David:
This is the BiggerPockets podcast show 596.

Amanda:
Is anybody ever ready to invest in real estate, right? I think it comes back to, you can do it from a day one. I talk with a ton of commercial real estate investors and everybody thinks the same. There’s no reason to… You have to start in single family. If that’s where you want to start, that’s awesome. You could also just learn about mobile home parks and go buy a 15 or 20 lot park, and that can be your first investment.

David:
What’s going on everyone. Is David Greene, your host of the BiggerPockets real estate podcast, the best place for you to be if you want to build wealth through real estate, if you’re looking to find freedom for your life, if you’re looking to find more money, if you’re looking to find a way to exercise your creative juices and your God given talents, you my friend are in the right place.

David:
BiggerPockets is a community of over 2 million people that are all trying to do the same thing as you, on the same journey as you. And we want to help you accomplish that goal. We do that by providing a forum with thousands or tens of thousands of questions that different people have asked where you can look up their answers or you can ask your own questions and have it answered by the community. An amazing array of blog articles, incredible books that have been published by different people that are experts in different fields so you can learn from them. And of course the best real estate podcast on the planet hosted by yours truly and my good friend, Rob Abasolo. Rob, how’s it going?

Rob:
Hello, man. I’m telling you, as I was doing this interview, I kind of felt myself growing taller and my beard getting bigger as I became Brandon Turner, wanting to actually get into the mobile park home game. This is a very inspiring episode because Amanda, I don’t know, that’s what I love about this, man. Everybody always makes every niche that they’re in feel so approachable and doable. And she was very relatable I felt. What about you?

David:
Well, first off it sounds like you’re evolving into the real estate Pokemon next evolution that you’re becoming.

Rob:
I haven’t even reached my final form yet.

David:
I wonder what’s going to happen is if the hair at the top is going to slowly go down as it starts to come out your chin. Someone’s just going to pull it from the bottom and then it’s going to come… That’d be really funny.

Rob:
Maybe for the thumbnail, we can Photoshop my pompadour down on my actual chin.

David:
Yes. Exactly, right. Yeah and then you just got to start so good after every three sentences and then [crosstalk 00:02:26] that’s the next step to being Brandon, yeah, there you go. I thought today’s episode was great. It’s full of actual practical advice if you wanted to invest in mobile home parks or if you’re just considering it, this is a really good, well-rounded easy to understand introduction into how you make money doing it, what you’re looking for, how to negotiate these deals. What were some of your favorite parts of today’s show?

Rob:
She talks about three things that she does to avoid going head-to-head against really just big fish in the… I call it the lagoon, the mobile park lagoon, but three strategies that she does to really not compete so much against some of the bigger, more institutional firms out there. And also just a little plug for later on, she also talks about the number one thing that she looks for when investing in mobile home parks. So stay tuned for that.

David:
Yeah, I thought that was really good. And I just thought, Amanda was very open with a lot of the stuff that she’s sharing. So this is one of the best parts about the real estate community is there’s hardly anyone keeping secrets. Everybody is sharing what they’re doing. There’s plenty to go around. There’s so much to learn. So this was a fun show.

David:
Today’s quick tip Amanda shares in the show that she calls the county to get lists of mobile home parks. Now, you may not be a mobile home park investor, but that doesn’t mean that you can’t use other people to help you accomplish your goals.

David:
So today’s quick tip is to call your county and ask them if they can get you a list of different asset classes that you may want to be interested in investing in and call those sellers directly. All right, Amanda, welcome to the BiggerPockets podcast. How are you today?

Amanda:
I’m doing great. Thank you for having me. I’m so excited to be here with you all.

David:
We are excited to have you. So can you give us a brief rundown of what your portfolio looks like right now and what you’re specializing in?

Amanda:
Yeah, so right now we are specializing in mobile home parks. Our current portfolio is three parks, 80 lots total, and then we have a couple of notes as well.

David:
Okay. And who are you investing with when you say we?

Amanda:
Oh yeah, me and my husband. We’re a team. So his name is Jonathan. I’ll refer to him.

David:
Now. I have to ask is being friends with you going to cause some funk in my relationship with Brandon, since you guys are both investing in mobile home parks.

Amanda:
As much as a threat as I am to him, for sure, I think it’s going to be okay. I actually, truthfully I have three things that I try to do to not compete with big investors like him. So I think he’s going to still be friends with you.

David:
And when we say big investors, you mean people that are six foot nine.

Amanda:
Exactly. Exactly. I don’t care if they only have one lot, that’s right.

Rob:
Well, I think that’s a pretty good plug for later like, “I’ve got three things that I do to not compete with big investors.” I want to know what those three things are, but before we jump into them, mobile home parks are perhaps one of the seemingly scariest investments to hop into. I got to imagine you probably didn’t start with mobile home parks. Can you tell us a little bit about how you even got there?

Amanda:
Yeah, so I had a pretty traditional upbringing as far as work and jobs and stuff. My mom retired in elementary school. And so like her, I joined corporate America and I was climbing the ladder at a big credit card company and really just realized one day, I don’t want this. I’m working so hard, I want to be working hard for myself and my family and not for somebody else. So like a lot of people, right. And I started looking at alternatives and eventually stumbled into real estate, which I’d always sort of had in the back of my mind as, “Hey, that would be cool one day.”

Amanda:
And BiggerPockets was really instrumental in giving me the confidence and the knowledge to get started in investing and David, that was right around when you were coming on. So you personally were really instrumental in that. So thank you for that.

Amanda:
And we started. We started with a single family, a duplex technically, and then got another single family. After that, we pivoted to individual mobile homes, something called Lonnie deals. And then after doing that, we started on mobile home parks and we love that and we sort of haven’t looked back and nowadays I actually get to work with other investors too. I’m the commercial subgroup lead for the North Carolina [RIA 00:06:35] and just get to work with other investors and teach them how to come along into commercial real estate too.

Rob:
So you kind of mentioned something here that, I mean, this might seem second nature to you, but as someone that’s kind of new to this world, you mentioned you got into a Lonnie deal. What is that?

Amanda:
Yes. All right. So once we were into single family homes, didn’t like a couple things about them, like managing contractors and all that stuff. And I’d heard about this thing called a Lonnie deal, and I’d filed it in the back of my head. It was from this amazing investor, by the way, his name is Bill Cook. He’s the most amazing creative deal structure out there. And he had mentioned this Lonnie deal.

Amanda:
And so we decided to look into him. Essentially, it’s named after this guy, Lonnie Scruggs. He was from Virginia. He since passed away, but he sort of coined this term. You buy an individual mobile home from somebody who needs to sell it, just like we do with single family homes, right? So you buy it from somebody who needs to sell, you get some price on it and then turn around and you sell it to somebody who’s going to live there, right? A family.

Amanda:
And you hold the note on it. They pay you just like you’re the bank, just like with the home I live in, I pay the bank every month. And so we became the bank for them. And these Lonnie deals can be very, very lucrative. And so I’m happy to kind of walk through how it works with you.

Rob:
Please do. Yeah.

Amanda:
Yeah. Okay, cool. So if we’re thinking about our first Lonnie deal, for instance, so this guy owned a mobile home in Raleigh, North Carolina. He was living in Wilmington. He bought it because he was doing a lot of work in Raleigh for a company. They were doing construction. So he was a hustler. He was smart. He bought this mobile home and then when his boss told him to go to Raleigh, he would rent it out with him and some buddies and charge back to the company.

Amanda:
Okay, well then all of a sudden they aren’t doing any more work in Raleigh. He needs to sell and so that’s a motivated seller right there. It comes up on the end of the month. It’s in a mobile home park. That means lot rent is due. So he doesn’t have any income coming in and lot rent’s due. So he is a motivated seller. He puts this mobile home up for, I think 22,000. We ended up getting it for 12,000 down. And then we gave him another 3000 over the course of two years. Okay. So now we have this mobile home. We did no work to it. It was a very nice home. We turned around and we sold it to somebody who is living there. She bought it from us for $25,000. She gave us $5,000 down and then has a note for $20,000. That note, that payment that she makes to us because we are her bank is at 18% interest.

Amanda:
So we’re making a crazy return on this mobile home without doing any work. And so it’s all passive now. She gets to live in the home and own it when it’s really hard to get financing on a pre-owned mobile home, especially in that price range, so when we’re able to offer that financing, it really becomes a win-win situation and that’s really what a Lonnie deal is.

Rob:
Okay. So let me ask some clarifying questions on a Lonnie deal, because in this instance, when you’re, I guess the executor of the Lonnie deal, do you have to actually own the mobile park in order to do this? Or are there instances in which you’re basically buying a mobile home on someone else’s land and just paying monthly rent to that person while you flip it.

Amanda:
For these deals, we did not own the parks. We were not into parks yet. You just want to do it… Honestly, we don’t even do Lonnie deals in parks that we do own. I mean, we sell homes and parks, we do own, but no, you do not have to own the park to be able to do this. It’s a really good way to get in to investing for pretty low money out-of-pocket. And yeah, you don’t have to own the park.

David:
So there’s a difference between being a mobile home park investor and then a mobile home investor, right?

Amanda:
Absolutely.

David:
When you talked about owning parks, basically, that’s where you’re renting out the spaces that someone paid you to put their mobile home, but they may own the mobile home. In this case, you’re talking about getting a mobile home from a motivated seller and then selling it to somebody else on seller financing basically. And that’s how you end up with a note.

Amanda:
Yep. That’s exactly right. And honestly, those were so good and we really liked it. We liked being able to give somebody a home to make a great return on that. And so after doing a couple of these, that’s when we decide, “Hey, let’s go all in on parks. Let’s do more of this type of thing.”

David:
Yeah. Because you had mentioned you didn’t like being in the single family space, because I think you mentioned the contractors and the organization and all the moving pieces. I call it death by a million paper cuts, when you get into that world. None of them are really super challenging or hard problems to solve, they’re not rocket science, but there’s coming at you so often that it’s very annoying. These ankle biting problems that never go away and you sort of start to lose your drive and your passion when all the fun gets taken out of it. So if you’re getting into what you’re describing now, are you still dealing with those problems or does the seller financing part making you the bank sort of remove the parts you don’t like.

Amanda:
In the Lonnie deals specifically, it really does simplify things. And obviously there’s nothing wrong with single family investing. That’s great. We weren’t that good at it. I wasn’t great at estimating repair costs. We didn’t do enough of them to really get good at it. So when we moved over to these individual mobile homes and that now we have these notes on them, there is almost no work.

Amanda:
It is the most passive thing. I tell myself in a future life or maybe in a decade or so, I’m going to be a note investor. It is passive. It is so much easier than even mobile home parks. The check comes in, we’re not the check. It’s deposited every single month. The only thing currently that we have to do is make one phone call a month to confirm there’s still insurance on the homes in case there’s a fire or something, we want to get paid out as-

David:
Because that’s your collateral.

Amanda:
Exactly. That’s literally the only work for these.

Rob:
Is that pretty hard work in this industry. Because, trying to flag if you’ve got a hundred notes, trying to flag down a hundred people every month. How does that like play out?

Amanda:
That’s a great question. If I had a hundred notes, I would have an assistant to make that phone call. And in fact we do have an assistant even to make the two phone calls that we have, but you’re right. Anything like that, if you get enough of them, you’re going to have to systematize. You’re going to want a system that.

David:
Yeah, I think that’s something a virtual assistant could do fairly easily if you just say, “Hey, here’s the phone numbers call and ask this question,” and the person answers the phone, you can systemize that well. All right. So Amanda, let’s say that somebody comes across a motivated seller and they realize, “Hey, I can buy this place, but I want to sell it to someone else because I don’t want to be responsible for the maintenance.” Right? If you own the actual mobile home, it’s very similar being a single family residential investor to where now you also own the problems that come from that home. You’re trying to pass that on to the owner and be the bank. So is there a process that’s somewhat simple for who you contact, how you structure this, how you set the seller financing up for someone that’s never done it.

Amanda:
Yeah. So there are contracts for that and I’m sure you’ve can Google note contracts, but what makes a mobile home pretty easy to transfer is it’s through the DMV. It’s just titled. There’s no land, so it’s not deeded, there’s no closing. So just two individuals can swap titles of mobile homes fairly easily.

David:
So would you go to a title company? Is that where you would go or are you saying you literally go to the DMV?

Amanda:
Yeah. So you can just get a notary as if you’re selling your car to somebody which you can do on the internet, like Facebook Marketplace then you just meet up and you have a notary say, “Yep, this person’s signing it over to the other person.” And then you do want to go to the DMV because the new owner wants to go to the DMV to register. And then we’re also registered as a lien holder on the home.

Rob:
So I’ve heard that you have a flea story and I take that two ways. This could be a very interesting story about dog fleas or a very interesting story about the basis of the red hot chili peppers. I’d like to hear about it.

Amanda:
A couple years ago, we were doing more of these individual mobile home flips and stuff, right? So we go out to wine, we had it all planned out. I wanted it to be a quick turnaround like I always do. So we had already negotiated with this guy we were going to buy his mobile home. My husband had walked through it. I had not.

Amanda:
So we get there, we paid him, we did the title transfer everything, a couple hours later, I’d already gotten somebody off of Craigslist I think to come out and take the carpet out of this home. It looked gross. So I already had that. The guy came out, he removed the carpet. So then I just went and walked with him through the home to make sure everything looked good because I wanted to put it right back on the market the next day and have a super quick turnaround.

Amanda:
Okay. So I have a three month old baby at this point who is in the back of our car. I get back into the car from walking through this home. I looked down and there are these little tiny black bugs jumping off of my feet. The home was infested with fleas. So, big lesson learned on this and this, I don’t care if it’s a single family home, a mobile home, anywhere you’re going, if you haven’t been before, wear closed tight shoes. I don’t know why I wore sandals in that event.

Rob:
That’s a very important lesson. Yeah. I’ve walked many of my houses in flip flops or Crocs, not advisable.

Amanda:
Hopefully not again.

Rob:
Not OSHA approved.

Amanda:
That’s right. And it was so gross. Luckily they didn’t get in our house or at my baby.

Rob:
Well, luckily they didn’t make you hate real estate investing. Because I feel like, especially when you’re new, it doesn’t take very many bad experiences to put a really bad taste in someone’s mouth and then they just don’t want to do it at all, so kudos to you in kind of fighting through that.

Rob:
Now I have a question about where you’re finding people that may have these kind of properties to sell. Where are you making connections, where you’re getting in touch with someone who owns a mobile home in a mobile home park that might not want it anymore.

Amanda:
Facebook Marketplace is a great place to go to find homes. If you want to infill in a park or if you want to do a Lonnie deal, Facebook Marketplace is a great place to go. Back when we did these, we would also post bandit signs. I know those are controversial, but we would post them somewhat near parks or busy intersections that just said, “We buy mobile homes,” and we would get so many phone calls off of those. That was a really great source.

Rob:
Are you ever finding any of the buyers or sellers on Craigslist?

Amanda:
Yeah, we post right back on… No, actually, sorry, you said Craigslist. Not really. There are some that come up on Craigslist, but honestly I find on Craigslist, it’s more people who are doing what you’re trying to do than people actually trying to sell. I’ve just found better luck on Facebook Marketplace.

David:
Yeah. That’s a good point. I’ll find a lot of the time that realtors are the only people actually attending real estate meetups, because they’re all looking to find clients there. And there’s three people there that might actually be looking for a realtor and 47 realtors that are all fighting and that’s not the right proportion.

David:
So you do want to sort of find places where someone who owns a property would want to be getting rid of it. Not where a bunch of other people that are looking to buy the same thing as you are going.

David:
So let’s say you do find somebody and they’ve got a mobile home, they’re kind of tired of dealing with it. They’re just not going to at managing it. It’s got some problems. They don’t have any money set aside and they are looking at it more like it’s a money pit than it’s a cash flowing asset like what we want it to be. What do you need to know from a seller in order to be able to write an offer.

Amanda:
On a mobile home or on a mobile home park?

David:
Yes. That’s a good… I said park, but sorry, I meant mobile home. We’ll start with that.

Amanda:
Okay. So on an individual mobile home, you want to know how many bedrooms it is, what the lot rent is and you honestly, you’re walking it. You want to know what the problems are and you’re just trying to identify issues that you either will have to fix or just let the other person that’s going to end up buying it know that they need to fix. But there’s not that much that you really need to know other than have an idea of the market at the time, just know what are other three bedroom, 1990 mobile homes going for. And that’s really it. It’s not too much more complicated than that.

David:
So same question. But now let’s say you’d like to buy an entire mobile home park. What is your due diligence consist of?

Amanda:
Oh yeah. So well due diligence is a whole ball game. So let me start first with what you want to know from a seller to even be able to come up with a number to even go under contract. And so there are really three buckets of information as a baseline, you have to get from a seller, right? Just as a reminder, the value of a mobile home park as a commercial asset is based on net operating income, right?

Amanda:
The income that the property produces. So income minus expenses. That net operating income, not including your mortgage, not including your debt, but that net operating income just divided by a cap rate, gives the value of the park. So that net operating income is very important, so you want to know both sides of it, the income, the property produces and the expenses we also want to know about the infrastructure.

Amanda:
So on the income side, we want to know what is the rent? Is there pet rent? What is the vacancy? How many people are paying and not paying? Are there other sources of income, maybe storage or laundry. You also want to know if the homes are park owned or tenant owned. On the expense side, you want to know every expense. You’re trying to tease this out of them through a conversation, right? Who’s managing the park. How much does that cost? What does that manager do? How much does the landscaping cost? What are the utilities costs? Are those paid by the tenants, the residents, or are they paid by the park?

Amanda:
How much does insurance cost? And what type do you have? Is this in a flood plain? Telephone costs, right? The residents are going to need to somehow contact the owner or the manager. Does that cost any money? Are there any licenses and permits? What are the taxes? We can figure out what the taxes are going to be on our own. But we always like to ask as well, are there any recent legal fees?

Amanda:
And then of course you’re going to have overhead. You’re going to want to factor that and you’re going to have to file your taxes, right? And you always want reserves. So the income and the expenses, those two pieces really can give you your net operating income. The other piece you’re going to want to know is the infrastructure side. So if we think about a mobile home park, the infrastructure is critical.

Amanda:
It’s really what separates it from being a piece of land. So you want your electrical. If there’s gas, then gas, your water, maybe it’s city water, maybe it’s well, and your sewer, maybe it’s city sewer, maybe it’s septic systems. Hopefully it’s not a lagoon or something else like that. We won’t touch those. But you want to know what it is. And so getting those three pieces of information is really critical in being able to come up with an offer.

Rob:
So I guess I have a couple questions to follow up on what you were saying on the expense side. So question one, you said you can find out the tax bill for every single individual property, but you like to ask, is this an initial test? Is this due diligence on the seller to make sure that they’re honest?

Amanda:
Yeah. That’s an interesting question. So we always trust the owners, to start with, but it is always good to ask questions that you have a way of verifying because if somebody is trying to pull one over on you, run. They know more about this property than you are ever going to find out during due diligence because they already own it. If they are purposely trying to cover stuff up, I would run away from that asset.

Rob:
Okay. That makes sense. So, number two here, I guess you say that you look at the net operating income, obviously this makes sense, because you want to make sure that it makes money, but on the flip side of this, do you ever go into a park that may not show a giant, net operating income, but you can quickly identify how to slash costs and expenses so that you can effectively, add 25% value to the park in a few months with some rehab and work.

Amanda:
Absolutely. And that’s the number one thing I look for when I’m analyzing a mobile home park is can I increase the net operating income immediately? We’re almost immediately, right? You’ll see a lot of parks listed as value add, right?

Amanda:
I’m a value ad investor. I don’t buy anything that’s turnkey. I think most people listening to BiggerPockets are in the same boat. So that becomes a big buzzword, right? A value add mobile home park. A lot of times the value add is through infill. That’s fine. That’s great. You can infill. You can increase the value. But that’s not what’s going to make mean by a park if infill is the only way to increase the value.

Amanda:
I need there to be a way to come in and increase the rents or bill back the utilities or have some real impact on the net operating income to increase that and therefore increase the value of the park.

Rob:
And just to clarify, when you say infill, that just means getting more tenants in your park.

Amanda:
Yes. Thanks Rob. So infill is a way of taking an empty lot, either a vacant lot that has nothing there or already has the utilities connected, the electrical, the sewer, the plumbing, and bringing a home there so that now you have somebody paying that law rate.

Rob:
Would you consider this one of the bigger risks with mobile home parks? Because I mean, I feel like it makes a lot of sense to go in and say, “Okay, net operating income is not great, but hey, I can come in and we can get these people to increase the rents we can collect the 12 months of rent that we’re owed from these people over here, we can landscape,” we can do this and this and this.

Rob:
But obviously when you’re talking about mobile home parks, just like you said, the infrastructure, if it’s a lagoon, if it’s a septic, if it’s city sewer, all three of those, I have to imagine have vastly different expense implications. So I’m kind of curious do you consider just going into a value add a huge risk or do you see it as a huge opportunity?

Amanda:
It can be both. And I will say the number one least understood item of mobile home parks is really the due diligence on the infrastructure on those utilities. And so we actually have a course on mobile home park investing. And this is one of the main reasons we created it because we did so much research when we were learning about mobile home parks. And still when we were buying our first park, we had no idea how to do due diligence on those septic systems.

Amanda:
That’s what you’re buying is that infrastructure, right? If that fails, you have to put new infrastructure in place. So what we learned through that process is you actually have to go in and pump the septic tanks to be able to inspect them. Now, looking back that makes total sense, but we weren’t that familiar with them so we didn’t really know at the time.

Amanda:
So you need professionals for all of your utilities to go in. So in the septic case, you want the tank pumped so he can look inside and say, “Oh, this is cracked.” We found two cracked tanks in the first park that we bought. It’s not that big of a deal, right? I think it only costs like $4,500 each to fix, but you know that going in. You want to walk the drain fields. You want to make sure that land is actually absorbing the water. So a lot of people don’t know how to do that due diligence on the infrastructure. But in my opinion, that’s one of the most important things you can do when you’re looking at buying a park.

David:
So what are some questions that you might ask the inspector who’s going to be doing the work.

Amanda:
Yeah. So you definitely want them to be looking in the tank and just make sure everything looks good. They can tell you if you need to add a filter, which prevents the sludge if you will, from going into the drain field. Walk the drain fields with the subject professional because they can tell you like, “Hey, this land is soggy.” That’s a bit of a red flag or, “Hey, I smell sewage.” That’s not something you want to smell when you’re in a drain field. And then we have all utility professionals walk through.

Amanda:
We just have an electrician walk through and look at the panels and make sure everything looks good. We have somebody inspect the water lines to make sure that those… We want to know what types of water lines. And we want to know if they’re in good shape.

Amanda:
And so just making sure that you identify professionals for all of your utilities that can be there during due diligence and help you walk the park and look at all of the lots and all of the connections.

Rob:
So I have to imagine that every park you go into is a little bit different and it seems like you’ve done this a couple times now. So how did your team start out when you were getting into this and who is your team now? David calls them his core four and my side of the business I call it my Airbnb Avengers, probably one day I’ll get sued for that. But for now we’ll call the Airbnb Avengers. What about for you? Who are the critical people on your team?

Amanda:
Yeah, so I got to work on the name. I don’t have a cool name like you all do, but for every park you want to make sure you have a lender and an attorney that have mobile home park experience, not just a commercial lender, not just a commercial attorney, particularly on the lender side, remember the person you’re talking to when you’re talking to a lender is essentially a salesperson, right?

Amanda:
They want you to bring your business to that bank. They are not the underwriters. They’re not making the final decision. So if you go with a lender who doesn’t have a mobile home park on their portfolio, there’s a real chance that you could get to the final stages and they could walk away and then you won’t have funding.

Amanda:
So lender and attorney with mobile home park experience is a must and then utilities, right? The professionals in all of the utilities having all of those contractors, those are really the big pieces that you need.

Rob:
What about the day-to-day side of things? Do you have a team that’s effectively running the operation for you?

Amanda:
Yeah. So depending on the size of your park, you may want a manager in place or not. And everything is a spectrum, right? There are some people with single family houses that prefer to do all of the day to day management themselves.

Amanda:
And you can certainly do that 5, 10, 15, 20, 50 lots people do that all themselves. So you don’t have to have a manager. We choose to have managers in our parks. And so we have somebody who’s on point to make sure rent is collected, to make sure the grass is mowed to make sure there aren’t a bunch of cars sitting out that can’t even run. So we do have a person on point day-to-day and Jonathan works with the manager on an ongoing basis and keeps in a loop that way.

David:
I like it. Let’s say that you’re like, “Hey, I think I want to be a mobile home park investor. I want to be an Amanda Cruise, I want to be a Brandon Turner. And I have a good idea of how to analyze a property, income and expenses. Now I feel like I know what to look for in due diligence.”

David:
When you get bombarded by all of the opportunities that come your way, when you’re looking on LoopNet or CoStar, wherever you’re finding these deals, give us an idea what Amanda’s lens looks like when she’s looking at a property. When you’re scanning it, what are the things that are jumping out at you that make you think this would be a good deal?

Amanda:
Yeah. So for me, it goes back to that income piece. I want to know what is the current rent and what are the market rents. And I may need to do a little bit of research. In order to find out market rent. That’s really pretty easy, you can call local parks in the area and pretend to be buying a mobile home park.

Amanda:
My husband really likes to… He enjoys doing that with a fun accent, if he’s calling in the mountains or something like that. And so you’re figuring out what are those rents and what can I bump it up to? Where can I remove expenses. Water bill backs, I know you guys talk about that a lot with, or Brandon talks about that a lot with parks. That is one of the biggest things is taking utilities that may be absorbed by the park.

Amanda:
A lot of parks are owned by the people who created them decades ago, and they just absorbed the cost of water or the cost of electric. So being able to meter that and have residents pay for the true usage that they’re having is a big way to produce expenses.

Amanda:
We’re looking for places where… I’ve seen a park that was a 20 lot park that had a full-time and a part-time manager. There is absolutely no need for one and a half people to manage a 20 lot park. So looking for areas where you can reduce expenses and streamline, and it really comes back to that net operating income.

Amanda:
And I know I hit on this a minute ago, but we don’t touch anything that’s a lagoon or sort of those private systems. Septic is fine for us. I know that scares some people, but really septic, we’re comfortable with lagoons step too far.

Rob:
So why is that? Tell us, I mean, I have a general idea, but for David, explain.

Amanda:
So it’s very, very expensive to put in a lagoon. I mean, it could cost $200,000, $500,000 and you have sometimes counties, sometimes state restrictions and testing that goes on. And if all of a sudden that testing comes back and you have risks, there’s almost no alternative.

Amanda:
It’s not like you can just connect. Almost never can you just connect to the city infrastructure without it? I mean, most of the time you can’t even connect. If you can, it’s hundreds of thousands of dollars to be able to do so. So when you’re talking about a park that may only be worth 800,000, one and a half million dollars, that completely devastates your investment.

Rob:
That’s very interesting. So I guess, now that we have a rundown here of the due diligence, what to look for building the team, what not to get AKA, a lagoon here, which honestly changes my perception of all those neighborhoods that are like, “Blue lagoon,” and it’s on a lake and all that stuff. Now I’m like, “Why would you call it a lagoon?” But moving on from that you did mention earlier something that I wanted to get to. And you said there are three specific strategies that you talk about that you actively do to avoid, I guess, going up against some of the bigger fish in the lagoon, if you will.

Amanda:
Yeah. So a couple things here. One, I can think of any big investor and they’re going to want 150 lot mobile home park, right outside of Raleigh, North Carolina. That’s very desirable. The population’s growing like crazy. And that makes those investments very attractive and therefore very, very expensive.

Amanda:
So if we’re thinking back to how mobile home parks are valued, the income divided by a cap rate equals the value. Those cap rates get really, really compressed. And they trade, they sell for so much money to big investors who get cheaper funds than people like I get.

Amanda:
So we are comfortable in tertiary markets. We really like tertiary markets. And I’ve heard people say this recently about apartment complexes as well, right? Looking in tertiary markets with stable populations, we don’t want the population doing a nose dive, stable populations, but with multiple industries for jobs. So you still have a strong market, just not as competitive as the big markets.

Amanda:
So that’s where we’re able to find some better deals. Another thing we’re doing is looking at smaller parks, a lot of the big investors cut it off at a hundred. I think Brandon cuts it off at a hundred. So we’ll go in and look for smaller parks and put them together if they’re in the same area. So for instance we have a 50 lot park and a 28 lot park, a couple miles away from each other. Well, now I have a 78 lot portfolio, a 78 lot portfolio is a lot more desirable than just a 28 lot park.

Amanda:
And if you can get enough that you’re over a hundred lots, well, now that portfolio can really sell from maximum value. So that’s one of the strategies. And I would say, even if you’re not looking to add together to get a hundred lots or something like that, even looking at smaller parks, 5, 10, 15, lots, there’s just not as much competition for those.

Amanda:
So if somebody’s looking to get into mobile home parks, there’s really a lot less competition in those smaller parks so that could be something to look at. The third area where we really try to differentiate is doing something big investors can’t do, which is to say forming those personal relationships with the sellers. We are in contact as many sellers as possible, especially in the areas where we already own parks.

Amanda:
And as soon as somebody says they might one day be interested in selling then, “Hey, guess what? I’m going to be out in your area next week. Can I come take a look at your park? Can you show me around?” And you can just have a conversation. A lot of people love to tell their stories. How did they create the park? Was it them and their spouse, maybe their spouse passed away, or maybe their son doesn’t want to take it over, whatever it might be, just getting to know that person and the investment.

Amanda:
And then when you’re connecting with them, because you always want to follow up right? Every couple months, you never know when they’re ready to sell. They know you and they remember you. And then if you can give them a reasonable prize, they’re going to be more inclined to sell to you than some big investor from across the country.

David:
I’ve always wanted to ask this, but I didn’t want to upset Brandon. So I never did, but I’m going to ask you Amanda, because you seem like a much more reasonable person than that six foot nine bearded giant. I would imagine this is speculation, okay, and this is where I don’t want to offend anybody. But dealing with owners of mobile home parks would probably be a little more relationship-based, maybe less formal than when you’re dealing with residential apartment buildings where you sort of have institutional money that’s going towards that. You have a lot of people that like to use big fancy words.

David:
For instance, they’ll say finance instead of finance, because it makes them sound smarter. So it’s a little more intimidating in that world and they’re better at marketing. So they’re looking for who’s the top buyer I can possibly get and you got to win them and dine them a little more. And I’ve always imagined the mobile home park owners are kind of the mom and pop style. And it’s been in the family for a long time and they more want to feel good about the purchase. Am I way off with how I perceive this or have you found that to be the case?

Amanda:
Absolutely not. And so I think there are two classes of mobile home park owners. Like you just alluded to, there are the people who developed them. Those don’t exist as much in apartment building these days. Whereas in mobile home parks, there are still a lot of people whose families either they created them themselves, they built them or their parents did or something along those lines. They don’t even think of themselves as commercial real estate investors. They just own this park because that’s what they did for money for decades.

Amanda:
And if you look at the bigger investors that are getting into it, or if you’re going to buy from them, they want top dollar, they know exactly what they’re doing. So you really want to be looking for the people that built the parks. They’re the best ones to work with and they want to see the park succeed, right? They’re going to give you all the information, they’re going to work with you. And if you have a problem, you can call them up and say, “Hey, I couldn’t find this one tank that we…” Whatever. And they’ll actually help you because they really want you to succeed.

David:
Yeah. They’ve sort of given away their daughter in marriage and they want to make sure that you’re taking good care of her versus the person’s like, “I don’t know, this was just a business for me.” And there’s 40 different people involved doing some little part of the transaction and nobody’s very emotionally connected to it at all.

Amanda:
That’s exactly right. Yeah.

Rob:
Well, Amanda, this is all really gold. I think my question here and I’m sure a lot of people in the audience probably have this question too, but at what point is someone ready to invest in a mobile home park? You did the Lonnie deals and you kind of worked your way up. Were you ready for the mobile home park when you did it? What was that defining moment for you when you said, “I’m ready for this,” or, “I’m going to do it regardless.”

Amanda:
Is anybody ever ready to invest in real estate? I think it kind of comes back to, you can do it from a day one. And I think a lot of people say that, I talk with a ton of commercial real estate investors and everybody thinks the same. There’s no reason to… You have to start in single family. If that’s where you want to start. That’s awesome. If you want to start with an individual mobile home investment, that’s awesome too.

Amanda:
You could also just learn about mobile home parks and go buy a 15 or 20 lot park and that can be your first investment. So really, as long as you’re willing to learn how to do it, you can jump right into that and be a commercial real estate investor from day one.

David:
Alrighty. Well, I think that, that’s really good. I think we got some really good insight into how to get started as well as if you’re already investing in mobile home parks, sort of like your due diligence stuff was really helpful. So thank you for sharing that.

Amanda:
Good.

David:
We are going to move on to the next part of the show, which is the deal deep dive. Amanda, do you have a deal in mind that we can devour?

Amanda:
Yeah, I sure do.

David:
All right. Awesome. So question number one. What kind of property is it?

Amanda:
It is a mobile home park.

Rob:
Question number two. How did you find it?

Amanda:
This is a 50 lot mobile home park. We found it by cold calling sellers. Quick tip for people who are interested in finding these, some of the counties you can call and ask for a list of mobile home parks and they’ll give it to you. So that’s what we did in this case. And then backtracked the owners and called them.

Rob:
Dang. That’s a good quick tip, David-

David:
Yeah. You got the county actually doing something useful for the first time ever.

Amanda:
Right.

David:
Usually they just make everything harder. They’re like, “Oh, this could be easy. We could just give you a form right now.” But where’s the fun in that, let’s make seven unnecessary steps and bounce around to make sure you really want it.

Amanda:
True. And you might still have to do that.

David:
Wasn’t there a guy that worked for Puff Daddy at one point. I don’t know if you still called Puff Daddy. I’m making myself look old.

Rob:
I think it’s P. Diddy now.

David:
P. Diddy. All right. Because at one time he was P. Diddy and Puff Daddy. I don’t know how P works better than Puff, but whatever.

Rob:
I also recognize that, that might also make me look very, very, [crosstalk 00:41:45] he goes by a new name.

David:
And he would have that guy run all over town doing ridiculous stuff like, “Go and get me a slice of cheesecake from this particular place.” And the guy would come back going, “Ah, it’s not cold anymore.” Doesn’t that sound familiar? I feel like that’s what the counties do. They just P. Diddy you all over the place.

Amanda:
Totally. And the DMV. Yeah.

David:
Yes. The DMV. Same thing. That’s a very good example. Okay. Next question. How much was this mobile home park?

Amanda:
590,000.

Rob:
How did you negotiate it?

Amanda:
Not super well. I think we wanted it for under 615. We went in at 570. Mrs. Betty came back maybe a little over 590 and we ended up settling on 590. We went under contract. I mean, looking back now, that was just a crazy good price, but we didn’t know, right? And so, as I mentioned earlier, we found two cracked septic tanks as part of our due diligence. And we tried to go back and ask her, “Hey, we found these things. We’re going to have to repair them. What do you think is fair here?”

Amanda:
And she wasn’t hearing any of it. She was like, “Look, I’ve been wheeling and dealing my whole life.” She created this park. She is very hardened. She’s been wheeling and dealing her whole life. If we didn’t buy it, she was going to keep it. She’s not taking a dime less than 590. So we paid 590.

David:
And how did you end up funding this deal?

Amanda:
We used savings and we pulled money out of retirement accounts.

Rob:
What did you do with it?

Amanda:
So we executed our business plan. We increased the rents, we build back water. We fixed the infrastructure, both the septics and the roads, we made it look nice, put up signage and we refinanced it.

David:
The next question would be, what did you end up doing with it?. So it sounds like you refinanced it and you kept it.

Amanda:
Yeah. So we refinanced it and the new value of the park was a million dollars. So we paid 590 a year and a half later it was worth a million dollars. So that meant we could take a bunch of money out and a cash out refinance. We could have taken about 300 minus some legal fees and stuff like that. And we ended up taking 250 out of it.

David:
How do you feel like you did not need negotiate that well, when you bought it for 590 and it was worth a million a year later?

Amanda:
We didn’t know any better. And by negotiating it we thought we would get money off for the septic takes. It turns out we got a great price for it. We just didn’t know any better at the time.

David:
I think that’s just such a great point to highlight. There’s so many people that a year ago, two years ago got so caught up over a $4,000 gullible with the seller and they thought this isn’t fair. And now the property’s got up $300,000 and they won that battle over 4,000, but they lost it over 300,000.

David:
And when you’re in different markets, you just have to understand what leverage you have. And sometimes sellers have leverage and sometimes buyers have leverage. When sellers have leverage, that usually means the market’s going up. So you don’t have to win that battle as much. When buyers have leverage, that usually means the market’s going down or it’s staying the same.

David:
So winning those battles is more important, but if you can understand that it kind of gives you freedom to not get caught up in minutia that just is sort of largely unimportant.

Rob:
A hundred Percent. Just be because you didn’t get money off, doesn’t mean that was a bad negotiation. I mean, honestly, at the end of the day, the negotiation was buying a under market value. You just have to kind of look at it from a broader view. That’s awesome. Congratulations. That’s a lot of equity in a year.

Amanda:
Thank you. Yeah. Great points there. Thank you. On that negotiating piece. Hopefully people got something from that.

David:
So we just shared one lesson that we learned from your deal, even though we’re not being interviewed. Do you mind sharing a lesson that you might have learned from your own deal?

Amanda:
Yeah. So a lot of people talk about being afraid, right? You’re so afraid we’re doing this new big thing and that you know how to overcome it. For me I really learned that identifying the source of the fear is a big piece. So for me, I was afraid people weren’t going to pay us. This deal closed the first week of April 2020. People were in lockdown, losing their jobs left and right and I was terrified they weren’t going to be able to pay us.

Amanda:
So what I did was I analyzed that. I put numbers around it so that I could look at it and logically say, “Okay, 50% of people need to not pay us before we can make our mortgage payment.” And that allowed me to be able to move forward. So I would say the big lesson is analyze the downside, look at that number, and then you can make a logical decision.

David:
All right. Well, that is fantastic. And thank you for sharing. We’re going to move on to the last segment of the show. It is the world famous-

Speaker 4:
Famous Four.

David:
In this segment of the show, Amanda, we are going to ask you the same four questions we ask every guest every episode. I will start with number one, what is your favorite real estate book?

Amanda:
I really liked Ken McElroy’s ABCs of Real Estate Investing. It was really eye opening. It walked through a CD apartment complex that ended up having a ton of value added to it. It was my first real introduction to fix and flipping in commercial real estate.

Rob:
Question number two. What is your favorite business book?

Amanda:
I really liked Unscripted by M.J DeMarco. In that book, it’s by the way, worded way too long. It’s like 17 hours on audible, but there are a lot of really good pieces in there. There’s a great quote, he says, “When there’s a gold rush, sell shovels.” I love that line. It’s a really good way of thinking.

Amanda:
And it really helps me think through things like Rob you’re in short term rentals, that’s huge right now, right? One of my good friends, Sarah Weaver created an entire company to furnish short-term rentals. It’s stuff like that that’s just so smart and I love that Unscripted really highlights some of those really smart business moves.

Rob:
Sarah’s really great. We just had her on, I don’t know, a month and a half ago. She was one of my first interviews in the BiggerPockets family. So question number three, hobbies. What are your hobbies outside of killing off flea infestations in mobile home parks and adding value.

Amanda:
Yeah. I like to see different places, even if it’s just going an hour away to do a walking food tour. I love to just see different cities, experience them, especially through food or hiking and really just learning about new places.

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

Amanda:
Everybody has something that would make it way easier to get into real estate investing. There might be a couple people out there who think, “Oh, it was easy for her because she could take money out of retirement to fund her mobile home park,” right? Hopefully not too many people are thinking that.

Amanda:
But when I was starting, I would look at people in there 20s and think, “Oh gosh, it’s so nice that they have their weekends and evenings free. They don’t have families, they can go out and look for new properties.” Everybody has something that would make it easier. Being able to turn the lens and think of what is my advantage? What do I have? Is it funds? Is it a network? Is it time? I think successful people are able to look at their advantages and run with those.

Rob:
Bringing the fire today. Amanda, lastly, perhaps the most important, or it’s not technically a question, it’s a statement to you, but tell us where people can find out more about you.

Amanda:
Yeah. So I have a couple cool videos on my website, it’s five ways to find off market mobile home parks or three ways that mobile home parks are better than single family homes. You can get to those @voyageinvesting.com/freebie. I also post about investing and about mobile home park investing on Instagram. So come follow me @investingwithamanda.

Rob:
David what about you, man? People want to come and catch all your fire and knowledge bombs. What can people find you?

David:
Well, I’m davidgreene24 everywhere except TikTok. So I finally gave in and said, “Okay, I’ll start at TikTok,” and guess what? Some Slips ball out there took my name, just like they did to Rob. So he became [robuilto 00:49:46] and [ David Greeno 00:49:47] didn’t have the same ring to it. So I’m trying to think of-

Rob:
I feel like a fancy Seltzer water though.

David:
David Greeno. Or it could be the stuff you pour down your drain to get out the grain gunk type of a deal, a little less classy. So stay tuned for what I’m going to pick for TikTok. I think we’re still working on that. And then my YouTube channel is David Greene Real Estate. Super simple. I’m not very creative or fancy. If you want to find my stuff, just put in my name and you can find it there. How about you, Rob?

Rob:
You can always find me on the YouTubes, smash that like, leave me a comment. Tell me something you learned from my videos that @robuilt Instagram, robuilt, TikTok, as we said, robuilto, just a friendly reminder guys. There are a lot of fake bots that comment on the channels and on Instagram, David and I will never ask you for crypto or to invest in Forex or to message us on WhatsApp.

David:
Please get in the habit, and this is good for everyone of looking very closely at the handle of the person that messages you, it is very to take all of Halle Berry’s pictures, make a fake account and call it like Halle’s Berry and then message people and say, “Hi, I’m Halle Berry, and I want to give you money.” That happens all the time. So if there’s an underscore where it doesn’t belong, they’ll have to put a period in there.

David:
It looks like a real profile when they message you, because they have all of our pictures, but there’s so many of these fake ones we can’t even keep up with it. So if anyone out there has a connection with Instagram, they can get us the dang blue check mark so this doesn’t happen. That’d be great until then please like Rob said be very careful that you’re not responding to a fake person and giving him your information.

David:
Also, I want to give you a shout out, Rob, you recently put out a YouTube video of the property that we’re buying in Scottsdale. That is fantastic. I have only got into the first half of it and it’s super good. So please go check out that video if you’re listening to this.

David:
Rob is very good at making these things and it kind of showcases the property we’re buying, how we got to buy it little behind the scenes look. So if you want to check that out, please do. Amanda, I’m going to give you the last word. Is there anything you’d like to share with our listeners that you think is extra important?

Amanda:
Just thank you. I mean, it was so great to give back. As I mentioned, BiggerPockets was so instrumental in getting me into investing. So thank you for having me Rob and David, and just look forward to hopefully giving some people some information.

Rob:
Awesome. You did. You gave me a lot of information. I think we’re going to hit you up because I have this vision of turning a mobile home park into like a luxury glamping kind of mobile home park. So we should talk.

Amanda:
Absolutely. I already told you, I would love to do it. Let’s talk about that.

David:
Okay. All right. Thank you very much, Amanda. This is David Greene, for Rob the YouTube wonder Abasolo signing off.

David:
This is the BiggerPockets podcast show 595.

Brian:
So as you go through and evaluate how good an asset protection plan is, just remember that acronym, ECCC, effectiveness, control, cost-

David:
What’s going on, everyone? It’s David Green, your host of the BiggerPockets Real Estate podcast, the show where we teach you how to build financial freedom through real estate. Look, if you want to grow your wealth, if you want to improve your life, if you want to get your time back, if you want to travel the world, if you want to spend more time with family, if you want to have a better overall life, and you know that real estate is way you want to do it, you, my friend, are in the right place.
BiggerPockets is a community of over two million members, all strong, all walking the same journey as you, and we at BiggerPockets are committed and dedicated to helping you achieve that goal. We do it through providing a forum where you can ask questions, an agent finder service where you can find real estate agents to help you with your deal, blogs with articles written by people that have done well, and this podcast where we bring in experts in the field that are relevant to what you need like we have today.
Today’s a fantastic show that I can’t believe we’re actually going to be able to give you for free because it’s awesome, where we dive deep into asset protection with our guest, Brian Bradley.
Now, in our show today, we cover a lot of topics about how to keep yourself safe as a real estate investor, as well as how to grow to the point where this would become relevant. Here joining me today is my awesome and fun co-host, Rob Abasolo. Rob, welcome to the show.

Rob:
Hey, man. I always like being described as fun. I also would’ve accepted funny, but I can’t demand that. It has to be earned.

David:
It’s funny you say that because we were just talking about how you add Y to the end of most words and create another word. I think it was bridgey that you just described and now fun and funny. You just can’t help yourself.

Rob:
It’s the millennial way, man. It’s the millennially way. Do you ever feel like you have it, something about what you’re learning or an aspect of your business where you’re like, “I have this down, I have figured it out, I am a pro at this,” and then you talk to somebody so smart and well-versed in that specific area and then you’re like, “Oh, my goodness. I know nothing”? That’s kind of how today’s talk went when it came to asset protection.

David:
You thought you had protected your assets, but you found out maybe you hadn’t.

Rob:
Yes. Yeah. Yeah. Brian talks a lot about, well, A, trusts and how he relates it to Baskin-Robbins. There’s 29 flavors. There’s a lot of different types of trusts out there, common misconceptions about LLCs. He talks about protecting yourself and your assets, how it’s like layering up with clothes and how each layer of clothing gets a new layer of protection on your business.

David:
Yeah. I think we also got into some of the very common misconceptions when it comes to different corporations or levels of asset protection where people think they’re safe where they’re really not. So make sure that you pay attention to what the first word means in an LLC and how that describes what you can expect from that company.
We talk about what piercing the corporate veil really means. We talk about the safest way to protect some of your assets and when that might be necessary. Then also as a bonus, we got into how some of these structures can protect you in one sense, but can also build your wealth in another. So there’s a dual side to all of this. You’ve got the tax strategy side where you have to claim your income within these structures and you can benefit or you can maximize your tax benefits, and then that’s the offensive side, how you’re going to make more money. Then you’ve got the defensive side, which focuses on how you prevent people from taking it away from you.
Now, this is probably the most commonly asked question in Robinized world is everyone would come to us and say, “Should I buy an LLC or should I buy in my own name?” So we wanted to bring you a show just like this with an actual attorney to go deep into how to know how you should start and where to go. Anything else you think that they should keep an eye out for, Rob?

Rob:
No, man. This is really great. I’m really excited to have this because people always ask me about legal questions and I’m always just sweating profusely because I’m like, “I’m not an attorney. You can’t sue me.” So this episode I’m going to be like, “Here you go. Just listen to this. This will answer most of your legal of questions and it’s free.”

David:
So here’s a good question. What type of things should people reach out to you to ask about?

Rob:
If they want to invest or if they want to learn how to start an Airbnb or if they have questions about running an Airbnb business, anything in that capacity, but when it comes to taxes and legal liability, no, thank you. That’s not me. That’s not my jam.

David:
That does make you nervous. People should reach out to me if they want to know about financing real estate, having an agent to help them to get it, if they’re looking to invest their money with somebody or if they want to be connected to the people I have in my world that do provide these services. So here’s just a good note. Please don’t ask us for legal advice, but you can ask us for the people that we use to get our legal advice. We would sweat a lot less if that was the case, and then I would be drinking less water from doing less sweating.
All right. Before we move on to the show, let’s get to today’s quick tip. It’s so nice that I don’t have to do that high pitch quick tip that Brandon was always trying to do, and it was so hard to get my-

Rob:
Quick tip.

David:
Oh, so you do that so well. You’re just like Brandon. It is tax season. So I would like you to think about every single thing that you’re dealing with right now that you wish you were not and put a plan in place so that next year you don’t have to deal with it. The best way to do that is to get connected to a good CPA and actually plan throughout the year.
So what I do is I meet with my CPA monthly. We go over my books. We go over the properties that I’m buying. We go over tax strategies, where I might be on the hook, and what type of real estate I would need to buy or what I would need to do to reduce my tax liability. I highly recommend doing the same thing. Meet with your CPA semi-regularly so that they’re not super long meetings and they’re not in the middle of nowhere where they’re busy and you’re like, “Hey, I got to talk to you right now?” Have it set up on a calendar so you can work around it, and if you don’t have a CPA you like, I’m happy to share with you mine. Send me a message on Facebook Messenger, Instagram, BiggerPockets or if you have my email, send it there and I’ll make a connection for you.
Rob, anything that you’d like to leave our listeners with before we jump in to this jampacked show with Brian?

Rob:
No. I’m not a lawyer or a CPA. So I’m just going to let Brian do all the talking today.

David:
It wouldn’t be fair if you were a lawyer or a CPA and had a beautiful singing voice to match that face of yours. God, can’t give you every gift. It wouldn’t be fair to the rest of us.

Rob:
I’ll take it. I’ll take it.

David:
All right. Let’s bring in Brian.
All right. Brian Bradley. Welcome to the BiggerPockets Real Estate podcast.

Brian:
Thanks David and Rob for having me on. Today’s an important topic and I’m going to try to keep it less dense and not legal boring, and I’m not anyone’s attorney here, and I’m not a legal guru. We’re just going to be talking in generalities, and we’re going to be learning a lot, and I hope the concepts that we talk about help you and your listeners understand this area of asset protection. Specifically, we’re going to spend a lot of time later on on asset protection trust just to understand this world a little bit better.

Rob:
I would argue that this is not boring at all. I mean, for the people that are actually at home listening to this or watching this on YouTube, these are some of the most asked about topics on the BiggerPockets YouTube channel, on my YouTube channel, on our social media. So I’m actually genuinely excited to learn how to protect myself so that I don’t get sued, Brian.

David:
Yeah. Brian, how would you sum up what asset protection is?

Brian:
Yeah. So what asset protection actually is is just think of it as a legal barrier between your assets and your potential creditors before you need it, and that’s the key word, before. That’s it. It’s just like a safe for your gold or your guns or your valuables, anything of value you want to put behind the legal barrier and out of your personal name so that it’s not easily attached with the lien or reach. To mimic the rich, and I love that Tony Robbins is saying that success leaves clues. So the rich don’t own things in their personal name, their businesses do, their asset protection trusts do. They just get the beneficial use and enjoyment out of them while separating out the liability. Then as you grow, you just create different layers as you grow and scale up your planning.

David:
When you talk about layers, in specific terms, what does that mean, also in layman’s terms?

Brian:
Yeah. So in layman’s terms, let’s just break it down as key concepts and tools that we use. So I want you to think of each tool as a layer of clothing, and we add layers as you and your wealth grow. So these tools generally are going to be LLC, so limited liability companies, limited partnerships, and then as the protection trust, and where you land in this scale depends on your risk profile, your profession, the asset classes that you own, for example like single family, multi-family, commercial, where you own them at, the states you own them in, Texas, Nevada, California.
Then we look at your total unprotected net worth, and then we look at this holistically and then start creating plans based upon where you’re currently at and then your growth and what you’re investing in.
So I want you and your listeners to think about winter. So when it comes to asset protection, like I mentioned, we have different layers. That first entry layer is your base layer. It’s the foundation, and it sits on your skin. This is the LLC and insurance. This layer is generally when you’re just starting out. You have no unit, zero to three units or properties. Your net worth is generally going to be around below 250,000 nets.
Then as you grow and you add more assets and you hit that four-unit spot, you’re investing in probably multiple states with different LLCs in different states, your net worth has probably hit around 500,000 to 700,000 nets, you want a mid-layer, which is usually going to be a little bit thicker. It’s generally going to be made out of Merino wool or for you ladies a cardigan, and this is your management company.
We personally use limited partnerships for this management company, that mid-layer. I broke those two layers down the LLCs and the limited partnership on BiggerPockets Rookie in great detail, but that mid-layer limited partnership will be owning all those LLCs. So this way, you only maintain one tax filing at the end of the year.
Then when you hit around one million net worth, you want an outer shell layer. This is your waterproof layer. This is like we’re going out skiing, we’re in Siberia or somewhere really cold for some reason. This keeps you nice and dry and warm when the weather is really bad. This is your doomsday lawsuit protection layer. This is your asset protection trust. We’re going to be spending a lot of the time on later on talking about these today, but by layering, you’re now more flexible. You can adjust and make yourself more comfortable.
Now, for all these layers to work, I want you to think about this acronym, ECCC. These are the four things that must be true. So one, your plan has to be considered effective. Two, you’re going to want to control your plan and your assets. Three, you’re going to want reasonable and sustainable cost, and then four, you need to worry about compliance. It can’t be too difficult for you and your IRS CPA to figure out how to make this compliant with the IRS. So as you go through and evaluate how good an asset protection plan is, just remember that acronym, ECCC, effectiveness, control, cost, and compliance.

Rob:
Okay. So let’s unpack this a little bit because for me and for a lot of the people that we talk to that are just getting started out, a lot of people seem to get very wrapped up in an LLC and often associate LLCs with both legal protection and taxes. I get a lot of people that are like, “Oh, do I need an LLC to file taxes as my business?” So could you share a little bit of the journey of someone that’s investing when they would start with an LLC? Then I think you briefly touched on this, but at what one would then take the next step to get, I guess, into that next level, which I think you said LLP?

Brian:
Yeah, the limited partnership or a management company. Yeah. So the LLC, the Limited Liability Company, it’s that first layer. It’s basically asset protection 101 along with insurance. So the entry level base layer that most of us are all going to be familiar with and I think a lot of people spend a lot of time talking about is this LLC. That’s going to be holding your real estate and your risky assets. Anything that has a key or needs insurance or can go boom, these all go into an LLC.
So we know about LLCs. People hear about partly the effectiveness of them, but there’s some things that we’re just not told about them, and I think it’s really important to understand these three big misconceptions of the lack of effectiveness on LLCs to then understand the reason for the next layers as you grow.
So once you move from zero to three units and you’re getting into probably four units, about 500,000 of unprotected net assets or more, you’re going to start accumulating a lot of LLCs. So we need to start cleaning these things up for your accounting system so you’re not being nickel and dime on all these K1 filings, but also, one of the big issues with LLCs is that the courts now have a tendency to disregard single member LLCs.
So when your corporate veil is pierced, it’s not very effective. Remember, that’s one of the most important things. We are looking for an effective plan, meaning it needs to work when you’re in courts, and CPAs tend to set up LLCs as disregarded entities for tax purposes. That’s really great for taxes, but it’s really bad for lawsuits.
What being disregarded means is that the IRS is not taxing your business separate from you. It passes through to you personally, and because of this, they’re basically worthless for asset protection or lawsuit protection because that liability also passes through to you, but don’t get me wrong. I still use LLCs but at that base layer entry protection, and then we add the next layers up as we need to as you and your assets and your wealth grow. So that would be that limited partnership.
Eventually, you want those LLCs to be owned not by you, but by that limited partnership. Then as those taxes pass through to that limited partnership because they’re disregarded, you only have one tax filing, but now you’re getting the protection from the limited partnership.
The other two big misconceptions about the LLCs is just where do you even set these dang things up in? Do you go to Wyoming, Delaware, Nevada, Texas? You hear about all these states and it’s technically called charging order chasing. So they’re chasing different states’ laws. The problem here is that this is not creating a business like Dave and I or Rob and I going in and selling widgets. We’re holding real estate and LLCs as a holding company.
So you can’t really go and buy another state’s beneficial laws and bring them to another state that you have no jurisdictional connection to. So if I own, for example, real estate in California and Ohio and Washington, and then I go stuff them all in a Wyoming LLC, I can’t take Wyoming law with me to one of those other states because there’s no jurisdictional connection there. The damage that you’re going to be getting sued from is going to be from where the injury is at, where the lawsuit is coming from, where the property’s at, where the person’s at.
So a lot of people have this misconception that I’m going to go buy another state’s more beneficial law so I’m just going to go use a Wyoming LLC without understanding I can’t just take these other state laws with me to where I’m actually getting sued.

David:
You mentioned two things I want to point out. The first is that when it comes to these legal entities, at least the way I see it, is you’ve got protection in case you’re sued or something like that, and then you’ve got tax purposes. So they function in this dual role and you highlighted how that can become confusing. So I’m going to ask you in a second if you could maybe give us a summary of how to understand them as they function in those two roles.
Then the other one was you mentioned that you can pierce the corporate veil, and we just kept going. Can you explain to people that this misguided understanding that an LLC is a iron tight if you have it in LLC, you get sued, they can’t get anything outside of it, it’s actually not the way that it works in the legal system?

Brian:
Yeah, absolutely. Let’s start with that one. I think you just need to pay attention to the first word, first letter, limited. I mean, they just tell you straight out in the name, “This is limited protection,” and what piercing and the corporate veil means is there’s certain ways that we go through and say, “Okay. This LLC is not an actual business. It’s an extension of you personally.” So because of that, that’s where we’re piercing that limited liability veil and now holding you personally liable.
A couple of the easiest ways to pierce this veil is, one, just the nature of real estate. All right? We use LLCs and business entities as holding companies. We don’t operate out of those LLCs. You generally use an operating company. So when I’m trying to pierce through that LLC, the number one argument that we use that would work nine times out of 10 is saying, “Well, Your Honor, this is just a holding company. This isn’t actually a business. It does nothing but hold this company for David or for Rob. So this is actually just an extension of themselves.” That argument in itself will win nine times out of 10. Then the next ones we look at is funding issues. How is the LL-

David:
Well, it’s true, right?

Brian:
Yeah.

David:
I mean, isn’t that why most of us are using an LLC is I just want to stick a property in it and I don’t really do anything else other than that?

Brian:
Absolutely, and that’s the thing that you don’t want to do is operate out of the holding company because now, if you’re going to be getting sued through your business operations, now the whole point of separating out the asset from the operation defeats the whole purpose of what you just set up the LLC for. So that’s why people need to realize the nature of real estate and investing in real estate is completely different than taking the same analogy of we’re going to go create a business and sell widgets because our widget factory actually has a business to it. Our real estate LLC that’s a holding company has no business connected to it. It’s just holding the real estate for us and then we operate it out of something else.
Then it goes into funding issues. A lot of people don’t realize that one of the biggest ways to pierce an LLC is just bad money management, funding the LLC incorrectly, bad accounting, co-mingling assets, which would be I got paid from the renter, it goes into my business account connected to my LLC, and then I go buy groceries out of that business account on the LLC versus paying yourself first. So those three right there beyond the list of a lot of other why LLCs get pierced very easily.
The next question was charging orders. What a charging order is is just saying, “We’re trying to stop what damages can come to you and hold it just in the LLC itself.” So the charge that you’re going to get from a court stops at the LLCs and doesn’t bleed into you, the owner or manager of that LLC. Every state is going to be different on how strong those charging orders are going to be. Some suck. Some are horrible like California. Some are very strong like Wyoming or Arizona and Florida. So at that base layer LLC, we’re not chasing charging orders. What we’re doing is creating LLCs at the state the asset is at.
That second layer, it comes to becoming important of where we create that limited partnership at, which I generally use Arizona for the limited partnership just because they have a specific statute that we like to play off of, but other than that, I don’t think chasing charging orders or chasing states with beneficial laws is that important at LLC level because you have no jurisdictional connection there.
Then taxwise, the third part of your question, taxwise, realize asset is not tax planning and tax mitigation. We’re protecting your assets. So it’s going to be tax neutral. Your tax, we need to talk to your CPA and coordinate with your CPA. Your CPA and wealth manager is going to be where your tax mitigation strategy comes through. So it’s the three of us talking together, the attorney, the CPA, and the wealth manager of saying, “Well, first, we need to protect the assets,” because if you get sued and lose your assets, your CPA and your wealth manager have nothing to do tax mitigation strategies on.
So the first advice is protect the assets as strong as you can. Then the next part is talk to your CPA and your wealth managers to then accelerate tax mitigation strategies as aggressively as you want.

Rob:
I think that this is probably the part of the show where everybody’s hitting that share button and sending it to their partner and they’re like, “Oh, my God! The LLC isn’t enough,” and they’re all like, “Oh, we’ve been told wrong.”
So now that we know that LLCs aren’t really quite bulletproof, I mean, you mentioned also pairing that with a good insurance to, I guess, level out some or to mitigate a bit. Then I think I’m still, if you could unpack a little bit on the limited liability protection or the LLP.

Brian:
The limited partnership?

Rob:
Yeah.

Brian:
Yeah, what it is or?

Rob:
Yeah, yeah, because I think you mentioned here that the LLP could somewhat function as like a management group for the LLC.

Brian:
That’s exactly. So really, you’re using a family limited partnership at that second layer. When you use them for asset protection, they’re just called an asset management limited partnership. All right? So they’re like LLCs and they also have some charging order protection. I like them better at that second layer because limited partnership have a delineation between a managing partner called the GP, the general partner, and the minority partner who does not.
So think of it like a split personality. We like having both a general partner interest and a limited partner interest, and we use that limited partner as a starting point for our clients, as that holding company or that management company because it can hold all of those LLCs that you’re creating so all those K1s will flow directly through that limited partnership, and then there’s just a one page attachment of a 1065 that your CPA will file. Now, you only have one tax return versus some of my clients have 30 LLCs with hundreds of properties, thousands of properties all over the place.
The great thing is we can segregate out those properties and then have all those K1s flow under the management company. So it’s still very easy accounting, just one tax filing.
Then the other benefit here is that people don’t realize is, one, limited partnerships are perpetual, whereas other states, they have an annual report on filing LLCs. Privacy, though I’m not a big component of anonymity and privacy because once you get sued, privacy goes out the door, but partnerships statutorily are private to where the name party, the GP is not named by the state on there. So you have a statutorily privacy built in and limited partnerships by themselves cannot be disregarded entities by nature.
So there’s statutorily a lot of really strong builtin mechanisms and mechanics that are just stronger than an LLC. So some people do the wrong thing of saying, “Okay. I have my base layer LLCs at the bottom.” They layer up by adding another LLC like a Wyoming LLC. That’s the wrong next layer. Really, it should be a limited partnership because then we can come in and attach the asset protection trust to own that limited partnership not you.

Rob:
Great. Okay. So obviously, there are a lot of moving parts with setting up, establishing, forming, evolving your business. So there are obviously going to be several different types of lawyer attorney roles in this. So I would imagine you’re an asset protection lawyer and that would be … What you do would be a little different than what a business lawyer who’s just setting up the business does or do you do at all as an asset protection attorney? Is there a difference between different people in this field, different, I guess, niches in this field?

Brian:
Yeah. That’s a great question. I related to, I think, a good analogy is look at it as like medical doctors. They all go in a medical school, but they all have different specialties. So sometimes you’re going to go to your general family doctor, but you wouldn’t say, “Okay. You have a brain aneurysm.” “Hey, doc. Cut my brain open.” You’re going to go to a brain surgeon. You’re going to go find a specialist in that.
So your real estate attorney is going to be focusing on what? Real estate deals, closing your deals, and doing the paperwork for that. Your business attorney is going to be focusing on the business aspect internally of your business. They’re generally not going to know as the nuances of asset protection. Generally, what you’ll find is their knowledge stops at the LLC level of protection to where I’m not going to go in and do your real estate closing for you, that’s not my job. I’m going to create the buckets that we’re going to be transferring title and holding all of those assets in.
So I’m making sure that we set up the protection system fine. Your business attorney should do their job helping you and advising you on the internal running of your business and contracts. Your real estate attorney should be focusing on what their job is, successfully closing the deals that you’re getting, and then we just all communicate together depending on whatever the deal is.

David:
I was going to ask you, Brian, if you had to sum up how a newbie could understand when it comes to these legal entities, how they protect you in case of a lawsuit as well as how they save you money in taxes, can you just give us a brief understanding of how they work in those two roles?

Brian:
Yeah. At the base layer, LLCs really work as smoke screen and as a financial deterrent. So they’re good for little things like grandma slips and falls, breaks her hip. Pizza guy slips on ice, breaks his arm. You hit somebody in your car, it used to be it can help for that, but now you’re seeing radically excess damage awards, even just in fender benders and people getting …
I had one client call that said, “Oh, I got on a fender bender. We were both taken away in an ambulance. I don’t remember much. What can I do to protect my assets?” I’m like, “Well, you know you’re possibly getting sued now so we have to walk a very fine line, but if you’re being carried away in an ambulance, even if it’s a fender bender, expect this lawsuit is going to probably run to be expensive in damages.”
So the LLCs, like I said, they’re good as deterrents. So if you think about a leg, what you’re doing is with an LLC cutting off one leg of the plaintiff’s attorney suing you because you’re trying to make it harder for them and more expensive for them to collect damages on you because law firms are what? Businesses. Businesses have profit lines.
So if I’m going to sue you for $100,000, I have to make sure that when I get the settlement from the case or a judgment, I didn’t overspend and break even. We have to create a profit. So each layer cuts off more legs of the chair to where then the chair is unstable and it’s either going to be too costly to push the case forward so they’ll take the insurance coverage or a settlement or in certain big cases like I have, I was talking about off screen with you guys, we have that California client, who’s a doctor, who owns a Jersey property, rented it out to a gang member, didn’t know, didn’t know he was a gang member. There was a fight that broke out. Guns were pulled. Someone was shot and killed. Who’s was getting sued? Mr. Deep Pockets, white coat investor here with the rental property for negligence and wrongful death.
Would insurance and an LLC hold up and protect you in that case? No, because whoever’s suing you has a war chest and now they’re going after millions of dollars for lost earnings and wrongful death. That’s where a stronger protection needs to come into play, and that’s where very strong asset protection trust come in to protect you because in those type of cases where you have a doomsday lawsuit and you’re going to potentially lose everything, we have to be able to what’s called break a bridge and move your equity out of a US jurisdiction to protect your assets, and that’s where the different layers really come in depending on, and strength comes in. It just depends on the type of lawsuit.

Rob:
So effectively, if I’m hearing this correctly, we’re trying to bog people down in the actual legal flow. So LLCs, there’s going to be a lot of paperwork that you have to mitigate through or go through as someone that’s in this lawsuit. So that can already be costly, but then to then start going into that next layer of the LLP and having to go through all of that, it just takes more time and expense for the other party that’s trying to take legal action. Is that about right?

Brian:
Yeah. That sounds about right. Then the final layer, the asset protection trust. If you’re using, for example, a bridge trust, a very strong asset protection trust, we can break domestic compliance, meaning move the equity to an offshore account to where no judge can actually reach that money legally, and then that generally, once the party suing you sees that a foreign trust is in play at that point, they’ll just go away because it’s just too difficult. We can break through all of that when we talk about trust and why it’s so strong, but the ultimate deterrent is saying, “Even if you win that $10 million judgment against me, I’m uncollectable.”
Really, what we’re trying to do is make sure in a doomsday scenario, you’re going to lose this lawsuit. You’re going to lose bad and you’re going to probably lose most of your wealth. We want to be able to make sure you’re not collectable legally.

Rob:
Yeah. So let’s dive into it a little bit because I want to know a little bit more about trust. I actually, not too long ago, set up a family trust and I was under the impression, “Hey, is that it? Am I good to go? Is that all I need to do here?” Are there different types of trusts just like there are LLCs and LLPs and all that kind of stuff? Is there a whole branch of trusts out there that a lot of people don’t know about?

Brian:
That’s a great question, and it’s absolutely true. A lot of people have this misconception that trust our trust, “Well, I have a trust so I’m good to go,” and it’s not. It’s like Baskin-Robbins, 31 flavors. It’s all ice cream, but there’s different types of ice cream.
So asset protection trusts are that final layer of your planning. Like I said, it’s that full bad weather outer shell layer, but it’s the heart and soul of the system. So trusts have been the longest lasting entity of all entities, and you can sculpt them to fit however you want them to fit or they can morph it as you need them without dealing with funding issues that you see with LLCs and business entities that we talked about before that can generally get them pierced.
So I just love trusts, and then having a trust at the very top of your planning is just very powerful and so is picking the right place to actually set these things up in. So to keep with my Baskin-Robbins theory, the standard 101 trust that everybody’s familiar with, Rob, that you mentioned that came from the ’60s is the family revocable living trust.
So trusts don’t die. So when you do and you actually funded your trust by transferring ownership and title to it, you don’t have to go through the courts and probate, and that changed the landscape of estate planning, which is not asset protection planning. That’s just estate planning to avoid courts and probate.
Then you also have land trust, which I’m sure some of your listeners have heard other people talk about for real estate. They hold your real estate and the land, and then you connect those to an LLC, but land trusts don’t have any protection in and of themselves. They’re only as strong as the LLC that they’re connected to. So land trusts are just a privacy mechanism. They’re not a protection mechanism.
Then from here, you have higher levels of trust that are called asset protection trusts. If you guys don’t mind, this is where I think that we can really spend a lot of time breaking these three concepts down of an offshore, domestic, and then a hybrid because then I think after this you and your listeners will probably know 99% more and all the attorneys out there just on asset protection trust.

Rob:
No, I don’t mind at all. In fact, I would very much welcome it. What about you, Dave?

David:
Yeah. I don’t think you can ever have too much of this information. I mean, there is a stage in your career where you’re listening to this and thinking, “Well, this doesn’t apply to me. I’m trying to get my first property or my second property,” but the thing with real estate is it doesn’t grow in a linear way. It grows exponentially. You get a property, you get a second one, you start to think, “Holy cow!”
This happens all the time. One property made me more wealth in a year than all the money that I made at my full-time job after I was taxed. This paradigm shift starts to happen where you realize gaining assets is how you grow wealth, and I’ve been banging this drum for a long time. I think people are finally starting to listen to me, which is nice, but there is a massive problem with inflation going on in our country. We are devaluing our currency, and in that environment, you can feel like you are getting wealthy because you’re saving money, but you’re really not. Your money is losing massive amounts of value every year it sits there.
So you almost have to be investing just to breakeven. Just to stay where you want to be you have to be taking action. I really believe more and more people are going to start to figure this out, and you, BiggerPockets fans, you heard it first, right? So you had an advantage, but you’re going to see that we’re not likely heading to a crash in the real estate market. It’s just going to get hotter as wealthier people start putting their money there to protect it from inflation.
When that happens, there’s always vultures that will circle because it’s easier to go and take your money than it is to make their own. I think what Brian’s talking about, which is beautiful, is this is how you make it harder to take your money, right? When you were talking about how we set up these foreign trusts and different ways to make it difficult, it made me think about I believe it was World War I. Actually, I should know this. I’m sorry that I don’t, but when the Russians pulled the Germans into invading Russia and they just kept sucking them deeper and deeper and deeper into Russian territory and their supply lines got stretched out and then winter hit. It was very, very difficult to go after the Russian so they finally gave up and said, “I don’t want it.”
Well, you could think about your wealth in that same way that as people are coming after it, the more obstacles that you put in their way and the longer of a process you make them spend, the more money they have to spend on their lawyers to try to get to it. They’re either not going to fight that war or they’re going to quit once they start. So this is a very thing to be learning, especially if someone really likes real estate because it’s going to become more and more important in the future.

Brian:
Absolutely. I like to piggyback off of that. I’ll use my ex brother-in-law as an example, a guy who couldn’t rub two pennies together and then decided he was going to go do a flip and fix, and then that turned into a short-term rental, that turned into a sixplex, that turned into him specking out a couple homes, and three years’ worth of time, he has over a million dollars worth of assets and unprotected net worth just by listening. I’m like, “Hey, go listen to BiggerPockets. Go listen to these guys. Start learning this stuff, but execute it. Don’t just read it and get stuck in analysis paralysis.” He actually did. The next thing you know, from the not being able to rub two pennies together, it’s amazing how fast real estate can accelerate wealth.
So the whole point of this is if you’re just starting out, it’s good to know here’s the foundation, but you need to know the direction that you’re heading because then you’re going to set up like most of my clients come in like a complete mess. They’re going to come in, “I own 15 properties, either all in my name in all these different states,” or “I have a Wyoming LLC,” or one was, what, four days ago, “I have a Montana LLC.” I don’t know why Montana. “I have 15 properties in all these different states in a Montana LLC that I don’t live in. I have no connection to Montana, whatsoever. So what can you do for me?”
I’m like, “Okay. Well, now we’re going to have to disassemble all of this craziness that you did, but let’s make this flow and let’s put you in a stronger jurisdiction for this trust.”
To get into the strength of these three different trusts, but going offshore as particularly the Cook Islands does is they have this beautiful thing that’s called statutory nonrecognition. All right? What this means is that if you have a judgment against you in the United States, and you took it down to the Cook Islands. US judgment there is completely worthless. It literally has no value whatsoever because it has seven very strong statutory standards.
So if somebody wants to sue your trust that you create in the Cook Islands, they’d have to start the case all over from scratch there. The person suing you would have to prove their case beyond a reasonable doubt. So that’s the murder standard, the 99% sure standard, not the US civil case 51% called a preponderance of the evidence like, “Oh, maybe, I don’t know, but sure. Let’s give them their money.” You’re talking about the highest legal standard in the world.
You can’t get a contingency fee attorney to represent you there because they’re not allowed down there. It’s unethical like it used to be here in the US, but that got changed in the ’60s because lawyers now control our legal system and they want lawsuits to get started so they can get bigger pay days.
The claim, meaning the lawsuit, is not amendable. So once you file your complaint, that’s it. Once you start sending out discovery and you start digging around and poking around, you can’t just say, “Oh, okay. Well, we’re going to now change what we’re suing you about and sue you for this even though we didn’t know we were suing you for that. So we’re going to amend our complaint.” You can’t do that down there. The person suing is going to have to front the entire court cost plus flying a judge from New Zealand, and you can’t take your US attorneys with you down there.
The kicker here with this is if you lose, you pay. So this is one of the single worst things that we don’t have here in the United States, that the loser does not need to pay the legal fees of the winner. So if you get sued by somebody for something completely bogus, I mean like a frivolous lawsuit and you spend $200,000 defending yourself on legal fees and then the judge decides, “Hey, you know what? This is ridiculous. I’m throwing this case out,” you’re still out $200,000. They’re not going to be getting the bill for it because that’s discouraged in the US because that will discourage people suing other people. Then there’s only a one year statute of limitations.
So while you have now the most effective, remember the four things I told you to think about, effectiveness, cost, control, compliance, while you have the most effective trusts in the world by far, I mean, statutory nonrecognition, right? Doesn’t get stronger than that. Those other three factors, if you’re going to go purely foreign, it falls short because now costs are going to be very high like $50,000 to $75,000 to set up a purely foreign trust. You’re going to be out of control of your assets, and the IRS compliance is insane. You’re talking about full disclosures, FACTA disclosures, full trust disclosures.
So for most people, that’s a hard pill to swallow. So that’s why we rarely, rarely ever see going purely foreign. What most people then default to is going domestic. It’s cheaper to start up. You’re going to be in control of your assets. The problem is they suck on effectiveness and they’re starting to get pierced because we have what’s called a constitution. Article four section one, full faith and credit clause, meaning if I own a California piece of property and I have a Nevada LLC, I can’t take that judgment, go to Nevada, and Nevada say, “Hey, sorry. We’re not going to exercise that judgment,” they legally have to adhere to that judgment and even litigate the case because you have to give the full faith and credit to other states’ judgements and recognitions.
Then you have crazy judges nowadays that are just, what is it, litigating from the bench. So you have radical judges now not following case law and statutes and using their super power called public authority, public policy. So the way you combat this is you want to take the best of both worlds. You create what’s called a hybrid trust or a bridge trust, and you take an offshore Cook Islands trust, and you domesticate it through the IRS. Now, it’s cheaper to start up. It’s cheaper to maintain. You have no IRS disclosures, whatsoever.
While that trust is domestic, okay, the maintenance is going to be easier, but I have that strength in my back pocket. So if I ever do get sued and, for example, there’s this Louisiana case that happened some time in September I think it was. There was a guy Airbnbing his property. The short-term renter like a lot of people party we know in short-term rentals. All right? Guy got plowed, decided to do a head dive off the back patio and landed in the shallow pond, broke his neck, became a quadriplegic. Sued the land owner of the property and got an 11 million judgment out of him because he was a dumb drunk.
So what this means is if you’re that land owner getting sued and you had a bridge trust, we can do what’s called a demand on the assets. Break the IRS compliance and now your trust is what it is. It’s purely foreign. Now, we have that strength in our back pocket because we set it up beforehand. So now, even when you lose that 11 million lawsuit, I’ve moved your equity, I’ve moved your money, you’re safe. Now, we can either have them just completely walk away, which most people do nine times out of 10 or the case is settled for a penny on the dollar. Once the case settles, you redomesticate that trust and it’s back to being purely domestic again.

Rob:
So I actually have a question about this because a lot of interesting stuff here. So let’s just say in the case where you have a trust, let’s say the hybrid trust, for example, and that holds all your real estate and you have an $11 million judgment. So that judgment is against your trust, which is more protected because it’s offshore. Do you personally just as a person walk in the streets of America, have any sort of liability at all or any kind of charging order or any money that you would be on hook for from that $11 million?

Brian:
So what would happen is at that point, removing the equity and removing you as the trustee. So the likelihood of them following you, so we’ve had to break over 300 bridges and move a bunch of equity offshore. We’ve never had or seen over decades a client actually follow us down to the Cook Islands because it’s just too daunting of a task if you go through those seven prongs that they’d have to do. The only people who ever go down there is the IRS, the government, the man who can print money and has infinite amount of resources, and all they do is lose down there.
So do you have liability walking around? Yes. Can you run from that? No. Do you have a judgment against you, a valid judgment? Yes, but we did is make it legally to where you’re not collectable on that judgment because the offshore trustee is going to say, “Sorry, this is the Cook Islands. We don’t recognize any country’s court orders or judgements. You have to sue us here,” and that’s out of your control. This is the US versus Grant case to where a guy stiffed the IRS for 36 million, stuffed it in a Cook Island’s lawsuit, had a heart attack, died.
The IRS came after the wife for the back taxes and the money three times and three times lost, and then tried to hold her in civil contempt of court and throw her in jail until the money came back and the court said, “Listen. It’s not her choice.” Now at this point, the offshore trustee is the one in control saying, “No. Sorry. You don’t get access to this because it’s under duress,” and she even tried to instruct the offshore trustee to give the money back and they kept saying no because it’s under duress.
The court said three times to the prosecutors, “We can’t hold her in civil contempt of court because it’s no longer in her control.” So that’s how effective and strong that becomes. So you’re walking around with a liability, but it’s the ultimate settlement, big red button that works that you have in your toolbox.
So generally, before you go down that route, you’re going to be settling the case because the attorneys at that point realize a foreign trust is in play. It just is up to me, the attorney, to decide when I’m going to use that option or not because of the ultimate negotiating factor.

David:
So I have two questions about that. The first would be, how quickly can you get this set up? Is this something where you’re like, “Oh, boy! I’m in trouble. I can’t get it moved over before a judgment is issued”? Number two, approximately how much money should someone plan to set aside to do this technique?

Brian:
That’s a good question. So it generally takes about 30 days to set up and transfer all the assets over.

David:
That’s fast.

Brian:
Ideally, you want to set this up, yeah, it’s pretty quick. Ideally, you want to set this stuff up before you even have a whiff that you’re going to get sued because realize states have look back periods. The most extreme is California, a 10-year look back period. Other states have two-year look back periods, meaning you set this up and then if you get sued next year, someone’s going to look and say, “Okay. Well, this is a fraudulent transfer. Unwind it because you had a reasonable expectation within this timeframe that you could have been sued.”
Anyways, that’s irrelevant because you’re not getting sued, but that’s the argument that’s going to be played. So you want to set these up like any defense system before a lawsuit happens. Okay. Once a lawsuit happens, you’re starting to go too far down the rabbit hole, and you’re really limiting the options that we have, and if you have a big lawsuit against you already and you come to me, I’m either going to have to exempt that lawsuit or just go purely foreign, and that’s going to be very expensive. Purely foreign, like I said, you’re generally talking like 45,000 to 75,000 to set up plus 10,000 to $15,000 a year to maintain. That’s why we don’t use them very much and the IRS compliances. It’s just too much.
That’s why you go the hybrid option to where, generally, with a bridge trust with a limited partnership, you’re talking about 29,000 to set up plus around $2,600 to maintain a year, and all of this is asset protection. So it’s a tax write off. The profile that generally fits a bridge trust set up is you have about one million, like I said, of unprotected net. You probably have four to six or more real estate properties in different states. Either you’re a pure real estate, 100% into real estate investing at this time or you have some other type of high risk career like you’re a medical doctor investing in real estate or a lawyer, CPA, something that has more profile besides just the real estate itself because I think people don’t realize how much bad things can happen in real estate even if you’re the most wonderful landlord in the world. You can’t control mold issues. There’s a lot of things that are just … Renting out to the wrong person, a fight, breaking, someone dying. There’s just so many things that go out of your realm of control. That’s what these trusts are for.
I tell people think of it like a pie chart. There’s three quadrants, the things you know, the things you don’t know, and the things you don’t know that you don’t know. Most bad things happen in the third quadrants and that’s where most people own their assets, the things that I don’t know that I don’t know. If I know something, I already know the answer. If I don’t know something but I know Dave or Rob knows the answer, I’m going to be like, “Hey, Dave. Hey, Rob. What’s the answer to this?” and you’ll tell me, but if I don’t know that I don’t know something, I don’t even know how to ask the question. So the idea is shrink that portion of the pie as much as possible, but create protection around yourself so that when something does blow up in that quadrant, we’re safe.

Rob:
Okay. So I think for offshore, you mentioned that it’s expensive 45 to 55,000. Can you also break down that for, I think, for the domestic side? I don’t know if I missed that particular number. Then that’s one that you said if I remember correctly, offshore, highest level of protection, most expensive, domestic, more affordable, but not as much protection, and hybrid, basically marries the best, right? So what would be the cost on those side of things?

Brian:
Yeah. So the domestic side, the purely domestic side, on average you see a domestic trust fall in the realms of I would say 9,000 to 12,000 to set up, and probably around a thousand dollars a year to maintain. Again, the weakness with that is purely US domestic. So there’s no escape option. So just realize that’s the weakness of it. Okay? We’re having a lot of case law come down of judges, even in states that have asset protection statutes and self-settle spendthrift statutes just completely ignoring those statutes now or you have states like California that don’t have self-settle spendthrift legislation and people running off to Nevada, for example, to create an out of state asset protection trust.
Well, the courts in California came down in Kilker versus Stillman in 2012 and said, “Ah, ah, ah, not anymore. We’re not going to allow you to do this anymore. We’re not recognizing out-of-state asset protection trust,” or people run off to create Delaware statutory trust. Well, California doesn’t recognize them anymore. So you have very thin lines of what states recognize them and what states don’t. So when you combine where your assets are, where you’re resident of, where the potential lawsuits come in, that really weakens the effectiveness of anything purely domestic.
So yeah, I can spend $12,000 on a domestic trust, but I feel like we’re buying false sense of security at that point, and then that’s where the domestic comes in in-between, but what you’re doing, like you mentioned, Rob, is taking the best of both, the pure strength of the foreign, the ease and simplicity from tax purposes of the domestic, combining them together and then that falls within a half price range around $29,000.

Rob:
So okay. Yeah. I mean, it’s still up there, but I mean, I think now hearing the benefits of it, I mean, it starts to make a lot of sense, especially when you do have a very quickly growing portfolio. I also wanted to get some clarity on something you said about the, I guess, if you solely do real estate, then the trust is going to help you, and then if you’re in another high risk job like a doctor or CPA, a podcaster, YouTuber, in those instances as well, if you got sued personally out in the streets here or whatever for something you said or something you did, you would still have protection on all of your assets, even if what you’re getting sued for isn’t necessarily real estate-related. Does that make sense?

Brian:
Correct. Yeah, absolutely, because your assets are out of your personal name. They’re owned in the proper buckets, the real estates and the LLCs. You have the management company as a second layer. Your trust really owns everything. So since everything’s out of your name, you’re going to get sued personally, but they’re going to have to break into the system. Let’s say they do pierce veils, and they do get into that system. Everything’s unwinding. You’re in your doomsday health situation right now. You had a glass of wine at date night with your spouse and you hit somebody with your car and then they died. That’s just a general negligence on you personally. They’re coming into your trust to try to get it. That’s where those layers come into play, and then that trust disconnects does a unilateral with demand on the assets and it’s gone.
So even though you have a judgment against you personally, your asset protection trust is what’s going to be owning everything, and then that offshore trustee eventually is what’s going to be the ultimate door in that judgment’s face. It’s just a matter of having the layer set up, again, keyword, beforehand. So that’s where when we create the trust and everything before you’re getting sued, now I have that option to break the bridge or that compliance because it’s in my toolbox already, just like you’re hiring a contractor to build your house. I want to make sure the contractor has all the tools and knows how to use them and not saying, “Oh, I’m going to go put the roof on and I need to get a crane, but I don’t know how to use a crane.” So you need the pieces and the tools in place beforehand.

Rob:
Okay. Okay. See, this is, truly, this is all mind-blowing stuff for me. So the only other real question around the trusts, well, no, actually, I have a thousand more questions, but the one big one that I think a lot of people are probably wondering at home is once you start getting into … Let’s say you put your property in an LLC or you did a quick claim into an LLC or you did anything in that world, refinancing and doing a cash out refi and moving those deeds over, that can already start getting tricky at that level. So my question is once you completely move your properties into your trusts, how does that affect doing any kind of financing in the states? Does that get murky at all or is it the same straightforward process?

Brian:
That’s a great question, and I would say it depends on the type of trust that you use. We specifically use a grantor’s trust so there’s no murkiness, and banks and lenders prefer to see a grantor’s trust because you are the one that’s maintaining the control of the management of your assets. There’s other types of trust that you create that you hear some people saying, “Well, I have an asset protection trust in Nevada, and it’s so difficult to get lending through or using it for bankers.” Well, that’s because it’s not a grantor’s trust. So it just depends on the type of trust that you’re using at the end of the day.

Rob:
So if it’s owned in a foreign, well, I guess, it’s hybrid, but if it’s owned in this hybrid thing, it doesn’t necessarily have really bad ramifications on going to a bank and saying, “Hey, okay.”

Brian:
Not at all because it would just be a foreign grantor’s trust. The hybrid trust is a grantor’s trust, and all that the banks will see is a domesticated US grantor’s trust, and that’s all that they’re going to see, and it’s just like everything else. Another form of a grantor’s trust is your revocable living trust. That’s another self-settled created for you by you. So they’re familiar with that.
If you start going away from grantor’s trust, then you’re going to start seeing banks or lenders saying, “Oh, I really don’t understand what this is.” So like the basic KISS principle, keep it simple, stupid, it’s the same thing that you want to apply when you start creating asset protection plans. Some attorneys that don’t do this at higher levels create very convoluted message for clients who just becomes a nightmare for what you’re saying lending purposes or even tax accounting purposes, and then they just stop using it and unwinding what they did, and they just completely wasted a bunch of money because the system was so convoluted and so difficult to use and maintain that is completely contrary to what you want to do.
So again, remember the acronym, ECCC. You want to make sure you can maintain your compliance and the costs are going to be easy to maintain. So that acronym, just everything that you do, realize if it looks convoluted as corona probably be convoluted to you, so you want to really simplify what you create. Just make sure it’s strong and has different multiple layers.

Rob:
Okay. I want to pivot a little bit here, not super left field, but a question here because, obviously, in today, in 2022, today’s world, cryptocurrency and digital real estate, NFTs, and other things, that’s obviously a really growing industry at the moment. So I’m curious, when you start factoring in technologies like crypto and blockchain, is there anything you can speak to with protecting that through any kind of trust as well?

Brian:
Yeah. Absolutely. I almost feel like that’s a whole another episode in and of itself, but just remember that the IRS defines cryptocurrencies as a property. Okay? It’s very, very important for your listeners to understand this, and what this means is that it can be targeted with legal action and you are legally required to disclose that you own it, and how much of it you own and where.
So people have this misunderstanding that because you purchased this cryptocurrency and that is private, that they think that it can’t be traced or that it’s inherently protection in and of itself, meaning that simply owning your cryptocurrency is asset protection in and of itself, and that you’re hiding wealth.
This is the farthest thing from the truth. If you ever are subjected to a money judgment and you’re brought into debtors court, because the US classifies your crypto as a property, you’re legally required to disclose it, and like any property, it can be frozen and ceased.
So if you don’t disclose it, you’re lying to the court, you just come into perjury and perjury means people go to jail. So what we need to do is assign your exchanges and your wallets out of your name and into your asset protection plan to protect those assets. Now, this is where blockchain technology and the law is really getting fun. So there are things called blockchain trust that we’re developing right now ourselves using the same concepts as the blockchain that’s powering crypto. That then can be used to create these unique trust. You can make changes and amendments to these trust that they’re going to be recorded in the blockchain, and then it’s going to be forever verifiable.
We can build our pre-builtin triggers into a blockchain trust that allow the trust to alter its structure based on certain events that are happening. For example, a trust can convert into an irrevocable asset protection trust if you’re ever in a lawsuit or it can become an irrevocable income-only trust before a beneficiary ever needs to apply for Medicaid. So the blockchain trust, based off of all this new technology, is really starting to accelerate the trust that we’re using for the future, but this is all in beta development now, but I expect to see big changes starting to happen there.

Rob:
Awesome, man. Well, we’ll bring you on for a whole another deep dive on that. I guess a general disclaimer for everybody out there, David and I will never ask you to send us crypto. We’ll never ask you to contact us on WhatsApp. So if you’re on the BiggerPockets YouTube channel, you’re going to see a lot of BiggerPockets-branded accounts at our scanners that are saying, “Hit me up on WhatsApp, send me Forex trading.” I don’t really know what it is these days. It’s not true. We’re never going to ask for that.

David:
That is a good point. Every month, I get a new fake account where they will have some variation of my screen name. Do we call them screen names? Did I just go back to AOL days right now on the podcast? What do you call your social media name?

Rob:
Well, it’s a handle now. The cool kids say handle, your handle.

David:
All right. So they’ll copy some variation of my handle. They’ll leave off the E at the end of Green or they’ll turn the E into a C so it doesn’t look like it. They’ll copy all my pictures and then they’ll say, “Hey, send me your bank account information. I want to give you some money,” and I get so many people that say, “Hey, I thought I was sending you my bank account. I sent it to a scammer.” I was like, “Why would you send it to me? That’s a terrible idea,” but yeah. Please be very careful with these DMs.
Brian, I think now would be a good time to transition over to the fire round section of the show. Did you have anything that you wanted to say before we move on?

Brian:
No, I’m ready for the fire round.

Speaker 4:
It’s time for the fire round.

David:
Awesome. Okay. This is a segment of the show where Rob and I will fire questions at you and we will see how you would reply in your best response where you fire them back. So what is the biggest myth surrounding LLCs?

Brian:
Yeah. So the big myth right now is this wonderful word called anonymity like, “Let’s go create an anonymous Wyoming LLC and we can completely ghost and disappear lawsuits.” That’s not how the legal system works, but I get this call probably three times a day. Sorry. I’m cracking up as I say it, but it amazes me that this isn’t the general train of thought that we’re creating this anonymous Wyoming or Delaware LLCs. Now, I don’t have to show up in court and I can never be sued or discovered.

David:
It reminds me of the person who can figure out somebody’s MySpace password and then they think they’re a hacker. They’re like, “Oh, I’m in.” They think that that’s what computer hacking is, right? It’s the same type of thing like, “If we just fight an anonymous thing,” or there’s this one move that they know about that nobody else knows that can win them the fight. It’s the same type of an idea, but yeah, when you go to court, they unpack everything. There’s no five-finger death punch.

Rob:
I’m going to say you can definitely think TikTok for that. I mean, TikTok is 15 to 32nd viral videos that are like, “This hack is going to save you millions of dollars in a lawsuit, Wyoming LLC,” and then it’s like, “Oh, gosh!”

Brian:
Well, and that’s where this comes from because you have so many promoters, and even attorneys and CPAs have no idea about this because they just take a continuing legal education course and then just realize, “I can use this for everybody,” and cast a big net and don’t realize, “Well, what really happens and plays out in court because I am a trial lawyer by trade?”
It’s like, “Well, you do get this thing called you’re getting a service so that personal agent of service that’s legally required to be attached to that Wyoming or Delaware LLC, their still job is to be like, ‘Hey, Rob. Guess what, man? You just got served. Here’s your lawsuit. Now go get a lawyer and show up in court.’”
Well, there’s no more anonymity at that point. So now you got to show up in court and the judge is going to say, “Hey, you’re going to potentially have a judgment against you. So here’s this great thing called an asset declaration list. Write everything down that you own, and if you don’t and you don’t disclose everything, now you’re going to commit perjury on the court and go to jail.”
So once you get sued, anonymity goes completely out the door. Now, if you want to hide your assets, you’re the weak link on that because you’re going to be the one going to jail. So just realize anonymity is a private seat mechanism, not a lawsuit ghosting mechanism.

Rob:
All right. Awesome. Let’s move on to the next one here. How will investors use blockchain in the near future?

Brian:
I think investors are going to be … From the legal side or contract side?

Rob:
Yeah, yeah, smart contracts, anything in that side of things.

Brian:
Yeah. So I would go and look at what is a company. I’m not pumping any one specific currency or anything like that, but at ADA, they’re really getting into … What it’s called? Cardano? Yeah, ADA is Cardano. They’re really getting into the smart contract play. So realize, blockchain is about transferring a title. So now, you’re going to have these smart contracts and it’s going to be really easy, clear title.
So the importance of that even in the legal field is you can’t go in and manipulate a piece of evidence and document because it’s all going to be transparently there in the blockchain, and you can’t just go in and start manipulating these agreements.

David:
All right. Next question has to do with building your team. So in the book that I, David, wrote, Long Distance Real Estate Investing, I talked about the core four. You want a deal finder, a property manager, a contractor, and a lender. You have those four pieces, you can invest anywhere. Outside of those pieces, Brian, who do you think investors need on their team?

Brian:
Yeah, and that’s a great book there. I actually wrote that your book is a really good book.

David:
So you’re the one that read it. I’ve been looking for you.

Brian:
It’s me. It’s me. I should get a little courteous like, “Hey, man,” but I bought all the covers. So I just gave them out as gifts, but anyways, no, the key pieces beyond those I would say become friends with your CPA. Really, you should be talking quarterly to your CPA to take better advantage of your tech strategies. Your asset protection attorney, before you buy something, before you sell something or if you have a sniff in the wind that you did something wrong and are about to get sued. So we need those two to talk and we need to talk to each other and your wealth manager because we need to protect what you have. Your CPA needs to be able to file the proper tax forms and your wealth manager needs to be able to do whatever tax mitigation strategies that you want in place.
So I think those are the three key pieces of your investment world that you need to be constantly talking to. Some people are afraid to talk to the lawyers. Some people don’t realize you should be talking to your CPA probably quarterly to create proper plans on how to write a lot of stuff off, and then your wealth managers take your CPA’s job to a whole another accelerated level. So if you really want to accelerate wealth, get in with your wealth manager, tell them your strategies, tell them how aggressive you want to be, and let them do their magic.

Rob:
Totally agree, man. I mean, that’s a whole nother level on the Avengers, right? I call mine Airbnb Avengers. I think David calls his the dream teamers, core four. This is now your financial, I don’t know. We don’t have to think of the name for them now, but yeah. I mean, teams in every aspect of your business, I guess, there’s no limit to the amount of teams that you can have when you’re trying to scale and protect your assets. So thanks for answering that.
So I’m going to be re-listening to this podcast myself. Just I’m going to digest it and then come back and then relisten with a whole new, I mean, I feel like I’ve just evolved to the next level of what it takes to really know your business. So Brian, for you, are there any final takeaways or anything you want to leave the viewers or the listeners with as we close out?

Brian:
Yeah. I would just say in the realm of what we’ve been talking about, it’s too late after you’re getting sued. So you got to think about this stuff beforehand and then just layer it up and structure it as you go. In the investment side of things, I would just say don’t get stuck in analysis paralysis. Eventually, you got to just jump in and kick your arms and feet around and realize, “Let’s float then swim.”

Rob:
Where can people find out more about you, Brian?

Brian:
Yeah. They can jump on my website, www.btblegal.com. I have it set up more as an educational resource with a bunch of case law, frequently asked questions, video content because I’d rather have you be educated to ask better questions when you are shopping around versus just coming in at a blank slate or you can just email me, [email protected] I generally do a one-hour free consultation, whether we’re right match or not. I’d rather, again, just have you have a long, educated opinion and then take that and see what other people have to say.

Rob:
Announcing that you’re about to get all the hours on your calendar filled out for the next year, I think.

David:
I’ll say, you know this really is-

Rob:
David, what about you, man?

David:
You know this really is a trial attorney because you’re referring to case law. The second I hear that I’m like, “Okay. That’s actually a person who is going to end up being in court and knows this from a practical standpoint not just a theoretical standpoint.” I always notice that when I worked in law enforcement. Those of us that were in court testifying had to pay a lot more attention to the case law involved in those that never did anything.

Brian:
Well, and I would say that’s a great thing to ask people when you’re vetting your attorney is asking for some case law because most of them won’t send it.

David:
That’s exactly right. So the 15-second clip on TikTok person probably doesn’t have case law. I think that’s an awesome litmus test. All right. Well, thank you, Brian.

Rob:
I think that’s it.

Brian:
I’m thinking about creating a case law TikTok.

Rob:
Hey man, you could probably go viral with that, Brian. You want to hit up TikTok after-

David:
I think that’s also how you know if someone’s like-

Rob:
David, where can people find you?

David:
You could find me at DavidGreene24. Find me on Instagram, find me on Facebook, find me on Twitter and LinkedIn. I’m going to be making a TikTok for the David Greene team. I’m just trying to figure out who the right person is to make that thing. Brandon Turner has warned me very, very carefully, “Do not get sucked into TikTok.” It’s like putting on the ring in Lord of the Rings where it just can pull you right in. So I’m going to be making content for TikTok, but not ever actually watching it because I’ve been warned of the dangers of it.

Rob:
Oh, it’s true. They know me well. They know me well. You can find me on TikTok, @robuilto, Instagram, Robuilt, on YouTube, @robuilt as well. Remember, everybody, it’s David Greene with an E24. It’s not DavidCream25. We will never ask you for crypto.

David:
All right. Well, thank you very much, Brian. This has been a fantastic show, probably more practical knowledge and insight than almost anywhere else you could get. I mean, this is just like the consultation that you’re going to give to somebody. Many people would pay money to get this information. So thank you very much for coming and bringing it to our audience. We appreciate you. I think Rob and I will now be having another talk where we say, “Oh, my God! Do we need to do anything differently? What could happen here? Do we want to go to Monaco? Do we want to go to Switzerland? What’s the key going to be?” but we appreciate you, man.

Brian:
We’ll be in touch.

Rob:
We’ll be in touch.

David:
This is David Greene for Rob robuilto Abasolo.

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Doorvest was started by two friends in the startup scene in San Francisco. In 2014, the now-CEO Andrew Luong was searching for more financial security and started investing in real estate. Over the following five years, he bought a respectable 12 single-family rentals.

Friends who saw his success wanted in, and after giving them resources to educate themselves, Luong realized that your average 9-5 working person was intimidated by the time and effort that it took to execute on their own real estate investment. If there are too many barriers, people are less likely to invest in something as complicated as rental properties.

That’s where Doorvest comes in. Doorvest aims to simplify the process, making your investment experience as streamlined as possible.

Doorvest’s business model

Before we begin, I should note that Doorvest has built out a Knowledge Hub and FAQ resources to answer all of your budding curiosities regarding the process.

Users start by going through an assessment process where Doorvest learns your financial goals and then helps you create a real estate investment plan. They will also guide you through some purchase options in preparation for your upcoming investment opportunity.

After finishing the assessment process and placing a small deposit down, Doorvest utilizes its tech-enabled platform to begin sending curated homes that align with your desired preferences. In the background, Doorvest is continuously acquiring homes that match their customer’s investment criteria and renovates them in preparation for tenants. Doorvest believes in the quality of the renovation such that they will cover any costs incurred in the first year (with some limitations, according to the lengthy terms and conditions document on their site).

Next, the company screens and places a tenant in the property, with another one-year guarantee for the first year of income. So far, no need to find deals, no need to do rehab budgets, no need to babysit contractors, and no screening or placing tenants. The easy option is looking pretty good right now!

It’s now time to close on your newly renovated and occupied property. With an average price of $230,000,  the investor comes to closing with a down payment of roughly $45,000. The day-to-day management of the property is also taken care of (with a management fee) from this point on. Tenant turnover, repairs, and everything else that goes with owning a rental is handled. Their client portal breaks down your month-to-month costs and how much cash flow you are receiving every month—plus, the property report is nice to look at.

As an expanding startup, Doorvest is now live in 4 markets, with more on the horizon. You can find investment opportunities in Houston, Dallas, San Antonio, and their newest region: Atlanta! The BiggerPockets community loves Houston: It topped the list for both renting and flipping in our round-up of the top cities where members ran calculator reports.

The four benefits the company is touting are cash flow, equity, tax advantages, and appreciation. Nothing unique, as those are the benefits of all single-family rental real estate.

Doorvest’s fees

Nothing in life or investing is free, of course. The fees seem pretty standard for most turnkey companies that I’ve analyzed. The two main points of profit for Doorvest are when they sell the home to you, which comes with a slight markup, and a monthly property management payment.

Most property managers charge 6-10% of the monthly rent, plus a tenant placement fee of up to one month’s rent every time the property is re-rented. Doorvest charges a 10% per month property management fee, but no tenant placement fees, so depending on turnover rates this might break even.

Who might use Doorvest?

Doorvest has two primary targets.

Career professionals

Working professionals with no prior interest in real estate seem to be Doorvest’s main target audience. Busy with life, work, and family, this investor wants to diversify and wants something as easy as buying stocks on their phone. With a call to Doorvest, transactions can be completed quickly with a preapproval for a mortgage or a quick proof of funds and down payment for closing. No need to visit the property, no calls in the middle of the night for toilets breaking. Rest assured someone else is handling everything.

Newer investors

Intimidated by everything they have read about finding deals, setting up local property management, and handling contractors, newer investors usually look to a turnkey company to handle all of the details for them. Many investors I know started with turnkey properties. However, they soon realized it’s difficult to use the BRRRR method on turnkey deals—there’s simply not enough equity in the property to refinance. Once they had a good understanding of property purchasing and management, they could move on to more complicated deals.

Doorvest’s pros and cons

While the model is similar to many turnkey companies that are already out there, the tweaks they’ve made are interesting and very consumer-friendly. Having any kind of guarantee was surprising, let alone a guarantee of the first year’s income and any additional renovation costs in that same year. The ease of transaction and the guarantees almost seem too good to be true. A down payment of $30,000 and then you just check into a portal like you would your stock app and watch the numbers go up or down.

I’d be interested to know if you could refinance the property, then change the portal math numbers to accurately reflect the new mortgage amounts, and how that tracking can be customized.

The main cons of turnkey companies revolve around equity. You are essentially buying a flipped property, except the turnkey flipper is selling it to you at near market price, which may leave you needing to wait some time before refinancing to get your down payment out. There has to be a lot of trust in the company; both that they did the renovation work correctly and that they are competent in the property management department.

The buyer is not really learning any real estate investment skills besides rudimentary deal analysis. Doorvest even lists this as a pro on their site: no need to write offers, estimate, deal with contractors, or tenants.

Everyone has different goals, and for the career professional above, this may be ideal. Doorvest wants to help you as much as you need, you can be as involved or not as you’d like. For any long-term investor who wants more options or to actually gain the skill set to scale their business, having a company do all of the work for you never lets you learn anything.

The cons I see for Doorvest specifically are the need to trust in a young startup company, high monthly costs, and the potentially limited strength of their guarantees. The company has successfully completed it’s Series A round of funding and additional rounds are anticipated as the company continues to scale. To date, Doorvest has successfully renovated and supplied its customers with 160+ properties. Being an early adopter in a company carries risks. If they find the model unsustainable and close down or can’t find more funding, it could leave all of their customers scrambling to pick up the pieces.

Having all of the properties in one market is severely limiting and puts all of the company’s eggs in one basket. For the right investor, the monthly fees should come with peace of mind if they want to remain hands-off. I’m still not entirely sure if the property management is in-house or if they are subcontracting it out and taking a cut of the fee. This could cause a problem if there are service complaints and Doorvest is now just one more entity in the chain to get things resolved.

Overall, I applaud Doorvest for making real estate investing easier to navigate and lowering the barrier of entry. I also love how they are able to work with beginner investors and more seasoned — differing their approach based on the preference of the investor. While the Company is still in its early days, it is making promising progress and excited to see what’s next!

Ashley Kehr:
This is Real Estate Rookie, Episode 171.

Dave Meyer:
To me, the best way to invest is real estate. But in general, because of the way the economic and financial world is right now, the only way to realistically build wealth is to actively invest your money.

Ashley Kehr:
My name is Ashley Kehr, and I am here with my co-host Tony Robinson.

Tony Robinson:
And welcome to the Real Estate Rookie podcast, where every week, twice a week, we bring you the inspiration, the information, the education you need as a new real estate investor to get started or keep going if you already started. So Ashley, what is going on in your neck of the woods today? What’s new?

Ashley Kehr:
Not much actually. I’m finally getting ready to have my surgery on my knee, which by the time this airs, I’ll already had it. But my injury happened in December and I’m finally just getting surgery now, so looking forward to getting the out over with and starting rehab all over again. Yeah. But I actually did have something super exciting that happened today. I had somebody call me saying they own a campground and that they would be interested in selling it to me.

Tony Robinson:
Whoa.

Ashley Kehr:
So that was super exciting. Yeah. A friend had actually told me about the campground and I sent them an email. And so I just heard back. They ended up calling me, like, “Yeah, we would definitely be interested.”

Tony Robinson:
That is awesome, Ashley. Where is it at? Is it in New York?

Ashley Kehr:
It’s in New York. Yeah.

Tony Robinson:
Okay. That’s awesome. What’s the term? Is it spot pads? Spots?

Ashley Kehr:
Yeah. So this is actually cabins. It’s 28.

Tony Robinson:
Oh, wow.

Ashley Kehr:
Yeah, 28 cabins and then there’s about 50 RV hookups.

Tony Robinson:
Wow, that’s awesome.

Ashley Kehr:
Yeah, so we’ll see.

Tony Robinson:
Okay. We’ll, fingers cross.

Ashley Kehr:
But it’s always exciting when a lead comes in and it’s off market too, so you’re not competing with a ton of people. So yeah. What about you, Tony? What do you have going on?

Tony Robinson:
So much. So much is going on right now. We actually just took one of our newest short-term into listings live this morning. So that’s exciting. We’ve got four more that we’re closing on next month. We’ve got another four rehabs we’re working on. So we’re just like all over the place right now.
But what’s most exciting is that I think we’re inching towards closing on our first resort. It’s a 24 cabin resort in a lake town here in SoCal. The buyers were initially asking for 10 million. Our first offer was like 5.5 million, so like way off. They didn’t even counter with that. But I think we’re going to end up closing somewhere around like 8 million or something like that. It’s crazy. Ashley, I can buy single family short-term rentals like all day at this point and not really lose any sleep over it, but we’re going to have to syndicate this property and I’ll have to raise money to make it happen. I don’t know. Just get the estate-

Ashley Kehr:
Just due diligence on a property of that size. Yeah.

Tony Robinson:
Totally. Totally, right? I’m excited if we get it, but I’m also really nervous, you know? It’s like, am I going to be able to really knock this out the park? So I don’t know. We’ll see. I’ll keep you guys posted as things go along.

Ashley Kehr:
I know how much you’ve wanted a resort area. Either a motel or something that you can do short-term rentals out of that’s just more than one unit. So this is awesome. I’m so excited for you.

Tony Robinson:
Yeah. Fingers crossed. We’ll see.

Ashley Kehr:
Well, if you need any help with the due diligence, my business partner Daryl that you know, he’s done it all on the campground we have under contracts.

Tony Robinson:
I’m fine. You guys are my first call.

Ashley Kehr:
Okay.

Tony Robinson:
Tell Daryl if he does that, I’ll forgive him for not saying goodbye to me when we saw him in Denver.

Ashley Kehr:
Yeah. He had extreme anxiety over not saying goodbye to you and Sarah and Seattle, yes.

Tony Robinson:
In Seattle. Yeah.
All right. We got a good episode today, Ash, right? Obviously this show is about like the rookie investor, but from time to time, we bring on experts. And I really love the expert episodes. Our most recent one was with James Dainard and he came on and gave like a masterclass in flipping. We’ve had other folks. And today, we’ve got Dave Meyers who is the… What’s his official title? The VP of data and analytics at BiggerPockets?

Ashley Kehr:
Data and analytics, yeah.

Tony Robinson:
Yeah. So Dave is like a wealth of knowledge when it comes to macroeconomics and using data to make good decisions as a real estate investor. And he gets into so many good juicy topics throughout this entire, entire, entire episode.

Ashley Kehr:
Listening to Dave talk about what’s going to happen, what he forecast will happen, but he gives you why he’s forecasting that or why he thinks that’s going to happen looking at historical trends and data. He also tells you where you can find that data yourself. So if you want to go and research your market specifically, this is the episode you guys have to listen to. Or if you are trying to decide what strategy you want to use going into 2022, what’s the best, he talks about that too. So I think if you are unsure if you should buy a property or not because of everything that’s going on in the world right now, our interest rate’s going to rise, things like that and the war in Ukraine, listen to this episode. And I think that it will give you a reason to overcome your fear or whatever hesitation you have as to why you haven’t taken action on buying your first or next property.

Tony Robinson:
The only thing I’d add to that is like Dave made a really interesting comment about how he thinks that there is possibly a price correction coming, but why he’s buying property still anyway. Just listen for that segment because I think that’s a really, really important point for a lot of our rookies to understand.

Ashley Kehr:
Dave, welcome to the show. We have had you on here before and it is always a pleasure. But why don’t we kick it off for our new listeners with you telling us a little bit about yourself and some background on you?

Dave Meyer:
Great. Well, thank you guys so much for having me back. I sometimes co-host the regular show, but actually I admit I listen to Real Estate Rookie a little bit more than the other show. I know I’m probably not supposed to say that, but I kind of consider myself a rookie still, and I love you guys so I’m really happy to be back here.
I am the vice president of data and analytics at BiggerPockets. I’ve worked here for about six years. And in that role, I have the responsibility of doing all sorts of internal stuff behind the scenes, which none of you, listeners, probably care about. But the fun stuff I get to do is look at the housing market and economics and interpret a lot of that data for BiggerPockets listeners and BiggerPockets users. And I have also been investing in real estate for about 12 years, mostly in Colorado. I’m primarily a buy and hold investor. I do have one measly short term rental, Tony. So nothing compared to you, but I’m pretty happy with it so far. But yeah, I’ve been investing for 12 years.
And about three years ago or two and a half years ago now, I moved out of the country. And so I’ve sort of been investing passively for the last couple of years, but I’m really eager to jump back into the active investing world. I’m leaving for the US to do a little bit of a trip to start scouting some new markets, which I’m really excited about. And that’s about where I’m at. But real estate is so much of my life whether through its investing or my full-time job at BiggerPockets, and I’m very happy to be here talking about it.

Ashley Kehr:
Dave, what made you get interested in real estate investing first of all? Was it because you started working at BiggerPockets or was it something before that?

Dave Meyer:
No. I guess I’ve always sort of been entrepreneurial when I was a kid starting at 12 or 13. I wanted to have some money and so I would walk dogs or shovel driveways. I did that through college, started some small businesses. I always was just kind of trying to find ways to bring in additional money on top of my full-time job.
I told this story on The Real Estate show a couple of years ago, but the way I got into real estate was really serendipitous. I was going skiing with a friend of mine who really did not have his stuff together very well. But he bought a rental with his girlfriend at the time and they were absolutely killing it. And I was like, “If this guy can do it, I can absolutely do it” and went to a couple of friends of mine who had more money than I was. I was waiting tables at the time and found a deal and convinced them to convince them to go in on this deal with me. I borrowed the money for my portion of the down payment as a secondary lien. And so I just hustled my way into it. For five or six years, I just did two deals.
And then in 2016, I had been working in tech for a while. I’ve always sort of been into data and analytics. And I was just like, I really like doing real estate and I really still like doing analytics and software. I just Googled real estate technology jobs. And I had never heard of BiggerPockets. I found BiggerPockets. It was like a mile from the house hack I was living in. I applied and got interviewed simultaneously by Josh Dorkin, Brandon Turner, and Scott Trench all sitting on a couch with me. And luckily, they gave me a job. And that was six years ago.

Tony Robinson:
Dave, what an interesting story you’ve got, man. I love how just like me, your journey with BiggerPockets started with a Google search, right? I feel like that’s how so many people kind of get connected with the brand, right? I think I was Googling how to become rich through real estate or some crazy thing. And I ended up on the forums.
So Dave, I just want to get some clarity for folks. You say that your title is VP of data and analytics, right? What the heck does that mean, right? What kind of data and analytics are you looking at? Give me some context of what that even means.

Dave Meyer:
Sure. So the behind the scenes stuff is me and my team look at all the information that’s coming in from BiggerPockets and help the other people in the organization make decisions. That’s really what analytics and business intelligence is all about. So we’ll take in data about what forum topics are most popular, what topics are people really interested and that will help the marketing team or the content team use that information to make decisions.
And in the second part of my job which is sort of the external facing role where I co-host or guest host the podcast or make YouTube videos, I try and do the same thing. I try and take data, this time externally, that’s coming from the housing market or from the federal government or wherever it’s coming from and help investors make decisions. That is what I’ve been focusing on more over the last couple months, because as you guys are probably aware, things are changing super rapidly right now. The housing market is a bit confusing especially for people like rookies who aren’t as familiar, who haven’t been through many market cycles. So BiggerPockets and myself have really been focused on helping real estate investors update their strategies and form their strategies based on this sort of unique market cycle that we’re in right now.

Ashley Kehr:
Dave, can you give maybe three different ways that rookie investors could use the BiggerPockets’ website to find this kind of information? What are the best resources available?

Dave Meyer:
Sure. I am always releasing content on the blog, so that’s one way to find it and you can just search my name or just go on there. There’s usually something out there. The second thing is not on the site, but on YouTube. Every Friday I do a YouTube video about the market or some trend that’s going on that real estate investors should be paying attention to. And the third, I guess, am I allowed to say this? We are releasing a new podcast and online presence for a new show that we’re creating called On The Market which is going to be all about this, helping real estate investors make decisions based on current trends, economics, news. And so that will be launching around the time this episode’s coming out. So that will definitely be something all the listeners should check out.

Ashley Kehr:
I am so excited for this podcast. As soon as I got one of it, I’m so excited. I listen to AJ Osborne forecast economics and talk about trends and stuff. It’s to relax me, listening to it. So I’m very excited to hear your guys’ podcast. So who is going to be on this podcast with you?

Dave Meyer:
Yeah. So it’s going to be really fun. We’re going to have myself, I’ll be the post moderator. And we’ll also have James Daniard, Henry Washington, Kathy Fettke, and Jamil Damji so it’s going to be a rotating group. So you’ll see two or three of them each week in addition to myself. We’re just going to be breaking down really important topics that you should be paying attention to, but we’re really trying to make it fun. We’re going to be playing games. It’s going to be light hearted and it’s not this super serious news show. I guess not everyone’s like you Ashley who relaxes to the sound of economic data so we’re going to try and make it really fun and engaging at the same time.

Tony Robinson:
Yeah. I think most people are probably not relaxed by heavy economic data. But what’s that short saying, Ashley, about the spreadsheets?

Ashley Kehr:
Yeah. A lady in the streets is about to freak in the spreadsheets.

Tony Robinson:
There you go. Yeah. Right.

Ashley Kehr:
I mean, I think four people sent me that t-shirt in the last two years.

Dave Meyer:
That’s so funny. But I do think it’s true. Even if economics or data isn’t your thing, there is comfort, at least to me, in knowing the numbers. Being able to analyze a deal or to formulate an investing hypothesis or thesis that you operate against is super comforting to me. So I feel the same way, Ashley. Hopefully, people who don’t, automatically or by default feel that way, will enjoy this show because that’s our goal, is to give you that confidence about investing and formulating your own plan, but making it fun and accessible at the same time.

Ashley Kehr:
Well, I think just the fact that you guys are taking all of the information and compiling it so it’s easy for real estate investors to understand. That’s the great part of it, is that you don’t have to go out and try and figure it out on your own. You guys are bringing it all, condensing it, “This is what you need to know as a real estate investor.” So I think that is the true value right there.

Tony Robinson:
I want to add one thing, Dave, because I’m so glad you brought up the data component. I feel like a lot of new investors, especially when they’re working on that very first deal, there’s a very big emotional factor that plays a role in that first deal for people, right? As an experienced investor, you can toss out numbers and put out offers all day. But for someone that’s new, there’s a very big emotional factor that plays a role in the decision making process. So for you, Dave, I’m curious, right? As someone who’s very deep into the data, very deep into the analytics, how do you weigh the difference between your heart strings, your heart, your emotions, and the data? Are you just stone cold that the numbers work and this is what we’re doing? How do you balance those two things?

Dave Meyer:
Honestly, even being a really data oriented person, I am not as stone cold data as you might expect, because I think I am relatively a conservative investor. I have a lot of financial anxiety and want to invest in a way that is appropriate for my own risk tolerance. And I think that’s one of the things I recommend to people.
And at the end of the day, yes, when a numbers work, I try to pull the trigger, but my own criteria, the criteria I make for myself are probably more conservative than some people. And I think that’s okay, especially if it’s your first deal. I don’t think you need to hit a home run in your first deal. I think getting that first deal is far more important. But if you are uncomfortable with what someone else tells you should beat your criteria, I think that’s okay. You shouldn’t be embarrassed by that or think there’s something wrong with that. You just need to set that criteria so that when you do see a deal that meets your criteria, then you can take the emotion out of it and you can operate against it. But in setting your strategy, you have to be honest about who you are and what you’re comfortable with.

Tony Robinson:
Dave, what a fantastic breakdown. I mean, I think how you described it is the exact same way that I’ve kind of approached investing as well, is that everyone’s going to have their own kind of investor personality or their risk profile as you said. I feel like I’m somewhat conservative, but I’m willing to take calculated risks, right? I know other people that aren’t willing to do that. I invest heavily in short-term rentals. I know some people that say you shouldn’t buy a short-term rental if it doesn’t work as a long-term rental. I don’t believe in that. Right? Almost none of my short-term rentals would make money as long-term rentals, but I’m okay with that risk, right? I’m okay with that risk.
So you’ve got to figure out what works for you. But the criteria piece, I think is super important as you kind of start to narrow in, “These are the kind of properties that I’m looking for. Here’s the kind of return that I want. Here’s the size that I want. Here’s the kind of neighborhood that I want” and as long as you’re able to check those boxes, it becomes a little bit easier to kind of move forward.
Awesome, Dave, man. So I really want to get into just kind of picking your brain because you’re just like a wealth of knowledge that we got to share with our rookie audience. So the first question I have for you, Dave, and this is one that we get all the time is, is 2022 the right time to buy? There’s so much going on. Should I wait for this impending crash? Do I wait to figure out what’s going on with Russia? Do I wait to figure out… Should I just buy crypto instead? Is 2022 a good time to buy real estate?

Dave Meyer:
This is a great question and I get it all the time and one I love talking about. I think that the best way to answer this is to start by looking in a historical context. Because if you look at any moment in time, like, “Is right now a great time to invest in real estate?”, that’s a complicated question to answer. There’s a ground war in Europe in 70 or 80 years. We’re seeing interest rates going up, inflations at 40-year highs. It’s complicated on a week-to-week basis to decide if that is a good time to invest in real estate.
However, if you look at historical trends, I think the answer is overwhelmingly yes, that investing in real estate or just investing in general is not just a good idea. It is necessary to build and preserve wealth. There’s all sorts of reasons for this. But I think if you just look over the last 15 years, and the trend goes back much longer than that, 40 or 50 years. With interest rates so low and even though they’re rising right now, they are still near historic lows and probably will remain that way even though the Fed is raising rates. And that just bolsters asset prices. I mean, I can get into the details of why, but you see when interest rates are low, you see the stock market go up, you see cryptocurrency go up and you go real estate to go up. And although rates are rising and there probably are going to be some fluctuations in pricing in all three of those markets over the next couple of years as rates start to go up, the government policy or the Fed’s policy over the last 15 years is not showing any signs of changing.
And that means we’re probably going to continue to have relatively low interest rates, which means there’s a lot of easy money. And for better or worse. I’m not making a judgment on this as the right policy or not, but it is the Fed’s policy over the last 15 years. And rates have been coming down since 1970. So you see this trend. And in data analytics, we say the trend is your friend, right? You look at these little things on a weekly basis and it gets all crazy and it sounds nuts, but you see this trend over 40, 50 years and I’ve seen nothing that suggests that’s going to change.
And so, as long as there’s sort of this easy money policy where interest rates are relatively low, it really, really incentivizes people to invest. And because rates are low, that means that there is no viable way to use a savings account to save for your retirement or to build wealth. And so your only option is investing, and we can get into this. But to me, the best way to invest is real estate. But in general, because of the way the economic and financial world is right now, the only way to realistically build wealth is to actively invest your money.

Ashley Kehr:
Dave, you talked about historical trends in there and you said that’s where you looked at historical trends. Can you kind of just describe for somebody what that entails looking at historical trends? What did you see in the past that is helping you kind of forecast what you expect for the future?

Dave Meyer:
Sure, absolutely. So the number one thing I think about when I just look at trends in real estate investing are, one, is interest rates because it sounds so boring but it makes such a big difference about the way the world works. It’s kind of crazy. And so interest rates back in the mid 1980s were up at 15 or 17%. And what that means in day to day reality is no one wants to buy real estate then, right? No one wants to pay 17% on a mortgage. No one wants to pay 15% on a mortgage. It makes people less inclined to invest. But when you could borrow money at 3 or 5% like you can now, then it incentivizes people to invest. And this trend has been going on. So more and more money has been moving to the investment world and that is increasing asset prices. So that is a trend that I think it’s starting to bounce back up but is likely not going to change dramatically. I don’t think we’re going to see 7 or 8% mortgage rates anytime soon.
The other thing which I haven’t touched on yet but I think the other historical trend that I think is super important in the context of real estate investing is just basic supply and demand. There is just not enough supply in the United States and there has been a… Most people believe, I should say that this is… We had a guest on The Real Estate show named Ivy Zelman who thinks differently out this and brought up some really good points. But I think most people believe that ever since the great recession, we’ve been underbuilding in the United States, which means there’s just not enough supply of houses. There’s just not enough places for people to live. And the basic rule of economics is, if demand remains stable, and demand is actually up right now and supply is down, prices are going to go up. And so that is why we’re seeing the price increases. We’re seeing right now is interest rates are super low. Demand is high and supply is low. It’s a perfect storm.
And although these trends might alter a little bit in the coming years, the long term trends still point to tail winds for the housing market. It’s still pointing to maybe things go up and down over the next year or two, but in 10 years, the housing market is going to be way higher than it is right now and that is almost certain.

Tony Robinson:
Dave, you’re dropping so much good stuff right now. My head’s [crosstalk 00:23:24] a little bit. I’m like scribbling feverishly over here to make sure I’ve got so many follow-ups where I don’t want to forget anything. But before I-

Ashley Kehr:
I feel really relaxed, Tony. Am I at the spa or something?

Dave Meyer:
This is like a day off for you, Ashley. Just hanging out.

Tony Robinson:
Sure. This looks like a Sunday brunch for Ashley.

Ashley Kehr:
Yes.

Tony Robinson:
So one thing I want to go back to that you mentioned Dave that I felt was really powerful and I want to make sure the guests picked up on that, you said not only is it a good idea, but it is necessary to invest your money if you want to build wealth. And I think that is so incredibly true. We’ve seen, right? Inflation is at record highs right now. Imagine all the people that just have their money sitting in a savings account. How much value did you lose over the last 18 to 24 months by letting that money sit there? Now, think about the people that invest that same capital into real estate. How much equity have you gained in that same time period? So many people are on the sidelines sitting, waiting for this big correction and they’re missing out on huge, huge opportunities.
So Dave, you talked a lot about interest rates so I want to dig in on that a little bit. I hear a lot of people, not necessarily other investors, but a lot of kind of common folk who are still kind of doing the W-2 thing and aren’t investing themselves talk about how “Oh, interest rates are going up so that means housing prices are going to come back down. So I’m waiting to buy because I want to see these prices come down.” Based on the data that you’ve seen, do you believe that there’s like a direct correlation between interest rates going up and housing prices coming down?

Dave Meyer:
Yeah. So there is a [inaudible 00:24:59] prevailing idea that interest rates and housing prices are perfectly correlated. And they are correlated. They definitely have a strong relationship. But a lot of what used to exist in the housing market has changed. And the way I like to think about this and the way I like to think about the housing market in general is that there are all of these competing forces. Some of them push prices up and some of them put push prices down. No one of these forces is going to be the be-all, catch-all, the one thing that dictates the housing market. That’s an overly simplistic way to look at it.
Right now I would say that rising rates always do put downward pressure on the housing market, so it just makes housing less affordable. And just to explain that to everyone, when interest rates go up, your mortgage rate get more expensive and so it is harder for you to afford the same purchase price because interest rates are more. It’s more monthly. Obviously the down payment is the same, but your monthly payment goes up. Typically, in more healthy housing markets I would say, that would cause demand to drop. And again, basic supply and demand. When demand drops, prices drop. But that’s not happening right now. And I think a lot of the old rules in the housing market have changed.
Just to be clear, I do think there is a point in the next two, three years we will probably see flat or even negative housing market growth or price appreciation, but I don’t think we’ll be that serious and I’m still investing anyway because of all the things I did say and I’m about to say. But I think realistically, the market works in cycles and you’re going to see it flatten out or decline a little bit at some point. That’s just reality.
So to get back to what I was saying, rising interest rates are going to put downward pressure on the housing market. At the same time, supply and demand are putting enormous upward pressure on the housing market. Two main things that we often talk about and I talk about in YouTube and, well, on this new show is that supply is extremely constrained. And you can see just this week, Redfin released something that inventory is at an all time record low. There are less houses on the market than any time since they have existed. So that’s at least 10 or 15 years, I think. And we all see this. I mean, I’m sure you guys see this in the market. There’s just nothing to buy.
But at the same time, demand is up. And there’s a lot of reasons for that. The primary one is just demographics. Millennials, they’re the largest generation now. And they’re reaching the peak family formation years, which means that all these people want home homes. They want to buy homes and they’re having children. And so that is a very strong motivating force that I think people really underestimate, is that people, when they have a kid, they want a home, they want to own a home. That is like the prototypical American dream.
So demand is up from that. Demand is up from investors. We’ve seen that the average share of investors in buying homes have gone up from 16 to 19%. It’s not driving the market, but that’s considerable. Second home demand is up. And so people still want to buy houses even though interest rates are going up. And like I said, supply is down. And so those forces are going to continue to put upward pressure on the housing market.
And so the way I think about is like you have supply and demand pushing up, you have interest rates pushing down. It’s going to settle somewhere in the middle. And I think that’s why no matter whether you think it’s going to go down in the next year or up, we’re going to see a moderation of appreciation a lot, because to date we have seen no downward pressure. Interest rates are the first introduction of downward pressure in two or three years and so we’ll definitely see appreciation slow down in my mind. But if and when it turns flat or negative, it’s really hard to time the market. And I think at the end of the day, if I could give anyone advice in this episode is, don’t try and time the market. 10 years from now, the housing market’s going to be up. That’s why I’m investing right now.
I think I explain this all not to help you try and time the market, but I explain it because I think it’s helpful for people to understand the forces that are at play here, because it helps you take this sort of longer term view than what’s happening right now, but you could see these long term supply demand and interest rate trends all favor long term growth for the housing market.

Tony Robinson:
Dave, one follow up here. You kind of touched on it a little bit already. But you said you do feel that there could be a correction in the next couple of years, right? Even if it’s a moderate one. First part of the question is, outside of interest rates, what other factors are you seeing that are applying some downward pressure on prices? And then second, why are you still investing even if you feel that there is that correction coming?

Dave Meyer:
Great question. I think this is tied with interest rates. And so your question was, what else might put downward pressure? And I think to me, the only other thing is affordability. Those things go hand in hand. Interest rates are a huge factor in home affordability. But if the housing rate… I think the risk is housing price is going up too much. I know a lot of people think that’s confusing for a real estate investor to say, but I don’t want the housing market to go up that much. I would much, much rather see 3 to 5% appreciation because that keeps pace with wage, growth in normal times, not always. And that’s what you want to see, because then normal people can afford homes. They can afford rent. And right now we’re at a pace that is unsustainable. So all the things I’m saying about the housing market going up is not like me rooting for that happening. That’s just what I think is going to happen. And so I do think if the housing market continues in this toward pace, that could be serious but I do think it’s probably going to slow down.
Second question was, why am I still investing? And there’s two reasons. One is, I was talking to Henry Washington the other day. We were talking about my Everything Else Sucks Theory of investing right now is that cash, like you said Tony, is losing 7% per year. The stock market is super volatile. Crypto is super volatile. Bonds are yielding 2% and that’s up, and that’s not even going to keep pace for inflation. And so if you want to preserve wealth, you have to look at what is out there. And real estate, in my mind, is by far in a way, the best option. It is no doubt in my mind that it’s the best option.
And yeah, I’m biased because I’m a real estate investor, but I consider myself an investor first. If there was something better to invest in than real estate, I would invest in that instead. But I’m a real estate investor because it’s the best investment. So I think that’s sort of what I was getting at the beginning of the show is that, it’s necessary to invest. Sitting on the sidelines right now, to me, is not worth it because people say, “Oh, it’s risky to invest in real estate,” but it’s risky to do nothing right now. In fact, it’s worse than a risk. It is a guarantee that you’re going to lose money doing nothing right right now. I mean, who wants to do that? So to me, it is worth losing the prospect of a temporary fluctuation in housing prices knowing that it’s going to go up over the long term and also knowing that it is impossible to time the market. The housing market might go up another 10% before it goes to down 5%, and buying right now still makes sense.
I know this is really emotional. It is for me too. I say this and I come in these shows and talk about it because it’s something I know a lot about, but when I do a deal, I still get a little nervous. I mean, I think everyone does. But the reality is, when you look at the long term trends, when you look at what’s happening in, really, the global economy, it makes so much sense to invest in real estate. The non-emotional decision in my opinion is to continue to follow your plan and to invest for the long term. And my long term investing plan is to try and acquire rental properties.

Ashley Kehr:
Dave, on that note of talking about like it’s risky not to invest right now, do you think a lot of people look back at 2008 and that’s like the fear that they have, is talking to other investors that they’re going to buy high now and then we’re going to go into a recession? What strategy would you recommend for people to kind of feel more secure and have less risk if they really think a recession is coming?

Dave Meyer:
That’s a great question, Ashley. I’ve been calling it housing market trauma recently in some of my content. It is a joke. It’s tongue and cheek, but I don’t want to belittle it because I’m a millennial. I graduated in 2009. That was the worst housing market… Or excuse me, it was the worst job market at that point since the depression. I think class of 2020 might have taken us over for worse job market since then unfortunately. But I think what happened then was much, much more significant of a housing market decline than we’ve ever seen in the United States. I think that’s really important to remember that business cycles where housing prices go flat or they even decline for a little bit for a year or two, that is normal. These are normal economic cycles.
What happened in 2007 to the housing market was the equivalent of the 1929 stock market crash. This was the big one. It was way bigger than anything that has happened. Although it’s certainly not impossible that it would happen again in the future, it is unlikely that the next time there is a contraction in housing market prices, that it is anywhere near the same.
I did an analysis a couple of weeks ago that showed that prior to the great recession, the longest it had ever taken to housing prices to recover in a downturn was about two years. And the peak of the decline was somewhere around 8%. Actually in that time, it went from 8% to down 4% in four months. So it really was only about 4% down. In the great recession, it dropped 20%. That’s a real crash to me. When I look at a 4% drop, that’s a normal market cycle in my mind. A 20% drop? That’s serious, especially when you’re leveraged. That’s a really challenging situation. That was also coupled with a huge, huge unemployment problem. And that’s what really caused the foreclosures and everything that followed after that.
I actually did a recent show, David Green, about this in foreclosures. I’m like, for foreclosures to happen, you need that perfect storm. Right now, if prices go down, and again they probably will sometime in the next few years go flat or negative and who knows when, it is unlikely that we’re going to see foreclosures because people have so much equity in their homes and it’s likely not going to be accompanied by a huge unemployment problem. So that probably didn’t actually answer your question, which is what people should do. But there’s some context for you.

Ashley Kehr:
Yeah.

Dave Meyer:
But what people should look at, in my mind is, if you are a conservative and you’re concerned, I would look at longer term strategies. So I think either buy and hold rentals, house hacking or short term rentals. Anything where you expect to own the house at least three to five years is probably a pretty good strategy. Because as I said, with the exception of the great session, usually if the housing market goes down, it pops right back up in about 18 months to 36 months. And so if you hold onto your property for that amount of time, you’re going to be building cash flow during that time, you’re going to be paying down your loans during that time, you’re going to be getting tax savings during that time. And you’re still going to be generating return. The loss that you’re seeing is a paper loss. It’s not real because you’re generating other returns, but if you want to sell it, you would take a loss. But you don’t have to sell it if you’re cash flowing.
So that’s my number one tip, is just look for longer term strategies. And obviously, don’t buy emotionally is just always another good tip.

Ashley Kehr:
Well, that was a lot of the people that got hurt in 2008 was because they were trying to sell whether it was a flip house or a new development, or even with the stock market going down that they were getting ready to retire and they had to pull out for retirements, or if they just pulled their money out of the stock market and didn’t let it sit in there and hold onto it and wait. Dave, what are some resources if people want to get over that fear of 2008 and understand it more? So I know there’s J Scott’s book, Recession Proof Real Estate Investing. Then there’s also a couple movies, which I don’t know how factual they are. But The Big Short, I mean that really helped me kind of wrap my brain around what happened, and then also the Margin Call. Do you have any other resources that aren’t 20 page boring economics document that people can look into?

Dave Meyer:
No, that’s a great question. I have put out a couple videos on YouTube. You can check it out. It’s called the Housing Market Trauma. So you can look at that. We dive into some of the data. But Ashley, if you want to just relax by looking at some data, Google the median home price in the United States over time. And there’s a website called FRED, it’s the Federal Reserve Bank of St. Louis. They have great data. Just Google FRED median home price in the US. And you’re just going to see a chart that goes up into the right for all of history. There’s a little bit of a blip in 2007. But if ever I’m sort of concerned about the housing market, I just look at that graph and it makes you realize that over time, housing prices just go up. And if you wait long enough and your patient, yeah, your investments are going to work out.

Tony Robinson:
Wow, Dave, as soon as you said that, I Google that chart. And yeah, it’s literally just like one very strong trajectory going up. That was crazy, man.

Dave Meyer:
Yeah. Yeah. It tells it all. In one of the videos I posted, I can’t remember what it was, I sort of juxtapose that to the stock market, which is, it looks like someone’s heartbeat. It’s like a EKG. It goes like up and down constantly. I mean, to be fair, the stock market definitely returns positive, generates positive returns over time, but there’s a lot more volatility and ups and downs. The housing market, at least historically, has not been nearly as volatile. It’s much more steady progress over long periods of time.

Tony Robinson:
And you get cash flow. Not only is it the appreciation, but you’re getting paid every single month for owning it, so yeah. I mean, obviously we’re biased here. This is a real estate podcast. So if we talk to our friends in some of the finance podcasts, they may have something else to say.
Dave, so many good points here. I want to try and start taking some of this high level thinking and apply it in a way that our rookies can use to really start making some decision. So there’s all these different factors that you’re looking at from like a macro economics kind of level. But what data points, if I’m a new investor, should I be looking at when I’m trying to maybe decide on what market to invest into or whether or not a certain property is a good property? Maybe let’s start with the market first. I know that’s a [inaudible 00:40:14] for folks. And then we can talk about the property stuff afterwards.

Dave Meyer:
Yeah. This is something I’ve really gotten into recently, because before I moved out of the country, I only invested in Colorado. And now, like I said, I’m trying to get back into the active investing game, like the whole country. I could just choose anywhere. I have no geographic bias. And so I’ve been really interested in this. I’ll say that the things that I really look at for looking for a market are pretty simple. You don’t need to overcomplicate this. But to me, I really look for strong population growth and strong economic growth. You can measure that in a couple of different ways, but if you really want to simplify it, where are people moving? And to get back to like the macro level, that’s, where is there going to be demand? If there’s more population growth, that’s going to be increased demand. In areas where there is a big and growing economic engine, you often see housing prices grow. As wages go up in those places, you’ll see rents be able to go up and property prices to go up more.
So those are the main things I look at. I also love to look at the diversity of employment to make sure it’s not super dependent on any one sector. But that’s for sort of long-term rentals. I think, Tony, you’re probably more qualified than I am to talk about short-term rentals, but I think it’s almost in the short term rentals, it might even be the opposite, like you’re really looking for vacation destination. So that advice is really about long-term rentals.

Tony Robinson:
So Dave, if I’m a new investor and I’m trying to kind of narrow down on the market, I know I want to look at the population, economic growth, where am I going to find that data? Am I just jumping on Wikipedia and looking at the Wikipedia pages for these cities? Where is the best easiest place to gather that data?

Dave Meyer:
Well, in a couple of weeks, it will be On The Market is the best place to look at this data.

Tony Robinson:
Yeah.

Dave Meyer:
I should say, after that shameless plug, that in addition to the podcast and YouTube channel, we are going to be putting interactive data up on the blog. So you can be able to go search Orlando and we’ll have rent-to-price ratios and all this data up there. But the other thing, if you’re like me and like digging into the data yourself, the website I mentioned earlier, FRED, it was what it’s called there, the Federal Reserve of St. Louis is an aggregator of government data. I think it’s extremely, extremely helpful. So you can get everything from construction permits, population growth, unemployment rates, all that in one place. So that’s where I usually send people. It’s pretty reliable and works really well and it’s completely free.

Tony Robinson:
Just one thing to add, Dave, I also want to plug BPInsights, right? Because I know that’s a tool that you’ve helped craft as well. We talked about it on the show before, but you can literally go into BPInsights, plug in a zip code or an address, and you’ll get a lot of pretty accurate data on what market rent are. So, Dave, I don’t think I’ve shared this with you before, but my first investment property, I did not use BPInsights to set the rents, but I ended up renting it out for, I think, $1,400 per month. And when I typed it into BPInsights, the market rent back out to me was $1,350.

Dave Meyer:
Yes.

Tony Robinson:
So it was like almost spot on what we were actually charging, right? So if you’re a new investor and you’re trying to get some more insights on, “Hey, what can I charge? What does the demand look like?” BPInsights is a great place to start as well.

Dave Meyer:
Well, thank you. I worked on that project for years and I didn’t mention it. So thank you, Tony. I appreciate you bringing that back up.

Ashley Kehr:
Dave, I actually have a memory to share too with BPInsights, it might have been when it was first released. I think it was spring of 2020 where all of the BiggerPockets pro members got this PDF file you had put together where it went through and analyzed, I think was it like 20 or 50 markets across the US? And it was like, “Here’s the top cash flowing markets. Here’s the top markets for appreciation.” And I still send that document to people because there was so much valuable information in there.

Dave Meyer:
Oh, well thank you. I guess I need to re-release that. So we are not the tool, but-

Ashley Kehr:
I know. We need an updated one.

Dave Meyer:
All right, we’ll do it. We’re sort of rebranding that part. The content part of it is going to be On The Market now. It’s going to be the new branding of that. So look for that. But the tool you’re talking about, Tony, we call it the rent estimator now, is still available to all pro members. Yeah. And it’s honestly I feel like, I’m not as involved in that anymore, has done a great job because it’s hard to keep up with if what’s going on with rents right now, but they’ve done an amazing job producing accurate estimates of rent. And it’s super helpful because I did say, and as talking about the FRED website, you get a ton of data there, they don’t have rent data and there’s really not good rent data out there. And I think the rent estimate we have on BiggerPockets is one of, if not the single best place, to try and figure out what you can rent a long-term rental for.

Tony Robinson:
Dave, so much good information you share with us brother. We got to have you back on I think on a more regular basis. There’s just too many good things to talk about. We could keep going on for hours. And Ashley’s so relaxed right now for those of you that are watching [crosstalk 00:45:27] for economic talk.

Ashley Kehr:
I’m ready for nap. But the good kind. I’m refreshed, relaxed, not because I’m bored.

Dave Meyer:
All right. I’ll record a data meditation for you, Ashley. If you ever can’t sleep or something, you could put it on in the background.

Tony Robinson:
What is it? Like the ASMR thing where they’re whispering into the mic, but you’ll just be whispering economics data to Ashley instead.

Dave Meyer:
I’ll have one download, but I’ll know it’s you, Ashley.

Ashley Kehr:
Actually, the time that I listen to podcasts the most is when I get my eyelash extensions done and you have to lay there for 45 minutes. And it’s torture for me to just lay there with your eyes closed so that’s when I listen to economic podcasts to relax during that time. So that would be perfect. That’d be very suiting.

Tony Robinson:
Well, Dave, you know you’ve got a very niche market for the new podcast, women getting their eyelash extensions done. It’s got to be a huge market, man.

Dave Meyer:
Yeah, we did all this market research and we thought that’s the market we’re going to go after.

Tony Robinson:
All right.

Dave Meyer:
There’s no competition at least, right? There’s absolutely no competition. So it’s wide open, the opportunity.

Ashley Kehr:
It can be called Lashes and Crashes.

Dave Meyer:
All right. Well, if On The Market is the success that we think it’s going to be, we’ll follow up with a spinoff of Lashes then Crashes.

Tony Robinson:
All right. So Dave, it’s been a great conversation, man. I want to finish up with our Rookie exam. Same questions we’ve been asking to every single guest for the past few episodes. So Dave, are you ready for the exam?

Dave Meyer:
It’s been a while since I took an exam, but hopefully.

Tony Robinson:
All right. Question number one, what is one actionable thing rookie should do after listening to this episode,

Dave Meyer:
Go look up the data in your market. I think like Ashley, you can get a lot of comfort in seeing long term trends. So Google some of the stuff that we talked about, whether it’s the median home price in the US or looking [inaudible 00:47:26] growth or economic growth in the areas that you are interested in. And as an analyst, I would advise you not to just look at what happened over the last month or last year. The trend is your friend. Look at long term trends and see what is going on in your individual market.

Ashley Kehr:
Dave, that kind of makes me think. If you are somebody that’s not going to invest in real estate because you think the housing market is going to drop or whatever that reason is, if that’s somebody listening right now, do what Dave said and go look at the data. Can you actually give me a reason that you’re not going to invest instead of just saying what you think is going to happen or what you’ve heard has happened? Do your own research and try and verify the data. Okay. Question number two. What is one tool, software, app, or system in your business that you can use?

Dave Meyer:
Well, I have to say that the new tool is listening to On The Market, and I know that’s a shameless plug. But I do really believe in this. We’ve been working on this for a year. And so I’m going to just take my opportunity to make the shameless plug because it’s going to be an awesome new show. I think it really is going to help people manage and navigate all the news that’s out there, all the information that’s out there and help you focus on the things that are important to real estate investors.

Tony Robinson:
Love that, Dave. All right. Question number three, where do you plan to be in five you years? Maybe still in Amsterdam. Who knows?

Dave Meyer:
Yeah, I don’t know. We’ll probably be back in the US by then. But where I’m going to be in five years is hopefully still in BiggerPockets. I love working at BiggerPockets. And I know I’m probably… The minority of listeners, I know a lot of people’s goal is to become a full-time real estate investor. And my goal is to do that at some point, but I’m having so much fun at BiggerPockets. I know you guys are a big part of the BP sphere now and I hope you would agree. It’s just a fun culture. It’s a fun thing to be a part of. And I hope to be doing what I’m doing right now. Hopefully with a bunch more units and some more passive income, but full time. I’m not trying to return right now. I’m really enjoying what I’m doing.

Tony Robinson:
Let’s talk a little bit more about the real estate piece, Dave. Do you have a portfolio size in mind or like a cashflow target? What are your plans for the real estate side?

Dave Meyer:
Yeah, I would really like to get to about $10,000 in post tax cashflow.

Tony Robinson:
Oh, I love the post tax piece.

Ashley Kehr:
I know.

Dave Meyer:
Yeah. Yeah.

Ashley Kehr:
You don’t hear people say that often. That’s a really good point. Yeah.

Dave Meyer:
Such an analyst nerdy thing to say.

Ashley Kehr:
Did you get freaky in your spreadsheets figuring that out?

Dave Meyer:
Yes, exactly. I don’t know. Tax policy always changes up and down and stuff, but at the end of the day, yeah, I could have said post tax inflation adjusted cash flow, which is probably what I really want, but I’ll spare you guys that. But yeah, I think that’s where I’d love to get to. I think that would make me feel really comfortable. I’m one of those people who’s always going to work. But that is like if I want to be relaxing, like Ashley getting her eyelash extensions, that number would make me feel super relaxed.

Ashley Kehr:
Do you know what that number is with inflation and taxes?

Dave Meyer:
There’s no way to know, but I would think it’s probably more like 20,000 because taxes is probably going to cut 35, 40%.

Ashley Kehr:
Yeah, [inaudible 00:50:46].

Dave Meyer:
And then inflation at 7% right now. I think inflation will start to go down in the next year, but who knows? That’s a real variable.

Tony Robinson:
Wait, Dave, sorry, really quick on the inflation piece. When you say inflation will start to go down, are you saying you think the rate of inflation will slow down? So we’ll still see a positive inflation? Or are you saying that we’ll see some sort of deflation happen in the near future?

Dave Meyer:
Very good question. I think the rate of inflation will go down. So we’ll start to see something more like 4 to 5% year over year inflation rather than 7 or 8%. I’m not an expert in inflation, but I read a lot about this. Most economists believe that the supply chain part of inflation is going to start getting worked out over the next year or so. So hopefully they’re right because no one wins with inflation. It’s terrible for everyone.

Tony Robinson:
But Dave isn’t like… I’m no economist by any stretch, but deflation is also very terrible for economies, right? You want a healthy rate of inflation, but if your currency starts to lose value, that has a lot horrific economic implications too, right?

Dave Meyer:
Absolutely. Yeah, that’s a great question. Something I get a lot is the fed sets a target of about 2% inflation for a year. And there’s a very good reason for that. If people feel that prices are going to go up, they spend their money and that stimulates the economy. If you think prices are going to go down, you’re just going to wait. It’s like always waiting for a sale. And so people don’t spend their money. And that has all sorts of negative implications, because I think it’s like 70% of the US economy is consumer spending. And so if people are thinking like, “Oh, I’m not going to buy a car because next year it’s going to be way cheaper,” that’s really bad for your economy. Honestly, so is inflation, both are bad. But 2 to 3% of inflation, that’s probably what you want to see. I don’t think we’re going to get there this year, but hopefully we’ll get a lot closer to that.

Ashley Kehr:
I’m going to take us to our Rookie Rockstar, and this is where we highlight an investor from either Facebook or Instagram. So this week’s Rookie Rockstar is Tyler [Kwan 00:52:50].
Tyler just closed on a renovated duplex for 330,000 and he has the intention of house hacking it. He was planning on using a VA loan, but ended up taking advantage of the really low rates and was able to secure a loan at 3% with a lender’s credit of 7,000, which was roughly what he needed for closing costs. Putting my overall upfront investment on the deal at about $300 out of pocket. That’s awesome, Tyler. So Tyler actually left some advice for something he learned and wanted to share it with rookies. “Real estate works. Although I didn’t knock it out of the ballpark with this deal, I will be able to live rent-free, build equity, enjoy appreciation of the property hopefully, and take advantage of the tax write-offs. It’s a win, win, win. No brainer.” Congratulations, Tyler. That’s awesome.
Well, Dave, thank you so much for joining us on the show again. We always love having you on and wish you the best of luck on your new podcast. And I can’t wait to listen while I get my eyelashes done.

Dave Meyer:
Thank you guys so much. This was a lot of fun. And anytime. I’m happy to join anytime you need some nerdery to relax you, Ashley.

Ashley Kehr:
Where can everyone find out some more information about out you and find the new podcast and all the other information you put out?

Dave Meyer:
Yeah. Great. So you can find me at On The Market, which is brought to you by Fundrise, I should mention that. So they’ve been an awesome launch partner with us. So you can find us at On The Market. You can also find me if you want to ask me any questions or follow up on Instagram is the best way to follow me and I am @thedatadeli.

Ashley Kehr:
Okay. Awesome. Well thank you so much, Dave. Everybody, I hope you enjoyed today’s podcast. If you loved it as much as we did, please leave us a 5-star review on either Spotify, Apple Podcast, wherever you listen. And make sure you check out the Real Estate Rookie YouTube channel. I’m Ashley @welcomerentals and he’s Tony @tonyjrobinson. And we will be back on Saturday with the Rookie Reply.

Technological advancements impact the way we exchange goods and services. eCommerce has consistently driven the need for mobile wallets while helping to reduce the need for paper checks or cash. 

Apps like Venmo and PayPal have upscaled the usability of mobile wallets by making peer-to-peer money transfers convenient and easy to use. As a result, they’re an excellent fit for paying money to family and friends or paying bills online.

But what about using Venmo or PayPal for collecting rent? Off face value, these digital wallets seem like a good idea because they get rid of rent checks and cash payments. After all, you want to collect your rent in full, on time, and without hassle. However, there are compelling reasons to avoid PayPal and Venmo to collect rent. 

Let’s go over why landlords should never use Venmo or PayPal to collect rent.

Using Venmo to collect rent

Venmo is a digital wallet for making instant transfers. With Venmo, all your tenant needs to do is transfer the rent payment to your account, and it arrives instantly. In addition, the app allows the tenant to use their debit card, credit card, or bank balance. 

Unfortunately, Venmo is not the best option for collecting rental payments. Not only is there no protection, but Venmo lacks essential features that many rent collection apps come with standard. 

Let’s look at the pros and cons of using Venmo for rent payments.  

The pros of using Venmo to collect rent

• Easy to use: Once you download the Venmo app, you can start sending and receiving payments. 
• The money transfer is free: A tenant can make transfers from their Venmo account to your account for free.
• Allows tenants to split rent: With Venmo, a tenant can split the rent between roommates. They can send an instant payment to the tenant responsible for paying the landlord. 
• Venmo offers credit and debit card payments: The app provides credit and debit cards without charging annual fees. However, it can add 3% to the tenant’s credit card rent payment. 
• Social media features: Venmo incorporates popular social media features like comments, likes, and messages on payments. This switches up the user experience, enhancing the experience and allowing parties to communicate. 

The cons of using Venmo to collect rent

• Charges fees for business transactions and “cash a check” features: Though person-to-person fees are free on Venmo, rent payments are categorized as a business transaction with a 1.9% processing fee plus $0.10. Also, if you use the “Cash a Check” feature to deposit a check directly to your Venmo account, you will be charged 1% and a minimum of $5.
• Charges fees for instant payments:  There is a 1.5% fee (with a minimum fee of $0.25 and a maximum fee of $15) for instant transfers on Venmo.
• No recurring payments option: Tenants can’t set up automatic rental payments. Therefore, late rent payments become more likely, causing disrupted cash flow. 
• Impossible to cancel a Venmo payment: Venmo’s policies do not allow a refund to the renter or transfer to the landlord if a tenant pays the wrong amount due to incorrect details. The “no cancellation policy” makes it impossible to cancel a Venmo payment.
• No automatic late fee calculations: Unlike rent payment apps, there is no way to charge late fees automatically. So, this means more paperwork and administration for you. 
• Venmo’s dispute policies: Generally, Venmo won’t get involved in payment disputes. However, if they do, the company will often favor the buyer (tenant) over the seller (landlord).
• Venmo can’t block a partial payment. You can’t decline or stop a rent payment made via Venmo. Nor can you block partial payments. The eviction process halts once the landlord accepts payment in some states, depending on the conditions of your situation. Therefore, you may find it difficult to evict a tenant. 
• No option for credit bureau reporting: With Venmo, you cannot report rent payments to credit bureaus, which affects the tenant’s credit score. When credit reporting is out of the picture, there would be no means of incentivizing or penalizing late rent payments.

It’s easy to see how these cons outweigh the pros. No doubt, Venmo works perfectly for sending money to family and friends. It could even be helpful to split the rent between roommates. However, it is a bad idea for landlords to use it for rent collection. It offers neither protection nor incentive to you as a landlord. 

That said, is PayPal a better alternative for rent payments? 

Using PayPal to collect rent

Like Venmo, PayPal is generally great for making instant transfers. But is it suitable for landlords?

The pros of using PayPal to collect rent

• User friendly: The app is easy to use and provides robust security that helps to prevent fraud. It keeps your bank and credit card info safe by encrypting them. 
• Offers multiple payment methods: Rent payments can be made with a debit card, a credit card, a bank account, or a PayPal balance.
• Business accounts: A PayPal business account helps you keep track of your invoices. It offers payment protection plans for accounting purposes. However, there is no protection for real estate transactions. 
• PayPal sending limits: With a verified PayPal account, there are only a few limits to how much you can send. PayPal sending limits offer an option of sending up to $60,000 in a single transaction. However, these can sometimes be limited to $10,000. Also, remember that rent payment goes to your PayPal account, not your bank. 

The cons of using PayPal to collect rent

• Limited features for landlords: You can’t apply and enforce late fees automatically; neither can you block payments. This makes it challenging to go through an eviction process successfully.
• PayPal charges for rent payments: Although friends and family transactions are free on PayPal, business fees range from 1.9% to 3.5%, including a fixed rate of up to $0.49 commission. PayPal classifies rent as “goods and services,” qualifying it as a commercial transaction. However, there is no payment protection for “real estate transactions.”
• Charges for instant transfers: PayPal charges 1% on instant access to your funds, while a free bank transfer will take a few days. 
• Insufficient protection for landlords: When payment disputes arise, PayPal often takes sides with the payer, in this case, the tenant. Just like Venmo, landlords are offered little to no protection.  
• Inability to report payments to credit bureau reporting: PayPal’s features do not include an option to report rent payments to credit bureaus. Late payments showing up on a credit report can motivate tenants to pay rent on time. With PayPal and Venmo, you miss out on this incentive.
• Rent reminders: PayPal doesn’t send rent reminders before the due date. It only does when invoices are overdue.

Overall, apps like PayPal and Venmo do nothing to serve your interests as a landlord. So, what should you do instead? 

Let’s talk about property management apps and why they’re a better alternative. 

Why use property management apps?

Property management apps offer the best options for rent collection. Here are some of the benefits of property management apps: 

• They’re designed for rental management: Property management apps help you charge and track security deposits, late rents or utility fees, prorate rent, and send automatic reminders to tenants. 
• Efficiency: Property management tools incorporate features such as leasing, applications, screening, and rent collection. In addition, some apps facilitate maintenance requests. 
• Recordkeeping: Property management apps keep track of rent payments, making them visible to landlords and tenants. Some apps connect with accounting software and allow landlords to enter their revenues and expenses.
• Flexible payments: With property management apps, you can decline or block payments, split rent payments among tenants, set up recurring payments, prorate rent fees, and enforce late rents. 
• Low charges for rent collection: Most property management apps don’t charge fees for rent collection. If they do, they’re a lot lower than Venmo or PayPal.
• Credit bureau reporting: Some property management apps allow you to report your collections to credit bureaus.

Closing thoughts

The benefits offered by property management apps make a strong argument against using Venmo or PayPal for rent payments. 

PayPal and Venmo are not designed to serve your interests as a landlord. Instead, stick with the software built for you.

Property management apps will facilitate instant, prompt, and adequately documented transactions.

What do you use to collect rent payments? Let us know in the comment section below!

If you haven’t noticed, there really hasn’t been a better time to sell a property.

The Case-Shiller Index rounds out to about 282 points as of late January, and median home prices rose 15.9% year-over-year in February.

Add in the fact that sellers are receiving multiple offers within a few days after listing and you have all the right ingredients to start a bidding war, increase the price of your property, and walk away with more than you could imagine.

But, there is an issue. Taxes.

It’s great seeing the price tag of your property increase, but that also means your tax bill will be significantly higher. If you want to take advantage of the appreciation your current investment has earned but don’t want to get hit with the corresponding tax bill; you might want to consider some of these 1031 exchange strategies the top investors are using to navigate the seller’s market.

Why use a 1031 exchange?

With a 1031 exchange, you can shelter your gains from being taxed by following up the sale with another real estate investment of equal or greater value. If you follow the rules set by the IRS, your real estate investments can grow tax-deferred. 

The challenge of using a 1031 exchange in a seller’s market

These days, the most challenging part of executing a 1031 exchange is finding the replacement property within 45 days of closing the sale on the former property. 

As we discussed earlier, sellers are enjoying the luxury of bidding wars and sky-high prices. Investing in today’s market is much more challenging. Deals are hard to find, and you can’t guarantee that the property you want will fall into your hands.

The good news is that once found and placed under contract, the IRS grants an additional 135 days to finalize the purchase before the 1031 exchange is no longer eligible.

1031 exchange strategies

The best way to execute these 1031 exchange strategies is to have a plan before the property you’re selling is placed under contract. It’s the time of closing that determines 1031 exchange eligibility, so you’ll need to know your available routes before this date.

You don’t need to have the ball rolling on a second property while your current is under contract. Not everyone is comfortable going after the replacement property before their original sale closes—even with contingencies. Make sure to determine your risk tolerance and only take action that lets you sleep at night.

The four 1031 exchange strategies we’re going to talk about are based on where you’re currently at in the sales timeline. Those are:

• If you haven’t listed your property yet
• If you’re already under contract
• If you’ve already closed
• Use a reverse exchange

Dreading tax season?

Not sure how to maximize deductions for your real estate business? In The Book on Tax Strategies for the Savvy Real Estate Investor, CPAs Amanda Han and Matthew MacFarland share the practical information you need to not only do your taxes this year—but to also prepare an ongoing strategy that will make your next tax season that much easier.

If you haven’t listed your property yet

The first strategy is to negotiate the closing of your sale in a way that keeps you in the driver’s seat. If you can find a friendly buyer, this is the simplest way to do a 1031 exchange.

A buyer willing to wait for you to conclude your property search is the best-case scenario, but if you can’t find someone willing to wait, you need to research a few things.

First, find data on your market and examine the average days on market (DOM). This number will let you know how long you have to find another property or even the leverage you have over selling your own.

You can source this data through Zillow, Redfin, or Realtor.com. Or, get in touch with a trusted local real estate agent in your area who can provide highly accurate data using the multiple listing service (MLS).

You could also ask other real estate investors what their past month has looked like in your area.

Based on what you find out, here are the following options you have:

• Delaying putting your property on the market until after you find a replacement.
• Negotiate an extended sale date with the option to accelerate.
• Add a contingency clause to the offer that makes the sale dependent on you finding a suitable replacement within a certain amount of time.
• Add the option to extend closing by 15-30 days or more.

If you’re already under contract

If you are already under contract to sell your property, you can still take action to meet your 45-day identification deadline.

The goal is to begin making offers as soon as possible. The difficulty in a seller’s market is that buyers have little to no leverage. If you can’t meet the seller’s terms, they can simply choose another offer. So you’ll have to be smart.

You have a few paths to take here:

• Consider making offers contingent on your sale (the odds of this working is extremely low in a seller’s market, but it’s worth trying on a couple of properties).
• Ask for an extended closing (I suggest two weeks after your sale is scheduled. Some of our investors are experiencing lender delays on their sales that disrupt tight closings).
• Try to get an inspection, due diligence, or financing clause that expires a week or two after your sale is scheduled to close.
• Consider a tiered earnest money offer to get one of the above strategies to work. Specifically, offer a solid earnest money deposit at signing with another larger earnest money deposit after your sale closes. Make these refundable or non-refundable depending on your risk tolerance and what the situation warrants.

If you’ve already closed the sale

This isn’t the best scenario to be in, but not all hope is lost. Remember, you still have 45 days post-closing to find a replacement property to execute a 1031 exchange.

But, you need to be fast and efficient in looking for new properties.

If you’ve exhausted your options and spoken to every connection you have who might know about a new deal coming to market, from the local agent to the plumber who always fixes the leaky faucets, you might want to consider expanding your range.

The first thing is to consider dipping into markets outside of your own. If you haven’t been already, you might also want to look at properties that you might not normally invest in.

For instance, if you’re a short-term rental investor but can’t snag a deal, perhaps you should dip into the multifamily market?

Finally, maybe it’s time to look into fractional property ownership structures like a Delaware Statutory Trust or a syndicated tenant in common project. When done right, these types of investments can prove to be lucrative and provide a 1031 exchange outlet.

Use a reverse exchange

If you have found the perfect replacement property but can’t get the sale of your original property lined up in advance, a “reverse” exchange may be a good fit. 

A reverse exchange is a more complex exchange structure with a longer lead time, special financing requirements, and a higher price tag. That being said, if you locate a great opportunity, the exchange will defer a significant amount of tax.

A reverse exchange makes sense in a seller’s market as hot as the one we’re in now if you can pull it off.

Closing thoughts

While certainly not the preferred option, it is important to emphasize that there is no penalty for starting a 1031 exchange and not completing it. 

If you cannot find a suitable replacement, it would be better to let your exchange die and pay the taxes rather than make a bad investment. In the long run, you’ll regret the bad investment more.

If you have any other 1031 exchange strategies, leave a comment below to share them with the BiggerPockets community!

Mindy:
Welcome to the BiggerPockets Money podcast show number 289, where we interview Hugh Carnahan and talk about real estate and making literally every bad money choice you could possibly think of.

Hugh:
I was like, “Oh, David Greene does that like almost every day.” Almost every podcast, he’s like, “Don’t buy stuff in a war zone.” Oh, and there’s a full chapter in BRRRR, which I listened to three times that I never heard once, don’t buy properties in a war zone. So my mind was definitely like, “Take action, take action. I want to be financially independent.”

Mindy:
Hello, hello, hello. My name is Mindy Jensen. And joining you today is David, hip hip, Pere, from The Military Millionaire group podcast network channel yada, yada. He just left active duty and is now in the Reserves, right? Are you in the Reserves?

David:
I am for at least a little lot longer.

Mindy:
In the Reserves and working as a real estate investor buying up literally every house you can find in his area, right?

David:
Trying. Yeah, we’ve done nine so far this March 7th.

Mindy:
Wow. He is on a tear and he is here with me to make financial independence less scary. Plus, just for somebody else to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where we’re starting.

David:
So whether you want to retire early and travel the world, go on to make big-time investments in assets like real estate or start your own business, we will help you reach your financial goals and get money out of the way. So you can launch yourself towards the life of your dreams.

Mindy:
Today’s episode runs a little bit long, but that’s because Hugh Carnahan has such a fascinating story. Don’t let the fact that he’s only, what is he, 33?

David:
Thirty-one.

Mindy:
Thirty-one. Don’t let the fact that he’s only 31 sway you from his fabulous story. He has still made a lifetime’s worth of mistakes. One, he’s made enough money mistakes for a hundred-year-olds. He started off making mistake after mistake after mistake, simply because he didn’t know what he was doing with his finances. He wasn’t taught finances in high school. He wasn’t taught finances in college. He luckily had an internship where he learned a little bit but not enough to really make a great difference.
And I think that a lot of people can identify with this story because I wasn’t taught anything in high school about money. David, what did you learn about money in high school?

David:
About the extent of my knowledge was that my mom had envelopes. And that was about the extent of my knowledge. And I even put this in writing, which I probably shouldn’t have done, but I probably still owe her money because I used to go and sneak out of her gas envelope and go buy, “Oh, it’s for gas.” I need gas when I was in high school. So not a whole lot of education, but I knew the envelope budgeting system. I didn’t know that’s what it was. But that was about the only info I got.

Mindy:
Yeah. I didn’t get anything in high school either except how to write a check, what you put in each section of a check. That’s not teaching you about finances. That’s just teaching you how to get into debt because how can I be overdrawn, I still have checks. Do you ever hear that phrase?

David:
Oh, yeah.

Mindy:
You ever do that phrase?

David:
You don’t want to know about my check balancing.

Mindy:
Yeah. So anyway, Hugh joined David and I in making some mistakes and then went on to make some even more mistakes, and he turned it all around. I shouldn’t give away everything, but he turned it all around through real estate investing. So this story that you’re about to hear has mistakes about money and real estate to the rescue.
Today’s guest is Hugh Carnahan, the first person to successfully buy his way onto the BiggerPockets Money podcast. What? Yep. Way back on Episode 245, where my co-host was Joe Saul-Sehy, Joe was casually mentioning how his uncle had told him, “Well, I don’t have any extra money to invest.” And I jumped in and said, “Wait a second. There’s no such thing as extra money.” If you have extra money, send it to me at 3344 Walnut Street in Denver, Colorado 80205.
And Hugh took it upon himself to send me not only this letter, which is written in crayon, which I love, but he also wrote me a lovely letter and included $7. So Hugh Carnahan, thank you for buying your way onto the show. You better be funny. Welcome to the BiggerPockets Money podcast.

Hugh:
Woo. Well, thanks, Mindy. Successfully bought my way on. That’s right.

Mindy:
Yes. And if you’re thinking about following in Hugh’s footsteps, that’s already been done. So if you have extra money, please send it to Mindy Jensen at 3344 Walnut Street in Denver, Colorado 80205, and keep it under $10,000 because I don’t want to report it to the IRS. However, you’re not going to get on the show because of it.

David:
I was going to say …

Mindy:
Hugh’s already done it. So find a new way.

David:
… $7 for 30,000 or 40,000 people listening to your story is probably like the greatest marketing ROI out there. So you don’t tell people that they can successfully do that. Otherwise you’re going to have a wall of people sending you seven bucks.

Hugh:
Well, I did say that I didn’t have extra money, but I was going to be investing the $7 in a beer from Mindy.

Mindy:
So Hugh, with that out of the way, I do feel obligated to let people know that you did buy your way on. But I want to know about your money story because you do actually have also an interesting money story. So tell me, where does your journey with money begin?

Hugh:
A long, long time ago.

Mindy:
Oh, we don’t have that much time.

Hugh:
My money story begins as a kid and I was growing up. My father was born in the Great Depression. He was born in 1929. So he grew up in a third-world country, the United States.

Mindy:
Wait, what? Hold on. How old are you?

Hugh:
I’m 31.

Mindy:
How old was your father when you were born?

Hugh:
Old enough.

Mindy:
Okay. Well …

Hugh:
No, he was 61. He was 61 when I was born.

Mindy:
Okay.

Hugh:
Well, it’s funny because most people who are in their 50s and 60s, they share the same parent age group as me. And so my values are more established, yeah, from a different timeframe.

David:
Hugh’s an old soul.

Hugh:
I’m an old soul.

Mindy:
Yeah. I was going to say, I’ve met you in real life and you don’t look like your dad was born in 1929.

Hugh:
So my father grew up in a third-world country in the rural Midwest in Missouri. And then my mother was born in Taiwan, which in the ’50s was also a third-world country. And so they had the very entrepreneurial, we’re going to work hard and through blood, sweat and tears, we’re going to make something of ourselves.
But when I came along, I was the last one of 12, I was the only one of kids from the two of them combined, and while growing up, basically, there was a fiasco, little thing happened in ’89 in Beijing. So it scared the crap out of all the Western countries, they left China. My dad being an opportunist growing up in the Great Depression said, “Let’s enter China.” And so they started a manufacturing business in the ’90s in China right when it opened up.
So when I was growing up, because I was born in 1990, I saw the drastic difference between wealth and poverty growing up because there were a lot of really poor people there. And there’s one instance, and I consider this the beginning of my money story, is that when I was a kid, I was probably five years old, I was old enough to remember things but not really old enough to understand things.
And so we went to some party, like a dinner, in a apartment in Shanghai. And coming out, there were beggars that were at the base of the place and there was a boy that was my age and he walked up and I felt so bad. And I had a coin that was given at the party. It was a fake gold coin, I didn’t know that, but I was like, “Oh, here’s this coin, maybe I can give this kid a coin.”
And my mom ended up buying them food and then we left and then later they said, “Hugh, the only difference between you and that beggar kid growing up is that you were born to us. You don’t deserve anything in this life. You’re just lucky. So you should appreciate it.” And that was one of the very first things that I ever remember, period. And it was around money and hard work, and that kind of a thing.

Mindy:
Your mom sounds …

Hugh:
Tiger mom?

Mindy:
… pretty much like a realist.

Hugh:
No. I mean, when everyone grows up poor, they were like, the only difference between you and them is you were born to us. So that could have been you, so appreciate everything and work hard in life.

Mindy:
Well, let’s fast forward to high school. It sounds like you grew up in China. How long did you live in China?

Hugh:
From age zero-ish to age 10, I traveled back and forth and didn’t really have a good education because I would be in a few months at this school in the US, a few months at a different school in China. And then at age 10, they were like, “Oh, this kid’s dumb. He’s not getting good learning.” So they put me in a boarding school and I was actually in the military school from age 10 until 18. And so that’s where I got my original background and discipline and that kind of stuff.

Mindy:
Okay. So what was your financial position coming out of boarding school? I’m assuming zero-ish?

Hugh:
So we didn’t have the opportunity to work jobs while in school. So I didn’t have the work hard to earn a car or any of that. We didn’t have … I think we had a $20 allowance a week or something that they give. But other than that, we’re not taught about money at all. So I really was completely unprepared.
So leaving high school, what I was able to do was I only applied to senior military colleges intending to pick up a military contract, but I wasn’t sure because I didn’t want the parents to have to pay for college. So I ended up going to Texas A&M and I joined the fight in Texas Aggie Corps of Cadets there because they give you in-state tuition was a very good part. And so I ended up going to college and so-

David:
That’s not why you went.

Hugh:
Huh? Oh, yeah-

David:
You can’t just not tell the truth on this show.

Hugh:
So there is something that happens. So it was an all-male military boarding school. And at one of the career fairs, Major Huffman was like, “Hey, come to Texas A&M, there’s 40,000 women here.” And I was like, “I’m scared of girls.” I should probably go to Texas A&M instead of West Point. And so that’s where I ended up going because that sounded way better. That was probably at least 30%, 50% of the reasoning is there’s just normal life there.

David:
I think that’s a logical reason.

Hugh:
So I had scholarships, I made good grades and I had some in-state tuition and then some basic assistance, but I was very, very fortunate my parents decided that they would pay for my college. So I ended up exiting college basically with debt free. And that was pretty much it. And also, I was in the corps cadets at Texas A&M so I did not have a ability to work during the time.

Mindy:
Okay. So were you in the military? What’s the corps cadets? I don’t know what that is.

Hugh:
The corps cadets is the ROTC program and it’s the feeder for the officer program into military. So in order to be an officer, generally, you go to college, attend an ROTC program, pick up a contract where the military pays for your college. And then as a debt to that, to pay that off, you then join and enter the service.
For me, another reason I chose to go to Texas A&M is because I wasn’t sure because at that time, I had been in a military school for eight years when I was 18. And I didn’t know if I wanted to actually go active duty. So I had two more years to decide by going to Texas A&M. So that was one of the other factors as well as opposed to had I picked up the West Point contract or something like that, that I would’ve absolutely had to go into the military. And I just decided that I want two more years to figure it out because I’m 18 and I don’t know what I’m doing.

David:
Hugh ultimately ended up marrying into the military for a little while. I frequently refer to him as my favorite dependent.

Hugh:
Yes. Yes. Yeah. After I graduated, I went to work for an oil company. So exiting the position in college, the last thing that I did was I was looking for credits and I volunteered for a financial advisor to run their computer systems because I was an IT background. And that’s what I studied in college was MIS.
And luckily, in exchange for doing the IT program, the financial advisor taught me about pay yourself first. And outside of that one instance when I was four or five years old and then growing up, my parents never really talked about money. And honestly, even though they were very successful, I don’t think they really knew how to use it as a tool. They just knew it roughly. And then it was that few months that I spent as an intern where the financial advisor was continuously teaching these courses and I would be there making sure the computers run correctly or whatever. I heard about pay yourself first.
And that was pretty much the only preparation I had for actual finances moving into being a young adult. Oh, in high school, I did get a D in accounting.

Mindy:
Oh.

Hugh:
But that’s D for diploma maybe.

Mindy:
Ds get degrees.

David:
Okay. So you graduated college and you go, you said, to work for an oil company. I don’t see that you’re like a chic with millions and millions and millions of dollars worth of oil at this point. So what’s the trajectory from there to Hugh nowadays, right? What changed?

Hugh:
So that’s … So I graduated college. I then move to Bartlesville, Oklahoma, very fancy town. You drive to Kansas to get beer because Oklahoma is just not good in general. I’m working for the oil company. I think I started at 75,000 a year, but it’s also in rural Midwest.
The engineers, they came in at 100,000, but there’s a problem with Bartlesville, Oklahoma. And it’s that it’s in Oklahoma and there are no available single females that are there. They’re either already married or there’s a lot of wealthy people, not wealthy people, people with very good-paying jobs, W2s, working for this one company that keeps the entire town afloat, and it was just not much to do.
And so I started reaching back out and I ended up meeting a friend I knew in college and we ended up flirting, chatting, end up getting married. So I quit my job and I had 12 grand saved up, which I thought was the most money I’d ever had like, “Oh, a 12 grand. This is going to be incredible. I’m going to move to San Diego because she’s being PCS to San Diego.” And so I arrived in San Diego with no plan, no job and then end up talking my way into another IT job. But that’s basically the transition now.

Mindy:
You were making $75,000 a year, living in a town where there was nothing to do, and you saved a whopping $12,000?

Hugh:
Yes.

Mindy:
I don’t like to shame people on this show financially for past misdeeds. I will make an exception here for you because you bought your way onto the show. But what were you doing with your money when there was nothing to do?

Hugh:
I think there was a lot of alcohol involved. I definitely started buying homebrew equipment and also like most young-

Mindy:
Oh, there’s a lot of money right there.

Hugh:
I think it was like $1,500 to get started for all the equipment that you needed at the beginning. But also it was like the first time ever I had had money and that I made the money myself. So it was your standard like, “Oh cool. I’m bringing this paycheck in every two weeks. Regardless of what happens, I’ll be fine.” And so I think it was video games and homebrew, and a lot of it was also going out to eat, “Oh, we’ll just go out to eat. Who cares?”
And also, because there wasn’t very much to do, there was a really tight friend group that we had and we’d also go and do, I don’t know, 22-year-old things, which is, go to house parties and eat outs.

Mindy:
I want to do a little bit of a self-promotion for my own little spending tracker experiment that is ongoing this whole year and say that I asked him point-blank, what did you do? You had nothing to do in this little town and you were making a lot of money. So where did your money go? And he’s like, “I don’t know. It just went wherever.” And looking into my crystal ball, I’m guessing that you weren’t tracking your spending in any way.

Hugh:
No, the only thing I was doing was I was … Because of pay yourself first, which I had to define in my brain as steal from myself before I could spend it and then blow it, right? They talk about pay yourself first quite a bit on the show. But basically, I would immediately get, I think it was like $500 a paycheck, and I had it go somewhere else first. And then what was left was … And then I paid the bills and then what was left, I would blow.
So I didn’t know anything about investing then and no idea. I think I maxed my 401(k) for the matching. I mean, that was about pretty much it.

Mindy:
Okay. So first of all, no, it’s not stealing from yourself. It is investing in your future. And second of all-

Hugh:
Oh, but that’s the way I justified it. I was like, “I have to hide it from me because I’m dangerous or else I will spend it. So I have to steal it first so I don’t think about it.”

Mindy:
It’s not stealing. Okay. But anyway, whatever you have to do to invest. But it’s not stealing, it is investing in your future. So what did you do with that $500?

Hugh:
So after $1,200 were saved up, I then got this fancy idea that I was going to move into California and, promptly, I spent all of it because California’s very expensive. So I thought I was like, “Oh, this is like a year runway for me. I’ll be fine.” It was like-

David:
I think what Mindy was asking, before we dig further into that part, is were you just putting the 500 in a savings account and letting it rot or you-

Hugh:
Yeah, I was just straight-up putting in the saving. It wasn’t even a high yield savings account. It was just a savings account. Actually, it might have been a checking account. I don’t have that bank anymore, but I just didn’t know what I was doing. So I was just saving … That was like your standard, “Oh, this is an emergency fund.” I really didn’t understand what investing was. I didn’t know anything about a simple path to wealth. Didn’t know anything about S&P 500 index funds. I knew nothing.

Mindy:
Okay. So that $500 that you would take from your paychecks was the 12,000 that you moved to … Oh, I thought you were investing it, like putting it in an after-tax brokerage account or something. Oh, okay.

Hugh:
I got a Missouri education [crosstalk 00:20:32].

David:
Hugh might not have actually gone into the military, but he did a lot of the same things we all do, which is alcohol, food, dates.

Hugh:
I might as well bought a brand new Corvette.

David:
Yeah.

Mindy:
Well, at least you’d have a hot car to drive then. I mean, no, you should not have purchased a brand new Corvette either. Okay. So back to plugging my thing because I never actually got around to plugging it, I am tracking my spending this whole year publicly. You could follow along at biggerpockets.com/mindysbudget. You can see that in January, I blew my budget. In February, I blew my budget.
We are recording this in the beginning of March, but I already know that I have blown my budget in March because three for three, because budgeting is hard and tracking your spending is something that you have to do all the time or it all goes out. It’s so easy to spend money. And it’s so easy to get to the end of the day and be like, “Well, I had $40 in my wallet and now I have three. I don’t remember where I spent any of that money. Oh, wait a second. I got a cup of coffee and that was like $3. Where did that other money go?”
And it’s so hard to try and remember just even in the course of the day where your money went, let alone what year are we talking about when you were in Bartlesville, Oklahoma, and just graduating from college?

Hugh:
That would’ve been 2013.

Mindy:
So this is nine years ago that you did all of this. I mean, I can’t even remember what I did nine hours ago. Well, I was asleep nine hours ago. But this is really hard. So that’s why I’m tracking my spending. My friend, JT, yes. JT, another shout on the show. JT is awesome. He sends me messages all the time and he’s like, “Why are you tracking your spending? What’s the point?”
The point is, I want to be conscious of where my money’s going. And the only way for me to be conscious of where my money is going is to track my spending. And this is just going to be a whole bunch of plugs right now. But waffles on Wednesday, wrote an article about how to create a mobile spending tracker. It came out, they published it right at the same time that I was talking to my husband and saying, “I wish there was a customizable mobile spending tracker that I could have on my phone so I could put my own little categories in.”
And then the next day, waffles on Wednesday, was listening to my conversation, I guess, because they came out with one and it’s based off of a Google Form that goes into a spreadsheet. So that’s what I have on my phone. And every time I spend money, I put it into the spreadsheet and you can follow along again, biggerpockets.com/mindysbudget. And you can see just how much I am screwing up my projections.
But the thing is in February, I blew my budget because my furnace broke. And my furnace would’ve broken if I had been consciously tracking my spending or not. So I would have spent even more money because it’s so easy to spend money if I wasn’t keeping track of it publicly. I feel even worse when I spend money than when I normally do. And people are listening and they’re saying, “Oh, you shouldn’t feel bad spending money. It’s yours to spend.” Well, I don’t feel bad spending money, but I feel like I need to have a reason to spend this money because I don’t need to just spend it willy-nilly.
First of all, I don’t need more garbage in my life and I need to be conscious of where it’s going so I can use it for things that really mean a lot to me. So clearly, alcohol really means a lot to Hugh. And then he moved to San Diego with his wife where we pick up his … Now were you married when you moved to San Diego?

Hugh:
I was not. I moved there and then we got married four months later.

Mindy:
Okay.

Hugh:
I think just total of 10 months. From the time we started dating until we got married was 10 months. So again, I’m tracking that whole military spending lifestyle almost to a T. So 10 months knew her. We knew each other from college. Got married and then, yeah, so that’s where we started. By that time, I was able to work for a tech company that had an office out there and I spent the last bit of the money that I had saved the month that I got the job. So I lucked out, but I ended up getting an entry-level position.
Now I think when I got hired, it was effectively $100,000 that I came in at, but it was 90,000 plus benefits when I … But that’s San Diego money, right? So coming from the Midwest at $75,000 with very little expenses, it was effectively taking a 20% pay decrease, mainly because expenses were so much higher there. I mean, it’s like a step-down, but I’m very lucky to have gone to that company because, one, it prevented me from being starving. But, two, I didn’t know it then, but it’s where I eventually got the seed money to start investing in real estate.
So there, still have pay yourself first. And what I was doing there was combined. I think my ex-wife for the time was making around a hundred. We were making around a hundred and we were able to save, I think, $1,200 a month in San Diego.

Mindy:
By making $200,000 a year …

Hugh:
Correct.

Mindy:
… you were able to save $1,200 a month.

Hugh:
Correct. Because remember, that time would’ve been 2014. And in 2014, I was a 24-year-old adult person. I’m going to use that with quotations. And then it was like, “Okay, cool. I’m going to do what young 20 somethings do.” And you’re going to go to the beach and you’re going to go to parties, you’re going to go eat out. It was just significantly more expensive there.
So the only thing keeping us afloat is still that college internship I took the last two months that I was there, which was like, “I think we should be saving something.” And yes, that also went just into a account, I’m pretty sure it was still just a checking account actually.

Mindy:
Okay. So you were just saving $1,200 a month. You weren’t investing $1,200 a month, but …

Hugh:
Correct.

Mindy:
… were you participating in a 401(k), was your wife participating in the TSP program?

Hugh:
So with that, I don’t think we … I mean, Dave hadn’t written his fancy article yet, so we don’t know about the TSP. So she wasn’t TSP. She was probably going to be in the G Fund. I don’t remember because it was just a long time ago and we weren’t paying attention to it. We didn’t know about money.
I came from a company that had a 401(k). When I got to the tech company, it didn’t have a 401(k), but they did have an ESPP program.

Mindy:
Oh.

Hugh:
And I was participating in that. And that is actually what saved me. So I had two things going on. One, as a part of my compensation package, I was given stocks the day that I started, but it would vest quarterly after a year. So many stocks would vest. And some of that we sold to pay for the wedding. And then there was the ESPP.

David:
Hugh did everything, right, Mindy. Everything, all the right moves.

Hugh:
I’m just doing the young 24. I’m basically a financial … There is a financial disaster to real estate master with Brandon Turner. And I feel like I’m on par.

David:
Well, I would just point out this, though, is at 24 years old, if we sit back right now, we look at you making $200,000 a year and you’re only saving $1,200 a month, that sounds terrible. But at 24 years old, I would wager that that is better than probably what 90% of people are doing. Most people aren’t even … I mean, when I was 24, I wasn’t putting money aside other than my little 5% to 10% TSP contribution, which I had no business in 2014 writing an article about that. So that’s why I didn’t know what I was doing. I left it in bonds. So it’s not great.

Mindy:
Oh, I forgot about that.

David:
It wasn’t until 2015 that I started learning about all this stuff. But I would just throw that out there that I wasn’t even saving $500 a month outside of the TSP at this point in my life. So it could be a lot worse.

Mindy:
Yeah. I’m sitting here judging you mostly because I know that you have since turned it around. I shouldn’t be so flippant about it because at age 24, I wasn’t even saving $1,200 in a checking account. I was saving $0 in no accounts at all. I believe I was a waitress and I was spending all of my money that I made because as a waitress, oh my goodness, that money is so easy to make, you just work one night and then, wow, you have $200 in your pocket. And it doesn’t matter if you go out and spend all of it because I can pick up a shift tomorrow and do the same thing again.
So if I need money, I can just work another shift. And it didn’t occur to me [crosstalk 00:29:19].

David:
Depositing the money is so much harder than just spending it when it’s cash.

Mindy:
Well, plus it’s like a stack of signals.

Hugh:
You have to withdraw the money anyways to spend it.

David:
What kind of restaurant was this?

Mindy:
I was a cocktail waitress.

David:
Just kidding.

Mindy:
Shut up.

David:
I just …

Mindy:
Back on track. So we’re in 2014, you’re saving $1,200 a month in a checking account. And you have stocks as part of your compensation. Is this a well-known company? Would we recognize the name of this company?

Hugh:
The ticker symbol is Now, N-O-W, it’s ServiceNow. It’s business to business. I think most people wouldn’t know it, but a lot of people in the industry would know it.

Mindy:
Okay. So do you still own this stock?

Hugh:
I don’t. I should have kept one share just for funsies, but I don’t own any of the stock. And long story short, wheels fell off the marriage. And in 2016, we basically separated. And when that happened, the divorce ate up funds from both sides. I think the only person that won from that was the lawyers. They got all the money. I think at the end, I paid 13 grand to her and it balanced everything out.
But because … Before I was married, which I got hired two weeks before I got married, was when my stocks were awarded to me for the vesting. After we basically sold the stocks to pay for the wedding, I pretended like I didn’t have any stocks. It wasn’t the cash that Mindy was handed waitressing. I never saw it. It was never in my account. I didn’t take it from my account to go buy it. It just plopped into the account. And so because of that, I treated it like it was not mine. I didn’t have it.
And then I moved back to Missouri and started working for a family company. And when I did that, I straight up forgot that I had the stocks. I knew they were there, but I didn’t check on them. I wasn’t actively contributing to anything. I just was like, “Oh, yeah, I also have stocks.” But I remember it was like $57,000 worth of stocks when I left California. That’s where it was. So that’s the last I remember checking on it. I didn’t even care.
But when I was leaving, there was another gentleman, his name’s Ken, and he was an ex-Green Beret. Super cool, crazy guy, lived up in Washington. And he was talking to me about commodities training and how it’s insane gambling and it’s awesome. So I was really intensively looking into options contracts for commodities.

Mindy:
Oh, good.

Hugh:
I didn’t do it, but I looked into it a lot. But he said something, which was effectively, they’re going to, they being ServiceNow, the company, the company is going to do a stock split or when it hits $300 a share, it’ll be a billion dollars or something. So I kept holding onto it, not spending it because I was waiting for the stock split because I was going to sell it after the run-up. So that’s basically what I just kept hanging on, kept hanging on, kept hanging on.
Flash forward to 2019, I get wind from my friends because they’re buying houses and stuff in San Diego. And so the stock price is doing well. So I check in on it and it’s worth almost $190,000 at the point. And so here I am, I’m working back in Missouri. My expenses are lower. I’m figuring things out and then I decided that I’m going to sell the stocks. And so I said, “I remember what that guy says.” He says, “It’s going to go to $300,000 or, sorry, $300 a share.” So I set it at $289 a share because everyone was talking about it. The hype’s going to go up. It’s going to go up. So it’s going to hit 300. So what I did was I decided that I was going to play it safe and, before it hit that, do that.
So I woke up one morning, I was in China at the time because I was flying back and forth, working for a manufacturing company at that point. And while I was in China, it sold and I then left $225,000 in the settlement fund for the next year, approximately, because I didn’t know any better.

Mindy:
Explain that. So you set a sale price.

Hugh:
I set a limit order.

Mindy:
At $289. So when the stock hits this, it will automatically sell.

Hugh:
And I sell all shares.

Mindy:
Okay.

Hugh:
And so I sold all shares and I got $220,000. And when that sells on the platform, it’ll go into just a settlement fund, which is a non-interest-bearing checking account for most people. But from that checking account, you can then buy stocks.
I didn’t know what I was doing. I was scared. I didn’t know anything about investing. I probably knew about S&P 500 index funds at the time. I still didn’t really know like I do now. So I just left it there.

Mindy:
Just sitting there doing nothing.

Hugh:
And it just sat.

Mindy:
Okay.

Hugh:
It just sat there and did nothing and got eaten alive by inflation for like a year.

Mindy:
Do you want me to tell you what Now is closing at right now?

David:
I just did the math.

Hugh:
Yeah, tell me.

Mindy:
Did you look it up?

David:
You would’ve $398,615-ish. It’s a 512.

Hugh:
Okay. I think I did the math once and it would be like $300,000 today. But now I’m retired, financially independent, and have, I think, about $200,000-ish in stocks as well, but then I have some real estate now.

Mindy:
No, this is a good point to make. You made a couple of financial missteps throughout your beginning journey. And then in 2019, you took the seed money of, what did you say it was, $225,000 is what you sold.

Hugh:
That I owed taxes on.

Mindy:
Oh, we didn’t even say the T word yet, that you owed taxes on.

Hugh:
Yeah. So I sold that, then I owed money on it because of the price difference. So I think I was, technically, should have only had liquid $183,000. However, I did have $225,000.

Mindy:
Did Uncle Sam come knocking on your door and say, “Hey, remember me?”

Hugh:
Well, they did. But I was like, “Ah, I have a few months to figure out how I’m going to pay that back if I need to use it.” But in the meantime, I’m just going to keep it in the settlement fund.

David:
Perfect. So while your money’s earning interest to the IRS, you’re not earning a return on it.

Hugh:
I’m not earning a return on it. And I sold it, I think it was March. I think it was March when I sold it. So it just sat there the rest of the year.

David:
Yeah.

Hugh:
And then it wasn’t until next year, next calendar year, that I was like, “Oh, yeah.” I still had the money. I didn’t do anything with it so I could have just paid that off. But instead I came up with a better idea. I was going to be financially independent.

Mindy:
Oh, great.

Hugh:
So here I am in Missouri and I’m like, “You know what, to live life, the secret to life, is to have low expenses.” What better way to lower your expenses than to go and buy solar panels, $180,000 worth of solar panels, to be precise.

Mindy:
I know a lot of better ways to lower your expenses than to buy $180,000 worth of solar panels.

Hugh:
Well, the government was going to give us money back. It was like 30% or something back then. So that was where I started down that path.

Mindy:
Wait a second. If somebody just gives you, here’s a really great idea and here are 10,000 really bad ideas, do you just look and see which of those 10,000 is the worst idea to pursue?

Hugh:
I don’t think it’d be worst idea. I think it was a bad idea, but it wasn’t the worst idea.

Mindy:
So what was your thinking behind the solar panels? Because I know that solar panels really do seem like they’re a great idea, but when you look into the money, they’re actually not, and it’s sad.

Hugh:
They’re okay. I think it was … I factored in, it’d be like 11-year payoff. And my thought was being an IT background and I went into manufacturing, I have a very engineering tinkering, analytical mindset. So I’ll probably be lumped into groups of people, maybe like Carl even, where I’m going to do stuff to see if I can do stuff less because I need to do that thing.
So my plan was get rid of gas, electrify everything in the house, put solar panels on, figure out batteries down the road. And that was my thoughts around all of it is, how can I offset that? Because the house I live in was built … Actually, you can see some of it here in the picture behind you in the mirror. That’s actually the bottom of an 1851 log cabin with no insulation.
So my house that I live in now was the one that my father built and, well, kept adding on to in the ’60s. And so it’s like a horribly energy inefficient house and it costs about $10,000 to $14,000 a year just to operate and maintain it. That’s just in utility costs.

Mindy:
Okay. I was going to ask you how much could your utilities be. Have you heard of insulation? Because I just reinsulated my house and it was significantly less than $180,000 in solar panels to do so. And I’m teasing you in a way that I hope comes across to people who are listening, who are like, “Wow, Mindy’s being really rude.” No, I’m just teasing you because I know that we’re up to 2020 and it still hasn’t gotten any better yet. And it has-

Hugh:
No solar panels, no insulation.

Mindy:
But if you have a house that is leaking air and it costs a lot of money to maintain the heat, step number one is close up all the air holes and then find ways to insulate this house so that it doesn’t cost so much to heat rather than put $180,000 worth of solar panels out in your backyard to generate more electricity, free electricity. It’s clean electricity, it is not free electricity.

David:
Not to say that that wouldn’t work, but I’m also going to throw out there that if you had seen Hugh’s house, you would understand that the idea of insulation is kind of a …

Hugh:
You can’t insulate the house.

David:
So Hugh’s house is like-

Mindy:
Buy a different house.

David:
It was built over like three or four generations. And it’s built in a horseshoe around this … Imagine a hotel-sized pool, hot tub, gazebo, encased in like a green room, that’s just solid glass. And so it’s an energy nightmare.

Hugh:
It’s horrible now.

David:
It’s a super cool house, but it is an efficiency nightmare for energy, I’m sure.

Hugh:
And before I had to pay for any of this, I didn’t like it. Yeah, I liked it when I was a kid. And then now it’s like, every roof is a different roof. Every building material is from a different era. And then were grandfathered into the codes from the initial building of the house, which was 1851.

David:
Oh, and by the way, that’s-

Hugh:
That was pre-Civil War.

David:
… $10,000 to $14,000 in the Missouri nine kilowatt hours, $9 a kilowatt hour.

Hugh:
Yes.

David:
So in San Diego, where energy is three or four times expensive, it’s a pretty expensive house, energy wise.

Hugh:
So for me, I was thinking, “I’m young. If I can offset this and the house doesn’t burn down while I’m alive, then after 11 years, it’ll be paid off and I’ll be making stuff.” I think that was the rough calculation was 11 years. And I also factored in oversizing my system. I didn’t know about … Electric cars weren’t really a thing back then. I have one now, but back then, it was like, “I’m going to oversize the system because I’ll have a family one day probably. And so I’ll just oversize it and then electrify everything in the house.” So that was my thinking behind it.

David:
But we didn’t do that, thankfully.

Hugh:
But we didn’t do that. And there’s a funny story about that, well, kind of funny. He’s a BiggerPockets member, though. So I’m going to pick on them just a little bit.
And so can’t insulate the house, can’t do any of that. Now one caveat before we go into the finance side, when I was in manufacturing, all I did all the time, I end up stumbling across something called lean manufacturing, which a lot of people recognize as Six Sigma. And there was a flavor of that I subscribe to, which is 2 Second Lean, which is a dumb down simpler version of lean that normal people like hicks from Missouri, like me, can understand.
So here we are. I now drank the Kool-Aid with that very, very big on efficiency and the fundamentals apply to everything. It doesn’t matter what you do. It’s like gravity. If I drop something, it’s probably going to fall. And if it doesn’t, then there’s something drastically wrong. So that was the way I thought. Not only that, for whatever reason, and it was probably my father instilled in me, general Midwest stuff, if you’re kind to other people, be kind to everybody, be polite to everybody and help everybody out.
So I had an abundance mindset. I now know it’s called an abundance mindset, but I was bidding four or five solar panel companies against each other. And every time they would come over, we’d spend hours. I’d ask all the questions, the technical specs, we want this inverter or an optimizer, all those things. And I did this for about six months because I was going to spend the money on the solar panels to go ahead and do that.
So what I ended up doing was every time someone came over, I was helping the solar panel people try to run their business better with lean manufacturing techniques. Because if they could set up a solar panel 10% faster, well, over the course of a month, then that’s one extra array that they got for free because the labor is fixed, they were going to pay that labor anyways.
So it wasn’t that so they were saving. It was that they could do more with less. And so every time they were there, I just kept giving them information and papering stuff out. So I finally got it down to two companies and the bid I was going to go for was 180 some odd thousand dollars. And the guy tries to do it. And the city basically denies it. They’re like, “Oh, sorry, you’re the very last node for the electric panel. And so we can’t put solar on because you’re back-feeding towards the rest of the town. So you can’t do that. And so we’ll only approve you up to something like a quarter of the size system.”
Well, at that point, we’re still talking. I’m like, “Okay, well, we can push for it again.” And the guy stops me and he says, “Listen, Hugh, you’ve been helping me out a lot with this lean stuff. Don’t buy solar panels.” This is the owner of the company. Don’t buy solar panels. So he’s turning down $180,000 job. He tells me, “Don’t buy solar panels. Go buy real estate and use the real estate money to pay for your electricity. It’s more economically efficient.”
And he turned down $180,000 job and he looked at me and he said, “Cool.” We had a beer, right, because that’d always get them talking over some homebrew. And we were sitting there talking and he’s like, “Yeah, it’s pretty cool. Go to this thing. It’s called BiggerPockets. Go to YouTube, type in BiggerPockets. The BRRR strategy. It’s B-R-R-R-R. Just Google that or just YouTube that.”
And so that’s where he left me. And then he left. And then six months later, he went out of business, which is an unintended side effect.

David:
Yeah. You could have kept him afloat.

Hugh:
That is how I got my start.

David:
You put him out of business by not giving him that solar.

Mindy:
Well, I hope he’s at the top of your Christmas card list every year. Did you … So I know that you started investing in real estate. What was your first property?

Hugh:
This solar panel interaction was like in August. And then September 19th, I start a LLC. And then from there, I just start binging BiggerPockets. So I started up episode one and I basically listened from episode one on 2x speed every night for three hours, 2x speed, I just watched every single podcast there was. And then on the weekends, I think I did six hours.
And so every night, I was crushing six episodes of BiggerPockets OG podcast. And then as I listened one month later, I think I was caught up to Episode 386 or whatever it was at that time. And I started making offers because Brandon Turner was like, “Hey, making a decision is more important than what decision you make. Hey, making decision is more important than what decision you make.” And so I started making offers.
And so I made an offer on a two one and that got turned down. I made an offer on a college rental equivalence that was kind of category into campus, that got turned down. And then I tripped over a piece of garbage cement in the street. And I look, and because I had been running deals and running the BiggerPockets calculator over and over and over for the last few months, right, so I have zero experience, don’t know anything, I noticed that there’s a for sale sign in the yard and that there was a piece of sighting that was falling off of it. And I was like, “Oh, I’ve seen this before.”
So then I had the realtor call and say, “Hey, ask about this house because it was just a little tinky two one.” And the guy was like, “Oh, it’s for sale,” but there’s another 26 houses attached to it for sale as well. And they’re all rundown. And so I have the BiggerPockets calculator over and over and over ran the analytics. And it said it was a 1.58% deal. Or it was 1.6 something. And the guy won a $1.15 million to buy everything. And so the cash flow was above that. I think it was $15,080 a month at that time. And it was for sale for $1 million.
So even though I had zero experience, I’d never bought a house before, never tried to buy a house before, Brandon Turner was all like, “Hey, you should take action, take action, take action.” And so I was like, “Well, I’m not so sure, I’m going to check.” So I’m going to email this guy, Dave Pere, some random guy, I don’t know who he is, he says he’s from the Springfield area. I’m in that area.
So I go and I reach out to him and he gives me a 15-minute time window at a coffee shop and I talk his ear off. And he is like, “I’m not going to give you any answers because I don’t want you to buy this thing and then blow up on you. But I think you’re saying you’re going to buy a bunch of crack houses and you have zero experience and you don’t have a contractor or a property manager. Oh, and again, you have zero experience.” And I was like, “Yeah, that sounds about right. But the math says that I should do this and I’ll figure it out.”

David:
Yeah. So if I can just set the stage here for like a minute because, Hugh, I don’t want people to think Hugh is as crazy as he is because he’s probably crazier than that. So Hugh reaches out to me and we’re talking back and forth. I’m going to dig a little bit. Hugh’s one of those guys who he’ll send a Facebook message and then have another thought, and send another one, another one.
And so we’re talking and I would send an answer. And instead of one paragraph, it would be like bing, bing, bing, bing. And so I was worried that if I was going to go to a coffee shop with Hugh to let him pick my brain, that if I didn’t set an end time, I was going to be at this coffee shop for the entire day.
And I was in town from Hawaii at the time. And I was only in town for like … I mean, I think I flew out the next day. And so I had a million things to do. And I was just like … So I was going to this coffee shop for three hours to work on my laptop. And I was like, “Okay, I’ve got 15 minutes or maybe 20. From here to here, if you can make that work, I’ll be here. If not, sorry, maybe next time I’m in town.”
So Hugh shows up and this was the first time we’ve ever interacted. And he’s basically like, “So I’m looking at 26 houses. I’ve never bought investment property before. I don’t have a contractor. Every property manager I’ve talked to has told me they don’t want to touch these. And what do you think?”
And I’m like … I mean, he’s right. The numbers work. But I don’t want to say go for it because this is a risk you need to be okay with because this is … So I point out the things that could go wrong because I just lost money on a flip probably six months prior to this. And I’m like, “Here’s an introduction to my property manager. I know she’ll take care of you. Here’s an introduction to … I think I might introduce you to my lender, but we don’t use that guy anymore.”
So I introduced him to a property manager and I’m like, “Call me if you need anything. I don’t have a contractor. Mine sucks. Please just make sure that you’re okay. Here’s everything that could go wrong, make sure you’re okay with that. And if you are, go for it because the numbers absolutely worked. But it’s just a big risk.” And so that was pretty much the whole conversation. And then we didn’t touch base again for … I mean, we talked every now and then. And six months later, he and I are buying deals together and doing whatever.

Mindy:
I’m going to jump in here because this is giving me a rash to listen to this guy who has no experience listen to Brandon Turner, preach about how you should just take action. So he’s going to jump in on a million-dollar deal for 26 crack houses in the middle of nowhere and he’s just going to do it. What do you think? The numbers work. But I can’t find anybody to work on these properties for me. This is absolutely the time that I would say, “No, don’t do this deal. What are you thinking?” What are you thinking?

Hugh:
Yeah, Dave.

David:
Yeah.

Mindy:
So, yes, David, thank you. That was so great.

David:
There’s a reason I didn’t say go for it, you’ve got this.

Hugh:
I was just sitting there. I have a little printout and had the graphs on it and there’s a picture and I was like, “Look at this, look at these numbers.”

Mindy:
That’s not all you need to make a successful real estate deal is a printout with graphs on it.

Hugh:
The banks certainly didn’t care.

Mindy:
Sorry if I blew out anybody’s eardrums when I screamed. I’ll mark that to-

David:
The numbers mathed, Mindy, the numbers mathed.

Mindy:
I don’t care if the numbers mathed.

Hugh:
By Episode 300 something, I started reading all the BiggerPockets books because they’re the same books they tell you for all the things all the time. And so I was sitting there … So I started buying the books, right? So I bought BRRRR. I bought Long-Distance Real Estate Investing, estimating rehab contracts, all that good stuff, which is now out of date. But never once in any of the podcasts or any of the book, BRRRR, did David Greene ever say, don’t buy something in a war zone.
And then after I bought the properties, which we’ll get into later, I was like, “Oh, David Greene does that like almost every day. Almost every podcast, he’s like, “Don’t buy stuff in a war zone.” Oh, and there’s a full chapter in BRRRR, which I listened to three times that I never heard once, don’t buy properties in a war zone.
So my mind was definitely like, “Take action, take action, I want to be financially independent.” And the why was, I woke up, I was 29 years old at the time. Am I 29? Yeah, I was 29 years old at the time. And I was working a W2 job like a normal person. And I was like, “I don’t want to do this forever.” And I see the managers that were there and they’re like, “Okay, well they own their house. They’re approaching their mid-60s, late 60s. They’re miserable. Their bodies have given up. They can’t go do the things that they want to do even if they can retire.” And also, I don’t think they can retire.
And so I just saw that and I was like, “I got to do something. I got to do something.” And after 386 episodes, it’s the same story over and over. And so that conviction was solidified to go buy a bunch of crack houses with zero experience.
So one thing that helped was in the BRRRR book and Long-Distance Real Estate Investing, David Greene talks about the Core Four. He said, “You don’t actually need experience. You just need to talk to these people who have experience and run them well. And here’s how you do it.” And my background was from operations in a manufacturing facility. So I already knew how to run teams and manage a company. So I said, “Oh, this is going to be weird. It’s like managing a company but just for me. They’re doing everything anyways. They have the experience running a company.”
I don’t know what’s going on in people’s departments. I know what should happen, but as sort of the day-to-day, I’m depending on the experience of all the operators, both the workers, the managers, the team leads. And I was already used to that. So I was very nervous but I was like, “Eh.” The math says buy it. It’s above the 1% rule, right? I know that’s what you guys don’t like to hear, but it says above the 1%, I was like, “This is the one point.”

Mindy:
Okay. So you weren’t inexperienced. You were inexperienced in real estate, but you had zero real estate experience that you had related life experience and related work experience that would translate into the real estate experience. So I want to highlight that because I can hear people listening to the show saying, “Oh, Hugh bought 26 houses not knowing anything. I’ll do that, too.” That’s not the lesson that we’re teaching here today.
The lesson we’re teaching here today is Hugh made it work because he had other experience that would allow him to bring in-

David:
And $225,000 sitting in an account. So there’s also that. While this is definitely a risk, there’s a significant chunk of cash sitting for use.

Mindy:
Yes. He didn’t try to do this with no money.

Hugh:
Right. I was just going to spend all of money that I … I never treated that money like it was mine anyways. I treated it like it was something I was taking care of like a dog or something that you [crosstalk 00:56:35].

David:
And refresh me, correct me if I’m wrong. Some of these were occupied, right? They weren’t all vacant.

Hugh:
Oh, right, right. So the reason why I said it was a 1.68% rule is there were five vacancies. It was still producing 1580 on paper. It was producing 1580. It allegedly produced 1580 when I bought them. And there were also 30% under market value, every single one of them. And so-

Mindy:
The properties or the rent?

Hugh:
The rents were under market value by 30%. And it was already at the 1.68% rule. That’s what it was. I said 58 but it’s 1.68% rule. And the houses should be like 85, 90 grand and they were all 20 grand or 26 to 35 grand. Depends on … Some of them were like triplex and three twos. But most of them were two ones. And they were all in what? The area here, locally, we have a area that’s like, “Ooh, it’s the bad part of town. Ooh.” And it’s like methy people walking around and you have burglaries. But it’s not like when I was in San Diego or somewhere else where it was like, “Oh, you might die today.” No, it was just rundown.

David:
Totally unrelated. But Hugh and I are neighbors with at least two of those properties that we know of, where we look across the street with each other. So these might be rough areas, but it’s not like you’re going to get shot if you go there at night type of rough. It’s like-

Hugh:
Midwesterners considered a rough area.

David:
Yeah. There’s no graffiti. People are probably just sitting in their house doing meth, but they’re not trashing the town.

Hugh:
Right. So we buy this place. I still owe taxes. Something happens. We’re going back and forth in negotiation. BP told me to never split the difference. And so I bought the thing for … And then we go to get it appraised and we finally talk them down. I talked them down to one, zero, one, seven, $766 and 11 cents. So I’ve set like a very specific number and this was three or four [crosstalk 00:58:40].

David:
People are driving right now trying to figure out where the comma goes in that, 1.01.

Hugh:
1.01 million, but I had very specific stuff. And we went back and forth with the whole numbers. And then we stuck to that. Then we just got everything under contract. I went to go buy it. The bank was like, “Cool, let’s get it appraised.” The appraisals were like, “This is not worth that much money. What are you, crazy?”
And so I was just like, “Oh, I guess the deal’s dead. All right. See you.” And then they were like, “Oh, well, we’ll come down on the price.” I accidentally negotiated them further down on the price. I didn’t know I was doing that. I was just like, “Yeah, the bank said it’s not worth that much.” And the realtor was like, “Oh, you should try to get them down some more. This is great.” And I was like, “Oh, it is? Oh, okay.” So they came down on the price and I think I ended up buying it for like 106 or whatever it was.
They lowered it even more slightly. And then I had to bring 20% to the table. I had $225,000 and I needed 251. So I go and I ask family for a loan. So I’m now … First off, I owe taxes. So technically, I have 183,000 or something to spend or 187,000 to spend. I knew that. And I used all of the 220,000 and borrowed another 25,000 from family to basically be like, “All right, the numbers work. I have a graph, there’s a piece of paper. See?”
So I found a bank that took a chance on me and it wasn’t very good terms. And they were like, “Ah, I don’t know about this guy, but we’ll loan you money.” So I ended up buying the 26 crack houses the last day of December of 2019. And immediately, they shut the … I had no experience, property manager, they were involved. They knew what was going on. I needed a commercial account for the triplex. A commercial account takes three business days to set up, which I learned, but the previous people had already cut power.
So the day off happens, they cut their power. It’s like 30 degrees out and there’s snow on the ground. And I was like, “Oh, great. This is what all the things look like.” So I just started everything off with a bang with your standard horror stories. And that was the very beginning of my … Technically, I was financially independent at that point because I cash load stuff.

Mindy:
Okay.

Hugh:
That was the very beginning.

Mindy:
We always say that numbers don’t lie, but numbers sometimes lie. You’re not financially independent when your property …

Hugh:
They were not in good … Mindy, when you were like, “Oh, I had a water heater go or my furnace went out for 800 bucks,” I was like, “Woo, that’s so cheap.” I know a lot now about … I had a very good education over the last-

Mindy:
It was just a fan that I fixed. We replaced the fan. We didn’t replace the whole thing.

Hugh:
Oh my gosh, a fan for 800 bucks.

Mindy:
Well …

David:
Probably a fan for 20 bucks and a labor for … Yeah.

Mindy:
It’s a fan for like 150 and labor for whatever. And my husband was leaving the next day and it was 13 degrees outside. And you do what you have to do when you don’t want your pipes to freeze or be frozen yourself.

Hugh:
Yeah.

Mindy:
Yeah.

David:
I’ve got one [crosstalk 01:02:06] right now.

Mindy:
Okay. So once you get all the power back onto all of your houses, how long does it take you … Oh, just one. Oh, okay.

Hugh:
It was just a triplex.

Mindy:
How long did it take you to get these up and running and performing? Are they all … Do you still own all of these houses now?

Hugh:
Actually, last week, I sold two of them to … I started a BP meetup because Brandon Turner was like, “There isn’t one start one.” And then I was like, “Oh, I recognize that Dave guy, he did that in Hawaii.” And then I was like, “Well, there’s no one here. So I’ll start one.” And so people started showing up.
So at the time, I sold it, which was last week, I don’t want to say I’m too lazy to deal with a small house, a small two one, but it’s just as much effort to do the little ones as it is to do an 18 unit apartment complex. So that’s what I’m doing now. So I ended up buying all the other ones. And it’s been great because I took myself from W2 to financial independence with the definition being that my expenses and my income can go sunset.
Then I scale the team very quickly that worked for me. And I’m about to make that retire the company, where the operations of the company indefinitely exist from the income generated from that. And I’m very close to that goal now. But most of that-

Mindy:
So you are financially-

Hugh:
I’m financially independent. And then I scale the team of four employees and then we’re going to make that financially independence indefinitely, in perpetuity, allegedly.

Mindy:
Just on these 26 properties or there are more properties?

Hugh:
No, that was just the beginning. And so what it-

Mindy:
You really took this to heart. Jump in. Do it.

David:
I will say they’ve all been just as crazy, but I don’t know that he owns anything normal.

Hugh:
The numbers tell you to do it so you do it because the numbers say, “You should do this.”

David:
We’ll get to this one, but I may or may not have a TikTok with 1.2 million views on one of Hugh’s properties right now. We’ll get to that one in a minute, though. It’s good.

Hugh:
So basically, I spend the … And I didn’t realize this, but I had prepped and prepared for BRRRR and I was like $225,000. Sorry, I was $183,000, $187,000, whatever it was. I can BRRRR with that in my area. That’d be fine. And then I effectively had no idea what I was doing because I did a traditional purchase. I took 20% down and I borrowed 80% from the bank. No different than anything else.
And so I had no idea what to do next. I was like, “Oh, I don’t have money for renovations. What do I do?” And so what I did was I cash flowed. I took the cash flow and my W2 earnings and, I don’t know, odds and ends stuff I was selling to then constantly pay for all of my properties. And so I would just do a renovation and then I’d go onto the next one, and a rehab, and gone to the next one. But I didn’t know how to BRRRR it back out.
So finally, I do this for a while. And 10 months later, I actually successfully pull a BRRRR off. I think I had done five properties at that point. So I BRRRRed all the money back out. I got, I think it was $297,000, out. I refinanced all the properties and then I created a loan out of no loan, just for negotiations, with different lenders in town because I shopped it back around because I wasn’t happy with the first lender. I told the lender to their face, I was like, “Hey, I’m not very happy with this, but thank you for giving me money. By the way, everyone else in the nation is doing this. Can you guys do something?” And they kept saying no. So I negotiated, found another lender and moved over.
Once I had that hundred something thousand dollars, it’s like 290, I then paid the family loan. I paid the family member back off. And then I think I bought a bunch of Tesla stock right before Battery Day. That was the thing. Yeah. So I put that money back into the stock market. By that time, when I got bored with the BP podcast, I listened to the BP money podcast. I also started episode one and I would just mix that in if I was just too burn out on real estate.
And so I put a bunch of the money into VTI [crosstalk 01:06:41]. Then I set up the auto draft. Oh, taxes.

Mindy:
He would be in jail [crosstalk 01:06:48].

David:
Hugh is actually a tax evasion specialist. That’s how we built this portfolio.

Hugh:
And then I paid my taxes and I think there was a penalty of some kind.

Mindy:
Oh, I bet there was.

David:
IRS normally charges, I think it’s 4% interest on anything outstanding.

Hugh:
It was late. And then there was something … I think I extended my taxes that year, the tax year.

Mindy:
Of course.

Hugh:
And then I ended up reporting it all and then I paid off my taxes. And so at the end of it, I think I was left with 100 grand that I could go do stuff with.

Mindy:
Now, wait, 100 grand after you had completely pulled all of the money that you had put into these houses out?

Hugh:
Correct.

Mindy:
Okay. So you own 26 houses that are generating enough income that you can live off of them.

Hugh:
I think at that point, I remodeled five of them and I upped rents. And then as I up rents, the value of the properties increased because I had also remodeled them. And then I basically did one big BRRRR. At the beginning, I did one big BRRRR, where I just moved from bank A to bank B. And when they got them all reappraised, the value was much higher because they weren’t … I mean, some of these wouldn’t have normally gotten traditional lending at all. And now they were in that $85,000 to $95,000 range for most of those.
So I was able to BRRRR out a significant amount, but it didn’t matter because the note was still well paid for by the actual loans or by the income from the properties.

Mindy:
I’m trying to wrap my mind around the financial position just on these 26 properties. So you purchased 26 houses with your $225,000, plus your 30-ish thousand from your family member for your loan. Then how long before you refinanced that?

Hugh:
It was 10 months.

Mindy:
Ten months later, you refinanced and pull all of the money back out so that you can pay off your $30,000 loan.

Hugh:
I think I pulled $279,000 or $276,000 out.

Mindy:
Okay. So you pay off your family member, you pay off your taxes. You still have $100,000 left.

Hugh:
Right. And then some of that, I used to then buy the Tesla stock.

Mindy:
Okay. So you now have free and clear, well, not free and clear, you own with no money into the properties, 26 houses. So you just have free 26 houses that generate enough income that you don’t have to have a job anymore.

Hugh:
Ever. So I think, technically, it was 10 months after I purchased and I did the first BRRRR. And by that time, I had only BRRRRed … I had only refinanced, I think, a quarter, 25% of the portfolio. And so even today, I think I still have five houses or so that aren’t turned yet.
We just got a refi back yesterday where I think I bought the house for 35,000, it appraised for 55,000 and then we renovated it. It just came back at 111,000, but that’s mainly due to their craziness. From the time I bought it, 2020 and COVID and all that stuff happened. So there was 25% market inflation or something. So I pretty much just rode that up along with the renovations, the force depreciation, but I pulled $102,000 out of that.

Mindy:
So how are you financing these because this sounds like a traditional loan, but you can’t have more than 10 properties or 10 loans in your own name, right?

Hugh:
That’s a great question. So I also, because I had zero experience, did not know about conventional loans versus commercial loans. And I blew right past conventional loan, shot myself in the foot forever being able to own anything with a conventional loan. And I just started it with a 25 year … Actually, that one was a 20 year, five-year balloon note. And it was commercial loan. That was the very first one that I [crosstalk 01:10:58].

Mindy:
So purchase all 26 and one loan.

Hugh:
To purchase them. When I refied out, I negotiated basically Rosie’s deal. I designed Rosie’s deal, which Brandon Turner [crosstalk 01:11:09] …

Mindy:
Oh, I’m like, Rosie’s deal. What is that?

Hugh:
Well, he said negotiate with your lenders.

Mindy:
Yes.

Hugh:
So I bid it back out in the market and then there was a local lender and I was able to end up getting it. Instead of 20 years, I was able to get it for 30 years, 85% loan to value. And that’s probably where I’m getting most of the money from, it’s 85%, the LTV. And I will never sign a balloon unless I have to.
And so I sign an arm, but the arm has a ceiling. So that’s where the Rosie’s deal thing came in was I was comfortable signing an arm. I knew about the Dave Ramseys and the people getting in trouble in ’08. So I didn’t want to overextend myself, but I wanted to borrow as much as I possibly could because I am informed optimist and I believe that inflation’s going to happen.
So I was trying to borrow as much as I can to get started out as early as I can and fix it for as long as I can. And so I didn’t want to pull a Dave Ramsey and sign 90-day balloons and then complain about it to the rest of the world for the rest of his life.

David:
And just to clarify for anyone listening, the lender that Hugh and I use, well, for one, he’s amazing but it’s a portfolio lender. So this is a bank that holds everything in house. And so they’re able to do things that most lenders aren’t willing to do. I mean, I’ve had an experience before where I bought a property and the board was like, “Ooh, we don’t like how that property looks. I don’t think we’re going to finance it.” And then he called me and I was like, “Well, I bought it for 90 and it brings in $2,000 a month.” And he was like, “Okay, you’re proofed.” So it’s that kind of a bank, but they also only lend in our part of the state. They won’t even touch other cities in the state.

Hugh:
I can’t remember … But a lot of the BP podcasts will tell you to go to your local lenders because they just beat out all the national guys. National guys are probably great for conventional loans. But commercial loans, some of these smaller towns, it comes back to a handshake and your word and you can get a lot of very good loans.
And by that time, I was a proven seasoned operator with my 10 months of experience. Remember, it’s the same amount of time that I was married for or that I dated, pardon me.

Mindy:
Oh my gosh.

David:
Oh my god.

Hugh:
But, yeah. So I was a seasoned operator and I say seasoned operator jokingly, but I had rehabbed five crack houses. So I had the crack house issues with the roof and all the plumbing needs to be fixed and all the terrible things. And, oh, the guy owned it from the ’70s and never updated anything once. And, oh, this has not been too wiring. And all of the thing.
I learned painfully how a house works, all of the … I basically built a house, I haven’t built it, but I was there making the decisions about what needs to be done to very old houses. And so by the end of the 10 months, I was really experienced in estimating rehab costs. Because if I got it wrong, then I have my paycheck and all of my cash flow and I was going to be selling more stuff. And so I got really seasoned with being able to do that. And that’s where my experience was at that point.

Mindy:
Hugh, this has been a super lot of fun hearing your story and hearing your real estate story. It’s also given me a lot of the heebie-jeebies because you’ve made it work and I’m so excited that you’ve made it work, but I could see these also going completely sideways. And I want anybody listening to understand that you have made calculated risks based on, first of all, being funded, just because you had to owe taxes on that money, which I would’ve paid off first and I would’ve made different decisions, but it isn’t my story. It’s your story.
You had money to buy. You weren’t borrowing all of the money from somebody else. So you started off with a good financial foundation and you had life experience and work experience that allowed you to not start from ground zero. You were doing things. You were taking your experiences and moving them forward. So it wasn’t like you were just figuring out as you were going, you had processes in place. And these are proven processes that work in business. They do translate very well to real estate.
So it sounds like you started from zero, but you didn’t start from ground zero. And I just want to reiterate that before somebody is like, “Hey, I heard Hugh just jumped in with both feet not knowing anything. So I’m going to do that, too. And why did his succeed?”

Hugh:
I’d recommend not doing what I did.

Mindy:
Don’t be like Hugh.

Hugh:
I would do it again, but now I have a lot more experience to know what not to do. But I’d say I definitely lucked. I was very, very lucky and fortunate.

Mindy:
Thank you for using the L word because, yes, you were very lucky.

Hugh:
I was very lucky. I mean, I had zero reserves. I borrowed an extra 50 and I owed a lot of money to the government and I took the risk anyways because I believed that the numbers and the fundamentals would’ve worked out. And the biggest thing I had was education, except for $12 books, $20 books from BiggerPockets. I think that was all of $200 into education and a lot of free content from online. And you guys really set the fundamentals.
And so it was a … Yeah, I mean, I was very, very fortunate and very lucky to be able to pull it off. But I also believe in the definition, the Seneca’s definition of luck, which is, luck is when preparation meets opportunity. And so I was lucky that it happened because I was prepared and I was fortunate that nothing incredibly terrible happened while owning them so far.

Mindy:
That’s a great way to phrase it. And it sounds like I’m dismissing you, but I’m not. We still have the famous four questions. Are you ready, Hugh?

Hugh:
Whoo. I am, famous four plus one, right?

Mindy:
Famous four plus one, famous four questions plus one demand. So the first question is, what is your favorite finance book?

Hugh:
My favorite finance book. It’s going to be tough. Personal finance or business finance?

Mindy:
One of each.

Hugh:
Okay. Personal finance is if I could go back in time and smack myself as an 18 year old, I’d force me to read Set for Life by Scott Trench. And for a business book, my favorite finance business book is Michalowicz. If you are a business owner or you’re entering into real estate or whatever, I don’t know, you sell wicker baskets, you should read Profit First if you’re going to step out into making your own money.
And earlier you do it, the better. But if you already are years deep into your company, read it anyways because you’ll end up getting something from it. It’s just a very practical, straightforward approach in running finances for your company that even me, a hick from the sticks from Missouri, can understand.

David:
I switched over to Profit First about three months ago after Hugh and I had a long conversation and some whiteboard math and I sleep a lot better now.

Hugh:
Having money set aside to pay your taxes, to Mindy’s point, I’m like, “Oh thank God. At least I can pay my taxes and my loans. Everything else might be okay or terrible, but I can pay my taxes and my loans,” because I’m scared of the IRS.

David:
And we just had a plumber snafu so we went 6,500 over budget on a reno. And having 10 grand in the tax account already for the year, it was easy to go, “Okay, cool. Now we’ll cover the reno and then we’ll put it back in on the refi,” which is a much better spot to be in than not having money sitting on standby in a tax account. So it’s a good safety net. What was your biggest money mistake, Hugh?

Hugh:
Ooh, my biggest money mistake.

Mindy:
There’s so many to choose from.

Hugh:
There’s so many.

Mindy:
The first 45 minutes of this show.

Hugh:
Yeah. I’d say the biggest money mistake I ever made was not learning sooner about where to put investments. If I could go back in time, I’d say I would’ve started investing when I was 18. But biggest money mistake is hiring employees, that’s very costly.

Mindy:
That is true.

Hugh:
That was a joke. No, employees are awesome if you have the right ones. Yeah. I didn’t know anything about investing. Several times, Mindy was like, “Oh, where’d you put the $500?” I’m like, “Yeah, I saved it.”

Mindy:
You literally put it in a checking account.

Hugh:
Oh, I think it was a checkings account. Yeah. I did not know what I was doing.

Mindy:
Okay. Let’s look at that for a second. You did not know what you were doing and yet here you are. It is still possible to figure out your finances and fix your mistakes even if you have literally made them all as Hugh has literally made every mistake financially. It is still possible to turn your finances around and set yourself on the right trajectory by jumping into real estate with both feet knowing nothing.

Hugh:
Yeah. I knew that it was going to be important to save, but I didn’t know what for. I just heard save. So I did. And one day, I found BiggerPockets and I was able to use it, which all of your listeners already know that. But it was that I saved. In the future, it was helpful.

Mindy:
What is your best piece of advice for people who are just starting out?

Hugh:
I’d say jump in with both … No, don’t do that. I’d say get educated. Learn, read, listen to podcasts, question everything, question this podcast, whatever you’re doing. Just because I did it or someone else did it, figure out why, what was the circumstance? Learn the fundamentals and run the numbers. Practicing makes you a lot more comfortable with things.
So whatever that is, if you are going to, I don’t know, be a gardener, start doing things with it and keep notes and practice and learn all the things that you want to do about whatever it is that you want to do. So get educated.

David:
What’s your favorite joke to tell at parties, Hugh?

Hugh:
Favorite joke to tell at parties. This is a … I have a good finance joke, but I generally don’t like to brag about my financial situation. But I have credit card companies that call me every day and they tell me that my balance is outstanding.

Mindy:
For more, really, really, really terrible jokes like these, Hugh shares them in our Facebook group, which you can find at facebook.com/groups/bpmoney. Okay. Hugh, for people who aren’t in our Facebook group and, really, if you’re not, you should join, where can people find out more about you?

Hugh:
I have a YouTube channel, it’s called the Hillbilly Millionaire. And I also have a website called hillbillymillionaire.com. Yep. That’s where you can find me.

Mindy:
Okay. And we will link to both of these in our show notes, which can be found biggerpockets.com/moneyshow289. Hugh, this was a lot of fun. Thank you so much for your time today. This was really great to get to know your real estate investments and, oh my God, those money mistakes have made me really, really, really sad. But I’m so glad you were able to turn it around because wow, wow, that was a lot of cringe in the beginning of this show.

Hugh:
Yes. And probably more to come.

Mindy:
No, no, you figured it out. No. No more money in a checking account.

David:
Thanks for joining us, brother.

Hugh:
Well, yeah, thanks for having me on. This has been a dream to come on BiggerPockets. And I think I have that idea that everybody has when they first do it and they said, “I’ll be on BiggerPockets one day.” And here I am.

Mindy:
Okay. Hugh, we’ll talk to you soon. Okay. David, that was Hugh Carnahan and his … You know what, he should be called Hugh Carnival because he has a crazy carnivalesque story and carnivalesque life. So we’re going to call him Hugh Carnival from now on. I mean, there’s only a few minutes left for the show.

David:
I always introduce Hugh as my eccentric millionaire friend and he never disappoints because he is … I mean, who goes and buys a missile silo, right? And that was-

Mindy:
Who goes and buys 26 houses?

David:
Well, that’s also … Yeah, yeah. So my first few interactions with Hugh, I thought he was a little off the hill. And then the more I’ve gotten to know him and the more I’ve gotten to partner with him on deals, the more I just realize that, yeah, he takes some risks but he’s a smart dude and he’s savvy. He’s good at building teams. He’s good at scaling. And it’s a lot of those things that come together and it’s helped him out. He’s doing well.

Mindy:
Well, and if you listen to him, he didn’t say, “I bought 26 houses because I knew I needed to start investing in real estate.” He said the numbers made sense. So he looked at it more than just, “Oh, that would be cool. Now I have 26 houses.” He still ran numbers. He still did the preliminary research that he was supposed to do. Maybe he could’ve done more. I can’t believe he did that. I would’ve said no at the coffee shop that you were sitting with him at. I would’ve been like, “Nope, not a chance, run far.”
I would run far from that and I’m more experienced, but I’m also a cautious investor and I don’t invest in that class of home. I don’t want 26 houses. I mean, even if I had one point whatever, he finally paid for that, I would not want 26 houses to manage. So that property wouldn’t appeal to me, that deal wouldn’t appeal to me at all. But for a first-time deal, I’m so glad he made it work because I could see a thousand different ways that it wouldn’t. So I’m really glad.
But the reason that it worked is because the numbers made sense. The fundamentals of that deal were in order before he even started and that’s really what’s so important. That, and what did he have? Like 368 episodes of the podcast that he had listened to, which is probably something like 500 hours of education.

David:
Yep.

Mindy:
And if you’re going to educate yourself, one episode isn’t going to be enough.

David:
No, definitely worth doing your homework.

Mindy:
Even though he listened to 30 days’ worth of podcasts or even though he listened to the podcast for 30 days, he listened to 500 hours and 30 days. Man, does he ever sleep? We didn’t ask him that.

David:
Well, he listens to everything at 2x as well.

Mindy:
That’s true.

David:
So actually, I think he’s at two and a half x now. So that condense but he dove all in.

Mindy:
Yeah. Really, if you’re going to be like this, you got to dive all in. Okay, David, should we get out of here?

David:
We should.

Mindy:
From Episode 289 of the BiggerPockets Money podcast, he is David, hep, hep, hooray, and I, Mindy Jensen, saying, let’s go silo.