Blog

With the preponderance of research on employee ownership demonstrating it generates superior performance and growth, improved culture and engagement, and distinctive wealth building for workers, why aren’t more companies embracing employee ownership? In my 30-plus years advising on ESOPs – and structuring and closing over 300 of them – I’ve continually asked that question. Still, while the number of new formations hasn’t grown meaningfully, recent momentum on several fronts signal that this extraordinary wealth and jobs opportunity awaits millions more workers.

Indeed, the mystery about employee ownership was a topic my colleague Jake Cravens and I discussed recently on the Conscious Capitalists’ podcast with co-hosts Raj Sisodia and Timothy Henry. Given ESOPs’ well-documented benefits for companies that have established them and for their employees, it’s a question well worth exploring. Our discussion centered on why embrace employee ownership – and it offered the chance to accentuate the positive initiatives.

First, it’s striking that of the estimated 1.56 million U.S. companies with 10 employees or more that the North American Industry Classification System (NAICS) counts, companies with ESOPs numbered just 6,232 in 2020 (by the National Center for Employee Ownership’s count.) Or compare the estimated 400 ESOPs created last year and this year with the 4,300 U.S. private equity deals completed in 2022 and the 5,200 in 2021.

So, why so few ESOPs? Groundbreaking research that our firm Verit Advisors initiated provides insights into that and other critical questions. We surveyed leaders from 200 companies across various industries, including 90 that had completed a full or partial ESOP, 80 that are considering one, and 30 that aren’t.

These business leaders identified key factors that hinder and also heighten interest in ESOPs:

1. Operating rules and the complexities of reporting to regulators as well as the time involved to comply with regulations are key deterrents . Other potential challenges – the cost of repurchasing shares, company capitalization and employees’ understanding of the ESOP structure – proved less severe than leaders initially had expected.

2. Tax savings are a key consideration for establishing an ESOP with company founders tending to prioritize personal tax benefits while non-founder ESOP leaders find corporate tax benefits more persuasive.

3. More so, over time, the workplace culture and employee benefits of an ESOP play a larger role in CEOs’ appreciation of employee ownership. Research bears this out: Rutgers University and Employee Ownership Foundation-funded surveys find that nearly three-fourths of employees would prefer to work for an employee-owned company, where turnover is three times lower than at conventionally owned businesses. During the pandemic, employee-owned companies dramatically outperformed firms key metrics including maintaining employees’ jobs and work hours, salary, and workplace health and safety.

4. CEOs of prospective ESOPs shared that they gained significant information and insights about employee ownership from networking with their peers and talking with advisors on employee ownership.

5. Business leaders suggested that employee-ownership advisors do more to talk up the advantages of employee ownership and dispel common myths about ESOPs.

As for the future, many encouraging factors are appearing. There continues to be support from Republicans and Democrats in both houses of Congress for preserving and expanding S-ESOPs founder and company tax benefits. In 2022, the Biden administration and Congress took steps to promote employee ownership companies. The Worker Ownership, Readiness, and Knowledge (WORK) Act of 2022 requires the Department of Labor to establish an Employee Ownership Initiative. Its goal: to support employee ownership and employee participation in business decision-making. The funds appropriated by Congress can be used to finance existing state programs or to create new ones.

State legislatures are taking similar steps. California, Colorado, Massachusetts, Missouri, and Washington have set up centers to encourage employee ownership and adopted tax and other financial incentives. Other states, including Iowa, Nebraska, New York, Pennsylvania and Tennessee, are considering comparable proposals.

Prominent business leaders also are promoting employee ownership. In June, the Aspen Institute and Rutger’s Institute for the Study of Employee Ownership and Profit Sharing co-hosted the Employee Ownership Ideas Forum that focused on how to grow employee ownership. The Institute’s Adria Scharf is conducting a research study on it.

KKR partner Peter Stavros is playing an invaluable role as well. Stavros, co-head of global private equity, founded the nonprofit Ownership Works that has made employee ownership a mainstream topic among business owners and advisors. He and his wife contributed $10 million to establish the Center for Shared Ownership, and an impressive number of private equity, other major financial institutions and individuals have joined them to help reimagine equity to build wealth for all.

These and other positive developments contribute to my previously stated view that the 2020s will be the Decade of the ESOP. As these tailwinds continue, I believe the experts of tomorrow will pinpoint the present moment as when employee ownership attained the tipping point and became mainstream.

David:
This is the BiggerPockets Podcast, show 833.

Luke:
For me, it was like, “Dude, all I need to do is focus on 300 bucks at a time, 300 bucks at a time. Slow down.” And now fast forward to today, 15 years later, all those 200, $300 chunks from 15 years ago, I mean, I’ve got debt pay down on top of that. You know what I mean? And rent raises, and equity, and whatever else goes along with exactly why we’re here and what BiggerPockets teaches. So no brainer.

David:
What’s going on, everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast, the biggest, the best, the baddest real estate podcast in the world. Every week, we are bringing you stories, how-to’s and the answers that you need to make smart decisions now in today’s current real estate market. Today’s show, Rob and I are going to be interviewing Luke Carl, the husband of Avery Carl. Both of them are no strangers to the BiggerPockets ecosystem. They teach bootcamps, they write books, they own short-term rentals, and they help other people to do the same. Rob, first off, good morning.

Rob:
Good morning. Top of the morning to you.

David:
Second off, let’s get into it. What should listeners look for in today’s show?

Rob:
So I think there’s this whole thing where you do real estate, you become very good at it, and you feel like that’s the thing that you have to stick to because that’s what you’re good at. But today we’re going to talk to Luke and we’re going to find out when is the right moment to depart from the successful niches that you’re in, and when it’s okay to break into other asset classes. He really gives us a masterclass on diversification. We even are going to talk to him a little bit about the banking side and the financial organization of owning over 300 doors.

David:
That’s exactly right. A lot of stuff you don’t get into very often, we also dispel quite a few myths that many of our listeners may have in their minds, and we’re going to set some of that straight. So there’s some good stuff today you don’t want to miss it. Before we bring in, Luke, today’s quick tip, ask yourself, are you built for the type of asset class that you’re pursuing? A lot of people get into a certain asset class or type of investing because they think it’s “the best”. Oh, this is the least work for the most money.
I don’t know that that’s always wise. I think different personalities, strengths, and skillsets are better geared towards certain asset classes. Rob has an eye for design, he pays attention to detail, and he likes to make people happy. He is engineered in a lab to be a great short-term rental host. That’s what’s worked for him, and it’s not a surprise to me that he’s elevated to where he has in that space.
My friend, Andrew Cushman is the most analytical person that I know never makes a mistake on anything, incredibly cautious and smart. He’s a great multifamily investor. He’s wired for that. You got to ask yourself the same question. Rather than saying, what’s the best, ask yourself, what are you the best at? Where would you be the most successful? Where would you find the most passion and then become the best in that space? Rob, anything you want to add?

Rob:
Yeah, basically just know when to pump your jets.

David:
And if you want to know why Rob just said something that sounds silly, listen to the end of today’s show and you’ll know exactly why.
Luke Carl, welcome to the BiggerPockets Podcast. Nice to have you on today. A little about Luke’s background. He’s a short-term rental expert, but he does more than that. His portfolio includes single family homes and a mix of small and large multifamily buildings, and we’re going to talk about that later in today’s show. He’s been investing for 12 years and is married to Avery Carl, who is featured on the BiggerPockets Podcast episode 364, snowballing six figures, short-term rental profits into passive investments. Luke, welcome to the show.

Luke:
My pleasure, my pleasure. It’s a huge honor. I’ve been a big fan for a very long time of both of you gentlemen, of course, as well, and it is great to be here.

David:
All right. Let’s let the listeners get to know you a little bit. Tell us about the time that you went out to help your tenants during a storm.

Luke:
Well, actually, I mean, that’s a long story. That’s a good one, man. So that was back in the day when I was first starting cutting my teeth. I was self-managing back then on my long-term rentals, and I was doing that from three hours from where I lived, which was in middle East Tennessee area. I still do had some duplexes in Chattanooga, and one of them got hit by tornado in the middle of the night actually like 1:30 in the morning. There was seven people sleeping in it at the time. And luckily everybody was just fine, and it was a terrible tragedy, really.
It got worse. I loaded up my truck the next day with a couple of chainsaws and I called a couple of knucklehead friends of mine and we were to meet down there. I was like, “Listen, I’ll pick up a case of PBR and we’re going knock out these trees and get this thing done.” I didn’t make it. I did not make it. I put my car in a ditch on the way down there. So that story got worse and worse. But I mean, honestly, looking back on it, it was a good perspective. It was a good lesson to learn in my self-managing early days, at least with the long terms and cutting my teeth on rental real estate and… Yeah. Fond memories there of earning my stripes, if you will.

David:
So, question for you, Luke. Which disaster do you think in hindsight was worse, putting your car in a ditch or combining P R with chainsaws in a storm?

Luke:
Well, now listen for legal reasons I never said we were going to combine them, but probably some crazy decisions going on back in those days.

David:
It may have been an angel that pushed your car off the road that day into the ditch and narrowly avoided a larger catastrophe.

Luke:
Yeah. It’s a very good point.

Rob:
So what would you say that big lesson was from that experience?

Luke:
Man, honestly, I was too wrapped up in everything at the time, and I didn’t know that because I was hungry and young, and I couldn’t afford a property manager. At least I didn’t think I could. I think at this point we built it up to maybe 15, 20 doors or so. That was a good eyeopener for me. I guarantee you it was David Greene that said one of the very best things I ever did in real estate was hiring a property manager. And I did shortly thereafter. It just got to the point where I’m like, “I can’t do this anymore. It’s getting crazy.” So I put a property manager on those properties. So that was the lesson learned.

David:
Someone told me today it was National Bald is Beautiful Day. I got a text message and I replied with a bad day with a bald head is better than a good day with a man bun. And I was just thinking as Luke was talking there, that a bad property manager is much better than a good effort that you make at managing your own property.

Luke:
Yeah, it cost me a car

Rob:
On that note while a tenant is okay. Did they know that you went out there to help them? Did they ever even know the kind-hearted gesture that you were trying to do?

Luke:
Oh man, excellent question. And be honest, at the time I was self-managing. This was years ago, and maybe 18 doors, 20 doors or something like that. None of them knew I owned the place. So I would just tell them I’ve worked for the property manager is all it was, and I was placing tenants and doing leases and the whole nine yards. But they all just knew me as Luke. I called myself Mr. Furley like Three’s Company, and they just knew me as a guy that “worked” for the property manager.
So I think they appreciated how hard I was working and how often I was around and that I actually cared, but nobody had any idea that I actually owned it. They wouldn’t even believe that I owned the place. I mean, look at me. I’m covered in tattoos and the whole nine yards. So even if I told them, they’d be like, “No, you don’t.”

David:
This is more common than you think. One of my friends, she property manages for the owner of this large commercial portfolio, and he always tells her he doesn’t own it. He doesn’t want her to know that she owns it, but she’s like, “I run all your errands. I get all the mail, I pay your bills. I know you own this.” And to this day won’t ever admit that he’s the owner. So I think that’s probably more common than you think, man. With that said, I know that you have such a rich history in the rental world, but before we get into that, can you tell us a little bit about how you grew up in life before the rich history into rentals?

Luke:
Yeah. Proud of my upbringing. So I come from a little tiny town in the Midwest, in Nebraska to be exact. It’s a state that most people have never heard of. 1,100 people in the town I grew up in and real, hardworking, awesome family. My dad was a mailman. He is a Vietnam vet. Great dude. But I learned early on the value of a dollar and working hard. He had me underneath his truck when I was five or six years old, learning how to change the brakes and stuff. And that’s probably where that managing when I had no business business to be managing came from.
I almost was too stubborn to give up on it, really. But yeah, it was awesome upbringing. I knew it wasn’t for me though. I actually moved away to the big city when I was 20 years old to go take over the world. But it was Midwestern. Just blue collar, humble beginnings, something I’m very proud of carrying through to this day.
Now, my folks don’t have any idea, quite frankly, that I own a bunch of real estate. It wasn’t something that they could handle, which I think is pretty common. The family can’t really understand having mortgages and things like that.

Rob:
Sure.

Luke:
But they were wonderful people. Absolutely wonderful people, hardworking. I was one of the, I think maybe the second kid in the entire family to go to college. So that was the American dream.

Rob:
Sure. So it sounds like you were working hard. Were you able to ever put any of those character building skills, I suppose, to work once you actually got into real estate?

Luke:
Yeah. I mean, to me, I was building a career. I looked at it at one house at a time, $1 at a time, one piece of freedom at a time. Always been a rock and roller and just living my life that way, not listening to the man kind of thing. Owned my own business at the age of 25, a bar in New York City, believe it or not. I’ve always just had just a whole lot of get-go and been able to really make a lot of crazy stuff happened.
When I got into real estate, I actually had my dream job at the time. I was working in radio full-time, a series X satellite radio nationwide, huge radio company. So I was looking at it more basically like a 401k alternative. I didn’t even know what that was to be honest, but just I knew that at some point I was not in control of my own destiny, and at some point somebody could take things away from me. And that’s where real estate really clicked for me and it’s exactly why I was drawn to it.
Also, the fact that I was looking at it, this is going to be my new second career, basically. I never really thought that I was going to get out of radio, but to me it was just $1 at a time. Each house, if I can get a hundred bucks out of this damn thing, that’s enough for me to be happy with moving a little bit forward. Because where I come from 100 bucks is a lot of money. So two, 300 bucks on a house or of course then the short term thing happened years ago and we’re like, “Man, we’re looking at a thousand bucks a month on this thing. This is really cool back then.”
But that’s the way I always looked at it. There’s a lot of TikTok and all this stuff going on with these folks are preaching that you can quit your job quickly with real estate. I never looked at it like that. Because I’m like, “Okay, if I quit my job, where the hell am I going to get these down payments?”

Rob:
Yeah, man. That’s very true. I think that’s the thing. I mean, I guess if you really hustle for it and you really work hard, I guess theoretically you could replace your job, but the idea is not get rich quick, but get wealthy very slow. And if you can do that, it’ll be worth it. So you’re obviously developing a lot of skills at a young age. You own a bar or you own a business and then you go on to become a DJ, your dream job. At some point you’re doing this and you’re like, “I think I want to do the real estate game.” What actually was that first big jump for you?

Luke:
Yeah. Really what it was, was I had a huge shift in my life. I met a girl. It happens to all of us. We were living in New York City, biggest city in the world. I was a kid. I mean, I moved there when I was 20 years old. But anyway, fast forward several years, I met a girl and she was from the south. And I said, “I never even heard of the south.” You know what I mean? But she wanted to move closer to family. So we moved from New York to Middle Tennessee and all of a sudden… I mean, it was really as simple as that. All of a sudden we went from a place where it was $2 million for a tiny little box to somewhere where you could buy a house, and we both instantly got hooked. It was really just as simple as that.
It was almost like it wasn’t… It just kind of happened. Lightning came out of the sky and said, “You guys are going to do this.” Well, actually we bought a house to move into, which ended up being a live-in flip house act, if you will. That house ended up being a huge deal in our history. We did everything with that house. We rehabbed it live-in flip. I ended up moving it, tenant into it. When we moved out, HELOC. It used that HELOC for a down payment and then ended up paying that off quickly, of course, because that’s what you want to do with HELOCs.
And then I ended up selling it to the tenant and I did the two out of the last five-year, lived in it thing on that one. I mean, that was like every deal rolled into one and it was a dream come true. But in that process, we got hooked. My wife and I got hooked on buying real estate, which is easy to do. And we just said, “You know what? Let’s save up some dough and buy a rental house.” And we did that. We sat down and scratched down on a piece of paper, how long is it going to take me to come up with this down payment for $150,000 house?
Back then you could do that where we were living and we lived on $25 a day, $30 a day for 18 months, and then we had enough money to go out and put our first down payment on our first rental house, and the rest was history. It was really just a shift in our environment that opened up a whole new world to us. And then we discovered you guys, quite frankly. I discovered Rich Dad. I discovered BiggerPockets, I think somewhere around podcast number 70.

Rob:
Wow.

Luke:
It was absolutely life-changing for me. I mean, I remember vividly riding around on… I had a little broken down old lawnmower that we were… It was a wedding gift and I remember you guys… It was a huge… I mean, I remember Dave Greene’s first podcast coming on and the whole nine yards and just got obsessed. All of my education for sure to what we’re doing right now, which is BiggerPockets. And I’m very grateful.

David:
Well, I vote that we change the terminology of W2 job, which everyone thinks is negative to down payment generator, which sounds much cooler.

Rob:
Nice.

David:
I’m going to start referring to that like, what’s your down payment generator?

Rob:
Love it.

David:
So that everyone doesn’t have this obsession with quitting their job and trying to jump into real estate. Also, I want to highlight what you’re describing, Luke, is what I tend to see the pattern of all the people that we’ve interviewed that have built really big portfolios. There’s a combination of I kept working and making money and I lived beneath my means. We were saving money. That’s what you were describing. We weren’t just bawling and taking on huge debt and buying properties with it. You were saving money, you respected money, you valued money. And so you’re very careful about the way that you invested and what you invested in.
And that grew a portfolio, which eventually allowed you to have the lifestyle you want. But I don’t want that to get glossed over because a lot of people have big aspirations to build huge portfolios, but they want to skip that whole step of having to live beneath their means and be disciplined with their cash, which I think is why it doesn’t happen or when it does, it’s very short-lived. So speaking of that, what does your portfolio look like now? Can you give us an overall snapshot of what it looks like?

Luke:
Yeah. So we bought that very first rental, and then… Quite frankly, we were living in Nashville at the time, which blew up, so we couldn’t really repeat that one. It was literally overnight the house next door was twice as much as what we paid. So the next closest market was the Smokey’s. And back in the day, Avery, my wife, she grew up in the south and she said, “They got cabins out there that they rent out in the mountains. We could try that.” And I was like, “What are you talking about? We’ve been sleeping in a tent. We go to the mountains of sleep in a tent. Let’s rent a cabin and see what that looks like.”
She’s like, “We can’t afford it.” So that was our next play. We went to the Smokey’s and bought a cabin, and that cabin still to this day is the longest running Airbnb in the Smoky Mountains, which is Airbnb’s biggest market in the world. And we had no clue what was going to happen with that. I mean, at the time we were shouting from the rooftops, “This is real. We did this, you can do this,” and everybody thought we were nuts. So we ended up getting into the vacation homes.
Again, for me, it wasn’t anything to do with short-term, it was just my next vehicle, my next cash flowing property, basically. How do I get to the next property? Quite frankly, at the time, this way before your book, David, which I wish your book was out because I would’ve been so much more comfortable. We were going to go do this thing from a distance. And it wasn’t that far. A couple hours. But fantastic book by the way. Thank you for that. Thank you for making people realize-

David:
Thank you for that.

Luke:
… for making people realize. You know what I mean? It’s like, “Dude, it’s life changing.” But at the same time, it’s like, I mean, this can be done. And that’s why that book is so brilliant. But anyway, so we went into the vacation home thing and didn’t realize what it was back then. There was no such thing. Nobody else was doing this whole Airbnb thing. Of course, tons of people on VRBO. VRBO has been around for a million years, since ’99 they started. But at the time, the whole thing… The way it is today, not even close. There was literally two other people out there doing it at the time on Airbnb. And so we scooped up as many of those as we could. Got a partner involved.
It was a close friend of mine. I was having a conversation with him one time and turned out he owned some beach rentals in Florida. It just happened. We were at a bar talking about deadbolts. This is way back in the day. And I’m like, “How the heck do you know all this stuff about these digital [inaudible 00:18:51]?” He’s like, “I own a couple of vacation rentals.” So we ended up partnering on a couple houses. We grew that to five short terms in a year, which was… I don’t even know how we did it, to be honest.

Rob:
Wow. That’s a lot.

Luke:
Yeah, it was a lot. We were broke at the time and we were just regular people. And then at that point, my partner, we only did two with him. And he’s still one of my best friends today. Great dude. Really good at real estate. I said, “I had a day job and I was married. We were thinking about maybe starting a family at some point.” I couldn’t do it anymore. This was way before, Rob, as you know today with all the technology. I mean, you got-

Rob:
All the automations.

Luke:
So much easier today. Back then you got a booking on Airbnb, you had to go run to VRBO and block off the calendar and all this stuff. I had a day job, so I kind of pumped the brakes there, and we got back into long-terms. Started buying that stuff in Chattanooga, ended up… Let me just fast because I tend to talk a lot. I ended up with 20 something in Chattanooga and then it went on from there. Then we actually went back to [inaudible 00:19:52]

Rob:
Wait, 20 something units?

Luke:
Doors, yeah. Over time.

Rob:
Oh, wow. Okay.

Luke:
Several years at this point.

Rob:
Okay.

Luke:
Definitely didn’t happen overnight.

Rob:
And were they all short-term rentals at that point, or were you starting to rebuild the long-term side of it?

Luke:
Yep. After those five in the mountains, we went back to long-term because I was in charge of the management of things and I said, “I can’t deal with these reviews anymore.” This was back before there was automation.

Rob:
Sure.

Luke:
So we started getting back into long-terms and I bought about 20 doors again over many years. I don’t want it to sound like it was… We were regular people with regular jobs.

Rob:
But it goes to show that you were consistent with it and you were always putting whatever you had, whatever nest egg you had towards your portfolio. So now 2023 where are we sitting at? Door count, short-term, rental count, unit count. Give us a quick snapshot there.

Luke:
So after that we did get back into short term. I have eight of those now. I have eight, what I would call vacation homes and beach and mountain markets. I mean I’ve got multifamily. I’m somewhere around 300 units, no partners. Just my wife and I, and a lot of hard work and sweat. So I’ve got apartments in Omaha, which is where I’m from. So big roots there and several apartment buildings in Omaha.
I still buy a single family home, long-term rentals to this day. So I’m a little bit of everything really. I got single family long-term, duplex, long-term, multifamily, small multifamily, medium multifamily, and of course, and of the vacation homes, which have always been our flagship.

Rob:
Sure. Well, I think what’s really interesting about your story is you started in the long-term side of things. You then get short-term rentals. And I’m sure you quickly realize like, “Oh man, I’m making 100 or 200 bucks a month on long-terms. On these short-term rentals, I’m making 1,000 or $2,000.” And then you start rebuilding the long-term portfolio, the multifamily stuff. So you’re in this unique position where you’ve built up the short-term rental portfolio. You’ve come to the dark side, as we say. You’ve made a lot of money in the short-term rental space. So at what point does one start to decide, “Hey, I want to cool my brakes a little bit, if you will, and go back into long-”

David:
I think you mean pump your brakes or cool your jets. You said a combination of the two.

Luke:
Pump your jets.

Rob:
Pump your jets. I just wanted you to come back and look like a hero, David. That’s all. Hey, can you pump your jets please? So anyways, you’re cooling your brakes here and you’re like, “I’m going to get back into multifamily.” What was that thought process? Why have a departure from short-term rentals?

Luke:
Yeah. Well, for one thing, if you’re doing vacation rentals, the way we do vacation rentals, they’re big purchases. Even back then when we first started, they weren’t. I mean, they weren’t giant something that you’re going to put on TikTok and impress people, but it was still way more than it would be to buy a long-term. So that’s a pretty good way to run out of money quicker is to buy some vacation homes as far as down payments are concerned.
But the cool thing about the vacation homes is that, man, they’re really the… To me, they’re the gateway drug. I love them. I still do to this day. I love every minute of it, and I enjoy all aspects of it. And showing these folks a good vacation and growing up where I come from, going on vacation was a huge deal and we couldn’t afford to fly. And you get in that car and it’s like, “Man, your whole two years of your family’s money goes into that.” So I do enjoy that aspect of showing my guests a good time, which doesn’t get talked about enough, quite frankly.
And then also it’s a 30-year fix on generally what can… An average vacation home’s going to be somewhere around like $800,000 in an actual real beach town or whatever.

Rob:
Sure. Nowadays for sure.

Luke:
You know what I mean? So that’s a great way to deploy some funds on a better loan that when you can get in a lot of cases, because it’s a single family home, you can get a 30-year fixed. Talking about better loans in 2023 is not really all that good of a topic, but you know what I’m saying.

Rob:
Absolutely.

Luke:
What was the question?

Rob:
Well, at this point, I guess I’ll make it even more clear. You’re starting to move back into the multifamily. How do you choose what to buy next? Are you still looking at making your short-term rental portfolio larger, or do you want to just keep going dead on into the multifamily space?

Luke:
So yeah, I mean, multifamily at that point in my career was probably a pipe dream because again, that’s a lot of money. But I knew that I wanted to keep buying rental real estate. And again, back when I first started buying short terms, it was harder back then. Today, I don’t want to say it’s easy. Nothing in real estate’s easy, but it’s definitely a lot simpler, more simple than it used to be.
So I was like, “Man, I can’t handle the management of these guests and the reviews, and the platforms and everything, and my day job, and my family.” So I went back into long-term. Had it been today, had I done this exact same thing today, I probably would’ve stuck with short-term a little longer. But that being said, I’m happy with the eight. I really think there’s a threshold there. If you get to eight, 10 real deal vacation properties, that’s probably as high as you really want to go because you’re talking about building out your own management company. Which is awesome. That’s what I have. And I enjoy that very much, but it’s not something I want to scale.
Because the whole point in having a management company, I mean to me, would be to build it up big enough to sell it for a percentage of EBITDA. And you can’t really do that. You could do that with your own properties, but you’d have to have a lot of them. So yeah, I mean, for a couple of reasons. I do the management. So my management stress load, or I did, was getting too high for me, and also down payments on vacation homes, it’s a big burden. So we pivoted back to long-term, some duplexes, and then eventually everything just steamrolled and it was just a natural evolution into commercial real estate or the multifamily in my case. Everybody stays in real estate. It’s going to head down the commercial real estate road guaranteed. And it just wasn’t-

Rob:
Natural progression.

Luke:
Absolutely.

Rob:
So I guess if I’m understanding it correctly, it’s like you built a really great short-term rental portfolio. You’re at this sort of inflection point where the management starts to get a lot crazier past eight to 10. And then your money goes a lot further really being invested into commercial real estate multifamily buildings. Is that about right?

Luke:
Yeah. Pretty much. I mean, it was more the single family long terms at that time because I could buy one for a hundred grand, 150 grand and just keep picking them off. For me, it was like, “Dude, all I need to do is focus on 300 bucks at a time, 300 bucks at a time.” Slow down, take it easy.” And now fast forward to today, 15 years later, all those 200, $300 chunks from 15 years ago, I mean, I’ve got debt pay down on top of that. You know what I mean? And rent raises and equity, and whatever else goes along with exactly why we’re here and what BiggerPockets teaches. So no brainer.

Rob:
That’s pretty impressive. I think that’s the interesting thing about short-term rentals that one feels… Once you’re making 2,000 or $3,000 a month on one or two, you’re like, “Man, why wouldn’t I do a hundred of these?” And it really is tough to scale the short-term rental. So I see people doing what I’m trying to do oftentimes, which is you do the short-term rentals, and then you go into boutique hotels or renovating hotels basically it’s like the evil side, or the dark side of short-term rentals go in the hotel route. Or what I’m really trying to crack right now, and I’m not sure if you’ve gone down this rabbit hole, is buying multifamily, but really splitting up those units into three types of rentals, short-term rentals, midterm rentals, and long-term rentals that I can at least stay true to it because I feel like that’s a really great way to diversify and make your multifamily building a little bit more dynamic. It’s kind of doing a hybrid of everything. Have you messed around or kind of ventured into that side of things with any of your multifamily units?

Luke:
I know, but I love where your head is at. And again, for me, I never really… It wasn’t like I’m going to do short term. And I’m not saying it was for you, but to me it was just like they’re two different animals and I kind of keep them separated, but I love it for you, man, because, dude, you’re right. The next step for somebody who’s got six, eight Airbnbs, if you will, vacation rentals, short-term rentals is going to be a hotel. And it’s just a natural progression. You’re going to go that direction and you’re going to start bringing in other people’s money because you’re going to run out of money, guaranteed.
So you bring in other people’s money. Again, it goes back to the very early principles of BiggerPockets. Somebody’s got to be the sweat equity because the dude with all the money, you know what I mean? So it’s just a natural progression, and we’re seeing that a lot of… And Rob, I’m super excited for you, man. It’s an awesome situation to be in, and I can’t wait for what’s next for you. Get me in on it, man. Let’s do a hotel. You know what I mean?

Rob:
Yeah. Totally, man. I’m at those growing pains now. I’ve got 20 Airbnbs or so, and then a 20-unit motel. And really that came from David because David was like, “Well, every time you buy a short-term rental, you’re buying another job.” And I was like, “Yeah, that’s true.” So it does feel like the natural way to scale is not necessarily increasing doors, but how far can you make your time go? So for anyone that’s in the short-term rental world, the short-term rental market that wants to follow in your footsteps, what would you recommend to those investors who want to venture out into multifamily from short-term rentals?

Luke:
Keep an eye on your money, a hundred percent. You got to know where your money is at. You know what I mean? So take your time, go slow. I build a bank account system, and basically I just formed all these buckets in my… And I use a virtual bank. There’s several decent ones out there to pick from today. You don’t want a bank that you have to walk in there and fill out paperwork with somebody. There’s all these people in line. They’re overdrawn and it takes forever and all this stuff.
There’s a bunch of virtual banks out there and that’s what did it for me. It really just changing my mindset, the way I look at money and creating buckets to pay myself first. It all comes from Mike Michalowicz, quite frankly. He’s got a book called Profit First.

Rob:
Sure. Yeah.

Luke:
And so that’s where I stole most of that stuff from and that fantastic book.

Rob:
Can you just quickly, what do you mean by buckets just for anyone at home that’s not familiar with the Profit First concept?

Luke:
Yeah. So in other words, you create buckets on your bank account, on your virtual dashboard, and each dollar that comes in from your rental properties is allocated to its specific purpose. Because I see it all the time where people come to me and this and that, and then come to find out they’re commingling their money that they were making on this property with the Amazon account where they buy their kids soccer shoes. And you can’t do that. You’re going to go broke. You’re not even going to know you’re broke until you’re broke.
And the way you’re going to find out is because that mortgage is going to hit and you don’t have enough money in there to cover it because you were not paying attention. I create all these buckets and there’s percentages that go into each one based on how important they are like CapEx buckets. Now, of course, that probably should come from your day job if that’s possible for you, but it wasn’t for me and a lot of times, so I had to make sure I build that up so I have enough money for a roof sitting around.
I just created a system around that. I thought of it as a career. Man, this is going to be my new career. I’m going to really do this. I’m going to knock it out of the park. I’m going to learn my trade. I’m not going to just buy three houses and rent an Audi and put it on TikTok, which sounds awesome too. I’m not saying that’s… You know what I mean? Go ahead, do that. That sounds like a lot of fun.
So a certain percentage goes towards CapEx. A certain percentage goes towards regular old daily expenditures like your OpEx account for your mortgage and your electric bill. If it’s a short term, you got to pay your electric and your cable and all that. And then you have really, the most important bucket would be your investment account, and that’s where all your funds got to be thrown into because that’s where you go buy your next property.
If you’re separating all those funds and that account becomes the most important thing in your life other than your family. And because that gets you to the next deal. I mean, I was selling stuff in the early days. We sold a guitar too, because we got all kinds of crazy rock and roll stuff. I sold a car back in the day. I always had a really cool like, crazy hot rods. When we first started doing this, I had a ’66 El Camino, believe it or not, and threw that in the investment pile. You know what I mean? And then years later, my 40th birthday, wifey said, “You know what? Let’s get you another car.” And it was because all that hard work and busting our ass, and paying attention. So make sure the money is allocated where it needs to go.

Rob:
It kind of is dawning on me that you said you own 300 doors, and then I just heard you talk about this intricate banking system. Do you have 300 bank accounts?

Luke:
Excellent question. Now, that’s where it does get complicated, and it has… Actually be honest, it’s gotten more simple over the years because in the early days when it was like 15, 20, 30 doors each… Maybe not each property, but each type of property had its own system. And I still do that today, and I don’t have as many buckets as I used to. For instance, there’ll be one giant bucket for all of these entities that becomes the investment account as opposed to each. Back in the day, each one of these entities may have had its own investment account.
So I separate things. Well, everything’s done… I mean, you’re going to need to get a lawyer involved. That’s way over my head with all this corporate structure and disregarded entities, et cetera.

Rob:
No worries.

Luke:
But yeah, so each entity holds X amount of properties, and each entity, of course, has its own bank account because you can’t co-mingle funds from entity to entity anyway. Right? So excellent question. I do have a lot of bank accounts, but it’s more streamlined than it used to be.

Rob:
Sure, sure. So going back to the short-term rental side of things, it sounds like you’ve done everything. You’re pretty much across the spectrum just nailing every single thing that you do. The short-term rental market has changed a lot in the last two years really from the past five years before that. But really in the last year, I feel like we’re seeing a decent amount of changes. It looks very different, the entire market. Do you have any recommendations or any tips for people that want to just break into short-term rentals in general?

Luke:
Yes, Rob. And I love you for asking that question. And again, it’s an honor to be here. But so it is a completely different thing. It’s completely different. When we first started. And again, I didn’t even know I was getting into short-term rental. I didn’t even know that that was a term. I just was buying a house to rent out and we were renting it at a different… We weren’t renting it on Zillow, we were renting it on VRBO. And then of course, Avery, my wife, let’s not forget, I am married to probably one of the most successful real estate agents in history. Let’s throw that out there. She’s amazing, of course.

Rob:
Yeah, she’s awesome.

Luke:
Thank you. She did write the BiggerPockets book on short-term rental, Short-Term Rental, Long-Term Wealth. Huge fan of hers. Don’t worry, Rob. I got you. I got you. Here it is. You got it? Nice. And everybody loves Avery. She’s my secret weapon. She’s amazing. Everything she touches in real estate, she’s just got this uncanny natural ability to pick deals. So let’s not forget about that. My ace in the hole. She’s fantastic. But when we first started and she started getting bigger in her career with the sales and all that, man, it was literally like we were standing on the top of buildings like, “Hey, you can buy a house and ran it on VRBO, and you don’t need to pay a property manager because VRBO and Airbnb do all the dirty work for you and this and that, and nobody believed us.” I mean, maybe it’s also because I’m slightly more immersed in it, and Rob, I’d love to hear your take on that. But man, for one thing, it’s way more common than it used to be.

Rob:
I think back in the day, especially in the Smokies, you could look at all your competition and still find pretty janky furniture and cell phone photos. Then we saw this adjustment where everyone’s got nice design, nice furniture, professional photos, and now I think the people that are really winning right now are the people offering really unique or very experiential amenities like the indoor pools or hot tubs or outdoor environments, game rooms, arcades. Those are the people that I typically see being the top performers, really in most of the markets that I’m in.

Luke:
And you hear a lot of this Airbnb bust and saturation and things like that, and vacation rentals. I mean, all I can do, man, is say is my properties are booked. They’re doing just as well as they ever have. And it’s like with any business, you get more people involved. Really, quite frankly, what you’re doing is getting more people involved that probably aren’t going to be all that great at it. So I do see a lot of that. I mean, in my opinion, if you’re going to get into renting a vacation home, you’re really only competing with 3% of the market that’s any good at it, quite frankly, because most people… First of all, most people that can afford a million dollar house are going to put it with a third-party property manager, and there’s nothing wrong with that.
Let it break even, maybe even lose a couple of bucks and you get debt paid down and you enjoy it with your family. There’s nothing wrong with that. That is the best reason, honestly, to get into vacation rentals is because you can use it. There’s no lease on it. It’s empty whenever you block off those dates and you want to go there with your family, man, that is so cool. And honestly, when I first started, I didn’t even care about that. I never even thought about that. But now, again, 15 years in, all those memories I’ve created with taking my family to these properties is priceless.
So anyway, long story short, you’re absolutely right. The market share that is actually any good at doing what you do, Rob, it’s very slim, in my opinion.

Rob:
Yeah. I mean, I’ve seen the bar get raced so much in the Smokies, and so that’s what I’ve been combating. I don’t know if you saw it, but I built a tree house deck in my backyard in the Smoky Mountains. I’m building a little tiny house village down there too. That’s still kind of happening and everything, but I’m really just trying to figure out like, “Okay, I’m a little bit farther, so I have to make up for it.” And I’m overcompensating with amenities at this point because I do feel like that’s the only real competitive edge I can offer over someone that’s dead into the location. So I think it’s a little bit more… Hosts have to be a little bit more defensive with keeping their revenue these days.

Luke:
Oh, absolutely. Things have changed, a hundred percent. I think you’re going to see a lot more sellers too though, Rob and I think you’re going to see some folks that weren’t really cut out for rental real estate in general. I mean, there’s a lot of real estate sold in ’21 and ’22. I think the market is going to shake out, man. I think you and I are going to come out the other side of this with a little bit more market share to be honest, because we’ve got what it takes.

Rob:
Yeah, man. Let’s talk about that because I think I recently saw you post that you’re seeing a lot of price cuts, and I haven’t really looked at the Gatlinburg market on Redfin because it was just so competitive for so long. Every offer, couldn’t get it. I’ve noticed I’m getting now all my favorites from the past couple years showing up on Redfin, getting price cuts. Are you seeing that happen regularly in that market, or is this just anecdotal for me?

Luke:
It’s honestly a lot of markets and you’re a watch guy, right? So it’s exactly like what you’re talking about. I’ve set up back… You set up an in-stock notice on a watch you like, right? Like three years ago?

Rob:
Yeah,

Luke:
No way you’re getting that watch. No way. But now I’m getting those in stock notices. So the market is changing. The world is changing. The economy is changing. Is it going to happen overnight? Again, no. Real estate is a patience game, a hundred percent. And I learned that. I learned, again, everything I know from you guys, so it’s difficult for me to even give advice in front of you guys because you’re such rock stars.
So to me, as time goes by, we’re going to see some folks that just decided they weren’t cut out for… I mean, even ownership. I’m not even talking about just rental real estate. Same thing is going on in motor homes. Same thing is going on in jewelry. A lot of different types of… Where people are just… The whole world is changing. I’m not here to talk about the economy or politics or anything like that, but-

David:
I will. Things are changing really bad. Toughest market I’ve ever seen. A lot of it is because the expectations that were delivered through, not this podcast, but other podcasts are frankly not accurate. Real estate is often tied to passive income. They almost become synonymous. When you hear the word real estate, you hear passive income. It creates this idea that you’re going to buy it, own it, and someone else is going to take care of all the stuff you don’t like.
Imagine if we talked about raising children like that like, “Hey, have a kid. It’s passive fun.” The nanny is going to do this, the chef is going to do that. All these other people are going to change diapers and you’re just going to end up with a fully adjusted, well-mannered adult that loves you dearly and takes care of you in your old age. It’s not like that.
Nobody has a kid expecting passive results. Right? Well, real estate is not exactly a kid, but it sure feels like it when you own it. It’s like this is your baby. You get emotionally attached to the things in your portfolio sometimes. If you want to own, especially short-term rentals like we’re talking about, I love what you said earlier, Luke. You got to be good at it. There is a skill to managing these properties, and if you choose to delegate that to other people, you could get lucky and happen to come across an amazing property manager that does a great job with your property. However, just like when you find an amazing contractor, they don’t stay available for long.
They start raising their rates. They start becoming harder and harder to get ahold of because the cream rises to the top. And what I’ve seen is when you find that great property manager, they grow so fast, they can’t take care of your property. They got to scale. They got to go hire people that are less than amazing, that end up doing the job. Your performance goes down, you blame real estate. What each of you do is you’ve got your own in-house solution where you know the asset class, but like you said, it limits your growth.
You have to think smarter when you realize… I recently had this epiphany in a sense that I hire a bookkeeper, I love the bookkeeper. Then the bookkeeper gets busy. They hire a W2 worker, and then that person does not do a good job. My books start to suck. I hire a property manager, they do great. They delegate it to a worker. My performance goes down. Every time someone grows, it becomes incredibly hard to keep the standard that’s needed, and then that affects my wealth, and then I got to jump in and I got to take it over losing money and things are going wrong and the books are a mess.
It’s like that with CPAs. It’s like that with real estate teams. It is like this in life. It is so hard to grow. So what I realized is I can only grow to manage so much, which means when you get to a hundred doors, you’re going to have to sell a bunch of them and reinvest into a bigger asset. Exactly like you said, Luke, because one person can manage a hundred unit apartment complex. Roughly the same is trying to manage one short-term rental. Right? So what the solution is we just go bigger.
You sell 10 $100,000 properties for 1 million property, your workload goes down by 90%, but you own the same amount of real estate. You’re getting the same amount of revenue, hopefully a little bit more, and then you can scale to 10 of those. Then you do the same thing again. This is the pattern of what successful real estate investing looks like, and I’m only bringing this up because so many people have heard these stories of, “Oh yeah, I’ve got 700 doors, or I’ve got all these properties,” and it’s a mess.
We see what happens behind the scenes when we talk to these people that have got all these properties and they’re not doing well. So, Luke, I wanted to ask you, I understand you’ve recently sold a lot of short-term rentals. Is that why? Were you trying to get into less overall work when you got into multifamily, or is it the market itself got saturated and you just saw it’s harder and harder to get these things to perform?

Luke:
No, I actually never did sell any. I did sell two years ago and traded them exactly what you just mentioned. And it was those two that I had with a partner and I traded them for bigger vacation homes. I had two little ones.

Rob:
Cool.

Luke:
Actually one. I traded two little ones for one big one and got the partner out of it at the time. And of course, we had it long enough that we were able to… I mean, I definitely came out pocket. It wasn’t an even-steven because I had a partner in the whole nine yards.

Rob:
Sure.

Luke:
But no, not selling any short terms currently. I have ones that I’ve had since the beginning and never even refinanced. Now, maybe I should look into that. Maybe not today’s climate.

Rob:
No. You probably don’t want to do that. Hold on.

Luke:
Yeah. I’m happy with where my equity’s at versus leverage. But no, you’re absolutely right. David, I did do one time I traded a long-term rental. This is actually a story that’s dangerous to tell because it’s too good to be true. That very first one that I bought, the long-term rental, I ended up trading that thing with some cash out of pocket, of course, for a 26-unit apartment building. Again, I got so lucky on that. It’s not repeatable. Get it? Not repeatable. But now that 26-unit is rocking. It was a piece of junk and I fixed it up and it’s exactly what you’re talking about, David. It has a lot to do with the fact that I did not just leave my kids at the park by themselves.

David:
Yeah, you fixed it up. You didn’t buy it and hand it off to someone else and say, “Fix this up for me.”

Luke:
Yeah, no, I was in the weeds. I mean, I was doing the hiring and firing and making sure that people showed up and all that stuff, and project managing, if you will. I never really showed up on property all that much. I mean, that property was in a different state.

Rob:
I just want to say, far too humble. I think it is repeatable. I mean, if you got to 300 units, if that’s where your portfolio stands today, you’ve proven that conceptually it is repeatable. You’ve done it over and over again. Maybe you won’t find that exact deal again. But I think for people that are in the game, as long as you have, you’re always going to find opportunities. You’re always going to find things that seem like too good to be true because it’s not just luck. It’s like you are present when the luck occurs, and I think that’s half the battle is the consistency of always relating in it. So honestly, I think it’s a great deal, but I’m sure you’ll find even crazier deals than that the rest of your career.

Luke:
Send that juju my way. Thank you.

Rob:
Well, awesome. David, any final questions from you, man, before we wrap up?

David:
Yeah. Luke, I want to ask for someone who wants to do what you’ve done. They want to buy a bunch of short-term rentals. Maybe they want to get into multifamily. We didn’t talk about portfolio architecture and my theory on that, but that’s exactly what you’re describing. You’ve got different asset classes within a portfolio that do different jobs that sort of round the whole thing out just like an NBA team needs a center, they need a point guard, they need a shooting guard. You don’t want five of the same thing in your portfolio.
You want different asset classes with different strengths and weaknesses that kind of compliment each other. For someone that wants to grow a portfolio like you, and they’re starting with short-term rentals, that’s obviously what you’re known for, what advice do you have when it comes to the management of them? I would wonder if we’re going to tell someone, “Hey, invest in the Smokies or buy a short-term rental somewhere,” should they go into that knowing they need to learn how to operate that asset and maybe in three to five years when it’s performing well, they’ve earned the right to hire it out to property management? Or should people be thinking when they buy it to hand it over to a property manager right away and it’ll still make a profit?

Luke:
You could go either way. It depends on the type of person you are. Again, if you’re rolling hard and you just want a house to share with your family, go ahead and throw it with a PM, but you’re probably not going to… That’s the beauty of short-term and also the downfall. There’s no leases. There’s no evictions, but you’re probably pretty much have to do it yourself. I’d love to hear Rob’s thoughts on that, but I mean, again, Airbnb and VRBO, they’ve put millions, and millions, and millions of dollars into helping us be successful.
In my opinion, again, maybe because that guy or whatever, I do think that if you’re going to do a vacation home, do it upright. It needs to be something that you or somebody in your family takes an interest in. Now, the good thing is it’s fun. It’s sexy. You can put it on your Insta and it looks cool. And you put $100,000 long-term on your Insta, and people are like, “Okay. They don’t care.” So Rob, what do you think about that, man, about whether it has to be self-managed or not?

Rob:
I think that you should self-manage. I mean, I don’t know. I just think it’s so expensive to hire a property manager in the short-term rental space. It’s like 20 to 30%. I think it’s pretty significant, especially if you’ve got a high earning property that makes $100,000 a year, $20,000 that’s a lot. That’s to be paying to someone that I think… Until you have five, I think you can handle it. I mean, I managed 10 to 14, somewhere in there when I had a full-time job.
Granted, I was an awful employee. I was always leaving meetings to go handle my short-term rental portfolio. But I certainly think that three to five is something that most people can do before really opening up that conversation. Think you got to master it before you can hand it over to a manager so you know that if they’re good or not. A lot of people buy rentals, give it to a property manager. Property manager is not good. Property fails. And then they say, “Oh, short-term rentals don’t work and this has all been a scam. I hate it.” And it’s like, “Well, you didn’t really do the work.”

Luke:
And that’s again why I call it the gateway drug because if you get to the point where you’re at Rob’s level, where you’ve got 14 of these things, there’s a pretty good chance you can put the next one with a property manager. And if it breaks even, you’ve got the tax advantages and the debt pay down and you’re cool with that. So it just all evolves.

Rob:
That’s exactly where I’m at. Yeah, my cashflow goals are nil now. I don’t care. If it breaks even and I get an amazing tax deduction, debt pay down, I’m good with it. I’ve making the cashflow in the first 40 units. Everything else can break even.

David:
That’s portfolio architecture. Because cashflow is necessary, you need it. If you don’t have it, you’ll lose your properties. But I still in my life have not met the person that built wealth off of cashflow. I bet you both of you guys would agree. I don’t know the person who, like you said, Luke, get the next 300, get the next 300 a month on these long-term rentals. You need to have so many stinking properties at $300 a month to build up big wealth.
You could not manage them all. It’s like you can’t hold them all in your arms. They’ll be spilling out. It doesn’t work. What builds wealth over time is buying in the right locations, building up the equity, watching the rents go up, watching the value go up, but you need cashflow in order to get there. So they work together in this harmony where cashflow keeps you alive. But equity builds long-term wealth. And as you’re constructing a portfolio, what we’ve all sort of done is been like, “All right,” like Rob said, “Here’s my baseline, these properties, cashflow. The next ones I’m going to build on top of that don’t need to, but I need to have a big value add component. They need to be in the best location. They need to be something like…”
The property he and I bought in Scottsdale, that’s a 20-year property, right? That’s going to make millions and millions and millions of dollars over a long period of time. It’s not a property that’s just going to crush it, coming right out the gates, which we couldn’t have earned the right to do if we didn’t spend all the years grinding to build up a baseline. And I just love, Luke, your story here. And then the other part I want to add on is you didn’t get a little bit of cashflow and just quit. Say, “Ha, ha, [inaudible 00:50:55] here I come. I’m heading to the beach and I’m not going to work and I’m going to Insta all of my beach photos.”
You went and built a business. Avery is still selling houses. You guys are still working, creating additional streams of income that protect you on the downside that everyone worries about.

Rob:
Well, he doesn’t have to go to the beach. He lives at the beach.

Luke:
We do live at the beach. But you’re right. And hey, listen, you make an excellent point, David. If you get obsessed with real estate to the point where you want it to be your whole life, there are other ways to make money in real estate besides cashflow and holding rental real estate. Like my wife, perfect example, own a mortgage company.
And again, back to your Phoenix property, you guys can use that thing. That’s the beauty of vacation homes, man. You guys can go there, have a retreat with your family, your friends, your church, whatever the case may be, and use it whenever you want. Create memories. Man, that’s priceless. And you’re doing the right thing there with that long-term play. That’s a big house. I mean, that’s a big play. And quite frankly, who cares if it cashflows, man? Think of how much equity you’re going to have paid off by the…

Rob:
Oh dude, the tax savings on that are-

Luke:
Boom.

Rob:
I texted David the tax savings on that and I was like-

David:
Not bad, right? And that’s what you see when you get into the higher levels.

Rob:
Not bad.

David:
That cashflow is a very simplistic way of looking at real estate. Please don’t go screaming and come after me with pitchforks like Shrek in the swamp. I’m not saying it doesn’t matter. The purpose it serves, I’ve always said, is defensive. It keeps you alive. Thank you, Luke. If people want to reach out and find out more about you, where can they go?

Luke:
Yeah, the shorttermshop.com. I’m not really all that active on socials, but the shorttermshop.com and of course Avery’s book, BiggerPockets. And by the way, guys, I am one of the instructors on the BiggerPockets Short-Term Rental Bootcamp, so you can-

Rob:
Nice.

Luke:
… come party with me on the bootcamp, which is a lot of fun. We would love to have you over there. Guys, I can’t thank you enough. I’m such a huge fan and BiggerPockets 100% completely changed the landscape of my life. So thank you so much.

David:
Rob, you said so many insightful things today. I’m sure that everybody is going to want to follow up with you to learn more about what goes on in that brain. Where’s the best place for them to go?

Rob:
Find me on YouTube. That’s going to be the number one place. Robuilt, R-O-B-U-I-L-T. I talk about short-term rentals, life, liberty, the pursuit of real estate and everything in between. What about you?

David:
You can find me by looking up @davidgreene24 on all your favorite social medias or on YouTube as well, or davidgreene24.com. Luke, thanks for being here, man. Great to get to meet you, and super cool to hear that you’ve been a fan with BiggerPockets this whole time that you even remember hearing me the first time that I showed up on the show, little of us knowing that we would end up where we are today. So if you’re listening to this now and you’re wondering if it’s ever going to happen for you, trust me, I had no idea this was going to happen to me. Luke had no idea this was going to happen to him. We’re still trying to figure out how Rob ended up with the microphone on this show, but I’m sure he would say the same thing.

Rob:
I had no idea.

David:
Keep on dreaming even if it breaks your heart. This is David Greene for Rob, the no idea wonder, Abasolo signing off.

Conventional approaches to sales are full of frustration. The sales team sends out thousands – or hundreds of thousands – of messages to potential customers, hoping that at least some of them will turn into sales leads and, eventually, paying customers. The spray and pray approach, as it’s known, is highly inefficient and delivers increasingly miserable conversion rates. It may even alienate customers – in a world where personalised marketing is becoming the norm, people often feel hostile to sales messaging that is so obviously randomised and untargeted.

It is this problem that former Salesforce executive Peda Pola hopes to confront with OneShot.ai, the Californian-based start-up that he launched two years ago with co-founder Gautam Rishi. It thinks artificial intelligence technology can do a far better job of identifying prospects for enterprises selling products and services to other businesses. “The outbound sales model is broken, but companies are still spending a fortune on the same old practices,” Pola says. “We think a more scientific, data-driven approach will have much better results.”

OneShot.ai’s technology focuses initially on the company’s customer relationship management (CRM) systems, mining this resource to identify what an ideal customer looks like for the business, as well as the typical reasons that customers sign up for its service – their “intent signals”. The data held in CRM systems contains huge insight, Pola argues, but sales teams completely overlook it.

Next, OneShot.ai’s technology searches a wide range of data providers and directories, including LinkedIn profiles, company websites, search engine results, financial reports, and platforms such as G2, Glassdoor and Twitter. The goal is to identify targets that closely resemble the ideal customer profile identified – including those that exhibit similar intent signals to the signals that prompted existing customers to buy.

The end result is intended to be a far more curated list of potential sales targets for the company – to identify likely customers where the sales team will effectively be pushing at an open door. OneShot.ai’s technology can also help businesses create the content these leads then receive; its platform can be used to generate personalised content that can be sent through multiple channels – including email, LinkedIn contact, WhatsApp messages and even voice and video – with advice on what is likely to work best.

“We are helping reps get better results by delegating manual work to automated, intelligent systems,” adds Pola. “Simultaneously, we are enabling and promoting the creative strategies required for successful outreach that only humans can do.”

The question, naturally, is whether the technology works. Pola says the results seen by early adopters of its platform – the company has signed up 35 or so customers so far – are encouraging. Some clients report that the number of meetings their sales teams have been able to secure with potential customers has doubled, OneShot.ai says. There are also speed and efficiency gains for marketing teams, Pola adds.

Gautam Rishi believes new technology can restore sales and marketing’s faith in methods that used to work but which have become unproductive in recent years. “Over reliance on automation and the predictable revenue model ruined the effectiveness of outbound sales”, he argues. “High costs and poor results caused sales teams to give up on what is still a great strategy for revenue growth.

Still, the business will need to overcome stiff competition if it is to grow revenues substantially and rapidly – building on the $1 million of annual revenues it has reached to date. Rivals such as Outreach and Salesloft also make bold claims for what their technology can do for sales teams, and are more established.

Funding support from strong backers will help OneShot.ai accelerate, with the company boasting backing from venture capital fund 42CAP, the UK investor Seedcamp and Addvia Ventures. In total, the business has raised around $2.9 million over the past two years.

“OneShot.ai isn’t just focused on addressing a narrow problem, they’re creating a salesperson’s personal AI-powered prospecting assistant,” argues Moritz Zimmermann, general partner at 42CAP. “The way we do outbound sales is due for disruption, and OneShot.ai, led by founders with both deep technical know-how and extensive enterprise sales experience, is well positioned to provide the solution.”

Ashley:
This is Real Estate Rookie episode 331.

Lyrva:
I’ve learned a little bit about how to screen tenants, how to write up an agreement, how to enforce my own rules, how to do renovations even though they were small renovations, but that’s a big part of being an investor, getting bids, all of that. So it’s just changed my life and to where I’m confident now that if I venture out and do another deal or another project, I have confidence in myself. I do know something.

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

Tony:
And welcome to the Real Estate Rookie podcast, where every week, twice a week, we’re bringing you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And in today’s episode, you’re going to get a healthy dose of all of that. You’re going to get a little bit of inspiration, a little bit of motivation, and a little bit of kick in the butt to really make something happen. Today’s guest is Lyrva Sanchez. And when you hear Lyrva’s story, you’re going to hear something that a lot of you’re probably struggling with, which is there’s so much information out there, there’s so many different strategies.
How do I choose one that makes the most sense for me? And you’ll get to hear Lyrva’s story of how she went on this journey of identifying the right next step for her.

Ashley:
And the way that she talks about choosing her strategy, you’ll be able to relate to it as to like, “I read this book, I listened to this podcast,” things like that. But she breaks down as to some of the reasons she ended up going with the strategy that suited her. She talks about her lifestyle, her why, just the kind of person that she is. She actually started out trying to wholesale and she will tell you one thing that happened to her that was actually going well.
If you’re a wholesaler, you’re like, “Yes, I want this to happen.” And she didn’t take action on it because it was not her and go through that explanation. But I think she makes a very valid point that if you are uncomfortable and don’t feel that this is something that really suits you and fulfills you that you may not be that successful with it. So she talks about trying to tie in what are things that are going to suit you to picking your strategy. But also we learn about sourcing deals, how she was able to find off-market properties.

Tony:
Now, before we jump into the conversation with Lyrva, I want to give a quick shout at someone by the username of DeLauro who left to a five star review on Apple podcast. This person says, “This show is great for people like me who work a full-time job, but want to learn more about investing. Real estate investing seemed overwhelming at first, but listening to Ashley and Tony every week helped me get more comfortable with all the terms being thrown around and investing in general. I’m on the BiggerPockets forums now and learning as much as I can. Thanks for all the tips, guys.”
So if you’re part of the rookie audience and you haven’t yet left a review, please do. It only takes a few minutes. And the more reviews we get, the more folks we can reach. And no, the more folks we can reach, hopefully we inspire more people to take that next step or get that first deal. So do us a favor, do someone else a favor, leave that review.
Lyrva Sanchez is a registered nurse, single mother of two boys living in Southern California. Actually not too far for where I live in SoCal. And after her separation, she spent two years chasing down the shiny object syndrome of wholesaling and a little bit of out-of-state investing. But then she doubled down on a real estate strategy that really worked for her, for her kids and learned that one property could really change her life. So Lyrva, welcome to the show.

Lyrva:
Hi. Thank you, Tony.

Tony:
Super excited to have you.

Lyrva:
Thank you. Thank you so much. Thank you.

Tony:
Excited to have you here on the show with us, but I want to get right into the nitty-gritty, Lyrva. So what would you say drove you into the world of real estate investing?

Lyrva:
So as you mentioned, I was newly separated. We have two young boys and that was a really difficult time. Actually, there were a lot of good things going on and not so great things going on. I had just paid off all of my debt. I had school debt, I had car loan. Just paid off everything.

Ashley:
That is amazing. Congratulations on that. That’s not typically an easy thing to do.

Lyrva:
Thank you. Thank you. So I was on a Dave Ramsey trip and it was just full on saving and saving, and putting everything towards the debt. So when we made this choice, this decision to separate, it was a really, really obviously difficult and difficult challenging time in my life, and it just made me shift towards working on myself. So I dove into personal development, self-help books, all of that. But part of that process, I also came across real estate investing, building wealth.
How do I still carry on with my dreams and the life that I want for my kids now that I’ve pretty much lost half of my income overnight basically. So that’s how it just came to be. It was part of that whole process of going inward and just trying to do better, be better, and have the same or better life for my kids regardless of my status.

Ashley:
So after your separation, how long was it before you actually got started into real estate and maybe give us a little bit of what your life looked like. Did you go and rent an apartment? Did you stay in your house? Were you working somewhere? Fill us in what your financial picture looked like.

Lyrva:
Financially, I was doing well because we had paid off and we had started saving, but I didn’t feel good because obviously I didn’t have access to… Previously, we had dual income. I did stay in an apartment. I moved out of the apartment that we had together and I moved to an area that I wanted to be closer to, so better schools, all of that. So I was already working at the company that I’m still at now. I’m a registered nurse, but it’s not really a traditional role, so I work from home for a health plan, and that was something that I consciously made an effort to do because I had my second child and working in a hospital, it just wasn’t going to work out for me.
So it helped out that I was working from home and living in an apartment and I really tried to minimize any expenses. Just still stay in that very savor mentality at the time. So that’s where I was at.

Ashley:
Okay. So then you started learning about real estate. I’m very curious as to in your role where you were able to work at home, do you think that played a large part in being able to become a real estate investor? What are some of the advantages if there is someone listening right now who maybe has an opportunity to work from home, what are some of the things they should be thinking about to get started in real estate and how this can actually benefit them?

Lyrva:
So I think it played a huge part because… Well, now, I have a short-term rental, and so it’s actually on the same property. And so just being on the property itself helps. I have a cleaner, so I’m not actively doing a whole lot, but just to check on things to be present there, that’s helped a lot. Also, at the time of learning and going through the process of learning what was going to work for me, I was driving neighborhoods and seeing what areas I could possibly get into.
So I would drop off my kids from school and drive neighborhoods on the way home. And driving for dollars, seeing if there was… Everything that I learned on the podcast, I was trying to implement it like, “Oh, is that a vacant home? Is that a potential property that I can pick up?” Just trying to implement the things that I heard on the podcast.

Ashley:
So you looked for vacant homes. What were some, and you said there was things you learned. What are some of the other things you learned as to houses that could be a potential property for you?

Lyrva:
So I never acted on those, but I think it was just something that I was going through the motions. I would look up property values and I would see, “Okay, this is a vacant house, really how much could it be worth?” And without seeing inside, could I even take that on. I guess I was just playing investor at the time. I don’t know if it really has to do with working from home, but just that you have a little bit more flexibility in your time too. I drop off my kids and I picked them up. And so during those times, during my breaks and stuff, I would be able to drive areas and see properties, new listings that would come up. I would go see them just drive by them as soon as they came on the market.

Tony:
Lyrva, you said something that kind of stood out to me is that you listened to a lot of the podcasts and you try to implement everything you learned. I think that’s a path that a lot of new investors go down is where they hear all these different strategies, they try and go after everything. So I do want to touch on how you were able to take all of the information you learned and implement it all at one time. But before I do, just one other question. What would your advice be to someone that is maybe in a similar situation where they’re going through this big life change?
A separation, divorce is something that’s unfortunately kind of common today, and there are a lot of folks that have these aspirations of becoming a real estate investor, but they might use this life event of a separation or a divorce as an excuse as to why they can’t invest in real estate. So just what is your advice to someone who’s in a similar situation that’s looking to get started?

Lyrva:
I think my advice is to keep hope. Somehow you can figure out a way. It’s not that you can’t, it’s just that haven’t figured out how yet. And finding a way to make it work for you and your lifestyle. I would say going through the motions, it took me a long time not giving up, trying to find information, like reading things, you’ll come across random articles, things that help you. That’s kind of how I found it play out for me. I was really tight on cash to purchase a property. Not for my expenses.
And these little clues would come up or opportunities. There was an opportunity at work for me to get a promotion and I took it I was thinking in the back of my head, real estate that’ll help me. So just try to stay motivated and don’t lose sight. The shiny object syndrome is a really big thing and it really did impact me for a good two years.

Tony:
One thing that I think is incredibly important to point out, and I love that you said hope, Lyrva, because I think that’s something a lot of people lose when they go through difficult times in their lives. But when something challenging happens to you, you can never control what life throws at you, but you can always control how you respond in those situations. And someone could take something. It could be divorce. It could be a death in the family. It could be the loss of a job, and they could take that moment and let it break them down.
Or they could take that moment and use it as motivation to become a better version of themselves. And it seems like, Lyrva, you took the second approach of using it to catapult you towards something better. So on that note, let’s talk about what you did next. So like I said, I want to go back because you said you tried to implement everything that you learned on the podcast. That sounds overwhelming almost. So I guess walk us through that process of trying to implement everything and what worked and what didn’t work from there.

Lyrva:
I started going to meetups. It was like the topic of the week. I’d get super excited about that and then look into that and try to see if that was something I wanted to get into. So I started thinking, “Well, what does everyone else do?” So I started looking at what does everyone else do where I could potentially start wholesaling?
So I looked into it, I thought, “Well, I don’t know, it doesn’t seem very genuine for me or something that I would do, but that’s kind of where it seems like everyone gets their start.” So I met one of the organizers at one of the meetups that I was at, and everyone socializes afterward. I told him what I was interested or what I thought I was interested. Everyone is really helpful at those meetups. What do you need? What are you looking for?
Everyone’s just really just sharing and everything. He was a flipper now, but he started out as a wholesaler and he had this program that he purchased that helped him wholesale. He’s like, “I can burn you a copy of the CDs if you want them, and that can get you started.” I was like, “Sure, great.” So took that home, implemented it to a tee, everything. And then I quickly realized it was just not for me. I was getting phone calls and I could not answer the phone. So it was like this feeling I can’t explain. It was just not for me.

Ashley:
What did you do to get those phone calls, I guess? Why were people even calling you? What were the steps you took before that?

Lyrva:
So the whole steps of the program, so they teach you, you get a list and they tell you about the different types of lists that you can get. And then I decided to go with letters. So I was like, “Well, I can just shoestring this together and create the letters, print them at home.” I got a case of envelopes. I did the whole stamps and everything with everything that they say, the tips about how to get your letter opened, make it a color so that it pops in the mail and just all that stuff that… I mean, there’s so many different tips.
So I just wanted to get it perfect and it took me forever to even get the letters out because I was like, “I’m going to make a mistake and no one is going to open my letter.” Well, people actually started calling and then I couldn’t even answer the phone. I was so scared to answer the phone, so these calls were going to my voicemail. I had to set up a Google number, so I knew they were calling from that specific number. And so I was like, “This feels so fake. This is not who I am.”
The letter, I’m pretty sure said something like, “I buy houses for cash,” and I did not have a buyer, and it just felt so sleazy. So it just didn’t work for me. So there were a couple other things that I can think off the top of my head. Someone did a talk on mobile homes and how they invest in mobile homes and do that. And so I bought a book and that’s as far as I got with that.
So it was just like whatever the topic was, I’d dive into it and then I’d be frustrated because I was like, “Well, that doesn’t work for me either.” And then the next thing was out-of-state investing because it was maybe the more of the price point that I thought I could actually invest in. And the one thing was that I was very torn between should I buy a home and I’ll be house poor, or should I rent and invest out of state?” It was so hard for me to decide and it felt like I can’t have the two.
So I started, “Well, let me just see what’s out there.” I looked at turnkey properties, which I didn’t feel comfortable because I felt like a lot of the numbers were being inflated at the time because I was actually doing my own analysis. I also just looked at Zillow and was trying to find on market properties. The thing is I was trying so hard to find the perfect market out of state, and now I realize there is no such thing.
So that was another thing. I probably analyzed hundreds of deals in different pockets of states, and I probably could have bought a property at that time because I had done so much analysis. So then when I was like, “Okay, I just need to maybe go for it.” A friend of mine had moved to Kansas a few years before and another girlfriend from college said, “Why don’t we go visit her?” And I said, “Okay.” And maybe I can make this also a trip where I actually go see properties out of state. Kansas is probably a good area. I looked at the area and what the job market and all of that was doing. So I was like, “Okay.” And it works because maybe I can go visit my friend while I’m out there or I have a place to stay if I ever need to go out there.
So we worked on that trip. We set it up and then I mentioned it to my friend like, “Hey, I’m going to spend a day while I’m out there. I’m going to be looking at property.” And she said, “Well, do you need a realtor?” And I said, “Well, yeah, I don’t have one yet.” And she said, “Oh, I know someone who might know someone.” So she got me the number. I reached out, got in touch. She sent me properties beforehand. This is what you might see while you’re out here. I can’t promise you that any of them will still be available when you’re here, but this is just to get an idea.
He was working only with investors at the time. It was like a hot market. It seemed like his broker had just started this investor only department. And so he was only working with investors. So I felt pretty good like, “Okay, I’m working with someone who should know what the market is and what I am looking for.” Flew out there. We saw eight to 10 properties, I think, and one day my friends were so tired. It started off with, we were all happy and excited and everything.
I was the only one that was like, “No, we have to finish the list.” Got through the whole thing. But I was starting to feel like, “Okay, these properties are…” Because of my price point, we were looking at C and maybe B minus areas and I was just feeling a little uncomfortable. It looked like the systems were probably… Maybe the major systems had to be replaced yesterday or it was just on the verge of breakdown or there was just something funky about them. There was nothing where I was like, “Oh, this is in my price point and everything is great about it.”
And just being out a state and being new, it made me really uncomfortable. But I said, “Well, it’s about the numbers.” So I just went home and I picked the top three that I could potentially go for and the numbers didn’t work for me. It was just clear. And I think the property values were from 110 to 215 between the three. I don’t remember where the one in the middle landed.

Tony:
But the numbers didn’t work.

Lyrva:
Cash on cash was less than 3%. It was just [inaudible 00:20:30]

Tony:
That’s such an important thing for you to call out, Lyrva, because I think a lot of rookies, when they invest all of this time and energy looking into a market, you fly out there, you walk a bunch of deals, you start to get this kind of emotional reaction where it’s like, “Hey, I’ve already invested so much time, energy, and effort into this. Let me maybe pat the numbers a little bit so I can feel better about it.”
But you made the decision to not do that. So it sounds like you were dipping your toes a little bit in wholesaling. You sent the mailers that didn’t work out. You went to this out-of-state market and met with agents and analyze deals, and that didn’t work out. So how did you actually land on the strategy that was right for you?

Lyrva:
Okay. Yeah, this is… Exactly. I came back from Kansas, saw the numbers. I was like, “This is still…” I’m so frustrated at this point because I feel like nothing is working for me. It’s working for everyone else but me. I was like, “Okay.” Back to, “I want a house. I don’t want to be house poor in California. It’s just doesn’t seem feasible for me, but I really, really want an investment property, an income generating property. How do I have that? How do I have the two?” And it just came to me. I have to have a property with an ADU on it.
That’s the only way I can get the two, the best of both of what I want. And it was just like, “Yeah, yeah.” I was talking like, “Yes, that’s exactly… That’s it.” And once I made that decision, it was like nothing could stop me. I was honed in like, “That’s it.” So however long it would take me, I don’t think… It actually only took a couple months after I made that decision that that was going to work for my lifestyle for my family and it took a couple months, but if it would’ve taken me even longer, I think that’s kind of what my strategy was going to be. I knew that was going to work for me.

Ashley:
Can you explain to us real quick what an ADU is?

Lyrva:
So it’s another unit, like an accessory dwelling unit that’s on a property. I mean, there are other terms for them or like guest houses, a converted garage. So I was looking at any of those types, but it had to be a separate unit like a back house where I could live separate with my children because if I had been single, I could buy a house and rent out the rooms, but it was just not an option for what I wanted. So that’s very popular now and it was already gaining some traction in ’20 that… By then it was 2019 or late 2018, beginning of 2019. But not as popular as it is today. Now, it’s like ADU booming in California, but at that time it was still gaining traction.

Tony:
The ADU strategy I think is something that, especially if your house acting can be exceptionally powerful, and I think hopefully we’ll get into a little bit later how that ADU has worked out for you, Lyrva. But I want to point something out really quickly. Your journey of finding the right strategy for yourself, it started with the educational phase of, “Hey, let me just learn as much as I can about all the different options that are out there,” which is the right thing to do. And then you kind of dipped your toes in these different strategies to understand like, “Hey, what’s the one that works for me?” You said wholesaling doesn’t quite mesh with who I am as a person. Out of state investing, I’m not quite comfortable with the idea of doing that in these other marks. I don’t understand.
But this strategy of house hacking with an ADU, that lines up perfectly with who I am and what I want out of my investments. And I point that out because if you’re a rookie that’s listening that hasn’t identified your strategy yet, I think you can follow what Lyrva did of tons of education and then testing in a small way the different strategies that are available to you. But I guess, Ash, when you think about choosing your first strategy, do you remember what steps did you take to say, “Hey, I want to focus on BRRRs in my backyard?” Did you try anything before you did that first deal?

Ashley:
I just didn’t know there was other strategies. I worked for one investor and he did long-term rentals, and that’s all I knew there was like this is real estate investing. So I was just a limited mindset and naive that that’s why I did mine. But I think too, when you’re looking at different strategies to start with is where’s your opportunity? Where do you have… And so, Lyrva, you looked at which one best suits my lifestyle and what I want to accomplish and achieve what your why is for going into real estate investing.
Some of them didn’t fit what you want to do like wholesaling. You didn’t want to be answering the phone. That would defeat the whole purpose of you becoming having some kind of time freedom and getting to that financial freedom because you were doing something you did not like to do and dreaded it. So there’s so many different things you should look at when you are choosing that strategy. So Lyrva, what were some of the things that were important to you that this is why this strategy, if for anyone listening, if they’re kind of stuck deciding, what would be your advice?

Lyrva:
Yeah. Definitely evaluating your lifestyle. My why was my kids. I didn’t want to let this separation and then eventually the divorce that was part of this whole process of that was going on in the background to really define our future and for us to have a different lifestyle. I still wanted to give them the same lifestyle. I still wanted them to live in a good area with good schools and to have that feeling of being in a home. I grew up in a home that my single mom lived in and owned. And so it was really important to me.
I just didn’t feel like I knew how, but once I figured it out, that was so important to me. It’s just something that I couldn’t give up. Once I figured out how to do that. So just figuring out your lifestyle and where your strengths are. If it’s not going to be answering a phone because you’re so scared to answer sellers, calls. Don’t do that. Just try to see what works out. What’s your zone of genius? Where you’re going to shine? And I get creative on things. And so that’s how I figured out when I finally got my property. I got creative. So that’s one of my areas. I can come up with a solution for how to make something happen. So that’s my advice. I could figure out where your talent is and kind of go with it.

Ashley:
Once you identified that you wanted to find a property within ADU, was that because you just saw a property within ADU or you learned about it and then you started searching? How did you find that first property?

Lyrva:
How did I find it? Well, I learned about them at the meetups. And like I said, this was 2018, 2019. There was already a buzz about ADUs and they were hard to come by at the time. So they come up once in a while. Usually maybe an investor is the one to buy it. So there wasn’t a whole lot on the market. And so how I found it is… Well, that’s part of my journey. So I was looking online. There wasn’t very many that would come up. I think maybe every few months maybe one would pop up.
So I knew about how much they added value to a property like if it was a two bedroom, one bath and there was an ADU on it like, “Well, how much more it would be than just a two bedroom, one bath.” So I had an idea of how much it would add to the property. But I was like, “Well, I don’t want to wait. I want to take action. I know what I want now, so I need to flush it out somehow.” I reached out to my friend who’s a big sister and she’s a realtor, and I told her my plan. I said, “Okay. And I know you’ve followed me on this journey and I’ve been talking about all these things that I’m doing, but I know what I want now.”
I said, “I want a property with an ADU like a Backhouse or a guest house and I want you to show me the property. If it comes on the market, I want you to be my realtor.” I said, “But I also want to be honest with you.” I’m going to look for properties off market. I had already a little… That my experience from wholesaling, so I knew how to get a list from ListSource, how to pull a list and what to look for. But I also asked her, because we were friends and we had that relationship, “Would you be able to get me a list from the MLS? Can you scrub a list for me with some keywords and some timeframes that I gave you?” And she agreed. She was a supporter.

Ashley:
Yeah. What were some of those you used?

Lyrva:
So I think on the MLS, you could look for backhouse. You can just free type in something [inaudible 00:30:10]

Ashley:
Mother-in-law suite or something.

Lyrva:
Mother-in-law suite was one of them. Yeah, converted garage. Any word that could potentially mean like there’s another unit on there. And then there were some timeframes I think if they had bought in the last two years then it was like remove those from the list. So I gave her some parameters and she gave me the list and I had gotten my list from ListSource and I combined that. And then I went and I searched these properties online. I was on Google Maps. Again, I drop off my kids. I’d go look at the list, I’d drive by them. I was trying to check off the ones that wouldn’t work for me and just condense it to like, “Okay. Well, I’m not going to buy up in the hills and have a four or five bedroom house. It’s just not feasible, so let’s just keep it real.”
So I brought it down to about a dozen properties. And around that time, I also came across something that was super important for me to actually be able to buy a property. I found information that you can pull $10,000 from an IRA to use it for the purchase of a new home. So if you’re a new home buyer. And so that put me in a slightly different price point because I was like, “Oh, that’s more money for closing costs.” I was so tight on the budget at that time and it made a huge difference, which I wouldn’t have been able to use out of state.
So I was like, “Oh, this is just another sign that I’m on the right path.” Actually, I’m not saying this out of order. Before I had asked my friend for the list, I found this article from a designer like a decorator and she had put out a blog post that said how to buy a property that’s not on the market. And that was really helpful because I knew about wholesaling, but it was from a different fresh perspective. It was just a regular person that wasn’t an investor and she wanted to live in a specific historic neighborhood, and they didn’t come up very often.
So she wrote a very genuine letter about why she would want to purchase in that area and she reached out to that specific area. And I was thinking, “Oh, I can do that. It’s not like that sleazy I buy houses for cash. It felt just so much more me.” And so I thought, “Oh, I can definitely do that and I think I can answer those phone calls.” So putting that together with that list, and I brought it down to a dozen and I got the letter, used her template because she put it all out there and I finessed it to my story.
So it was just about me and my kids and that we lived in that area. And the reason why I would want to purchase a home, their specific type of home. And those letters wrote in my car for about two to three weeks. I could not get them out. It was this fear of like, “Well, what if… My name is unique. What if they’re like people that go to my kids’ school, their parents, and they’re like, ‘Oh, you’re sending us this. Why do you want to buy our house?’” And I just thought what are people going to think about me? And then it just came to the point where I was like, “I don’t care what people think about me. I did this. I am going to make this work somehow.” I sent them out and I was like, “I’m done. I don’t care what people think about me. This is what I want and I’m going to go for it.”

Tony:
That’s super inspiring, Lyrva, but I just want to pause you on that because I think that fear of judgment is something that a lot of new investors struggle with is even just the idea of, “Hey, I want to own property.” And especially if you come from a background or a community where that isn’t something that’s done often to own investment properties, people might think that you’re dreaming too big or like, “Oh, it’s Lyrva and crazy dreams.” But you have to have, I think, the confidence in yourself that, “Hey, if I’ve set this goal, I’ve spent the time educating myself. I’ve built up the resources that I need to do this. Why not take that next step?”
And obviously, it turned out really well for you. So I’m assuming you finally get the courage to drop those letters in the mail. Does your phone start immediately ringing? Do you wait months on end before you hear response from someone? And then how do you actually go about negotiating with the sellers once they reach back out.

Lyrva:
I didn’t expect anything. I was like, “Well, you know what, now I’m just doing it and I’m going to move on.” But it was part of like my, “I’m doing this.” So I contacted my friend and I said, “Hey, I sent those letters out. Thanks for sending me the list, but I’m still… This is what I really want.” So there’s two that came out on the market, two properties that had ADUs about a week or so within that timeframe. And I said, “Can we make an appointment to go see them? Like I told you on market or off market, I’m going for it.” So she said, “Sure.”
We went to go see them that weekend. I think maybe a week, a week and a half had passed. When I had sent the letters out, I kind of forgot it, put it out of my mind. We went to see the properties and while I was at one of the properties, one of the owners reached out to me via email. It’s like, “Oh my God. This is actually happening.” And my friend was with me, the realtor, and I was like, “Help me formulate an answer.” And I was like, “Something is happening.” I don’t know. Whatever it is, something is happening.
I formulated a response. We went back and forth a couple times and they invited me to see the property that evening. My friend couldn’t go with me, so I got someone else to go with me. I don’t know these people. I’m going to go meet them at their house. But I was like, “But I’m going.” Because when I got the email, I recognized the name. I had stocked these properties. I knew where they were. I was like, “It’s the greenhouse on the corner. It’s so cute. I wanted to go see it.”
So I went to go that evening to meet them and super nice couple, super nice family. They took me around to their property inside, outside. They showed me the ADU. It was a little funky, and I didn’t let that scare me. I was like, “I could work with this. I could totally work with this especially if I get this at a deal. If their price isn’t out of my range, I will totally work with this.”
So of course I didn’t say that to them. We had said, “Let’s both think about this. You take your time and we’ll take our time to decide if we’re going to move forward.” They said, “Take a couple of days and reach out to us and you’ll know so that we know either way.” They did tell me a little bit about their story and why they even reached out to me. So it was a family that was trying to get into the area. Again, the schools, the whole thing, it was difficult to get into a property at that time.
So they had been there for three years. They bought it off market from friends of theirs, and they tried to make it work like a property that really wasn’t a good fit for them, but they really wanted to get into the area. So they were a family of six. They had four kids. And so it’s a small home. It’s a two bedroom, one bath. So their two older kids were living in the ADU, and it just wasn’t a good fit to have your teenagers and the ADU. So they thought, “Well, it’s a really large property. Maybe we can renovate it and extend it.”
And they went through the whole process of the planning and doing all that, but it got really expensive for them. So then they said, “Let’s just scrap this, buy a bigger house and we’ll keep this as a rental.” And so they were fixing it up at the time to fix it as a rental, and they were an escrow for another house. At the time that I reached out to them, they said they were maybe thinking that they were biting off more than they can chew. So they were thinking, “Maybe we can’t be landlords. Maybe this is too much for us. Maybe we’re making our lives difficult and we should just move on.” And there’s this person that’s reaching out to us.

Ashley:
When you were looking at this property, did you know the rehab that this was something you could take on? You were able to finish it?

Lyrva:
Yeah. So the primary residence was turnkey for me to move in with my kids. For the guest house, it was, I think small enough to where I was like, “I could work with that. I could have a small budget and it was drywall. I think that really was the major part that would need to be.” There was a funky closet in the kitchenette instead of in the bedroom. And I was like, “Well, the bedroom is right next to the kitchen, I could just flip it and leave a space and make a functional cabinet like pantry in the kitchen.” I just was like, “I could do this. I could work with this. What’s drywall cost?”

Ashley:
Can you us the numbers of this whole thing? I’ll kind of do it rapid fire at you. What was the price that they wanted or did you just offer a price?

Lyrva:
So they started out with a price, 605. They gave two prices, actually. One with a kitchen renovated and one without, and I took without because I was like, this.

Ashley:
Okay. And then is that what you ended up paying for it, the 605.

Lyrva:
I did because I knew what an ADU, a property with… So it was under market.

Ashley:
Then how did you end up funding this deal?

Lyrva:
So it was a conventional loan. I put 10% down just to make my payment doable, and I used that IRA that I had from a previous job, and I used that for the $10,000 for closing costs.

Ashley:
So you borrowed money from your IRA or did you pull it out?

Lyrva:
It’s pulled out penalty free, so I pulled it out.

Ashley:
And then how much was the rehab that you had to do in the ADU?

Lyrva:
I think I spent… I think it was maybe 35, 4,500. It was like the bare minimum, paint and do that little switchover of the closet, and I needed to do it fast.

Ashley:
Then what did you decide for rent on this property and are you long-term or short-term, or even midterm renting it?

Lyrva:
So I started off, I did that for two years. The first year it was 1375. So it’s a one bedroom, one bath. It’s a little guest house unit.

Ashley:
What was your mortgage payment on that? A month. So how much did that cover of your mortgage payment?

Lyrva:
So at the time, because I’ve refinanced a couple of times since then, it was, I want to say, it was about 3,000.

Ashley:
So a little more than a third of your mortgage payment? It covered.

Lyrva:
Yeah.

Ashley:
Okay. So then what happened? You said for a year you rented it long-term. Then what happened?

Lyrva:
So for a year, it was 1375 and then the pandemic happened, so I waited to bump up the rent and then I got it to 1425.

Ashley:
Oh, awesome.

Lyrva:
So she stayed, the tenant stayed for two years, and when she moved, I was like, “I think I want to do short-term rental.” I think I want to dabble at that. And so I had seen in the area, there were a few at the time and they had been doing it for a really long time and it was kind of like that. Maybe they just put regular furniture in there or old stuff that they had found and guest house, back house units. I’m talking about not houses.
So I thought I could do it and I could do it better. I could actually get all the new furnishing and make it match. I could tell that these were seasoned hosts that were kind of doing it, I want to say the old school way where it was just like a hobby and they just put their maybe used furniture in there. And it was working for them. But I was thinking like, “I want to do it and do it like a real business. I want to just furnish it, make it nice, and do the whole thing.”
So by then I had a budget. I had two years, been a landlord and been in this property and was a little bit more comfortable. So I did a little bit more renovation. I was like, “Well, I have to do a little bit more work in the bathroom.” I redid the flooring and added some light fixtures.

Ashley:
With doing these renovations, were you able to get a lot more as a short-term rental than you were a long-term rental?

Lyrva:
I doubled my revenue.

Tony:
Wow.

Lyrva:
It’s been pretty [inaudible 00:43:12].

Ashley:
It was worth it.

Tony:
Almost covering your entire mortgage then, it sounds like, right, with ADU?

Lyrva:
Yeah, almost.

Tony:
Yeah. That’s fantastic. I mean, to be able to live in Southern California and spend almost nothing on your mortgage is insane. It’s a very difficult thing to do. So kudos to you for figuring out a way to do that. Lyrva, I love everything about your story. I love the fact that these different elements of the strategies you tried, you were able to roll up into this one deal that made the most sense for you, right? You were so confident by sending those 12 letters because you had already dabbled in sending all the mails for the wholesaling. And the work you did of analyzing deals out of state, it helps you be more confident when it came time to analyze the property in your own backyard.
So everything you learned culminated in this one deal, and it seems like it’s turned out incredibly, incredibly well for you. So are you ready for today’s question, Lyrva?

Lyrva:
Sure.

Tony:
As you’re listening and you want to get your question featured on one of our episodes, head over to biggerpockets.com/reply, and we just might use your question. So today’s question comes from Judy Underwood and Judy says, “For those of you who have borrowed against your 401(k) to purchase a property, did you refinance your home afterwards to pay yourself back? How did you use your 401(k) funds for real estate investing? I really don’t want to withdraw other than getting a loan.” So what’s your recommendation, Lyrva, I’m sorry for Judy.

Lyrva:
So that wasn’t exactly my situation. So I had an IRA that was not with my current employer. And I feel like everyone has those because you’ve worked somewhere else before. So I would say before going to your current, your 401(k) or 403(b), whatever your current retirement is, go to see if you have a pension or some kind of retirement fund with a previous employer, and then you can roll it over into an IRA. And then those are the $10,000 penalty free that you can use towards the purchase of a home.
So I don’t know if I necessarily would borrow from my current retirement plan. I guess it just depends, but I would do that first before I would use those other funds.

Ashley:
Awesome. Thank you. Okay, we’re going to move on to our rookie exam. And the first question is, “What is one actionable thing rookies should do after listening to this episode?”

Lyrva:
I’m going to go back to evaluate your lifestyle. What is important to you? What do you want your future to look like? What’s your family life like? And use that as the stepping stone to decide what your strategy is going to be.

Tony:
All right. Question number two. What’s one tool, software app or system that you use in your business?

Lyrva:
Well, now that I have the short-term rental, I use Airbnb obviously is one of the big ones. But like I said, I’m doing it as a business, and so I’m trying to be a little bit more sophisticated. And even though I only have one, I use pricing software, which a lot of people don’t do because they think, “Well, it’s costing them money, but it’s actually making me money if I use it the right way.” So ever since I transitioned into that, I’ve surprised myself at how much more I can get for certain nights where there’s events going on and things that I wouldn’t even have thought of.

Ashley:
Okay. And our last question, I want to tailor a little bit different to you today, but how has real estate investing changed your life?

Lyrva:
Wow. It changed everything for me. I feel like this experience, this whole thing, it’s helped me teach my kids like, “This is what you can do. You make things up as you go and you figure things out.” But also just my lifestyle, I feel like it’s been able to help me have the lifestyle that I want to live in southern California in an area that I want, making really good money on the property that I live on right next door. It’s in my back versus a state or few away and just to have eyes on that and just the learning that I have made through this entire process.
I’ve learned a little bit about how to screen tenants, how to write up an agreement, how to enforce my own own rules, how to do renovations even though they were small renovations. But that’s a big part of being an investor, getting bids, all of that. So it’s just changed my life to where I’m confident now that if I venture out and do another deal or another project, I have confidence in myself. I do know something. I do know a little bit about real estate.

Tony:
Isn’t it crazy what one deal will do for your confidence? And that’s why a big purpose of the rookie show is just to give everyone that’s listening that confidence to get that first deal. Because once you get the first one, the second one is exponentially easier. There’s so much more momentum and confidence behind you. So I appreciate you sharing that, Lyrva. Before we wrap up here, I want to give a shout-out to this week’s rookie rockstar. Today’s rockstar is Aaron Nygaard. And I can’t say the last name, Nygaard without thinking about the TV show Fargo. So if you know Fargo, anyway, I love that show.
But Aaron says, “Closed on property number two through a mutual friend. I let everyone know my goal of doing real estate investing full time. My first property I acquired through handwritten direct mail.” And he gave the numbers. It’s a 105 purchase price. $20,000 for renovation, and then it appraised for 225,000. Aaron says, “Now, out for a cigar to celebrate closing on this unit.” So Aaron, congratulations brother.

Ashley:
Well, Lyrva, thank you so much for joining us today on the podcast. Can you let everyone know where they can reach out to you and find out some more information about you?

Lyrva:
Thank you. I am on lyrvasanchez.com and on Facebook also Lyrva Sanchez. And then you can check Rustic & Chic B&B on Instagram.

Ashley:
Awesome. Thank you so much. I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson on Instagram. Don’t forget to check out our new book at biggerpockets.com/partnerships to get a copy. We will be back on Saturday with a rookie reply.

Speaker 4:
(singing)

Why an e-bike company is suddenly betting on Detroit.

A couple of years ago, Justin Kosmides was working in investment banking and (in his words) hating life. The one bright spot was his daily commute: an e-bike ride from Brooklyn to midtown that evolved into a coffee-hunting expedition. “I wanted to be cool and European and stop at different espresso shops,” he says with a laugh. But a chance meeting with an e-bike entrepreneur from Brazil turned Kosmides’s hobby into a side hustle and then something more: a leap of faith. In late 2021, Kosmides quit his cushy banking job to become co-founder and CEO of Vela, which makes handsome, high-end e-bikes that start at $1,800.

The pandemic was in some ways great for business. (Remember how hard it was to get any bike?) But then came a speed bump: Vela’s Chinese producer dropped them in favor of Walmart. In some ways it was a good sign. If Walmart was getting into e-bikes, the category probably wasn’t a fad. (An estimated one million e-bikes were sold in the U.S. last year; the market is expected to reach $46 billion dollars by 2026.) But Kosmides and his business partner, Victor Hugo Cruz, now had to find a new supplier—which they did, much closer to home. In the fall of 2022, the company moved its production line to Detroit, a few miles from Ford’s River Rouge plant.

Making a small-run, luxury product in the U.S. seems counterintuitive. But as Kosmides explains in the new Forbes series “Cereal Entrepreneur,” the move has given Vela’s team better control over quality. Over breakfast, Kosmides talks big banking, bigger mistakes, and what women really think when he rolls up on an e-bike.

MICKEY RAPKIN: What are we eating today?

JUSTIN KOSMIDES: I brought a mug full of granola—a personal favorite. And sure, you can eat cereal out of a bowl. But something about eating out a mug just kind of brings me back to the college days.

RAPKIN: Eric’s got Fruit Loops. I brought Honey Nut Cheerios—because it reminds me of childhood and riding a bike. Justin, you met your business partner at a wedding in Italy. Couldn’t you just relax and just enjoy an Aperol spritz?

KOSMIDES: There were definitely some Aperol spritzes involved in our conversations—and some boats and some music. But there was way too much bike talk.

ERIC RYAN: That’s always a sign that you’re onto something. When did you make the leap to Vela full-time? People take different approaches to crossing that chasm. Some really need the security net of a salary while chasing a dream. Others subscribe to the belief that the hungriest wolf hunts best.

KOSMIDES: (laughs) Is this a circle of trust?

RYAN: Absolutely. It’s just us. And the readers of Forbes.

KOSMIDES: I have no shame in letting this be known. I was working for the bank and launching this brand and becoming CEO. But my investors let it be known that if we’re going all-in, we need to go all-in together. It was a scary jump. It brings up a lot of insecurities. I didn’t grow up with any means. Both my parents were entrepreneurs.

RAPKIN: How tight was money when you were a kid?

KOSMIDES: My mother was a yoga teacher. She started her own practice. My father had a number of computer companies. I like to say 90% of them failed, one did OK. Then one went really, really bad. My sister is only a couple of years older than me but she had a very different experience growing up—because of the timing of when his companies were successful or not. I supported myself through most of college with student loans. I was also buying, selling and trading sneakers.

RAPKIN: Where were you getting shoes? You went to school in Vermont at the dawn of e-commerce.

KOSMIDES: I built a mini network from Japan and from Brazil and South America and Europe. There’s still kids who come up to me and comment on the days when I had 160 pairs of sneakers piled up in the dorm room.

RAPKIN: Is there anything you miss about your investment banking days?

KOSMIDES: The expense account. (laughs) First class for flights over four hours. I miss structure and knowing how my day’s roughly going to go.

Vela Vs. China

RAPKIN: OK, so you go all-in. But then the Chinese factory producing Vela’s bikes basically fires you to work with Walmart.

KOSMIDES: We got kicked out of the factory because Walmart came in and bought up the entire supply chain for two years or whatever. I’ll preface this with: I didn’t see it coming. But literally from day one we had issues getting inventory into the United States. We had quality issues. It was everything from brake pads being turned around to the wrong componentry being installed. We would bring the bikes to Brooklyn, rework the bikes, then send them out from here. It was a very costly endeavor.

RAPKIN: Making a small-run luxury product in Detroit can’t be cheap though. I read that it costs you something like $300 dollars more per bike. Did you pass that cost along to customers?

KOSMIDES: We split it. We took a hit and we passed half of it onto the customer. It’s definitely more expensive to produce in Detroit. But that’s such a small piece of the puzzle when you look at the life cycle of a bike. Or you look at inventory management and shipping and tariffs. More and more industries are starting to realize that maybe globalization—relying totally on the outside source—is just not a good idea. Onshoring, nearshoring, all of these terms are becoming more popular in the manufacturing world. As we scale, that cost will come down naturally.

RAPKIN: Is “Made in the USA” a selling point for Gen Z and Millennials the way it is for Boomers? Or do young people see that as some kind of jingoistic thing?

KOSMIDES: Great question. Look at Gen Z and their approach to fashion—where thrift and vintage is so popular. They’re so in tune with this idea of the quality. It’s something we [as a country] used to do really well. With moving production to the United States comes higher quality. It’s really just making sure that that message is present.

RYAN: What’s keeping more Americans from adopting e-bikes? Is it the price?

KOSMIDES: We always trail Europe in our biking stats. Obviously there’s price point. But you look at Europe and you have some markets like Switzerland and Germany—50, 60, 70% of the bikes being purchased there are e-bikes. In the United States we’re still in the low teens. Yet 94% of the country knows how to ride a bike. You have this huge growth opportunity. In my trips to Detroit, I’ve been reading a lot of the early automobile industry. There’s a lot of similarities. People are looking at their bikes from a consumption standpoint instead of from an asset standpoint.

RAPKIN: Meaning we should be thinking about the resale market?

KOSMIDES: These are incredible devices that should stay on the road. We have a unique opportunity because we have production here 1697579925 to keep those bikes on the road. It’s both sustainable small-S but sustainable big-S from an economic and environmental standpoint.

RYAN: I was a really early adopter of e-bikes. I bought an electric mountain bike. It was amazing how many of my purist friends on analog mountain bikes scoffed at it. They’ve now all switched over. It’s so much more fun.

RAPKIN: Yeah, but you’re in Marin County. I’m in L.A. Everyone here drives a giant SUV while staring at their phones. I’d love an e-bike. But I would also like to not die.

KOSMIDES: It’s a shame that’s even a factor. When I was in the banking days, I had an e-bike in L.A.—

RAPKIN: When you were here on business?

KOSMIDES: I would bike from Venice to Century City. And I would beat my co-workers to the office—in a suit. It blew people’s minds. I would go out on dates and show up with a bike. Girls would be like, “Wait a second, I thought you worked in banking?” I’d be like, “It’s the most efficient way to get around the city.”

RAPKIN: Were women into this?

KOSMIDES: Jury’s out. It’s a good reason why I moved back to the East Coast. But back to the point: Cities like L.A. are absolutely incredible biking cities. Bike lanes and safety is only increasing. It’ll continue to get better and better.

Learning Curve

RAPKIN: Would you tell us about a mistake you made? And what you learned?

KOSMIDES: Starting a new company takes a toll on your relationships—both friendships but also your closest relationship with your partner. And I would say not giving more attention and more care to that fragile relationship— It’s a tough toll with everyone around you. You don’t realize it. But it’s like the splash zone at SeaWorld. Everyone feels it.

RYAN: Thank you for sharing that. It’s so true. I think as an entrepreneur, you’re always so influenced by place. What has Detroit taught you?

KOSMIDES: Resilience, staying in the fight no matter what. Moving to Detroit was a little bit of a Hail Mary. The brand was not doing well relying on China. But it doesn’t feel like a coincidence.

RYAN: There’s that old cliché that a failed entrepreneur is just one who gave up too soon.

KOSMIDES: Henry Ford built bikes before he built cars. There’s no reason why the U.S. can’t be an absolute leader in electric mobility. For an industry that’s projected to be over $94 billion by the end of the decade, there’s a real opportunity for Detroit.

RYAN: When we were building Method, Adam Lowry and I were trying to do it in Detroit. I grew up in Grosse Pointe, I still have strong roots there. The city was going through bankruptcy, they were showing us the wrong sites. They just couldn’t get their act together. We went with the inner city of Chicago instead. But it sounds like Detroit now understands how to really invite businesses in.

RAPKIN: What’s Vela’s end game? Do you sell to Schwinn? What’s the offramp?

KOSMIDES: The offramp is to have a beautiful brand that scales slowly—stable, solid, profitable. That is really all I can ask for.

RAPKIN: OK. If I’m in Detroit, on a Friday night, where is Team Vela getting a beer?

KOSMIDES: (laughs) UFO Bar. Funky, awesome records, dollar beers. I will say, the Anthony Bourdain episode on Detroit is a must-watch. It still gives me chills. I’ll rerun it on the flight—when I’m tired of reading about the early automobile industry.

RAPKIN: Coming back to cereal, what’s your morning routine? Do you meditate ?

KOSMIDES: As the son of a yoga teacher, getting a good stretch is definitely important. My combination is a nice stretch, coffee as soon as possible, and then take the dog out. You don’t want to talk to me before coffee.

This conversation has been edited and condensed for clarity. In episode three, Blank Street founders Issam Freiha and Vinay Menda talk cold brew, the surprising reason they’re not opening in Los Angeles, and—yes—the trolls.

David:
This is the BiggerPockets Podcast, show 832.

Dave:
My motivation now is twofold. One is I’m looking more at retirement soon for my day job, so to have that passive income. And then two is to provide a legacy for my two boys.

Keith:
I’m an older guy. I’m 47. I’ve got a wife. I’ve got a kid. My goals were basically like, hey, I want to set something up. Cashflow wasn’t the number one thing for me because I’m looking 10, 15 years down the line when we want to retire. So getting into this deal was basically like, hey, let me see that I can do this, let me see that I can make this happen, and then let me repeat it.

David:
What’s going on, everyone? It’s David Greene, your host of the BiggerPockets Real Estate Podcast. The biggest, the best, the baddest real estate podcast in the world. Every week, bringing you the stories, how-tos, and the answers that you need to be successful and make smart decisions in this current ever-changing real estate market. Today’s show, my co-host, Rob Abasolo, and I will be interviewing agents and their clients who have found deals that work in today’s market.
Both of these investors live in markets different than where they’re investing, so they’re using long distance real estate investing principles to help put these deals together. We’re going to be explaining what they found, how they found them, and how they put it together. Rob, what should investors be on the lookout for in today’s shows to help them with their business?

Rob:
Honestly, they should be looking at their relationship with their realtor and being honest and asking themselves, is my realtor this good? Is my realtor asking these types of questions? And is my realtor well versed in FSM? If you don’t know what that means, then you’re going to want to stick around until the very end because we get into it with one of our realtors on the show.

David:
That’s a great point. And if you’re interested in seeing what a good realtor looks like, check out episode 826 where we did a show where we took a realtor and a loan officer that both work with me and interviewed them to say, “How do you two work together to get clients into contract in a very difficult market?” Now, before we bring in today’s guests, I just want to remind everyone that both investors were starting later in life. These are not 21 year olds that already have a portfolio of 40 properties like you typically see in the thumbnails.
These were people that have just lived their life, saved some money, and they’re getting started investing at a later stage, yet they were able to use their experience, their knowledge, their networking, and the resources that they had to find really good deals and I’d love to see more of you do the same.
Just a reminder, before today’s show, today’s quick tip, remember that BiggerPockets has an agent finder that you can use to take your first step into a new market. Find your real estate agent who can help you calculate cashflow and find the best neighborhoods for your strategy, instead of talking about granite countertops and cute backyards. Go to biggerpockets.com/agentfinder to match with an investor friendly agent now. It’s fast, it’s free, and it’s easy. That’s biggerpockets.com/agentfinder. You can even find me there. All right. Let’s get to our first guest.
Keith and Peter, welcome to the show. Dave and Dahlia, nice to have you as well.

Dave:
Excellent. Thank you.

Keith:
Hey, thanks for having us.

Peter:
Thanks, everyone. Glad to be here.

Dahlia:
Doing great. Excited to be here.

David:
All right, Keith, let’s kick things off with you. Tell us what were your goals with this deal and how long have you been investing for?

Keith:
I was looking for just a long-term rental property. My goals for this deal was basically I was looking for a long-term rental. That was basically it. I had been investing … Honestly, I didn’t buy my first deal until February of this year, but I’d been looking at real estate and meeting with people for about a year and a half total now. But yeah, I live in Los Angeles, so I wanted to get into a market that was a little more affordable for me. And I had met through a real estate meetup, some guys who were investing in Indianapolis and that one of the partners lived there and so I got to know them. They started talking to me about what you can do in Indianapolis versus Los Angeles, and it was all very interesting. So when-

Rob:
Very cool man.

Keith:
Yeah. When I-

Rob:
And what do you do for a living now?

Keith:
I own a medical transportation company. I’ve done that for about the last decade. It’s given me an opportunity. I built it to a point where I now have enough free time and capital that I wanted to do something else with my money than just put it in the stock market.

Rob:
Okay. And so you were saving money, you have a pretty good business under your belt. You start going to real estate meetups and getting involved with the community. So you buy your first deal this last February. Congratulations on actually getting into your first deal. What were your goals? Did you set goals getting into real estate or were you sort of like, I’m just going to figure it out?

Keith:
No. I mean my goals were … I’m an older guy. I’m 47. I’ve got a wife, I’ve got a kid. My goals were basically like, hey, I want to set something up for us for our future. Something that’s going to appreciate in value. Something where we could possibly cashflow. Cashflow wasn’t the number one thing for me because I’m looking 10, 15 years down the line when we want to retire. So getting into this deal was basically like, hey, let me see that I can do this, let me see that I can make this happen, and then let me repeat it.

Rob:
Tell me, now that you’ve been in this real estate side of things and actually getting your feet wet, what do you think is more important for your personal situation? Is it cashflow? Is it appreciation? Is it a beautiful balance of both?

Keith:
It depends. If you ask my wife, she wants the cashflow so she can retire. For me, look, right now, especially because I BRRRR’d this deal, if you can cashflow $100 or $200 a month, I think you’re doing great as long as you’re in an area where you know the appreciation’s going to be there. So for me, I’m looking 10, 15 years down the line. I’m looking at appreciation more than I am cashflow right now.

Rob:
Very cool. And so for everyone at home that doesn’t know, just a refresher, a BRRRR is basically a buy, rehab, rent, refinance. And if you do that all well enough, you’re able to in theory, pull out most if not all of your cash. Our friend David here is the king Of that. So very, very cool that you were able to pull this off. Can you tell us a little bit about what your buy box was when you started looking into this deal?

Keith:
Yeah. My buy box started out as a 3/2. I want at least 1200 square feet, 5,000 square foot lot, something along those lines. But what Peter had to inform me about was in Indianapolis, 2/1’s, 3/1’s, 4/1’s are what you’re going to find a lot of. A 3/2 or a 2/2 or a 4/1, they’re less common than having a one bath, which coming from California, it’s just really different. It’s very rare that you find houses out here that only have one bath with four bedrooms, but out there it’s common. So I adjusted down to a 2/1 after having a conversation with Peter.

Rob:
Sure. Yeah. That’s always the bummer thing is when I feel like I find a really, really good deal, there’s always just one bathroom. David, I know that you’re a big proponent of if there’s extra square footage and you can convert it into a bedroom, let’s get that bedroom in there. Did you have a philosophy on ever adding bathrooms to your BRRRRs?

David:
Always. I think you should always look at real estate from … I call them real estate goggles. When you put these lenses on and you see what a property should be, not what it is. And it’s hard to describe. It’s kind of a philosophy. People like things explained in a framework, and I don’t know that I can give them a blueprint. But it’s like why is this bedroom so huge? I could put four beds in here. This should be two smaller bedrooms. Or why is there one bathroom and that’s it? We could put another bathroom over there. So I thought it was funny, Rob, I caught your subtlety when you said, “Every time I find a great deal, there always ironically happens to be something missing from it.” Right?

Rob:
Yeah.

David:
That’s why it’s there if anybody missed that. So looking at real estate in today’s market where we say you’ve got to make a deal, not just find a deal, is about seeing a property and saying, this is what it could be, this is what it should be. This is the highest and best use of this property. And then asking yourself how cheaply and how productively could I add a bedroom, add a bathroom, add a space, add square footage, manipulate the square footage, move the walls around, do something to make this property perform better.

Peter:
Yeah, but add on that too. So you’re right, the addition part of it’s big, but there’s also a reverse strategy to go down, especially in the bedroom count. Not in bath count of course, but in Indy especially, we see a lot of four bed, one bath homes like Keith mentioned, but they’re small. You’re talking these little closet style bedroom, eight by eight, and so it actually makes more sense to take that 1500 hundred square foot house and turn it into a 3/2. Create a master bath or a master suite with an en suite bath walk-in closet, kind of modernize it. So that can be a value add play. Where it seems like you’re taking it down a notch, you’re actually adding value by dropping down and making rooms more spacious.

Rob:
Yeah. That’s a really interesting technique. Keith, when you were looking at this deal, you’re obviously looking at the configurations of it. Were there any other particular criteria that you were evaluating?

Keith:
I mean, in terms of the house itself, again, I went down to a 3/1. The square footage of it, oddly enough, it’s a 960 square feet, but that is the same size as the four bedroom, one bath that I bought as my first deal.

Rob:
Wait. Sorry. You went down to a 3/1 or a 2/1?

Keith:
A 2/1. This deal is a 2/1.

Rob:
Okay. Cool, cool, cool.

Keith:
But as far as what I was looking for in terms of the deal was would it pencil as a long-term rental?

Peter:
Well, the ability to always lean back on that LTR strategy just in case it covered the bases and then appreciation was a big part of it because in 10 years, even if I’m breaking even, I’m going to have that equity that I can borrow against, use, whatever you might do with it down the road.

Keith:
Yeah. That’s exactly right, Peter. Peter was instrumental in giving me the direction of where I should be looking to buy these properties for appreciation. So that was the other caveat that I wanted with this property. Even if it didn’t cashflow now that it would appreciate.

Rob:
So obviously having an investor friendly agent is super pivotal in your first deal. How else was Peter able to help shift your mindset or your POV on this deal?

Keith:
Again, he got me thinking more about getting down into a 2/1 house instead of a 3/2 that I was looking at. Instrumental in helping me look at the areas that I needed to be looking at to get that kind of deal and also run the comps and ARVs in these areas to make sure that we were investing. Right.

David:
And we’re going to move on to the individual details of this deal, but I want to ask before we do, just to clarify, the reason that you went from looking at four bedroom houses to two is because even though the four bedrooms look good in theory, in practice, it’s hard to find a tenant for them or they appraise for less because of functional obsolescence. The bedrooms are too small. Is that right?

Keith:
Yes. That was one of the things I was saying earlier was that my four bedroom, one bath house that I bought is the exact same square footage as the two bedroom, one bathhouse I bought. So yeah, it’s really hard to make those work.

David:
So the tenants just go look at the house and say, “Nope. I don’t want it. It looks like a prison cell. That’s not going to work.”

Keith:
Yeah.

David:
But on the MLS, it shows as four bedrooms. The reason I’m bringing this up is that’s an example, but there are so many examples of things that agents know about a specific market that your buyer, especially long distance, cannot understand. The individual dynamics, the things that don’t show up on a spreadsheet. And I notice a lot of people show up and they’re told to tell their agent, “Here’s what I want. Go find it.” Versus asking, “What is working in this market? What strategies work here? What do tenants look for? Which neighborhoods are appreciating? What do you see other people having success with?” And then asking, “Can I adopt that strategy within …” You’ll have a much smoother ride if you take that approach.

Rob:
Okay. So first and foremost, what kind of property is it?

Keith:
This is a single family house. Two bedroom, one bath, 960 square feet.

Rob:
And Peter, I’m going to toss this one over to you. How were you guys able to find this deal?

Peter:
Rob, this was an MLS deal. Nothing glamorous about it, but the interesting thing was it had been on the market for a really long time. 211 days if I remember correctly. And so it got overlooked. Actually been under contract once before as well. So yeah, once Keith and I honed in the criteria, and we settled on a few neighborhoods to focus on, this one came up. Actually, sorry. We saw it because it had been sitting there for a while, but I set up the search for him, so of course emailed him all the available properties in that neighborhood and that one caught his eye so we did some digging on it. Do you want me to get into the specifics of what we did in terms of numbers there?

Rob:
Yeah, sure. Why don’t you tell us how much it was?

Peter:
Listed for 149,900 originally, so 150,000. They dropped the price over time to 145. We got it under contract for Keith at 130.

Rob:
Nice.

Peter:
Ended up negotiating a $9,000 price reduction during inspection. So ultimately he closed for 121,000 in April this year.

Rob:
Very cool. Okay. So that’s a relatively big drop in price there. Keith, were there any special tricks of the trades that you did to negotiate the price?

Keith:
That was all Peter. I mean obviously, you have to have your inspections done and all of that. But yeah, I think we lucked out with the person that was selling the place to not really knowing what they were doing. But yeah, no, I left that all up to Peter as far as negotiating the prices and what would work and what wouldn’t.

Rob:
Yeah, so tell us about that, Peter. What did you do? How were you … Seller and get effectively $30,000 off the price tag?

Peter:
Yeah, close. Yeah. What I really did here was dig into the listing itself and get all the information I could on the property so we could leverage it and strengthen our position. What I mean by that, number one, been on the market forever. It had fallen out of contract before and it had fallen out because it had a foundation, a couple issues going on, and the buyer was spooked and they bailed. There was a contractor estimate on it, so we got that in advance. It was also agent owned, so the agent was also the seller of this property. So I knew I was going to be dealing directly with the person who could make those decisions. And as Keith mentioned, it didn’t quite seem like they maybe knew what they were doing too well. Responses were slow. They didn’t have utilities on for inspection. Just some easy blunders that they made.
But nonetheless, just took all that information knowing they’d been holding it forever, they couldn’t sell it, they were running into foundation problems, and we leveraged that to get the price down as much as possible. And they made a crucial error here in the fact that that agent owner did not pre-negotiate the foundation problem. So they already knew it was there. They had a bid, they gave it to us, told us about it, but then they failed to get that negotiated upfront. They allowed us to just keep the normal inspection contingency in place, go in there, do our inspections, and then renegotiate it even though this was a previously disclosed item. And so that was their error.

David:
That is a big error and what you’re getting at there, Peter, for those that are not real estate agents and might not catch this, when there’s an issue with the house, you’re better off as a seller to negotiate it when you have the leverage, which is before you go into contract. There are no ways out of a contract for a seller. There are many ways out for a buyer. So the general rule to understand is when it’s your listing, you have all the power until you go into escrow because you can sell to other people. When you’re in escrow, the situation can never get better for you, but it can get worse. They can lower the price, they can ask for repairs, they can delay the process. There’s a lot of things that can happen. So when you know have issues, before you go into contract, say, “Hey, we have these foundation issues. Here they are.”
Don’t just hope that they’re not going to find them. They’re absolutely going to come up, especially if you know it. And try to negotiate what credit they’re going to get for that rather than waiting until you’re in escrow and now you’re two to three weeks in and they’re coming back. They’re going to get more than if you did it the other way. Great point there, Peter. And I think Keith, you mentioned that the listing agent wasn’t very good. That’s another thing to look for. I purposely target properties that have agents that are not very good because it’s a great way that you can save money. And the funny thing is a lot of the people that hire these agents brag to their friends that they only paid 1% or only paid 2% on the listing commission, and then they proceed to lose 10% on the negotiation side. That’s a frequent error. Have you seen that too, Rob?

Rob:
Oh yeah. Got to love it. Got to love it. Well, awesome. Okay. Well, congrats on the price reduction. Keith, tell us a little bit about how you funded the deal.

Keith:
This deal, I came in cash and then I ended up refinancing out into a … I refinanced out on a non-conventional loan with a local credit union on a 5/5 ARM. So five years, it doesn’t reset. It’s not like a 5/1 where it resets every year. The interest rate adjusts. The only thing that they will do since they are a small credit union is that if the rates drop more than half a percent, they will bring your rate down for a nominal fee. It was like a couple months worth of interest or something to bring the rate down. But on a 5/5 ARM, it won’t readjust up for five years.

David:
So a 5/5 ARM means the first five years you’re locked in. After that it can only adjust every five years as opposed to what we normally hear is a 5/1, which means you’re locked in for five years, then every year it can adjust.

Rob:
Oh, interesting. Okay. Yeah. That’s interesting. So why’d you choose that route, Keith? Was it just because it was a lower interest rate?

Keith:
It was a lower interest rate. Also based on where interest rates are now, five years being locked in, if it penciled as a long-term now, I knew that hopefully over five years rents would go up, my cashflow would go up. And then if rates come down enough and I want to refi out into a 30 year, the penalty for refi out of that 5/5 ARM was really, really low so for me, it didn’t make any sense to take a hire rate now if I didn’t need to.

Rob:
Totally. Yeah, that makes sense. And what did you end up doing with this property?

Keith:
I actually turned it into a midterm rental. It would break even as a long-term rental. I put it up on Furnish Finder and Zillow and even Airbnb at 30 days. And now I’m actually cash flowing pretty good on this property. So I’m keeping it right now as a midterm. If anything ever changed or I needed to, I could turn it back into a long-term rental and make it work. It would still work, but right now it’s working just fine as a midterm.

Rob:
Okay. So yeah, we usually call that … Well the term that I coined was the burster, and then we actually just came up with the barometer last week on the pod, which is a BRRRR into a midterm rental. Can you tell us the cashflow difference between the long-term rental and the midterm rental? What would you make on a long-term rental versus what’s you’re cash flowing on the midterm rental?

Keith:
I would basically break even on a long-term rental, and right now I’m cash flowing about $700 a month as a midterm. So great for me, especially where I thought I was going to be breaking even. But yeah, I’m coming out about $700 a month.

Peter:
Rob, you want me to break down the numbers for you?

Rob:
Yeah. I was going to ask. Yeah, can you tell us a little bit about the actual budget and everything on the BRRRR?

Peter:
So Keith bought this for 121,000. He had about 35,000 in renovations on it, so all in about 155. And it was appraised for 203. So after the refi he left about $2,500 in the deal and he spent about $12,000 furnishing the property. So round up a little bit, about 15K in the deal. Total PITI was a little over 1400 and obviously you got some utility expenses, some landscaping, et cetera. So $2,200 on the medium term rental. So as he said, about $700 a month cashflow. So I got to do the math exactly in my head about 50, 55% or so cash on cash return right there. And had he long-term rentaled it, as he said, it was just about breaking even. We estimated the long-term rent to be in the $1,500 to $1,600 range, so a difference of $600, $700 when he switched over to the medium term per month.

Rob:
And some people, they get caught up on leaving money in the deal, but if you would think about it, if you were going to buy this property conventionally with an investor loan for example, you would have to put 20% down. So even at the … What was it? $150,000, let’s say.

Peter:
121.

Rob:
121. Okay, great. 20% of that is going to be 20,000.

Peter:
25. Yeah.

Rob:
So you’d have to pay more.

Peter:
More money in the deal.

Rob:
Exactly. So you put it a little bit more sweat equity in this deal to make it happen, but you effectively have a much higher return as a result, so very, very cool. Did you feel pretty good about the ARV walking into this? Were you able to comp it out pretty closely to that ARV?

Peter:
Yeah, absolutely. We had estimated about 200 grand, so it nearly hit the nail on the head with the 203 valuation.

Rob:
Very cool. Okay. And just for anyone at home, ARV is the after repair value, so that is what the house is worth after you fixed it up. Now, Keith, I know you mentioned that you put it on Furnish Finder and you turned it into a midterm rental. Did Furnish Finder actually turn out to work out and get you your leads and get your place booked or are you using other platforms as well?

Keith:
No, it actually … I mean, when I put it on Furnish Finder, I also put it on Airbnb and I put it on Zillow, and Zillow was the first place I got my renter, who’s in there now, who’s been in there the whole time. He’s actually a guy doing construction work in Indianapolis and so he needed a place to stay, and he’s been there for the last couple of months and it’s been great, but it was from Zillow actually.

David:
That’s great. All right, so what lessons did you learn from this deal? Keith, we’ll start with you and then Peter, I’ll ask you.

Keith:
Especially if you’re investing out of your own market, you really need to find somebody who knows the market well, who can guide you to where to buy, how to buy, what’s going to work, what’s not going to work. Also, with this deal, people usually run when they hear foundation issues because it scares them, right? They don’t know. They can get pretty costly. But if you know can factor that into the deal that you’re going to make, then don’t be scared of things that sound that scary because sometimes they’re not. Sometimes you can get a great deal.

David:
Peter?

Peter:
I have four main takeaways from this deal. Number one, and I think the most important one, is that there’s still deals to be had in today’s market. I mean, Keith bought this in April this year, and he just refinanced out a few months ago. So this is a very recent deal in today’s market with today’s rates. He made it work. And I think it’s a big takeaway because all I hear is, “Oh, there’s no cashflow. There’s no money being made. The market’s dead.” I know you guys hear that every single day as well, and it’s just not true. He’s a real world example of it actually working out. And number two, use all information available to leverage your position. Don’t be afraid to dig into the details a bit more and use whatever you find to your advantage. Three. Keith already mentioned, take advantage of factors that may scare off other buyers.
Buyers hate the F word, they hate the S word and they hate the M word. So foundation, structural, mold. Those three things just you see panic go into people’s faces when they hear that when in reality, most of these situations are fixable and not always as costly as people anticipate. Now, with foundations, yes, I’ve seen $100,000 bids on repair and there are some ones that you need to run from, but this was under $10,000. And again, Keith factored those numbers into the deal from the get go. So there was nothing to be afraid of, and it’s fixed. Everything’s just fine. So all those other buyers missed out on this deal because they couldn’t look past that F word. And then four, don’t be able to be afraid to pivot on your strategy. Keith originally went into it, number one, looking for a three bed, two bath and a long-term rental, and he ended up with a 2/1 medium-term rental. Go figure. But as he got into it, he kept his mind open. We looked at the opportunities as they presented themselves, and again, he pivoted accordingly and it ended up really working out for him in the end.

David:
Awesome. Rob, what about you? What are some takeaways you took from this one?

Rob:
Yeah. I was just reflecting, Peter, it is really nice that you know your stuff. The F, the S, the M word. I believe those were the three. And it’s funny because when I was getting into real estate, I remember I had to sign an addendum that was the lead paint addendum, the one that’s standard with all houses, and I was like, “Oh my gosh. Am I going to die if I step inside the house?” And I called my realtor and she explained it to me and talked me down the ledge because I was ready to walk away. I was like, “Wait a minute. There’s lead paint in here?” And I think most of the time it’s right. Having a realtor that has been through that journey has been very helpful. Especially when it comes to foundations, I agree, that’s a very scary thing. For me, luckily, in most of the cases, I would say in the last five foundation issues I’ve had, they’ve all cost between $1,500 to $3,500 to fix. So it always, most of the time ends up being a lot less stressful, but it does pay to have a realtor that has experience doing it. So yeah, it’s nice. You guys both did good work. Congratulations on this deal. This is awesome.

Keith:
Thank you.

Peter:
Thank you.

David:
Absolutely. I would second it. Whenever you hear something that scares you, turn your fear into a number because math is not scary. I remember that’s advice I gave on the first ever podcast I did when I hosted with Brandon. And I said the same thing. We were talking about lead-based paint. I was like, “I don’t care if it’s lead-based paint. Don’t think poison. Think well, what would it cost to fix that?” Same thing happens with asbestos. People hear that word. They freak out. Termites, they freak out. Foundation, they freak out. Cloud on title, turn it into a dollar, work the dollar number into the deal. See if the SAT works for the seller. You can take something very scary and turn it into something very approachable. Thank you guys. That’s a-

Rob:
I’ve always found with asbestos, its bests is not ask questions. That’s always been my-

Peter:
It’s best to leave it alone.

David:
Rob, do you know how they name Worcestershire sauce?

Rob:
Worchester shire, shishashin sauce. Yeah. How?

David:
Some guy that took his dentures out was asking, “Worcestershire sauce?” All right. Peter, Keith, congrats on the deal. Thanks for being back on the show. We will see you soon.
All right, Dave, let’s start with you.

Dave:
Yep.

David:
What’s your background in real estate investing?

Dave:
I initially started real estate investing back in the early 2000s. I had purchased about six out-of-state properties. Two in Texas, two in Kansas City, Missouri, and two in Vancouver, Washington. And had bad timing, a little bit of some bad experience with a couple property management companies and I got out around the housing crash in 2008. I was able to salvage some deals to get out. And so that’s where I started and then I’ve just been sitting on the sidelines the last few years needing, I guess, another push to get back in and finally got it last year and then ended up purchasing a couple properties this year.

Rob:
What was that push?

Dave:
Honestly, it was you. I found the BiggerPockets podcast on YouTube. Watched a couple videos, joined the website, became a member, and then quickly purchased your book, Long Distance Real Estate Investing, and spent a lot of Saturday and Sunday mornings reading that out in the porch. And a lot of things you had to say resonated with me and got me off my butt and the rest was history I guess.

Rob:
Was there a specific moment in that? Was it like you finished the book and you’re like, I’m ready to do this? Was it just being part of the BiggerPockets forums and getting back into the community? What was that shift? Was it a conversation you had? I’m always curious to hear how our members are able to get to that point where they take action and get back in the game or get into the game at all.

Dave:
Well, I knew I wanted to get back in, but I did have a lot of reservations because of some of the issues I had with my prior experiences investing out of state. And back then it was a lot different than it is now. And David mentions it a lot in his book with technology is such a plus right now. Being able to keep up to date … Or actually a lot of it was really just being able to do the initial research with finding properties. Being able to look in different areas around the country, not just in my area. So using the BiggerPockets rental calculator was a big tool for me. But then throughout the book, I guess the little things here and there with push, letting us know there’s technology here to help us how to build a team. And so I just decided to take a chance and sent an email to Dahlia through the BiggerPockets website and-

Rob:
Very cool man. Well thank you for that. So tell us, you end up getting back into it, you find your fire again. What were your goals getting back into real estate? Did they differ too much from when you got into real estate to begin with?

Dave:
Quite a bit different now. I’m a few years older now. I have two sons that are 15 and 16. So I think my motivation now is twofold. One is I’m looking more at retirement soon for my day job, so to have that passive income. And then two was to provide a legacy for my two boys.

Rob:
I love that, man. So, all right, let’s hear about this property a little bit. Tell us about the property. What kind of property is it?

Dave:
It’s a single family home, three bedroom, two bath. It’s built in 1983. It’s in the outskirts of Tulsa, Oklahoma. One story. Needed some work. I think the seller had been in there a while and it definitely needed some updates. So I went in there and did some updates, but pretty simple.

Rob:
Yeah. Cool. And so this property showed up and did you take it to Dahlia? How did you even come across it to begin with?

Dave:
Actually it was the opposite. Through Zillow, I had been looking at properties in that area and when I contacted Dahlia through BiggerPockets’ website, I actually had came to her with a property and she had told me no. I think it had some structural damage I think or some problems initially.

Dahlia:
Yeah. There was something going on with it and I remember I was like, “I can get you a better property in that same price point in a better location.”

Dave:
And she did.

David:
That supports the point we just made with the previous guests where we talked about going to your agent and saying, “This is what I want. Go get it.”, is not as beneficial as saying, “Tell me about your market. Where are there opportunities?” Because Dave, there’s no way you could have known that there was a better neighborhood where you’d get better tenants and better rent and have a better experience for the same price without having that boots on the ground expertise that your agent brought.

Dave:
You’re absolutely right.

David:
So Dahlia, from your position, you’re a real estate agent and people come to you and they say, “Tell me about this house.” I get the screenshot, what about this one? That’s our favorite as an agent because we don’t know what you’re asking. What about it? Right?

Rob:
Or they just send you the link. They don’t even ask.

David:
Yeah, just here. That’s funny. That’s exactly right. When you get that kind of information, what goes through your head that many clients would never know a realtor’s thinking?

Dahlia:
Well, I mean I’m always very transparent with my clients, so when they send me a property, I’m going to tell them exactly what I think, just like what I told Dave. So if somebody sends me a property, I’m going to quickly pull disclosures, let them know anything that’s going on with the property. I’m going to tell you if I think it’s worth what they’re asking. I’m going to tell you I think this one’s going to go quick. All those things that are going to affect me telling you, yes, I think this is a property to pursue. And that’s going to be a question for the buyer as well. If there’s any repairs, for instance, that come up on the disclosures, that may be something that’s a deal breaker for them.

David:
And the property that you found him, where’d you find that one?

Dahlia:
That one was in Broken Arrow. I found it on MLS. I think it was maybe a week after he had first reached out to me about that other property and I told him, “You know what, I can find you something better.” I think a week later this one came up and I told him, “Hey, I think this could be a good one. It’s priced well. It’s going to go quick.” I knew he was a cash buyer, which is always … If you can use cash, it’s always to your advantage. So I was like, “Let’s get in there and make an offer.”

David:
All right. And then how much did you make the offer for on this house?

Dahlia:
I believe they were asking … Do you remember, Dave, exactly how much they were asking?

David:
I think it was 155.

Dahlia:
We came in maybe 6K over. It was 149 and we offered, yeah, 155 I believe.

David:
Why did you choose to go over asking on this one?

Dahlia:
Because I knew it was going to go over. The tough thing is how much can we go over? It’s always like the lottery, I feel like. How much can I get over and get this property? But I don’t want to go over too much. I want to spend the least amount of money possible, but-

David:
What you’re describing is the dilemma that everyone has in a hot market. In California, this is a common issue. So the house is listed for 800,000, it’s got 20 different offers. You know it’s going over the 800, but nobody wants to pay 900 if they could have paid 875.

Dahlia:
Exactly.

David:
You always end up in this odd, well, I don’t want to lose it, but I don’t want to go too much. And it creates this paralysis that will probably knock out 75% of buyers. And that’s where having an agent that’s experienced … Sometimes I can just get the listing agent to say, “If you write this offer, we’ll accept it right now.” And at least then the buyer knows I could choose yes or no. It removes that throw your name in a hat and hope type of a thing. Was it a situation similar to that for you?

Dahlia:
What I always do is I always feel the agent out. And technically we’re not supposed to disclose price, correct? But I like to do a few little fun tricks and I like to put a number out there and say, “Hey, is this number competitive?” And a lot of times I’ll get a yes or no.

David:
Is that a Tulsa thing that you’re not supposed to disclose price, what your buyer would pay?

Dahlia:
It could be an Oklahoma real estate thing. I don’t know about the other state laws, but we are not supposed to disclose price of offers unless the seller tells us that we can and that just really never happens.

Rob:
Yeah. I always just go with the blink twice if this is a competitive offer that would be accepted.

David:
Yeah, it could get tricky when you’re going that route. And every state has their own laws, so I can’t speak to all of it, but I know in general-

Dahlia:
Sure.

David:
Agents can have a discussion about would this work without saying my buyer would pay this. That’s the way I always try to frame it. I usually say, “Hey, my client’s going to listen to whatever I tell him. So let’s see if you and I can make this thing work and then we’ll go back to our clients and we’ll propose what we came up with.” That alone, if you get an agent that will do that, it puts you in the top 1%, 2% of chances of getting that house. Because most agents just email off an offer and say, “I hope we get it.” Literally, like you said, the lottery. Just pick numbers. So it sounds like your experience recognizing I think six grand over asking would make it so that the seller would jump on our offer without having to pay 30 grand over asking and that was just a result of you knowing the market, right?

Dahlia:
Yes.

David:
Dave, how did you feel when that first got brought up? Hey, I think we should go six grand over when most investors are asking the question of, well, how much under can I get it for?

Dave:
At that point, I had a lot of confidence in Dahlia. She had been really transparent with me in how the market in that area is performing. And the crazy thing is she told me this is what I think we should offer and this is what I think they’ll come back at. And she was spot on. So I think to answer your question, I had a lot of confidence with Dahlia before she made the offer. And two, I was hungry enough where I didn’t want to lose a deal over $5,000 or $6,000.

David:
I commend you, man. And I’m not here as an agent telling everyone just pay a million dollars for every house, okay? But let me just bring up the other side of this. In 2015, 2016, I saw a lot of people walk away from $500,000 homes because they needed to pay 510 and they all bragged they didn’t want to overpay. And now these houses are worth $800,000, $900,000. We see this a lot when you’re in real estate for the long-term that you can step over dollars to pinch pennies and I’m just asking people to have a mature view, not getting sucked into the details and the ego of feeling like you won. Because sometimes paying less than asking price is a viable option like with our last guest. Sometimes you win paying over. It’s what the property’s worth and what it produces, not what it’s listed for. So Dahlia, you then had to go in and negotiate this. In addition to having to pay a little bit over asking, was there anything else that you recognized when you felt out the agent that made you think this was a good opportunity?

Dahlia:
I just knew that price point and that location was very hard to come by. And that was earlier this year. And now at this time of year, it’s really non-existent. So I’m sure he’s already gained some equity on that property. But as far as being able to secure the deal, I think we did as is and I think we did quick close because I know those are always the things that these type of sellers are looking for.

Rob:
Yeah. Just really quick, out curiosity, Dave, you brought a property to Dahlia. Dahlia’s like, “Eh-eh. I’m going to find you a better deal.” Obviously for you, I’m sure you were ready to take action. You probably were a little impatient because you’re like, “Dang-it. It’s going to take so long to get it.” So how long did it actually take to get this new property under contract?

Dave:
I looked at that number this morning and we were under a week.

Rob:
Oh, nice. Okay. Wow. Superfast. Okay. How did you fund it?

Dave:
Paid cash for that property.

Rob:
Okay. And what did you end up doing with it?

Dave:
I’ve got a long-term renter in there now. Actually, before I got a renter in there, we did some rehab work, roughly about $17,000 worth of rehab work.

Rob:
Okay. So was it a total BRRRR or was it just a remodel that you paid for out of pocket?

Dave:
A remodel I paid for out of pocket.

Rob:
Okay. Did $17,000 of repair get you a lot? What did you actually do with that budget?

Dave:
Living in California and seeing prices for materials in Oklahoma and labor in Oklahoma, I felt like I didn’t pay a lot at all, but-

David:
I know that feeling. Every time I travel and I get to get gas and it’s in the threes, you’re like, it’s like free.

Dave:
Yeah, it’s a crazy feeling. So we tore out all the flooring, put in new flooring, new appliances, new windows, paint, water heater, did some work in the garage.

Rob:
So not a full-on remodel, but definitely sprucing it up and getting it market ready basically.

Dave:
Exactly.

Rob:
And what was the outcome with it? Once you got it all ready to go, you rent it out long-term basis. Give us some numbers.

Dave:
The crazy thing was I ended up using a property management company that Dahlia had referred to me, and so we went in on a Friday, I think, and listed it on the MLS for rent. I heard back from the property manager on Monday that we had 75 interested parties and 25 physical applications in her hand. So we had a renter in there within then 10 days or so. Less than that actually.

Rob:
That’s crazy, man. That’s a lot.

David:
Dave, it sounds like having cash actually put you in the driver’s seat for this deal. Gave you a big advantage. Do you mind sharing where that cash came from and what gave you that advantage?

Dave:
About seven or eight years ago, my wife and I decided to purchase some land in northern Idaho. We had purchased 44 acres in a spot that we had felt we wanted to retire at, build a home on that property. And fortunately the price of real estate and especially land in that area just has skyrocketed. So got contacted by a realtor early last year wanting that land and he didn’t give up until he got it. So we ended up selling that land. And then just about that time I was reading Robert Kiyosaki again and the liability versus asset, and I thought, “Wow. We need more assets and real estate’s the perfect asset.”

David:
Would you say that the choice to delay the gratification of having a dream house or a dream car or a dream yacht or all the things that you tend to see on social media actually led to you being in a position where you could invest that money, make it grow, and then maybe someday this property could buy some of those things for you?

Dave:
Yeah, exactly. That’s exactly what happened.

David:
Yeah. That is a principle that we believe here at BiggerPockets and I love to see that highlighted. It’s that delayed gratification. If you set yourself up right, it’s not this or that. You could have this and that. It’s all about timing. So Dahlia, any takeaways from this deal that you’d like to share with our audience that maybe they should consider when they’re reaching out to talk to a new agent?

Dahlia:
I feel like the biggest things are first, making sure that you’re ready financially. So if that’s going to be you using financing, get pre-qualified right away. If it’s cash, we need proof of funds. All those things are important. I can’t submit offers without it. And sometimes these deals come up and there’s a sense of urgency and you can potentially miss out if you’re not ready and don’t have your ducks lined up, I guess you could say. That’s one of the biggest things. Just knowing the market that you want to be in, researching it a little bit and then really finding a great agent that has the resources that are going to be imperative for investing out of state. Boots on the ground is the most important thing really when you’re investing out of state.

David:
Now, it can be very frustrating to find those people. To find the agent, to find a contractor, to find the property manager into a smaller degree to find your loan officer or your lending source. But once you find them, you can scale a lot faster. Dave, I understand you bought more than one property with Dahlia. Is that correct?

Dave:
That’s correct. I ended up buying a second property about two and a half months after purchasing that first property.

Rob:
Cool. That’s fast.

David:
It’s not always a linear process. It’s kind of like you walk around trying to find the well and you keep digging and digging and digging and there’s no water, but then when you finally find it, you have all this water and your wealth grows exponentially.

Dave:
Definitely. And I think having Dahlia … In your book, you mentioned a lot about setting up your network and it’s hard to do when you’re investing out of state, but luckily I found Dahlia and she had a network already in place and she brought me into that network and that’s made all the difference. That’s why that second property went so smooth as well.

David:
Awesome. Well Dave, if people want to reach out and talk to you more, where can they find you?

Dave:
I’ll give you my company website. It’s DRD Insurance Agency. I’ve got my email on there. Yeah, if anyone has any questions or anything, please reach out to me.

David:
All right. And Dahlia, how about you?

Dahlia:
You can always find me on BiggerPockets on the Agent Finder. You can also find me on Facebook at ASN Realty Group. You can also email me at [email protected].

Rob:
If people want to find you on there, how do they find you on the Agent Finder?

Dahlia:
Yeah, just go to the Tulsa market and look for Dahlia Califf. And I’m going to pop up on there.

David:
Before you go, where can people find out more about you, Keith?

Keith:
I’m on Facebook. Just Keith Lall. Or on Instagram. KLaller1, L-A-L-L-E-R one. But that’s basically it.

David:
All right. Go give Keith a follow. And Peter, how about you?

Peter:
Oh, you can find me right on the BiggerPockets Agent Finder. And if you have any troubles with that, I’m right at peterstewartrealty.com. And Stewart is S-T-E-W-A-R-T.

Rob:
Great. So the Agent Finder, if they type in Peter Stewart, they’ll be able to find you?

Peter:
Peter Stewart, Indianapolis, I should pop right up.

Rob:
Perfect.

Keith:
That’s how I found him.

Rob:
Okay, awesome.

David:
Rob, how about you? Where can people find you?

Rob:
You can find me over on YouTube. Topical, I just released a video called How I Self-manage my Properties without living in the same city and I talk about, not the core four, David, but the Airbnb Avengers, which is my version of the core four for short-term rentals. So go check that out. That’s the only thing I’m going to plug. What about you?

David:
If people want to see your chiseled new body, which platform is the best to find it?

Rob:
Instagram. Instagram where I do silly dances and silly reels.

David:
That’s where they’ll get the body shot, not just the face.

Rob:
I do want to clarify, I don’t want people to get to peek on and be expecting me to be ripped. I’m just slimming down, but we still have some padding that we’re working on.

David:
That might be why I’m doing this subconsciously. I’m like, look, if I can create such a high expectation for Rob, they’ll be disappointed. And then when they see me when they’re not disappointed, that by proxy looks like-

Rob:
Equals it out.

David:
I overwhelmed their expectations and exceeded them. This is psychological warfare, folks. You’re learning more than just real estate here at BiggerPockets.

Rob:
Lovable and huggable. That’s all that really matters for me. That’s what I’m going for.

David:
There you go. You can find me at DavidGreene24 on your favorite social media. Instagram is where I’m most active. Or davidgreene24.com to see all that I have going on and how I can help people.
Well, thanks you two. Love hearing about these deals. Love hearing that people are still finding ways to buy real estate that makes sense, even in an impossible market. So we hope to see you here again. I hope you keep buying property, Dave. And Dahlia, keep crushing it. Dahlia, also, if you haven’t checked on my real estate agent books, I’d love if you would, and then let me know what you think.

Dahlia:
Oh, I have checked out your books. I love all the BiggerPockets books.

David:
Oh, all of them. We got a real true fan here. Well, that’s great to hear. Thanks for that, Dahlia.
All right. I’ll let you guys get out of here. This is David Greene for Rob Lovable and Huggable Abasolo, signing off.

A study by 2 Harvard grads of Harvard graduates turned entrepreneurs suggests that most venture failures are caused by poor execution.

Is this a brilliant breakthrough or blindingly basic?

Yes. And yes. This insight is both basic and a breakthrough.

Why Basic?

In the early stages of the VC industry, a common saying was “Management. Management. Management” to remind everyone that good ideas lose out to poor management, aka bad execution. But in the last few decades, the Entrepreneurial Ecosystem (EE) has focused on the idea, the pivot, and on VC instead of on skills – even though most ideas can be imitated and improved, and VC only helps ~20/ 100,000 ventures. Among 85 billion-dollar entrepreneurs, only 1% succeeded because of the idea (Truth About VC).

The role of execution was obvious, but the hype and glamor of VC beat out the not-so-glamorous learning of skills in order to grow without VC. To understand the importance of skills, ask yourself whether you would have financed startup entrepreneurs with ideas such as imitating a big store for retail or a big store to sell consumer electronics, or starting a venture to sell personal computers, or to sell coffee, or to start a new search engine, or to sell furniture on the Internet, or to help landlords rent rooms and houses. Few, if any, will say yes to all. The above entrepreneurs, in order, are the founders of Walmart, Best Buy, Dell and Apple, Starbucks, Google, Wayfair, and Airbnb. All of them grew with skills and avoided VC or delayed getting it, often because they were rejected for VC before Aha! All built real unicorns.

Problems with the VC Entrepreneurial Ecosystem (EE).

#1. VCs wait for Aha, i.e., for proof of potential. Although shark tanks, and pitch competitions have cemented the myth that experts can identify successful ventures from a pitch before proof, VCs are smarter. VCs wait for evidence of potential in proven strategies and leaders. Perhaps this is why many VCs, including the highly respected Tom Perkins of Kleiner Perkins, rejected Steve Jobs and nearly 12, including the eminent VC fund Bessemer, rejected Airbnb, Apple, and Google. Entrepreneurs need skills to get to Aha. But the VC Entrepreneurial Ecosystem offers skills to ideate, plan, pitch and pivot – not to sell and build.

#2. Lost Growth Opportunities with the VC Entrepreneurial Ecosystem. The assumption that the idea and capital are key has encouraged the growth of incubators and angel funds. One highly successful VC suggests that angels should get into financing ventures for love, not for money. And only about 2% of VCs are said to do well because, as noted by Marc Andreessen, about 15 ventures are said to account for ~97% of VC returns. Should the focus switch to the development of skills?

The Brilliant Breakthrough

This new insight from the Harvard graduates that execution is key is a brilliant breakthrough because it shatters the VC-focused clutter in EEs and suggests new directions based on what really works in unicorn development – skills. Perhaps because of VC hype, business schools have sought the glamor and gamble of VC, instead of the hard work of skills.

What should Business Schools do?

The focus on the idea and capital has encouraged business schools to teach innovation and ideation to generate ideas, and sponsor shark tanks and pitch contests to develop pitches. But they do not teach how to find unicorn opportunities without VC, which is what about 99% of billion-dollar entrepreneurs (BDEs) did, how to takeoff without VC that 94% of BDEs did, and how to build a billion-dollar company without VC that 76% of BDEs did (see Nothing Ventured Everything Gained and Finance Secrets of Billion-Dollar Entrepreneurs). They focus on spectacle instead of on skills.

MY TAKE: After spreading the gospel of VC for decades, it is good to see Harvard, one of the leading beneficiaries of the VC EE, highlighting the key role of execution in venture development. Perhaps they will influence others to pivot from VC-based EE to Skills-based EE and develop more unicorns for the 99,900/ 100,000 ventures who do not get VC, for the 80/100 that fail after getting VC, and for the 19/ 20 that are heavily diluted by the VCs.

NytimesVenture Capital Firms, Once Discreet, Learn the Promotional Game (Published 2012)
TechCrunchWhy Angel Investors Don’t Make Money … And Advice For People Who Are Going To Become Angels Anyway | TechCrunch
Bessemer Venture PartnersAnti Portfolio