Ken Leon, director of equity research at CFRA, joins ‘Power Lunch’ to discuss the homebuilder sell-off as the housing economy braces for a rise in mortgage rates.

CNBC’s Diana Olick joins ‘The Exchange’ to discuss recent housing data, which seems to show there are cracks forming in the housing market, and that could be good news for buyers.

Mindy:
Welcome to the BiggerPockets Money Podcast show number 330, Finance Friday Edition, where we interview Dan Sheeks, my daughter, Claire Jensen, and talk about the ultimate teen money hack for parents.

Dan:
The authorized user on a credit card is an amazing hack to start the teenager with a good credit score before they turn 18, having money conversations involving them and paying the household bills before the strategy we’ve talked about today is implemented. They should be involved with some of the decisions for the household budget. They should be clicking the mouse to pay the bills every month. Talk to them about budgeting. Have them start tracking their income and expenses, even if it’s as a teenager not a lot of money’s coming in and out.

Mindy:
Hello, hello, hello. My name is Mindy Jensen, and today is a family affair, plus Dan. My husband Carl is here today. You know him from 1500days.com and from the Mile High Fi Podcast.

Carl:
Woohoo. Thank you so much for having me.

Mindy:
That sounds weird.

Carl:
It’s early. My brain is not working yet. I don’t know what to say. I’m lost for words.

Dan:
I think it was perfect, Carl.

Carl:
Thank you, Dan. One person appreciates me. Claire, what did you think of my intro?

Claire:
I think that this is going fabulously so far.

Mindy:
It gets better, I swear, and also sitting beside me is my lovely 15-year-old daughter, Claire Jensen.

Claire:
Hi.

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

Carl:
Scott is not here, that rhymes, so I get to read the next part. Whether you want to retire early and travel the world, go on to make big time investments and assets like real estate, start your own business or teach your children how to handle their finances, we’ll help you reach your financial goals and get money out of the way so you can launch yourself towards your dreams and more dinosaurs. I like dinosaurs.

Mindy:
Okay. Today’s episode is for you and your teen. Dan Sheeks is the teen authority, the author of First To A Million: A Teenager’s Guide To Achieving Early Financial Freedom, and he recently spoke at Camp FI Rocky Mountain, which is a weekend retreat that travels around the country for like-minded people where there are several speakers over the weekend. Dan’s talk was about teaching your teen about money, and it blew me away. I instantly thought two things. Number one, I want to do this with my kids, and number two, I want to get Dan on the show to talk about this method. So Dan Sheeks, welcome back to the BiggerPockets Money Podcast.

Dan:
Great to be back. Thanks for having me. I can’t do a Carl Jensen intro, but I’ll do my best.

Mindy:
Well, you don’t have that dinosaur thing going on.

Carl:
You have to really work at it to sound as bad as me, Dan.

Dan:
I’ll keep practicing.

Mindy:
So Dan, when you were giving your talk at Camp FI, I poked Carl and I said, “I want to do this with Claire. I want to do this with our kids.” Daphne is 12. I think she’s a little too young for this. Why don’t you share your concept, a high level and then we’ll get into it a little bit deeper?

Dan:
Yeah. The high level version, I call the method the ultimate teen money hack for parents, meaning that this is something parents can use with their teenagers, and it’s, I think, the best way to introduce your children to money, how it works, how to handle it, how to be responsible with money while they’re still in your household, so they’re still under your supervision, under your control, you can monitor the situation. So then when they leave your house, they are good to go. They understand money. They’re responsible. They have good habits set in place versus what everyone else does, including pretty much everybody I know. The teen graduates from high school, they go off to college or elsewhere, and then they start learning how to handle their money as an adult, and things don’t always go well, should we say. So this is a strategy to help eliminate those problems.

Carl:
Dan, where were you 25 years ago or how long ago was I in college? A long time ago, but I came out of college with $60,000 in debt, and lot that was credit card debt, not a lot, but over 10,000. So Dan, if we could just go back time-

Dan:
Same.

Carl:
… after you’re done with this, if you could invent a time machine, we’ll go back and then you can set me right. I’d be far better off right now. Dan, how about you?

Dan:
I was the same way. I graduated college with lots of student loan debt and continued to rack up more, by the way. I’m working on that time machine, and if I can make it work, not only will I not take out student loans, I’ll be buying lots and lots of real estate back in my 20s. I wish I could do that.

Carl:
I will invest in that syndication deal.

Mindy:
Okay. So Dan, how does your system work?

Dan:
Yeah. So to get into the nuts and bolts, I won’t go into every single detail. I will say this, at the end, if there are parents listening or people who know someone who might be interested in a detailed PDF, I’ll give them my email address and people can shoot me email and I have something I can send them. So this is a way to get your teenagers in a place where they’re responsible and they’re comfortable and they’re confident with money before they leave your household.
So you’re basically going to give them full responsibility of their finances while they’re still in your house, and it’s almost full responsibility. I would say 90% because they are still teenagers and they still probably do need some supervision and definitely some training. So the plan is completely adjustable, customizable. So as I lay it out here today, everyone should just keep in mind that you can make tweaks. You can make changes. You can do things differently. You can change as you go through it. It doesn’t have to be exactly the way I lay it out right now.
To begin, the best idea is to start tracking the spending that you as a parent do or the money you spend on your child, everything from food, clothing, school expenses, insurance, their part of the cellphone bill, everything that you spend on your child. Now, that might be eyeopening, and that might be surprising if you start adding up all the money, but it also includes annual costs. So if they go to a summer camp or once a year if they have some other expense, that should be included in the tracking.
So the goal is, as a parent, to have a very, not exact, but a very good idea of how much money do I actually spend on, let’s say in this case, Claire, in a given year because what you’re going to do then is divide that by 12, and you’re going to give your teenager a stipend, a monthly stipend that they then use to pay their expenses, and we’ll get into how that works.
One of the other ways to prepare is that I would definitely have a savings account and a checking account set up for your teenager. If they’re under 18, then that would be a joint account, which is super easy to do. If they’re 18, you could just have them open up their own account, but you might want to help them do that. So they’re going to have their own checking and savings account.
Once you figure out how much that monthly stipend, and by the way, I don’t like to call it a stipend. I like to call the paycheck because the idea here is that you’re training them that they are going to once a month get this paycheck direct deposited into their checking account, and what that looks like is that the parent just transfers the money into their checking account let’s say on the first of the month every month. You can do it twice a month too if you want and just divide it by two. So they’re going to get their “paycheck” deposited into their checking account, and then they are responsible for budgeting that money to pay all their bills throughout the month.
A lot of those bills they pay are simply going to be them transferring back to their parents the money for let’s say food, cellphone bill, health insurance, possibly rent, if you want to throw that in there too. So that’s what it looks like in a nutshell.
Now, I’ve seen it done different ways where some parents will say to their teen, “You’re going to pay for all of your expenses except for housing.” So maybe they don’t charge them rent or, “You’re going to pay for all your expenses, except we will still pay for any food you eat in the house, but any food you eat at school or at a restaurant, even if you’re out with us at a restaurant, that’s going to be coming out of your account,” but again, it’s flexible. You can do it however you want.
So they are responsible for paying all of their bills. If they’d happen to have a part-time job where they have some other source of income or a different revenue stream and you know they make $200 a month from their part-time job, then you should include that in the calculation of how much their monthly stipend slash paycheck should be because I think it’s even more powerful when the teenager realizes that when they pay every bill, part of that money is money that they’ve earned, and it teaches them the value of the dollars. So if they do have a part-time job or some other source of revenue, then incorporate that into … Don’t just let them keep all that. Have them use some of that to pay their bills.
Then so every month they’re paying their share of the bills. They can use their debit card and their checking account to buy things on their own. If they go out to Chipotle or Jimmy John’s, debit card. They can transfer money back and forth to parents depending on the bills themselves. Now, as a parent myself, here’s some extra things I would throw into that. I would teach them that when that monthly paycheck comes in to their checking account from you, that they first pay themselves first.
So they get trained that if that, and let’s just make some easy numbers here, if that’s $1,000, that X percent of that is going to go into maybe their savings account for some future investments or their future self, right? So teach them to pay themselves first right out of the gate with this system. Teach them what a weekly expense looks like, monthly expense, yearly expense, and how they need to budget for that. So if the sports camp costs $1,000, they should be putting away X amount of dollars per month, so that when that expense comes up in let’s say July, that they have the money to pay for it. They need to plan ahead for that annual expenditure that might be a big number.
They should also create an emergency fund. Perhaps that’s a second savings account. They’re putting money into that until they have three to six months of their expenses saved up. They can think about long-term savings for family vacation or investing or giving. Do they want to donate any of this money? Then their own fun and entertainment, budgeting for that stuff. So they will be paying for everything.
If the family goes out to a restaurant, let’s say they go to Applebee’s and they’re sitting down. They’re separate checks, right? So the teenager is going to order items off the menu knowing that at the end of the meal, they’re going to pay for their check with their debit card and their parents aren’t going to cover it. This will create a situation where they start looking not just at the menu items, but the prices, and they’ll start asking themselves, “Is this $6 dessert worth it? Am I really willing to spend $6 because it’s mine, and if I don’t spend it, I get to keep that $6?” So it forces them, clothing, looking at, “Do I want the name brand clothing versus maybe something from a low-end store or even a secondhand store?”
They should pay their share of the utilities, their share of the cellphone bills, school supplies, toiletries. If they have a car, then they should be taking care of all their car expenses, the maintenance, the gas, the insurance. They pay for their haircuts, their gym membership, everything, but as a parent, you’re giving them enough money. The idea is that they’re not going to run out. You’re giving them enough money and you’re allowing them to teach themselves how to budget.
The last thing I’ll say as a parent, and this is maybe the most important is you have to be able to let them make mistakes. Don’t rescue them before the mistake. So if they spend more than that’s in their account, let them do that and feel what it’s like to pay a fee to the bank because they overdraw in their account. If they missed a payment and it’s late, and as a parent, you could have due dates for some of your bills, then they have to pay a surcharge for that late payment and let them feel what it feels like to have to pay an extra $20 because they forgot to pay it on time.
If they’re learning these lessons in the house before they’re out in the real world, and you as a parent can monitor and make sure everything is going well. Last thing I’ll say is that if they do run out of money, the idea is then that they’re not going to be able to buy the things they need. You as a parent, you could step in, and I recommend giving them a short-term loan. So maybe you loan them $500 with some interest, so they can feel how that works, so that they can pay their bills for that month, and then they need to budget for paying back that loan in the following months. So that’s the down and dirty idea and, yeah, if you have questions, we can go into it.

Mindy:
Oh, we have questions. I love this. The reason that I love this is because, like Carl said, when he turned 18, he went to college and it was just like, “Here you go. You turn them loose,” and what happens? You get on campus. I think they’ve changed this now, but we’re old. You get on campus and they’re like, “Hey, would you like a free T-shirt? Sign up for this credit card?” and now you’re in debt for tens of thousands of dollars for a free, stupid T-shirt that you don’t even wear. You sleep in it maybe or do you still have that T-shirt, Carl?

Carl:
No. I have the Frisbee, though.

Mindy:
Oh, okay. Sure. So you’ve mentioned debit card. One thing that the FI community really goes nuts over is credit cards and credit card points. Do you have any guidance on credit cards with points attached? I know because she’s 15 she can’t get a credit card. I know this because I tried to get a credit card for her because they sent her an application and they’re like, “Why did you fill this out? She can’t get one until she’s 18.” I’m like, “Well, you sent it to me.” So we might do a joint card with her as an authorized user. Do you have any comments on that?

Dan:
Yeah, do it. Absolutely. I didn’t mention that, but yes, you nailed it. If they’re under 18, then I would open up a credit card account. Technically, it’s in the name of the parent, but you add the teenager as an authorized user, and they’re the only ones that use it, right? So they get their own credit card with that account, with their name on it. They can use their credit card. They can start to see and learn what it feels like to build up points, and then also, and this is a bonus, a huge bonus, not many people know this, but even though they’re a minor at that point, most of the time, those credit card payments if they’re using it, those monthly hopefully on time credit card payments will build the minor’s credit score and credit history even though they’re not 18 yet, and then that will carry over into their adult life. So I think a credit card is a great way to go, but I would make sure it’s a separate account that the parent never uses, only the teenager.

Mindy:
Yeah, and an added bonus for that is because Carl and I have 800 plus credit scores, once she turns 18, our credit score, because she’s an authorized user on our card, transfers to her. So she’ll be 18 years old with an 800 credit score.

Dan:
It’s not as hard as you think to get a high credit score when you’re young. I have many members in my community that have done it in the first year to two years after turning 18. Their credit scores are in the upper 700s. Even though their history’s short, everything on the report, everything on their history is solid. They’re making on-time payments and they’re managing it well, but if you do make one mistake when you’re young, it has a much more significant hit to your score than an adult.

Carl:
There’s one thing I really, really like about this strategy, and I’ll back up a second. I talked a little bit about my big money mistake on episode 335 of BiggerPockets Money. Is that correct, Mindy?

Mindy:
Yes.

Carl:
Okay. Yeah. It was episode 335. After I had my first job, it wasn’t too long after that that the great recession came, and what I did is I stopped investing. So at the best possible time to invest money, the stock market was on sale, I freaked out and stopped, and that was a big mistake that’ll eventually cost me probably millions of dollars if I live long enough.
So the thing I really like about this, Dan, is this gives them an opportunity to make the mistake when it’s not going to be that bad. If you’re 15 and you get your stipend or payment on the first of the month and you go to the mall and go crazy and blow it all and you have to get a loan, that’s something that a lot of people might not learn until they’re in their 20s, but this is an opportunity to do it when you’re 15 or 16 or 14, and by the time you’re in the real world and a real functioning human adult, you’re going to be set. You’re going to have it figured out. Well, you might not have it completely figured out, but you’ll be in better shape than most.

Dan:
I agree, and I’ll add this to it. So Carl and Mindy, your two daughters, which I need to say this, by the way, we all got to hang out at Camp FI. I met Claire and Daphne and we hung out and they were great with my son, Callum. Your daughters and, Claire, don’t let this go to your head, but your daughters are amazing. They are super mature, well-rounded, awesome young women, and I mean this. If my son Callum turns out to be half as amazing as your daughters, I’ll be very, very happy. They’re awesome kids, and they have the benefit of having Carl and Mindy Jensen as parents.
So without a doubt, these two, you’re Claire, and I don’t want to talk about you, you’re here, Claire and Daphne are ready to implement this strategy. I don’t have any doubt, but I would say to other parents, don’t just throw your child into this as the only thing you ever have done. This needs to be preceded by many money conversations and other things that you do in your household, including them in the household bills and budget and stuff. I wouldn’t just do this out of the gate. This is, like I said, it’s the ultimate teen money hack. So it needs to be the finale of when they’re with you at home to before you send them out into the real world.

Carl:
I’ll make one other quick comment. The other thing I really like about this is not that my children do this, but if they decided they wanted to stay in the shower for an hour, they’re going to pay for that. They’re going to directly see the results, and I’m not quite sure how to meter her that, maybe a device on the shower-

Dan:
I don’t know either.

Carl:
… a timer like, “Claire, hit the timer when you start.” Claire, you don’t do this, but I know other people who have kids who this is an issue with and, “Sure, you could take that hour shower if you want, but guess what? You’re going to pay for it.”

Dan:
It’s an extra five bucks.

Carl:
Yup.

Claire:
A way to save money. I’ll just not shower. Does that work?

Mindy:
Ew. No.

Carl:
Okay. Now, we’re getting into super lean fire.

Claire:
Just kidding.

Dan:
Well, that brings up a good point because Claire just said she would just not shower, which isn’t really an option, but what you will find when your teenagers are going through this system is that they will start finding ways to be frugal that will, I think, impress you. So not showering every day hopefully isn’t one of those, but being more selective at a restaurant. I think if the parent does decide to not charge them, I don’t know if that’s the right word, for the food they eat in the household, it’s really difficult to estimate what the value of the food they eat in the household is because if you did, the teenager is just going to sneak down in the middle of the night, eat everything in your fridge, and then not tell you about it.
So usually, parents will just say, “Anything you eat in the house is free,” and if that’s the truth, then you might see your teenagers start packing a lunch for high school as they go to school instead of going out to lunch or eating in the cafeteria and paying because that saves them money. So you’ll start to see changes in the way they purchase things, fun things, clothes because they know that if they don’t spend that money, it’s theirs, they get to keep it, and that’s a different feeling than, “Mom and dad just buy everything I need, and I don’t get to keep anything left over.”

Mindy:
To be clear, the not showering thing was the joke. I’ve met her. That’s not going to happen, but, Claire, what questions do you have about this plan and what do you think of this plan?

Claire:
First off, I love it because I think it was probably when I was two, ever since I was two I wanted independence. So this is a fun way to experience it while also having it be preparation for the real world, which I think is fun. I don’t know. It feels like growing up in a FI family just feels like a really fun game because I’ve been prepared for the future my whole life.

Carl:
Claire, do we ever talk about money in our house?

Claire:
All day every day.

Carl:
Do you know what an index fund is, Claire?

Claire:
Yes.

Carl:
Do you know what the value of Tesla stock is or the current state of the S&P 500?

Claire:
Yeah, roughly.

Carl:
Good.

Dan:
She passed the quiz.

Carl:
Claire, do you have any questions for Dan or-

Claire:
So I have a couple questions. The first one is what happens if my parents want to go on a vacation because I went to Europe earlier this summer with my school trip and I had to pay for the whole thing or my portion of it because that was a trip that I chose to go on, but I feel like my parents usually choose to go on trips. So do I get allotted more money for that? Do I have to pay for it from my own allowance? Do we calculate that into the yearly fund? How does that work?

Dan:
Good question. So you’re talking about a vacation that the family is planning to go on.

Claire:
Yup.

Dan:
Yeah. So in my mind, this is how I would do it as a parent. I would set it up this way. I would say, “Claire, we are going to Disney World in June, and you’re going, but as you know, you are going to pay for your slice of that vacation, and we have built that into the stipend.” Most families don’t. They take a big vacation every year or it’s somewhat consistent. So Claire then, on that vacation, would pay for her own airfare, her slice of the hotel, her own admission ticket to Disney World, her souvenirs, her food in the park, and her bill in the restaurants that they go to.
If as a parent, and I think any discussions about money are advantageous. So if the Disney World vacation was going to be more expensive than the average, then I think the parent and teen should sit down and say, “All right. This is going to be way more expensive than what I was budgeting for or what we had thought about. So parents, I need a little extra money for this vacation. Can you give me a little extra in the next three or four months so I can save up for this vacation that’s more expensive than the average average one we take?”
The parents might come back and say, “Well, we’ll give you a little bit extra, but to earn more, I want to see some more chores around the house or some more clean up the backyard or something like that, and then we’ll pay you some extra money to help you afford your vacation to Disney World because you are going.”
At Camp FI, someone asked the same question, and there were teenagers there, and I think it was Sarah Grace who said, “Well, what if I just don’t want to go? What if I just say I don’t want to go to Disney World and I get to save all that money?” I mean, that’s not the point. Family vacations are important. So as a parent I would say, “Well, you’re going and you’re paying for your share,” but as you know, together have the conversation to find out what’s the best way to plan and budget and give them the money that they would need to actually pay for it.

Mindy:
I did think that was funny that they both had the same first question.

Dan:
I don’t know what that says about all teenagers that they would even consider not going on vacation with their family to save a couple thousand bucks, but it’s probably not a bad thought to have.

Claire:
FI kids, they’re a whole other brand. So I had another question that I thought of while you were talking about that. Do we still get paid for chores around the house?

Dan:
I think so. Yeah. Yes. Anything that you’re doing around the house that’s extra, I think, yes, you should get paid, but if the family’s doing an allowance, I think that would go away just like a set allowance no matter what because that would be part of the stipend or paycheck, if you will.

Carl:
Claire, I’ve got some big construction projects coming off, if you would like to learn how to tile or frame or even run electricity, I’m very safe. I’ve only shocked myself a couple times. You’ll be safe. You can earn extra money.

Claire:
Okay. First of all-

Carl:
How do you feel about that?

Claire:
… I would love to learn how to tile. Second of all, I’ve gotten electrocuted by my light switch before.

Mindy:
Shocked. Electrocuted is different.

Claire:
Shocked, whatever. I got shocked by my light switch.

Carl:
Yeah, that was my fault. I didn’t put the switch plate cover on on time.

Mindy:
Yeah. Just don’t touch the hot wires.

Claire:
Okay, great.

Mindy:
Okay. Back to the questions.

Claire:
Yeah. What happens if there’s money left over at the end of the month or year, however, whatever segment you’re paying it in? Do we just get to keep that and put it in our savings?

Dan:
Well, assuming, so when you say money left over, I’m going to assume that is money left over after you’ve put money away for what you know are your annual expenses. So if there’s a sports camp in the summer and it costs 500 bucks, you’re putting a little bit of money away every month so when that sports camp comes up, you have the money to pay for it. So if you have already allotted for all of your big annual expenses and there’s money left over, awesome, it’s yours. You as a teenager get to decide what you do with that money. It can go into savings. It can go into an investment. It can go into a new snowboard or a new video game or a really nice dinner out with your boyfriend, girlfriend. If there’s money left over, yeah, it’s yours. You get to do what you want with it.

Claire:
Cool. I like that plan.

Mindy:
It could go into your emergency fund so that you could continue to save for these big expenses.

Claire:
The amount of knowledge I have about an emergency fund, I could write a whole book.

Dan:
I will say my answer, I was assuming the emergency fund was already funded, yeah, you would want to get your emergency fund to a place where it’s set before you started spending extra money.

Claire:
Can the amount of money fluctuate each month? If we’re doing something that costs more like a sports camp, I know I go to camp every summer, so do we get allotted more money for that month to cover it?

Dan:
The idea is no, that the paycheck is the same every month because when you work for a company, unless you have some bonus or commission, your paycheck is the same every month. However, again, going back to what I said at the very beginning, this is customizable. It is adjustable. It is flexible. So if the parents and the teen agree that things are a little off, then absolutely it can change or there can be a one-time “bonus” for a month, summer bonus to cover some expenditures in the summer.
It’s not like all the decisions are made and then they’re done. The parents and the teen will be communicating hopefully often, weekly, if not more often than that, about how things are going. The parents can monitor the checking account because they have access to it. They can monitor the debit card. They can monitor the credit card. They can monitor the savings account, which they should do, and if changes need to be made, then talk about it, agree on it, and make those changes.

Mindy:
Ooh, Scott and I talked about having a money date with your spouse. I’m trying to find that episode. I can’t find it, but I think having a money date with your child where you go over once a month or maybe even over the first month, once a week you come in, “How’s it going with your spending? How is it going with your budgeting, and how do you feel about the amount of money that we gave you?” because I’m assuming you help guide them with budgeting. It isn’t just, “Hey, we listened to that Dan Sheeks and Claire Jensen episode, we’re going to do that. Here’s $1,000. Good luck.”
I’m assuming that if you’re planning on doing this, it’s because you love your children. You want to teach them about money. So you’re going to sit down and show them. I mean, you could show them how to track their spending by showing them my budget over at biggerpockets.com/Mindysbudget, where I am tracking my spending. Have you seen that?

Claire:
no.

Mindy:
Oh, okay. Well, you’ve heard me talk about it, right?

Claire:
Yeah.

Mindy:
Yeah, all the time, and having a way to track your spending so you can see where your money’s going. It’s one thing I think to have $1,000, and it’s quite another to be like, “Wait. I got $1,000 yesterday and now I have a 1.50 left. Where did that money go? Oh, I forgot. I had to pay mom rent, and I had to pay for my share of the utilities, and I had to pay all of these things. I don’t really have $1,000 a month. Now I have $300 that has to get me through the rest of the month.” So I think that would be really important. We’re going to talk about money more, Claire.

Claire:
Oh, great.

Carl:
One thing I’d like to do for Claire, just to get a quick question for me, is the investing portion. Once she has a job that has reportable income, I’d like her to open up a Roth IRA and I would like to match her contributions 100%. That’ll really help her get ahead in the future, and it’ll also incentivize her to really save. Hey, Claire. For every dollar you invest, I’m going to give you another dollar, an instant 100% return. What do you think about that, Dan?

Dan:
I think that’s great. I think that would be separate from this whole strategy. I think that would just be something where you say, “It’s not included in the monthly stipend paycheck. It’s not included in your expenses. It’s just something I want to do for you, but in the strategy, you need to save money to invest in that IRA, that Roth IRA so that I can match it,” and let them budget for that.

Claire:
Okay. Yeah. I love that. I love that plan.

Dan:
You love free money, right?

Claire:
Oh, yeah. It’s my favorite.

Carl:
Claire, do you have any other questions for Dan?

Claire:
Yeah, I had one last one. It’s smaller and it might be more of a personal thing. If we’re paying for the meal at the restaurant and then we get separate checks, do we also pay for the tip?

Mindy:
Mm-hmm. That’s your expense.

Claire:
No, I like that idea. I’m just clarifying.

Carl:
You’re clarifying.

Claire:
Knew you were going to say that.

Dan:
Oh, I like that one. That’s good. That’s a teacher joke. Nice one. Probably the 1,510th time Claire’s heard it, but first time I’ve heard that one. I like it.

Mindy:
Now every Claire student that Dan has is going to hear it.

Dan:
Yeah.

Mindy:
Okay. So Dan, at what age or level of maturity do you recommend parents start thinking about this ultimate teen money hack because I know my kid is 15. I probably could have started this with Claire when she was 14. She’s 15 and a half, actually, almost 16. I don’t know that Daphne is ready at 12 and a half. She’s in seventh grade. Claire’s in high school. Where do parents start thinking about this?

Dan:
I think it’s probably right about where Claire is. I think let’s start from the back end. If you know they’re going to move out of your house at let’s say age 18, I think a good length of time to run this strategy with them would be around a year to get through at least one full year. So I would think that the latest you’d probably want to do it is about a year before they graduate high school or right about there, so around age 17. The earlier you can start it, the better, but most teenagers are not Claire. To start them at 13, 14, 15 might be too early, but it really is a case-by-case basis.
Most people listening to this podcast who are parents probably are somewhat similar to the Jensen family, where they’re having money conversations with their teens, I hope. So that age could be lower. It could be around freshman in high school, but if the family’s just beginning to have money conversations, then you might wait a year or two. Again, like I said, the ultimate team money hack for parents isn’t something you just do out of the gate. It’s the finale. It’s the end of their journey with you learning about money. There’s other things you should be doing ahead of time to set them up for success in this strategy.

Mindy:
Awesome. Dan, are there any other suggestions or tips that you have for parents who are listening to this and are as blown away about it as I was when I heard you share it at Camp FI?

Dan:
I mean, I have dozens and dozens of tips for parents. Yeah. I could go on and on. I think one tip I would give parents is the book that I have, First To A Million, which is published by BiggerPockets. Thank you to BiggerPockets. It’s meant for the teenager, but as a parent, buy that book, read it yourself, and then give it to your teen and talk about all the different topics and strategies that are in the book, and then buy them the workbook and have them work through that. I wrote those things just for teenagers, and parents definitely need to be involved with that.
The authorized user on a credit card is an amazing hack to start the teenager with a good credit score before they turn 18. Having money conversations, involving them in paying the household bills before the strategy we’ve talked about today is implemented. They should be involved with some of the decisions for the household budget. They should be clicking the mouse to pay the bills every month. Talk to them about budgeting. Have them start tracking their income and expenses even if it’s as a teenager not a lot of money’s coming in and out, but have them use mint.com or some other free app to track their expenses and their income so they can see where their money’s going. There’s so many things. There’s so many things.

Carl:
Yeah. I’ll second your book, Dan. While I was reading that, I know it’s geared towards getting your kids’ finances together, but as I was reading your book, my thought was, “Wow. There’s a lot of adults who could really benefit from the knowledge in this too.” One of the things I liked about your book is it’s all encompassing. I would say you don’t go super deep. You’re not going to go into a simple path to wealth depth on why index funds are the right answer, but you cover it and you mention it. So your book is a great starting point for a lot of different topics.
The other thing I want to say about you, Dan, is I had the honor to go to your book launch party, and I met a lot of members of your tribe, the SheeksFreaks, and seen these young people who are 21 years old just inspired by you and killing it in life. So inspirational. These people who say, “I can’t do this,” look to the SheeksFreaks. You can do it and, Dan, you can point people to a lot of examples. Super cool.

Dan:
Speaking of which, we need to get Claire in the SheeksFreaks group.

Claire:
I just started reading the book and it is so good, but yeah, I would love to join the group.

Dan:
Awesome. Awesome.

Mindy:
Yeah. Thanks, Dan. She’s reading your book. She’s like, “This is amazing. I’m learning so much,” and Rachel Richards spoke at Camp FI and she’s like, “That was so great. I learned so much from Rachel.” I’m like, “Are you kidding me? You know I’ve been telling you all the same stuff, right?”

Dan:
Welcome to my life as a teacher. For those who don’t know, I’m a high school teacher and I will talk about certain things over and over and over in class, and then I’ll have a guest speaker come in and say the same thing and my students are like, “Why didn’t you ever tell us about that? That’s so awesome.” “I’ve told you 10 times.” It’s much like being a parent. Yes.

Mindy:
Claire, do you have any final thoughts about this?

Claire:
I can’t think of anything right now. I mean, I probably will as soon as we hit stop recording.

Mindy:
That’s how it goes.

Claire:
Yeah. I’m just honestly really excited.

Mindy:
Okay. Well, we’re going to try this for a couple of months and we’ll come back and check back in with you around November. So after you’ve done this for August and September and October, we’ll circle back. Dan, I’d love for you to join us again as well to check in with Claire and see how her spending and budgeting is going. Carl, you and I have some homework to do to figure out how much money we’re going to be giving Claire, and we’ve got a credit card to look into. Yeah, don’t get excited about that credit card, girl.

Claire:
I’m scared of credit cards to be honest.

Mindy:
Just don’t spend everything.

Claire:
I won’t.

Mindy:
Credit cards aren’t scary. Credit cards can be really a powerful tool if you use them right, and they can get you into a lot of trouble, but luckily, your bossy mom will be there to teach you how to use it right.

Claire:
I know.

Mindy:
Dad will be there too.

Dan:
If you don’t want, Claire, if you don’t want your parents telling you how to use your credit card, keep reading First To A Million and that will tell you exactly how to do it.

Claire:
Okay. Will do.

Mindy:
Okay. Dan, you mentioned that you would share your email address so people can reach out and get a PDF about this plan. Please tell people where they can find you.

Dan:
Yeah. So [email protected], and SheeksFreaks is S-H-E-E-K-S-F-R-E-A-K-S. I’m sure you’ll put that in the show notes. So if you’re a parent or if you know someone who has a teenager that would maybe be interested in this strategy, just send me an email and I have a PDF I can send you that goes over everything we talked about today and then a little bit more too.

Mindy:
Awesome. Dan, I really appreciate you inventing this idea. I really appreciate you sharing it at Camp FI. Shout out to Stephen Baughier, the founder of Camp FI, for bringing you there to introduce this to us. The beauty of this plan is the simplicity, and yeah, the beauty of this plan is the simplicity in it to teach your child how to handle their finances while they still have the safety net of living with you. I’m super excited to see what Claire does with it.

Dan:
I am too, and I’m excited to check back in. I need to do this. I should have said this at the beginning. A shout out to my buddy, Adam Carroll, who actually planted the seed for this strategy a few years ago on one of his Ted Talks, I think. By the way, parents of teenagers, I will pitch this for Adam, he has a documentary called Broke, Busted, and Disgusted, and it is about the student loan debt crisis in America that every parent and every teenager, frankly, should watch. Broke, Busted, and Disgusted, Google it. Yeah. So Adam Carroll is probably the founder of this idea. I definitely took it to the next level, but I want to give him credit.

Mindy:
From episode 330 of the BiggerPockets Money Podcast, we’ve been joined today by Dan Sheeks, Carl Jensen, and Claire Jensen. I am Mindy Jensen saying it’s all about the Benjamin’s baby.

Jeana Curro, head of agency MBS research at Bank of America, and John Lovallo, UBS Senior Equity research analyst, join ‘Closing Bell’ to discuss the housing market as home prices fell for the first time in 3 years last month. Home prices declined 0.77% from June to July, according to Black Knight.

David:
This is the BiggerPockets Podcast show 653.

Tarek:
The only difference between a successful real estate investor and an unsuccessful real estate investor is the successful one kept going when they wanted to quit, okay? I wanted to quit so many times. I remember thinking, “There’s no way in hell this is going to work.” You’re telling me I can pick up a phone, call strangers, and they’re going to sell me their house under market. I’m like, “There’s no way this is going to work,” but I did it anyway.

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with my co-host, Rob “Roberto” Abasolo, as well as a fire guest. Rob and I will be interviewing Tarek El Moussa of Flip or Flop. If you watch TV, if you have a spouse or partner that watches TV, you’ve likely come across Tarek’s show, where he is filmed in the process of flipping houses and walking through the different hurdles, challenges, and obstacles that come.

David:
In today’s show, Rob and I get behind the scenes as to what it’s like to flip houses on TV, how Tarek is able to continue to find new deals even while filming a TV show, and a whole bunch of hilarious and insightful stories of things that went wrong in his deals and what he learned about them. Rob, what were some of your favorite parts of today’s show?

Rob:
I just want to say you seem extra chipper today, and I think it’s because you won the bet at the end. I was going to be throwing you for the intro today, and I was like, “This is it. This is my time to step up and give the intro on the BiggerPockets platform.” But we had a very fun bet at the end where we play a little game called Real or Reality TV, where we guess if facts about Tarek are true or not. So, definitely stay tuned to that. I think that was a fun part, man. We had a pretty good laugh on that one.

David:
That was a lot of fun. Make sure you listen all the way to the end because we do play a game where Tarek tells us if we are guessing if what happened was real or if it was reality. So, without any further ado, we’re going to bring in Tarek in a second, but first, let’s get to today’s quick tip will be embrace failure. It’s okay. It’s going to happen. In the show, Tarek talks about how if you’re not losing money on flips, at least if you’re doing this at volume and you have significant resources, you’re not doing enough flips and you’re actually leaving a lot of money on the table. So, don’t be afraid of failure, instead renegotiate your relationship with it.

David:
And if you’d like to reduce and mitigate your risk, check out the BiggerPockets Forums, where you can ask people questions about issues that you’ve run into, corners that you’ve painted yourself into, or advice that you need to make your flip go better. All right. Without any further ado, let’s bring in Tarek. Tarek El Moussa, welcome to the BiggerPockets Real Estate Podcast. How are you today?

Tarek:
I’m doing fantastic. How are you doing?

David:
I’m doing great. I understand you met my former co-host and best friend, Brandon Turner, out in Hawaii. Is that true?

Tarek:
That is absolutely true and I must say he is one of the best guys I’ve ever met in my life. I’m sure you could say the same.

David:
Yeah. I mean, you hear him on the show and he is very likable and he is very charismatic, but he’s one of those few human beings that is even better in person. It’s hard to have anything bad to say about that guy.

Tarek:
Yeah, it was so random. So, I was just going to Maui with my family and randomly, I followed him on Instagram because I love everything he does and he’s such an amazing entrepreneur. So, I sent him a message. I’m like, “Hey, man. I’m in Hawaii. We should get together,” and he’s like, “Sure.” And the only time our schedules lined up was at 7:00 AM on a Monday morning before leaving for our flight. So, him and his wife came down. Me and Heather had breakfast with them. I couldn’t say more nice things about the two of them.

David:
That’s awesome, man. So, for those of our listeners that live under a rock or maybe they’re hearing this podcast for the first time or maybe they just found out about real estate and don’t know who you are, can you give us a little background into what your business looks like, how your TV show works, and a little bit about you?

Tarek:
Sure. I got into the real estate industry at 20 years old. And before that, I was delivering pizza and selling kitchen knives. First six months in the business of real estate, I made $0, nothing. I was a kid and I was like, “Man, I was about to quit the business.” Long story short, there was a free event coming into town from this real estate trainer named Mike Ferry. Most people in real estate know Mike Ferry. I went to this free event. At the end of this thing, I thought, “Man, I can do anything.” This guy, the way he was able to speak to the audience, he could convince you that anything is possible. So, he convinced me that anything was possible. I signed up for coaching and my life changed.

Tarek:
Within 90 days of signing up from coaching, I went from living in my mom’s garage. My parents got divorced. She rented out my bedroom and followed exactly what my coach told me. And literally, overnight, 21 years old, started making 40,000 bucks a month. Within a few months, I bought my first million dollar house and thought I was king of the world, smartest guy alive, blah, blah, blah. The ego was so big and something interesting happened. It was the year 2007. So, 2007 taught me that everything I thought I knew, I actually didn’t know. So, I had to sell my houses. I had to sell my cars. I had to sell everything I owned. I never quit real estate man and I kept selling. I kept selling and I did the short sale transaction.

Tarek:
There was a first lean, a second lean, an HOA lean, an IRS lean. I mean, this thing was a nightmare and this was the Wild West back then guys, because there was no systems in place. There was no technology. You called the bank for a short sale. There’s a 10% chance anyone cares. There’s a 5% chance someone’s going to call you back. Long story short, I worked it for about a year. At the end of the day, I got a check for about 7,000 bucks. I sold it to an investor, painted the house, hired a gardener, flipped it a week later, made $127,000. And that was the moment I realized I was on the wrong side of the equation. I was like, “Man, I got to be a real estate investor.” So, I had one big problem. I had no money. So, of course, I went to everybody I knew and you know what they said?

Tarek:
They said, “No.” They said I was too young. It’s too risky. I don’t know what I’m doing. They gave me every reason why they wouldn’t give me money. And every time someone told me it wouldn’t work, I was like, “Man, I can’t wait to prove you wrong.” So, what I found was I was asking everybody in my sphere, everybody in my circle. And then I decided I’m going to ask some people with money. So, I approached the one person I knew at the time who had money. I showed him the business plan and he’s like, “Yeah, you find a deal. I’ll flip houses with you.” And the deal was pretty simple. He put up the capital. I found the deal, did all the work, sold the house. We split profits 50/50. That was 12 years ago today. And to this day, we’re still business partners.

Tarek:
So, we did our first flip. It was a condo in Santa Ana, California. Man, I did everything wrong. See, I had zero construction knowledge. I had zero construction background, but I was hungry. I was young and hungry. So, I was the project manager. I was the contractor. I was the investor. I was the real estate agent. I electrocuted myself on that project. I had this brand new vanity light. My ex-wife, she’s like, “Oh, let’s see what it would look like up on the wall.” So, I take this metal light and I put it up to the wires hanging out of the wall. I didn’t know what live wires were. Next thing I know, I’m shaking. There’s sparks going everywhere. And that’s where I learned before you put metal near power, you got to make sure the power’s off.

Tarek:
Another thing I did is I acid washed the shower walls, but I made the mistake of not putting shoes on. I took my sandals off. So, then I burned my feet with acid. I mean, you name it, I did it. But the one thing I did right was I showed up every single day and I learned as I went. I got that first condo done, start to finish, construction, listing, closing escrow in under 60 days all by myself. I made a check for $34,000. And I remember, man, it felt like $34 million. And I was like, “There’s no way I’m ever going back.” And then I learned something really important at the end of that first deal. I finished the transaction, but you want to know what I didn’t have? I didn’t have any more flips and I didn’t have any more flips because I was doing demo. I was painting walls. I was replacing flooring.

Tarek:
And then I realized opportunity cost. I can make $34,000 flipping the house. Why am I painting walls and why am I doing trash out? So, after my very first project, I decided I want to do more house, more houses, but hire people to do the work. Here’s where the tricky thing comes in, my TV career. So, right when I bought that very first flip, I went to a real estate convention in Las Vegas. It was thrown by a gentleman named Mike Ferry. There was about 5,000 people in this room. It’s called the Superstar Retreat. I was the guy that used to sit in the back. It’s Vegas. I was out late. I wasn’t feeling so good in the mornings. And my friend is the vice president of Berkshire Hathaway Office. His manager and his manager’s wife were in the very front row of this thing and they had to leave.

Tarek:
So, he invited me and my ex-wife to go sit in the front row. You guys know how these events are. The front row is for the VIP people. That’s for the guys and the gals that make a lot of money. That’s for the players, the ballers. So, we didn’t really belong, but we were dressed sharp. We sat in the front row. At the break, everybody else in the front row, they were wondering, “Well, who are these two young kids? We’ve never seen them before.” We looked good. We were dressed sharp. We played the part. So, I ended up talking to this guy at the break and he was telling me how he had a local TV show. He would go to the grocery stores in Palm Springs, California, and people would recognize him. And I was like, “That’s interesting.”

Tarek:
I heard him talking on stage. He had made $800,000 that year. And I said, “I mean, it’s cool being recognized and all, but what does that do?” And he goes, “Well, they recognize me. Then they trust me and then they work with me.” I was like, “Man, that is so smart.” So light bulb went off and I’m like, “Man, I got to get on TV. This guy is smart.” So, I think the day or two days after, I went home and I was thinking about what this guy told me. I was like, “Man, I got to get on TV. I got to get on TV.” And I told my ex-wife, it was like 10:00 at night. She’s like, “Are you coming to bed?” I was like, “No.” I was like, “We got to get on TV.” She was like, “What are we going to get on TV for?”

Tarek:
She started laughing at me. I looked at her and I was like, “You know what? We just bought our very first flip. What if we flip houses on TV?” She shook her head at me, laughed and walked upstairs and went to bed. I stayed in front of my computer. I literally Googled Hollywood production companies and then they came up. I went to the first one. They had a button that said casting. I sent an email. This is who I am. This is what I do. I want to flip houses on TV. I woke up the next day and they said, “Send me a home video.” So that condo I did in Santa Ana, where we paid 115, I actually documented the process and sent it to the production company. They loved it. They’re like, “We want to come out and do a two-day professional shoot.”

Tarek:
So now this is my first time dealing with TV. Never in my life had I even thought about TV. They come out. We shoot for two days, real director, real cameras, everything. We made a sizzle video. A sizzle video is a three- to five-minute video of what the show could be. So, then they take that sizzle video and they send it out to all the networks. Guess what? Nobody wanted it. Nobody wanted it. And I was like, “Man, that sucks,” but that’s life. So, I just kept going. Ten months later, I’m on the golf course. I get a call from the production company. They’re like, “You’re not going to believe this, but HETV wants to do a pilot of a house flipping show.” I couldn’t believe it. I was getting a pilot for a TV show.

Tarek:
So, I shot the pilot in summer of 2011 and it got done. It went to the network and everybody’s telling me the odds of a pilot getting picked up are very slim. And if we do get picked up or we do get an answer, it’s not going to be for a long time, because everything in TV is slow. I think it was maybe two, three weeks later, I get a call. I get an email and I have a contract to flip 13 houses on global TV in 10 months. As you can imagine, you’d be thinking I’d be celebrating, right guys?

David:
Well, I’m thinking, “How am I going to find that many houses to flip that are good deals?”

Tarek:
Two problems. One, I don’t know how to flip houses. Problem number two, I have no money. Okay. So, I called my lawyer at the time. Funny story with my lawyer was my first lawyer. He was a referral. I sent him the contract. I said, “Can you review this?” He wrote back, “Yeah, no problem. I need a $2,500 retainer.” And at the time, I didn’t have $2,500. So, I wrote back to my lawyer. I was like, “Can you do a payment plan?” He’s like, “Yeah, LOL. Yeah, I’ll do a payment plan. No problem.” To this day, he’s still my lawyer and one of my best friends in the world. So, I asked him, I was like, “Man. So, what if I signed this thing and I can’t flip these houses?” And he goes, “Well, I mean, they could sue you.”

Tarek:
I looked around in my apartment at the time. I looked back at him and I said, “You know what? They can have it. If I don’t pull it off, they can have all of it. It’s all financed anyway. So, they could take it.” So, what I did is this. I learned how to flip houses season one of that show, I created a proven track record where I got other investors to start giving me money. And then that first investor that did that first deal with me saw that I was serious. He really went all in with me and he said, “I will be your capital partner. You go find those houses.” So, my first year on TV, I really didn’t sleep, because I needed to find houses and I was buying some of them at the auction. The reason I had to buy them at the auction is because we needed to start filming now as you can imagine, right?

Tarek:
But then when you’re buying at the auction, I couldn’t buy an occupied house, because what if it takes me six months to evict them? How do I start filming a show if I have tenants in the house? So, what I did is I would work all day until 8:00, 8:30 at night, my normal real estate stuff. I’d get home about 9:00, eat a quick dinner, and then I would do prep work. And almost every night from 10:00 PM until about 3:00, 4:00 AM, I would drive all throughout Southern California overnight. And I would drive by all the addresses that were going to the auction the next morning.

Tarek:
The reason I drove by the addresses is because I wanted to see if anyone lived at the houses. I looked for overgrown grass. I looked for newspapers by the front door. I looked for lights on. I looked for cars in the driveways. So, it was 3:00 in the morning, I’m driving by houses. If I didn’t think anyone lived there, I would say, “Okay, I can bid on that house.” So then of course I work all night. I pick four houses I could bid on, right? I go to the auction. My max bid is $300,000 on a house. Next thing I know, the investor next to me bids $310,000, this guy bids $330,000. Next thing I know, they’re bidding $400,000. My max bid’s $300,000. How am I ever going to get a house? How do I get a house? My numbers were way off, but I never quit.

Tarek:
I showed up every single day until one day I bid on the house. For some reason, nobody else bid against me and I got the house. I flipped it and I made a profit. So, here’s what I learned at the auction. If I showed up every single day and I worked like a crazy man every single day, I was going to get lucky, nothing more than getting lucky. For one reason or another, people just didn’t realize to bid on that specific house and I would get a house. Then that’s what would happen. I’d get outbid, outbid, outbid, outbid. And then every now and then, I’d get a house. That’s how I started getting houses for the show. And then I started prospecting listing agents to buy their short sales. And then I created systems and then I would door knock. So, I did everything humanly possible.

Tarek:
And because I signed that contract, I put myself in a position where I couldn’t fail, because if I failed, I’d lose everything. So, I did 10 years of work in one year and that’s why my business went like this. The rest is history, man. I’ve done 10 seasons of Flip or Flop. I have my new show, working on season three right now, Flipping 101, where I’m mentoring rookie flippers. We just announced our new show called The Flipping El Moussa with me and my wife, Heather El Moussa.

Rob:
So, a little known fact here. I actually, I shot a sizzle for HDTV and probably not even supposed to say that. They were very hush-hush about it, didn’t get picked up, all good. This all happened while the BiggerPockets thing was coming to light. And I was really excited about this opportunity because what really scared me about the TV world was the concept was around my tiny house village that I was building out in Tennessee. We were going to be shooting these 14-hour days, which I’m sure you’re really familiar with.

Rob:
But the question I kept asking myself and asking the producer is, “How in the world am I going to be able to do production and maintain the actual workflow of not flipping, but completely constructing these tiny houses and tree houses and everything like that?” So, I’m really interested to know, did the actual workflow of flipping a house changed pretty dramatically once the cameras were on?

Tarek:
That’s actually a great question. The biggest hurdle for me was, “How am I able to film a TV show all day, but also prospect for sellers, negotiate deals, walk properties, hire contractors, and get them sold?” So, TV actually did something very special for me. The first year almost killed me, but because it almost killed me, I was working 18-, 20-hour days, it forced me to become an entrepreneur. Meaning it forced me to learn how to delegate. So, I knew I can’t be in 10 places at one time. So, I need to start finding people to replace what I was doing. So, it taught me to scale. It taught me to be a leader. It taught me to be a CEO. Because I’m on camera, I still needed all the work to get done.

Tarek:
So, I had to hire salespeople. I had to hire managers. I had to hire marketing and I had to build a company. So, I went from being a guy that was flipping houses to a guy that was building a real estate investment company to manage those projects while I was creating a TV show. The first couple years, I mean, I was very, very hands on, because I had no choice, but now obviously, I’m more focused on the TV side of things. And in place of me, I have many employees and many systems that are just running.

Rob:
One thing I really felt nervous about stepping into that possible role was that I was expected to be the expert in every single facet of that project. I had to know the engineering, the soil reports, the construction details, the nitty gritty for actually attaching a treehouse or at least they wanted me to appear that way, but I was really learning all of this as I was going. I’m interested also, was there a little bit of pressure on your end to feel like an expert or to rapidly get to expert status while you were doing the show?

Tarek:
To be honest, that’s what they wanted and that’s not what they got. Thank God they didn’t because Flip or Flop probably wouldn’t have been the show it was. I mean, it’s the most watched house flipping show in history. And I told them, I was like, “I’m not an expert. I am literally learning as we go.” That’s the excitement of the show. I am not an expert. I am showing I am chasing the American dream and that’s the show we need to build. So, at first, they wanted me to be an expert and I was honest and I said, “I am not an expert. So, let’s just see what happens.”

Tarek:
So, they worked with me and I think we created something really special. And nowadays, I would consider myself an expert at most things. But if it comes down to the details of construction, I am not an expert. I know nothing about construction. That’s not something I want to learn. I’m more interested in being a real estate investor.

David:
I love what you’re saying here, because I got started investing in real estate as a police officer. I was working full time as a cop and I’m buying rental properties. They were in other states because you don’t really find cash flowing properties in California. I would flip an occasional house, but that really wasn’t my bread and butter. And I had the same problem. How do I do all the work of an investor who wants to do their due diligence the right way while taking calls for service, driving the car around really fast, chasing after people, writing reports? So, it forces you to actually hone in on the systems that you’re creating, cutting out the fluff, making sure you focus on the most important things. And I think it ultimately made me a better investor.

David:
It’s why I ended up writing the book Long Distance Real Estate Investing, because I detailed the systems of an investment property as opposed to Brandon. We talked about earlier, he was flipping houses in his own backyard. So, he would get sucked into, “Let me just go change the door lock. Let me just go learn how to fix a toilet.” It’s always like, “Oh, I’ll just go do the flooring myself. It’ll be easier, faster. I’ll save money.” He got stuck in the cycle where he wasn’t growing versus me. I’m notorious for I don’t know how to change the door lock. I tried one time to do it. It took up seven hours of my day with four Home Depot trips. I’m like, “Never again.” I could have paid a handyman four times what they wanted and still save money.

David:
Can you elaborate a little bit about if you really believe this is the better way to learn how to invest in real estate investing?

Tarek:
Honestly, man, like I said, I learned on that very first flip. I would go to Home Depot probably 10 times a day, because I would forget this or I would forget that. And if you got to drive back and forth, you got to find parking.

David:
How much time did we spend just driving a freaking Home Depot, man? I get mad just remembering.

Tarek:
If I spend the same amount of time looking for houses than I did going through a Home Depot, I probably would’ve put a lot more houses a lot faster. So, for me, I’m not good with construction. So, this is how I look at it. Okay. If I can hire someone to do it and it makes sense and I’m still profitable, I’m going to hire that person, because what is the most valuable thing when it comes to real estate investing, right? What is the most valuable, more valuable than anything else? It’s being able to source deals.

Tarek:
So, I learned very on after my very first transaction if I become an expert at finding deals, the rest is going to fall into place. I can hire contractors. I can hire real estate agents. I can hire landscapers. I can hire escrow companies. I can hire people, but I couldn’t hire someone to go out there and hunt for deals the way I was willing to do it. which made me very valuable. So, I’m never going to go do $20 an hour work when I could be doing $5,000 an hour work. That’s the lesson I learned really early on. I really learned it because of TV and TV forced me to delegate.

Rob:
Is there a moment where you realized that? Because it’s obviously very easy for us in retrospect, we’re like, “No, our time is valuable. We’re going to hire it out.” But did you ever find yourself in the middle of a trade or doing anything where you’re like, “You know what? I’m done. I will never mud a wall again”?

Tarek:
Yeah. Yeah. So, this is funny. So, on my very first transaction, you got to remember, my very first flip. This was after the 2007 crash where I sold my S500 BRABUS, my BMW convertible, my Escalade, all my toys. So, now, I’m driving a Honda Civic, right? So, I would drive all over town to Sears outlets. And I’m trying to slam range hoods into the back of the car. It won’t fit. And I’m like, “Man, I can’t put the supplies from Home Depot in my Honda.” So, I called my business partner. I said, “Man, we got to get a truck,” and he’s like, “We’re not getting a truck.” I’m like, “What do you mean? I need to go pick up all this stuff.” He’s like, “Go hire someone to pick that up.” I’m like, “Well, no, no, we’re going to save 50 bucks if I do it.”

Tarek:
That’s where he talked about opportunity cost and time. That was the first time I had learned that. He’s like, “Well, why are you going to go buy a truck so you can go to Sears to pick something up, to go take it to a house when we can hire someone?” My mindset was I’m saving 50 bucks. What he taught me was well, we could be losing thousands because I’m not actually working on what I’m good at.

Rob:
I was actually in a very similar situation. When I first bought my home, I was doing a lot of the remodeling myself and I decided to hire someone to help me remove a load bearing wall in my house. That wall was a 17-foot span. So, I needed to buy a 20-foot… I want to say it was a 6 by 10 or something. And the guy was like, “Well, if you want me to buy it, it’s going to be another 50 bucks. I have to go pick it up and everything.” I was so cheap and I said, “I got it.” And my wife and I drove a Subaru Forester, which is a very tiny SUV. And I was like, “Hey, we got this. We’ve done crazy things. I’ve really packed in stuff into cars a lot.” So, I go to Home Depot and I realized, “Well, this thing weighs 600 pounds first of all.”

Rob:
So, we have to get three or four Home Depot guys to help us put it on the top of the truck. And we line it up, and basically, there’s five foot of lumber on each side of the truck hanging off. And I was like, “Well, that’s no big deal. I only live five minutes from here.” So, my wife was like, “Man, I can’t believe I’m part of this.” And I was like, “No, it’s okay. It’s going to be fine.” And as luck would have it, I lived right by The Forum. It used to be a basketball arena, but now, it’s a concert hall. Concert led out right at that moment.

Rob:
So, we are stuck in the middle of Los Angeles traffic for 30 minutes while I am trying not to maneuver my car too much one way or another, because the piece of lumber is going up and down. And I was just seeing all the lawsuits that were appearing in front of me. I was like, “Oh, this is it. This is how I lose everything.” And that was the day I told myself, “I will pay for delivery for the rest of my life.”

Tarek:
Yeah, that’s it. So, that’s where I learned about opportunity costs with that Civic being at Sears outlet, trying to stub a hood into the back and it wouldn’t fit. And then, like I said earlier, after my very first flip, I pulled it off. We made a profit. I worked my tail off, but guess what? At the end, I had no other houses, because instead of looking for houses, I was working on houses. So, the best place to spend your time, I don’t care what anyone says, it’s always going to be hunting. It’s always going to be looking for deals. Whether it’s houses, whether it’s apartment buildings, whether it’s strip malls, whether it’s self-storage, the most valuable thing any investor can do is source deals.

Rob:
Well, that’s a great tip and I know that you have a set of tips here for house flippers. I know you got five. So, is there a way you can just run us through some of those for someone aspiring to get into this business?

Tarek:
Yeah. I mean, I’ll go over a couple tips and then you guys just ask me any questions you’d like, but people ask me, “What’s the first thing you do?” I mean, the first thing you do, I mean, everybody knows this. This is the tagline for my company homeschool, where we teach people how to flip houses. The tagline is this. Before you invest in anything, you have to invest in yourself. So, before you go out there and get started, you got to get a mentor, join a program, read some books, jump on YouTube, start filling yourself with knowledge. You have to invest in yourself. So, that’s obviously something very, very important. Once you start feeling comfortable, then you got to get started. And for me, the first step is becoming an expert at finding deals, right?

Tarek:
If you don’t know how to find deals, you’re never going to be in business. So, finding deals is where I spent 95% of my time when I first got in this business, nothing else. I didn’t know anything about construction, nothing. I spent 95% of the time learning how to find deals. And then once I found the deal, I was like, “Okay, the next step after you find it, well, you got to fund it.” I had some business partners put in place where they had given me private money. If you find deals but if you don’t have funding, you can’t flip it. So, a lot of times you have to wholesale it. So, you find them first, then you got to fund them and then you have to fix them.

Tarek:
Here’s the thing. My first couple contractors, it was a nightmare. Everything went wrong. Nobody was working on the houses. Everything was behind schedule. I wanted to pull my hair out, but here’s an interesting story on the fixing part. So, I’m doing my very third flip and I’d been working on this thing for five months. It looked like it has been worked on for three weeks. There was a flip that had just been bought right around the corner. And there was this huge banner outside with the construction company’s name. And I was like, “Okay, here’s another flip.” I’m not kidding guys.

Tarek:
A few weeks later, I drove by that house, the house was done. The house was done. My house was still nothing happening and this house was done in a matter of weeks. So, guess what I did? I called that contractor. I called that contractor. Hey, I never say you got to be the smartest guy or smartest person. I always say you go find smart people and you copy what they do.

Rob:
That’s actually a very actionable thing, because I would say probably 70% of the people that I ever found for any of my construction projects in LA, I would follow dumpsters. If I see dumpsters in my neighborhood, that’s a really good sign for me because I can actually see the progress of a house. And if I like the work, I can go in and poach that roofer or that stucco person or that drywall person. It was really great. I mean, a lot of the people I still work with today are people that I actually saw working and working diligently. Yeah, that has really filled up my Rolodex ever since.

Tarek:
No, 100%. One of the things when I train people is you want to find a contractor. Wherever you live, jump on Zillow. Look at every single house for sale, every single home that’s sold them last six months. Scroll through them one by one, look for ones that look like a flip, and it might even say completely remodeled. Call the real estate agent. Try to make friends with the agent. Say, “Hey, why don’t you refer me to the contractor that did the flip on 123 Main Street. If they help me with my house, maybe I can give you the listing.”

Tarek:
So, I teach people not to just work with contractors. You want to work with contractors that do two things. One, they work with investors, and two, they do volume, right? So, I only want to work with experienced contractors for my flips. I’m not going to go hire the custom kitchen guy. I’m not going to go hire the custom pool guy. I want to work with people that work with investors.

Rob:
Why is that specifically? Why is that a designation you’re looking for in a contractor?

Tarek:
Because they’re experienced, they already know what to do. There’s no learning curve. If I work with a contractor that’s remodeled 800 flips, do I really need to tell him what to do? I mean, at that point, they should be pretty experienced, right? So, I look for people that have that experience. So, as nice and professional as the custom kitchen guy might be, their pricing is going to be nowhere near, because they don’t understand the difference. A flip is a vacant house. There’s no homeowner there in the way. There’s no moving furniture. There’s no covering things up. They’re not picking every little item apart. So, it’s a different type of contractor.

Rob:
Yeah. That’s what I was wondering. Does that type of contractor tend to understand that as an investor, they can’t necessarily mark up every aspect of that flip the way they would with just like a one-off homeowner?

Tarek:
100% because that’s their specialty. They understand in order to work with investors, speed and price is important. That’s why I said we got to find experienced contractors. I used to go to Home Depot, used to track garbage bins. I used to go to Home Depot in the mornings and watch what companies would come. What would their trucks look like? How would their employees act in public? How would they hold themselves professionally? I used to walk up to the pro desk. Hey, how’s it going?

Tarek:
Hey, I got a question. What contractors buy most materials here? Who do you think are the better contractors? It’s just asking questions. Like I said a minute ago, you don’t have to be the smartest. You don’t have to know everything. You just need to find people that do know everything and that’s how you find success or at least that’s how I find success. I work with people that are specialists in the fields that they’re in.

Rob:
That’s great.

Tarek:
So, I said, we got to invest in ourself. We got to be an expert at finding deals, spend the majority of the time there, fund it, different ways to get money, fix it. That’s the contractor. And then selling it, selling it, price it right, professional photography. If staging’s warranted, get it staged. But when it’s time to sell, I treat it as professional as possible. Two important things about selling the houses, one, price, but two, where a lot of people drop the ball on is photography. Spend 250 bucks, get professional photos, because those photos are going out to the entire world. That’s what those buyers are going to see.

Rob:
Yeah. This is something I hammer quite a bit with a lot of people that I teach. They want to take cell phone photos. I mean, people will come to me and say, “Hey, Rob. My Airbnb’s not booking. I don’t understand why isn’t it booking or this flip isn’t selling. Why is it?” I’m like, “Well, let me see.” I’m like, “Well, you took your photos with an iPhone 3.” And a lot of people think, “Oh, well, it’s got 14 megapixels. It’s got the wide angle lens. Does that not work?” And I’m like, “No, you have to spend the money.” I mean, good photography, obviously, there’s a range, but we spend anywhere from $250 to… I’ve spent up to $1,000 on photos. Obviously, that’s not going to be all the time. But David and I had a luxury property that we bought in Scottsdale.

Rob:
I was like, “Let’s spend money on these photos because it’s a $3 million house.” I always say, “You don’t want to put hubcaps on a Ferrari, right?” You want to spend the money and make sure that you’re actually representing the property as accurately as possible. Have you ever been in a situation where you learned the hard way that bad photos didn’t necessarily net out in the most profitable transaction?

Tarek:
Fortunately, for me, no, because before I was a real estate investor, I was a real estate agent. So, I started as a real estate agent from 20 to 29 and I always knew the importance of marketing. So, that’s one thing I’ve always done is professional photos. Whether it’s $100,000 condo or a $20 million house, they’re getting professional photos, because those photos on $100,000 condo might bring you an extra 10,000 bucks, which could be an additional 10% return, right? Just as something simple as the photos.

Rob:
Yeah. So, I actually wanted to dive a little bit into the finding the deals, because this is something that is perhaps the first thing you want to learn how to do super, super well. What is an example of finding a deal? Is it just going to the MLS and looking on there or do you actually have super-secret secret sauce for finding a deal?

Tarek:
Yeah. I mean, for me, if you’re shopping on the MLS, you’re shopping in a retail marketplace. There are deals on the MLS, but man, it is difficult to get them. And if you get them, it’s not very often. So, it’s really hard to do multiple transactions. So, I learned early on, I don’t want to shop on the MLS. I want to work with off-market deals. I want to work with distrust sellers. I want to work with motivated sellers and that’s really where my focus was. So, there’s two ways to do it, right? One, if you have money, you can do marketing. Two, you don’t have money. You’re doing the work. So, if you’re someone that wants to get out there and do deals, you have no money.

Tarek:
Well, you got to be knocking on doors. You need to be making phone calls. You need to be sending text messages. You need to be going to 50 open houses a weekend, talk to every single real estate agent, ask them for deals, get their business card, create relationships, follow them on social media. Every single time, anyone you follow ever posts anything on social media, you comment. So, they remember that you commented and you’re always there. So, when that deal does come six months from now, that real estate agent’s going to remember, “Hey, Tarek, that guy, he’s looking for off-market deals.” I always compare it to fishing when I’m teaching people. You’re going to jump on a boat.

Tarek:
Do you want to throw one line off the back of the boat and sit there or do you want 30 lines surrounding the boat? What’s going to bring you more fish? It’s the 30 lines. So, the old school way, go out there, hit the street, find deals. And if you have money for marketing, there’s different things I do within my company, Tarek Buys Houses. We do digital marketing. We have TV commercials running. We have radio ads and we’re just always out there. We spend quite a bit of money on that.

David:
All right. That is awesome as far as how important a contractor is and the importance of photos. I’ll second that. I’d say in today’s day and age, people don’t realize there’s no realtors or sellers that have a secret list of buyers that no one else knows about. That’s the way real estate worked 40 years ago. I’ll put it in a newspaper. I’ll put it in a magazine. Everyone sees everything now, Zillow, Realtor, truly all of it. It’s like online dating. You have to have a picture that someone’s like, “I want to see that house.”

David:
Most of the houses I’ve been buying are literally I see ugly pictures. They’re dark. Sometimes agents load them in sideways. It’s just terrible and I know no one’s looking at that house. Those are the ones that I actually like to go after. So, that’s a very good tip. What other tips do you have as far as what house flippers should be aware of that you learned the hard way?

Tarek:
Oh, be aware of this really, really hard, the only difference between a successful real estate investor and an unsuccessful real estate investor is the successful one kept going when they wanted to quit, okay? I wanted to quit so many times. I remember thinking, “There’s no way in hell this is going to work.” You’re telling me I can pick up a phone, call strangers, and they’re going to sell me their house under market. I’m like, “There’s no way this is going to work,” but I did it anyways. And guess what happened? It worked. The problem is most people, they get frustrated. Most people, they get defeated. Most people, they can’t endure the pain, because as you two know, you’ve been through it. Is it painful?

David:
Mm-hmm.

Tarek:
Is it frustrating?

David:
Mm-hmm.

Tarek:
It, is right? That’s where you just got to dig deep, believe in yourself, believe in what you’re doing and keep your eye on the ball. And if you believe and you keep taking action, you keep working every single day. Eventually, it all starts to click.

Rob:
I’d like to think I’m at the point of my journey where I have the laugh sigh. When something goes wrong and my partner’s like, “Bro, you are not going to believe,” I go, “Yeah, I believe it.” That’s my answer to everything is I’m like, “Of course, of course.” I at least am now like, “Okay,” because I’ve tried to remove myself from the actual day to day and more do the investor thing like you’re talking about where it’s not how, but who’s going to address this. It’s a lot easier to move on from a situation if I can really just as quickly as I can realize, “I’m not the one that’s actually going to be fixing this roof caving in. I just have to get in contact with the contractor that’s going to do it.”

Tarek:
Exactly. And while they’re doing that roof, you know what you’re going to do? You’re going to go find another house to flip.

David:
All right. So, Tarek, what about knowing a market? How important is it for the investor to know the market that they’re in and what lessons have you learned regarding not knowing a market you’re trying to flip or buy in?

Tarek:
It’s very important to know the market. So, I buy houses at this point in my career all over the country. I mean, you don’t have to spend five years studying it. Spend a couple days, right? How’s the population growth? How is the real estate market doing? How is that local economy? What is the absorption rate? How many homes are for sale? How many homes are pending? So, you don’t have to spend years. Literally, you can just spend a day or two researching that market. And then once you understand what’s happening in that market, then you can make the decision to jump in the market. An example of this, if I want to go a market somewhere in this country and I’m like, “Okay, I want to buy houses here.”

Tarek:
If I look that people are leaving, the economy’s struggling, and for every 20 homes for sale, only one home is selling, that’s a bad sign. That means our supply is really high, our demand is really low. I’m not going to go buy in that market. Now, if I go to a market where population growth is growing, there’s no inventory, demand is strong. Maybe there’s one home for sale and five homes in escrow. What does that mean? That means there’s no supply and there’s a whole ton of demand. So, that’s the market I would go into. So, that’s how I determine the markets. I do a little bit of research on the local economy and I check the absorption rate. I check the supply and demand curve.

Tarek:
So, my partner and I, we bought this house. It was years ago. We bought it in Texas. Long story short, it was in some type of a plain flood zone, something we don’t have in California. Anyways, I thought we got a good deal, listed this thing, didn’t sell. And back then, we wouldn’t lose money on houses. So, it wasn’t something I was used to. I wouldn’t want to lose money on a house. Now, it’s okay. I understand if I make money on nine, I lose on one. I average 10, I made money, right? But back then, I didn’t.

Tarek:
So, instead of just ripping off the Band-Aid, selling this house in Texas and losing 20 grand, I put it on the market. I took it off the market. I did more remodeling, came back to it, and then tried to sell it again. And then I got it staged, blah, blah. Long story short, I kept trying to make it possible to get the price I wanted. But in the end, I ended up selling at an $80,000 loss. And if I would’ve just ripped off the Band-Aid at the beginning, it would’ve been a $20,000 loss.

Rob:
Wow. So, even at your level, I mean, you’re flipping a lot of homes. Do you still factor this in? If you’re buying 10, 1 is going to lose money. Is it a numbers game for you or is your strategy like I’m not losing money at any cost because I’ve got the systems developed? I’m curious for someone as experienced for you, how does that play out overall?

Tarek:
That is just one of the best questions you could have asked me. So, here was my biggest mistake in my house flipping career from 2010 to 2019. I wasn’t losing enough money on flips. Let me explain what that means. I was passing on way too many deals. The market was going up. So, in my mind, if I wasn’t for sure going to make a good profit, I was passing on the deals. Literally, 90% of those deals I passed on, if I would’ve just bought them and fixed them up and flipped them, I would’ve made a ton of money. I was too picky on the houses I wanted to flip. So, now, I tell myself, “If I’m not losing money on a small percentage of houses, that means I’m not buying enough houses, which means I’m not taking enough risk.”

Rob:
That’s really cool. I don’t think a lot of people are honest about that. I think everyone, I’m not going to fail at any cost, right? And I think that the big swings is where the profits come in, right? And so, every so often, you got to take an L, but if you take enough big swings and you’re successful, I got to imagine it’s a net positive.

Tarek:
Yeah. Yeah. Here’s the thing though. When you go into a deal, I know when it’s going to be a home run. When I lose on a deal going into that deal, I already know there’s a chance I’m going to lose money on this deal. It’s not like I have a deal where I’m like, “I’m going to make 300,000,” and then I lose money. That doesn’t happen. So, when I do lose money on deals, going into that deal, I know it’s a riskier deal and I have to make the choice. Do I want to take the gamble or not?

David:
Yeah. And I think that’s good for people to hear because it’s easy to tell people, “Never lose money on a deal ever.” I would also say, I want to get your opinion on this, there’s probably a point in someone’s career where that is good advice. You got your first $80,000 saved up and it’s all the money you have to your name. You can’t lose, especially in the beginning, but I’ll often tell people, some people make the mistake of playing conservative their whole life. You said that’s what you were doing. You’re just being too careful. I tend to be that way too.

David:
Other people make the mistake of just going and buying five houses before they bought their first one and trying to flip five at one time. So, I’ll often say you got to start slow. It should be really boring. Once you start to anticipate what could go wrong or you get that feeling like you just had, “Yeah. I might lose money on this house. I can tell,” that’s the point where it makes sense to ramp up your business. Do you agree that that’s the right point in the model where it makes sense to go bigger and possibly lose money to make more in the end?

Tarek:
100,000,000%. At the beginning, we are only buying good deals. Let me say that again. When you first get started, you never want to go into a deal where you might lose money, right? You need to be so confident in your first deals, but as you grow your brand, as you flip more houses, the only way to scale is by taking more risk. But the question is, how do you offset that risk? Well, pretty simple, to offset your risk, you got to make sure you have a bunch of profitable flips that you know are home runs. That’s where that 1 in 10 comes in. Listen. If I crush 9 houses and I lose 50 grand on one house, do I care? No, because you take the total profit, divide it by 10, you get the per profit average, still really good.

Rob:
Yeah. I would imagine you only care if the first flip is the loss and you’re like, “Dang it.”

Tarek:
No, let’s just say I’m new to house flipping and I lose on my first flip. Now, that’s going to be a big problem. You don’t want to start taking risk until you build up your nest egg.

David:
I look at it like a pyramid. You want your foundation of that period, the majority deals you’re doing to be boring, base hit, not a huge upside, not a huge downside. They’re just solid moves. For the buy and hold space, this would just be single family rentals in good areas where they’re going to slowly appreciate over time. And then once you’ve got a big base, you can start buying more, a little riskier. It has a higher upside, but it also could have a higher downside, but it’s in proportion to how many safe ones you have. Then at the top of the period, you got stuff like Rob and I bought, that $3.5 million property in Scottsdale. That’s like a crown jewel, but that thing might be a year or two before it’s profited.

David:
We don’t know exactly how this is going to work out, but it doesn’t matter because we have enough other cash flowing assets that it’s not going to break us. And over the long term, it’ll be a great deal. So, I think that that’s really good advice that you’re sharing with people and it’s something that you hear in other sales areas too. They tell real estate agents, “If you’re not getting turned down, you’re not trying to take enough listings.”

David:
You shouldn’t be getting every single listing that you go for. If every buyer you work with, you’re putting them into contract, you’re not working with enough buyers. There is a point where every great athlete doesn’t score on every single shot. They’re going to miss sometimes too, right? If you only shoot when you know you’re going to make it, you’re going to score two points every three games, then you’re not going to be in the league that long.

Tarek:
Yup, 100%. This all comes down to experience.

David:
So, one thing I know that you’re known for would be the actual design that you’re putting into the house. I know on the TV show, it would be worked out where your partner is the one who’s choosing the designs and you’re working on the numbers. But what advice do you have when it comes to people figuring out the area they’re in and making sure that the materials that they’re choosing are in vogue for that area?

Tarek:
Sure. I was just going to say this once. We are real estate investors. We are not designers. Do not spend all of your time designing houses, because at the beginning, that’s what I did and it takes too much time. So, here’s what I like to do. Houses are different all around the country, right? So, if I’m flipping a house in North Carolina, what I do is I will run a mile circle around that house. I will look for the closest, highest price comp. And then, however that house is designed, that’s typically the same style I’m going to do my house, because someone else already proved that that design brings the highest price in that neighborhood.

Tarek:
For example, if I’m in LA, I’m not going to do a design I’m going to do here at the beach. I’m going to go look at the comparables in LA. So, what do similar properties that are selling at the highest price look like? That’s the question you ask yourself. So, if I got a three bedroom, two bathroom, 1,200 square foot house, I’m going to look for the highest sold three bedroom, two bath, 1,200 square foot house and make my design similar to that and maybe even a little bit better.

Rob:
Man, this is a hard one for me, because I am wanting to step into this a little bit more and I am such a design oriented guy. Is there ever a moment that you’ve told yourself, “I want to be the design pioneer of this zip code and be that comp,” or is it just never really worth it to be the trailblazer in that capacity?

Tarek:
Well, I’ll give you an example of that. If I’m doing a flip in LA that all the homes in the area have a modern remodel, I’m definitely not going to do a traditional home, right? Because in LA, people don’t want a traditional home. They want a modern remodel. So, what I do is we do our own spin or our own twist on a modern remodel. So, when I say we choose a design style, our house doesn’t look like that house, but it’s the same theme, right? It could be modern, it could be transitional, it could be traditional. So, I still get involved in the designing of it with the theme, but I don’t copy the exact look, but I copy the theme if that makes sense.

Rob:
It does. And in today’s market, the other thing that I see happening a lot is there seems… I’m not going to call it greed. There just are a lot of people out there that know the market, and thus, they aren’t necessarily always pricing the homes reasonably. And they’re like, “I just want to make a big fat profit, whether or not it appraises and I’m not going to take any contingencies.” What are your thoughts around that sentiment and that attitude in the market right now?

Tarek:
Well, they’re going to get caught. I mean, if they’re so fixed in their ways and they’re not willing to be flexible, that’s where you run into trouble. You got to follow the market. If the market says you got to drop your price, you drop your price. If the market says you should take an offer, you should take an offer, because all the signs are telling you what to do. And if you go against the signs, typically, you’re going to end up in trouble.

Rob:
Has there ever been a moment for you where something like this went wrong? I know you talked about if you had ripped off the Band-Aid. Was there any other moment where you were like, “Dang it, I probably got a little ahead of myself on the price here”?

Tarek:
It does happen, but I’m good at one thing. I’m good at just cutting my losses in life and moving on. So, if I have a deal and it’s sitting on the market, it’s not selling, I don’t cry about it. I don’t complain about it. I reduce the price. I reduce the price. I sell it. I get it off the books. I make a little less money. I go find another deal to replace that lost income.

Rob:
Which is a win, right? So even if you got to break even sometimes, hey, you get your time back and you can get it into the next house.

Tarek:
Absolutely, something interesting right now. My company, I think, we have 70 flips going right now. On a couple of them, we’re losing some money, $30,000, $40,000. It’s okay, because we bought them a few months ago. The interest rates have doubled and that’s fine. So, how do I get over the fact that on some of these houses, I’m losing $30,000 to $40,000? Well, houses I’m locking up right now, some of them are showing a profit of $200,000, $300,000, $400,000. So, do I care if I lost $30,000 on this house but I bought another house that made $300,000? No, not so much. As long as I don’t stop, right? I’m always hunting for deals regardless of the market.

David:
All right. That is fantastic advice, especially the last part about knowing the market. I’m seeing this right now. In today’s market, we’re seeing a shift. People, like me, like you, that are experiencing this, we pivot fast. Like you said, you listen to the market, you go with the current, you don’t try to fight the current. And the people I see getting hurt are the ones that are just stubbornly holding out, especially in the luxury space where those price points are very sensitive to interest rate hikes. And they’re like, “No, no, no. My neighbor sold their house for $4 million. I’m not selling for $3.5.” You’re like, “Yeah, that was at a 2.5 interest rate. You’re looking at a 7.5 interest rate.”

David:
Man, that undertold will just suck you in and beat you up if you don’t adapt quick. So, I really appreciate you sharing that information, especially from someone respected in the game as you are, Tarek. I’ll sum up your points here. The first one we have is know your market. What is selling there? What is going on there? What is the inventory as far as the supply-demand curve, like you mentioned? Are you one of 20 houses for sale and there’s 2 pending or are there 20 pending houses and there’s only 2 other active homes that are for sale? That is not talked about enough in our space, but as an investor and agent myself, that is the first thing I look at every single time someone comes to me about selling their house. Then we have make sure you pay the right price.

David:
So, make sure you know, going into it, what your numbers are going to be. And if you’re doing that well, you should know there is a chance I could lose money, but you know if that’s a risk that you’re willing to take or not. Next would be the contractor is one of the most important aspects in flipping. Look for an experienced contractor that knows the market, that knows flipping, that knows working with investors, that you can say, “Hey, tell me what you think we should do,” versus they’re looking for you to be the one to call the shots. Number four was design with the area in mind. Don’t be the person doing a house completely different than every other home that’s selling.

David:
And then number five was don’t be greedy. Sometimes it’s easy to go after the numbers that you want when the market has shifted on you and the market is going to win 100 times out of 100. You’re not going to beat the market. So, all right. We’re going to move on to the next segment of our show. This is a new game we’re going to be playing called Real or Reality, where Rob and I will have to guess facts about you, Tarek, and you will tell us who is right. The first guess, the statement is Tarek’s wife has a tattoo saying, “Yes, sir, Mr. El Moussa.” Rob, what say you?

Rob:
Oh, is this real or reality TV? I think I’m going to go reality TV.

David:
All right. I’m going to go with real because I don’t see how someone could have come up with something this crazy and specific if it wasn’t real. That’s a genius.

Rob:
I went through that too. I was like, “I don’t know. This is too specific.”

Tarek:
It’s as real as the tattoo on her a*s.

Rob:
Oh, really? That’s awesome. Okay.

David:
All right. David jumps out to a quick one, nothing lead. It’s all right, Rob. Hang in there. I feel like you get better as we go.

Rob:
Do we want to set wager on this, by the way? Do you want to bet on who wins this at the end?

David:
Yeah. Whoever wins gets to do the intro for the show. How about that?

Rob:
All right. That’s nice low stakes. I was going to say whoever loses has to watch Morbius but yours is way better.

David:
Rob and I have a standing joke about how many things in the world are better to do with your time than watching the movie Morbius that we were disappointed by. All right. Next statement, my biggest flip was for $1 million. Real or reality, Rob?

Rob:
I think I’m going to go real on that one.

David:
Are we saying the profit was $1 million or are we saying the price point? It can’t be the price point.

Rob:
I think the profit, yeah, because I’m sure he sold a lot of million dollar plus home.

David:
Yeah. All right. I’m going to go with reality. I don’t think that’s true. I think he’s done more.

Rob:
Dang. Wow. Way to have faith, Dave.

Tarek:
So, what do you got, real or reality?

Rob:
I think it’s for real.

David:
It’s real. Yeah.

Tarek:
It’s for real. I’ve done seven figures on Flip or Flop.

Rob:
Now, the tables have turned or I guess they’ve turned halfway. We’re even now.

Tarek:
I have one right now. We should be closing in a couple weeks. I think it’s at about $1.15.

David:
So, I was guessing that. I thought it must be more than $1 million. I think the question was, have I got to $1 million? So, yeah, I misunderstood that, but still, we’ll give that to Rob, because I think he needs it. I’ll give you-

Rob:
I do need it.

David:
… a pity point. All right. Next one’s getting juicy here. Tarek’s wife’s show, she’s on Selling Sunset has better TV ratings than his does.

Tarek:
I’d just be real here. I’m not a beautiful woman selling $30 million houses. So, I would say that’s probably real.

David:
I was going to guess real. What were you going to guess, Rob?

Rob:
I think I was going to guess reality simply because the rating system is different. And so, just from a technicality standpoint, there are no TV ratings for her show.

Tarek:
Yeah. Well, I do know this. So, her show Selling Sunset is number two in the world for Netflix behind Stranger Things.

David:
Wow.

Tarek:
So, if that doesn’t tell you how big her show is, I don’t know what does.

David:
I have an idea how big it is just because I’m a real estate agent. So, I hear about this constantly. That’s a very, very big show.

Rob:
I have an idea as well because my wife watches it and I am always watching it with her by proxy. She’s very fascinated by it. Also, she told me, this is probably the awkward time to bring this up, but she said, congratulations. She’s like, “Can you tell I said congrats on the baby?” I was like, “I’ll work it in organically.”

Tarek:
Yeah, yeah, we’re having a baby. We just found out about six, seven weeks ago. We announced it a couple days. This weekend’s the gender reveal. We’re going to find out if it’s a boy or girl. So, I’m excited.

Rob:
Nice. Congrats.

David:
Congrats on that. Next statement here, Rob, real or reality, Tarek’s mom helps him with his flips.

Rob:
I think we’ll go real just because I want it to be. That’s very sweet.

David:
Yeah. I’m going to go real as well, because you mentioned I think in the beginning that your mom helped you with getting started or at least I have that idea in my head. Are we close?

Tarek:
That would be reality.

Rob:
No.

Tarek:
Here’s what my mom has helped me with. She helped me with a few things like removing an oil stain from a driveway once. So, maybe it is real. She helped me remove an oil stain from a driveway once. And then when I was first flipping out, I did use her as a private money lender and I paid her as an investor. So, I never took money from her, but I showed her a way to increase her income. And by the way, I never stopped investing her money and we’ve paid off her houses, which is exciting.

Rob:
That’s awesome, man. Yeah. Well, I guess we’re even on that because we both pick the same thing, right?

Tarek:
Yeah.

David:
All right. Next statement, Tarek has literally flipped over a house while flipping houses.

Rob:
Okay. Mechanics here. I got to imagine they’re transporting the house and then it fell off the truck or the crane came undone. I think we’ll go reality on that. Yeah. I think we’ll go reality on that.

David:
I want to say real. My brain tells me that there’s no way this could happen so reality. And then the flip thing, that’s a perfect thing to make up because of flipping, but there’s something in my brain that I might have saw in episode where they advertise on the commercial a sideways house or something. And so, I could completely be pulling this out of my butt, but I’m going to go with real just to switch from Rob. So, we don’t end up in a tie.

Tarek:
Okay. I might be a little confused on the question because flipped over a house. What was the question again?

David:
Well, it says, “I literally flipped a house over while flipping houses.”

Tarek:
Real and reality if we’re talking about the same thing. I did buy a house, it was on last year’s season. The foundation was messed up. I hired a company to fix the foundation. So, what they did is they stabilized the foundation, but in the process of stabilizing the foundation, they literally bent the house in half. So, the whole house was Boeing. So, I think it’s real and reality. I think both win.

David:
That’s good. I wonder if that’s what I was thinking in my mind. That could have been it, because of course, they do like the cliff hanger thing, what’s going to happen. They probably make your face look like, “Oh, the house is going to split in half.” That’s a pretty interesting thing to get into the show. All right. Next statement, Tarek was so poor that he had to buy $5 footlongs and make two meals out of it for two years in a row.

Rob:
I’m sorry. I don’t mean to laugh at that if that is true.

David:
Rob makes a habit out of laughing at other people’s poverty. Don’t feel bad.

Rob:
Well, shut up. All right. I think I’m going to go reality on that. It’s a good story, if not.

David:
All right, I’m going to shoot with real, because Tarek looks like he eats very healthy so I can see the Eat Fresh Refresh thing going on. He also mentioned that he got started at a very young age when he wasn’t doing super well. And I can tell as driven as you were, Tarek, if you were out there constantly hustling, looking for stuff, it probably wouldn’t surprise me because I used to do the very same thing. I was like, “All right, how can I spend $10 a day on food and make that stretch as far as possible?” So, I’m going to shoot with real.

Tarek:
It is 100% real. I’d get the $5 footlongs. I would turn that into two $2.50 meals. I would always eat the first one in the Subway and then I would get a water cup. I’d fill it up with 80% water and I would only steal about 20% of the lemonade just to get a little bit of a flavor.

Rob:
Little taste, right.

David:
That’s funny. Just grab as many lemons as you could put on there.

Rob:
Can I have 10 lemons and 2 sugar packets, please? I’m going to make my own lemonade.

Tarek:
I used to try to sell them on making one footlong sandwich, but making half of it turkey, half of it roast beef, but then they wouldn’t give the deal.

Rob:
Well, that’s why I was laughing at the premise that you have. You’re the hall of fame of Subway. They know you, they know your story, that you’ve got your photos on the window when you walk in because you’re like the star client.

Tarek:
Yeah, they should know me. I mean, I literally lived off of Subway. It’s all I could afford.

David:
Awesome. All right. That is a very funny story. I think I ended up winning by one point barely. All right, Tarek, this has been fantastic. We have held you hostage for long enough. We need to let you get back out there to flipping and flopping. For the people who heard the show that loved it, that want to know more about you, where can they find out more about you?

Tarek:
I’m pretty active on social media. On Instagram, it’s @therealtarekelmoussa and that shows everything about my life, everything about my shows, all the different companies we’re working on. Most excited thing I’m working on right now is my new company. I just announced, TEM Capital. Listen, like I said earlier, I’m an expert at finding deals. That’s what I’ve become a specialist in and I spent years doing that to find houses.

Tarek:
And now, I take that same skillset and now I partner with operators around the country that show us the best deals in the marketplace. So, if anyone’s looking to partner with me on some real estate, we have some great opportunities. Right now, I’m working on a self-storage in Surprise, Arizona. I am so in love with the deal. To get more information and partnering with me on real estate deals, you can go to temcapital.co.

David:
All right. Thank you for that. This has been a fantastic interview. Thank you very much for your time, Tarek. We’re going to let you get out of here. Hopefully, we get to do this again.

Tarek:
You got it. That was a lot of fun guys. Thank you.

Rob:
Awesome, man. Talk soon.

David:
All right. And that was our interview with Tarek El Moussa. Rob, what did you think?

Rob:
Man, that was really, really, really, really fun. My wife is thrilled that I mentioned her in this and then I told her, he said hi. She’s like, “Wait, for real?” I was like, “Yeah, it’s for real. Dreams come true, babe.” So, that’s it. Her bucket list is over. What about you, man?

David:
Yeah. Tarek is everyone’s wife’s favorite, isn’t he? I don’t have a wife, so I don’t have to worry about that element myself, but I thought we could probably do five more episodes with him. He’s got so much knowledge about real estate, entrepreneurship, the right attitude to make it happen. I love how he harped on don’t do everything yourself, right? Just focus on getting the next deal and work on leveraging stuff out from there. I think that’s a great business plan no matter what your business is.

Rob:
Yeah, for sure, man. Well, we got to have him on. Let’s have him back on to talk about the TV stuff, because I think there’s so much there to unpack too as someone who has a small peak behind the curtain, but obviously not to his level.

David:
Clearly, you’re referring to me with my House Hunters episode and my CNN appearances. Yeah.

Rob:
Oh, yeah, that’s right. That’s in the intro of your YouTube videos. Speaking of, where can people find you online, man?

David:
Check me out at @DavidGreene24 on social media, and on YouTube, I’m David Greene Real Estate. I’ve been making content there. How about you, Rob?

Rob:
You can find me on YouTube, @Robuilt, R-O-B-U-I-L-T. On Instagram, @Robuilt, and watch out for scammers. You’ll find five or six different accounts that mimic mine, but Robuilt is very clean and simple.

David:
All right. Any last words before we get out of here?

Rob:
No.

David:
Well, you did a great job today, by the way. I thought this was one of your better performances.

Rob:
Thank you. Man, I just needed to hear that today.

David:
All right. This is David Greene for Rob the one and only Abasolo signing out.