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Ken Zener, KeyBanc research analyst, joins ‘Power Lunch’ to discuss the affect of tightening cycles on the housing market, how much further homebuilder stocks could fall and more.

Mindy:
Welcome to the BiggerPockets Money podcast show number 297, where we talk to Robert Farrington, a college investor, about paying for college.

Robert:
So there’s all these pie slices that you could have bigger slices of some, smaller slices of others, but they all go to paying for college. And my ideal for you would be to minimize the student loan slices and maximize all these other slices before you get there. Of course, everyone’s passed a little different but there’s a lot of ways to get there.

Mindy:
Hello. Hello. Hello. My name is Mindy Jensen and joining me today is David [Perrey 00:00:31]. David, what’s up?

David:
Not much, just learning about college.

Mindy:
This was such a fun episode. I’m so excited to jump into it. David and I are here to make financial independence less scary. That’s just for somebody else to introduce you to every money story because we truly believe financial freedom is attainable for everyone, no matter when or where you are starting.

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

Mindy:
David, I love Robert Farrington and I’m so excited that he is back here today. I very selfishly had a ton of questions for him about paying for college because my daughter is a freshman in high school. She will or will not be going to college, who knows? It’s up in the air right now. But if she is going to college, I want to be able to pay for it in a way that doesn’t cost me a ton of money. And he had a lot of really great tips today. I’m so glad that we had him on.

David:
Well, and for me being in the military world and a veteran, we don’t really have to spend time learning about how to pay for school and everything, because we’ve got all these awesome tuition and GI bill benefits. So it’s one aspect of the financial spectrum that I’m not super educated in at all. So I learned a ton through this, including the fact that I chose the wrong investment vehicle for school, for my kids. So, hey, it is what it is.

Mindy:
But now you can not further compound the… I don’t want to say bad decision because it’s still a good decision, you’re still putting money away for your kids, but you’re not going to put any more money into that account. There’s other opportunities now for you to choose from. So that’s great.

David:
Absolutely.

Mindy:
Today we are joined by Robert Farrington. Again, we went 266 Robert Farrington less episodes. He came on episode 267 to talk about the pause in the student loan repayment. Almost immediately after we recorded that episode, they changed all the rules again. So we decided we should have Robert Farrington back to talk about his area of expertise, which is paying for college and college loans and student debt and all the things that are associated with going to college. So, Robert Farrington, welcome back to the BiggerPockets Money podcast.

Robert:
Hey, thanks so much for having me back. I’m honored that I made the cut to come back again. So this is great.

David:
It was close.

Mindy:
Many short episodes later.

David:
I mean….

Mindy:
It wasn’t close at all. He was great last time. Actually, let’s talk about that really quick, the student loan repayment. That was paused until March 30th, May 30th? I can’t keep up. It’s so hard to remember.

Robert:
May 1st right now, as of today but by the time we record this, because that’s what happens after we record a show, it will likely be extended again. And the word on the street is it will be extended again, probably until the end of the year.

Mindy:
This episode is releasing on May 2nd so we are recording a little bit earlier. I’m not sure exactly when they’re going to announce the student loan repayment moratorium extension, but I bet they will, because they always do right after we record so look for that. And again, if they don’t, make your payments… So, okay. How smooth was that?

Robert:
That’s some solid advice right there. I like it.

David:
I made that exact point in my Facebook group the other day. And of course, you don’t always get met with the… sometimes you get met with some resistance with that statement. But what I was trying to imply is, look, hey, if you make your payments, while this might happen, then at least you’re setting yourself up for success. Because if you bank on it happening and it doesn’t, you’re just hanging yourself out to dry.

Mindy:
Yeah. And in episode 267, when Robert last joined us, he gave some tips for what you need to do to prepare yourself to start your payments over. Again, remember a lot of these payments have been completely withdrawn, all your information is gone. Maybe you’ve moved because it’s been two years since you had to make a payment so just… you want to make sure that all of your information is updated. And Robert gave a lot of really, really great advice. So again, if you have student loans and you are coming up on this end of the repayment moratorium, you need to listen to episode 267 for all the great advice that Robert shared there. But today, we’re looking forward, we’re looking at paying for college and we’re looking at the cost of college in general. So a couple of weeks ago on Twitter, there was an article that’s called: Here’s what I wish someone told me before I racked up $180,000 in student loan debt by Dominick Bagnato.
And I’m not going to read the whole article to you. You can read it yourself, but there’s a part in the beginning. It says it is a singular detailed anecdote of one 37 year old’s journey through his student debt. It is meant to inform any reader who is interested in the student loan debt conversation about its personal realities and it is especially meant to be read by an audience of 17 year olds and their parents who may be making decisions about college right now. Because so many of us have been told that we need to go to college, but hardly any of us has been given an example of the true cost of that choice. Many people barely considered the decision of whether or not to go to college at all, before launching into the decision of which college to attend. Even then, the true financial costs and eventual life costs are rarely ever explained.
So Robert, I want to look at that last bit for a moment. Many people barely consider the decision of whether or not to go to college at all before launching into the decision of which college to attend. I grew up in the 80s. I know you guys are shocked, because I look so young, but I grew up in the 80s. And when I was in high school, you graduated from high school and then you took the summer off and went to college. That was it. There were no other options. High school then college, it wasn’t an option to not go to college. We didn’t talk about trade schools. We didn’t talk about military. We didn’t talk about anything, high school college to the end. And for so many years before I graduated and even after I graduated, that was the same story that people were being told. So what are some considerations for when people shouldn’t go to college?

Robert:
Well, I think you hit it on the head. I kind of view it as a pendulum and I think the 80s were the start of the outward swing, where everyone had to go to college. It’s also when you saw a decline in trades of… Every high school used to have an auto shop and a wood shop and all these things and then all those things started getting replaced with technology and because every kid had to go to school. Well, our high school district nearby here in San Diego actually just announced they’re bringing back auto shop. And so I think that pendulum is starting to swing back a little bit in terms of the extreme of everyone going to college because, you’re right, not everyone needs to go to college. But, I want to put an asterisks there because the data still says, even through today, that the average college graduate with a bachelor’s degree earns anywhere from $300,000 to a million dollars more, over their lifetime, so we’re talking over 40 years of working after college than a non-high school graduate.
The question is what is the net present value of $300,000 to a million dollars? Because you get to a number and if you spend more than that number, it’s going to be a negative ROI on your college degree. And there’s also the personal factor in that. Some people really just want to work outside and not have a desk job, that is how they wired as a person, right? And so maybe there’s alternatives there. But the problem is we don’t expose our kids to it like we used to expose them. Kids don’t know that you could go work for the power company and make $200,000 a year, but yet can, going out and being a line men and climbing the pole, you can make a hundred to 200,000 bucks a year and that is a solid income.
But we don’t tell our young adults that today, right. Everyone has to go to college, that’s the only way you make money and it’s just not true. So do people need to go to college? Yeah, I think 40 to 60% of high school graduates probably should go to college, but then I think a good chunk of them probably don’t need to and there’s other options, the trades, starting their own business, joining the military. I bet David loves that one, but there’s a lot of options in that, there’s that other 40% that I think would benefit from doing something else, not racking up the student loans, not racking up a bunch of debt and going out and earning.

Mindy:
I love that you put a number on it, 40 to 60% of high school graduates don’t need to be going to college. I think that’s… First of all, I love that you said that and I’m so shocked that you would say that because when I was growing up, it was a hundred percent. So it’s weird to hear somebody acknowledge that not everybody should go to college. And I know that I’ve said it before too, but it’s nice to have somebody to agree with me.

David:
So I’m glad that you mentioned the trades and I’ll say from an investor standpoint, I hope that the pendulum is swinging because where we are right now, people are all worried about materials and costs and whatever, but I’ll tell you, for renovations, I mean, good luck finding a master electrician or a master plumber. So I have an electrician right now on a job site and he has been slacking and we’re going to end up having to let him go. We can’t find another permit to replace him or electrician to replace him on the permits. It’s like we’re kind of stuck and so there’s a massive shortage. And even here in Missouri, I mean, the amount of money I just paid a plumber for a two day job, that guy’s making great, great money, more than I am and for plumbing.

Robert:
Well, and you’re spot on. I recently had a plumber as well and it was the youngest plumber I’ve ever had. He was in his late twenties, right? And I’m like, why did you do this? He’s like, well, I never wanted to go to college. I liked working with my hands. He’s like, I got a job with a big plumbing house. They paid for all my apprenticeship, showed me how to do it. I worked with them so I was zero debt. He’s like, I was 22 years old and he’s like, I was making 80,000 bucks a year at 22 and then I just kept getting experience. And then soon I was doing gigs on the side and working on Saturdays outside the job. And then he is like, then I started my own company and he is like, it’s great. But he has no debt and is making good money. Now, is he saving it? I don’t know. But at the same time, he has that potential to earn and he’s debt free and it’s a great gig, right? And there’s a huge demand for it.

Mindy:
Enormous demand. And you hit the nail on the head. He signed with a big plumbing company who can’t find anybody, so they paid for him to learn how to do this.

Robert:
Yep.

Mindy:
He’s in plumbing college, no cost to him. 100% scholarship.

Robert:
And I think that’s the thing. The question to me isn’t necessarily, do you need to stop learning after high school? The answer is no, you need to keep learning and bettering yourself and getting an education. The question is, do you need to pay a fortune to do it? Because there’s a lot of alternatives today, whether it’s the trades and apprenticeships and that kind of thing or a coding academy, if you’re into tech or whatever, right? There’s so many different ways now that you can learn how to do things. Shoot, you could probably watch YouTube videos, become a freelancer and do other things like that as well. There’s a lot of options. Now, what’s right for you is going to vary, right? Because there’s also some people whose personality is like, I need to be in a seat in a classroom because that’s how I learn and I can respect that. But there’s also people that need to learn from being hands on, that can do other things and can self teach and different things like that.

David:
And I think people need to… I used this phrase before we started talking, people need to look at the decision to go to college as more of a business decision than a hobby decision. And so the plumbing thing ties in perfectly with that. If you look at it from a strictly business perspective, this guy is taking a job where he has no risk because he is getting paid to go through this apprenticeship, that they are paying for. He has no risk out of pocket, no cost, no nothing, with a pretty much guaranteed job on the other end because they just paid you for all this so they’re going to hire you. Versus… And there are definitely degrees like that, right? If you make it through as an architect, a lawyer, a doctor, you make it through any of those schools, engineer, whatever, there’s a really good chance that you are going to get employment on the other end.
But there are also degrees that you can take that are fun or they are exciting or they’re something you’re passionate about, but there’s not necessarily a guarantee for income on the other side. And not to say that you can’t do very well, you can do what you love, you can travel, you can do whatever but when you’re taking on a hundred, $200,000 in debt and you don’t know what the end… what the opportunity is on the other side, that’s a massive risk and you’ve got to make sure the up side’s there. Otherwise, it’s just a bad business investment, right? It’s…

Robert:
And that’s how I like to frame this. I do like to frame the how do you pay for college discussion in terms of ROI, return on investment, right? So if you know that you’re going to make 300 to a million dollars more over your lifetime, the net present value of that number is anywhere from $30,000 to $80,000 and that’s just the math, right? So if you’re going to make a million dollars more over 40 years, your net present value with interest rates and you do all the calculations, don’t spend more than $80,000 or else it’s going to be a negative ROI. Now, that’s not to say that there’s a lot of fringe benefits to college education, right? But I do think a lot of those are overvalued, right? So you hear this thing of your network and the experiences and it’s who you know and… I’ll give that to you.
If you’re going to Harvard and you’re going to rub elbows with all of the future supreme court justices or whatever, there’s probably some value to that. But if you’re also that person, you’re probably not borrowing that money to do it too. So, there’s a big trade off on that front. If you’re going to actually borrow the money and you’re going to do that, you need to think in an ROI mindset. But I also don’t want to dismiss anyone from taking on any individual career. But I do think it’s important people to think creatively about how you get there. So for example, maybe you need to go to community college for two years, which is free in almost half of the states in the United States, right? So you can go to community college for free. I mean, you got to pay for books but the tuition and stuff is free and then transfer to a four year school.
And so you can maybe knock out a degree for 10,000, 15,000 bucks now and now you’re almost guaranteed an ROI on your education. So the question is, how do you want to do it, right? I don’t want to dismiss anyone. If you want to be an art history major or whatnot, go for it. But on the flip side, you need to think creatively, potentially on how you get there so that you don’t screw yourself up financially. Because the worst thing I see for people is… I always like to think of the outcome, right? So let’s just say you graduate in this degree you love and you went to film school, like the guy in the article that you mentioned, but you’re going to hate your financial life for the next 15 to 20 years after you graduate as a result of that choice. Now, do you want that or would you rather take a little weird approach for two years when you’re 18 to 20 and then enjoy your twenties and thirties in doing a career you like, right?

Mindy:
Yeah. I think it’s really unfortunate that we ask 17 year olds and 18 year olds to make these life decisions and to saddle themselves with these life altering debts that they will be paying for 15 and 20 years or declare… Well, you can’t even get rid of them with bankruptcy, can you? But it’ll mess up your credit.

Robert:
Rarely.

Mindy:
It messes up your credit if you don’t pay them, right?

Robert:
Well, it’s not even that… Of course, it messes up your credit.

Mindy:
Yeah.

Robert:
And yes, it’s rare to declare bankruptcy and if you’re able to, it’s typically because you have a lot of other issues going on, such as a disability or other things. So maybe your life didn’t work out the way it should have, but there’s probably other extenuating factors.

Mindy:
Okay. So, I mean, it’s hard to get rid of these loans other than paying them off or getting them paid off through other means. And it’s really frustrating to see that these kids are… I was 17 when I graduated high school. I chose fashion design as my major. Everybody who has listened to this already knows. They know that I don’t enjoy… I don’t care about fashion. Right now I’m wearing old clothes from my husband, which are comfy and it’s cold outside.

David:
For the record, he’s very fashionable and they were fashionable for him, right? Nobody is questioning [Carl 00:17:11].

Mindy:
Nobody is ever looking if it’s any fashionable. He looks like a bum all the time.

David:
Oh, my spirit animal.

Mindy:
I mean, I love him, but yes. So it’s not my passion at all. I chose it because it was interesting at the time. And if I hadn’t had parents who had been saving for my college, maybe I would’ve chosen a different path because I would’ve had to pay for it myself. But also maybe I would’ve continued and then had to pay for it myself, I don’t know. It’s just I’m very fortunate that they had the money for me to choose. I wish that they would’ve been a little bit more forceful, do something that isn’t dumb because it was really a bad choice for me. And I have said this before and I’ve gotten emails from people who are like, I love my fashion design degree. I’m like, then it’s your passion and that’s great. It wasn’t my passion. It’s almost like if David chose fashion design, it’s not David’s passion either.
I mean, of course, you can’t tell by the snazzy way he’s dressed today, but it’s just… there’s a lot of things that I could have studied that would’ve been better off for me. I mean, I ended up in a great position, but I could have been a lot better. And I wanted to get this in really quick before we moved on, episode 251, we spoke with Preston Cooper who did an exhaustive study, 30,000 degrees he reviewed, is college worth the cost? This 30,000 variable study says sometimes. And he said that-

David:
Yep.

Mindy:
Studying engineering, it doesn’t matter what college you go to, it doesn’t matter what kind of engineering, always worth studying. And studying psychology, almost exclusively a bad decision.

Robert:
Yep. I love that study. I love what Preston does over there. And it’s solid data. So think about what you want to do, Mindy, because I also think, what do employers look for? So all of us here have hired somebody, all of us here are looking for answers. Warren Buffet just said this last week, I’m sure we can find the interview, but he is like, the number one thing I look for is communication skills. And number two is problem solving skills. I don’t really care how you figure it out, but if you can’t talk to me and you can’t solve my problems, I’m not going to hire you.

Mindy:
And that’s a lot of employers.

David:
I couldn’t even tell you. I have two W2 and a 1099 that work in this office. I don’t even know if any of them have a degree, didn’t even ask, don’t care.

Mindy:
Elon Musk, when he was building SpaceX, he had some… his core people and he’s like, oh, we need somebody to do this and one of his engineers said, oh, I’ve got a friend, but he doesn’t have a college degree. He’s like, I don’t care. I just need somebody to accomplish this and a lot of the SpaceX guys have… I’m sorry, a lot of the SpaceX employees have college degrees but also a lot of them don’t, they’re just passionate about this thing and they can get it done so what does it matter?

Robert:
Well, and I also think a lot of young adults, especially when they’re 17 and making this decision, don’t realize how fast the value of that piece of paper, that your degree is, declines in the workplace. So when you’re a senior in college, the value of your degree is the highest it will ever be. You’re using it to get your first job after college, people care, whatnot. Two years later, no one cares. Your second job after college, no one’s asking you about college. They’re asking you what you did at your job to get your next job. And here’s the scarier part is, if you didn’t get a job within the first year after you graduate college, that piece of paper is probably a weight on your ankles, because people are like, you got a college degree and you haven’t gotten a job a year after graduation. What’s going on? Why is this happening? Right? So I mean, that value just falls like a rock, very quickly.
And then by the time you’re in your thirties, no one’s ever going to care and ask you where you went to college, it’s all on your experiences and your jobs and what you’re going to do and what you’re going to bring to the table.

David:
And so it’s… I don’t want to call the student loan world predatory, but-

Mindy:
I will.

David:
If you think about it context, right? If you were a bank, Mindy, and I was 17 and I had no credit and I had no income, but I was like, you know what? I’m probably going to make $150,000 in four years. Can I get a mortgage?

Mindy:
No.

David:
Can I get a car loan? Can I get a credit card?

Mindy:
You can get a credit card.

David:
But you can… I mean, maybe. Yeah, a prepaid.

Robert:
A $300 limit, they’ll give you 300 bucks.

David:
But they will flex for this and people… And not just student loan companies or whatever, but the entire industry pushes. I’ll tell you, I actually, at some point if I ever get really emotional and feel like being mushy gushy on a show, I wrote a five paragraph essay when I joined the military. Basically to be like, would you please leave me alone? I made a decision. It’s okay. The world’s not going to end if I don’t go to college because of the pressure that I was feeling my senior year of like, what’s wrong with Dave? Why is he… And the amount of pressure you put on people to go this one direction and then you’ve got these companies who are lending to this person who has no business getting a loan.

Mindy:
Well, but look at this [crosstalk 00:22:20] you can’t… This loan doesn’t go away. If I give you a mortgage and you don’t pay the mortgage, I take the house back. Your mortgage is now gone and I can sell the house. If I do the same-

David:
And seven years later, my credit’s good.

Mindy:
If I do the same thing with the car, I can repossess your car. I can’t repossess your credit, your college degree and you can’t ever get rid of this loan.

Robert:
Well, because remember guys, so the collateral of a student loan is your future earnings. So why do you get this loan? Well, because they know the data says that you will earn more after graduation. And if you don’t pay these student loans, the collateral is I’m going to garnish your wages, I’m going to take your tax return, I’m going to take your social security if you let this roll that long. In some states, if you have a private loan, I’m going to sue you. I’m going to take your house. I’m going to put a lien on it. They can collect on your earnings. And if you don’t make a whole bunch because you didn’t graduate college and you didn’t materialize out this life, it becomes even more problematic, right? You get stuck in this vicious cycle of debt collection, wage garnishment, yada yada. And so if you want to talk about student loan relief, generally, those are the people that probably need the relief because you get stuck in a vicious cycle that you can never escape. But for most borrowers, it can be positive too.
Because when you want to talk about this example, if you said, hey, I’m going to make a million dollars more in my lifetime, it only takes $50,000. That’s actually a good investment. So student loans necessarily, aren’t a bad thing, but just like any other debt, it’s an investment and you want to try to minimize the amount you borrow. You want to maximize your equity in the investment, which is your earnings over time and you got to think about it. And so there’s ways to offset the student loans you borrow, because I’ll also say even today, over 30% of graduates graduate college debt free. So and this is from a four year institution. It’s not like everybody has student loan debt. There’s still a good third of borrowers or third of graduates that don’t have student loans. The average amount of student loans in America at graduation is roughly $30,000.
So on average, most people should be okay with their student loans because in most jobs, $30,000 of student loan debt, low monthly payment, $200, $300, it’s not going to cripple you. Where you see it all because our media loves to hype the extremes is the extremes, right? So it’s the people that don’t graduate and have student loans. It’s people that have massive amounts of student loans. It’s the people whose life courses don’t work out like they say or the guy in the article that borrowed $130,000 of private student loans to go to film school. There’s these extreme outcomes that get the attention on social media, the mainstream media whereas I would put out that 80% of student loan borrowers are just fine, everything’s working out like it’s supposed to. If you asked them, can I get rid of my student loans? Of course, they’re going to say yes. It’s no different than if I said, hey, can you get rid of my mortgage? Yeah, you can. But it’s not going to change the outcome of everything, right?

Mindy:
Okay. That’s interesting. I’m glad you brought that up. I didn’t realize that 33% of grads graduate without student loan debt. And is that people… parents paying for college or them working through college or scholarships and things like that?

Robert:
All of the above. And so, there’s a lot of ways to pay for college. And I like to view it like a pie and you have all these slices of the pie, right? So you might have your own savings as a student. Your parents might have saved some money for you in a college savings account or whatnot. Your parents are probably still working when you’re in college and maybe they’re putting a little bit to it. You are probably working in college and you can put a little bit to it, right? And then you get scholarships and grants and then you get to student loans, right? And so there’s all these pie slices that you can have bigger slices of some, smaller slices of others but they all go to paying for college. And my ideal for you would be to minimize the student loan slices and maximize all these other slices before you get there. Of course, everyone’s passed a little different but there’s a lot of ways to get there.

Mindy:
So in episode 64, Zach Gautier came on and shared basically a laundry list of ways you can pay for college. And I don’t want to rehash that now, but I do want to recommend that if you have kids that are going to go to college almost at any time, listen to that episode, there’s tips in there for things you can do when your kid’s in elementary school and middle school and things to consider during high school that can give your kids a considerable leg up on scholarships and even how to earn college credits during high school, many times for free. So basically if you have kids of any age, that episode is worthless and again, that’s episode 64 of the BiggerPockets Money podcast. This episode is geared more towards the high school age kids and their parents, people who are getting ready to pay for college. David, my co-host today went a different route for paying for college. David, from military to millionaire group, how did you pay for college, David?

David:
I didn’t, the military did. Someone else did. I mean, so that was one of the main reasons I joined the military. I didn’t know what I wanted to go to school for and I didn’t have money. So I figured in my head, well, if I don’t know what I want to learn and I don’t like school anyway and I don’t have any money, I probably shouldn’t do this right now. And so I was like, well, I’m going to travel the world. And so I joined the military. And to just briefly touch on why that’s such a great idea. So the military, they pay for college two ways, right? They have tuition assistance while you’re in and so you can earn tuition assistance to continue going to school. In fact, they incentivize it. It actually looks really good for promotion, for you to have an associate’s degree.
I have an associate’s degree, didn’t pay a penny, never paid a cent…. Well, I take that back. I paid for one course because I deployed and I failed out of the class because I left the country and I forgot to close out the school or the class. But I got that all reimbursed once I got it all figured out. So I never paid for anything, got my associate’s degree, never went any further than that because I still didn’t like school and got financially free and realized I don’t need to go to school anymore. But I have friends who earned all the way up to a master’s degree through tuition assistance while in the military, enlisted officer, whatever it doesn’t matter. And then you still have, regardless of what you do with tuition assistance, that does not touch your GI bill.
And so you still have the ability to pay for a four year degree at a state level school or a certain percentage for private school and however that breaks out plus housing allowance plus whatever. And the real benefit there is that you can transfer that to your kids. So if you get to eight years in the military and you reenlist again, at that reenlistment, you can transfer 1% to each kid and to your spouse and whatever. And then you can tweak those percentages forever after that. And so you could then say, okay, well, now I want to slide this one up to a hundred percent because the other kid didn’t go to school or slide them up to 50 and 50 and they each get half paid or… And then even, it extrapolates even more out of that if you get VA disability, if you reach a hundred percent, there’s chapter 35 benefits where a lot of states will pay for your kids’ school for being a disabled veteran.

Robert:
And you say, also beyond the tuition, you can get base housing allowance, so you can get some stipends to live. You can get a book stipend. I think if you live in a rural area too, they’ll move you to the nearest college for 500 bucks, they’ll even pay to move you. There’s a lot of benefits with that GI bill that you can also pass on to your children like you said, but you’ve got to do it right. Right, David?

David:
Yeah. And that housing allowance correlates to where you live. Now, if you do remote, it’s a flat fee no matter where. But if you live in that place and physically go to school… So I had a friend, I say friend, a guy that I enlisted when I was a recruiter who’s now a friend. He went to school in Denver. He’s from Missouri. He went to school in Denver because he thought Denver would be a cool place to live. And the housing allowance made it so that he left Denver with a four year degree, no debt and he had a place to live off his housing allowance the entire time because his housing allowance was so much more there than it is here and then he moved back here. He was like, all right, cool, that was a fun four years.

Robert:
Yeah. Solid benefit. So again, there’s another way to pay for college and think about it. And again, you can either go your college yourself or if you’re lucky enough to have a parent, make sure your parent transfers that GI bill the right way so that you get that. Or if you’re in the military and you have young kids and you’re thinking about getting out, you need to do it before you mess that up.

David:
Yeah. It has to be done right at a four year reenlistment unless you’re commissioned and then you can do it at any time, as long as you have four years remaining on your contract or obligation.

Mindy:
And do you have information about that on your site, David?

David:
Probably.

Mindy:
Wow.

David:
I think so.

Mindy:
Okay. Thanks. [crosstalk 00:30:54]

Robert:
Well, Mindy, we definitely do. We’ll get it to you in the show notes so there you go.

David:
College has never been one of my main vocal points because everybody in the military has it paid for so they don’t have to talk about it too much because it’s like, eh, it’s paid for, all right, move on.

Mindy:
Okay. Well, I am trying to share this with people who aren’t in the military so luckily, Robert Farrington has you covered. Thank you Robert, from the collegeinvestor.com and we will include show notes. We will include links in our show notes, which can be found at biggerpockets.com/moneyshow297. Okay. I have a whole bunch more questions for you, Robert.

Robert:
Let’s do it.

Mindy:
Some of these are rather selfish because they are for me because I have a 15 year old daughter, she’s a freshman right now. So we do have some time, but we don’t have a lot of time because she’s a freshman already. I have currently saved as much for my daughter’s education, as you have saved for my daughter’s education, as much as David has saved for my daughter’s education, which is to say-

Robert:
She’s loaded now.

David:
How do you know how much I saved?

Robert:
Yeah.

Mindy:
Which is to say zero. I know that you both have contributed $0 to my daughter’s college education as have I. I am financially independent so I am not worried about paying for her college. She is a very good student. I am not worried about scholarships available for her and grants and things like that. But I would rather not put $115,000 into the pockets of the college if somebody else would do it for me. So should someone be saving for college? And when should somebody make the decision to save for college or not save for college?

Robert:
Well, so first off, I like to go with the Yes model and I call it the yes model because the Y is you. And I don’t think anyone should save for their kids until they save for themselves first. So take care of yourself first. It’s like the airplane, right? You got to put the oxygen mask on yourself first, before you put it on your children. And there’s a lot of ways to pay for college, we went through a bunch of them, you have the whole other podcast episode of it. There’s so many ways to do it, but if you don’t save for yourself, you’re just going to hurt your kids later on. You’re going to be a burden for them. You think you’re doing all this wonderful stuff of putting them through college and maybe taking out loans in your own name to pay for your kids, see it all the time and these parents do that.
And then, lo and behold, they’re 64 and they’re like, I can’t retire. We’re going to have to move in with our kids because we didn’t save any money, things get ugly so take care of yourself first. Then if you want to save for college, look at education savings accounts. For example, a 529 plan is a great way to save for college, even with your older kids, because a lot of states offer tax credits and tax deductions to contribute to them. So if you were just going to write a check to your college, I would write a check to the 529 plan, get your state tax deduction and then write the check to the college, so from the 529 plan. So, don’t dismiss a 529 plan even if you have older children. Yes, the goal of the plan is right to save early, let the money grow tax free, compound and pay for college.
But there’s still benefits for you if you have kids approaching paying for college. Part two of that is I love 529 plan gifting. And what I mean by this is, let all of your friends and family help you save for your kids college. So I’m a minimalist. I hate when the kids have birthdays, especially younger kids, your older kids, probably less so than mine, but they get 30 presents and it’s really annoying. And they play with one of them, maybe two and the rest of them just get tossed to the wayside, it’s a waste of money, everything is dumb about it. And so one of the things that we’ve done and actually all of our friends groups have done the same thing, is we don’t do any gifts. In lieu of gifts, we donate to everyone’s 529 plans. So don’t go to Target and spend 25 bucks on a Lego set, send $25 to the kids’ gift and just show up at the birthday party because honestly that’s all the kids want.
They just want to run around with their friends and bounce in a bounce house. They don’t need all the crap and the crap can actually go to their college. And honestly, by doing this every year, they get about 500 bucks a year from aunt, uncle, cousin, friends, whatnot. And then that just grows tax free all the way there. And so there’s a lot of services that do this, we like [Backer 00:35:23]. A lot of the 529 plans have finally started getting up to par and doing this themselves, you don’t need to use a service. But there’s ways to gift and it’s a wonderful way to do it in lieu of actual presents. Because the kid will still get an actual present. I promise you, mom and dad, sibling will still get them something, but they don’t need 30 things, right? So that’s another way. And then, yes, there’s grants and scholarships and other things as you get closer but I think, Mindy, you wanted to say something?

Mindy:
I did. I want to talk… go back to that 529 plan where you have older kids and you still get a tax deduction. So let’s play pretend.

Robert:
Yes.

Mindy:
My daughter is in the ambiguous stage of college education right now and she’s like, I totally want to go to college. And then the next week she’s like, I don’t need a college degree. I could just go be a body piercer. And I’m like, Ooh, let’s go back a week. Not that I don’t want to support her hopes and dreams but maybe we could not make this decision at 15.

Robert:
Well, here’s the thing is, so a 529 plan on the flip side, doesn’t have to just be used for a four year college tuition. It can actually be used for trade schools, apprenticeship… So she wants to go be a body piercer, that’s cool. She probably has to do some kind of trade school or a beauty school or something to get that licensing, right? I’m just making this up but there really is a school for this kind of thing. And again, that can be used with 529 plan money to pay for that. And you can also pay for it with a tax free, potentially depending on your state. I’m in California, California does not like their residents to save for college. They do not offer any tax breaks, but Colorado, I think, Mindy, you’re in Colorado, right? Am I right? And so Colorado offers a 20% tax credit up to 500 bucks, it looks like to… Colorado, one of the most generous tax deductions with no limit. So up 20% of the amount you contribute to your 529 plan in the State of Colorado so there you go.

Mindy:
Explain what that means like I don’t know what that means.

Robert:
So you can get 20% of the amount you contribute to your daughter’s 529 plan as a state tax deduction on your state tax bill.

David:
Wow.

Mindy:
So is that for my Colorado 529-

Robert:
529 plan.

Mindy:
Now, do I have to use the 529 plan in Colorado for a Colorado school? Or can I use it for anywhere?

Robert:
You can use it for anywhere.

Mindy:
Oh.

Robert:
So, if she wants to go to Penn State or whatever it happens to be, you just write the check out of your plan to pay for that and you got your Colorado state tax break. There’s no federal tax breaks for it, but there’s state tax breaks, depending on your state.

Mindy:
Oh, I see.

Robert:
About 30 states offer it.

Mindy:
If only I had a tax break.

David:
It’s like money laundering but your kid gets a degree.

Robert:
Exactly. And so 529 plans, they get a little bit of flack because people are like, well, what if my kid doesn’t go to college, right? There’s ways to access the funds but there is potentially a 10% penalty for non qualifying withdrawals. But that list of what qualifies keeps growing and growing and growing every year. So like I said, you can use it for K to 12 education now, you can use it for student loan repayment, you can use it for trade schools, apprenticeships. You could switch the beneficiary to yourself and you could take one of those cruises around the world where you learn on the cruise. I mean, there’s so many different things you can do these days. Go ahead, David. Sorry.

David:
Oh no, I was just… For Mindy to let her know I… If you do a non-qualified withdrawal, right, you get slapped with a 10% penalty. In Mindy’s situation, would that be slapped with a 10% penalty plus you repay the 20% that you saved in state taxes or is it like, hey, I put a hundred thousand dollars in this 529. I got a 20K tax credit and oh, now I got to pay a $10,000 penalty. I’m still on top.

Robert:
Yes. So it varies on your state. So Colorado’s penalty is a recapture of any state tax deduction you received on the earnings, right? You do pay a 10% penalty on anything on the federal level. So yeah, it can be bad, but like I said, there’s a lot of options to go around it in terms of creating… You can change the beneficiary on the plan, you could use it for your next… your younger siblings, you can gift it to somebody else. You could hold onto it, let the money grow and change it to your grandchildren and basically set up an education trust effectively, that you can use this money over time. And there’s so many options with it. So it’s like, yes, there are some drawbacks, a hundred percent, everything has some trade offs. But on the flip side, the list of ways that you can use it keep growing and the options to use it keep growing.

Mindy:
Well, I think that’s a very valuable tip for people who are like me and didn’t save anything for their kids, but still want to help their kids out. I mean, that was a very generous gift that my parents gave me by paying for my college. So if I can pay for my children’s college or at least part of it, I would like to do that. And then if I can pay into a 529 plan, does it have to sit there for any length of time? Or can I put it in there and then write a check?

Robert:
It depends on the state. So some states do have a one year waiting period, other states don’t. And I don’t know the nuances of your state’s plan, but check with your state’s plan and see what those nuances are but some states will let you just put the money in and literally just turn around and send the money out. Some states do have a one year waiting period on that transaction so you might have to use it for their sophomore year of college, if you’re listening to this now and you’re a little bit behind, but hey, every little bit can help and you can save a little bit in taxes and maybe have that money grow a little bit as well.

Mindy:
Yeah, no, that’s a great tip. Okay. So you said yes. Y-E and we didn’t get to S yet.

Robert:
S is just regular savings, right? So you have these tax deferred accounts, like a 529 plan, a [Coverdell 00:41:03] savings account. Some people like a Roth IRA to save for college, I’m not necessarily a fan but it’s a valid option. But then there’s just regular savings. So S is just regular savings. And this is valuable because honestly, there are a lot of other random costs associated with going to school, traveling to school, moving there. So travel’s not a qualified education expense so if your kid goes to an out of state school, you got to figure out plane tickets, right? There’s just random things that are always associated with this. They want to go to Cancun for spring break next summer, right? Who knows? But this is what kids do. So just having regular savings is an important part of it as well. And that doesn’t have to be your own savings, right? That could be, you can make the kids save. You can do other ways, but having some cash outside of an education savings account, even if you do save in one, is still a valuable option.

David:
I like it. So you mentioned Roth IRAs and some other stuff. What about just normal index funds? Do you see any pro or con to that, other than-

Robert:
Yes. But again, who owns it? So you can have a UGMA, which is a uniform transfer to minor, uniform gift to minor act account. So they’re beneficial, but you could run into some [kiddie 00:42:14] tax issues. So right after they make 2000 bucks a year in earnings, you’re going to have to start paying the kiddie tax, which is going to be at your tax rate and it gets complicated. And so that’s where it’s again, not a bad thing, right? And it’s also going to totally cost them on any type of financial aid they’re going to get, because anything that’s in the child’s name as an asset is the highest value of it. And they basically… I mean the effective way they calculate it is they expect you to pull all that out and liquidate it. Retirement assets do not count on the FAFSA, the free application for federal student aid.
That’s why people like the Roth IRA, but there’s other drawbacks that comes with the Roth IRA like how do you get money into the Roth IRA, right? Very hard to get money into a minor’s account, right? Because what? Are they going to model for you or whatever, all these jokes that people do to get their kids money into a Roth IRA. Or if it’s the parents’ Roth IRA, I hate seeing it because you’re going to take money out prime growth years. Your kid’s in college when you’re probably in your late forties and fifties. And that’s when you need your Roth to compound and grow and then you don’t want to be pulling money out of that to pay for your kid’s school. So there’s some drawbacks there. And plus the distributions from it now count as just regular income on the student. So if you pull that out, there’s no… On the FAFSA, it counts as regular income and it’s just going to totally trash their financial aid. So it might work for their freshman year on the first year you withdraw from the Roth IRA.
But for any future years, if they qualified for any financial aid, you can just basically kiss it goodbye.

David:
Okay. So hypothetically and asking for a friend and all the other cliche caveats that you make when you’re clearly making admission of having done something yourself and don’t want anyone to know, if you had rolled all of the… Oh, what should my name at payment so we got through the pandemic into UTMAs for your kids. Would there be a place that you should roll that, that would be better in this scenario? I’ve got…

Robert:
Okay, it’s not a bad thing, right? But you just realize you’re going to start paying tax on it. It’s a taxable, a brokerage account. And it’s going to probably be taxed at your income level, which doesn’t really necessarily benefit your kids, right? Because of the kiddie tax. So the question is, what are your goals, right? So maybe you put some of that into a 529 plan for them, right? And save that. I mean, I’m always a fan of you could do and, doesn’t have to be this either or thing. You can have some 529, some taxable… If they work a little bit, put some into their Roth IRA as well. I don’t know if you have them doing some work for you, but there’s the potential for that and there’s just a lot of options.
So I’m a big believer in the and. Realize though, we’re having this discussion. So you’re probably not going to qualify for a lot of merit financial aid. And I think a lot of people get very hung up on that point. It’s like, how do I get the most financial aid possible? Well, it’s like if we’re having these conversations of how do we maximize a 529 and a UGMA and all these things, you’re probably not in a financial situation that’s going to earn you much merit aid. On the flip side, you should still be applying for the FAFSA every year because that’s how you unlock student loans, if you want to get those. Part two is there might be a lot of… Sorry. I was saying merit aid, I meant need based aid, but there’s a lot of merit aid out there so your kid can go apply for scholarships, apply for grants that they might qualify for, just based on their ability to write an essay or volunteer in their community or because you work at a certain organization, there’s a lot of potential there for that type of aid. There you go.

David:
Because you’re going to give me your GI bill.

Robert:
Or you give me your GI bill and whatnot, but even then, there might be stuff outside of it. What if your kid wants to go to a private school? I think the GI is $23,000-

David:
Yeah, it won’t cover it all.

Robert:
A year for private school, which is amazing, but it won’t cover it all, right? So…

David:
Well, thank you.

Robert:
Yeah.

David:
For helping my friend.

Mindy:
Okay. I have a question because either we didn’t recover this last time or I didn’t remember. You said retirement accounts don’t count toward FAFSA. My retirement accounts as her mother-

Robert:
Right.

Mindy:
And her retirement accounts as a child don’t count towards FAFSA so-

Robert:
So when you list it all out, it doesn’t count as anything that’s going to be required to be used as on the FAFSA form. Correct.

Mindy:
When you’re saying retirement account, you’re talking about 401k, Roth IRA, Roth-

Robert:
IRA.

Mindy:
Roth accounts.

Robert:
All of them.

Mindy:
Okay.

Robert:
Traditional and Roth. Yes.

Mindy:
401k, IRA, the TSP from the military?

Robert:
Correct.

Mindy:
What about the 457 plan?

Robert:
Yep. Uh-huh (affirmative). Any other retirement… any qualified retirement account does not have to be reported on the FAFSA as an asset.

Mindy:
Well, that is very delightful news because that’s where, I think, 50% of my holdings are in my 401(k) and I’ve been worried. I mean, this is such a good problem to have, but I’m going to be having RMDs when I’m 72, just based on the balances now.

Robert:
Right.

Mindy:
And not being able to get-

Robert:
Sure.

Mindy:
Any sort of financial aid wouldn’t kill me…

David:
But financial aid is nice.

Mindy:
Yeah. Financial aid is nice. I will take any dollar that I can get. Now, FAFSA has nothing to do with scholarships.

Robert:
Well, it can’t-

Mindy:
Or merit?

Robert:
It can, so yeah.

Mindy:
Merit scholarships

Robert:
Need based.

Mindy:
FAFSA’s need based.

Robert:
So not for merit based. FAFSA is going to unlock need based scholarships for you. And it depends. So the need based scholarships are going to be what’s awarded by the school or potentially your state. Some states offer scholarships to low income students, different things and all of that gets unlocked by the FAFSA. So you fill out the FAFSA, it goes to your school’s financial aid office and depending on how much your expected family contribution is, which is the very bottom number that’s calculated, which effectively is, if you have a lot of money, you’re not going to get much. If you have a little bit of money, you’re unlocking more potential for aid and that aid can include scholarships and grants that are need based. But there is still a lot of merit based options and merit based ones are the ones you apply for just because they exist. And they don’t really have anything to do with how much money you have.

Mindy:
Is there any point where filling out a FAFSA is just a waste of time?

Robert:
No, everyone should fill out the FAFSA every year, starting the year before you go to school all the way through graduation. Because at the end of the day, it unlocks federal student loans. You can’t get a federal student loan without applying for the FAFSA. And so in a worst case scenario, let’s say everything hits the fan and your life doesn’t pan out, and you lose all your scholarships and whatnot, by having the FAFSA end, you can apply for that federal student loan at the last minute if you need to, or even halfway through the school year if you need to, and that way you can at least finish your school, but I’ve seen it happen. Even these kids go on athletic scholarships, right? And then they get injured and then they lose it for the second half of their year. And that’s where having the FAFSA and things can come in handy. So always fill out the FAFSA. It’s annoying because it’s another form you have to fill out, but it’s super beneficial and it doesn’t really take that long.

Mindy:
Does it cost any money to apply for the FAFSA or fill it out or whatever?

Robert:
No. So the FAFSA stands for free-

Mindy:
Oh.

Robert:
Application for federal student aid. I love it.

Mindy:
Okay. Well.

Robert:
But I will tell you that there are a lot… it’s not a bad question because there are a lot of scams and things out there and people will prey on you. I can fill out this… I can get you a student loan and it’s like, there’s no application fee, you just fill out the FAFSA, it’s online, it’s quick and easy. It does ask for a lot of information. I will tell you, if you’re a parent listening to this, it might be weird but you do have to share your income and your assets and things like that with your teenager, that you might not have done before. So I’m a big believer in having these conversations early. None of this should be a surprise at this point in time, your kids should know how much you make, how much you have and they should know how much is going to be paid towards their college. But if you haven’t, you’re going to show them when they fill out the FAFSA so it’s going to be a conversation you’re going to be having.

Mindy:
Okay. Yeah. I was surprised to learn that you have to pay to apply to college. I didn’t realize… I mean, it makes sense because somebody’s got to go through the applications, but Colorado has free application day every year and that is the day to put your applications in because then you don’t have to pay. I mean it’s 250 bucks to apply to go to a college, right?

Robert:
It varies, so that’s very high. Usually it’s $25 to $50.

Mindy:
Oh, okay.

Robert:
And this is where it could be a problem, right? And so I’m really anti application fees for college because it does hurt low income students, right? If you’re already low income having to pay… You want to apply to six colleges, right? Which is kind of a recommended amount. Well, if it’s a $50 application fee, that’s $300. And if you’re a low income student, yeah, there’s typically waivers and other things that you can get, but it’s just another barrier to entry and it’s so silly because these application fees literally earn these schools no money. And they already have so much money that they’re building amazing aquatic centers with lazy rivers but yet we have to nickel and dime these kids to just apply to your school. I don’t understand.

David:
I want to go to that school.

Robert:
Just float on the lazy river while you [crosstalk 00:51:45]. Yeah.

Mindy:
Definitely, lazy river.

David:
[inaudible 00:51:47] is exactly what would do if I went to school.

Mindy:
Okay. Let’s get back to talking about colleges and how to pay for them. What are some options besides student loans? You’ve mentioned grants and you’ve mentioned… Well, you mentioned scholarships. We’ve talked about loans. What is the difference between a grant and a loan and a scholarship?

Robert:
Okay. So a grant is given to you because the program exists. And so typically grants are a Pell grant, right? You are low income, your financial aid office, you’re automatically qualified for Pell grant because you’ve filled out the FAFSA, that’s all that’s required. About half of states also offer a similar type grant. So California does offer a Cal grant. And this is another grant that, if you’re a low income student, you just get it by filling out the FAFSA and it goes to your school’s financial aid office, it’s just free money. A scholarship is very similar except you typically have to apply for it. So it’s free money except there’s usually an application process or some other qualifying criteria to it. Many schools will offer scholarships, but they’re donated and they’re usually used on behalf of something, right? So this is for the student that does this.
Or if you’re applying to an engineering major, you get this. Every school has got different scholarships and then there’s also just the scholarships that you apply to, that are out in your community. And these are the ones that are merit based. So I love scholarships because they are they’re relatively easy to get. I won’t say they’re so easy, but they’re relatively easy to get and it’s just free money. And a lot of it goes unclaimed. There was a study by Fast web a few years back that said $6 billion in scholarships go unclaimed every year. Isn’t that just shocking to you? And I see it. So I don’t know about you guys, but I run a scholarship on the College Investor called the side hustling student scholarship and I give 2500 bucks to an entrepreneurial student. And my only requirement is that you write me a thousand word essay about how you’re entrepreneurial.
I don’t really care what you do, sell stuff on eBay… A couple years ago it was a girl that went to sing national anthems at the County fair and I mean, but she sent these cool pictures of her doing it and she was getting paid for it and it was awesome. I love the stories, but I get maybe 80 applications a year and I will tell you that 50% of applicants don’t even follow the directions and I just delete their applications right away. And so you’re really in competition with 40 people maybe to get 2500 bucks. And everyone that I’ve talked to that runs a scholarship says the same thing. It’s shocking how few people actually do the work to get the scholarship. And so you might think it’s impossible to get scholarships, but your odds of actually getting one are one in five, one in 10, they’re very good. And so it just becomes a numbers game, right? If you apply to 10 scholarships, you’re probably going to get one or two of them, but nobody does the work.

David:
Right. I’ll validate this from the other side. My wife is a high school counselor and she runs the scholarship section… There used to be the senior counselor always doing the scholarships, got overwhelming so she does scholarships every year now for the school. And every year, same thing. It’s like, oh, scholarships were due three days ago. Why are you sending me this now? And it’s like, yeah, yeah, they’re there.

Robert:
They’re there. It’s able to do it, but you do have to put the work. You got to follow the directions. You got to write that essay. And so the harder part I think is finding these scholarships and so you need to go on Google and search for them. You need to check with organizations, check with your parents’ company, a lot of large companies offer scholarships to their employees’ kids, are you part of any local groups or organizations or nonprofits, especially the larger nonprofits in your community. Is your family part of a union? A lot of the unions offer scholarships to their union members’ children. So there’s so many out there, but you do have to spend the time and do the work to get those scholarships. And they’re out there and they’re possible.

Mindy:
Do grants and scholarships have application fees typically?

Robert:
They should never. So grants, no, it all is done through your school’s financial aid office. Scholarships should never have application fees. However, some of these scholarship search sites and stuff sometimes make you pay to be a member and stuff and I’m totally against it. And I don’t think you should ever pay to apply to scholarships. And typically if the scholarship is on these search sites that make you pay, you can also usually apply not going through the site. You just got to find the company or organization that is running the scholarship and they typically have it on their website as well and there’s no cost involved. So there are some companies that do try to take advantage of it, but you should never pay for either.

Mindy:
Okay, good. I’m glad I asked that. Are there any services that can help you write your essay or get you started on the path to your scholarship application process?

David:
Virtual assistance.

Robert:
Yes. I mean, there’s definitely companies out there that help you with these essays. I’m mixed on it. I don’t think there’s going to be any more value that this company can offer than you can do yourself. On the flip side, maybe you do hire a virtual assistant, like David said, to help you edit your essay because I see a lot of crappy essays. The story’s good, but could someone go through and put some paragraphs in there instead of a wall of text, right? [crosstalk 00:57:15] Maybe have someone… Yeah, have someone help you spruce it up, I think is a wise thing. And if you don’t have a family member or a friend or a teacher or a guidance counselor that can help you, yeah, maybe you pay a virtual assistant or something to help you. But I’m 98%, you just can do it yourself or have your network of friends and family or your school.
Literally, this is what your school is supposed to do if you’re in high school, they have people at the office, the guidance counselors, things like this is their job. They’re here to help you get into college, use them.

Mindy:
Okay. So when is my daughter applying for college? She’s a freshman right now. She’s just finishing up freshman year.

Robert:
Mm-hmm (affirmative).

Mindy:
When is she starting to apply for scholarships?

Robert:
Now, for many merit ones. So you’d be surprised on what’s out there and you can start stacking your scholarship dollars early. And I’m a huge fan. If you can find these in your community, start searching for them, apply to them. You don’t need to have such an urgency about it, but if you can start putting $2,000 away every year, right now, it can go a long way to help, right? I’m kind of a view of scholarship time and work time. So as a freshman, she’s probably just a year away from being able to work a lot in the summer. Because I don’t know about your state, but California is 16 is kind of where you have to be, to get a job at like a Big-box store or anything like that. So if she’s only 15, this year should be the scholarship year. Let’s spend the hours of the summer finding and applying for those. And then next year, balance it out.
I get some actual full-time employment during the summer, my go hustle and then a little less time applying for scholarships, but taking some of that, the money she earned and saving that away as well, is hugely beneficial. Not just the money, but the skillset as well, I think goes a lot farther as well.

Mindy:
Yeah. She’s working for a friend. She makes jewelry and she makes something like $15 an hour at age 15 when she’s not really able to go out and get another… she could probably work in a retail position, but we’re at the tail of the COVID. I don’t really want her to work in a retail position right now.

Robert:
Well, and I just think, I mean in our area and granted everything’s a market base, but the starting pay of a cashier at Target right now is $18 an hour in our area. If you want to go work at Chick-fil-A, it’s $21 an hour to work at Chick-fil-A. If I was a high school sophomore right now, I would just be crushing it and doing that because that’s a lot of money when you’re young, because you can put away, even if you’re working 20 hours a week, that’s a substantial amount. And even if you blow half of that on the dumb stuff you do when you’re 15 or 16, you still got a nice amount left over to pay for college and do other things.

Mindy:
That’s true. Yeah. I forgot that they’re paying a lot more than the $3.35 an hour that minimum wage was when I was working at Dairy Queen.

Robert:
And then I would also say, a lot of people dismiss this, but a lot of bigger companies also offer the same kind of benefits that David was talking about in the military, tuition assistance programs and things like that. So if you work for Target, Walmart, Amazon, these companies and you keep working… Starbucks, I think does it as well, you can leverage those companies’ tuition assistance programs to help you pay. So if that’s your part-time job in high school and college, shoot, you could be leveraging some dollars there to help offset your college costs.

Mindy:
That is a really great tip. I didn’t realize that they gave tuition assistance. Now, does tuition assistance mean you still have to work here while you’re going to college?

Robert:
That’s what tuition assistance is, yes.

Mindy:
Okay.

Robert:
So there’s tuition assistance programs and there’s student loan assistance programs. So the tuition assistance programs that a lot of these companies are offering is you’re working for us and we’ll give you money to your college while you’re working for us. Some companies now are offering student loan assistance where it’s like, you’ve already graduated, you have some debt and they’ll help you pay off your student loans, while you’re working for us. Some companies offer both, but if you’re looking for a part time job in college, and you have a choice of where I’m going to work, I’ll go to Target or Walmart or Amazon because they will give me up to 5,000 bucks a year to my college, even if I’m only working 20 hours a week and that’s a huge benefit.

Mindy:
Yeah. That’s great. $5,000. I mean, that’s free… Now, is that free $5,000 or is that $5,000 and then they take taxes out?

Robert:
Tax free.

Mindy:
Oh nice.

Robert:
Yep.

Mindy:
Nice. And when you said start now and stack scholarships, are scholarships sending her a check? They’re not sending it to the college that she’s designating?

Robert:
It’s both. So you can just take the check. Some scholarships will send it to your school, but if you don’t have a school yet and you’re younger, they’ll just send it to you. I will put the asterisks there that more scholarships than not are going to be taxable for you. And so a lot of people don’t realize that you will get a 1099 and these scholarships will be taxable. And the amount of scholarships that are taxable are about 48 to 50% of all scholarship dollars are technically taxable. And because that’s what’s actually reported to the IRS, I would probably venture that more are supposed to be taxable and people don’t know and or don’t report it.

Mindy:
Okay. So is it taxable to my daughter, not me?

Robert:
Correct. She earned it, it’s her money, so yes, it would be taxable to her.

Mindy:
Okay. And if she’s not making enough money to pay taxes, then she doesn’t pay taxes?

Robert:
Correct.

Mindy:
Okay. I like that. I like this a lot. Wow. I learned a ton. Robert, this was so helpful. David, do you have any other questions for Robert? I feel like I’ve hogged him the whole time.

David:
No, I mean, this is great. Student loans, as I had mentioned, is not something that’s my wheelhouse expertise so I was just taking it in, asking a couple questions and living it up. This is… Man, I mean, every time we hang out… I became a fan of Robert’s. I told him I was going to throw this out there or I wasn’t going to throw this out there, but I was looking up whole life insurance research and I stumbled across the College Investor. And Robert wrote one of my favorite articles ever on the pros of term over whole and I loved it. And so we were talking about it before you jumped on, before we started recording and Robert does such a great job of breaking things down to… I mean, his blog is just full of great articles and great content with great breakdowns and the fact that he was able to just, on the top of his head, explain net present value, so much knowledge there so definitely tap into it.

Robert:
I’ll say too, while we’re talking about it, if you’re out there and you have someone telling you that a whole life insurance or permanent life insurance is a good way to save for college, please run away because it is not a good way to save for college, but I see it all the time because they’ll always fear monger you on all these alternatives. We already talked about the pros and cons, right? There are cons to a 529 plan and there are cons to a Roth IRA. And so then these sneaky salesmen come in and they’re like, oh, well, I got this amazing thing here and it’s not amazing because you have lower returns, more fees, you’re paying for insurance and you’re technically getting a loan out of your dang insurance policy to pay for this, it’s all dumb. Just don’t do it.

David:
Well, the best life insurance is being financially free.

Robert:
Just don’t die. No.

David:
I think, was it [crosstalk 01:04:47]?

Robert:
That’s it.

Mindy:
Well, yeah, I don’t want to die either.

David:
I think [crosstalk 01:04:48] personal neighbor. He said, I’m self-insured or the best life insurance is self-insured, meaning you’ve got a few money.

Robert:
Yeah.

David:
Like, Eh.

Robert:
Exactly. And there’s a purpose for it and saving for college is not that purpose. So it’s kind of [inaudible 01:05:06] but I guarantee you that there’s someone out there that’s listening to this podcast that has been pitched on it because I see it on social media a lot. And it’s not a great alternative to the other ways to save.

Mindy:
Yeah, no, I think we covered a lot to do. This was super fun. Robert, is there anything that we forgot to ask you or that you would like to add before we let you go?

Robert:
No, I think it’s just really hammering home the point of thinking about it as an ROI. And so on the student side, is what’s your goals? What’s your dreams? What do you want to do? Keep it loose, but don’t necessarily spend a whole lot to get to your end goal, right? Because when you’re 17, 18, you don’t know what you’re going to be when you grow up. We’re kidding ourselves here when we think that of our young adults. They have some ideas but things change. They learn as they go. So if you spend less, you’ll have a better outcome when you change it all up. And now if you’re the parent listening to this, realize that college is not the end all be all to everything when it comes to this. And just because someone said in your family that they should go to some elite private school, there’s a mathematical cost to that.
And unless you’re cutting that check, you shouldn’t put that on your kid, that force them into something that’s going to really jeopardize their finances for the next 10 to 20 years of their life, because that’s what happens when they borrow and they get these student loans and then they’re indentured servants to their loans for a long period of time, trying to pay it off, when they could be enjoying their life. We kind of ragged on that article a little bit that you brought up at the beginning of the show, but he did make some good points. If you’re struggling with debt, whether it’s student loan debt or any other kind of debt, it does delay buying your first house and it does delay you starting a family and it does delay all these things. And as a parent, you probably don’t want that for your children. You want to, just like you’ve done for the first 18 years of their life, you’re trying to give them the best.
Don’t suddenly set them up to fail for the next 18 years, right? You want to make sure that they’re set up for the best there as well. And spending a fortune on school might not be the best way to do that for them.

Mindy:
Thank you, Robert. Thank you for your time today. No, this is great. I love the reminder to people that college is great, for the right person, for the right student, but college isn’t the right choice for everybody. Way back on episode 44, we talked to Tinian Crawford, Captain DIY on Twitter, who I love dearly. He’s an electrician. He went to college, he got his associates degree, which is a two year degree in just six short years because college was not the route for him. And now he’s living his best life. He’s doing electrician work. He actually worked at a college for a while, which I thought was kind of funny, but now he is out on his own. And he’s like, I’m booked solid, from now until the end of my calendar. And as soon as I open up more time, I’m booked solid. And it’s a great choice for him. He makes the money that he wants to make. And college was not the right choice for him. And college is not the right choice for a lot of people and trades… Oh my goodness, you can make so much money in the trades.
And when you do, when you’re an electrician in Missouri, David needs you or just do it yourself, David, it’s not that hard.

David:
Yeah. I can’t find them. It’s not that the electricity is hard, it’s that the signing for a permit without being a master electrician is… I can’t do it.

Mindy:
There.

Robert:
That’s it.

Mindy:
I just signed it for you.

David:
If I could forge those docs, trust me. I’ll be… All you got to do is… Anyway.

Mindy:
I would never suggest you forge documents, David, you should always go by the book.

David:
You just got to go buy some plumbers crack sign jeans and you’re good. That’s how you wanted to wrap up the show.

Mindy:
That’s exactly how I wanted to wrap up the show. Thank you. That’s how Robert wanted to wrap up the show too. He was really, really generous with his time and now we’re ending on a plumber joke.

Robert:
It’s all good. No, go be a plumber seriously.

Mindy:
Yeah. I could seriously be a plumber, that is-

David:
But we’re not ending yet.

Mindy:
Well, actually we are because we don’t really… This isn’t really a money story so we didn’t really do the famous four.

Robert:
I feel like I did the famous four last time, didn’t I do the last song a month ago?

Mindy:
Robert. Okay. Ask him that one.

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

Robert:
I don’t know but I just came back from Disney World. So I’m going to tell you my favorite joke to tell my daughter, because that’s what I got on the top of my head right now, is why can’t you give Elsa a balloon? Because she will let it go.

David:
Awesome.

Robert:
There you go. That’s what you get to end it with, now you know, David.

Mindy:
No, I have a good student loan joke. Post Malone has started his own student loan company. It’s called Post Malone’s postpone Malones. Oh that was-

Robert:
Postpone Malones, love it.

Mindy:
I’d like to take a moment to say thank you student loans for getting me through college. I don’t think I’ll ever be able to repay you.

Robert:
There you go. Yes.

Mindy:
But I [inaudible 01:10:06].

David:
That sounds like a Hugh joke.

Mindy:
It does sound like a Hugh joke. Hugh Carnahan. He tells terrible jokes.

David:
He’s a friend of mine. He always posts in the BiggerPockets Facebook groups these ridiculous… you’re just like…

Mindy:
Horribly bad jokes. Hugh, you’re terrible.

David:
Did you Google worst financial puns and then you’re like, I’ve got content for a month.

Mindy:
Okay. From episode 297 of the BiggerPockets Money podcast, he is the inimitable Robert Farrington. The other guy is David Perrey and I am Mindy Jensen saying, give a hoot, don’t pollute.

David:
This is the BiggerPockets Podcast show 601.

Jason:
The whole big concept of action versus mindset versus frame is really the mental environment you’re operating in. Like in the past when I did coaching, it was coaching clients around action and mindset, action, action, action. Now all of the focus I do is really helping people shift their mental environment because the right action in the wrong environment will never ever work.

David:
What’s going on everyone. This is David Green, your host of the BiggerPockets Podcast. If you are looking to find financial freedom through real estate, you my friend are in the right place. BiggerPockets is a community of over two million members where we have one simple goal, to help people find financial freedom through real estate. We do that by bringing in experts in the field that have done it before, we do it by bringing in stories of people that can inspire you, that you can follow in their footsteps. We provide as much information as we possibly can about how this world works. And we also do what we do today, where we bring in experts in mindset that will help you develop the right way to look at yourself and the world to achieve the goals you have and put into practice the information that we give you. Here with me today to join me is my good friend and co-host Rob, Robert Abasolo. Rob, how’s it going?

Rob:
Hello, hello. Man. Dude, we are right over 600 episodes here on the BiggerPockets network. Can you believe it? It feels like just yesterday we started this thing.

David:
That’s exactly right. We are picking up steam. You know, ever since Brandon Turner stepped away to focus on other things, we started creating more content and different kinds of episodes. And one of the things that we focused on is bringing more detail into these shows. We want them to feel more like a masterclass in a specific topic than just the same story of a different successful investor. So what one thing we’d like to know is if you like that, please leave us a comment. You can do that on YouTube by following BiggerPockets there, leave us a comment, tell us what you thought of today’s show, what you’d like to see more of. You can also do it on the BiggerPockets website itself. Now, speaking of Brandon Turner, we actually have his coach with us today. You all may know that Brandon has his famous text letter Behind the Beard.
Well, today we have the man who was famously behind the beard and his success. Someone mentioned countless times by Brandon Turner. It is his coach, Jason Drees. Now I’ve met Jason a few times. I’ve talked with Brandon more than a few times about the stuff that he gets from Jason and implements it. So much of this information is sort of filtered to me through my relationship and friendship with Brandon, and Jason joins us today to talk about how to realign the way that we think so that we can hit our goals. Rob, what were some of your favorite parts of today’s show,

Rob:
Man, you know, he really drove it home for me on a lot. I think this really came at a great time for me because I feel like my mindset has changed a lot over the last year, several times, and talking to Jason really reassures me. One of the things he harps on here is that we should be going after, we should be following our emotion, following what excites us. What real estate project out there scares us? What’s something that we don’t think that we can possibly do, that’s what we should be pursuing. Not necessarily the most logical path, right? Don’t necessarily always lean on logic and the analytics and the numbers, which obviously there’s a case to be made for that, but go after what scares you and that’s kind of what we’ve been doing here, right?

David:
Yeah. One thing he mentioned that I haven’t heard anyone say before is we often talk about mindset, and what Jason said is that mindset isn’t something you can actually change. You can only change your frame and then your mindset will follow. And he gets into this idea of what a frame is, how to affect it. The view that you look at the world through, the lens that you see things and then the lens that information comes back to you is really where it starts. Brandon Turner and I often talk about this as identity. Whatever you see yourself as will determine what steps you take.
Now, if you are only here to learn about real estate investing, that’s okay, you still want to listen to the show because at the end of it, you want to make sure you listen all the way to the end, Jason actually breaks down Rob and I’s partnership, our goals for buying real estate and how this information could be used for us to practically take steps to achieve our goals. So you don’t want to miss that, especially the awkwardness as we’re asked questions that we’ve never really asked each other or ourselves up until this point. What did you think about that, Rob?

Rob:
That’s right. Yeah. Today we actually get a look deep into the crystal ball of the future. And David, I don’t think you necessarily liked who you saw in the crystal ball.

David:
No, I had my little Disney moment there. I was like, oh, is that the case? And also it felt eerily like looking at my own head because my head’s kind of in the shape of a crystal ball. So that was a double doozy for me.

Rob:
Well, for what it’s worth, I like the shape of your head.

David:
I that’s pretty much why it picked you as a partner. That’s my one litmus test that I just need to see passed, and you passed it. All right. Before we move on to the show, let’s get today’s quick tip. Today’s quick tip is buy Jason’s book. It’s put out right now by BiggerPockets publishing. It’s called Do The Impossible. If you want a life that looks like Brandon Turner’s, get a book written by his coach and get some of the same coaching that he got himself. All right, Rob, before we bring in Jason, anything you want to add?

Rob:
You know, there’s always pressure for me to add some insightful tidbit here, but no, I got nothing, man. I think we should just dive straight in.

David:
I think that shows that you are a secure person and that you’re able to say no, because you know you bring enough value as is, and you bring plenty in today’s show. So everybody the buckle up, strap yourself in, grab the handles because you are in for a wild ride with Brandon Turner’s mindset coach Jason Drees, Rob Abasolo, and me, David Green. Jason Drees, welcome back to the BiggerPockets Podcast.

Jason:
Thank you, David. Quite has changed since the last time I was here and it’s exciting to reconnect.

David:
Yeah. There’s a little less beard down low and there’s a little more hair on top, you see my new co-host here is …

Rob:
I’m working on it.

David:
Yeah.

Rob:
I’m working on it.

David:
You got a ways to go before you become Gandoff. So Jason, you wrote a book for for BiggerPockets, and I’m sure that a lot of Brandon’s success comes from the stuff that’s going to be in this book. So we would all like to know what is this book about?

Jason:
So this book is really kind of the foundation of my coaching methodology, but really it’s how I understood I’ve created the success I’ve had. The book is called, Do The Impossible, and one of the things I’ve noticed being a professional coach for close to 10 years is that probably 95 to 98% of the people I meet, they’re simply not aiming high enough. They’re just not aiming high enough. So this book here basically is written to kind of give people the foundation of what their full potential is, how to start playing life at their full potential and more importantly, the power of mindset and how to shift it into alignment with playing at that level.

David:
Yeah. You know, this topic of mindset has come up a lot. Brandon and I started a mindset oriented episode maybe a year and some change ago, because we realized that just telling people what to do over and over and over is what people think that they need, but so many people have the knowledge that’s needed and they’re not actually doing anything with it, that it’s actually a mindset problem. You have to adjust that first before the knowledge and the information that we’re giving somebody’s even useful to them. So do you mind kind of maybe expanding on that concept that while people may think that what they need is answers or knowledge, it’s usually not the case.

Jason:
Yeah. Because mindset is this elusive thing, and I’ll tell you, it’s really strange being an expert in something that most people don’t understand what it is. But mindset is literally, the simplest way, it’s like a point of view. It’s your thinking. And it occurs in your brain and it’s how you view things. And one of the models I kind of use is like as human beings, especially achievers, and if you’re listening to this podcast, you’re growing and expanding your life and you’re working towards it, as human beings, I’ll give you my little graphic here. So imagine a small circle, we’ll call this action. And as human beings, a lot of times we think about action, hey, I want to hit this target. I want to get a new property. I need to push up the level. So a lot of times the action comes, but what happens if the action doesn’t work or you don’t know what action to take, right?
That’s where we get to the next layer, which is mindset, because of the mindset, your point of view, your experience, your level of thinking, determines the actions you can take. And that’s where people start to understand, they’re not creating the success they want, or the results they want, it’s somewhere around mindset. So that’s really the first component to start creating more success is to understand you are capable of more than you currently think. So it’s really a game of how much can you evolve your mindset? Because when your mindset is in alignment with a target, then you hit the target.

David:
So do you find it’s better to sort of take an offensive approach and say, I’m going to tell myself I am worthy of this, or is it a defensive approach where you have to remove self-limiting beliefs that are stopping you from thinking it? What’s the way that you tend to approach that?

Jason:
It’s kind of a combination, right? The interesting thing is that I have come to understand that limiting beliefs and the emotion we feel around limiting beliefs is actually a symptom of misalignment, right? There’s times where we have flow, where we have naturally inspired action, and there’s times where we have resistance and we have procrastination. That actually has to do with alignment. So there’s times when you actually have to shift the limiting beliefs around them. And one of the most interesting things that I’ve learned over the past 10 years is I used to work for Tony Robbins and I was a Tony Robbins coach, and as Tony Robbins coach, we would focus on mindset and action, we’d focus on beliefs. And we would literally say, okay, well, why don’t you start cold calling to find off market deals? Well, I don’t like cold calling, right?
And then a coach would say, well, what type of data are you going to be if you don’t follow through? Right? So the coach would use leverage of pain and pleasure to force misaligned action. And what I’ve discovered about 14 months ago is there’s actually a level that’s beyond mindset. So you have action, you have mindset. And then you have another level which I call frame and frame is you, right? Frame is you, because your mindset is here, it’s in your mind. And your brain is a computer that looks through everything in the past. So as you’re moving forward, it’s constantly comparing anything forward to how does it compare to the past? And what I’ve come to realize, and it’s kind of hard to explain, but I wouldn’t believe this unless I’ve proven it so many times. So what I believe your frame is it’s you.
Now, you and me, we’re made of atoms. Our bodies is energy, right? We also know that life responds to us. Sometimes life responds to us great. Sometimes life responds to us in ways that isn’t good. And what I’ve discovered is that life responds to you based on your frame. You can also think of your frame as like your expectations, right? And what I’ve discovered is that as human beings, we think action creates your reality. But what I’ve proven is that your reality creates your action, because your frame creates your mindset that creates the action. So if a person is feeling limiting beliefs and their resistance to cold calling or raising money, that’s because they’re in a mindset that’s misaligned with that, which is in a frame that’s misaligned with the target. So if you shift the frame into a frame of alignment, the mindset will shift, and then those limiting beliefs literally become irrelevant, just like that.

Rob:
So I’ve got some questions for you, Jason, because this actually really hits home for me specifically.

Jason:
Yeah.

Rob:
My life has really evolved and changed in a lot of big ways over the past 24 months, and I feel for me personally, that I was a completely different person three months ago, and I feel like I was a completely different person from that six months ago, and then nine months ago, and 12 months ago. Every three months, I feel like I have a completely different mindset change. So obviously I’m the still person, I’m being hyperbolic. But from the way I think about things, the way I think about business, the way I think about financials, the way I think about investing and all that kind of stuff, it really does change day to day for me, because I’m in a spot where I’ve set all the goals that I’ve always had in my whole life. And I hit them and it’s because I run full force, and so I’m kind of curious, for me at this point, I had a whole five to 10 bullet point list here of all my goals and I keep hitting them. And so now I’m wondering what’s next for me? I don’t know how to evolve my mindset when I feel like I’ve hit my goal. So how does that play into something like this?

Jason:
Goal setting or-

Rob:
Yeah. Goal setting into-

Jason:
[crosstalk 00:13:12] Growth expansion.

Rob:
Yeah, do you feel like goal setting is a healthy way to change your mindset or is that something that holds us back? Because it kind of sounds like you were saying, when you’re framed in a box here, it’s a little tougher to escape from said box.

Jason:
Yeah. Goal setting is absolutely a powerful tool, and it also depends on where you’re setting goals. What I’ve found to be true is that in order to hit your goal, you have to evolve into the mindset that’s in alignment with the goal. What I’ve found is instead of going through and picking apart limiting beliefs one after another, you can actually shift your frame and instantly get into alignment. And what I would say to most people who are consistently growing and expanding, I’d say, well, fantastic, Rob, because that’s what’s going on right now. We’re all growing at an accelerated rate. And the questions I use with my clients to do goal setting is we ask the question, what do you want? Which we all ask. The only problem with that question is that question is based on past reference. So you say, what do I want in 2022? Your brain’s going to give you an answer on 2021, the second question to ask self is what is possible? And when you ask yourself what is possible, you’ll actually get an answer that’s based on external reference. Okay. Now, if you’re above external reference, you won’t get that, but most people are not. The third question, and this is the question I would ask you actually, Rob, right now is what would be an impossible target for you to hit this year, impossible, but would be a lot of fun anyway?

Rob:
Okay. Wow. Listen, I’ve thought about this a lot. So would this be a financial goal, investing goal, or just kind of just throwing everything out there?

Jason:
We could do it in each area, but I just figured, I’d throw it back out here to see what comes up.

Rob:
So right now I currently have about 14 properties in my portfolio. I would say an impossible, in my mind, goal for one year from now would be to get to a hundred units.

Jason:
Okay. That sound exciting?

Rob:
Yeah. Yeah. It does. It does, because it would basically take the four years, four, five years of investing that I have and effectively quadruple the rate at which I achieve that, right? Because I did that over four years. So doing it in a year, to me, it sounds not really quite as feasible.

Jason:
From your current, but is it physically possible?

Rob:
Yes. Yeah, definitely. If I start going down on the route of, you know, bigger fundraising, syndications and all that kind of stuff.

Jason:
Yeah. Yeah. So if you started to aim at that target now, did you notice David, how he got excited when he talked about that?

David:
Yeah. You could hear the change in his voice, his tone.

Jason:
Yeah. And what that question does is it pulls up an intuitive answer and that’s like we start to follow our excitement. So when you ask about goal setting, there’s a concept I use called, known and unknown. Now Brandon talks at length about goal setting and visionary and all of that stuff. I don’t do it at all, because there’s two different places you can set goals. You can set goals on the known and you can set goals in the unknown. The simplest example I can give you is that let’s say you’ve got a new, new listener. They have a day job. They want to replace their day job with real estate income. They make $10,000 a month, they read David’s book and they’re like, okay, I need a hundred bucks a door. I need a hundred doors. I could probably do two this year, three next year. So I could probably a hundred doors in five to seven years. That’s known, like from today’s point of view, that’s known.
They could map it out backwards. 10 offers per deal, 10 properties per offer, et cetera. And you could like map it out backwards. Now that’s known. At the same time, that real estate investor also knows that they could get into a single deal or deals that generates $10,000 in passive income in five to seven months. They just don’t know how. The book that I’m using, the Do The Impossible book is really about how to get an alignment with those unknown targets that radically accelerate you, and when you’re doing goal setting and the known, you can absolutely set goals three years, map them out backwards, but when you’re setting goals in the unknown you have to do them one step at a time because life literally only gives you those targets one step at a time.

David:
So Jason, can you give us a hypothetical example of what an unknown goal might be? And then what some of those mile markers, like you mentioned, would be to get to that unknown goal?

Jason:
Well, absolutely. Right. My business last year did two and a half million in revenue and my impossible goal right now is to do 10, to quadruple this year after almost tripling last year. Do I know exactly how to do that? I don’t know. I’ve got one on one coaching, I’ve got group programs, I’ve got live events, I’ve got certain people here, but I have no idea which, am I going to be more successful pushing all my energy to our live event or one-on-one coaching or group coaching program or focus on books? Like, I don’t know. Right? Now I can make a guess from this situation, but what I want to do is follow the process of life to get the most exciting result, because what I’ve proven over the past couple years is like, I’m literally following my excitement.
So if I’m looking at all of those right now, it’s like, okay, what’s the plan for the year? If I look at the plan for the year to hit 10 million, I have no idea. I would just be guessing. Now, if I say, what would be my number one target it in the next 90 days? What’s the most exciting thing I can work on in the next 90 days? I actually start to get different answers. So you basically start to pull intuitive direction and excitement out, so you start to walk that path of accelerated targets.

Rob:
So that is very interesting, Jason. I actually was just talking to a friend about kind of a similar head space here. And he’s said, I don’t know, maybe he was following you on Instagram. But basically he was telling me to set your goal, like take whatever you want to make. In his instance, it was a monetary goal. So four million he’s like, I want to make $4 million next year through my Airbnb investments, my real estate investments, another company he’s starting. And he said that he found this quote or someone he knows told him, take that goal and then 10X it, and that’s going to be 40 million dollars. Set your goal for 40 million dollars. It doesn’t really matter if he can hit that 40 million or not, but then to retroactively work backwards and figure out how he can get to that 40 million, because that’s a really hard goal. But once he maps out how to get to 40 million, getting to four million dollars really isn’t quite so scary anymore because he already figured out the big, bad beast down at the $40 million mark.

Jason:
Yeah. And that’s an example of thinking from a different point of view or different perspective or different frame to start generating different thoughts, and really what this is really about, the whole big concept of action versus mindset versus frame is really the mental environment you’re operating in. Like in the past, when I did coaching, it was coaching clients around action and mindset. Action, action, action. Now all of the focus I do is really helping people shift their mental environment, because the action in the wrong environment will never ever work, right? And the simplest example I can give you about a frame is like, as far as being in an open frame is like, you can be walking down the street and someone can walk up to you and say, Hey, you look like a very nice, a nice upstanding citizen and reach out and hand you a million dollars in cash.
Now, what’s your reaction, right? Do you say, thank you. Do you say what’s the catch? Do you say I can’t take this, right? Now, regardless of what you say, just because that scenario is not likely, doesn’t mean it’s not possible. The average person walks around with expectations that things like that aren’t possible, so things like that don’t happen. When you live in a reality where anything is possible, then you start to see opportunities and connections and you start to open up. So you start to operate in a frame that’s more open and then you see ways to jump up in success.

Rob:
So I think in a sense, it kind of is the mindset of anything is possible, but that almost feels like very lofty and like a little tougher to really live by. But is that a mindset that we should be kind of adhering to that anything, like legitimately anything is possible and we just have to be open to those opportunities presenting themselves, or do you think there’s also a little bit of work that we have to be putting towards it to opening up those things that are impossible?

Jason:
That’s a great question. What I’ve found is that the frame you’re operating in creates the reality you’re operating in. So you both are successful than the average person out there, I know that you’re high level performers. And you’ve seen a lot of people who have limited points of view financially, right? They think money, it’s hard to make money, that literally, your environmental expectations, your frame determines what you think. And what actually happens is your frame determines the frequency of your brain, which then determines your thoughts, which then determines if you have naturally inspired action or you have procrastination, or you’re in alignment or fear. So what we don’t realize is that we are every day creating our operating mental environment, and most of us are resistant to what’s fully possible based on our past references. So the more you start to open and operate with a more open, more possibility based point of view, then you start to see things. And when you start to see things, then you have different ideas and different ideas create different actions, different connections, and it kind of snowballs.

David:
Do you think you could give us an example of a client you had, or even if it’s just a hypothetical one, of what their frame was like before this made it into their world, and then how their frame shifted that led to more success so we can see what this would look like in real terms.

Jason:
One of the frames that I’ve been talking about a lot, at least a lot recently with my clients is about overwhelm. Now, as you create success in life, you start to get to a point where you have more stuff and I’m sure everybody on this call has been overwhelmed before. If you’re in a place of overwhelm, it’s almost like there’s too much stuff going on. Too much stuff is too much life, but the reality is a lot of people resist overwhelmed, but the reality, the point of view, the frame that I like to point out is that the way you get overwhelmed is because you were so successful in the past, you’ve created more stuff than you can manage. So that, to me, sounds like a good thing. And overwhelm also, if you’re in overwhelm, which is a frame of overwhelm, you’re looking at the world and the current reaction is like, I can’t manage all this. If you’re in overwhelm, it means it’s possible for you to not be in overwhelm.
So you can also see overwhelm as the indicator to level up and shift your mindset. As in, the feeling of overwhelm is the indicator of the presence of an elevated frame. So a frame shift can be simply as simple as a point of view that literally blows away every roadblock and limitation that the previous point of view had. That’s as simple as a frame shift is, but when you start to make that shift, you start moving, you start thinking differently.

Rob:
I think that makes a lot of sense, personally. I think one of the easiest ways, correct me if you have kind of other points of view on this, but this is where I think someone like a mentor can come in and really help somebody. Because for me, there have been so many points in my life where I had limiting beliefs, especially about real estate and investing in this, oh, I can’t do that. I can’t finance that. I can’t finance that. And then you talk to somebody that’s done it, and you talk to someone that’s done it 10 times, and you talk to someone that’s done it 50 times. And then they’re just like, what are you talking about? Of course you can. This is all you have to do this, this, this, this, and it’s so clear for other people.
And I think having someone that you can talk to, or be a sounding board for, that to me has always helped me in my scenarios. And I think that’s probably why I’ve had so many mind shift changes this year, because I’ve spoken to so many people in my space, whether it’s content creation or real estate or investing that are all better than me. Not as a person, but in their space. They’ve mastered it. And they talk to me and they inspire me and I’m like, whoa, I had no idea that was possible. And then I see other people doing it. I’m like, well, I guess it is now. I guess it is possible, and that’s what I’m going to try to do you. And so for me, that’s always been very helpful is just kind of connecting with people that are in the same niche, but are just maybe 10 steps ahead of you.

Jason:
Mentors are a very powerful part of the equation, right? Because they can show you what’s possible. One thing that can happen though, is when you have a high level mentors like both of you and David, and David’s here kicking out real estate investor strategy 500 because he is got so much experience under his belt, a version 500 strategy doesn’t run on a version one mindset. So sometimes if you ever wonder why your mentor strategy isn’t working for the mentee, it’s because their mindset may not be high enough to run the strategy. And that’s actually a good a place where coaching comes involved to help the mindset evolve. But it’s like, you want to coach on your team, you want a mentor on your team, right? That’s a great equation.

Rob:
And can you explain to us just briefly what that difference is?

Jason:
Mentors are experts in strategy, where they typically have done something you want to done before. So they literally have a result that you want to achieve or they have expertise in the actual strategy. What a coach does is a coach helps evolve who you are, evolve your mindset. So it’s not just strategies. It’s like the mindset, because mindset generates and run strategies. The coaching evolves the mindset of you to a higher level. So you can run higher level strategies.

David:
I’ve noticed in many times in life we want to go to who we think is the most successful person we can find and say, teach me. And once I started training in jiu jitsu, I noticed, like I’m learning from a Gracie, who’s a family that’s known for bringing Brazilian jiu jitsu into the United States, and he’s been doing it since he was like four years old. It’s his entire life, under insane pressure his entire life. I can only imagine being a Gracie and doing jiu jitsu. You just have a target on your back all the time. Right? And so when I’m trying to learn, I quickly realized he’s the last person in this gym that I need to be asking questions of. He was six years old when he was learning what I’m learning right now. It is lifetimes ago that even entered into his, he has, like you said, a completely different mindset.
He’s looking at this from such a different lens, right? I’m learning a technique and he’s trying to teach me in the scenarios when I might use it and how it’s better than another one. And I’m like, I actually just need to practice moving my body in that way over and over and over until I get muscle memory down. I can’t even hear what you’re saying. And so what you’re describing right now, Jason, I see this happen and things other than just in real estate, it’s kind of a life thing where it’s not always best to go to the most successful person you could find and say, show me how you do things, right? Like you said, the information they have doesn’t work on the operating system that you’re running. You have to start with where you are at and work on improving your operating system. You have anything you want to share on that note?

Jason:
That’s a great point because when you think mentor, you’re like, oh, I need to go to the person way up here on the top shelf. But the reality is, a mentor is simply someone who’s done something you’ve done before and it could be just a peer of yours or a neighbor. Sometimes you just hear something that gives you one distinction that’s a game changer. So I would say, I tell people like, look for mentors and look for them everywhere, and it’s not like you have one mentor, you may have a mindset mentor, a sales mentor, or a business mentor, a family mentor.

David:
So now when it comes to deciding like what goals do I want to set? Where do I want to go? I know one of the things that you talk about is using emotion as an indicator or a guide for some of those decisions. Can you elaborate on that a little bit?

Jason:
Yeah. That’s a great question. And when we talk about alignment, because what I found is that hard work doesn’t create success. Alignment creates success, alignment with success. Hard work increases your chances of getting into alignment with success, that’s what I found. And simply through trial and error of my own, I’ve worked and had company had failed and failed and failed like year after year after year, I had things that didn’t work, didn’t work, didn’t work, didn’t work. And then all of a sudden, in 2019, I hit a wall and I quit and I’m like, all right, I’m going back to sales, I’m not meant to be a coach, nothing’s working. And then after I quit the next month, everything started flowing in. And that’s when I started to realize that hard work doesn’t create success, alignment with success creates success.
What I’ve discovered over to time is like, okay, well, if we know alignment with success creates success, how do you know when you’re in alignment? We have an internal guidance system. We all have a guidance system and they’re called emotions, right? But most of us are conditioned to follow our thinking over our emotions, because what if that thing that you’re procrastinating, you don’t want to do, what if you’re not supposed to do that? Or it’s supposed to be done a different way. So what I’ve found is that when you follow your emotions, you can actually dial into better targets because sometimes we’ll feel, we’ll think I need to do this target first before I do this one, because I’m super excited about a multifamily deal, but I think I need to do a single family first. That particular person should go straight for what they excited at even if it seems like a different target or contradicts their mind because the internal guidance is really the best path to success.

Rob:
So there are instances in your mind where it does make sense to kind of follow the excitement versus sort of I suppose the logical next step, because it does make sense to a lot of people getting started, for example, single family home, maybe I do one of those before multifamily. We do see it all the time though, people do start multifamily often, but it could be because they’re excited and they’re willing to make it work in that instance.

Jason:
Yeah. Like do you want to spend your life doing things you’re supposed to do or spend your life doing exciting things?

Rob:
Yeah. Usually the exciting thing I think. I think that’s how I’ve always approached it. I very much like to be uncomfortable. I don’t know why. I’m sure my wife and I’s life could be a little bit easier if we just took the logical step. But I do like taking big swings because I think being able to go after something that scares you a bit really, really can guide a lot of success. That’s how it’s felt for me. So you speak a lot about the sort of the resistance here and the misalignment, how does one go about removing that? Definitely understanding here, follow the excitement, but if you are misaligned, how can one prevent something like that?

Jason:
Well, you can’t prevent it because it’s always going to happen, and the faster you grow, the more you’re going to get out of misalignment, because as you start to grow, imagine this little axis is time and this is growth and the average person grows like this and as you grow and grow and grow, you need to integrate the parts of you or the lessons or the experiences that are not at that frequency of the higher level. If you’re growing at an accelerated rate, you’re going to have to integrate faster and faster and faster. So the way to continue moving is to be open to the alignment and open to when the resistance comes up, know that you’re getting out of alignment. So when resistance comes up, the best thing to do is really to stop and just breathe.
And the simplest way to frame shift out of that is just to get a sense or imagine the version of you that’s not in resistance. Frame shifting is that easy. So can you get a sense of a version of you that in this situation wouldn’t be feeling resistance right now? And with a little focus of your attention, you actually start to shift your frame and you start to get an alignment. So the first step when resistance is literally just stopping and breathing, because a lot of times we get we’re pushing and pushing and pushing and when we stop, we start to see things differently and that allows us to kind of move into alignment.

Rob:
Is there ever an issue with something like this where, because I agree, I think you hit a groove and you’re like, okay, anything’s possible, I’m chasing this, hey, it’s working. Hey, I’m really good at this. Hey, I’m now very confident about this. Is there ever a moment where resting on your laurels and letting your guard down can really lead to misalignment? Is that something that’s possible for somebody that is a high performer and someone that’s absolutely crushing it or does that tend to be a more rare case because they figured it out?

Jason:
Does like resting or pausing take them into resistance? Is that what you’re saying?

Rob:
Well, I guess overconfidence is the question here, right? Can you be perfectly aligned like we talked about and you’re crushing all your goals and now you’re so over confident that, is it possible that you’re over confidence can lead you down the path of misalignment?

Jason:
Well, I think overconfidence can lead you to comfort, like overconfidence, like there’s confidence, like you’re certain you can hit the target, like being in a state of certainty and confidence of like, yes, I can hit the target. That is a pure state of alignment right there. Can you be over overly confident? Like what does that mean? Does that mean you’re a hundred percent certain, but then you’re not open to flexibility or what does that actually mean?

Rob:
Sorry? Is that rhetorical or are you actually asking me right here?

Jason:
Yeah. Because you say overconfident, I’m like, what does that mean, over confident? Because I hear, one sign of alignment is certainty. I’m confident I can hit the target. That’s part of it. We all have different paths in life and you may be overly confident, excited, confident, things are working great for three months and you’re like, things are going great, I can relax for a month. And if I relax for a month, things may shift, but that’s also the natural process of life. It’s not necessarily a bad thing. You may be killing it, killing it, killing it. You take a little break and all of a sudden you stop killing it. But then that little discovery from the break period from restarting is what kicks you into a higher gear anyway.

Rob:
Yeah. I think that’s what I was wondering because I think that it, for me, it’s very tough to stop, right? I’m doing what I set out to do and I feel like if I stop, I’m no longer going to be able to hit my goals because I’m no longer working towards them, but it can lead to burnout. And so I have found myself taking a few more breaks and resting and kind of just digesting the world in front of me a bit, and that seems to have given me inner peace and mindset. So yeah, that answers my question.

Jason:
Yeah. And I would say like, do you have to keep working for your goals to keep working? Or are you in a frame that’s so aligned at a level where deals just find you now without doing anything, because those are both frames and you get to choose which frame you’re going to be in.

Rob:
Yeah. I think that’s the part that I’m trying to figure out if I’m being honest. I’m trying to figure out how hard do I have to work? Because I work very hard and I like it. I like this world. I like the ability to be creative and I find that creativity is what fuels me. But obviously hitting your goals isn’t everything, spending time with family is everything too, and that’s probably where I’ve kind of been pushing myself more towards is that side of things.

Jason:
What I’ve found that works best is to work in the way you want to work. If you like working hard, then work hard. If you work hard because you think you’re supposed to, well, that’s something different, right? I like doing big things. I like working hard and I also like playing hard. So the more that I follow my own unique desire and my path for work, and what I give to my team, what I do to myself, the more I do it my way, the more success I’ve seen come through, because every one of us is different and everyone is viewing our lives from different, unique perspectives. So however else someone else is doing it is irrelevant. And what really matters is what is the way that you want to do it?

David:
That’s such a good point. And I notice, I get this emotion that is not good when I hear, I don’t know how I’d describe it, like frustration or there’s just a sense of you’re asking the wrong question when maybe our listeners or people that want to learn how to invest in real estate, say, what am I supposed to do? What’s step one? What’s step two? They’re they’re looking for an instruction book that’s fool proof, that if they just do these things, they will end up where they want to go. And I’ve never understood why. I knew that was the wrong question, but I think what you’re describing right now might be answering that, it’s because not everybody is going to enjoy doing the same things. They’re not going to be good at the same things. And it’s not going to work the same way for a lot of people. I think what you’re talking about is what Brandon would often refer to as, does this feel light or does this feel heavy? Is that one of the tests that you give when trying to determine what someone should do?

Jason:
Well, part of it, right? But really you can’t, and I talk to people, investors all the time, like you can’t out plan the risk. It’s just there, you can’t. So when you get those investors who are asking, I get that, and my hallucination right or wrong and why you’re frustrated is because they’re asking you for the secrets that you worked your butt off to create. And it’s not that you don’t want to share those. The first step really is a decision to play the game, to play the game. I’m going to do it. And you’re asking what step one is-

David:
Commitment.

Jason:
Step one, yeah, are you committed to the result? That’s step one, right? And it’s really frustrating, it is to me too, when people ask for your advice or your mentoring and they’re not taking the action or not willing to do the work.

David:
I would say that’s the definitely a part of it. But it’s not just that, Jason, it’s also what step one for David Green was, is not going to be the same thing as Rob Abasolo. We have different goals. We’re going to use the same vehicle to get there, but there’s an infinite number of ways to put it together. And my personality led me down the path that I’m taking. There are aspects of real estate that I love, and there are aspects that I just cannot stand. So when you mention, work hard at the things you want to work hard at or something, I started thinking about how I used to love being a cop, and I could work a 20 hour shift as a cop and I would love 19 and a half hours of it. Even though it was hard work, it didn’t feel hard. I loved doing it.
I loved saving money. So it was not as hard for me to delay gratification and not spend because I loved watching my bank account grow and that feeling of progress that I was getting towards a goal. There are other people that don’t have my makeup and maybe saving money is very difficult for them. They might have a different relationship with money. They look at money like it’s a way to make friends or it’s a way to have fun or enjoy life. So that person’s goal might involve raising money from other people to put into the deal, not just saving up their own money. And when we ask that question, what’s the blueprint, I just want to follow it. It’s absolutely forsaking the fact that you’re a unique individual with unique skills that you’re going to have to use those to get towards your goal.

Jason:
A hundred percent, right? The success formula is make a decision and do everything you can to hit it. Adjust as needed, right? And if you don’t know what direction to go, A, B or C, which one’s more exciting? Which one feels heavy, which one feels light? Use your guidance system.

David:
And that’s really what I wanted to get at is that like for Rob, he loves to create. And the time I’ve known Rob, he has used that phrase probably 12 times. So I know in his heart, creativity is incredibly important and I’m looking forward to getting to know you better, Rob, where I can find out what it is in you that you’re trying to get out through creativity. I think that’s very cool. But I also see just like my former co-host, the infamous Brandon Turner, that time with family is incredibly important to you, right? Like Brandon would with things that, to me, I never even thought twice about because I didn’t have family in the equation. So he would have to approach problems differently than how I would approach them. And that’s sort of what I wanted to highlight is it’s so important to start with where you’re saying Jason, because we all have different motives that are driving us.
We all have a different end result we want. We all want financial freedom through real estate, but financial freedom for the purpose isn’t anything in a value in and of itself, it’s what you do with that freedom that’s going to give you value. So you’re going to structure your portfolio differently. You’re going to go about it in a different way. And I think part of what’s really cool about setting a goal like this is it forces you to sort of learn things about yourself on the way. It forces you to trim the fat off of your own steak, in a sense, as you’re trying to push towards that goal. Usually every big goal that I’ve ever set made me a better version of David because in order to hit it, I sort of had to jettison the parts of me that were not helpful, useful to others, bringing value, and I had to double down on the parts of me that were focused on other people or good in general and that’s just another reason why trying to find a blueprint, just show me the shortcut, I just want to do what someone else did. You’re robbing yourself of the entire journey that makes your skills and what you’re trying to do in life so powerful.

Jason:
That is, yeah. That’s like so true, right? And everybody’s a unique, you’re not here for the destination. We’re here for the journey. And the reason I love getting people towards impossible targets is because when you start playing at the level of impossible target, it’s not really just hitting big targets. It’s really following your own path in life, doing it your way. And when you start to follow your excitement and your path, that’s where your success comes, your impact to other people comes, your financial success, when you start doing it your way. And the first way to do that is to start moving past all the limitations from your past that have prevented you from playing that way. So you can do more. You can be more. Follow that path. Absolutely. And along the way you evolve to be that person, a hundred percent.

David:
All right. So if I have to create systems and models and guides for the agents that I’m trying to teach and how to sell these homes, I have to get clarity on what worked for me in the past, what our clients are looking for. Then I have to influence the amount of agents it’s going to take to sell thousand homes. In order to do that, I have to become a stronger leader. I have to care about people more. And so what I love about when you set a big goal is it forces you to become a better version of you to get there. I think it’s one of the ways that capitalism, when it’s done well, contributes so much because if you want to have more wealth, if you want to build more money, you have to become more valuable to other people. You have to think less just about yourself, or you have to indulge your vices less. And so that’s why when you hear successful people that like, it’s never enough. It’s not always the money. I mean, sometimes it is, absolutely there’s people that get caught up in that, but for others, it’s the growth. That that might be the most addicting feeling of all.

Jason:
It is, right? And the higher you aim, the faster you’re hit with growth. So it’s really a game of saying yes to more, how fast can you get back into alignment? And then how do you continue that journey? And people ask me, how do you do that? And I call this like walking your path to greatness, your own unique path to greatness, are you playing at your full potential, going after impossible things, and doing it your way. And some people are afraid of that decision to walk the path to greatness, and what I do is I basically give myself no other option. That’s the only option is to walk the path of greatness, to explore my full potential, because if I’m going to be, I don’t know how long I’m going to be here on this planet and this body, so I made as well, make the absolute best of it as I can. And sometimes there’s a little growth and sometimes there’s a lot of growth, but it’s always growth and expansion to become something more. It’s always an evolution.

Rob:
Yeah, for me, I think just the way all are talking about it is very, it really hits home for me because I think growth is kind of seeing how you react when things go wrong. Similar to what y’all were saying, people always reach out and they’re like, Hey, give me the shortcut, give me the one line shortcut that’s going to make me a real estate pro like you. And what I always have to tell them is you don’t become a pro at anything by things going right. You become a pro by everything going wrong. And so you have to be willing to accept failure as part of your growth. And that, to me, everyone sees portfolio and content, they’re like, yeah, you’re crushing it. But I’m like the only reason I’m crushing it is because I failed the whole way and I just adapted to those failures to enable my success.

Jason:
Absolutely, right? If you would’ve talked to me 10 years ago, I would’ve said I’m going to be a race car driver flying in jets all over the planet, and I’m not. That was my path to get here that it was failure, failure, failure, failure.

David:
Yeah. And that’s why having a humble spirit is so important, because if you’re going to learn from failure, you have to be okay with it. You can’t interpret failure as you having low worth yourself because you failed. It’s bringing me back to jiu jitsu again, I was just training yesterday and I was training with a black belt, and what we would do is we would just start to spar and then he would stop me in the middle of it and say, do you see what you just did right there? Why did that happen? And I would work through, I left too much space between us. And he said, yeah, when you leave space, I can do this. Do you see what you just did right there? It was literally everything I did wrong. He just kept bringing up. But by the end of the session, I now know don’t do all those things, right?
That’s literally how we get better. He didn’t stop me and say, you did that thing great every single time. Those really aren’t the things that I need help with. And so I think that just sort of is a testimony to why mindset is so important. You got to be okay with having your mistakes pointed out. You’ve got to be okay with making mistakes. You can’t interpret those like you don’t have worth as a human being because someone’s pointing out where you did something wrong, and when you’re in that mindset, you welcome that feedback. You welcome the mistake. You go out there and you take action, and you screw up and you’re grateful because it helps you get on the right path, and I think that’s why somebody like you, Jason, is so valuable in someone like Brandon’s life and in a lot of our listeners’ lives where you can help cultivate that mindset where you don’t fear failure anymore. You almost look forward to it because it’s getting you to success faster. I think, Rob, is that more or less what you’re kind of getting at?

Rob:
A hundred percent. For me, with the platforms that you and I have, David, and just being able to impart any amount of experience, I can at least look at my failures as there’s a silver lining. Silver lining is I’ll be better from it and hopefully, maybe I can help someone else not fail in the same way, and if I can do that, then it wasn’t a failure at all, because we’ve helped people, we’ve enabled people to be the more successful version of themselves.

David:
So Jason, at this segment of the show, I would like to know if you’d a live framing exercise on Rob and I. So Rob and I are partners. We buy real estate together. We have a very big goal that feels impossible for this stage of our partnership, and I would love it if you would sort of break us down and let everybody hear, this is what it looks like when you go through this process.

Jason:
Okay. Do I have permission to coach you?

David:
Yes. Just please be gentle.

Rob:
Don’t slap us around too hard. Don’t mentally jiu jitsu us too hard.

Jason:
Won’t make you tap. Make you tap. So what’s the target?

Rob:
I think David and I have set a loose goal, I think we’re open to collaboration here, but I think we’re looking to close on a property every single month. It’s probably going to take a little bit of systems and collaboration to get to that point. It’ll probably take a couple more months to get to the point where our systems are fully lined up. That’s our big lofty goal. We want to do one luxury property every single month.

Jason:
Okay. And when do you want to do the first one?

Rob:
We’re in it. We’re doing it right now. We’re in escrow on a property in Arizona and we just had inspections and we’re set to close sometime in April.

Jason:
Is that a stretch goal or is that an easy goal?

Rob:
Initially it was a bit of a stretch goal. What do you think David?

David:
Well, I think getting one under contract was, I don’t want to say easy, but it was definitely possible. But repeating that every single month for the rest of the year would be a stretch goal.

Jason:
So let me ask you this. What are you after by closing one property a month?

David:
I think one of the things that would stand out to me is by doing it every month, it will full force us to maintain our communication and contact with each other. We will have to build, I mean, we have a system we’re using right now, but the word system is often overused. It’s not just about having something, that’s being good at doing it. So it will force us to get good at the rhythm of how we’re playing this game and how we’re working towards our goals. It will also give us more, what do I want to say here? Like kind of a case study to be able to share with the BiggerPockets audience, this is what we’re doing, this is what we’re learning, this is what went well, this didn’t go well, a steady stream of information that we can dispense.

Rob:
Yeah. And another really important thing for us is when we talked about our strategy, we were like, oh, what if we buy five houses a month? And this and that. But now I think we’re actually looking to heavy up on the luxury properties because it’s arguably, even if it’s the same cash flow, we think it’s going to be more, but it’s less work than managing five to 10 smaller properties that add up to that luxury property.

Jason:
Now, how are you feeling about this target now?

Rob:
Better, better, because we’ve actually done it. So we’ve gone from being conceptual to talking about it for a couple months to now we’ve actually implemented it. And so now there’s something tangible to hold onto so that when we know we want to replicate it, we’ve done it once before and we actually have tangible evidence and experience to guide us.

Jason:
And David, how are you feeling about that target right now?

David:
I feel more excited about it talking about it. I can see one of the things that jazzes me up about any opportunity is the concept of synergy. So I really like it if I can have success in one area that will also make a lot of other things I’m trying to do easier, kind of like the concept in the one thing. And so being able to have success in this field will make this podcast better. It will add more value to the BiggerPockets audience. It will make Rob and I’s relationships stronger. It will obviously build more wealth, but it will open up doors for ways that we can show other, we’re sort of trailblazing in this sense, because I don’t know anybody else that’s really pursuing what we’re pursuing, the way we are. We’ll have to be raising money to do this. So it’s going to stretch. That’s one of the areas I think that makes it feel extra hard is I’ve never raised money at scale before. I’ve done it for individual properties, a couple hundred thousand here, there, but now we have to have a steady stream of that coming in every single month.

Jason:
Are you thinking high enough? You thinking big enough?

David:
I think we came up with this goal as this is a pretty stretch goal for right now, for the very beginning. I don’t think in a year or two that this would be very difficult to hit. I think we would reevaluate that goal once we found like we were hitting it successfully.

Rob:
Yeah, for me, I would say, I have never purchased a property of this size. It’s really quite, quite expensive. It’s 3.25 million dollars, and every property that I’ve purchased, for the most part, the average is sub a million. So to go to something three times more expensive, I’ve already hit a really big goal. Like that to me was, okay, 3.25, that’s out there. That’s big. That’s so much bigger than what I’ve done. Now, arguably, I could go bigger. And I think doing one of these per month, that seems, I’m not going to say unrealistic, but that’s a lofty goal.

Jason:
Okay. If success was guaranteed and you could not fail, would you still aim at the same target?

Rob:
I’d go higher. No doubt. I think I would want to go from buying one a month to going out, raising a lot of money to go and build 20 or 30 of these all in one fell swoop.

Jason:
What about you, David?

David:
I would probably buy more of them that are existing properties, and I would be looking to hire more people to manage them because I can see that we would get so many of them, it would become pretty much impossible to keep the books and make sure all the work was being done. So it would turn itself into an organization if success was guaranteed. So we would need to be hiring more people and creating a more fine structure to it.

Jason:
And back to you, David, what would be an impossible, what would be completely impossible for you to hit this year, but would be a lot of fun to do anyway?

David:
With the specific goal that Rob and I have here? If we hired an acquisition manager and a person to help raise capital and just let them loose, like we’re just going to buy 10 to 15 of these things every month and this person’s responsible for raising money and this person is responsible for picking the properties and managing them. That feels impossible, but that would be a blast if we could get to the point that Rob and I were just meeting every week and picking out the 10 properties that we were going to buy and letting everybody else worry about the details.

Jason:
Do you like that target Rob?

Rob:
Yeah. Seems pretty impossible to me in a good way. I agree. I mean, I can’t really fathom buying and closing 10 to 15 luxury properties that are over two million dollars, but that’s because I’ve never done it before. And so it seems to me exciting, but also how? Like how can someone do that?

Jason:
So can you get a sense, now when I talk about frame shift, when I say get a sense, like imagine you’re at the grocery store and you’re looking straight ahead and you know the person to the left is looking at you. Right. You know, we can sense that. Can you get a sense of a version of you in the future anytime, next week, next year, 10 years, 20 years. Can you get a sense of a version of you in the future that if we brought you in today, you’d look at that impossible target and say, I can do it.

Rob:
Yeah, yeah, I can.

David:
I can.

Jason:
And can you get a sense of a version of you that’s hit that impossible target at some point in the future? The version of you that has actually hit it?

Rob:
Yeah, definitely.

David:
That’s a little tougher.

Jason:
It’s a little tougher? Okay.

David:
Yeah.

Jason:
Can you get a sense of a version of you that it knows it’s possible for other people on this planet to hit that impossible target?

David:
Yes, I’d say so.

Rob:
I think so.

Jason:
Can you get a sense of a version of you in the future that knows if other people can do it? You can do it.

David:
Mm-hmm (affirmative).

Rob:
Yeah.

Jason:
Can you get a sense of a version of you in the future that has hit that impossible target?

Rob:
Yes.

David:
Yeah. I can more now.

Jason:
Hold your awareness on that version just for about five, 10 seconds. And how are you feeling now?

Rob:
I think so purely based on just kind of running this exercise with you and taking who I am today, if I could just go talk to myself two years ago, I think I would completely blow the mind of younger Rob if he could speak to me today. And so in two years from now, I’d like to think that the same thing happen again if I could speak to that person.

Jason:
And David, how are you feeling now after that exercise?

David:
If I’m being honest, there’s some resistance that I don’t know that I would like the version of me that I’m seeing that I would have to become in order to hit that goal.

Jason:
Okay.

David:
I see somebody who would have to be way or matter of fact, a little bit sterner when it comes to the people that work for me and the goals that they need to hit. I wouldn’t be able to sort of be like the Disneyland version of David that we could be on this podcast where we’re inspiring people and we’re trying to find those underdogs and coach something out of them. When you get to that level, it’s much more like you can’t quit the underdog anymore. They have to be experienced. I wouldn’t get a lot of the joy out of helping teach people. And I think that’s where I’m sensing, like I can’t see a version of me that it would still do what I do right now and be able to do that well. I feel like the part of me that’s encouraging would get in the way of running an enterprise that big because I would allow for performance that wasn’t where I would need it to be. And then if I did sort of become like that traditional hard nose CEO, this is the way it has to be, I would lose some of the fun that I’m having right now. That’s what popped in my head when I went through the exercise.

Jason:
Yeah. That’s great awareness because that’s your present frame trying to make sense of how to do that, right? Your present point of view. But when you get a sense of version of you in the future that was able to hit the impossible goal, doing it the way you wanted and had someone else running the business and being that person that needed to be.

David:
That would be the only way it could happen. That’s exactly right. There would have to be a person between me and the people that I talked to that sort of acted like a buffer that didn’t have the responsibilities that I have that I could trust to be able to make it happen. Yeah. That’s, as you were talking, that’s what was sort of like rising itself to the surface.

Jason:
Yeah. Because either direction that you two go, it’s unknown, you need to figure it out. Whether you’re going to do one property a month or 15 properties a month, either way, you have to figure out how to do it. So in this situation, you can continue the frame shift exercise, like, okay, what’s more exciting now? Is it 15 or one? So let me ask you the question, can you get a sense of the version of you that knows which target you should aim at next?

David:
Yeah, I think I can.

Rob:
I think so too. I mean, we’ve got our goal now. Maybe we are thinking smaller. I think David and I can have a chat about this later today and say, Hey, let’s recalibrate and what’s a bigger goal that’s a little scarier than what we’ve laid out in front of us? It doesn’t have to be 10 or for 15, maybe it’s three to five, but that’s still scary, but achievable, I think.

Jason:
And that’s awesome awareness, right? And what I would also advise you and all the listeners is like, when we start to go, I had this thought process myself. I’m like, okay, how am I going to do 10 million this year? I’m like, okay, well, oh no, I’ll get my executive assistant who’s detail oriented, because I’m not, and she’s going to sit down and we’ll do two hours of weekly planning every Monday and we’ll plan this out. And I was like, wait a second, wait a second. I don’t want to do that. I don’t want it to be that way. I want it to be 10 million and fun and easy. And then I asked myself, well, how do I hit 10 million this year? And my brain told me you need to increase your impact. How do you increase your impact? You increase your impact with more focus. How do you become more focused? You put more space around the action you’re taking.
And then I started to realize I’m in a leveraged model, so the more space I create around myself and build my team up, the more power I get, the more impact for things to really explode. So when you start to say, hey, I’m going to go after something big, let’s play with that idea for a little bit. Your brain’s going to give you its old perspective on how to do it, and like David said, I don’t want do it that way. And I’m saying don’t. Find the other way. What is the way? Get curious about that because you just don’t know what it is yet. It’s a new frame and you can every day just say, hey, can I get a sense of the me that knows how to do it? Yeah. And do that for like 30 seconds. And literally you’ll start shifting your thoughts, just like that.

Rob:
Well, thank you, Jay. Thank you. I feel I got new perspective on how to approach this project specifically. I’m sure David does too. We’ll have some chats behind closed doors that’s like, we’ve been thinking about it all wrong. But I wanted to ask you just from your side of things, do you have any final thoughts or any final words of wisdom that we can impart on our audience here at home before we wrap up here? I mean, we’ve already said a lot, so no pressure, but anything that comes to mind for you, man?

Jason:
You know, I would say go after what you want and give it all you got, because what I’ve learned along the way is that the most satisfaction I’ve ever had in my life is giving it all I’ve got. It’s far more satisfying than actually getting the prize because I knew I left everything on the court, everything I could. So don’t hold back. There’s no reason not to.

Rob:
Jason, thank you so much. We appreciate your time, my friend. How can people at home, where can people find you on Instagram? Give us the finals on that too, the final details there.

Jason:
Yeah. If you’re interested in what I’m doing and you’d like to know more, I do group coaching, we do one on one coaching. You can go to jasondreescoaching.com. You can also check out my Instagram page. I have lots of free coaching content there as well. And I do launch a mindset academy group coaching program with a foundational six week program that kind of puts this in place. And one book that I’m going to give you, it’s not a business book, but it is a business book, it’s called The Alchemist by Palo Coelho, and it’s about the journey of life. And when you start to approach your career from the perspective of the journey of life, it all starts to make more sense and it gets much more fulfilling, and that book is an amazing example of that.

Rob:
Okay. Adding it to my cart right now.

Jason:
And the book, Do The Impossible is available on BiggerPockets now.

David:
Okay. My question, what is the ideal person who should buy this book and what should they expect if they do?

Jason:
That is a great question. This book is for people that want to learn how to do more and be more. So if you’re looking to expand your career or expand yourself or make more money, it’s applicable to all of those subjects, it really teaches you how to open up and play life at a higher level.

David:
Rob, any last questions from you?

Rob:
Yeah, man. I want each of us to buy this book and have our own personal book club meeting to kind of really set the foundation for our business plan moving forward. David, where can people find you if they want your own personal knowledge bombs on the interwebs?

David:
Every time I hear someone talk about a book club, I remember the office episode where they had the finer things club. They would sit around in like fancy hats and eat [inaudible 01:03:54] and talk about Pride and Prejudice or whatever. It cracks me up every time, I just picture us sitting there saying quite quite with our pinky up drinking a cup of tea. Yeah, you can find me all over social media at David Green 24, LinkedIn, Instagram, there’s a TikTok that we’re making for our team called the David Green Team. We’re going to start making more content with that. I’ve hired a social media company, actually, that’s going to help me put out more content. So thank you for asking that Rob. And then you can also message me through BiggerPockets. So I do my best to try to keep up with all the notifications I get through the BiggerPocket system, but if you’re cruising around a BiggerPockets, find my profile, send me a message on there, let me know what real estate questions you have. We live to serve. How about you Rob? Where can people find you?

Rob:
You can find me on YouTube at Rob Built, go and smash that subscribe button and the like button, drop me a comment. You can find me on Instagram at Rob Built and on TikTok at Rob Builto, and feel free to hit me up on MySpace too. I don’t know. It’s probably still out there somewhere.

David:
There it is. Well, thank you very much, Jason, for the free coaching session we got, at least I hope it’s free. I don’t know if I’m going to be getting a bill when we get done with that. We didn’t discuss it, and thank you very much for writing the book as well. I know that’s something, when I first got into educating people about real estate, I assume like most people do that the information, the knowledge is all that’s needed. If you just tell people what to do, that it’ll work and they’ll go do it. And I quickly learned that it’s more nuanced and complicated than that. And how you think the way you look at the world, what you believe about yourself, plays a much bigger role in what you do with that information. So thank you for providing value in that area that people really need. And Rob, thank you for doing a great job as my co-host today as always, and sort of sitting in the seat that Brandon Turner used to sit in, as we talked to his coach himself, is there anything you want to tell us? Jason, do you have like a fun fact about Brandon that you can share that he would not get super mad about you sharing?

Jason:
That’s not confidential?

David:
Yes, exactly.

Jason:
You know, he talks about it, but it’s pretty funny. When he told me he’s not good at raising money. I thought that was one of the funniest things I’ve ever heard.

David:
I might have to talk to you about that too, because I’m following in his footsteps and I’m going to have to be raising money as well.

Jason:
Well you know how to reach me. Yeah. It’s been an interesting journey. I remember when he was putting the money for the house in Maui together and I was like, can’t you just do this? So, it’s a continual growth and expansion for all of us.

David:
All right. Well thank you very much for your time, Jason. Everybody go get the book, do the impossible by Jason Drees, Brandon Turner’s personal success coach. This is David Green for Rob, my partner in crime, Abasolo, signing off.

David Greene:
This is the BiggerPockets Podcast show 603. I like to take a bigger perspective. I like to look at the whole country and say, “What’s going on and how does that affect individual markets?” And then when I find the market that I like, that’s when I get involved and say, “What’s the ROI on this property versus that?” I think, my humble opinion, too many people start by looking at a property, finding what cash flows, and then trying to justify buying it based on whatever macroeconomic stuff that they look at or ignore.

David Greene:
What’s up, everybody. This is David Greene, your host of the BiggerPockets Podcast, here today with a Seeing Greene episode. On today’s episode, I will take your questions, your comments, your concerns, what the people want. I will do my best to give an answer, taking my advice and perspective into account, about what they can do to overcome their challenges and how they can build wealth through real estate. If you are new to this podcast, I’d like to invite you to check out biggerpockets.com.

David Greene:
This is the best real estate investing platform in the world. We’ve got podcasts like this where we interview people that have been successful at real estate investing and share their secrets, as well as bringing industry experts to educate you on individual components to real estate investing. We’ve also got a huge forum with tons of questions that you can ask or read that people have asked in the past, as well as an amazing blog where you can read tons of articles written by other real estate investors that all want to help you do the same.

David Greene:
There’s also over two million members that are all on the same journey as you. I’m David Greene, like I said before, and I will be your host for today’s episode. This was fantastic. In today’s episode, I actually have been confronted with a little bit of smoke. There were some unhappy people that didn’t like some of the comments that I made about cash flow, and I will address that about halfway through. In today’s show, we’re also going to cover topics like scaling quickly without using hard money or what your expectations should be with how to scale safely.

David Greene:
We talk about vacation areas or areas that people are moving away from and how to find the right personality of the area that you’re in so you could pick the right strategy. We talk about looking at a deal, whether you should sell it or whether you should keep it, how much equity you have in the property, and where your biggest challenges are going to come from. And then we talk about, should I keep saving to buying this market, or should I find creative ways to be able to get a deal now before prices get higher, and more.

David Greene:
Look, today’s show is from the people for the people. You guys submitted some great questions, and I do my best to give you the answers that I possibly can, and then explain the reasoning behind why I’m giving that answer. I hope you guys love it. I hope you join me on this journey and continue liking it. Please stay connected. You can follow me online @davidgreene24. You also can follow BiggerPockets themselves on Facebook, on LinkedIn, on Instagram, on YouTube.

David Greene:
They’re everywhere. Just put BiggerPockets into a search engine and see what you get. There’s a bookstore with tons of good content. If this is the first time that you’re coming here, you’re going to love this. And if you’re someone who’s returning, thank you so much for staying loyal, for taking this journey with me, and for following along. For today’s quick tip, I’m going to ask all of you that own real estate to take a look at your portfolio. Ask yourself how hard your equity is working for you.

David Greene:
We have seen a big increase in prices, as well as rises in rents, but home values and the rent you can get for a property do not appreciate at the same pace. Oftentimes values outpace rent. When that happens, you can sell a property and buy two or three more, spread your equity out over several different properties, so now you’re going to be appreciating at a faster rate, and most importantly, increase the cash flow that’s coming back to you.

David Greene:
We have a metric that we call return on equity, where you look and say, “Hey, with the money that this property makes me in a year, if I divide it by the equity in the property, how high is my return?” Many of you will find, if you look at your current portfolio, your equity is not working very for you. I’d love for you to sell that property and go buy a couple more. Get that cash flow higher and spread the wealth out over several more properties. All right, that’s all I had for the quick tip. Let’s bring in our first question.

Sharon Pace:
Hi, David. My name is Sharon Pace. I’m with 4p Homes based in Galveston, Texas, and looking to figure out better ways to scale in our business. We’ve flipped four properties already. We have two more that we bird into short-term rentals, but looking to find out how we can scale faster, but yet smarter in this, I guess, market that we’re in. We’ve been using hard money and private money, but we’re finding it’s harder to pay back our private money lenders when we’re trying to refinance out of these deals. Looking to figure out how to gain more capital and scale a little bit faster. Thanks.

David Greene:
Hey, Sharon, thank you so much for this question. I love how honest you’re being. What I’m hearing you say is, hey, we got a good thing. We’re buying short-term rentals that cash flow really well. Obviously we want a lot of them, but we’re not able to get them as quick as we want. Because after we refinance at the end of the BRRRR, the repeat, the last R, is kind getting slowed down because we can’t pay off our entire hard money note that we took to buy the house.

David Greene:
We can only pay off part of it, which means it’s tougher to get money to go buy the next deal. Let’s break down how you ended up in this situation and what my advice will be for you to improve it. First thing I want to say is there’s this theory that in most things in life, you’re looking for three benefits, but you can only get two. For instance, if you want a contractor, you want one that works fast, does a great job, and is cheap. Those are the three things you want. Pick two of them.

David Greene:
Because if they work fast and they’re cheap, they’re not going to do a great job. If they do a great job and they work fast, they’re not going to be cheap. That’s just the way that life tends to work. Because if you’re really good and you’re really fast, you can now charge more for your services, so you stop being cheap. At different stages in our investing career, we have to value different elements differently. When you’re new, cheap probably matters more and maybe fast matters more, but you don’t get great quality of work.

David Greene:
And then you start to want more quality of work and you realize the speed’s going to go down. And then ultimately you realize price is the least important. You want the other two? Let’s talk about how I look at scaling. You can do it quickly, you can do it safely, and you can do it profitably. Which of those two do you want to highlight as far as what you’re going to do? Because you can’t do all three. If you want to do it fast, you’re going to sacrifice on doing it safely or on doing it profitably.

David Greene:
If you want to do it profitably, you’re going to sacrifice on doing it safely or fast. Here’s part of what I think that you may have been led astray. There’s a couple rules to BRRRR. A lot of people think that when you BRRRR, you need to pull 100% of your equity out every single time, all your capital or more to put in the next deal. If you don’t get that, then that means you did it wrong. I don’t know where this came from, because I wrote the book on BRRRR and I say that makes it a home run deal.

David Greene:
If you get all your capital out, you crushed it. You should never expect every single time you swing the bat to get a home run. If you normally were going to put down 25% and you leave 16% in the deal, even though you may think you failed, you’re still better off than if you put down 25%. If you leave 11% in the deal, you’re still better off than if you put down 25 or 30%.

David Greene:
Maybe your expectations when you first started to think about scaling were off because you thought you were going to buy a house, fix it up, rehab it, payoff all the money, get all your money back, and bam, be right into the next deal. And you’re finding that adding value to real estate is harder than you thought. I think a lot of people are in this boat. And here’s why I think that happens, where that comes from. When you’re evaluating real estate, the easiest part to evaluate tends to be the cash flow.

David Greene:
I can look at the income. The expenses are relatively easy to control and understand. The only expenses that are really hard to control would be things like vacancy and repairs. The rest of it, more or less, you can sort of account for it. Cash flow is the easiest thing to calculate, and therefore gives us the strongest filling of security. The ARV, man, that’s tough. You depend on appraiser and you don’t control it. You don’t know what comp they’re going to pull from. The rehab, wildly unpredictable.

David Greene:
Sometimes they go fast. Sometimes they go slow. Sometimes they find stuff. Sometimes they don’t. Sometimes they come back and say, “Hey, we actually don’t have to fix that. It’ll be cheaper.” Other times they come back and say, “You need to borrow a whole bunch more money. There’s a lot more that’s wrong.” Rehabs are very tricky to control. Now, in a BRRRR, it’s all about the appraisal on the rehab. You’re adding value to the property through the rehab, and then you’re hoping it appraises for as much as possible to pull the money out.

David Greene:
This is where BRRRR investors get messed up is they approach it like buying hold investors that are only having to calculate one metric, which is just cash flow. We’re having to juggle several balls as a BRRRR investor. You’re having to juggle the cash flow you’re going to have at the end. You’re having to juggle the rehab and how you’re going to add value, and then you’re having to try to make sure that you get the highest appraisal possible. With more ball as in the air, it’s more likely that you’re going to drop one.

David Greene:
And if you look at it like you have to have a perfect finish, you’re going to think you’re doing something wrong. But you’re not doing anything wrong. You’re still better off than the traditional buy and hold investors if you’re leaving less money in the deal than they did. You’re just not going to be able to scale as rapidly as what you thought. Now, what I think that you will find is as time goes by, rents go up. Your operating system becomes slicker, smoother, and more efficient, so your expenses go down.

David Greene:
You will start making more money on these properties. They will become profitable. That will give you more money to buy more property with. If you don’t have a perfect BRRRR and you end up still owing some money on the note, you’ll have cash flow from the properties to make up the difference in what you weren’t able to pay the hard money lenders that you’re talking about. Basically if you give yourself a couple years to build up some momentum, you’re going to find that what you think you don’t have right now will be naturally happening.

David Greene:
I say this to people all the time is they just think it’s going to be easier than it really is to get started. Every new agent thinks that they’re going to walk in and in their first six months they’re going to sell 12 homes. And if I say it’s going to be hard, they go, “Okay, maybe in my first 12 months, I’ll sell 12 homes.” And then they find that they don’t sell maybe one or two houses for the whole year. It’s very tricky. But when you’ve been doing it for 10 years, it’s very hard to fail. You just have leads coming in all the time.

David Greene:
All these people know who you are and they’re just coming to you. You actually need some help with your business. Remember that as you’re building your portfolio, it will always be harder than you thought in the beginning, but it will get easier than you thought the longer that you do it. Okay, next question comes from Nadia Chase. This is a written question. Number one. What do you think about investing in an area where people are moving away from like Joshua Tree, California and the surrounding areas?

David Greene:
Number two. Where do you research whether or not a market will appreciate over time? All right, let’s start with question number one here, Nadia. It’s a bit tricky because you’re sort of asking two different questions. You’re saying… Well, you literally did ask two questions, but part one was two different parts. You’re saying, “What do you think about investing in an area that people are leaving? “And then you’re saying, “What do you think about Joshua Tree?” Those are actually different questions.

David Greene:
I’m largely opposed to investing in an area where population is decreasing. In most cases, if you buy real estate and you have significant reserves and you do it wisely, you don’t lose, unless the one Achilles heel is you can’t get a tenant. If half the population was abducted by aliens and just disappeared, if you see what happened in Detroit where the entire industry was based on one table leg and the auto industry collapsed, all those jobs leave, there was nothing you could do at that time if you owned in Detroit to not lose money.

David Greene:
There was no tenants. Nobody was living there. You absolutely want to pay a lot of attention to where people moving, how much rent are they paying, what kind of wages are they earning to determine what kind of they can pay, what jobs are paying those wages, and what’s moving to those areas. I talk about this all the time, which is kind of part two of your question. But Joshua Tree is a vacation destination. That’s what makes this different. People largely buy short-term rentals in that area.

David Greene:
I don’t think I’d be looking at are people leaving Joshua Tree. I would be asking of the population that vacations in Joshua Tree, which largely are going to be living in Southern California, the Los Angeles area, how many of them are leaving? Because people leaving an area doesn’t necessarily change real estate values a whole lot. It depends on the demographics of the people that are leaving.

David Greene:
When the Bay Area, there’s a lot of expensive housing that’s paid for by people that are executives of really wealthy companies like the Google, the Netflix, the Amazons. If those companies move their headquarters out of Silicon Valley, I would be very concerned about the luxury real estate. I would think it would have to change because the people who own it are leaving the state. Now, let’s say that people are leaving the state that are at lower income brackets. That tend to be people who rent.

David Greene:
They don’t own. I would be concerned if I own some of the low income multifamily properties in the area because your tenant pool is the one that’s going to be leaving. The question I think you should be asking is, are people leaving Southern California? Because yes, a lot of people are. The City of LA is falling into disrepair. There’s a lot of people that are very unhappy about how it’s being run. I don’t know it’ll stay that way, right? At some point, usually the pendulum swings the other way and people come back.

David Greene:
But for right now that’s true, the population is decreasing. But we have such a shortage of housing, it’s not really changing home prices. We still have more people that want to buy than people that want to sell even with everyone leaving. And that’s why we haven’t seen a decline in prices. The question would be, are people leaving Southern California that would vacation in Joshua Tree? I haven’t seen any indication of that being the case. The vacancy rates are very low for that area.

David Greene:
The demand is very strong. I think people that host this podcast, Rob Abasolo and Tony Robinson, are literally building and developing a lot of tiny homes in that area, and there’s a ton of demand. It’s not as simple as are people leaving or are people coming in. You got to look at what type of people are leaving and coming in, what demographic they’re in, and what type of housing that they are using. As far as where I research that, well, a lot of it, to be fair, I learn from people I know in the industry that do the research.

David Greene:
I’ll spend a lot of time talking to multifamily people that are super good, that have to know this type of stuff. I’ll ask them what they see and they’ll just… They’ll tell you everything, right? These guys are analytical nerds that love to talk about it. I get a lot of my information from there, but I know they get their information from places like the US Census Bureau and even places like online news sources like Fox Business News or CNN Money, Yahoo! Finance.

David Greene:
Those types of places will often post articles that talk about where people are leaving and where they’re moving to, where home prices are going up and why. I, as a real estate investor, I’m a little unique in the sense that I don’t just focus on what’s my ROI on this one property if I run it on a calculator. I like to take a bigger perspective. I like to look at the whole country and say, “What’s going on and how does that affect individual markets?”

David Greene:
And then when I find the market that I like, that’s when I get involved and say, “What’s the ROI on this property versus that?” I think, my humble opinion, too many people start by looking at a property, finding what cash flows, and then trying to justify buying it based on whatever macroeconomic stuff that they look at or ignore. If you fall in love with the property because you really want that cash flow, but it’s in the Detroit, you find yourself wanting to buy it even if the numbers are saying don’t do it.

David Greene:
I just removed that temptation from my life. I look at the big picture. I see what’s going on in Detroit versus what’s going on in Birmingham, Alabama, or what’s going on in Madison, Wisconsin, or what’s going on in Lakeland, Florida. And I say, “Hey, I like those areas,” then I niche it down to which city would I want to buy in or what part of town. Then I niche it down to what price point. Then I niche it down to what type of property. Then I niche it down to what can I actually get under contract instead of the opposite way. Hope that that helps you a little bit and good luck in your investing journey.

Mike:
Hey, David. I’m a newer BiggerPockets Podcast listener and recent pro member. Looking this start building some momentum. Now, I currently live in Renton, New York City. My career allows me to work remotely on the East Coast. Now, I’ve been wanting to relocate out New York City, given the cost of living here, but I still want to be in the city with a strong social scene and quality of life, so think Boston, DC, North Virginia, Richmond, Raleigh kind of deal. Now, here’s where my question comes in.

Mike:
I’d like to start some real estate momentum by investing in a duplex or triplex to relocate into. Now, given where the market is today for these cities and that they’re not in close proximity to me, it’s harder for me to scope out and evaluate rental opportunities. What would you recommend for somebody looking to start their real estate journey while relocating?

Mike:
Should I stay patient, be creative, continue looking for that duplex, triplex remotely, or perhaps invest in a condo in one of these cities instead and continue my rental hunt when I’m living in the city I’d like to invest in. Thanks, David.

David Greene:
All right. Thank you, Mike. This is a very practical question and I like that you’re asking it. If I hear you correctly, you’re saying, “I want to leave New York and I want to move to one of these other cities. Should I go buy the duplex, triplex, fourplex that I want so I can house hack in that city and stay here until I find it, or should I just go buy a condo in that city and live there, and then start looking for my next property once I’m already there?” I don’t know that either of those are your best options or your only options.

David Greene:
I think you can get a lot of work done from where you are. My advice would be you start looking for people to help you. I don’t know this because you didn’t mention it, but it sounds like you’re doing the typical consumer. I go on Zillow. I go on Realtor.com. I look at houses. I try to figure it out. I call that analyzing it, even though I’m not sure of what I’m supposed to be looking for. I don’t know the area. I don’t know if I’d want to live there. I spend a bunch of time noodling it in my head.

David Greene:
By the time I come to some kind of conclusion, somebody else bought the property. I think we could just improve your system. I think the first thing you need to do is find an agent in that area that you feel comfortable with that’s going to hunt them for you. I think the second thing you need to do is go visit whichever city you think you want to move to and get to know that area because you’re going to be living there.

David Greene:
Now, I do say in long distance investing, you don’t have to visit the area you’re going to, or you don’t have to visit the property, right? There’s still some value in visiting the area if you don’t know it. But that’s for investment property. If you’re be living in it and you want to know what type of places it’s close to, you want to know if you like the restaurants that are close by or how busy the streets are. This is your quality of life, so you definitely want to go visit that place and see which part of town you want to be in.

David Greene:
When your realtor says, “Hey, I found a triplex. It’s over here,” and they see it on a map, you can tell from that map what you’re actually getting and if you like that part of town. Now, when you visit, meet with the realtor. Maybe meet with a couple realtors if you don’t get a good vibe off of the first one. Then when you go back to New York, they will send you the properties that you could potentially buy. Now, you’re in a position where you know if you’re going to like it. Analyzing it makes a lot more sense.

David Greene:
You can put one under contract. I don’t think you need to move to the area and buy a condo to learn the area. I think you can visit it. Now, if you’re the type of person who just says, Nope, one or two visits won’t do it. I need to really soak in the entire atmosphere and get a feel for it,” then, yeah, moving there and buying a condo would not be a terrible idea. You just got to make sure that the condo you buy has a solid HOA. They’re not in any kind of trouble.

David Greene:
It’s in a good area where you think that if you decide you want to rent it out, you can still make some money on it. That there’s some demand. I would recommend buying a two or three bedroom condo, not a one bedroom condo, so you can rent it out by the bedroom after you leave because they’re a little bit tougher to cash flow. But I don’t think that the two options you presented are your only options. Build your team. Find out from your lender how much you can afford and what your payment is going to be.

David Greene:
Go learn the area. Find out which parts are zoned for multifamily, because that’s where your duplexes, triplexes, and fourplexes are going to be, and go drive those areas and see if you like it. See what’s within walking distance. And then tell your realtor, “Here’s the preferred places I like to live, tier one, tier two, tier three. Send me the listings that come from there,” and you can take it from there. Good. Look on your search, buddy. All right, we’ve had some great questions so far.

David Greene:
Thank you for submitting these questions. I’ve got some comments that I’m going to read from previous episodes. I’d love it if you could leave me comments on this episode. If you’re watching this on YouTube, please tell me what you think, what you would like to see, what you didn’t like and what you did. Now, I’ve asked this on previous episodes and you have been faithful in responding. We actually got a lot of comment on a particular show that I did where I talked about cash flow and how I think people have erroneous views of cash flow.

David Greene:
One of the comments comes from All Phase Landscape & Building Services, Inc. and they said, “I really am disturbed by how BiggerPockets has abandoned cash flow as the most important thing in investing. It feels like they have gotten too rich or too California to remember the fundamentals for smaller investors. Literally everything said in this podcast was in stark contrast to Brandon’s freedom number concept and the fundamentals laid out in his book.

David Greene:
I understand the game has changed since then, but only because we’re at a different point in the cycle. It feels a lot like 2007 right now and I’m not banking on appreciation. If it happens, that’s just a bonus. Why is cash flow unreliable if you are analyzing setting aside money for management, repairs, CapEx, and fixed expenses?” Now, this I assume is coming from when I talk about how so many people or maybe too many people think that they’re going to buy a handful of properties and retire and not have to work anymore.

David Greene:
And if they just find a couple of properties, they can be done. We’re seeing massive changes in our economy with inflation in rules regarding real estate and in the way that real estate investors are being treated. The tax code could be changing. I think, this is just my opinion, that the way things have worked for a long time is going to be changing. I think that there could be a point where the way real estate investing work changes, and I’m trying to put people in a better position to not end up losing their properties.

David Greene:
Now, here’s my opinion, this is not BiggerPockets. This just me as David. Cash flow is amazing. I love cash flow. I invest for cash flow. I like cash flow, but I believe cash flow in residential real estate is intended to stop you from losing the property. It is not intended to grow you wealth. What I’m getting at here is if you’re cash flowing $200 or $300 a month, it takes a lot of properties to be able to have a significant amount of wealth that gets built from that cash flow.

David Greene:
If your goal is to quit your job, it takes a lot of properties before you can quit your job if each of them is making 200 or $300 a month. When you own that many properties, like I have, it becomes a full-time job to manage those properties. What happens is you trade one secure job for one less secure job because your W-2 income is reliable, in most cases, and your rental income is not in almost every case. When I say it’s not reliable, what I mean is things break you didn’t anticipate.

David Greene:
Tenants trashed your house that you couldn’t have accounted for. You don’t know what’s going to go wrong. Everyone that’s bought rental property will admit, you catch them at an honest moment, when they first bought their property, they didn’t do as good as they thought. Things broke that they weren’t aware of. This still happens to me today. Sewage pipes that you didn’t know that you should get checked on end up leaking and cause significant problems.

David Greene:
Trees need to be pulled out of a property that you didn’t realize. There’s a rat infestation that you didn’t realize. Like lots of stuff happens. And if you get a couple properties and quit your job thinking that, “Hey, I’m making 300 bucks a month in cash flow. I’m good on six different properties,” you’ll find that $300 in cash flow rarely comes in every single month. What I’m trying to advise people against is prematurely celebrating the win. You’ve got a couple properties.

David Greene:
That’s great. You’ve got some momentum. You’re learning how to be a better investor. You’re building your skill level. Don’t quit and become a vampire sucking all that cash flow to pay for your living expenses right away. Continue to build. When I talk about appreciation being how people build wealth, that is partly referring to the value of a property going up. You will build wealth faster from that than cash flow, but I’m not only referring to the value of the property.

David Greene:
I’ve said many times, appreciation applies to cash flow too. The properties that I bought that at cash flowed $500 a month when I bought them, now cash flowed $2,000 a month over like eight to 10 year period. I bought them in areas like California, like Arizona, like Texas that were growing. People were moving there. Wages were growing in those areas. Rents went up faster there than they did in other parts of the country where nobody was moving to.

David Greene:
Once they’re going at 2,000 a month instead of 500 a month, I can now start to rely on that cash flow more. If I want to quit my job, like I did when I quit being a police officer and I got into a commission-based system, that cash flow was much more reliable for me to do it. And that’s all I’m trying to highlight here. No one at BiggerPockets and me is not saying don’t care about cash flow. We don’t know what’s going to happen with our economy. We don’t know if a recession is coming.

David Greene:
We don’t know if laws are going to be passed that limits how much you can raise your rent or how much you’re allowed to make as an investor. There’s already talk in California of like taxing short-term rental income an extra 25% by the state. If you ran your numbers and you said, “Hey, I’m good to go. I can retire. I have three short-term rentals,” and then that law gets passed, you’re looking for a job again. I’m just trying to keep everybody safe. I’m not saying don’t chase cash flow.

David Greene:
I’m saying don’t let cash flow become the savior to the life you don’t like. Continue to build your skills. Continue to work hard. Find ways to work at things that you like more. Don’t get a handful of properties and say, “Oh, I’m done. I’m at the front of the race and I can stop.” That’s what the hare did when it was racing the tortoise. You want to be the tortoise, slow, steady, continue to live beneath your means. Don’t let lifestyle come in. Continue to accumulate properties. Over time, you fix up those properties, less things break.

David Greene:
You get more stable tenants. You realize which areas work and which areas don’t. Your rents increase. Your cash flow grows, and then it stabilizes and then live on the cash flow. All right, next comment comes from John Moore. My first few properties didn’t really cash flow much 10 to 15 years ago. I used to feel lucky if I could use some of that money to go out to dinner or buy some new tools once in a while. But now I live on it and don’t miss running my painting business one bit.

David Greene:
All right. Oddly enough, John here is sort of highlighting the point that I just made. When he first bought the property for the first 10 to 15 years, they didn’t cash flow well. And if he had been looking at, hey, I need to buy a property that after all my expenses and setting aside money for maintenance and setting aside money for vacancy and setting aside money for CapEx and setting aside money for what ever surprises come and having the money that I need to spend myself on this property, he probably never would’ve bought anything, because real estate tends to not work that way when you first buy it.

David Greene:
But buying it and continuing to run his business, he bought more and more properties. I presume he got better at doing it. He bought in better areas. He got better deals. He had better management. And after 10 to 15 years, just like what I said, his cash flow probably grew similar to how mine did. And at that point, John exited the game and he said, “I don’t want to run the painting business.” This is the right way to do it, everybody. Now, a lot of my advice is coming from the fact that we don’t know what the government’s going to do.

David Greene:
They’re printing so much money. We don’t really know if we’re at the top of a cycle, or if we’re actually at the bottom of one. They might print a bunch more money and we could have another run in prices. Just take a second and think for a minute, what was housing worth 30 years ago? When someone that you know bought their house 30 years ago, what did they pay? All right? My parents bought their first house about 35 years ago in Manteca, California, and they paid $62,000.

David Greene:
That house right now would probably be worth 500 to $600,000. It’s gone up times 10. That’s without all of the money that’s been printed and the ridiculous amounts of inflation we’ve had. I would expect over the next 30 years that what I’m buying to be worth more than 10 times what I’m paying for it now. I know that sounds insane because I’m talking about a $2 million property being worth $20 million, but that’s because we’re looking at $20 million from today’s lenses, right?

David Greene:
When my parents first bought that property, maybe it would’ve cash flowed like $17 a month or something, but what was $17 worth back then? It would certainly be cash flowing more a lot now. Again, play the long game. Don’t get a little bit of cash flow and immediately quit your job, lose your safety net, go all in on drinking the beach or sitting at the beach and drinking Mai Tais and living the dream and telling your boss that he should shove it. Okay? Cash flow is great, but it’s very unreliable.

David Greene:
I have problems happen in properties all the time. I notice that certain areas problems don’t happen, certain areas they do. If I quit after my first three years of investing, I’d be stuck with a bunch of properties right now that don’t cash flow well because something’s always going wrong. Because I kept in the game and I kept buying, I learned what areas work better, what areas work worse, which neighborhoods. I got better at investing and now my cash flow is more reliable. All right, next comment.

David Greene:
“California is so frustrating for investors. Yes, I look long-term and don’t plan to sell, but we have rent control in Los Angeles. Even worse, restrictions are placed on rent with duplex and multifamily properties. How can a person upscale beyond single family homes if these restrictions are in place?” This is from Higher Spirit. That’s a great point. Southern California, particularly Los Angeles, is known for these type of rent control policies.

David Greene:
And to be frank, there is a lot more vitreal towards landlords now than I think there’s ever been. There’s hate groups out there that target real estate investors, and at times they’ve even targeted BiggerPockets because we raise rent when it comes to the market rent. Now, different people have different political opinions on why that should be.

David Greene:
But what I would like to maybe posit for you to all think about is if you buy a property and you expect the cash flow to be a certain amount, and then the government changes the rules and say, “Nope, now we’re going to put rent control. You can’t raise the rent,” but your taxes keep going up and inflation keeps going up, and that $400 a month that you thought was really good money is now worth the same as $200 a month after inflation, you can find yourself in a big jam.

David Greene:
Can you guys see where I’m getting at here? It’s dangerous to get a couple properties and think that you’re good to go, because these restrictions do get put in place. Higher Spirit, to you, here’s something I would think about. If you’re going the multifamily road, that might not be the best market for you to be investing in. Okay? That’s a great market to house hack in. You own the house and you rent out parts of it. You are keeping your own living expenses really, really low.

David Greene:
You’re generating additional rental income for yourself and some of those rules to protect tenants don’t apply the same because you own the house as your primary residence. You have more rights in that case than being a pure landlord. What I’m getting at is different markets have different strategies. We talked about Joshua Tree earlier. That’s clearly a short-term rental strategy. House hacking wouldn’t work that great in Joshua Tree because there’s probably not a ton of people looking to live there all the time.

David Greene:
That’s a vacation destination. LA is strong on the house hacking side. It’s strong on just owning versus renting, if you just buy a house and you’re not even an investor. It’s going to be a lot weaker on the cash flow side. If you’re looking to scale something and grow more cash flow, you probably want to get out of a market that has those kind of restrictions and get into a different one. I would recommend my book Long-Distance Real Estate Investing because I lay out the systems that you need to invest in a different market.

David Greene:
Now, I do invest in California. I live here. Someone mentioned to California, that’s probably a shot at me because I live in California, but I also invest in other states. I know I have different strategies in the different areas that I’m going to. I don’t think that that should be any kind of a shock to people. You should expect different children to have different personalities, right? Well, every market I invest in has its own personality.

David Greene:
Real estate has a personality itself, and we want to use a strategy that works best for the personality of the market that we’re in. Some of them are long-term plays where you get a lot of appreciations. Some of them are shorter term plays where you’re going to get a lot more cash flow. Sometimes it’s a short-term rental play. You’re going to put more time, but you’re going to get a higher return. Other times it’s a set it and forget it. I’m not going to make a ton of money, but man, it’s going to be easy.

David Greene:
I’m going to forget that I even own the house. Understand the market you’re investing in and pick a strategy that’s going to work for that specific market and you can avoid some of these frustrations. Thank you for your comment there, Higher spirit. All right. Are these questions and replies resonating with any of you? Were you thinking the same thing, “Why does David keep hating on cash flow?” Well, I hope I just explained, I don’t hate on cash flow.

David Greene:
I hate on the way that people look at cash flow as it’s going to be their savior from life. Or maybe you’re like, “Yes, praise David. I have been thinking the same thing and this makes sense.” Whatever it is you’re thinking, we want to hear your honest perspective. Tell us in the comments what you’re thinking. Maybe you didn’t get clarity on something and I can explain it more. Maybe you want to hear more about a certain topic or you hear my view and you want to know what information I’m using to present that view from.

David Greene:
I want to interact with you guys, and I want you to be a part of the podcast because this is your show. You are here and I am here to help make you money. Let me help you do that. Go on the comments. Leave one. Also, subscribe to this page and please like the channel.

Nick Vincent:
Hey, David. My name is Nick Vincent. I’m from the Shreveport, Louisiana area. I’m new to real estate. We just acquired our first property back in December of 2021. We just called a lot of for sale by owner signs until we found somebody that was willing to give us a good deal. We got the house at $50,000. I put 20% down to a 10 down. We owe 40,000 on the house. The house appraised for $78,000. There was a lot of meat on the bone when we bought it. We did about 8K worth of rehab.

Nick Vincent:
Got the tenants in there. Didn’t have to put a for rent sign up. We had some people that knew us and ended up getting into the property. That one has worked out pretty well. We just got our first rent check on it last month. I’ve also been trying to get into a partnership for a couple years now. I guess because of that deal and a couple other things that I’ve been doing, there’s a guy I’ve been talking to and we decided to go in a partnership together. I found an off-market deal, and I guess here’s kind of the meat of my question.

Nick Vincent:
On this off-market deal, we are looking… The house is $120,000. That area appraises for anywhere between 180 to $220,000. The house is actually in a really good condition. The guy just wants to get rid of the property. It’s just a very good deal. I was going to do it on my own, but I figured it was a good opportunity to get into a partnership with somebody. We’ve been talking about this for a while. The options that we have and what I’ve been curious about is, do we obtain this property using a DSCR loan?

Nick Vincent:
I was going to go through Caliber SmartVest Line. That way they’re not looking at debt to income and anything like that. And then once we obtain the property, do we then do a cash out refinance for the leftover equity that’s just sitting there and then go out and obtain more properties? Because that’s our goal is to obtain rental properties. And along the way, if we could do a fix and flip, do it. But really we want to do buy and holds and really get up to like 50, 60 rental properties.

Nick Vincent:
I see this as a really good opportunity for our partnership to get going. The options that we’re looking at is that, one, the mortgage route, or two, we have an option to where my partner can leverage his house. He’s got something that is worth about 160. We have friends with a president of a bank that is willing to give us a line of credit on that money, and we can go over there and buy that house. And then we were thinking about just selling it within a month.

Nick Vincent:
The market’s hot and that’s a really good bulletproof area. Selling the house, taking that $100,000 equity, and then going out and buying four or five other properties off of that one. Our area, we can generally get properties anywhere between the range of like 40 to 60, maybe even $80,000 and then really move from there. My question is which option is the for quickness and to just be more efficient in what our goal is, which is to just obtain more rental properties? With option one, I do have to put out some cash reserves.

Nick Vincent:
It would be about… We’re going to do a split on it. It’d be $15,000 from my reserve cash and the same for him on option one. Option two, I don’t have to do that at all. Basically I found the deal. He’s going to put up the money, then we sell it, and then we do a split on it. And then that’s going to be the money we use for our company to continue to buy more properties. I hope that question kind of makes sense in what the dilemma seems to be.

Nick Vincent:
I’m leaning more towards getting the property and renting it out, because why not? You do the cash out refinance, have a tenant in there paying the mortgage. My partner’s leaning more towards like it’ll look really good for us to go ahead and obtain a property and then sell it, and then our company be worth anywhere between 80 to $100,000 from the jump that we started, and then go out here and obtain more properties.

Nick Vincent:
But I just want to make sure that what we’re doing, because it’s such a good deal, that we’re going to be in a good position to move forward to really start loading ourselves up with as many properties as we can. We’d like within this year to get anywhere between like six to 10. And just from this one deal, I think that we’re going to be able to do that. I would really, really appreciate your advice on this situation. Thank you so much. Your content is amazing. Thank you, David.

David Greene:
Yes, my content is amazing. Thank you for that. No, that’s not true. This is just real estate that we’re talking, and I do this all the time. This is actually pretty simple. Your question is what’s amazing. You listeners that are listening, you are what’s amazing. Let’s talk about this dilemma that you find yourself in. It is the classic, should I hold or should I sell? I’ve got a way that I like to analyze this, and I’m going to break that down. I’ve probably done this before, so I’ll go through that, and then I will try to apply it to your specific situation.

David Greene:
When asking a question of, should I sell it or should I keep it, you did a good job of explaining, “If I sell it, I can get a bunch of cash and that can sort of launch me into the business. But if I keep it, I can have a rental property.” The first thing that I want to say is, what is your biggest challenge? Is it finding more deals? Is it not having enough money to buy them? Is it not getting lending? You basically want to know what your biggest challenge is and work around that. For a long time for me, my biggest challenge was financing.

David Greene:
It was just very hard to get banks to let me borrow because I had so many rental properties already. They saw it as a bigger risk. I know that’s weird because you’d think the person who owns more would be better at it, but that’s not how they see it. Like as a side note, there’s a bank that will remain unnamed in Jacksonville, Florida like six years ago that it said, “We don’t want any more exposure to residential real estate. We think it’s going to collapse. We’re only giving commercial loans.”

David Greene:
Tell me how that one worked out when it comes to residential real estate. No one really knows how these things are going to work out. But my point is, I would start with someone that would give me money and I would find out where will they underwrite. I would have to go my strategy work there. This idea of knowing what’s the most scarce resource will help you with making the decision when it’s specific to you and your partner versus just everybody else who’s listening here.

David Greene:
I’m assuming that money is probably more scarce than deals, because you’ve mentioned that you found these first two deals relatively quickly. I’m going to give you advice operating under that assumption, that it’s easier for you to find deals than it is to find money. Now we’re starting to see things weighing towards selling. It might be better. But let’s not jump to that right away. Let’s go through my ROI versus ROE matrix. When it comes to selling a property, I have clients ask me this all the time, right?

David Greene:
Like especially if they’re in California, those are the ones I love, because they come to me and say, “Hey, I own this rental property, or I own my primary residence, David. Should you list it and sell it for me and we can reinvest the money, or should I keep it and rent it out?” The first thing that we want to figure out is if, is this a property you want to keep? If the answer is no, we look for a way to justify selling it. If the answer is yes, we look for a way to justify holding it. What goes in too, is this a property that I want to keep?

David Greene:
Well, the first thing is, is it a headache? Are you going to get bad tenants? Do you have legal restrictions like what… I think it was Higher Spirit mentioned in the comments about Los Angeles’ rental controls. Is the property itself just a money pit and things keep going wrong? Is it in an area that you don’t want to own in long-term? If the answer is, I don’t want to keep this property, that should become pretty apparent as you’re asking yourself those questions. Is it going to appreciate?

David Greene:
Is it on the way up? Are rents going up and is the value going up? Now, let’s say the answer to those questions becomes a yes, I do want to keep this property. The rents are going up. It’s appreciating. It’s no headache at all. It’s in a great location. I’ve already fixed everything up. It’s performing wonderfully. At that point, we started asking the question of, okay, how much money can we pull out of it and then go put that into the next deal? To sum this up, the first question you ask is, is this a property I want to keep?

David Greene:
If the answer is no, just sell it. You’re not losing real estate when you sell. You are gaining equity through the form of capital to put into new real estate. As long as you buy something new, you’re not losing a property when you sell it, which is how I want you to look at this deal you guys have under contract. There’s 100,000 in equity there. You’re going to turn that into more rental proper. Selling it isn’t losing a rental.

David Greene:
It’s gaining potentially more as long as you can find them, which is why I started this question off by asking, can you still get deals? Now, the next thing work on is our ROI versus ROE matrix. ROI is return on investment. Roe is return on equity. What I would like you to do, Nicholas, is to look at your average return on investment that you can get if you invest a hundred grand in Louisiana, wherever you are. Let’s say you can get a 10% return buying real estate.

David Greene:
If you have 100,000 and you can go put that into investing at a 10% return, you figure out what your cash flow would be on that money. Now we would look at if you keep the property and refinance it, what would the return be on your equity? This is the same question that we ask when someone comes to me and they say, “Hey, David, I’ve got a house worth 1.1 million in the Bay Area and I owe 500,000 on it.”

David Greene:
This is a person with 600,000 or so in equity in their property and they’re saying, “Well, it cash flows 500 bucks a month. It’s not a bad deal. I can rent it out and I can make 500 bucks a month.” Well, what I do is I run some numbers here, okay? I’m going to do that for you right now. If you have a property making $500 a month times 12 months in a year, that $6,000 a year you’re making in your return. If you divide that by the 600,000 that we have in theoretical equity, you’re getting a 1% return on that equity.

David Greene:
That means if you invested that 600,000 somewhere else and you only got $6,000 a year, you’d be getting a 1% return on investment, which is bad. In this case, even though it would cash flow $500 a month, I’m going to advise that person, you should sell that property. Buy more with the 600,000 that you’ll get a higher return on than what you’re currently getting. Basically your equity is lazy and it’s doing nothing for you. Now, some properties make your investment into that property.

David Greene:
And make no bones about it, your equity is an investment. Don’t just look at the capital you put into it, also look at the capital that’s already in it from the form of equity from what either you made it worth more on the rehab, or it’s grown from appreciation. And ask yourself, how hard is that money working? Now, if someone’s in California, you’re more than welcome to mention this when you email me or contact me and I’ll run you through this. But if you’re in a different area, look up what return on income versus return on equity is.

David Greene:
Let’s sum all of this up. The first question you should be asking yourself, Nicholas, do I want to own the property? What’s the location? Is it a headache? Is it going to cause me a lot of problems? Is it in a flood zone? Is there anything about it that I don’t like? If you do like the property, the next question would be, how much of a return would I get on this property versus if I invest that $100,000 somewhere else?

David Greene:
Assuming that the appreciation is largely equal, because you’re staying in the same market, the decision becomes pretty easy. You invest in the place where you’re going to get a higher return and more cash flow on that same money. Now, the only caveat to this would be, like I said earlier, if it’s super hard to find a deal, so you sell it and you have a hundred grand, but you can’t buy anything else, maybe it makes more sense to keep it. Or if deals are everywhere, but you got no money.

David Greene:
Even if the return would be good, maybe you can make that a hundred grand work more somewhere else. So you sell it even though the return on equity was solid. There’s a lot of things that factor into play. But I love that you asked this question because it helped me break down how my mind processes these options. I’m doing the same thing just at a bit of a bigger scale. I’m selling 30 something properties right now, and I’m going to 1031 those into different properties that are going to be in different markets where they’re going to appreciate more.

David Greene:
And I’m going to have less headache. I looked at my portfolio and I said, man, these 30 properties in this area, it’s constantly emails from the property management company saying, “This person’s not paying. COVID restrictions have affected us here. This just broke. This is going on.” It’s nonstop something all the time. When I asked the question, do I want to keep it? The answer was no, I do not want to keep it. I want to sell it. I looked at how much equity I had in the portfolio and I realized the same thing I just did with you.

David Greene:
I’m making like a 2% return on my equity. The misleading piece is I’m making like a 70% return on my initial investment. When you only look at ROI, it looks like I’m crushing it from all the rent increases that I’ve had. But the portfolio has grown so much in equity from the BRRRR-ing that I did, as well as natural appreciation that my money’s not working very hard. I’m going to sell it, and I’m going to put it into properties where it will have to work harder, get me a better return.

David Greene:
I’ll have a higher upside and less headache. I hope that you can do the same. All right, next question comes from Michael O’Brien in Canada, otherwise known as Canadia. “David, I love your show and the content has helped me get to this point. However, in discussing additional properties with my mortgage broker, he is suggesting I am close to my limit of residential property loans with my debt ratio. He said that in order to get additional properties, I will have to look at commercial mortgages with higher rates.

David Greene:
Is there a way around this? Thank you. I five properties and seven doors.” Okay, Michael, I’m going to break this one down for you pretty simply. First off, when he’s talking about debt ratio or debt to income ratio, what we’re talking about is as mortgage brokers, we look at, okay, you make this much money and you have this much debt that shows up on your credit. It doesn’t matter how much actual debt you have. It matters how much is documented.

David Greene:
We come up with a ratio that says at the end of the day, this is how much Michael has left of the money that he brings home.” We come up with a percentage. We add whatever your mortgage is going to be to that, and we make sure it stays underneath whatever number it needs to be, 40%, 45%. They kind of bounce around for different products. Then we say, “Based off of your debt, you can buy a house that costs this much at this interest rate.”

David Greene:
Now, the problem becomes when you keep buying real estate, if you’re not making money on taxes, or you’re not claiming the money, or you had a bad year on that real estate, the debt from the property stays there, but the income does not continue to increase. Your debt to income ratio starts to become too weak to get approved for additional properties.

David Greene:
Debt to income ratio, I want you guys to all understand this, is a metric that determines your ability to repay the money that the bank is letting you borrow or the lender is letting you borrow. What you can look at are debt service coverage ratio loans, which is something that my brokers does a lot of, where we look at the income the property to repay the debt, not the income from you.

David Greene:
If you’re going to buy a short-term rental and it’s going to generate $6,000 a month of income, we take that income and we weigh that against how much it’s going to cost to own the property, which might be three or $4,000 a month. We qualify you that way. If that’s what he’s talking about with commercial loans, that might be your only option. Typically, commercial loans are like 5/1 adjustable rate mortgages. It kind of sucks because as interest rates go up, your payment goes up.

David Greene:
Our products are 30 year fixed rate. They’re just like what you’re used to seeing, but the rate will be a little bit higher. I think in general, people make too big a deal out of this. Those rates that you get on conventional mortgages are incredibly low. They’re awesome. They’re not normal. No one’s lending money at that rate. Once you get to more properties, you should have more experience and you should be able to find better deals.

David Greene:
You should be able to make it work with an interest rate that’s maybe half a point, one point, one and a half points, whatever it is, higher. Before I went to commercial, which is an adjustable rate mortgage, I would look at the DSCR loans, which are 30 year fixed rate. I would ask your mortgage broker if they have access to those. If not, I would look for a mortgage broker that does. All right, we have time for one more question. This comes from Desmond in Omaha, Nebraska.

Desmond :
Hi, David. My name is Desmond, and I just wanted to start by saying thank you for fielding questions like this. I really love the format of the show and listening to other investors and what they’re struggling with and your insight into their situation. Really appreciate that. Kind of jumping into my question, I’m located in the Midwest. 24 years old and my background is in chemical engineering, which is currently my primary source of income.

Desmond :
I’m just getting started in real estate investing, so I don’t currently have any investment properties in my portfolio, but I’m interested primarily in buy and hold single family rentals where I ideally obtain properties using a BRRRR strategy. To give a little bit more context on my situation, I graduated college debt free in 2020. That was largely due to academic and athletic scholarships I had and working throughout college.

Desmond :
All of that allowed me to live well below my means after graduation and save a large majority of my paycheck when I started working. In 2021, I bought a single family home that I live in, proposed to my now fiance, and started saving for wedding and honeymoon related expenses.

Desmond :
I’ve known for a long time that I wanted to get involved in real estate investing and have been listening to this podcast and reading books about real estate, but I had to use the money I was saving on other important life things like buying my primary residence, getting an engagement ring, paying for part of the upcoming wedding and honeymoon and those related expenses. That kind of leads me to my question. In 12 months, I think I’ll have saved $40,000.

Desmond :
I estimate I’ll need for a down payment on my first single family rental and to cover the cost of the rehab. And then anything over that $40,000, I’ll tap the equity on my home and use a HELOC to finance. Now that I’m finally so close to being able to start my journey into real estate investing, I’m starting to have major FOMO where I see prices going up and other investors swooping in on deals in my area.

Desmond :
It makes me wonder if I should try to get creative in financing so I can start investing sooner or stick to the plan I have in place and save up now so I can start in 12 months. What’s your advice on this? Do you think I should try to get in sooner, or are there some other practical things I can do in the 12 months I’ll be saving? I’ve already started networking with other investors in my area, and I’m beginning to build relationships with real estate agents and lenders. Thanks in advance for your insight on my situation.

David Greene:
All right. Thank you, Desmond. This is a great question. I think a lot of people are in this same boat. I think you’re wise to notice that prices are going up, as well as interest rates. We don’t know what’s going to happen, but all indications are that the Fed is going to continue rising rates and that prices are probably going to continue to go up. Could they go down because rates are going up? Sure. No one knows. My best bet is that they will just go up slower than what they were going up because of rates going higher.

David Greene:
People like me are still going to buy them. Your FOMO might actually be somewhat healthy. You need to get involved. Rather than trying to save another 40K, what if you just found a way buy a house with less than 40K? My advice to you would be you house hack. You need to go buy a primary residence and put a smaller percentage down on that property, so you don’t have to save up all the money. You don’t have to go buy an investment property, put 20, 25% down.

David Greene:
If you still don’t have enough to do that, ask about different loans where there’s down payment assistance available. And if there isn’t any of that available, I would ask a family member if you could borrow some money from them and then pay it back. Now, you should have no problem paying that money back because your own housing expenses are lower since your house hacking instead of paying the rent.

David Greene:
If you’re in a position where you say, “No, I already own a house. I don’t want another one,” well, can you sell that house and use the money to buy the property you want? Can you rent out the house that you are living in now and then go house hack to get your housing expenses lower? What sacrifice are you willing to make to make this happen? You’re going to sacrifice something. My advice is you should always sacrifice comfort. Don’t sacrifice your future. Don’t sacrifice wealth building.

David Greene:
Sacrifice the fact that you don’t need at 24 years old to have a nice big house that you could be living in right now and try to get your fiance on board with how you guys are going to spend a couple years living beneath your means and being less comfortable so you can have a way better future later. In other words, there’s a way to move your money around. You have some equity in the house you have right now. You have a housing expense that you don’t need to have that you can reduce by house hacking.

David Greene:
You can lower your down payment by buying a primary residence instead of an investment property. Get your foot in the door. Then as those properties go up in value, you can access that to buy the next rental property and you can get some momentum going. Find a way to get this initial momentum that you need started by making some sacrifices. If you got through school with no student debt on athletic scholarships and working, I don’t think you’re going to have a problem with this.

David Greene:
Also, awesome that you’re a chemical engineer. My lending partner, Christian Bachelder, is also a chemical engineer, and you guys have a very unique way of looking at the world. All right, thanks again for taking the time to send me your questions. We have had a great response from our audience, and I encourage you all to ask more questions. You can do this by going to biggerpockets.com/david and submitting your video or your written question for me to answer.

David Greene:
Look, we can’t make this show if you don’t give me content to go by. I can’t help you or the rest of the community if I don’t know what questions you guys have. Real estate feels scary. It feels overwhelming. It feels challenging, but it doesn’t have to. It’s actually one of the most simple ways to build wealth there is. Let me help you do that. Let us at BiggerPockets help you do that as well. Please give us subscribe on the channel. Share this with other people that you know. Let me know in the comments what you thought.

David Greene:
And if you want to ask me a question directly, you can always find me on social media. I’m @davidgreene24 pretty much everywhere. You can also send me a message through the BiggerPockets platform. Thanks, everybody. I will see you on the next episode. Stay focused and keep grinding.

CNBC’s Diana Olick joins ‘Squawk Box’ to break down the latest batch of weekly mortgage application data.

Ashley Kehr:
This is Real Estate Rookie episode 178. My name is Ashley Kehr, and I’m 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 the podcast that’s focused on those investors at the beginning part of their journey. So if you haven’t done a deal, you’re still starting, this is a podcast for you because you’re bringing you the inspiration and the information you need to get started. So Ashley Kehr what’s going on, what’s new?

Ashley Kehr:
Well, once again, I feel like I’ve been saying this for like 20 episodes. I’m recording from my couch, [inaudible 00:00:39]. But I also have my little youngest here. So if you see a hand or a leg or something fly into the side of the camera if you’re watching on YouTube. He is my producer today. So we had him on another episode where I think he made it maybe halfway through before he asked if he could leave. So let’s see how long he lasts today.

Tony Robinson:
Are we going to see the famous Ashley death stare?

Ashley Kehr:
Oh my gosh, I forgot about this. Yeah, this was probably almost a year ago. I was on vacation with my kids and we were in a hotel room, just one room and I had to record. And the three kids, I put the TV on for them on mute and they were too, sit on the bed. And all of a sudden one starts jumping from bed to bed and I had to give the death stare, and I had to message to Tony and say, just so you know I’m not glaring at you. My kids are behind the camera. And that was the same day that as soon as we ended recording, one of them said, “Mom, we lost a hermit crab.” Because we had bought hermit crabs on vacation and one had got lost while we were out there. Luckily we found it and put it back in his cage.

Tony Robinson:
That’s a fond memory.

Ashley Kehr:
Always lots of things happening behind the scenes.

Tony Robinson:
Fond memory. Well, yeah, no, that’s cool. I’m glad you’re covering well, Ash. What’s new with me. I mentioned this last time we recorded, but we’re actually in the process of putting together a fund for short-term rentals. Actually two funds I’m working on. One’s going to be focused on new development and we’re pretty close to that one actually launching. And then the second one’s going to be more so focused on acquiring existing single family residences and converting those into short term rentals.
So just as we think about our growth plans, I realize that’s probably the best way for us to kind of continue to scale. And there’s some other benefits that come along with running a fund. So yeah, you guys that are listening, if you want to learn more, it’s still super early, but just follow me on Instagram, @TonyJRobinson and I’ll be sure to post some information about that there when we get to that point.

Ashley Kehr:
Yeah. That’s a great opportunity for anybody to get into. So congratulations Tony on starting that.

Tony Robinson:
Yeah. Thanks Ash. I appreciate it. Well, we got some good questions today. The Rookie reply. That’s what we do when we get these Saturday episodes. So if you guys want your questions featured, you guys can get active in the BiggerPockets forums, the Real Estate Rookie Facebook group, or you can slide into the DMs for me and Ashley. So today’s question actually comes from my DMs. Let me see if I can pull this person’s name, hold on. Because I want to be able to give them a proper shout out. Hold on you [crosstalk 00:03:24]

Ashley Kehr:
In the meantime. If you guys love the Real Estate Rookie podcast, we would appreciate it if you would go to Apple Podcast and leave us a five star review and tell us why the podcast has helped you, motivated or influenced you to become a real estate investor, we love reading through those. And don’t forget to subscribe to our YouTube channel. And that’s the end of our commercial break. Back to Tony.

Tony Robinson:
All right. So I found her name. So today’s question comes from Jessica and hopefully I get this last name, right [Veristegway 00:03:58]. So Jessica Veristegway. Hopefully I’m saying that right, Jessica. But Jessica’s question is, I’ve been watching the content, you and Sarah, my wife, I have been posting on YouTube and you guys are in inspiration. I’m looking into following in your footsteps, but I had a question about debt. You seem to be doing really well with all those properties, but how much debt have you accumulated? I’ve watched the videos with your revenue and it’s impressive, but carrying a lot of debt scares me. Any advice? So Jessica, I think my first question would be why does debt scare you?
And the way that I look at it is that debt is one of the big advantages of investing in real estate in comparison to other potential asset classes. Most people can’t go out and get a loan to say, hey, I want to buy 10,000 shares of Tesla. Most banks, aren’t going to lend you money to go out and buy Tesla stock. Or if you say, hey, I’ve got this really cool idea for this hot and new startup, you can’t necessarily walk into the local credit union and then they’re going to give you a loan of half a million dollars for your new hot startup idea. Real estate is one of the few asset classes where if the numbers make sense, you are able to leverage debt in a smart way to buy a property that you otherwise wouldn’t have been able to.
So I’ve always looked at debt as a tool. Especially good debt right now. I’m not talking about racking up credit card debt, but when we talk about the debt that I’m using to purchase these properties, it’s debt that gives me a good return. So that’s my first thought. I don’t know, Ash, what are your thoughts on that piece?

Ashley Kehr:
Yeah, I agree that debt is definitely a tool and I have struggled with the same thing. So I paid off all of my personal debt using the Dave Ramsey method. And so I think that for me, it’s that other people is paying that debt. So my rental properties, other people are paying those mortgage payments for me. That’s not something that’s coming out of my income and that I’m not responsible for. So I like to keep my payments very minimal. I mean, I can’t even tell you the last time I actually had a car payment. I’ve paid off our farm equipment. All of those payments that were put on myself personally, I got rid of those. So I like to not have that personal debt. But as far as rental properties, like Tony said, it’s such a huge advantage to be able to go out and get a mortgage on these properties.
And then look at what’s the worst case scenario if you actually can’t pay the mortgage. You get foreclosed on. The bank takes the property back and you’re back to where you started. You’re back to where you started. And plus in New York, at least it takes forever for a foreclosure to go through. So you have some time to kind of figure out a plan B. So think do more research on exactly what debt is and how it works. What are the exit strategies? If you do get into trouble with having lots of debt, I definitely don’t think over leverage yourself. So maybe you set a minimum requirement, like, okay, every property I’m never going to leverage myself 75% or 80% more of what the property’s value is. So set those limitations for yourself so that if you do have to do a quick sale to get out of some debt on the property, that you have some wiggle room, oh there’s the first foot for anyone who’s watching on YouTube. You have some wiggle room to sell that property, even if you break even on it.

Tony Robinson:
Yeah. And if you think about like the big players in real estate, they all… sorry, I’m laughing right now because I’m seeing that foot creeping into the video.

Ashley Kehr:
He’s smiling, smirking over here, he knows exactly what he’s doing.

Tony Robinson:
But if you think about the big players in real estate, they’re all using debt as well. Like Sam Zell, who’s a multi-billion dollar guy. I can’t remember his name, but the guy that owns the Irvine company, right? Like all these people that have amassed these huge fortunes in real estate, they’re all doing it with debt as well. So, Jessica, I understand that there’s a certain fear associated with taking on debt. But I think if you’re underwriting the properties, you’re analyzing them conservatively and you’re able to get a good return on that investment, then there’s no reason not to move forward.

Ashley Kehr:
Yeah. I agree. Okay. I think we answered that one. Anything else to add?

Tony Robinson:
Nah, I don’t think so. I think that’s everything Jessica. Sorry, if I butcher your last name, just shoot me a DM afterwards and give me the phonetic spelling. So maybe that’s like just rule of thumb, if you guys are going to DM us and you’ve got maybe a harder to pronounce last name, give us the phonetic spelling that when we get in front of the rookie audience, we’re not butchering what your name is.

Ashley Kehr:
Honestly, it doesn’t matter to me because if I don’t know how to say it, I just make Tony say it. Well you guys thank you so much for joining us for this week’s Rookie Reply. Remington. Do you want to say goodbye?

Remington:
Bye.

Ashley Kehr:
Thank you guys so much for watching on YouTube. Make sure you subscribe to our YouTube channel and comment below with what you think leveraging debt has to do with you personally. Are you against it? Are you for it? Do you feel comfortable with it? And what are your tips for overcoming that fear of taking on debt? I’m Ashley @wealthfromrentals. He’s Tony @TonyJRobinson. And we’ll be back on Wednesday with a guest.

Did you play musical chairs as a kid? 

I played in Sunday School, and I don’t think I ever won. It was painful, but I’m okay with it now. 

For the uninformed, the game started with a circle of outward-facing chairs. Kids march around outside the ring to queue up the music while the teacher grins slyly, her hidden hand poised on the record player’s arm (c. 1970) to stop the music at any time. When the music stops, all the kids sit down in the closest chair. 

But there was one problem. There’s always one less chair than kid, which meant someone had to get ejected from the game. With one less player, the next round also started with one less chair. It would repeat until there was a final winner—typically the aggressive, pushy bully I never liked.

The lesson of musical chairs is that there are multiple paths to losing. We typically talk about the multiple paths to victory, but it’s about losing in this case.

You may see where I’m going with this and ask, “Why is Paul being so negative? He seemed like a nice guy on the videos.” 

Why so serious?

This post is another warning about the craziness in today’s real estate market. We are seeing an unprecedented runup in asset prices and the associated risk that comes with it. There are many ways to lose in this market and fewer ways to win than I have seen since pre-2008. 

I will let you know why I think the risk is so high. Then I’ll tell you a few stories supporting my point. Then I’ll wrap up with a thought about how to win in this market or any market. And no, it’s not by sitting on the sidelines. 

Why is the real estate world so risky right now?

It’s quite simple. When paying an extraordinarily high price for an asset and adding the associated transaction fees and friction costs, you count on a future where revenues must be increased far above current levels to generate solid investor returns. But paying top dollar means buying an asset with the tiniest margin of safety, therefore, the highest chance of failure. 

This sounds to me like the best time to sell an asset. Not to buy one. (And we’re about to see that’s what many of the pros are doing.) The best time to buy is when blood is running in the streets. And that’s certainly not now. 

I recommend that everyone read Howard Marks’s classic Mastering the Market Cycle: Getting the Odds on Your Side. Buffett reads every word Marks writes, so perhaps we can learn something as well.

Marks, manager of the extraordinarily successful Oaktree Capital, was being interviewed by a reporter when blood was running in the streets in the autumn of 2008. He explained why he was buying half a billion in troubled assets per week. The confused reporter said, “Wait, you mean selling, right?” Marks said, “No! I’m buying. If not now, when?” 

We are currently at the extreme opposite of this moment where Marks seeded billions in profits for himself and his investors. I think Howard would say, “No! I’m selling real estate. If not now, when?” 

I have no idea if there’s one chair or three chairs left in our musical chairs game. But I think it’s prudent to act as if there could be one and the music could stop at any time. 

This doesn’t mean I’m not buying. My firm is investing in real estate right now. But the way we are doing it is quite different than the mad rush I’m witnessing. 

Three examples of a market going mad

Example #1: Storing up risk

An unnamed friend (we’ll call him Aaron) recently told me about a deal he lost. This guy is a self-storage pro. He’s been on the BiggerPockets Podcast twice in the past four years, and he has an excellent track record of creating fantastic cash flow and wealth for his investors. 

Aaron was bidding on a large self-storage portfolio. He stretched to get to a bid of about $70 million. This was as high as his prudent underwriting allowed. He lost the deal to another syndicator. A syndicator who was much newer to the business and hadn’t experienced years of ups and downs like Aaron has seen. A syndicator who is a fantastic promoter with a great investor following. 

But Aaron didn’t lose this bid by a million or two. Or even five. The winning bidder reportedly paid well over $20 million above Aaron’s high bid.  

Think about it. This buyer is paying over 30% more than a pro thinks could work. In addition, he’s probably saddling his investors with debt at approximately the full level of the property value (per my friend’s $70m valuation). On top of that, he’s paying all of the associated fees, commissions, and more. 

“More” in acquisition fees and other syndicator profit centers. These fees are likely at least $5 million, from what I’ve been told. These fees and costs are piled onto an already precarious situation that must go very, very well to rescue unsuspecting investors from ruin. 

I hope inflation allows the operator to raise rates exponentially for the investors’ sake. It may, and my fears may be proven wrong. Maybe that’s what the syndicator is counting on. But that sounds like speculation to me. Not a game I want to play anymore. 

Example #2: Can you really outmaneuver the godfather of multifamily?

Another one of my friends is perhaps the most experienced multifamily syndicator I know. A real pro. In his fourth decade as a real estate investor, he has done hundreds of millions of multifamily deals and over a billion dollars in other transactions. We’ll call him Johnny. 

Johnny told me about his worst multifamily deal since the Great Recession. It was rough. His experienced team could not raise rents by a single dollar in nearly three years of focused management. The prospects for investor profits were grim. 

But never fear. Johnny was approached by another syndicator who corralled his lender and likely clueless investors to buy this asset for $10 million more than Johnny had paid. 

Again, when adding acquisition fees, property management fees, lender fees, and closing costs, this buyer saddled his investors with a massive burden. 

I must ask: If Johnny’s experienced team could not make a profit on this deal, how is this new, likely less-experienced team going to raise rents and income? Especially when starting in a hole well over $10 million deep? 

By the way, Johnny is in the Howard Marks reversal stage, selling almost all of his properties. He believes that with interest rates rising and cap rates likely following suit, it is the best time in history to take chips off the table. If this is how the pro of pros is thinking, shouldn’t we take notice? 

I asked Johnny for permission to use his story. He informed me that this situation happened again recently. He said he sold another property that barely covered the mortgage at around 2% interest. The buyer got a bridge loan at around 5% interest and paid him about 50% more than he paid. How does that work? 

Johnny said: “To be clear, I didn’t sell because I don’t believe in the market. I had a few struggling properties, and I got offers that created a great opportunity for me to sell. 

And for properties that are performing great, when prices run up this fast, selling is smart because it maximizes the internal rate of return (IRR). Holding would reduce the IRR and return on equity, especially in a rising interest rate environment. I will say that with inflated pricing, it is really hard to find properties to replace these assets right now.” 

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Example #3: Vegas-style real estate investing

I recently heard about this third example from a residential subdivision developer friend at church. He recently developed a 36-lot subdivision near the beach in South Carolina. He was preparing to build 2,200 square foot homes with an all-in cost around the $360k range. A 1,600 square foot 2021 house across the road sold for about $450k last summer, so he planned a respectable 20% potential margin of about $90k per home or more. 

But last fall, he learned that the same $450k home had been resold a few months later for about $660k. He learned recently that it was pending for another resale in the range of $825k. 

For you old-timers investing in real estate over a decade ago: does this sound familiar? 

“History never repeats itself; at best it sometimes rhymes.” – Mark Twain

Yes, I agree that inflation may float everyone’s risky craft to the golden shores. But do you really want to count on inflation to ensure your deal goes right? To assure your investors make a profit or even recover their principal? 

I don’t. Fortunately, there’s a more reliable way to make a profit. 

Value investing – Real estate style

About a century ago, Columbia professor and fund manager Benjamin Graham developed a methodology that was later called value investing. His best student, Warren Buffett, took the practice to a new level, creating hundreds of billions in wealth for him and his investors. 

The bottom line here is that Graham and Buffett and those who follow in their steps spend their efforts searching for hidden intrinsic value in the assets they invest in. They seek out and acquire assets that have latent value invisible to the casual seeker. 

And they hold these assets to create a growing margin of safety. This margin of safety is a byproduct of increasing profits in good times, and more importantly, it allows investors to weather bad times safely. 

It allows investors to obey Buffett’s first two rules of investing: 

“The first rule of an investment is don’t lose money. And the second rule of an investment is don’t forget the first rule.” – Warren Buffett

My company has built our investing thesis around these principles. We partner with commercial real estate operators who seek out off-market deals with hidden intrinsic value that can be harvested over years to come. We enjoy an ever-widening margin of safety between net operating income and debt service. 

These operators further lower the risk by refinancing out lazy equity to give back to investors or reinvest in other deals along the way. We purposefully diversify across different asset classes, operators, geographies, strategies, and properties.  

Yes, we miss some screaming deals, like the third example (East Coast houses) above. I have watched many smart and lucky amateurs make more profit than me by flipping deals in months or a few years. 

But I don’t have to rely on hope as a business strategy. I don’t have to:

I also don’t have to play musical chairs with my funds and the capital entrusted to me by investors. 

I sleep better at night, and I don’t have to be mad at the pushy guy who always got the last chair. (I wonder whatever happened to that punk, anyway?)