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Ashley:
This is the Real Estate Rookie, episode 183.

Omid:
Sometimes we got to be aware of our biases of like, “Okay, this may not be a place I may want to travel,” but the data proves that there’s a huge demand. And so now it’s changed my attitude around, okay, just because maybe I don’t like this particular vacation rental market, it may not mean that it’s in high demand. I’m going to default to Tony. He’s the geek when it comes to software, and it’s like he bust out all this data and I’m like, “Sold. Sold. I’m good. Okay.”

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

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we give you the inspiration, information and education you need to become a real estate investor. So Ashley Kehr, what is going on?

Ashley:
Not much. I’ve dropped my crutches. I was allowed to get rid of them. Now I’m just hobbling around up in the place.

Tony:
Just hobbling. Yeah.

Ashley:
I actually took an impromptu road trip to Florida last week. And so I had to have my crutches for about half the road trip, and then the second half I got to get rid of them. And yeah-

Tony:
There you go.

Ashley:
… so it was nice.

Tony:
It’s progress.

Ashley:
What about you, Tony? Yeah. What’s new? How’s your foot?

Tony:
My foot is also healing. I took my boot off today for the first time, so we’ll see how it does. But keeping busy. We’re actually going to be out in your neck of the woods in like four days. Or no. Yeah, yeah, shoot, like four days. Yeah. We’re going to be out in Western New York in like four days. We just bought a bed and breakfast out there, so we’re excited to check that out.
And then as soon as I get back, we’re actually going to be walking the Big Bear Resort that we have under contract with our contractors so we can start getting the bids together. And then after that, we leave to Denver for like three days for the Rookie bootcamp. I’ll barely be home over the next week, but it’s all for a good cause.

Ashley:
Yeah. And actually, Tony, since we’ve been recording this podcast, I mean, a ton of snow has accumulated outside. So hopefully by the time you get here it’s all melted.

Tony:
It’s melted, hopefully. Fingers crossed.

Ashley:
Yeah, yeah, yeah.

Tony:
I’ll bring some good California weather with me.

Ashley:
Yeah. Today we have a very special guest on. Tony, who is our guest today?

Tony:
Today we’ve got none other than my partner in Alpha Geek Capital, Mr. Omid Tehranirad. Omid, actually Sarah, my wife, they’re cousins, but he’s the third leg of our tripod when it comes to running Alpha Geek Capital. And he just recently quit his job, so we kind of talk about his journey of going from … He was at the same company for almost 18 years, and kind of taking that leap from doing that to coming full-time with us in the business.

Ashley:
Yeah. I think, yeah, we touch on that for sure, him quitting his job, but also go into partnerships and how you guys have structured it, how you guys kind of started out and also what it looks like now, what are the roles and responsibilities.
If you’ve been thinking of getting a partner, this is a great episode to listen to as to how they structured their partnership, how they keep the lines of communication open, alignment, everything like that you need in a good, solid partnership. Omid, welcome to the show. But before we really get into anything about you, tell us all the dirty details about Tony as your business partner. We want to hear it all.

Omid:
Man, oh, I got so much to share. I can’t wait. I don’t even know where to start.

Ashley:
Yeah. Omid, well, go ahead. You could start with yourself. Start from the beginning of your real estate journey. Tell us a little bit about yourself and why you even decided to get into real estate.

Omid:
Sure, absolutely. I’m first generation, so my parents both came from different countries. Very different backgrounds, but I think the common values that they had were, “Okay, you’re going to pursue that American dream.” So that was, “Go ahead and seek out. Get good grades. Go to college. Get a good paying job. Buy a house. Have some kids. Retire at 65.”
And so fast forward, I got my job, I got married, I bought my house. I really felt that there was a sense of something that I was missing. And so I had worked this corporate job at the time for 16 years. I had excelled in the job, I had moved up. And at some point I decided, okay, I needed something else, or what I was doing wasn’t really fulfilling me, and so I started kind of looking in other places.
Just like everybody else, I came across BiggerPockets, started studying, and somehow I came across Tony. I don’t even know how this happened. Yeah. The power of social media, just hitting a button saying I liked something that David Green posted. And this was around the time when I was getting more serious about investing.
And so fast forward, invested as an LP in apartment syndication on a couple deals, mostly investing in short-term rentals. And quit my job, and now I’m here talking to you guys, which is bizarre. I would’ve never thought that in a million years I’d be on a show with you guys.

Tony:
Can I give the back story? Yeah. Omid is, he’s my business partner, but he’s also my wife’s first cousin. Me, Sarah and Omid were like the three-legged horse that runs Alpha Geek Capital. Obviously Sarah and Omid knew each other, they’re family. And Sarah and I, we’ve been dating since we were 17, so Omid and I have seen each other in family parties and things like that.
But I wouldn’t say that we were ever super, super close before we started investing together. And what Omid was talking about when you mentioned the social media thing is rewind to 2019. This was before I had my first deal. And Omid and I were kind of in the same space. We were both separately educating ourselves about investing in real estate.
And it was actually David Green from the OG Podcast. I was on his Instagram profile, he had posted something, I clicked through. On Instagram it shows you followed by X, Y, Z, and one of the people’s names was on there was Omid, and I was like, “What the heck?” I was like, “I didn’t know he was into real estate.” We started talking and finds out we’re both trying to do the same thing, and actually pulled it up, Omid. I pulled up the email.
On October 15th, 2019, at just before 11:00 PM, I sent Omid an email and I said, “Hey, I know we had been talking about maybe doing a deal together, but I got this deal. Do you want to partner on it with me?” And he replied in like, I don’t know, three minutes and he was like, “I’m in.” And that was the start of this long relationship.
But last thing, right? The funny part is that, that email that I sent, that was the Shreveport house that we ended up losing $30,000 on. So not the best start to the relationship, but it worked out.

Omid:
I think really the takeaway of, I think, with that was just more like it was really a stepping stone just to get our feet wet. And I know Tony’s message is often just take action and just kind of … You won’t know until you actually start kind of getting involved in some of the day-to-day activities. That led us to wanting to seek out apartments indication, to meeting, networking with a bunch of people that eventually led us to short-term rentals.

Ashley:
Omid, how did you guys structure this partnership? And did it take a lot of negotiating, or did you just say, “Well, let’s do it 50-50, because we’re each going to put in half of whatever that half is, money, energy.”? And did you have roles and responsibilities to find? Kind of go through what that structure looked like in the beginning, and also, have you made changes to that since then?

Omid:
Yeah, that’s a great question. I think we just kind of went in there blindly to a degree, right? I think sometimes I am just like … I don’t say spontaneous, but I just have an idea and I don’t know necessarily how I’m going to do it. We’re just going to kind of work it out along the way. I knew that Tony’s skillset complemented mine.
In my line of work before we did DiSC profiles, and so I would kind of learn through interacting with people, “Okay, this person is a analytical person.” And so for me, being more of a … I take action, but I don’t necessarily look at the details as much. And I know Tony is more of a analytical look at the details, so I was like, “Okay, he’ll complement my skillset. We’ll figure it out. We’ll make it work.”
There’s not that much risk in it per se, because there’s no money out of pocket at the time. I mean, at the time it was, okay, this was a bur where the lender funded the rehab portion as well, so I was like, “Okay, it’s not that much risk. I just want to learn, and I feel like this is a great opportunity to learn.” That’s kind of how we initially started.
And I think over time, as we’ve kind of completed different ventures, we’ve more clearly defined things along the way. But I think that’s something that we’ve just kind of figured out over time.

Tony:
Yeah. And actually really quick, I think that’s part of the reason why Omid and I work so well together, is because we’re both, in some ways, we’re like … What’s the saying? Fire, aim, shoot, or whatever. We’ll shoot first and kind of ask questions later, kind of guys, and we’ll both kind of go with the flow. I think that’s what made this partnership so successful is that we’re similar in that way.

Ashley:
When you guys structured this partnership in the beginning, was this like, “We’re just going to test out one deal,” or, “Let’s go and see what other deals we can find right away.”? What did that kind of look like?

Omid:
There wasn’t even really clear dialogue around where it was going to evolve. It was just more like, “Hey, let’s just do this and see what happens,” and that was it. And then after that, it was I just started calling him partner and then he’s like, “Hey, there’s this Black Friday deal to this Rod Khleif event. Do you know who Rod Khleif is? And are you interested in multi-family?”
I’m like, “I don’t know what you’re talking about, I don’t know Rod Khleif, but if you’re into it, I’m into it. I’m going to buy the ticket. Let’s go together and let’s kind of learn along the way.” For us, it was just more like, “Okay, this is a journey, and we’re just going to kind of figure it out,” and that’s kind of what we did.

Tony:
That event was super, I think, critical to our partnership as well, because we walked away from that event, I think, with a better sense of what we wanted to do as a partnership. And it was apartment syndication, that’s what we were initially planning to do. That didn’t work out, but it led us eventually to the short-term rentals.
But I think that spending three days together at this event, soaking in all this information about real estate investing really laid the foundation for everything we built from there on out.

Ashley:
Yeah, it gets you all hyped up and motivated together.

Tony:
Yeah.

Omid:
Yeah. Ironically, I mean, we’ve still talked to some of the same people that we met at that event, and we’ve been on parallel journeys with short-term rentals. And even just relationships we built through like a coaching program we joined, I think it all allowed us to kind of learn along the way and to kind of shorten that learning span for us to kind of invest, or just understand just the different spaces and niches in real estate.
Because I think one of the biggest things that’s like … I think we have a very big threshold for discomfort. For me, just throw me, kind of like what Tony said, throw me in anywhere, or Tony, I’m just going to kind of figure it out and learn. And I don’t mind spending time to learn it and master it. And then it was like the education piece. So learning education about whatever the particular niche is.
And are we interested in cash flow and appreciation or depreciation? And all those things we kind of learn along the way. So just a bunch of different items and then identifying the niche. There’s so many. I think you go to these presentations and you are like, “I want to do this and I want to do that,” but you don’t really realize … I think it’s hard to kind of narrow down once you’ve been presented so many opportunities, okay, what actually works or what fits your skillset, or where you are in your current real estate journey.

Ashley:
What are the different roles and responsibilities you guys have in your organization now before we kind of get any further?

Omid:
Yeah. Currently, I tag team operations with Sarah. Sarah and I both do operations, which that includes communication with our handyman, cleaners, addressing anything guest related. Also, I do guest relations, investor relations. We have the funnel of the Alpha Geek website and it leads to a calendar, and then essentially I’m the guy.
I told somebody today I’m like the chastity belt. You have to get through me to get to Tony and Sarah. I’m like the first layer of protection in a way. But I’m also the guy that just kind of assesses, “Okay. Is …” I had a call today, and somebody filled out a partnership or they’re interested in partnership. They don’t have enough funds, but they’re also interested in learning.
And I know you guys always talk about how can you bring value. This person had a lot of analytical skills. We have an opportunity with acquisitions. And so we just started talking and I loosely said, “Hey, we may have an opportunity,” and he was all in and he’s going to send me his resume. But I think it’s just being able to identify parts of our business and where I can fit them in the business. But primarily, yes, the investor relations is the role. Yeah.

Tony:
Omid, you have no idea the floodgates you just opened up. You know how many people are going to fill out that form now [inaudible 00:14:15].

Omid:
Oh God. Oh God. I know. I know. Oh, hopefully not. Yeah. No. I mean, no, as long as they bring value. Yeah.

Tony:
And Ash, it took us a while to get to this point where we’ve got more defined roles. I think when we first started, we were all just kind of doing everything, and kind of stepped on each other’s toes and doing all these different things. But as the business has matured, we’ve really kind of settled into our different roles. Yeah.
Omid and Sarah had all the guest communications. Omid’s handling all the partnership relationships. I’m focused more so on the acquisitions. I think most of the deals we’ve found so far have been from me kind of doing a lot of that work. And then I handle a lot of the technology pieces, right? Like our property management software, our pricing tool, our email automation tools. We’ve really kind of settled into our groove now that we’ve been doing this for a little over two years now.

Ashley:
Going forward with your partnership, you guys are building your team. Can you kind of talk about, Omid, you touched it a little in the beginning, what your strategy is now and your focus now going forward?

Omid:
Yeah. I think specifically we’re continuing to grow the partnerships. And so Tony does acquisitions. For me specifically, we’re looking to identify people that kind of fit the culture. I think there’s a lot of investors out there, there’s a lot of people, there’s a lot of capital. And I think sometimes what’s challenging is we’re going to have a long-term relationship, so we want to be able to work with people that we enjoy being around and also to have similar goals in terms of like …
Yeah. For us, the partnership is a cashflow play to a degree. Is that what they’re looking for? And then in terms of what we bring to the table, we run a short-term rental from A to Z. And so is this more of like a passive investment for a partner? And that might be more ideal for us because then we can have autonomy, we run everything, and they collect their monthly check for the distributions that we provide.

Ashley:
You mean you don’t want somebody to come in and tell you how to do the layout and the design and what the paint color should be? My point is that you guys know what you’re doing, and that is what operator … If you are going to be an operator, you should know what you’re doing and what works, and you guys are confident in that. And that’s why you’re saying the ideal investor is somebody who wants to be passive and not to be hands-on, and make the color choices and things like that.

Tony:
Yeah. And I think we do involve them to an extent, right? When we’re designing the space, we’ll typically share that with them. Any major decisions around the property, we will typically go over that with them as well. But yeah, the minutia of the day-to-day grind, I’m not going to reach out to the partner and say, “Hey, how do you want us to respond to this message?” Right? There’s some balancing there.
But Omid, one thing you mentioned, and I want touch on this because I think it’s important to call out, is you talked about goals and things like that. And I think that’s one space where me, Sarah and Omid really kind of balance each other out, right? We had our annual planning meeting maybe like a month ago, right? Coming up on a month ago. Omid, share what your goal was and share what my goal was and share kind of like where we landed.

Omid:
Tony’s like, “Yeah. No big deal. I just want like $5 billion in real estate acquisitions over the course of the next 10 years,” and then I was like … And then of course Sarah’s like, “Wait, billion with a B or with an M?” And for me I’m like, “Let me look at my answer,” because we were sharing answers and I’m like, “Let me adjust mine.”
And I forgot where Sarah was, but I mean, I think for me, I was maybe like a hundred million or something pretty … I was going to say 500 million, but I had to change my answer because I was like, “Okay, let’s be more realistic, somewhere in the middle.” And I think we landed on 1 billion. But I think it’s just funny.
We talk about our partnerships, what are some pros and cons of partnerships and what are your pet peeves. And Tony’s like, what I love about him is that he always is setting the bar super high. And sometimes, for me, I’m always trying to assess, “Okay, is this realistic? Is he being crazy again?” I think that’s what I’m trying to assess. And I’m trying to find some middle ground, I’m like, “Okay, this is more realistic.”
And then Sarah’s like, she’s just maybe on the other end of the spectrum a little bit, like, “Hey, let’s just do … You mean more work? We’re going to have more work? Is this realistic?” But yeah, no, I think it’s kind of fun to kind of have those discussions to kind of figure out what makes sense based on goals and seeing where we land.
I mean, a great example of that was, and Sarah likes to share this story, where she … Tony told the realtor after we closed on the first Joshua Tree property, “All right, we’re going to close one per quarter moving forward,” and then the Joshua Tree realtor was like, “What?” He just had this reaction like … And his personality, he’s like … Can I use the B word? Is that allowed? He has a very strong personality and his reaction was just like … He’s very sassy. That’s a more PG term. He’s more sassy.
But fast forward and we were able to close, I think, one a month or something like that. We’re able to kind of go beyond. I know you guys talk a lot about mindset and limiting beliefs, and I think sometimes we get caught in that. For me, I was like, “Okay, I have my one short-term rental in Tennessee. I’m good. I’m done,” and then Tony a month later was like, “Hey, what about Joshua Tree?” and then I was like, “Oh, I don’t like Joshua Tree. That place is not interesting to me.”
But again, that was kind of me rolling with the punches, I’m like, “All right, let’s try it.” And it was already an existing Airbnb, so there was a little bit less risk. It was already an established property. But this property was producing, I think it was like 30,000 gross. And I mean, if we would’ve kept it, we ended up selling it, but if we would’ve kept it, that easily would’ve been a hundred thousand dollars grossing property. That’s the irony.
And Tony doing the research on Joshua Tree and me trying to maybe … Sometimes we got to be aware of our biases of like, “Okay, this may not be a place I may want to travel,” but the data proves that there’s a huge demand. And so now it’s changed my attitude around, okay, just because maybe I don’t like this particular vacation rental market, it may not mean that it’s in high demand. I’m going to default to Tony. He’s the geek when it comes to software, and it’s like he busted out all this data and I’m like, “Sold. Sold. I’m good. Okay.”

Ashley:
He’s a lady in the streets and a freak at the spreadsheets.

Omid:
Yes. Yes, yes, yes. Absolutely. Yeah.

Ashley:
Okay. Before we move on to a different topic, Omid, I just have to ask, and Tony too, do you guys have weekly calls? How are you guys staying intact as a team? What does that look like? You had your annual meeting. Do you have quarterly meetings? Is it you guys are just constantly texting each other? What are your lines of communication like?

Omid:
I mean, you can’t text Tony, because you’ve seen his phone. I mean, I don’t know if he ever sees it or not. I mean, I know Sarah’s his chastity belt right, for messaging.

Ashley:
I actually message her. I had a question about Airbnb locks the other day, I just text her to ask.

Omid:
Yeah, of course. Yeah, it’s funny because it’s like, okay, if I need something done, I’m going to do the group text that includes Sarah, then I know she’ll tell him. Because sometimes it’s like, “We need these docs signed. Where’s Tony?” and I’m like, “I don’t know.” I mean, I know, but I don’t know. I’m like, “Okay, he’s not going to respond. Let me just tell Sarah to tell him to sign the docs.”
Tony’s version of yelling at you is basically he’ll sign you a task, right? Does he get upset? I don’t know if he ever raises his voice. He just does like … He kind of squints his eyes and then he just kind of looks to the side. I don’t know if you’ve ever seen those videos with him and Sarah. He’ll just kind of look to the side and that’s his version of like, “I’m pissed.” I don’t know if he’s done that to you yet, but if he does, that’s his signal.

Ashley:
I’m definitely going to notice now if he does. That’s the signal itself.

Omid:
Yeah, that’s signal. I interpret like, okay, you send me a task, uh-oh, I must not be doing something right. But yeah, we use monday.com, and that’s kind of our version. We originally were using Wrike, we’ve transitioned to Monday. We have kind of a combo of Monday and just text messaging. I think we use Monday just overall kind of like action to dos. And if there’s anything that needs a more immediate attention, we’ll just send messages, just text message.
And I feel like I’m privileged because he responds to mine sometimes, so it’s pretty good. Yeah. No. But yeah. I would just say it’s a combination of those things. And Sarah and I were very late adopters to Wrike, so Tony would yell at … Again, not yell at us, he’d do the side eye thing. And it would just like, “Hey, can you guys look at your task?” And we’re like, “What task? Oh yeah, Wrike.”
I think that’s the way he’s very organized, and let’s say Sarah and I maybe are a little more scatterbrained with some of those things. We’re very task-driven, but I think he keeps us organized. Now we’ve been better adopters of Monday and that’s allowed us to stay more organized. Especially as we’re scaling, we have to. There’s no other way other than to just leverage a system so that way … Because we’re including more people as we are starting to grow.

Ashley:
Omid, I hate to burst your bubble, but Tony actually has an alert set on Monday to remind himself to text you every once in a while just to check in, and it’s actually gone off while we’ve been on the podcast of our show.

Omid:
That’s awesome. I love that.

Ashley:
Okay. But I really want to get into the exciting part and one of the biggest reasons we’ve brought you on today. We had my business partner, Daryl Clinch, on not too long ago, talking about him quitting his job, and-

Omid:
I saw that.

Ashley:
… now you have quit your job too. So congratulations.

Omid:
Thank you so much.

Ashley:
I think it was maybe a month or maybe six weeks before you actually quit we had been in the Smoky Mountains together. And I have to say, if you knew you were going to quit your job then, you did not show it at all to me. I was shocked when you announced it and you were talking about how you’d eventually like to. Congratulations.

Omid:
No, thank you so much. For me, it was just like so … I was almost in denial. Because I was just so used to the mindset of I wake up, I do my job, I go home, I collect my paycheck. And I think so many people get into that routine and they’re afraid to make that decision. Tony approached me. It was actually at the BiggerPockets event in New Orleans.
He approached me, caught me completely off guard. And I didn’t know what to say at the time, I was just like, “Um.” He must have planned this way in advance because he’s like that. He already has it all planned out, like a mind trick. He just mind tricks on me. And so I was like, “Oh. All right.” It’s the same reaction I had to every deal we’ve done. “All right.”
My wife, she was there at the time ,and I think she was very supportive. After I committed to it, I started doing the math in my head. I know in Daryl’s episode, you guys kind of talked about that. When he was presenting it to me, I was doing the math in my head, I was like, “Okay, this is my gross income. This is my net income. This is what I contribute for my 401(k)”. I had a six figure job. And then I contributed like 20 something percent a year to my 401(k).
With the company match, it was like probably 30 plus K, 30K before compounding. Every year that would be contributed to my 401(k). My original plan before Tony approached me was, okay, I was 40 at the time. When I hit 45, I’ll have a million dollars in my 401(k). And at that point I feel comfortable where there’s a safety net and I’ll walk away from my W-2 and do anything I want.
I mean, at the time I was like, “Okay, let me get more involved in short-term rental.” I had a five year plan. Fast forward, that was probably, what, a year and a half after getting involved in short-term rentals that I ended up putting my job. And I think that what pushed me was, one, Tony, but two, thinking about all the things that I’ve always wanted to do, but was too afraid to do.
And I think hopefully this speaks to a lot of listeners. When you think about wealth, wealth a lot of people define it as financial wealth, but they don’t look at all the other things. You see these TikToks and it’s like, “The new wealth is time and experiences.” But that really speaks to me because I think for me it’s just okay. I feel like I have all the basic necessities. And so there are other areas that I really want to kind of work on. The time piece, so having the time wealth, physical wealth, so just being in better shape.
I see so many people that were in corporate jobs, a lot of my peers, and they’re my age and they look like they’re 50. I’m trying to do the opposite. I’m like, “How can I stay looking like Tony and Sarah?” And so hopefully if I’m just around them, it’ll just force me to look like them. I don’t know. I have my black shirt by the way. I have my black shirt. I never liked wearing black shirts, but Tony said it’s required now that I’m a part of Alpha Geek. I don’t know if that …

Ashley:
That’s the uniform?

Omid Tehranirad:
That’s the uniform. It’s like the black shirt. Yeah. But yeah, so financial wealth, social wealth, time wealth and physical wealth, those are the four. And a lot of times people trade their time and their physical wealth for that financial piece. And I had friends who were attorneys, who were doctors and they have no time for their families, they don’t go to any of the … They can’t coach. They can’t go to any of the games. They’re consistently tired.
I thought about it and it’s like, “Okay, I get my time back.” And fast forward, now I’ve been able to coach. I was doing orange theory and I was the … They had this like dry try competition, which is basically like a overall fitness competition, and it was like I had the top time for males in my gym. And I would’ve never done that under the circumstances I had before, because I was able to commit to it every day.
And then I’ve been able to drop off my kids at school, pick them up and drop them off. Before COVID, I never did that once. And I missed out on so many years of that and being able to do that. And now there’s just so much upside in terms of opportunities long term. I was willing to trade my salary for those things. And I think I was afraid. I was afraid of giving up that salary, but I think in the long run, I’m going to be a lot more happy.
I already have way more flexibility. What I want to do is be able to inspire others to do the same, because I think so many people are stuck in the they want to work, they’re afraid to walk away from their six figure job. They’ve done all the right things, but they’re just afraid to take the risk or walk away from a six figure job.

Ashley:
Omid, you took a pay cut, correct?

Omid:
Yeah. Yeah, I did take a pay cut.

Ashley:
Yes, okay. Were there any things that you had to cut out of your life or that was your extra money anyways, or did you have to kind of rearrange your budget that you have for your livelihood?

Omid:
I’ve always consistently lived way below my means, and I’ve always just needed a few things, the gym, the beach, somewhere to hike, hang around the kids, some good food and that’s it. I don’t need a lot of fancy things. And so I think for me, I’ve been able to just maintain that lifestyle living. I could probably live off of a … I don’t know what income. But the way I structured even my pay, I’d have increases in my pay, but I always lived off of 4k net income.
So that was no matter what my income was, it was always my paycheck was every month was $4,000. And so even though I was making six figures, even though I was getting bonuses, it didn’t matter because I put all the additional income into my 401(k) so that I could compound it faster at a younger age.
That’s the way I thought about it. My 401(k) became I’m doing the same pay now, but my 401(k), instead of it being invested in stocks, it’s now invested in real estate. Through acquisitions that we have, I have a percentage of ownership and that’s allowed me to still kind of grow, I guess, my retirement portfolio. And that’s how I’ve been able to kind of justify it while getting back kind of some of those other things.
I feel like financially I’m in the same position, if not better. Socially, I always want to be active in social media, but I never had time. That was like a very low priority item. And when I was working my W-2, it required a lot of hours. And so now I’ve been able to allocate some time for that. The time piece with family. Traveling, I’ve traveled more in the past six months than I have in the past two years.
Every month, there’s where we’re going somewhere. Shout out to my wife for allowing this, for enabling me to go and travel, because she gets comments all the time from people, a lot of naysayers who say, “Oh, he’s gone again. Oh, okay.”
And I feel like they’re stirring the pot in a way, but I think sometimes people don’t necessarily understand kind of what’s going on or what sort of dedication I have to kind of like the long term play in terms of like the real estate piece. Because maybe right now today the income’s the same, but I think you look fast forward five, 10 years and there’s a larger trajectory for just our financial independence.

Tony:
I mean, a couple things I want to highlight, right? When you look at going full-time into the business, there’s the benefits that you mentioned obviously. I think another big one is that you accelerate your ability to scale, right? When we first started Alpha Geek Capital, the only person that was full-time in the business was Sarah, my wife.
And she was really just focused on the guest communication side of things, right? But she wasn’t focused on growing the business per se. And then when I went full time at the beginning of 2021, we went from … We had two, almost three units when that year started, and we ended that year with, what, like 11 or 12, right?
We scaled a ton in those 12 months. And now we just finished Q1. And with you being full time, I think we’ve already closed, or under contract we had like nine properties already this year, right? So it’s like, as you add more fuel to that fire and you free it more time by going full time, it’s like an exponential curve that you’re on when it comes to the growth.

Ashley:
Yeah, it’s like taking that short amount of time that you’re going to be taking that pay cut so that you can build up and get to that replacement salary. And let me ask you this, so at your old job, was it a set salary that you knew how much you were getting every month or was it like commission based where it changed? And then how does that compare to how your pay is now? Did you kind of have to adjust when income was coming in and kind of when you had to pay your bills and things like that?

Omid:
Yeah. Nothing’s really changed in terms of my lifestyle or income. I think for me it was essentially at a fixed salary and then there was a bonus structure. There’s a bonus depending on how the company had performed. At the end of the year, you would see anywhere from like 20, 15 to 30K bonus, I would say. That bonus is nice at the end of the year, I mean, then you can kind of use that to invest or whatever it is that you want to do.
But in terms of the fixed salary, I’m contributing a big percentage into my 401(k). I had the fixed amount every month. In terms of the fixed amount, it matches. Nothing has really changed in that sort of piece. And what was the question again?

Ashley:
Well, I think it’s not really going to apply to you, but what would be your advice? You seem pretty money savvy. What would be your advice to somebody who’s going from a fixed salary to, okay, now they’re getting … They have multiple income streams from their different properties or something they’re going to be living off that might change like, “Oh, this month we have to replace a hot water heater. Your cash flow is not going to be as much,” or things like that. What would be your advice to kind of plan that out? Because that can be scary, getting that fixed income every single month going to a variable income.

Omid:
Yeah, absolutely. I think we’re very fortunate in terms of the cash flow for the short-term rentals. But I think it’s just identifying what you can live off of and setting a reserve. I mean, we have a reserve kind of set aside just for anything that can happen. And I know people’s idea of reserve varies.
Some people aren’t as liquid. They put all their money into stocks or invest, whatever type of investment. But I think the idea is, for us, what we felt comfortable with was, okay, between my wife and I, we had four different short-term rental loans in our names. In terms of debt to income for traditional loans, we weren’t going to qualify for any more loans that were traditional.
We’d have to go into like a DSCR loan or some other commercial loan product. At that point I felt like, “Okay, the leverage of the W-2 income and the salary, it didn’t have as much benefit by being in the job anymore.” I think the name of the game for me was cash flow. How can I create cash flow that’ll replace my income and through these assets?
And so the niche that was identified was short-term rentals. And so with that, just you can walk away with one or two. It doesn’t require that much. And so it’s just a matter of finding the right location that works for you. And do you have the appetite to run your own Airbnb business? Some people don’t. Yeah, some people don’t have the personality or the time or the know-how.
And not everybody has a Tony J who just bust out data in their sleep. But maybe it’s finding a partner that does. I think that’s for me what I was able to do was, “Okay, I can do operations. I can talk to people. I can build teams.”
Now, if somebody’s in that same position and they have capital and they have a good paying job, find somebody who’s good at systems, who likes data. And go to these Facebook groups, go to local meet up events. And there’s so many people who are just wanting to get their feet wet and just need the one person to maybe partner with.

Tony:
Yeah, I think the other thing I want to comment on is how we kind of manage cash flow, because we do it, I think, a little bit differently than other real estate investors. For the Rookies that are listening, Ashley and I interviewed Mike Michalowicz on one of our Rookie Replies. I think it was episode 132.
And Mike, we interviewed him about a book called Get Different, but Mike also has a book called Profit First. And in that book, Profit First, he breaks down how entrepreneurs should manage their cash flow. It’s a relatively quick read, but a really impactful one if you implement it. And that’s what we’ve done in our business.
Every month, we don’t really look at like … I mean, we look at them, but we don’t really manage our distributions based on the net cash flow, right? If a property nets a thousand bucks, we’re not going to look at that as a money that we distribute, instead we use a percentage of the bank balance every month. Every month on the 25th, I go into each one of the accounts for every one of our properties and I see how much capital do we have available in the actual bank account.
And then we have different percentages set up for different ways we allocate the funds. A certain percentage gets held back for operating expenses, another percentage gets held back for taxes, another percentage gets held back for our salaries and then another percentage gets held back for profit distributions.
And so we take a small salary every month for running the business, but then throughout the quarter, we have this big profit bucket that’s building month over month. And at the end of every quarter, we take a profit distribution as well. So that’s kind of how we’ve managed our cash flow as well.

Ashley:
I think that’s great you guys.

Omid:
What he said.

Ashley:
Thanks for sharing that. Yeah. Omid doesn’t have to worry about that end of thing. It just shows up in his bank account.

Tony:
He just gets a check. He just gets a check. Yeah.

Ashley:
He doesn’t know where it comes from. Yeah. Did you guys want to share a deal with us at all for your deal review?

Omid:
Okay. Yeah. So-

Ashley:
Go ahead. I’ll let you guys tag team it.

Omid:
… Can I deal with La Flora?

Tony:
Yeah, whichever one, man. You pick one. Dive into it.

Omid:
Yeah. Okay. Yeah, La Flora. This is one, it’s off market deal. We have a relationship with a builder. He essentially comes to us and says, “Hey, I have a tiny home in Joshua Tree. Are you guys interested?” We say yes. I think the purchase price on this one was … It’s a 400 square foot, tiny home in Joshua Tree. 333, I think, was the purchase price on it.

Tony:
But, Omid, before you keep going, I think you glossed over that. Dive into that a little bit, right? One of our secret weapons in Joshua Tree has been our ability to get off-market deals. We’ve gone direct to seller. We’ve worked with wholesalers. But one of our unique strategies is going direct to builder. Omid, maybe if you want to talk about how we built that relationship and how beneficial it’s been for both parties.

Omid:
Yeah. Tony had identified this tiny home in Joshua Tree and I was not a fan. I was like, “How much is it per square foot? And what’s so big about these …” Again, talking about biases and it’s not a good property. And of course, trust the process. Fast forward, he’s like, “Yeah, let’s make an offer.”
I normally do, “Okay, let’s just do it.” And so I went ahead and I approached the person who was selling the property, who was also the builder. And so I was trying to ask a lot of questions to identify specifically how we could get this one under contract or how we could be competitive. I asked a lot of questions. I realized he’s a mass builder. He wanted somebody who can close quickly, and he didn’t want a lot of nonsense.
Not too many questions, don’t bother him. His time was very valuable. And he really had zero patience for people in general. And he wanted to build a long-term relationship because he’s a builder. He wanted also be able to build on the particular lot or on a future lot. I essentially listened, identified what was important to him, and I told him, “Hey, look, we’re short-term rental investors. We’re looking to scale. We’re interested in your product. What is a number that would be competitive for us to be able to not only secure this, but also buy future deals?”
We proved that we could close, so he accepted our offer. I think it was asking price. We offered asking price, and accept the offer, we closed right away, no issues. And then fast forward a couple months and he had another property. And so he essentially at this point just started approaching us and said, “Hey, look, I have this property.” Ironically, this one property led to another three, and then there was additional.
I think we had seven under contract with him, and then now we’re going to be at 11 tiny homes with him, particularly. The irony is these tiny homes, there’s such a high demand, but this is the challenge for somebody that wants to buy these. One, typically, you’re going to have to hire a builder. The turnaround time is, what, a year from planning.
Nobody’s going to sell these because they spend so much time into engineering. And then the few that ever go on-market sell way above market. We’re able to get them at pretty much market price and off-market. He now comes to us. Few things, he likes that we close quickly, he likes that we are low maintenance and we have good communication with him. He’s kind of a grumpy guy a little bit, and so just like how can we keep things positive, but maintain a positive relationship? It’s worked out really nicely.

Tony:
It’s been mutually beneficial, because for us, Ashley, we have a very consistent source of deal flow for a property that we know has performed well. It’s easier on his side because he doesn’t have to worry about listing the property, dealing with different sellers or someone getting under contract and then backing out.
It’s really been a mutually beneficial relationship. And like Omid said, by the time this episode airs, we’ll have bought 11 houses from this guy and they all perform really well. Omid, sorry, I didn’t mean to get you off tangent there, but if we want to go back to the floor and maybe walk through what we picked that one up for.

Omid:
Yeah. This one we purchased, I’m going to say Q4 November-ish of last year, I’m going to say October, November-ish. It’s all becoming a blur. But 333, 10% down loan. It required about, what, 20K furnishings plus design, et cetera, et cetera. Total out of pocket is going to be probably close between like 65-ish, I’m going to say, with closing costs.
This particular property has actually become our best performing property. This is supposed to easily gross maybe 110 to 120. And the price point being 333, you can’t find properties at that price point for that type of gross. Usually you’re going to have to spend 600 plus to get that sort of gross. And 600 is on a conservative side. Usually it’s more like 700, 800 to get a gross of 120K.
But ironically, Sarah, she designed it and I was not a fan. I’m always not a fan. It is kind of funny, but I wasn’t a fan of her design. She’s like, “Hey, what do you think?” And I was like, “Oh, that’s cool. It’ll either do really well or it’s not going to do well.” I think that was my reaction. I think that was my response.
And we agreed to proceed forward with the design, and it became the most popular design of all our tiny homes. It’s actually now become our consistently most sought out tiny home. And I think it’s booked out two months in advance or so, give or take. And we got to raise rates clearly, because it’s like we’re not charging enough. But yeah, it’s doing well. Cash on cash return is probably 50 plus percent.

Ashley:
Omid, I think that’s a really great point to touch on, is that you have these tiny homes that are all the identical layout, but it’s the design. And the design has made such an impact on that one that it’s outperforming the other one. I think that a lot of people, and even I did this for my first Airbnb, was go and, “Hey, who has furniture laying around in their basement that they don’t want anymore that I can throw in my Airbnb?”
And you just prove that taking the time to actually design it and add that aesthetic to it can really give you a way better return than just throwing in mismatch furniture that you find on the side of the road or from your parents’ basement.

Omid:
No, I think that’s a great point. Because when we look at the portfolio itself, we’ve optimized and kind of made adjustments along the way. Because we’ve had the same model, we’ve been able to kind of get feedback from guests and even from social media. And we’ve been able to kind of keep making different adjustments along the way, and I think we have a more polished product moving forward because of it.
But we also, when we launch these, we are launching them more polished than they were initially. I think our very first one, I think we initially looked at it and we were like, “Okay, this is going to gross about 40K.” And then Tony’s like, “Oh yeah, we’ll do 60, no problem.” And of course I’m a skeptic and I’m not believing you, I’m like, “There’s no way this place is going to do 60.” And we’ve made modifications along the way.
And I think what happened is like during summertime, which is I would say like the low season because of the heat, we really had to look at, “Okay, how can we make our property stand out so that way we can make it gross even during low season?” We made a few adjustments to the property. And at that point from September on, every month the growth kept going up to now it’s averaging close to nine plus K a month since we made the adjustment to that property.
This property will do 100K plus. And the irony is, again, limiting beliefs and thinking, “Oh, okay, this can only do so much.” But I think just continuing to do your education, receive feedback from your guests, make the adjustments and try to optimize the property so guests want to come back.

Tony:
Awesome brother. Yeah, we’ve had some definite success with those tiny homes in Joshua Tree, and appreciate you, Omid, for building that relationship, man. I want to take us to the Rookie request line. For the Rookies that are listening, if you would like your question featured, give us a call at 8885 Rookie, and maybe we’ll play your question on the show. Omid, partner, are you ready for today’s question?

Omid:
Oh, man, I don’t know. I’m not prepared, but let’s try it.

Tony:
All right. Today’s question is from John from Fairfax, Virginia, and John says, “I have a question about putting offers on deals. You guys talk a lot about putting offers on, but not on having the financing lined up, and I’m wondering how do you do that. How does a seller have the patience to get you to put the deal together? You know it might take some time to get partners or a bank to get approval on the deal, so what’s running around my head is how are you making offers without having any financing lined up right away. Love to hear you guys talk about that.” And that’s funny, Omid, because we do that all the time, right? We’re like, “Just get under contract and we’ll figure it out.”

Omid:
Yeah.

Ashley:
You want to control the deal.

Tony:
Yeah.

Omid:
Yeah, very true. It’s going to completely vary depending on your local market and what the market environment is, and then building a relationship with your realtor, what sort of experience you have. If you can’t get pre-qualified, I mean, you should definitely get pre-qualified to get some sort of loan, even if it’s a hard money lender.
Sometimes you may not, let’s say, not qualify for a traditional loan. If I build a relationship with a hard money lender where you get something, that’s a great place to start. But I don’t know. Tony, do you have any … I feel like you always have a great answer, so I want to-

Tony:
Yeah. I mean, I think the only thing I’d add is that whenever you put a property under contract, you always have your financing contingency, right? Worst case scenario, if you’re not able to figure that out within that timeframe, just make sure you cancel the contract before your financing contingency. But I would try and exhaust every option before you have to cancel.
Because I think the second you start canceling on people, that’s when you kind of build the wrong reputation. I would use the financing contingency if I needed it, but first, yeah, hard money, private money, partners. If it’s a good deal, I’m going to be going to everybody that I know saying, “Hey, please, please, please work …” Not even please, but, “Hey, here’s a great opportunity. Work with me on this deal.”

Omid:
… Yeah. I think we went to a Ryan Pineda event, and then the quote they used was, “If it’s a good deal, money will follow.” I think just find that good deal and money will follow. And that’s whether you post it on social media, whether you’re posting it in local groups, there’s always somebody who has the capital who’s looking for that deal and they don’t have the access to the deal flow. If you can bring the deal, I’m sure money will follow.

Ashley:
Okay. Omid, I’m going to take us to our Rookie exam. Now, this is graded and this will actually be reported as to whether or not you stay employed by Alpha Geek Capital, so the pressure is on.

Omid:
I feel like I’m in college and I’m trying to get into some sort of like a Greek organization, and this is the hazing process, like-

Tony:
This is the hazing-

Omid:
… “Do I get accepted into the club or not?”

Ashley:
Omid, what is the return on investment, the ROI, based on the cash flow from the third Joshua Tree property you bought? The clock starts now.

Omid:
I’m going to say it’s like 100 plus percent.

Ashley:
Okay.

Omid:
100 plus. Yeah.

Ashley:
Yeah. Okay. What is one actual thing Rookies should do after listening to this episode?

Omid:
Yeah. Assess your threshold for discomfort. Because I think a lot of people, they get this idea, “Oh, I’m going to do this. I’m going to do this,” but then when they find out what it really requires in terms of the extra work and assess your threshold for the additional work. Are you willing to sacrifice maybe on the weekends, like not hang out with your friends? Are you willing to get uncomfortable? Are you willing to go to a network event and talk to people when you’re not comfortable talking to new people?
I think all those items are really big. If you’re married, is your spouse okay with you spending more time away from your family? And can your spouse maybe step up with some of those responsibilities at home? It’s all those little things that I think sometimes are overlooked before actually getting your feet wet into whatever it is that you want to do.

Tony:
Awesome, Omid. Question number two, what’s one tool, software, app or system that you use in your business?

Omid:
I have this one tool, and it’s called Tony J. Robinson. He’s like the software master. As long as you have a Tony J in your life, okay, great. Not everybody has a Tony J. But I think specifically for our line of business, Airbnb, our short-term rentals, it’s Hospitable.
And I know there’s different substitutes of that, but I think Hospitable really allows us to integrate pricing, messaging, gas, experience, communications all in one. That’s really a lifesaver. I feel like that allows anybody to scale long term. I would say if it’s not Tony, then Hospitable is a close second.

Ashley:
Where do you plan on being in five years? What’s half of 100 billion?

Omid:
Yeah. I feel like we had this discussion, because I feel like there was like a 10-year plan and there was a five-year plan. And in theory, what, half of that should be 500. But I’m going to say like 300 million in acquisition. Because I feel like it’ll kind of skyrocket faster as you kind of go towards the end of your journey, so I’m going to say 300 million in acquisitions. More time freedom, leveraging, just growing an organization. And so leveraging the organization and the culture to kind of build.

Tony:
Awesome brother. Well, as we round things up, I’m going to highlight today’s Rookie rockstar. And if you would like to be highlighted as a Rookie rockstar, get active in the Real Estate Rookie Facebook groups, get active in the BiggerPockets forums, slide into my DMs or into Ashley’s DMs. But today’s Ricky rockstar is Andre B.
And Andre says, “I caught the real estate investing bug a couple of months ago and have been hard at work since trying to secure my first property. Three contracts, two terminations post-inspection, I finally have doors 1, 2, 3, and 4 fully occupied with what seems to be great tenants.”
And this was a fourplex, all one bedroom, one baths. It was listed at 240, he was able to negotiate down to 210. And then after the inspection, got it down even further to 205. And right now the rents are … Or he’s going to cash flow about $351 per unit. Amazing job, Andre. Really proud of the work you did there.

Omid:
Andre, high five, man. That’s awesome.

Ashley:
Omid, thank you so much for joining us today. It was great to have you. Can you tell everyone where they can reach out to you and find out some more information about you?

Omid:
Sure. You can find me on IG, Omidtheradinvestor. So O-M-I-D, the rad investor. Or you can find me Alphageekcapital.com. And hopefully I’ll be launching my YouTube soon, so you can find me on YouTube, Omidtheradinvestor. Do I get a picture? Do people ever take pictures with you guys, like a digital one for their social media? Is that allowed?

Ashley:
No, we charge extra for that.

Tony:
Absolutely not.

Omid:
Oh, man. I’m just trying to fanboy a little bit since I’m on the stage with you guys. This is an amazing moment. My hair is like I got a haircut for you guys, just …

Ashley:
Actually, Omid, I already took a picture of us when we first started, actually before we even started recording. So don’t worry, I got you.

Omid:
There you go. Nice.

Ashley:
Well, Omid, thank you so much for joining us. And to everyone listening, if you guys have enjoyed the podcast and you loved Omid’s episode, maybe you actually have a similar story where you have learned from BiggerPockets and being able to quit your job, we would love to hear about it. Please leave us a review on Apple Podcasts or whatever platform you use to listen to podcasts. We’d greatly appreciate it. And also share the podcast.
If you know somebody that would benefit from getting started in real estate investing, please feel free to share the podcast to them. I’m Ashley, @wealthfromrentals, and he’s Tony, @TonyJRobinson. And don’t forget that you need to go through Omid, Tony’s chastity belt, if you’d like to talk to Tony. And we’ll be back on Saturday with the Rookie Reply.

The year was 1999. An exclusive group of multi-billionaires gathered in Sun Valley, Idaho, just like they do every year.

As usual, no reporters were allowed within miles of their gathering. This was a safe place for the wealthiest Americans to freely share ideas, strategize, and break from the rigors and pressures they faced the other 51 weeks in 1999.

But something was different this year.

People were whispering about one of their most revered members.

“Do you think he’s senile? He is almost 70 [years old], after all.”

“He’s lost his touch. He had a great run for about four decades, but he’s clearly fading into irrelevance.”

“The market has left his returns…and his old-fashioned thinking…in the dust. My high school grandson’s returns are three times higher than his.”

They were talking about Warren Buffett. And they were gloating about their massive wins from the run-up in tech stocks. Newer attendees like Jeff Bezos were celebrated while Buffett was discounted.

Buffett wasn’t ruffled. He knew what he believed, and he wasn’t about to trade decades of expertise and success through value investing principles to join yet another fad.

For Buffett, the issues surrounded the lack of actual value in the tech firms exploding in price. Companies like Amazon, Pets.com, and Webvan were the darlings of the S&P 500, yet, they had little to no profits driving their popularity.

Their popularity can also be called speculation.

Taxi drivers and college students were becoming overnight millionaires. Of course, many investment titans like Buffett were discarded as outdated relics of a soon-to-be-forgotten generation.

Time Magazine mocked Buffett that summer. It reportedly stated: “Warren, what went wrong?”

So how did Buffett respond? In his usual dry humor, he addressed the audience of doubters.

Buffett began by saying, “In the short term, the stock market is a voting machine, but in the long run, it is more like a weighing machine. In the end, the weighing opportunity wins, but in the short term, it will be determined by the voting chips. However, its voting mechanism is very undemocratic. Unfortunately, as you know, it does not certify voting qualifications.”

Elsewhere, Buffett said he preferred investing in Wrigley’s over tech. He said he had no idea where technology would be in a decade. But he knew how people would be chewing gum.

“Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it’s the lack of change that appeals to me. I don’t think it is going to be hurt by the internet. That’s the kind of business I like.”

Of course, we all know what happened. The tech bubble burst, about $5 trillion was lost, and Buffett landed on top, again.

When everyone is mutually rewarded from the market’s rise, expertise is no longer celebrated.

This is a phenomenon that raises its head late in boom cycles. This is not new. There are many examples in the past century:

• As reported by Time: “There is a famous story, we don’t know if it’s true, about how in the late summer of 1929, a shoeshine boy gave Joe Kennedy stock tips, and Kennedy, being a wise old investor, thought, ‘If shoeshine boys are giving stock tips, then it’s time to get out of the market.’ So the story says Joe Kennedy sold all of his stocks and made a killing, and maybe that’s the beginning of the fortune that made JFK president three decades later.”
• The stock market fell out of favor in the early 70s when I was a kid. The world ran away from the markets and shunned former experts. But this same world was quite different in the late 90s. Barnes & Noble’s shelves were bursting with books on trading stocks. I sold my company to a publicly-traded firm for a ridiculous multiple. Who needed experts when everyone was getting rich from the market’s bull run?
• Barnes & Noble’s shelves switched to millionaire landlord books from 2004 to 2007. Real estate experts with years of knowledge were ignored, and “Newrus” (my fun term for New Gurus) became celebrities. (Who didn’t know a fix-n-flip guru?) Then 2008 hit.

The Death of Expertise in 2022

So, what is going on now? Is this happening again?

I will say yes.

I know many people making a killing–millions of dollars–in real estate right now. Many of them were in high school, college, tech jobs, or engineering as recently as 2015. I applaud them!

I just spoke with a prospective investor who told me he’s made over $5 million in buying random parcels of land and reselling them a few years later. He’s a tech genius but only invests in real estate on the side.

Yesterday I spoke to one of our investors in Southern California. He told me the story of his family’s industrially zoned land near Los Angeles. He bought other family members out a few years ago when the land was worth $4 to $5 million. He just got an offer for $25 million, and his broker said he might be able to get $27 million. I’m so happy for him!

I applaud all of these investors! But there’s a problem.

Expertise is discounted late in cycles. When everyone is being rewarded relatively equally, it is hard to tell who the experts are. Therefore, it’s hard to know who to listen to and who to invest with.

How did this sound last time around? For those of us who were investing in real estate leading up to 2008, this is what we were hearing:

• “It’s different this time.”
• “This boom has now become the new norm.”
• “People are moving here for the lifestyle.” (Where was “here”? Everywhere. From Las Vegas to Buffalo, New York.)
• “Buy land! They’re not making any more of it.”
• “Everyone needs a place to live.”

In the Summer of 2005, the soon-to-be-nominated Fed chair, Ben Bernanke, said: “We’ve never had a decline in house prices on a nationwide basis. So, what I think is more likely is that house prices will slow, maybe stabilize, and might slow consumption spending a bit. I don’t think it’s [going to] drive the economy too far from its full employment path, though.”

In mid-2007, U.S. Treasury Secretary Hank Paulsen told Fortune Magazine: “This is far and away the strongest global economy I’ve seen in my business lifetime.” His brother, John, a true expert, was shorting the housing market and made a fortune in the next few years.

P.T. Barnum said, “Nothing draws a crowd like a crowd.”

Where is the crowd rushing right now? And are we living and investing in a time where true expertise is devalued, and hype is the operating principle of the day?

Howard Marks said the top of a bubble is reached just after the crowds think the bull run will go on forever.

But trees don’t grow to the sky.

Marks, a true expert, made much of his fortune in late 2008 at the other end of the spectrum: buying distressed assets when the crowds thought markets would decline forever.

In the autumn of 2008, a reporter interviewed Marks about his strategies during the free-falling market. He said their firm, Oaktree Capital Management, was buying up to half a billion dollars in assets per week. The reporter said, “Wait, you mean you’re selling, right?” Marks said, “No! We’re buying. If not now, when?”

True experts like Buffett and Marks are often busy going against the herd.

How Can You Get Burned When Expertise is Declining?

There are probably many ways. Just look online. Check out the thousands of “news stories” and opinions regurgitated as facts.

The internet has caused people to think they are more informed than they are. Users think they understand a topic by quickly searching and skimming often misleading headlines. Before the internet, rigorous study and deep research were required to develop a strong opinion on a matter.

Part of the problem is a society that has produced today’s education system. When everyone is rewarded equally, people don’t have to think critically and research deeply to get an A. But this lack of judgment doesn’t play well in the real world, and it can result in us treating non-experts as gurus.

When I was a boy…no, I’m not going to tell you how I walked six miles uphill in waist-deep snow!

We didn’t have rubber mats on playgrounds when I was a kid. Our incentive to master the monkey bars was to avoid a skinned-up knee or a broken arm.

When we increase comfort, we kill aspiration. I fear that a society that has protected our kids from potential pain (I’m guilty as a dad!) may have also protected them from the ability to reason deeply and clearly delineate risk and return.

(Some of the comments in this six-paragraph rant came from a review of Tom Nichols’ book The Death of Expertise.)

Rant complete.

I can see at least two obvious ways this could hurt your real estate career.

First, we all need to be lifelong learners. But I’m warning everyone to be careful who they are listening to. Look for true experts rather than Newrus.

Second, be careful who you invest with. You may passively invest in direct deals, turnkey homes, debt for house flippers, syndications, or funds. I applaud you. But I would warn you to do everything in your power to find the real experts. Put your money on them.

So, how can you tell if your “guru” is a real expert or just another Newru?

Identifying experts

Have typically weathered multiple up and down cycles.

Pay the price when they’re wrong. (They put skin in the game and don’t make a killing from non-performance-based fees.)

Anticipate change. They don’t assume the future is the same as the past. (Just look at interest rate declines over several decades, for example. Do you really believe that will continue?)

Look bad when novices soar but shine brightly when the crowds are in turmoil.

Invest in boring deals in times when others chase shiny assets.

Are comfortable with chaos.

Experts who play the long game will win in the end. Don’t yield your common sense and experience to Newru-Gurus.

Epilogue

There will come a day when expertise is celebrated again. We’re in a late-cycle phenomenon, and the current situation could signify a coming reversal.

Then expertise will be celebrated as it should be, and true experts will shine as they always do.

Many of the fallen will lick their wounds.

Some will vow to never invest in real estate again. Others will look for the next guru.

Prepare for a market shift

Modify your investing tactics—not only to survive an economic downturn, but to also thrive! Take any recession in stride and never be intimidated by a market shift again with Recession-Proof Real Estate Investing.

David Greene:
This is the BiggerPockets Podcast show 609. As far as practical advice for you on the next deal, don’t do it. Figure out a way to do it without a partnership. And if you have to have a partnership, don’t do equity splits. This is one of the reasons that in general, I don’t do equity, I pay people debt. What that means is people let me borrow money all the time and I just pay them a return that they know they’re going to get. And it doesn’t matter if the property completely falls apart, they get paid anyways. I don’t like sharing risk with people that I’m a partner with, because it ruins relationships, and it’s important to me that those relationships stay healthy.
What’s going on, everyone? My name is David Greene and I’m your host of the BiggerPockets Real Estate Podcast. If you’re not watching this on YouTube, then you don’t see the green light shining behind my head, but if you are, then you know what that means. This is another Seeing Greene episode. In today’s episode, I am going to take different questions from different podcast listeners or BiggerPockets members, and do my best to solve their problem, give them advice or help them scale their business faster, more safely, and in a better direction.
These episodes are specifically meant to teach you more about real estate by giving you my perspective. Now, I’m a real estate agent. I run a real estate team under Keller Williams. I own a loan company called The One Brokerage. I invest in short-term rentals, long-term rentals, multi-family property, commercial multi-family property, triple net property. I own note income. I flip houses. And I write books and stuff like that. So, I have a very well-rounded perspective that I like to share with everybody here. And the goal of shows like this is to take you deeper behind the curtain to see what’s really going on in real estate, rather than giving you the shallow answer that you can get anywhere else.
So, thank you very much for joining me. I really hope that you enjoy today’s episode. And if you do, please consider leaving me a comment on our YouTube page. If you’re listening to this on the podcast, that’s great. But when you get back to a safe place, if you’re watching this on a commute, please consider subscribing to our YouTube channel and leaving me a comment in the comment section, to let me know what you thought of today’s show.
For today’s quick tip, I just want to remind, registrations for BPCON are now available. This year, we’re going to be holding it in San Diego, and I want you to go, why do I want you to go? Because I want to meet you. Well, that’s not the only reason that I want you to go. I also want you to go because so many people get more involved in real estate when they develop an emotional connection to it. And in order to develop that emotional connection, you have to get involved. You have to get outside the realm of just being on the outside, watching, peeking in through the window, seeing what other people are doing. You have to get into the room and into the conversation, so you feel like you’re a part of it. BPCON is a great way to do just that.
So many stories have come from, “I went to BPCON, I met some people. I realized this wasn’t as hard as I thought. I bought my first property. I fell in love. I bought three more. Now I have more money coming in from rentals than from my job.” I cannot tell you how many times I have heard that same story, and I want you to be the next one to tell it. And if you’d like to register for BPCON this year, go to biggerpockets.com/events, and it will walk you through exactly how to do just that. Again, that’s biggerpockets.com/events.
All right, today’s show is fantastic. We talk about what is the best strategy in today’s market? That’s always a good topic. We get into what to do when you’re navigating partnerships with different priorities, as well as how to get closer to real estate when you can’t go full-time, and more. Lots of really good questions. This is probably my favorite episode we’ve ever done of the Seeing Greene style, BiggerPockets Podcast. I really hope you enjoy it. And most importantly, I need you to let me know in the comments on YouTube, if you did. So, enjoy today’s show and let me know what you thought.

Nicole Heasley:
Hi, David. My name is Nicole Heasley. I have been investing for five or six years. I have four deals under my belt, and I’ve spent years listening to the BiggerPockets Podcast. And I’ve heard you and Josh and Brandon talk a lot about moving into a career that has more synergy with my investment goals. So, I got licensed and started my career as a loan officer in February. It’s going awesome. I am so glad I made this switch.
But most of the resources and conversations on BiggerPockets tend to focus on the synergy between being a realtor and an investor. I want to know more about being a lender and an investor. So, where should I look? Who should I follow? What resources are out there? And you gave us the book on being the very best realtor that one can be. I want to know who wrote the book on being the very best loan officer that someone can be, who wrote the SOLD for loan officers? And if it hasn’t been written yet, I have a suggestion for your future projects. Thank you so much for everything that you do and take care.

David Greene:
All right. Thank you very much for that, Nicole. I think this is a really cool question, because it’s something that doesn’t get brought up all the time. Let’s see how I want to tackle this. First off, the reason I wrote SOLD for BiggerPockets is there were no good books for real estate agents. There’s one called The Millionaire Real Estate Agent, which is fantastic. It’s written by Gary Keller and Jay Papasan. Jay is someone that we’ve had on the podcast several times. Gary is someone that I’m still working on, trying to get on, because he’s a fantastic real estate mind.
But that was really a high level book. It sort of is a map. It shows you the terrain. Here’s where the mountains are. Here’s where the stream is. Here’s where the quick sand is. And it shows real estate agents how to navigate through the big picture, but I wanted something like a field manual. I want you to tell me what boots I should wear. What’s poison Ivy and I shouldn’t touch it. How long can I go before I need water? There was nothing that was really written at a micro level like that. So, I wrote SOLD for real estate agents, and SKILL is going to be coming out very soon, that’s the sequel to SOLD. And then after that, SCALE.
So, part of why I write books is because there’s not a book written on that topic. When I wrote Long-Distance Investing, that was a book that needed to be written, because no one was talking about how to do that safely. Most people write books on topics that are already really popular, because they’re going to sell better. I just don’t like that, because if there’s already a bunch of books written on it, I don’t need to.
You make a very good point, there are not any books that I’m aware of that teach somebody how to be a good loan officer. It just isn’t very common, because the way that that industry tends to work is it’s broker centric. You’re a real estate agent, you hang your license with a broker, your broker becomes your mentor. You’re a loan officer, you hang your license with your broker, your broker becomes your mentor. There is nowhere to hang a license as a real estate investor, because there’s no license. And that’s why people come to podcasts like this, or they read books, or they watch videos on YouTube, or they read blog articles, because it’s set up differently. There’s nobody to show you how to do this job. So, you got to learn it yourself. And that’s why everybody makes content for real estate investors but not for some of these other jobs. Same thing goes with insurance brokers or appraisers, you don’t learn how to do that in a book, you tend to learn how to do that from finding a mentor who’s in the field, who teaches you.
Now, that being said, I would encourage anyone who wants to be a better loan officer to come work with us. That’s what we do. We’re mentoring people and helping them to be better. As far as your question of, is there a book that needs to be written? I like your little subtle hint that I need to write that book. That’s something that I am not qualified to write yet. I’m still learning that industry. Now, I think The One Brokerage is probably the fastest growing loan company in the country. We’re doing fantastic. We have way more leads than we can keep up with. We have to hire new people. So, for anyone out there who’s like, “I’m interested in a career as a loan officer.” Please come to me. Especially if you already are one and you just want a better opportunity.
That’s one of the things that BiggerPockets exists for. It’s a community. We network, we get connected to the right people that we want to be connected to. You can find handymen, you can find contractors from being in this world. So, I’m really glad, Nicole, for what you’re bringing up here and for the listeners who understand you’re a part of our community, you’re not just peeking through the window, listening to a podcast, you’re part of this. So, get involved deeper with it.
When I feel like I’ve got it down and I can explain to teach somebody how to be a loan officer, I will absolutely go to BiggerPockets and see if I can write a book. In the meantime, we’re creating a curriculum to teach people how to be loan officers. And there’s not a lot of people doing this. I know this is one of those sources of frustration for everybody who’s out there, who wants to learn how to estimate rehab costs, or you want to learn what to look for in a real estate agent. It’s very difficult for anyone to say, “This is a good agent. This is a good loan officer.” The industry just doesn’t work that way. It tends to be very sales oriented.
So, the one that you come across is the loudest one, the one with the big, loud mouth that says, “Come here.” And they’re not always the best, which is why relationships and word of mouth are how you get connected to the right people. And I’m only saying this because I don’t want to give anyone the false impression that yeah, there’s a book out there you can just go read, or there’s one question you can ask and you’ll find the best agent that way.
You almost have to know what you’re looking for. And so, that’s why on the podcast, I talk a lot about the perspective of a loan officer and a real estate agent, as well as the investor, in all kinds of different asset classes. I talk a lot about what I’m doing in my own businesses, and the reason I have those businesses is so I can learn what goes on in them, so that I can share the information with all of you.
Now, I also want to be able to train agents and loan officers to provide a very good service. So, that’s true, I want people coming to me to say, “Hey, can we use your realtors? Can we use your loan officers?” But even deeper than that, I’m trying to learn how those industries work, so I can make them better, so I can teach all of you. If you’re in an area where I don’t service, these are questions you should be asking, this is stuff you should be looking for.
Okay. As to the first part of your question, when you were discussing how you got your license to be a loan officer and it sounds like what you’re saying is you’re not really following your way into more deals, as a loan officer. That you’re in the world, like we’ve said, hey, you should get more involved and you’re there, but deals are not crossing your path. This is a great question and I want to be able to address it. Part of the reason that you’re not exploding in your investing career, even though you’re a loan officer, is the skillset to be a loan officer is different than being a real estate investor. Just like the skillset of being an agent is different than being a real estate investor.
If you’ve ever heard the phrase, “To a man with a hammer, everything is a nail.” You’ll understand what I’m getting at here. I actually think that my business as a real estate agent has stopped me from buying as many deals as I would have bought if I wasn’t a real estate broker. Now, that doesn’t mean I regret my decision. I’ve learned a ton through the business of selling homes. I’m a way better negotiator. Like the property that Rob and I just bought in Scottsdale, Arizona, we got, because I told our agent, “This is how to negotiate this deal. This is the exact timeline. I want you to say this right now. I want you to wait four days and I want you to call back. And I want you to say this script.” I only learned that because I sold houses.
But to be fair, I tend to look at opportunities and say, “How can I sell this house for someone else and get them a ton of money?” Versus, “How could I buy that house myself?” So, in some ways you got to be very careful when you get into the industry of doing loans or selling houses or being a contractor, you tend to look at every opportunity through your business’s eyes, not through your own eyes, as an investor.
The other thing that I think you should take mind of would be as a loan officer, your skillset is very technical. You are looking at memorizing guidelines for loan products, trying to learn what products might be out there. You’re trying to upload the right documents. It’s very accuracy based. That’s what I’m trying to get at. You’re a bit of a sniper. You take your time, you line everything up and you make the perfect shot. It doesn’t go quickly. Well, real estate investors are less of a sniper. They’re much more creative. It’s more about casting a wide net, getting a lot of opportunities, getting people calling you ,and then creatively looking for how to solve problems.
It’s a different way of looking at the world than when you’re a loan officer. As a loan officer, it’s very technical. You’re trying to get every single thing right. So, what you have to learn how to do is take one hat off and put the other hat on. You got to build a switch back and forth between everything needing to be perfect and having a wider vision, where you’re seeing everything that’s out in front of you and looking for opportunities. And the same is true for agents. They tend to look at everything from, “How do I make someone like me? How do I become nicer, friendlier, more exciting, more engaging, more interesting?” And they forget to look at life from the perspective of, “How do I solve a problem?” They only know one way to solve problems. They put houses on the market or they help people to buy them.
And so, agents have the same problem. This is one of the reasons I always say, “No, don’t get your license just because you think you’re going to get more deals. You won’t.” It goes the opposite. You spend a bunch of money. You build a business, you create a database, you actually get sucked out of the goal that you did have. And now you’re in a new one. Now, some people, I’m an example of this, can pull it off. So, I don’t want anyone to be discouraged and think it can’t happen. It requires a lot more focus.
Let me give you a real world example. I was asked the other day, “How do you get your spouse on board with your investing goals?” And I chuckled for a minute, because I don’t have a spouse. It’s not hard for me. I forget that there’s people that have to balance their relationship with their investing goals. Frequently, I’ll have a client who’s trying to buy a house with us and I’m having a conversation, trying to explain a complicated concept and my solution for it. And in the middle of it, their kid will start crying. Their attention gets pulled away. They’re not hearing anything I’m saying as soon as their kid needs something, right?
That person has to learn how to bounce their balance from one place to another. Or maybe I should say, bounce their focus from one place to another. It’s more difficult when you have children who are demanding things from you than when you don’t. Now, that doesn’t mean it’s impossible. And in some ways, you might actually be more inspired and more ambitious because of that child. So, it’s not bad, but it will make things more complicated.
So, in your situation, Nicole, you’re going to have to learn how to bounce in and out. Look at it like the goggles that you’re wearing. I have my loan officer goggles on, I look at everything from the perspective of, “How do I make it perfect? I can’t make a mistake. I can’t miss a detail.” You take those off, you put on your investor goggles, and you look at it from the perspective of, “What creatively can I do here? How can I reach this person? How is this property not being used well? How would I be able to borrow the money to be able to buy it? And how would I be able to rehab it? How would I find the contractor?” And then you got to take those off and put on a different set of goggles.
But I really think this is something that I’ve learned to do when people ask me, “How do you do everything?” It’s because I figured out this skill. I can take my glasses on and off, or my goggles, if you will, depending on the scenario that I’m in, and emotionally I can hit a different sort of … Just like your phone has different profiles, you’ve got silent mode, you’ve got loud mode. You’ve got all these different ways that you can have your phone act. As a human, you got to be able to learn how to do the same thing.
Also, I want to say, I love the T-shirt that you’re wearing, way to go representing BiggerPockets. Please let us know if you would ever like to make a switch and talk with us about working with us. And for everybody listening, I think Nicole’s got a great story. She couldn’t get into the investing world like she wanted, so she said, “You know what? I’m going to leave my job and I’m going to get deeper into real estate. Even if it’s not a full-time investor.” I would highly encourage many of you, as that’s the right move.
It used to be, quit your job, go full-time investing. Quit your job, go on the beach and drink cocktails all day long while you do deals from your phone. And for a handful of people that have that skillset, I do think that is a good option, but the vast majority of people, quitting your job in a market as uncertain as this, I just can’t in good conscious recommend that. I don’t think that right now is the time to take that risk. We don’t know what’s going to happen. We don’t know if the bottom’s going to drop out. We don’t know if inflation’s going to take off even more. There is so much uncertainty and we’re all sitting, waiting to see how this is going to play out. That you want as much certainty as possible in other parts of your life.
So, if you’re thinking you hate your job, you want to get more into real estate. Don’t think just quit it and go full-time investing. How do you learn a new trade? How do you learn a new skill set? How do you get involved deeper into real estate without being a full-time investor, to make more money, to put into investing? And that’s why I’m giving the advice to Nicole than I am. Once you make that jump, there’s another jump you have to take. You got to learn how to take off certain goggles and put on other ones. I really appreciate this question. I think this was awesome, Nicole. I wish I could have given you the name of a book to read. Unfortunately, there isn’t one and might not be until I write it. But in the meantime, you got to find the right mentor.
In the world of real estate sales and loan commissions, and even maybe insurance providing, title and escrow, your mentor is your broker. So, pick the right broker carefully. It’s not about the best split you can get or a title that they give you, that makes you feel special, or a business card that looks better than another one. It’s the human being that you are working underneath that’s going to determine how successful you become.
So, everyone here listening, if you’re not super happy with the current broker you have, when you go look for a new one, don’t just ask the question about what’s the commission split? Ask the question of how they are going to develop you as a professional. Mentorship is still the way that people progress through life. If you look at the people that are most successful, they always had the best mentor. Sometimes, that was their parents that they got to start off with. Other times, they just got lucky and their friends’ dad or mom brought them into the world. But no matter how you look at it, the mentor is huge, so make a big effort to find the right one. Thanks, Nicole. I’d like to hear from you again. Let me know how your career is progressing.
All right. Question number two is from Colin, “Hi, David. I’ve found myself surrounded by great real estate professionals. I, myself, am not licensed. I have one agent in my area that I worked with to buy my current house hack, which was a duplex. She has me on a few drip campaigns and I really enjoyed working with her. My mom, who is licensed in another state, referred me to this person. Since moving into the area two years ago, I’ve made friends with several other agents. I’ve got one that is a prospective business partner, so I assume she’d want to represent us if we go that route. I have another friend that I’d love to learn short-term rentals from. My question is, with all these real estate professionals in my circle, are there boundaries, faux pas, red lines, et cetera, I need to be careful of? I don’t want to alienate any of these friends and/or business relationships on the path to further building my business.”
My goodness, Colin. I love this question. Just the fact you’re asking it shows that you’re a person of character and that tells me you are much more likely to be successful. I wish you lived in California, because I’d love to be able to do business with somebody like you, who’s asking these questions. Let’s get into the macro, big view, and then we’ll zoom in on your question.
Where this is coming from is you’re understanding that it’s not really cool to have a real estate agent looking for you to buy a house and then have four other ones that are all doing the same thing. And then, basically what people like to do is set their agents up to be like, “Hey, you could be one of several, whichever one of you brings me the deal first is the one I’m going to buy from.” That always sounds good when you’re the person who’s buying the house. The problem is, at this stage, it’s not hard to find a buyer, they’re everywhere. It’s hard to find a deal for the buyer.
And by trying to date several agents in a market where you’re not as valuable as you used to be, because buyers are not as important, or I shouldn’t say important, buyers are not as easy to work with for an agent, as a seller. You probably get none of those agents giving you their best effort and you’re more likely to fail. So, I’m glad that you’re asking this question. I think one of the things you have to do is be very clear yourself, on what you want from the agent.
So, here’s what I find being an investor and a real estate agent. Oftentimes, when I’m looking, as the investor and I’m going to hire an agent, I’m going to talk to them about what they know about the area, what contacts they have and how they can help me. So, the agent that I used to buy the house in Scottsdale that I bought with Rob, owns several luxury properties in that area themselves and they run a property management company. So, we used them, not necessarily because they’re the best negotiator, because like I said, I provided some of the information of what I wanted them to do.
But once the sale was locked up, man, they had the pool company we wanted, they had a person they put in touch with to help us come up with the design that we should go with. They had contractor recommendations. They had a security company we could go to make sure people aren’t having a party. It was very, very, very helpful to have a person who owned properties themselves in that area, representing us. But I knew that was coming at the price of they’re not going to be the best when it comes to negotiating.
I used them for information for the area, but I also knew this was the agent I’m going to buy a house with. So, I didn’t feel bad about asking them information. What you don’t want to do is be the investor that talks to real estate agents and thinks that you should get free information from them without committing to working with them. This happens a lot. Now, BiggerPockets is awesome, we provide you with free information. That is why we make this podcast, to teach you everything we can about real estate. And then, I go start businesses to learn it, so I can come back here and teach you what I learned from the business. But you can’t expect that same level of service and commitment from all the different professionals you work with.
It’s not cool to talk to a CPA for three hours about tax strategy and then not use them to be your CPA, and go find another one that’s cheaper and say, “Hey, you should use this strategy that I just got from this other person.” I hope that everybody’s understanding, these are professionals that you’re not paying and it’s not good to conflate the free service you get with BiggerPockets to how the rest of the world works that isn’t in BiggerPockets. And a lot of people make this mistake and they rub agents, or loan officers, or CPAs, or insurance providers, or handymen, or property managers, or all the people that you need, the wrong way because they expect free information without commitment.
So, when it comes to your specific situation, Colin, my recommendation would be, the person who helped you buy your house hack is the agent that you use when you’re buying a primary residence. You like that person. They did a good job there. And you continue to send them referrals for other people that want to buy a primary residence. If you’re wanting to buy investment property, you use the agent who you feel more comfortable with that, and you just tell your agent, “Hey, I thought you did a great job helping me buy my house. I’m going to continue to refer other people to you who want to buy their own house. But I found another agent who specializes in investment property and I’m going to be working with them to buy the investment property I want.”
You can tell that same agent that you’re going to be buying investment property with, “When it comes to short-term rentals specifically, I have somebody else that I’m using.” Let the agent make the decision if they want to commit to finding you a deal or if they feel that you’re being pulled in three ways that they can say, “Hey, I appreciate that. I’m not going to look for properties for you. But if you find one you want to buy, feel free to come to me and I can give you my advice on it.” It’s that upfront communication that is so important.
You would want to know if your agent stopped looking for deals for you. If they just put you on a drip campaign and ignored you. Every one of us would want to know that, right? So, offer that same level of respect and courtesy back to them, “I’m not going to be buying a house from you unless it meets these criteria.” Just like you should get to decide if you want to use that agent and they shouldn’t be not telling you that they’re not working for you. The same is true, where you should be telling them, “I’m going to be using other agents for different purposes.” And then everyone, as adults, can make their decision, what level of commitment they want to put towards it. And you can have that conversation and get it all laid out ahead of time.
You do that, no one’s going to be upset with you. There’s not an agent out there who’s going to say, “I can’t believe that you were upfront and told me ahead of time you’re going to be working with another person.” What they don’t want is to be spending their nights and weekends up late, looking for properties, calling listing agents, giving up time with their kids, giving up their personal time to find you a house. And then when they do, you say, “Oh, thanks, but I’m going to have someone else represent me on this.” That’s what will upset people. Thank you for asking this question. I think this is very relevant and helpful to our community as a whole, as we try to learn how to deal with everybody else. And I appreciate you bringing this to the forefront.

Jeroe Jackson:
Hello, David. My name is Jeroe Jackson. I am a new investor just hitting my six-month mark now. And I’m currently working on some BRRRR deals as well as getting a property under contract for short-term rentals. I’m actually in two markets. I live in Florence, South Carolina, that’s my primary market and I’m relocating into Atlanta, Georgia. And so, soon that’ll be my secondary market. My question is this, it’s around getting small, multi-family properties and utilizing seller financing. There’s been a ton of information that BiggerPockets has offered around how to structure these deals and how to place offers. However, more specifically, I’d like to get your input on, if I know that the seller is motivated because they want to do a 1031 exchange, how can I still get into small, multi-family properties, that’ll cash flow immediately, especially if the properties could use some rehab work such as electrical or roof work, while putting very little money down?
I prefer not to put 20% down. My original thoughts were A, I could try to place an offer at asking and hope that the seller would be willing to do seller financing in some form of that, at full asking price. However, again, if they’re not motivated, because they want to do a all cash purchase deal, so they could do a 1031, that might not be the best case.
B, I could do a all cash offer via conventional or hard money by putting 20% down on the property and that’ll help the seller out, but it wouldn’t help me with my goals. I prefer not to put 20% down on a rental property. Or C, I’m thinking I’d do a hard money lender for 10% down and evict the tenants and do a rehab. However, that also isn’t sitting too well with me.
So again, just to reiterate, I would like to get your input on how I can get into small, multi-family deals with as little money down and knowing that sellers may be motivated because they want to do 1031 exchanges. What options should I consider that I haven’t thought of yet? Thanks. Bye.

David Greene:
All right, Jeroe. Thank you for that. Let’s look at this situation from the seller’s perspective. So, I hear what you’re saying is, what it sounds like is you’re trying to balance your needs with their needs and you want a creative solution that will come in the middle. And that is a good starting point, but if you want to get practical about how to move forward, there’s a way that you can approach how you are looking at the situation to determine the right scenario.
The first thing that you have to understand is if you want to use seller financing or you want to put less money down, you are probably going to be looking at an off-market opportunity. And the reason is, if you have to use a loan to buy the property, they aren’t going to want you to have another mortgage in second position behind theirs, which would be the seller financing.
So, you can do things that way, if you can get the seller to agree with it and if the lender agrees with it, but in many cases, if you’re trying to buy a property with the loan, it’s hard to use seller financing for the next part of it. And if you’re wanting to use seller financing for the whole thing, you’re probably looking at a seller that doesn’t have other buyers, because most sellers don’t like seller financing. Now, you could find one that wants seller financing, which is the ultimate goal.
But this is the mistake I see a lot of people make. They assume they’re going to find a seller of a house they want and convince the seller why they should do seller financing. And when it doesn’t work, they get frustrated and they come say, “How do I make this person sell me their house with seller financing?” It doesn’t work. It’s like finding a person who’s not looking for a relationship and trying to convince them why they should date you. If they don’t want to date you, they’re not going to date you. What everyone would say is, “Move on and find someone that does want to date you.” It’s like that with real estate too.
When you find off-market deals, they are more likely to be open to the idea of seller financing, because usually when there’s an off-market deal, it’s someone who doesn’t like realtors. So, they’ve got this tunnel vision where they’re like, “Commissions are bad. I don’t want commissions.” And they don’t realize that they’re not getting good representation. They often make bad decisions, just to be frank, when it comes to their own best interest. Those are the people that I’ve seen are most likely to be open to seller financing. So, if that’s something that you have to have, my recommendation would be, don’t look at properties that are on-market.
Now, when you do find a seller who says, “I’m not interested in seller financing.” Let it go. Move on to the next one. If you get one that says, “Yeah, how would that work?” And you can come to terms on the seller financing, that’s where you start having these conversations about creative options. That’s where you can start looking at using a hard money loan to buy a property or having them do seller financing for the down payment and you borrow the money from a lender. So, maybe it’s like 80% of the cost comes from the lender and then the other 20% comes from a loan of the seller made to you. Assuming that the lender’s okay with it.
Now, regarding the part of your question that has a seller that’s motivated because they’re going to do a 1031 exchange. The best thing to do is to put yourself in the position of the seller. So, if I own a property and I’m going to do a 1031 exchange, there’s some motivation for why I want to sell my property and buy another one. Now, I’ve found it really boils down to two reasons why investors sell properties. It’s pretty wild, but hear me out. The first reason that they want to sell a property is they found a better one. That’s when they would be using a 1031 exchange.
So, if somebody’s got a property and they go, “Hey, you know what? I just think I have a lot of equity in this thing. It’s not performing well. I want to be in a different neighborhood. I want to be in a better market. I’m going to sell a perfectly fine rental property to get a better one.” Now, the more common reason that people sell homes is there is a problem with it. That tenants aren’t paying the rent, the tenants are giving them a headache. It’s in a bad area. They think that they could do better in a different area. The house itself has deferred maintenance.
I mean, let’s all be honest, think about every car you’ve ever had, at what point do you think, “I want to sell this?” You either have a car you want that’s nicer, or you know your car’s starting to break down and you want to pass the problem onto somebody else. And this is something every investor needs to be aware of as a buyer. If you’re buying a property from a real estate investor, it’s important to know why they want to sell it, if they’ll tell you that. Oftentimes, there’s problems you’re not aware of, that they’re trying to pass on to you. Just like when somebody decides they want to sell their car.
Now, what would make more sense would be if you hear, “I’m selling the property because we have to move. “I’m selling the property because the owner just died and it’s gone into probate and I don’t want to own the rental property.” Something like that, that makes logical sense, that isn’t, it’s because the house has a bunch of issues or the tenant has a bunch of issues, would be a more desirable reason for me to look into that deal.
Now, in this case, if they’re going to be selling the rental property because of issues with the house, you should be aware of that. If they’re going to be selling because they want a better property, that’s usually good for you as the buyer. What you have to understand about a 1031 is that from the seller’s position, they have two concerns. The first is, “Can I sell the property?” The second is, “Can I meet the requirements of the 1031?” Assuming they can sell the property, because you’re telling them that they want to buy it, they now only have one problem to solve, “Can I meet the conditions of a 1031?”
And that can be split up into two things, “Can I identify a property within 45 days? And can I close on a property within 180 days?” So, in order for them to do that, they’re going to need to be talking to a loan officer to find out, “Can I get pre-approved?” They’re going to need to be talking to agents in different areas to try to find out, “Can I buy a house in this place?” What you find is their biggest concern is time. A quick close is usually not good in a 1031. So, we should all be careful we don’t make the assumption that every seller wants a quick close. That comes from primary residences where someone wants to get out from underneath it and buy a better house. But in a 1031, you might want to set it up where if they give you your price and they give you the terms you want, you give them an escrow period that’s longer, that they have the option of selling it under a shorter period of time.
So, if you say, “Look, I’ll give you 90 days before we close.” And then after that 90 days is when their 45 day timeline starts for identifying property. That would be great. But if they identify property early and they think they can get it, you leave the door open that you could do a faster close in that scenario, that will help them. That approach of looking at it from the seller’s perspective, makes them much more likely to work with you, because you’re relieving the pressure that they’re going to be feeling. And if you can find a way to give the seller what they want, where you’ve relieved their pressure and they feel good about the deal, they are way more likely to give you what you want, which is possible seller financing.
Hope that helps and good luck out there. All right. I got to say, we’ve had some great questions so far. This has been a very fun and I think, relevant episode for a lot of the struggles that investors are going through today. So, kudos to everybody that sent in a video or a written question. I love that. If you would like to be featured on the show, we want you here. Please check out biggerpockets.com/david and submit your question today.
In addition to that, I want to hear, what do you think about the show? Leave me a comment on YouTube and tell me what you think about my answers, what you think about the questions, what questions that you have that are not being addressed. And most importantly, let me know, do you like how I’m dressed? I dressed up for everybody today. I actually put on a shirt that has collars and buttons. And I’m not going to do this all the time, if you guys don’t appreciate it. So, let me know if you like T-shirt David better or collared-shirt David better. And let’s see if we can get a big debate going on in the comment section of YouTube.
Lastly, please, if you like these shows, hit the subscribe button. It’s super easy. We at BiggerPockets love it when you do that and you’ll be notified when new episodes like this come out. So, you don’t have to think to check it. YouTube will just tell you, “Here you go, hot and ready, another Seeing Greene episode of BiggerPockets.” All right, at this segment of the show, I like to read some of the comments that people have left on previous episodes, so you can see what you could be doing yourself.
The first one comes from S. Adams, “I too, stopped listening to the BiggerPockets Podcast for two-plus years until David took over. The new content is something I can relate to. I’m almost able to take something away from every episode. That was a huge change for BP. Thank you, Dave.” Well, awesome. I’m glad that you feel that way. Hopefully, there’s more people like you that also agree.
Next comes from Joe Picasso, “Your show has all the questions I didn’t think to ask.” That is a pretty cool comment. I like that. And that’s actually what the goal of this is. Most podcasts just ask the same questions, tell the same stories. It’s all the same stuff you’ve heard a bunch of times before. From my experience as a real estate agent, as a real estate investor, as a triple net investor, as a short-term rental, as a long-term rental, as multi-family, as a note holder, as someone who flips properties, and as a loan officer, I like to bring the questions people don’t know they should be asking. So, I really appreciate the advice you’re giving there.
And the last one from Tessa Higgins, “I love the format. Even if I don’t listen to the other episodes every week, I always listen to the Seeing Greene one each week.” Well, that’s nice. Thank you for that, Tessa. If you’re trying to figure out if it’s a Seeing Greene episode or a non-Seeing Greene episode, just check out the light behind me. I try to turn it green every single time we’re doing Seeing Greene. That’s not a coincidence.
And shout-out to all the people who take some time to submit these questions. I love that. And to be frank with you, those are people that are more likely to be successful in their investing, because they are getting involved in the community. I’m really on a campaign right now to take people out of, I’m just peeking in through the window and I’m looking to see what everyone’s doing, to opening the door and stepping inside to this community. Getting more involved and taking the journey that we’re all taking together. All right.
It’s scary to think about jumping off a cliff and hoping that you like where you land. And that’s what it can often feel like when you’re trying to invest in real estate by yourself. But it’s much more fun when you join a group of 10, 20, 30, two million other people, that are all walking the same path, that can help each other out on that path. So, please get yourself on the path. Go to BiggerPockets, make a profile there, consider becoming a pro member. I think that that’s a great way to get yourself involved. Subscribe to this podcast and leave me comments. Let me know what you think. All right, let’s take another video question.

Alex:
Hey, David, big fan of the show. My question is regarding receiving gift funds in making real estate investments. So, I’m a young guy and I bought my first property last year with gift funds from my parents as part of the down payment. And that was as a primary residence. And now when I went to buy my second one as an investment property, the lender told me that I can’t do that, because you can’t provide gifts funds for an investment loan. So, now what we’re thinking of doing is using a hard money lender and then refinancing into traditional loan for a lower rate. You think that’s a good strategy? Any other thoughts regarding gift funds for investing in real estate? Appreciate it.

David Greene:
Thank you there, Alex. From my understanding, you were actually told the correct information from your loan officer, gift funds are allowed for a primary residence when it’s from someone like a family member, they’re not allowed for investment property. And the reason is, the lender’s looking at your debt to income ratio and they’re determining your ability to pay something back. Well, if you’re taking out a loan from someone else, which you may call a gift fund, but it isn’t always an actual gift, they expect it to be paid back, that creates concerns about your ability to pay off your mortgage, if you also have additional debt where you have to pay back the person you borrow the money from.
So, that’s where the whole gift funds things comes from. And it does apply to investment properties, where that’s not allowed. Your strategy as an alternate was basically describing the BRRR. And that’s exactly what I do think that you should do. Another thing that you could consider, instead of having your parents or your friends give you money as a gift payment for this investment property, see if they can be a partial owner. See if you could put their name on the title or create an LLC with them in it together, and use that LLC to hold title. And what they would’ve given you as gift funds can just be their contribution of the down payment. Talk to your loan officer and see if that strategy would work. That’s another pretty viable option for you.
Now, the last part of your question was, what advice do you have regarding gift funds? And I’m going to go back to the same thing I keep saying, that people might be tired of hearing, but it’s just this important, I got to keep hammering it out. This is the broccoli that no little kid wants to eat, but everybody needs to hear. This is why house hacking is such a superior strategy to everything else. It’s better than BRRRR. It’s better than long-distance investing. It’s better than everything.
Just consider that if you house hack with a 3.5% down, FHA loan, many BRRRRs leave much more than 3.5% in the deal. I’ll hear people say, “I want to BRRRR my primary residence.” And my question is, “Why? Why go through all that work, if you can just put 3.5% down and be done with?” It’s basically a pretty good BRRRR right off the bat, because you’re not having to get money back. You only had to put a little bit in down. You didn’t have to put a ton of money in. And when you house hack, you get the primary residence loan, so you can put less than 20% down. You get a better interest rate. You can use gift funds.
All the things that make real estate ownership easier to acquire, happen when you’re buying a primary residence. And if you buy the right one, when you leave, it becomes a rental property that you didn’t have to put 20% down on and you didn’t have to use the BRRR strategy for. Do you see what I’m getting at? I call this the sneaky rental tactic, because you end up buying a rental property that you just have to wait a year before you can use it for that. But in the meantime, you save a bunch of money on your mortgage.
Now, I hope you guys can understand, I wrote Long-Distance Investing. I wrote the book on BRRRR. I use both of those strategies. I still think house hacking is better than all of them. You can just only do it once a year. So, that’s why I tell people house hack one house every single year. Anything in addition to that, consider some of these other strategies like long-distance investing, BRRRR investing, some of the other stuff that we talk about. Moral of the story, house hack whenever you can.
All right. Our next question comes from Davis in Georgia, “On the mortgage side, the rising interest rates have been making predicting cash flow a little difficult. Do you see increased availability of fixed rate mortgages with longer amortization, for example, 35 to 40 years in the future? Would this be a benefit for investors to increase cash flow or do you think it would increase risk? I appreciate all your wisdom.”
All right, let’s break this down. Davis, I assume that you are talking about commercial multi-family type property. In residential properties, we’re not seeing adjustable rate mortgages very often. There’s actually products that my loan company offers and other loan companies, I believe, are starting to offer them as well, where you can get a 30-year fixed rate, but it’s still based on the income of the property, not the income of the person. So, from that situation, it’s still low-risk. It’s not going to change your cash flow, if you know what your interest rate is, it’s the same for 30 years.
My assumption is that you’re referring to when interest rates adjust on some of these commercial properties. So, you get a 3/1 ARM or a 5/1 ARM. If you’ve ever heard people talk about these ARMs, that stands for adjustable rate mortgage. And when you hear them say 5/1 or 3/1, the first number is how long, in years, the period will be where you get the same interest rate. And the second number is after it becomes adjustable, how often can it adjust? So, a 5/1 ARM would mean for the first five years, your interest rate is locked in place, and after that every one year, it can adjust to a higher rate.
Now, what I like about your question is I think you’re looking the right way when it comes to a crash. Okay? Here’s my personal opinion. I can’t state this as fact, because none of us know what the facts are, but here is how I see crashes tend to happen in real estate. They are not as related to the price of homes as people think. Home prices going up quickly or very high is more of a byproduct of what causes a crash. It’s not what causes the crash. What typically causes the crash is either the entire economy tanking, in which case real estate is not crashing, the whole economy is crashing. So, everything tends to crash when that happens.
And I don’t think it makes sense to worry about that scenario, because it doesn’t matter where you put your money. If you put it in crypto, if you put it in NFTs, if you put it in stocks, you put it in bonds, you put it in Treasury bills, whatever it was, it typically all crashes when the economy crashes. So, the specifics are, it’s usually related to debt and the cost of debt and the availability of debt.
So, here’s how I see it happening. This is what happened during the last crash and this is what I’m always looking for in my position as a real estate broker and loan broker, to see if I see another crash coming. Home prices are this hand, this is my left hand. And home affordability is my right hand. All right? They tend to move up at the same pace, and people have to be able to afford the house they’re buying. Well, if demand gets so high and supply is too low, what you see is that the price of a house gets higher and higher and higher than the average person can afford. I don’t think we’re there yet. We haven’t had that problem. All the loans that we’re giving out are still based on debt to income ratios.
Now, it’s probably wealthier people that are buying houses. I will agree, that’s a problem. It’s harder for the people that aren’t super wealthy to buy real estate. But those that are buying it, are not buying real estate they cannot afford. And that’s one reason I don’t see a crash coming anytime soon, they can still afford what they’re buying. But here’s what you’ll find, at a certain point home prices are much higher than what the average person can afford. And what that means is that banks that make these loans or the lenders that are giving out money are like, “Man, we got all this money to lend and we got no one to lend it to, so we’re not earning interest on it. And our employees aren’t making any money because they’re not getting any commissions from doing loans. There’s only a handful of people buying all the real estate. We need to increase the velocity of how often people can buy a house, so we can make more money.”
And at that point they have to be creative in solving the problem of what a house is worth on the free market and what the average person can afford. And the gap between those two things is typically what causes the problem. So, when they start coming out with loan products where they say, “Well, you can only get approved for a $600,000 house, but all the houses around here are $800,000. What if we give you an adjustable rate mortgage for the first three years at 0%, because you could afford the house at 0% interest rate, but then after three years, it’ll adjust. What if we find some way to not make you put as much money down to come up with the difference? What if we let you cross collateralize this with some other asset that you own?”
When you see tricky creative solutions in the financing department, starting to be applied to make real estate affordable, because by its very nature, it is not affordable, that to me, is the beginning of a crash. That is what I’m looking for. So, what we’re seeing right now is a lot of loans that are being made based off of an income that a property produces. That’s not crazy wild. Okay. I don’t agree with the people that say, “Oh, they’re giving out debt service loans. That’s bad.” We’ve bought commercial property like that forever. As long as I’ve been around, that’s how they determine how much you’re allowed to borrow for a commercial property. It’s, what is the property producing?
In some ways, that’s actually smarter and safer than making it based on the debt of the human being, because they could just go out there and load themselves up with debt, buying cars or stupid things. And now they can’t afford the payment. The problem would be if they made these adjustable rates or other creative solutions with financing. And they’re not, they’re still 30-year fixed rates. So, to me, you know what your payment’s going to be, you can budget around it. That’s not any riskier than a different kind of loan that’s based off your personal DTI.
But if I start seeing them say, “For the first couple years, your rate’s only whatever.” That scares me. Those are sales tactics, right? When you see a furniture store that’s like, “You pay this much for a couch,” and it’s really high, “but no payments for the first year.” Oh, I don’t like that at all. What kind of a person is that drawing? It’s usually a person that can’t afford a couch. Not always, but often. When I see car companies doing that, “Get 0% interest for the first three years, and then it’s going to jump up to 9%.” But they put that in the fine print. What that makes me think is they’re targeting people that can’t afford that car or that truck. All right?
Now, they can get away with that, because if you can’t afford your payment, maybe you sell it back to them at a big loss to yourself, but now they can go lease it to someone else. It makes sense for the car companies to do that, not for the person buying the car. Well, in real estate, lenders don’t like taking back homes. If your loan is being given to you by a company that understands real estate investing and they want to own your property, well, shoot, if you can’t make the payment, they’ll foreclose and they’ll just manage it themselves. We just don’t have that happening right now. That typically leads to foreclosures. They get put back on the market at reduced rates. And then when that starts happening at a grand scale, boom, we have a recession.
So, to sum all this up, what I’m concerned about in the future is creative financing that shouldn’t be making sense. If you start to see banks that are like, “Man, everyone we’re pre-approving is not getting pre-approved for enough to buy the house. We have to figure out a way to make up the difference.” That’s bad. You’re asking me, if I was President of the United States, rather than having loan companies create creative, tricky financing, I would be incentivizing people to build more rental properties, to build more homes, to build more supply, to balance out the supply with the demand. That’s the healthy way to approach it. It’s just not always the approach that we end up taking.

Anthony:
Hey, David, how are you? My name’s Anthony Zato. And my question is about multi-family strategies and partnerships. So, I am 24-years-old and I am 50/50 partners on four separate duplexes. One of my deals in particularly, I am partners with my father. He is in his late 50s and we have a lot of equity in the property and I would like to cash out, refi the property to purchase more rentals. And he would like to pay off the property to experience higher cash flow.
So, I guess my question would be, is there any way to satisfy both parties? I’m happy either way, but I just feel like making my money work more efficiently for me would benefit me, because I’m a little younger and I have some more time to experience the benefits. Thanks.

David Greene:
Hey, Anthony, thanks for asking. Life is good right now. And I love that you asked this question. To be completely honest, this is one of the reasons that I rarely ever partner with other people. It’s only happened a handful of times in my life, and even then only recently, and even then only on really big deals. And even then, only with people that I have other business interests with in other areas. And here is why, partnerships always sound like buying real estate is less scary. My friend, Daniel Del Rio, likes to make the claim, “Nobody likes to take the jump alone.” It’s always more fun if you got a person there to do it with you.
The problem is, once you’ve taken the plunge and you’re in the water, you now have to do a lot more work and keep a lot more people happy. And what you’re describing is the quintessential problem with partnerships. Somebody wants to play offense, like you, where they want to keep building and scaling. Somebody wants to play defense, like your partner, who says, “Nope, let’s pay them off and let’s have cash flow.” And there is no way to reconcile that. And this is just one of the things when you’re choosing your partner, it’s not that age is the relevant factor, but in general, people that are older want to play defense and people that are younger want to play offense. And so, you got yourself entangled up in this situation with somebody who has completely different goals than you.
So, now that you’ve taken the plunge, they’re swimming this way, you’re swimming this way. The further you get apart, the more tension starts to come in the relationship. So, as far as practical advice for you on the next deal, don’t do it. Figure out a way to do it without a partnership. And if you have to have a partnership, don’t do equity splits. This is one of the reasons that in general, I don’t do equity. I pay people debt. What that means is people let me borrow money all the time and I just pay them a return that they know they’re going to get. And it doesn’t matter if the property completely falls apart, they get paid anyways.
I don’t like sharing risk with people that I’m a partner with, because it ruins relationships, and it’s important to me that those relationships stay healthy. I also don’t like a person who isn’t me, having some input in what direction we should take the property. If they’re a genius, of course, I’d rather have them putting in some input, but most geniuses don’t need to partner with me. They would set it up to where I was getting paid debt instead of equity. In general, you don’t want two CEOs. You don’t want two team captains. There has to be a person whose vision that the group is going to follow. And unfortunately, in your case, when you have equity partners, which always sounds good, you end up with this problem of vision.
Now, how you can salvage. What I like that you said is you’re a half owner in four duplexes. Assuming they’re all relatively valued the same, what if you split up your partnership and said, “I’ll take these two and you take these two. You pay off yours. I’ll refinance mine to go buy more.” Both people get to be happy. And most importantly, you get out of this partnership that isn’t a bad partnership, it’s not like you guys are fighting, but you have different visions. And if you have different visions, you don’t want to stay long-term with those same people.
This is what human beings need to understand when they want to partner. If you go for the emotional security of having a partner, it makes it easier in the front end, it becomes much more difficult on the back end. And I know I have people listening to this that are nodding their head and saying, “Yep, that’s exactly what happens. Nobody ever thinks that was what would go down, but that is what goes down.” And for a lot of the people that do business with me, they’re confused at first as to why I don’t want to be 50/50 partners. And this is why, they will do better, they will make more money if they let me stay in the position where I’m the visionary and they’re following my vision. They will be happier. Our relationship will be better.
The minute you have the 50/50 thing, you have people’s egos getting involved. You have people saying, “Well, why can’t I get to have advice?” Even though they’re not someone who logically should be putting in their 2 cents. Or you have the problem of someone saying, “I think we have a crash coming.” And someone else say, “I think the market’s going to run up.” Does that sound familiar? That’s pretty much where we are right now. So, I’m sorry to hear about your situation. It could be worse, but I do think what you should try to do is dissolve the partnership. Each of you take two of the duplexes. Maybe you get appraisals on them and if somebody’s side has $30,000 more than the other, you figure out some way to make payments to that person until that 30,000 is paid off or something like that. Let them do what they want to do and you go do what you want to do.
Luckily, you’re able to get out of this situation, I think, because it’s a family member and because you have an even number of properties, but it might not be that easy in the future. So, you’re better off to cut it off now. Thank you for your question and let us know how that goes.
All right, everybody, that was our show. Another episode of Seeing Greene, and maybe one of the best ones that we’ve ever done. I don’t know, maybe I’m biased, but I like these difficult questions. This wasn’t the typical, “What kind of loan should I use?” Or, “What areas should I invest in?” These were some deeper, nuanced, more difficult questions that are super relevant to being successful in real estate investing. “Who should I partner with?” “How should I dissolve this partnership?” “What’s going to make the market crash?” “What do you think about the future of financing?” “I’m a new loan officer. How can I be better at my job?” That might be my favorite question ever. Someone saying, “How can I be a better human?” Whether it’s, “I want to be better at my job.” “I want to be in better relationships.” “I want to be better in fitness.” Whatever it is, I love the question of, “How can I be better?” And on the other end of that, tends to be success.
So, thank you all who submitted a question. If you’re listening to this, I want to hear from you. Please go to biggerpockets.com/david. We would’ve come up with this earlier, we just couldn’t figure out what URL to use. Luckily, we figured that out. I’m David, so go to biggerpockets.com/david, and leave your question there for me to answer. And one more time, I just want to remind you, please leave me a comment on YouTube. Tell us what you think. Tell us what you’d like to hear more of. Tell us what you loved about the show and then subscribe to the channel. Thank you very much for being here. I will see you on the next one. This is David Greene for BiggerPockets, signing off.

Ashley Kehr:
This is Real Estate Rookie, episode 182. My name is Ashley Kehr, and I am here with my co-host Tony Robinson.

Tony Robinson:
And welcome to the Real Estate Rookie podcast. And if this is your first time joining us, we are thee podcast focused on those investors who are at the beginning of their investing journey. And so if you don’t have a deal, or maybe you just got a couple and you’re looking to scale. This is the podcast for you. Ashley Kehr, my wonderful co-host, what’s going on? How are things happening on your side?

Ashley Kehr:
Not much, we’ve had a busy week of recording podcast. And so this is sad this is our last one for the week.

Tony Robinson:
I know.

Ashley Kehr:
But we just found out that Tony will be coming to my area in a couple weeks.

Tony Robinson:
Yep.

Ashley Kehr:
So that will be great to get to hang out for a day while Tony potentially looks at a property.

Tony Robinson:
Yeah, I’m super excited for that. We got a beautiful property under contract in Western New York. So excited to see that one come together. And obviously happy that I get to hang out with my co-host, because I’ve never been to that part of New York before. So I get to see what all the hype is about.

Ashley Kehr:
I know. I’m wondering how I’m going to be able to convince you to shorten the property tour and come to see some of my properties.

Tony Robinson:
Come see Buffalo? Yeah.

Ashley Kehr:
Yeah. But yeah, I’m so excited for you and Sarah’s coming too. Right?

Tony Robinson:
Yep.

Ashley Kehr:
Okay.

Tony Robinson:
Sarah’s coming, Naomi’s coming. So it’ll be the whole Alpha Geek Capital crew.

Ashley Kehr:
Oh, good. Okay, well-

Tony Robinson:
Yeah.

Ashley Kehr:
… I’ll be excited to have you guys here. I already put it into my calendar and-

Tony Robinson:
There you go.

Ashley Kehr:
… hope to my chauffer to chauffer for me around, but hopefully I’ll have my car by then.

Tony Robinson:
Yeah, fingers crossed.

Ashley Kehr:
Yeah. So today we actually have a question from my DMs @wealthfromrentals on Instagram. You guys can always send Tony and I a message. He’s @tonyjrobinson, I’m @wealthfromrentals, or you can call and leave us a voicemail 18885-rookie. Okay, so today’s question is from Brandy Smith. Hi Ashley. I listen to your Real Estate Rookie podcast and love it. My husband and I have a question for you. We are just starting out with a real estate investment journey, and hope you would have some good insight on this question. Selling verse cash-out refi to keep our current home, and turn into our first rental property. Our current home could give us about 260K in that proceeds if we were to sell. Our plan is to purchase rental property with our cash proceeds in addition to using part of it for the down payment on our new home, new construction due to finish in May.
We need about 46 to 93K for down payment, depending on if we do 10% or 20% down. However, if we keep it, keep in mind it’s a good area, good appreciation, and good rental rates. Basing off of our current monthly mortgage, we could cash flow about a $1,000 per month on strictly rent charges versus mortgage costs alone. Not sure how much our monthly mortgage costs would change with the cash-out refi option. Assuming we could get out near as much as we would profit by selling.
So with all that background, bottom line question, what would you do in our situation? If you believe hanging onto it would be better, how would you justify that to someone when it would take about 20 years to make the amount in profit by selling on just rent alone, not adjusting for rising rent rates, just keeping the same $1,000 chase per cash flow per month for quick scenario, comparative purposes? Hope that makes sense. Thanks so much for your time. Tony, what’s your initial thoughts?

Tony Robinson:
Yeah, there’s a lot in there, Brandy. So I just want to recap for the listeners to make sure we got everything set the right way. So the big question is, should she sell this property and reinvest those proceeds into another property? Or should she refinance and then keep that property as a rental? Now, the challenges, I guess the key differences here are, if you sell the property you get a bigger cash payment. So she said she would get about $260,000 in profits if she were to go out and sell the property. Now, if she were to refinance, I don’t think she says how much she would get if she were to refi. Did you see that number in there?

Ashley Kehr:
No, that number wasn’t in there, but assuming that she could pull out 80%, it would probably be less than if she sold it. Because saying that it sells for what it would appraise for. So it would be less than what she would get right now, I would assume.

Tony Robinson:
Yeah. So the way that I would approach it is I guess, two things I would look at. So first, Brandy made the statement that it would take 20 years to get that same $260,000 if she kept it as a rental. But I think that’s almost the wrong way to look at it, because she’s not just going to sit on that capital. She’s going to go out and reinvest that into something else. So I think the thing that I would look at is what is going to give you the better return on your investment?
Is it taking the cash, taking that full 260, going out and putting some of it towards a new house, and the other portion towards your rental property, and you figuring out what that cash-on-cash return is? Or you can look at the equity that you’re leaving in the property, and understand what your return on equity is for the one that you’re keeping as a rental? And I think when you look at those two figures, a return on capital invested versus the return on equity in the property, that’ll give you a better understanding of which one might be the better decision for you.

Ashley Kehr:
And plus that property’s probably going to keep appreciating too.

Tony Robinson:
Mm-hmm, yeah.

Ashley Kehr:
So that value is going to keep going up in that property. So at the end of 20 years, you’re going to have that property value. If you do decide to sell it, then you have made back that 260,000 and then you’ve also put in, or you also have this other X amount of equity-

Tony Robinson:
Right.

Ashley Kehr:
… in the property too. So in my personal opinion, I think that you can get the cheapest debt on a primary mortgage. So what you could do instead of going and refinancing, you could go and get a line of credit on the property, while it’s still your primary residence. And you can get a really low rate. So that way your mortgage payment isn’t changing. So your cash flow will be even higher than if you go and increase the mortgage, and you can use the home equity line to go and purchase properties, rehab them, refinance them, do the birth strategy, and then pay back that line of credit. So you’re only paying interest when you’re making that money work for you.
So we had Tyler Madden on recently, and he listened to the very first episode that he was on. That’s actually what he did with his primary residence. Before he turned it into a rental and purchased his new or next primary house, he went and got a line of credit that had the existing equity. Plus a lot of times with a line of credit, a lot of banks will lend you up to 85% of the home’s value. Sometimes I’ve seen even 90%, my one business partner got. So where usually if you’re going to refinance, a mortgage they’ll tend to only give you up to 80%. So there’s that advantage too. Okay. Well, anything else to add Tony?

Tony Robinson:
Yeah, hopefully that points you the right direction.

Ashley Kehr:
Yeah.

Tony Robinson:
No, I think that’s everything. Right? And a lot of these questions that pop up, there’s so many nuances and details that we don’t have. And I think ultimately it’s going to be a personal decision for you. But for me, I always try and let the numbers help me make my decision. And whatever turns out to be the better return is typically the route that I’ll go down.

Ashley Kehr:
Yeah. And I think too, one thing that she did mention in this there, is that it’s in a good neighborhood, good school. And so I think the fact that it’s not going to most likely won’t be a headache property, because it sounds like it’s in a class A area. I think is an advantage too. Where somebody going in and trying to buy a property for the purposes of it being a rental in that area will be higher or excuse me, will be harder if they’re going in and purchasing it as an investment property. Than if somebody used it as their primary, let that appreciation build up, and that equity build up in that property. So if I were to say, I would say keep it and put a HELOC on it, and use those funds from that HELOC to, you can use it for your down payment and then also use it to purchase other properties [inaudible 00:08:23].

Tony Robinson:
Yeah, totally agree.

Ashley Kehr:
Okay well, thank you guys so much for listening. Obviously, I’m stumbling over my words because we’ve had a long day of recording. Yeah, this is our last one for the week, but we will be back on Wednesday with another guest. Let us know if you’re loving the show, and leave us a review on your favorite podcast platform. I’m Ashley, @wealthfromrentals, and he’s Tony @tonyjrobinson. And we’ll see you guys next time.

If you’re not into traditional budgeting, where you place all of your spending into rigid categories, then the 50/30/20 rule might be for you. 

This method of financial management is broken into three main sections: 50% needs, 30% wants, and 20% savings and investing. It’s designed to take a full picture of one’s monthly expenses in the most simple way possible and remove the nitty gritty details that can bog someone down with complications.

So, in theory, if you make $5,000 a month after-tax, $2,500 should go to your needs, $1,500 to your wants, and $1,000 to your savings and investing goals. Let’s talk more about how this all works.

50%: Needs

The first section of the budget is devoted to your needs. Needs represent the essential items that allow you to survive such as:

• Mortgage/rent
• Groceries
• Healthcare
• Utilities
• Transportation
• Debt payments

While it seems like a simple solution, designating what is genuinely an essential need or not is more complicated than it looks. To set this budget up correctly, you need to hone in on your spending. An excellent way to frame necessary expenditure within the 50/30/20 rule is to phrase it as the following question: If you lost your job or source of income today, what spending would you still need to survive?

Even if you’re financially secure, these types of questions are critical to ask, as it brings us back to the basics of what is actually important or not. Stopping each morning for Starbucks might feel nice, but you can easily rack up more than $100 per month on coffee alone. In reality, you don’t need to drink Starbucks coffee. You could save hundreds, if not thousands of dollars per year by brewing your own coffee at home. 

If your needs take up more than 50% of your budget, then it’s time to consider cutting costs or finding ways to increase your income.

Generally speaking, housing and transportation are your largest expenses. Finding ways to decrease those significant expenses will help you come within budget. For example, if your car loan swallows $600 per month and you’ve recognized it as a painful expense, refinancing (if your interest rate is high) or selling it for a cheaper vehicle could free up a lot of extra cash per month. Cash that can be put elsewhere, such as investments.

Redirect funds you save towards savings or investments like real estate or stocks. Stocks are relatively inexpensive and easy to get into compared to real estate, but as we’ve said at BiggerPockets a billion times, it’s always the right time to start your real estate investment journey!

30%: Wants

The following 30% of your budget should be your wants.

Some wants are:

• Shopping
• Dining out
• Entertainment
• Nightlife
• Travel

This is the more controversial part of the budget. Critics would suggest that 30% of your budget should not be dedicated towards wants. Instead, 30-40% should go towards investments and savings, and as your money scales, the wants budget naturally increases. 

Say you do use 30% of your budget towards wants. Your goal should be to limit the amount you’re spending. 

An easy place to start is looking at your subscription services. Disney+, Hulu, Netflix, and Paramount+ are all excellent streaming services, but do you need to subscribe to every one of them?

You can also look at how much you spend on take-out and restaurants. For example, cooking four or five meals each week can save you a few hundred dollars at the end of the month.

Of course, just like the needs, if you can’t cut down on costs, you’ll need to increase your income to balance the budget. Going over 30% on wants is an easy way to recognize that you’re spending too much money.

Short Term Savings

You should include short-term savings in the wants category as well. Saving for a vacation, a new car, or a fancy computer are short-term savings goals that fall into the wants category. 

Whatever you’re saving for, you don’t want your long-term savings to be delayed because of short-term wants. Make the distinction between what is more important and keep a future-orientated attitude towards savings.

20%: Saving and Investing 

The last section of the 50/30/20 rule is to dedicate 20% of your after-tax income to savings or investments. We’ll always emphasize that it’s vital that you look out for your future self. 

While 20% might not seem like a lot, and in reality, it isn’t, any savings that you account for will put you in a better financial situation.

What type of savings make sense, then?

Saving #1: Emergency Fund

If you haven’t started one already, you need to save an emergency fund. This is an important goal for everyone. 

Aim for a starting fund of $2,000. After that, you can scale it to what you feel would protect you most.

Emergency funds are crucial buffers between you and the world. If you lose your job, your car breaks down, or your dog needs surgery, you’ll be liquid enough to pay your way out of trouble. 

Saving #2: Retirement Account 

Retirement accounts are also critical. According to a SimplyWise survey, 40% of Americans are worried that they’re not going to be able to retire, and the vast majority of Americans only have $65,000 in retirement savings. That’s certainly not enough to live off. 

Building your retirement early protects your future self. You might already have a 401(k) through your employer, but there are other options like a Roth IRA. Be sure to do your research on what works best for you.

Related: 401(k) vs. Roth IRA: Which is best for you?

Saving #3: High-Interest Debt

Some people also use this 20% to get a head start on paying off high-interest debt. While this is not ideal, it’s not a bad option if you’re overwhelmed with debt. Even $50 extra each month can shave years off of your debt payment day, depending on how much you owe.

Those are three savings you’ll need to be looking at. As for investments, these are the ones you’ll want to consider.

Investment #1: Real Estate

Real estate is one of the best investments to make. For one, real estate has a long history of stable, consistent appreciation, with few hiccups in between (i.e., 2008). Second, real estate is constant, as in, the home you buy will usually remain in place unless a natural disaster or something else occurs that damages or destroys the home. 

Finally, real estate is leverageable. While yes, you can trade stocks on margin, it’s risky. On the other hand, real estate can be acquired with a 20% downpayment. Depending on your financing terms, even less. There are also plenty of ways you can execute creative financing strategies.

Investment #2: Stocks

Another popular investment to make is in stocks. Compared to real estate, it’s much easier to get involved in stock investing. All you have to do is create a brokerage account, verify your identity, and get started.

Whether you plan on being an active or passive investor, note that long-term investments save a lot of money in taxes. While stocks are volatile compared to real estate, 30-year outlooks of stock indices show that stocks tend to appreciate over time.

Being Flexible with the 50/30/20 Rule

The simplicity behind the 50/30/20 rule makes it easy to make changes that fit your lifestyle. As we’ve discussed, one of the most common changes is switching out the 20% and 30% parts of the budget so that you’re emphasizing savings over wants. If you’re working on building your investment portfolio, it would be more beneficial to set aside 30% of your income for those projects, then spend 20% of your income on wants. 

Overall, the purpose is to create a truly balanced budget that equates to 100%. If you can lock in these numbers over a consistent period of time, then you should see real changes in your financial outlook.

The Bottom Line

The 50/30/20 rule is excellent if you want to try something other than traditional budgeting. It gives you ballpark numbers to spend on each category while still setting aside what you need to live life as you see fit.

While it might not make sense for an investor to apply the rule as is, the concept behind percentage buckets might be something worth considering. Perhaps you can try a 50/40/10 combination, favoring 40% in savings and investments. Or a 40/40/20 variety.

If it can help you achieve your goals, then it’s something worth considering.

David Greene:
This is the BiggerPockets Podcast, show 607.

Andrew Cushman:
That’s one of the beautiful things about multifamily. In single family, you buy a house and the average price in that market goes down 30%. Well, yours probably went down 30% too. In multifamily, you’re valued on the net operating income so if you’re a really good operator, you can still increase the value of your property in a flat or down market, even if everyone else is struggling. That’s one of the really cool things. That’s part of why, again, with caveat, it’s somewhat okay to pay a little bit for future performance, because it is something that’s in your control.

David Greene:
What’s going on, everyone? This is David Greene, and I am your host of the BiggerPockets Real Estate Podcast. At BiggerPockets, we want to teach you how to build financial freedom through real estate. We do that through formats like this podcast, where we bring in experts on specific topics like my good friend, Andrew Cushman, who is here with me today.
Andrew and I will be co-hosting this one. We invest in properties together. Andrew’s the best multifamily investor that I know. I call him Hawkeye from the Avengers because when this guy lets an arrow go, he never misses.
In today’s episode, we do a deep dive into multifamily apartment investing with a specific bend towards how to make it work in this hot environment while interest rates are rising. Andrew and I tackle several difficult questions and I think it came out really good. Andrew, how are you today?

Andrew Cushman:
I’m doing really well. Yeah, that was a whole lot of fun. We talked about a lot of stuff. Is it okay to ever pay proforma value for a multifamily apartment? We talked about, how do you find deals in today’s hot market? The low-hanging fruit’s gone, so how do you get up to that one that’s hanging on the branch way up there that no one can get to? Then we talked about some ways to add value that maybe some people haven’t thought of before.

David Greene:
Yeah, this was very unique. I thought you gave some answers that I have never heard anybody else say, and the guests asked some really good questions. Make sure you check this one out and listen all the way to the end, because Andrew gives some fantastic advice of how you can add value to multifamily property that I can almost guarantee you’ve never heard anybody say before. It’s very creative and very insightful.

Andrew Cushman:
We’re going to talk about pine straw and I won’t explain what that is. You need to go to the end and listen.

David Greene:
That is the word of the day. When you hear pine straw, make sure you pay attention. Today’s quick tip consider going to BPCON. Open registration’s started and you can go to biggerpockets.com/events to get your ticket. I will be there. Andrew might be there. My co-host, Rob Abasolo, will be there. A lot of BiggerPockets personalities will be there as well as a lot of members. Probably, some of the people that you heard on today’s show.
I’ve never, ever, ever seen a sad face at a BPCON in my entire life. It’s just a lot of people having a really good time, learning a lot of fun stuff, and having a great time. You always learn something at an event, but it’s often like a bran muffin. Just who really wants to be eating that? This tastes really good. This is fun and entertaining at the same time, so do not miss out.
These events will sell out. Get your ticket there. Events like these are also a way that you can meet other people that will help you in your business. Too many people underestimate the value of helping somebody else and then learning from them in that process.

Andrew Cushman:
Yeah. We’re actually looking for someone to help us right now. If you’re listening to this podcast, you’re probably someone who has a general interest in real estate. That’s a base requirement, but we need someone on our team who would make an awesome investor relations manager. If you’ve got strong organizational and system skills, you’re detail-oriented, you’re a strong communicator, then reach out to us.
Just go to vpacq.com. There’s a “we’re hiring” tab on there. Fill out the application and we look to, hopefully, add another BP community member to our team. We just hired a BP community member this week and we’re looking to do that again. There’s no better people out there than the BP community.

David Greene:
That is right. If you like what you hear from today’s show and you want to invest with Andrew and I, you can go to investwithdavidgreene.com. Register there. Accredited investors only please, but we are still raising money for an apartment deal that we are buying and it’s a really good one.
All right. Without any further ado, let’s get to our first caller. Whitney Boling, welcome to the BiggerPockets Podcast. How are you today?

Whitney Boling:
Hey. Doing good, David. How are you, man?

David Greene:
I’m pretty good. I’m excited. I got my buddy, Andrew, here with me today and he’s my … I’m putting together the investing Avengers, so Andrew’s like Hawkeye. He’s the sniper He just does not miss on anything that he does, so you’ll get some really good advice today. What’s on your mind? What do you got for us?

Whitney Boling:
Awesome, yeah. Thanks for having me on. I’m an investor out of Phoenix. Been listening to the show a long time. Got some single family rentals going right now, some condos, some single family homes, but ultimately, looking to try to make the transition into a multifamily right now.
Being in Phoenix, I’ve built up a decent equity position. I feel like the timing is right, but I just wanted to try to see, in making that transition, what are some of the top five things that don’t stick out in researching single family that might stick out when you’re looking at multifamily?

David Greene:
That’s really good. Andrew, you want to start there?

Andrew Cushman:
Yeah. Top five things. I could probably list off about 50, but I’ll try to narrow it down to the five that come to mind first. One is learning. Committing the time to learn how to underwrite a multifamily. It’s definitely a lot different than a single family where you’re looking, you might start with an ARV, after repair value, and then work backwards to determine, “Okay. What can I pay for it? What’s my mortgage going to be, and my expenses.” Then, “Is my rent going to cover that?”
You can do that pretty simply on a small Excel spreadsheet or even sometimes on the back of a napkin once you get good at it in single family. Multifamily gets a little bit more complicated, especially as you move into the bigger stuff where you’ve got 80 units, 100 units, 200 units, and you have things like ongoing vacancy factor.
You’re going to renovate, in many cases, and raise rents but it’s not 100% of the time. You buy a house, you fix it up, you re-rent it, boom, you’re done. Well, if you’ve got 100 units, you’re not going to renovate all 100 units the first day you move in. You have to plan on, “Well, how do I schedule that? How do I account for the fact that maybe I’m going to do eight units a month for the next 12 or 14 months?”
Then just all the other factors that go into underwriting. What do you do with … How do cap rates affect things? “How do I determine a going in cap rate and then what do I put for an exit cap rate? How do I underwrite the cost of debt?” You get into things like not only management companies, which you typically have with a single family, but then also actually having staff that are dedicated to the property.
One of the biggest things is just learning how to underwrite. Every operator that I know does it a little bit differently, so the key is to either purchase, or develop, or borrow a template for underwriting multifamily, and then get to learn that, and then maybe develop your own down the road. That’s what I did. This was not something I was going to figure out on my own from scratch. I’m not the creative guy, so I literally hired a mentor, got his underwriting spreadsheet, and then have built it out far greater over the last 11 year.
The number one thing is, learn how to properly underwrite. There’s courses, there’s books. Find a mentor. Partner with somebody who’s already in the business. You’ve got to learn how to underwrite properly. Or if that’s totally not your thing, partner with somebody who’s already got that nailed. Underwriting is number one.
The second big thing I would say is really important to commit to learning about, as you move into multifamily, is the debt is far different than what you’re used to dealing with in single family. In a single family, you might just go get FHA, 30-year amortized loan, boom, you’re done. Everything’s good, don’t worry about it.
In multifamily, and I should define multifamily. We’re talking commercial-size multifamily, five units and up. In commercial-size multifamily, the loans, number one, they’re typically nonrecourse, unless you get a bank loan, so that’s a benefit. Recourse meaning they’re not going to come after you. You really need to understand recourse versus nonrecourse. Then they also have things called bad boy carve-outs, which means if you commit fraud, then they can come after you no matter what.
You have to commit to learning all the different types and terms of debt, and then not only that, but just how does it work in terms of your property? Again, if you get a single family house, many cases, you’ll slap a 30-year loan on there and you’re good for as long as you want to hold it. In the commercial world, your loan is typically only good for five, seven, or 10 years. There are exceptions to that, but in most case, you have to pick. Is this going to be a five-year loan, seven-year, 10-year? Maybe 25, if you’re going bank, or HUD, or something like that. The second big thing to commit to learning is definitely how multifamily commercial debt works. It’s very different than the single family world.
A third thing, and this piggybacks or parallels with that is matching that debt with your business plan. One of the biggest mistakes that we see people making, even experienced people, is not properly matching your debt with your business plan. If you buy a house and you put a residential mortgage on it, or a duplex, even a fourplex, you can basically sell that and pay it off anytime, no problem, in most circumstances. In the commercial world, you can’t necessarily do that.
We have what’s called prepayment penalties, which most people understand what that means, meaning if you pay off the loan too early, if you said, “This is a 10-year loan” and two years in, you’re like, “Hey, I want to pay this off,” the lender says, “Great, but you’re also going to owe me 10, 15% of the loan balance as a penalty,” which is huge. We also have yield maintenance, which is effectively the same thing. Meaning the lender wants to protect their yield, and if you pay off the loan early, they’re going to make you pay them extra interest in advance.
If you plan on holding a property for three years, you probably don’t want to put 10-year fixed debt on it, because when you go pay it off, you’re going to have a huge penalty, so the third key thing to commit to learning and understanding is how debt affects your business plan. It definitely has a lot more strategy and thought to it than you typically have in the single family world.
A fourth thing is … We just talked about debt and the loan. Typically, your lender’s your biggest partner in any deal. The other half of that is, where is the equity piece going to come from? Commit to learning the equity side. Now, if you’re just putting in your own money into deals, it’s pretty simple.
You might be putting in 30% or 35, or 40% of whatever the total cost is, but if you’re taking money from outside sources, which of course, is syndication, or raising money from investors, or partnering with other people, commit to learning the legalities and the rules around doing that. It’s actually not that complicated. Most BiggerPockets listeners could probably pick it up in a day and have a really good handle on it.
It’s one of the those things where if you do it wrong, you can get into a whole lot of trouble, and there’s lots of people out there doing it wrong right now. Everyone’s getting away with it because the market’s been fantastic, but the minute something shifts, and deals start to go bad, and someone complains to the SEC, if you didn’t follow those rules, you can be in a world of hurt.
Once they find out that you did one deal wrong, what they typically do is they will ask you to open your kimono on every single deal you’ve ever done, and they don’t limit it. They say, “All right. If we’re looking into Andrew or Whitney, we’re going to look at everything they’ve ever done,” so the fourth thing would be, if you’re taking outside money, make sure you’re doing it right.
Again, this isn’t something, you don’t need to become a syndication attorney or an SEC attorney. You just hire one that knows what they’re doing to keep you protected. David, before I jump into number five, is there anything that you would put in the top five that maybe I’ve missed or that you would add to that?

David Greene:
The only thing that I would have added, and I don’t think I can sum it up as concisely as you were, so I won’t get into it, but the idea would be, with residential real estate, we have rules of thumb that we tend to follow. When you see something that is close to the 1% rule, you’re like, “Ooh, I should probably look at that.” Or when you see a property with more square footage at the same price as other homes in the area, or that’s listed lower, comparable sales is a much easier way to establish a baseline of value, so when something falls outside of the norm of what you’re used to seeing, it catches your attention, you look into it.
Anytime you’re changing asset classes, one of the first things you want to do is try to figure out what that baseline is for that asset class and what’s falling outside of the norm so you can key in and then implement everything that Andrew’s saying. We just take for granted how many deals are out there, and that you do not have the resources to analyze all of them.
Part of being good at this, like what Andrew hasn’t said, but I know him so I see him crushing it, is his criteria are so incredibly defined that he subconsciously gets rid of 98% of what comes his way. He doesn’t even look at it. All of the efforts he’s giving are on 2% of deals that could actually work. If you don’t learn how to do that, you’re going to be like me at jiu-jitsu. You burn all our energy in the first 90 seconds, and then you get your butt kicked for the rest of it because you haven’t learned how to be efficient. It’s an important part of business.

Andrew Cushman:
Actually, that was the next thing I was going to say, so thanks, David. That’s perfect, and is define exactly what you’re looking for, and then learn how to go find it. We talked about that in some of the previous episodes of how to screen markets. Then once you screen for the market, how do you screen those deals and just take 100 and whittle it down to two that are worth your time? That would be the fifth thing. Great question.

Whitney Boling:
Yeah, that’s great, Andrew. I appreciate it, man.

Andrew Cushman:
Whitney, do you have any follow-up questions or any clarity you wanted on anything?

Whitney Boling:
I think just in terms of the loan piece of it. That’s where the biggest hurdle is for me, and trying to understand the structure behind the five or seven-year loan. I just am not exactly clear on how that works.

Andrew Cushman:
When they say a five, or let’s just say a seven-year loan, and you could maybe do that with a bank or agency, so Fannie Mae, Freddie Mac. Could be a bridge loan. Most bridge loans are five years, but the principle is the same. Typically, what that’ll look like is, let’s say you’ve got a seven-year loan. You might have two years of interest only, so you’re not paying the principal down, you’re just paying the interest. Then the remaining five years, you’re going to be paying interest and principal.
What they do is they’ll amortize it over 25 or 30 years, so in that sense, it’s very much like a residential loan in terms of the amortization, except you just can’t keep it for 30 years like you can with a residential loan. When you get to year seven, you have to pay off that loan. You can do it through either refinance, sell the property, or if you’ve come into a lot of cash, you just pay it off. You have to pay it off in whatever year that loan comes to term. That could be, again, year five, year seven, something along those lines, so that’s how they’re structured.
Then something else that’s negotiable, and when I say negotiable, it’s not just like, “Oh, I want this,” and they’ll say, “Okay, fine.” You often will pay for these things, meaning you can pay a higher rate or you can pay a higher fee in exchange for some of the things I’m about to talk about.
We’re actually in the process of doing this on a deal right now where we are paying a slighter higher rate on a seven-year loan in exchange for the ability to pay it off early in year three without having a big prepayment penalty or yield maintenance. Well, you say, “Okay. Well, Andrew, why would you do that? Because it increases your rate a little bit.” We are in a place in the market where the fundamentals of multifamily are rock solid, however, we do have increasing rates. The debt markets, it’s not inconceivable that everything that’s going on in the world right now that something could spook the debt markets over the next couple of years, or the economy could go into recession.
There are risks out there that really weren’t as prevalent just a couple years ago, and so we want to have, and this gets back to, I think it was point number two or point number three about matching your debt with your business model. We’re paying a little bit higher rate to be able to exit early just in case there’s some market force that dictates, “Hey, it’s best for us to get out now, rather than hold for seven years.” Or vice-versa. That’s why we’re not getting a three-year loan.
We don’t want to be forced to get out in three years. Many bridge loans, it’s a 25-year amortization, but you have to pay it off in three years. What if in three years we’re in another March of 2020 or fall of 2008 and the debt markets are just locked up and not available? You don’t want to be in that situation. That’s how you lose money in commercial real estate is being forced to sell or refinance at a time when you really can’t or shouldn’t, and so you take the debut structure and work it to your advantage.
That’s generally how it works is you may amortize for a long period of time, but you then, you can pick a menu of … They literally will give you, in many cases, a matrix. Says, “All right, if you want a five-year term, here’s your rate and other terms, one-year IO. If you want seven-years, we’ll give you two years of IO, and your interest rate’s a little bit higher. If you want 10 years, we’ll give you four years of IO and the pre-payment penalty burn goes away in five years,” and whatever the other terms are.
That’s how they structure it and, literally, it’s like a menu. Whereas, with a residential mortgage, correct me if I’m wrong, David. It’s been a while since I’ve been in residential. It’s basically like, “Hey, here’s your rate. It’s 30 years. This is what we’re going to give you. Maybe you can pay a point to lower the rate a little bit, but that’s it.”
Then also, another thing you can do in multifamily that can be really beneficial, especially if you don’t have as much equity or cash available, is you can do lender-funded renovations. If you’re buying a property and you’re going to do $800,000 in renovations, many cases, the lender will not only give you, let’s say 75% of the purchase price, they’ll give you 75% of that renovation budget, and then you do the work. The contractor invoices you. You send that to the lender. They release the funds. That’s another piece of the structure to factor in. Any other follow-up questions or, hopefully, that helped a little bit.

Whitney Boling:
Yeah, that definitely helps. I just want to try to understand, with the rising interest rates and things moving rapidly, I don’t want to be stuck in a situation where I can’t refinance or I’m stuck with a higher interest.

Andrew Cushman:
You know what? To me, that is the biggest risk to the multifamily market right now, and to a lot of deals that have been done over the last two, three years. I think it was 2021, 70% of deals were done with bridge loans, at 75 to 80% LTV.
Well, when they go to refinance or sell a couple of years from now, if rates are still significantly higher, many of those loans aren’t going to be able to refinance out because the debt coverage ratio won’t be there. What I mean by that is the net operating income won’t be enough to cover the new debt load at a much higher interest rate, and those deals are going to run into problems.
Real quick, how you mitigate that is, number one, go in with lower leverage. Our last couple of deals, we just went in at 60 and 65% LTV, just to make sure we had that extra room. That’s the biggest way to mitigate it. Number two, a whole nother discussion, but there’s fixed-rate and there’s floating-rate with multifamily debt.
Floating rate, actually, typically is cheaper. However, what we’ve been doing recently, and for the foreseeable future, is we will get fixed-rate debt but then make sure that we can either get a supplemental loan, which is the equivalent of getting a second mortgage and pulling out cash, or going back to our previous discussion, we can pay it off early.
That way, we’re eliminating the risk of rates going way up on us. We know, “Hey, we can ride this thing out for seven or 10 years, but if everything goes to plan and it works out really well, we can still pull cash out and give that back to investors.” That’s how you work with the structure of multifamily debt to still do deals in an uncertain environment, but not increase your risk. It’s all about, there’s so many creative ways to do debt, and equity in multifamily deals. You just have to adjust it as the market adjusts, and that’s just some of the ways to do that.

Whitney Boling:
Yeah, that’s exactly what I was looking for, so I appreciate it, Andrew.

Andrew Cushman:
Oh, awesome. Thank you.

David Greene:
All right. Thank you for that, Whitney. Before we get on to our next caller, I want to make a comment about people that have invested in somebody else’s syndication with rates going up because there is risk. Now, one of the things that Andrew and I have noticed is a lot of deals have been put together by more amateur, they haven’t done as much, and they just shoot from the hip.
They’re raising more money than they should be. They’re paying more money than they should for the property. They’re not experienced with the management, so their operating costs and ratio is higher than it would be with the more experienced operator.
While we’ve had just the best bull market we’ve ever seen, you get away with playing sloppy, but rising rates is one thing that is very impactful on multifamily housing because your debt plays such a big role in making the numbers work. If you invested with someone who wasn’t that great at doing this or wasn’t that experienced, the odds of you being okay are higher if you got in the right area.
If you went in an area where rents have been going up and demand has been going up, you should see an increased NOI, even if the operator didn’t do a great job and so therefore, you can afford the higher debt service that comes with the higher interest rate. If you chased after really high returns and you didn’t get into a great area and you didn’t get in with a great operator, your money might not be that safe.
Moving forward, one of the things that I’m telling people is, don’t chase the highest return possible. When they say, “Hey, we can get you a 20% IRR,” and you say, “Well, that’s better than a 16% IRR. I’m going with them.” A lot of people got away with that for a long time. This is not the time to be doing that as the Fed is continuing to increase rates and people are moving at a faster rate across the country. After COVID, that jump-started this entire idea of, “I want to live where I want to live. I don’t want to live where I’m stuck.”
What could have been a great deal in New York five years ago is now not looking like a great deal. Rents aren’t going up. It’s hard to get people to want to live there. People are leaving that area. Now interest rates are coming, so in my opinion, when you’re going to be investing in someone else’s syndication or with a partner, safety should take priority over top-end return.
In a bull market, you can be a little riskier, chase after those big returns. In a bear market or a potential bear market, you want to put a higher weight towards safety, as opposed to just pure maximum profit you could get on your money. Thank you for that, Whitney. Appreciate you, man. All right, Pete, if we get you in here.

Pete:
Hey, guys. How are you doing?

David Greene:
Good. Thanks for being here. What question do you have for us?

Pete:
Long-time listener, first-time caller, so appreciate you guys doing this. I’m a real estate-friendly financial advisor up in the Seattle area. I’ve done about 14 BRRRRs over the years with varying levels of success, as I’m sure we can all attest to. I’ve been trying to transition into the multifamily space for about a year and a half or two years now.
What I’m consistently seeing is that it seems like, against the adage, making money going in, it seems like the pricing is based more on the proforma numbers or proforma NOI, so to speak, rather than on the current numbers.
I’m trying to figure out if this is just symptomatic of the hot market and how I should be thinking about this because I don’t want to give up that value-add opportunity, but I also don’t want to sit on the sidelines forever.

Andrew Cushman:
That’s a really good one. That is definitely something that is a constant struggle and I would say it’s always something to consider but it is, as you alluded to, it is very much a symptom that has been aggravated by the current market.
When you hear the stories of an apartment complex traded for two and a half cap in a place like Atlanta or Dallas, which are great markets, but historically, not two and a half cap markets. A two and a half percent cap rate, that’s LA, that’s San Francisco, that’s New York. When you hear that a property traded at a two and a half cap in Atlanta and you’re like, “What the heck are they thinking?” This is exactly it. What it is is it’s somebody paying today for tomorrow’s performance.
You’ll see the brokers will advertise. They’ll actually put it in print. I think this is going to start going away soon, but they’ll put it in print, “Hey, this is a two and a half cap, but you can get it up to a four cap if you do all this work,” and that’s the value-add. The answer to this, to me, is double-sided.
One, is this gets to don’t get overlay caught up on going in cap rate. Because some of the best deals that we’ve done historically, yeah, our going in cap rate was between zero and two, and in some cases, it was even negative. The property was losing money when we bought it, but there was enough value-add there to make up for it.
On the other hand, Pete, like you said, you do not want to pay the seller for all the work that you’re going to do, and so the answer lies somewhere in the middle. If you’re looking at marketed deals, odds are there’s going to be someone out there who’ll pay that seller for all the work that the buyer’s going to have to do, and you’re probably not going to get that.
If you can … What we found is when we work with either, some cases, directly with sellers or in most cases, it’s a broker bringing us an off-market deal where there’s not this competitive bidding environment that gets everyone hyped up and like, “I’m going to win this, and I’ve got to win this. My investors haven’t seen a deal. I have to get something.” That leads to exactly what you’re talking about.
What you are aiming for is an environment where you can … This I like a one out of 100 type of thing right now, but it is still out there, whereas, you work with a seller where you can have a reasonable and non-hyped conversation and negotiation over the deal. We closed one last month where it was very similar to this, where a broker just connected us directly with the owner of the property. He had built it and developed it himself. He did have one off-market offer. Just someone had literally called him, and flown down, and looked at the property, and gave him an offer.
He was getting ready to sign that and the broker connected us. Said, “Well, look. You should really let this one other group at least come visit,” and so I went down. Literally, was there within an hour. Toured the guy, got the deal, and made him an offer, and eventually got the deal under contract and closed. It was one of those situations, I don’t remember what the going in cap rate is, but the going in cap rate, it was low. It’s probably somewhere, I think it was right around four, and this is for a 2011 construction property in a larger tertiary market in Georgia.
On the surface, that might not make sense. “Why would you pay a four cap for that?” Well, this guy, his daughter was running this large, almost 200-unit property all by herself. Not doing a bad job, but just way too much work for one person. No website, no marketing, no nothing, so when you’re in that situation, you know how you keep it full? You don’t raise the rents. You don’t want turnover because you don’t have time for that, and so they hadn’t raised rents since 2019.
We actually own another property about a mile away in that market, so we know for absolute certain, like, “Holy cow. The rents on this are incredibly low.” We took our market knowledge, and we went and looked at every other property in the market, and we said, “All right. This property as it is today should be renting for $200 more than it is. Without doing any work, it should automatically be 200.”
We look at that and say, “All right. We’ll pay somewhere, we’ll pay, call it a four cap because we know this market and we have very high confidence that we can get it up to where it should be.” Then at that point, it’s like a six, or a seven, or something really high. The seller, all he wanted was just a reasonable offer on where his property was today.
Would I like to buy it a five cap going in? Yeah, of course, we would but it had such a clear value-add that we are willing to pay just a little bit more. To me, that’s where the workable middle ground lies. In today’s market, very few sellers are just going to give you a killer deal on a property. This property, I think we were buying, it was like 126 a unit or something like that. We have a very, very clear path to like 160 to 180 a unit in a very quick, near future so we can pay him 115 and we know we can very easily get it significantly above that, that deal works.
The key to what you’re asking about, “Hey, I don’t want to pay today for tomorrow’s performance,” number one, and we talked about this with the last caller, is really knowing your market and your property, and diving into the data so that when you say, “You know what? I can pay just a little bit more for this now because I will be able to get it to much higher value.” You do that study, you do that analysis, you can go into it with the confidence of a four-year-old in a Batman shirt. Just like, “Going to do this. I’ve got this nailed.” That’s really how we look at that. Any follow-up questions? Or hope that helps.

Pete:
Yeah, so on that one, in terms of the underwriting, it sounds like you’re talking about a happy medium between the underwriting of what the cap is today or the NOI is today versus the proforma numbers, so you’re trying to find the medium between that, but if they’re starting out at the proforma numbers for their asking price, usually, the expectation is you need to come down from that a little bit. If they’re not ready to do that, I guess, they’re not ready to do that and maybe you need to move on.

Andrew Cushman:
Exactly. Yeah-

Pete:
Which gets into your point too about the source of these leads. If you’re going to go to the market, you’re probably going to see somebody trying to value it based on proforma income numbers, but if you can get directly to the seller …

Andrew Cushman:
Yeah. You said that more concisely than I did. That’s really what it comes down to is, you’re absolutely right. You cannot pay today for 100% of the work you’re going to do. It’s got to be somewhere well below that, and you have to have high confidence that you’re going to get there.
Now, five, 10 years ago, you could pay for the absolute dead bottom of what it is today and then it’s all on you. It’s just got to be a reasonable spot in the middle. Also, I would say it’s common to say in single family you make your money when you buy. In multifamily, that’s really not true. In multifamily, you make your money through operations. That’s how you make your money, by …
Again, we’re assuming you bought the right asset, the right market, all that stuff we’ve talked about in other episodes, but you make your money in solid operations and increasing that operating income by increasing collections, decreasing expenses, all those things that go into it. That’s one of the beautiful things about multifamily. In single family, you buy a house and the average price in that market goes down 30%, well yours probably went down 30% too.
In multifamily, your valued on a net operating income, so if you’re a really good operator, you can still increase the value of your property in a flat or down market, even if everyone else is struggling. That’s one of the really cool things, and that’s part of why, again, with caveat, it’s somewhat okay to pay a little bit for future performance because it is something that’s in your control.

Pete:
Makes sense.

David Greene:
I like your question, Pete. I’m going to provide the same answer Andrew gave from a single family perspective so that people who are used to that investing asset class, which is a little more common, can understand the principle we’re trying to make here.
When we say you make your money when you buy, it’s based off of an understanding that you cannot rely on appreciation, which is a single family concept, like other homes selling for more in the area pushes up the value of this home, and so it drags it all up. Commercial properties, multifamily properties are not quite, they’re not as simple as appreciation.
If someone buys an apartment complex across the street from you and pays more, it doesn’t automatically make yours the same value. It depends on what rents you’re getting, how well you’re operating at the net operating income or just the profit at the end of the day is how you base it. There’s certain times where you make your money when you buy is more important than in others.
Part of it could be the time, like the market in general. 2010, prices aren’t going anywhere fast. It’s very important that you get in under market value if you want to get what we call a deal. 2013, prices are kind of starting to move forward. You still want to be below market value, but maybe it doesn’t have to be at 80% or 70% of value. If you’re at 90% of value, it’s still a pretty good opportunity.
Then you have 2022 or 2020. Rampant inflation, a very irresponsible fiscal policy by our country fueling fires everywhere, where we’ve literally had buyers that two years ago, had a house appraise at 550, and they had it under contract at 560, and they walked away and said, “I’m not going to overpay,” and two years later, it’s worth 780. That principle doesn’t age well. It ages like milk, not like wine.
I like what you’re saying, and that is how we should be looking at it, but we can’t be so rigid that we don’t understand the overall macro principles that are at play and how they affect how we operate by these principles. To Andrew’s point, if I had a chance to buy a single family home in Gary, Indiana, that I did not think would be appreciating much at all and I could get it at 95% of ARV, I would have to wait 10, 15 years before that started to make a lot of sense for me.
If I’m buying it in South Florida in a suburb outside of Miami that’s the next big thing to go off, I could pay 105, 110% of ARV, but in nine months it might have appreciated much more than that. In single family investing, the time you wait is equivalent to commercial investing, the effort you put. Those are the two resources that we measure.
There’s only so much you can do to make a house worth more in a single family sense. You have to wait, but in multifamily investing, the effort you put into it can have a significant impact on increasing the value, so what you’re looking for is, “How do I get maximum NOI for minimum effort?” Any deal will work if you just stare at it all day long, and constantly talk to people, and market the crap out of it, and just study all day long. You could turn it into a job, but that’s what we’re trying to avoid.
That’s what Andrew’s getting into is, it’s okay to pay over what it is worth, in quotes, if you see a very clear path to value-add that is not a lot of effort. That’s easier money than if you’re paying more than it would be worth on paper and it’s going to be like walking through sand or mud to try to get there. Does that make sense?

Pete:
Yeah. It does, absolutely. I appreciate the insight. On that same note, real quick, Andrew, do you see, or David, do you see anything changing with rising rates?

Andrew Cushman:
Yeah, that’s, I do, definitely. One, already, we’re starting to see overblown seller expectations get reined in a little bit. David, I think we see this in the single family too is, you’ll hear media say, “Oh, prices are coming down.” No, no, no, no. That’s not happening.
It’s just crazy, “Hey, I’m going to sell for 20% more than the guy down the street who did last month.” That’s what’s starting to go away is seller just saying, “Okay. Well, the property next to me traded at a four cap, so I should get a four cap too.” Instead of saying, “Well, now I’m going to get a three cap because that’s one month later.” That is starting to go away. The buyer pool is thinning out a little bit, whereas, six months ago, we might have had …
We actually have two properties listed for sale right now. Where six months ago, we might have had 30 buyers, now we’ve got 10. It’s still a good buyer pool. It’s just not the feeding frenzy that it was. That’s what’s happened so far. Going forward, I see, I’m hoping for things like hard money going away. Five years ago, you had 30 days to do your inspections and then you had a financing contingency. Meaning if your loan blew up at the last minute, oh, well. Seller has to give you the money back and you’re out.
Then, as you probably know, Pete, since you’ve been listening to BP and checking out deals, now it’s like, “All right. If it’s a million dollar property, we want $100,000 nonrefundable deposit day one.” That money is the seller’s, almost no matter what. As the market shifts to a more balanced buyer-seller market, I think that will start to go away. Candidly, I hope that goes away. That’s one of the things I’m looking forward to as this market shifts.
Then the third thing is, well, I don’t see, in most good markets, significant valuation declines for multifamily. For that to happen, there’s going to have to be a whole lot of motivated sellers and that’s tough to see right now because most sellers, if they don’t get their price, they’re just going to hold. Most multifamily are making so much money that it’s like, “Well, if I don’t get my price, I’m just going to keep it.”
That’s how our portfolio is. It’s 35% LTV and rolling off all kinds of cashflow. If we can’t get a good price, we’re just going to keep it., so I don’t foresee a huge decline in pricing, especially with inflation going up, and replacement cost going up, and all of that.
I do see the market shifting to be a little bit more balanced between buyers and sellers, which for those of you who have been out there for the last five years going, “Ah, I can’t get a deal,” I think it’s going to start getting a little bit easier. Not easy, just easier.
The final thing I want to add in terms of what I think might be changing is, a lot of people took out really high-leveraged bridge loans in the last couple years. 70% of transactions were done that way, and if rates go up too far and stay that way for a couple years, there actually might be some motivated sellers who can’t get out of their bridge loan that’s due next year or the year after, and that’s where savvy investors, like all of us, can come in and get a deal and not pay for future performance. Those are some of the things that we’re seeing now and I think it’s going to lead to.

Pete:
Sounds good. I appreciate that. I could pick your brains all day and ask you a bunch of questions, but I’ll stop there. Appreciate it, guys. Thank you very much.

Andrew Cushman:
All right. Take care, Pete.

David Greene:
Thank you, Pete. Matt, the author of the BiggerPockets book on raising money. What’s that? Raising Private Capital? Is that the name of it? Oh, there it is right there.

Matt:
Raising Private Capital. Thank you.

David Greene:
Wonderful.

Matt:
I love that Andrew talked about raising money from investors for quite a while, and I’m sitting here like, “Of course, he’s going to mention my book because we’re friends. He knows my book. It’s a BiggerPockets book,” whatever. He didn’t mention my book and that’s okay, and that’s okay. I still love you, Andrew.

Andrew Cushman:
[inaudible 00:41:50]

Matt:
My book is Raising Private Capital. If you want to hear more about raising equity from investors, check out the Amazon bestseller, BiggerPockets book, Raising Private Capital.

Andrew Cushman:
Well, hey, at least we know you’re not going to ask the question about how to raise capital.

Matt:
I will not. Wouldn’t that be great? “I’m looking to get started in raising money, Andrew. I want to talk to you about that.” No, man. I want to talk … As you may know, I’m leading the BiggerPockets multifamily bootcamp, and it’s been going great. We just concluded our first one. We got another one coming up, which we can mention here.
I get a lot of recurring questions, guys, and I wanted to bring those questions here to you guys to discuss, bootcamp questions that come up on a regular basis, and just get your take on … Because I have my answers to these things, but I’d love to hear what you guys think to these recurring questions that a lot of folks that are looking to get into or expand into multifamily have. What do you guys think?

Andrew Cushman:
Let’s do it.

David Greene:
Let’s do it.

Matt:
Okay. Both of you have already heard these questions, but I’d love to know what you think. Number one, “I’m a new investor and I’m having a problem finding deals. Then, I’m going to the deal tree and the deal tree is not yielding fruit right there, right in my hand. I’m not able to just pluck a deal right there off of the tree. Good deals are hard to find.” Aka, “How do I find good deals? What are your tips to finding good deals in the multifamily market?”

Andrew Cushman:
If you’re looking for deals in the deal tree these days, you’re going to have to get a six-foot tall step ladder, one of those extendable fruit pickers, and aim for the very, very top of the tree. Then you might be able to get something, so-

Matt:
Cut the tree down, right?

Andrew Cushman:
Yeah, or just cut the tree down. There you go. Like that story The Giving Tree. You pick the fruit and then you just cut the whole thing down.

Matt:
That’s the worst tree ever.

Andrew Cushman:
Oh, that’s a sad story. It’s a sad story.

Matt:
That dude is a jerk to that tree, but anyway …

Andrew Cushman:
Yeah, we talked about in the … Number one, I think the fruit on the tree’s going to start regrowing a little bit lower in the future, so that’s the good news for everybody, but it doesn’t mean it’s going to be really easy.
How to find deals, number one, I see a lot of people make the mistake of like, “Oh, I’m looking at a deal in Indiana, and I’m looking at one in Boston, and I’ve got this one down in Florida.” They’re just all over the place. Just anything that shows up in their email inbox is something they’re going to look at.
Number one, pick a geography and stick to it. When you pick that geography, pick one that has the right tailwinds for multifamily. Population growth, job growth, strong median income, all those things that we talked about back in, I think it was episode 571, of how you pick a market and submarket.
The first thing is be very firm and decide on, “This is where I’m going to look for deals.” The second thing is, decide exactly what kind of deal you’re looking for. Are you looking for 20 units or are you looking for 200? Are you looking for 1960s value-add or are you looking for 2010 construction that you just paint it and call it good?
Nail down exactly what you’re looking for. That does two things. Number one, that helps you quickly process everything that comes into your inbox. At this point, I literally probably get 50 properties emailed to me every single day. Some of them are repeats, but literally, 50 or more a day. I can delete 49 of those because they’re the wrong areas, they’re the wrong size, they’re the wrong age, they’re tax credit, all these things that we don’t do. I can get it down to one, “Ooh, this is the one that we need to look at,” so clearly define what you’re looking for, that you can do that, so you’re only spending time on deals that fit your investment goals and your investment criteria. That’s what Brandon talks about in his crystal clear criteria.
Now, once you have your crystal clear criteria, this other benefit of that is you make sure that all of your relationships understand your crystal clear criteria so that all the brokers you work with, all the, maybe if you’re dealing with wholesalers or any source of deal that you work with, make sure that they understand that criteria.
If you’re looking for a 20-unit property in Dallas or Fort Worth that was built between 1990 and 2010, and you keep looking at those, and every time a broker has one of those, you talk to that broker, and you give them feedback, so that after six months or whatever, that broker talks to a guy who’s owned it for 10 years and he’s like, “Yeah, I might consider selling it.” That broker goes, “Oh, Matt is the guy for this deal.”
He calls you, says, “Hey, I’m going to send you this off-market deal. Let’s see if we can just put it together. I think it’s a great fit for you. This guy might sell if you give him the right number.” That’s how you get the off-market deals that are really good deals and that you’re not necessarily overpaying or getting into bidding wars.
That’s really the key to doing it in these markets, is knowing clearly where you’re looking, what you’re looking for, and then building the relationships to not only bring you those deals, but so that keeping those relationships fresh and active so that when that deal pops up, whoever sees it thinks of you first. That is how we get 90% of our deals.

Matt:
That’s brilliant. Thank you.

David Greene:
I think that is great advice. I would say that’s better than the advice I’m going to give, but because … Sorry. Because Andrew took the best donut in the box, I’m going to try to be like, well, this one’s kind of crumbling falling apart, but it’s better than-

Andrew Cushman:
I got the chocolate sprinkles one.

David Greene:
That’s it, man. I got the plain, like there’s no glaze or there’s no topping. It’s just like the boring donut that I don’t even know why they make. It’s just the bread, but for some reason, they make them, and even a more weird reason people buy them. That’s what I am. I’m that donut that has no topping.
Here’s the advice that I was going to give. Andrew’s advice is better. It is safer and it is going to build you wealth better. If you can get the better deal by just working harder to get it, yes. There’s also a scenario, like where I’m saying, your strategy has to adapt to the market itself.
When you’re in a situation where prices are just solid, rigid, they’re not going to move because demand has gone down, or you’re in a market where it’s like that, you have to be extra careful when you buy. When you’re in a market where a reasonable person would expect that demand is going to continue to increase and maybe supply is constrained. The deal that Andrew and I are buying together right now, they can’t build there. It’s incredibly difficult to get any real estate. It’s landlocked and there’s a buttload, that’s a technical term, of Americans that are moving into this city.
As we see demand increasing, we see supply is restrained, it would be almost an act of God in order to see that not happening. In those situations, it’s not always about the price. It’s about, like Andrew said earlier, the management. In today’s market, you need to ask yourself, where do you have a competitive advantage? Do you have a contactor that you know that can do the job for 80,000 and you’re being bid 150,000 by everyone else? Well, your competition’s probably getting $150,000 bid, so if you can get someone you know that you trust that can do that work, you can pay more than somebody else and still get a good deal.
Now, in this case of the deal we’re putting together in Fort Walton, we have management that is already there that is already managing other properties and we believe we can do it much more efficiently than other people, so that deal makes a lot more sense for us than it would be for someone else.
Long story short, yes, beat the bushes, turn over the rocks. Find the deals before they hit the market, but even if it is on-market, if you have some kind of a competitive advantage that allows you to operate it cheaper, or better, or add value in ways other people don’t see, that’s a good plan B.

Matt:
That’s awesome. I want to … Here’s what I tell people, and I’m going to sum up both what you guys said with here’s my icing on the top of the cake that you guys just baked right there, is that, yes, pick a market. Drill down, have your crystal clear criteria. Have your unfair advantages, the contractor that can do it for cheaper, whatever.
You obtain those things, you drill into those markets, you build those relationships by going to the market in person. I cannot tell you how many people I’ve talked to in the bootcamp and in my travels, and people say, “Man, I really want to buy a deal in Columbus, Ohio. I love that market. I’ve done my research and my homework. That’s my jam. I want to buy a deal there.”
I’ll say, “Okay, great. How many times have you been to Columbus?” “Oh, I’ve never been there.” It’s like, “Well, I’ll bet you’ll never do a deal there because you’ve never …” That is the bottom line. If you’re going to choose a market, the way you’re going to build an unfair advantage, the way you’re going to meet that contractor that can do the job for 80 grand instead of 150 is go to that market, go to the local rehab, meet them on BiggerPockets, meet the broker that’s going to truly send you off the market stuff.
Whatever it is. Build an unfair advantage by traveling to that market and networking yourself in person. Look at people dead in the eye, and buying them a cup of coffee, and sitting down and chatting with them face-to-face. Anyway, so that’s what I tell people on finding deals. You guys know that as well, so good stuff.
That is far and away the most common question I get from those that are trying to get into or expand into multifamily is finding deals. It’s a tough market, I get. All three of us still, we don’t connect on every pitch that we swing at either. That’s just the nature of the game right now. Another way to find good deals is by you look at a lot of deals. You know?

Andrew Cushman:
Yep, yeah. It’s not easy at all, but it is absolutely worth it.

David Greene:
That’s a good point. What I’ve been telling the agents on my team when we talk about this is that things are either going to be easy on the front-end and hard on the back-end, or the other way around. There is no situation where both ever happen.

Andrew Cushman:
Yep.

David Greene:
What we see right now is that just about everybody buying real estate is making money. A lot of that’s not because they’re so great. It’s because inflationary pressure’s pushing things upward, so then everyone runs to that market and they go, “Oh my gosh. Everyone’s making money in real estate. Let me do it.” That’s why a lot of people are listening to a podcast like this. The market is awesome.
Well, inherently in that scenario means it’s going to be harder to get into it. There’s other people that ran there and that’s why it’s good. When you see the opposite, like 2010 when it was very easy to get in, you heard a lot of people that didn’t want to do it because the back-end looked like it was going to be rough.
You just have to accept that this is the way life works. If it’s easy when you first get there, it’s going to be difficult. I tell the agents it’s like working with buyers. It’s not hard to find a buyer that’s willing to work with us right now. Everybody, all the buyers want to work with us, but there’s no houses to sell them, so you get the buyer client, it was easy. Then the job is super hard to put them in a contract.
It’s very difficult to get sellers, and so no one wants to do it. They’re like, “Oh, but sellers, they’re so demanding. They want me to interview against other agents. They call me every day, and it’s easier with buyers.” Well, yeah, but you get a listing, it’s almost guaranteed to sell. It’s easy on the back-end, so that’s just something in life that I have learned.
Don’t forget that because everyone hears talk of real estate is exploding, but their expectations when they get to the party is that it’s easy to get in the door. It’s not. That’s why it’s doing well, so like you guys just said, you got to look at more deals. You have to look for advantages that other people don’t have. You have to have a knowledge base that other people … Literally because multifamily investing has been making people so much money, but that’s why you want to do it, so just expect it’s going to be hard when you get there.

Andrew Cushman:
Yeah.

David Greene:
You know what it is? It’s like saying, “Man, those guys at the CrossFit gym are in such good shape. I want to look like that.” Then you get there and you’re like, “Whoa, this is so hard. What’s the easy workout? Can I do that one?” Then if you go do the easy workout one, you don’t have the benefits of the CrossFit workout, right? You look the same.

Andrew Cushman:
You’re not going to look like the guys at CrossFit gym.

David Greene:
Yes.

Andrew Cushman:
Right.

Matt:
There you go. Andrew, it’s hard work, as you said, and it is but it’s worth it. That’s how you get the shredded body. That’s how you get the awesome portfolio. That’s how you get the lifestyle that real estate can yield is through a ton of hard work, and yeah, it’s hard. Most of it’s fun. Sometimes, you got to pluck out thorns. As we were saying, Andrew, sometimes it gets tough but it’s actually fun sometimes too.
Guys, interesting time to bring this up. Speaking of CrossFit gyms, and thank you for that analogy, David. BiggerPockets and I have put together a phenomenal bootcamp that’s going to make you into the shredded real estate investor that you want to be, the shredded, multifamily investor. It is the BiggerPockets multifamily bootcamp.
You guys can access that by going to biggerpockets.com/events, biggerpockets.com/events. Seats are limited. I believe that the registration closes down on May 15th on that, so check that out now. It’s something you guys can join in on. It is a 12-week program that’s participated in by hundreds of other real estate investors you can network with, you can form small subgroups, accountability groups.
There are folks that have gotten together and done deals together from the last bootcamp, so if you want to meet people that are like-minded that have drank the BiggerPockets Kool-Aid, as you have, that are willing to get out there and do the capital W work that Andrew talked about, the BiggerPockets bootcamp is a great way to meet people, get the tools from myself and my team that’s going to make you successful, and as David said, join the CrossFit gym of multifamily real estate investing that is the BiggerPockets multifamily bootcamp. See you there, guys.

Andrew Cushman:
Our first question today was the five things to commit to learning. You’ll learn all those things at Matt’s bootcamp with BP.

David Greene:
Hello, Jake. I am so glad you could join us on the podcast. How are you, my friend?

Jake Harris:
I am fantastic, David, Andrew.

Andrew Cushman:
Good to see you, man.

David Greene:
Jake has had to wade through the swamp of scheduling craziness, then a bunch of technical difficulties that he had to fight his way through as well. He’s also buying really good properties at a really hard time, and Jake is smarter than just about everybody that he comes across.
He’s got that Elon Musk thing where it’s very hard to communicate with people that are not him because he has to figure out to get a 3D perspective into a 2D brain. He often has this problem when he talks with me. Yet, in spite of all that, we’ve got him here on the podcast. Jake Harris, thank you for joining us.

Jake Harris:
Well, thank you for having me. It’s a fun, pleasurable, nice Friday.

David Greene:
I just realized, you look like you definitely could be my brother. We have the same head and beard thing happening right now.

Jake Harris:
I think we go to the same barber, at least.

David Greene:
That’s probably true. What do you have for us? How can we help you today?

Jake Harris:
I develop some multifamily, and the construction, we’re doing real heavy value-add multifamily deals, and we’re seeing a significant challenge coming in. A lot of projects are blowing up from interest rates. We have supply chain issues, material that’s just not available for many, many months. Andrew, you’d mentioned earlier some questions about your competitive advantage of operations or really forced appreciation items that you have when you’re moving into a market.
What I’m looking at is, the interest rates are making it so that some buyers will no longer be able to buy houses, and they’re going to be renters for longer time periods. Supply will not be coming online because they’re getting blown up from longer time periods, permitting issues, supply chain, all that, so there’s not going to be new supply and there’s now a big swath of new renters that were trying to be homeowners that have now been pushed back into that renter bucket.
What are some of those operations that you’ve seen or the technical details of the operations and forced appreciation on that multifamily value-add that you’ve seen that’s been most successful, given somebody like me that’s trying to get into that space? I’ve never really done the value-add to your thing. I’ve always just built the project.

Andrew Cushman:
All right. Good questions. You bring up a lot of things that are 100% true and I think, if forgotten, is it’s very easy for a lot of us to be like, “Oh my gosh. Interest rates are going up. The sky’s going to fall. Everything’s going down. Cap rates are going up. It’s the end of the world. We got to get out and go back, and I’m going to go work as a Walmart greeter.” That’s not the case because there’s other factors.
Like you said, Jake, as interest rates go up, that makes it that much more difficult for people to purchase a house. What are they going to do? They’re going to go rent apartments. Or they might rent a house, but either way, they’re going to add to the demand of rentals. Then, again, something else that you said. It is getting harder and more expensive to build new apartments.
Same as you, I’ve seen development deals either blow up or get delayed by years because of the supply chain issues, and because of rates going up. That’s taking off the supply side so that increases the demand for rent. Well, it doesn’t increase the demand, but the existing demand is harder to satisfy. Therefore, rent goes up. Then the properties that do still manage to get completed, they have to charge that much higher rent just to get the property to pencil out, and so as new properties come online with sky-high rents, it has a tendency to drag the entire rest of the market up with it.
Yeah, there’s the negative effect of, okay, higher interest rates make it harder as a buyer to maybe underwrite an apartment complex, but it also creates all those other positive factors that you just brought up. That leads to, “Well, okay. Either if I’m not able to, or I don’t have the education yet to take on the risk of development, what do I do?” Okay, well, yeah, that’s the value-add aspect.
What we’re finding, the greatest value-add opportunities right now … I’ll try to go in order of decreasing risk to increasing risk. What I mean by that is execution risk. The context of the question is, is operations. What is under your control? How do you adjust your operations to create value? The risk is, “Well, are you able to execute that?”
The lowest risk, in my opinion, one of the lowest risk value-add strategies, and the one that actually is quite abundant these days, we’re finding it’s not easy but it’s out there. We’re finding amazing opportunities in this, is that many property owners, for a variety of different reasons, have not kept up with the dramatic rent increases of the last 18 to 24 months.
I mentioned, a couple of questions ago, a deal that we had closed last month where the owner of it, it’s a beautiful property. Built, it’s only 10 years old. High-level finishes. It’s a great, great asset, but they had not moved rents at all, not a dollar in three years. That is what, basically, we call loss to lease value-add, meaning the real market rent for a two bedroom at that property should be $1,100, but they’re leasing it at 800, so they are losing $300 a month to that lease.
Once you do the analysis to confirm that that’s the case, that is your lowest risk, highest return value-add strategy is coming in with good management, good marketing, all the things that go into pulling renters to your property and just leasing it for what it’s worth. Bringing the property up to current market rents, like I said, we call that … Some people call it a management play but it’s also just taking advantage of loss to lease. That is, by far, our best return risk ratio value-add that we find, and it is very abundant right now.
It’s more abundant now than it has been in the last eight years, in my opinion, because there are quite a few owners who just did not keep up with the big ramp-up in rents that we had the last few years. An additional benefit of that and another thing that makes it a low-risk activity is you’re not counting on market appreciation to create value. You’re just saying, “Hey, I’m just going to get it up to where it is today.”
If rent growth were to go to zero and flatline for the next three years, your value-add strategy still works because all you’re counting on is just getting it up to where it is now. Again, it’s very low-risk. It’s very typically not capital intensive. You’re talking about a website. You’re talking about marketing. You’re talking about proper staff to handle leasing and all that. It’s very low capital intensive, so that’s another benefit of that.
The second one that we’re finding is very effective in today’s market is adding simple amenities such as dog parks, playgrounds, grilling stations, outdoor gazebos. If we buy a property with a pool, we’ll go in and put beautiful new pool furniture.
Stuff where if you got 100-unit or even a 20-unit property, if you rehab one unit, your return on that investment is from that one unit. If you have a 20-unit property and you add nice landscaping or a nice dog park, the return is times 20 because that affects all 20 families that are living in your property. That’s the next thing that we’re finding is the lowest capital expenditure, and the highest impact, and the lowest risk is, I would call simple amenities. Again, the dog park, the grilling stations, gazebos, all that.
Then also, in the exterior is, just make sure your property looks nice. Seal and stripe the parking lot. What that is, is that’s when they come in, they put the black tar on it. Then they let it dry, and then they paint the white stripes. It’s not that expensive but has a huge visual impact on the property. When a potential resident comes in, they go, “Wow. They take care of this place. Look how fresh and clean this looks.”
Landscaping is, in our experience, one of the best returns on investment also. Also, I think it’s one of the most ignored aspects of property, especially multifamily. We spend a lot on landscape, and we get a huge return on that. It’s hard to quantify exactly, is it $37 per azalea bush, or whatever? No one cares how the inside of your units look if the outside looks crappy, because they’re never going to see the inside because the outside looks crappy. Landscaping and some simple exterior improvements are, I’d say, number two.
Then number three is light to moderate interior value-add, especially if you’re buying properties that are 10, 20, 30 years older. We find we’re getting huge returns on simple things like tile backsplashes. If you do it with your own labor, it might only cost $300. If you have a vendor do it, it might cost 1,000, and you can get 50, $100 rent increases a month. That pays for itself in a year.
If you’re in the South, in the Sunbelt like a lot of listeners are, ceiling fans. Add ceiling fans to the bedrooms, and if you can, the living room. That is huge in places like Florida, and South Texas, and along the Gulf Coast. Think of things that people touch and see every day. Lighting fixtures, doorknobs. Again, those high-traffic, high-touch things that really aren’t that expensive to replace.
We’ll go into a property … That one that I talked about was built in 2011. They had very simple faucets in the kitchen. Beautiful kitchen. Granite countertops, nice cabinets, real wood, cherry wood, all this stuff, and then just like a faucet that belongs in a bathroom. We’re putting in the nice gooseneck faucets where you can pull the little sprayer out and spray the kids to get them out of the way, or wash dishes easily, all that kind of stuff. A couple hundred dollars installed, but a huge impact.
Those are the, I’d say, probably the top three things that come to mind in terms of executing a business plan and operations. I’ll pause there in case you have any follow-up or any additional comments. There’s also just ongoing operations things, but those are the first three big things that come to mind.

Jake Harris:
Yeah, that’s great advice. Obviously, I don’t think I’ve thought about that, the landscape being something that return on investment to every single unit. The percentage of increase versus … Actually, maybe some of those, just raising the rents. You can raise the rents a lot more just by doing some of that landscape.
With that, if you’re doing, maybe the question is, is like are you looking into xeriscape or things that have lower expenses on some of your landscape when you do that? Meaning, less water, or mowing, or expenses and trying to drop some of those ratios as well? Or do you get into that technical detail of that when you’re coming in and enacting a landscape plan?

Andrew Cushman:
We do. Most of our markets, xeriscaping doesn’t really apply because we’re in the Southeast where it rains a lot most years. What we do do is we’ll go … It’s funny. If anyone’s who’s owned property in the Southeast is probably familiar with this, where it’s called pine straw. It’s where your landscapers come in, and they rake up all your pine needles.
They charge you to do that. They take it offsite, they package it up, and then they sell those pine needles back to you as pine straw, and they put that down in all the flowerbeds and, basically, it’s like a cheap mulch. That’s really common in places like Georgia, the Carolinas, and Florida, but there’s a cost to that. It’s like four and a half or $5 a bail for that pine straw. If you’ve got a large property, that adds up to thousands of dollars a year.
One of the things we’ve been doing, and had a lot of success with that goes along with what you’re talking about, Jake, of not only does it have a one time impact of improving the look of the property, but it has an ongoing impact on your NOI, which is there’s a big multiple applied to NOI, is we look at things like, okay, there’s these flowerbeds, and we have to pay for pine straw or mulch twice a year. If we pay a little more upfront and change that over to stone, or lava rock, or something similar, then that ongoing expense goes away.
It saves on watering. You do it once and it’s good for five years. You want to make sure you don’t put something in a high-traffic area where kids are going to throw it through windows, but other than stuff like that, yeah, absolutely. We look at, can we eliminate irrigation? Because irrigation leaks. It costs when you irrigate. There’s problems, there’s maintenance costs on that, so yeah, absolutely, when you’re looking at your upgrades and your operations, you’re considering not only the one time cost but the ongoing, and so yeah, that’s a great example that you brought up.

Jake Harris:
One of the things, and I’m going to maybe add onto a little bit more dynamic of question. In some of our projects, we are charging for internet, bulk, bringing in fiber, doing some things like that. Then we’re getting batch or wholesale rates that we’re then charging to tenants.
With some of these value-add projects that you have, or call it the … Is that a possibility? Are you doing that as well versus some of the new construction? Because we have open, empty walls, it’s pretty easy to do that versus a value-add, “Hey, how can I get more internet charges, or chargeback?” If that’s five bucks, 10 bucks a month and times 12 months, times how many units, that’s a very good toggle of NOI, and at a five cap, it represents hundreds of thousands or millions of dollars in very incremental ways.

Andrew Cushman:
It’s funny you bring that … I literally signed one of those agreements about 20 minutes before we started this podcast, to do that very thing. The short answer is, “Yeah, absolutely.” Like you mentioned, it’s a little easier when you’re building a thing to put whatever you want in the walls. We do try to avoid stuff where you got to go in and cut open lots of walls. That can get really, really expensive.
As an example, the agreement that I signed today, it’s for a company where they will come in at their expense, and they will lay fiber-optic throughout the entire property at no cost to us. In fact, actually, they pay us a fee for the right to do that. Then that gives our property incredible internet speeds.
Then it’s up to that provider to market to the residents. It’s not exclusive. The residents aren’t forced to use it. I tend not to like stuff where we’re forcing the resident to do something and take away their choice. Because I know, as a resident, I don’t like that, so we prefer not to do that with our residents. It gives that provider the exclusive right to market to our residents, so they still have the choice but only one person’s going to be directly marketing to them.
Then it’s set up on a revenue share agreement. For every dollar that comes in, we get X percentage of that, and so every quarter, we get a check from the internet provider who laid the fiber-optics, and like you said, that goes straight to the NOI. Then you apply a four, or a five, or whatever cap rate to that, you just increased the value of your property quite a bit.
Another one we’ve had pretty good success with is washer/dryer leasing. If you look at surveys of tenants and renters over the years, consistently, the top amenity that everybody wants is in-unit washer/dryer connections so they don’t have to walk through the heat, or the rain, or the freezing cold to go to the laundry room, and then find out someone took all eight units and left their crap in there since this morning, and it’s just sitting there.
Everyone wants their own washer/dryer connections, but some people don’t want to drag around the actual units. What we’ll do is we will lease them for maybe $35 a month, and then have that company come put them in. Then we give residents the option to lease them from us for maybe $55 a month, so there’s a $20 margin there, and like you said, times 100 units, or 200 units, or even 20, that adds a lot of value to your property because that goes straight on the NOI.
Some of the benefits of structuring that way is if the unit breaks, it’s not our problem. The company that leased it, they come fix it. If the tenant moves out and the next tenant doesn’t want a washer/dryer, we don’t have to move those things or figure out what to do with them. The leasing company comes and does that. That’s a very easy, beneficial arrangement.
On some of our properties that only have one story, we actually will buy the units ourselves, and then just lease them, and it pays off in sometimes less than a year, so that’s a pretty good return on investment. Yeah, those are two that we definitely, that we do regularly, and there’s other along those lines that you can do.

Jake Harris:
Awesome. Yeah, those are some nice … I haven’t thought about that. Washers and dryers. Little nuggets like that, an extra $20 a month, times 50 units, times 12 months, times at a four cap, boom. Look at that.

Andrew Cushman:
Well, and another really easy one that’s like almost zero dollars, preferred parking. Just have your maintenance guy go out with a couple of stencils and some paint, and number a few parking spots that are right in front of units and say, “Hey, $15 a month, you get your own preferred parking spot.” That’s almost like free revenue. Now, I don’t recommend doing the entire property that way because it can be a nightmare to manage, but if you do a select handful, it’s almost like free extra income.

Jake Harris:
Awesome.

David Greene:
Jake, thank you very much for joining us. Also, I should mention I know Jake from a group I belong to, GoBundance. If you want to get to know me, Jake, and Andrew, who are actually all in that group, you should check out GoBundance because it’s a good time and there’s a lot of smart people there. As you can see, if you join, you’ll become better looking like Jake, just by joining right there.
Thank you very much, Jake, for being here. Andrew, also, thanks to you, my man. This doesn’t feel like a podcast when we do it with you. It feels more like a masterclass. This is what people usually pay money to get taught, and you come on and you don’t hold anything back. You give a lot of actionable stuff, so everybody that’s out there, send Andrew some love. Andrew, if people want to get ahold of you, what is the best place to find you, and how can they help you and your business?

Andrew Cushman:
Yeah, first, of course, connect with me on BiggerPockets. LinkedIn, I’m on there as well. Then the easiest way to get a direct connection is just if you search Vantage Point Acquisitions, you should easily find our website. It’s vpacq.com. There’s a number of ways to connect with us on there.
Anybody who happened to listen to our episode number 571, I mentioned that we were hiring an analyst, and that person came from the BiggerPockets community. We’re adding another BiggerPockets member to our team. They are phenomenal, and we’re super excited about that.
We’re going to do that again. We are actually now looking for a full-time investor relations manager, so if you’ve got strong organization and system skills, you’re detail-oriented, you’re a strong communicator, and you have a general interest in real estate, which I’m guessing you do if you made it this far into the podcast, please go to our website. Click on the little thing, I think it’s says, “We’re hiring” tab and apply there. We hope we can add another awesome BP community member to our team.

David Greene:
That would be great. There’s a lot of talent out there in BP that wants to get deeper into real estate, so if that’s you and you know you have something to add, please do contact Andrew.
If you are looking to invest with us in the deal I talked about earlier in Fort Walton, we are still raising money for that. You can go investwithdavidgreene.com, register. Unfortunately, this is only for accredited investors. People always get mad at me when I say that. That’s not my rule. I would prefer if it didn’t have to be that way. That’s the SEC’s rule, and this is me trying to stay out of prison by saying that, so don’t get mad at me. Get mad at the SEC or whoever it is that makes those rules.
Then, you can find me online at davidgreene24 on LinkedIn, Twitter, Instagram, pretty much everything other than TikTok, where I am official davidgreene because somebody stole davidgreene24, and maybe they stole davidgreene one through 23 while they were at it. I’m not sure.
Hey, we want to hear from you, so if you’d like to be featured on a podcast like this, you want to come in and ask your questions, whatever it is, please go to biggerpockets.com/david. Leave your questions there. We will get you one of these Seeing Greene episodes. We need good questions, and we had great questions today from people like Jake, so please, we want to hear from you as well.
Last thing is, please leave us a comment if you’re watching this on YouTube. It’s really easy. You can hit the like and the subscribe button at the same time, and then go down there and tell us what you liked about the show, what you liked about what Andrew said, if you’d like to have Andrew on more, what type of stuff you’d like us to talk about. We look at those comments, so does our producer, and we make shows based on what we see people saying, so please don’t be shy. Get in there and let us know. Andrew, any last words before we get out of here?

Andrew Cushman:
No, I really enjoyed this. This was fun. I feel like I should be asking some of these guys questions myself, especially Jake here, but this was a good time. I enjoy it.

David Greene:
All right. Well, thank you. Everybody listening, go listen to another episode if you’ve got some spare time. If not, stay tuned for the next BiggerPockets show. This is David Greene for Andrew Hawkeye Cushman signing off.

Andrew Cushman:
You went down the donut hole metaphor. I love it, yeah.

David Greene:
I can make an analogy out of anything. It’s literally the only reason I’m on this podcast. I don’t think I really know anything about real estate.

Jake Harris:
I want to compliment, you were rubbing off on Andrew, by the way,

David Greene:
“Happier than a four-year-old in a Batman t-shirt.” Not bad, not bad.

Andrew Cushman:
Thank you. Thank you.

Jake Harris:
That was awesome, but up there with, “Some things age like wine, other things like milk.” That was awesome too. I wrote both of those down because I’m stealing both of them.

Andrew Cushman:
Isn’t a block of cheese really just a loaf of milk, if you think about it?

David Greene:
All right. We’re way off topic.

Dave:
Welcome everyone to OnTheMarket. On today’s episode, we are going to go deep into a very important topic, how to get started in real estate investing in 2022. We’re going to cover headlines that address the challenging and confusing economic conditions we’re facing, we’ll talk about strategies and tactics that new investors can employ to get a great deal right now, and we will help one of our audience members walk through their first deal.
Welcome everyone back to OnTheMarket today. I have my good friends, Jamil Damji, Henry, Washington, and Kathy Fettke joining me today, and because we are going to be talking about first deals and getting into real estate for the first time a lot in today’s show, before we get started, Henry, can you tell me in 30 seconds what your first deal was?

Henry:
My first deal was a rental property. Found it from word to mouth, just because I was telling people I was an investor, even though I had no clue how to actually be one and somebody heard that and said, “I need to sell this house in 30 days. Can you buy it?” And I said, “Yep,” and I had no idea what to do. Literally downloaded a contract off BiggerPocket, signed a contract and figured out a way to buy it. Boom.

Dave:
I love it. What about you Kathy?

Kathy:
Ooh, 30 seconds. Okay, my dad was distressed, he had invested in an apartment in Marin County and the sponsors sold it and he didn’t know, he was on vacation. So bottom line, he was about to retire and found out he was about to have to pay all these back taxes from the sale of that property he invested in for years.
I was like, “Dad, what do you need?” And he goes, “I just need a new property, a replacement property.” So Rich and I, we were just getting married that year, ended up finding a huge house that met the 1031 exchange, and we said, “Dad, we will take care of this for you, all details.” What we didn’t know at the time, but know now is that we ended up inheriting that house and then all the back taxes were gone. So that was how we did it. We turned it into a fourplex and we shared walls. We house hacked and that’s how we did it.

Dave:
All right, Jamil, what’s your first deal?

Jamil:
Wholesale. I was walking for dollars, tired landlord, had a buyer in my back pocket that I knew would pay a specific amount of money, locked it up, $50,000 less than that, wholesaled it, $47,000 profit after paying the attorneys and title fees. First deal, life changing.

Dave:
I love it. Everyone just keep that in mind as you’re listening to this episode, there are a lot of different ways to get into real estate and we’re going to talk about some of the best ways that you can get in, even in this unusual economic climate. Before we do that, we do need to get to our, between the headline segment and I have some really good headlines that I think help paint the picture for the economic climate new investors are finding themselves in right now. So we’re going to play the game. It’s just called quick take, Super simple, I’m going to read a headline, give you some background information and would love just a quick opinion from each of you about what this means for investors new and experienced alike.
The first story is that the stock market continues to underperform this year. Over the last couple years we’ve gotten really used to the stock market just going up and up and up. As of now, we are seeing that the Dow Jones is down 6% year to date and that is the best index right now. The S&P is down 10% and the NASDAQ, which is very tech heavy, is down 17% year to date, and it doesn’t look like things are getting any better to me, but would love to get your opinion. Kathy, let’s start with you.

Kathy:
Well, the people I listen to and I don’t invest a lot in stocks, just a little bit, but the people I listen to say that you want to be in inflationary stocks, so energy, food, things like that. So the stock markets like lots of things, not all stocks are good and not all stocks are bad. There are different companies that are performing well in this environment.
What didn’t help last week is that the fed chief, Jerome Powell mentioned at the IMF that they were going to be more aggressive. I think he said, “We’re going to move a little more quickly,” and when Jerome Powell speaks investors listen, and it really affects the stock market, which can be much more volatile.

Dave:
All right, Henry, what do you think?

Henry:
Yeah man, the stock market is, right, wrong or indifferent, it’s an investment vehicle that people have used for decades and decades to build wealth. So the stock market tends to react negatively to fear, and a lot of things that drive fear are uncertainty, and boy, the last two to three years has been the definition of uncertainty. The things that have happened in our world are things that no one could have predicted and unpredictability drives uncertainty, which drives fear, which you’re seeing the market respond to that fear. But if you look at the stock market as a whole, it’s similar to real estate.
We all know if you buy real estate now and you hold it for the next 50 years or call it 10 to 20 years, the trajectory line is going to be increasing over time. So if you’re trying to make money in the short term by buying something that may be low right now, hoping it goes back to its pre pandemic highs, then yeah, that’s a gamble, gut if you’re buying quality companies, who are producing quality products or services that you trust and believe in and you hold them for a long period of time, I think that’s, that’s a way to play it “safe.”
So right now it’s going to be a little volatile because the world’s volatile. As things stabilize… hopefully things stabilize in the world, the stock market will fall a suit. So if you’re trying to buy low, sell high in short term right now, probably not the market for you.

Dave:
All right. Jamil, wrap us up here.

Jamil:
Never been a fan of the stock market and even though, as Henry said, it tends to go up over time, for me, I’m genetically engineered to trade. I love the excitement of being in things and trading. So stocks are very much like gambling for me. I do better in Vegas than I do in the stock market, just saying that. So for me, I’m I’m not putting my money in the stock market, I don’t have my money in the stock market, I never will put my money in the stock market. So, “Pfft,” that’s what I think.

Dave:
All right. Well, I do invest in the stock market and just continue to do dollar cost averaging index funds. I don’t do anything fancy, but one thing I do want to point out about what is going on right now, because it is related to real estate, is that we are all seeing bond yields start to rise and I know bond yields are the least sexy, most boring thing in the world, but they control so much of what is going on in the economy. Right now bond yields are pushing up mortgage rates and that will probably put downward pressure on housing prices. It does a very similar thing in the stock market just so people are aware, because it gives investors an alternative to speculative stocks and things. So we saw that over the pandemic, a lot of people didn’t want to invest in bonds because the yields were so low, so they were pouring money into the stock market. Now bonds are starting, gradually, to look more attractive and you could start seeing people pulling money out of the stock market and into the bond market instead because it is a relatively safe investment. So something just to consider for everyone listening to that.
For the second story and headline, I want to talk about today and we’re only going to do two today, is about the housing market and what is going on right now. March numbers are starting to come out and just so everyone knows, we get this data like a month in arrears, so we are still talking about March data, but it is very relevant. The numbers came in and we saw 17% year over year price growth, 17% rent growth, but inventory remains at all time lows on a seasonally adjusted basis. So that is really, really interesting and I think the data point that stood out to me the most is that home buyer mortgage payments, so the average amount a new person if you went to buy a house is paying for their mortgage right now, was up 38% over the year before and that is due to, of course, the rising prices, but rapidly rising interest rates. That number sort of boggled my mind Jamil, let’s start with you. What do you think about all this data from the March housing market?

Jamil:
It makes sense. I’m seeing it in my business. We have tremendous volume, the appetite has not gone away. The secondary home buyers are still very, very much actively buying. You saw a small… a little blip from retail home buyers, as they paused, they gave pause for a moment as rates started to increase, the secondary home buyers came in, gobbled up everything.
The primary home buyers, your school teachers, your nurses, these people were waiting hoping that there might have been an opportunity. Never happened. So they jump back in. Now of course, payments are up. Things are not affordable. We’re not seeing something healthy here, but it’s what I’ve been predicting. I think the secondary home buyer is strong. I think that they are waiting for this opportunity for rates to go up so they can come in and grab more and more inventory off the market and it’s not going to get any better,

Dave:
Kathy.

Kathy:
Well, we are looking at the results of low interest rates. You have low interest rates for an extended period of time, that allows more people to afford to buy and the natural result is higher home prices. So it’s nothing unexpected. What’s really difficult is those prices are up and now interest rates are going up because they need to to slow it down. So right now might be potentially the most expensive time to buy. That’s not stopping people though. Sales are down slightly this past month, but there are still plenty of buyers out there who can afford. That’s really what it comes down to.
We have, actually all of us, a personal friend, I can’t say who, who’s buying a really expensive home in Austin, moving out of a high priced area. So you’ve still got movement happening, people who have made a tremendous amount of money over the past year, people who did pick the right stocks and the right real estate and the right profession , have done really well and are loaded. The consumer is probably the strongest ever. The FICO scores that we’ve seen have been the highest over 740 or whatever. This is not the subprime crisis at all.
So prices are high, but still affordable for some people, but for again, like you said, the daycare workers… This is something I wanted to say last time. I have friends who are daycare workers in Seattle. They’re not experiencing the salary increases that tech people are and they need to take care of these children. Where are they going to live? So there is a separation that’s happening and it’s very concerning for workers who aren’t seeing the kind of wage increases.

Dave:
All right, Henry, what do you think about these numbers?

Henry:
Yes. This is what we’ve been talking about, right? The key things that you said that I honed in are supply and demand. So we’ve still got low inventory. That’s always going to bring more buyers. Yes, there’s higher interest rates. That just means a subsection of buyers get priced out. No matter what the interest rates are, there’s going to be a subsection of buyers that get priced out, that subsection gets larger the higher the interest rates go, but there’s still plenty of people who want to buy.
The other number that caught my eye there was rent growth at 17%. That means rents are higher now too. So people who may have thought, “You know what? I don’t want to buy right now, because I can just rent and save some cash,” and then boom, their rent goes up or they move and they’re paying new market rents at their new place. They start doing the math and reevaluating and going, “Well, maybe I’m okay paying a couple hundred dollars a month more. At least I get to own, even if I’m I’m paying a higher amount than I would be accustomed to paying, at least I get the other benefits of ownership.”
So, yeah, man, people are still going to buy. If the demand is there and the supply is not, that’s why I love this business.

Jamil:
I wonder if we’re going to have a baby boom, of all these single people that are paying all this expensive rent, getting together and moving in with each other just because they need to be able to afford things and now they’re just having more babies because of inflation.

Henry:
Get that tax credit.

Dave:
Oh, you think that decreased affordability is going to lead to a population surge in its face? You never know.

Kathy:
Because babies aren’t expensive at all.

Dave:
Yeah. Very good point. Kathy.

Jamil:
It’s just kicking the can down the road, Kathy, that’s how we live.

Kathy:
Ah.

Dave:
All right. Thank you all for those very quick takes. We are going to get all into how to invest in this confusing economic time, right after this.
Okay. Welcome back to OnTheMarket. For our due diligence section today, we are going to be talking about how to make sense of this very challenging market for new investors or maybe it’s not very challenging. We’ll talk about this, but before we get into it and I ask you all your opinions, I’d like to just set the stage for this conversation and tell the story I keep hearing from a lot of people about their experience and where they are getting stuck in investing. Basically the story goes like this. You’re a hard working adult. You’re trying to get ahead. Maybe you have a full-time job, you might have some kids and you want a good life. You’re not asking for too much, you’re looking for a life where you don’t have financial stress and you want freedom over your time and you’re trying to do well.
You are making good financial decisions, but we all know it’s pretty tough. Savings accounts are pretty much useless. Wage growth has not been really significant since the 1970s and life is expensive shit. You have medical bills, you have student debt, you have all this stuff going on, and then maybe one day, hopefully, you discover BiggerPockets or another investing resource and you’re like, “Yes, this is it. I need to invest. This is the key to what I want,” and I don’t know if maybe this for you was five years ago, maybe it was during the pandemic. As Henry has talked a lot about, you chose to educate yourself financially, whatever it is. Maybe you got to feel excited about investing And then all of a sudden it’s 2020 And you see now this virus that is shutting down the world economy and you’re disinfecting your mail and you’re trying to make bread and it tastes like shit, and you go to Zoom, birthdays and puzzles, and you’re bored and it’s just awful. There’s like murder hornets going on. Australia catches fire, everything is terrible, but you keep your resolve and you’re trying to commit to investing. You’re like, “Once the pandemic’s over, that’s when I’m going to invest.”
But then housing prices take off, they’re at an all time high and it’s super hard to get a deal. Inflation makes everything even more (beep) expensive. The fed announces they’re raising interest rates, everyone’s freaking out. Economists are starting to predict recessions and if all this wasn’t bad enough, some (beep) go and start the first ground war in Europe since the 1940s, causing untold suffering and a huge humanitarian crisis.
So it’s a perfect time to invest, right? Is this a story that resonates with you guys? Do you feel like this is the best… is still a good time, despite all of these challenges to invest? Henry, I’m going to open the floor to you.

Henry:
Again, yes.

Dave:
Should we just end the podcast now? was it just-

Henry:
Right.

Dave:
… [inaudible 00:16:40]

Henry:
Two credits? Look man, yes, all of that craziness and uncertainty and scariness happened and craziness continues to happen, but what we talked about in the last segment is also happening, which is real estate is proving itself to be a phenomenal vehicle, still to build wealth. And yes, it’s scary, but for those of us who were in before all the craziness and I bet if you ask people who’ve gotten in, even after the craziness happened, the good majority of them are in a better financial position today than they were in before they got started because values are increasing, because demand is so high and supply is so low and yes, there’s been a ton of money out there and that’s what’s causing people to go out and buy, buy, buy, because they want to protect that money by putting it into an asset that they feel is going to increase in value over time and history says with real estate, that that’s true.
So yes, it has been crazy and it’s going to… who knows what’s going to happen. If I’ve learned one thing it’s that I know nothing about what’s going to happen in the political environment or in the health, health crisis environment. Like, I don’t know, are we going to wear masks again? Who knows. Are we going to get locked up? Who knows. But I know that real estate has proven itself to be a phenomenal investment vehicle, especially for those of us who have educated ourselves and then taken action on the education to buy quality assets as often as they can.

Dave:
Totally with you, but the fear is real, right?

Henry:
Yes.

Dave:
I don’t feel like it’s as obvious as it was, in 2014, it was a lot easier to find a deal and financing that made sense to you. Kathy, do you think the fears legitimate and how do you get over that fear?

Kathy:
There are so many things to be afraid of and I could tell you that what’s happening today is nothing new. When I was young and that was a little while ago, we were worried that two guys were going to push a button and blow up the world and we had to learn how to drop and roll. Remember that? Stop, drop, and roll to not get blown up. That’s how I was raised. I bought my first house right before Y2K. Everyone thought the world was going to end. There’s always something. My background, my degree is in broadcasting. I worked in ABC and CNN and Fox before when it was just regular news, and I can tell you that was our business model was to scare you. I hate to say it, but if the headline didn’t draw viewers, then we didn’t have advertisers, so it always came down to scaring you.
So just know that and there’s more headlines now. Back then there were five. There were five news stations, that was it and that’s where you could get afraid. But now it’s everywhere. It’s on your phone, it’s on your computer. You just try to search to shop and something comes up. So we’re being bombarded by it. I can tell you when I was terrified and I made Rich change outside before he came in our house and wash everything down, I was probably the most scared person in March of 2020 because I have asthma and I didn’t want to die in aisle of a hospital.
So I understand and I remember Rich just took me and he looked to me in the eye, Rich is my husband, and just said, “You’re going to be okay. You’re going to be okay.” And it’s like, “Yeah,” because I am, and just a shift of belief system that you’re going to be okay and stop looking at the news, just stop. Focus on what you want to create and put all your energy there because the world is always in turmoil, it always has been. This is a horrible war that’s happening, but there have been wars, there’s always wars. For some reason, this one we’re more upset about maybe because we’ve been to these places or they look like us or whatever. There’s been wars in Africa, there’s always humanitarian crisis that’s terrible.
When you build wealth, you can donate to these organizations and you can help more than if you don’t. So focusing on becoming successful is really important and just let all that stuff go and know that you can make money in any market, in any cycle. The only reason you’re afraid, the only reason, is because you haven’t done it and maybe you haven’t learned enough.
So find a mentor or read more books, listen to more podcasts and take the step. This is what I told my daughter when she said, “Mom, I’m too young to buy a house at age 24.” I said, “Who’s your mama? No, you’re not.” So go just the first step, just do the first step, because she was about to go buy a car. I said, “Oh my gosh, the eight hours, you’re going to spend trying to buy a fricking car and now throw your debt to income ratios completely off, just spend that time, spend one hour, one hour, with a mortgage broker. That’s all I ask. After all I’ve given you for 24 years, just do this for me.
And she did it. She went and she talked to the mortgage broker. She came back and she’s like, “They said, I qualify for a $300,000 home.” She was two years out of college with making $26,000 a year. This is not a wealthy person. So she was shocked and it was just taking that step learning a little bit more. Then she’s like, “Mom, I don’t know how to get a mortgage.” Well, all of it is terrifying.
When my friend bought her first house before I was in real estate, I was like, “Oh, that’s too overwhelming for me,” and it is, it’s a lot, but when you do it, when you go through the process, you learn so much. So it might not be the best deal in the world, the first deal you do, but you will learn so much and it might be the best deal.
In the case of my daughter, she found a $250,000 house in Chico, California. It was cheaper and I’m talking California. It was cheaper than what she was paying for rent and then the fires happened, the big Paradise fires. I’m sure you heard about that, was just like the neighboring town. All of a sudden she was getting people desperate for a place to live and she was able to rent her place out. The insurance paid for it all, $3,500 when her mortgage was 1400 a month. She was making $2,000 cashflow at age 24. She’s like, “Okay, mom, I get it now.” She wouldn’t have known that. She wouldn’t have known that if she didn’t just take that first step.
So I always tell people just talk to a mortgage broker just to find out what does it take? What’s the process? What do you need to do? Do you need to fix your credit? Okay, they’ll tell you that. That’s the first step.

Henry:
Ah, Kathy’s voice telling me it’s going to be okay, the next time I’m stressed out-

Jamil:
It makes you feel good.

Henry:
… I’m calling you so you can talk me down. I feel great right now.

Kathy:
Yay.

Dave:
Our next data drop is going to be an audio recording of Kathy just reassuring people that is going to be okay.

Kathy:
It’s going to be okay.

Jamil:
It’s a guided meditation by Kathy Fettke.

Dave:
I would listen to that.

Jamil:
You’re going to be okay.

Henry:
I’m subscribing right now.

Dave:
Now. I do want to move this into practical tips and strategies for investing as a new investor, but Jamil, I would like to hear your perspective on this. From a mindset perspective, how do you advise people that you interact with about getting into today’s market?

Jamil:
Well, I appreciate you asking the question because I agree with both of Henry and Kathy, you get what you’re looking for and are you investing in fear or are you investing in opportunity and possibility? And that’s truly what we can always be doing. So shifting perspective, shifting focus will find you a reality that you’re trying to find. So if you are being crippled by the news, if you’re being crippled by negativity, if you’re being crippled by your own subconscious mind telling you that things are going to be harder for you, than you are ingesting the wrong information. I promise you’re ingesting the wrong information. You need to invest your mind and opportunity and possibility.
Look, life is hard for people right now who made life hard and I’m sorry, if your situation right now is difficult, you have to look at the choices that got you there. That’s just what is happening in reality. You can focus your attention, you can focus your momentum in a trajectory that’s going to get you across the line. That takes time, that takes dedication, that takes adjusting your energy on a daily basis, but the product of that, if you look three years down the road from you just making that investment into the way that you think, the way that you feel and the way that you operate, and then you see what your life looks like in three years, it’s going to be different.

Dave:
This is great advice to all of you. Thank you for sharing this because I do think there is reasonable fear and it is hard to get over it, but advice from people like all of you who have done this before and have gotten to a right mindset to pursue your financial goals is super valuable.
Let’s switch gears here and talk about nuts and bolts. How do you go about investing right now if you’re new in this economic climate? So Jamil, is that to you wholesaling or how would you advise someone if they had to focus in on one strategy, what would you tell them to do?

Jamil:
Well, let’s look at the parameters we’re working with right now. We’re working with rising interest rates, so it’s harder and harder to qualify for a property because the rates are high and you may not have a job right now that’s going to be able to get you that qualified mortgage. So that could be difficult for people in keeping them from taking action. You’re looking at retail inventory out on in the world on the MLS it’s very sparse and not a lot of it pencils out. So it’s like, “Wow, how do I even… I can’t jump into that, it doesn’t pencil. I’m going to have negative cash flow. I’m not going to take action.”
So that’s, what’s crippling a lot of people right now because when you’re looking at real estate from a rental perspective, you have to have some money before you can start doing these things in a great way that’s actually going to move the needle in your life. Why wholesaling is such an incredible tool, you invest in education and understanding and learning how to underwrite property. Once you understand what a deal is now you know what to do now you know, “Okay, I’ve got an opportunity here. There’s equity in this opportunity. There’s so much potential here. I can go sell off a piece of that potential for a large amount of money.”
Look, guys, anyone listening to this, how much would $10,000 change your life right now versus an extra $200 a month? How much would $40,000 change your life right now versus an extra $500 a month? I’m not saying that an extra $200 or $500 a month isn’t good, but an extra $10,000 or $40,000 is much better. Okay? So understanding wholesaling can get you large chunks of money, which you can then use to invest in buying and building a rental portfolio, but first we need money and you’re going to get money by learning how to wholesale.
In fact, Dave, I am so adamant on people understanding and learning how to understand value, I put together this set of rules, they’re the appraisal rules. I went and I spoke to appraisers across the country. I took courses on appraising. I understand how to understand value. It’s the only thing I feel like I’m really good at other than combing my hair in the morning. I am very good at understanding value. I made these appraisal rules and I’m happy to give it away to everybody listening to this podcast. You can find these appraisal rules, you can learn how to underwrite and spot a deal and then when you can spot a deal, bring it to me, bring it to one of my 106 franchises across the country. Let us buy it from you, pay you $10,000 to $40,000 or even more, and then go out and start a better life.

Kathy:
Ooh, that’s a deal.

Dave:
Yeah. Thank you for offering that. I guess that’s a data drop. We’ll need to get the air horn in the middle of the episode this time. Thank you for sharing that.

Jamil:
Of course.

Dave:
Before we move on, though, I do want to bring out one other question about wholesaling because to me, and I’ve never wholesaled a deal, to be honest, is it a relatively low risk way for new people who might be afraid and want to sort of dip their toe in a real estate investing to get involved?

Jamil:
Absolutely because look, you are trading instruments when you’re wholesaling, you’re trading a contract. You are only selling a right to buy. Now that right to buy doesn’t mean that you have to actually buy this thing right now and I’m not telling you to go out there and unethically tie up people and lie to people and put people in bad situations, but let’s be honest, we’re in an inventory crunch, there’s still 15 million vacant gross houses out there in the United States. Okay? That inventory crunch doesn’t exist in this market of distress, in this world of distress where all of these really crummy houses that retail buyers can’t buy because they’re, unfinanceable, that’s where we trade in wholesale. That’s where the potential lies.
So yes, you’re not putting yourself in a risky situation because again, these properties require due diligence, they require time, they require experts to come in, take them and make them vertical and beautify them again and put them back into the retail space. You, my friend, who is listening to this, thinking about getting into wholesale, are providing those people the opportunity to do that. You are adding value to the marketplace, you are serving a purpose.
So by learning how to wholesale, by learning how to underwrite, you are taking a first step into real estate investing without having to buy a house, without having to get a mortgage. Think of that. All you’re doing is understanding how to underwrite and then trading that mind and that contract for a profit. What a beautiful thing.

Dave:
All right. Thank you for explaining that. I think it’s a super helpful topic for our listeners to consider if they are not ready to pull the trigger, but let’s talk about pulling the trigger. If you are ready to buy or you want to do this in conjunction with real estate, Kathy, what would your strategy recommendation be for anyone who’s trying to make their first investment right now?

Kathy:
I actually outlined this in my book. It’s super clear to know where you’re going. What is it you’re trying to achieve? So know where you’re going, and then you’ve got to know where you are. So if I was to say… let’s say you wanted to be in Phoenix. All of us four are coming from different places, it’s going to be a different way to get there.
So the way that you do that is really just sit down and decide, “What am I trying to do? Why would I buy a piece of property? Why would I wholesale? What am I trying to get to?” And is it you’re trying to increase cashflow? Are you trying to invest for the future? Do you have a lot of time? Do you have no time? These are all things that are really important to look at first.
So where are you wanting to be and where are you now? The biggest mistake or a very big mistake is people have no idea how much money they make sometimes or how much they’re spending in taxes or how much they’re spending on dinners and whatever. Awareness is the first step. You hear this a lot in motivational seminars and it’s really true, awareness is the first step. Where are you? And to just understand your finances. Do you have a tax problem? Are you paying way too much in taxes? You’re going to solve that differently than somebody who doesn’t have a job and is paying no taxes and needs to make cash flow. So getting those things really clear, what is it you’re trying to achieve and where are you now? And then what is your path going to be?
It’s going to be different for everyone. That’s why it’s hard for me to give a straight answer here but if you don’t have any money, then you are going to probably… First of all, you’re going to have to get really educated. Like Jamil said, make sure you are one hell of an underwriter, because if you find the deal and it’s a good deal, you’re going to find the money, that’s not going to be a problem.
If you have money and no time, maybe you just need to really understand why are you wanting to buy real estate. Is it for tax benefits? Or maybe you invest in somebody else’s passive income project, maybe a syndication where you get those tax benefits, but you don’t have to do anything, you get the cash flow and tax benefits or you just buy a really already like a brand new rental property that doesn’t need any of your time and energy, but it’s in a growth market and you’ve got great property management in place.
So again, it’s going to be different for everybody, but starting out, knowing what you want and then where you are.

Dave:
So do you think then that given… I totally agree with everything you’re saying, that’s excellent advice because your strategy is inherently personal, it has to be reflect your own personal goals, but do you believe that any and all real estate strategies are still possible and advisable to first time investors in this type of economic climate?

Kathy:
Oh my gosh, yes, of course. Of course, of course. Yes. Yes, but it’s just not going to be the same strategy as maybe last year or the last 10 years, but there’s always, always opportunity. I can’t emphasize that enough. Right now, we’re actually really excited. Like, “Oh, finally, there’s more inventory.” We’ve been in this inventory starve market and it’s not really much better, but it’s a little tiny bit better.
So for the first time in years, we’re actually able to get some properties at auction in Tampa. That has not happened for years. So for the first time we’re having a property tour and going to look at foreclosed homes. Again, that sounds, that sounds bad. It’s not like we’re hoping people will lose their homes, not at all, but there have been some people that were able to take advantage of the foreclosure moratoriums who were already late on their mortgages before COVID, so it wasn’t really COVID related and they’re just coming through the pipeline. But the auctions were just shut down. So there’s more inventory coming On the market, which means there’s more opportunity coming.

Dave:
Great advice. Thank you, Kathy. Henry, what is your strategy tip for new investors in 2022?

Henry:
Yes. Look, Kathy’s 100% right, you got to know what you want to do. Look, I tell people, you have to decide you’re going to invest in real estate. Make a decision and truly make that decision in your mind and in your heart because when you decide you’re going to do something, the Universe gets out of your way, and you start to see options for how that can be possible. When you just say, “Hey, I think real estate’s a great hedge. I’d like to try and own a property. We’ll see how it goes.” Your brain doesn’t start working for you. Your brain just starts going through what it normally goes through, the things it already knows and then when you run into a roadblock like inventory shortage or rising interest rates, or you don’t have the down payment money, all these roadblocks that pop up, then you stop. You just say, “Oh, well, it’s too hard. I can’t. I can’t in this market, it’s too hard,” but that may not be true at all.
Kathy just said there’s a bunch of different ways you can get into real estate investing and that’s still true even in this market, but you have to make a decision in your mind that, “I will buy an investment property in the next 60, 90, 120, six months,” whatever, pick your timeframe and just write it down five times a day, “I will buy an investment property,” because what you do when you do that is you open up your mind to the possibilities of how you can get in the game. Too many people want to know the how before they take any action and that’s not the way things work. Like you can’t have every step lined out for you. And it just says, “Okay.” You open Zillow, and then you search and then you find a house and then you go, “That’s the one,” and then you call the bank and they’re like, “Here’s all the money,” and then you buy a property and then you get a tenant and then it cash flows. Yay. Real estate. That’s not how it works, y’all.
You have to decide, you’re going to invest in real estate and when you do that, it’s like the red truck theory. It’s like you want to buy this pretty red truck and you go out and you buy it because nobody has this truck and you’re going to be super cool guy with the cool red truck and then every other truck you see after you buy that truck is a red truck. There’s no more red trucks today than there was yesterday, it’s just that your brain is open to the idea that they exist.
So if you tell yourself and you make a decision that you’re going to invest, you will start to hear things in conversation, you’ll start to hear things in podcasts, you’ll start to hear some of the great wisdom that Kathy and Jamil and Dave are dropping right now and be like, “Oh, that’s it. That’s how I can do this.” This information was out there before. Your brain just wasn’t open to receiving it and putting it into action. So the step one is the decision you have to make and you got to make it in your mind and in your heart and know that no matter what comes up, “I’m going to figure out how to get this done.” That’s step one.
Step two is just evaluate your situation. Evaluate where you are. Kathy touched on this. Evaluate where you are and what you want. I can tell you something. A lot of you want to buy a rental property and you don’t realize you’re living in it. Tons of you live in a property that would be a phenomenal rental. Three bed, two bath, 1500 square foot, first house. That’s an amazing house. It’s amazing that you bought that house, but it might be a fantastic rental. Maybe it’s a fantastic Airbnb. You have to know the market that you’re in.
So you could potentially move out of that property, rent it out and then use a program like an FHA program to buy a duplex. You know you can buy up to four units with an FHA loan and you can live in one of those units and you can rent the other units or you can live in one of those units and you can Airbnb the other units or you can live in one of those units and you can rent out the rooms in your side and the other side,
I’m not saying this house hacking strategy works for everybody in any situation. What I am saying is it can probably work for a lot of people, but it’s going to require you to get a little uncomfortable, but wealth is built in uncomfortable zones. If wealth was comfortable, everybody would be wealthy. It’s going to take you getting a little uncomfortable. I’ve heard people say, “Hey, I want to buy rental property. How do I get in the game?” And I say, “You should house hack.” “Well, I don’t want to share walls.” Well, that’s a silly thing to stop you from building wealth. Or they say, “Well, my wife won’t want to share walls.” Still, it’s a silly thing to stop you from building wealth.
Does the strategy work for everybody? No it doesn’t, but think about this. If you live in a house that you can currently rent out and then you go buy a duplex, let’s just call it a duplex and you live in one side and you rent the other side and the other side covers your mortgage. So let’s say right now you’re paying $1,000 a month, I know that’s probably low for your mortgage. $1,000 a month, if you live there for 12 months. Let’s say you just keep paying that, but you pay it to yourself. After 12 months, you’ve got $12,000 saved up. After two years, you’ve got $24,000 saved up. Then you can go take that $24,000, you can buy whatever dream house you’re looking to buy. You’ve got $24,000 to use as a down payment. You move into that and then you rent out the unit that you’re living in and the rent from the unit you’re living in, pays for half your mortgage at your new dream house.
You can get to your goals faster if you just look at the situation you have and see how you can leverage it to reach your goals. Yes, it might be a little uncomfortable, but ask yourself, “Am I living in my first rental or can I just go buy a duplex and live in my rental and then have two doors?” I don’t know, man. I think it’s a phenomenal way to get… I did it. And it’s how I live in the dream house that I have right now and it changed my life forever.
This market is crazy and it’s going to continue to be crazy for a little while. So just look at the situation that you have and the tools that you have at your disposal and be a little creative with how you try to find that first deal. Is it a wholesale? Maybe. Is it a house hack? Maybe. You’re going to have to get creative and you’re probably going to have to get a little uncomfortable and you need to be okay with that.

Dave:
That was very well said, Henry. I’m inspired to go start house hacking again, even though I’ve done that a few times at this point, but I’m glad that you brought that up because I think that when when people ask me what’s the easiest way to get into real estate investing? I say the same thing. I always say house hacking because there are just so many advantages. So I agree with Jamil that wholesaling is really good, especially if you don’t have money saved up, it’s a great learning experience, but if you want to actually buy the house, house hacking, super great opportunity. As Henry said, you can take advantage of an FHA loan and put as little as 3% down and in a rising interest rate environment, you get owner occupied financing, and I think that is super important because over the last couple of years, the spread between an owner occupied loan and an investor loan was not that much. I don’t know exactly what it was, but it was not as great as it already is now. Now we’re seeing it it’s at least a point, so that means as an owner occupant your deals, like you can underwrite a deal better than someone who is not owner occupying something. So that is an advantage that you can have over other people in the marketplace.
The other thing is, as someone who has done this and was an awful landlord when I was house hacking, is that it is an amazing learning experience. You will learn more about property management by house hacking than you will by buying out of state and buying down the road for years. You will learn so much living in a property that it will set you up for long term success in real estate, in my opinion.
So I’m with you Henry. I know it’s a little uncomfortable, but again, as someone who’s done this, it’s really not that uncomfortable.

Henry:
It’s not that it’s uncomfortable.

Dave:
It’s’ really not. What’s so bad about sharing walls? Like I’ve lived in apartments. I live in an apartment right now, I share walls with people right now, it’s really not that bad, it’s a pretty normal thing to do. So if you could do that and build wealth at the same time, I’m all for it.
So you guys all have given really excellent input and advice on first things you could do. We’ve talked about house hacking, skills like learning to underwrite and Jamil, very generously is giving away that underwriting document. We’ve talked about assessing your situation. Kathy talked about just talking to a mortgage lender. What a great piece of advice. Just go figure out what you qualify, stop thinking about like what if, you could find out for sure what you qualify for. Before we go, are there any other practical tips, individual pieces of advice that people could do right now today to get them that next step forward towards their first deal?

Henry:
100%. I think you just hit it, is too many times we let what we think is going to happen stop us from the action that we want to take. I’ve heard people say all the time, “I want to buy a rental property, but my debt to income isn’t good, so I can’t qualify right now.” “Oh, okay, well which mortgage lender told you that?” “I haven’t talked to one yet.” “Oh, okay.” Or, “I can’t buy a house right now because I can’t house hack. I can’t qualify for a duplex. They cost way more than a single family home. There’s just no way I can afford that.” “Oh, okay. The bank told you that?” “Well, no. I just know they’re more expensive.” “Well, yeah if they’re occupied with tenants that they can use the rents that that place is making to qualify you for more because that’s income for you.” “Oh, I had no idea.”
I think a lot of the times we have to stop convincing ourselves that we can’t do something before we just go get the answers for ourselves. So take the step. The practical step is go talk to a bank, go talk to a real estate agent, go talk to the professionals in your field and tell them your goals, “I want to buy a rental property in the next six months. What is it that I need to do in order to get that done?” and let them give you the practical advice and let them tell you exactly what you can and can’t do and stop telling yourself what you can’t do based on what somebody on the internet said or one of your friends said that tried to buy a house a few months ago and got beat out. Just go figure it out for yourself. You’ll be surprised at what you can probably accomplish if you stopped saying no to yourself.

Dave:
I am feeling so inspired. I am ready to go do my first deal all over again. I wish I could go back a time and go house hack. Kathy or Jamil, either of you have any last thoughts or advice for first time investors?

Jamil:
Absolutely. So a motto of mine is squat up. Squat up, go find a community, find people that are doing it. Just like Henry just said, there are people living what you are trying to live and they’re nice. Guess what? Most successful people got there because they’re not dicks. Truly. You can go and get advice from people, you can be friendly with people, you can tell people, “I’m new, I’m wanting to learn,” and you’d be surprised at just how many people are willing to offer mentorship or offer stewardship and just be a part of your life, a part of your journey, because they’re just genuinely good people and they want to see others succeed. Community, squatting up, getting with other people that are doing what you’re trying to accomplish. You cannot be not be left behind if you are forcing yourself into the pack, that’s just what it is. Go do it, go do that thing.

Kathy:
Yeah. Absolutely. If you are being negative, being a downer, seeing all the reasons you can’t, this is the only way I can say it, you haven’t arrived yet. You have not adopted an abundance mindset. And when you’re around investors all they’re doing is talking about opportunity. And I’ve been doing this for 25 years and there’s been a lot that’s happened in 25 years, a lot of negative stuff out there, and yet it was 25 years ago that I learned this, that successful people have a different mindset, they see things differently.
So if you are seeing all the reasons you can’t, you haven’t arrived yet. That’s all I can say, there’s work for you to do in changing your brain and changing your mindset to seeing what’s available. And the way you do that is through learning and by doing it and by hanging around people who are where you want to be, because that’s when you go, “Oh my gosh, they actually do think differently.” It’s true. So go get it. Go shift it.

Dave:
Amazing advice from all of you and if you’re wondering, “Where could I find all of these people who are interested in real estate investing?” Well, BiggerPockets happens to be a free website where 2.5 million people who are interested in real estate investing are talking about real estate every single day, they are going on forums, there are incredibly experienced people answering forum questions completely for free and we also have an amazing tool. You can go to biggerpockets.com/agent and find an investor friendly agent in any market that you’re considering. These are easy, practical ways for you to build your network, to build your team, to squat up, as Jamil said, and get you on that path to that first deal.
Thank you. Jamil, Henry, Kathy for this advice, I am personally just feeling inspired even though my first deal was quite a long time ago. We are going to get into some… one of the members of our audience, of our community, asked a question about their first deal and we are going to help them think through some of the challenges they have for this first deal, right after this break
For our crowdSource section today, we are going to be helping a member of the OnTheMarket community. I think this is a milestone for us.

Henry:
We have one now?

Dave:
… Our first episode we were saying this was the CrowdSource that we imagined, this theoretical crowd that was going be interacting with us and talking to us and it exists now.

Kathy:
Woo.

Dave:
And for anyone listening to this who wants to interact with us, Instagram is always a good place to do it where we all have individual accounts. You can find those in the show notes or BiggerPockets like we were just talking about. I posted a question on the BiggerPockets forums, asking people about a prospective deal that they were considering doing. And I got this response from Nico Dandini, who lives in Boston, but is looking to do a deal in Kansas City, Missouri.
The deal is listed for $72,000, and rent is estimated to be $850 per month. So already in my mind, I’m thinking that beats the 1% rule, that baby’s going to cash, that’s really good. What Nico likes about this deal is the price. He has 14,000 saved up for a rental property, but he lives in a suburb of Boston. It’s a pretty expensive market, so the cheaper out-of-state markets are attractive to him and he thinks it looks like, for the most part, it’s in good condition, but doesn’t have any experience working with a contractor.
So his big question and what he wants the help from the three of you about is, “The current price and the price cut by $6,000 on April 8th makes me wonder if there’s something really bad I’m missing. In the Boston area. Houses are going for tens of thousands over asking price without contingencies within a week of being listed. Why did the price get cut? Why has it been on the market for 20 days? What’s wrong with it? What am I missing? Also, if I don’t have enough cash to buy and rehab, I could buy it without a rehab, but given how the price is low and it was recently cut, something tells me I need to rehab something that I can’t pick out from the pictures on Zillow.”
All right, Henry, I love your chuckling. Let’s give you the first crack at this one.

Henry:
All right. I’ve got some super crazy advice for… It’s Nico Was that his name, Mr. Nico?

Dave:
Nico, yes.

Henry:
Here’s some super crazy advice. Numbers sound good. Yes, you’re over the 1% rule, that’s awesome and I like your gut reaction to the price cut. You should trust your gut. If you smell like something’s up, there may be something up, that’s good intuition. Here’s what I would do. If this is something you’re seriously considering, which is investing in a market like Kansas City, which is outside of your area, if you’re truly serious about it, line up this property, so contact a real estate agent or whoever you need to in order to line up a showing, line up some other showings of similar properties in that neighborhood, and then some properties in an adjacent neighborhood. And then here’s the kicker. Go there.

Kathy:
Whoa. Yes.

Dave:
Revolutionary.

Henry:
So buy a plane ticket. Because I hear this a lot. People want to invest out of state, they find what looks like a good deal numbers wise and I just interviewed somebody on the other BiggerPocket show who did a first deal out of state, who didn’t go see the property and is paying the price for that. So if you think about the cost of a plane ticket, yes, plane ticket costs are on the rise right now, let’s say it costs you between flight and a hotel, let’s say it cost you $1,000. Let’s say it costs you $2000, let’s go crazy. Let’s say it cost you $2000 and then you go there and you learn this property has so much distress that the pictures did it no justice. Maybe they were old pictures. Maybe you uncovered that the electrical is just terrible or that there’s a huge plumbing issue. Who knows what could be wrong that you can’t see with pictures and you spent $2,000 and now you didn’t buy a property. Man, you wasted $2,000. What did that $2,000 save you in sunken costs in a property that was going to be a money pit?
Stop looking at the price of getting on a plane and going to see something as what could potentially be a lost dollars and look at them as how many thousands could that save you if you just go put eyes on it yourself. No one is going to care more about your investment than you and you can build an amazing team of boots on the ground who can help you do all these things virtually and that’s awesome, but you’re still putting your trust in somebody who doesn’t have the skin in the game that you’re going to have to put in the game.

Dave:
This is great advice and you might avoid a bad deal, which is as important, if not more important than finding a good deal, but in losing that deal, you might also learn the neighborhood better or find a block that you find really interesting and build a relationship with a local investor. There’s so many other benefits from it even if that one deal doesn’t work out.

Henry:
That’s right.

Dave:
I just did this myself and I hadn’t done it in years and I just felt really invigorated by it. It was really fun, really informative and I just love this advice, but please finish your thought, Henry, sorry to interrupt.

Henry:
It’s also going to be easier to build your core four and build your team when you go get on the ground and go meet these people in person, they’ll take you more seriously than just some guy who called them from out of state and who wants to pour money into their community. Show them that you’re serious. Show them that you not only want to invest, but you care about their community as well and it’s going to help build your team and like I said, this could be a great deal, but go figure it out for yourself because nobody else is going to care like you.

Kathy:
Don’t be a sucker from a high priced market who thinks everything that isn’t Boston prices or California prices is a good deal. This is classic. When I started investing, it’s like I had a big D on my forehead of just dummy because, “Oh, you’re from California. Everything looks like a deal for you.” It may not be and to me, the biggest issue I saw with this question is the fact that you don’t know the condition of the property. You can find out the condition of the property without visiting, although I always recommend really knowing your market, knowing the street level. One street is different than another street, it really matters. But even if you didn’t go, you could get three or four inspections or even one inspection from a licensed inspector who can tell you what’s wrong with the property and how much money you’re going to have to put into it.
So the fact that you don’t know, of course, that’s like I said, fear comes from not knowing. If you don’t know the condition of the property, do not buy it because that could cost you $40,000, you don’t know until you find out. Is there a foundation issue? That will be expensive. A roof? It’s going to be expensive. So yeah, just find out, maybe save yourself the trip first and just pay the $400 for an inspection report and if it needs a lot of work, don’t get it.
Then the second thing is also make sure, I mentioned this before, talk to a property manager because they’re a little bit more honest. They have nothing to gain by you buying a crappy property because then they have to manage a crappy property, nobody wants to do that. So always talk to a property manager or several to make sure that they would verify those rents and that they like that neighborhood. You can look up crime statistics, but again, getting on a plane and going is always a good idea as well, because you can talk to neighbors. You can go to the local Starbucks and say, “What do you think about this neighborhood?” So yeah, just the not knowing is what causes a lot of fear.

Dave:
All right, Jamil, take us away.

Jamil:
I love both of those answers. I’m going to give you some advice that’s not going to require you having to visit the town quite yet. How I would do it is I would go and invest in… If you’re doing this full time, you should be investing in some kind of a resource or a tool like batch leads that can show you where properties are trading for, for cash value. Like where are investors buying properties in that area for cash? So that’s my first data point I want to look at.
The second thing I want to do is if I feel like this actually is a good potential and since you do have the money to purchase this property, you are a legitimate buyer. I would lock that property up with a nice due diligence period. Then, instead of traveling, I would send that deal out with a $5,000 markup on it to other investors in the area and I would see, could I wholesale this property? What are the buyers telling me about this property? Let them go and do the work for you. Let them go be your due diligence. Let them go bring the contractors, let them go do the inspections and tell you why you’re either out to lunch or why you have a good deal.
Now, if you have a good deal, you might decide to take the $5,000 wholesale fee and sell the contract to another investor and let them do it and now you made $5,000, or you may decide, “Hey, all the buyers want this property. I’m going to keep it for myself.” That saved you a plane ticket and might have made you $5,000 or got you a property.

Kathy:
What is smarty pants?

Dave:
This is a perfect way to wrap up the show because we wanted to start the show in a way that showed how there’s different ways to get to your first deal and this is a perfect way to wrap it up, that Nico or anyone else out there listening, there’s so many different ways to get in. You could wholesale, you could go visit, you could buy data. There’s so many different ways that you can approach this. The key is really to take action and hopefully this conversation has been really helpful to all of you listening and helps inspire you to go out there and take action.
Henry Jamil, Kathy, this has been so much fun. As always, you have inspired me and I can’t wait to talk to you all again real soon on the next episode of OnTheMarket. We’ll see y’all soon.
OnTheMarket is created by Dave Meyer and Kalin Bennett. Produced by Kalin Bennett, edited by Joel Esparza, copywriting by Nate Winetrout. Special thanks to Lisa Schoyer, Eric Nutsen, Danielle Daley and Nathan Winston. The content on the show OnTheMarket are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

David:
This is the BiggerPockets Podcast show 606. When you find some awesome deal that somebody else messed up on and you can jump in there and grab it, you should, but don’t never swing your bat until you see eventually could be a home run. Take the base hits as they’re coming, work the MLS deals, find different ways to make money, but do that knowing that you’re not trying to achieve your goal with these base hits. You’re just keeping yourself afloat. What’s going on, everyone? This is the BiggerPockets Real Estate Podcast, and I am your host. My name is David Greene, and this is the Seeing Greene version of the BiggerPockets Real Estate Podcast. On today’s show, we are going to take questions from people just like you that want to know specifics of how to move their business forward, how to overcome a particular obstacle, or how to create a business plan to move to the next step.

David:
We have some really good questions and a really good show for you today. So I hope that you stick around in here the whole thing. If you’re new to this podcast, welcome to the best dang real estate podcast in the world. BiggerPockets is a community of over 2 million members. It’s not just a podcast. We also have a website with an amazing forum where you can go and you can pretty much read any question you would’ve ever thought of when it comes to real estate, as well as ask your own and get answers, an incredible blog section and resources like an agent finder, where we will connect you with a real estate agent in the market that you live to help you buy properties. But more than anything, we want to bring you the information, the education, the insight into making money through real estate, improving your financial position, and gaining more financial freedom.

David:
We do that by bringing in different guests that we interview to hear their story, as well as experts in the field that will teach you what they know that will help you on your journey, and doing shows like this. On today’s show, we go into will small multifamily go the way of commercial valuation? A quick 1031 overview, what it looks like to do a 1031 exchange, if someone should quit their job and go full time in real estate investing and when, and the question of, “Should I buy off market on the MLS or both?” And more. If you’re listening to this for the first time, I want to hear from you. So please leave me a comment below on YouTube and tell me what you think about the show, what made you laugh? What made you cry? What made you think? That’s what I want to know.

David:
Today’s quick tip is in addition to leaving a comment on YouTube, please let Apple, Spotify, Stitcher, wherever you listen to your podcast know that you like this. We want to reach more people and the only way that we can guarantee to do that is to get better reviews online. So please go leave a review, tell everybody why this is a good podcast, what you like about it, so that we can reach more people and you can have more people on the journey with you trying to do the same thing. All right, let’s get to today’s first question.

Brendan Trieb:
Hey, David and BiggerPockets. My name is Brendan Trieb. I’m a real estate agent in park city, Utah, and I’m looking to start my investment journey. Business has been really good. And since closing on my primary residence, which is a town home here, it’s appreciated about 80% in value. So based on my calculations, I could pull out roughly 200,000 in a cash-out refi or a HELOC, and then use that to reinvest. So I could use it to reinvest in a new construction house locally that I feel is well under market value and would probably appraise for at least 30% above the purchase price, but if I do that and keep my current town home as a rental, it wouldn’t really cashflow. It’d pretty much be even. And I’m just worried that I might be over leveraged. The alternative is I pull out that 200 or maybe not quite as much, and I put it into something that cash flows today in a different market that’s better for cashflow. So would love to hear the pros and cons and what you guys think might be a better option. Thanks.

David:
All right, Brandon. Thank you very much for your question here. This is a good one. So let me simplify this. What you’re really asking is, “How much money should I take out of my property and how should I deploy it?” Now you’ve mentioned a couple options, the new home construction. You gave me enough detail that that actually sounds like a very good play. If you’re getting up 30% under what it’s worth, you need to find some way to buy that house no matter what. I shouldn’t say no matter what. Assuming you can make the payment and that it’s going to cash flow, or you can float the risk associated with it, you need to get that house no matter what. And then the question becomes what can you do with the rest of the money? So if I was in your position, here’s what I’d be thinking.

David:
First off, can I make sure that I have stable income? So if something goes wrong with my rentals, because again, we’re in a very hot market. We don’t know if it’s going to keep going up or if it’s going to go down. We don’t know what’s going to happen with rents. We don’t know what’s going to happen with the economy. We’ve never been in a situation where we have put this much money into play at one time. So my personal opinion, David Greene, is that… I’m wearing a lot of green today actually. If you’re watching on YouTube, there’s green behind me. There’s green on my shirt and you’re listening to Greene right now in your ear holes. What I would recommend for people to do is to play it safe, right? So for me, that means I keep working and I keep investing. So I mentioned before, I’m not a huge fan when there’s this much uncertainty in the market to go full-time in real estate investing, quit your job and immediately start traveling the world, living off your rent.

David:
You could. I’m not saying don’t do it. For some people, that’s the right play, but for more people than normal, I think you want to keep consistent income coming in because we don’t know what’s going to happen with the market. Now, for your situation specifically, I would absolutely try to get that new home construction. If I could get that house as a primary residence and put 5% down, 10% down, maybe three and a half percent down, probably could get away with an FHA loan or another low down payment loan because you’re not competing with other buyers if it’s new home construction. So now those loans that every buyer wants to use, but every seller hates to take, there’s no downside to them because you’re not competing with other buyers.

David:
So I would get that one. I’d put as little down as I had to. I would leverage more, and then I would use that money to buy cash flowing property somewhere else. So you’re getting a lot of equity in this new home construction home, offset that by going for something safer with more cash flow. Buy another duplex, triplex, fourplex in area with very stable job growth. Maybe look for a place where Amazon’s putting in a super center or other jobs were mid-level employees are going to be working because those people aren’t usually going to buy homes. They need a place to rent. So that gives you a stable tenant base and add focus on cashflow. So you’re kind of balancing it out. You’re making one play that’s more cashflow high. The other one’s obviously coming with a lot of built-in equity and it’s only going to go up more if they’re building in a good area.

David:
Now you’ve done the best of both worlds. It is true that you’re going to lose some cash flow on the one that you’re refinancing. That’s always the case when we refinance. You just have to make sure that whatever you buy gives you the same or more cash flow as what you had. Now, this is going to give you more debt and it’s going to give you more properties to manage. Let’s just be honest about that. If you’re someone who thinks the market’s going to crash, my advice would be wrong. I’m assuming you’re in the place if you’re looking at buying new home construction that you think the market’s going to continue to rise. Now, to cover your downside, that’s why I was saying, I think you should keep a job, continue selling homes. Maybe let any nerves or fear of what could happen with these investments that’s holding you back, let that drive you to sell more houses, to hold more open homes, to negotiate harder for yourself, to do a better job.

David:
Continue to look to grow your business as the safety net in case something goes wrong with the economy and then make wise choices like you are. You’re in a great position, Brandon. Just want to thank you for your question and for sharing that with us. All right. Question two comes from Catherine Chapman. This is a verbal question. “Asking on behalf of my dad.” It’s funny whenever someone puts that. It’s always like, “I’m asking for a friend,” and we all know what that means. “He recently retired and had a lot of funds in his 401(k). He has a great pension and started teaching as well. So his salary is still pretty high in retirement. He wants to pull out some money for real estate investments, either down payments or cash purchases.

David:
The frustration is of course that will be taxed as ordinary income. Is there any strategy to reduce the taxes on what he pulls out for investment? He’s looking to use bonus depreciation, but it doesn’t look like it can make a dent in a several hundred thousand withdrawal. Any ideas welcome. Thanks.” Okay. Let’s see what I can do to tear this apart. I’m not a financial professional. I’m not CPA. I’m not a lawyer. So don’t take any of this as legal advice. I am going to tell you that this is one where you should get legal advice. So while I appreciate your question, I’m going to do my best to answer it here, Catherine. A quick phone call to whoever runs your dad’s pension could probably help me more than what I can help you with here. Just ask them, “My dad wants to pull out money and he wants to invest it. If we put the profit back into his fund that we pulled it from, can we avoid taxes?”

David:
See, a lot of these funds are structured differently and I don’t know how your dad’s is. When I was working as a police officer, we had our money set aside. If you contributed money that came out of your paycheck tax free, you could put it into a retirement account, and some of those accounts, you could take money out and buy real estate as long as the profit you made from that real estate went back into the account and you never used that property personally. So before you reach retirement age in a retirement account, this is my understanding, you have to treat it like that is another person’s money. Even though it is your money, you just have to treat it like it’s not. So you can borrow from that entity, but you can’t personally go visit the house that entity owns because it’s not yours yet.

David:
You can’t enjoy it and you can make money with the property you buy, but it can’t be you. The entity has to make the money. And then when you hit retirement age, then you could take the money out. Now, I am sure there are some 401(k) financial planners that are pulling their hair out listening to the angles that I’m missing or things I’m saying wrong. I’m sorry, guys. This is probably more than the average person knows, but it’s definitely not as much as you know. But I do think that you can get these questions answered by just giving them a call and asking the question and then structure it in a way so if your dad does take money out, if he puts it back in, he won’t be taxed. Now, there’s also the accounts where you get taxed and then you put your money in, often you can use that however you want. It’s usually only if you’re avoiding taxes before you put the money into the account where they have the more strict rules.

David:
As far as other ways that your dad can reduce taxes, I think a couple challenges he’s going to have is his retirement income is probably going to be determining what he can borrow. So you said he is making good money. His debt to income ratio is going to have to be solid. So make sure your dad doesn’t go out there and open any new lines of credit or get himself into more debt if he wants to be investing in real estate because he is on fixed income. Talk to a mortgage broker first or a lender in some way to find out what his income will qualify him to buy as far as what investment property he can get at. And then when you’re talking about, I believe that you called it bonus depreciation, yes, the way to make that work is you want to borrow as much money as you possibly can and you want to buy a more expensive asset.

David:
So when you’re looking at this accelerated depreciation, what we’re really doing is we’re doing a cost segregation study. That is a way of looking at the property he’s buying, taking all of the materials that will wear out faster than 27 and a half years. So this would be your plumbing, your electrical, your shower heads, your appliances, your HVAC, all of this stuff does not have a useful life of 27 and a half years like the IRS says that the property itself will. And you are taking the depreciation for that in year one or maybe years two or three. You’re taking it in the beginning. So what happens is you have a bigger depreciation right off when you first buy the property. Now, if you can combine that with leveraging to buy the property more, meaning you borrow more and you put down less, what happens is a lot of the time, the money that you put down on a property is similar or close to what you would have paid in taxes if you would not have bought it.

David:
So when you get your tax savings to get close to your down payment, you get a property theoretically for free. So your dad’s going to have to look at buying a more expensive property. He’s probably going to end up looking at commercial property at higher price points, and then he’s probably going to need to not put 50% down or something or not buy cash because the cost segregation studies and bonus appreciation works much better when your higher leverage. This is why Robert Kiyosaki says, “You build wealth by using leverage and avoiding paying taxes.” That’s really what your father is looking to do here.

David:
So I wish I could give you more specific advice. I know I kind of rambled there, but if you go to your CPA or whoever runs that retirement account first, ask them how he can invest, and then you look for a way to invest where you’re buying a more expensive property that will have more tax write offs, combined with more leverage, he should be able to get the most bang for his buck out of what’s in his retirement account. Now, this is also, as always, assuming that your father manages money wisely. So when I say borrow more, he’s not doing something irresponsible.

Phillip:
Hey, David. It’s Phillip from Vancouver here. My question to you is which of my company Left Side Adventures be focusing our efforts on? To give you a little bit more context, we have goals to acquire 100 units in five years. We have nine units after one year. It’s also hot market in New Brunswick, Canada. So properties on the MLS are going for multiple offers over asking. So what should we be focusing our efforts on? Should we be focused on generating off-market leads for the properties, mainly because if we get off market leads, we can go through commercial loans, which takes six weeks or longer to obtain so we have time to actually work with that, to get that obtained?

Phillip:
Otherwise, if we put in an offer through the MLS using commercial mortgage, we’re probably not going to get that accepted, or do we, B, really focus on just doing JVs with money partners who will fund 100% of the deals and just go for those base hits on that MLS? Yeah. So what should we be focusing on efforts on? Should we do both at the same time? Should we go with A? Should we go with B? Your thoughts and insight is appreciated and thanks for everything.

David:
Thank you, Philip. I really liked this question. So to sum it up, you’re saying should we borrow money from somebody who is going to fund us and use that money to buy the deal on the MLS, which is probably not as good of a deal, or should we look for off-market opportunities, which will be better, but harder to find? I think you’re in a really good position to work on both. So how this will probably look is if you look at a graph, you’ve got the vertical one, the Y axis, we’re going to call that success or money, and then you’ve got the X axis, the one that goes horizontal, we’re going to call that time. When you’re trying to get off-market deals, you’re going to spend a lot of time and effort, and you’re not going to make very much money. So you’re not going to see a very big spike.

David:
It’s just going to inch along where it looks like you’re not having very much success, but you’re putting a lot of time and effort into doing this. That’s how every difficult but worthwhile endeavor starts. That’s how my jiu-jitsu life looks like right now. That’s what it looks like when you first start working out at the gym. Every job you ever first start working, you’re not very productive. When you start to do anything, it’s very hard. So you should give yourself a big runway there. Give yourself plenty of time to figure out how to find off-market deals. If you can, finding off-market deals is always a good idea. That is the best way to pursue real estate investing. It’s just the hardest. So people like me tend to buy more of our properties on the MLS because we spend less time looking for them.

David:
We take that time. We earn money in different ways. That’d be another thing for your company to look at. Can we make money through coaching, through educating, through other ways of bringing value? Can you be commercial bookers or commercial agents or something to earn money while you are trying to get your 100 doors that you mentioned? Because as I’m getting to here, you’re going to have to expect to put a significant period of time in without getting a lot of money. So you want to be able to backfill that time with some form of money so your business doesn’t sink, and then just grind away. Use your direct mail, use your SEO, use your word of mouth, figure out what works for you and start to fill up a funnel with off-market opportunities. In the meantime, go for those base hits. I’m going to use a baseball analogy because you used a phrase, base hit.

David:
It’s like saying, “Do I want to go for a home run or do I want to get a base hit?” Well, of course, you want to get a home run, but you don’t control those. That’s a pitcher making a mistake. When you find some awesome deal that somebody else messed up on and you can jump in there and grab it, you should, but don’t never swing your bat until you see it actually could be a home run. Take the base hits as they’re coming, work the MLS deals, find different ways to make money, but do that knowing that you’re not trying to achieve your goal with these base hits. You’re just keeping yourself afloat. What you’re really trying to do is build up your off-market funnel, where you’re going to get big wins and make big money and you just got to give yourself time to do that.

David:
So sit down with your crew, come up with a business plan, ask yourself what you think you need to do, what pieces you think you need and what skills you need to develop. Then once you’ve got it figured out, throw yourself into it with everything you have, building those skills and working that plan. And while you are doing that, look for deals in the MLS and look for deals to JV on. All right. We’ve had some great questions so far. Thank you guys for all of the questions you submitted. If you’d like to submit one yourself, you go to BiggerPockets.com/David, and leave me a video there.

David:
In this segment of the show, I’m going to go over some of the comments that you all leave on YouTube. And this is my way of encouraging you all to leave me some more comments on YouTube. We read these. We take them serious. We really look for what you guys are seeing and what you’re wanting. This is the Seeing Greene style of the BiggerPockets Podcast where you get to see my perspective, but I’m not selfish. I want to see your perspective too. So leave me comments saying what you liked, what you didn’t like, what you want to know more of, what you wish we would cover. Tell me how we can make this show better and I’ll do my best to do that. First comment comes from Tim Stout. “I have no question. I love the content and jiu-jitsu analogies. I am a BJJ black belt and appreciate them.” Well, thank you, Tim. I do need to be honest for the BJJ community out there. That stands for a Brazilian jiu-jitsu if you’re not in the BJJ community. I talk about jiu-jitsu way more than I actually do jiu-jitsu.

David:
It’s very difficult for me just being a busy person between the work I have, the traveling I’m doing. When I catch a cold, I’m coming down with one right now, you don’t want to be rolling around with people when you could be getting them sick, and the injuries that I get, it’s difficult to stay in there all the time. So please don’t think that I’m sitting here saying like, “I’m a awesome jiu-jitsu practitioner.” It’s a lot of fun. It’s also a lot of not fun and I love doing it, but I just talk about it way more than I actually do it. So I just want to be honest about that. No stolen valor here. Next comment comes from Christine. Quick tip. “I usually have the stern intense look in my face when I listen to the show because I’m taking in all the information, but whenever David does the quick tip voice, it brings a quick smile to my face. I chuckle inside and get back to business. This one in particular was one of his best. Thank you for that.”

David:
Well, Christine, we’ve been playing around with how we should do the quick tip with Brandon, not here. I can go high every once in a while, but it’s always been more difficult for me to get my voice as high as Brandon can get his. I feel like it’s probably just an abundance of testosterone that he doesn’t have to bear the burden of like I do. We’ve thought about the Batman version. “Quick tip.” We’ve thought about the Scottish version, “Quick tip.” We’ve thought about a Russian version. “This is the quick tip we give to you.” I’m not sure exactly which direction we’re going to take, but let me know in the comments how you guys would like to hear the quick tip given, and I will do my best to honor that on every episode we have. Thank you very much for the love, Christine.

David:
Next comment, “Thank you for this video. I have one quick question. If I’m looking at a property that’s been on the market for a while, wouldn’t that also mean it would be difficult to sell it for me too when the time comes? Especially because I’m not looking to renovate or fix it up. I’m looking for long-term rental and I can only afford to buy at a price point where the competitions are not as high.” Okay, Miriam, this is a great question and I appreciate you asking this. It could mean, just to sum this up, that if you’re buying this property and it’s been on the market for a long time, that if you try sell it, it might take a long time also. But the only way we know is if we figure out why it’s taking a long time. There are three things that make a property sell.

David:
And this is what I wish every real estate agent would tell their clients and would tell you, but they don’t because if we told everybody that, they would just go find another real estate agent that had a little parrot on their shoulder that said, “Marketing,” or, “Buyer’s list,” which is what every seller wants to hear. But here’s the truth. I’m going to give you guys the brass tacks about what makes a house sell. The location, the condition and the price. Those are the only things that buyers are looking at. So the first thing they look at is location. And you’re the same way. Like, “Do I want to buy a house? Where do I want to live? I want to buy in that city.” Boom, location. What neighborhood? Boom. That’s where you start looking. Then you start to look at the price point, right? You say, “Okay, I can get approved for this much.”

David:
Then you find the house in best condition possible at your price point and that’s the one you want. There’s really not much else to this. So as real estate agents that are trying to make our clients money, I can’t control the location. So really what it comes down to is the condition I get your property in and the price we list it for, and then my negotiating skills come into play if I can get more than one buyer, which I always do, and this is why I’m good at selling homes. So here’s what I want to say. If this house has been on the market a long time, it’s in a bad location, it’s in bad condition, or it’s priced too high. So if you go in there and pay too much, you’re going to have the same problem when you’re trying to sell it, unless the prices have significantly improved.

David:
Okay? If you improve the condition and that’s why it’s not selling, you may be able to sell it quicker, but you’re saying you’re not going to do any work. So just have an open mind. Maybe after you’ve owned it for five years, you can do some work and you can improve the condition. If it’s in a bad location, just don’t buy it. Okay? This is what I always tell people. The only thing about a house that I can’t change is the location. Can’t pick it up and move it somewhere else. I suppose, theoretically, you could. There’s actually a house moving company. My dad had a friend when he was a kid and that was their business is they literally moved houses as crazy as that sounds, but we don’t do that anymore. So Miriam, if the location is bad, don’t buy the house. If it’s an issue of price, get it at a better price or don’t get it at all. And if it’s an issue of condition, consider the fact that you might have to prove that before you sell it.

David:
All right, this next comment comes from Alexis Quiterio. And this message is for my co-host, Rob Abasolo. This was left on the episode we did about how to buy a rental property in 10 steps. This comment came from there. Rob couldn’t figure out how to find his voice notes or how to keep them. They would always disappear. So Alexis is sharing for all of us, how to keep your voice notes from disappearing. You click on settings, messages, scroll down to audio messages, click expire, and then click never. So this came from a little back and forth we had where I would send a voice memo to someone and they would listen to it and they would say, “Oh, this is gold.” And then it would disappear and they couldn’t listen to it again.

David:
So thank you very much, Alexis, for your tech knowledge there. She ends or rounds out her comment by saying, “Thank you for another incredibly insightful episode. You guys have changed my life with this knowledge sharing and I can’t express enough gratitude. PS, David, your analogies have been the reason for many light bulb moments, so never stop.” Ah, well, thank you, Alexis. I always wonder if I’m using too many analogies. Some people don’t like him and that’s what they tell me. So if you guys like my analogies, tell me to keep coming up with more and I will. We might even may be do an analogy challenge where in the comments you guys could say, “David, I want to see you make an analogy out of…” And put something in there. And I will try to figure out how to make a real estate analogy out of whatever you say. Duck-billed Platypus, whatever it is that you come up with, I think that’d be funny.

David:
All right. Our last comment comes from Marlin S550. Sounds like somebody out of the first Fast and Furious movie. “My journey starts today. I’ll keep y’all updated as I progress.” Marlin, ensure to submit questions as you get going on your journey, because I want to see them. Wherever you are at, someone at BP can help. Make sure that you leverage our community here on the forums, on the comments on YouTube, in our Facebook community. Make sure you’re telling people what you’re doing and asking for the help and support that you need. Now, I want to ask you, are these questions resonating with you? Do you like these comments? If you have questions that are similar, let me know. Tell me in the comments on YouTube. And then let me know what are the ticks or trips that helped you as a new investor? What did you have to learn that got you over a hump and what were you struggling with that once you overcame it, you started to make some progress?

David:
Leave a comment below and let me know what you think about. And then don’t forget to subscribe to the channel, click the like button or smash it, if you will, and share this with someone that you care about so that they can learn about real estate investing too.

Tim:
Hello, BiggerPockets. I have a question for you and before I ask, I just want to say thank you to every single person who’s helped make a video on BiggerPockets channel, and then also everybody in the forums, because without both of you, the videos and then watching people apply the knowledge in the forums and walk through the process themselves, I would’ve never had the confidence to start investing in real estate. I started investing in real estate around four or five years ago and I own a fourplex, a mobile home park, two Airbnbs, and I’m closing in on another mobile home park. Sometimes when I’m working my day job, I feel like it’s at the expense of my real estate portfolio and I don’t know when it is time to leave the W-2 job.

Tim:
I, multiple times throughout the year, have felt that when I’m doing my day job, which doesn’t make net as much as the real estate makes, quite a bit less, I feel like I’m spending time working a job that if I wouldn’t have been working that job, I could have actually saved more money, taken advantage of an opportunity that would’ve made money just by having more time working on my real estate portfolio. So I don’t know when it’s time to leave. And oftentimes, I tell myself, “Well, you should stay because you want the most favorable terms with lenders on any deal that you’re doing.” So they like the W-2, so continue it and get more assets while you can with the W-2. But I really am… Especially with this new mobile home park that I’ll be purchasing, I just feel like I almost could make a lot more money by focusing on that full time and moving in houses much quicker. So compared to doing it from afar, I’d be able to go there and do it myself.

Tim:
So I’m wondering when do you know it’s time to leave the W-2 job? And then secondly, when I do leave the W-2 job eventually, I’d like to get my real estate license and show a house, maybe just one or two houses a week. And I don’t know how to set up a brokerage to allow me to do that. I feel like if I work under somebody else’s brokerage, they’ll want me to work 40 hours a week and do showings every day and I’ll have full another job. That’s what that would be. So I would rather just do one or two a week and I’m wondering is that something I should be setting up my own brokerage for when that time comes, list it, maybe connect it through Zillow, I would guess and just take on one or two showings a week? Is that probably the safest and best way to do that? I’ve never worked on the brokerage side or the agency side, so I’m not entirely sure. I appreciate your guys’ time and you guys have a nice rest of your day. Thanks so much, BiggerPockets.

David:
All right, Tim. I’m going to start with your second question first because I can answer that one more succinctly, and then we’re going to move on to the first question, which was when should you leave your job? When it comes to getting your license and working in real estate, there’s a few comments you made that I think are giving me the impression that you don’t have a great insight or understanding into what the job or day of an agent is like. So I’m going to clarify that for you as well as anybody else that might have those same misconceptions. Hopefully, that makes your decision easier to make, and then we’ll move on to the next part of the question. First off, there’s a difference between becoming a broker and owning a brokerage and becoming an agent and working under a broker. You’re probably not going to be eligible to get your broker’s license.

David:
I don’t remember if you said where you are, but most states require you to be working in the industry for a certain period of time, or have a certain educational degree with a certain amount of classes of real estate taking. Most of the time, you start off as an agent. After you’ve done it for a couple years, you’re eligible to then take another test and become a broker. That’s what I did, but that isn’t really what’s important. What you’re describing is you’re thinking if you work for a broker, they’re going to be putting you to work and most brokerages, in fact, almost every brokerage nowadays doesn’t work that way. When you hang your license with a broker, they’re going to take a chunk of your commission in exchange for the value that they bring you. Now, part of that value is that you legally have to hang it under a broker because agents don’t do deals. Brokers, do.

David:
Agents work under the authority of a broker. So when I say, “I listed a house,” it’s actually not true. Keller Williams Realty, the office that I’m at listed the house. I represented Keller Williams with the client. I know that sounds complicated. So we usually just say it’s David’s listing, but as an agent, it’s never my listing. It’s only the broker’s. I also said I was a broker. That’s true. I’m what’s called a broker associate. So I’m a broker, but I use the Keller Williams license instead of my own. Now, when you get your license and work for a broker, you are going to be finding your own leads. So you’re not going to be showing homes. You’re going to be looking for clients nonstop, and then you’re going to be getting a bunch of leads. You’re going to be trying to get them to work with you nonstop.

David:
And then you finally get them to work with you, and then when they want to go see a house, you’re going to show them the house. You’re not in control of when that’s going to happen. You’re working for them and that’s going to be nonstop. And then you’re going to put it into contract, if you are lucky and then your job starts and you’re going to be working on that file nonstop. And that’s just one person. And the majority of them that you work with are not going to be closing and you’re going to do a lot of work and not get paid. So you got to work with a lot of people at one time and manage a bunch of balls in the air. So if what you’re looking to do is get your license and do less work, this is a bad idea. Don’t go become a real estate agent and don’t pursue that world.

David:
That’s an entrepreneurial venture. You are starting a business from scratch. I believe 88% of agents fail within the first 60 months of working the job. It’s very difficult to make it in. So if you’re not completely committed and willing to do whatever it takes, probably not a good idea to get into that world. Now, let’s get back to your original question, which, “Is my job holding me back?” Okay? It is. Yes. If you had more time to put towards real estate investing, you would be getting more real estate. You would most likely be making more money. There are very few jobs that can produce more money than what you can make when you’re investing in real estate, because real estate makes you money in a lot of ways. It makes you money in cash flow and appreciation and equity buildup, in tax savings and loan paydown, there’s a lot of ways real estate will make you money, and then it’s pretty easy to leverage.

David:
You can keep getting more properties and leveraging out the work of managing them to other people. Very few jobs can keep up with that. But there’s a reason everybody works a job. And here’s what I want to just run by you, Tim. So many people look at real estate investing or entrepreneurialism or being a business owner and it’s appealing because they don’t like the ceiling that they have on them where they are right now. They see that in their job, they can’t get higher. They can’t make more money. They don’t have opportunity. This is what everyone talks about. And it’s true. When you work for someone else, you don’t have as much upside. That is absolutely real. The problem is it’s not the whole story because when you work for yourself, you have no floor to protect you.

David:
See, when you work in another company, even if you’re not productive that day or that week, even if none of the work you do turns into anything, even if you’re able to hide all day and not do work, you still get paid. There’s very little consequences for doing your best when you’re at a job where someone else is paying you. A lot of people do a great job just because they have the character to do it and God bless them. I love people like that. The world tends to reward them, but there’s a lot of other people that are unhappy at their job. I’m not saying this is you, Tim. I’m just using this to describe the reality of what it’s like to work for someone else. They’re taking the risk. Not you. They’re paying you even if you do nothing productive. So you have a floor. You can’t fall.

David:
You’re going to get a paycheck no matter what, until you get fired. And most of us learn how to do at least enough work to not get fired and there it is. There we have our chop. Okay? So when you leave that and you go into the world of real estate investing or business ownership or real estate agent or any entrepreneurial venture, the trade off is your ceiling is removed. So you can go as high as you want, but your floor is removed. You can also fall and fail much easier. And I’m not discouraging you from doing this because I did this. I think more people should do it. I am trying to prepare you mentally for where you’re going into so that you’re not completely caught off guard and you don’t feel betrayed when you realize that once you leave your job, it’s not just that it’s harder to get a loan. It’s that if something goes wrong with those properties, there is no money coming in.

David:
So when I left my job, when I was a police officer and I decided I didn’t want to do that anymore, I had some injuries and one of them in particular is becoming excruciating and I couldn’t deal with it anymore, I focused on building up passive income, cash flow for my rental portfolio, so that if I didn’t make it as a real estate agent, I would at least have some kind of backstop to prevent me from falling. I had a form of a floor, although it was not as secure as my job as a police officer. If you’re getting into mobile home park investing, that makes me more optimistic because that specific niche of real estate investing is one of the more safer niches. A short-term rental, man, that’s high risk care reward.

David:
You might have a month go by where no one books your place. Flipping houses is very risky, right? Your deal flow cuts off, or your numbers don’t work out, or your contractor screws up or something happens and you don’t make money in that. There’s nothing safe about it. But mobile home park investing is very safe. In general, there’s very limited vacancy issues. There’s very limited maintenance issues. The tenants are owning the mobile home. So you don’t have to worry about something breaking. They have to worry about that. They’re just paying you lot rent, and it’s probably relatively cheap compared to the other expenses in their life. So it’s not like those people have a hard time making their payments as much as a luxury grade apartment might be. So what I’m getting at here is I am more optimistic about you making this jump if you’re in mobile home park investing than somebody who’s maybe doing some riskier form of investing.

David:
I just want to say when you’re asking the question of, “When should I make the jump?” Don’t do it if you could have a couple bad months of real estate ownership and lose a property or not make a payment. You should have so much money set aside, so much equity in these property, so much cashflow coming in, just more than you would ever need that if you leave your job and you lose the security of that paycheck, you’re going to be okay. And I give this advice because for a long time, people said the safest way to buy real estate was to focus on cashflow. And that is true. We always want to get that if we can, but in today’s market, it’s getting harder and harder to find that and you guys are all seeing that, right?

David:
So the way that we offset that is we make adjustments in other parts of our life so if something goes wrong with cash flow that we can’t control the areas of life, we could control, the reserves we had, the money that we saved, the money that we were earning make up for the areas that we can’t. Hope that advice helps you, Tim and I will be rooting for you on your journey. All right, next question is from Drew Preston. “My question is instead of waiting to save enough money for my house hack and W-2 income for my next down payment on another investment property, I’ve recently been thinking a better option would be to 1031 this duplex into a larger deal. Can you please explain the steps of what a 1031 exchange process would look like for a first timer? Thank you for the awesome content and thank you for your time on this question.”

David:
All right. Drew, this is a great question, especially for a show like this. Now, again, I’m going to start it off by saying I’m not a 1031 specialist. I’m not a lawyer. So I might say something that’s not perfectly accurate. I’m going to do the best I can to answer the question, but you should seek legal advice, and luckily it’s not hard to do. I can put you in touch with the 1031 person that I use or there’s probably some all over BiggerPockets that you could find. Here’s the gist of what’s going to happen. You’re going to sell this duplex and while you have it on the market or when it’s in escrow, you’re going to tell a 1031 escrow company, which is independent and different of the title and escrow company that you’re using to sell the house, that this is a 1031.

David:
You are going to take what you bought for the property, whatever the purchase price was of your seller, you’re going to subtract what you paid for it, you’re going to subtract all of the costs of sale, like real estate commissions and closing costs that you pay, then you’re going to subtract any improvements that you made on the property when you had it, and what’s left is going to be called your capital game. You are going to have to reinvest that amount into new real estate and the debt you take on is going to have to be equal or greater than what you owe on the duplex right now. Here’s one point I’m going to hammer down and super emphasize for everyone listening. You cannot do a 1031, close on your property, get the money in your bank account, then start looking for the next property. If you touch that money, if you have constructive receipt, you’re ineligible for a 1031.

David:
This is why you have to use an escrow company first, because they’re the ones that are going to hold that money, not you. I’ve had people that made this mistake and they said, “David, I just sold my house. I don’t want to pay taxes. I want to do a 1031. I got 150 grand sitting in my bank account. What should I buy?” And oh, I mean, maybe there’s some fancy lawyer that knows some way around this, but my understanding is you just made yourself ineligible. So that’s why I’m telling y’all right now, don’t do that. Now, once the house closes, you’re going to have 45 days to identify potential replacement property. These are the houses you’re exchanging your duplex for. You’re going to have 180 days from the day you close on your duplex to actually close on that new property. Okay? So within those timeframes, you’re going to be working.

David:
So once the property closes, you’re going to identify the properties that you would want to buy in a 45 window timeframe. You’re going to give that information to your 1031 company, and then you’re going to start working to close it. You’re going to have to close it within the 180 days. Hope that helps. And if you do that, you won’t have to pay any taxes, at least for right now. You will defer them to later. Next question comes from John Encwot. “Hi, David. I have a question about the general market for small multifamily, two to four units homes. Where I’m from in Columbus, Ohio, it seems that home appreciation is outpacing rental rates by a wide margin. Because of this, most homes are being sold for much more than can be justified by cashflow alone. It seems to me that small multifamily home appreciation will be held back long term by rental rates compared to single family homes, and that they will be eventually valued similarly to commercial properties based on their income.

David:
This leads me to look to buy single family homes over small multifamily. Even though the cash flow isn’t quite as good right now, I would think higher appreciation will more than make up for it in the long run. I just wanted to get your thoughts. I appreciate all of the Seeing Greene episodes you’ve been doing. They’ve been extremely helpful to get perspective on what’s going on in the market in general.” Well, thank you, John. Here’s my two cents on the question of the single family versus multi. Traditionally, single family has appreciated more, multi-family has been stronger in cashflow. And this is why most real estate investors have got their start in the small multi-family space. The two, three and four unit properties have been largely, “Can’t miss.” If you play Street Fighter, this is Ryu. This is the one everyone starts off learning how to play, and then you move on to something later, when you get better.

David:
We are seeing them go up in value faster than the rents can keep up because people are valuing cash flow more than they did before. So if you know what a cap rate is in commercial properties, the lower the cap rate is, the more people value the cash flow that asset’s going to put off. So one way to look at this is cash in a really rough area or a way that’s very difficult to make it is worth less than cash flow in Malibu, California, where you know you’re going to get massive appreciation. So the lower cap rate is the more demand there is for that stream of income. All right? And I want you to think about multifamily property as a whole, the cap rate’s compressing. People want those more than they ever did before and that’s why they’re paying more for them than the rents they can keep up. Now, let’s talk about why.

David:
Well, for one, they make awesome house hacks and as home prices have increased, people have gotten smarter. Podcasts like this one, websites like BiggerPockets and others have been touting why house hacking is so smart. I’ve written some articles for Forbes about this. The information’s out there. So more and more people are saying, “Hey, I don’t need to live in my dream home. I just don’t want to be house poor. I’ll take the triplex, live in one unit, rent out the other two and only have to pay 1200 bucks a month instead of $4,800 a month.” And that gives more demand for those assets. You also have people that are selling properties and trying to 1031 into something else. So if in my area, if you sell a home in San Jose that you bought for 400,000 and then you go sell it for 2.2 million, you’ve got a ton of money that you now have to deploy and you want some kind of cash flow.

David:
So you’re going to move into a cheaper part of the Bay Area, maybe get into the Central Valley like Modesto, Manteca, Tracy, and you’re going to take your freaking million and a half dollars or whatever you’ve got, and you’re going to buy a couple fourplexes and you’re going to pay more than everyone else because you’re not evaluating it the same way. You’re looking at it like, “If I don’t buy something, I’m going to lose $700,000 in capital gains taxes,” versus the individual investor who’s like, “I’m trying to get an 11% return and I’m stuck on nine.” So they don’t want to go up in price. You just got to think about who you’re competing with for these properties. And then the fact that you just don’t have much inventory at all and there’s not a lot of cities that are zoning for more multifamily, not many people are building these. They’re becoming more rare, which means people are willing to pay more.

David:
So you’ve got to squeeze on that particular asset class. All the new investors want it, all the house hackers want it, all the 1031 step ups want it, all the out-of-state investors want it, everybody wants those. And that doesn’t mean that the tenants are going to pay more in rent because rents can only go up as far as what a tenant can afford. They’re only going to pay market rent. So in most cases, the rent for a fourplex, one unit of a fourplex and the rent for one unit of 150 bedroom apartment are largely the same. They’re looking at bedroom and bathroom and square footage count and then location. So rent comps may be limited by what somebody is charging that owns 150 unit apartment complex a couple blocks down. And then your little fourplex can’t get rents higher than that one, and that one doesn’t need to raise rents as much because they got 150 units to rent out. You only have four.

David:
So as you can see, there’s different dynamics that are at play here that are making it so that rents cannot keep up with the value of the property. Now, your question is at some point, are we going to value multifamily properties like they’re commercial properties? Probably not. We would already be doing that now, except for the fact that Fannie Mae and Freddie Mac will let you get them with a government loan as a primary residence if they’re four units or less. Okay? So that fact alone means that they’re looked at like residential property, even though they are used like commercial property. If Fannie Mae or Freddie Mac got rid of that guideline, I would totally expect for these properties to now be analyzed and evaluated much more closely to commercial property on those same terms.

David:
Now, the last question you’re saying is, “Even though cash flow isn’t quite as good right now. I would think higher appreciation will more than make up for it if I buy single family homes instead of multifamily.” Well, in general, there’s different ways of looking at real estate, right? But what I tend to say is you’ve got a spectrum and on one end it is cash flow and on the other end is appreciation. There’s always someone that can come up with an exception to the rule. I get it. Please don’t hammer me with your exceptions. There’s always an exception. Okay? We’re speaking in general terms on one end, you’ve got cashflow-heavy properties. These are apartment complexes. These are small multi families. And on the other hand, you’ve got appreciation. These are properties in the best locations, the best school districts, the best weather, and they’re very rare. Okay? And then everything falls a spectrum somewhere in between those two polar opposites.

David:
So what I tell most people is you start with cashflow and you need to get cash flow, especially as a newer investor, but as an investor, you always want to be getting cash flow. But the more wealth you get, the more you move on that spectrum from cashflow towards appreciation. Now, please, again, this is a mistake I’ll have a lot of people jump down my throat about. What they heard me say is you jump from cash flow to appreciation and that’s reckless. That’s not what I’m saying. You inch that way. Okay? Think of it like all I bought were fourplexes in the worst part of town and then I could buy triplexes in a better part of town and then duplexes in a good part of town and then high cash flowing, single-family homes in a better part of town, right? You’re moving on a spectrum. As your wealth grows, you are leaning more towards appreciation. It does not mean you are completely gambling on speculation or appreciation. So that will probably happen. Right?

David:
One of the strategies that I like to use is to buy a single family home with a ton of square footage and a funky floor plan that’s not being used well in the best area that I can possibly get it in and then run it as a multi-family. So that’s where I would convert garages or parts of the house to an ADU and a junior ADU and I could get three units out of one property in the best part of town and yes, my appreciation is amazing. I’ve got one project going on right now. So I recorded a podcast for BiggerPockets about a property I’m buying and that property, I paid 2.25. It appraised for 2.65 before I closed on it and after I make the improvements, I think it’s going to be worth right around 3.2. This is in a really nice area and I’m doing what I just described. I’m going to be adding square footage to it, making additional units. So I’m going to end up with a property that cash flows and has a lot of appreciation.

David:
You see what I’m getting at? So I wouldn’t abandon the multifamily. You’re just in a hot space. It’s harder to get them. I would just broaden my horizons and I’d look for wherever the opportunity was the best. If you get a great opportunity on a single family, make it work. If you get a great opportunity on a small multifamily, make it work, but do understand that as your wealth grows, you’re going to be moving more towards appreciation and less from cashflow, but that doesn’t mean you should start at appreciation at the expense of cashflow. You need cash flow first, whether that comes from real estate, from passive income and other investments, from business that you sold, from a job that you have, you need cash flow coming into your life so that you don’t lose your real estate. All right. Thank you very much for your question there, John. I appreciated answering that.

Jake:
Hey, David. My name’s Jake. Thank you so much for taking the time to answer this question. Big fan of the show. So thank you for everything you do. You guys have helped a lot, yourself and Brandon, and all the other guests you brought on. So I got to thank you first for that. I’ll try and make this really quick. So I currently have three duplexes that are in a small town just outside the city in which I live in. And the inventory is super low out there. Inflation is helping obviously increase the price of those homes. Sometimes opportunities like this, you can jump on and you can sell your home and get way more than you thought for them. My concern is that if I don’t sell them today, because the inventory’s so low, that not a lot of homes are selling in that area that come the future when I do want to sell them, there’s not going to be enough comparable properties that sold that are going to allow them to sell for what they would for today, if that made sense.

Jake:
Now, the answer question to maybe ask, “Specifically, why do you want to sell them?” Well, I would like to get myself into the multifamily space and selling these three duplexes is going to provide me to do that because the amount of money I’m going to make from them is going to put me into that multifamily 10, 12 unit, maybe even more, which is where I ultimately want to be. So I’m just trying to decide like, do I continue to have these homes, cash flow the way they are and be paid down the way they are? Because ultimately I don’t really need to sell them. I’m just trying to decide how do I go about getting my foot in the door in the multi-family space, and right now this is an option that I’m considering and I’d love to know if you think it’s a good option to do as well. Thank you for your time and I really appreciate your input and look forward to hearing what you have to say. So thanks.

David:
Hey, Jake, I really appreciate your question. This is a cool one. So let’s start off by breaking this down into some smaller chunks. The first thing is should you sell now because the price could drop? It could. I don’t know that it won’t. I don’t believe that it will. I believe that we printed a ton of money. So the prices going up are not really indicative of the value of your asset going up. You probably didn’t do much to improve the actual property. Your money just became worth less. So the price of your property went up, even though the value of it didn’t, if that makes any sense. So even if we have a recession, prices may not actually go down because everything just becomes more expensive. That’s one thing that I want to highlight. The second is a more interesting part of this question.

David:
It’s, “Should I sell it and move into something bigger now?” I think you’re asking the right question when you’re getting at it there. I don’t like the line of reasoning that says, “I’m going to sell my asset, my duplex, my home, my whatever, because we’re at an all time high and I’m going to put the money aside and wait for the crash and then I’m going to jump in and buy it all.” That typically is like the day trader attitude, and it doesn’t work as well. I have a couple people that I sold their house two or three years ago. I begged them buy another one. They wouldn’t do it. They thought a crash was coming. Home prices have gone up so much and it doesn’t look like they’re stopping. Their money’s just becoming worth less and they lost that on the equity if they would’ve kept their home.

David:
So unless there’s some fundamental reason to think the market’s going to crash, stuff like what we saw in 2005 or in 2006, where it made no sense, right? Or some recession that the country looks like that they’re going to be having, anything absent that I think if you’re going to sell your real estate, you want to put it in something else, because it’s mostly if you sell high, you buy high and if you sell low, you buy low. It’s very difficult to time everything because when you sell, you got to buy into the same market. So what I like would be the idea of selling a couple duplexes and trading that in for a 20-unit property, a 30-unit property. You’re going to be taking on more debt. That’s your risk. Anytime you add more leverage, you are also going to be increasing risk, but if you believe prices are going to keep going up, then that’s the play that you make.

David:
Because instead of having rents go up on three duplexes, which would be six units, you’re having rents go up on 20 to 30 units. You’re also going to be learning to manage an entirely different type of property at a relatively safe level. You’re not going right in at 300 units. Okay? So what my strategy is in general, my big picture is I buy a bunch of single family properties and I bur them or a bunch of multifamily properties like yours and I hold them, but I get real estate, I add value to it and I hold it, and then I sell it and I trade it in like a bunch of small hotels in monopoly, sorry, small houses in monopoly for one big hotel, which would be your 20 or 30-unit apartment complex. That should significantly increase your cash flow. You should be making a lot more cash flow than you were.

David:
You saved that cash flow and used it to buy more duplexes. Once you’ve saved up another three or four of those duplexes from the cash flow from your big apartment, you 1031 them into another big apartment. Now you’ve got two of them or maybe you sell the one you have and the duplexes, then you buy a 60 to a 100-unit place, right? More cash flow comes in, you buy more of these duplexes. You see how you use the equity from one to get more cash flow and then the cash flow from one to buy properties to build equity? And you create this ecosystem, which is how I like to look at real estate. There’s synergy between how all the pieces operate that make them all more efficient and therefore, better wealth builders than if you’re just doing it independently. I hope that strategy works for you.

David:
I want to encourage you to take it. The only caveat is don’t buy in a bad area. Don’t buy into an asset class you don’t understand and don’t buy into an area where you have a bad tenant pool or bad management or anything that makes it hard. You want to make sure if your duplexes are in a good area, you’re only buying a multifamily property in another good area. Thanks for the question. All right, thanks again for taking the time for everybody that sent me a video question or wrote in a written question. I want to hear from you the listeners. So go to Biggerpockets.com/David and submit your question there. People love the videos. So don’t be afraid. Sitting in your car, sitting in your office, sitting at your house, sitting by the pool. We had one guy do it sitting in the spot with his shirt off, whatever it is, send me the video.

David:
I want to hear your question. I would like to answer it. The questions we got today are awesome. This is exactly what I like to see. Please keep them coming. Lastly, if you’re not already doing so, please follow BiggerPockets on YouTube, on Instagram, on Facebook. They’re all over the internet, even on LinkedIn, and you can follow me in all of those same places @davidgreene24. So if you live in California, where I am, I want to meet you. Let me know where you live. We have a team in Southern California. We have a team in Northern California. I bounce around between the two and if you’re not in California, still give me a follow. Let me know what questions you have and hopefully I can get you featured on this podcast. Thanks a lot, everybody. This has been another awesome episode of the Seeing Greene Podcast. I appreciate your time and attention and trusting me to help teach you to build wealth through real estate. At BiggerPockets, we want nothing more than to do just that. Have a great day.

Ashley Kehr:
This is Real Estate Rookie, episode 180. My name is Ashley Kehr, and I am here with my co-host Tony Robinson.

Tony Robinson:
And welcome to the Real Estate Rookie podcast, where we focus on those investors at the beginning of their journey. Maybe you haven’t done a deal. Maybe you’ve done a deal or two, and you’re looking to scale. Either way, this is the podcast for you. Ashley Kehr, my co-host, what’s going on?

Ashley Kehr:
Not much. I have my little assistant, Remington James, here next to me. If you’re watching on YouTube, you can see a little bit of his cute little face, but he’s patiently waiting until it’s time to go to the movies tonight to see Sonic 2.

Tony Robinson:
Oh, okay. I love that. Sonic 2, I haven’t seen that. No. Is that with Jim Carrey is it? Isn’t he in Sonic?

Ashley Kehr:
He’s in it. Yeah, he’s in the first one so he’s probably in the second one. Yeah.

Tony Robinson:
Oh, okay. All right. Cool. Cool. I love that. Well, yeah. What else is going on, Ash? What you got? What’s going on in the business? What’s new?

Ashley Kehr:
Yeah, I don’t know.

Tony Robinson:
How’s the MCL? How’s the ACL?

Ashley Kehr:
It’s doing good. I got it straightened out right now. Trying to get it straighter over time. Been going to physical therapy a lot. My physical therapist has become my best friend, is the only person I see every day. But yeah, it’s going slow, but going good. I have one more week left on crutches and then I can at least ditch the crutches and go on, just have my brace on. And I’ll have that on for about another four weeks.

Tony Robinson:
All right. Well, there you go. Progress.

Ashley Kehr:
Yeah. Yeah, yeah. And what about you? Are you doing well after getting over your competition? Are you splurging?

Tony Robinson:
I am. I’ve been-

Ashley Kehr:
What’s your diet look like these days?

Tony Robinson:
My diet has literally been everything though, actually. I’m eating pizza, cereal. I’m rebounding real hard and heavy, but we got another show planned for August. I got a couple weeks off and I’ll start ramping up for that next show. If you guys want to follow along on that journey, be sure to follow me on Instagram, @tonyjrobinson. And if you want to follow Ashley along on her recovery, she’s @wealthfromrentals on Instagram as well.
But speaking of Instagram, today’s question actually comes from our DMs. If you guys want to get your question featured on the show, you can get active in the Real Estate Rookie Facebook group, get active in the BiggerPockets forums, or you can slide into the DMs. Maybe Ash and I will pick your question.
Today’s question comes from Rodney Hill. And Rodney’s question is, “There is one question that stumps me. People say you can do your first deal with no money down. Yet others say you need 20% down payment. I live in Tampa and a 20% down payment is between 30 to $60,000. But an investor gave me advice. Said just get $25,000 saved up and then I should be able to do my first deal. I don’t know if that makes sense or if it’s gibberish, but my question is, should I save 25 to 60K for a down payment on my first rental? Or is there a way I can get into a rental with less than 25% down?” What are your thoughts, Ash?

Ashley Kehr:
Well, I think this is a great question for you just talking about the vacation loan. If he wants to do long distance investing. Or what is the rule on that, 10? Or not 10, two hours away from your primary?

Tony Robinson:
Yeah, typically-

Ashley Kehr:
I think go into that first, because I think that’s the first thing that pops into my head is that vacation loan mortgage and you know that better than I do.

Tony Robinson:
Yeah, totally. It’s yeah, the second home or vacation home mortgage, it’s a 10% down payment. There are some restrictions. You have to be, or the property that you’re buying, the second home has to be, I think typically 60 ish miles at least away from your primary residence. You cannot have more than one in the same geographic area. If you buy one in Tampa, you can’t buy your second one in Tampa.
And then you have to use the property for personal use typically for at least 14 days out of the year. As long as you’re able to check those boxes, you’re able to then rent that property out on sites like Airbnb and Vrbo when you’re not using it.
Now, interest rates on those loans used to be almost in lockstep with primary residences. Now, we’re seeing them to be about a point higher. There’s been some changes in how the government is regulating those. But we’ve scaled a lot of our portfolio using the 10% down second home loans in different markets.

Ashley Kehr:
Yeah. The second thing that would come to mind for this is seller financing. Talking with a seller where you don’t have to put down a huge down payment and you can put down a smaller down payment. And it’s not like they need to keep that mortgage for you or hold that mortgage for you for 30 years. You can make a balloon payment or make it callable in a year, a couple years. Enough time that you can add some value to the property and then go to a bank and refinance all of your money out, just doing the BRRRR strategy. But instead of bringing your own cash or money from a personal line of credit, you’re having the seller hold the mortgage for you.
A couple ways to actually approach that with a seller is to say to them, “I know, have you talked to your CPA or accountant at all about seller financing and often they will say, “No, I haven’t.” And you can say, “Oh, okay. I just didn’t know because of all the tax advantages. If you wanted to maybe talk to them, I’d be interested in doing that too.”
And that usually at least gets the wheels turning on the seller to have that conversation with their CPA because their CPA is going to be your best friend, because they are going to say, “Yes, it is an advantage. Because instead of taking this lump sum of $200,000 in one tax year, the amount of money you’re taxed on is going to be spread out over those payments that you’re getting over three years or however long they’re going to hold the seller financing.”
If you look at the income tax brackets, as you increase your income each year, you’re taxed at a higher rate. If you’re taxed, if they’re only getting 50,000 of that in the first year, they may only be taxed 15%. If they get that whole 200,000, then maybe they’re going to be taxed, I don’t know. I don’t even know what the tax brackets are right now. 35% or whatever.
I’m winging it. I actually was on a call the other day. I had someone look it up while I was talking about the same thing, but so you have their account or CPA sit down with them and talk to them about the tax advantages of doing seller financing. I think that’s a second great option too.

Tony Robinson:
Yeah. I think a third option, I mean, there’s so many options. And I think that’s the beauty of real estate, but a third option is find a partner that does have the capital. And I know the initial rebuttal to find a partner is, “Well, I don’t know anybody.”
And luckily for you, it costs nothing to go out and meet people. Rodney, if you go to your local real estate meetup, if you get active on the BiggerPockets forums, if you get active in the BiggerPockets Real Estate Rookie Facebook group, and you start networking with people and saying, “Hey, here are the kind of deals that I’m looking for.” And you start finding out if there is anyone that would be interested in those deals, but they don’t have the time, desire and ability to manage that property. Or maybe if it’s a rehab, to manage the rehab. Identify what value you can bring to that person and then maybe there’s a way that you guys can work together.
We have interviewed guest after guest, after guest that has done something similar where there’s someone that has the capital, but they don’t have the time, desire and ability to find the deal, manage the rehab, manage the tenants, do all the things that come along with actually turning that property into a solid investment. Build your network, find good deals and see if you can provide value in that way.

Ashley Kehr:
I think that’s how you’ve built a lot of your business is taking advantage of that, where you are the experience. You can manage the properties, you can get the properties, you know everything. And then your partners are the ones that are coming with the money and leaning on you for all of those qualities, all those traits, all that whole skillset.
And for my first property, and even for the first several properties, I took on a money partner. And that was how I got started was just partnering with someone. And we actually did an LLC together where we were partners. And I think that scares a lot of people, is like, “Oh, I don’t want to be tied into a business with someone.”
But Tony, you structure your partnerships with a joint venture agreement where there’s a lot less liability. I think that’s another option too, to look at is you’re not having to open a bank account with this person. And you’re not having to file a tax return together, all these different things. You can do the joint venture agreement, which keeps you a lot more separate. And you don’t have that, you’re not tied together so much, especially when it’s your first deal you’re doing together.

Tony Robinson:
Yeah. Rodney, there are so many ways that you can go about getting that first investment without having to come up with the capital yourself. Hopefully, some of the things that Ash and I pointed out today is some actionable advice for you and for all the other rookies that are listening. But start taking action, man. Build that network, start networking and seeing who you can find that might be able to help you and you be able to help them.

Ashley Kehr:
Well, thank you guys so much for listening. Don’t forget to leave us a review on your favorite podcast platform. I’m Ashley @wealthfromrentals, and he is Tony, @tonyjrobinson. And we’ll see you guys next time.