Ashley:
This is Real Estate Rookie, Episode 210.

Alex:
I think one thing that doesn’t get talked about enough early on in real estate is not so much about how do I do this thing. Everybody wants that very technical, how do I BRRRR something, how do I refinance something, but nobody talks to the kind of beginners, the rookies about is this method of investing going to suit your personality, your skill set, and your goals, and that is never a conversation I had on 20 years ago when I started investing. It was like, hey, everybody, I knew bought a house, used their VA loan, and then they moved, and they rented it out, and then you just rinse and repeat.

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

Tony:
And welcome to The Real Estate Rookie Podcast where every week, twice a week, we bring you the inspiration, information, motivation, and education you need to kickstart your investing journey. What I like to do to start these episodes off is read some reviews from the wonderful people in our rookie community. This week’s review comes from username, Bravesmith28 and Bravesmith says, “Impacted my life greatly. This podcast has been constantly pushing me in my real estate investing career. Listening to this podcast has got me thinking about different strategies to funneling leads to figure out what the property can be used for financing. I’ve purchased three single family properties since listened to this podcast, and I’m about to do my first short-term rental. I would not have even thought about this without the BiggerPockets podcast, and I’m looking forward to growing my business.”
So, Bravesmith, we appreciate you, congratulations on your success, and if you’re listening to this podcast and you have not yet left us a review, ask yourself what you’re doing with your life. All right? The more rating and reviews we get, the more folks we can reach, the more folks we can help, and that is our ultimate goal here at The Rookie Podcast. So, Ashley Kehr, boring banter time, tell me what’s going on. How are you?

Ashley:
Well, there’s one thing I just need to know before you can even get into anything with the podcast. When you do your intro, after I say our names and you say what this podcast is about, do you have that memorized, or do you have it written in front of you? I just need to know because you-

Tony:
I just kind of spitball it every time.

Ashley:
I know you do.

Tony:
It just kind of rolls off.

Ashley:
You do such a great job. Yeah.

Tony:
Thank you. Thank you. I’m glad it comes across as consistent. That’s what I was shooting for.

Ashley:
Yeah, and I’m so glad that you have that role, and I only have to remember our names and the episode number.

Tony:
I always think the same thing when you’re finishing the episodes and you’re like, “All right, I’m Ashley Kehr, blah, blah, blah,” and then you close it out. I feel like I would’ve screwed that up every single time.

Ashley:
Yeah, but it’s only just our names and our Instagram accounts, and then the ending, I just, see you later or see you next time or thanks for listening. It’s different every time. There is a sheer moment of panic every time where I’m like, “What do I say to end?”

Tony:
What do I say? Yeah, but you do a great job. You do a great job.

Ashley:
Thank you, thank you.

Tony:
And on that point, right, we read one of the reviews. It was a mean review saying that they hate our boring banter and this, that, and the other, and it’s been so crazy, Ashley. We’ve been hosting these monthly meetups, and since that episode aired, I don’t even remember which episode number it was that we talked about those mean reviews, I’ve had so many people at these meetups come to me and say, “I was so upset when I heard you guys say that. I don’t agree with that person at all. I love what you guys talk about. I love hearing about your guys’ stories.” So, just know that for the folks that appreciate me and Ashley sharing our personal stories at the beginning of the episodes, we appreciate you guys.

Ashley:
Maybe I need to get the courage to read that one review that was directed at me. Maybe one time it’ll be like, was it Jimmy Fallon that does the mean tweets where I read it out loud?

Tony:
We do a whole Saturday episode about this.

Ashley:
It’s a review where I laugh and cry at the same time. So, one day, I will work up the courage to read it out loud on the podcast. Maybe, Tony, one time we’re doing a live podcast, we’ll do a couple shots or something, then I’ll be good.

Tony:
There you go. In Denver, in Denver next.

Ashley:
Yeah, yeah, yeah. So, what’s new with you, Tony? What deals are you working on right now?

Tony:
Yeah, I mean, same old, same old. We’ve got four rehabs we’re working on right now, another three or four short-term rentals that we’re getting set up that we’ve already purchased. So, just busy, busy, busy. I think, depending on where this hotel deal goes, we might slow down a little bit on the acquisition side just to kind stabilize this hotel and stop my hair from falling out. So, we’ll see what happens.

Ashley:
Is there any left to fall out?

Tony:
No, there’s none. We bought them all. We’ve got them all.

Ashley:
Yeah, today I went and looked at a commercial property. So, it’s two units, and the majority of it, 80% of it, the larger unit is vacant, and then there is a smaller unit that is occupied right now, but there’s also a kiosk for a local bank that has an ATM there, and I cannot believe how much they pay in rent just to put this little ATM kiosk in the parking lot. It takes up no space. They don’t have any reserved of the parking spots. It’s not part of any of the building square footage, just off to the side, and they pay a ridiculous amount of rent, and when I was meeting with the property manager today, he said that at all of the buildings, he manages almost every single one, they reach out to a bank and ask them if they want to put a ATM kiosk in the parking lot of their plaza. So, I thought that was really cool.

Tony:
So, what’s your plan with the property?

Ashley:
So, it’s actually another investor that wants to buy it because he owns the adjacent property, and so, we went into it kind of looking at it for him, but he doesn’t need the whole square footage of the building. So, we kind of looked at the tenant that’s there now. Their lease is up in January, this coming January, and as of right now, it’s just, of course, they say we’re in negotiations, but that’s coming up really close. So, if that tenant was to move out, I’d be worried about what to put in that unit, but I think there’s huge potential in the front of the building. So, the other investor can take the back of the building and use it for what he needs, and then the front of the building, I think would be great indoor climate-controlled self-storage because there is none in the area.
So, just walk in this property, Daryl and I could visualize it. We’re like mapping out the unit sizes that could go in there and the walkways would be here, and we’re like, “Okay, we got to get AJ on the phone. What are we going to do here?” You guys don’t know AJ Osborne, self-storage king. But yeah, so that was exciting. But first we need to find out if the other investor can occupy the other unit, and if it makes sense for his current business to step in and take over this one. So, we had a little meeting with him and it was like you need to go to your manager and you need to break down, okay, what’s your new overhead going to be? How much can you increase your business by? And is there going to be a profit? Is this going to be worthwhile?
So, once we get those numbers in, then we can analyze the deal a bit better and see how it turns out, but exciting. It’s always exciting when… That’s the most exciting part to me, and I feel like I haven’t really gone and looked at a property in a while that I’ve been super excited about-

Tony:
You’re excited about.

Ashley:
… and I could just visualize this is how we can make income off of it because of different things they do. And so, yeah, just pumped up today from that.

Tony:
Yeah, I can see it. I can see the excitement.

Ashley:
And you know what? It actually made me realize this is what I need to get back to because Daryl handles a lot of that now is the acquisition side. It’s like I need to get a lot of other stuff off my plate so I can get back to the thing that I really love, and that’s acquiring the deals and underwriting them and figuring out how to make money off them.

Tony:
And not to go too far off a tangent, Ashley, but I love that. You’re saying that because when we interviewed Pat and Tim Rhode, their podcast will come out after this one, it’ll be episode 216, but they’re the founders of GoBundance, and in that episode, they talked about how they coach entrepreneurs to move from 100% obligation to 100% interest, and I feel like you and I have always struggled with that. Not struggled with it, but we haven’t been able to make that shift fully yet in our own businesses, right, and I’m in the same boat where it’s like I’m so excited to start building this team where they can handle all the things that I’m obligated to do, and I can really start focusing on the things that I’m mostly interested in. So, I’m glad that you’re starting to take those steps. I can see the excitement just vibing off your body.

Ashley:
I know, I’m super up today about it, and I don’t even know if this deal is going to happen. There’s so many moving pieces, but just day one going in and visualizing, and then I was so pumped up on the way home that I drove by this property that I drive by pretty much every single day, and I see it out of the corner of my eye and everything, but after looking at this other property, I was just like, “Wait, I could do this at this property. I could do this at that property.” I called the listing agent. I got some more information. I’m going to see that one tomorrow morning now too.

Tony:
There you go. You’re on a roll.

Ashley:
So, it’s just like when you’re motivated and you’re inspired and you’re pumped up, I feel like it gets the juices flowing like, okay, more ideas, more ideas then kind of flow through, and that’s why I love this podcast because listening to it and having these guests on, every single time I get motivated and excited.

Tony:
Yeah. Well, let’s talk about the guests today.

Ashley:
Yeah.

Tony:
Yeah, we have Alex and Beth on the podcast. So, Alex and Beth, they actually just recently wrote a book for BiggerPockets, and I’m going to give you the full title. It is called Lend to Live: Earn Hassle-Free Passive Income in Real Estate with Private Money Lending. So, essentially, the premise of this book is both Beth and Alex operate as private money lenders, and they’re kind of talking about what it’s like to be a real estate investor from that angle, but they also give people, I guess, advice on how to find private money lenders to work with. So, they’re kind of hit it from both sides, and I think they do a really good breakdown for new investors who have no experience, who have no deals about how those folks can go out and find and work with potential private money lenders, even if you have no one in your network.

Ashley:
Yeah, and that’s also something super exciting is using other people’s money to purchase a deal, and as you start learning about these different creative ways to finance a deal, it’s looking at a properties, okay, what are the different ways I can make money, but also looking at the property and saying, “Okay, what are the different ways I can finance this?”
So, this episode right here is just a great little crash course on using other people’s money to finance a deal, but also if you actually realize that you don’t want to own the property, you don’t want to be a landlord, and Alex says a statement about her in the beginning as to why she became a private money lender, and I think it’s really important to listen to because there’s all these different types of real estate investing, but they’re all different kinds of roles and passivity and being active in them, and they have different kind of responsibilities that you have when you pick a certain kind of real estate strategy or different type of way to invest in real estate. So, if you’re kind on the fence about what you want to do in real estate, this is a great episode to listen to too.

Tony:
Yeah, real quick, Ash, I’m glad you mentioned what Alex said at the top of the show about defining why she became a private money lender because I think that’s going to break down a lot of limiting beliefs that real estate rookies have when it comes to finding private money lenders and that they don’t have the skill set to find those folks. So, really, really pay attention when Alex goes into that piece.

Ashley:
Okay. Well, let’s get into the show. Alex and Beth, welcome to the show. Thank you so much for joining us. Alex, let’s start with you. Could you tell us a little bit about yourself and your history with real estate?

Alex:
Sure. I am a military spouse of 22 years now. I’m currently sitting my 19th address in 22 years, and the reason that’s important is that actually led to the reason I do private lending over other ways of investing in real estate.

Ashley:
That’s awesome. Well, we can’t wait to hear more about that, but you are here today because of something exciting that has come out. So, do you want to share that news and then we can move on to Beth?

Alex:
Sure. So, we now have a book out on the BiggerPockets platform, and it’s about private lending, and then really it’s from the perspective of how to be a private lender, but active investors can also find value in it in that it’s going to kind of teach you what private lenders are looking for, and you can also kind of work your network to say, “Hey, this is how I’m going to safeguard my capital. Here, I’ve read everything in this book. This is the action steps I’m going to take.” So, it’s really kind of written for both sides of the house.

Ashley:
Awesome. Well, we can’t wait to learn more and kind of get a crash course in both of those things. And Beth, what about you?

Beth:
Yeah, so I started in real estate investing in the early 2000s. I’d always considered it to be something that would be a side hustle. I grew up at my dad’s flip projects and his rehab projects and begrudgingly had to be there, but it gave me a lot of foundation to want to invest in real estate when I got older. I just happened to get into private money lending because of a blind date that I was set on. He’s now my husband, and we are running a private money matchmaking business, I would call it, in the Washington market, and over the years, we just kind of realized that a lot of people wanted to passively invest in real estate through private lending, and it became kind of a long arduous journey to grow it into an active business. So, Alex and I decided with our corporate education and academia background, we just kind of wanted to go public with private lending.

Tony:
So, Beth, I mean, you threw me for a second there when you said you started lending because of a blind date. I thought you became a private money lender to the person you went on the blind date with, but not quite how it worked out. I like your story a little bit better. So, I’m really curious. So, both of you, and I know we’ll get into this a little bit later, but both of you decided to lend or to become real estate investors because of the private money approach. So, Alex, we’ll start with you. Why was that the route that you chose to go down over the traditional buying a property and getting the tenants and doing that whole thing?

Alex:
So, just to be fair, I did those other options. I was a long-term landlord. I did fix and flip. I was absolutely miserable doing both of those things. I think one thing that doesn’t get talked about enough early on in real estate is not so much about how do I do this thing. Everybody wants that very technical, how do I BRRRR something, how do I refinance something, but nobody talks to the kind of beginners, the rookies about is this method of investing going to suit your personality, your skill set, and your goals, and that is never a conversation I had on 20 years ago when I started investing. It was like, hey, everybody, I knew bought a house, used their VA loan, and then they moved, and they rented it out, and then you just rinse and repeat, and while that can be a viable way to do something, it did not suit our skill set.
Just as an example, my husband and I do not have children. I don’t like children because I don’t want to babysit other human beings. Anybody who’s ever had to deal with contractors and tenants know all you’re doing is babysitting adult human beings, and it drove me crazy, whereas when I was lending money, whether it’s JV or kind of just as a lienholder on a property, I still had some relationship with them. It was still kind of collaborative which is what I enjoyed, but I didn’t have to babysit them. I didn’t have to go and say, “Hey, you installed the wrong beige tile in this room. It needed to be this other tile,” and stuff like that just drove me insane.
So, I finally just kind of happened upon this and I just discovered kind of, hey, this actually suits my personality. It suits my skill set and then also suits my lifestyle because, like I mentioned earlier, I move so much so the idea of trying to have six rentals in six different places we’ve lived being a long-term landlord from 2,000 miles away is just miserable to me. But not saying it’s a bad way to invest. It just, it didn’t suit my lifestyle as a military spouse.

Tony:
Beth, what about you?

Beth:
Well, my journey into private landing was kind of born out a necessity. So, as I mentioned, I was set up on a blind date. At the time, I was just a single mother of two. I was working part-time as a tech consultant, just trying to get my life back together. I had done flips, live-in flips, but my ex-husband was the other half of the sweat equity, and I just didn’t really see how I could possibly do it again and go it alone. And so, when Matt, my now husband, brought up the idea of getting in a private lending, he wanted to do it again, he’d done it in the past and had a couple of interested friends that also wanted to invest their capital, I was intrigued.
I mean, I learned about real estate investing through my parents, but I never knew how they sourced the capital for their project. So, after that date, and I tell this story all the time, I went home and googled private lending. I didn’t even know what it was, and I thought what an interesting way for me to be able to invest passively in real estate and still afford me the opportunity to grow my generational wealth and be a mom first. And so, that was the reason I got started into it.

Tony:
So, just to kind of clarify, what you guys are saying is that there are people who exist that are willing to take the money that they’ve earned and give it to someone else so that that person can then go invest in real estate, and all that person has to do is pay the first person back. That’s a thing that happens in the world today.

Alex:
All the time.

Beth:
Absolutely. I mean, BiggerPockets, everywhere you talk about it, it talks about other people’s money, right? Well, where are the other people in OPM? And they do exist out there.

Ashley:
Okay. So, let’s start to tailor this for rookie investors. You’re a rookie investor and maybe your ears picked up like, “Okay, I don’t have money. Maybe this is the way I can find money.” As a rookie, a new investor, how do you find the people like you, those other people? What are some steps they can take?

Alex:
I would say the first slices is realistically is going to your local meetup or local REIA event and just participating. That could be in virtual events. They get together at a micro brewery, coffee shop, whatever it is because a lot of times the private lenders like we are talking about today are not going to come forward with a formalized rate and term sheet. We’re a little more on the lurker side of life, not creepy, but we’re paying attention to who’s in our market and what they’re doing and how they’re doing it.
So, I would say showing up consistently and just talking about your business plan, if you know your numbers, “Hey, I’m looking for three-bedroom, two-bathroom homes in this city for this price range, and I plan on doing moderate rehabs,” and that gives everybody in your network a good idea of what you’re looking to buy. So, if you have also happen to have wholesalers in the room, they know, “Oh, wait a minute. I just heard this person say they want three twos in this city with this purchase price,” and anybody that has capital in the room also would be like, “Oh, okay. Well, I’m interested in lending in that city too.” So, it ends up being a point where you have to build your network.

Tony:
Beth, what about for you? What advice do you have for new folks that are looking to find those private money lenders?

Beth:
Yeah, I completely agree with Alex. I think it’s going to become more of a local network type of thing and not looking at the national level for private lenders. There’s a saying that people don’t care about what you know until they know that you care. So, lead in with personal relationships first. Always talk about the kind of work that you’re doing, and the more that you share about that, the more that people will become interested and want to know more and perhaps maybe invest in you and the projects.

Ashley:
A common question that Tony and I received often and I’m sure a lot of other investors get too is if they do have somebody that is willing to lend to them privately, the question that we get asked is how do I structure it, what is the correct way to structure it? And there’s no correct way, but what advice can you give to someone to here’s a starting point as to the first offer to have them put together some kind of deal? Do you have any advice or tips for that as how they should even approach the person with an offer, or do you just leave it up to the private lender to tell you what their terms are?

Alex:
I would say it kind of goes both ways. Private lending in the way we are talking about private lending is very much a relationship model. So, not necessarily this is it. There are some guidelines. Legally, we have to stay within these certain guidelines, but for the most part, it’s not this is hard and fast, this is everything we do, it’s two points for origination, 10% annualized rate. It’s really going to matter on the property, the person, just the deal as a whole.
But I would say having that discussion early on of what they lend on because for example, some private lenders might not lend on multifamily. They will be only single-family home investors. So, getting a real clear idea what they’re willing to lend on will be a great starting point and then specifically how you can protect them. So, if you are an active investor and you’re asking someone to send you $100,000 and everything’s going to run through closing. So just to be clear, no one’s exchanging money outside of closing, but you’re going to send $100,000 to this closing company and just kind of hope and pray this person performs like they’re saying.
So you can have a conversation with them and say, “Hey, this is how I’m going to protect you in the deal. You’ll be in the first lien position or first mortgage, first deed of trust, whatever it happens to be in your state. I’m going to have adequate hazard insurance. I’m going to get lenders title insurance. We’ll have a legal professional that’s knowledgeable in lending draw up the documentation.” So, when you start talking to them about all these ways that as an active investor I’m going to protect your money as a lender to me, that usually really kind of helps calm the fears of that potential new lender because they’re like, “Oh, okay. Well, I hadn’t even thought about that. I’m glad you thought about that.”

Ashley:
So, Alex, you mentioned something in there. You said that an example of a structure could be two points and then 10% interest annualized. Can you explain that for somebody who doesn’t even begin to comprehend what those terms even mean?

Alex:
Sure. So, anytime in the lending space somebody talks about points, it’s usually in the context of percentage points. So, two points for an origination fee would be 2% of the loan amount. So, if it’s a $100,000 property, it would be $2,000 in origination if it’s a two points origination fee. Annualized interest is the amount of interest you would pay over the course of 12 months. So, just to keep numbers simple, if it’s a 12% annualized interest rate, that means you’re roughly paying about 1% of the loan amount every single month in interest-only payments which are different than amortized mortgage payments which a lot of the people who might be, you bought your primary residence, and you’ve kind of had that shock of looking at your mortgage statement and be like, “I only had like $26 go towards my principal balance this month because I just closed on my house,” so it’s a little bit different from that structure. These are generally interest-only payments and they’re for a short time period, whereas your primary residence is 30 years and it’s an amortized payment.

Ashley:
Thank you so much for explaining that. Would you say that’s almost like two things that somebody could look at as a starting point? So, some of the advice I always give rookie investors when they’re trying to figure it out is just put something on paper that works for you and present it to the person you’re trying to get to finance your deal and then negotiate from there. Besides the interest rate and points, is there anything else that they should think of ahead of time when they’re kind of putting together a structure or an offer?

Beth:
I was going to say there’s so many more terms to consider other than just the rate and the points to pay for the loan. I think that’s the obvious choice to lead in on the conversation with working with lenders, but really performance matters greatly, understanding the length of the terms, how they’ll operate, and what kind of needs they’ll have from you as the borrower. The last thing you want, especially as a rookie is to have a lender that might want to meddle. I mean, I’ve had some lenders that have shown up to job sites before and you’re like, “Oh, what are you doing there?” They have to be included and communicated to effectively to understand where you’re at on a project, but you also, to Alex’s point, don’t need a babysitter.
So, understanding how the lender will operate, what kind of terms it can offer, if you have a hiccup in your deal and maybe you need a few more bucks to get across the finish line, are they willing to do so, are they flexible. So, those are some of the more qualitative aspects to vetting out a lender that I think are probably more important than rates and terms. Of course, you need to back into a specific profit margin, so your numbers need to pencil out correctly, but that really to me is one of the last factors to take into consideration when looking at a lender.

Tony:
I love that point, Beth, about making sure that there’s also a good working relationship there. Like you mentioned the phrase you don’t want a babysitter as your private money lender, and to someone that maybe has never worked the private money before, they might be willing to take money from anybody, anybody that’s got a pulse and is willing to give them that those funds. But I think, yes, when you get to a certain point, you definitely want to vet that private money lender to make sure that there is a good match there.
I want to go back just really quickly to the finding the private money lender piece because I always think about where I was when I started my investing career, and I had no network of people that had the liquid funds or the network worth to be a private money lender to me. I didn’t have friends, I didn’t have family, I didn’t have really anyone in my close circle that could do that for me, and I’m sure there’s a lot of rookie investors that are probably in that same boat. So, Alex, you mentioned going to the local meetup and kind of building relationships through there, but Beth, I’m curious to hear your take because you said that you work now as a matchmaker between new investors and private money lenders. Can you give us some more details on what that looks like?

Beth:
Sure. I think that one of the best ways to be able to legitimize yourself as a borrower is not only attend these types of REIA meetups, local real estate investing meetups so that you can share your story and make personal connections with people, but also sharing your successes or a little bit more about who you are on social media. I will tell you that most private lenders that I work with will do their digging. We put our inner psycho on and start stalking you on the internet to see what we can find out about you first, and so, it’s really important to showcase what you’re doing out there in terms of what are you learning about. Even if you don’t have any experience, where are you going to grow your experience and your education about real estate investing? That will naturally attract people to come and investigate what you’re doing and maybe it’ll peak their interest to want to invest in your projects and in to you particularly.

Tony:
Yeah. So, I want to get into the flip side of this actually being the private money lender, but one last follow up before we do. Alex, I’ll start with you on this one. So, say that I’m out there, I’m sharing my journey, and again, say I have no deals. Right? I’m a complete rookie, and I’m sure in my journey where I’m underwriting these deals, and I’m posting on my Instagram story, and I’m going to the meetups, and I’m talking to people. What happens when I actually find the deal that I need private money lending for? How do I actually open up that conversation with folks to see if they might be interested? As I’m meeting people, should I be asking them like, “Hey, would you ever be interested in lending in a private money situation?” Or should I wait until I have the deal and say, “Hey, I know we’ve never talked about this, but would you be interested?” Just kind of walk us through what you feel is the best approach for a rookie that’s done zero deals to start that conversation.

Alex:
I would say probably the first case, let people know of early, ahead of time, this is the type of property I’m shopping for, this is the business model I want to pursue. For example, if you are a BRRRR investor, maybe having a conversation with your local community bank or a mortgage broker so you can have a preapproval so when you start that conversation, you can say, “Hey, look, I want to BRRRR my first property, but I need funds to actually close on it, but I have a preapproval from a bank. I know I’m going to be able to refinance out.” That shows anybody, especially a private lender, that you’ve kind of thought about the numbers, you have the credit worthiness to refinance out because us as lenders are only paid out when you either sell the property or refinance the property. So, it’s very important to us that the exit strategy you’re putting forward actually is feasible, that you’re going to be able to do it.
And so, I’d say letting people know what you’re doing, how you’re doing it. Talking about your underwriting would really help too because if I could go in and scroll through Facebook, for example, and see you’ve analyzed five deals in the last two weeks, and you’re putting out numbers that seem realistic, even if you didn’t get the deal, put a contract out and didn’t get it, but you’re still putting numbers forward that are realistic, okay, your ARV isn’t super inflated. Your rehab cost budget looks pretty healthy and pretty accurate. To me, that’s going to let me know that, okay, they might be junior, they might be green, but they’re taking the steps, they’re educating themselves, and they’re learning about the process, and they’ve thought about how to get my money back to me.

Tony:
Beth, would you agree with that same approach?

Beth:
I’d a hundred percent agree. To the point that a borrower can really address lenders from the point of view of a lender, practicing underwriting deals, creating project proformas, sharing out your knowledge and not even just practicing it, but sharing with lenders and not be afraid to hear your deal kind of sucks. I’ve said it to a lot of investors before too. They actually appreciate that candor, and it gives them the practice of being able to present a deal, present themselves with a prospective lender, and I think that that’s just good experience to have, and when you pair yourself with a lender with experience or even another investor, right, maybe it’s doing some practice role-playing with another active investor, trying to pitch a deal to them as if they were going to invest as a creditor on the project, it’s just really good experience to have.
The more that you can practice and articulate your numbers, the better you’re going to come across to a lender, even without experience because we lend to borrowers all the time who are just getting started. Our mantra is everyone is just starting the same journey, they just may be on an earlier chapter than we are, but they still deserve a chance. So, without experience, you still have a chance to make a move so long as you’re practicing each of those steps along the way in terms of finding the right deal, underwriting it, presenting it to a lender, showcasing what you can bring to the table, and how you can safeguard their capital investment in you and the project will certainly go a long ways towards establishing some credibility.

Ashley:
That’s great advice. I love that step of don’t be afraid to take criticism as an investor pitching your deal. That’s almost like a checks and balance right there by having the private lender give you that criticism, give you that feedback. So, that’s awesome. I want to now take it and transition it to the other side. So, maybe someone listening is like Alex, and Alex, you hit it on the head right there by saying it’s babysitting adults when you have tenants. That was what made me want to quit property management was getting videos from a tenant videoing her ceiling because the tenant upstairs was banging their toilet seat too loud when they shut it, things like that. So, what if you want to be a private money lender? How do you put yourself out there without getting tons of people coming at you like, “Oh, give me money”? How do you weed through the deals? What’s your best advice for somebody who wants to start out as a private money lender?

Alex:
So, for private money lending the way we are doing, it tends to be very hyper local. So, if you happen to live in an area where you are willing to lend, I would recommend first stop is talking to an attorney that is familiar with lending specifically in your state. That may not be the person you closed your loan with when you bought your primary residence because a lot of those attorneys, not that they’re not capable, but they get emailed the mortgage documents from the lender. They didn’t self-generate them. So, I would say making sure you have that, you know what the legal guardrails are. Do you need to be an LLC? Do you need your borrower to be an LLC? How many loans can you do in a year and not be licensed? Do you even need a mortgage broker’s license?
And then second off, we are always lending on non-owner occupied property. It has to be investment property. So, again, because that owner-occupied property falls underneath federal regulations, whereas non-owner occupied property falls under state regulations. So, I would say knowing your location first where you’re willing to lend and then figuring out the laws that are associated with that location, and then start drilling down to what are you willing to lend on? Are you okay doing just single-family homes that need a quick fix and flip? Are you willing to take on something that has considerable damage from a flood or fire, maybe needs mold remediation? Do you want to handle projects where everything’s being taken down to the studs and they’re adding another thousand square feet? So, it sounds kind of counterintuitive when I say limit, limit, limit, pick a state, pick a market, pick a type of property, but the second you kind of put yourself out there, you’re going to get pitched everything. And so, the closer you can get to that ideal, quote unquote, ideal situation, it’s going to bring the right deal forward faster.

Ashley:
Alex, I think that’s such a great point you made, basically building a criteria. You hear that so often when you’re going after single-family homes or small multi-family. Have your criteria so you can weed through the deals. I’ve never even thought of, as a private money lender, have your criteria set too as to what you’re going to lend on, what kind of return you want. So, thank you for sharing that. Beth, what advice do you have for rookies that would like to get into private money lending?

Beth:
Well, just to add onto what Alex said, I mean, in our book, we actually have a personal assessment that is more of a pre-step to even getting started which allows you to really explore what your personal risk tolerance is, as she said, kind of ring-fence in what you want in terms of a project, a property, the loan size, the interest return that you’re expecting, but also exploring why you’re doing this to begin with because as she mentioned, getting into a real estate meetup room and saying that you’ve got money to lend, you kind of become the most popular person in the room. So, making sure that you understand that you want to do this passively, like I did. I started because I wanted to maintain being a mom first, and boy, it blew up into being an active business really fast, and it was hard for me at first. I think we’re finally in a good state where it can become more passive again, but really understanding why you’re getting into private lending to begin with, and so, that assessment really helps.
The second thing that I would add on is that private lending is not a DIY project. To Alex’s point, it takes a team. It takes a virtual team. It takes a team in place in the market that you’re going to be lending on if that’s not your local market. If you’re going to have some questions around hazard insurance, you might need to make a relationship with an insurance agent that can help vet out the insurance binder for you to make sure that it’s sufficient enough and that if there was a claim on a property that you get paid out. You’re going to need help evaluating projects and properties. That might mean that you need to get some valuation support from a real estate agent or another active investor who can take a look at a deal and give you a second opinion. You definitely need attorneys there. You need a title, an escrow company, or a closer. Some states close through attorneys. But having a whole team ready in place for you is extremely important because private lending starts with a relationship, but it still needs to be handled like a business transaction. There needs to be legal documentation created, signed, notarized, recorded, and put into place first so that nothing happens after the loan originates, or we try to mitigate as much as we can, right?

Tony:
Beth, Alex, I want to ask both of you a question and just give me a quick yes or a no, then we’ll kind of deep dive from there. Beth, have you ever lost money on a private money deal before?

Beth:
No.

Tony:
Alex, have you ever lost money on a private money deal before?

Alex:
No.

Tony:
So, you guys have both been pretty successful with this, and I mean, I’ve shared my journey obviously on the podcast. My second deal that I ever did as real estate investor, this house in Shreveport, Louisiana, lost $30,000, took me a year and a half to sell that stupid thing. So, I mean, there’s always risk in real estate investing, and even as a private money lender, there’s risk there as well. So, the fact that both of you have never lost money in a deal, you’ve been successful, I guess, what red flags should I be looking out for as a new private money lender to make sure that I don’t lose money on that deal?

Alex:
I would say making sure you don’t kind of mix that business with friendship because most people are going to say, because I see it on the BiggerPockets forum all the time, “Hey, my cousin’s best friend has a $100,000 they want to lend to me as a lender. Now I don’t know what the next step is.” And normally they’re just like, “Oh, they’ll give me the $100,000.” So, I would rather that everybody take home the message that things need to flow through the closing table because, like to Beth’s point, there’s going to be professionals that are involved in this transaction that not necessarily you’ve hired them to be on your side, but there’s other people looking out for the wellbeing of the deal. The title company is obviously going to be doing title search which includes some background information, like if there’s federal tax liens, they’re also going to appear on the title report.
So, having those professionals in place and being able to call and ask questions and say, “Hey, this works, does this fit what I’m looking to try and do?” So, I’d really say leaning into that team of experienced professionals is going to be the best way, or even just talking to another private lender and say, “Hey, I got this deal. I’m looking to fund it. This is the parameters. What do you think?” And everybody’s risk tolerance is going to be different. You could post that same question to 10 different private lenders and you’re going to get everything from yes, no, and maybe, and for different reasons from each private lender. So, I would say just really leaning into that network that Beth mentioned is going to be crucial for anybody new to private lending.

Beth:
Yeah, I would add while I haven’t personally lost any principle, nor have any of my investors in my circle, I’ve had plenty of investors or would-be private lenders come to me with stories of having lost principle. I just want to point out first that when people do lose principle, it’s not to any fault of their own. They trusted in the good intentions of others. Sometimes they just get mixed up with a bad player. Oftentimes, there’s a couple of key things that happen. One is the legal documentation just isn’t there. They either have poorly written documentation that doesn’t cover them legally, or there just wasn’t any legal documentation to begin with. I see that a lot. I’m concerned and I’m surprised actually how many deals occur without any legal documentation or promissory note, and then it’s not secured against real estate as well, making it really difficult to go after the borrower after that loan is in place.
So, the other issue that I would say that is even if it is secured by real estate, a really big issue here is that their borrower sometimes just has no skin in the game. Maybe the lender funded a hundred percent of the purchase price, and even then some of the rehab with a promise that they’ll get both an interest income as well as maybe a small equity share when the project is done. The problem with that is that they’re immediately underwater if the borrower goes dark, or maybe a general contractor comes in and scams the borrower to no fault to the borrower, but the GC runs off with a whole bunch of money and the borrower gets upset and just walks from the project. Why? Because it’s too easy. There’s no skin in the game.
So, an equity buffer, which for rookies is measured out in what we call an LTV or a loan to value which really means how much is the loan amount against how much it’s worth. So, if you have a $100,000 loan on a property that’s only worth 75,000 because you gave $25,000 for a cosmetic rehab also, as a lender, you’re immediately underwater. Your loan to value is in excess of a hundred percent. So, I really prescribed having a really significant equity buffer in place. We typically do our loans at 65 to 70% loan to value, and that gives you a 30% equity buffer in case something happens. And then we also try to require the borrower to come to table with some skin in the game, whether that’s in the form of a down payment, sometimes they’ll collateralize another property that they own, like a rental, in order to have some sort of tie into the project themselves that makes them want to perform.

Ashley:
Beth, in that scenario, do you allow them to go to another private lender to make up maybe another 20%. Say you’re lending them 60 and then they bring an additional 20 of their own. Do you allow that, or is it just, you’re bringing 60, and then they have to bring the 40 on their own, as in their own funds as you’ll look for proof of funds?

Beth:
Sure. Yes, we have. I will say it’s very circumstantial. There have been a few cases where the seller was willing to carry back some money in second position, meaning if we’re going to fund 600,000 out of a million-dollar deal, the seller says, “I will carry back that $400,000 behind your loan for a five-year term at 5%.” And if they’re willing to do so, on occasion, we’ve let that happen for experienced borrowers. I wouldn’t say that’s something that I would recommend for a lot of lenders. And one thing I don’t really like and allow is to have private lending fund that remaining balance, the down payment, also known as gap funding. Whether that’s secured or not, it’s just, again, they don’t have any skin in the game, and so, the borrower could easily walk. I try to make sure that I understand where their down payment’s coming from, and I’ll let Alex chime in on this because I know that she has a little bit more personal experience with these types of scenarios.

Alex:
Yeah, we often see new real estate investors working with, again, people in their networks who are new lenders and they say, “Oh, I have $20,000. I want to be a lender on this deal, and I’m going to do gap funding.” And a lot of times what they end up doing is they just give this active investor $20,000, they may or may not even get a promissory note back, and then they say, “Hey, here you go. This is the 20% down that you needed for that $100,000 house,” and while we might have been in a fantastic bull market for the last 18 years, however long it’s been since 2008, now that we’re kind of in a place in the market, in the economic cycle where that just rampant appreciation asset value, that’s going to be potentially a source that’s going to eat away at your equity buffer.
So, right now, your loan might be at 80% loan to value, but six months from now when they finish the rehab, if the market continues to soften, maybe you’re now at 90% or maybe you end up at 100%, and if you are someone that’s willing to take on that second lien, if you even put a lien on the property for that extra 20,000, you’re very easily going to be underwater. If anything goes wrong with that property, the tenants damage it, it’s has a fire and burns down and they don’t have adequate insurance, the market gets soft, there’s things that can happen that are outside the borrower’s control where if you’re providing that gap funding, you’re automatically underwater. And just for my personal risk tolerance and where we are in the economic cycle, doing that 20% down gap funding for another active investor so they can go and get a loan for the other 80% is just too far out of my risk tolerance with where we are in the market right now.

Ashley:
Well, thank you guys so much for sharing that with us. All of the information today has been great. So, if anybody wants to learn more, where can they find your book?

Alex:
They can find the book on the BiggerPockets bookstore. It’s available now, and the Audible and ebook version will be available on Amazon. There is an ebook version also on BiggerPockets, but the Amazon and Audible will be available middle of August. I think August 16th is the release date for those. So, anybody wants to listen while they’re driving around town, you can get the Audible version in a couple weeks.

Ashley:
Awesome. And you guys can go to biggerpockets.com/bookstore to check out Lend to Live, and also all the other BiggerPockets books. Beth, where can people reach out to you and find out some more information about you?

Beth:
Well, I’m on BiggerPockets so they can reach out to me there and message me there. I also have a website, flynnfamilylending.com. That’s my private lending matchmaking business, and so, I can be reached there as well.

Ashley:
And Alex?

Alex:
You can reach me at our email address. It’s [email protected], and the two is the number two. That’ll reach either one of us. Please feel free to reach out and I’m on LinkedIn and BiggerPockets as well. So, just look for my name and happy to have a connection there and send a message there as well.

Ashley:
Well, thank you guys so much. We really appreciate you coming on and giving us this little crash course on private lending, and rookies, definitely check out this book because even if you have ways to finance your first couple of deals, you can never have enough money in real estate. So, this will be a great resource to help you get started, whether you want to find private lending or you want to be a private lender. Well, Alex and Beth, thank you so much for joining us today. I’m Ashley, @wealthfromrentals, and he’s Tony, @tonyjrobinson on Instagram, and we’ll see you guys back on Wednesday for another episode of Real Estate Rookie.

Dave:
Hey, everyone. Welcome to On the Market. I’m your host, Dave Meyer. We all know that the housing market over the last couple of years has been absolutely red hot, but starting at the beginning of 2022, there have been a lot of headwinds that have caused people to wonder if the housing market is going to crash or see some modest declines over the next couple of years. And if you listen to the show, you probably know that on a national level, the housing market is still doing pretty well, but we are starting to see some pretty significant signs that the hot market we’ve been in is starting to cool down. But really, real estate investing is all local. So as an investor, what you’re probably wondering is what’s… It doesn’t matter as much what’s happening on a national scale, you’re probably curious what’s happening in a market that you currently invest in or one that you’re thinking about investing in.
So today, that’s what we’re going to talk about. We are going to talk about which markets are doing well and are showing signs that they can continue growing despite these economic headwinds. And we’re going to talk about the other types of markets that are showing some weakness and potentially are going to see declines over the next couple of years. Now, I’m going to mention some specific markets here, but I obviously can’t discuss every single market in the country in this podcast so I’m also going to share with you some data points that you should be looking at in your own individual investing so you can make your own evaluation on whether or not your specific markets are poised for further growth or they might see some setbacks in the next couple of years.Before we jump into it, let’s hear a quick word from our sponsor.
All right, so today we’re going to get into which markets are poised for growth and which are at risk of seeing declines over the next couple of years. Before we do the specific things that are happening right now, let’s just do a quick couple minute recap on what has led to this point in the housing market. First, we all know that home prices have been going up like crazy. They are up 43% since the beginning of the pandemic. So if you started in March of 2020 and went to July of 2022, prices have gone up 43%. That is insane. Usually, that takes decades to see that level of growth. And so, obviously when you see that kind of growth, people wonder if we’re in a bubble. And that is a good question. There is certainly some level of speculation, which is what causes a bubble. There is some level of speculation in the housing market, but there are also strong fundamentals that led to this really rapid appreciation.
Those fundamentals are first and foremost, demographics. I say this all the time, but it is true and it is not going to change. Millennials are now the largest generation in the US, and they’re at peak. Family formation and home buying age, that leads to a lot of demand. Second, we have seen interest rates near the lowest they have ever been and likely will ever go. And that also raises demand and improves affordability. People can just spend more on houses when interest rates are super low. Third, inflation and the abundance of money. We’ve talked about this a lot as well. We’ve seen the Fed injected trillions of dollars into the economy, and that pushes up asset prices and something that we saw for a while, not just in the housing market, but in the stock market and the crypto market as well.
And then lastly is extremely low inventory. We have seen days on market, which is the amount of time it’s takes to sell a home hover around 15 to 18 days over the last couple of years, when normally it’s 30 or 40 or 50 days to sell a house. And when there’s just so few houses on the market, it’s going to increase prices. That’s just how supply and demand work.
So there is some speculation, and this is important because when we talk about whether or not housing prices are going to go down, we have to understand why they went up in the first place. And these four things, demographics, low interest rate, inflation and low inventory are vitally important to what the situation is right now. When we’re talking about prices going down, we have to ask ourselves, “Are any of these four things starting to decline?” And the fact is, yes, some of them are. Let’s just take them one by one.
Demographics, that’s not going to change, right? Millennials, they are the age that they are, and maybe they will put off buying house or forming a family by a year or two, but you can’t really escape demographics. This is something that just drives economic forces long in a much more significant way than any of these short term trends. And so demographics are going to contribute to high demand in the housing market for the foreseeable future. Two, inflation. The money has already been printed. There’s new bills coming out in Congress that might even print more money. And so there is likely going to be more inflation over the next couple of years.
Now, I do think there are some signs. As of this recording, we did just see that in July, the CPI went down from 9.1% year over year to 8.5% year over year. That is an encouraging sign. But even if inflation peaked, and it is definitely too early to tell whether it peaked or not, it is likely going to be a very slow return to normal for inflation even if we did hit a peak. So I do think inflation is probably still there and going to be contributing to the housing market over the next couple of years. So far, demographics and inflation both support the housing market and have, at least I should say, it puts upward pressure on the housing market.
Now on the other side, interest rates are really what’s putting downward pressure on the housing market. Interest rates have risen. They were about 3.1% in January of 2022. As of this recording, they’re in the low to mid 5s for the average 30 year fixed rate mortgage. And that’s for the record, not for investors. That’s just for owner occupants.
And so that’s a really significant change. I mean, that is hundreds, if not, thousands of dollars per month in mortgage payments that it has gone up. And that just means people can’t spend as much on a home because their payments are going to be so much higher each month because of interest rates. We found some data from Black Knight, that puts out great data by the way, shows that housing affordability is now at its worst point since the early 1980s. And this is really important for pricing in the housing market because if people can’t afford to buy homes, they’re not going to. And so that decreases demand. And when demand falls, that is when prices can fall as well.
This just is a really important thing because from 2008, like after the recession, the housing market crashed and prices went down 20% and we entered this really low interest rate period that lasted nearly 15 years, housing from 2008 to 2020 was really relatively affordable. It’s like one of the cheapest it’s been at least in the last 40 or 50 years in the United States. And now fast forward, two years later, we’ve gone from a relatively very affordable housing market to a relatively very expensive housing market. And this is going to put significant downward pressure on the housing market.
The last thing here is inventory of course. This is sort of the X factor because so far over the last couple years, inventory, the number of houses that are on the market for people to buy has been down a lot, like a joke of a number. It’s been down to numbers that are maybe 1/3 or half of what they are normally. And so that has contributed to a lot of competition, which pushes up prices. This is the X factor because in some markets it’s starting to come back really dramatically, while in others it’s actually declining. And so we’ll get into that in a little bit.
So hopefully, this gives you some good context for what’s going on here, that demographics and inflation are probably going to keep putting upward pressure on the housing market, interest rates are putting downward pressure, and inventory is the X factor that’s sort of working on a market by market basis.
Okay. So that’s on a national scale, but what we want to talk about is a regional scale. What is happening in the individual housing markets and how are you as an investor or aspiring investor going to be impacted by this? And because we’re still in the midst of this market cooling period, there’s really no way to tell for sure which markets conceded decline. So I just want to get that out of the way. I don’t have a crystal ball. I don’t know exactly what’s going to happen. This is just my best reading of the data as it exists today.
I want to look at a few different measurements and lead indicators because obviously we don’t know for certain. So in those types of situation, what I do and I recommend you do is try and look at a lot of different data sources and see if there are themes that are emerging between different ways of measuring this. And that gives you a good general sense of what might happen. The data I want to look at is year over year price data. So that means I’m going to look at data that from June 2022 as compared to June 2021. We’re going to look at month over month price data, which is basically just last month compared to this month. We’ll look at inventory and days on market. Remember, that’s sort of the X factor. And then we’ll also talk about affordability a bit.
So first things first, year over year. In no markets are prices coming down year over year. I just want people to sort of internalize that because there are so many headlines right now that it’s like, “The housing market is cooling. It’s crashing. There’s a correction.” And that I do think is true. I do think there is a correction, we’re in the midst of that. But to keep that in context, there is no market that I’ve seen where housing prices have gone down on a year over year basis. And normally in the housing market, we look at year over year data because it’s seasonal, right? Because prices always are a little bit higher in the summer, they go down in the winter. The best way to measure the market and the way that most economists and housing market analysts and pretty much everyone looks at it is year over year data.
And so in that respect, nothing has gone down yet. But we can look at this data still and tell some interesting things because year over year, most housing markets were going up like crazy for the last couple years. So in Austin, for example, last year it went up 45% year over year, but now it’s down to 23% year over year. And 23% is still absolutely absurd. But the fact that the growth rate went from 45% to 23%, it got cut in half essentially, is really significant. It shows that the housing market is cooling. We’re not in this red scorching hot ultra competitive market anymore where things are just going up and up and up. They are starting to moderate. So that’s Austin. And on a year over year basis, Austin I think is the most dramatic shift that we’ve seen. But we also see cities on the west coast that are experiencing this as well.
So Sacramento went down 13.4%, San Jose at 11, Phoenix at 11, Seattle at 10 and Riverside, California at 10. So those are some of the most dramatic drops that we’ve seen in growth rate. So remember, I’m just going to say it one more time. That does not mean that prices went down year over year it means the rate of growth declined. So that’s something you should be looking at in your market as well, is, where things growing at 30% year over year and now they’re at 2% or 3%, that to me is a big sign that your market is shifting a lot. So year over year, normally in normal times, that’s what I’d really focus on. But because things are changing so much right now, I do think it’s important to look at month over month data. And in certain markets, it does seem like prices have actually peaked and are starting to come down.
And as I mentioned, normally we see a peak in the summer, things start to come down and then they peak again the next summer. And usually, that’s like July, August, maybe even September. But it looks like we might have hit a housing market peak in June and we’re seeing certain west coast cities that are now seeing declines on a month over month basis. So from May to June, for example, in San Jose, California prices went down 5%. In Seattle, they went down 4%. San Francisco was 3. Denver was one and a half. Portland and Phoenix are also up there. So these aren’t crazy numbers. We’re not seeing things drop really dramatically. And you won’t. The housing market doesn’t work like stocks. It doesn’t work like cryptocurrency. You’re not going to see a 20% drop in a month. That will never happen. Almost never. I shouldn’t say never. But that is very unlikely to happen.
But on these two basis, you’re seeing a trend occur, right? These cities, mostly on the west coast is what I’m seeing, that are seeing the most dramatic drops are Sacramento, San Jose, Seattle, San Francisco, a couple places in Denver and Utah are all showing that they might have hit a peak and are starting to decline. Honestly, these are kind of predictable. I think for anyone like me who follows these markets and was predicting which cities might see declines first, it was these cities, right? I mean, I probably would’ve thrown Boise on there and we’ll talk about Boise in a little bit. But the super expensive markets where affordability is relatively low, those are going to be the ones to go down first, because as we discussed earlier, what’s putting downward pressure on the housing market is affordability.So the cities that have the lowest affordability are the ones that are going to go down first.
And so again, I think it’s important and I want to just reiterate that these declines are not that large. And the market in this period, like in the last year, has seen huge increases in inventory, a lot of these markets. And we’ve seen huge declines in affordability. But all that said, the housing market is holding up, in my opinion, relatively well. I do think things are likely going to go down more. Don’t get me wrong. That’s my personal opinion. I just believe that. But I just want to reiterate that things are not going crazy despite really adverse conditions for the housing market. Things are only going down modestly. And to me, that sort of reiterates and reinforces my belief that I’ve held for a while is that we are unlikely to see a crash in the housing market. And I’d say that somewhere between 15, 20%, like I just see that as being very, very unrealistic.
Okay. So those two data sets year over year, month over month, both pointing to west coast cities, super expensive cities starting to see declines. But let’s look forward, right? Those are things that already happened. And to look forward, we can use what I call a lead indicator. That’s basically a data point that helps you predict a different data point in the future. So the lead indicators I want to look at are days on market and inventory, because those are a good measure of supply and demand. And if those things start to go up, it could predict housing market price declines in the future.
And so let’s just look at where we are with inventory. So inventory, like I said, was super low throughout the pandemic. It was a fraction of what it used to be, but that is starting to change. San Francisco is the first market in the country to officially return to pre pandemic inventory level. So that’s really significant, because to me, if prices are going to decline, you have to get to a normal housing market first. And having pre pandemic, inventory numbers is how you get to a normal housing market. And so San Francisco is the first city in the country where we’ve seen that. San Jose, another city is right behind that, just 1%. Las Vegas has seen its inventory skyrocketed. It used to be 40% below where it normally is, now it’s just 7% below. So it hasn’t reached pre pandemic levels yet, but it’s getting darn close. We’re also seeing Phoenix and Austin.
So again, what I said at the beginning of this show is that you want to look at multiple data points and see what trends emerge. So we’re already seeing trends emerge, right? San Francisco, San Jose, Las Vegas, Phoenix, Austin, they are showing up on all of these different data points as places that are potentially going to see housing market declines. I don’t know if that’s going to happen, but the data is suggesting that these are some of the weakest markets in the United States.
Okay. So that’s basically what we’re seeing, right? When I do my research and I look at particular markets that are overvalued or likely going to see these declines, these cities are leading the way. Now, if you are investing in a city and you didn’t hear me mention it and you’re thinking, “Oh my God, my city is doing great. There’s no chance to decline,” that’s not what I’m saying. I’m just giving you like the top five or 10 that are at the highest risk. And so if you want to figure out for yourself, which you should, you can download some data. I’ll put the link that I created. You can download the data to get inventory and pricing information and days on market for every city in the country. We’ll put that in the show notes. You should do this research for yourself.
The next thing I want to talk about is just some context about if you start to see more declines, like how bad it could get, because I think that’s what people really fear. You see 3% decline in Seattle and you’re like, “Okay, I can live with 3%. That’s not crazy. But is it going to be 20% like it was in the great recession?” Well, I don’t maintain economic models. I can’t say for sure, but we did find some research that is from Moody’s Analytics. It’s one of the biggest analytics market research firms in the whole country. They did some forecasts and they predicted basically which markets were likely to do well and likely to see declines between now and 2024. So it’s just cool because it gives you sort of like an 18 month time horizon, which I think is a really good way of looking at this because that’s probably, in my mind, we’re going to probably see inflation for a while and uncertain economic conditions for a while. And so forecasting out about 18 months I think should be a good frame of reference for you.
What they predicted was that three cities in Florida were actually going to be the most at risk. So it’s the Villages, which is one of the fastest growing communities in the whole country. It’s called the Villages, Florida, Punta Gorda and Cape Coral. So those are three, followed by Spokane, Washington. So they think those are going to be the worst till 2024. And according to them, the biggest decline in the country will be for the Villages at negative 13%. And that’s significant, right? 13% decline when you’re leveraged and when you’re buying into super expensive asset is a pretty big deal.
But keep in mind first that during the great recession, home prices did decline 20% nationally, and we are talking about the absolute worst city. If you start looking at some of the other cities that they’re predicting, it’s more in the 3, 4, 5, 7% decline. And so this is sort of what I… I have said something a couple months ago that my projection through 2024 was plus or minus 10%. So at best, it would be up 10% in the next through 2024. And at worst it would be down 20%. And I think this sort of reinforces that idea. I know that’s a super wide range because we just don’t know. It’s harder to make a better prediction than that, but I do think this reinforces the idea that the worst case scenario on a national level is probably not worse than a 10% decline.
On the other hand, Moody’s forecast that some cities are going to grow, and this sort of reinforces what we talk about on the show all the time, that certain markets are going to decline, certain markets are going to go up. Apparently, Moody’s Analytics agrees with us and they think that these particular markets, honestly, I have barely heard of any of these cities, are going to go up. So the top one is Albany, Georgia, and they’re giving that 10%. They think through 2024 it’s going to be a 10% increase. Then we have Casper, Wyoming. I’ve actually been there. I’ve heard of that one, 8%. New Bern, North Carolina at 7.6%. Augusta, Georgia, 7.2%. And Hartford, Connecticut at 7%. So again, we are seeing that some markets are going to keep growing in all… The most likely scenario I should say is that some markets are going to keep growing maybe up to about 8, 9, 10% up until 2024. Some markets are going to decline probably at worst in the 10 to 12% range through 2024. So it’s a wide spread.
I think that’s super interesting because it makes it sort of a researcher’s market, right? Like if you’re listening to the show and you like looking at data, that means that some markets are not going to do well. Some are going to do well. And if you do your research, you might be able to find the markets that are going to outperform the national housing market right now.
So across all of this research, I just want to sort of summarize the different things that we’re seeing as commonalities for the markets that are likely going to decline. Number one is massive appreciation. If something went up 60%, it is probably more likely to go down. Second is increasing inventory in days on market. And I really want to stress this one. You can find this data in the download. We’ll put that in the show notes. You can look at this on Realtor or Redfin, there’s data for this. But if inventory and days on market are starting to approach pre pandemic levels in your market, that is a very significant sign that your market might start to see housing declines. I don’t know if it’s going to happen for sure. Not in every single market, but to me, that’s the number one thing I would be looking for.
Next is migration hotspots. A lot of places like Boise and Austin and Phoenix saw huge increases in housing prices because a lot of people were moving there and with a potential recession. With just the economy just like slowing down, there’s a lot of uncertainty, migration is likely going to slow down. It doesn’t mean people are going to move back to where they’re from, but I think it’s going to slow down and that’s going to take a little fuel out of the fire.
And then the last thing as we talked about before is about affordability. Look at places that are really unaffordable. Those are the most likely to see declines. And based on some of the things that we’ve seen, you can see these are places like Austin, Sacramento, Phoenix, Boise is on that list, and honestly, a lot of cities in Florida. So those are some of the places where according to Black Knight, the payment to income ratio, which is basically how much money you make in versus what your mortgage payment is, is above 70%, which is absurd and makes it at what some of the least affordable markets in the entire country. If you want sort of a list of some of the big markets that I’ve seen that I personally believe are at sort of a higher risk…
And again, I don’t have a crystal ball. What I’m doing here is I’m looking at these different metrics, year over year data, month over month data, inventory data, days on market and affordability, I’m looking at all of that. I keep seeing certain cities come up over and over again even though these are independent analyses, and what I see are that Austin, Boise, Phoenix, Las Vegas, Reno, also Fort Myers, Florida, couple cities in Colorado where I invest, Colorado Springs, Denver, Boulder, definitely they’re already starting to see declines, Salt Lake city and Provo in Utah and Spokane, Washington. Those are ones that I just keep seeing over and over again. Again, I can’t tell you what’s going to happen, but those ones continue to show signs of some weakness and some wobbliness.
On the other hand, there are cities that are looking strong. And the one that keeps coming up, it’s kind of a random city. I mean, I grew up near here, but you never hear it sort of mentioned on a national level, but Hartford, Connecticut showing very strong signs, Baton Rouge, Louisiana, Virginia Beach, Virginia. If you want a large city, one of the biggest cities in the country, Chicago, Illinois still looks like a very good housing market. Albany, New York, Honolulu and Philadelphia all look relatively strong. And again, this is just me sitting here in August, in the beginning of August, telling you how the data reads. It’s going to change. And so if you’re an investor, you have to keep looking at these things over and over. This is just a snapshot in time on what we’re looking at today.
So that’s what I got for you guys. Hopefully this is helpful to you if you are worried about a housing market correction, or some people are excited about a housing market correction. Maybe you can’t afford to get into the housing market right now and you’d like to see prices come down and you’re wondering which markets that you’ve been looking at might start to see something come down and make it relatively more affordable for you to jump into it. So hopefully, this is helpful.
Just remember these couple of things. One, every market is going to be different. We’re seeing that more than ever. Over the last couple years, everything was going up. But in a normal housing market, regional differences, city differences are very significant. We’re returning to a time like that. Make sure to look for yourself. There’s going to be a lot of articles about this. Hell, I just listed a bunch of cities. That’s just my opinion. Don’t take my word for it. Go investigate this for yourself. Look at the data for yourself and determine what you think is going to happen.
Next, I also want to point out that even within a market, different neighborhoods and different asset classes and different price points are going to be pretty different right now, too. You’re starting to see like James, on one of our recent shows, was saying that in Seattle, high price point luxury market is getting hit way harder than affordable stuff and more affordable side of the spectrum was actually continuing to go up. That’s in the same market. So you need to be looking at these things. You can download some of the data, again, completely for free on biggerpockets.com. Just click on the link in the show notes. Just remember that this is sort of a researcher’s market. This is a good time to be someone who’s interested in data and dig into this.
Thank you all so much for listening. We’d love to know what you’re seeing in your market. We’re super curious, and it’d be helpful for other investors. So if you are doing this research and learning more about your individual market, we encourage you to go on biggerpockets.com. This show has its own forums. There’s an On the Market forums on biggerpockets.com. So we encourage you to go onto BiggerPockets forums, check that out and tell us what’s happening in your market. I will be on there. I would love to hear for it. I will respond to you. So go tell us what is going on in the market so we can all learn together as a community. Again, thank you all so much for listening to On the Market. My name’s Dave Meyer. If you want to interact with me and give me feedback about this show, I really appreciate that. You can do that on Instagram, where I am @thedatadeli. We’ll see you all next time.
On the Market is created by me, Dave Meyer, and Kalin Bennett. Produced by Kalin Bennett. Editing by Joel Ascarza and OnyxMedia. Copywriting by Nate Weintraub. And a very special thanks to the entire BiggerPockets team. The content on the show On the Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

Robert Shiller, Yale University professor of economics and Case-Shiller Index co-founder, joins ‘Power Lunch’ to discuss homebuilder sentiment, why homebuilders aren’t building and if home prices are actually starting to declining.

Ashley:
This is Real Estate Rookie episode 200 and niner.

Kenneth:
So people are realizing that there’s something going on in the economy. So I think it’s bringing fear to the market. Kind of what we’ve been doing is just trying to educate, because if you keep your money in the bank right now, it’s not making anything, it’s actually losing money, if you want to be, technicalities. Also, if you put it in stocks, I mean that would be very fearful. I would be scared to do that. And then crypto, I mean, that would be another thing that I would say was probably not the best idea. So where is the best place to put the money? I personally would say, and this might be biased, but I think it’s real estate just because it would hold its value, at least to an extent.

Ashley:
My name is Ashley Kehr, and I’m here with my cohost, Tony Robinson.

Tony:
And welcome to The Real Estate Rookie podcast, where every week, twice a week, we bring you the inspiration, information and education you need to kickstart your investing journey. Now, usually I kind of start this part of the episode with reading some highlights from recent reviews that we’ve gotten on the podcast, but today I’m going to switch it up just a little bit, and I want to read some comments we got on YouTube for one of our recent episodes we put out on YouTube. And in that episode, Ashley and I talked about how one of the reviews talked about how boring Ashley and I are, and we like to read some of the bad reviews from time to time as well. And we just so much appreciated how the rookie community came to have our back.
So someone said, I love their chemistry, I also love the rookie podcast because every guest provides tangible lessons learned. Someone else said, imaginary. Derek said, I love you guys and you’re genuine chemistry. The show is amazing and extremely helpful. Please invite me to the next pool party. Someone else said, I love Ashley’s laughing. It’s so genuine. Please don’t stop due to negative reviews. You seem so much fun. And the last one, this one is from Paul Garza says, don’t change. I learn from your intro. I like to hear what you guys are personally working on. Makes me think of different situations and angles. So guys, we love that you appreciate the boring banter between me and Ashley. And I love that we now have a new name for the intro of the podcast, the boring banter. So why don’t we get into some for today, Ashley, what’s new with you? Give me some boring updates.

Ashley:
Well, first of all, I want to say, I love you guys so much and thank you. Those really warmed my heart, reading those messages. And even if everybody hated my laugh, I cannot make it go away. I can’t help it. So thank you guys. We really appreciate you guys taking the time to make those comments for us.

Tony:
So what’s new, Ash? Give me some boring banter about Ashley Kehr’s universe these days.

Ashley:
Well, I’m super excited because Tony and I are headed to Denver, where we are going to do a podcast recording together, live in person, and then we are also hosting a meetup in Denver, so that is going to be August 15th. I’m not sure when this episode is airing, before or after, but if you guys were there, it was great to see you. I think this will come out after and then, but yeah, it’s always great to get together with Tony and Sarah. And then after that headed to Tony’s short-term rental conference. And then it will be BPCon, so super excited for it to be in sunny San Diego this year. So if you guys haven’t checked it out, go to biggerpockets.com/events, and hopefully we’ll see you there.

Tony:
Lots of travel, lots of good things happening. I guess the only update that I have on the business side is that we’re, the city that we invest in, actually, I think we did this for Rookie Reply about the permit changes for some of the cities we invest in.

Ashley:
Yeah. In Josh [inaudible 00:03:36].

Tony:
Yeah. So that’s causing us to kind of adjust our game plan, but there’s a lot of folks who are now, and this has always been the case of short-term rentals, people that are afraid to invest in cities where the regulations are a little bit more stringent, but honestly, I’ve never seen that as a bad thing, if anything, it just kind of weeds out some of your competition. So it means there’s less people that are going to be looking to buy, which means, A, you have a little bit more leverage when you’re purchasing properties and then, B, when you’re actually operating, obviously there’s less short-term rentals. That means there’s less supply, which means there’s potentially opportunity for you to charge more and higher prices, so.
Just another day in life of a short-term rental host, but trying to keep things moving. But anyway, we got a good guest today, right? So this is the end of the trilogy. We have Kenneth Donis and we’ve had all three of the Donis brothers on the podcast. So we have them together in episode 175. So Kenneth, Jeffrey, and Kerwin all came onto that episode together. And then we’ve been bringing each brother on separately to kind of talk about their specific parts of the business. So again, they were all together on 175, then Jeffrey was on episode 193, Kerwin was 199, and then we finish off today with Kenneth on 209. Kenneth, welcome back to the podcast, brother, excited to have you on kind of finishing out the trilogy of the Donis brothers. How you been, man? How you doing?

Kenneth:
I’m doing well, man. Thank you guys so much for having me. How are you guys doing?

Ashley:
Good.

Tony:
Man, trying to keep up with you. You and your brothers just travel all over the place. I see you guys posting pictures at this conference and that conference and seems like you guys are out there networking and making connections, man.

Kenneth:
Yeah, absolutely. We definitely try to have fun with it, trying to meet a lot of people. In this business it’s really about who you know, not what you know. Well, I would say it’s about what you know too, but definitely a lot more on who you know, so.

Ashley:
Kenneth, before we get into this episode anymore, can you just give a little bit of information about yourself and what you’re doing in real estate right now? Just in case somebody didn’t listen to your previous episode.

Kenneth:
Yeah, absolutely. Well, like they said, and thank you, Tony, for the introduction, Kenneth Donis here. One of three of the Donis brothers. I’m Head of Marketing for our company, Donis Investment Group. Currently we have a little north of a thousand units in our portfolio right now, looking to acquire some more. So we’re slowly growing, but yeah, thank you guys so much for having me.

Ashley:
And Kenneth, let’s break that down because I don’t want everybody to think that we brought on some expert who’s been doing it for 20 years and has built up a thousand units, and not to say you’re not an expert, but just tell everyone how long you’ve been doing this and how exactly you acquired those thousand units?

Kenneth:
Yeah. So my brothers and I started in real estate wholesaling a few years ago and we’ve been at multi-family for going on two years now. So it’s been a slow burn, but we’ve been able to be co-sponsored on a few deals alongside some of our partners we’re in a bigger mastermind group called Think Multifamily, so we definitely give a big shout out to them. That’s pretty much how we’ve been able to be a part of bigger projects, to be quite honest.

Ashley:
Okay. So let’s break that down a little bit. And confirm or deny this if I’m explaining this correctly. So within that group of people or other people that you’ve partnered with, you have either brought the deal or you’ve provided some kind of value to be a general partner in the deal. So it’s not like you’re going out and you’re just taken down a thousand units, the three of you by yourself, but you are strategizing as to how you can provide value and to get a piece of the pie. Is that correct?

Kenneth:
Yes, that is correct. So in this business, what we came to learn is in multi-family it’s really a team sport and in team sports you have different people that play different roles in different positions. So in different various of acquisitions that we’ve had we’ve helped out with different things. So yeah, I mean, it’s just a bunch of, pretty much, partners and we all have our own role and we all have our respective areas in which we can help out.

Ashley:
Kenneth that is great. Realizing, so young and so new into real estate, investing is leveraging those partnerships and obviously it’s turned you guys into experienced investors. You’ve built up a large portfolio and you’ve made tons of connections. Today, we want to focus on your piece of your company though, the marketing and the acquisitions, so let’s kind of start there. What’s the first thing you want to go over today, that is part of your job role?

Tony:
Sorry, Kenneth, really quickly before you jump into that. If you can, just for the listeners that aren’t yet familiar with the phrase syndication, just give us a quick rundown of what that is and then lean into to the part that you focus on.

Kenneth:
Yeah, absolutely. So basically the word, syndication, is just gathering money and then going out and buy something. So in this case, apartment syndication, so we’ll go out, gather the equity. Of course, we’re taking debt on these properties. So we’ll go out and gather the equity in order to buy apartment complexes. And then, of course, our investors that invest with us, they get a return on their investment or the money that they put into the deal, so that’s just kind of what it is in a nutshell. What I do is I’m Head of Acquisitions, so I am the one underwriting. Well, first off, meeting with brokers, getting deals, underwriting deals, touring the deals, pretty much all upfront, trying to find a deal, trying to find an opportunity in which we can provide our investors.

Ashley:
So the majority of these deals, are you guys the ones that are finding them and then bringing them to other people that are already general partners on a deal to build a team, and how are you selecting as to who you take your deal to?

Kenneth:
Yeah. So, like I said, in this group, we have been co-sponsors, meaning that we’ve helped out on various other items. So we’ve had other partners that actually found the deal. We’re actually working on our first deal that we’re working on that we found, or I found, in Atlanta. But as far as how we figure out what to take to our investors, well, first off, we go by market, we just want to… We have a buy box, right? So it’s kind of the similar to single family. You can look at every single multi-family apartment, but I mean, there’s so many of them that it would be too broad. So you have to narrow it down to what you’re looking for and what you would be willing to, I guess, put up with, right? So, one, the market, so whether you want to invest in a tertiary market, meaning it’s not as populated, it’s a little bit smaller, maybe not as much activity.
Or a primary market, something like Charlotte or Dallas, or like a larger market, that’s a little bit more competitive, but obviously they have steady rent growth, steady job growth. And then you go into looking into the asset itself. So do you want to invest in a little bit older assets, ’60s, ’50s product, and either, usually with those products, there’s sometimes a lot of problems with like plumbing and electrical, just because everything’s so old, or do you just want to do newer assets? Things that were built in the 2000s or late 1990s. So that’s kind of the buy box. Now, it also depends on how many units you would like to acquire. So if you’re syndicating, you could pretty much syndicate any amount of units, but obviously the more units you have, the larger the purchase price will be. So depending on your capacity or if you’re just buying it yourself, you can buy a few units and, or continue to buy larger, a hundred plus, 200, 300 units. So I think narrowing it down is very important.

Ashley:
Kenneth, how are you creating that criteria? So for example, part of your criteria is it must be at least like a hundred doors or something like that. How did you come up with that number? What’s, if someone out there is looking to go and do multi-family, how can they be like, okay, I know that I can maximize my return if I’m getting over a hundred units or I want to be in a B to A-class market. What are some tips and tricks you can give to people to help them actually define what their criteria is going to be, instead of just saying, oh, I know that I want luxury units? What’s the best way they can actually figure out where they’re going to get the best return?

Kenneth:
Yeah. Great question. And I think, I like to say, honestly, if the numbers make sense, I think any deal is a good deal. So if it’s a good deal, I think, doesn’t really matter about the unit size. Obviously the larger, the better, because you get a little bit economies, the scale, meaning you’re not spending more per unit, so you have a certain threshold as far as expenses, so a certain amount of units cover your expenses, if that makes sense? So after you surpass a certain threshold within the unit sizes, you’re not really increasing the amount of expenses, so you’re just making more profit. But I would say, it really depends on your situation.
If you think you have, if you’re an executive that is in a large corporation or a large company and you have a network of people that are making 100, 200, maybe more, thousand dollars a year, there’s a potential for you to be able to syndicate a lot of money and therefore you can go out and buy a larger asset. But if that’s not your case, if maybe you’re just at your job and maybe you’re not surrounded by people that are a little bit higher-net-worth, you can go out and buy a smaller apartment complex or a quadplex or a duplex. So it really depends on your own situation. That’s what, at least, what I would say, but it’s all down to the numbers, right?

Ashley:
So the first thing you would say to look at is what is your budget, almost. So if you’re going to be doing a syndication, if you’re going to be raising money, how much money can you raise if you’re going to be borrowing private money? How much is that? If you’re getting bank financing. How much do you believe that you’ll be able to get for a property and then kind of look at what the average cost is for that many doors. And this all applies to even single family homes or duplexes too. So you can narrow your criteria, your buy box, to look at properties that are within your budget.

Kenneth:
Exactly.

Ashley:
And then also you mentioned too, how many doors are going to cover your expenses? So look at the overhead. So if you have a property that has 20 units and it’s going to cost you X amount to have the driveway snow-plowed, but you can look at a property that has a hundred units but it’s still going to cost the same because it’s the same size driveway, or something like that, to have it plowed. I think that’s also, that’s great advice right there too, is to look at what is the overhead of the expenses where they’re most likely not going to change as those units increase.

Kenneth:
Yes. That is a hundred percent correct. And to touch on your first point. So it’s not just, I would say not really just your budget. I would also say, like I said, this apartments is really a business in which it’s who you know, because I personally don’t have the net worth or the liquidity in order to sign and qualify for these loans but I have a network of people that can sign on these loans and they have the experience, they have the net worth, they have the liquidity.
So, if you surround yourself or go out and meet people that can KP or basically be a key principle and sign on these loans or they could tell you, hey, I can write a cheque for, I have investors that can write a cheque for 10 million or whatever the amount, 1 million. So it’s also about who you know. So if you can, not necessarily how much money you have or your direct… Not exactly just how much money you have directly, but how much money around the people that you know have, and, or their net worth, pretty much.

Ashley:
Isn’t it funny, at least for me growing up, I was always taught, never co-sign for anyone, never co-sign on an auto loan. And now, as investors, we want to be the person that eventually co-signs for a $10 million to loan for a property. But yeah, it’s just funny how that changes.

Kenneth:
Yeah. I, a hundred percent, agree. And the reason is because, one, this is good debt, right? So this debt, as long as the asset keeps performing, that debt that you’re taking out is making you money, right? So we’ve always been taught, obviously car loans, house, depending on your perspective, those might not be the best kind of debt. And two, you get a slice of the pie for just signing on the loan. And I mean, yes, it’s somewhat of a risk, but these are all a majority non-recourse debt, meaning that as long as you’re not committing fraud and, or just operating the property correctly and you’re not doing anything that would pretty much trigger a bad boy carve-out, they can’t come after you personally. So you’re using your balance sheet and there’s, I would say, I wouldn’t say that there’s no downside or no risk, but there’s very minimal risk, I would say. So that’s why people do it.

Tony:
Yeah. So Kenneth, you’ve done a great job, but I just want to kind of like rephrase it, that way people would see it a little bit more clearly. So what are all the things that should go into someone’s buy box? So you talked about like number of doors, you talked about condition. What are the other few pieces someone should really narrow in on when they’re talking about their buy box?

Kenneth:
Yeah. So area, I’d say median household income, number of doors, which would kind of correlate with purchase price. So I think those kind of go hand in hand. Year built and yeah, those are pretty much, I would say are… And crime, but I think that kind of goes hand in hand with the area and stuff.

Tony:
So, I mean, and obviously you’re looking at price as well, right? You know that, hey, I’m not going to buy a property that’s a $100,000, I’m not going to buy a property that’s $100 million. So how are you determining what price point that you’re going after? Because since this is a syndication, obviously you don’t have the money in the bank today. So it’s like, how do you know what’s a reasonable price point for you to get under contract that you can then go out and raise money for?

Kenneth:
Yeah. Great question. And I think, so we kind of have an understanding as to, in our network, how much money we could put together if we had a deal that checked all the boxes, pretty much so to say. So if it’s in a great area, there’s job growth, population growth, the median household income is good, the asset is not old, doesn’t necessarily need a lot of work, there’s not a lot of crime. So if it checks all the boxes, what can our partners, some of our partners or the people that we know, how much money do we think we could bring to the deal? So that’s kind of what we look at first because, obviously, we’re bringing the equity, you’re raising the equity so that you can get the loan. And that’s kind of how we kind of reverse engineer to see, okay, well, this is our maximum purchase price, or at least this is where we feel comfortable.

Tony:
So there’s always the issues to you, Kenneth, with soft commitments, like soft commitments versus money wired, right? You can have one money for the soft commitments, but it’s going to be a different number when the money actually gets wired in. So what kind of buffer do you typically kind of look for? Right. It’s like, I don’t know, say for example, you’re buying a property and, we’ll just use round numbers, so it’s easier, but say you’re buying a property that’s a million dollars and say that your down payment and what you need comes out to, I don’t know, $400,000, what you need to close and execute your business plan. How much would you want to see in soft commitments before actually getting that property under contract to make sure that you can close on it?

Kenneth:
Yeah. I would say probably close to double. Well, I wouldn’t say double and that’s because… Yeah, I’d probably say maybe like three-fourths more, so let’s say like 600, likely. So we have a little bit extra that’s, I think that, that would be a safe, comfortable number.

Tony:
Okay. And then one last question on the money raising piece, we can keep moving. So given where the market is at today, I think there’s a lot of fear and uncertainty amongst some investors. Some people understand that this is a good time to buy because there’s less competition. Other investors are a little bit more frightened. How is the current market cycle impact, A, your underwriting in general, but then, B, your ability to go out there and raise the funds that you guys need?

Kenneth:
Yeah. So two huge things that just come to mind. A few, I’d say like six to eight months ago, we were getting 75, 80% leverage on, pretty much all day, on any asset that we were looking at, as long as the area was a good area. Nowadays, we’re getting quoted 65% leverage, 65 to 70% leverage, which obviously means that you need to raise more money. And then I would also touch on with everything going on in the pullback that we’ve seen in stock market, crypto and people, it’s an obvious that what, I don’t know if it was obvious, but I would say a lot of people are starting to realize that there’s less loan applications being applied for, I guess, for people in search for homes. And this is because interest rates are going up and that therefore correlates with the amount that you’re going to be paying per month.
So people are realizing that there’s something going on in the economy. So I think it’s bringing fear to the market. So I think kind of what we’ve been doing is just trying to educate, because if you keep your money in the bank right now, it’s not making anything, it’s actually losing money, if you want to be technicalities. Also, if you put it in stocks, I mean that would be very fearful. I would be scared to do that. And then crypto, I mean, that would be another thing that I would say is probably not the best idea. So where is the best place to put the money? I personally would say, and this might be biased, but I think it’s real estate just because it would hold its value, at least to an extent.

Tony:
Yeah. Just one follow up on that.

Kenneth:
Yeah.

Tony:
Can’t remember which hedge fund it was. It was either Blackstone or one of those big hedge funds. And they recently announced that they raised $30 billion for a real estate fund they’re going to be launching here shortly. And I think that was like one of the biggest raises they’ve done when it came to real estate. And one of their big selling points was that real estate is one of the best hedges against inflation. And I think that’s why there was so much interest and why they were able to garner so much investor capitals because real estate is one of the best ways to make sure that your capital, at least paces with, but can oftentimes outpace the rate of inflation.

Kenneth:
A hundred percent. I definitely agree. I mean, there’s a lot of different asset classes or investment vehicles that you can pretty much invest in, but we’ve, especially now, we’re all starting to realize, well, I guess I kind of knew this, but a lot of people are starting to realize that they aren’t as secure as you would think. And so there’s all this money that is now starting to be pulled out of these markets and they’re sophisticated enough to know that they don’t want to just leave their money in the bank. So they’re all chasing after an asset class that has been proven to pretty much beat inflation year by year.

Ashley:
Yeah. The only thing I would add to that is with putting money into the stock market, I think that if you are going to hold your money in the stock market for a long time, now could be a great time because if you look at the 30-year history of the stock market, especially index funds. Pretty much all my stock market money is in Vanguard Index Funds. And I still think that’s a great way to diversify if you don’t need your money within the next maybe several years, I think that you can see some growth there. But still 100%, real estate is still my favorite investment strategy that there is because you have so much more control over it.

Kenneth:
I agree. I mean, you don’t take a loss until you sell, right? So.

Ashley:
Yeah. So Kenneth, now that we’ve kind of talked about what your buy box is, your criteria. What is the next step? You find a property that fits that criteria, what happens next?

Kenneth:
Yeah. So there’s a underwriting process and a lot of people can do this on back of the napkin kind of thing, but we usually use an analyzer. So we go through our analyzer, we analyze the deal. There’s a lot of steps, I guess you could say, that you would want to go through and check out to make sure that these numbers make sense.

Ashley:
Kenneth, so when you mention your analyzer, is this like a software? Is this like a spreadsheet you guys put together? What exactly is that?

Kenneth:
It’s a spreadsheet. And like I said, I’m a part of a group. So the group actually built a spreadsheet. I could be biased when I say this, but I think that I’ve seen several spreadsheets and I think that this is the most in depth spreadsheet out there. And like I said, I’ve seen a few of them. I haven’t seen all of them, so that might be a biased thought. But I would say, obviously we want to look at the comps, see what other comparable properties, similar vintage, similar area, what they’re renting for and what condition their units are in. So obviously if you see this property and it’s ’80s build, let’s say, but it isn’t renovated, let’s say, but you see other properties that are similar in ’80s vintage in the same area that have grander countertops, new flooring, new cabinets, paint, the whole nine, but they’re getting $200 more.
Well, we can obviously tell that this subject property is not achieving those rents because they’re not in the same condition, but we can also conclude that if we went in and did the same renovations, we can likely get that same rent bump, so that’s kind of what we look into. So the rent comps. We also want to make sure that we get quotes. Several, there’s a several, a checklist. So we want to make sure that we get quotes from our insurance company, because you can take a guess as to what insurance will be, but I think most insurance companies provide free soft quotes, which they can, they’re pretty accurate. So it doesn’t take them that long either. So you would want to get an insurance quote to see what you’ll be paying an insurance.
We usually like to either consult a tax consultant because taxes can be very tricky depending on what county and they change in every county. Some counties they freeze, some counties they reassess on sale. It’s different all over the place. So there’s not like one strategy. So a tax consultant is what we usually like to do, but you could call your tax office and just kind of ask them, a historically, how do they appraise and what their millage rates are, which is just kind of what they assess.

Ashley:
So you’re talking about like calling the assessor’s office?

Kenneth:
Yeah, exactly. And they can pretty much provide guidance, but we just like to be pretty accurate with our numbers.

Tony:
Kenneth, one follow up question. I’ve actually never heard of a tax consultant when it comes to identifying property taxes. Usually what we do is we just call the county of the city or whatever. Where do you find this tax consultant? Is there like a website where folks do this? Or is it like just, yeah. How do you find this person?

Kenneth:
Yeah, well, I was put in touch, so like I said, that’s the good thing about being in a group, I guess that kind of has already people that they’ve used in the past. But I’m sure you could just Google tax consultant or tax assessor consultant then I’m sure that there’s, there’s tons of companies out there that just specialize, especially in certain areas. You would just want to make sure that, obviously, that person that you’re consulting is familiar with the tax in that county because if they’re not, like I said, it can change in counties and in each state there can be tons of counties, so. Yeah.

Tony:
Ashley, have you ever used a tax consultant or do you typically just reach out to the county assessor’s office too?

Ashley:
Yeah, just the assessor’s office.

Kenneth:
Yeah.

Tony:
Yeah. Interesting. All right. Sorry, Kenneth, didn’t want to get you off track, but I just wanted to [inaudible 00:27:23].

Kenneth:
No worries.

Tony:
So continue.

Kenneth:
And the reason we do that is, well, yes, to get a better accurate representation as to what the property taxes will be. Because if you’re in this, whenever single family, obviously you’re holding for long-term, but in the value on a multi-family property is what it produces an income. So if you’re incorrect about your numbers, that can negatively affect or positively affect your valuation. So we just want to make sure we’re as accurate. And also once you hire one, they can also try to pretty much appeal the assessment. So that’s kind of usually you use a tax consultant to appeal or go to the county and just appeal on your values so that they can lower your taxes. But yeah, so I guess the next thing on the list, we like to consult our local property management company.
So although we are, I would say, experts in the areas that we’re investing in, no one knows that area better than usually our property management companies. So we usually like to build relationships with property management companies that are in those areas that we’re investing in so that when we find an opportunity, we can go to them and they could potentially, they can provide us a budget for expenses, what similar properties of similar vintages and in this similar area are running at. For example, what they’re spending on marketing or payroll, things like that, because they know that market better than most people because they usually manage lots of units in that area. And also what they think based on the comps, what they think rents could be pushed to and what renovations you would need in order to achieve those rents. So I think, and we rely heavily on our property management company.

Tony:
And let me ask just one clarifying question, Kenneth. You’re running through a lot of really, I think, beneficial things to do, but are you doing all of this before or after submitting your initial offer to the seller, to the broker?

Kenneth:
Yeah. So this is all before we submit an offer. And the reason why is because in this business, it’s all about reputation and people, there’s a term called retrading, which basically means you go back and try to ask for a discount. And if you do that without, obviously, if you go in and do due diligence and find that there’s foundation issues and no one knew, or termite damage, for example, no one even knew that there was termite damage, then you need a discount because you need to repair that. But if it’s just because you didn’t do your numbers correctly, you’ll get a negative connotation to your name and it’s not really, it’s very frowned upon in this space.

Tony:
Gotcha.

Kenneth:
So we just want to make sure we have all of our ducks in a row, so that when we submit an offer, we don’t have to go back and try to get a discount for something we should have already kind of looked at.

Ashley:
Kenneth, how long does this initial checklist for underwriting take you? To get an insurance quote, to talk with your property management company. What’s an average timeframe? So if you think of an investor right now, or the past year, not even right now, going after single family or duplex, especially on the MLS, it’s like you have to analyze that deal that day. So what is kind of the timeframe look like for multi-family doing the underwriting?

Kenneth:
Yeah. And this depends, obviously, on various factors. Unfortunately, you have to depend on other people who are also very busy and are probably receiving tons of deals, especially now. But I would say, usually, I mean the initial underwriting, which I do, I guesstimate most of these numbers before I go to insurance, property management or a tax consultant. So I try to find those numbers for myself and just see, usually because I know the area and the market and things like that, usually they’re not too far off.
So if they don’t even pass that first, I don’t even go to that step. But once I do send it out to them, I’d say it takes anywhere from four days to a week for them to get back. Usually the, it depends on how much time we have, but on these deals it’s not like you’re buying, it’s usually pretty hefty of a price, so usually you have a lot of time to submit an offer. So I’d say usually they’re on market for at least a few, I’d say minimum two weeks, most of the time, almost like a month. So you have plenty of time.

Ashley:
So when this property, the underwriting goes through and you’re like, yes, we want to make an offer. Are you putting together a full contract? Are you submitting a letter of intent, an LOI? What’s kind of the next step after that?

Kenneth:
Yeah. So once you figure out like, okay, I like the area, I like the price, this makes sense for us, the returns are great. You then draft up a letter of intent, which just, it’s a non-binding agreement pretty much, just stating that this is the price, these are the terms. So usually not, more so now there’s less pushback, but usually on multi-family you’re putting hard money, day one, how much you’re going to be putting, there’s a certain period for due diligence, which is pretty standard in single family as well. And then how long you’ll take to close. So I think standard 60 days here in multi-family. So you kind of draft up the price, the terms and it’s a non-binding agreement, so it’s just showing your intent, but people pretty much respect that heavily in apartments.

Ashley:
So you guys can Google an LOI, a letter of intent, online and find a million different samples of what it looks like. And it’s very common in the commercial real estate world for a letter of intent to be submitted to a seller before you actually have a full contract drafted. So kind of what are some key elements of your letter of intent that you think everybody should use in theirs?

Kenneth:
Yeah. So like you said, you can find a ton of them. So obviously, the date, who it’s going to, the purchase price, the address, well, at least the name of the property, if you want the address but I just usually put the name, the purchase price, how much earnest money or hard money, if you want to put that, how long you’ll have to close, how long you’ll have for due diligence, and whether or not you’ll have financing contingency. Everything else can pretty much be spelled out in the contract. Which, I mean, the contracts are usually really long, so you don’t necessarily have to go into all of that.

Ashley:
So after you’ve submitted the LOI and put that together, what does the due diligent look like? Are you driving comps? Are you going to the actual property? Are you sending people there? What’s that the due diligence process look like for you?

Kenneth:
Yes. So, and I meant to say it, so before submitting an LOI, usually we tour the property. Now there’s some companies that don’t tour, they don’t even want to spend their time looking at it if they’re not even going to win the deal. And it really just depends on what you want to do. I personally think it’s just best to look at it, that way you’re not wasting your time or the other’s, seller’s or broker’s time.
So usually we like to get on site. We like to tour the property. Usually they’ll show you a renovated unit and then a classic unit, and then you’ll get to walk around. You’ll get to look at the amenities. You’ll get, I mean, you could drive the area. So usually we like to drive the area. We like to take a look at the comps that have sold, so sales comps. We like to take a look at rent comps. If we have the ability, we like to potentially schedule tours and secret shop, pretty much, rent comps to see kind of what their units are with our own eyes. Because you can look at it on the internet, but it looks a lot different, usually, in person. So we like to do all of that before submitting the LOI, and then yes, we submit the LOI.

Ashley:
And, of course, when you ask to see a unit as a potential buyer, they’re going to show you the best unit there is.

Kenneth:
Yes, exactly. Yeah.

Ashley:
So, you do the whole checklist and then once you’re like, okay, we like this deal, then you kind of save the actual visiting of the property last and then you’re going and writing your offer?

Kenneth:
Yes. That is usually the very last thing that we do.

Tony:
One follow up question on that, Kenneth. Where do you live in relation to the markets you’re investing in? Because I can imagine for some folks, say you live in California but you’re looking at the Dallas or the Midwest somewhere, it could get expensive trying to find all those properties before actually submitting your LOI. So how do you guys balance that, not wasting too much money up front if the deal doesn’t go anywhere?

Kenneth:
Yeah. And that’s a great question. So we do have properties that are a little away. So we’re in North Carolina and we own properties in Florida. We try to look for deals that are in North Carolina and Georgia, which are either driving distance or just a quick flight away. I would say or recommend that you look in your backyard, unless you’re in a market that you wouldn’t want to be investing in, which is up to your own preferences, right?
But I think the best would be to start just because if you, whenever you look at a map, usually in a place that you live, you can pretty quickly say, oh, I know where that’s at, that’s near this store or near this area and this area’s good, or I don’t know if I want to be in that area. So you kind of already understand that because I’m sure you’ve been driving to work. You’ve either been taking your dog to the veterinarian. You kind of already know the area. So I think that, that would be the best thing to kind of start off with in your backyard.

Tony:
Cool.

Ashley:
The last little piece here that I don’t think we touched on is when you are going to, you’re underwriting the deal, who are you talking to about financing the deals to get that, to find out how much you’re going to have to leverage the deal for, how much money you think you can raise, who’s going to sign for the loan, things like that? Are there key people you discuss that with before you go into underwriting?

Kenneth:
Yes. So as far as financing, so when we do underwrite, we do send it as well to, we use a mortgage broker that all of our group pretty much uses. But you can, I mean, the amount of debt that’s out there, as long as you qualify obviously, is actually insane. So especially with multi-family, they want to lend on these assets as long as it’s a good asset and you can prove that there is value potential. So I would say, you can pretty much Google any mortgage broker, go on LinkedIn and you can find them there. They’re all over the place. Fortunately for us, we have someone that we use and we also have someone that has the capability to, at least for all the deals we’re doing, they have the capability to sign on the loan as a key principle.
But like I said, it really just depends on your network of people. So if you know someone that’s pretty high network or net worth, I mean, and they’ve already told you that they’re willing to sign on loans, you can kind of keep that in mind. They’ll obvious, the mortgage broker will ask for balance sheets and liquidity state proof, things like that and also schedule real estate owned and things like that. But you can kind of have that in line before you go out and submit an offer, I’d say.

Tony:
Well, Kenneth, you’ve done a great job of walking us through kind of what that checklist looks like. But I just want to recap for the listeners to kind of package it up for them. So first you underwrite the deal, right? Then you’re getting your quotes, your insurance, your mortgage, your property management, your taxes. If all those things check out, then you’re actually trying to get boots on the ground, go walk the property, drive the comps. And then if everything checks out, you move on actually submitting your LOI. Does that sound about right?

Kenneth:
Yes. That’s a hundred percent correct.

Tony:
Okay. Awesome, man. So there’s a few pieces there that I want to spend a little bit more time drilling into because I think this is where most newer investors might find some challenges, but first is actually meeting with and networking with brokers. So early in my investing career, we had aspiration of also going into multi-family syndication. We had a really difficult time getting decent deals from brokers, right? Most brokers, they kind of have their Rolodex of syndicators that they get their deals to first, and if those syndicators don’t want it, then they’ll kind of start sharing it with other people, right? Which usually means you’re getting leftovers.

Kenneth:
Yeah.

Tony:
So how can a new investor, I guess, position themselves when talking to a broker to not get the deals that no one else wanted?

Kenneth:
Yeah, absolutely. So first of all, I mean, I think getting to know someone is the best way, honestly, and in order to do that, you need to see them in person, whether that’s you tell them that you’re going to be in the area, or if you live there, telling them, asking them if they want to go grab dinner or not dinner, usually lunch, I do. So go grab lunch or a coffee or something. That way you can get face to face, or if you’re already on their list and you go, usually you can go to their website, sign up for their email blast and they send you deals. So if they send you a deal and it’s on market, you can usually schedule a tour with them and go out and just tour with them, get to know them. And that way they kind of understand, they see you, they see that you’re serious.
And you just get in front of them because then you get to know them. You talk to them, you kind of learn about their story. They kind of learn about you. They see that you’re real, because most people they’ve never met before. So regardless, although you probably won’t be the number one person they think of, you will very easily differentiate yourself to the thousands of people that they have on their list, just because they have already seen you and they’ve gotten to speak to you, and you can get to know someone pretty easily when you speak with them in person because energy’s everything.

Ashley:
Let me ask you this. What’s a piece of advice you have where someone can get in front of somebody, like a really busy person, where if you ask them to coffee, you ask them to dinner, to buy them dinner, if you want to just stop into their office and talk, that, that’s not going to happen because they’re too busy for that. Even if it is somebody who wants your business, if you’re not somebody they know already has a track record or can definitely close a deal, it’s going to be a lot harder to get in front of someone. So do you have an advice of how you can stick out in their mind at all? Is it sending them a gift every single week or nonstop phone calls, sending letter, love letters.

Kenneth:
Yeah.

Ashley:
I don’t know. What would your advice be on that?

Kenneth:
That’s a great question. So two things, if you’re speaking about brokers, in general, in order to, I guess, get brokers to like you, I would say just really getting in front of them. I mean, like I said, whether or not you can, sometimes they give opportunities. If you constantly go on tours, you constantly underway and then you answer them and tell them, hey, this deal does not work because of X, I don’t like the area or the returns are not there or just kind of explain why the deal doesn’t work for you. They’ll start to kind of understand what you’re looking for and they understand you’re serious, but if they send you something and then you just never answer them, they won’t ever really understand kind of why the deal didn’t work. So you’re not really helping them.
Now, if you’re just talking about, I’d say, I guess, valuable people or people that are high-net-worth or just people that don’t have much time, I’d say the number one way is to start a podcast. We, on our podcast, we’ve been able to bring a ton of people. We’ve been able to ask them good questions, but really sometimes questions that we have ourselves. And most people, if you kind of invite them to your podcast, most of the time, they would love to get on a podcast because it’s more exposure for them. And they’re not going to just ask you, how many downloads do you have or anything like that, anything crazy. And over time, you’ll have great conversations with a lot of people. Usually you’ll get their email, at least. Sometimes you can even get their phone number on their signup sheet. And yeah, you can stay in contact or email them once in a while.

Tony:
That’s a great tip, Kenneth, about starting your own podcast. And I’ve shared the story many times, but when I started my first podcast, that was a big part of my motivation as well. It was just like meet as many people as I could. And I was putting out three episodes a week when I first started my podcast and I was doing the math. I was like three people a week at 52 weeks a year, that’s like over a 150 people I’m going to get to meet and talk with, as I’m doing this podcast. And I love that. But one follow up question. How many deals would you say you have to look at? How many deals will a broker send you before you find one that’s actually worth something? Is it one good deal for every five? Is it one good deal for every 100? Where do you kind of fall in that spectrum?

Kenneth:
Yeah. I would say, so I guess, and I think maybe things have changed now. I think the market is turning into a buyer’s market. So we kind of have more say. But as of recently, usually it’s about every 100 deals, 10 of them will make sense for you or fit your, I guess, criteria or something or get… Yeah, your criteria, I mean. And then out of those 10, you’ll probably submit those 10 offers, and out of those 10 you’ll potentially get one or two accepted. And then out of those one or two, you’ll close on one. So two accepted you’ll close on one. So that’s kind of like the metric, I guess. So we aim to underwrite a 100 deals. I wouldn’t say as fast as possible, but we kind of know once we’re getting closer to a 100, it just seems to work out somehow.

Ashley:
And that shows the importance of keeping track too. So you actually know what that metric is within your business.

Kenneth:
Absolutely. Yeah. Organization is key, for sure.

Ashley:
Yeah. Kenneth, this has been all great advice and I want to keep it going by moving on to our Rookie Request Line. As a listener, you can call in at any time to 1-888-5-ROOKIE, and leave us a voicemail. Tony and I will get it, and we may pick it to be played on our show for a guest. So this week’s question is from Nick Bowers from Colorado Springs. I have a question regarding my first investment. I’m investing out of state. Now I’m torn between cash flow or appreciation. I’m worried that I can’t do a cash-out refi on multi-family and grow my portfolio. Which avenue do you guys suggest? Thank you for your time and I love the show. So what would be your advice there, Kenneth?

Kenneth:
Yeah, so especially in times like now, I would say obviously you want to be in a market in which there’s potential for appreciation, but I would say that the number one thing that you should not compromise is cash flow. As long as the property is cash flowing, it doesn’t matter what the value is. You’re still making money. You can still service the debt. You can still service all of the expenses and you can keep it. The worst thing to happen in real estate is not to be able to make your payments or have negative cash flow because that’s kind of what can hurt you if there is a downturn. Evaluations may fluctuate, but if your property’s just producing income and usually rents stay steady through recessions, which is pretty historical, you will be fine. So I would say cash flow for sure. But obviously, you would like to look into a market that has potential for some upside.

Tony:
Yeah. Kenneth, that’s a great point. And honestly, this question about cash flow versus appreciation comes up a lot and, honestly, I think it comes down to the unique person situation. If you’re trying to replace your W-2 income as fast as you possibly can, appreciation isn’t going to help you a whole heck of a lot, right? You need cash flow. But if you’re just trying to invest as a way to help supplement your retirement, then yeah, maybe cash flow isn’t as important today and you’re more concerned about appreciation. So whenever someone asks this question about appreciation versus cash flow, I think it’s a deeply personal question that’s really more aligned with what that person’s goals are when it comes to real estate investing. For me, cash flow is always more important because I knew I needed the money coming in to replace my W-2 income. So I think hopefully that helps point you in the right direction.

Kenneth:
Yeah. Correct.

Tony:
Kenneth, we want to take you onto our rookie exam. So I know you answered this back when you were on with your brothers, but maybe we can tailor your answers today to be a little bit more about the acquisition side of the business you’re focused on. So if you’re ready, we’ll take you to the rookie exam.

Kenneth:
Awesome. Let’s do it.

Tony:
All right. So question number one. What’s one actionable thing people should do after listening to this episode?

Kenneth:
Yes. So I mean, whether you learn how to underwrite, and underwriting can be pretty, it can get complex, but I would say it can be very simple as well. Just learn how to underwrite on the back of the napkin. And or if you have, if you can find an analyzer that you want to use or a model that you want to use, just underwrite deals, whether or not you’re going to go out and look at them or you don’t have to go through all the way, but just understanding why the numbers are the way they are and what makes them that way. I think just looking at deals and learning how to underwrite deals is just the most important thing.

Ashley:
And if you need something to use to analyze a deal, you can go to biggerpockets.com and use the calculators on there to analyze a deal.

Kenneth:
Exactly.

Ashley:
You get five times free and then, but if you’re a pro member it’s unlimited, so.

Kenneth:
There you go.

Ashley:
A really great, easy way to get started because there’s a little link next to every expense, every income input, every input has a little blue link and you click on that and it tells you what it is and where to get that information from. So really great for beginners and experienced investors too. Hey, Kenneth, one question real quick. When you are talking to a mortgage broker, you’re talking to investors, you have some kind of report or you’re showing your calculator, your spreadsheet to these people, that’s super beneficial, right? To have something to kind of put in front of them, instead of just saying, hey, this deal is going to cash flow X amount without showing the proof. Yeah.

Kenneth:
Yeah, exactly. So you obviously build a pro forma, which is just looking into the future, what you think you’ll be spending on each item like payroll, what taxes will be, what marketing is going to be. Just going through those line items and what you think you’ll spend, and then also where you think income will be based on where you think you can push rents. So kind of showing them that spreadsheet and those numbers kind of helps them put together an image or the vision as what you’re seeing.

Ashley:
Yeah, and the Bigger Pockets calculator reports have, once you analyze it, you can just print off a report, little pretty chart, all your numbers on it to show to people. So mortgage brokers or investors on the deal.

Kenneth:
Awesome. Yeah.

Ashley:
Okay. So our next question for you, Kenneth, is as far as your role in marketing acquisitions, what’s one tool, software app, or system in your business that you use?

Kenneth:
I would say CoStar, but that might be a little pricey. Really, I mean, honestly, you can use apartments.com. I sometimes go to apartments.com. I mean, maybe it’s not really like software, but apartments.com, I mean, that’s literally, I’d say, a majority of the time that’s where most apartments market their rent and they put pictures there. They try to make their property look as beautiful as possible and try to market. Because whenever you search up, if you’re moving to a new place and you search up apartments for wherever, apartments.com does their own marketing, so likely their ad or their website is going to be the first link up in the top. So most apartments and us included, we use apartments.com and we market on apartments.com. So I use that to look up rent comp. So I find the subject property and then I’ll look at other properties in the area and kind of see what their finishes are, what their renovations look like, and then what they’re renting their units out for.

Tony:
Awesome brother. So last question for you, where do you plan on being in five years?

Kenneth:
Five years. Oh, wow. That’s a long time from now. So we have, I’d say, some pretty audacious goals. We’ve come across people that have grown their companies pretty quickly. So I’d say one year, five years, I’d say half a billion of assets under management and on the acquisition side, so not as a co-sponsor, pretty much as acquisitions, at least. So yeah, I’d say that, that’s our goal. So whether, and I would say units, but wherever, depending on the market, it could be a 100,000 per unit or a 130,000 per unit. So I think that kind of varies. So yeah, I’d say, closer to a half a billion in management.

Tony:
I love that Kenneth. So our goal in our business is to get to 1 billion in 10 years. So half a billion in five years is almost the same thing, man. So I love that.

Kenneth:
That’s our tenure, so that I just had to do, yeah.

Tony:
You did cut it in half, right?

Kenneth:
Yeah.

Tony:
I love it, man. All right, cool. So let me highlight this week’s rookie rockstar. This is Jason V from Wilmington, North Carolina. I’ve actually never been there, but we’re actually looking at some properties in the North Carolina area. So I might have to pick your brain Kenneth. But Jason says that he’s been investing for two years now and wants hear his most recent success story, but he closed in an eightplex last week. And as part of this deal, he was able to complete a 1031 exchange and got his first commercial property, first commercial loan.
So he believes that the fair market value with the current rent is around $700,000. He plans to do a cash-out refi in six to 12 months and hopefully pull out $200,000. And he’s believing that the value at that time of the property would be about a million bucks, which is amazing, right? To increase the value in such a short period of time. So Jason, congratulations to you, excited to see you get that first commercial deal done. And hopefully we’ll get you on the show soon, once this deal wraps up. So you can tell us all about it.

Kenneth:
Yeah. Jason, congrats. Wilmington is like two and a half, I’m in Durham, North Carolina, so that’s a two and a half hour drive from us. My brother actually studied at UNC Wilmington before dropping out and pursuing real estate full-time. But congrats, that’s awesome. Hit us up, so we can link.

Ashley:
Yeah. Great job, Jason. Excited to see what you do with the deal. Well, Kenneth, thank you so much for joining us again, back on the podcast. Can you tell everyone where they can reach out to you and find out some more information about you?

Kenneth:
Yes, absolutely. So you guys can find us on pretty much at @donisbrothers and that’s Donis, D-O-N as in Nancy, I-S and then brothers on YouTube, Instagram, Twitter, where else? Oh, TikTok. Pretty much every platform.

Tony:
Everywhere.

Kenneth:
Yeah, pretty much everywhere. And then our website is www.donisinvestmentgroup.com, if you guys want to learn more about investing in multi-family and why that might be beneficial for you guys. Yeah, you guys should check us out.

Ashley:
Hey, well, thank you so much. We really enjoyed having you back. So make sure you guys go back and take a listen to the Donis brothers episode. So we had the first episode with all three of them, number 175. Jeffrey was on 193 and Kerwin was on 199. So yeah, thank you so much for joining us. I’m Ashley, @wealthfromrentals and he’s Tony, @tonyjrobinson. And we will be back with another episode.

David:
This is the BiggerPockets Podcast, Show 648.

Pat:
But the difference is most people think that when they jump off a cliff, they’re just going to fall straight to the ground if they don’t prepare an airplane on the way down. You’ve heard that ad. It’s entrepreneurs jump off a cliff, and then they build an airplane on the way down. Well, most people think I’m not going to be able to build an airplane. So I’m not going to jump off the cliff. And what we’re saying is, look, it is scary to jump off the cliff and we’re not telling you to jump off the cliff. We’re telling you to jump off the cliff, but we have a bunch of trapeze swings that you could grab onto.

David:
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with my co-host and good friend, Rob Abasolo, interviewing two mentors of mine. In today’s show, we bring back Tim Rhode and Pat Hiban, both OGs and juggernauts in the real estate space in their respective rights, who are incredibly successful agents at the top of the world in their prime and walked away from that job, quit it to find a better life for themselves that centered more around giving back to other people, working in nonprofits, pouring into others’ lives and making a whole bunch of money investing in real estate passively.
In today’s show, we dive deep and they share their story of the obstacles that they faced when trying to overcome their fear of quitting, as well as the audit that they did on their lives, that they call the soul-sucking audit to determine how happy they really were and what could be different. It is a fantastic episode. I think this is going to resonate with 99% of the people that are listening, who are here because they have their own soul-sucking issues in their life. And they don’t know how to get rid of those leeches that are dragging them down. Rob, any thoughts about the show before we get into the quick tip?

Rob:
Yeah, two thoughts. First one, this was really fun because we get to hear the David Greene origin story about how you started off as a gold miner for Tim Rhodes, with some clarification there later. And then two, this was really fun for me as someone who just quit my job about 16 months ago or so, because a lot of the systems and the tools that they talk about and the terminology is all a very official way to put everything in perspective for me when I was doing this, when I was getting into this, I mean, it was just crazy scattered brain thoughts in the ether. I wish I had talked to them so that I could at least have placed some sort of system in my mind to how to approach this because everything they said, I was like, oh, I did think of that. Oh, I didn’t think that. It was not nearly as organized or as cool as you just said it. I had to sort of figure that stuff out by myself.
So I think for anyone in their journey right now, who’s thinking about quitting and becoming a full-time, whatever it is they want to be, self-employed person, this will be a really good episode for you to really put things into, I don’t know, into tangible steps, I guess would be the best way to describe it.

David:
Moving on to today’s quick tip, consider BiggerPockets’ newest book written by Tim Rhode and Pat Hiban, The Quitter’s Manifesto. They’ve actually written a book that spells out tactical steps to quit where you’re at and get to where you want to be. This is not a feel good self-help, get y’all jazzed up and then say, go float your way into the ether and figure this out. No, this is actual step-by-step things that you can do, how to take an audit of your life, to decide if you’re happy, how to make changes so that you will be happy and get from where you are to where you want to go just like they’ve done and have helped countless other people, including myself to do the same. You can get that at biggerpockets.com/quittersmanifesto, or if you don’t like spelling, just go to biggerpockets.com/store and you can find it there.
All right. Let’s bring in Pat and Tim. Tim Rhode and Pat Hiban, welcome to the BiggerPockets Podcast. Welcome back to the BiggerPockets Podcast. We’ve got some return guest action going on.

Pat:
Yeah, man. Good to be here. Wow. Been a while. I was trying to figure out when I was on last.

David:
Yeah. So we had you on episode, I believe it was 188 and Tim, you were a little more recent on 353. Both of those were very highly downloaded episodes. So BiggerPockets saw it fit to have you two, write a book. And we’re going to talk about that a little bit later in the episode. But before we get into it, why don’t we start with how we know each other and what your backgrounds are in real estate? You want to start off there, Tim?

Tim:
Sure. My background is in real estate, started selling real estate, my goodness, in 1986. I sold actively till about 2000. And this is when I met David Greene, right around that time when he was actually working at Isadore’s Restaurant and then came to work for me as a prospector. So, that’ll be a funny story within all of this. But yeah, and then I went, gosh, I’ve been a quitter for some time now, quit many different careers. And now I’ve kind of quit my way to the top, if you will. So it’s been a long, fun ride all the way.

David:
And Tim, can you tell us briefly about your real estate holdings at this time?

Tim:
So my real estate holdings at this time, I probably have about 50 different income streams, anything from my gut, I think I’ve got like 15 apartment complexes with our gap acquisitions, and then a bunch of businesses, bunch of investments in other people’s assets, because I don’t believe in working myself and haven’t for about the last 20 years. So I have about 50 different income streams at this time.

David:
Pat Hiban, former podcast host of Real Estate Rockstars. I believe you were also the former number one real estate agent in Keller Williams at one time. Tim, I’m sure you’d be able to say the same about PMZ Real Estate, where you dominated the market. But Pat, tell us a little bit about your history and your background in real estate.

Pat:
Yeah. So real estate’s my life really or has been, I should say. It’s like in one form or the other. I graduated college with a degree in sociology. I got a 2.3 GPA and no one would hire me. So I went into real estate sales because there was no barrier to entry. I spent 25 years selling, slinging and I was at probably five different companies over 25 years, RE/MAX, KW, Long & Foster, everything you think of. I had my own company, I had my own mortgage company, title company. Just real estate sales, until I quit. I quit, I bailed, I collected the money off of the craps table and I went back to the room and I hid it under the bed. And that’s really what happened.
So after that I started investing and I invested in a bunch of single families. Then with Tim, we started investing in multi families. I think we’re up to over 2000 units now, multi-family wise that were on a GP level on. We had a shopping center that we just sold. We’re kind of on, not a lot, but a little bit of a selling spree. We’re selling some things. Then, of course, I had that podcast, which I sold to Aaron Amuchastegui, the only person in the world to ever be able to monetize and sell a podcast thus far, that I know of. What else? Started GoBundance with Tim and David and Mike McCarthy. And so, yeah, that’s where I’m at. I’ve got about 67 lines of horizontal income, which is income that’s coming in sideways, all different types of stuff. I’d say 55% of it today is real estate. 45% of it is random other stuff.

David:
Just to be clear, that was David Osborne you started GoBundance with, not me. [inaudible 00:08:30].

Rob:
Yeah, I was like, wait a minute. David, you’ve been holding this from me for so long.

David:
No, I’m not one of the godfathers. I’m like second generation there. That’s funny. But we do have two godfathers of real estate here with us. And I will say this, you two have both been a little modest there. Tim was a legend at selling real estate in Manteca where I grew up and that’s where the Isadore’s Restaurant he mentioned worked. If you guys want to hear more about my story there, you can look it up on the BiggerPockets Money, episode number 12. I get kind of deep into actually what I learned in that restaurant. And then Tim reached out to me from what he had heard about my work ethic and offered me a job. And that is why I am here today in real estate et al.
And then Pat was also one of the top real estate agents in the country. Like he was sitting at the top of the leader board for the biggest brokerages ever. And it’s a little odd that each of you sort of like Barry Sanders in his prime, just decided I don’t want to do this anymore. It’s not uncommon to see people quit when they suck. They just can’t get it going. They’re struggling. They’re not very good at it, but you two had empires that were built and you walked away. So why don’t we start by asking with you, Tim, what was the motivation to quit? And what were some of the fears that you had when you were thinking about it? How did you get to that point?

Tim:
I think mentioning Barry Sanders is really interesting, because he was at the top of his game when he decided to just tap out. I think he wasn’t even 30 years old yet. So from 26 to 35, I loved selling real estate. It was so amazing. I never thought I’d be in a place where I’m making a lot of money and doing the things I wanted to do. And then it started to oxidate. It was kind of like the rust had gone on and I just didn’t feel like doing it anymore candidly. And I looked up, I was in Belize and I was 40 years old and I was a millionaire and I was kind of like, whoa, dude, for once in your life, I’m proud of you. How did you get here?
And I went for a minute of kind of looking back through my career. And it was like, well, what do you want to do next? And it was like, I never want to sell another home. And it was like a just boom. It was like a punch in the face. And it was like, well, what are you going to do? And it’s like, well, you just flipped a home and you made a lot of money doing that. Why don’t we have a new game? I’m never going to list another home. I’m only going to invest. And I’ll only be my best client. I won’t have to worry about sellers. I can do this my way.
And I went back and I did that and it hadn’t happened overnight. It took a while from like 35 to 40 to get the courage to quit. But once I decided to do that, I never looked back and I did never sell another home after that. I invested for one more like from 2000 to 2007, and then I played another new game. What if I tap out and sell everything into the craze and never have to invest again? And then from 2008, till today, I’ve never personally invested in a property. I only water ski in other people’s lakes. So I’ve had a lot of fun kind of being the original quitter and then keeping, figuring out how can I use those tools to develop the next incarnation for whatever’s next in my life.

Rob:
Yeah. So Tim, let me ask you something because a lot of people, we’re all going for that big M goal, right, becoming a millionaire and you quit right at the cusp of realizing this. So when you did this, were you at a point where you said, yeah, I’m going to quit and I can sort of coast on this or was there a financial motivation to keep pushing on? Or was it more of just a personal self-fulfillment? Was money a big factor in making more money? Or was it just, hey, I want to go out and do this as a self-employed person and just keep crushing it?

Tim:
I’ll be honest. All the things we talk about in the book, which is very practical, very tactiful… tact… We’ll redo that.

Pat:
Tact, not strategic, tactical.

Rob:
There you go. Okay.

Tim:
Thank you.

Rob:
Teamwork makes the dream work.

Tim:
But all the things that we talk about in the book, I did not do. I tapped out when I didn’t have a lot of money behind me and I just kind of depended on me moving forward that I’ll figure stuff out, I’ll find ways to make money, but it wasn’t what it was about. Candidly, I went from working full time to skiing 100 days a year, to spend a lot of time up on the coast, abalone diving and just what I called getting the goods in the woods. And I’ve always played that game from then on just trying to figure out how can I make money, but that’s certainly wasn’t what it was all about for me.

Rob:
Yeah. That’s really great. Thank you so much for that. Pat, what about you? What was your motivation here? Was it similar? Was it different? Walk us through that journey.

Pat:
Yeah. Rob, that’s a good question. And I think mine’s a little different than Tim’s. So I was in real estate sales. I was on a listing appointment and I fell asleep. I was talking to this lady and it was like, I had a big fat lunch and it was hot. And literally, I just fell asleep. And she goes, “You just fell asleep.” And I said, “Oh! Oh! Oh!” And you know it. And then I went into the bathroom, I threw some water on my face. Then I came back and next thing you know, I like… You know how kind of fall off a cliff, like you put on the brake in a car, but you’re sleeping or whatever. So I put on the brake and I like kicked her chair. And I was like, oh god, I’m not getting this listing. So I rolled out of there and I’m driving back to the office and I’m like, man, I fell asleep twice on this lady. I was like, that is it. I’m out. I got to get out of this business.
As Tim said, I’m oxidated. That was terrible. I just wasn’t happy. The problem is that like, I went from such a manic state where everything I touched turned to gold. You know what I mean? We were doing television commercials and we would just do commercials. And immediately we put the commercials on the people would just start calling and say, “Come list my house.” It was so easy. And it was so fun to like everything stopped, and then all that happened was I was dealing with agents that were complaining about, why I wasn’t getting any leads for them and sellers complaining, why don’t I do an open house and all this stuff because the house is not selling at the price they wanted it to. And I was just like, you know what? I’ll just quit. I’m getting out of this. And so it was more of a visceral thing for me than it was for Tim, I think.

Rob:
I can already imagine the lady there was like, cutting to her and she’s like, “And this is the home that I saw my kids grow up in. Are you asleep?”

Tim:
That’s where my daughter took her first step, right there.

Pat:
I’m telling you, man-

Rob:
No, no, I was just resting my eyes.

Pat:
Yeah. I blamed it on the pizza I had for lunch and the heat and the house, because she wouldn’t turn on the AC. But anyway, so at the end of the day, I could still see that lady’s face. I could describe her. Like if you hypnotize me, I could draw a picture of her.

Rob:
And so was this something that you were, I know you said it was visceral, but had you already considered this for years? Were you one day kind of wiping everything off your desk and like, I’m done. And you’re like, no, not really. I’m going to give it a little bit of time or was it truly like a flip switch and, hey, I’m out of here?

Pat:
Well, I think it helped. So what happened was, like 2008, all the units were down, right? Which is something that is a whole nother subject, a number of units, because that’s what people don’t talk about enough, number of units. But that’s what happened in the last crash, right? The number of units just stopped, like the number of pendings and settlements. And I still had a lot of rent and I still had a lot of overhead and I had a lot of things that I was paying for because we were crushing it. I had a $5,000 lease payment on copiers that made postcards and stuff. That was like eight years long. I had a longterm lease on an 8,000 square foot office. I had all kinds of stuff. I had to wait like two years for all that stuff to expire and me to get out of it and out from under it, because I’d signed personally from it.
So then finally when I was done that and I was liberated from the pressure of all that, that’s when I wrote my book 6 Steps to 7 Figures. And then what that required back then was a book tour. We didn’t have podcasts. So I had to go city to city and talk to real estate agents. And I did a seven-month book tour, 53 cities in seven months. And basically I came back and my top agent, Mike Sloan at the time had been running everything while I was gone. And I was like, “Dude, you just take this. You know what I mean? This works without me. I don’t like it anyways. I’ve been free for seven months. I don’t want to come back in.” So, it was good for me. After the seven-month book tour, I was like, I’m not coming back in.

Rob:
And so, David, if I’m not mistaken, I believe that these guys were responsible for you, quitting your job as well, right? I mean, I know that you started with Tim and you were mining for gold for him as a prospector, AKA cold calling. But what was it really? I mean, what was your turning point here? Because I know you had a similar experience as well.

David:
Yeah. As they were talking, I started thinking about this that when we explained why we did what we did and we’re sharing the story, there’s this tendency after you’re on the other side of it to express all the logical reasons why you did it. Well, I wasn’t that happy and I wasn’t making that money and the industry had shifted and I knew that I wanted something to happen. And sometimes you do have a moment like Pat described where you fall asleep and you’re like, okay, this is not for me. But I feel like the more accurate way, at least in my life that it’s happened is for years we’re knowing, I don’t like this. I’m on a treadmill. I’m selling a lot of houses. I’m making a lot of money, but this is sucking my soul and you don’t really know how to get out of it. But you’re just kind of running this marathon that you’re like, when is it going to end? When am I going to get to the end of this thing? And there really isn’t an end in sight.
And emotionally, your heart’s not there. It’s different when you first get into it. I look at it like that’s God in my life. When I’m super excited about something, I’m passionate about it, I have these very strong emotions that I can’t describe so often because I feel like he’s putting me in that position. He wants me to be learning it. Then when that goes away, I perceive it like he’s telling me it’s time to move on. There’s a new challenge. There’s something new to learn. He has a different plan for where I should be. The problem is I get scared. I get greedy. I don’t want to move on from the thing I’m comfortable with, from it’s better than what I used to have, right? I’m more worried about getting sucked back into being broke, not moving on from being a cop. I’m getting a lot of my needs met, like Tony Robbins six human needs. They’re all being met in the law enforcement world. And to think about leaving that is actually scary.
And so you get this weird tension of, I hate going to work every day. What it was like for me is I would get a call for service, that there was a person with a tummy ache. And all I have to do is drive there, get their name and date of birth and wait for the ambulance to come pick them up. And I’m done. The easiest call you could ever get. And I’m so mad that I have to go do this dumb thing that I’m just cussing out the world the whole way there. I should have been grateful like, oh, I got a easy one, but there’s this feeling like if I have to fill out one more listing agreement, which at one point was I’m on top of the world that I got a list, that’s the best feeling ever in real estate sales. You’re like, oh, another client wants to buy a house and give me money. Gosh, darn it. I didn’t want to do it.
So you have that feeling going on, but then there’s the fear of making the jump and it just grows and it grows and it grows. And I think a lot of people listening are like, that’s how I feel every day, going to work in my cubicle at this job I don’t like, but I got to make a car payment. I got kids to feed. I got a mortgage. I have to stay here. Well, the role that Tim and Pat played was they actually were involved in a intervention of sorts where we were… Tim was there for this. Pat came in a little bit later, but we were at our buddy Daniel Del Real’s cabin and he, and a bunch of other GoBundance guys were like, “David, you’re too smart to be a cop. You’re doing too good in real estate. You’re leaving this job. Like it’s happening. You’re not healthy. It’s not going well.” And I was like, but, but, but, and I had all these reasons and they basically were like, pick a date.
What the deal was, was that I was not allowed to work overtime for one year. That wasn’t mandatory. I could not. Because I was addicted to overtime, that was like the drug. That was how I was making good money. You’re not allowed to do it. You’re going to get your real estate license. You’re going to give it a try. After a year, if you can sell homes, you’re leaving completely in law enforcement. And I had to be held accountable to those guys. Now I hated every second of that because I was just internally afraid, but I needed that to get over that hump of making the jump. And so I ended up getting my license. My first year selling houses, I was the top agent in the Keller Williams office that I worked at. And then from there I just grew and grew and grew it. And then I built the David Greene team.
That’s how I got here, but I guess what I’m saying is that it’s not always a super logical thing. It’s a lot of emotions that you’re feeling, that the world is telling you it’s time to move on. And on the other side I was not strong enough to make that jump myself. I needed a support group, especially of people like Pat and Tim, men that I looked up to and respected, that were mentors in a sense that were telling me you have what it takes and you’re better than this. Quit acting like a little coward. It’s time to make the jump.

Pat:
That’s an awesome story. I forgot that story. That’s great.

Tim:
And David, I don’t remember it quite like that.

David:
How do you remember it, Tim?

Tim:
Yeah. I remember it more like, yeah, it was Aaron West, I believe, saying, “David, are you quitting Monday? Or could we give you till Wednesday when you turn in your resignation?” And I thought it was like, boom, next week we’re going to hear from you that you’re done with the force.

David:
He started it that way. I just didn’t agree. So Daniel Ramsey stepped in and said, “Fine, we’ll give you one year and you’re going to have to work both jobs, but you can’t work any overtime.” And that was sort of the compromise that I took on to give myself some runway, because I doubted that I had what it takes to sell houses.

Tim:
Yeah. I think it’s such a great story though. Because people know how successful you’ve been, but didn’t know how scared you were before that and how much you hated your job. We have a thing called the soul-sucking meter and it’s a thing of one to 10, how much do you love what you do and what would you say on this soul-sucking meter, if we had you on there, if it looks at number one to 10, how much are you making versus one to 10, how much do you love what you do, would you say you were a six and above or below six at that point?

David:
Oh, I was at like a two, man. I was-

Tim:
I’m asking you, David.

David:
Yeah. I was sleeping two and a half hours a night, working seven days a week, eating fast food nonstop. I was at like below a six. Every day was just dragging myself, how do I get to the next one?

Pat:
We look at five things. Number one, your compensation, which is all people usually think about. You’re probably making so much overtime and all that stuff that your compensation was holding you back. But we look at your respect, your respect of yourself and the respect that your boss gives you, right? Your fit, right? Whether you’re fit for your team or fit for your organization, the police force, whatever, your prospects for growth, how quick are you going to become the fricking police chief or whatever it’s called, and do you even want to be the police chief? And how do you feel in the morning every day? And we have you rate them on a scale of one to 10 and based on your results it really comes to fruition really fast, how bad you want to quit, how important it is for you to quit.

Rob:
Now, is there an actual numerical value that you’re looking for? Like if you were to rank 4, 5, 6, 8, 9, 10 on all these different bullet points, is there a number that’s like a failure score or is it really just more for self-reflection?

Pat:
7, 8, 9, and 10 is what you want. So anything below that… 7, 8, 9, 10, well, [inaudible 00:26:22]. If you can’t clear a six on average, then your job sucks and you need to quit. So if you can’t clear a six, you need to quit. If that makes sense. And so what Tim and I did with this book, just so you guys know is we found that a lot of people were at that stage where they were afraid, they were facing the truth like David was that day and we know that it’s scary and it’s like a jump off of a cliff. But the difference is most people think that when they jump off of a cliff, they’re just going to fall straight to the ground if they don’t prepare an airplane on the way down. You’ve heard that whole ad. It’s entrepreneurs jump off a cliff, and then they build an airplane on the way down.
Well, most people think I’m not going to be able to build an airplane. So I’m not going to jump off the cliff. And what we’re saying is, look, it is scary to jump off the cliff and we’re not telling you to jump off the cliff. We’re telling you to jump off the cliff, but we have a bunch of trapeze swings that you could grab onto. And throughout the book, we’re like, this is a trapeze swing. Here’s another trapeze swing. And if you complete and grab on eight of these trapeze swings, you’re going to successfully have quit and you’re going to be happier in your life and have a better job or have a better circumstance than you had before. Does that make sense?

Rob:
Yeah, it sure does. I think this is really interesting because a lot of people, quitting your full-time job, it’s a very emotional thing. And so there is no hot or cold… Or sorry, there is no lukewarm. It’s just hot or cold, your feelings on it. And I remember for me, when I quit my job so much was at stake for me, I hadn’t… Well, really the one thing that I was so scared of losing was health insurance, because I was like, it was going to cost me $2,000 a month. And I was like, I just can’t lose… I make so much more money with all my different side hustles and my Airbnb business, my real estate business, but I just could not get off of the $2,000 a month.
But I think, looking at the scale you talked about or the different bullet points, certainly being a fit in the organization was what I was really starting to realize at a very alarming rate. Because for me, I was a creative copywriter and I was good at it, but I was never going to be great. And I was always really nervous about that truth when I was in my job, because I knew that I just wasn’t going to be the can award-winning creative copywriter that’s producing the best commercials in the world. And I kind of saw this train heading for me that was years out where I eventually would get kicked out of the industry.
But luckily for me, I felt at that time that I had already started the real estate stuff and content creation and stuff. And I was like, I think I can be great at this. And that’s sort of where it started coming to life for me was this industry and this career, it’s a fine fit, but it doesn’t fit like a glove, right? It’s not me. It’s not who I am. And then eventually when I did quit, it was a very emotional day. I cried to both of my bosses and they were like, “Are you okay?” And I’m like, “Yeah, I’m just quitting. That’s all.” And they’re like, “Oh whew, thank God.” And I was like, “I know.” I felt so good. I was like, oh, whew. All right. That was it. Because I could really go full force into something that I was a fit for.

Pat:
Yeah. In the book, we have people give the worst case scenario, kind of like you did Rob, which is like, what is the worst case scenario? Like the worst case scenario is you’re living in your car and you’re going to die from starvation because you can’t buy any food or whatever. And we all know when you analyze it like that and you dumb it down and you reduce it to the ridiculous, you basically realize, well, truth be told, if I fail, I could probably go back to my boss and he’d probably hire me back in a heartbeat. Or truth be told, I can get another job. It’s not going to be the worst case scenario like I think it is. But the process of taking yourself through this failure path and saying, this is what it looks like if I do fail, and then asking yourself a really important question and that is, am I failing now?

David:
You mentioned a little bit earlier this idea of the trapeze, moving from one thing to the next. Do you mind sharing some stories either from your life or other people that you’ve seen pull this off and what that looked like?

Tim:
I think a good analogy is you, David. If you look at the trapeze for yourself, the first one was making your own real estate team and then keeping up your investments, and then getting with BiggerPockets here. And then you’ve just taken it from one trapeze to the next, to the next. And then the piece that goes with that is the net below. And that’s just to make sure you don’t fall and that you have something to catch you if you do fall. And that’s a great piece of our book is that net below. But the trapeze is what gets you from one step to the next. And the tough part is you have to have trust to know you’re going to let go of the trapeze and land on the next set of rungs. And that’s the scary part.

Pat:
Yeah, one thing leads to another.

David:
So Pat, how did you see that working out with your career? What were some of the steps that you made and what was the net you had in place?

Pat:
During my career? You mean like from the beginning?

David:
Well, I know you didn’t become a top producing realtor just on accident. There’s probably several steps that you had to take to get there. But then I would imagine the biggest release was after you went on that book tour and you got all this like, I’ve made it to the pinnacle of selling homes and I don’t want to be here. I need to climb another mountain. I believe that’s when you started Real Estate Rockstars and you got more into GoBundance and you started doing more investing. Would you say that was your biggest release on the trapeze?

Pat:
Yeah, that was a big one, but here’s the thing contrary to how you think the story might go. I had a lot of little things that I did that didn’t work out like right at that time. I had been doing real estate for 25 years and then I got out and I’m like, okay, what am I going to do now? And one of the things that I wanted to do is coach. I thought that I wanted to coach and start a coaching company of other real estate agents. And I started doing that. And then I realized that I hated it. Real estate agents, they take your advice and they write it down, but then they don’t do anything in between calls. And I was like, this is exactly what I was doing as a broker when I was dealing with other agents.
So I quit that. And then I did this… David Osborne was friends with Ricky Williams and he wanted me to be Ricky Williams’s whatever you want to call it, agent. And I flew him around the country trying to put him with marijuana companies so he could be an endorsement to the marijuana companies. I really thought that that was going to be my identity. And after like eight months, I was like, this is just not working out. The juice is not worth the squeeze. And I quit that. And then I probably did three or four goofy things, like started writing a book about how to be a boss and all this stuff and it didn’t work.
So finally, I did Real Estate Rockstars, and I said, I could do this. And the trapeze was my mentor, Howard Brinton had kind of done podcasting before it was podcasting and interviewing agents. So I kind of felt like I was taking the reigns from him and it made a lot of sense. And then I did Rebus University, which is where I was training agents in video courses. But what happened with that, too, David is, number one, it grew to a grind for me. And number two, I wasn’t making any money at it. And a lot of people might disagree with this, but I own… Part of what gives me joy in my work is making a lot of money when I work. And if I’m not making money and I’m working, I can’t stop thinking in my head I’m wasting time. I’m trading time for not even money, for like… I just can’t go. I just can’t do it.
Those companies were losing money for me every month and I wasn’t having fun doing them. So it just didn’t make sense. And it just made it even more smart for me to quit it. And then with the apartment buildings, that made sense, and we were making money and I was getting paid. With the rental properties, it made money. I was getting paid. With GoBundance, in the beginning we didn’t make any money, but then eventually we started getting paid and getting money. So it just made it for me 10 times more exciting that I was getting money and I liked doing what I did.

Rob:
Yeah. So you mentioned earlier, you had about 47 streams of income in the present day today. And I’m wondering, did you have any of those, were any of those present when you did quit your job? I know you said you had a couple of companies that were losing money, but outside of those, had you already been sort of forging the way for your financial future?

Pat:
I had single-family homes. That’s all I had, single-family homes that I rented. So they did pay me, but it wasn’t bombastic. You know how single-family homes are, especially if they’re older, you think you make 10 grand a year, but then once you do your taxes, you’re negative three grand.

Rob:
Yeah. Yeah, we do know.

David:
I’m laughing because there’s so many people that think that the way they’re going to get out of the job they don’t like, or the life they don’t like is cash flow from real estate. And there’s always a guru that’s going to come along and say, cash flow, cash flow, cash flow is going to change everything and you can bake on cash flow. And then all the guys like you, Pat, that own a lot of real estate, I know we’ve all been there that we realize it’s very unreliable. You could have a great year or you could have one thing break and it crushes your whole year. So, that’s a very good point.
And I think that just goes to strengthen the argument that investing can grow wealth, but it shouldn’t really be your foundation that you’re living on. There’s got to be other things that you’re doing and quitting your way out of the ones that don’t work and getting into the ones that do is probably what’s going to bring more joy into someone’s life. So where did you settle? Where did you realize, okay, this is what makes me happy, this is what I like doing?

Pat:
I’ll tell you what, where I learned a lot, David and Rob, is COVID. I was very unhappy at points during COVID and I came to a realization of really what I like and what I need are people. I had no idea. Like I’ve always been a party guy, right? I’ve always been gregarious and liked to go to parties and liked to talk to people. My wife will invite one couple and then I’ll go and text like three more and tell her, “Hey, I invited these guys too.” And she’s like, “What the hell did you do that for?” I’m like, “It’s just natural. I can’t help it. I want a whole bunch of people around me.”
And so during COVID I realized that’s what I miss. I just wanted to go to the coffee shop and talk to randoms. And I couldn’t. And so now I realize that at GoBundance, I just got back from Detroit, there was like 75 GoBundance guys there. I talked the whole time. I was energized the whole time. I just loved that. But I don’t think I actually was conscious of that until I actually had an opportunity to have it taken away from me.

David:
Yeah. What I like about that is you often, it’s not going to be like a clear, like the trapeze transition, right? Sometimes life works it out to where your next, whatever the bars are called that they swing on in the trapeze world, comes right up to you, you let go of one, you grab the other one. There’s a brief period of like, oh, I hope that I catch it. Otherwise, I need that net. Other times, you’re just letting go and flying through the air and hoping that something shows up or hoping that you like the trapeze you grabbed. And then you realize I don’t like this one either. And you’re swinging to another one. It’s not 100% success.
When we tell the story with hindsight, we’re like, oh yeah, I was here and I jumped over and now look where I am. It’s amazing. But there might have been 10 to 15 different attempts before you found the right one to be swinging on. And I like that you’re sharing it’s okay that it’s messy. It’s okay that it’s ugly. You work these jobs that didn’t make money or there’s opportunities that didn’t fulfill you. And so you kept swinging and then you realized what your thing is, is people. That’s probably why you did so great at real estate sales. It wasn’t the real estate. It was the people. And when it wasn’t fun and you realized I’m letting people down, I’m falling asleep in the middle of a listing appointment is when you knew it’s time to move on. And now you’re finding another way to connect with people, just it isn’t selling houses.

Pat:
Yeah, absolutely. Absolutely. And like I said, people and money, like it works, right? I did a lot of little things after I got out of real estate that didn’t work. And I think we all do that, but nobody hears about them. And then we buy an apartment complex and after three years we sell it and then you make a couple hundred grand and you’re like, hey, this is good. I’m going to stick with this. I’d be stupid not to. You know what I mean? Or whatever. And so, yeah, people, and then obviously the benefits that come with that. Because you could always find people, you could find people anywhere, but I guess it’s, here’s the answer, like-minded people.

David:
I would say, Rob, would you agree that getting around like-minded people, people that are on your frequency is a huge component to being happy in life?

Rob:
Oh my goodness. Yeah. I mean, that’s how… Well, like-minded, but preferably significantly smarter than you. So like-minded to who you want to be kind of thing. Because I think for me, I’m thinking through the trapezes, right? And it’s very easy to say, yeah, like side income, side hustles. All those different income streams to me seems to be the only trapeze you need, because if you make enough money, you’re going to be fine if you quit your job. But in reality, I think the people and the personal and the social component is really as equally important, because those people can help you establish a lot of those different side incomes and businesses and everything that you want to go with.
So for me, when I was quitting, I had those people that I basically talked to like four or five different CEOs and quote, unquote, quitters, if you will. And I would Zoom with them and they were all founders of relatively successful companies. And they would say, “Wait, you’re taking a call right now during your… I didn’t know you had a job. Why are you still working?” And I was like, “Oh, I don’t know, because of health insurance.” And legitimately every single one of them, they told me, they said, “I watch your YouTube channel. I know how much money you make because you talk about it and you make good money. So I think it’s time to quit, pal.” And I would go and I’d report back to my wife all the time. And I would say, “Hey, this person said I should quit.” And she’s like, “Yeah, they’re right. You should quit.” And I was like, “No, no, no, don’t be silly.”
And I was hoping that my wife would be the one that was telling me no, that I couldn’t quit. But everyone in my sphere of influence, they were encouraging me to go full force at the thing that I love the most. And so getting to know them really, after I quit has shaped who I am. We were kind of talking about the messiness, right? Well, a lot of people see me and they’re like, “Oh, you got it down. Your success is going well. I’m really happy for you.” But what they don’t necessarily always realize is that it’s still really hard. And the only reason I have any level of success today is because of all the catastrophic failures I’ve had over the last year. Finding the people in my influence that could relate with that, that’s how I grow because we can all fail together and be honest with each other and help each other grow.

Pat:
Hey, Rob, I got a question. How minuscule does that seem now that you were worried about health insurance?

Rob:
Honestly, it was instant because my bosses, because like I said, I was a little crybaby on the Zoom call and my bosses were like, “Well, are you going to be okay, like financially?” I kind of looked up and I was like, “Yeah, I make way more money doing this other stuff.” And they’re like, “Then why are you crying?” And I was like, “I don’t know.” And so I really instantaneously mathed it out and it is very funny and you know what, I still pay that $2,000 a month because I carried that over for my company. It’s a funny thing to have gotten hung up on because it really wasn’t the $2,000 payment, it was just that little… I think it was symbolic of the safety and the stability in my life, knowing that I had health insurance. And so if I ever got super sick or anything that would cover me and I felt by losing that, I now had no safety net. Obviously in retrospect, yeah, it’s funny. Yeah. It’s funny that that’s what held me back for about four or five, six months.

David:
Pat, you mentioned some tools to evaluate where somebody’s at. I think a lot of the emotions that Rob was just describing the stuff, I felt you get used to it. This is just life and you don’t think about it. You’re like the frog in the water that slowly gets hotter and you’re not aware of it. And then you and Tim are talking about how people can kind of audit their life and figure out where they’re at and maybe find if they’re happy or not. So can you share what some of those tools that you’re using to evaluate are?

Pat:
Well, there’s the soul-sucking audit, which is basically the one that we talked about where you got to get a six or more. And what we’re encouraging people to do is to kind of stop not quitting, right? Every day you don’t do something that’s not different is essentially a commitment to not changing. And so what people are doing is they’re just not quitting. Every day that Rob wasn’t there, he was not quitting. So the tool would be to sit down and journal and look at your life now and say, what am I not quitting? Right? And just stop, not quitting. Look at the worst case scenario and the worst case scenario for him as ridiculous as it sounds was he wouldn’t have health insurance. He seems like a young guy, so I don’t know how big of a deal that was. Me, I imagine he didn’t have six kids at the time or something he had to worry about health insurance. You know what I mean? It just comes out to be absolutely ridiculous.
One thing that we talk about, David, is creating a quitting team and we actually have a chart that we have everybody fill out in the book that is a square and with four blocks and in there are stakeholders, partners, mentors, and coaches. And what a stakeholder is, is like your wife, like your loved ones, your spouses, your family. So, that would be one. So you want to fill up that box with loved ones who say, David, I got your back. Rob, I got your back. I’m with you. I think you should quit. I think you’re going to do great. I believe in you, that sort of thing.
Then the other is partners. These are going to be actual partners like investors, suppliers, maybe general partners of your business, whatever you’re going to do. These are actual people’s names that you’re going to go into partnership with. Then you fill in five or six mentors. And a mentor is not like this Rip Van Winkle type guy that sits under a tree, that’s like a long beard and a mustache. The mentor is like, whatever business you’re going to go into, this is someone who’s actually been there, cut their teeth, got their head kicked in, and has tactical things that they could teach you of how to do it. The American way is to go to work for somebody else and then copy them and start your own company. That’s essentially what a mentor is, someone you’re going to learn exactly how to do your specific business, who’s going to teach you how they did it.
And then the last box that you fill names in with is coaches, and these are actually people that you pay money to, right? We’re starting a coaching company to coach people how to quit. BiggerPockets is a coaching company, right? You pay your dues to BiggerPockets and you can go in there and be coached by a million different people that are already doing it. And so once you have those boxes, once you have that team built, your chance of success is so much higher. It’s incredible.

Rob:
Yeah. You can’t do it alone. You really can’t. I mean, that’s what I’m saying. The financial aspect of it, that was solved for me. But in retrospect now I realize that it’s exactly what you’re saying, all those people along the way that are on your team, that’s, what’s changed my life, not the financial stuff.

David:
Well, I could second that. I would say I knew I wasn’t happy and I knew, I knew real estate, but I was not going to let go of that one trapeze bar. I had a white-knuckle grip on that thing, unless I had Tim and Pat and these other guys prying my fingers off of it. It was like, we’re going to break your fingers or you can let go on your own. I think there’s some personalities that probably need that. That’s probably the same reason I’m good at the stuff I do is because I commit really hard, but that makes it hard to let go. And there’s other people that have an easy time bouncing from job to job, but they have a hard time committing to the job that they’re at. Pat, what would you say is the right person to read a book like this? If they’re listening to this show, what thoughts would they be thinking? What feelings would they be feeling?

Pat:
Somebody who knows deep down that they’re unhappy, who doesn’t like going to work. I saw this graffiti. I couldn’t believe it. I just saw this yesterday, it was on Instagram. It said, “It’s not Mondays that suck. It’s your job that sucks.” It was on a bus stop. Yeah, it’s someone who just hates Mondays and you hate Mondays because you hate your job, right? If you have a job you love, then Mondays is like sweet. And someone who just can’t get over the fear, right? We put a quote in the book, we put, “There’s no risk-free plan that will get you what you want.” So someone who really knows what they want. They want to teach art to kids, but instead they’re an accountant, right? They know what they want. They know what they would love, but they just can’t get there.
And so this book takes you, again, like Tim said, it’s not a strategic book. You’re not going to look in this book and it’s going to be a bunch of cliches where we’re requoting other people and giving you inspiration. It’s not that book. Specifically, it’s a tactical book. It is a one step, two step, three step, four step, all trapeze swings. And you could just like fill them out right there on the pages. And you could just write it all out. So when you finish the book, you’ll be ready to jump off the cliff because the plane’s already built for you. You didn’t have to build it on the way down. The trapezes are there and not only are they there, but they’re locked in with handcuffs so you really can’t fall off the trapeze because you’ve written it all out and you built it all out. So, that’s the person.

David:
Oh, that’s so good. Yeah. I love what you’re saying. There is no risk-free path from where you are to where you want to go. And you got to accept that, especially if you’re listening to this podcast because you want to invest in real estate and it works the same way. There is no risk-free way to invest in real estate. There is no risk-free way to do anything that is of any kind of substance in this world. And so reexamining that relationship with risk, making peace with it, rather than just running from it is big, not just to build wealth, but to live the life that you really want to live because you only get one of them. Thanks for sharing that, Pat.

Rob:
Pat, as someone who is obviously very pro quitting, are there any things that you believe you shouldn’t quit in life?

Pat:
Yeah. Rob, that’s a great question. And that’s kind of hard too. There’s cliches that I could say, like relationships and things like that, but there’s always exceptions to the rule. I think that what comes to mind is hobbies. I think that hobbies make a lot of people happy and I think that everybody has a different hobby. Like some people just love gardening. Some people love music. And other people love sports. And I don’t think that any of those three are right or wrong. They’re all right, because everybody’s an individual. And the reason that they chose those hobbies probably wasn’t because their mother put them in gardening classes when they were two years old, like piano and told them that they had to learn it. Right? They chose them hobbies naturally. Just kind of their soul gravitated one day to picking a weed and planting a flower. And they’re like, I love this. I’m going to do another one. So I would say to them, do not quit a hobby unless you replace it with another one that’s just as joyful, if not more joyful.

Rob:
So Pat, with all that in mind, what are things you wish you would’ve quit or left behind a little earlier in your life?

Pat:
From a financial standpoint, I wish I had not spent as much money on non real estate investments and just stuck with real estate. I think that all through the ’90s, like I got licensed in 1987 and I bought like three houses between 1987 and 1990. And then from 1990 to 2000, I didn’t buy a single house. And I often look back on how flat that time was. Like the market didn’t go up. It didn’t go down. It was just flat. Nobody really bought rental properties. Very few people did. And it was easy to do, right? You put 20% down and you just bought it. And the 1% rule worked all day long. It was easy to do, but no one did it.
I wish that I had not quit buying like I did when I first got my license. I wish I had bought at least a house every six months or a house a year, one little single-family a year I could have easily done rather than investing the money in the stock market or something. And I didn’t. And I look back on that as a mistake. I really wish I had just dollar-cost averages houses and just had them because I’d be killing it now. Those things would be worth so much more and the rents would’ve just gone up so much more. It would’ve just been nice and I regret not doing that. I wish I hadn’t quit. I quit too soon. Now, granted in 2000s, I started buying again, but there was that whole decade I didn’t buy.

Rob:
Okay. So a follow-up to that question, what are some of those things for you, Pat? Like what are your actual hobbies?

Pat:
That’s great. I set myself up for that. My hobbies are working out. I got three hobbies: working out, which I do regularly. I have a house in Maryland and a house in South Carolina and I have a trainer in Maryland and a trainer in South Carolina. I just pay them both two grand a year in January, and I could just text them and show up to them sometime that day or the next day. I’m also a hiker. I just love hiking. I just clear my head. I just feel so much at peace with nature. And I like to hike. I just get out there and explore. I’m always on an adventure.
And then the third hobby, and a lot of people might not find this a hobby, but I find it a hobby because so many people don’t do it, so it has to be a hobby and that’s counting my money. It sounds like a joke, right? And you can cut this out if you want, but I’ve always been a counter, like mathematically something in my left brain is always counting. So I’m always counting my net worth, counting the rental income, counting things. And I get a lot of dopamine from that. And I just enjoy it. Like, I’m constantly looking at my bank accounts. It’s just something that I enjoy doing. I don’t know what else to call it, but a hobby. So I would say those three things.

Rob:
I like it because it is honest. And a lot of people try to pretend like they don’t do that. Not even from the financial aspect of it, but it’s just a way to feel proud of what you’ve accomplished. So thank you for that.

David:
Yeah. I would say [inaudible 00:57:27].

Pat:
You’re welcome.

David:
Definitely it keeps you motivated to keep going. Sometimes I’ll go look at my portfolio and I’ll just look at all the properties that I have in it, and I’ll see what’s performing and what’s not, and I’ll see the equity that I’ve created and I’ll see what’s cash flowing and it’s not necessarily so I can twirl my mustache and say, look at the… It’s more of, man, that feels good. And then I want to go buy more houses.

Pat:
Twirl your mustache. Is that what you do?

David:
I’ll actually… Little known fact, that’s why… Yes. Just like that. Brandon does that with his beard. That’s the only reason he grew it is so that he has something to twirl when he counts all his money like Scrooge McDuck.

Pat:
Oh my goodness.

David:
All right. Well, we have lost Tim to technical difficulties, but we still have you here, Pat. This has been fantastic. I really appreciate you guys bearing your soul and sharing what your experience has been like, as well as your heart to help other people to quit the life that they don’t like to start one that would be a much better fit for them. Any last words about who should get this book and who you had in mind when you wrote it, that we can leave our listeners with?

Pat:
I feel for the people who are at that bus stop or are at the Monday morning checking in or waking up on a Monday and just being like, I hate this. You know what’s funny, my kids are 26 and 28 years old, and I talk to them about their parents. I guess I have this comparison thing going on, it may be good or bad, but they’re like, such and such and he hates his job or she hates her job. And I think to myself, man, that is so foreign to me. Having somebody that hates their job or being a kid, knowing that your parent hates their job, it’s so foreign to me, right? Because I’ve always been lucky enough to pretty much love what I do or at least find something within it that I love that I could just go to.
And so this book is for anybody who has ever had a Monday morning that they woke up and just dreaded that it was the start of the work week, that’s who this book is for. Again, so we’re going to map out how you can do it. Whether you do it or not is up to you, but if you know how to do it, maybe you’ll think twice, and maybe you’ll feel stronger about quitting, should push come to shove and you decide to quit.

David:
You can find the book at biggerpockets.com/quittersmanifesto. That’s Q-U-I-T-T-E-R-S-M-A-N-I-F-E-S-T-O. And if that’s too much to remember, just go to biggerpockets.com/store, and you can find the book there. And that was our show with Tim Rhode and Pat Hiban. Rob, you got to meet my friends. What do you think?

Rob:
I think I got a really beautiful glimpse into the early years of David Greene. It’s really nice to hear the origin story. We see the origin stories on superhero movies all the time. And I feel like I got to finally see the origin story of my real estate superhero, David Greene himself.

David:
What an answer. I’ve never heard anyone describe it as an origin story, but I’m not mad about that.

Rob:
You should have asked me that. You know how you always ask me at the end of the podcast like, “Any last words?” And I’m like, “No.” I guess this was it for me. I did it. I gave you a profound answer.

David:
You did. And see, the only key was I had to ask you after the show ended in an outro, not right before the outro.

Rob:
Right.

David:
I’m learning where you like to get the ball so you can score. I wanted to ask you, because we kind of briefly touched during the interview about the emotions that go behind when you know it’s time to quit. And I wanted to see if you could dive a little bit deeper into… You explained the emotions when you actually quit the job, when you had to show up on Zoom and you admitted it was so emotional that you actually cried, because it was such a big thing. But what emotions were you feeling up to that point that you knew was a signal that it’s time for you to leave and go full time into your content creation project?

Rob:
Well, if you just break down my actual schedule every day, I just had my daughter, well, my wife had my daughter. I was just there for support, but I was a new dad, right? So that was really tough because I was working a full-time job and this was during the pandemic. So it’s like work from home and you’re sort of figuring out how to do that with kids and then the dogs and everything. And I would basically get off of work at 5:00. And I had just started my consultation business back when that was going that no longer exists now, but I was booked out basically, at first, from 5:00 to midnight every night. And I would take like a 30-minute break at one point so I could go put my daughter down, give her a kiss and read a book, all that kind of stuff. And I remember that it was wearing on me every single day. And then I was like, you know what? I can’t stay up until 1:00 in the morning, consulting people anymore. This isn’t going to work.
And so I cut that in half and I thought, okay, if I cut that in half, it’s still really good money. I’ll raise my rates and I’ll be okay. But just day in, day out, it was the same thing. I would wake up early because newborn and then I would get ready for work. I would go to work and then I would take consultations during my lunch break and then I would go to work again. And then I would take consultations all night. And just after doing that for several months, I was just physically getting drained and I said, something has to change. And that’s when I sort of mathed out, if I went full force at my consultation business, I was actually making a lot more than I was at my other job, but I wasn’t working nearly as much.
And I think I just was so, so tired. I was so tired and I was so anxious and I had been putting off quitting for so long, until finally, like I said, a bunch of those CEO and founders of the companies that I was talking about, they just sort of kicked my butt a little bit and they said, “You need to quit.” And then I was like, “Okay.” I was very anxious, very, very anxious when my bosses answered the phone. It was really awkward because one jumped on the Zoom first and they’re like, “What’s up? How you doing?” And I was like, “Oh, you know, good.” And it was clear I was trying to stall. It was clear probably where the conversation was going to go. And then the other boss joined and then that’s when I started crying. So it was really weird, really weird, but really fun in retrospect to psychoanalyze myself.

David:
It sounds like you had mentors, too, that were saying, hey, it’s time for you to move along.

Rob:
I did and that made it a lot easier. What about you, man? I know that you were sort of, it sounds like you were forced into quitting.

David:
Yeah. And that’s what I needed, to be fair. I have that personality that I really think long and hard before I jump into something. But when I jump in, I have just like a vice grip on whatever I’m doing. I want to be the best if I’m going to do it. If I’m going to sell houses, I want to sell them as good as I can. If I’m going to invest in real estate, I want do it as tight and as good as I can. The One Brokerage, I want us to be the biggest loan company in the country at some point. And so I have to be careful about what I commit to, because I don’t let go very easily.
And I had committed to law enforcement with everything I had. I was trying to be super cop. I was wanting to take every single course that I could, learn every single thing, get certified in all of it, trying to lead the department in the different stats that we used to measure our performance, but my soul was dying. It was more than just practically speaking, oh, I could use my time for something else. It was more, the relationship with the community had deteriorated so badly, that’s not a surprise to anyone who’s listening to this that watches the news, and you weren’t really able to do the good that I thought I was going to be doing when I got there. And the people that I worked with were so negative and so cynical and it wasn’t getting better. The writing was on the wall that every year was going to be worse than the year before.
It was like buying an investment property that your cash flow shrinks every year. It’s the opposite of what we’re looking for. Like, you still got to manage it. You still got to do all the work, but the return is smaller every year doing it. And I knew I don’t want to be here, but I was just terrified of what it would look like if I left. Would I still be able to buy rental properties? I was making very good money. I think my best year I worked, I took like two days off for the whole year. I worked 363 days. And most of those days were between 15 and 20-hour shifts, but I made $300,000 and that was like 2015 era. So it was very good money to be working in law enforcement.

Rob:
Wow. That is. Yeah.

David:
Could I do that anywhere else?

Rob:
Wait. That was as a police officer?

David:
Yeah. And that was in 2015. So that was like seven years ago or eight years ago before inflation. So that’s probably more like 400, 450,000, I’d say by today’s dollars. But that was when I was sleeping in my car. All I did, like I only took time off to go wash my uniform and just be… I was like a firefighter. Just lived at the police station. I would buy properties from work. I would sign the documents on my lunch break. I’d have a notary come to the station and I would just sign the paperwork. It was 100% all in.
And when these guys saw the Tim Rhodes, the Pat Hibans, the Daniel Del Reals, Aaron West, Daniel Ramsey was, if you put that same effort into this, it’s going to be so much better for you. And I’m glad I listened. I don’t listen to everyone, but I’m glad I listened to them because that put me in this position of BiggerPockets where now I want to have the best podcasts in the world. And when I write books, I’m trying to write the best book that I can possibly write. And real estate pays you back for what you put into it more than anything else. Outside of God, real estate’s the only thing I’ve seen that pays me more than I could ever put into it.
I remember what those emotions were like. And you know, this is funny. Last night, I actually had a dream and I get these all the time where I’m back working in law enforcement or I’m back working in restaurants. And I’m getting all of the former anxiety that I used to have. It’s like, oh, this sucks. Like in my dream, I have to go back to work as a cop. And I’m like, I was so close to getting out of this. I’m getting sucked back in and I wake up and like, oh wow, wait, that’s done. My life isn’t like that. I’m never going to have to go back to it.
And I think sometimes that happens just as a reminder like, key, don’t forget where you came from. And those risks you took were worth it. So that now where I am, I will continue to make those jumps, right? There’s some new jumps that I have to make in my career, getting out of my comfort zone, starting new companies, getting out of the weeds and letting other people do stuff and letting people fail that I think I’m the same David. I’m scared of what would happen if I make the jump, but I need to quit it. I need to move on.

Rob:
Wow. Well, I hope you don’t ask me for a final word after that, because that was a truly profound statement from you.

David:
Yeah. We just don’t talk about this very much, right? We’re usually focused on tactical stuff.

Rob:
Yeah. Yeah. I think that’s the tough part is sometimes we just want that. We do try to be metaphorical and symbolic and like, hey, the bigger picture. But I think the small nuts and bolts really, at the end of the day, that’s a lot of the stuff that we legitimately need to put into practice before we quit outside of the actual mindset of it. So this was really fun.

David:
Yeah. And the messiness of it, right? We’re not perfect. We make mistakes. There’s people that don’t get the service they want from someone in one of my companies. There’s times where I record a podcast and think, oh, I didn’t do a very good job with that, or I didn’t explain that well. We are making mistakes and feeling pain or knowing that we could be doing better in areas of life and holding back just like everybody who’s listening. We’re actually all on the same journey. We just may be on a different part of the mountain than where they are, but we’re on the same mountain and we’re dealing with the same stuff.
So if you’re listening to these shows and you’re thinking, oh, I wish I could have Dave and Rob’s life. Like we, at one point were thinking the same thing about the Tim Rhodes and the Pat Hibans and the David Osborn’s and the people whose lives that we saw that we wanted. And there’s still people that we look up to and think, oh, I wish I could have that person’s life. So don’t be discouraged. It’s okay that it’s messy. It’s okay that it’s hard. Sometimes you got to quit. And sometimes letting go of that trapeze bar that you’re hanging onto is scary and you’re not doing it wrong if it feels scary. Rob had so much apprehension about letting go of that job that it expressed itself through tears. And I remember I’ve been in situations that was just like that. Having to tell my boss I was quitting was the hardest thing ever, because so much of my heart and soul was wrapped up in that. But I’ve never looked back and said, that was a mistake.

Rob:
Oh, man, I really don’t know a lot of people who have done this, who have quit to pursue their passion and went back to their nine to five.

David:
Yeah. That’s a good point.

Rob:
Usually it works out because people find out how to make it work. Because I think once you break out of the nine to five, it’s sort of a… Like when it’s your choice, I think it’s just one of those things where you’re like, wow, this is hard, but it is really gratifying. You would never want to click into someone else’s life. You don’t want to look at someone else’s life and say, oh, I wish I could just push a button and be there because you wouldn’t enjoy it. You didn’t earn it. For me, I can look back at all the hardships I’ve had over the past two years and I’m really proud of where I am because of how difficult it was and how many things I had to overcome along the way. So that’s what makes it more gratifying, not the actual number in the bank account. But as Pat said, once you’ve done it and you can go count your money and you can be happy and you can be proud that way too. But I think that’s also symbolic of just the hard work you put in.

David:
Well, I’m proud of you too my man, because I get to record podcasts with you and you get to be a part of my life and that never would’ve happened if you wouldn’t have made that jump on your own trapeze. So thank you for doing that.

Rob:
Thank you.

David:
And to everybody listening, keep listening, keep fighting the good fight, keep inching forward and then taking the leaps when you can. You will never regret what you pour into real estate. This is David Greene for Rob “still paying his own medical insurance” Abasolo, signing off.