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David:
This is the BiggerPockets podcast show 610.

Cliff:
Now we’re little in over our heads. This is my first one, so it’s the rookie nightmare sort of speak. But everybody hears about why they don’t get into it. So I’m trying to wonder, “Do we sell it? Do we keep it? Just chip away at the debt over time. Is there other options on what we can do? How do I bounce back from this? And what do I do to continue investing in real estate even with this big item hanging on my back here?”

David:
What’s up, everybody? This is David Greene. And I’m your host of the BiggerPockets real estate podcast, the best real estate podcasts on the planet and also, the number one most downloaded podcast.

David:
I’m here today with my buddy, Henry Washington, and we have a fantastic show for everybody. In today’s show, we are going to be interviewing different investors who have different questions regarding a jam that they caught themselves in, direction that they’re unsure to take, or just overall phobias, fears, flaws, things that worry us and stop us from moving forward. And Henry and I dive into this and help get them unstuck and send them on their way.

David:
It does feel like that when you’re like, “Oh, look, it’s like a little squirrel that’s trapped and if I could just get his foot free, he could run off and find nuts,” and we get to play that role.

Henry:
I love it, man.

Henry:
It’s super encouraging to be able to lift people up, uplift people. You are an expert at reading someone in their situation and providing them not just practical advice but also giving them the encouragement to keep moving forward because you and I both know that this real estate investment journey is one that it helps create not just wealthier people but better people.

Henry:
And so I love the way you uplift people and give them life to keep going, man.

David:
Well, thank you. When you’re born with a face for radio like I am, you got to find some way to compensate for that. So I appreciate you calling out that skill of mine, man, I appreciate that. Okay.

Henry:
Absolutely.

David:
So, in today’s episode, make sure you listen to all the way to the end because Henry and I have a very impressive young man who calls in from another country with questions about severe long distance real estate investing and that was very cool.

David:
If you’re not watching this on YouTube, I would encourage you to just switch over briefly and do so because you’ll notice that I have a green background, Henry has the purple background that he always has, and together we look like a real estate Barney. So visually speaking, it’s incredibly impressive and you’re going to be singing that Barney theme song in your head for the entire show.

Henry:
I do love you.

David:
All right, for… I appreciate that. We love each other and we love you the BiggerPockets audience.

David:
And that leads us into today’s quick tip. Look, if you’re listening to this whether it’s on iTunes, on Spotify, on SoundCloud, on Stitcher, on Youtube, it doesn’t matter. You’re part of our community and we don’t want ninja members of the community. We want to interact with you, we want you to be included. This whole thing only works when you’re actually tied into the community.

David:
You’re not a spectator. You feel like one when you’re just listening from the outside but when you start commenting, when you get onto the BiggerPockets website and check out the forum or the blogs, when you start reaching out to us on social media or you start leaving comments on the YouTube channel, we can actually respond to you and you will start to get included in this and all of a sudden real estate just feels less scary and intimidating. So we want to bring you in.

David:
Also, when this podcast is done, if there’s not another one to listen to, I would encourage you to check out Henry’s show, On The Market. Now, Henry is part of a incredibly impressive ensemble of real estate experts.

David:
Henry, who’s on the show with you?

Henry:
We have Kathy Fettke, Jamil Damji, James Dainard, and it’s hosted by the other Dave, Dave Meyer.

David:
Dave Meyer. That’s right. It’s a very fun crew, right? This is not brand muffin real estate. We’re like, “Oh, I know it’s good for me, but I don’t want to eat it.” We got a little bit of icing sprinkled on to this muffin-

Henry:
That’s right, that’s right.

David:
… of good information. You got a little bit of… It’s like a healthy Pop-Tart is probably the analogy that I would use.

David:
So please consider checking out that Pop-Tart of a podcast On The Market and let us know what you think there.

David:
All right, without any more ado, Henry, anything you want to say before we get into the show?

Henry:
Yeah, man. I really, really enjoyed the segment of the show where we talk to the young rookie investor who bought his first deal out of state and ran into all the nightmares that everybody gets so scared of. But I encourage you to listen to that all the way through because you’re going to learn that this doesn’t have to be as scary as people make it up in their minds and that there is light at the end of the tunnel and you can fall on your face when you get started and still keep pushing.

David:
That is such a good point. This is an example of someone who literally did every single thing wrong. All right, maybe not say wrong, but everything went wrong that could go wrong and he’s going to be just fine. So if you can survive what I think, it was Cliff goes through, you’ll be fine. So don’t make the mistakes yourself, learn from Cliff’s mistakes, help him understand that he’s helping the community, shout out to Cliff, give him a little bit of love, and then you should feel a lot less scared after hearing that story. So let’s bring in our first guest.

David:
Kathryn, welcome to the show. How are you today?

Kathryn:
I’m doing great. Thanks so much for taking my question.

David:
Glad to hear it. And by the way, you’re being such a trooper doing this while you have a cold. We appreciate you fighting through that for us.

Kathryn:
Thanks. I will certainly do my best.

David:
So what’s your question?

Kathryn:
All right. So my husband and I just started real estate investing last fall. So we’ve started with three new builds going up in Florida, South Florida, and those seem to be going very smoothly, everything has been really great to work with as far as the team down there and we expect those to be done by the end of the year.

Kathryn:
So we did take a trip down to Florida, got to meet everybody in person, property management, realtor, builders, everybody that’s on the team down there. And we feel just really good about everybody that we’re working with and we got to talking about short term rentals, they seem very knowledgeable about just how to make those successful, they know which location to put them up in, all the details to make those successful. So we’re really interested in building one of those as well. And the thought would be that we would call it a vacation home so that we can just put 10% down.

Kathryn:
And the issue that we’re running into is with the financing because the price range we’re looking at including the land would probably be in the range of 550,000 to 750,000, maybe half of that would be the lot, because it’ll be a water lot. So what I didn’t know going into this was it seems like it’s unusual to try to finance land. What we’re hearing from all the lenders that I’ve talked to so far is that we would probably need to own the land outright. So if we’re talking this is a $300,000 lot, that creates an obstacle.

Kathryn:
The best that I’ve heard so far is that we could finance the whole thing potentially but it would require 15% down rather than 10% down. And on a property of this value, that’s another 30, 40,000 downpayment. So I’m just looking for any advice, any insight you have as far as how to go about this. If you’ve got any ideas for us, I’d appreciate it.

David:
All right. So what I’m hearing you say is your concern with how to finance land. That’s one thing that you’re thinking about. And then you mentioned the 10% down vacation home but you said you’re buying three of them. So were you originally under the impression that you’re going to be able to get three vacation homes? Is that what you were thinking?

Kathryn:
No. The three that we’re building right now, those are long term rentals. So those are already good to go. Those are under contract. We’ve got the land for those. They’re being built. We want one short term rental.

David:
Okay, so you’re talking… This is in addition to those three? Yeah. Fourth property that you want to buy as a vacation home, but you are wanting to build it and so you’re wanting to finance the land.

Kathryn:
Yep, exactly.

David:
Okay, Henry, I’ll let you take first shot at it. What are you thinking?

Henry:
Man, I was just going to kick this one back to you because I’ve never financed land and built before. So I have bought land that had a dwelling on it that we’ve torn down and we’re going to go back and build and so financing for that was a little easier.

Henry:
I also use small local regional banks and they don’t have a problem financing land if I need it so I can finance land and then get a construction loan to build. No sweat with a small local bank, but they are typically going to want 15% down so that doesn’t solve your downpayment problem from that approach. But I know David’s the lending master so maybe he’s got an idea for you.

David:
I don’t know if I’m the lending master. But I do dabble in a little bit of real estate. And here’s what the problem with building new constructions in general.

David:
So I remember at one point, Kathryn, I was just like you were I was like, “Screw it. The markets item’s going to build my own stuff.” And it can work. It just always sounds much better in principle than when you get into actual practice because it is a ton of headache. This is…

David:
Once you start trying to build something as you probably are learning from the three that you’re building, if you have a good construction crew that knows how to work with the city, knows how to get permits, and you’re in an area where that municipality wants to build, they make it easy for you. Many municipalities in the country are just against building more homes. I don’t know. They may even be against people making money off of real estate so they make it incredibly difficult to be able to create new housing supply which is a huge reason why we’re in this crisis.

David:
Now, Florida, obviously a great place to go, especially South Florida. They’re welcoming this. That’s a great place if you’re trying to pull this off.

David:
But here’s what people don’t recognize, like you said, you’re not going to get a 30-year fixed rate on land. No bank is going to give you that money because if you can’t make the payment and they have to take it back, what do they do with it? Banks don’t know how to sell land, they barely can sell a house that’s on land so they’re never going to give you those loans. There has to be some form of an improvement.

David:
And not only does there have to be an improvement, but the property has to be in livable condition or habitable condition. So that’s another thing people don’t realize when they go after a hardcore fixer upper, needs a ton of work. A bank will not give you a loan on it if you can’t live in it. If it’s got major foundation issues, if it’s been ripped apart and gutted, you also can’t get a loan on those. So the principle here is to recognize that you can only get the best loans when there is a house on the land that is in habitable condition.

David:
Now, you can still do it, but you can’t do it the way that you’ve been describing. You can get that 10% down vacation home deal once it’s finished.

David:
So you got to think about this like a BRRRR but instead of buying a fixer upper and making it worth more, you’re… Part of your rehab process is actually building the thing on the property itself. So it’s by the land with hard money, with private money or with your money, just like if we were going to go buy a BRRR in cash, you have to do it the same way.

David:
Then you’re going to probably get some form of a construction loan to build the property itself and you’re going to need your contractor to have experienced dealing with the city because there’s going to be tons of things that pop up that you never could have anticipated, they’re going to slow you down, they’re going to make that loan that you took out, the hard money loan or whatever it was, to buy this land much more expensive. And then once it’s finished, you can refinance it into a 30-year fixed rate loan.

David:
And the good news is you’re going to be able to borrow 90% if it’s going to be a vacation home. Most likely. Don’t hold me to this. But most likely, you’re going to get 90% out of it. So it’s going to be easier to hit your numbers. You probably will pull more money out of it than you put into it especially with the way the value of real estate is going up in Florida right now.

David:
So hearing that, is there any questions you have that we can clarify this for you?

Kathryn:
Well, one thing I’ve considered up to this point, once the new builds, the three houses that are going to be long term rentals, once those are completed, they’re appreciating the models just like them that are being completed right now. They’re appreciating well above what we went under contract for so we should walk into a ton of equity. So one thought would be I think we could potentially pull out $100,000 in a cash out refinance on each of those houses which would give us 300,000.

Kathryn:
I guess my biggest concern is waiting that long and I do have some hesitation about even the building process at this point anyway since it’s probably going to set us out a year or more before it’s completed. We don’t know what interest rates are going to be like at that point. So are we better off just trying to find something that’s on the market? But because they’re so hard to come by. It’s easier to find land than it is to find a house. But the interest rate thing does scare me not knowing a year and a half from now when we lock into a 30-year mortgage, what’s that going to be?

Henry:
Yeah. [inaudible 00:13:42]-

Kathryn:
So I don’t know. Is that a good idea? Bad idea? To try to pull out cash once these three are completed.

Henry:
Yeah. My question to you was, and you touched on it a little bit, is why build a vacation rental versus purchased a vacation rental because when you’re talking vacation rental numbers, it’s a little easier to find something on the market especially in a place like Florida where vacation rentals are popular, where you can probably meet similar numbers.

Henry:
I would do the math on purchasing something existing in a neighborhood where you feel like you can get great returns as a vacation rental versus going through and building and seeing what your ROI is for both and it might make sense to not have to deal with the headache of building.

David:
Here’s something psychological about… Well, you know what? Before I go psychological, I’ll go practical.

David:
When it comes to your question about borrowing the money at… Should I pull 100,000 out of each property? It’s a good question to ask. Where I see people get this wrong is they look at how much money they put in the deal and they use that as a baseline to determine how much they should borrow against the asset.

David:
So what that means is, well, if I put 500,000 in and then I borrow 600,000, I’m over leveraged. Why are you over leveraged? Because I pulled out more than I put in. That’s risky. They just make this assumption along those lines. And even experienced people will often think this way. I’ll hear this come out of people’s mouths.

David:
The question to ask is not how much did you put in and can you borrow more, it’s how much is the asset worth because I don’t know any lender right now that’s letting you borrow 100% of what it’s worth. You may get 100% of what you put in but that is not the same as being over leveraged. And then how much debt service can you safely afford to take on.

David:
So if borrowing an extra 100,000 puts you at a point where you’re not cash flowing or you’re barely cash flowing, everything has to go perfect, I would say probably don’t do it unless you’re just tons of money sitting in reserves.

David:
But if the property is performing so well that it’s bringing in way more revenue than you expected just like it’s worth more than you expected, then borrowing the extra 100,000 is not risky in that scenario. So don’t fall into that line of thinking where people say, “Oh, to borrow is inherently risky.” Well, not if it’s cash flowing super strong. In that case, it’s actually not. So that’s the first piece of advice.

David:
Then… Oh, shoot. I forgot where I was going with the practical or the psychological thing. Where were we… Oh, I remember now.

David:
When people are building something, they often look at like, “I don’t want to have to spend…” Or they’re going to buy something, let’s go there. “I don’t want to spend $40,000 over asking price. That’s insane. I’m getting ripped off.” And it’s so offensive to them to consider doing that, that they start thinking along the lines of, “Well, I’ll just build it myself and I won’t have to pay 40,000 over.”

David:
But they don’t realize that when you’re doing that you’re taking out a hard money loan at a very high interest rate and you’re having holding costs that go really high and your rehab is going to be higher than what you were thinking and the contractor is going to give you a change order because of supply chain issues and things are more expensive than they thought.

David:
And by the way, what they have to pay their guys to get the job done goes up so they’re going to pass it on to you in the form of a change order. A lot of people took on projects that made sense at the time not understanding that the contingency they needed that they should have been in place, it’d be way, way bigger than what they actually did and they ended up way underwater on these projects, often to the tune of much more than the 40,000 that they didn’t want to pay over asking price.

David:
Okay. So in one sense, I want people to understand that no one likes to pay over asking price but the alternative is often way worse, trying to do this thing on your own and never having done it, you’re going to make a ton of mistakes.

David:
And on the other hand, I’d rather pay 40,000 over asking price at a four, five, six percent interest rate, then 40,000 of money that I had to pay a hard money rate of 10 to 12% on and may never get out of. Not everyone’s thinking about the cost of capital because 40,000 in one scenario is not the exact same as it is in another scenario.

David:
And there’s also risk where it might be more than 40,000 or you might be paying that 10% a lot longer than what you thought versus if you’re paying over asking price. It sucks but you know what you’re getting. You can plan around it. You can make a plan.

David:
So it’s just one of the pieces of advice when someone’s in your position and basically have a fork in the road and you’re like, “Well, do I just say, ‘Screw this hot market.’ I’m going to build it myself,” which is cool or “Do I play by these rules that I don’t really like and pay more than I wanted to for the property?”

David:
In general, my advice is typically, if you’re a builder or if you know a builder, if you have an in into that world, it’s okay to go the route of building yourself if you know what you’re getting into. If you don’t, don’t do it.

David:
It’s the same as people that say, “Well, I don’t want to have to pay that much for a lawyer. Maybe I should just represent myself in court.” Okay, is your best friend a lawyer that can give you really good advice and are the stakes low? Or are you talking about going to jail for 10 to 15 years if you lose this case?

David:
Anyone can learn how to do anything, you could learn how to be a doctor and operate on your friends because they don’t want to pay money. You can learn anything, it just doesn’t always make sense to do that.

Kathryn:
Okay. Just to recap what you guys said, it sounds like if we want to do this, we probably either need a hard money loan to buy the land if we build or Henry, you said if we go through a local bank that 15% is probably going to be the minimum and it sounds like you’d probably suggest just trying to build or sorry, trying to buy rather than build.

Henry:
I’d at least compare your ROI, one versus the other, because one gets you there a whole lot quicker versus having to build and one gets you there with a whole lot less headache. If you’re going to make one, 2% less ROI but you get there a whole lot quicker, is that a better deal? That’s something I think you should consider looking at.

David:
And there’s less variables that can go wrong when you buy something that’s already built. When you’re building something, when people sit down and work out their numbers, they’re only working out what they know they have to pay. You can’t account for what you don’t know you’re going to have to pay and experience is what teaches you what you don’t know that can go wrong.

David:
All of us, real estate investors, we know when we run cash flow on a property, “What’s my mortgage? What’s my taxes? My insurance?” There’s a whole buttload of things that pop up that you did not account for.

David:
That’s one of the reasons that your first couple years of owning a property, the cash flow is never what you thought it would be. It’s similar when you’re building.

David:
There are so many extra variables that mean things can go wrong that I would only advise you to go that route if you have some competitive advantage. Your family does this, you’ve done it before you know someone really well, you have an absolute rockstar they can tell you like, “Well, if something goes wrong, I’ll eat it on my end. I’m not going to pass it on to you,” to where you actually have a firm understanding of what your costs are going to be because you have that firm understanding when you’re buying something that’s already built.

Kathryn:
Okay. Yeah, I appreciate that perspective because I hadn’t really looked at it that way. I was more thinking I liked the idea of a new construction because I know that I shouldn’t have CapEx expenses the first couple of years and just from that perspective, it seems like there’s less to go wrong. But in the building process, yeah, that does make sense. There’s a lot that could go wrong before it’s completed.

David:
Yes. And sometimes you run out of money when that’s happening. And if you have a house that’s 90% done or 95% done, it might as well be 0% done. The revenue it brings in is exactly the same. So that’s an extra risk.

David:
Now the one thing going for you is the state you’re doing this in would make it… I would give someone a hard no if they were in a state like New York right now.

Kathryn:
Yeah.

David:
Right? It is not worth doing unless you’ve just got really big pockets. Shameless plug right there. [inaudible 00:21:21].

David:
Florida makes me feel a little bit better about doing it. But it’s still like make sure you are extra, extra, extra careful because it’s always what you don’t see coming that ends up costing somebody money.

Kathryn:
Okay. Awesome.

David:
All right. Thanks, Kathryn.

Kathryn:
Thanks so much.

Henry:
Thank you.

Kathryn:
I appreciate your advice.

David:
We appreciate you. Hope to see you again.

David:
All right, Cliff, welcome to the show.

Cliff:
Thank you so much. I’m happy to be here.

David:
Yeah. So what’s on your mind today?

Cliff:
All right. So I’m a rookie investor. I listen to almost all your podcasts beginning in 2020 and tried to listen to the pretty much all the BiggerPockets podcast as well. Loved it. Family doesn’t come from money so I know this is a great way for me to build some wealth. I’ve done accounting and I love seeing how the numbers flow and how this stuff works together so I’m very interested in getting into this.

Cliff:
I did start investing September of last year. I bought a rental out of state using the BRRRR method. When I did this, I couldn’t find any investors so I used a personal line of credit which happened to be just a bunch of credit cards, turned them into a wire.

Cliff:
And I was told that the ARV of this house was double the purchase price to do and there’s a few issues with it, a roof, things like that I could fix, got them done instantly. And when we went to go do that, we had a hard money loan, got it done. Everything that’s… Got a tenant in there. Got the 1.8% roll on the first one. Felt pretty good about it.

Cliff:
Our appraisal came in only about 20,000 above purchase price and we had to find more debt to cover those closing costs, cover the difference in the hard money loan and the new mortgage.

Cliff:
And then, right after that, we found out that there was actually a bunch of items that had to be fixed as well, HVAC went out, furnace went out, water heater needed to be replaced, windows were really bad, small items around the place as well. I’m aware that my [inaudible 00:23:31] needs to be fixed up a little bit because we had a bunch of people walk through there. Nobody ever told me about this. I was told to wait the inspection on this pay purchase price. So I wasn’t expecting these items from what I was told and the videos I’ve seen of the house, pictures I’ve seen of the house as well.

Cliff:
And now we’re little in over our heads. This is my first one. So it’s the rookie nightmare sort of speak that everybody hears about. Why they don’t get into it? So I’m trying to wonder, “Do we sell it? Do we keep it? Just chip away at the debt over time. Is there other options on what we can do? How do I bounce back from this and what do I do to continue investing in real estate even with this big item hanging on my back here?”

Henry:
Yeah, man. Where are you located? And where’s the property located?

Cliff:
I’m in Denver, Colorado, and the property is in Ohio.

Henry:
In Ohio. Okay and so let me make sure I understand.

Henry:
So you bought the property, you leverage credit cards, and then to do the renovations you use the hard money loan?

Cliff:
We used hard money loan for the purchase and most of the renovations, the closing cost, and then the downpayment of 10% was used on the credit cards.

Henry:
Okay.

Cliff:
And then the refinance, we had to do the difference between the two loans and the new closing costs on the credit card as well.

Henry:
Okay, so what are you on the hook for now? And…

Cliff:
It’s about 50,000 in credit cards.

Henry:
And the property appraised for 20 grand over what you purchased it for?

Cliff:
Correct.

Henry:
And how much have you put into repair so far?

Cliff:
Out of pocket or cash, it’s been about seven and then it was about 16 or 17 on the hard money loan.

Henry:
Okay. So you’re not much over purchase and asking price all in right now.

Cliff:
Purchase was 90. We have the closing costs so then everything would be about 50 that…

Henry:
And how much more do you have to go renovation wise in a dollar amount?

Cliff:
In a dollar amount, I think about 12, and very conservative.

Henry:
12,000?

Cliff:
Yes.

Henry:
Okay. And the property, what is it anticipated to rent for?

Cliff:
1650.

Henry:
1650, you’ll be all in at what? 150? 140?

Cliff:
Yeah, about 150 I think.

Henry:
So you’d be all in at 150, it’s going to rent for 1650. Those aren’t terrible numbers. They’re not great numbers. Right? But it’s not terrible numbers.

Henry:
Now, if you’re getting 1650 and if you can get the property done, so if you can find the money, the 12 that you need to finish the property, well, that’s 1600 cover your debt service. Will you be able to pay back your loans in a timely fashion?

Cliff:
We’ll be able to pay for the mortgage and all that kind of stuff that goes associated with that. For the credit card and other stuff that we have to put money into it after all the items for the rental, we get some money to pay off those credit cards but then we have to put more in.

Henry:
Right. Okay. So I was just trying to get a sense of what are all the numbers, what’s everything mean once it’s all said and done. And so like I said, you’re not looking at terrible numbers, but you still have debt service to pay back and you’re probably going to have to come out of your pocket to do that.

Henry:
So if I were in your shoes before I looked to liquidate, I would probably be looking at is there another method that might bring me some more cash flow. Can I do short term rentals maybe for traveling nurses or Airbnb? I don’t know the neighborhood that that’s in. It may not be a realistic solution for you.

Henry:
But I would look at those options before I looked to just completely dump the property because even selling the property, you’re still going to be left holding a bag of something that you need to pay back. And so either option leaves you having to pay something. And so I would try to go with the option that still leaves me the asset because cash flow isn’t the only benefit to owning real estate. Obviously, you’re going to get some debt paid down from the tenant, you’re going to get tax benefits from owning the property.

Henry:
And so if I’ve got to pay back these lenders, either way I look at it, I’m going to try to keep the assets. So I would probably look at what short term rental options can I look at to bring in more cash flow, is there a garage or something separate that I could rent out separately to a tenant that generates more cash flow. And so I would be looking at little ways that might be able to help bring a little more cash flow in and then looking at ways that you would be able to try to pay down that debt as you keep it now.

Henry:
And then I’d also look at if you sell it, potentially, what could you sell it for, how much does that leave you on the hook for, and can you afford those payments. You don’t want to put yourself in a more uncomfortable financial situation.

Henry:
But I’d always tell you, and I know you’re learning a ton of lessons in this, I think a lot of the times when people get started investing at a state for some reason as they’re doing their due diligence and their analysis and building their team, for some reason people don’t think, “Just let me pay a couple 100 bucks for a plane ticket and go put eyes on the things myself.” Because at the end of the day, this is your asset and you’re on the hook. A grand or so to take a trip in the grand scheme of things might have saved a lot of headache.

Henry:
So as a new investor investing out of state is the option that a lot of people need to choose depending on the market that they’re in and so I get looking at estate.

Henry:
But man, go put your boots on the ground for your next one and make sure that you are comfortable with what you’re buying. Does that make sense?

Cliff:
Yeah, definitely. And that’s something… We’ve learned, as you were saying, on the lessons. It’s like I think the next one will be out there. We’ll be going into the weeds with whoever is on our team at the moment and trying to make sure that we question everything they do.

David:
So let me see if I can simplify your situation.

David:
There’s three things that when you’re doing this you have to take into consideration. The first is the finished product cash flow. Is it going to cash flow when I’m done?

David:
The second is the equity situation, especially on a BRRR. Am I going to be able to get enough money on the refinance? Will I be able to pay off all of the people that I borrowed money from or pay back myself? Because it’s normal in a BRRR to have to leave some money in the deal. But you’re just trying to figure out like, “Do I have enough money myself to leave a little bit in there?”

David:
And then the third thing is the traditional phrase cash flow, which I’m just going to call capital because it’s confusing. But the real phrase cash flow typically refers to any business, how much money is coming in versus how much is going out. That’s where cash flow comes from.

David:
It’s the flow of cash like a contractor that has to pay their guys, buy the supplies, manage the crew, and they’re spending money all the time, well, then they have income receivable coming in, that’s actual cash flow. But in real estate, we use the phrase cash flow to mean, “I have more money leftover at the end of the month than what I had to spend on the property.” So we’re just going to call that capital for this conversation.

David:
Your real estate cash flow sounds like it’s good. If you’re going to have 150,000 into this thing and you’re going to be bringing in 1650, you’re well over the 1% rule so can we assume we’re good on that sense? This property will cash flow once it’s refinanced.

Cliff:
Okay. It’s already been refinanced.

David:
Okay. So what was… I might have missed something. What was the issue when it comes to paying people back?

Cliff:
So we’re having trouble just with… We have to keep putting money into this property and things are still breaking. We still need to put money into it.

David:
Okay. So it’s not cash flowing from that perspective because you have to keep sinking more money into this than you thought you were going to have to. But it’s not like a situation-

Cliff:
Even after it’s rented.

David:
So this isn’t a situation where you’re afraid if I refinance, I can’t pay back all my debtors. That’s what I originally thought you’re saying.

Cliff:
Correct.

David:
Okay. So what you’re trying to figure-

Cliff:
[inaudible 00:32:04].

David:
… is you’ve got a money pit basically. Things keep breaking and you got to keep fixing it and you’re like, “Where do I come up with the capital to make these repairs?” Is that accurate?

Cliff:
Yeah.

David:
Okay.

Cliff:
Yeah.

David:
How long ago did you refinance it?

Cliff:
Months ago.

David:
Okay. So it doesn’t have a ton of equity where you can take some money out from there.

David:
You’ve got a couple of ways that you can solve this problem quickly. The first would be you could bring in a partner. So how much did it appraise for when you refinanced it?

Cliff:
112.

David:
All right. And then what is your loan on it right now?

Cliff:
Almost 90, 89,600.

David:
And where’d that 150,000 number come from?

Cliff:
That was the purchase price combined with the credit cards.

David:
Okay. So you’re into it for 150-

Cliff:
All of-

David:
… but it’s worth 112?

Cliff:
Correct.

David:
All right. So then my original idea was you could bring in a partner and have them bring some cash into the deal and give them some equity in it. But that’s going to be tough if the property’s worth less than what it appraised for.

David:
Now my guess is what went wrong here was when you looked at the comps and you said, “Well, what’s it going to appraise for?” You found the best comps possible and maybe there’s two or three, but you missed the eight or nine that were lower. Do you think that’s what happened?

Cliff:
Yeah, the ARV I was given was, I think, way too high and when I… Rookie wasn’t sure what I was exactly looking at, so…

David:
Got you. So that’s a problem of having the wrong core four. You had a person who said, “Oh, this is what it’s going to be,” and they had no skin in the game so they had no problem lying to you or at least being incompetent, not checking their work.

David:
And this does suck when you just take somebody else’s advice which is not that uncommon in our business because of many things in life like if you’re going to Foot Locker, the person there isn’t going to say, “Oh, this shoe is great.” If it’s not great, there’s no reason for them to do that. But in real estate, there’s a lot of people that will do that to you.

David:
So I see now why… Well, you’re basically saying, “Hey, this could work but I have to put money to fixing it up.” What things don’t need to be fixed up right away? Is there anything that has to be done in order for this place to generate revenue?

Cliff:
I believe it’s electrical and the windows. I think that’s the last items we have to fix. And those are…

David:
So why did the windows have to be fixed?

Cliff:
The frame around, it’s rotting out.

David:
Yeah, that’s not too expensive. You get a handyman to go in there and put up some new wood, right?

Cliff:
Yeah, well, the windows are falling. They’re breaking as well. Glass pieces are falling out.

David:
The glass is breaking because the frames are bad. Okay. So they’re terrible, terrible, terrible, right?

Cliff:
Yes.

David:
I would make some phone calls to find out what windows supply company will let you pay for windows on credit. There are companies that will do that where you don’t have to pay the cash upfront. You’re like, “Hey, can I finance this situation?” Right?

David:
And then I would look someone to do the labor that wasn’t the window companies recommended person to go do the work. You’re going to need to do a little bit of legwork to find someone who wants a job, who’s pretty handy that can just fix rotting wood. That’s one of the easier problems to fix is dry rot because you don’t have to be super skilled labor to do this. [inaudible 00:35:06] electrician.

David:
Henry?

Henry:
Yeah. You may also look into your electric companies or the city to see if there’s any credits or rebates for putting new windows in your houses. That might save you a little bit of cash.

David:
Now, the electrical is a little bit more of a touchy thing. Do you know how bad the electrical problem is? Or is it like… I’m sure you were told you need to rewire the whole house or something major, but do you know where the problems are coming from?

Cliff:
The load is not strong enough for the new modern appliances.

David:
So is it just not working like circuit breakers keep flipping or what?

Cliff:
Yeah, they keep flipping and when appliances are on they keep flipping. The outside is exposed so that one definitely has to go.

David:
Okay. So when someone gave you a quote on basically… What did they tell you they wanted to up the voltage to?

Cliff:
From I think it was 100 to 200.

David:
Okay, and how much did they say it was going to cost to put in the new system?

Cliff:
This was from the property management maintenance I think it said 6000.

David:
Okay. I bet you could beat that. If you can find somebody that knows how to do electrical work on houses, this is one where you should talk to other investors in your area. 100%, this is when you want to go to the meetups.

David:
Whenever you’re trying to find the deal, investors don’t want to give up their deal source, especially when it’s a really tricky market. But stuff like this, their electrician, their lender, or their property manager, they never mind telling you that information. So if you just start talking to everyone you know, “Do you know electrician?” “Do you know electrician?” And then you talk to electrician and say, “I’m trying to figure out the cheapest way that I can get this from 100 to 200 amp.” See what those people come back and say. That’s one way that you can solve that problem. I bet it would be less than $6000.

David:
Now, the other issue would just be capital in general. Have you changed anything in your personal life to take on more pressure so that you can start earning some more money?

Cliff:
I did recently-

David:
Like a second job, a side hustle.

Cliff:
Recently switched jobs which allows me to get good pay and they cover more benefits. I get more coming home every month. And then my wife’s looking at getting another job and then I’m selling on Amazon at the same time and we opened up new services for her business as well trying to bring in-

David:
Were you going to make all these same moves if you didn’t have this problem with the house?

Cliff:
No.

David:
Okay. This is a thing I want to highlight that’s never fun. Nobody wants to hear this. But I think it’s worth saying.

David:
This problem of the house created pressure, like financial pressure. Most people look at, “Well, there’s all this pressure coming. It’s coming into the house, I got to sell the house to alleviate the pressure.” We’re talking about practical things within the actual house itself that you can do to fix the problem. But that’s always assuming the only way to alleviate pressure is through the house.

David:
You just mentioned three things you’re doing to bring in more money, your wife’s considering getting a job, you went and got a better job, and now you’re selling on Amazon.

David:
Selling on Amazon is going to teach you skills that you didn’t have before. It’s going to teach you a lot about business. Even if you don’t make money right away, it’s going to make you a better person. Definitely going to make you a better business person, gain you some knowledge, help you get out of your comfort zone, and you’re going to have more confidence and more boldness coming out of this because you did that. That is a good thing.

David:
Stepping up your own job. Probably. I don’t know this, but I would guess, Cliff, something that you’ve been kicking around for a couple years. “I really need to get a better job.” “I’m not really happy where I’m at.” “I know I could be doing more. I know I could be making more.” But there wasn’t enough pressure, you were comfortable. Now, this house situation happens, bit of a debacle, you feel that pressure, what do you know? You went and got yourself a raise. That’s a form of cash flow, too. It comes from more than just the house, right?

David:
And then maybe you and your wife were talking and she didn’t want to go to work or I don’t know how that situation worked with you guys. But that pressure definitely got her in a situation where she’s going to go to work and that could be really good for her in a lot of ways too. It might help with her own confidence. Now she’s contributing and she’s learning new things and she’s going to understand your situation better because she’s back in the workforce and maybe your wife ends up doing the same thing where she gets raises and you end up making more from that than the house even made you.

David:
I just want to highlight that these things don’t exist in compartmentalized little modules like, “I’ve got my work and I’ve got my house and I’ve got my relationship.” They are all connected. So by taking a swing, which you did, and you admit you made some mistakes, which is okay, because everyone does, those mistakes created pressure that helped benefit you in other areas of your life.

David:
And then the stronger version of you and your wife that you become from this will affect your real estate investing too. You’ll make better decisions, you’ll screen people better. Maybe part of the reason that you trusted the ARVs you got that weren’t good where you just didn’t like conflict at the time. You’re like, “I just don’t want to tell this person they’re full of it.” Well, after doing what you’re doing over here, maybe conflict isn’t as scary and it makes you better.

David:
So this is why we say if you stick with it, this is how people get better. It just always happens in ways you can’t predict and so it doesn’t get talked about.

Henry:
I love it, David. That’s a phenomenal point. I just love the way you sum that up.

Henry:
Because, Cliff, think about this, right? So David said and I said it, if you’re all in at 150 even though it’s worth 112, it’s rented for 1650, those are decent numbers. You don’t feel too bad about that. But with every test comes a testimony and now you’ve got these lessons that you’ve learned.

Henry:
And you said it, when you first started talking to us, you said, “Hey, I hit this rookie nightmare,” and instead of folding, you’re on here asking questions, getting information, trying to figure out because what I hear is you want to keep the house so you’re here trying to learn, “How do I keep this so that I can continue investing in real estate?”

Henry:
That mindset alone is powerful because a lot of people would have did just what David talked about the beginning and say, “Hey, this house created pressure. I’m getting rid of the house. Real estate investment is terrible. I knew that I shouldn’t have done it.”

Henry:
And so now you’ve learned a ton of lessons, you’ve made yourself a better person. Sounds like your wife is improving as well. So your whole family dynamic’s improving, plus, you still got this asset.

Henry:
And yeah, it’s a headache and I get it. When you got a property that’s kicking your butt, man, every time you get an email about it or something, your stomach turns just because, “I’m stuck here. I don’t want it.” I get it. But it’s making you a better person and it’s making you a better investor. It’s still going to provide you benefits of taxes and appreciation and debt pay down.

Henry:
It’s not all bad is what I’m trying to tell you and now you’re going to have this testimony that you’ll be able to share with other people when they come to you and say, “Hey, I’m thinking about real estate investing, man, but I just heard some horror stories and I’m just afraid I can’t recover.” And you’ll be able to say, “No. No, you can, because I did.”

David:
I love that.

David:
It’s going to make your life better in ways you didn’t predict. And I’m about to go into a jiu jitsu analogy, but you could use this for anything.

David:
There’s a guy in my jiu jitsu class who’s in his mid 40s, maybe upper 40s. He’s been a corporate guy. He flies around the country. I think he works for Safeway or something. He’s pretty high up in the company and I think he looks at the different places where they want to open a location and he’s involved in making the decision if they should or shouldn’t or what type of Safeway they should open. Kind of high level stuff.

David:
So he shows up at jiu jitsu and he’s terrible just to complete spaz. Probably didn’t play… Maybe he’s played sports when he’s really young. Definitely no martial arts.

David:
And he’s been going every single day. Like insane, man. He goes probably five times as often as I do. And he lost 30 or 40 pounds in a couple months. He’s in really good shape now.

David:
Now, he did not join jiu jitsu to lose weight. He did it to learn a martial art. But in doing that, he realized, “I need to lose weight if I want to be better.” And now he has the benefit of losing weight. He also has a little bit more confidence than he had before. He said his relationship with his wife is better.

David:
So what you see is when you do hard stuff like this, that pressure leaks into other areas of your life and if you handle it positively, it will make things better. So I don’t look at this like, “You screwed up. You shouldn’t be investing.” I look at this like… This was like those… What are those paddles called when you put it onto somebody that they shock them. “Clear. Bzzzt.” You know what I’m talking about?

Henry:
Yeah. Yeah, yeah, yeah.

David:
AED, yes.

Cliff:
AED paddles.

David:
That did this to your business life in a sense. That shock does not feel good when you have it. But boom, it gets things beating, it gets a pulse going, and now you’re making progress again.

David:
So do not be discouraged by this. You cannot be discouraged by this. You did an out of state BRRR as your first deal ever. You just lined up the risk factors and all of them went wrong and it exploded in your face and now you’re working your way through it. But you’re not going to make those same mistakes again and you’re actually going to come out of this better than you were before.

David:
So I appreciate your boldness and your courage and coming on the show to talk about this. I know if you stick with this, we’re going to see you again in five years. You’re going to have multiple properties, you’ll be doing really well, you’re going to hit a groove, you’re going to have a lot of confidence, you’re going to be a completely different person than where you are right now.

Cliff:
It’s what I’m looking forward to.

David:
All right.

Henry:
Awesome, man.

David:
Thanks, Cliff. Appreciate you, man.

Cliff:
Thank you, guys.

David:
All right, Karen. Welcome to the BiggerPockets podcast. It’s nice to have you here.

Karen:
Thank you. Nice to be here.

Karen:
First, I guess I need to start by saying that I’ve spent my entire career making money for institutional and private commercial real estate investors and here I am approaching retirement and I realized I don’t have any investments for myself to make retirement actually last.

Karen:
So my question to you is, how can someone start and quickly scale when there’s not 10, 15 years to go about accumulating?

David:
All right. Well, here’s what I’ll start with that. In one sense, you feel like you’re behind the eight ball because of your age. You’re like, “Well, I don’t have a ton of time to let real estate work for me and naturally appreciate.” And as we’ve talked about before, that’s the easiest way to make wealth in real estate. Just bite early and wait. That’s one of the reasons we tell people to get started early.

David:
But in another area, you’re way ahead of everyone else, you’re probably not thinking about it and that’s knowledge and experience. And I don’t mean experience based on your age, I mean experience based on how this industry works because like you said you’ve been making money for people for years in this space.

David:
So imagine you’ve got some 25-year-old, time’s on their side, and you’re looking at them like, “Man, they could just buy a house and wait and by retirement, they’d be set.” But that 25-year-old has the knowledge and the experience and the skill set that’s going to cause them to move it two miles an hour in this industry.

David:
Well, you may be behind in that sense, but you’re going to be running at 90 miles an hour compared to them. You know how to talk to people, you know who to talk to, you know what strings have to be pulled, you know… More than just the X’s and O’s of the industry, you know who the players are and how to communicate with one of those players.

David:
If you get involved in this, you’re going to make so much more traction so much quicker than someone who’s learning for the first time.

Karen:
I know where I’m at. I guess, for me, falling into that analysis paralysis. And part of it too, though, is I’m working full time and it’s like, “Okay, how do I juggle and make the connections that I need for my personal investments versus working and not stepping over any ethical lines in my professional investments?”

David:
One thing I’d say before Henry jumps in here is… Well, let me ask you this question before I give practical advice. Are you in real estate development? Are they developing commercial properties?

Karen:
I’ve actually been in development and management and primarily management of retail, office, and industrial.

David:
So you are very confident and competent when it comes to managing a property that’s already been bought. Is that fair to say?

Karen:
Yes.

David:
Is it also fair to say you know the area that you’re in, you know what you can expect what type of tenants you can get, what to look for in a tenant? All that’s true?

Karen:
I would say yes.

David:
Okay. So what would it look like for you to go out there and beat the bushes a little bit to find one of these people that might want to sell, find a property that you think will do well, paint a picture for what it would look like to own this thing, and then go find someone in your industry with a whole bunch of money that isn’t really working super hard anymore then have them sponsor that deal.

Karen:
Yeah, I’ve actually thought about that. Like I said, it’s just I’m trying to walk a thin line because I don’t want to cross any ethical lines.

David:
Well, does the boss that you work for now buy every single deal that comes their way?

Karen:
No.

David:
Would they expect you to bring a deal to them before you bought it?

Karen:
Yes.

David:
Okay. You can work that out too.

David:
I would go sit down and have a conversation with the boss and say, “Here’s the deal. I’m looking at needing to retire at some point and I’m not prepared for it. So I need to own some property. I would like your help with doing that. On one hand, I want to go start looking for deals. If I find a deal and you buy it with your money, would you consider cutting me into it if I bring it to you? So if I did all the work of finding the deal, I want an ownership stake in the deal and then I’ll just manage it like normal. So instead of paying me a finder’s fee, you just give me a percentage of the deal in lieu of that finder’s fee.” That’s one option.

David:
The other would be, “If I bring you a deal and you don’t want it, would you give me your support as my boss to put me in touch with some of the people that I would need if I wanted to take it down?”

Karen:
That’s a good idea. I definitely think they would go for that.

David:
I want you to understand, Karen, the situation you’re in. I don’t know you at all. You could be completely making all this up. Maybe you’re a supervisor at Kmart for all we know. We don’t know each other. However, you give me the feeling that if I was… What market are you in? I don’t know if you mentioned that. But where are you operating out of?

Karen:
Charlotte, North Carolina.

David:
Oh, that’s such a good market.

David:
Okay. If I wanted to buy in Charlotte, North Carolina, you’d be my first email or phone call. “What do you think about this area? What can I expect? Do I want to be on this part or that part? What’s the play? How do I make this property work?” And I feel like you would shoot straight and direct and say, “Nope, you don’t want to do that. These are the headaches you’re going to get. You want to look in this direction instead.”

David:
And that is one of the most valuable parts of all real estate investing is having that person that knows the freaking market and can give you advice on what to do. Every one of us is looking in life for that human being especially when it comes to what we invest our money in. So you’re operating with this incredible skill set that is very valuable.

David:
First off, anyone in the Charlotte area of North Carolina, reach out to Karen. We’ll have you give your social media, Karen, at the end here so that they can get in touch with you and they can help you here.

David:
But I want you to be walking with confidence. Not cockiness. But you definitely should be operating like, “I have done this for a long time. I know what I’m freaking doing. I’m missing a couple pieces that I can put together.” And you are much more likely to make the deal work than someone who is 25 who has no idea what they’re doing, who hasn’t made the mistakes, who can’t… You’re undervaluing what you know.

David:
This is a problem I see with real estate agents all the time because we talk about real estate nonstop and we’re selling 30, 40 houses a month on my team. We assume everyone in the world knows the same things we do. They know what’s going on with interest rates, they know what’s going on with laws that are passed, they know how many offers houses are getting.

David:
And then you come across somebody who’s like, “Do you think my house would sell?” And it’s in the best neighborhood of the best areas, it’s the best house there, and they’re worried about it and it hits me like, “Oh, my God. I forget not everybody does what I do.”

David:
I promise, you’re living in that space. You have a rare and unique skill set that is incredibly valuable and you just take it for granted because you live in that space all the time.

Karen:
Thank you very much. I appreciate that advice. It kicked me in the butt and gave me some motivation.

David:
Henry, what are your thoughts?

Henry:
Yeah. David’s got a superpower of being able to point out people’s strengths and give them that kick in the butt you’re talking about.

Henry:
But look, I agree 100% with David. I get it. You feel like you’ve waited too long, you feel like you don’t have enough time. Who cares? Right? Because what matters is now you’ve realized it and now you want to do something about it. And so that situation has created motivation within you, motivation to really take off and create a better life. And so it create the retirement that you want. And so great. Now, we all know that. We know that you’ve waited, okay, so what? Now you’re ready to take action.

Henry:
And I’ll tell you, you can build wealth in… I don’t want to say a short amount of time, but you can grow and scale. I’ve only been doing this for four years and I’ve got 65, 70 doors. Now, am I saying you need to buy 70 doors in the next four years? No, absolutely not.

Henry:
But to go full Brandon Turner, everybody has a superpower and your superpower is that you’ve been in and around real estate for your entire career and something tells me you’re really good at your job so you’ve now got the relationships, as David said, to get everything done.

Henry:
You’ve got what some people consider the hard part. It sounds to me you can have a conversation and you can find the funding you need. It sounds to me like you know exactly what to invest in in your market, where to invest in it, and the returns that you’re going to get.

Henry:
I heard you said you’re in analysis paralysis but based on your experience, it doesn’t sound like it. It sounds like you know exactly what you should pay and why you should pay it and what you’re going to get out of it from a tenant perspective. All the main problems with real estate are finding the deal, funding the deal, and then managing the deal. And you already do the third.

Henry:
So it’s just a matter of leveraging the superpowers that you have and making the decision. Putting the past behind you, who cares what you didn’t do in the past, it’s already gone. If you just make the decision in your mind and say, “I am going to buy my first property within the next…” Three months, six months, 12 months, whatever that realistic timeframe is for you. If you say that in your head over and over again, if you write it down five times a day, you will start to see opportunities.

Henry:
These aren’t opportunities that weren’t there before, they’re just opportunities that your brain will now be opened up to seeing and then you’ll be able to say, “You know what? There’s that one deal that we looked at a couple of months ago and we never did anything with it. You know what? I’m going to grab that. I’m going to bring it to my boss, I’m going to tell him the situation and I’m going to see if we can get something done with that.”

Henry:
These opportunities are there for you and you’ve got the relationships to get them done, all you really have to do is put the past behind you, make that mindset shift that, “I am going to get a property under contract within the next…” 30, 60, 90 days, whatever that goal is for you and say that to yourself every day, you will be surprised how many opportunities you’re going to start to see or realize how many opportunities that you’ve already seen in the past that you can bring back.

Karen:
Thank you, Henry. That’s really encouraging. And, yeah, my goal is to try to have my first purchase by the end of this year so I’ll just do like you suggest and remind myself.

David:
I’m going to guess there’s going to be two psychological hurdles that are going to hold you back.

David:
The first is your relationship with your boss. You’re clearly a loyal person. You don’t want to step on toes. You mentioned not wanting to cross any ethical bounds. But you haven’t told us what specifics of that might be which tells me there might not be actual ethical bounds, but you’re just such a loyal person that you’re conscious is like, “I’ll be very careful.”

David:
So I’m going to give you some advice on how to navigate the relationship with him or her, I don’t know, I’m assuming your boss is a guy there. I don’t know if you said that or not.

David:
But the other one would be you getting word out that you’re looking to buy a property. There’s going to be a psychological hurdle there. You’re going to feel like an imposter like, “Why am I talking to these people?” And then it might even feel like you’re cheating on your boss to be looking at these other people.

David:
Let’s start with the boss because I am a boss so I can speak from this perspective because I’m also an employee so I see both sides of it. Your boss is going to be upset if you poach their database. So if you’re going to the people whose properties you’re currently managing and you say, “Hey, do you want to sell it to me?” That’s directly competing with your boss and that would be overstepping bounds that would not be appropriate.

David:
That’s what all of us bosses are worried about. I don’t want one of the agents on my team to go to my friend and be like, “Hey, you’re my client now. You’re not David’s client anymore.” That’s not cool. I do want the agent on my team to go to someone I’ve never met before and use everything that I taught them to get a client for the company.

David:
It’s very, very simple. People can understand this thing. Don’t play in someone else’s database. They’ve already done hard work to build that they’ve trusted you by giving you access to that database. You’re not going to take advantage of them by being lazy.

David:
But if you go out there and you talk to people your boss has never met, has never heard of, doesn’t know, he’s never going to be upset with you for doing that because it’s not taking anything away. And if you say, “If I find this deal, would you want to be in it?” You actually are bringing him something that didn’t exist at all. You’re bringing value, you’re just bringing value that you get to be a part of. Does that clicking? That makes sense to see that perspective?

Karen:
Yeah, it does. It does. Because I guess from the ethical standpoint, what I was referring to was existing investors that my company is involved with and that I managed for.

David:
That would not be cool.

David:
So imagine an admin on the David Greene Team who helps get our clients’ listings ready to go on the market that starts going to those sellers and saying, “Hey, I just got licensed. Can I sell your house instead of David?” Totally not cool. That would be you going to an existing investor and your boss would be furious because he’s paying you and trusting you to do a role in that transaction.

David:
Now, if a listing assistant took the confidence they had from working on all of our clients deals and the knowledge I gave them and the experience that they accumulated selling hundreds and hundreds of houses and they started going to places where I don’t go and meeting people I don’t know and sharing the stuff I did and bringing business into our team, I would love them. I’d kiss their feet. I would do everything I could to support that person.

David:
So if you sit down and have this talk with the boss and say, “Hey, I’m not going to stop doing what I’m doing. I just want to do more. Can I work on the sales side? Can I go look for some more deals for us to manage? And if I find it, I would expect you to make me a part of it.”

David:
I don’t see your boss saying no. That doesn’t make any sense. I wouldn’t turn down one of the listing-

Henry:
“No, I don’t like money.”

David:
… assistants on my team.

David:
Yeah, exactly. Like, “Hey, David, I got a listing?” “What? You’re supposed to only be working my listings.” Like, “Oh, well, that’s awesome.”

David:
Now, the other psychological hurdle I think that you’re going to have is just going to be in this analogy I’m painting here, the listing assistant being nervous about going to talk to people about them selling the house. That’s the reality. That’s why they don’t do it.

David:
“Is that scary? What if they ask a question I don’t know the answer to? What if I sound stupid? What…”

David:
Like, “I’m comfortable just working David’s listing. So I don’t want to step out of my comfort zone.”

David:
That is definitely going to be a challenge you’re going to have to face and you’ve done things the same way for a long time so that trench is a little bit deeper.

David:
So like Henry said, you have to be purposeful about doing this. You have to tell yourself, “This is what I’m going to do.”

David:
My advice is that if I was you I would get a list of all the people that own the type of properties that you would want to own and I would start calling them and I would just say, “Hey, are you super thrilled with your current management? Because I’m a property manager and if you don’t love the manager you have I’d like to sit down and talk and see if we could be a better fit. Maybe save you some money or maybe do a better job.” Start the relationship there.

David:
If he’s like, “Nope, I’m super happy with my management.” “That’s awesome. I’m also looking to buy a property. Is there any chance you’re interested in selling the one you have?” “No, I’m happy. But if something better came along, maybe.” Start a conversation there.

David:
But if you don’t want to cold call someone and be like, “You want to sell your house?” Use that intro of, “Well, I’m a property manager. You’re interested in new management?” To break the ice.

David:
Then get a feel for, “Well, what would make you want to sell?” ” Well, I might want to retire in a couple years. I don’t know if I want to… I might be wanting to sell it then. Or actually I want to buy something bigger, I might need to sell this and 1031 into it.” And now you’re like, “Well, what if I helped find you a bigger property? Would you let me manage the bigger property?” Now your boss is happy because you just brought an account in, “And would you let me buy the one you have so you could 1031 the bigger one?” Now the seller is happy because you just help them accomplish his goal.

David:
You got a piece of the house that you’re trying to buy and you get to manage the new one. You’re happy because you won in two ways. That is the approach I’d recommend taking.

Henry:
Boom. That was phenomenal advice.

Karen:
Yes, it was. That really hit home. Thank you.

David:
Well, that’s why you called us so I appreciate that, Karen. Make sure that you do this again. We want to see you in the future and we want to hear how things are going.

Karen:
Okay. Well, thank you very much, guys.

David:
Thanks, Karen.

Henry:
Thank you. Good luck.

Loic:
Hi, David, hi, Henry, and nice to meet you. I’m from France. I live in France just about a kilometer away from the German border. And so my question is, as I’m an 18-year-old boy from France and so a foreign citizen, how may I partner with my grandpa to invest in Texas to perform a BR deal as we are on a very long distance. It’s more than 10-hour flight.

Loic:
And David, as you’re an expert about long distance investing as I’ve read a book about it. How may I just build my core four and finding great contractor and great agents and property manager as well as the lender? And also, we were considering hiring a hard money lender because we don’t necessarily have all the cash money to buy a duplex because we’re just sticking for a 100,000 or $150,000 deal. And also, we’re planning on starting an LLC because that’s something that most lenders require for foreigners.

Loic:
And so my precise question is, should we do it or should I try maybe being on site and just fly there for a couple of days or weeks? Or should I maybe try it on my local markets with just friends? But unfortunately, it’s just not as great as the U.S. market because there’s not as many deals as we’d like to see.

Loic:
And should I look for MLS deals or maybe off market deals with an agent? And should my grandpa take the loans on his [inaudible 01:01:33] or at least as the primary investor because he holds the cash? And also, how can we just do it without a FICO score because we’re foreigners with friends’ bank accounts because that’s something that most lenders I’ve reached out to have already actually told me that I might need one.

David:
All right. Well, shoot, man. You’ve clearly read the entire Long-Distance Real Estate book.

David:
Your English is fantastic. It’s hard to believe you’re only 18.

Loic:
[inaudible 01:02:06].

David:
I see why your grandfather trusts you with his money. You seem like a special kid.

Loic:
Thank you very much.

David:
That being said what… I’m just going to shoot straight with you. Is it Loic? Is that you pronounce it? Loic?

Loic:
Yes, that’s right.

David:
Loic, your ambitions are large. Trying to find a house in one of the hottest states in America in the 100, $150,000 range without very much money, without understanding how business works in America and being that far away. You’re probably going to need to lower your expectations on some of those things because if you don’t, you’re going to end up just getting suckered into a bad deal.

David:
Henry, I think you’re probably on the same wavelength as me. Do you want to jump in and share what your thoughts are?

Henry:
No, no. I would 100% agree with you, David.

Henry:
It sounds like there’s quite a few hurdles that you’re going to have to overcome. And is it impossible? Probably not. But outside of finding the deals, the concern is going to be where’s the money going to come from? And if you’re going to have to take out loans, what hurdles are you going to have to overcome?

Henry:
I’m no expert on being a foreigner and then investing out of state, but I tell you that it’s probably going to take you time wise a lot longer than you’re expecting.

Henry:
And then what I was hearing based on your questions is you’ve got a lot of different thoughts on which strategies you might want to undertake as a new investor. Should you buy on the market? Should you buy off the market? Where are you going to buy?

Henry:
And so the first thing I would tell you to do is to get that nailed down. First, you have to know exactly what market that you’re going to invest in because the market that you’re going to invest in will dictate what’s the best way for you to go about finding properties that fit your buy box in that market.

Henry:
There are some markets where MLS shopping is totally feasible based on the exit strategy that you’re going to use and then there are some markets in the country where it’s going to be a whole lot more difficult to just find something on the MLS that’s going to hit your numbers.

Henry:
But the two things that are going to guide you to that are, A, knowing exactly what that market is and B, knowing what you want to do with those properties. And if you’ve got those things nailed down, then that will point you to whether or not you should look on the market or off the market for your deals. Does that make sense?

Loic:
Yes, it makes sense. Actually, because my grandpa isn’t an expert to real estate at all, he doesn’t even speak English, I first considered investing in San Antonio or maybe Houston and just doing a fixed rent deal actually in … I didn’t know if it’s really feasible as a foreigner because we’re just so far from the site of construction and from the property in general. And so yes, so how can I just make it?

Henry:
Yeah. So I think feasibilities are two levels. There’s feasible from a distance, but it’s feasible from what’s legally possible from a financing perspective. And so I probably let David take the latter of those two.

Loic:
[inaudible 01:05:22].

David:
Yeah, I don’t think you’re going to have as hard of a time being able to own property here as a citizen of France. Our company does this for people that are outside of America where you can still take title to a property. Owning in the U.S. is easier than owning in other countries so you should reach out to us and I’ll connect with one of the guys to tell you what would have to be done.

David:
This is more from a practical standpoint. You’re basically saying, “How do I compete at the highest level of what I’m trying to get into as a brand new person?” That’s how people you… If you’re like, “Hey, how do I go compete with all the black belts in this martial art I’ve never done?” Might be a chance you get hurt.

David:
So what we’re saying is let’s start a little bit slower here. If you were 100% committed to this, Loic, I would say take a vacation to Texas and plan to stay for a week or two. Maybe even bring your grandpa. Meet with property managers in the different areas that you’re looking at.

David:
Don’t tell them you’re from France. Even though you have an accent in America, we have tons of different people here. No one’s going to assume you live somewhere else. They’d probably… You speak very good English. I don’t think they can even tell it’s French. Don’t wear a beret and a striped shirt and [inaudible 01:06:27] all of those French stereotypes. Don’t come with a cappuccino in your hand. I’m joking here.

David:
Don’t tell them you’re from somewhere else because if they’re a bad one, they’re going to then think they can take advantage of you. And just get to know, hey, what type of… How are a lot of the people that own these properties finding them? What are the parts of town that you think you want to manage in most? If the property manager will open up to you and explain, “Hey, this is the type of properties that do best.” Now you have a target you want to go for.

David:
I would ask them, “Who are the best real estate agents that you know?” And I would meet with those same agents. Just go out to lunch with them, get to know them a little bit, talk about what you’re hoping to do. If they have a good recommendation and you have a good connection with them, now you’re halfway there. You found some agents that can look for you and you found property managers that can manage the property.

David:
With those two people, start asking like, “Hey, if I need to fix a house up, if I bought a fixer upper, do you have people you could recommend? How do you know them? How many jobs have they done for you before? How busy are they?” Ask a couple of those questions.

David:
And then the lending would be the easiest part. We could help you with that. But if you wanted to use somebody else, everybody would know a lender. This stage right now, it’s the easiest to find someone who’s going to finance your property.

David:
So I would definitely recommend doing that before you just started buying properties in Texas because from someone who doesn’t understand the different cities out here you could easily get put in the worst neighborhood of the worst city but the pictures are going to look really nice of the house and that’s what we want to avoid.

David:
So once you’ve been there and you know the market and you know the people, you don’t have to visit every single house you buy. That’s the part where you’re like, “Okay, I know the neighborhood. I know the area. I trust the people. I know what I’m getting.” But in the very beginning, I think you should come out here and you should meet the people that are going to be representing you.

Loic:
Yes. It sounds… [inaudible 01:08:11] Yes, of course.

David:
And what’s going to happen, Loic, is that it’s going to open up a whole new round of questions where you’re like, “Well, now I need to know this and now I need to know that.” But those questions are one step closer to where you’re trying to go. They’re one step further down the path that you need to be walking in.

David:
And that’s another piece of advice I’d give you and everyone. Don’t think real estate is a thing where you’re like, “All right, what do I have to do and then I just do it.” You’re taking the journey. You’re never going to know the answers to everything after the first step. So the better question to say is, “What do I need to do to get committed to this journey long term, to fall in love with it, to not get some poison ivy on my first step or not step on a rattlesnake on my second…”

David:
Do you guys have rattlesnakes in France? Do you even know what that means [inaudible 01:08:49]?

Loic:
No, I don’t know what it is. I’m sorry.

David:
It’s a poisonous snake that can hurt you. Right?

Loic:
Okay, okay. I see. [inaudible 01:08:56].

David:
Yeah, you don’t want to do something that could hurt you in the beginning.

Henry:
Yeah. David is 100% right. Obviously, you want to take it slow.

Henry:
And another thing that you could and should be doing is because the COVID made the world a place of learning online, it’s pretty easy to find real estate investment groups and meetups in the markets you’re considering investing in and being able to join those meetings online.

Henry:
And so as much connecting you can do with other investors in the markets you’re looking to invest in, you’re going to start to learn a lot of information that you’re going to need to leverage in order to make the decision on what you should or shouldn’t buy or where you should or shouldn’t buy and you’re going to start to build your network of your core four.

Henry:
And so David’s exactly right. People get so caught up in the how. They want one, two, three, four, five, six steps all laid out in a row for them and it just doesn’t always work out like that in the real world. And so sometimes, you’ve got to take the step one and a great step one is getting around people who are successful doing the things you’re wanting to do in the markets that you’re wanting to do them in.

Henry:
And so if you can get in some of these real estate investment meetups and start to network, if you can get a trip over here and go to those meetings in person and start to develop those relationships, your step two and step three and step four is probably going to reveal itself and help you determine, “Hey, yes, I’m going down the right path.” Or maybe it shows you the exact opposite. Maybe it shows that, “Hey, maybe this market isn’t the market we’re looking at. We need to go look at a different market.”

Henry:
But being around the people who are doing it either virtually or in person is a great way to guide you to the information that you need to make the best decision for you and your grandfather.

David:
Henry, you just set up a light bulb in my head, and it’s a green one. Do you see this green light emanating-

Henry:
Boom.

David:
… from around my head? Right?

David:
I was thinking about in what situations in life is it appropriate to look for, “I want every single step lined out,” and in what situations do you need to acknowledge, “This is a path that I won’t have them all.”

David:
And I was thinking about if you’re an employee of a company, it makes sense that they would line up everything they want you to do exactly which is how most of us are used to thinking. But if you’re going to become an owner of a company, there’s no way you can have any idea how that will work out.

David:
The owner’s job is to take chaos and problems and things that go wrong, and find a solution and then delegate that solution to someone else in the form of very easy steps to do.

David:
When I started looking for a jiu jitsu gym, I was in the ownership mindset. I went to different places, I watch how they did stuff. I asked a lot of questions about the instructors. I was trying to figure out like, “What are they like at this place? Is this somewhere where I’m going to get hurt? Is this a place that you go train if you’re trying to become a professional fighter? Are these a bunch of weenies that just don’t try very hard?” I wanted to get to know the place and who was going to be teaching me.

David:
I could have just go sign up and just go start. I would go and watch classes and see how it went. But when I’m in the class, they’re telling me specific. “These are the six steps that you do in order to execute whatever this technique is that we’re showing.”

David:
So your brain has to jump from thing to thing in life and some places, there is a checklist that you’re going to operate off of exactly. Maybe once the house is bought, you got to have a checklist. Turn on the utilities, get a handyman to look at the inspection report, and fix everything. Get some pictures scheduled, get a listing up. That can be done and hey, what are all the things I need to do.

David:
But in finding the deal, never. It’s never going to work that way. It can’t be turned into a situation like that.

David:
So I think that’s going to be really good for a lot of people that are stuck in this place where they are trying to turn real estate into a step by step when you’d make those pictures that you draw by going from one to two to three to four, paint by number, whatever. That it could be part of what’s holding them back is they’re not in a scenario where that’s going to work.

David:
Loic, I know we lost you for a second there. Did you have any last questions before we get you out of here?

Loic:
Well, I guess that’s it. No, you just answer my question in a very good way. So yes, happy to have a conversation with you.

David:
Well, thanks for being on the podcast. Tell all your friends in France that you’re a celebrity now and that you’re famous and share this with them so we get more people listening to this in France.

Loic:
Thanks for having me here.

Henry:
Thank you very much. Best of luck to you.

Loic:
Yes, I hope so. Thank you very much.

David:
Let our producer know if you go to Texas and check things out and we’ll have you back on to give an update on what you learned, what questions are now popping up in your head, stuff like that.

Loic:
Yes, I will see if I ever go to Texas. But that’s definitely something I will consider because I don’t know if just investing in France is the easiest and the safest way to do it or maybe… Yeah, I’m just tempted just going to Texas and see how I can just perform the deal. So yes, I will consider [inaudible 01:14:00].

David:
I think you need to go to Texas and have that to compare to what it would be like to invest in France. If you see both, I bet the right answer will probably make itself known.

Henry:
Thank you, buddy.

David:
All right. Thank you, Loic.

Loic:
Thank you very much, David.

Loic:
All right. And that was our show. Man, I love doing these live call ins where we get to go back and forth and ask questions. You get to know more about the purchase scenario and we have to give more nuanced answers. You can’t just be like, “Oh, you have to refinance at this point,” which is always the same, right? You got to make it specific to that person’s scenario.

Loic:
What did you think about today’s show, Henry?

Henry:
Man, it’s super fun because we all do real estate differently and we get so caught up in the way that each one of us individually does real estate. It’s really refreshing to hear and see how other people are approaching real estate and the difficulties and the problems they run into.

Henry:
And at the end of the day, all of the roadblocks can all seem very similar because real estate’s such a unique vehicle and it’s fun to see how people are approaching it and then how they’re going to navigate around these roadblocks. And the end result is people accumulating wealth and becoming better people and better investors and I love getting to be a part of that.

David:
That’s a great point, right?

David:
I don’t know if it’s possible to commit yourself to investing in real estate and stay on that path and not only become wealthier but become a better person.

David:
The challenges it throws at you are going to force you to think differently, think better, think more steps down the road, and then you start thinking like, “Why am I spending my money on dumb stuff?” And so a lot of real estate investors just become more frugal and responsible with personal finance and then you start thinking like, “Well, now I’ve got this wealth. Man, I’m unhealthy., I want to be around a while to enjoy it.” So then you see you’re starting to get into fitness.

David:
Unless you go down this addictive path of, “I want a bunch of Ferraris to put on my Instagram,” and you go down that road. But absent that, that always ends up becoming something where people get better and that’s cool to get to see people in this part of the journey.

David:
Henry, if people want to follow you and see more of what you’re up to, where can they do that?

Henry:
Best place is my Instagram. I’m @thehenrywashington on Instagram.

Henry:
I don’t have a lot of Ferraris on my Instagram, mostly because I can’t fit in them. But maybe if I work on that fitness we’re talking about maybe I’ll be able to get one. Who knows?

David:
You’re still a tall guy. A lot of people don’t realize that, right? I don’t know that I could be a supercar guy because when you’re just taller and bigger, it’s hard getting in and out of those cars or being comfortable inside of it-

Henry:
[inaudible 01:16:27].

David:
… I definitely want to wear like little Italian people. Yeah, that’s exactly right. Sometimes, I look at those cars like, “I legit think I could pick this thing up.” At least, we’re picking up off of its size sometimes.

David:
Well, thank you everybody. Please go follow Henry. He’s got really good stuff. He gives very grounded, sensible, and smart advice to people when it comes to wealth building in real estate so we’re very lucky to have him.

David:
You can follow me @davidgreene24 I just hired a social media company to take over my page which many of you have been telling me, “Low key,” for a long time. “You need to step your game up, David. This looks horrible.” So I’ve heard you. Tell me how do I look with the new remodel. Tell me if the color scheme works and what you liked my page, what you think could be different. So I’d appreciate that too. I’m davidgreene24 with an E.

David:
As always, if you see what you think is me or Henry messaging you asking you for money, asked you to trade in forex, asking you to buy crypto, anything like that, that’s not us. If you wanted to invest with me, you could, investwithdavidgreene.com. There’s opportunities there. But it’s very easy to make a fake page, take all of our pictures, take what it looks like, and then have somebody who messages you.

David:
Lots of people are losing money from these scams right now. Please until Instagram gives us the blue checkmark, look very closely at the screen name before you send them money.

David:
And follow BiggerPockets. I don’t think anyone’s doing this BiggerPockets yet because they will have a tough one to replicate. So follow BiggerPockets on YouTube, follow us on Instagram, follow everywhere that BiggerPockets is found because you want to keep this stuff at the front of your mind.

David:
Lastly, if you’re listening to this on YouTube, please smash that like button, leave us a comment below, tell us what you thought, and then tell us what you’d like to see more of on this show. So if you liked a certain type of question that the guests was asking, if you thought we should go deeper into a certain area, let us know in the comments. We watch those and we would appreciate it.

David:
I mean to get us out of here. Please consider checking out another BiggerPockets episode if you still have some time. If you’re like me, man, I bought some AirPods, I got an iPhone, I keep them in all the time, and I am listening to this stuff nonstop, it keeps a friend of mine and that’s one of the reasons I keep becoming a better investor. So show us some love on there and I will see you guys on the next episode. This is David Greene for Henry Deep Purple Washington signing off.

David:
This is the BiggerPockets Podcast Show 612. Rather than trying to find a seller and convince them that their numbers don’t work when the market’s probably telling them that their numbers do work, I think you should take those efforts and put them into finding a different seller. This is a mistake a lot of people make as they try to change the mind of somebody who doesn’t have to change their mind. Just go look for somebody whose mind you don’t have to change. You’d be way better to take that same effort and put it into a different property.
What’s going on, everyone. This is David Greene, your host of the BiggerPockets real estate podcast. Here today with a Seeing Greene episode, as you can tell from the green view behind me. In Seeing Greene episodes, we answer questions directly from the BiggerPockets community regarding real estate, what to do about real estate, how to finance real estate, what’s going on in this crazy real estate market that we’re in, and I do my very best job to answer them. If you’re not listening to this on YouTube, consider checking us out there where you can read and leave comments about today’s show.
Today’s show is very good. We get into some very trendy topics that are on the front of everybody’s mind. We talk about if you should get into a cash flow or an appreciation market, what the difference is between the two and how to know which one is right for you. We talk about the fact that you’re not going to get comfortable before you do something. So what a good process is to get comfortable in the process of starting something new.
And we talk about how to understand debt-to-income when you leave your W-2 job and go full-time into investing or a side hustle plus real estate investing. We get into some really good relevant stuff, and a lot of wisdom is shared here. So thanks for joining me. I’m excited for you to hear it.
Before we get into the show, today’s quick tip. Consider getting your tickets to BPCON 2022 in San Diego this year. You can go to biggerpockets.com/bpcon2022. That’s BPCON2022. I’ll be there. Lots of other BiggerPocket personalities will be there, lots of other investors will be there. You can learn from other people about what’s working in their market, what market you might want to invest in, and then meet people in that market that can help you get started.
It’s also a great time. I’ve never seen a person there that had an unhappy look on their face. Everybody is super cool. It’s a lot of fun. There’s tons of knowledge being shared, and it can really get you invested in this community and jumpstart your career. So, consider being there. I’d love to see you there.
All right, let’s get into today’s show.

Ahmad:
Hi, David. Thank you so much for all the knowledge, insight, and information that you share with people every day. It’s been extremely paramount to my growth as a new real estate investor. My question is, my girlfriend and I are both new to real estate investing and we’re trying to build our real estate portfolio. We each have a property in our name already. We want to acquire the next one together.
However, our original plan was for one of us to take in that mortgage separately. That way the other person is freed up in terms of the debt-to-income ratio. And then down the road when we go and get another property, hopefully it would be a little bit smoother because one person still doesn’t have that new debt on their record. Now, with the rising interest rates and inflation and just cost of everything being so expensive nowadays, I’ve been rethinking that and thinking about going in on a new mortgage together, combining our income so that we have more buying power.
Now, my question to you is would that be disadvantageous for us? The reason I ask is I know from your previous podcast when we acquire that new debt, we both acquire it like we’ll both have that new mortgage on both of our debt-to-income ratio. And I wasn’t sure if with that in mind that the rental income would also, if we would both acquire that rental income or if only one person gets to say, “Hey, we’re making $2,000 in cash flow every month,” if I get to claim that, or she claims that, or if marriage changes all of that, so it’s all kind of confusing. And I was just wondering what your take on that would be. Thanks, David.

David:
All right. So thanks, Ahmad. This is a good question. Let’s break it down. You’re thinking about buying with your girlfriend. First thing I want to say, you didn’t ask this, but I would just recommend that you maybe hold off on taking title together with someone that’s not your spouse. I’m sure your relationship is great now. You never know what’s going to happen. And if you’re buying something with your girlfriend and only one of you is on title, if the two of you split up, the other one might not have any protection.
You’re going to put both of you on title. There’s ways to do it without having both of you on the loan. But in general, you’re going to end up both being on the loan. That’s the smoothest way to make it happen. And now you’ve eliminated the ability to have the mortgage and only one of your names. So just in general, whenever you’re buying with a partner, which is what this is, I advise people to probably try to not invest with a partner unless they have to, unless it’s your spouse.
Now, let’s get into the details of what you’re asking here. I like where you’re going. You’re trying to keep the mortgage in one of your names not the other, but you’re realizing you might have to combine incomes in order to get the property you want. That is sort of the conundrum. I think I mix conundrum and quandary together and made up a Voltron word that doesn’t exist, quanundry. Ignore that part. We’re probably not going to edit it out and everyone’s going to see what it looks like when you’re trying to record a podcast and you end up making up a word.
The good news is if you buy investment property together, you don’t have to worry about the debt-to-income ratio taking a hit, because you’re bringing in income from that investment property, just like you’re bringing on debt. So it usually ends up working out more or less to be equal. And in time, it actually helps your debt-to-income ratio because you’re making more income than what you’re spending on the debt.
Now if you’re buying a house to live in, that’s an exception. Usually, you cannot use income from a house when it’s your primary residence. There’s a handful of very small exceptions, but in general, it doesn’t work the same way. So I would say, if you have to combine incomes to get the property you want, make sure it’s an investment property. But you’re probably going to want to buy it in an LLC that you’re both half owners of to make sure both people are entitled. And that brings us back to the issue of buying a house with your boyfriend, girlfriend, not always the best idea.
So I would ask you, is there a way that you can afford this one on your own and you buy it, and then you work with her so that she can afford one on her own? I just think overall, when you’re looking in the future, that’s probably going to be a better approach. The other option you have is a debt service loan. These are loans where you take the income from the property not from yourself, so you don’t have to worry about the effect that this is having on your personal debt-to-income ratio.
The other questions that you ask are this is a good example of, this is best asked to a CPA, a title company. You can ask your agent or you can ask someone like me, but I’m probably going to refer you for the nuance of this to go talk to an expert. So if you’d like, feel free anybody to reach out, I’m happy to connect you with my CPA. If you end up signing up with them, they can answer questions like this one right here, because they have a better understanding of how to do this legally the correct way.
Thanks, Ahmad. All right, our next question comes from Haruka from the East Coast. Haruka says that she has bought a single family home. She’s renting it out. She likes it. And now she wants to expand. She wants to get into 5 to 10 multifamily properties or clusters of single family homes in areas with steady population growth.
The problem is she’s been looking in hot areas like Raleigh and Atlanta, where houses are super expensive that don’t really cash flow much. And then in other markets, which she calls medium like Indianapolis, she sees that she can find relatively decent cash flowing properties, but you’re not getting the growth that you get in one of the hot markets. Should she focus on one market and try to get as many deals as she can there or spread her attention over several markets?
Thank you for this, Haruka. Here’s what I’m hearing behind what you’re saying. You’re very frustrated because it’s very hard finding cash flowing properties in today’s market. And that is a thousand percent true. This is from what I’ve seen in my investing career and from what I’ve talked to some of the older investors, the most difficult time to find any cash flowing asset.
And it helps if we understand why that is, I won’t go into it too deep, but a lot of it has to do with the fact we printed too much money. That money needs to find a home. Real estate investing is the easiest way to deploy a lot of capital and capitalize on leverage without a ton of work. So more and more businesses, companies, hedge funds, institutional capital investors like us, everybody’s flocking into this space because it’s the best place to put money with the lowest overall risk and the highest return.
At the same time, the increase in education in real estate investing has taken a lot of the mystery out of this. That used to be a barrier to entry for a lot of people to get into the game. So now it’s easier to get in than ever, and there’s more people getting in than ever, and there’s more capital getting in than ever. And boom, you’ve got a very hot and competitive market.
Here’s something that I’ve come to understand when it comes to how I look at real estate. It’s a spectrum. But in general, you have cash flowing markets and appreciation markets. Now that does not mean speculating markets. What it means is you’re going to make more money by the value of the asset going up in some markets. We call those appreciating markets. And you’re going to make more money through cash flow in other markets where your property is not going to appreciate as much.
The problem is when we want both, there was a time you could get both and many people set their expectations that that’s what they should get through real estate investing. But I don’t see it like that. Now, I understand that when I’m buying a property, what I’m really doing is buying an income stream. Some income streams are very difficult and take a lot of time and effort to manage. Other income streams are easier to manage.
The income streams that are easier to manage are in higher demand. And therefore, they tend to have a lower amount of income that comes out of them because there’s more people looking to buy them pushing up the prices higher. So what you have to ask yourself is what is more important? Are you playing the long game? In which case, appreciation is usually better because you’re going to make more money over the long term or are you playing the short game where you want cash flow right off the bat?
Now, there is no right or wrong way to do this. Some people like their job or already have a lot of money. They’re able to play the long game. And so they go into the hot markets like you talk about where there’s very little cash flow in the beginning, but over time, they start to develop more cash flow as well as a higher appreciating asset.
Other people don’t have that luxury. They have a need for supplemental income. They just had a baby. They need to get some more money coming in. They don’t have their job. They lost their job. They’re not happy where they’re at. They need cash flow in order to get them a platform to get to the next level in life. So when it comes to choosing what the right market is for you, Haruka, do you want to be in an appreciating market, which is long term or a cash flow market, which is short term, what do you need?
So here’s the way that I’m doing it right now. I’m overall looking for the long term approach real estate investing. I know I’m going to make way more money buying in an area where people are moving to, what you call the hot market. There’s to be more demand there, businesses are going there. People are going there. Over a 5, 10-year span, those houses or those assets are going to appreciate a lot.
So I’m looking in the markets like you’re talking about. The Raleighs, the Atlantas, the South Floridas, the Arizonas, places where I think wealth is going to move and I’m buying there for the long term. Now, to balance out my portfolio, every time I buy a property or a set of properties that are more of an appreciation play, I’m also buying a series of properties that are a cash flow play. So then I may go into some of the, what you called medium markets like Indianapolis. And I’m looking for something that’s going to cash flow very steady, but probably isn’t going to go up a lot.
It’s kind of like if you use a fitness analogy. You need to eat protein for your muscles, that’s long term. But you need to eat some carbs, so you have energy for the short term. If you’re trying to grow, you have to have a balance of both. Now, if you already have massive muscles and you don’t need to work out a ton or whatever, maybe you just eat more protein.
That’s the question you have to ask yourself, where are you in life? If you need cash flow right now, go to one of the markets where you can still get it, the medium markets like you said. Build up a steady stable of cash flow. And then once you’re good, consider going into one of these hot markets and playing the appreciation game.
Also, let me just add this one piece because I always get comments if I don’t clarify this. When I say the appreciation game, I am not saying the speculation game. I am not telling anyone to go buy a property that they cannot afford in the hopes that it goes up and they can sell it later. I am talking about buying a property that you can afford that may produce less short term cash flow for the delayed gratification that comes from more cash flow later in the game or a higher appreciation value.

Jesse:
Hey, David, love BiggerPockets and all you guys do. So I have a scenario. I just kind of wanted to see how you would tackle this. I have a property in Green Bay, Wisconsin. It is a duplex that I used to live in. My understanding of the tax code, I lived in it two of the last five years. I moved out of it two years ago. So I would be able to sell it without paying capital gains, which is very enticing.
The problem is what I’m looking to buy is basically what I would be selling, small, multi, my units in that area, or I could get adventurous and do something different. But that’s kind of what I’ve been looking for, is two to four unit properties in that market that cash flow and also have done well with appreciation.
So how would you tackle this situation? How do you figure out if this is a wise move to sell it or to just refinance it and keep it, but especially with the caveat of the fact that I would not be paying capital gains if I did sell it. So, I don’t have to mess around with the 1031 or anything like that. I look forward to hear what you have to say. Thanks.

David:
All right, Jesse. Great question here. And what I love about this is it is a philosophical real estate question. So I get to break down the philosophy of real estate, not just here’s a tactical answer to a specific situation. First off, your understanding is correct. According to the current tax code, if you’ve lived in a property for two years out of a five-year-period, you can sell it and avoid capital gains. There’s a limit on that. I believe it’s $250,000 is exempt as a single person, $500,000 for a married person. Again, I’m not a lawyer or a legal advisor. This is not legal advice. You should look that up, but that’s my understanding of it.
Now you’re also asking a very good question and it comes to the fact that in real estate, when we sell and then look to buy, we typically are doing it in the same market that we just exited. So if you sell high, you buy high. If you sell low, you buy low. And this gets a lot of people tripped up because what they’re looking for is a situation where they can sell high and buy low.
Now, when I wrote Long Distance Real Estate Investing, this was one of the issues that made long distance investing great, because you could sell high in a certain market and then find a market and then you could go buy low. Unfortunately, we’ve had such a flood of interest in real estate investing since we at BiggerPockets have done such a great job of getting the information out there that now there’s very few markets that you can actually go buy low.
So you have to change the way you’re looking at it. If you’re going to sell, one of the benefits is you can avoid capital gains. But I wouldn’t look at it like you’re making a bunch of money and then reinvesting it so that you can make even more money. That isn’t exactly true because you’re selling high to go buy high. In a lot of ways, you’re just going to get a reset basis on your property taxes. You’re probably going to get a higher interest rate than you had before. I’m not deterring you from doing it. I’m just asking you to look at it differently.
Here’s how I look at it. When I sell in one market and then buy again in the same market, what I’m really doing is I am adding leverage to my portfolio. So if I sell one property and I take a $500,000 game and then I go buy two or three properties with that, what I’ve really done is increase the amount of money that I have borrowed. My equity didn’t necessarily change because I took 500 grand from one and turned it into 500 grand over three others.
My cash flow might have changed some or might have changed maybe not at all. I might have taken $2,000 of cash flow over one property and traded it out to, say, $800 of cash flow over three properties. So maybe I got one from $2000 to $2,400, but that’s largely insignificant. You don’t have a huge, huge bump in your cash flow when you do this. What you’re doing is betting that prices are going to continue to go up and therefore, leverage is in your advantage.
When you’re trading in one house for three, if prices raise, you are making three times as much equity and you borrow money that you’re paying back with cheaper dollars. Now, if you think the market is going to go down, this would be the worst thing you could do. You don’t want to have one house and turn it into three with a bunch more debt. And that’s the question that you really need to be asking yourself. Do you believe the market’s going to continue to rise in the market you’re talking about, or do you believe that the market is going to fall?
Now I don’t believe you mentioned the market you’re in, so I can’t give you any specific tactical advice on that specific market. But what everyone listening needs to understand is when we buy real estate, we’re always making a bet. We’re making a bet that tenants are going to continue to pay. The market is going to continue to go up. Rents are going to continue to go up. Businesses are going to continue to employ people. And therefore, we want to own assets that are dependent on tenants.
And when we’re not buying, we’re also making a bet. We’re betting that prices are going to come down or our money would be better put somewhere else. So what everybody needs to understand is you’re going to make a bet one way or the other. Once you make up your mind, which way you think you’re going to go, that’s where these strategies that we’re talking about today can come into place.
We’ve had some great questions so far, and I want to thank everybody here for submitting them. Please make sure as you’re watching this on YouTube to like, comment and subscribe to the channel so you get notified when BiggerPockets comes out with some new stuff. I got all dressed up for you today. I’m trying to dress to impress. What do you guys think of what I’m wearing?
This segment of the show is where we take comments from previous episodes. And I read them to you, hoping that you will also go comment on our YouTube channel and let us know what you think about today’s show. I want to know. Should I answer longer or should I answer shorter? Do you want to get more commentary from me or would you rather have shorter answers with more questions?
Also, how do you like me to dress? Do you like me more in a T-shirt? You like me more in a realtor specific button-down type of a shirt? I want to know what you guys think. Leave your comments below. We will read them on one of our shows.
Our first comment comes from Giselle Morales. “I totally agree with you on cash flow. To be able to live off of it, two to three properties only is pretty risky. In my case, I had my goal and numbers aligned to get nine houses and that will cover my budget times two. And I was able to do it. So now I cover my budget with half the houses and what I do with the cash of the other half is keep saving to keep investing.”
Thank you, Giselle. This is an awesome comment. And what you’re hitting on is the philosophy that you should buy a handful of properties, quit your job, go full time into investing and figure out how to make it work. For some people that may be the right move. For others, it becomes much more difficult in the market that we’re in.
So 10 years ago, that advice applied to a bigger segment of people than what it applies for today, which is a much smaller segment. And I’ve lately been saying, you shouldn’t be looking at cash flow as a way to replace your income. You should be looking at cash flow as a way to supplement your income in today’s market for most people.
Next comment comes from Miguel Montreal. “Hey, David, great episode and questions from listeners. I just wish, and maybe you can recommend this, that those asking questions can get right to the question. It seems to take forever just to get back to you to give an answer. Thanks.”
Miguel. I really appreciate. And here’s the dance that we’re having. I want you guys to submit questions, so I don’t want to discourage anyone or make them feel bad because they took too long to ask the question. And I also recognize that many of you don’t talk on a microphone like I do for a living, so speaking can be hard. It can be hard to get to your point. Maybe you didn’t think about what you were going to say before you started talking. Maybe you were just super nervous and that’s why it took a long time to get to the point. But I do see it as well.
What we would love would be for more of you to ask questions, but just be a little more succinct. So if what you really want to know is, “Hey David, what market should I buy in?” Start your question by saying, “I would like to know what market I should buy in. Here’s where I’m concerned.” What we typically get is someone that tries to explain the background of what they’re thinking. And then at the very end five minutes in, they get to the question and that’s just harder for the listener to sit through. And so oftentimes, we don’t air those questions.
So Miguel, thank you for offering some advice. When you guys submit your questions to BiggerPockets.com/david, be more succinct. Get to the point. Maybe practice a few times before you record it, and you get a higher chance of getting put on the show.
Jeff Mueller. “David, what is a good return on equity on a property I want to buy and hold, 15%, 35%?” All right, Jeff, it’s very difficult for me to tell you what the right return on equity should be. And what you’re talking about is for the equity in a property, how much cash flow is it generating? Those numbers are huge. 15%, 35% are typically very high because return on equity is usually lower than return on investment.
In fact, it’s almost always lower, assuming a property is going up in value. You can only get an ROE that is higher than the ROI if your property’s actually losing value, which would be bad. And since most people aren’t hitting anything close to a 35% ROI, that wouldn’t happen on your return on equity. But you’re asking the wrong question. Don’t say, “What is a good return on equity?” What you need to be asking is, “Is this return on equity close to the return on investment?”
So, if you buy a property and you’re getting a 20% return on investment somehow, but then the property goes up a ton in value and you’re only getting a 3% return on your equity, that difference between 20% ROI and 3% return on equity, the higher the difference is, the more you should look into selling that property and reinvesting your equity to get a better return on investment. The closer that your initial ROI is to your ROI, the more likely you should keep the property and hold it.
Are these questions and comments resonating with you? Do you like hearing my take on this stuff? Well, guess what? This show is only as good as the questions and comments that we receive. So comment on the YouTube channel. Tell me what you’re thinking. Am I talking too fast? Am I talking too slow? Do you want me to talk in different accents? What kind of close do you want to hear? Let me know. This is for you. And then also, I need you to submit more questions that I can answer on the show. So, go to BiggerPockets.com/david, and leave me your question there.
All right. Let’s take another video question.

Bill:
Hey, David. Bill from Charlotte here. Just a quick background, I’ve got a high paying W-2 job in the tech industry here. And then I’ve sold a couple long-term rentals and I’ve currently got one long term and five short-term rentals through a combination of myself and some partners. Pretty close to being able to pay for my expenses through the rental income and would like to no longer work in my at least current W-2.
Concern I have is my debt-to-income is pretty shot with the loans I’ve currently got in my name. And after potentially leaving W-2, I don’t think I’ll have really any room at all to purchase a new primary home. I’m wondering how others or you’ve seen others deal with this in the past after they’ve quit their W-2 and have lived off their rental income. Thanks.

David:
All right, Bill, great question here. Let me see some different steps I can give you that you could possibly take, paths that you might take. Number one, you don’t quit your W-2 job, but you look for a different position within that company where you can work less hours or work on something that you enjoy more, so you have more time to put towards real estate investing.
Number two, you work in the same industry you’re in. I don’t believe that you mentioned it. You just said it was a high paying job. Can you get a consulting job? Can you be a freelancer? Can you do some way to earn money, but on your schedule where you have more flexibility to focus on real estate investing, but you haven’t wasted all the skills that you’ve built in the industry and now you’re not making money. You’re still making money, but more in an entrepreneurial position. So even if it’s less than the W-2 income, it’s still more than nothing that you’d be getting if you quit.
Number three, you said your debt-to-income ratio is pretty much maxed out from properties you’ve already bought. I don’t quite understand that because if you’re claiming the income that you’re making on your taxes, most lenders will let you take 75% of the gross income that you’ve collected and use that as income for yourself in your debt-to-income ratio.
So when I’m buying real estate, even though my debt is going up, my income is going up with it because I’m collecting rent. And my income actually goes up higher than the debt if they’re making me money. So when you’re cash flowing, you should have more income, not less income. So unless you’re having a specific loan product that won’t let you use income from rental properties, then the only reason you’d be having trouble is if you’re not claiming the income on your taxes and then just start claiming your money on your taxes like you’re supposed to be and that will go away.
I’m not sure if the lender you’re working with is telling you this, or it’s just maybe a false impression that you’re under that you can’t use the income from your properties, but definitely reach out to us at The One Brokerage if you’re willing. And we’ll figure out what is going on with you there.
The last thing is use a different loan product. Use a debt service coverage ratio loan that says, “Hey, this property is going to make this much money. We’re going to qualify him based on the income the property is making not on the income that he is making. We do these loans. They’re third-year fixed rate. They’re not risky. The interest rate is a little bit higher, but if the deal works, it doesn’t really matter.”
What is more concerning to me is when people get into adjustable rate mortgages and what’s even more concerning than that is when they’re short-term adjustable rate mortgages. So if you have one or two-year period before it adjusts, very scary.
You didn’t ask this question, but I’ll throw it in for the audience. I’m not super opposed to an adjustable rate mortgage if it has like a seven-year period or even maybe a five-year period before it adjusts, because the odds are over seven years, you should have seen increased rents and increased profit. You should have stabilized it and had more income coming in so that when your interest rate adjusts, if it does go up, you should be okay because theoretically, you’ve seen rents increasing. I don’t like them over a short period of time like two years. That’s not giving you enough time to stabilize a property, reduce expenses and let rents increase.
So, I think that this could really be solved by having a good conversation with a good loan professional that should be able to look at this and give you some answers. I’m guessing maybe you haven’t talked with one of those yet. So reach out to me, or one of us, or find another one of these amazing people on BiggerPockets that lives to serve the investment community. Get some answers from them and you could be that much closer to quitting your job.
Now, specifically to you saying Bill, “Hey, I want to buy a primary residence.” On a primary residence, you’re not going to use a debt service coverage loan like what I talked about. You’re likely going to use a conventional loan or you’re going to use a portfolio loan through some credit union that you might be involved with, whatever it may be.
But it’s the same fundamentals. If you’re claiming the income that you’re getting from your rentals and your long-term rentals and your short-term rentals are profitable, you should be able to use that income to help you qualify for the primary residents that you want.
Next question comes from Nathan Holt in Ohio. “Hey, David. I’m a 23 year old college student, a full-time worker at Capital University. I’m looking to buy a small multifamily in Central Ohio east area. I had received a tip that there was a guy looking to sell a triplex unit in Johnston. My realtor contacted him with an offer of $200,000. He said he’s looking for closer to 370. I do not have the funds at the moment for that, and the numbers don’t make sense for a house hack. It would only be profitable if I didn’t live in the building and rented all three units, but then I have to put more than the 5% down on the mortgage, which I don’t have. I’m wondering if it might be a good idea to try and sit down with him, the seller, and show him how the numbers really don’t work and see if I could persuade him into moving the price down to more affordable area and go from there. Do you have any ideas or recommendations?”
All right there, Nathan, I do. Your realtor really should have told you this. It sounds like your realtor is not very experienced. If you’re being told to write an offer at the price you did and the seller wants that much more, one of two things is going on. Either he has ridiculously unrealistic expectations, or you do. And that’s really what it comes down to.
What’s the house worth? Whatever the market says it is. Now what is the market? Well, basically that’s all the other buyers. You’re not going to be able to convince this seller that his numbers are unrealistic because what it really is, is they’re unrealistic for you. Your situation makes this the bad deal. It’s not a bad deal for everybody, but it probably is a bad deal for you.
If you’re looking at house hack and you need it to cash flow and you only have 5% to put down, there’s only a handful of properties that are going to work because you got a lot of ands that are in there. There’s some other investor out there who doesn’t have all those ands. Maybe they’re in a 1031 and they need to find a way to park their money. Maybe they’re trying to take advantage of accelerated depreciation. Maybe there’s reasons why they would want to own that property because they don’t have the same situation as you. They’ve got more money to put down and they can make a cash flow.
Rather than trying to find a seller and convince them that their numbers don’t work when the markets probably telling them that their numbers do work, I think you should take those efforts and put them into finding a different seller. This is a mistake a lot of people make, is they try to change the mind of somebody who doesn’t have to change their mind. Just go look for somebody whose mind you don’t have to change. You’d be way better to take that same effort and put it into a different property.
All right, we have time for one more question.

Shiuan:
Hi, David. This is Shiuan. Thank you so much for your videos. I’m from [inaudible 00:29:18], and looking to purchase maybe in or out of state. My question is if I should use a HELOC to purchase or use my cash savings towards a down payment and just trying to understand about good debt. Is that always better to borrow off than to use my own name? And as a part of the question is the variable rate of HELOC. How do I make sure … How do I calculate the rental properties cash flow to make sure that it covers the HELOC well? Thank you so much. Your videos are super helpful.

David:
Thank you for that, Shiuan. Your audio was a little hard to hear, so I’m going to repeat what I remember of what you just said. It sounds like what you’re saying is you’re looking to buy and you don’t know if you should take the money from a HELOC or from your cash savings. And you mentioned that you want to make sure that you’re using good debt, so it sounds like you’re trying to figure out does a HELOC count as good debt.
Now, I can tell your heart is in the right place because you’re asking a good question, but your head might need a little bit of clarity. First off, if you’re going to use a HELOC, I look at that like giving a loan to myself because HELOCs are temporary loans. You’re going to be paying a higher interest rate than normal if you use a HELOC. So what they’re really designed for is to go use the money for a short period of time and then pay it back. If you’re going to be buying a rental property with that money, unless this is a BRRRR or a flip, it’s very difficult to get the money back to pay off your HELOC.
Furthermore, the Fed has announced that they’re going to raise interest rates, I believe, seven more times before the year ends, which means that you should expect the interest rate on your HELOC to continue to rise, making that a less desirable financial vehicle for what you’re talking about.
Now, let’s look at using cash. At first glance, using your cash savings would be a better plan because there’s no interest tied to that money like on a HELOC. So, you don’t have to pay debt yourself to this HELOC. But you need to make sure that you have enough cash and reserves to weather a storm. This is a big way that investors lose money. They end up not keeping enough money in reserves and then they can’t make their debt payments. And if the value of their property has dropped too low or there’s no buyers in the market, that’s where they go to foreclosure.
So, I would say keep 6 to 12 months of reserves of cash flow for yourself and your property in your cash savings. More than you think you need, maybe even more than that. If you have enough cash after you put a lot of it in reserves, use that to buy the house. If you don’t have enough, use the remainder that you’re lacking from the HELOC. But you don’t want to take money from the HELOC unless you absolutely have to because we’re told rates are going to keep going up and HELOCs have adjustable rate mortgages.
And then once you buy the property, get right back in there, start working hard, start saving money again, start working on a side hustle, keep your expenses low, save those reserves back up after you buy the property. This is a great question. I’m glad you asked it, and thank you for doing so.
All right, this question comes from Jason in Atlanta, two-part question. Part number one, “My business partner and I own about 60 doors across a couple states in the Northeast, in the multifamily space. Right now, we’re working on a deal that would nearly double our portfolio. My first question, have you ever heard of a bank calling the note on a commercial loan using the loan-to-value clause? For example, if we’re a 75% loan-to-value and the market dips a bit after we close and the decrease in the property’s value turns into a 77% or 79% loan-to-value, have you ever heard of a bank calling loan do for that reason? I believe in most mortgage, there’s technically able to do that but I couldn’t find any examples of it happening on the BiggerPockets forum.”
All right, let me start with that question before I get to part two of yours. My understanding of the loan-to-value clause you’re talking about is a clause in a note that tells the lender if the properties loan-to-value starts to increase, which means the property is becoming worth less compared to the amount of debt you have on it, then the lender is able to call the note due. Now why would that be in there? Well, my understanding is if you’re a bank and you see that the loan-to-value on a property is going the wrong direction, you should be able to step in and fix the problem by taking title of the property before it gets worse.
Now in multifamily property, as you know, Jason, the value of the property is based on the NOI, which means if you start making less money, the value of the property is going to go down, which is going to increase the loan-to-value. So what they’re concerned about is if you’re mismanaging the property and it’s not profitable, they want to be able to step in before it goes into complete foreclosure.
But something else to think about, do they want to do that? If it’s not because you’re mismanaging it, if it’s just because the market turned around, maybe cap rate’s expanded, maybe the interest rate has changed the value of multifamily property. Your loan-to-value might go up a little bit, but I don’t see why they would want to step in and take it off your hands if it’s something like that.
I would ask the representative at the lender that you’re talking to, “Hey, what would happen if rates jumped up and therefore cap rates expand and the value of the property is going to go down? We could see the loan-to-value increase from 75% to 80%. What would you do?” And they would probably give you the answers similar to what I did, but I would check with them to find out. As far as have I ever heard of that happening, no. I also have never seen this happen.
“My second question, do you have any general tips on getting more comfortable with such a big transaction even if the numbers definitely work on a multi-year horizon? I remember in the olden days of the podcast that’s back when I had a halo over my head, the golden olden days. You and Brandon once said that to grow up business, you should really be doing something every year that’s a little bit uncomfortable for you, and this definitely fits that description. Any tips on getting comfortable with the risk and uncertainty of something that looks good on paper but is bigger than anything else you’ve ever done in real estate? By the way, really enjoying Seeing Greene format mixed in with the traditional deep dive shows.”
Yeah. It’s hard, man. Here’s my advice. You aren’t going to get comfortable with what you’re going to do. You are going to do it and it’s going to be uncomfortable. And in the process of doing it, you will become comfortable. This is something we all have to understand. I want you to look at comfort like strength. You can’t get strong and then go to the gym, right? Confidence often works this way. If you wait to feel confident, you’ll never start. If you wait to get strong, you’ll never work out.
The very fact that this feels uncomfortable is a way of knowing that you’re not yet the version of you that you need to be to do this right. What you have to do is put faith in the fact that going through the process is going to turn you into that person. So I did not wait until I was super good at jujitsu before I went to jujitsu. I go and I suck, and if it’s really hard and most of the time I feel bad about myself because I’m comparing myself to people that are way better. But I’m getting comfortable through doing it. I didn’t wait until I was comfortable and then do it.
The same goes with being in shape, and the same goes with business. When I first started doing this podcast with Brandon, I was not comfortable. It was actually terrifying. At the time we were getting 250,000 downloads per episode, and the entire time I was looking at the camera saying, “250,000 people are listening to every single word that I say.”
And I started worrying about not pronouncing something correctly or saying something dumb or saying something that God forbid, someone could pull up seven years later and say, “Haha, David said something and it wasn’t accurate.” It was really scary. But all I could do was keep doing the podcast more, keep thinking about how to get better, keep listening to the episodes that I did and noticing what I did that was good, what I did that wasn’t good and improving.
And this is what the process is. If the deal looks good and you believe in the fundamentals and you’ve got enough money in reserves, do it. You’re not going to be comfortable. You’re going to make mistakes. You’re going to do things and say, “Ooh, I should have done that different.” That’s literally how I learn in everything. Jujitsu is a great example. I’m constantly making mistakes.
You’re going to do the same thing. Don’t wait to be comfortable before you do this deal. And again, I’m going to highlight, make sure you have enough in reserve. See, the cool thing with jujitsu is when I make a mistake, I don’t actually get my arm broken because I can tap. I can say, “Okay, stop pulling on it. It’s going to break. We’re good.” And they’ll stop. So, even though it’s hard, it’s not necessarily risky. Reserves are your tap. If you’ve got reserves, that means you’re able to tap. You can make through the tough times, you’re going to be okay.
That is it for our show today. Thank you very much for listening. I understand you could be putting your attention everywhere. If you’re watching on YouTube, there are people screaming at you to watch their videos instead of mine. If you’re listening to this on a podcast, there’s tons of people who would like your attention listening to their podcast. So, I want to say thank you for joining me on the journey that we are on and know that I am doing my absolute best. And we here at BiggerPockets are doing our absolute best to give you the best content we possibly can, straight shooting, hard hitting, no BS, no drama. The realest of the real is why you’re here. It’s why we do this.
So please, consider going to BiggerPockets.com/david and leaving me a question. Make sure you like this YouTube channel as well as subscribe to it, and follow me on social media. I’m @davidgreene24, pretty much everywhere. On TikTok, I’m officialdavidgreene. There’s an E at the end of Greene.

Ashley:
This is Real Estate Rookie, episode 184. My name is Ashley Kehr, and I am here with my co-host Tony Robinson.

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we give you the stories, the information, the inspiration you need to kickstart your real estate investing journey. So my wonderful co-host Ashley Kehr, what’s new? What’s going on?

Ashley:
Not much. We’re supposed to have great weather here in Buffalo this weekend, so that’s exciting. And then I think it’ll probably go back to another snowfall or something. But I had put an offer in on a campground last week and didn’t hear anything back from the people, they followed up, or I followed up with them, had my business partner follow up with them and then it ended up, they didn’t even see our offer. So they actually looked at it called us back a couple hours later, no, we’re not going to do it. So we went back, reran numbers and what, we submitted our second offer was, there was a lot of land with this property and we don’t need all of the land. So we actually submitted our next offer with less of the land where they can actually parcel off some of the land, sell that separately, or keep it for themselves. So hopefully that’s a big enough incentive for them to accept the offer. So we sent that second offer last night and hopefully…

Tony:
Fingers crossed.

Ashley:
It just gets accepted.

Tony:
Wait, so how many acres will it end up being if you, for what you submitted on this last offer?

Ashley:
So it was all together, total is 211 and we’d get about 107, I’d say.

Tony:
Oh, that’s awesome.

Ashley:
It’s kind of like a creek ravine that kind of makes a separation between where the campground is and the, some vacant land. And there’s still plenty of room to expand with that 100 acres too, if we ever wanted to.

Tony:
It’s so mind blowing to me, like how big these properties are that you’re looking at, because I always make fun, right? Because, in California where I live, it’s a new development. It was built in 2018 and literally every house that’s on an eighth of an acre, something stupid like that. So to hear 200 acres, it’s like my mind doesn’t, can’t compute.

Ashley:
Yeah.

Tony:
Well, fingers crossed, you guys get that one. That should be an exciting project for you.

Ashley:
Thank you very much, I’m excited for this one. So what’s new with you?

Tony:
Same, we’re chugging along on this resort and in Big Bear Lake. So me and the Alpha Geek Capital team, we’re doing all of our due diligence. So we had our first meeting with the attorneys yesterday to get the syndication paperwork kind of in place. And met with the CPA, who’s going to help us get that piece dialed in. So I’m hoping that by I like, or there’s some time travel happening now, but by second week of May, we should be able to actually open up the syndication and start doing the whole shebang. So it’ll be fun, it’ll be a really good learning experience for us. And, we’re excited and what’s even crazier Ashley, kind of funny, but kind of not. So, as we were kind of going through our due diligence and we were rerunning our financial model, we realized that there was a broken sale in the model.
So it was double charging, one of the expense line items. And it was a pretty big expense line item. And so when we caught that, we fixed it and the returns just went way up from what we originally expected. So it’s like, we did all this negotiating with this kind of broken financial model. Got it under contract at this price and now we fix it and the returns look even better. So it was, me and my partner were laughing about it, but it was, I guess, a lucky break for us.

Ashley:
Right, that you found it too and didn’t…

Tony:
Right.

Ashley:
Give on the deal, cool. Well, that’s really exciting. And I can’t wait to kind of follow you along on this journey and it’s definitely going to be a great opportunity for anyone that invests in your syndication. I mean, you have more than enough experience and knowledge in the short term rental space, so.

Tony:
Oh, well, thank you, Ash. I appreciate that, and hopefully it all turns out well, so we’ll see. Well, cool. Well, we got a good question for today. This one came from the Real Estate Rookie Facebook Group. So if you guys are not in the Real Estate Rookie Facebook Group, it is literally one of the most active, the most engaging Facebook Groups out there for real estate investors, especially for the new ones. Every time I go in there and I try and answer a question I can’t, because someone’s already jumped in and answered it with probably just as good as I would’ve answered it. So if you’re looking for a community, the Real Estate Rookie Facebook Group is the place to be. But today’s question comes from Andrew Threatt. So I’m going to go ahead and read off Andrew’s question. And Andrew says, “how would you handle a prospective tenant that has a bankruptcy on their record?”
“I know it sounds obvious, but for context, I recently had a potential tenant reach out to me. He checks off all of the boxes so far based on his word”. And then he put in quotes, “I haven’t done the official background check yet, still in the pre-screening phase”. And Andrew goes on to say, “he’s a recent, divorcé and said, the bankruptcy is from his wife, taking out a couple of credit cards in his name without him knowing”. Any thoughts or input on how you would move forward with this? I plan to let him apply so I can conduct an official background check, but just want to see anyone else’s initial thoughts. So Ash, what are you thinking? Are you letting the recently divorced bankrupt tenant get the spot or how do you feel about that?

Ashley:
I don’t know. I mean, that’s so tricky because to have to say like, oh yeah, that’s not a big deal. I think the first thing is, do you think he’s being genuine and do you think that’s actually the reason? And that’s the hardest part is telling if, what somebody is saying is actually true. So, but also if you think about it, somebody who has gone through bankruptcy or foreclosure, their option is to rent. They’re not getting a bank loan, they’re not getting a mortgage on a new property to live. So going, they have to go and rent. So after, that they have no other option. So I would think that because they can, they have no other place to live. They don’t have an option to go buy a house or anything, that maybe as a rental, they’re going to be a renter and hopefully pay because they don’t have any other options at the point.
And then there’s also some, I think RentRedi, maybe does this. There are a couple property management software platforms that you can actually offer your tenants that when they pay rent, it reports it to their credit. So that way, they can establish better credit by making those rent payments on time. So maybe looking into something like that, and if the guy really is looking to rebuild his financial history, put a system like that in place so that if he does default, it’s just going to hurt his credit history even more.

Tony:
Yeah. And those are really good points, Ash. You’re right, if you almost have a guaranteed long term tenant, at least for a little while, right? While, that’s, this person’s kind of working up to rebuild their credit profile. So, really good points. I think the only thing I’d add to that is that Andrew, there are other things you can look out outside of just the bankruptcy to see if this person is potentially good tenant or not, right. So I think the first thing I would look at is their DTI. If they’re sitting like a 70% DTI, then maybe it’s not really the, those credit cards that were driving everything, right? If he filed this bankruptcy then went out and got a whole bunch of new debt, then it’s like, okay, maybe this person just isn’t great with their finances. But if they’ve got a really big salary and relatively no debt after this bankruptcy then maybe, what they’re saying is correct.
So other thing you can do, Andrew and I actually used to work as a leasing agent when I graduated from college. And this is what we would do at that company is we would charge different deposits based on that potential tenants risk profile. So if this guy recently had a bankruptcy, maybe instead of charging him, first and last, maybe it’s first and last plus something else. So that way, if there is some kind of issue where he’s not paying, at least you’ve got a bigger security deposit to hold onto. And the last thing I might look at is just his employment history. If he’s been bounced around from a different job, every 90 days, maybe he’s not the most stable person. But if he’s been at that same job for the last decade, I think that’s another just kind of thing to show that he’s a steady stable person. So even outside of this bankruptcy, I think there is some data points you can look at, to kind of assess whether or not there’s some risk with this guy maybe moving in and then not paying.

Ashley:
Tony, just to add on to the point, the second point that you made. I wouldn’t know this unless the law changed in New York state, but in some states in New York, including there is actually a limit on how much you can charge for a security deposit. Or if you can even charge the last month’s rent. So the security deposit has to equal the first month’s rent. So in New York, that’s not even an option anymore that you can actually charge an additional security deposit or more money down on the apartment. So really the only way I guess, to get around that is to increase the rent…

Tony:
The rent.

Ashley:
Or charge some fees for, a higher pet fee every month or something like that. But, so that’s just one thing to be careful for. And like we’ve talked about before is make sure if you are going to self-manage and be a landlord that you know, what your local and state laws are and what the fair housing compliancies too.

Tony:
That’s a good point. And I guess I should preface that by saying that neither Ash or I are attorneys, nor do we pretend to play one on podcast. So talk to your…

Ashley:
And neither of us are self-managing rental folks right now.

Tony:
Right.

Ashley:
Like a couple years ago when I was self-managing I could very confidently roll off what the list estate laws are for New York and what good has to do, but I don’t think they’ve changed since then. But there could be that chance that they have, or that I don’t remember them correctly, but I do know that you can’t charge more than the security person less. And a great resource to go and look for this information is to Google your local housing authority. So in New York, so I live in Buffalo, the closest one in the Buffalo area is Belmont Housing and homesnewyork.org or.gov. And they’re the two local housing authorities. Belmont gives out the section 8 vouchers and they do tons of free or low cost landlord classes.
And then the same with the homesny.gov or.org website too. And they even publish a book every couple years with tenant landlord laws that they give out to one that’s for tenants and one that’s for landlords too. So definitely a great resource, if you guys want to check that out. And I think Tony, touching on your point, how to look at different things, that’s so important because I remember when people would ask me, well, what, what’s the income I need to make to get this? Or my, the biggest one was my credit score. Is this, is that going to be okay? Am I going to be able to rent? And you’re right, it’s like a majority of factors. It’s not just one thing that you should be looking at, like this guy’s bankruptcy. For example, if somebody had medical bills that they didn’t pay, we never even took that into account.
We didn’t even factor that. But if they have an auto loan, they’re not paying, we definitely take a look at that. And the software out there today, too, that you can use. So whether it’s through a property management website or not, it will account for all of those factors and you can go in, you can set your criteria and then they will tell you yep, this person passes your criteria or no, it doesn’t, based on the factors. So I think kind of taking out that personal opinion can definitely help you stay in compliance with fair housing laws by using these softwares, by setting your criteria like, okay, this is the minimum credit score. This is the minimum DTI, they have to have, this is what their income has to be, two and a half times what the rent is, things like that.
And then kind of the decision is out of your hands. Once in a while, I remember the software would be like, it needs review. Like it’s not a pass or a fail, but so check out property management software or different credit screening and background screening software too, you guys can use. Okay. Anything else Tony, to add to that?

Tony:
No, I think we hit everything, Ash.

Ashley:
Okay. Well, thank you guys so much for joining us on this week’s Rookie reply. If you guys have a success story or this podcast has made an impact on your life, and maybe you just got your first deal or your next deal, we would love to hear about it. So please leave us a review on your favorite podcast platform and also send us a DM with any questions you have or leave us a voicemail at 1-888-5-ROOKIE. I’m Ashley at @wealthfromrentals, and he’s Tony @tonyjrobinson. Thank you guys, and we’ll be back on Wednesday with a guest.

I’m about to tell you everything the Fed doesn’t want to say to you. 

Let’s start with the obvious: Most of us don’t like to see interest rates rise. Sure, it’s nice to make a little bit of extra money off our savings accounts, but the higher cost of mortgages, consumer loans, and all other forms of credit isn’t worth a few extra dollars of interest in our bank accounts. 

But here’s the thing.

The best way to quell inflation is to raise interest rates. This does two things:

1. It increases the cost to borrow, so people don’t buy as much crap. 
2. It increases the amount of money you make by saving, so people start to save more.

When people are spending less and saving more, demand decreases. When demand decreases, prices go down.

But how high do interest rates need to go to calm inflation?

The conventional wisdom is that nominal interest rates (the actual interest rate number) must be higher than the inflation rate to reduce inflation. This is because people need to understand that they are not losing value by holding cash. Rates higher than inflation will allow us to not lose money by saving.

With inflation at around 8%, you may be thinking that it means we need to raise rates from the current 1% mark to over 8%. But luckily, that’s not the case. As rates start to rise, inflation starts to subside, and there will be some point of equalization somewhere between the current 1% interest rate and the 8% inflation rate. 

Where is equilibrium? Nobody knows. 

It may be that raising rates to 2% is enough to drop inflation back to 2%, a number we should all be pretty comfortable with. But it’s also possible that we may need to raise rates to 4%, 5%, or more to achieve the desired goal. 

In theory, the right move would be to continue to raise rates a little at a time until we hit that equilibrium. And then perhaps a little bit more to push inflation down to a comfortable level. 

But there are a couple of real constraints that make things more complicated. Unfortunately, some of these constraints are at odds with each other. 

Let’s talk about two things the Fed doesn’t like to discuss publicly. 

Stagflation

The first is the risk of stagflation. You’ve probably heard this term, but for those who haven’t, it’s essentially a situation where we have both inflation and a recession. 

Inflation is typically a sign of a strong economy, but uncontrolled inflation can create a downward spiral that can destroy the economy for years or decades. 

An excellent example of this is Japan in the 1990s and 2000s. In 1991, the Japanese government spiked rates to curb inflation, popping their economic bubble.

This plunged Japan into a low growth, high inflation environment for the next 20 years called the “Lost Decade.”

So, how do we avoid stagflation?  

Conventional wisdom says that to avoid stagflation, we need to raise rates quickly, shock the system, quash inflation, and get things back into the normal rhythm. 

Many people have suggested that this is the right move for the Fed to make at this time. Even if it plunges us into recession, it’s better than risking a spiral into stagflation, which could be a much worse and longer-lasting economic downturn. 

This brings us to the second constraint that we’re facing in this current economic crisis that makes things complicated.

Raising rates too high too quickly could cause an irreversible debt crisis. 

When we raise interest rates, bond yields (the interest paid to bondholders) rise. Since Treasury bonds are simply debt that the U.S. creates, raising interest rates means we need to pay more interest on our national debt. Just like when we take a mortgage on a rental property, the higher the interest rate, the harder it is to cash flow due to the higher interest payments. 

When interest rates and bond yields rise, the government spends more money on interest payments. This means we either have to borrow more money (again at the higher interest rate) to pay all that interest, or we need to spend less money on items such as welfare, defense, education, infrastructure, and other programs. 

The government is clearly not good at spending less money, at least historically speaking.

So what would likely happen is that we’d have to start issuing more debt to make our interest payments, which would increase our total interest payments, which would force us to increase debt even more, which forces us to print more money. Do you see the problem here?

The national debt spins out of control—even more so than it already is—and we risk having to either default or restructure. 

So there’s our dilemma.

We have to increase interest rates to reduce inflation, and we have to do it quickly to minimize the risk of stagflation. But, if we do it too drastically and too quickly, we run the risk of a national debt crisis. 

Final Thoughts

So, next time you hear about Jerome Powell and the Fed acting in ways that make it seem like they don’t know what they’re doing, keep in mind that things are a little more complicated than they might appear.  

Next time you hear the Fed admitting that a soft landing seems unlikely, this is why. Going for a soft landing (doing things slowly, hoping there’s no major economic fallout) will likely lead to stagflation. I don’t think a soft landing is in the cards this time around. Not even trying is probably for the better. 

Unfortunately, we’re in a position where we have a bunch of not-so-good choices, and nobody seems to want to admit it to the American people.  

While I don’t particularly enjoy making public predictions, I’ve planned for at least a couple more rate hikes in my business, likely at least a half point each. While that won’t be much fun for us as real estate investors, the alternative could be worse.

David:
This is the BiggerPockets podcast show 611.

Jason:
If you would have told me that seven years ago, when I started that I’d be doing what I’m doing right now, I wouldn’t have believed that it was even possible. What was sad would be, I wouldn’t even believe that I was the kind of person that was capable of doing it, which was even more sad for me, right? I had to get into this space where we proved to ourselves, and we had proof of concept like, “Wow. This works. Wow, I am capable of doing it.” That confidence, that self-confidence is like a muscle that you build over time.

Jason:
Now, when I say that I’m going to do something, I know that it’s going to happen because for the last seven years, I’ve been doing everything that I’ve been saying that I’m going to do, right? It doesn’t start out that way but you can get there and it doesn’t need to take a lifetime.

David:
What’s going on everyone? My name is David Greene and I’m your host of the BiggerPockets Real Estate podcast, the best real estate investing podcast in the entire world. Here at BiggerPockets, we believe in helping you find financial freedom through real estate so that you can live life on your terms and do what you were meant to do, instead of what you have to do. We do that by bringing on different guests who tell their stories of how they found financial freedom, as well as industry experts that share advice, opinions and information that can help you become more successful.

David:
If you’re looking to get plugged in with over two million other people on the same journey, I highly encourage you to check out biggerpockets.com. Our website where there is a forum that you can ask any question you could think of when it comes to real estate investing, a blog where you can read articles written by other successful investors, as well as this podcast and others all designed to help you find financial freedom through real estate. I am joined today by my amazing, mysterious, captivating, and now athletic co-host, Rob Abasolo. Rob, how’re you feeling today?

Rob:
Lactic acid is building everywhere I mentioned right before this I went on my first run in three years. I thought I could do it. I did it. I ran five miles.

David:
You ran five miles your first time?

Rob:
Yeah, yeah, but you know.

David:
What the heck?

Rob:
Yeah, but they are 12 minute miles. I mean, it’s offensive to even call it running. I’ve been known actually. I’ve actually run three half marathons without training every single time. I was like, “Yeah, I could do five miles.” I’m paying for it today, my friend.

David:
You got a little bit of delayed onset muscle soreness?

Rob:
Yeah. Isn’t it supposed to be worse on the second day, though? I think tomorrow is going to be the bad one for me.

David:
I always feel it right around 22 to 24 hours after I worked out. That’s where it starts to hit me.

Rob:
I’m going to be healing up pretty good, though. I’m really simultaneously nervous and excited because a friend of mine sent me two A5 Wagyu steaks, and two oxtails and I’m going to be eating that right after this. I got to get a load up on the protein to heal up [inaudible 00:02:48].

David:
You need that protein to rebuild those muscles. That’s right.

Rob:
Yeah.

David:
Today’s podcast is brought to you by Rob DOM’s, Delayed Onset Muscle Soreness. It’s real.

Rob:
It’s real. I’m really excited about today’s episode with Jason Pritchard. We talked about a lot of good stuff, man. He basically scaled from, he started out doing a couple of deals and now he does about 75 deals a year, which is a really, really, really, really crazy feat. He gives us a really honest look at the growing pains of that business model and scaling up a team and the financing involved with flipping that many houses and just really, really easy to talk to and made it feel very digestible, I feel like.

David:
Yeah, and he did a great job of explaining sort of the entire process, how we’re getting leads, how we’re talking to those leads, how we’re wrapping them up, who we pass it to, to work on the rehab, how we decide if we’re going to wholesale it or we’re going to flip it. It’s a really good overview of what a successful business could work like.

David:
In addition to flipping all these houses, he’s got 83 rental properties. Jason is, I mean, this is the archetype of what you want to scale your business look like if you’re a flipper. He’s got income from flipping. He’s got passive income from rentals. He has six short term rentals that he’s working on. I mean, he’s kind of doing it all.

Rob:
Oh, yeah. Man. There were a lot of selfish questions are like, “Yeah, but how exactly do you do this because that seems very hard?” He was very, very gracious with his answers, I feel like.

David:
All right, moving on to today’s quick tip, Jason makes a comment in today’s show. You want to make sure you stick around for it, where he talks about his W2 job was in sales, and he took his skill from his W2 job and applied it into his real estate investing business. Because he was so good at sales, he did very well with convincing sellers to sell him their off market deals. The point to pull out of this is that if you’re not happy at the job that you currently have, if you’re just phoning it in and going through the motions and waiting for some new inspiring opportunity to crash your path, and then you’ll give it your best, it’s not going to happen.

David:
You have to do your best with where you’re at before your next opportunity is going to present itself. If you do a good job developing skills where you are, you will have those when the next opportunity comes. BiggerPockets wants to help you with that. We want you listening to more content that will help prepare you for the opportunity that will be coming your way. If you feel like you don’t know enough about business or finance or living within your means, you can check out the money podcast, which is all based on building financial independence.

David:
We’ve got the rookie podcast if you’re a brand new investor, and you’re afraid about asking silly questions, or you don’t even know where to get started, that caters to your demographic but the point is, there are resources out there that will help get you ready for the next step where you can take charge of your life and you don’t leave it up to fate. That was today’s not so quick tip. Rob, any thoughts before we get into the show?

Rob:
Mm-mmm. Man, I’m excited to jump in.

David:
All right. Well, let’s bring in Jason. Welcome to the BiggerPockets podcast. First question for you, if you were so independently wealthy that you could hire someone to announce you every time you arrived at a party, at an event, even maybe to work, what would you have them announce you as?

Jason:
Thy Jason Pritchard. I love the ring of thy before. It’s strong. It’s elegant. It’s classic.

David:
Very strong, very.

Jason:
Classic never gets old.

David:
Yeah, it rings of old school masculinity and value.

Jason:
That’s right.

David:
I can see that sort of emanating from your person as we speak here. Well, thank you for being here. I think we’re going to have a fantastic show today. Before we get into the nitty gritty of what you got going on, can you tell me a little bit about what your portfolio looks like or your business looks like right now?

Jason:
Yeah, yeah. We’ve been fixing and flipping in central California for the last seven plus years. We’ll do about 75 deals this year, on average. That’s about what we’ve been doing the last two or three years. We’ve got 83 rentals as of right now. Most of those are single family, small multifamily, small apartments in California. Then, we’ve got a handful of out of state rentals in Cleveland, and also in Northern Indiana.

David:
That is fantastic.

Jason:
Yeah, yeah. It’s a mix of fixing, flipping right now because with the market what it’s doing, we’re more flipping and less wholesale but we do a little bit of both. Then, we cherry pick the best ones to keep for ourselves. We also have six Airbnb, three that are live right now, kind of wading into the short term rental market as well, which has been a very pleasant surprise for us with how they’ve performed.

David:
Who is the we?

Jason:
Myself and my wife.

David:
Okay.

Jason:
Yeah, yeah. When I [inaudible 00:07:14].

David:
No business partners?

Jason:
I have a formal business partner through our nonprofit but that’s kind of a separate arm. I had mentioned that in some of the notes that I have but I have my own private real estate business. That’s mine and my wife’s, and then through our nonprofit, we do some affordable housing stuff and I do have a business partner with that.

David:
This is amazing. The reason I ask because I often hear people say, “We,” and then they go on to you drop these huge numbers like 83 rentals, and tons of fix and flips and 75,000 units and then you find out that their part of the we was like 1/10 of one half of that whole enterprise.

Jason:
Yes. Yeah.

David:
This tells me that you’re the real deal. It also tells me that no doubt, you are very good at finding off market opportunities…

Jason:
Yes.

David:
… if you have all these different exit strategies. Maybe we should start there. Tell me a little bit about how you built your business and how you’re finding all these opportunities.

Jason:
I built my business originally by just going off market. I got started in the end of 2014, completely self-educated, never had a coach mainly because I didn’t have the money to hire a coach or mentor go through that type of program. I started by listening to BiggerPockets podcast, Sean Terry how to podcast out. That’s how I learned the business. I found out very quickly in 2014 that there were just not a lot of opportunities that were listed on the market at that time. I spent a few months at the beginning, just beating my head going on like realtor and Zillow, and just trying to pencil out deals with the cheapest properties that were listed. We just could not make the numbers work.

Jason:
I found out very quickly that we had to shift and adapt. I dove headfirst into direct to seller marketing. We started with direct mail. I mean, I’ve done everything: direct mail, cold calling, bandit signs, door knocking. We just kind of cut our teeth doing that. I’d say 99% of the deals that we’ve done have been off market. I’ve actually only ever bought one property that was listed with an agent and that’s because I had a working relationship with that agent.

David:
All right. I’m assuming you started off with fixing and flipping for the most part, maybe you had a couple rentals and then sort of just started to pour more marketing dollars and resources into looking for off market opportunities and hit some kind of a rhythm where now you’ve got the same sources that are providing a decent number of leads.

Jason:
That’s correct. Yeah, it was all fix and flip for the first two years. I was mainly just looking to replace my income from my old corporate job. I mean, I’d worked in corporate America 15 years prior to getting into the real estate market and real estate field. If you would have told me back in 2014, ’15 that I could just replace my W2 income with income from my real estate business, I would have been happy camper just because I was so miserable and unhappy with what I was doing at that time.

Jason:
I just wanted to fix and flip. It sounds cliche but we used to watch all the flipping shows on TV, my wife and I, and we were always entertained by it. I always thought to myself, if these guys can do it, I know I can too and let’s just start there and figure out everything else after that. I didn’t really understand what wholesaling was at the beginning. I just knew that I needed to buy deals below market value in order to make all the numbers work out.

Rob:
Just for clarity, I’m kind of curious, to what did you do? What was your corporate job before you got into the real estate stuff?

Jason:
My corporate job, I’ve always been in sales and sales management. I worked for two large companies in my early 20s and all through college, and after I graduated. The first company, was a technology retailer. We did all outside sales. It was all business to business. That’s where I really learned the value of marketing lead generation and understanding how a sales process works. I excelled at that, honestly. I did really well. I was paid very well at an early age. I thought that that’s what was going to be, my life was going to be working as like a mid-level executive, climb the corporate ladder, make a couple 100 grand a year, and just kind of do that life.

Jason:
I found out after being at my first company for about seven or eight years that my heart just was not in what I was doing. I felt like I was just getting burned out. I thought it was the company. I moved to another organization where I worked in sales and sales management there. I went through the same basically seven-year cycle there where I thought I was going to climb the ladder.

Jason:
I was doing well, and I found myself at this transitionary period in my early 30s where I was just miserable and I was looking around and I was like 32, and I could see my future with some of the older employees that I worked with. I said, “This can’t be the rest of my life, man. I am not going to do this for another 30 plus years.” I’d always been drawn to real estate. I’d always just kind of talk myself out of it for different reasons. I finally just said, “You know what? We’re going to go all in and try this and if it doesn’t work out, I could always come back and get another job.”

Rob:
Would you say it’s been pretty applicable to use your sales acumen and knowledge kind of in the wholesaling in real estate business?

Jason:
It has been invaluable. I talked to so many people that are interested in getting into the type of business that I’m in, fixing and flipping houses or buying rental properties. They don’t understand how much of a sales job I think it is at the beginning. They don’t understand that the purpose of sending out direct mail is to get the phone to ring. When the phone rings, you got to answer it. You got to be on top of your game. You’ve got to be willing and able to build rapport and go out and negotiate.

Jason:
It’s very much a numbers game. There’s a lot of rejection, especially at the beginning. I had basically been doing that for 15 years. All the rejection, realizing that it’s just a numbers game, you’re not going to close every deal that you go out there on. I was just focusing on understanding the language of real estate. Once I understood that, all my old sales instincts kicked in.

Jason:
For me, I think it was my big competitive advantage getting into the industry. It just took me a little bit of time to understand how a real estate transaction worked. Then, once I understood that, I just hit the ground running.

Rob:
Is there a skill within that, that you feel like you mastered just to the nth degree that you’re able to actually execute every single deal or in your business?

Jason:
I think for me, the way I equated and this is the example or the analogy that I would use, I think we’ve all been in experiences where we’ve purchased something, a car or a house or a vehicle or a product and we’ve walked away from that interaction feeling very good about the person that we worked with, right?

Jason:
Just like, “Man, that guy, Jason, he was nice. He was really good. I really liked him. I liked doing business with him.” I learned very early on that people make decisions, and they do business with people that they like and trust. I think I was just really good with my interpersonal communication skills. I’ve always been good at that. That’s been something that is a strong suit for me. I honed that in my time in corporate America, and it was directly applicable towards the real estate business.

Rob:
Can you give us a little bit of an idea when you were first starting out, I think, you might have mentioned this, but were you wholesaling first and then that went into flipping? Were you doing them both at the same time? What was that progression like?

Jason:
It was only fixing and flipping because in my head, the deals were a lot further, fewer and further between when I first started, right? I didn’t have 5 deals, 10 deals consistently in my pipeline, right? Every deal that we bought, my thought process was we just need to maximize the amount of money that we can make from this and I thought fixing and flipping was the way to do that.

Jason:
We started out, our first deal was in 2015. We maybe did four or five houses that first year. Second year we doubled up and then after that second year where I really kind of got my feet underneath me and I understood that, okay, I’ve got a little bit of momentum. I understand how this works. I had no construction background, no real estate background. I barely understood what an agent did. I didn’t know how everything worked. I needed a couple years of just managing projects and penciling deals out and understanding what things cost.

Jason:
Once I got that under my belt, I eventually got connected with some other investors in my area that were more buy and hold investors. They were the ones that really encouraged me to start keeping some of these properties. They basically told me, “Listen, you just have another high paying job. That’s all that you’ve got right now with this business and until you can start investing in stuff that you can keep long term, you’re always going to be on that hamster wheel.”

Rob:
For sure. Well, I guess I got questions here because for me, I think the idea of going out and doing a flip, that’s pretty achievable for most people. I think most people, if they save up a little bit of money, they can do a hard money loan, they can get into a flip, but how many deals are you doing right now, consistently at a time?

Jason:
We always have about 18 to 20 projects on our books at any given time. Here’s what I mean, when I say that, I mean, we’ve got three to five projects that we purchased that we’re getting ready to start construction on. We’ve got another five to seven projects that we’re actively rehabbing. Then, we’ve got another three to five projects that we’ve got completely rehabbed, and were in escrow or on the market listed to sell.

Jason:
We typically stay right about that range. That’s about the capacity that my team has with the relationships with the contractors, and just, that’s about the max that I want to do as far as properties that we’re rehabbing. Then, anything else that comes in above and beyond that scope, then we’ll look to just assign it or do some type of quick exit strategy, maybe wholesale it or something like that, to just to monetize it and just move on.

Rob:
I got to imagine, probably in this then, if you’re doing the level that you’re doing 75 flips or so or deals every single year, can you tell me a little bit about, because I think the big question that comes through here is, obviously, you’re going to be making a lot of profit here, do you have to kind of stash away a significant portion of your funds for taxes or is your buying and holding and your rental strategy sort of helping to offset that side of things?

Jason:
It’s a mix of both, man. I feel like it’s tough because if you don’t show any money, and you’d really aggressively depreciate your rentals, then you’re not as bankable when you want to go get a big bank loan, right? Your borrowing profile maybe doesn’t look as sharp as if you show a bunch of money. We’re constantly finding the balance between those two things.

Jason:
I’m very fortunate that my wife is still a high school counselor. She’s W2. We leveraged a lot of her credit profile at the beginning when we initially started buying rentals until we were in a space where we could borrow just kind of on our own and we’re making lending relationships where we could get the loans that we needed without necessarily showing that income.

Jason:
It’s a balance. I don’t love writing a big check to the IRS. We just did that a couple of times already this year. That always is painful when you do it, but there’s a purpose behind it because you know you’re setting yourself up to maybe leverage some financing on some future deals.

Rob:
Well, it’s really hard to think of it this way. Someone that I talked to one time, put it very simply and they said if you’re paying taxes, it means you’re making money. I’m always like, “Okay, you’re technically right about it.” I would still rather not pay the taxes but that doesn’t make sense.

Rob:
Honestly, I don’t really hear a lot of people that come in and say that kind of what you’re saying, you want to do a good balance of both because I think the kind of the popular thing, that’s going around a lot right now is cost segregation. Obviously, it’s not new, but more and more people are learning about it. A lot of people are trying to effectively just nix out the entire tax bill but that’s not something that you necessarily are looking to do.

Jason:
It depends on the person’s situation. I mean, it really does. My wife and I just purchased, I don’t want to say it’s our forever house, but we purchased a house that we’re going to be very happy in for, I would say, the next 8 to 10 years. We’re in a really good place with our rental portfolio. I could probably get more aggressive with the depreciation on our rentals now and have less tax liability if I wanted to, because we’re in a really good spot, I think, for the midterm future, right?

Jason:
But if you’re in a position where you want to be really bankable, then you’ve got to show some money. I mean, I feel like I’ve had my mentors that I look up to when I’m very vocal and open on my social media about just the different things that I’m doing with my businesses and some of those guys will reach out to me and they’ll say, “Hey, I just wrote a $1.5 million check to the IRS for this year. I agree with your thought process. If you’re writing a check that big, then you’re making the income obviously to offset it. There’s a give and take there for sure.

David:
You know something? Jason, you just have such an impressive business so far. I want to commend you for that.

Jason:
Thank you.

David:
This is probably more than we’re going to be able to get into in one podcast because I’m thinking how did you build a team to get these leads? What does that structure look like? How did you build a team to manage the rehabs? Then, how are you managing all of your rentals? This is not something any one person can do by themselves.

Jason:
No.

David:
There’s that and then there’s the actual sales techniques that you’re using, which I think could be really good. We might have to have you on again to dive into that because I just can tell there’s a lot people can learn from what you’re doing. Before we get into any of that, I sort of wanted to highlight an issue that I can see that happens with someone like you that has so much success so quickly, is it’s sort of, this is probably not the best analogy, but it’s like you’re a bodybuilder and you’re becoming tremendously fit, but you have certain areas that you like working out more than others. When you’re good at working out, they become much more unproportionally big than the areas that you don’t like, right?

David:
You’re probably making a ton of money. You’re investing it very well. You’re probably cash flowing very strong. There’s even more money coming in. You’re very strong in that area but like you mentioned, you haven’t taken advantage of enough depreciation with some of what you’re buying and that’s why your tax bill is so high.

David:
At a certain point, you’re going to have to shift your thinking from okay, I’ve got this thing on autopilot. Now, I have to buy bigger property so I can take advantage of accelerated depreciation. You’d have to get some apartment complexes or luxury real estate, something like that. It’s very common to see this happen. It’s okay. I don’t think if you’re paying taxes, there’s no one that should be critical and say, “Oh, he’s paying all those taxes.” Well, yeah, that’s because he’s making all this money. He doesn’t have time to figure out how to save all the taxes.

David:
Ultimately, as we’re growing, we’re trying to build this balanced, well balanced approach to where we’re making good money, we’re investing good money, and then we’re saving in taxes. I see this all the time. There’s some people that do really well saving in taxes, but they don’t make that much money, right?

Jason:
Yup.

David:
They brag about, “My tax bill is so low.” Yeah, well, you make less than somebody does with their W2 job.

Jason:
That’s right.

David:
It’s not as impressive when it comes to your approach where you know, “Hey, I could be doing some stuff to save money,” but that would take away from what I’m doing over here. What’s your perspective on how you sort of handle that problem?

Jason:
I’ll be honest with you, I’m an analytical person, but I don’t make every decision based on does it fit this exact formula or whatever. I think I have learned to trust my gut and my instinct. I also have a lot of people that I surround myself with that I trust to take advice from, right? That’s one of the things that I’ve learned that has really moved the needle in my businesses that I didn’t know about finances, financial literacy, and education.

Jason:
My upbringing and my parents, and everything, that was great but this was stuff that we did not openly talk about. I was just unfamiliar and I had a lot of bad financial habits, even into my mid-30s when I started in the business. I had to relearn and retrain the way that I thought about money. Then, I’ve learned that I just need to be around other people that are have done or are doing the things that I want to do and get their advice, kind of pool that information together, sit down with the people that are closest to me, my wife, and we have to make the best decision for ourselves. That’s it.

Jason:
There’s no right or wrong answer. I don’t know that there’s just shades of gray when it comes to, especially to something like this because everybody’s situation is going to be different. Our tax strategy has changed. I think when we were at the beginning, I did want to depreciate more, because I was just not used to writing that check, but as we’ve made more money, and I’ve become more mature investor, and I’ve gotten around, I think older, wiser people that I like and trust and have taken their advice, they’ve kind of guided me and schooled me on to more long term thinking when it comes to this but I’m still learning, man. I’m still very, very brand new to this, you know what I mean? I feel like we’ve got a lot of runway left to go.

David:
I just figured it out last year. Last year was the first year where I’m like, “Okay, I’m taking all this information. I’m putting it together. I’m making it somewhat of a priority. I bought a property I normally wouldn’t buy, but it worked out great. The tax benefits were insane. I’m like, “Okay, I get it now.”

Jason:
Get it. Yeah.

David:
Actually, it covered me for two years, so I won’t have to pay taxes for those two years. I make my money in the way that won’t be taxed, which is different than, like how you make your money matters also. Now, moving forward. I’ve got it. I’m probably not going to pay taxes anymore. If you want me to connect with my CPA, I’m happy.

Jason:
I love what you said, you got it. I think we all have these light bulb moments that happen throughout our journey, where something happens and it just clicks, everything clicks, and you’re like, “Okay, now I get it, right?” I know and trust and have faith that those things will just come. As long as I keep my head down and do the work, eventually, we’ll get to a point where that light bulb moment comes for me and it may be this, right? Hey, just having this talk, having getting on the show and then talking to your people and then that’s it. That’s really cool. I think people just [inaudible 00:24:22].

David:
That’s what I wanted to highlight, right? Because there is an approach that would say, I don’t want to put my pedal to the metal until I’ve built the road in front of me perfectly. I know exactly what all the plans are. It’s just not practical. I don’t know any successful person that made it happen that way. It’s more like riding a motorcycle, you hammer the throttle and you hang on. You adjust your balance as it’s going and you start to get yourself under control and then a sharp turn comes up and you got to figure out what to do there.

David:
Rob’s business has exploded. Then, last year, maybe two years, there’s no way he’s going to have all these details perfectly outlined, but would you trade that to go back to where you were when you weren’t making money? No. You clearly made the right call, right? It’s not going to be a perfect blueprint with a foundation that’s laid beautifully. Then, the framing goes up.

David:
That’s what something looks like when you’ve done it thousands of times, but in the beginning, it’s not that. You’re sort of going, figuring out as you go. That’s perfectly fine because you’re obviously very successful. Once now you’ve got all these pieces in place, when you do figure out the tax component, it’s just going to be icing on the cake, but I mean, 83 rentals, six short term rentals, all the houses that you’re flipping, you’ve clearly done a lot of things well.

David:
If we’re going to sort of carry on from there, tell me in the building of the teams that you had to do, which I, just from hearing your story, I’m pretty sure this has been the most challenging part is getting the people that you want to work with you. What challenges did you face? How did you overcome those team building challenges?

Jason:
I think there’s so many limiting beliefs that we have. I think the first challenge that I faced was just changing some of those belief systems and developing a mindset and a self-image that actually, I believe that I was capable of doing some of these things because I literally had no money. I had nothing when we were getting started. I was bootstrapping everything, which is good because it makes you become very resourceful at the beginning, but then, you’re also coming from a place of scarcity when it comes time to start growing and reinvesting in the business, right?

Jason:
I was very worried about, can I afford? I mean, it’s funny to say now, but $15 an hour or $12 an hour or whatever minimum wage was at the time when I hired my first in person assistant and I was doing everything myself. I mean, I went from flipping one house at a time to flipping three to four properties at a time. I think we’re up to about a dozen rental properties.

Jason:
I was doing all the direct mail myself. I was answering all the calls myself. I was going out and meeting the contractors in the Home Depot parking lot and cutting checks myself. I was doing all the bookkeeping. I was negotiating all the deals. I was managing all the properties. I just reached this point a couple years in, where I just did not have the capacity to do any more. I was a one man army and that’s all that I knew that if I don’t do something soon, then this was going to change.

Jason:
I originally started hiring out virtual assistants. That was a big game changer for me. I looked for virtual employees first because I knew I could just save money and I had so many repeatable tasks that could be done from a phone or a computer that I figured, “Hey, you know what? I see other people utilizing Vas. Let me try this.” I started with that.

Jason:
Then, I hired my first in person, it started as a personal assistant, and then became my property managers, then my project manager, and then that role has kind of splintered out and grilled into individual roles. Now, we’ve got six people on the team, not including my wife, who also is kind of right there with me on the top. I guess seven people that helped kind of run and manage day to day operations.

David:
How did you find the people that you ended up wanting to hire?

Jason:
Social media, believe it or not. It’s funny how, not funny, it’s been amazing to me how powerful of a tool social media has been for me. I was not a social media person before I got into real estate. I had MySpace and then I was dark on social media for eight years. Then, when I started flipping houses, I didn’t know anybody. It forced me to build a network online because I literally did not have anybody that I could tap into locally in the real estate field.

Jason:
I said, “You know what? I might as well just post what I’m doing and maybe it can motivate and inspire some people, and maybe it will lead to something.” I was always very consistent with my social media and just being authentic and open about the things that I was doing. It resonated with people, especially locally. That was what turned into, now, eventually I just started saying, “Hey, I need an assistant for my business.” I had a few people reach out. The first person that I hired came from that. For the most part, the best hires that I’ve had, believe it or not, have been from social media or either referrals from people that I know and trust.

Rob:
Yeah, let me ask you this a little bit because if I’m being totally honest here, I think one of the more daunting things, like you hear a lot of people talk about scaling up, building a team, all that type of stuff, but it’s really hard to put some tactical steps here because when it comes to hiring a team, that means you got to pay people.

Jason:
Correct.

Rob:
In the very beginning of your business, you’re in the throes, it’s really tough to know, well, for a lot of people starting out, they may not be tracking their expenses or cash flow, having profit loss statements for everything. I’m kind of curious, as you started embarking on this and hiring people, what was your thought process for paying them? Were you paying them per project? Were you paying them a salaried role? Has that changed from sort of where you stand now?

Jason:
Yeah, at the beginning, I was just paying a base hourly. No bonus. No anything. I just didn’t understand. I come from a background in corporate America where I knew about payroll and these other different things, but it’s just a different animal when it’s your own business, right? Again, I was coming from a place of scarcity. I was trying to extract the most value that I could and pay the least frankly, right?

Jason:
I was just doing base. Then, I started to realize, as my company was growing, and as these responsibilities started piling up, there was no way that I could afford the level of talent that I needed just paying a base hourly wage, and then that’s it. Then, we started incorporating bonuses for our projects based on profitability. Then, we started incorporating bonuses to people that were helping us with property managers for getting our rentals turned in a certain amount of time. We do the same thing now for our Airbnb’s.

Jason:
I tried to do, I try to supplement my payroll in a way where instead of having one big salary and paying everybody 75 to 100 grand, we keep a reasonable base, and with the different bonuses, it allows them to make significant amount of money. My top person in my company should be making well over six figures, but we do a base salary, project management bonus, and she’s also a licensed agent. She gets a portion of the commissions of a lot of the flips that we sell.

Jason:
I like doing it that way. My explanation to my team is we are not a company that has consistent predictable top line revenue every single month where I can just say, “Hey, listen, we’re going to make X amount of dollars every month. It’s very easy for me to reverse engineer and project where we’re going to be at as far as expenses.” Some months we’re closing multiple deals, and we have a ton of money coming in, and then another couple of months, we don’t have anything and we’re just spending money, right?

Jason:
I want to reward you and pay you financially in a way that’s aligned with my company. As profits and revenue are coming into the business, I’ll tie your bulk of your compensation to that. That’s worked very well for me.

Rob:
That’s really smart. Yeah. Was this the process? Was it something that you kind of figured out along the way?

Jason:
Yeah. It sounds great now. You know what I mean? At the beginning, I was literally just flying by the seat of my pants, literally, I am a big believer in, I like to stay outside of my comfort zone and just not pushed so hard that we get to a point where we’re being reckless. I’m constantly pushing the envelope. Sometimes that can be scary and sometimes it can feel like you have no idea what’s going on. Some days it feels like the wheels are just going to completely come off.

Jason:
Then, sometimes things just click and it feels like, “Wow, this is working well.” It’s just been a constant process of progression and leveling up year after year that’s gotten us to this point now.

David:
How closely tied together are your, like the rehab crew and the people that focus on selling the property, getting it ready, versus the acquisition side where you’re sort of filtering through leads, and then setting someone up to go close on it? Are they the same people? Are these two different departments?

Jason:
No. They’re separate departments but we’re all integrated. The right hand does know what the left hand is doing. My operations manager, her name is Morgan, she also oversees a lot of the construction that we do on our rehab projects, and she’s reselling them. She’s helping me underwrite deals. She’s helping me understand what the resale value is going to be. I have final say so on what we’re going to buy and what we’re not going to buy, but she knows and understands. We’re on the same page and aligned with what those values are. Then, those numbers are then passed down to our acquisitions team.

Jason:
The way that it works is our leads come in. We do lead intake. We qualify them for motivation, all these other things. We send the property over to Morgan or myself to help with underwriting the deal. Then, we give them back an offer range that we think we could work, and we let them close that deal.

Jason:
Then, it just goes on the assembly line. Depending on what the exit strategy is, if it’s going to be a rehab or a burr property, then we’ll just get it scheduled with our contractors. We’ll get our bids in and we just hit the ground and start running and gunning.

David:
Do you have one person who’s sort of overseeing all the projects and they’re delegating things out or is that your role right now?

Jason:
No. I do not. That’s one of the things that I delegated out very early on, because I did not have a construction background. It was cool at the beginning. I still do like to see a really rundown house turned into a nice pretty house and hand that to somebody that’s going to live in there for a while. That makes me feel good but I don’t get any real joy or excitement in the process of doing it anymore. I delegated that out years ago.

Jason:
We do have a pretty good system in place now where we can buy, fix and sell a house and a lot of them, if I didn’t want to, I would never have to go out to them, which is good. We’ve systematized our design aspect. It makes it easier on us and it makes it easier on our contractors. We have two or three color schemes that we go with. We make a final decision on which one it goes. We send that list of material to our contractors. It’s got all the vendors where they go to buy it. Our prices are skews. We do phone sales for everything.

Jason:
We try to put out the best quality product that has kind of a custom look and feel without totally breaking the bank and it’s that balance between those two things that I have found has gotten us the really, really profitable deals, the things that sell for top dollar where it’s not just a carpet and paint, quick and easy rehab but also not over improving the property because we’ve over improved a lot of properties and left a lot of money on the table. You just kind of learn those things the hard way as you’re starting out.

David:
I found that in most businesses, like someone starts it and then you start hiring people to do parts of the job, the owner tends to move towards the front of the funnel and delegate the stuff that comes later on in the process.

Jason:
That’s true.

David:
I’m not surprised to hear that you’re still in acquisitions and you sort of delegate out the things that happen after the thing is acquired. At a certain point, you may even have one of your employees or hire someone out to be the one that negotiates and puts it in contract and you will move higher into how do I get more leads coming in for us to qualify? It always just seems to be-

Jason:
We have that now. It’s very interesting. Acquisitions and sales has been the thing that’s been the hardest for me to let go because deep down in my heart, I do feel like I’m still kind of a deal junkie. I always enjoy the hunt of doing a deal. I still get a little bit of a charge right now, even closing deals out. I’m good at it. At the beginning, I always had limiting beliefs because I said, “Well, if I’m the best person on my team to do it, and we could make 40 or 50,000 on this deal, I’m handing over this opportunity to somebody that may not be ready to close it and we’re leaving 50 grand on the table if the deal doesn’t get done, right.

Jason:
I had to overcome those beliefs and realize that in order for me to go to the next level, I needed to be a good enough coach and leader to be able to take the skill sets that were in me, download them into somebody else and make them stick. Now, we’ve got an acquisitions rep. We’ve got a followup specialist. We’ve got cold callers. I oversee that piece still, and I’m almost kind of fully extracted out of there. I like to interject myself. My coach says that I like to steal the ball from my team, and then dunk it and tell everybody how good I am by dunking. You know what I mean? I’ve got to stop doing that. I’m getting better at it but I’m not there yet right now.

David:
When it comes to these, finding these off market deals you’re talking about, I know you’ve talked about investing being a linear process. Can you describe what you mean by that?

Jason:
Yeah. When I say a linear process, what I mean is that you have a very clear and laid out process that you have to follow. There are steps and you can’t skip step one to go to step two or step three. One of the questions that I get all the time, especially for new investors is, if I had to start all over with no money, no resources, just the experience that I have, what would I do? I always tell them focus all of your time, effort and energy on step one. Step one to me is marketing and lead generation. That’s it. In this business, at least the niche that I’m in, if you don’t have your marketing setup and you don’t have leads coming in, you don’t have a business.

Jason:
That was one of the big things that was ingrained into me in corporate America was just the value of those leads. We knew exactly how much the company was spending every single month on our marketing budget. We were grilled. If leads came in, and we didn’t live answer or we didn’t call them back within a certain amount of time, our sales manager or my manager was all over us, right? Then, I was all over my guys. I just took that mindset and my thought process to this.

Jason:
I think most people, they skip the sales, marketing and lead generation because there is a lot of dirty work that’s involved with that process. Nobody likes to get on the phone and make 500 calls a day and get beat up on the phone by all these random sellers. Nobody likes to go out on appointments and get told no hundreds of times before they get a yes.

Jason:
Instead of just leaning into that and getting great at that, they want to skip that process and jump to how do I find the money to do a deal? Then, they want to jump to how do I find a contractor? Where do I interview contractors? What title companies are the best title companies in town? I tell them, “Listen, it doesn’t matter. If you had a $10 million and a construction company, if you don’t have deals coming in, it doesn’t matter, you have no projects to work on. You’ve got to focus on step one. I was just fortunate that a lot of my experience and background prior to breaking into real estate really taught me that and that was directly applicable towards the business I got into.

Rob:
I have a question in regards to sort of the financing of this operation because, this kind of gets back to what I was talking about earlier, one or two deals very digestible for people starting out. I sort of want to talk about, if you’re doing three to four deals at a time, I think you said you had 18 projects or 18 to 20 projects on the books.

Jason:
Eighteen to 20 approximately on the books all the time. Yeah.

Rob:
How does one really approach the financing aspect of that because if you’re doing one and you go in hard money, a lot of the hard money lenders out there will require 20% down, there are some that will do 10% down, I think it’s possible to find some that’ll just do the whole thing, but it’s very expensive, and it’s very manageable for one, but if you want to go from 1 flip to 10 flips, what is that financing approach and then is there a difference between going from 1 to 10 and then 10 to 75?

Jason:
Yes. For me, I started using all my own money because I was afraid to ask anybody else for money because I didn’t really know what I was doing. I mean, the conversation that my wife and I had at the beginning was, at least if this gets totally screwed up, it’s our money and we’re not borrowing money. I cashed in my life savings. I borrowed against my 401k. We took a second mortgage out on our house, and we use that along with maxing out all our credit cards and everything else. That, along with hard money, is what we did to initially start doing our first, maybe dozen deals, right?

Jason:
We would just borrow as much money as we could, get a hard money loan to cover the difference. Then, we would just fund the deal, sell it off, pay everything down, take that profit and reinvest it in the next deal. We did that over and over again until we start to get to two then to three. Then, it reached a point where cash management became a big deal. When you’re flipping at volume, that’s something that I don’t see a lot of people talking about is how to properly manage your cash within your company in order to be able to cover your overhead every single month and your payroll and the mortgages that you take in.

Jason:
What I eventually started doing, through just networking and building a community out, is making relationships with private lenders. That’s how we fund everything now. Depending on the deal, we may use hard money from time to time, but 95% of the deals are funded from different private lenders. I like that, because it’s easy. The terms are negotiable. I can get all the money that I need. I typically borrow 100% of the purchase price, the rehab costs and my holding costs. I’m borrowing all the money that I need.

Jason:
You have some people that want to get paid every month, but my preference would be to pay them at the end of the project. Then, that way, we don’t have cash crunches during on but cash management is a very important component of that business.

Rob:
Yeah, it seems like it could get pretty, pretty, I don’t know, like tough to keep track if you’re talking about three, four flips, you’ve got a few credit cards, if you’re using your home equity line of credit, and running the books on those different properties and breaking it all up. I mean is that-

Jason:
Accounting was a nightmare for us. It was a nightmare and especially once we got into like year three and four, where it was like, “Okay, now we’re flipping 30, 40 houses a year. We’ve got a dozen rentals. We’ve got a lot of things happening at once. We can’t just keep a separate Excel spreadsheet for every project. It doesn’t work like that anymore, right?

Jason:
We had to mature. We worked with our CPA, and eventually found an accounting team that basically handles all of our books. Now, they’ve got a custom built out of QuickBooks for us where there’s job costing, we have individual P&Ls on every single project. They pay all of our bills every single month. It’s one team where the finances kind of funnel in and funnel out. I just oversee, along with the people on my team, our key KPIs and those reports that get fed into us so we can make sure that we’re in a good space financially to make sure we’re managing everything.

David:
It’s a nice business model, man. That’s actually probably the most impressive thing.

Jason:
It sounds good me saying it but it was a lot of hard work. It’s, even now, it’s not perfect, man. The analogy I use with my team is we’re building the airplane while we’re flying the airplane in midair. That can be fun. It can also be really scary at the same time. [inaudible 00:43:13].

David:
I think that’s everyone’s business, though. You go to a workshop or you go to some seminar, and they get up there and they sound just like you. Here’s my flowchart. Here’s what this person does. It gives us impression that everything’s clean and nice. Then, you get in there and it’s actually complete chaos, and you are more or less trying to just keep this thing from crashing. What you’re describing is what you’re striving for, but it’s okay to be messy.

David:
That’s what I want to say is like, I think, we get compliments on my real estate sales team that we are the most organized, structured, best systems in place. It is constantly just, who’s doing this, why do I have to do it, how come they’re not doing it? This person messed up. It’s affected… There’s no way to have this happen without it being messy because there’s people involved. There’s emotions involved. You’ve got sellers that have, maybe want to sell, maybe don’t want to sell, right?

David:
You’ve got, I thought we were going to do it this way. Well, someone else does give me another way. I guess what I’m saying is it is okay to be messy as long as it’s successful, right? With time, it does get smoother and then someone quits or leaves or has a baby and doesn’t want to work and you got to throw a new person in there and it’s right back to messy. Has that been your experience?

Jason:
A 100% and I think that piece of advice that I would give to the people that are going through some of those growing pains is don’t be too hard on yourself. I had to take that lesson very early on. I was my own worst critic. I was so hard on myself.

Jason:
Even though we were doing great, I would always just beat myself up because we did not fit this image of what you see about that guy on stage with the flowcharts and everything’s dialed in. It took me a while to realize that nobody’s business is completely dialed in. It’s all just a progress, our process and we’re just progressing each and every day.

Jason:
I’ve learned to balance being grateful for where we’re at, and also just not being satisfied and knowing that we’ve got so much more left to do. That’s been a good space for me, because if you would have told me that seven years ago, when I started that I’d be doing what I’m doing right now, I wouldn’t have believed that it was even possible. What was sad would be, I wouldn’t even believe that I was the kind of person that was capable of doing it, which was even more sad for me, right?

Jason:
I had to get into this space where we proved to ourselves, and we had proof of concept like, “Wow, this works. Wow, I am capable of doing it.” That confidence, that self-confidence is like a muscle that you build over time. Now, when I say that I’m going to do something, I know that it’s going to happen because for the last seven years, I’ve been doing everything that I’ve been saying that I’m going to do, right? It doesn’t start out that way but you can get there and it doesn’t need to take a lifetime either.

David:
It’s such a good point. I think about that all the time. If you look at like, use a weightlifting analogy, or something, that just works so easily because you have to do it in increments, but you see someone bench pressing 400 pounds, and you look at where you are now and you’re like, “I could never do that. That’s impossible.”

Jason:
No. Yeah.

David:
It’s impossible yet at this stage, but the person that’s going to be doing it is not you right now. It’s going to be years of you adding five pounds onto that bar incrementally. And when you have that frame, that’s not going to be impossible. We all have a mental frame or a business frame or an emotional frame, something that will allow us to be capable of leading other people, managing other people, handling complex problems.

David:
As you’re listening to the podcast, and you’re like, “I’m just trying to get my first house or my second house,” yes, what Jason is doing would be impossible. That weight would crush you if we tried to load up the bar, but you’re not going to start off where Jason’s at. You’re going to start off where you’re at and just keep working out. You end up at where Jason is. It sounds like what I hear you saying is you’ve embraced, that’s just the reality of how life works. Quit worrying about if I could do it right now. Just have faith. You’re going to get there if you keep pushing.

Jason:
Yes, worry, doubt, and fear, those are emotions that don’t serve us. I learned a long time ago that I’ve got to be self-aware enough that when I feel myself going through some of those emotions, acknowledging them, but also reverting back to my prior experiences and realizing like, “Listen, every time you’ve been worried about something, you’ve overcome it.” 99% of the time, the problem doesn’t even manifest itself and the 1% of the time that it does, you figure out what you need to do. You overcome it and you move on so at least you learned something from it.

Jason:
I think most people are so caught up in those three emotions: worry, doubt, and fear that they just stop themselves from doing everything. You’ve got to work on your mindset along with the tactical real estate stuff that you’re going to learn in your day to day business. Those two things for me just go hand in hand.

David:
Good deal. We are going to move on to the next segment of the show. It is the famous deal deep dive. In this segment of the show, we are going to dive deep into a deal that you’ve done. Do you have one in mind we can dive into?

Jason:
I do. We just sold our most profitable deal ever in February. That would be a great one to unpack.

David:
Let’s talk about it. Rob and I will fire questions at you. If you could just answer that question, we’ll fire the next one. First question is very simple, what kind of property is this?

Jason:
It’s a single family house.

Rob:
Okay, how did you find it?

Jason:
We found it via trustee sale. We bought it at auction.

David:
Nice. How much did you buy it for?

Jason:
1.72 million.

Rob:
Okay, how did you negotiate it?

Jason:
We just ended up having to come up with a bid that we thought was good for the property. With these trustee sales, there isn’t direct negotiation with the seller. It’s basically house has been foreclosed on. We had to put in a bid that we felt we could make money on that.

David:
You’re flying blind. That’s tricky.

Jason:
Flying blind. Flying blind.

David:
There’s no baseline to go off.

Jason:
That’s right.

David:
All right. How did you fund this deal?

Jason:
We funded it with money from one of our private lenders and because of the amount of money that was required to buy, fix, and sell it, we ended up giving them an equity portion in the deal because there was no other way to structure it.

Rob:
What did you do with the deal? Did you flip it, rent it, burn it?

Jason:
The plan was to flip it. We were going to work with a construction partner, do a full blown rehab. This property was in 17 mile drive on Pebble Beach. It’s one of the most desirable neighborhoods in California. We thought we were going to buy it for 1.72, put about 5 or 600,000 into it and then sell it for 4 but about 45 days after we bought it, a broker from that area cold called us and said, “I have somebody that will buy it as is right now. They’re just going to tear the house down and build a mansion.” We ended up selling it to his buyer and we made about $825,000 in 60 days.

David:
All right. We know what you did with it there and we know what the outcome was. Last question is what lessons did you learn from this deal?

Jason:
This is what I would tell anybody that is following along, everybody sees the money on that and they get caught up in the money, but you need to understand what was involved in even getting us to a space where we could buy a $1.7 million deal that we thought we were going to get to 4 million. There’s so many different obstacles and hurdles that came up. I’ve got a whole big post on my social media account. You can go to my Instagram and you can read all the different things.

Jason:
To condense it, we basically talked ourselves out of buying this deal. We waited until five days before the bid was due to even ask about raising the money. We got the money basically the day that the bid was due. I missed all the commercial flights to San Diego where I needed to go drop the check. I had to pay $8,000 to book a private plane…

David:
Wow.

Jason:
… to get me to San Diego, to drop the check off at the trustee without even knowing whether or not we were going to win that bid. There were so many different mental obstacles and objections that we had to overcome before we even got there. We found out couple days later that we won, 60 days later, we sold it and made 825 grand. I mean, it was one of the most wild and amazing experiences that I have. I would focus less on the money and more on just what it took to get there mentally. It was seven years of work and building a foundation that got us there.

David:
Well, congratulations on that.

Jason:
Thank you.

David:
That’s wild. I mean, I can only imagine how fast your mind was would racing. We don’t want it. We don’t want it. We don’t want it. I want it. Then, boom, everything is just chaos. Can we get there? I mean, that have been a cool thing to video and turn into a YouTube video or even, it sounds like a TV show.

Jason:
I was gone. I was on my Instagram story the whole time. Maybe, I’ll go download my stories and send it to somebody and they can edit it and they can see everything. It was the wild… I was literally scared to swipe the $8,000 to charter the plane. Had I not done that, we wouldn’t have done the deal, right? I was negotiating. There’s all these steps where I was negotiating in my mind where I was like, “Nah, this is too risky. You’ve never done a deal this big. You’ve never done this.”

Jason:
Going back to that conversation that we had about building the muscle of self-confidence, I was able to tap into that experience and just say, “You know what, you got this dude. All the indicators are there. This feels right. Let’s go and see what happens.” It worked out.

David:
Congrats on that. That’s a very cool story.

Rob:
That’s crazy, man. That’s so good.

Jason:
Thank you.

David:
We’re going to move on to the last segment of the show. It is the Famous For. This segment of the show, we ask every guest the same four questions every episode, and we’re going to fire them off to you, Jason. Question number one, what is your favorite real estate book?

Jason:
My favorite real estate book, I would say as the Go Giver. It doesn’t apply directly towards real estate, but it helps people understand that if you come from a place of abundance, and if you help other people, you’re not taking away opportunities from yourself. The momentum that you get by helping somebody else actually gets the two of you where you want to go faster. That is my favorite book I applied towards real estate. It’s also the most gifted book that I’ve ever given out as a gift.

Rob:
What is your favorite business book?

Jason:
I would say Think and Grow Rich, even though it’s kind of a mindset book, I think the lessons in there can be applied directly towards a business. It taught me the value of networking. It taught me the value of visualization, masterminding with other high level people. There’s some universal laws in there that directly apply towards any business.

Rob:
When you’re not out there growing your empire and flipping 75 houses a year, what are some of your hobbies?

Jason:
Travel. My wife and I love to travel. One of the fringe benefits of flipping all these houses is we rack up a ton of credit card points. We were in Italy two weeks ago. Basically, we’re able to stay in every hotel for free, fly for cheap.

Rob:
Nice.

Jason:
We travel once a quarter. That’s basically our goal is to take one big trip once a quarter. Yeah, travel is definitely our thing.

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

Jason:
Mindset for sure. I think if anybody’s going to take anything away from this podcast is that you can be great at negotiations, you can have great people skills, but I think if you have a losing mindset or a losing mentality, you’re going to self-sabotage. For me, everything is built off the foundation of self-improvement and mindset. If you can get your head screwed on straight every day and show up and be consistent, it’ll be much easier to find the success that you’re looking for over the long term in the real estate field.

Rob:
That’s awesome, man. Well, lastly, can you tell us more about where people can find out about you on the interwebs?

Jason:
Sure. I think the easiest place to find out about me would be just on social media. Instagram and Facebook is where I’m most active. It’s just my first and last name, Jason Pritchard. If you type those things in, that’s the easiest place to connect with me. If you’re in the Central California market, we do monthly meetups. We get 200 plus people that come to those. I love giving back to the community. That’s been a great way for me to build my network out here. In person, in this area, you can do that but if not just hop on social media. Shoot me a message.

David:
That is awesome. Jason, I love your story. I hope that we can get you back on here again to dive into it a little bit deeper. I don’t know how we haven’t crossed paths already. We’re both in California and you’re doing something pretty awesome down there. It’s probably because you live in no man’s land. Fresno is like the Bermuda Triangle of California. Fly over it. You hope your plane doesn’t crash and then you end up in Southern California and all of a sudden you’re in California again, but it’s like the wild, wild, west out there. Is that where you’ve lived your whole life?

Jason:
Basically, we bounced around for a little bit until I was five and then my dad got a teaching job at Fresno State. He’s a professor at Fresno State and Fresno has been home base since first grade for me, man. I really love it out here. Roots run deep. I’m bullish on the Fresno market. I actually think that we’re going to see a lot of growth in the valley and I’m very happy where we’re at. Everybody talks about the prices in California, but there’s still some affordability and some good deals where we’re at.

David:
I agree with you, especially in that Bakersfield Fresno area. That’s where people are going to be moving into because prices are just getting crazy in other parts.

Jason:
That is correct.

David:
I think you got a lot of room to run there also.

Jason:
I think so.

David:
Rob, where can people find out about you?

Rob:
You can find me on YouTube at Robuilt, Instagram @Robuilt, TikTok @robuilto, and I’ll have to resurrect my MySpace. I’m sure that’s still out there somewhere, [inaudible 00:55:40]. What about you?

Jason:
I don’t know if I want to resurrect my MySpace. Hopefully, my MySpace stays [inaudible 00:55:45].

David:
Someone will. I’m telling you [inaudible 00:55:47] play.

Jason:
Oh Jesus. I need to go looking out. Oh, no.

David:
Someone’s going to make MySpace cool again but bell bottom jeans keep coming back all the time, right?

Jason:
Oh yeah.

David:
Remember those slap bracelet things.

Jason:
Mm-hmm.

David:
Maybe you guys don’t remember those.

Jason:
No. I remember. Yeah.

David:
They’re very popular. They made a comeback, right? How many iterations of Transformers and Teenage Mutant Ninja Turtles have we’ve seen? Someone’s doing that to MySpace. Mark my word. If I could buy stock in MySpace, I would right now because it’s going to come back. It’s also ridiculous.

David:
Thank you, Jason. This has been great. You can find me online on all social media @DavidGreene24. Please look very careful at the screen name that the newest iteration of this garbage is David with two eyes. They’re faking my account and messaging people. If you get a follow request from me, look very carefully before you accept it. Makes sure it’s the right one. This is going around on social media quite a bit. I don’t have the blue checkmark yet. You don’t know that it’s me.

David:
You can also find me on YouTube at David Greene Real Estate, not as exciting of a name as Robuilt but pretty easy to remember, if that’s what you’re thinking. All right. I’ll get us out of here, Jason. This has been great. This is David Greene for Rob, the most interesting man in the world, Rob Abasolo, signing off.