make Save and Invest Your Money To Achieve Financial Freedom. You’re probably like, “I know I wrote it,” but for those at home, if you’re listening, by the end of this episode, you’ll learn three very important things. You’re going to learn what to track to put yourself on track for financial freedom. You’re going to learn how to know when you’re ready for the next level of wealth building and what most people get wrong about investing. So first off, this book is called Pillars. What are pillars?

David:
Great question. So I’ve really simplified the process of building wealth and achieving financial freedom. What we talk about on this show is the third pillar that’s going to be investing. The pillars are defense, offense and investing. Everyone that’s been listening to you and I teach on the BiggerPockets Podcast, we focused on this third pillar. How do I buy assets that will appreciate, that will make me money, cashflow, equity, tax savings, all of these different things we talk about. But what doesn’t get discussed is the other two that really need to be brought into place for the third one to be possible. And that’s the ability to save the money that you make and the art, the skill of making money. I think a lot of people look at those who make money and say, “Oh, they were born into a rich family, or they got a better degree than I got. It’s just not in the cards for me.” They don’t realize that just like physical fitness, there is a science that can be applied that will lead to you earning more money.

Rob:
Basically, if I’m hearing you correctly, it’s like we tell people how to go and invest, but in order to invest conceptually speaking, you do need money to do so.

David:
And we always leave this part out or we tell them a way around the two pillars. So well, you can invest with other people’s money and we call it OPM, and then we make it a course that we teach people how to use OPM or we tell them, “Hey, here’s no and low money down strategies,” and we sort of create this entire world where it looks like this is just as viable as making and saving money and investing it, and they are possible. They are much more difficult to do. You and I have seen the people that have scaled portfolios, that have built big portfolios, the majority of them did it by earning money, saving money and investing that money at least until they got some momentum and they got good at real estate investing, and then they sort of got good with their mouthpiece. They could talk to people. They built a network, they built resources. They find these opportunities that don’t require their own money, but they don’t start off like that hardly ever.

Rob:
Sure, yeah. The old-fashioned way, they earn money, they save it, they invest it. So getting into this a little bit more, tell us why pillars are so important.

David:
If you don’t have a blueprint of knowing what to do, you’re not going to get a good result. And I’ll add on that and say most people get their content about how to build wealth or invest in real estate, that can become synonymous for most people from online content. It’s free. So you’re never going to get the full picture when you’re listening to a YouTube video, a TikTok video, an Instagram Reel, you’re going to get something that makes you watch it. The people creating the content are trying to get eyeballs. They’re trying to get subscribers, they’re trying to get clicks. They’re not trying to teach you how to build wealth in a way that is sustainable, and frankly, it’s not their job to, they’re not being rewarded for teaching that.
If I use a fitness analogy here, there’s a lot of people that want to be fit, but if you’re only shown a 30 second Reel on Instagram of a person saying, “This squat is better than that squat,” it’s entertaining. It catches your attention. You walk away feeling like you learned something, but is that actually going to be what gets you fit? And Rob, I could throw this back to you. You’ve been on a nice little fitness journey. You and Tony Robinson have sort of taken upon this challenge, and what I’ve noticed is that you eat very specific foods at specific times. You do very specific workouts, and then you have to wake up early in the morning to make this happen. Would you agree with this?

Rob:
Yeah. Right. Unfortunately, I do.

David:
So what you’re eating is something that you have to get right. If you want to be fit, you could do really good workouts and you might get stronger, but you’re not going to look healthy. You’re still going to be carrying around a lot of extra weight or you could get your diet. But if you’re not actually exercising in the gym and building muscle and burning calories, you are going to be healthier, but not your healthiest. You’re not going to be physically wealthy or physically fit. So these pillars are the three things that I recognize if I can succeed in each of these three, how well I keep the money I’ve made, how much money I can make, and then how well I invest it, wealth just happens. Much like if you get your diet right and your workouts right, physical fitness will just happen.

Rob:
And I know one of the things that you really get into in the book is tracking, right? The idea of tracking. It’s not just doing these things, but there is an actual component to having it on paper and having a system to actually measure success, results, routines, and everything like that. So getting into that topic a little bit, before you track anything, you’ve obviously got to figure out where you’re starting from. How can someone be honest with themselves about their starting point?

David:
Well, before you figure out how to become wealthy, you have to know what you’re measuring when you measure wealth. And in this book I detail three main things that I think we can simplify wealth into. The first is your net worth. This is how much all of your assets are worth minus your liabilities. It’s one way to track wealth. The next is cashflow. This is how much money you make every month compared to how much money you spend. And then the third is your quality of life because you can have a business that you hate that takes up all your time, and you work 18-hour days, you have a good net worth and you have cashflow, but you never get to enjoy it or you earn it in a way that you hate. You and I are lucky that we get to earn our living doing something we love. We love real estate, we love educating people. We love trying to figure out this puzzle of real estate. If I had to be making my living in something that I hated, I wouldn’t consider that to be wealthy.

Rob:
That wouldn’t be a very good quality of your life, right? You’re making money but you hate it.

David:
Exactly.

Rob:
Okay, so what I want to do is I want to run through what people should be tracking during each phase/pillar so that people can start doing this themselves today. And let’s get started with the first one. You talk about defense in savings. What were you tracking during your defense stage?

David:
So I have this philosophy that every dollar you make is yours to keep, and there’s a world of people that are trying to take it from you. This is just the way that I looked at the world. I recognize when I started trying to save money, how hard it was. I started to see commercials on TV that would make me want something that I didn’t want before I saw the commercial. I would have friends that would say, “Hey, we’re going to go somewhere,” and I’d feel that urge where I want to go to, but I would think, “Well, if I go on this trip, not only am I spending the money for the hotel, the plane, the food’s going to be more expensive when we’re there, but I also don’t make money for four or five days while we’re on this trip.”
They were thinking is, “Hey, it’s going to be $800 to take this trip,” but if we made a hundred dollars a night and you miss five nights, it would actually be $1,300 to take that trip. And if you compound that, if you invested $1,300 over 30 years, 40 years, that’s an insane amount of money that you’re actually giving up, especially when you’re young. So as I became disciplined and where my money was going, I recognized how many things were trying to take it from me. And The Richest Man in Babylon, great book, I referenced it a lot in pillars, sort of details this same thing that if you are not disciplined with having a plan for where your money’s going to go, you will spend it on other things. Most people that I come across, they don’t start saving money until they have a goal. It’s not so someone wants to buy a house. They’re like, “Oh, my gosh, takes money to buy a house. I now have to start saving.” But they don’t know where to start. They don’t have a blueprint like this of knowing what to do.
So what I would do is I would come home every night from the restaurant, like I mentioned, write down on a piece of paper how much money I made and then I made it a game. I have to save a minimum of $500 a week, which means if I want to go buy something, I can’t if I’m not going to put that money in the bank. And then that moves into the second pillar where I would have to pick up more shifts or work a better job or work more hours or whatever it was to make up the difference. But it was creating a challenge for myself that I have to save a certain amount of money that caused me to start tracking every dollar and really put these good defensive principles in place in my life.

Rob:
Now obviously people have to do this in a way that… I mean there has to be different ways to do this, right? Because the idea of writing it on a piece of paper seems can be a bit archaic. Are you an advocate of people sort of tracking however they see fit? Are you very rigid on someone’s tracking process? What are your thoughts there?

David:
I’m not rigid on what you spend your money on. I’m rigid on the fact that you spent it on something you planned to spend it on. I don’t like people making emotional decisions to spend money on a whim. So in Spartan League, we have our members actually come up with a budget. This is how much I will allocate towards these different things in life. There’s a spreadsheet and then they fill it out. Now, if you want to go spend your money eating out or getting extra guac on your Chipotle, like someone that I know might want to do, there’s nothing wrong with that. If you have made the conscious choice that I will spend this much money on food, I’ll spend this much money on entertainment, whatever it is.
And then we use apps like Mint or Rocket Money to measure where the money’s going, to make sure that it actually lines up with what we decided we were going to do on the spreadsheet. And this is important because if you’re not tracking something, you won’t be successful with it. That’s one of the things when you started on your fitness journey, Rob, I know you started tracking how much you’re eating, what you’re eating, when you’re eating, and what your workouts are. Very rarely is somebody really fit if they aren’t tracking what they do, at least until they can establish these habits that start with tracking and then tracking becomes less important.

Rob:
Very true. When I see a buff dude walk around, I just want to be like, “Hey, how many grams of protein do you eat every day?” Because I know that guy’s tracking it and I’m just curious.

David:
That’s exactly right. Yeah.

Rob:
I think it’s like when you see other people are tracking, it kind of keeps you accountable a little bit, if you know other people are tracking too. My wife and I, we very much track effectively every single meal and I measure my sleep and a lot of different things, but it’s a good routine. It is building that muscle. So however anyone is tracking at home for you, David, it’s an envelope with your tips and it was a notepad, but for other people at home, it might be something very simple like the Mint mobile app. There are so many budgeting apps out there. Is there anything that comes to mind from your coworkers at the restaurant in your early days that you saw them spending money on that you were like, “Man, this is crazy. I can’t believe someone would ever spend money on this.”

David:
That’s really funny. I was probably 19 years old. We were closing down the kitchen. I got promoted to waiter before they did, even though I started working after them because… And this will move into the second pillar of ways you can get promotions and raises, but I was asking my boss every day, “Hey, what do I need to do to be a waiter?” And they were just showing up every day waiting for the promotion that they thought they were entitled to. So there was a little bit of jealousy I would say, amongst that group of people that had worked there before me. A lot of them trained me in how to be a busboy. So they were giving me a hard time about how I would stay late and work all the time, or I never wanted to go out and spend money like they did.
And as they were razzing me a little bit, I remember saying, “Hey, how much do you guys spend every day between the going out to eat, the alcohol you drink every night and the weeds you’re smoking?” And one of them kind was like, “Well, I spent about this much on a weeded a week. I spend this much on alcohol because I go out this many times,” and food we had to kind of figure out together. It came out to be what I just thought was a wild number of how much money they were spending on just those things. Not their car payment, not their rent, not their big bills. It ended up being 15 grand a year.

Rob:
Wow.

David:
And I did this little… In my head I was like, “Okay, we’re all in college. We’re all freshmen in college. That’s going to be $60,000 when you graduate college that will be gone.” And remember, this is like 2003 money, that’s even more than it is today. And I just thought, it doesn’t seem like a lot of money when you’re just spending it in the week, especially when they would think, why could it make more? I’ll pick up another shift. I’ll make a hundred bucks and I’m good. But over a course of time, that becomes really big. And if you think about what $60,000 can do if you invested in real estate that’s 20% down on a $300,000 house, that $300,000 house becomes worth $400,000 after five years or six years. Now that’s $160,000 that you could have had over just four years. And something clicked where I realized what appeared to be small little decisions, they actually amplify into massive ones when you compound them over time.

Rob:
So give us an idea, what is mastery of this first pillar, the defense, the saving pillar? What does mastery of this look like?

David:
So the example I give in the book is most of us are in a river and we’re floating with the current that we don’t recognize because our eyes are closed and our eyes are closed because we are not tracking where our money goes. We don’t think about it. We use a credit card, we have a rough idea of how much we wake, but most people listening to this have zero idea where their money is actually going. When you’re in a river and your eyes are closed, you don’t feel the current, you don’t know where you’re going. It’s taking you backwards and you don’t realize it. When you open your eyes, that’s when you start tracking. You realize, “Oh, my gosh, all my money is disappearing. I’m getting nowhere. This is why I’m not making any progress on my goals. I’m listening to podcasts, I’m watching YouTube, but I haven’t bought any real estate,” because your money is disappearing.

Rob:
Yeah, yeah.

David:
When you put your foot down in the riverbed and you say, “I’m not going to move in this direction, I’m not going to spend the money.” That is when you feel the pressure of the current that’s been there all along. You don’t realize the temptation and the emotions and the feelings that cause you to spend until you make up your mind, you’re not going to spend and the tool that you need is discipline. You have to track where your money’s going and be disciplined to stick with it. Just like I’m sure there’s times that you want to get the burrito instead of the burrito bowl, and you got to tell yourself no, because it doesn’t match with your macros. The same happens when spending so mastery with defense is a combination of knowing where your money is going, where you made a conscious choice that you were good spending money with it, and then having the discipline to stick with it until it becomes a habit.

Rob:
Awesome. Okay. That is a very great encapsulation of what mastery for that pillar means. Let’s get into the second pillar here, which is the offense earning side of it. What are you tracking here?

David:
Yeah, this is all about how much money you can make and can you make more this month than you did last month? So when I started in my journey, I was a waiter and I would realize, “Hey, there’s things I can do that will make me more money.” Because I was tracking how much I actually actually made. I was looking at it every night. I made this much money. Patterns started to emerge. If I can get that section in the restaurant, it’s got the five tops, the four tops, the bigger tables. If I get this one, there’s only two people that sit down. Well, you notice when only two people come, they don’t eat an appetizer. They’re not going to order a full bottle of wine. The bills would be way smaller.
The minute I got to four people sitting down, well now they can split a couple appetizers and they’ll order a bottle of wine or two. The whole dynamic changes when you get a group of people, they’ll spend way more money. So the question became, how do I get to that position and I would just ask my boss, “I want that section. What do I need to do to get there?” “Well, you got to put your time in. You got to help.” “Okay, how can I speed that up?” “Well, if you could work on weekends, that would help a lot. I have a hard time getting people to work weekends.” “Great. I’ll work every Saturday and Sunday as long as you give me that section. Tell me what success looks like.” “Well, I want the customers to be happy.”
The restaurant, would track the average cost per person of the people that came in. So I realized I got to have the highest… One of my customers basically had to spend more per person than all the other waiters because that was a metric I could show my boss. I realized that in restaurants, you sort of get sat one table, then the next person, then the next person, there’s a rotation. Well, at the end of the night, they stopped seating all the servers except for one called the closer, and I realized if I’m the closer every night, I could take a normal night, which might be five tables, and I could get another four or five just from closing. I was way busier. I had to stay later. I had to make some sacrifices, but I could double my money just from closing.
Now if I’m doubling my number of tables and I’m getting the better section and I’m working more nights in the week while other people are taking them off, my income could more than double from the other waiters at the exact same job at what’s not considered to be a wealth building opportunity, waiting tables while you’re in college and applying that successfully eventually led to me graduating college with my school paid off, my car, completely paid for and a hundred thousand dollars in the bank.

Rob:
Wow. Dang. From college you had a hundred thousand dollars?

David:
And zero debt. Yeah, I walked out of college with that money and I didn’t have this crazy job. I wasn’t working at a day trading company or doing Bitcoin or anything. It was just the blue collar stuff. But I learned these principles, these patterns that led to success making money. And then when I got out of the restaurant industry, I became a police officer and the only way you make more money there is overtime. So I started to learn what do I need to do to get the sergeants to call me first whenever there’s an overtime shift? How do I get them to like me so that they want me the one to be the one that comes to work? I put speed dial on my phone so that when dispatch said, “Hey, we have an overtime shift coming up,” that phone was already ringing and I was going to be the one saying I’ll take it. You started to realize there were patterns that you could do to earn more money. That was the only way to earn more money when I was a police officer.
Then when I became a real estate agent, it was the same thing. How do you get more listings? How do you get higher priced homes? It wasn’t just how many homes can you sell? Which ones do you want to sell? Who are the buyers that are going to actually close on the deal and who are the ones that are going to talk to you all day long and get a free education and not close? There were patterns that I picked up in each of these industries, and what I learned was I would have to change David if I wanted to make more money. I couldn’t just look for the job that paid more, I had to become what that job demanded in order to get these opportunities.

Rob:
I understand that part of it, but help me understand what are you actually tracking in that side of it. We know the earning side, we got to put in more time. What are those tangible items that you were actually tracking? Because in the first pillar you were actually writing down pen to paper, these are my tips. I’m tracking those. I’m actually looking at how much money I’m making. We move into earning, how are you tracking the actual earning side of it?

David:
When I was a cop, I would have a key performance indicator. My KPI was hours worked. So I would say, “All right, I have to work a minimum of this many hours, and if I do that, this is how much money I can make above what my normal paycheck would be.” And I could literally double or even almost triple it by just working a lot of overtime because overtime gets paid at time and a half or sometimes more than that in addition to your regular shifts. So at one of the jobs I had, we would get paid double time if we work like seven days a week. So my Saturday and Sunday were normally days off. If I worked a 20-hour shift on each of those days, that was getting paid 40 hours a day, which was 80 hours over a weekend, that’s a full two weeks pay-

Rob:
Man, that’s wild.

David:
… that I could make in one weekend. So I would track that. And then the game becomes how do you find a way to safely do that? What do you have to give up in order to do it? How do you have to combine your shifts together? It was kind of a logistical headache, so you don’t want to do it forever, but for me, that was a sprint and I had the goal of investing that money in the third pillar, so that’s what I was tracking. When I became a real estate agent, I was tracking how many houses I closed and my total sales volume as well as making sure your expenses stay low. It’s very easy when money starts rolling into business to just start throwing it out the door.
This is what I see when I partner with someone who’s younger than me or someone becomes successful because we start a business together on enterprise and money starts rolling in. They spend it just as fast as they make it. That’s why I advise you need that defensive pillar to be locked down before you start making the money. But we train our students to track every month how much money they made and was it more than last month. And then the question becomes, what would I need to do differently? Do I need a new job? Do I need to be in a new industry? Do I need a side hustle? Is there overtime opportunities? Should I start a business while I’m working my job and start building up the success of that business so that the income of the business grows every month as well?

Rob:
Right. So you’re tracking things like hours, your KPI is the shifts that you work for the police force outside of your full-time job. And then obviously we’ve got the effort, how much effort you’re putting in relative to the quality of life that you’re getting. So DG, how do you actually keep tabs on those things and how often? Is it something that you were going in looking at whatever tracking system you had every single hour, every single day? Give us a snapshot of what that would entail for you.

David:
So when I was a cop, I would look at my paycheck and it would show how many hours I worked, how many normal hours of straight time, and then how many hours of overtime, and I could see time and a half versus double time and how it worked out. When I was a real estate agent, I would have a profit and loss statement that I would look at every month. This is how much money the company earned this month versus what it earned the last month, and it doesn’t really matter what you make, it matters what you keep. So the minute you start tracking it, Rob, here’s what’s crazy, your brain starts looking for ways to make it better. If I took this many listings versus this many buyers, I made this much more money. If I got a listing, I could usually get another listing out of it because the neighbors would see my sign and I would go talk to them and I could get another one. Or if I got a listing, I could hold an open house and I could get two to three buyers out of that.
So it became pretty clear tracking listings would lead to more money than just tracking the buyers. You started to see where everyone’s opportunity is individually, and that’s what I’m saying. Not everyone listening to this is doing the same thing. Some of them work in a 1099 position, some of them have a W2 job, some of them have a side hustle, some of them are house flippers. Everyone listening to this has a different way they make money, but mastery in the second pillar really comes down to adapting yourself to be what the market wants. The chapters in that are about leadership, it’s about taking more responsibility. It’s about looking for ways that you can pitch in and help the company and not just saying, “Well, that’s not my job. I don’t want to do it.” It’s about the pursuit of excellence.
Are you really trying to be good at what you do? You and I are in this podcast position, we talk frequently every week. How do we make this show better? How do we bring more value to people? How do we be better than the other podcasts that are out there? That is the pursuit of excellence. You’re looking at your YouTube videos, you’re looking at your social media and saying, “How do I make this better? How do I make this better?” And your stuff gets better and better as you go. I talk about the winning mindset. This is how winners think. I have a video that I’m going to be posting on my Instagram that talks about how losers tend to look and say, “Well, it could have been worse.” “Well, at least I showed up for work.” “Well, at least I have a job.” The winners say, “How could I be better?” “How could I have brought more value?” Those little things, when people start making adjustments, they will see that their income starts to improve.

Rob:
That’s a good snapshot of the mastery component of pillar number two. Now, I actually want to get into what… We’ve covered the foundations here. That’s the saving, the earning, but I do want to get into the stuff that I know everyone’s waiting for. It’s going to be this third pillar, which is investing. Again, let’s start with what to look at in the investing side of it. Can you talk about some of the ways that you track the actual real estate and the investing side of your operations?

David:
Yeah. I have a spreadsheet with all the properties I own and I track the things that I mentioned before, the net worth, the cash flow and the quality of life. So this spreadsheet shows what a property’s worth right now, how much I owe on it, what the interest rate is. And then another one will track how much that property made that month and how much that property cost me that month. It’s the same principles that I was describing with my personal budget that I apply to my portfolio. And then the third thing I look at is which of these properties are causing me a headache? Which of these are decreasing my quality of life and is the juice worth the squeeze?
What I find is that some of my nicer properties in better areas that are more expensive, they can cause a headache, but the juice is worth the squeeze. Their equity grows every single year. The cashflow goes up more than it did the year before versus some of the stuff I bought at the beginning of my career that was lower price, not as good of an area. It caps out. The equity’s not growing, the cash flow’s not growing, and the headache is still there, becomes very obvious those are properties I need to sell and 1031, that energy into something that’s going to grow more. Other people see the spreadsheet and they think it’s brilliant. They’re like, “I can’t believe you did this.” To me, it was obvious because I started tracking my tips on a piece of paper, and then I started tracking my profit and loss statements with the company. It becomes natural when you learn these fundamentals.

Rob:
Are there anything that stand out that you think that real estate investors should be tracking outside of the actual P and L?

David:
They should be tracking how much a property is improving in value. It doesn’t get talked about. We always focus on cashflow, and a profit and loss statement typically will only show the cashflow, and it’s important. I’m not saying it’s not important.

Rob:
We do like to make money in this industry.

David:
Yes, but we only look at making money through cashflow. If you look at how much money you make through equity growth over a 10-year period of time, it dwarfs whatever you made in cashflow. So that’s where my philosophy came, that cashflow is a defensive metric. It keeps you owning the property. You don’t go into foreclosure, but you don’t make a ton of money like you do from equity growth. And once you start tracking your real estate, these patterns will start to emerge. You really should be looking at which properties went up the most and which properties had the most rent increases because appreciation affects more than just the value. It does affect the revenue as well.

Rob:
Sure, sure. Well, you did mention that you track the quality of life right aspect of this. That’s not something obviously you put on a spreadsheet, but is there a tangible way that you track that. Not quality of life, but I guess sort of like the headache factor of it. You’ve got these properties that they’re not appreciating, they’re not making as much cashflow, they’re huge headaches. Is there a tangible way to say, “Man, the headaches that I’m getting from this property, I’m tracking it. I don’t like what I’m seeing, I’m going to get rid of it.”

David:
The thing with fitness is you only have so much energy and have so many calories you can burn in the gym. You can’t do it all day, but with business you can. If you stay focused on dollar productive activities all day long, you’ll make a lot more money. So when you’re tracking your quality of life as you’re looking at that spreadsheet that shows all your properties and you’re seeing it’s not making money or it’s barely making money, or it’s only making money because I’m self-managing.
There’s some people that bought a short-term rental, they paid too much, they didn’t buy in the right area, and they’re like, “Yeah, my ROI is 11%, which looks good,” but what they’re not telling you is that’s 40 hours a week of work to get that. And if they put that same 40 hours a week into a job, they would make way more than they make on the short-term rental. It doesn’t get discussed on the YouTube video or the Instagram Reel. When you’re looking at quality of life within your portfolio. If you’re asking yourself, how do I stay doing nothing but dollar productive activities? How do I stay in the gym metaphorically all day long? Certain properties start to become very clear that they’re not worth your time of having, and if they have equity, it’s a pretty easy answer that you should sell it and move that into something that will either take less of your time, be more enjoyable or have an upside that’s worth it.

Rob:
Yeah, we’re trying to track a lot more these days. We track year over year revenue. Now I’ve got some cleaners that are actually tracking the photographs of the home post clean, so it’s timestamped photos, and this has actually been pretty big for us because not only are we tracking that, but it’s like when a guest says they didn’t break something, we can send them a photo of the cleaners that just were in the day before and say, “Hey, here’s what the room looked like yesterday.” So tracking really has a lot of implications. It gives you a snapshot of your business, but it also I think provides a little bit of accountability when not only you’re tracking things, but you actually have your team tracking things as well and reporting those things back to you.
That’s sort of what we’re trying to incorporate now. It’s like we don’t want to just let things sort of accumulate like our reviews without reading them. We now read through them and we say, “All right, hey, we’ve seen this same thing happen three or four times. Where’s the accountability here? Whose job is it to address this one thing?” So I think that to really start excelling in this investing pillar, especially when you start building out the team, is actually having individual tracking, I guess, for different team members in their role, reporting it back to you. And that’s to me, we’re starting to see so many more efficiencies because when it’s all out in the ether and it’s not really written down on paper and you don’t have a system in place, how can you really track your business? You can’t, it feels like.

David:
You don’t, and accountability is the keyword that you said. I was just talking to one of my business partners last night and they were upset because they realized that we haven’t been closing the leads that we have been getting… Our agents haven’t been closing them. And I said, “Well, you’re supposed to be meeting with them every week. How did you not know until several months went by we weren’t closing leads?” And they said, “Yeah, I stopped meeting with them. I just trusted that they were doing their job.” I was like, “That’s the problem is we all want to…” The first thing we throw out is accountability, which is what tracking does. It’s like yeast. If you don’t have yeast in the bread, it’s not going to rise. It doesn’t matter how incredible your business is, how incredible your bread is. Without yeast, without accountability, it doesn’t turn into anything, and this shouldn’t surprise us because the principle applies to everything in life.
You can really only grow as fast as you can provide people in your business to hold others accountability. That is another success principle that you’re describing here. And imagine, Rob, how many people are listening to this that are reading the books? They’re making their calls, they’re going to the meetups, they are following the podcast, they’re doing everything they’re supposed to do, but they’re not tracking any of the metrics that you and I look at. They’re just spinning their wheels. They’re going to spend 10 years consuming content and not making any progress because they don’t know what they’re supposed to be focusing on developing mastery.

Rob:
Yeah, yeah. I mean, it happens all the time. Honestly, most of the stuff that I start tracking comes as a result of hearing what other people that are more successful than me are tracking and they say, “Oh, yeah, I track this and this and this.” I’m like, “You do?” It’s so simple. I’m like, “Oh, I guess I need to track that.” And when I start tracking that, I’m like, “Whoa, there’s a huge discrepancy here in the system as a result of having been so loosey goosey with it.” So it really is what legitimizes your business is the tracking component of it. So this is the last pillar. It seems like it’s always an evolving thing to track the investing side of your business. Can you even master this? Is it possible for someone to master this or is it just something that you always have to grow and evolve in?

David:
Well, you can measure the money that you’ve invested, how much has it grown? Not just from cashflow, which is typically we only measure the ROI. This is where I think we get it wrong, Rob. We look at a property and we analyze it and we say, “It’s going to earn me a 7% return on my investment.” And we say, “Okay, that’s good enough. I’ll buy it.” But then we don’t continue to track because the rents tend to go up and the mortgage usually stays the same if it’s a fixed rate mortgage, but the equity also goes up. It’s not a one dimensional investment like it looked like when you were analyzing it to buy, it becomes a three-dimensional investment you made or lost money based on equity going up or down.
A lot of the investments I buy, I add units to them. I call that forcing cash flow. So when I bought it made me this much money, but now that I’ve added units to it, I’ve added square footage to it, it’s making me more. Are we measuring how much the property is making me in relation to the equity it has return on equity, or are we only looking at the return on the investment? If your properties are performing well, they’re steadily going up in value, the rents are steadily increasing. You’ve added units to them to increase even more revenues. Now you have two or three units that have increasing rent instead of just one.
You can start to see how mastery in that third pillar is developed. You’re making sure that the energy that you’ve invested through the medium of money is growing, or if it’s not growing. Sometimes we’ll do retreats and people are bringing their portfolio and they’ll say, “Here’s my portfolio.” And they’ve got this beautiful spreadsheet that tracks everything well and their properties are not going up in value and they’re barely cash flowing if that, but they say, “I’ve got 12 doors, I’ve got 18 doors.” They’re measuring the wrong metric. They’re not looking at if the money is actually growing.

Rob:
That gives us a pretty good idea, I think, of the tracking of each of the pillars. But now that we know what to track, what do you think most people are actually failing to track? Is there something that you always see… And what are some of the pitfalls of each pillar when you’re really going all in on the idea of tracking?

David:
Well, first off, real estate education in general has become terrible at telling people to focus on acquiring cashflow. We will tell people, “Hey, if you get X amount of units, you’ll have X amount of cashflow and then you can quit your job. You can buy a Ferrari.” It’s like if you do a really good job being disciplined, you can make really stupid financial decisions as a result. Would you ever tell someone if you get to where you can work out for two hours a day for five days a week, you can go eat an entire cake? It’s foolish when we look at it outside the realm of real estate investing, but it’s normalized in our industry. I think that it’s much wiser to be teaching people, let’s figure out where your money is going.
Most people are failing to track where their money is going in the first place they treat money like a money tree. If I can just earn more of it, I can spend more of it, but you don’t get anywhere that way. Knowing where your dollars are going, how much of it is going into real estate and how well it’s performing. We are woefully bad at, like I just mentioned. We’re not even tracking how much your total net worth is growing, how much a properties value is growing. We’re just usually focusing simply on cashflow. I also think people are failing to track the effort that they put in every day in their job. Now, I know that this is a novel concept, but I talk about how everyone should go to work and they should have the attitude of, it’s the last day of tryouts and I don’t want to get cut.
We can all, every one of us can control the effort that we put into our job, and I think a lot of the time we clock in and we clock out and we say, “I did my job,” and we pat ourselves on the back, but we don’t ask ourself if we tried our hardest. I come from a sports background, I played basketball. You can be on the court for the whole game, but that doesn’t mean that you contributed the same way. The idea was to play a perfect game. How hard can I work? How many turnovers can I cause the offense to have? How many guys can I get open even when I don’t have the ball in my hand? There was a ton of things that I could do in basketball, setting screens, blocking off the defenders so other guys could get to the rim, making the pass, [inaudible 00:41:24] defenders to get other people open.
There was always something you could do. Even just running a fast break so that the defender has to pay attention to you and the guy with the ball can get to the rim easier because you’re distracting the defense. Do we take that attitude into our jobs? Can we all say that at the job we have, we are giving every single amount of effort we possibly have and looking for ways to be a better employee? Or do we take the attitude of, “Well, I’ll try harder when the coach gives me more playing time. Well, when you give me the ball, then I’ll try.”
I think that’s a disease that a lot of people have fallen into, and it’s this wealth entitlement idea that I’m supposed to be wealthy, and if it’s not coming to me, I’m not going to try hard. We hear a lot about this idea of imposter syndrome. I think what that really is your subconscious telling you if you got that promotion that you say you want, if you got that business opportunity that you say you’ve been waiting for, you know would fail because you’re not even crushing it with what you’re doing. We all want to be jacked. Okay, but Rob, if I went and put 500 pounds on the bench press bar, it said, “Here you go, this is what jacked people do.” Would that benefit you right now?

Rob:
No. It would crush my sternum.

David:
That’s exactly right. It’d break your rib cage. It would be the worst thing ever. If we gave a business to someone and said, “Hey, you now own 40 short-term rentals, you are going to flip a hundred houses a year.” It would crush them. They would lose all their money. They don’t have the skills required to do it. You only get to bench press 500 pounds by adding weight on and pushing yourself at every single workout. This is common sense at everything in life except for our industry.

Rob:
That’s interesting. So let me ask you this. As you level up, how do you make sure that you’re maintaining strength in the previous pillars?

David:
Well, for one, you have habits that develop after tracking. So let’s say that you stay on your diet for four years. At a certain point, you don’t need to track your macros because that’s all you eat. It’s not a lot of effort to meal prep. Once you’ve done it for years like it was in the beginning, you find efficiencies. You have the same food delivered. You know what you’re going to eat. Your body starts telling you it’s time to eat right now, and if you eat at the wrong time, it feels wrong. That’s not the case when you’re starting, that’s when tracking is so popular.
I don’t have to track every single dollar I’m making now because I have these habits in place where it feels wrong to spend money on dumb things. My habits are guiding me through this. The same with offense. I look to make more money, but when I get a new opportunity, it’s not this really anxiety riddled, how am I going to succeed here? I’ve done it so many times. It’s a predictable pattern. I know if I want to be better at jujitsu, if I want to lose weight, if I want to start another company, I’ve done it lots of times. I know how to do it again.

Rob:
So it’s almost like it becomes muscle memory at a certain point where you do work so hard to establish these habits and to track and everything, and then occasionally you might deviate a little bit and when you deviate, it does feel wrong. So honestly, it’s like more… It feels like it’s muscle memory. Is that sort of how you would describe this?

David:
Yeah, that’s a wonderful way of putting it. That’s a pattern of how life works out. The first time you work out, you’re super sore, but if we were that sore every time, nobody would do it. Your body adapts to it. It stops being sore, workout stops sucking when you’ve done them for a while, you actually start to crave the workout. It becomes something you want to do. Tracking, accountability, focusing on the pillars, it becomes easy and even fun once you’ve done it for a significant period of time.

Rob:
Well, that’s awesome. So before we wrap up, can you just give us one big mistake that people are making with regards to their wealth building? I know this is something you’ve come across. I know this is something you’ve consulted people on. What’s some of those common ones? If it’s not one in particular, but give us a quick one here and then we’ll close out the show.

David:
They’re not putting their best effort into the opportunity they have right now, and they’re telling themselves that I’ll try harder when it happens. You can’t have that attitude. You can’t think, “I’m going to work really hard to get someone to marry me and once I’m married, I’m going to stop and I’m going to chill and it’s going to be a passive relationship.” “I’m going to work really hard to get fit, and once I’m fit, I’m going to eat whatever I want and stop working out.” I’m going to have passive fitness. It’s a ridiculous thought, but it gets taught like that works in business. I’m going to build a big business, or I’m going to build a portfolio. I’m never going to look at it. It’s going to be passive income. It could be passiver, like we were just saying it’s less work. Once you’ve got good eating habits to stay fit, it’s less work.
Once you’re good at working out, you’ve done it for a while, but it’s never passive. You’re still going to have to maintain it. People have this ridiculous idea that they’re going to just buy some properties and it’s going to turn into money, and then they think there’s something wrong with them. They don’t understand that that’s not how the world works. If you stop paying attention to things, they fall apart. Or like I said earlier, they’re not giving their best effort. If you’re going to the gym every day and your goal is to leave without touching the weights, you’re a fool. I would say if you have a W2 job and you don’t like it, but you’re not working really, really hard to get better at it, you haven’t earned the right to get to the next position in life where you can make more money.
I remember this principle revealed itself to me very obviously. When I was on a hike with someone, it was like 105 degrees, very hot day. We’re hiking up a hill and this person’s complaining about how hot it is. “Oh, I’m so hot.” They just keep telling me how hot, and then they start moving at a snails pace. “It’s so hot, Rob. Oh, I just can’t do it.” And they’re crawling, and I was like, “Then let’s walk faster to get out of the sun so you could feel better.” You’re doing the most counterproductive thing you could when you’re in a situation you hate to say, “Well, I’m going to work less.” “I don’t like my job, so I’m going to try less.” “I’m really overweight and I am winded just getting out of bed, so I don’t want to go to the gym because it’s hard.”
If you don’t like where you’re at, the only way you get out of it is by working super hard, developing competence and eventually mastery, and then getting a job that you like more because you have the right skills. Everybody, if they take that approach… They may not all become multimillionaires, but they will definitely become financially secure. You could pay off a house and live without a mortgage. You could get all your credit card debt paid off, and you can have a really healthy amount of money saved up. You can house hack a house every year with 5% down. There are so many wealth building options that are available if we take that approach.

Rob:
Then let me ask you this. What would you recommend to someone listening at home right now who feels like they’re stuck or they’re waiting on the next thing?

David:
Stop watching the influencers like you and I that can lift 500 pounds of financial weight. Don’t worry about that. It would crush you. Ask yourself how many times a week you’re going to the gym and are you working out as hard as you possibly can? Are you maximizing the opportunities you have now? Are you looking for ways to build skills, to build talent, to improve your value at the position you have right now? Because if you’re not, you don’t want more weight, you don’t want more responsibility, you don’t want more wealth building opportunities, it’s going to crush you. Start building what you’ve got and you’ll build the skills and the opportunities will make themselves clear. Rob, you and I know this man. We have businesses and we’re looking for talented people all the time. Are you out there saying, “You know what? This person’s lazy. They don’t give a good effort. They’re not putting their most into life, but if I give them a job, I bet you they’ll step up and they’ll crush it for me.”

Rob:
Yeah, usually not.

David:
Usually it doesn’t work out. I spent five to six years making that mistake with hiring. What I’ve found is the people that are going to work good for me are already working good where they are, and they stand out. When I go to the restaurant, the waitress who’s kicking butt, who’s taking care of everyone else’s tables, who’s doing more than her job, if I hire her, she’s going to work like that for me. When you come across someone in the industry and they’re really good at what they do, you’re like, “I would hire that person for this new business opportunity.” There are financial opportunities everywhere because successful people need other hard workers and other talented people to help them grow. You got to make yourself look like one of those people to get those opportunities.

Rob:
Oh, man. That is awesome, man. That is good parting advice for everybody at home. So to recap our three pillars, we’ve got saving/defense. Not only how much money are you able to keep, but effectively how can you cut some of those expenses? How much of the money can you keep? Because the more you spend, the less you keep. We got pillar number two, which is the offense, the earning. Once you’ve got a really dialed approach to saving your money and stocking it, stocking it away, putting it in an envelope if it’s David Greene. How can I actually increase the amount of money that I’m making? What side hustles can I take on? How much more can I work? What double shifts can I pick up, and then how can I do that in a way that it doesn’t terribly affect the quality of my life? And then we’ve got number three, which is actually investing. Now that we’ve saved the money, we’re earning more, how can we deploy it in a way that will help us build wealth? Did I get that correct?

David:
Great job. It’s so simple.

Rob:
I’ve been listening adamantly for the past hour. I was like, I’m watching in masterclass. It’s hard to interject here because you’re bringing such good knowledge, but I think I got it, man. I’m ready to be wealthy.

David:
Yeah, stop looking for the way around the wealth building principles. Stop saying, “What’s the strategy when I have no credit, no savings, no skills, no work ethic, no girlfriend, no dog. I have nothing. How can I invest in real estate?” For a tiny percentage of people, that can be a good idea. My advice would be, “Well, let’s work on why your credit’s bad. Let’s work on why you don’t have any money. Let’s work on why your boss doesn’t like you.” Instead of saying, “Oh, my boss is a jerk. He wants me to be at work at nine o’clock every morning.” That’s just not me. Let’s fix those problems. Let’s build the foundation that you need to be able to handle the wealth when it comes and it will come your way.

Rob:
Awesome, man. So for people that want to find out more about you on the internet, they want to pre-order your book, can you give us a little bit of info, upcoming dates, all that good stuff?

David:
Yeah. I’m really trying to build a tidal wave, a huge community around this concept. I think it’s what American needs, and I think it’s what our listeners need. I think a lot of them have the skills, the brain, the knowledge to make it in the world of real estate investing that they don’t have the habits that are right. So you can get the book at biggerpockets.com/pillars, and please do. You can learn about me at davidgreene24.com or spartanleague.com, and you can find me online @DavidGreen24. If you like this content, if it resonates with you, but you feel like you just don’t know where to get started, or you need some accountability, you need some mentorship or some guidance, please do reach out. And please, as you’re listening to future episodes where you hear other people sharing their stories of how they built wealth, ask yourself, who would I need to become to do what that person did not? Not, how can I just find a way to get the results they have?

Rob:
Awesome. Well, you can find me over at Raw Built on YouTube and on Instagram, and of course, if you guys are looking for some really, really great content, we actually have an amazing episode that we’re about to release with David Lecko on off-market deals. So be on the lookout for that specific podcast, it’s coming out soon. David, close us out.

David:
This is David Greene for Rob, asking me the right questions like Barbara Walters Abba solo. Signing off.

Personalisation is a buzzword for marketers: by treating customers as individuals, tailoring messaging and marketing to their needs and desires, organisations hope to get a much better response. But there’s a problem: having staked the future on apps, betting that customers will download and engage with their software, they’re discovering that personalisation is very difficult to implement in the app world.

That’s the challenge Paul Meinshausen has set out to confront. The co-founder and CEO of Aampe, which has just announced a $7.5 million pre-Series A funding round, Meinshausen believes the marketing industry needs a new approach. “The assumption has been that once someone is inside your app, you can find ways to persuade them to make certain decisions or to transact with you,” he says. “But while everyone has built an app of their own, the technology around personalisation and the customer relationship is remarkably anachronistic.”

The problem, Meinshausen says, is that app builders currently have no option but to depend on rules-based software. If a user interacts with the app in a certain way, a particular response is generated. The aim is to personalise the interaction, but inevitably the scope for this is limited – in a labour-intensive, manual process, only so many responses can be programmed according to the underlying rules.

Aampe, founded in 2020, therefore takes a different approach. Meinshausen and his colleagues have built an artificial intelligence-driven tool that app builders can plug into their creations. The AI learns from app users’ responses – and the responses that the software has seen from other deployments – in order to create genuinely personalised content and messaging for each customer.

“It’s really about helping apps to get smarter,” Meinshausen explains. “Our software finds out what’s important to each customer in order to enable the app to provide a better service and experience on an individual basis.”

The hope, of course, is that this translates into people making more of the decisions that businesses are looking for – more spending via the app, for example. Aampe insists that is exactly what is happening for the customers it has signed up, including companies such as food delivery apps HAAT and Swiggy, the gig economy specialist IntelyCare, fintech PayU, and the retailer ZALORA.

At the latter company, Southeast Asia’s largest retailer, Aampe says it has already helped to drive a 13.2% increase in app visits and a 6.7% increase in additional purchases.

Certainly, many customers are looking for a new approach. Research suggests one in four users only open an app once before abandoning it forever, and the average app loses 77% of its daily active users within the first three days of them installing it. Meanwhile, research from Salesforce suggests 66% of consumers expect companies to understand their unique needs and expectations, while 52% expect all offers to be personalised.

A business that can square this circle therefore looks set to perform well. Investors in Aampe believe it could be a major beneficiary of this trend – this latest round of fundraising, led by Matrix Partners India and Peak XV Partners, takes the total amount of money raised by the company to more than $9 million.

“Customer engagement and marketing technology has been an early beneficiary of advances in AI and machine learning, and Aampe is a clear front runner in enabling organisations to adopt personalized and result-oriented communication to drive growth,” argues Aakash Kumar, managing director of Matrix Partners India. At Peak XV Partners, partner Anandamoy Roychowdhary adds: “As the world switches from growth at all costs to profitable growth with a solid unit economics profile, the way users are engaged and retained inside an application world has become more important than ever.”

Aampe isn’t the only player in this market, facing competition from a number of specialists in customer relationship management (CRM) software. However, investors are backing Meinshausen’s track record as the successful co-founder of Indian fintech PaySense, sold in 2019 for $185 million. His co-founders at Aampe, Sami Abboud, and Schaun Wheeler, are also well-known entrepreneurs.

Dave:
Hello everyone. Welcome to On The Market. I’m your host, Dave Meyer, joined today by James Dainard. James, how are you feeling about the multifamily market these days?

James:
We’re feeling pretty good. I mean, our portfolio’s pretty balanced out. Our stabilized portfolio is doing well. Now, we just got to find the margin, but the deals are creeping through here and there. They’re sneaking through, so as long as the numbers make sense, we’re all about it.

Dave:
Well, I’m super excited for today’s episode. I don’t personally sponsor multifamily deals, but I invest in multifamily deals and I think this asset class is one of the most interesting ones in all of real estate. If you look at commercial real estate and residential combined, multifamily is in a really interesting space right now, and we have brought on honestly two of the most experienced multifamily operators I personally know. We have Brian Burke coming on, who is the CEO and president of Praxis Capital. He also wrote a book for BiggerPockets on investing in syndications, and we also have Matt Faircloth who is the president of the DeRosa Group. He’s also been a multifamily investor for almost 20 years now. And knowing these guys, I think we’re going to hear some interesting opinions that you might not be expecting about the multifamily market. You don’t know either of these guys, do you?

James:
I know of them, but I’ve never got to meet them, so I’m very excited.

Dave:
Well, I think we’re going to have a lot of fun today because they’re both very entertaining and really know what they’re talking about. And don’t beat around the bush at all. They’re going to give it to you straight. They’re going to tell you what they like about the market. They’re going to tell you what they hate about the market. So if you were interested in investing in multifamily or you’re just curious about what’s going on with this massive, massive asset class, you’re definitely going to want to check out this episode. So with no further ado, let’s just get into it. I’m going to start this interview with an apology to Mr. Matt Faircloth because I am a little bit embarrassed that I have known you and worked with you at BiggerPockets for eight years.

Matt:
Well.

Dave:
And this is the first time you’re on On the Market, and that is completely my fault and I’m sorry, but I’m very glad to finally have you here on this show.

Matt:
I accept your apology, Dave, and it is an honor to be here. Thank you for having me. And I, of course, did not take it personally and thanks again and I’m looking forward to today’s conversation and mixing it up with Brian Burke a little bit. I’m going to try and disagree with everything he says.

Dave:
Okay, good. That’s going to be fun.

Matt:
I’ll make it a saucy conversation to make it up.

Dave:
Okay, good. Yeah, just be a contrarian to everything Brian says.

Matt:
Absolutely.

Dave:
Before we get to Brian, can you just introduce yourself for those in our audience who don’t know you yet?

Matt:
Absolutely. Guys, my is Matt Faircloth. I am the co-founder of the DeRosa Group, and you better have heard of me through BiggerPockets through my book that just had a revised edition release called Raising Private Capital. New version has a foreword written by Pace Morby. I’m also one of the leaders of the BiggerPockets Multifamily Bootcamp that just launched another cohort with hundreds of people. We’ve had thousands of people, Dave, through the program, and I’m really grateful for those that have gotten the multifamily education we’ve been able to deliver with BP through that. So that’s a bit about me and my company is a multifamily operator in multiple states across the United States.

Dave:
Awesome. Well, welcome to On The Market. Brian, you were here I think in the beginning of this year and beginning of 2023, you were a guest on On The Market, but for anyone who missed that show, could you introduce yourself, please?

Brian:
Yes, my name is Brian Burke. I was On The Market podcast before Matt Faircloth. That is my claim to fame. I’m president and CEO of Praxis Capital. I’ve been investing in real estate for 34 years, multifamily for about 20 years. Bought about 4,000 multifamily units around the peak of the market a year and a half ago. I sold most of it, sold about three quarters of my portfolio, and then came on your show and talked about how I thought the multifamily market was going to go down and it since has, I’m also going to be the chief disagreer with Matt Faircloth today since that’s how he wants to play it. That’s how we’re going to play it. But I’ll start out with, you might know me from BiggerPockets through my book, which is the opposite of Matt’s book, which is Raising Private Capital. My book is investing private capital, but it’s not called that. It’s called the Hands-Off Investor. And it’s written to teach passive investors how to invest their money into the offerings from the readers of Matt’s book on Raising Private Capital.

Matt:
Absolutely. They’re good pairings those books. And I’ve had many investors come to join us on our offerings that we’re armed with that book. And so I think it’s a great book to tell passive investors how to approach the investments they want to make.

Dave:
Matt, you were supposed to disagree with Brian and right off the bat you’re just agreeing.

Brian:
He already failing.

Dave:
Yeah, you’re failing here.

Brian:
He had one job. You had one job.

Matt:
Yeah, it’s not as good of a book. How about that?

Brian:
Okay, that’ll work.

Dave:
I like how both of you are basically assuring our audience that they’re going to learn nothing because they’re just going to hear polar opposite opinions from both of you.

Matt:
We’ll just give other perspectives, Dave. We’ll give other perspectives. How about that?

Dave:
Okay.

Brian:
We’re not here to teach you anything, we’re just here to present our thoughts and let you draw your own conclusions. How about that?

Matt:
Right. There you go.

Dave:
All right, fair enough.

James:
Well, I am very excited to have both of you guys on here. I’ve been actually waiting to get to interview both of you. So you guys have a great reputation and I’m excited to chop it up. But to get things started, I think what I’m really curious about, you guys have been a multifamily for a really long time and we’re getting all these nasty headlines right now that it’s just about everything’s coming to doom and gloom. The rates are high, things are resetting, and I think it’s making people pretty unsettled right now. Are these headlines in this fear and this doom and gloom, what are you guys doing right now with the multifamily space? Are you guys getting bullish on it right now? I know we’ve been looking for a lot more new projects or are you starting to take a step back and seeing where the chips lay right now?

Matt:
I mean, Brian and I are actually very good friends and we’re in a mastermind together as well. So I could say that for us, and this may be what Brian will say as well, that my company hasn’t bought a deal in a year and a half, and we’ve bid, we’ve underwritten something like 350 deals. We’ve written dozens and dozens of letters of intent, none of which were accepted, of course. And it’s because just the numbers don’t pencil any more based on what people are asking for. There’s the widest gap that I’ve ever seen between bid and ask, meaning what a seller is asking versus what a buyer is willing to pay for a property that I’ve seen.
It’s starting to come down a little bit, but the sellers, and most importantly the brokers, I think they’re really culprits here, have not come down to the acceptance that rising interest rates are going to pinch a bit on what we’re going to be able to pay for properties. But a lot of properties are being sold in the four to 5% cap rate range or offered up at that range and they’re coming back on, they’re going under contract and they’re coming back on the market. So I’m starting to see a little bit of slippage, which we can talk about, but there’s, up until recently, a lot of stuff we’ve looked at, it’s been drastically overpriced.

Brian:
When I was on this show back in January, the title of this show, and if you didn’t see it, look it up, it was called The Multifamily Bomb is About to Explode or something crazy, some kind of crazy catchy title like that. And I had predicted some chaos in the multifamily market. And so yeah, I think James, to your point, there’s negative articles out there and we’ve earned every one of them. There’s a good reason for these negative articles, that’s because there’s really not a lot of good news to report. It’s just being frank. That’s how it is.
Somebody asked the other day to use a baseball analogy, what inning are we in? Are we in the first inning, second inning, eighth inning, ninth inning? And my answer was, to use your baseball analogy, I’m on the team bus sitting in the parking lot waiting to get to the next venue and we haven’t even gotten on the freeway yet to get to the next park for the next game. I’m not buying anything. I haven’t bought anything in two years and it might be another year or two before I do buy anything. So there’s not a lot of really good news to report, I’m afraid.

James:
And do you guys think that you guys haven’t bought anything in the last year or two just because the opportunity’s not there? Or you just want to see where it’s going because we’re seeing the same thing, we look at hundreds of deals and then we find one out of a hundred that will actually pencil really well, and typically it’s value add, but are you waiting for a better return or is it just because the math’s not working?

Matt:
I think this is where we differ a little bit because we’re still looking at deals. Brian, you’ve told me that most of the time you’re just deleting emails as they come in from the broker. His finger can’t hit the delete button fast enough. He’s like, “Why are you clocking my inbox with this garbage?” So for us, we still do underwrite deals and we still shop and we’ve come very close on deals and I’ve actually seen more and more distress come in, people that have to sell versus folks that want to sell. So I think that’s going to be the next opportunity. We’re trying to catch something like that for somebody that’s looking to sell for a reasonable number versus selling for some astronomical, somebody trying to sell it for double what they paid for it a year ago. And we’ve seen quite a bit of that, by the way. We’ve seen multiple deals that are literally double what the seller paid for it two years ago, and they’re just trying to pass their problem that they bought.
It wasn’t making money when they bought it two years ago. They’re trying to pass that problem up line to me. So there’s a lot, there’s more of that, but we’re seeing more and more distress. So we are actively bidding. We just submitted an LOI yesterday on a deal, but it was a good deal. I mean, it made money, this magical thing called making money the day you buy it instead of being negative for a couple of years, crush your fingers and hope that it makes money later. We’re seeing more of that. Maybe not a torrent or a flood or a bomb just yet. So if there is a bomb, as Brian predicted, I don’t think it’s exploded yet, but the fuse is short if there is one. Brian, am I right? Are you still deleting emails as they come into your inbox and not even [inaudible 00:11:01]?

Brian:
Finally, I get to disagree with Matt because-

Matt:
Oh, please do.

Brian:
… he’s right that in the beginning, I’d say the beginning, when was the beginning? Let’s say late ’21 to early ’22, I was literally doing that. I’d get an email of the new deal coming in, I would just delete, I didn’t even care. You could send me what looked like the greatest deal in the world. I didn’t even care, delete. I couldn’t delete them fast enough. Now, I’m actually underwriting them, but I’m not underwriting them because I want to put in an offer. It’s more like if you’re seeing two cars about to collide, you just can’t take your eyes off of it. You have to watch the accident happen. And so I’ve got to underwrite the deal so that I can see where is the market, what’s really happening, how far apart are the buyers and sellers? What number am I coming to versus what number are other bidders coming to? And I’ll have the conversation with the broker like, hey, where are you coming in on pricing? Oh, our offers are in this range. And it’s like, really? Yeah, just lose my number.

Matt:
Well, at least you’re reading the emails now, Brian.

Brian:
Yes.

Dave:
Yeah, just to make fun of people though.

Brian:
There’s got to be some entertainment. I’ve been doing this for so long, I got to change it up and have some fun. Come on.

Dave:
Right. Yeah. There is some data that supports what you’re saying, Matt. I think the gap between buyer and seller expectations is something like 11% I think I saw last week, which is one of the largest it’s been in several decades. And I just wanted to ask you, Matt, as you’re doing this, you said you’re offering, are these properties selling just for more than what you would pay for them and you disagree with the other investors underwriting or are they just sitting?

Matt:
Yeah, sometimes yes. Sometimes yes, they are trading and we do monitor. We have CoStar, which is a software you can use to monitor transactions and that kind of stuff. So we do see some of these properties, believe it or not, our trading, and I’ve even through our investor base, believe it or not, it’s a bit of a small world. So folks that do invest with me will email, and they say, “Hey, I’m looking at this deal in a market that you do shop in, would you be open to take a look?” And darn it, if I didn’t already bid that deal, and this is a deal that we lost on, and I’m looking at the proud new buyers offering memorandum, and there’s a lot of things that they’re having to do to make the deal make fiscal sense for their investors.
Things that we wouldn’t do necessarily cooking their books, but they’re using a certain crystal ball, looking into the future, hoping that things go well, hoping that rate increases stay great, and hoping that cap rates go even maybe even lower than they are over the next five years. Those deals are closing, but they’re closing with a lot less debt. I mean, Brian and I can remember a day when you could buy a property where 75, 80% loan to value on a mortgage. Those days haven’t been around for a little while. Now, you’re talking 65, 60, even 55% loan to value. And you could present to investors, “Hey, it’s low risk, it’s low debt,” not true investor, what really is at risk is your money.
It’s more risk for the investors because there’s a lot more equity that needs to go in and make these deals work. So those are trading, Dave. But the other thing that I’m seeing as well is we’re also seeing deals come back on, saying, oh, that buyer couldn’t close or that deal fell apart, saying it nicely, but they either couldn’t get financing, couldn’t raise the equity, couldn’t something, and so they ended up backing out. And so the deal comes back on at less than what they were asking before.

Brian:
Part of the problem is too, I mean, I see this as an owner. As owner, our operations are fine. So we look at it and say, “There’s no reason to sell at today’s values. The values are way too low.” And then as a buyer, I’m looking at it going, “There’s no way I would buy at today’s values.” So if I can’t get myself on the same page, there’s certainly no way that unrelated buyers and sellers are going to get onto the same page. It’s just simply not happening. There’s way too much of a spread. To Matt’s point about loan to value ratios, you might be paying a fair price for a deal when the max loan to value you can get is 60% or 55% if that income stream is rapidly growing.
But if that income stream is stagnant, because you’re going to grow your way in to more value on the real estate, but if the income stream is stagnant and you can only get 55 or 60% LTV because that’s all the income the property has to support a debt of that size and you’re not growing the income, you’re paying way too much. And that’s what’s happening. If you could start underwriting properties at 75 or 80 LTV right now at today’s debt rates, you’re probably paying a fair price, but that’s not where sellers are.

Matt:
And these deals are going in at 55% LTV, Brian, that I’ve seen, and the cashflow is 2% on equity to investors.

Brian:
How’d you get it that high? I haven’t seen one that high. Most of the ones I’m finding, it’s negative. I saw one the other day, it was a 3% IRR, let alone cash on cash.

Matt:
Right.

Brian:
Some of them are just really, really bad. Now, some of these trades are happening probably because you’ve got 1031 buyers, they’ve got a gun to their head. The tax tail is wagging the investment dog. You’ve got ones where you have funds that have raised a bunch of money that’s sitting there, maybe they’ve got pref burning a hole in their pocket, they have to spend it. There’s some transactions that are happening out there, but transaction volume is minuscule compared to historical transaction volume. I mean, we’re talking about drops of 70 to 80% in some markets in transaction velocity, and there’s a good reason for that. Nobody wants to pay this price and nobody wants to sell at the price where the value really makes sense.

Matt:
Before we move on, Dave, I want to throw an and in there to Brian, we’ll call it a disagreement. Brian, [inaudible 00:16:56], that’s because I remember we’re supposed to disagree, right? So you forgot to say about cost segregation studies, Brian, and people don’t talk about cost seg enough and how it’s become a driving factor in this market. I cannot tell you how many investors invested with us over the years because of the negative K-1 they could get because of cost seg studies and accelerated depreciation, which in essence guys allows investors to write off a lot of the investment that they made into a property to the tune of 30 to 50% of the check that they write to the deal they’re able to show is a loss. Cost segregation studies and…
Well, accelerated depreciation is slowly burning off. You’re only able to write off 80% of it this year, Brian, as you know, it’s going to 60% next year. So I think that that factor has been artificially driving the market a bit because I still get investors that call us regularly saying, “Hey, can you get me a negative K-1? I mean, I need one by the end Of the year.”

Brian:
Don’t you love it when people want to make bad investment decisions to save paying a few bucks to the government?

James:
It’s so crazy.

Brian:
I think some of the worst investment decisions ever made were made for tax reasons.

Matt:
Oh, goodness.

Brian:
Whether it was a 1031 exchange, a negative K-1, whatever you want to call it, forget about that. This is a game of making money, not saving tax. Now, I know that saving a dollar to the tax man is earning a dollar. Okay, fine. But losing $10 to save $3 doesn’t make any sense.

James:
Well, you guys are two of my new favorite people. I think because I’m loving this and I know when I want to practice my sales skills, I’m going to call Brian and try to sell him a multifamily building in the next six to 12 months.

Matt:
Can I listen in on that?

Brian:
I’ve said I’m the worst marketing person ever, and here I am, I’m in the multifamily business and I’m just totally bagging on it. So this is my marketing prowess at its best, James.

Dave:
People always want to give people money who don’t need it, Brian. So I think you’re going to get a couple of phone calls after this podcast.

James:
But speaking of being a little pessimistic, which I think is a good thing, right? As investors, we’re supposed to punch holes in investments, see what happens, and then whether we want to move forward or not. So I’m one of the most pessimistic salespeople there are in real estate, but going back to work through that pessimism and work through these deal flow, getting back to just the fundamentals of multifamily, like how we buy properties or how you guys have bought in properties over the years and just getting back into those core principles, what you were just talking about of people are using cost segregation just to try to get the tax break when they could be giving away money over here anyways, people get blind by certain strategies sometimes. I agree it makes no sense just to get the tax break if you’re losing money. It’s like when you go buy an expensive car every year.
I’m like, I don’t understand that either. You get the tax ride up, but you’re still spending money on the car. So as we get back to, I mean, the one good thing about these rates going up is it is slowly settling down the multifamily market back to where it was 2016, ’17, ’18. You could look at a deal, you can put your numbers on it and try to move forward. What fundamentals are you guys… Like Matt, you’re looking at a lot of deals, Brian, you’re denying a lot of deals. So you’re still going back to the fundamentals of what are you working through and what are you guys looking for in today’s market? So it hits your buy box of, hey, we’re going to move forward right now because it’s a riskier market. So you want to take your time. What makes you push yes on that deal?

Matt:
Yeah, and this is one of these, again, I get to disagree. Brian and I buy in different vintages. I tend to buy more workforce housing, like the 70s and 80s vintage properties. And so I look at ways that I can add value and take a 70s or an 80s vintage and bring it up to today’s standards. So I look for what can I do? What can I roll my sleeves up with our company? Because we’ve got a fairly robust construction initiative in our company. So what’s possible with regards to renovation, construction, revamping, that kind of thing, and be a little careful in today’s market about that. You have to be very uber sensitive to pricing because anything you invest in a property and CapEx goes to your total cost basis. You can’t have the purchase price be too much of that cost basis.
So we look for construction dollars, James, and then I look for a disparity between the market rent and what the actual rent is. Most of the deals that we’ve done that have gone really well were not owned by seasoned operators before us. These are folks that were onesie-twosie operators or folks that were newer to the space that didn’t really know how to manage properly, mismanaged from one reason or another. So those are deals that we really like. And so I look to bottom line at James, I look for rent bumps if I can get them, construction investments that I can make that’ll create real change at the property. And I look for mismanagement that I can easily cure with a better management strategy.

James:
Yeah, that value add makes a huge difference in your performa, Brian. So are you more pessimistic about the market just because salespeople are trying to pitch you bad deals? Or is it just because you just don’t think it’s the time to be jumping in right now?

Matt:
Brian’s always a pessimist.

Brian:
Yeah, I’m already pessimistic. Both of those are true, actually. I owned this one property that was a complete and utter dog. I mean, there was nothing I could do to get this thing to perform. So this guy, somebody owned it, tried to get it to work, lost it in foreclosure, somebody else bought it, tried to get it to work, couldn’t get it to work. I came in and said, “I can fix this problem.” So I go in, I tried to get it to work, I can’t get it to work. I literally had hired the sheriff’s department to have a full-time deputy on the property to try to control the crime. It was that bad. Finally, I sell it to somebody else because it’s like we got to get out of this thing. We earned a little bit on it, but it certainly wasn’t a smoking deal.
It was probably one of our lower performing deals. And then a year later, somebody’s pitching me the deal to buy this deal and they’re like, “It’s a proven value add strategy with upside potential.” And I’m like, “That thing is a dog. There’s nothing you could ever do other than burn it to the ground that will improve that property.” And so it’s just absolute broker hype and never ever believe it when they say these proven value add strategy, it’s a 100% BS. But at the same time, now, we’re in this market where the market also sucks. So I don’t like where interest rates are. I don’t like where cap rates are. I don’t like where things are going. And then somebody wants to sell me a crap property that proven value add strategy in the middle of a crappy market. So it’s a double negative and that’s not a thing.

Matt:
I’m going to go give Brian Burke a hug right now. I think he needs one.

Dave:
So Brian, you’ve cited a couple of reasons. I just want to make sure we understand. So you’re saying you don’t like where cap rates are, so you still think they’re too low, at least on the buy side. You cited earlier, sluggish rent growth, high capital costs. Is there anything else we’re missing there that you don’t like?

Matt:
Insurance.

Brian:
Oh, yeah.

Matt:
[Inaudible 00:24:05], Brian.

Brian:
I don’t like expenses. Insurance rates are going up, payroll is going up. So all your operating costs are increasing. So now, you’re in this weird position where operating costs are increasing, cost of capital is increasing, income is decreasing because rents are falling, the stats are showing rents are falling, especially in markets that had big increases. Now, you could say like, “Oh, well, they had big increases, now, they have a decrease. No big deal. You’re still up from where you were a couple of years ago, yada, yada.” Great. But that doesn’t help you if you just bought six months ago because that was your starting point. So you’ve got all those factors are problematic. Now, to make matters worse, we’re investing in these assets to do what? It’s to earn a return, right? We’re putting money into a deal with the hope that in the future you’re going to get more money back. That’s the only reason that we’re doing this.
And in order to quantify how much money we’re going to get back, we have to do financial modeling. And when we do financial modeling, we’re using assumptions to determine what the income is going to be in the future and what the property’s value will be in the future so we can see how much we’re going to ultimately sell this property for and how much we’re going to earn along the way. Now, if I can’t quantify the inputs going into this mathematical equation, I can’t quantify the output. And that’s the problem I’m struggling with right now. I don’t know where interest rates are going to be six months, one year, two years from now. I don’t have a lot of confidence that they’re going to go in the direction that I would find favorable and certainly not the direction where I think it’s necessary at today’s values.
So that one’s out the window. I can’t quantify where rent growth is because predictions are all across the map and they’re not what they were. And you can’t look in the rear-view mirror and say, “Well, it was 10%, so it’ll be 10%.” No, it won’t. So that one’s out the window. And then on top of all that, you don’t know where cap rates are. So how do you calculate your exit price if you don’t know the cap rate? And I think cap rates are still too low. I mean, it was one thing to buy four cap properties in a 3% interest rate environment when you had 10% or 15% rent growth, but four cap does not work in 0% rent growth, even if you didn’t change the cost of the capital. Four cap also does not work with increasing rents, but high interest rates. Now, you have decreasing rent and high interest rates and four caps are just a total joke.

Dave:
All right, well, let’s just end now. I think the episode is over. It’s over now.

Matt:
If you were an animal, you would probably be a bear right now, right?

Dave:
An angry bear.

Brian:
It’s realism. It’s demanding some realism in this market. Everybody wants to be rosy, like everything’s going great.

Matt:
Don’t you think there’s going to be opportunity though, bear man? You think there’s going to be opportunity coming down the pipe here, right? And this is like your bull optimist buddy over here talking, right?

Brian:
I was going to say, is this where you say moo or something like that?

Matt:
No, I don’t say moo. I say, right opportunity because I think that I’ll give you a few things that are on the other side of the coin. Equities expectations has not changed. I don’t know if the folks you’re talking to have or whatever. Yes, debt cost of capital has changed, but even though you would think that it would because an investor could just go popping their money into a mutual fund or a CD right now, whatever, and make themselves four and a half, 5%, their expectations on pref or expectations on IRR or returns on a deal have maintained somewhat realistic. It hasn’t changed. They’re not expecting to make… You would think that investors made 20, 25% IRR with syndicators getting lucky and selling deals to the market being really hot the last couple of years.
Investors were not seasoned by that and that’s not what they expect anymore. Investors still, I think I’ve seen investors expect 12, 13, 14% IRR on deals and they’re also willing to be even more patient, right? I think that in addition, everything you just said is right. I’m not disagreeing anything you said, but I’m just giving you another perspective. So I think that there is also opportunity to acquire deals for people that have to sell. There are maybe opportunities and this wave hasn’t come through yet because it just takes a while for distressed properties to work their way through the system to get… I know you were around in 2008 like I was. When the market crashed in 2008, the distressed deals weren’t on the market a month after that.
It took like a year or so for that distressed to work its way through. So that being said, I think we’re going to see maybe some more bank loan foreclosures come onto the market. I think we’re going to see owners that are going to get realistic that they’re going to realize they can’t sell for their number that they need to sell for and they’re going to get more in tune here. So I’m starting to see more of that, more distress in the market, more people that have to sell versus those that want to sell. And I think that in line with equity, in line with really good underwriting and factoring in everything you just said, I think will create opportunity and is beginning to create real opportunities that exist today.

Brian:
Well, I do agree with you that the investor’s return expectations haven’t really changed much. That part, I’m on the same page with you. The difference that I see is that two years ago, we were driving a Corvette en route to that destination and now we’re driving a Tercel and so with a quarter tank of gas. And so we’re still trying to get there, but it’s just difficult to get those mid-teens returns at where prices are today.

Matt:
I’m starting to see broken down Corvettes on the side of the road. And also I’ll give you one more. We don’t invest in top tier markets and that’s something you and I have always differed on that one, Brian, we invest in sub-tier tertiary markets like the Piedmont Triad in North Carolina is one of our markets. I have a joke, if the city has a major league anything, I won’t invest there, major league football, baseball, maybe hockey, but not baseball or football. [inaudible 00:30:33] if major league baseball, major league football’s made a big investment there, not me. I’ll go for where a minor league team is because the cap rates didn’t push down as far as they did in say Greensboro as they did in Raleigh or in Charlotte or something like that.

Brian:
Yes, I call those high barrier to exit markets.

Dave:
No one wants to buy. Yeah.

Brian:
I suppose that makes it easier to buy [inaudible 00:30:55].

Matt:
Something we’ve debated on a lot, Dave, is that it’s easy to get into but hard to get out of those markets.

Dave:
That’s right.

Matt:
Believe it or not, there are people that do want to buy in the tertiary markets.

Brian:
Yes, there is. And there’s arbitrage. There’s arbitrage you could play, I don’t care what the market looks like, you can play arbitrage. I could literally buy a deal today and it would work and I would confidently buy it and I could confidently pitch that to my investors, but it would be at a certain price. And the problem is that no one is willing to sell at that price right now. They will be when their back is against the wall, they will be. I just haven’t seen it yet.

James:
But it does feel like it is coming down, I mean, things are moving downstream right now. We’ve seen some syndicators that maybe are a little bit newer to the market. They’re getting caught with some bad debt right now and it’s causing some issues or their midstream and a value add and their costs are out of control. Maybe their vacancy rate was a little bit higher than they expected during that transition, the turn, their debt has crept up on them on the bridge financing. And so Brian, the one thing is yes, nothing’s making sense, but sometimes that’s the best time to buy a deal because things start falling apart and breaking down.
I feel like these opportunities are starting to come up. We’re starting to see some stuff that we can stabilize out at seven and a half, eight cap in there, which we would not be able to touch two years ago. And so as these things are transitioning though, does it also make you put your deal goggles on? Because when I see those things being able to buy that one rare deal needle in the haystack, I get excited and I’m like, okay, cool. We got some movement coming this way.

Brian:
Yeah, I mean, that’s the beginning of it. That’s the spark lighting the fuse. But for me, our scale is a little bit larger. We need to see that I can’t just buy one needle in one haystack. There needs to be a few needles in there to really make it worthwhile because that one needle in that one haystack is being chased by anybody that’s going to try to find it. Now, you can always find that one that nobody else had their eye on. And I’ve done really well over the years doing that, getting that one deal nobody knew about, but I just don’t think that they were there yet in enough quantity where it makes a ton of sense and I think we’ll get there and time will allow this to wash out. But I just think there’s another six months to a year of chaos that needs to play out before we get to a point where we can confidently say there’s going to be enough deal flow at a fair enough valuation to make the effort worthwhile.

Dave:
So Brian, if you’re not doing multifamily, are you doing anything else instead?

Matt:
Golf.

Brian:
Yes. I’m trying to improve my golf game. Actually, I just got an in-home golf simulator and I have my own driving range in my garage.

Dave:
All right, what’s your handicap done in the last year then? How many strokes have you shaved?

Brian:
It’s absolutely terrible. Absolutely terrible. I cannot break a 100 to save my life and it’s just because I’m not really good at sports and never have been. So yeah, literally nothing. It’s like I sold three quarters of my multifamily portfolio right before the market started to tumble because I saw this coming and I’m like, “We got to get out of all this stuff and sell it all while we still can.” I sold one of my companies and so I don’t have to do anything, so I’m just waiting for the right time. Now, when I was younger and broker, I was out hustling and trying to find deals and I looked for any little pocket I could find that little shred of opportunity. I totally get it. The people that are listening to this podcast, they’re like, “Hey, I’m newer in this business. I don’t have the luxury of being able to sit there and not work for a year. I need to do something.”
Get out there and do it. That needle in that haystack that James talked about is out there if you can find it. I think you’re going to find it probably in small multi. I think that’s where the opportunity is right now. I’m too lazy to do it, but I think if you have the energy for it, go out there and look for your duplex, four-plex, 10-plex because that’s where you’re going to find the quintessential tired landlord or that’s where you’re going to find the undercapitalized, unsophisticated owner that wants to get out of landlording and all that kind of stuff. That’s where you find those deals. You don’t find those in 250 unit apartment complexes. People that own that stuff are generally well capitalized, professional. They do this for a living. They have resources and ways to weather the storm. Now, that doesn’t mean they all do. There are certainly a lot of syndicators that gotten this business over the last few years that probably never should have. This market will clean them out, but the deals are going to happen behind the scenes.
You, casual investors, are never going to see them. There’s billions of dollars. In fact, I think I just saw an article the other day, $205 billion of capital sitting in dry powder on the sidelines by large PE waiting to buy distressed debt packages from these deals. And so what they’ll do is they’ll buy the debt at a discount and then they’ll foreclose. But when they open the foreclosure bid, they’re going to open it at full principal and interest, which will be more than the property is worth. So they’ll get the property back and they’ll buy the property before you ever see it. So I don’t think we’re going to see this big wave of foreclosures, all that’s going to happen in so-called backdoor deals that aren’t going to be out there on the forefront. So it’s just going to take a while for all this cleanup to happen. That’s all.

Matt:
If I may offer a alternative, my way to look at it, first of all, the needle on the haystack is never on the market. The needle on the haystack gets found behind the scenes and the way you’re going to find a needle in a haystack right now, and I’m talking to those listening on how to get going or how to scale up in today’s market. One thing I teach in the BiggerPockets Multifamily Bootcamp is about being market centered, right? You are not going to find a needle in the haystack if you’re just sitting around surfing LoopNet and waiting for a 8% cap rate deal to show up on LoopNet. But you might find a deal that pencils out and is a good deal if you pick a market, not seven, not 10, certainly not any more than one market that you want to become an expert in, and then drill into that market and get to know the brokers.
And then yes, you could start small, as Brian had said, if you’ve got the management equation figure it out on how to manage a 10, 15, 20 unit that you may find. Go for it, right? You are going to see more distress on the small side. Brian is right about that. But if you drill into a specific market, the brokers Will Certainly put the fancy pants, 95% occupied, 50% renovated apartment building with lots of value add, 1992 vintage. They will gladly put that all over the market and blast it to everybody. But what they’re not going to do is they might not put the 75% occupied property where the person’s run out of gas and true story guys, property where the syndicator themself has fired the construction crew and is in the units themselves painting the apartments. We saw that deal.
That’d be like Brian or Matt painting the apartments and doing the renovations on their own because they couldn’t get anybody to work for them anymore, couldn’t afford to pay the labor so that the operator decided to be the labor. Those opportunities are out there, but you’re certainly not going to see a broker mass marketing that opportunity. They’re going to walk around and make that a pocket listing or just find somebody who’s willing to give a good number for that deal because the broker’s not going to put their name on it or do a big blast on it or anything like that.
Deals like that, maybe seller’s a little embarrassed about what they’re dealing with. They don’t want 30, 40 different groups tramping through the property, maybe don’t want to tell their onsite staff that they’re selling. So deals like that are going to get sold more behind the scenes. And if you guys want to get plugged into those needle in a haystack behind the scenes deals, you got to become uber market centered. And they’re starting to happen now. We’ve seen them and there’s going to be way more of them soon. And I also agree with Brian on the foreclosure thing, he’s probably right. Private equity probably is going to buy up a lot of that and then we probably won’t see it, but there’ll be some distressed seller to owner stuff that will happen too.

Dave:
So Matt, you’re just out there looking for deals and not pulling the trigger. Are you actually doing anything, shifting any of your money out of multifamily into other asset classes?

Matt:
Making a lot of offers, but you don’t make money making offers, do you?

Dave:
Doing a lot of podcasts.

Matt:
That’s it. I know. This is a lot of fun but doesn’t pay well. So what we are doing is yet again, like I said, I want to be Brian. I do respect Brian quite a bit and I do follow a lot of what he’s done. And so he’s done very well with hard money and so we have launched a fund that puts money into hard money assets, which hard money gets used during times of distress. If you could borrow money from a bank, you would, you get money, hard money because you have to because you’ve got something that needs to go from A to B, call it bridge capital if you want to call it something nicer than that. But there’s becoming a lot more hard money that’s going to be used to take things to transition assets that maybe need to get around second base, so to speak, and get brought home.
So we’ve launched a fund that’s doing very well, that’s just deploying capital into bridge deals, smaller stuff, not big, big, big multifamily stuff. These are little duplexes, triplexes. We’re doing an office building, hard money loan, that kind of thing. But it’s a great way to create cashflow now because multifamily has gotten away from cashflow over the years. It’s more of an appreciation game or it has been recently. But the fundamental of multifamily used to be cashflow. And what’s great about hard money is that cashflow is day one. And so we really have been pushing that hard while we still bid, I don’t know, we might underwrite, we probably get to between 10 and 15 multifamily deals a week that our team is underwriting as well, hopefully to catch something.

Brian:
And Matt, you’ve brought a good point there about the hard money thing. The other advantage of that is it allows investors a place to invest capital in this market and earn a return. I mean, we’re doing the same thing. We started a debt fund a couple of years ago and it was a follow on. The company that we sold was a loan originator, a hard money loan originator. And so we flipped to the other side and became a debt buyer a couple of years ago. We got about 50 million in our portfolio, but we’re able to get investors an immediate return versus with multifamily ownership, it just takes so long to get there. And right now, we can give more cash on cash return with debt than we can with equity. So it gives investors a place to put money while they wait for the next multifamily cycle to come back.
And I just think right now, I’m more focused on risk than I am on reward because I think in order for us to earn a return in the next market upcycle, we have to survive the market down cycle without losing principal. So if you could put your money into a debt vehicle, I just think somebody else’s money is in first loss position. Our average loan to value ratio is 65%. That means somebody else has 45% or 35% equity in the deal that they can lose before we ever get touched. And so to me, that’s a downside risk protection. So I think people need to think about containing their risk first, finding avenues for cashflow with good risk management and forget about your pie in the sky, double-digit, mid-teens returns for now. Those days will come back, and in fact when they do come back, they’ll probably outperform.
It’s like three years ago, four years ago when we were projecting 15% IRRs on our deals, we were delivering 20s, 30s, 70 in one case. So those returns are really good when the market is really taking off, those days, they will be back. I’m not long-term bearish on real estate, the market or multifamily. I’m short-term bearish. And that’s all going to change. The problem is I don’t know when. Is it going to change next week, next month, next year or two or three years from now? I can’t call it yet. You’ll have to have me back on the show before you have Matt come back on. I don’t want to have him beat me the second time around. Then at some point, I’ll be able to figure out when that’s going to happen, but I can’t figure it out just yet.

James:
No, and I love the debt model. I’ve been lending hard money for a long time and I remember when I was 20, it was 2008 and the market just crashed. I met this private moneylender and he had a gold chain and he would charge us four points in 18%. And I remember I was like, “I want to be that guy when I’m older,” like lending out the money. Because it is, you’re right, it gives you a much safer loan devalue position. We do a lot of private money, hard money loans out in Washington, as debt becomes harder to get, it’s a great engine because you can get a high yield. But going back to the multifamily conversation, the good thing about it is you don’t get taxed at that same rate that you get as ordinary income coming through, right? It’s a high return, high tax.
And I guess since we brought up debt, what do you guys suggest? Hard money, people are starting to use it more for these value add multifamily deals too that are a little bit hairier. They got a lot more construction going on. Their commercial debt’s gotten a lot tougher to get. They don’t want to lend you as much money. It costs more. What are you guys seeing on the commercial debt side right now as far as apartment financing? And for people that are looking at buying that 10, 20, 30 unit buildings, because where a lot of the opportunities are, what kind of commercial debt and who should they be talking to? I know we’re doing a lot of local lenders where we’re moving assets over to them to give us more lending power, because the more assets you bring them, the more flexible they are with you. What are things that you guys are seeing as you’re looking at maybe buying that next deal or one day, if I can get Brian a good enough deal, maybe he’ll buy it. What would you be doing to lock down that debt?

Matt:
Well, okay, the deal’s big enough and it doesn’t need that much renovation. The agency debt, Fannie Mae, Freddie Mac are still probably the best out there that you’re going to get because they’re government backed. The yield spread they’re willing to take is a lot less than what you’re going to see elsewhere. So they’re still putting money on the street at like 6.89, I’m sorry, 5.8, 5.9, maybe 6.1, somewhere in there, which is about as low as you’re going to get. But if you need any renovation dollar at all, if you want to renovate the property and do some value add, you got two choices. You can either get that money from your investors and raise it and then hopefully you can recapitalize the property and refinance it or you create enough value add cashflow that the investors are happy with what they’re getting, which that’s what we do.
We just do renovations with investor capital. We just need to just raise what we need for renovations. The other way you can go about it, James, is you could, if you’re buying that 20, 30, 40 unit, a lot of small community banks on the small side would be willing to lend that to you, maybe a fixed rate debt as well. So what scares me is floating rate debt because no telling where it’s going to go and then there’s this awful, terrible invention called a rate cap. Actually, it’s not a bad thing, but they’re just so crazy expensive now that you’ll have to buy to stop your rate from going up. And the cost of those things can really kill the deal.
So if you can get small community bank debt, not a bank that has their name on the side of a stadium, but small banks that maybe has five to 10 branches just in the market that you’re investing in, they might be willing to throw in renovation capital as well and maybe offer to do what’s called rolling up to perm where they can give you acquisition debt and construction debt and then they’ll transition that loan over to a permanent loan and start amortizing it over time once you’re done your work. The only just asterisk put on there is a lot of times almost all the time that debt is recourse, meaning you have to sign off on a personal guarantee. So you have to be okay with that.

Brian:
Yeah, I think Matt’s nailed it as far as most of those financing sources are concerned. I think to that, I’d add that private money is a source to use when you can’t find anybody, any banks or agencies to loan more unique scenarios, heavier lifts, that’s where your private money comes in. It’s a little bit more expensive on an interest rate. It also has a pretty short maturity. There’s unique situations where that works. Now, you really have to be confident that you can execute in the timeframe that you have allotted because I think the biggest killer in real estate in terms of sponsors having a lot of difficulty is in short-term maturities.
And it’s amazing how fast time goes by. And if you take out a three-year loan with two one-year extension options and you think that’s forever from now, well, three years goes by in the snap of a finger in this business. And then if things don’t go according to plan, you might not qualify for those one-year extensions and now you’re completely stuck. So you really have to be careful about loan maturities. Now, in one place, I differ from Matt and I get to disagree with him again, which I love.

Matt:
Please do.

Brian:
Is I like floating rate debt and most people think you’re nuts, why would you want to take on interest rate risk? And the reality of it is if interest rates right now are at a all time high, and when I say all time, I don’t mean all time, all time, I mean, in the last call it decade, interest rates are higher than they’ve been in a decade. Do I want to lock in fixed rate debt at historically high interest rates in relation to this kind of short-term history? I don’t. I want to see it float down. Now, the other problem is when commercial real estate, now, residential real estate, totally different ballgame. I love fixed rate. Any residential property I’ve ever owned has had 30 year fully amortizing fixed rate debt. I wouldn’t do anything other than that.
But in a commercial space, you don’t get 30 year fully amortizing fixed rate debt. You get any kind of debt that you get in commercial real estate that has a fixed rate is going to have some kind of prepayment penalty and it might be a fixed percentage of the loan amount. In which case, that’s not so bad. It might be a concept called yield maintenance, which is astronomically horrible. Yield maintenance means if I take out a 10-year loan, I’m essentially telling that lender they’re going to get all 10 years of interest. And if I have this deal that I’m going to buy fix up and resell in, let’s say three years or five years, I’ve still got to pay the other five or seven years of interest to that lender that I’m not even borrowing their money.
And when you add up the cost of that, it’s enormously expensive. It can cost you millions of dollars. Now, do I want to do that when rates are high? No, because that means I can’t refi if rates go down, and if the property value goes up, I can’t sell either and I painted myself into a corner. Now, I like floating because it doesn’t have that kind of a penalty. Now, floating on the other hand has one risk, and that is if interest rates move high fast, it really sucks to be in floating rate debt. And what just happened, interest rates moved higher than anyone ever imagined, faster than anyone’s ever seen.
And this is the worst time to have been in floating rate debt in probably 20 or 30 years. And I have floating rate debt on the assets that I own, and it sucks. Now, we don’t know yet whether or not fixed would’ve been any better because if I go to sell in a year or two, I might’ve had yield maintenance that would’ve killed it anyway. So nobody really knows. A jury isn’t out until the whole thing is done. But debt isn’t a simple yes or no question. Debt is a very complex question that you have to tailor to your specific circumstance on the deal that you’re doing.

Dave:
That’s fantastic advice, Brian. Thank you. And yeah, I think for all of you who are considering multifamily or are currently investing in multifamily, highly recommend learning more about the debt structures. It’s something I feel still like a novice on, and thank you for teaching us a bit about it, Brian, but it’s a lot riskier and a lot more complex than residential financing. So hopefully you all can take the time to learn it. Maybe that’s what you should spend this time doing instead of buying deals, Brian, is everyone should be learning about commercial debt right now so that they can apply what they learn when the market cycle changes a little bit.

Brian:
Well, I’ve been saying, Dave, for a while, this is a fantastic time to build your business, this is the time where you should be learning everything you can about debt, building your investor base, building your broker network, building your systems. Because you know what? When the market gets really good, you’re going to be busy doing deals and you’re not going to have time to refine your systems and sharpen your tools.

Matt:
No.

Brian:
This is when you sharpen your tools and then you use them when the market is really good. So this is an opportunity, take it.

Matt:
Yeah, and I just would talk, I would work really hard on infiltrating a specific market right now. We’re not going wide, we’re going deep as a company. We’re not tip picking new markets, we’re just trying to make new friends in the markets that we’re already investing in because that’s how we’re going to find those needles in the haystack in today’s times. The worst thing I think you could do is to dilute yourself and go wider than you should as this market’s a little squirrely right now.

Dave:
All right, well, we will end on an amicable friendly note like that with you two, agreeing with each other and offering such great advice.

Matt:
Yes.

Dave:
Brian, if people want to learn more about you and what you’re not doing right now, where should they find you?

Brian:
Well, we are doing a debt fund.

Dave:
Yeah, that’s fair, true.

Brian:
You can learn more about us at our website, praxcap.com. It’s P-R-A-X-C-A-P.com. You can follow me on Instagram at investorbrianburke. You can check out my book biggerpockets.com/syndicationbook.

Matt:
Or you can meet him at the top golf down the block from his house, which is [inaudible 00:53:00].

Brian:
Yes, or you can meet me at BP Con where I will be moderating the panel on multifamily. Actually, it’s just on syndication, not specifically multifamily, but the panel on syndication.

Dave:
All right, great. And Matt, what about you?

Matt:
They can learn more about my company, DeRosa Group at our webpage, DeRosa Group, D-E-R-O-S-A group. They can follow me on Instagram at themattfaircloth and they can also see me at BiggerPockets at our booth that we have there at BiggerPockets. They can come see me at the multifamily networking session that we’re running there as well. So we’re going to be all over BP Con with me and my team from DeRosa. So really excited to connect with all the BP people at that event and seeing Brian as well. And Brian and I are actually really good friends. We actually have a lot of fun pretending to disagree with each other, but I am just a little more of an optimist about things, but I really appreciate people like Brian that can give me more of a real perspective on the world versus best case scenario, which is that’s the world I tend to live in my brain.

Dave:
All right. Well, we appreciate both of your incredible experience and knowledge and sharing it with us here today. And of course, we’ll have to have you both back on soon, hopefully when we have a little bit better line of sight on what’s going to be happening so we can start hearing some of the strategies that you’re both employing to start jumping back into the market. But who knows when that will be? All right, Brian, Matt, thanks so much for joining us again.

Matt:
Thanks for having us, Dave. Thanks, James.

Brian:
Yeah, thanks. Thanks guys.

Dave:
We were just completely useless in that conversation I feel like. We did not need to be here for that entire thing.

James:
No, we just need to do the intro and the outro, Dave, and let them go. That was one of the more entertaining episodes I’ve been on.

Dave:
This is perfect. It’s basically just you and I get to invite people we want to learn from, let them talk and I’m just sitting here taking notes not to ask my next question, just for my own investing of just like it’s basically our own personal bootcamp or webinar mastermind or something. Those two, super entertaining but also just extremely experienced and knowledgeable. I learned a lot.

James:
Yeah, that’s a great perk about our gig. We get to talk to really cool people and it was awesome to have both perspectives because everyone has an opinion on what’s going on right now and getting both sides of the spectrum. Brian being very conservative right now, it was nice to hear that it’s okay, right? He’s like, “Hey, I’m good to wait this out. I’ve done really, really well and it’s not for everybody,” but that’s what he’s going to stick with. So it’s just a great perspective.

Dave:
Yeah, I think that the thing that I walked away with is that for someone like Brian, think about his business model. He has been managing funds for multiple decades. The way he makes money is by collecting tens of millions of dollars from passive investors and investing them into multifamily. So his whole point is right now he could probably raise money. I bet he can, but there’s just not enough good deals for him to deploy that capital. So he’s not going to raise the money. For someone who’s just looking for one deal or for two deals, you might be able to hustle into good deals right now. He said that himself. And so I think that was just a really interesting perspective. If you’re a smaller investor or someone like you, James, who just knows your market extremely well and are willing to take deal flow where it’s just one successful deal out of every a 100 deals you underwrite, that’s totally fine. But I think it sort of makes sense to me that Brian, given his business model and how his business operates is being more conservative.

James:
Yeah, and I think that’s the right approach, especially when you’re dealing with that much of investor capital. And then it was good to hear Matt, “Hey, we haven’t bought anything, but that doesn’t mean we’re not swinging every month.” They’re swinging every month and he just wants to make contact on something. And depending on what you want to do as an investor, both, neither positions are wrong or right. You just want to figure out where your risk tolerance is and how you want to move forward.

Dave:
Yeah, absolutely. And totally agree on debt working really well right now. If you know how to lend money or are an accredited investor and can participate in debt funds, it’s a great way to get cashflow right now. So definitely agree with both of them on that. The other hand, I think it’s just a bit more waiting. It sounds like you’re still looking at multifamily deals, right?

James:
Yeah, we’re always looking and we were actually at a fairly good one in Seattle recently, a couple of days ago. So there’s buys out there, it’s good for us kind of middlemen guys that are in that 30 to 50 range. But yeah, if you’re like Brian, the bigger stuff just doesn’t have the margin in it.

Dave:
So 30, 50 units you mean?

James:
Yeah, it’s like kind of no man’s land right now. A lot of people are looking, so the margin’s a little bit better. The sellers are being realistic, but it takes a lot of swings and that’s okay. Just keeps swinging until you make contact. I think the biggest thing is don’t get itchy finger, just be patient and you’ll get what you’re looking for. Stick to that buy box number you need.

Dave:
Yeah, absolutely. Very good advice. All right, well, James, thank you so much for joining us. We appreciate it. And thank you all for listening to this episode of On The Market. We’ll see you for the next episode, which will come out this Friday. On The Market was created by me, Dave Meyer and Kailyn Bennett. The show is produced by Kailyn 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.

During the pandemic, Zappos once again shot to the top of the customer experience (CX) leaderboard. Instead of pulling back on its historic support amid dropping sales, the company doubled down on its customer commitment. Zappos representatives were encouraged to chat with buyers as if they were buddies — and the scheme worked. Zappos hung on to its top position and received lots of media kudos in the process.

The point isn’t just that Zappos zigged while its competitors zagged. It’s that Zappos realized that cutting off customer lifelines is a bad idea, especially during times of economic turmoil. Customer trust is tough enough to engender. Why take away the support that can foster, fuel, and nurture it?

Yet that’s exactly what too many companies are considering doing today. There’s no doubt that the world is mired in a mix of shrinkflation, stagflation, inflation, and other serious ‘-tion’ words. In response, countless businesses are taking extreme measures including laying off their personnel. And your company may be ready to follow suit. Just think twice before pulling the plug on your customer service because you might be pulling the plug on your ability to scale.

You see, every positive CX adds a bit to your customers ‘trust piggy banks’. The more trust they have in your brand, the less likely they’ll be to shop elsewhere. A full 75% of consumers say that they stick with trusted companies, even when their prices are higher. Consequently, investing in your CX simply makes financial sense, no matter what the economic tailwinds do.

Ready to do more for your buyers and buck the ‘right-sizing’ trend? Try these strategies to keep your costs down while still serving up exceptional CX.

1. Make it a breeze for customers to problem-solve solo.

We live in an era where shoppers frequently try to find answers to their problems before contacting live customer service agents. This is good for your company and its budget. The more customers who can self-serve, the more time your representatives can spend on other customers with complex, higher-level concerns.

An economical way to encourage self-service is by adding AI-powered tools into your CX mix. Many respectable startups have grown by prioritizing things like this. One of my favorite advanced solutions is AI chatbot technology. Chatbots can solve baseline buyer questions quite efficiently. A chatbot can rapidly direct customers to videos, how-to articles, instructional manuals, and do more. At the end of the day, empowered customers who can take care of their business will take care of your business as well.

2. Offer free resources and educational opportunities to customers.

Your brand goal shouldn’t just be to sell merchandise or provide services. Ideally, your company should become synonymous with your industry. One way to make this happen is by telling your customers what you know. By sharing your expertise freely, you’re making them more informed consumers. At the same time, you’re cementing your business as ‘the’ place to go in your field.

This doesn’t mean creating gated whitepapers and calling it a day. To truly give away your knowledge, you have to think broader and with less of an immediate lead generation focus. For example, you may want to offer webinars to talk about innovative ways to use your products. Or you might start a YouTube channel, or even launch a podcast. Some of the biggest corporations are trying to capture the millions-strong podcast listener market. A podcast doesn’t have to break the bank but can assist you in breaking out as a go-to brand.

3. Encourage customers to become members of your brand.

Do your customers feel like they’re part of an exclusive group? You can make them feel that way by setting up a membership or branded community system. For instance, you might want to offer customers the chance to join a special club. The club would give them access to exclusive ‘sneak peaks’, discounts, coupons, and other valuable add-ons in exchange for their personal data.

When laying out your membership group, think about what makes sense given your customer base. Oh, and be sure to begin small and free. You can always expand your program later to include premium or paid membership options. Right now, though, you just want to design a community experience that rewards your customers for choosing you over your competition.

4. Set up customer feedback mechanisms — and make changes accordingly.

You can’t wow your customers if you’re not listening to what they need. A fast way to find out what they want is by eliciting feedback. Plenty of companies set up automatic surveys to deploy after a customer makes a purchase. The survey captures the customer’s mood, satisfaction, and experience in real-time. The result is a better handle on how customers are feeling and what they would like to see during future engagements with your brand.

Of course, asking for customer feedback implies that you’re going to do something with the answers. You can’t always encourage people to fill out surveys without making improvements or changes. The upside to making changes is that your customers will have fewer negative interactions.

You can’t stay in business if you don’t have customers. Before agreeing to shave your customer service and support funding, rethink your plans. Improving and enhancing your CX isn’t just another cost. It’s an investment in the future growth of your company courtesy of a loyal, trusting cadre of buyers.

David:
This is the BiggerPockets Podcast show 828. BiggerPockets has a Rental Property Calculator that you can use to look into this and decide would that town home support that rent? You can also call local property managers, meet local real estate investors. You’re living in LA, one of the benefits other than the rattlesnake sausage, is all the other people that are out there that are investing in real estate themselves. So, take advantage of that. Talk to people that own town homes and ask what they’re getting for rent. If it doesn’t bring in what you need for it to make money and you can’t afford to bleed money every month, the answer becomes pretty clear that you need to sell it.
What’s going on, everyone? It’s David Greene, your host of the BiggerPockets Real Estate Podcast. The biggest, the best, the baddest real estate podcast in the world here today with a Seeing Greene episode. In today’s shows, we take questions from you, the listener base, the future millionaires, the future financially free. And I do my best to answer them with the knowledge that I’ve gained with over a decade of investing in real estate, serving people as real estate agents and a loan officer and more.
In today’s show, we cover how to structure a short-term rental with a partner, when to go with an adjustable rate versus a fixed rate mortgage. If you should keep what you got or invest where it’s hot. And more. And as a surprise, I’m joined by my partner today, like Captain America with the Falcon, Rob Abasolo. Rob, welcome to Seeing Greene.

Rob:
Hello. Hello. Listen, I was really offended there because you talked about the future of real estate investors, the future millionaires, but you didn’t hit on the most important group of people, the future farmers of America.

David:
You heard the word future and your mind went there right away, didn’t it?

Rob:
Hey man, the FFA, it was a very popping group in my high school. I wasn’t part of it, but I knew lots of good people that raised cows and stuff.

David:
That tells you a lot about where Rob grew up, we’re the cool kids, we’re the future farmers of America. If that is you, if you’re in FFA, keep an eye out on future shows. We may have something about a USDA loan. I know we’ve interviewed people before that do hog hacking, pig flipping.
But in today’s show we are going to talk primarily about real estate, partnerships, structure, moving money around to make more sense, and more. Rob, it’s nice to have you on today’s show, especially with those growing muscles that you’ve been working on.

Rob:
Well, David, I had a really great time today and I appreciate the offer to come on to the show. Listen, if you ever need a day off, I’ve been thinking maybe we rebrand the show. We call it coiftions and answers with Rob Abasolo and David Greene, or maybe Q&A-basolo, just a couple of working titles. I’ll let you sleep on it, but just wanted to tell you where my head’s at. Feel free to take a breather here and there.

David:
Thank you for that, Rob. I appreciate your coifidence in the matter. You’ll be the first call if I ever need a day off. All right, let’s get into our first question with Rob and I.

Ben:
Hey David, love the show. I would like to know your advice on how to structure a deal with family members that want to invest in a short-term rental with me. I’d like to purchase the property as a second home to put 10% down and use their investment for that deal. I’m looking for something in the Hudson Valley in New York for the property.
I currently have a two unit and a three unit property in New York with a W-2 job that I don’t plan on leaving anytime soon. So, I want to purchase the short-term rental for my next property to help offset tax liability from my W-2, which my CPA has recommended as the best way to accomplish that. Mainly, I want it to offset taxes for my W-2 and they want a place to park their money that will appreciate over time and have a nice rate of return that a short-term rental could offer. So, outside of investing money in the deal, they don’t want to necessarily be involved in any of the day-to-day management and would like to really just invest their money. So, how would you structure a deal to be able to accomplish that and still use that process? Look forward to hearing from you. Thanks.

David:
Thank you, Ben. This is a very good question. You are thinking the right things and you’re asking the right questions. This falls right into your wheelhouse, Rob, probably not the tax planning part, but definitely the short-term rental part. So, what advice do you have for Ben? Let’s start off with your perspective here.

Rob:
Well, it sounds like he’s looking for the tax benefits and the family members aren’t looking for the tax benefits, so there are a lot of different ways you could structure this. You could almost structure it to where they get all the appreciation, so all the upside, you get all the tax benefits and then you split the cashflow down the middle. That would be the first way to do it. You could also just split everything across the board.
And I think you get really interesting territory here when you’re working with family because so many things can go wrong. So, I think you should almost work harder to make sure that the family member is getting paid back. So, I would probably suggest a waterfall here. They get paid back 75% of the profits and you get paid 25% of it, and then once they get paid back their initial contribution, then you waterfall the cashflow to be 50/50, all while giving you as much of the tax benefits as you can negotiate.
So again, not enough context to know if that’s important to the family member. I’m going to say it’s probably not because they’re not going to be actively managing that short-term rental themselves, so they won’t get to take advantage of the cost segregation or the bonus depreciation. So, I almost feel like if he’s going to be sacrificing 75% of the profits out the gate to pay back that family member, maybe he could negotiate or maybe you, Ben, can negotiate keeping 100% of the bonus depreciation. Did you keep up with all that, Dave, or was that a bunch of mumbo jumbo?

David:
No, that was really good and I always love sitting in the position where I get to talk after you do. Like Alex said when we interviewed Alex Hormozi and Leila, he likes to let Leila talk first because then he can sum up what she said and add something that maybe she missed. You always sounds smarter. But the real work is done by the person who speaks first.
There’s basically several benefits to real estate. We typically only talk about cashflow, but there is some tax benefits in this case, there is appreciation and there’s cashflow. These are the main three that we see in this deal.
So, if the person that you’re partnering with doesn’t care about the tax benefits, then take all of them. They probably care about the cash on cash return. I think that you could probably structure this where you split the equity 50/50, you split the cashflow 50/50, you keep 100% of the tax benefits for yourself because they don’t want it anyways. They’re happy to be getting a good return on their money.
The only question you didn’t ask is how are you going to split up the management of this asset? Are you going to be doing that work? Are you hiring a third-party company to do it? If you’re thinking about hiring a third-party company so that neither of you is doing the work because your partner has already said they don’t want to, I would caution you to look very closely at the service that you’re getting. Sometimes you find a great property manager. Most of the time the deals don’t make sense when you have a third-party person managing it unless you’re doing it in-house.

Rob:
I think he has to self-manage because he’s doing the bonus depreciation, so he has to materially participate in the management. So, I think Ben will be self-managing. And it has to be that way just for the sake of his … Why would they need him?

David:
Good point there. Thank you, Rob, for catching that. I’m a real estate professional because of all the work that I do in the real estate brokerage and the mortgages, so I sometimes forget other people are not in that position, but thank you for bringing that up. He’s going to have to manage it if he wants to get the hours in that he needs to, to qualify for the short-term rental loophole.
So, there you go, Ben. You got a really good plan there. I don’t think you have to give anything up. I think you can go back to your partner and just say, “Hey, there’s some tax benefits that I’m going to get out of this, but that’s because I’m running the show. Doesn’t hurt you, because you can’t use them anyways.” You’re going to get half the equity, you’re going to get half the cashflow and then they’re going to contribute the down payment. So, fingers crossed for you.

Rob:
I think that’s a good resolution. I think he should have 25% of the cashflow, so he gets a little bit. Investor gets the cashflow since Ben is getting the majority or all of the tax benefits. That’s a very tangible benefit to him. I think that’d be a better way to strike that deal personally.

David:
Yeah, Rob, that’s a good point. That’s an option too. I’d probably go there myself if the partner didn’t like the 50/50 split, I’d maybe say, “Okay, then fine, I’ll take 25. You take 75.” Definitely a good backup plan. That tends to be how you negotiate though. You start with what you want and then if they agree to it, great, and if they don’t, then you, “Okay, here’s plan B. Here’s plan C.” And you keep working down until you find something that works for both of you.
The last piece to consider is how you’re going to structure this agreement. You could buy a property and put both of you on title. You could form an entity that you each own 50% of and then buy the property in that entity, and then that entity has an operating agreement that dictates who’s going to be doing what and what the splits are going to be. That might be the cleanest way. So, I’d recommend reaching out to a lawyer and having them draw up the documents for you. I have someone that I use for that. If you’d like to DM me, I’d be happy to put you in touch with them. But in general, this doesn’t have to be super complicated. I think you’re asking all the right questions and best wishes to you. Thanks for reaching out to Seeing Greene.
Before we move on to our next question, Rob, in your answer, you mentioned waterfalls. As a child, I was cautioned not to go chasing them. Can you share for everyone listening what a waterfall is in this context?

Rob:
Sure. Simple terms here. If you have a waterfall agreement, I talked about the 75/25 thing, it basically means that the terms change. So, it goes from 75/25 to 50/50. It waterfalls into a different tier once you’ve returned the capital of that investor.

David:
There you go. And that’s a principle that works in most syndications or partnerships. So, you’ll often see the silent investors or the limited partners, also known as LPs, will tend to get a preferred return or a higher return that they get out of the cashflow before the sponsors or the general partners get any money. And then once their investment is paid back, the splits switch to something that’s more equitable for both parties. It’s just a way of making sure the investors get their capital back out of the deal they put in and then the returns are adjusted. So, thanks, Rob, for helping provide a free education to our BiggerPockets listeners.
Our next question comes from Melissa N in SoCal. Rob, this is your hood. You spent quite a bit of time in Southern California. You know it well. You took us to a sausage restaurant when we were all there recently and I believe you ordered the rattlesnake sausage. Longest I’ve seen you go without talking. You are definitely into that thing. So, I’m going to let you read this question since you might know Melissa, since you guys grew up in the same area.

Rob:
It’s true. Los Angeles is a very small city, so I’ve probably run into her. “So, a little bit of background here. Husband is interested in getting me on board with real estate for the last five years, but he’s not very convincing. Fun fact,” she’s saying nice things about us, “you made it very easy for me to understand, follow along and stay motivated in this industry. I hope he isn’t listening to this episode. Anyways, thank you so much for all the motivation. I’m a big fan of your analogies. We listen to you on our LA commute to work every day. You make the drive something to look forward to.” That’s very nice.

David:
Yeah, before you continue here, every husband loves for his wife to compliment other men and tell them how they did a much better job than he did. So, Melissa N, thank you for that and to Melissa N’s husband who probably is listening to this, I feel you man.

Rob:
“Okay. So, the issue. We purchased a town home house hack in Lakewood, California. We’re in a dilemma because we realized after using BiggerPockets’ Rental Property Calculator, our purchase wasn’t as great as we thought it was when we initially bought it for a future rental. So, the pros for keeping the property are we want to keep this property as an investment because the area is great for families, it’s safe, has great schools and is within walking distance to so many shops and restaurants, grocery stores, and even a mall.
The cons. The problem is we looked at rent in our area and it doesn’t make up for even a small amount of cashflow unless we hike the rent price up. We think part of the problem is that it’s a town home, which means we can’t expand and there’s an HOA.” Ew.
“So, the needs. We want to purchase another property, but we’re just not sure if we want to keep this house or house as a long-term investment. If we hike our rent prices up $500 or more, we could make about $100 in cashflow. We’re just not so sure if anyone would pay 3,500 bucks to live in a town home. We’re considering Section 8, but we would have to do more research. My question to you David and Rob, what would you do in our situation? Would you keep this property and try to rent it out to a family who can afford it for 3,500 bucks? Or, would you sell it and purchase a single-family where we can build an ADU?”

David:
So, first off, Ms. Melissa, you’ve already noticed that the time to use tools to analyze properties, like the BiggerPockets Calculator, which is great, is before you buy the property, not after. No need to beat that dead horse. You learned that one the hard way. That’s okay. It’s all about learning.
I think what happened is you looked at a town home and you assume that the comps would be the same as the single-family homes. They’re not comps. Learn that lesson the hard way too. That’s okay. That’s a part of real estate investing. That’s one of the reasons that we say everybody should house hack first because you get some of these little errors or misunderstandings of how the whole thing works out of the way at a relatively low-risk experience. Rob got into house hacking when he lived in Los Angeles. I started house hacking. It’s how a lot of us learned how to ride a bike. We put the training wheels on before we took them off. So, no shame in your game there.
I don’t think you should look at it like, “Should we raise the rent to 3,500?” I think you should look at it as the question being, “Can we raise the rent to 3,500?” BiggerPockets has a Rental Property Calculator that you can use to look into this and decide would that town home support that rent? You can also call local property managers, meet local real estate investors. You’re living in LA, one of the benefits other than the rattlesnake sausage is all the other people that are out there that are investing in real estate themselves. So, take advantage of that. Talk to people that own town homes and ask what they’re getting for rent.
If it doesn’t bring in what you need for it to make money and you can’t afford to bleed money every month, the answer becomes pretty clear that you need to sell it. You sell the property, you reinvest into something else. That’s something that we at the David Greene Team help people with all the time, how to make good financial decisions with their real estate, reinvest the money into somewhere better. So, we’d be happy to help you with that.
And then moving forward, I would, my last piece of advice, say, you need to get other people involved in these decisions before you make them. That’s one of the things that when we’re helping clients with, we’re looking into this stuff for you. Your real estate agent really should have known what you were attempting to do with this, and they should have told you, “A town home isn’t going to cashflow as much.” You don’t have the right team. This shouldn’t be a mistake that you’re having to learn the hard way. There should have been other people involved, and if it’s not your agent, if it’s not your loan officer, although it should be them, you should have other investors involved in the process.
This is something that if you had bounced off of Rob or I, we would’ve known in two seconds, “Hey, hey, hey, hang on here. Town homes have HOAs and they also get less rent. Let’s slow your roll. Let’s look into something that’s better.” But when you’re flying solo, you could easily make these mistakes. Rob, what are your thoughts?

Rob:
A couple things here. I don’t know what the bed/bath count of the property is, so take what I’m about to say as a grain of salt. Los Angeles County, you cannot really Airbnb there and even if you could, she’s in an HOA. The HOA may not allow it. Typically, town home HOAs aren’t going to be quite as strict as neighborhood ones, but you never really know.
I actually think it’s a perfect play for a midterm rental. I mean, 3,500 bucks, if that’s what she’s trying to lock down, assuming it’s at least a 2/2, I think she’d be able to get the 3,500 bucks. But if it’s a 3/2 or a 4/3 or anything like that, I think all day she’s going to get at a minimum 3,500 bucks in Lakewood, California, which is, I think it’s north of Long Beach, east of Los Angeles, I want to say. Never eat slimy worms. Yeah, east of Los Angeles. And so, I really do think as a midterm rental, I mean, she could possibly be making four to $5,000 a month in rent.
It’s not like you just list it as a midterm rental and you rock it, right? She has to go and she has to list it on Airbnb for 30 days at a time. She has to build relationships with health agencies and relocation agencies. I mean, she has to hustle a little bit, but if she wants to not be in this predicament where she’s losing money, she’s going to have to work for it. So, 3,500 bucks doesn’t really scare me. Think it’s totally primed for a midterm rental. Or, she was already house hacking before, just rent out all the rooms. If it’s a three-bedroom, I think she could probably get 1,200 bucks or something like that for each room. I don’t know enough about the bed/bath count for that to be an informed decision though.

David:
Yeah. But if they bought it recently in Los Angeles, even 3,600 is probably not going to be enough to cover the mortgage with where today’s rates are. It’d probably need to be five to six bedrooms before they could expect to make a decent amount there. Again, we don’t know the details of the purchase price, but from what I’ve seen, most of those properties are going to have a higher mortgage.

Rob:
I agree, but isn’t $3,500 the number that she cited? I assume that that’s her mortgage.

David:
Great point there, Rob. And that’s some creative thinking. If you got to get to the 3,500 a month, if you can get 1,200 a room, you’re there. It’s a little more work. Just like if it’s a medium-term rental, it’s a little more work, but like you mentioned, Rob, you’re going to have to work for it. So, go to Craigslist, look up what rooms rent for in that neighborhood, and if it’s $800 a room, this isn’t going to work, but if it’s close to 1,200 you can get there.
Last piece, I’ll say, you mentioned, “Should we do Section 8?” I forgot to address this earlier. You don’t control the rents on Section 8. There’s actually government regulations and guidelines that tell you for the size of the property, the bedroom and the bathroom count, what you will be paid by Section 8. And then how much the tenant is responsible for is something that the HUD program themselves will determine, not you. So, I wouldn’t look at Section 8 like that’s going to be your saving grace necessarily, because you can’t determine the rent there. I would look up what the guidelines are and see how much a property like that could bring in on Section 8 or even call the HUD program, that stands for Housing and Urban Development, and ask them what your property would rent for. And if it’s not 3,500, throw that out as an option.
If you decide you’re going to sell it, remember that there is a capital gain exception for those that have lived in a property for two years out of a five-year period. For most people, that means they lived in it for two years in a row, but that doesn’t have to be the case. If you’ve rented it out and you’ve lived there as long as over a five-year period, you’ve been in it for two years as your primary residence, you can sell it and have up to $250,000 of your capital gains wiped out or $500,000 if you are married.
So, selling that property and reinvesting into something that you analyze a little better and you get some more supporters on your side going into it is probably where this one’s going to end up. Send me a DM if you’d like to talk about that more, and thank you for sending this question to Seeing Greene.

Rob:
I will say, that sounds a lot harder than just trying to make it work though, like selling and then buying. I think you should try to make it work if you can. I don’t know if it’s worth the rigmarole of getting into a new property, because she’s so close. 3,500 bucks, I think that’s super achievable in the midterm rental pad split space, co-living area. So, I would really leave no stone unturned on this before selling it, I think.

David:
Thank you for that, Rob. All right, let’s get into our next question. This comes from Joel Yunek in Des Moines, Iowa.

Joel:
Hey, David, I’m Joel Yunek. I’ve been listening to the show for about five years now. Huge fan. So, thank you for all the years of knowledge that you’ve been able to give to this audience.
So, I just graduated college and had my first house hack under contract. So, my question is when it comes to financing, with the increasing rates, I’m sure it’s on everybody’s minds right now. I’m looking at a 30-year fixed versus a adjustable rate mortgage, probably a 7 or 10 year fixed rate before it’s able to adjust. So, I know there’s some risk there with the adjustable rate, it seems like a 10-year period is a long period of time to figure out what is the next stage, whether it’s selling, refinancing or just assessing where the interest rate environment is in a decade.
So, with the fixed rate, you get the security of locking that in for 30 years, but while I’m investing with a long-term horizon, what are the odds I hold onto the same property for 30 years? So, my question is when it comes to balancing the options of an adjustable rate and the fixed rate. So, what would you recommend to get the security with a locked in 30 year versus the money saved and the compounding effect of that over the course of a decade with the adjustable rate? Yeah, thanks, David. Appreciate all of the knowledge over the years.

Rob:
Okay. I think I get this one. So, he is basically wanting to know should he get a 30 year or should he risk it for the biscuit and get a 7 or 10 year arm? Which personally, I mean that’s a big difference between 7 and 10 years. I don’t really think either one is particularly risky. I would say 7 years is so far from now. I think he’d certainly be able to refi out pretty close to the 5 to 7 year mark. Chances of him keeping that mortgage for 10 years, that exact mortgage at the current interest rate, I feel is low. But what do you think?

David:
It’s hard to know where interest rates are going to be in 10 years. My gut says whoever the next president is, is probably going to lower rates. Much like when someone’s elected class president, they immediately want throw a party to reward everyone for electing them and establish goodwill. We’re probably going to see rates come down with a new president put in place, but we don’t know that. And you can’t bet on that happening. Although, every decision that you make is some form of a bet. And what we’re talking about here is hedging your bets to put yourself in the best position.
So, Joel, if you’re really good at managing money, if you live beneath your means, if you save a lot of money, if you don’t mind working overtime, working side hustles, working two jobs, it’s okay to err on the side of taking a little bit more of a risk with that 7 to 10 year arm, much better than a three-year arm or something like that.
If you know you’re not that person, you’re not a Rob Abasolo who’s going to work 18-hour days, or a David Greene who’s going to just sleep in his office chair and get right back to it. You’re probably better off taking the safe bet, going with the fixed rate mortgage. And neither decision is going to create a huge difference in the portfolio you have. We’re splitting hairs here. What you really want to do is accumulate more assets in great locations where rents are going to be increasing and values are going to be increasing, and over time you’re going to build some big wealth.
So, don’t get too caught up in these decisions, but as a general rule, I am a fan of being more aggressive with your strategy if you’re more conservative with your finances, and more conservative with your strategy if you’re more aggressive with your personal spending. Rob, what do you think?

Rob:
Yeah, I think that makes sense. And for everybody at home, do you think you could just clarify what a arm mortgage is, for those of us at home that don’t know what it is? I mean, for those that … I know what it is, but…

David:
Yeah. So, a fixed rate mortgage is one where for the life of the loan, the rate stays the same. And an adjustable rate mortgage is for a period of time you get a certain interest rate and then it could adjust. Now, I will also say most of us look at adjustable rate mortgages like they are evil and bad and risky, it’s like gambling, but that’s how most loans are made across the world. Most people do not lock in on a 30-year rate, especially when it’s really low like 3 or 4%.
Rob, you and I would never lend our money at 3% for 30 years. The only reason those exist is because the government sponsors these loans through Fannie Mae and Freddie Mac. It’s a cool little option that we get in America, but it doesn’t exist everywhere.

Rob:
Well, you’d be surprised, man, I just got a seller financed deal locked down about five minute walk from my house here at 3%. They wanted 5, knocked them down to 3%. So, you’d be surprised. I mean, they’re still out there. They’re few and far in between, but…

David:
That’s not you loaning out your money. That’s you buying an asset from somebody who they’re giving you a loan, but they’re not doing it because it’s a pure loan. It’s attached to a real estate transaction where they probably got something in return. They got a better price for the house, right?

Rob:
No, not really. I really knocked them down. No, it was a very equitable transaction. But I agree. And to go to your point about the president changing the rates and all that stuff, I mean, 10 years from now … That’s why I say the difference between a 7 and a 10, pretty drastic because 10 years from now is technically like two and a half presidents from now, possibly three different presidents. No, probably not three, but definitely two different ones. Right?

David:
So, you’re tripling your odds of seeing rates come down, right?

Rob:
I think so. 7, take it or leave it, but 10 I’m like, yeah … I mean, I did a five-year arm, didn’t really know. I took the risk when I was first getting into real estate. It was a really good deal at that time and I refied out of it before it mattered, but I was pretty aggressive with how I did things. So, I think you’re right. It all comes down to investing preference.

David:
There it is. And just keep that in mind. If you’re a more aggressive investor, you got to be more conservative with your finances, with your reserves and with your work ethic. And if you’re someone who doesn’t love work and you’re not out there trying to set the world on fire, just invest a little bit more conservatively to balance it out. Thank you, Joel, for giving us the opportunity to highlight this. Good luck with your investing endeavors. And my final piece of advice will be, don’t get too caught up in the financing of real estate. It’s really not the foundational wealth building piece. It’s just fun to talk about.

Rob:
And definitely don’t get too caught up in the spelling of rigamarole.

David:
And our production team has had Rob’s back. He spelled it incorrectly, however it would apply in the situation that he used it. The definition is a mid-18th century word, apparently an alteration of ragmanrole, originally denoting a legal document recording a list of offenses. You are welcome for this completely useless but still entertaining piece of knowledge on today’s Seeing Greene episode. It’s also considered a long and complicated process that is annoying and seems unnecessary, which is exactly how Rob meant for its to sound.

Rob:
Yeah. And then I looked it up on Urban Dictionary and it’s just a picture of my coif.

David:
Moving on to the next section. At this part, we like to get into the comments that y’all have left for us on YouTube as well as wherever you listen to your podcast. So, today’s comments come from episode 816. The first comes from henneyhomes1852. Rob, I’d also like you to note that I’m not the only person that puts a number at the end of my name. As much as you make fun of me for that, apparently it’s a trendy thing. Maybe I made it trendy.
Henneyhomes1852 says, “‘Luxury’ house hacking,” in quotes, “we’ve been there, done that a couple of times, made tons of equity, over $600,000 on each, allowing us to stay in upscale neighborhoods, paying less than half the mortgage every month, saving lots of cash and being easy to rent out. And yes, rent went up every year.” This comes from a question that I answered on the Seeing Greene episode 816 where someone was asking, “Is it okay, is it allowed financially to splurge a little bit? Instead of house hacking and having 100% of my mortgage paid, what if I want to house hack in a really nice neighborhood where my family would love to live, but I’m going to be covering part of my mortgage?”
And my answer was, if you’re financially in a good position, hell yeah, that’s absolutely okay. And as we’re seeing from henneyhomes, you actually can make more money when you’re paying part of your own mortgage because the rents go up every year. It’s very easy to find tenants. The equity grows faster in the best areas. Look, the three rules of real estate are and always have been, location, location, location. I recommend starting off with the best locations and then figuring out the strategy, whether it’s short-term rental, house hacking, BRRRR, whatever, in that area to make it work. So, I thought this was a great testimony, Rob, you had a similar experience, right? Didn’t you do a house hacking where you rented out an ADU at your luxury property, and maybe it wasn’t luxury, but it was expensive real estate in Los Angeles, right?

Rob:
Yeah. House was 624,000 bucks and the mortgage was $4,400, which was, I mean, a lot of money, a lot of money. But we had a little studio apartment underneath and that was going to make about 2 to $3,000 on Airbnb. So, really, it did end up being that. We were paying $1,400 out pocket on our best months, which was most of them on that particular property, and that was still less than the rent that we would’ve paid at the apartment that we lived in right before that house. And then we built a tiny house ADU in the backyard, and that completely covered all the mortgage.
So, I think it’s better to do what he’s saying where you can splurge a little bit and pay a little bit out of pocket because ultimately that’s still probably going to be cheaper than just living on your own without house hacking. And B, if you could have a plan for expansion or a plan to eventually get that all subsidized, I think that’d be great too. That’s what I did in LA. I knew one day maybe I could build a tiny house. I didn’t do it initially. It took about a year, year and a half, but once I did, mortgage was completely subsidized and that house is now worth twice as much.

David:
Great point. If you wait long enough, especially in the best areas, the rents will go up and it will eventually subsidize your mortgage and then you get even more upside.
Moving on. The ongoing Cali, California, Californi-A and hella usage debate continues. This was a big part of episode 816, and if you haven’t heard of this before, go check it out. We have lots of great comments from fellow Californians that we’re about to read here. Geography and age may be the reasons for the hella differences. We can call on the great USA and First Amendment and put this one to rest, freedom of speech. Remember that we have a First Amendment and we can all use the language that we want.
But in reference to that show, cowvet2018 says, “I love the show. Listen to it on Spotify, and it got me into real estate. I live in the Central Valley of California. I’ve been here my whole life. I’ve never heard anyone in this state call it Cali, unironically, I say hella. Boom.” This was in reference to my perspective that no one in California actually calls it Cali. It’s only people outside of California that say that, there was a few people that disagreed, and cowvet is taking my side.
They also use the phrase hella, which funny story, I grew up in Northern California, I didn’t know other people didn’t say that word until I had a conversation with my aunt in Washington who did not know why I was saying hecka. And as a kid I was like, “Well, I’m not allowed to say hella.” And she still did not understand what that meant. And it was not until the No Doubt song Hella Good came out that I realized, oh, other people don’t say that word. Funny story there. Rob, did you have an experience like that? It’s not really a Southern California thing, right?

Rob:
No, no. I’ve always heard it was a Northern California thing. So, we in the southern part of California, the cool peeps, we didn’t say that stuff.

David:
Rob, why don’t you go ahead and take the next comment here from JevonMusicGroup?

Rob:
All right. JevonMusicGroup says, “Biggie had to say, Cali. You try rapping with California in its place.” That’s funny. Yeah, it is a very long word, I suppose. “Great episode, by the way, answered some questions I had with my current situation.” They even got four likes and a reply. What that reply was, I’ll never know, but I’m sure it was a great one.

David:
Go give JevonMusicGroup’s comment on episode 816 on YouTube a couple more likes. Let’s reward him for that great insight.
And jeanpaulg1037 says, “Hi, David. Thank you for all your knowledge sharing. Question, my lender said that I would not be able to buy a cheaper house than my current one and make it a primary residence. Is there any merit to what he’s saying? That means I would need to buy a more expensive home every year if I was going to continue buying new ones. Thanks in advance for your great support. You’re great.”
Great question there, Jean Paul. First off, you should have came to us because we’re better than that and we would’ve got it to get accepted. Here’s what’s going on. When you try to buy a primary residence in the same area where you have one, you’re trying to put a smaller down payment down, lenders look at that and go, “Uh, uh, uh, you’re trying to get an investment property using a primary residence loan, because nobody would downgrade their house unless they were trying to be sneaky and they deny it.”
You can overcome this. Our company, The One Brokerage does this all the time. We go back and fight and say, “No, this person’s actually financially smart. They’re making good decisions. They’re a BiggerPockets listener and they are going to be moving into it as a primary residence.” And we get these exceptions covered. Your lender’s not fighting hard enough for you. I don’t like this. I don’t like it when anyone in my world comes back and goes, “Sorry, we can’t do it.” What they should be coming back and saying is, “We can’t do it. Here’s what we need to change so that we can do it.”
Rob has had some experiences like that with properties that we’ve bought where insurance goes up and they say, “We can’t insure it.” And we just say, “Great, tell me what you have to do so that you could.” Or different issues like that. That’s what you’re looking for when you’re building your core four and you’re picking your lender, not a person who comes back and says no. But now all of you know how the lending world works and when you get this, “Nope, you can’t buy that house.” It’s because it’s in the same area as the one you have and they believe you’re trying to buy an investment property with 3.5 or 5% down. You want to read the Apple Review, Rob?

Rob:
Yeah. So, let’s get into this five-star Apple review from HGDTNVK. See now that right there, that’s a complicated username. “The best place to learn. Been listening for over a year now and every episode has something to teach. There are so many strategies discussed and so many stories that prove every person can become an investor. Listen, absorb, apply the knowledge. I have unlocked deals I never thought I would. I have unlocked deals I never would’ve known to look for if I hadn’t listened to the show religiously. Five stars, baby.” Wow, thank you very much, HGDTNVK. I’m going to tattoo that on my arm.

David:
That’s awesome. We would love it if you’d leave us a five-star review wherever you listen to your podcasts, whether that’s Apple Podcasts, Spotify, Stitcher, whatever your fancy, please consider doing that. It helps the show quite a bit.
And they’re making a good point. With The One Brokerage, we were having a meeting and I realized people tend to learn from watching other people do it. So, when I had agents that were joining the David Greene Team, they would sit in the office and listen to me talk to clients, listen to me talk to agents, then we would debrief and I’d say, “Here’s what they said that let me think. This is the strategy I use. I’ve put it into a book. This is the approach you should take.” And they got good.
Well, as we grew and I stopped selling houses myself, the new agents that joined didn’t get that same ability to watch me do it, and it was much harder for them to build confidence having these conversations. Podcasts like this are a really cool substitute where you don’t have to be in Rob’s attic where he’s recording right now, or in my studio. You can listen to us from the comfort of your own home, car, or gym and learn from what we’re doing. This is a great perspective that if you just listen to the show, you absorb the perspective that people that have experience investing have, and will slowly start to develop your own confidence and like they said, “Seeing opportunities and deals they never would’ve known to look for.”
So, thank you for listening to us. Thank you for your attention and we are going to be getting right back into the show. We love and we appreciate the engagement. Please continue to like, comment, and subscribe on YouTube, and like we said, if you’re listening to this on your podcast app, take some time to give us a rating and an honest review. Helps the show a lot.

Rob:
And I’ll possibly get your username tattooed on my arm, that’s bigger than Dave’s.

David:
Our next question comes from Christopher Dye who says, “I am in the Air Force active duty and moving from Little Rock to San Antonio. I have three long-term rentals in Little Rock that cashflow $1,500 combined every month, with two properties having sub-3% interest rates and one property with the 5.375 rate. There’s roughly $200,000 worth of equity trapped in these properties and they are all in neighborhoods that will continue to appreciate.
I’m considering a 1031 exchange for a small multifamily property in Texas. I’m seeking advice on the best way to move forward. Should I hold on and sell in 5 to 7 years or capitalize on this opportunity to take the 70K that I have invested that’s been turned into 200K in two years and use it to propel into the San Antonio multifamily market?” Rob, what say you?

Rob:
Okay, so this is a very tough one because, I mean, it sounds like he hit the jackpot. Right? He invested 70,000 and it’s turned into $200,000 in two years. It feels like maybe he feels like he’s on top of the world a little bit, right? He’s like, “Wow, if I can just do that again, then I can turn 200,000 into 600,000.” But he purchased at a time where that was possible.
So, I don’t want to necessarily steer him away from using that money and reinvesting it, but we are in a tougher time right now and I think he’s got something that a lot of people want, 1,500 bucks of cashflow and sub-3% interest rates. Going into a multifamily, as long as he can at a minimum get that $1,500 cashflow, I think I’d be okay with it. But I think he’s just got such a good situation. I don’t think there’s anything wrong with holding onto it. He’s got 3, he’s really at the beginning of this. I think patience would really serve him well in this particular situation, but I don’t know, what do you think?

David:
I would try to make this as logical of a decision as possible. So, first thing, people talk about interest rates a lot. It’s not that they don’t matter, it’s that they themselves don’t matter. They matter in the sense of they influence cashflow. So, your cashflow is what it is. Getting rid of a good rate isn’t a bad thing if you’re getting more cashflow. I’d rather have higher cashflow at a higher rate than lower cashflow at a lower rate. The rate just has an impact on how the cashflow works.
So, I wouldn’t worry too much about giving up those rates. I’d worry more about, well, how much money are the other ones going to make? So, to simplify this, there’s two ways that we typically look at making money in real estate, equity and cashflow. Can you sell these properties and buy another one that will earn you more than the 1,500 a month you’re getting now? If the answer is yes, we’re heading in a good direction.
And the other equation would be if you sell them, over the next 5 to 7 years will San Antonio appreciate more or will Arkansas appreciate more? Odds are San Antonio is probably going to be the better bet. The next thing I’d look at would be, well, how much more? Because there’s an inefficiency every time you sell and buy. There’s closing costs when you buy and there’s closing costs when you sell, so you’re going to lose some water out of that bucket. What you want to be asking is, in 5 to 7 years will I replace more water than I lost during that transaction?
And the last piece I would say is you also can walk into a transaction with water in your equity bucket if you buy it below market value. Do you have an opportunity to go get a really good deal on San Antonio real estate where the rents are going to appreciate faster than Arkansas and the values are going to appreciate faster than Arkansas? My gut would say, probably so. San Antonio is likely to grow faster than Arkansas would. So, I’m leaning towards you should sell and reinvest that money somewhere else. Rob, what do you think about that?

Rob:
I think it’s fine. I don’t think there’s a wrong or right on that. I think makes sense, looking at the appreciating market, which I totally agree, San Antonio is a very, very fast-growing city right now. I think you can confidently buy in San Antonio and know historically that it’ll probably outperform Little Rock.
I just think he’s got a good situation. Sometimes, if it ain’t broke, don’t fix it. I think $1,500 off of three long-term rentals is a lot of money. I don’t know. I personally wouldn’t mess with it, but sometimes I understand there’s a little bit of impatience of like, “I got to make more.” Right? If his dream is to become a full-on real estate investor and he wants to make a ton of money and he’s like, “This is going to be my thing.” Then he has to make some big moves to make that happen. But if he’s just trying to play the slow and steady route, I think he should hang onto it. But that’s a bit more conservative than I would typically advise probably.

David:
Great point. Christopher, how aggressive do you want to build a portfolio? If you want to go big, selling and buying in San Antonio makes more sense. But what if you don’t, what if just want slow and steady wins the race because your job at the Air Force keeps you super busy and you’re not going to have time to manage this somewhat complicated process full of as Rob loves to say, rigmarole? When Rob deals with it, we call it Robamarole. Is that something that you could take on right now or is that going to be too much?
If you’ve got tons of time on your hand and you want to jump into this, I’d move to towards selling and reinvesting. If your plate’s already a little full, there’s nothing wrong with keeping what you got, saving up money and just buying a new property in San Antonio with a 3.5 or 5% down, low down payment option and house hack. Either way, you’ve got some good options. Both of them look good, so don’t overthink this one.
All right, we covered a lot today. And Rob, thank you so much for joining me. We got into structuring a partnership when the partner wants no part of the day-to-day operations, hanging onto a potential bad rental deal that may not reach market rents, and what options do you have when you’re not cash flowing, using a 7/10 arm or a fixed rate mortgage, as well as other things. Thanks for joining me again on this, Rob, anything you want to say before we let you get out of here?

Rob:
No, thanks for letting me infiltrate Seeing Greene. I hope to be invited back if you think I did okay, I’ll happily do it because I’ll do anything for you, bud.

David:
What do you guys think? Let me know in the comments if you want to see more Rob on Seeing Greene. Do you feel you’ve been robbed of his presence when he’s not here? Let us know. We read those and we incorporate them into our shows.
All right, that was our show for today. Thank you everyone for joining us for Seeing Greene. And Rob, thank you for joining us. It was so nice to have a little bit of backup here, bringing a different perspective and even pushing back a little bit on some of the perspectives I had. If you enjoyed hearing these dual opinions and different perspectives, please go to YouTube where this is hosted and leave us something in the comments. Rob just might get your username tattooed onto his ever-growing arms, and remember to leave us a review wherever you listen to these shows.
If you would like to submit your own question to Seeing Greene, just head to biggerpockets.com/david where you can upload your question and have it answered on the show. If you’ve got a little bit of time, check out another one of our videos. If you don’t, we’ll see you next week on another episode of Seeing Greene. This is David Greene for Robamarole Abasolo, signing off.

Focus is a superpower. And you can make it yours. Losers flit around being distracted by shiny objects and what the latest business influencer says you should do. Winners take their success by the metaphorical horns and develop a bulletproof focus that can fend off any infiltration. Which will you be? The one who made their plan and became unstoppable, or the one who couldn’t quite hold it in place when it really mattered?

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“Sometimes I struggle with focus. I have a lot of different things I could do, and I don’t always know what I should do. Act as a business analyst to assess my resources, and explain which are the most scarce or valuable, and therefore how I focus on maximizing the resources that are unique to me. These resources include: [describe yours here].”

Align your energy

Energy channeled in one direction moves the needle on that project. Energy dispersed creates mediocre results. And no one wants those. Align the energy of your goals and plans with what’s actually in your calendar. Remove what doesn’t fit. Clear the space to find the focused and dedicated time for meaningful actions. Remove the overwhelm that could be holding you back and see what you can do when you’re not so rushed.

“Within a normal week I spend time doing the following things: [outline your schedule and how many hours and minutes you spend doing each item in as much detail as possible.] I want to focus on my growth plan and achieving success in my business. Act as a productivity expert and tell me what I should cut out, in order that I align my energy with my goals and clear space to focus better. Include a plan of action for how I opt out of hand over responsibilities or commitments that don’t align.”

Optimize for fun

Your logical brain and emotional brain are often conflicted. Logically, you know you should focus. The task is clear, the brief is laid out, but your emotions are getting in the way. You’re taking yourself too seriously or questioning yourself. You’re not doing what’s required and you’re definitely not having a good time. The missing link might be enjoyment. It’s far easier to focus on the work that matters if you’re truly motivated to actually do it. That way, the effort brings the reward, not just the outcome. Get the fun back with this prompt and up the probability of you staying on track.

“I want to have more fun going after my goals. I want to have fun with focusing. You are tasked with making my work engaging and motivating, so that focusing on it feels effortless. Suggest 3 ways I could gamify my day, regarding my business, that will find the fun factor and keep me on track.”

Consider deadlines

Deadlines focus attention on a specific date and time. Ideally this date is a stretch target; not so close you panic, not so far away you lose interest. Having a deadline forces you to rally the troops and put the wheels in motion to get stuff done. Just its existence can make all else seem irrelevant. Just its existence can find the focus that went awry.

“Today is [today’s date]. At the moment I am working on [describe the tasks you’re working on], of which [one of them] is the most important in reaching my first milestone. In order to attract higher levels of focus, can you suggest a deadline that will stretch me to achieve and force me to focus? I think this particular task could take [how long it might take without a deadline] but I want to set a motivating deadline for completion. Suggest the deadline then outline my steps to complete the work faster.”

Find deeper focus with these ChatGPT prompts

Make focus your superpower and become someone who always delivers. Plan for the growth with full clarity on the next steps, assess your resources to play your ace cards, and align your calendar with your energy to make success inevitable. Find the game in the work so it doesn’t feel like labour, and set challenging deadlines you’ll feel motivated to fit.

Find focus to unlock a new level of your business. Remove the barriers with these five prompts.