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John Kim, real estate analyst at BMO Capital Markets, joins ‘The Exchange’ to discuss the state of the REIT market as well as companies rethinking office investments.

I recently got introduced to Alyssa Hitaka at TopTierStartups.com, a new content site rich with startup related news, tips and interviews with startup founders. I was curious what her startup founders were seeing, in terms of the best marketing strategies they are successfully using today. Alyssa was kind enough to interview ten of her founders, to get those learnings. And, we are both pleased to share those learnings with all of you, to help you with your own marketing efforts. Here is the list:

1. Katja Kaine at The Novel Company: Word of mouth and great customer service

Word of mouth is one of the most important ways a founder can get the word out about their products or services. Katja Kaine, founder of The Novel Company, has focused on slow and organic growth of her innovative writing technology, gradually building up a strong reputation among customers. Katja also emphasizes the importance of engaging with customers personally—she responds to all emails herself, which indicates to users that the company truly listens and cares, further boosting loyalty.

2. Robert Brüll at FibreCoat: LinkedIn and startup awards

LinkedIn is a must for just about any modern-day professional, and Robert Brüll, founder of high-performance materials startup FibreCoat, encourages fellow entrepreneurs to make the most of the platform to market their brands. His company also regularly participates in startup award contests, and winning awards helps his business build its reputation, secure positive feedback, and gain traction among the target demographic. When paired with FibreCoat’s powerful LinkedIn presence, these awards stretch even further and help drive more traffic at live events, which further boost the company’s reputation among consumers.

3. Vita Valka at Camperguru: Connecting with consumers in real life

These days, a lot of brands rely on digital media to promote their products and services, and Vita Valka’s Camperguru has also leveraged the algorithms at Facebook and Pinterest to evoke interest and familiarity with the target demographic. What gives the innovative camping app its edge, however, is the connections its team of ambassadors make with campers on the ground. Camperguru’s team of passionate campers tour some of Europe’s best campgrounds and, in the perfect locations with highly concentrated groups of avid campers, spread the word about the app in person.

4. Wolfgang Rückerl at Entity: High-quality content and interactivity

Content marketing is a major growth driver for a lot of businesses today, and Wolfgang Rückerl affirms its powerful role in growing his blockchain startup Entity. Focusing on valuable information, crisp graphics, and thorough explanations of the company’s more technical aspects, Robert has built up a solid community of users for his app. An important addition to his marketing strategy is engagement and interactivity on social media, with Entity regularly designing contests, games, and events for users and prospective users to participate in. Robert credits this interactive marketing approach to strengthening trust with followers and driving growth of the platform.

5. Stefanie Palomino at ROOM: Maintaining a holistic approach

There’s a lot involved in promoting your new startup, with many ways to approach marketing and many factors to consider throughout your company’s continued interaction with consumers. Stefanie Palomino, founder of innovative telecommunications application ROOM, stresses the importance of adopting a holistic approach to marketing. She encourages entrepreneurs to consider the full user journey, from their first acquaintance with your brand to their continued use of your service or product. The data you collect from existing customers—both quantitative and qualitative—can help inform your precise marketing strategy, building lasting relationships and trust with loyal users.

6. Deanna Visperas at GoVirtuals: Influential staff as a marketing strategy

The staff of a company define its aura and atmosphere, and how a company feels can have a major impact on prospective customers. Deanna Visperas, who founded virtual assistant company GoVirtuals, firmly believes that her marketing success is rooted in the influential individuals who staff her team. According to Deanna, thought leadership and employee advocacy are key to building a brand’s reputation and cultivating trust among consumers, so fostering your employees’ talents and influence is a great way to grow your business. Happy employees can lead to happy customers.

7. Mark Brouwers at Nocto: Collaboration with similar brands

The startup world is big, and while similar companies are conventionally viewed as competitors, Mark Brouwers reveals why it’s often better to see them as partners. Mark has built up his unique hospitality connector platform, Nocto, through collaboration with similar businesses who share goals and target demographics with his company. Designing win-win strategies help both companies grow, and as an added bonus, collaboration generally means you save time, money, and effort. This marketing strategy will also allow you to forge meaningful relationships with other professionals in the industry, which can open all sorts of new doors for your brand.

8. Siebe van Mensfoort at Simbeyond: Leveraging industry events

Though online marketing makes up a huge portion of modern-day companies’ promotional efforts, offline marketing can be just as powerful, if not more. Siebe van Mensfoort, founder of Simbeyond—a startup that creates software tools for the development of high-tech devices—regularly partakes in industry events to boost his brand. This marketing strategy takes him all over the world, to conference presentations and exhibitions alike, and has allowed all sorts of interested prospective customers to discover Simbeyond. As a bonus, regular participation in industry events gives Siebe a solid grasp of the latest market innovations.

9. Sam Kynman-Cole at topVIEW: Google Ads and direct calls

Sometimes, the simplest marketing approaches are also the most effective. Sam Kynman-Cole from topVIEW, a digital startup that allows businesses to create virtual 3D tours of their indoor spaces, recommends Google Ads as an effective strategy for B2B companies. However, he highlights directly reaching out to potentially interested parties as his number-one marketing approach. Phone calls are the best, Sam advises, but a personalized email is also effective for less urgent situations. He also praises LinkedIn as a great way to make direct connections with specific people, much like personalized emails.

10. Joe Menninger at Startuprad.io: SEO and media exchanges

Search engine optimization (SEO) is a major buzzword in content marketing, and for good reason—it boosts your rank in search engines, helping prospective consumers find your brand. Joe Menninger, founder of Startuprad.io, an English-language podcast covering startup news in the German-speaking world, highlights how crucial it is to create transcripts of podcast episodes. For each episode, he generates a transcript and a detailed blog post, which allows him to deliver high-quality audio content to listeners while still tapping into search engine algorithms. Joe also collaborates with other podcasts, creating a win-win scenario that boosts the followers of both shows.

So, hopefully, there are some useful “nuggets” here for you all to use in your businesses. Thanks again to Alyssa for her research and helping me create this post.

—

George Deeb is a Partner at Red Rocket Ventures and author of 101 Startup Lessons-An Entrepreneur’s Handbook.

Ashley:
This is Real Estate Rookie Episode 266.

Tony:
Most people, when they’re going into a house hack, their goal isn’t necessarily to make $500 a month in cash flow. Their goal is to subsidize their cost of living. So if you can cover the majority or sometimes all of your mortgage by renting out these additional units, then you are probably doing a pretty good job, because now you’re able to save that money you would typically be spending on your rent or your mortgage, say whatever, it’s 2,000 bucks a month, and now you can put that aside to start saving towards your next property. So for a lot of people, when they’re house hacking, not necessarily the cash flow, per say, that they’re looking for. It’s how much of my mortgage can I offset by renting out these units?

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

Tony:
And welcome to the Real Estate Rookie Podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. And I want to start today’s episode by shouting out a really cool review that came in. This person loves us, a five-star review on Apple Podcasts. They go by the username TTWray, and the title of this review says, “Rookie Vitamins.” And TT goes on to say, “This podcast has given me the confidence to make moves. I was sitting on my mother’s home for about a year before committing to gutting and renovating it. But listening to Ashley and Tony every morning was like taking my morning vitamins. My real estate immune system got stronger, and I completed the renovation project, found a tenant, and now, it’s cash-flowing. I listen every morning as a part of my morning routine. I love how they break concepts down into nuggets that are actionable. No other podcast compares! Great job guys!”
That’s one of the coolest reviews I’ve read in a while.

Ashley:
Yeah, it is.

Tony:
So, TTWray, we appreciate you. And for all of our rookies that are listening, if you have left us a review, we appreciate you. If you have not yet, please take the two to three minutes out of your day to leave us an honest rating and review. More reviews we get, more folks we can help, and helping folks is what we like to do. So, Ash, what’s up? How you doing?

Ashley:
Well, you know what? I feel like I haven’t done this in a while since we recorded, but I feel like I really need to tell you guys more about my book that I just published.

Tony:
Yeah. [inaudible 00:02:20].

Ashley:
I feel like I haven’t talked at all, but here it is, right here, sitting here, the Real Estate Rookie: 90 Days to Your First Investment. There’s lots of mentions of Tony in here. But yeah, so if you guys haven’t checked it out, I would appreciate it if you look into it and see if it’s a good fit for you.

Tony:
How’s it feel, Ash, to be a published author? What’s that feeling?

Ashley:
Well, I sent my mom like 20 bucks, and she got the package in the mail and was telling me, “Oh, I’m so excited. Somebody sent me something, and then I just, ugh, just saw it was your… It was just books.” [inaudible 00:02:51]. I’m like, “Thanks a lot, Mom. Thanks.” But, yeah, so it launched on January 10th, and did a nice little dinner out to celebrate. And so now, I got to get a list together to publishing of all my friends to send copies to, and yeah. But it’s been pretty cool. Everyone should be getting their books now that did the pre-order pretty soon, and it’ll be exciting to hear what people think about it.

Tony:
Yeah, I love it. Well, I’m super happy for you. I know you put a lot of time and effort and energy into that book. And it’s so cool, because we already see what the Rookie Podcast is doing for folks. So the fact that you get to replicate that with this book, it’s so cool. So, I’m excited to see where it goes for you.

Ashley:
And Tony and I are working on a little secret something too, so you guys stay tuned for that too, because Tony may be an author soon too.

Tony:
Fingers crossed. We’ll see.

Ashley:
So, Tony, any exciting stories to tell us or any boring banter before we get into today’s episode?

Tony:
Let’s see. What’s the most boring thing I can think about that we can talk about today?

Ashley:
What did you eat this morning for…?

Tony:
You know, that’s [inaudible 00:04:05]-

Ashley:
You have the save meal every single day.

Tony:
Actually, so I’m gearing up my training for another competition. So I was initially planning to do a show at the end of April, but I think I might push it back to May probably, just to give myself a little bit more time. But I actually didn’t have breakfast this morning. I woke up, and I was doing stuff on the computer. Before I knew it, we had to jump in to start recording. So I had a protein shake for breakfast this morning. That was about it. But most days, my breakfast is 10 egg whites, two regular eggs, and then a little bit of oatmeal.

Ashley:
So, I don’t know what made me think of this, but like something that’s boring, I guess, in a sense. So, we’ve been implementing these Monday afternoon meetings. We were doing Tuesday mornings, but Tuesdays are when you and I record, and it’s just like, I have another call I do every Tuesday morning. So it was just like, too many calls in that day to actually sit down and focus on a meeting. So we moved them to Monday afternoons. And so we have an agenda built out. And so, it’s just me and my one business partner, Daryl. And, basically, we go through what each person did last week, what were our wins, what do we want to accomplish going forward, what are the things we need to prioritize, and then, what are the things we want to talk about next week? And then we just take the agenda, roll it over to each week.
And even if this is something you do with your spouse, your significant other, or your business partner, if you guys aren’t implementing this, I highly recommend it. It doesn’t take that much time. But with ours, we also have a section for travel, because we do a lot of travel together. So, last week, on our travels, we’re going to Tony’s short-term rental summit. And the one night, we’re actually going to Disney Springs for dinner, okay.
So we’re going through our agenda, everything, and one of the things was, pick the restaurant to book reservations for Disney Springs. 20 minutes later, we are in YouTube videos of the best and worst places to eat at Disney Springs. And it was just like, “How is this happening right now?” We could just fly through everything. Then we get sucked into watching YouTube videos on where we’re going to eat dinner one night. But it just goes to show that leaving those little things in, that adding things like that into your agenda that excite you or motivate you, because then it’s like, “Okay, we got to get all this work done now so that we can go and enjoy ourselves and not actually have to be like…” We want to use a lot of time for, obviously, enjoying your conference and things like that and not having to be like all these other things we got to do in the back of our mind.

Tony:
Yeah. And it’s an interesting point, because one of the things I’m really trying to focus on in this new year is less time doing and more time deciding and delegating. I feel like my time is best spent in my business at this point, not… If there is a meeting, almost no action item should be assigned to Tony. There is enough people that I work with now where I should be able to delegate that task to someone else. And really, the only thing I’m doing is deciding, I’m making a decision saying, “Okay, yes, this thing. Okay, not that thing. Yes, this thing,” and then handing it off to someone else, because there were moments where I was like, “Why am I doing this still?”
For example, we were on vacation earlier this year, or late last year, and we had a YouTube video coming out for the Real Estate Robinsons channel, and I was like, “Oh crap, we don’t have a thumbnail.” I was still doing the thumbnails. So I’m on vacation making a thumbnail. I’m like, “Why am I doing this? Why am I doing this?” And as soon as I got back, I found a graphic designer on Upwork. Now he does all of our thumbnails, and he does it way better than I ever could. Anyway, just as I’m thinking about next year, and for a lot of our rookies that are listening as well, as your business starts to scale, think about what are the things you should no longer be doing, and then delegate those off to someone else.

Ashley:
And also, making sure that it’s just the high-level decisions too, and that’s something I had heard Ryan Pineda talk about when I interviewed him in, I think it was Austin, Texas, maybe, at a conference there is he talked about how… Don’t even ask him the question. He’s high-level decisions only. There’s other decision-makers in place, and he only has to really think about those high levels that will actually make a huge impact on his business, where anything mediocre, there’s somebody else that’s making that decision too. So, he’s not overwhelmed with things, because he has everything’s set into place and his whole org chart set out as to like, “These are the things that actually need to come to me, and don’t bother me with anything else,” which I think is pretty interesting and, obviously, a great system to have set up. The hard part is actually getting yourself set up so that you are in that position.

Tony:
Yeah, and finding the right people and all those good things. So that’s always a challenge. And obviously, for our rookies, most of you are at the beginning phase of your investing journey, so don’t feel like you need to set this up on day one. But it is an important concept for you to understand so that as your business starts to scale, you know that the right decision is to start plugging people into these different roles so you can focus on the bigger picture tasks.
Like Ash, for me and you, the majority of our time should be spent in front of the microphone recording this podcast, in front of our computers writing our books, and doing other things that are super important.
All right, so today’s first question comes from Nadeem Chaudhry, and Nadeem’s question is, “Hi all. Learning more about doing property analysis and wondering, if I’m planning on a house hack on a multi-unit with an FHA loan, should you only worry if it’s cash-flowing once you hit 20% and get rid of your PMI in a high cost of living area? Otherwise, it seems as if no properties will be able to satisfy traditional rules around what a property should cash flow or make over the first year.” And just to clarify, I think when Nadeem says once you hit 20%, what she’s talking about is the loan balance in comparison to the property’s value, once you’re at 80% or less on your loan balance and your PMI goes away.
So, a couple things to break down here, Nadeem. I think the first question you have to ask yourself is what is your goal with this house hack? Most people, when they’re going into a house hack, their goal isn’t necessarily to make $500 a month in cash flow. Their goal is to subsidize their cost of living. So if you can cover the majority or sometimes all of your mortgage by renting out these additional units, then you are probably doing a pretty good job, because now you’re able to save that money you would typically be spending on your rent through your mortgage. Say whatever, it’s 2,000 bucks a month, and now you can put that aside to start saving towards your next property. So for a lot of people when they’re house hacking, it’s not necessarily the cash flow per se that they’re looking for. It’s how much of my mortgage can I offset by renting out these units? What are your thoughts on that, Ash?

Ashley:
Yeah, so, Nadeem, what you should do is remove yourself from the property and put somebody else in the unit or the room that you’re going to house hack in and see, okay, what would you be able to charge for rent on that? Does the property cash flow after you receive now that additional rent from the property? So I think using that as kind of a basis in looking at it that way, it will make you realize more as to like, okay, this is not a cash-flowing property. It’s more of like, yes, you are actually making money off of this, because you’re building equity, and you’re not having to pay any living expenses.
So, look at if for some reason, you had to move out of the property, would it still cash flow if you put somebody into your unit, or at least broke even on the property? But I love to cash flow, so if you can make it cash flow if you were to move out of the property, yes, great, but also, take into consideration if you were to go and rent a comparable unit, what would you pay and rent to live in that property too? And then kind of say, “Okay, that’s $1,500 I’m actually saving a month.” So definitely look into that. And then if you can live there and make money off of it and cash flow too, awesome, even way better, yeah, especially when you get down to that getting rid of your PMI, that definitely helps.
My sister, when she bought her house hack, she was paying, I think it was $45 a month to live there on that property, which, for her unit, probably had rented for like eight 850, $900 a month, and she was living there for $45 a month. So we consider that a huge win, even though she’s not getting any cash flow off of that property, which I think she is now, because she’s raised rent for the lower unit, and she’s maybe making $100 off of it or something, not paying anything now, but that was still a huge win to only pay $45 a month to live in that property.

Tony:
And Nadeem mentions that they’re in a high cost of living area. And I think it’s even more difficult to find deals that just create a ton of cash flow as a house hack in those kinds of areas as well. The only other thing you might want to consider, Nadeem, is, if you’ve got a multi-unit property, maybe instead of renting each unit out, can you rent out each room, right?
Say that you’ve got, I don’t know, like a triplex, and you’re going to live in one unit, and you’ve got two other units. Instead of renting out that entire unit, maybe it’s a 2/2 and another 2/2. Now you’ve got four rooms you can rent out, and what does that look like? And there’s ton of guests that have come on the podcast that have talked about the rent by the room strategy, but typically, you can maximize or increase your revenue per each unit if you rent out the rooms as opposed to renting out each unit. And we even had a guest, and I wish I could remember which guest this was, we had a guest that was doing that, but they also rented out the rooms in their own unit. Do you remember this, Ash?

Ashley:
Yeah. Yeah.

Tony:
He was sleeping on the couch in the living room just so he could rent out the other rooms in the unit. So there’s so many ways to maximize the revenue on a house hack.

Ashley:
Yeah, and you can incorporate different strategies too. So if you get a four-unit, if you’re in an area that demands it, turning one of those units into a short-term rental, then having the other two long-term rentals, or even doing one as a medium-term rental and renting it out for 30-plus days to traveling nurses or whatever, sometimes that can actually maximize your cash flow too, instead of just doing a long-term rental.

Tony:
Yeah, that’s a great part of having those multiple units, like you said, is you can throw a bunch of different strategies into each unit. So if you’re in one, say it’s a two-bed, you live in one bedroom, rent out the other bedroom, you’ve got one you’re doing as a medium-term rental, another one you’re doing as a long-term or a short-term rental, and now you’ve got income coming in a bunch of different ways. So that’s cool.

Ashley:
Yeah, Craig Curelop, who wrote the book, The House Hacking Strategy, you can find it in the BiggerPockets Bookstore, he would buy properties. He lived in Denver, Colorado, and he would rent by the room. He would have one of the rooms, rent out the other ones, and then, in the basement, he would make a basement unit, furnish it, and have the basement as the short-term rental. And that’s what he did with several of his house hacks. And then, after he had lived there for a year, he would go and purchase another one and do the same thing, and he built up his rental portfolio that way.

Tony:
I think it might’ve been Craig who said it was his first house hack where he was sleeping on the couch.

Ashley:
Yeah, you know what, that definitely sounds like something he would do [inaudible 00:15:24].

Tony:
All right. Anything else on this house, or should we roll to the next question?

Ashley:
Yeah, let’s go to the next one.

Tony:
All right. So question number two comes from Jason Lamb. Jason says, “Just curious, what issues have you all run into with unpermitted renovations? Obviously, you should always do things the right way, but I’m just trying to understand what kind of issues come up and when. For example, do buyers normally look for permits, or is it just their lenders, et cetera?” So have you ever had any issues, Ashley, with unpermitted renovations? And, if so, how did you handle those?

Ashley:
No, but we did just have on Episode 265, so this past Wednesday, you guys should go back and listen, we had Devana and Reid on, and they talked about a property they purchased that they knew had an unpermitted addition to the back of it, and they knew it was not permitted, but they didn’t need it permitted, they thought. So they went and pulled permits to do some electrical work, plumbing work, and other renovations through the property. And when they did that, the inspector came and said, “Well actually, this is not permitted,” so you have to take it down. And they had to rip off the back of the house where this addition was, and they said it was just an eyesore as to how it was set up, and they actually had to build back onto that same space, that same pad, build a new addition back onto the property. So that was definitely something they did not expect and made them go way over budget, I guess, on the property.

Tony:
I feel like it definitely varies by the city or county that you’re operating in. Some cities and counties are going to be more strict about those things. Others will be less strict. I think Devana and Reid’s situation is probably the absolute worst situation that could happen. We had a rehab that we did recently where we missed a permit in the bathroom, but we’d already completed the entire bathroom. And we were nervous they were going to come through and make us demo the entire bathroom, do it all over again. But the folks in the city were super understanding, and they said, “Hey, we’re just going to test a couple of things, that it looks good.”
But we have a separate property where we purchased this property and it already had one of those big swim-up spas, so it’s much bigger than a hot tub, but definitely not as big as a pool, like 15-feet long or something like that. And it came with the property. But when we went to go pull the permit for the short-term rental, they did the inspection and said, “Hey, a permit was never pooled to do the electrical for the spa. So now, before we can issue your permit, you guys have to go back and get this electrical thing sorted out.”
So, depending on what you’re looking to use the property for, depending on what the inspection process looks like for that city, depending on if the county or city needs to get back into that property to do an inspection for something else, there’s a lot of different variables that could happen. So I would say there are some risks that come along with buying units that include properties that are not permitted correctly.

Ashley:
And when I did my flip with James Dainard in Seattle, Washington, it was really the first time I dealt with heavy permits and an understanding of them. I mean, where I live, it’s just you go and talk to the code enforcement officer, and you get your building permit. You’re on your way. So, with him, what he actually does too is when he’s purchasing a property, he pulls the permits on the city’s website. And, for me, none of these little towns have permits online that you can actually go and look them up. You have to actually physically go there and ask for them. But he pulls the permits on the property.
But also, he’ll keep note of who the contractors were that did the work on those properties. So if he is going and doing a rehab and be like, “Okay, this was the last person to do electrical work. Maybe since they know the property, they’ll be able to do the work more efficient, and maybe even I’ll get it cheaper because they already know so much that’s going on. They don’t have to take the time to figure out the electrical of that property or things like that.
So I thought that was just a great little flip tip, as he called [inaudible 00:19:30]. When you pull the permits, look at who the actual contractor was on the property that you are using too. Or if the work is really bad at it, that’s why you’re rehabbing it, because the plumbing is all messed up, you know not to use that contractor.

Tony:
Who not to call, yeah, who not to call. Yeah, I mean, James is obviously like an encyclopedia of all things rehab and flipping, so anything he does, we should all try and emulate. Last thing I’ll say is that we actually bought a property that’s listed right now as one of our turnkey short-term rentals. And the property itself on paper was a three-bedroom, but when you walked in, the previous owner had knocked down the walls between all the bedrooms and just had one massive bedroom. I guess it was a single lady living by herself, and she’s like, “I don’t need three bedrooms. I just want one massive master suite.” So we were able to essentially just put those three bedrooms back in place, because she had knocked down the walls unpermitted, so we were able to just, without having a really repermitting thing, just put it back to the original floor plan. So there’s some nuances there for sure. All right, anything else on that one, Ashley?

Ashley:
No. Let’s go on to our next one. I feel like this is really going to hit home for you, and you’re going to have some mixed personal experience answering the question.

Tony:
Yeah. But hopefully you can give us some more insight, because we were so lost when this happens. But anyway, next question comes from Juan Alvarez, and Juan says, “One of our vacant units has frozen water lines due to the bad weather in DFW in Texas. Do you recommend I turn the supply valve off so it doesn’t flood the home if it breaks the pipe or starts to thaw the pipes out? What do you suggest I do?”
So we had our first experience with frozen pipes this past Christmas. We actually had to cancel a few reservations, because pipes weren’t working, and water was frozen, and water’s a kind of important thing to have at a short-term rental. So the pipes weren’t working. People can’t stay. And we actually posted on Instagram about the issue, and we had so many people talk about different things that they do to help prevent lines from freezing in the first place and some other remediation things they do to help solve those issues.
So, yeah, thawing the lines is one thing. And we had our crew out there kind of thawing the lines. One limitation to thawing the lines out is that they can only thaw the lines they have access to. So if the lines are frozen underground, maybe where your main water supply line is, you can’t thaw that out, because you can’t get to that line. And that was the issue we were having in our property. We could thaw the lines that were in the house and visible, but the stuff that was underground, we had no way of getting to it.
So one of the tips that we got was that when it gets cold, you should always leave a slow drip going at your property, because that little flow of water will help prevent the lines from thawing out. Another thing that was told to us is that you should almost never put your… even though it looks really nice, if you’re in a place that’s prone to freezing pipes, never put your kitchen sink in front of a window, because, for whatever reason, because there’s less insulation, those pipes tend to freeze pretty quickly as well. So there’s a lot of little things we learned around how to prevent this from happening. But Ashley, you live in Buffalo, New York, which had probably one of the worst freezes on record not too long ago. So you probably have some more insight on this end than I do.

Ashley:
Yeah, this is something I’m always very proactive about, is freezing pipes, especially if we’re rehabbing a property, or, if we have a property under contract and I know that it’s a vacant, going into the winter, I make sure, we call it, “Is the property winterized?” Okay? So you’ll see this a lot with foreclosure property.

Tony:
I just want to say, winterizing is not a thing in California. If someone said, “Did you…?” What does that even mean? In winter, we’re like, we’re in shorts and stuff. So if you’re like me, where you live in a state that isn’t prone to getting froze, listen to what Ashley’s about to say, because you’re going to save yourself a world in trouble if you do that. So, anyway.

Ashley:
Yeah. So this is common with people who have seasonal properties, so maybe you have a lake house, or you have a cabin where maybe there’s not even any heat in the property because it’s a lake house, and you’re just there in the summer, and you don’t have heat through it. Or the biggest part of it’s maybe you do have heat, but your pipes aren’t insulated. So maybe there’s just a crawl space under the house. So what people do is they winterize the house, where you actually go and drain all the water lines and you turn the water off to the property.
So if you go to a property that is owned by the bank, maybe it was foreclosed on, there’s usually a maintenance company that’s taking care of the property, and they’ll have tape over the toilet. They’ll have tape over the faucet. Like, “This property’s winterized. Don’t flush the toilet. Don’t turn on any of the valves. There’s no water to the property.” So winterizing a property is like if you’re going under contract in a cold area and the property is vacant, make sure that the seller has winterized the property and that there is no water throughing.
So, basically, why you don’t want your pipes to freeze is because, let’s go back to basic science, when water turns to ice, it expands. Think of like water in a water bottle, when it freezes. So what it does is it can cause your pipes to crack because of all of that pressure from the ice. So then, when the water melts, the ice melts back into water, it shoots out of wherever those cracks were. So that’s where the issues come in. The actual freezing causes the cracks, and then the water shoots out of it.
So me, as anal as I am, I have one rehab right now where when the deep freeze was coming, I was like, “We don’t have any water going through this. I just want to make sure. I’m pretty sure. I’m looking at it. We don’t have water to the property yet.” Everyone, “Yes, yes. It’s fine. It’s good, blah, blah, blah.” There was about three inches of the main water line coming into the property that was into the property. Somehow, someone had switched off the breaker, so the furnace shut off in the property. Well, just in those little three inches sticking out of the ground where we have a spigot on there right now, because the water lines aren’t hooked up, completely cracked the pipe. Water was shooting out all over. So, luckily, that same day, somebody was there and saw this happening. We were able to plug it up, fix it that night and take care of it. But also, the furnace got ice buildup in it, because the furnace froze. And so we actually had to have the plumber come out and dethaw the furnace and to get it going again.
So, as much as I would like to say I’m very experienced and knowledgeable about pipes freezing, it still happened to me, because I listened to my contractors, and I didn’t actually go to the property, because I would’ve seen that little pipe sticking up, and I would’ve known. But yeah. So, I think the biggest piece of… Have your property winterized if you’re not going to be living there, the rehab’s going to be going on and you want to make sure that doesn’t happen, the pipes don’t freeze. Winterize it if you’re doing the rehab, or you can actually go and make sure there’s constantly water dripping through the pipes too.

Tony:
Ash, who do you go to? So winterize the property, is that something that plumbers typically handle for you? Is there someone else? If you want to winterize, who are you calling?

Ashley:
Yeah, the plumber can definitely do that, but it’s something that you can just YouTube real quickly and do it yourself. A lot of the people that own lake houses around here, they set up a day that they go, and if it’s not seasonal where their pipes are exposed, then they’ll just usually go and do it themselves, and that’s part of their yearly routine. And in the spring, they’ll come and turn the water back on and check everything, yeah.

Tony:
Have you ever had one of your main water lines break?

Ashley:
I don’t think so. I’ve had the main sewer line get cracks in it and stuff, but never the main water line.

Tony:
I’ve never had any main major plumbing issues either. Just really quick, on the main sewer line, that actually happened to my aunt. She bought a house, and it wasn’t an investment. It was like their primary residence, and the main sewer line that connected into the city sewer cracked, and they made her replace it, even though the crack was coming from the city. And she had to dig up all of the sidewalk and do all these other crazy things, and it turned into this big ordeal. So, anyway.

Ashley:
Yeah, we had to do that in front of a duplex too, is like, get a mini-excavator there, dig it all up, and, yeah, it was a pain.

Tony:
Yeah, the only reason I bring that up is if one of those main lines that tie into any kind of public utility end up breaking, it’s super expensive to get those repaired.

Ashley:
Do the sewer scope inspection. That’s another thing I learned from James Dainard, is always do the sewer scope. Maybe if you decide to skip the home inspection when you’re buying it, but do that sewer line scope.

Tony:
Well, lots of frozen pipes. And actually, if you guys go to the BiggerPockets Instagram, my wife Sara made that Reel that I was talking about, but BiggerPockets was a collaborator. So it’s on there. And there were literally, I think at this point, over 100 comments of people dropping tips on how they prevent their lines from freezing. So maybe the producers can find that and add it in the show notes. But there’s a lot of really good information on that post.
All right, so next question here comes from Kyle Campbell. And Kyle says, “My wife and I own two duplexes. We’re ready to make an offer on a third. However, this third property is a FSBO, which means four sale by owner, and this would be a first for us. What steps do you go through when buying FSBO? We’ve read a lot and listened to thousands of podcasts, but still looking for any and all advice. Thanks.”
So Ash, I know you’ve bought FSBO. I have as well. But from your perspective, what are some of the differences that a rookie should look out for regarding FSBO?

Ashley:
Yeah, so the first thing is, you’re most likely not using an agent. Oftentimes, you still can. You could go to them and say, “I’m going to pay the agent directly, and I want to use an agent to facilitate that deal,” whether it’s to do the paperwork or to help you negotiate or anything like that. So the biggest thing for me, the difference is, you’re not going to have a real estate agent fill out the real estate contract for you. So that’s either… I use an attorney for that. But you also have to use an attorney in New York State, where I will tell my attorney what the terms are, and then she’ll plug it into her real estate contract, and then I take it to the seller.
One thing you can do is a letter of intent. If you just Google that, there’s tons of samples out there. If you’re in the Rookie Bootcamp, it’s included in there. You get a copy of it. And it just basically gives the initial terms of your offer without going through a full-blown contract and then just says like, “This contract is based on attorney approval. These terms are based on that.” So it kind of gives you some leeway. But I usually write one of those up myself without even having to talk with my attorney. Then that’s where I negotiate with the seller. And then, once we agree on terms and we have a signed letter of intent, that’s where I pass those terms off to my real estate attorney, where she draws up a contract as to what those terms are. Then I have the seller sign that.
One thing with doing dealing directly with the seller is I think you have a huge advantage with negotiating. That’s not always the case, but getting face-to-face with the seller and really figuring out why they’re selling. And also, if you’re going to be doing some kind of creative financing, like pitching to them the benefits of seller financing, things like that, it is so much easier to sell the creative financing option to the seller than having it go from you to your real estate agent to their real estate agent, then back to them, like playing telephone. So that’s why I love for sale by owner, is because you get to deal directly with the seller for negotiating.

Tony:
Yeah, that’s a fantastic breakdown, Ashley. And we’ve purchased a few directly from the owners as well. And our process, it’s fairly similar. We still do use title and escrow to facilitate the transaction. So even if you’re going FSBO, still make sure that there’s some third party in there to make sure that all of the paperwork with the county gets filed correctly. You’re still getting things like title insurance to make sure that there’s no issues with the title, and that party, escrow or title company’s there to manage all the funds to make sure people get paid out appropriately. But outside of that, it’s honestly pretty much the same process. And, to your point, Ashley, it’s honestly a little bit easier, because there’s less back and forth between you and your agent, their agent, that seller. So I think the ease of the transaction is definitely there.
But if it is your first time doing it, Kyle, I would just try and find an… I don’t know what state you’re in, but for me, I always go to my escrow company first, and I say, “Hey, I’m looking to buy this property. I’m looking to sell this property.” And then my escrow company’s the one that draws up all the documents and makes sure that everyone’s DocuSigned on everything. So the escrow company almost works as the transaction coordinator when I’m doing FSBO here in California. So, if you’re in a state that uses escrow companies in addition to title, I would just try and find a really good escrow officer, let them know that you’re a new investor and you plan to do more deals with them. But if you build that relationship, they can really help facilitate any FSBO deal that you do moving forward.
All right. Well, let’s move on to the next question here. This one comes from Daniel Budihardjo. Hopefully I said your last name right, Daniel. So Daniel’s question is, “Hello Rooks. What do you think about installing electronic keypad door locks? It sounds awesome for multi properties, as you can maintain a master code for the landlord and reset codes for your tenants. If your house has multi exterior doors, say front and back, do you install one at each door? The best seller on Amazon is only 40 bucks. It’s a great price, but not sure it has everything that we need. Thanks in advance.”
I love the idea of electronic keypads on properties, both for, I think… Obviously, we don’t really have any long-term anymore, but if I did, I would probably do that. It is just, I think, a nice feature to include, because as a tenant, having that kind of smart home functionality is a really cool way to make your property stand out from other ones. Like for example, when I bought my home, it didn’t come with any smart home technology. We had to go back, and we added our keyless entry pad, added all of our smart light switches and stuff. But I bought earlier in the phase.
Now the new home, the newer versions of my home, they’re selling with all that stuff built in. So even for new construction, it’s something that builders are starting to add, because they recognize that it is, I think, something that people want in their homes. If you’re doing a short-term rental, 1,000,000,000% you should have smart keypads. Nothing is more annoying to me as an Airbnb guest than having to fumble with physical keys and open up a lockbox, then having to go back and put the key back into the lockbox. So if you can do electric keypads for your doors, I think it’s definitely the way to go. Just, last thing, like which one you should purchase, we use the Schlage Encode, or Schlage Encode.

Ashley:
Tony, stop telling people. They’re so hard to [inaudible 00:35:14].

Tony:
That was my point. They’re so incredibly difficult to find these days, it’s almost like there’s a black market for these. But that’s the one that we like the most. There’s some other cool ones out there as well, like Remote by August Lock. They have one. Every smart company has some kind of electric keypad, so there’s a lot of good options out there.

Ashley:
Yeah, I’ve used a Yale one before. I don’t know specifically what it was, but we switched to the Encode one because of Sara’s recommendation. I really like them. But, yeah, they’re definitely difficult to get ahold of. So we use them just for our short-term rentals. The issue that I run into with long-term rentals is especially at the small multi-family. In the apartment complex, it would be fine, because there’s a general Wi-Fi in the building. But when you have your duplex… So the tenant usually gets the Wi-Fi in their name, so you would have to request access to have the lock connected to the Wi-Fi if you’re going to be changing the code or doing things like that.
So, for me, I think the advantage of doing it for long-term is like if a maintenance guy is coming in and they’re not going to be home, you can set a code so that it’s just active during the hour they’re going to be there, whatever, and they don’t have to have a key, anything like that, and maintenance can be done when the tenant’s not home.
The second thing is when they move out of the property, they’re most likely canceling their Wi-Fi. So to go ahead and change the code, you won’t be able to just do it so easily from your app, because it’s not connected to the Wi-Fi because they disconnected the Wi-Fi. So you would have to manually go onto the keypad and… There’s some way you can do it through the keypad without having to be connected to Wi-Fi. But just the convenience of having the app on your phone and being able to create new codes, change new codes, you can’t do that without the Wi-Fi enabled. So that’s where I’ve run into is it actually that big of an advantage? Because turning over an apartment, not having to install a new lock in there, that, yeah, having to send someone out that takes time to do that and just be able to remote do that would be awesome. But I haven’t figured out that piece of it yet as to how to do that.

Tony:
Yeah, you’re right. That definitely is a limitation. You can use the app even if Wi-Fi isn’t set up, but you do have to be within range of the lock. So you wouldn’t be able to do it from sitting at your house to the property. But if someone was near the door, they could still go in. And I don’t know what kind of… I don’t know if it’s Bluetooth or some other kind of local connection, but you are, so even if there is no Wi-Fi, able to set the app up and have the lock communicate.

Ashley:
And you can still change the code and everything and lock [inaudible 00:38:07], yeah.

Tony:
Still add codes and stuff like that, yeah.

Ashley:
Okay. That’s cool. Well, I mean, that’s better still than having to go in and change the lock. Okay.

Tony:
Yeah.

Ashley:
So, I’m also going to continue to hijack Daniel’s question here, because I had a situation that came up. This actually happened Friday night, 9:30 at night, get a call from the property management company that a dog is barking in the unit that we actually use as a short-term rental. So they don’t have the contact information for who is the current guest in there. So what happened was, somebody, we think it was one of the neighbors, because one of the other units ended up calling the police because of the dog barking. But we looked in the app, and it showed that the lock was actually disabled because somebody tried the wrong code too many times, and it said the lock is disabled.
So, when the tenant actually got home, or the resident, the guests of the Airbnb, when they went to put in their code, it wasn’t working. So we had to go to the property, and we somehow ended up resetting it through the app, like having the phone there and doing it through the app, and we were able to get into the unit. But have you ever had that happen before, where it’s saying that the lock is disabled and you’re not able to get into the unit, and is there a timeframe on that or…? What should I have done better next time to prevent that?

Tony:
Yeah, usually, it is like a time duration that is disabled, but I’ve never seen it where it’s just like permanently disabled, you have to go in and reset the lock. But what we do have, we still have physical keys at every short-term rentals. That way, if, for whatever reason, the keypad isn’t working, the guests can just go to the lockbox and grab a physical key from there and then use that until we’re able to troubleshoot it on our end. So that’s typically our process.

Ashley:
That’s it. That’s a great idea to have that key extra there. Okay.

Tony:
And we put that in our digital guidebook that says, “Hey, if, for whatever reason, you can’t access with the keypad…” And we have a video where we walk… “Here’s the lockbox. Here’s how you open it, grab the key, and stick it in there.” So, usually, folks are pretty good about reading directions most of the time.

Ashley:
It has a key, though, the Encode lockbox?

Tony:
It does, yeah. So it comes with a key, and then, we usually just take that key, and we put it in there. If we wanted to get really elaborate, we should probably make duplicates of that key. Because right now, there’s only one key and it’s at-

Ashley:
That one, yeah, yeah.

Tony:
Yeah. But yeah, it does come with a key.

Ashley:
Obviously, you can tell I’m not in charge of installing those in the property, so I don’t even know that.

Tony:
There was another one called August Lock… or RemoteLock by August, and that one was a little bit different, because it’s like an attachment that goes on top of your existing lock. So you would just use your original keypad, and you just add this on there, and it unlocks it for you. But that one, the battery life was kind of not the greatest, and the integrations weren’t quite there, but yeah. Anyway, the Schlage comes with a key.

Ashley:
We actually started using RemoteLock. The person that’s been kind of managing our short-term rentals, she recommended it, and we set that up as to… Which, the customer service, I have to say, has not been that great with RemoteLock. But once we got it up and going, it’s been beneficial, yeah. I actually had to use my social media power to message them and say like, “What is going on?”

Tony:
What’s up? Yeah.

Ashley:
Yeah. And the person who runs their social media responded to me right away, got somebody to email the person that was sending it up for me, and that person was great. But oh my gosh, it was a headache to actually set up that process. But now that it’s operating, everything is going good with that.
And I had one more question. For the batteries on that, do you have some kind of quarterly maintenance schedule where you’re going in and having the handyman replace the batteries? Or is it just when you get an alert the battery is low, you’re adding as a maintenance task? How are you handling that?

Tony:
Yeah, that’s a great question. It’s the latter. So whenever the alert comes through in the app that the batteries are running low, our VAs create a maintenance task, usually for the cleaner, because we just keep extra batteries at the property. And then when the cleaners… yeah, the next time, they’ll just make sure they swap the batteries out for the unit.

Ashley:
Well, thanks for letting me ask a lot of questions. [inaudible 00:42:24] that will be good.

Tony:
We got one last question. I think we can hit this one pretty quickly. This one comes from Sara Lucas. And Sara’s question is, “Aside from the owner, who in this case, has no idea, how do you find out who is the lender for a property?” So I’m going to share the one way that I know how to look this up. There are probably other ways to do this as well, but if you use a website like PropStream, PropStream usually keeps track of any mortgages that are recorded against a property, and you can see the name of the company that is holding that note. So literally, you type in any address, and it’ll show that information as well. And then similarly, you can go to your county and say, “Hey, what deed of trust or mortgage security document or promissory note do you guys have filed against a specific property?” And hopefully, somewhere in those documents, you can figure out who the lender is for that home.

Ashley:
Yeah, you should… If the city of Buffalo has it, I’m sure most cities have it, but you can actually go online to the city records for the county, and you’ll be able to just search for it. If you know that person’s name, search for their name, and you’ll be able to come up as to what the mortgage is that they have in their name.

Tony:
Cool. Well, that was an easy one.

Ashley:
Yeah, yeah. All great questions, we really appreciate it when you guys throw your questions at us, mentally stimulates us. And also, some of the times, there’s questions where we’re not sure, so we actually take the time and go and research it, and we learn some things too. And obviously, I learned a ton about locks in this episode, just from Tony. So, thank you Daniel for asking that question, because I had some burning questions I needed to figure out too. So, thank you guys. And you can leave us a voicemail at 1-888-5-ROOKIE, or you can send us a DM @wealthfromrentals or @tonyjrobinson. Thank you guys so much for joining us. I’m Ashley @wealthfromrentals, and he’s Tony @tonyjrobinson, and we will be back on Wednesday with a guest.

CNBC’s Robert Frank joins ‘Power Lunch’ to discuss the potential housing recession, Florida’s priciest property destination and one property that is the most expensive listing in the state’s history.

For businesses, TikTok is a platform with potential beyond participating in the latest dance craze or humorous trend. With over 1 billion monthly active users, TikTok is full of potential customers for your brand, and its easy-to-use video-sharing capabilities make it the perfect platform for increasing transparency with your followers and building the trust necessary to attract new consumers. But how should you get started?

Here, eight members of Young Entrepreneur Council offer a few of their recommendations. Consider implementing one or all of these creative ideas into your video marketing strategy to build a better relationship with your current customers and draw in new ones as well.

1. Share ‘Unboxing’ Videos

Brands can increase transparency with their followers and draw in new customers via video-sharing platforms through “unboxing” videos. Such videos can help showcase the quality of their products and the attention to detail that goes into their packaging and delivery. This can help build trust with existing customers and draw in potential customers to buy from them. – Andrew Munro, AffiliateWP

2. Answer Customer Questions

Video-sharing platforms like TikTok are great for “Ask Me Anything” sessions or Q&As. These help brands answer the public and address their queries about different products or processes. Not only does this help increase transparency, but it also enables brands to engage their respective target audiences, which in turn can draw promising leads or customers. – Stephanie Wells, Formidable Forms

3. Document Your Entrepreneurial Journey

The most creative way brands use video platforms like TikTok is by documenting their company’s entrepreneurial journey as if it were a reality TV program. People love following a great entrepreneurial story in real time. Through drama, intrigue and transparency, you can capture attention on video-sharing platforms and turn it into paying customers who feel personally invested in your success. – Rob Hoffman, Contact Studios

4. Highlight The Impact Of Your Mission And Work

Brands can use TikTok to share information about their values, mission and goals and to showcase the work they are doing to make a positive impact on the world. This can include content that highlights the brand’s sustainability efforts and charitable work that aligns with the brand’s values. Brands can help followers understand their motivations and build trust and credibility. – Vikas Agrawal, Infobrandz

5. Offer A Behind-The-Scenes Look

One creative method is to create behind-the-scenes content that gives a glimpse into the inner workings of the brand. This can include videos showing the production process for the brand’s products, the daily operations of the company or the people who work there. In this way, brands can help build trust and demonstrate their commitment to transparency. – Candice Georgiadis, Digital Day

6. Discuss The Good And The Bad

Yes, it’s important to share your company’s successes, but it’s also important to share your challenges and struggles. Customers can find out any detail (good and bad) of your company if they want. Showing both the positives and negatives will help your audience view your company as honest, and they’ll better connect with the authentic person behind the brand. – Shu Saito, All Filters

7. Showcase Genuine Customer Reviews

Video-sharing platforms like TikTok are great for social proof. People are generally indecisive when it comes to making purchases and rely on recommendations from others. Sharing genuine customer reviews and testimonials for different use cases ensures transparency as you help people decide whether or not your brand is a fitting solution for them. That surely helps attract more customers. – Chris Klosowski, Easy Digital Downloads

8. Help Customers Solve Their Problems

Brands can leverage platforms like TikTok and connect with a relevant audience by helping them solve their problems. Offering solutions to issues readily faced by an audience representing a particular niche enables brands to build trust and attract new customers. Plus, uploading solution-oriented how-to content increases transparency and humanizes a brand, making it relatable to the audience. – Jared Atchison, WPForms

By Nellie Akalp

If you plan to expand your business—by serving new markets, extending your portfolio of products or services, or adding staff—you have much to think about. In this article, we’ll discuss a few talking points business owners should consider as they strive to grow their companies.

5 key considerations when growing your business

1. Forming an LLC or corporation

Many small businesses start as sole proprietorships or general partnerships because those business structures offer administrative simplicity and no statutory compliance requirements. However, they do not provide protection for business owners’ personal assets or give any tax treatment flexibility.

Business growth aspirations prompt many entrepreneurs to change from a sole proprietorship or partnership to a limited liability company (LLC) or corporation.

Rightly so! Forming either of those business structures creates a separate legal entity for the company. That means the owner’s personal assets (home, vehicles, retirement investments, etc.) receive protection from the debts and legal liabilities of the business.

Also, LLCs and C Corporations that meet the IRS’s qualification criteria may choose to be taxed as S Corporations. In the case of an LLC, the S Corp election helps minimize a business owner’s self-employment tax obligations. The primary benefit of S Corporation election for a C Corp is that it avoids the double taxation of income distributed to shareholders.

2. Getting the required licenses and permits

If you’re expanding your product or service lines or extending your reach to other locales or market areas, you may need to apply for new licenses or permits. States and local government agencies’ rules and regulations vary for different types of business activity. Examples of the possible licensing requirements include the following:

• General business license
• Sales tax license
• Alcohol license
• Bakery license
• Food and beverage license
• Zoning permit
• Music license
• Health license
• Landscaping license
• Sign permit
• Entertainment license
• Professional licenses (e.g., accounting, attorney, physician, engineer)

As you can imagine, there are many more applicable to different industries and business activities. Entrepreneurs need to research the requirements for any locations where they will conduct business.

3. Hiring employees

If you can no longer do everything on your own—or you want to do more but don’t have the time or specific skillset to accomplish it—it’s time to get help. Hiring employees can take some of the administrative and operational pressures off of you. Of course, adding employees to the payroll adds some new responsibilities, which includes:

Processing payroll

Here’s a summary of what most companies need to handle payroll:

• A federal tax ID number (EIN) from the IRS
• Payroll tax registration with the state (and possibly local) tax agencies.
• Employee information and tax documents (e.g., obtaining W-4 and I-9 forms from employees, and sending W-2 forms to employees)
• Salary and wage information (e.g., wages, salaries, overtime pay, paid time off compensation, tips, bonuses, commissions)
• Health insurance documentation
• Retirement plan documentation
• Employee bank information (if direct depositing wages into employees’ bank accounts)
• Workers’ compensation insurance policy
• Payroll software or payroll services vendor

Managing payroll, particularly handling payroll taxes properly, is essential for ensuring employees get paid accurately and on time. Moreover, it’s critical for keeping a business in good standing with federal, state, and local tax agencies.

Employers must withhold certain taxes and other payments from employees’ pay and then submit those monies to the appropriate tax agencies or organizations. Also, some employment-related taxes are paid directly by employers.

Payroll withholdings from employees’ pay

• Federal income tax
• State income tax
• Local income tax
• FICA tax (Social Security and Medicare)—Half of this tax is deducted/withheld from the employee’s pay, and the employer pays the other half.
• Wage garnishments (e.g., alimony, child support, loans, bankruptcy payments)
• Benefits deductions (e.g., retirement fund contributions, employee’s portion of health and life insurance premiums, union dues)

Employment related taxes paid by employers

• FUTA tax—The Federal Unemployment Tax Act is a program that provides compensation to workers who lose their jobs through no fault of their own. FUTA tax is a cost to the employer; it is not deducted from employees’ pay.
• SUTA tax—States also have unemployment programs. Most require only employers to pay into the fund, but some states also require employees to contribute.
• Other payroll taxes—Some other taxes (such as for short-term disability and family medical leave) may exist depending on the state or municipality. Employers should contact their local tax agencies and the state revenue department to determine all their payroll tax obligations.

More articles from AllBusiness.com:

4. Outsourcing to independent contractors

Working with independent contractors and freelancers can improve your business’s efficiency and productivity by bringing in people with specialized skills and expertise to handle tasks you aren’t personally proficient in. However, it’s important to be aware that independent contractors are NOT employees. Businesses must not mistakenly treat individuals as independent contractors when they should be classified as employees.

So, what’s the difference? The IRS has classification rules for differentiating between independent contractors and employees. Some states have even more definitive parameters for distinguishing the two. Generally, independent contractors are self-employed professionals who enter into an agreement (written or verbal) with a business or individual.

• They are not on their clients’ payroll but issue invoices to request payment for their services.
• Unlike company employees, independent contractors do not receive benefits or paid time off from their clients.
• Independent contractors are mainly in control of how and when they work, whereas those things are usually dictated to employees by their employers.
• Typically, contract workers are responsible for providing the tools and equipment needed to perform their assignments.
• While the business paying an independent contractor may set the goals and deliverables for projects and assignments, the independent contractor decides how to best accomplish their assigned tasks.
• Independent contractors are responsible for reporting and remitting their taxes (including self-employment taxes) to the IRS, state, and local tax authorities.

When working with independent contractors, there are two tax-related forms businesses must pay attention to.

• They should request a Form W-9 from the independent contractor, which identifies the individual’s personal information for tax purposes (Compensation paid to independent contractors is tax-deductible for a business.)
• Businesses should issue Form 1099-NEC to any independent contractors to whom they paid more than $600 in the year.

5. Expanding your business out of state

What if you want to expand your business operations beyond your home state (where you initially formed your business)? When a business created in one state meets the definition of “conducting business” or “nexus” in another state, it must seek authorization to operate in the new state. Typically, that means completing a process called “foreign qualification.”

A business is considered a domestic entity in the state where it’s initially registered and a foreign entity in any state where it’s foreign qualified.

Definition of conducting business

What constitutes “conducting business” varies by state. Generally, states consider that a company is conducting business if it meets one or more of the following criteria:

• Has a physical presence (office, warehouse, or retail store) in the state
• Has employees working in the state
• Holds in-person meetings with clients or customers in the state
• Has reached a certain sales threshold in the state

The following activities alone usually do not qualify as doing business in a state:

• Defending or settling a lawsuit in the state
• Collecting debts in the state
• Conducting internal business activities, such as holding LLC member meetings in the state
• Having a bank account in the state
• Selling services or products through independent contractors in the state
• Engaging in isolated, non-repeated transactions completed within 180 days in the state

What does nexus mean?

Nexus implies that a business has a physical or economic connection to a state. Determining nexus can get complicated because different states have their own interpretation of what nexus is.

General characteristics of nexus

• The company has a physical presence—such as an office, warehouse, store, or employees—in the state.
• The company has reached a certain sales threshold, with or without a physical presence, in the state. Many states consider a business to have economic nexus if it has $100,000 in sales or 200 sales transactions (or both) in the state during the year.

The rules for determining nexus change often and vary from state to state. So, it’s critical for business owners to research and stay on top of nexus rules in any states where they have staff, physical locations, or sell their products and services.

Where to turn for guidance

Most state and local government websites provide business registration, licensing, and tax information. They also post contact information for the agencies that oversee business activity in their jurisdictions. For federal tax-related information and employer issues, the IRS and Department of Labor websites are excellent resources.

Business owners should also consult knowledgeable legal, accounting, and human resource experts when expanding a company. Every business’s situation is unique from others in some way, and trusted professionals can offer insight and information tailored to your specific circumstances.

About the Author

Nellie Akalp is a passionate entrepreneur, business expert, professional speaker, author, and mother of four. She is the founder and CEO of CorpNet.com, a trusted resource and service provider for business incorporation, LLC filings, and corporate compliance services in all 50 states.

David:
This is the BiggerPockets podcast show 734.

David:
Always have your attorney look over anything that’s unusual or I would say most things, but especially any unusual contracts that you’re dealing with. If it’s not something that you deal with on a very regular basis, have your attorney look over it. The number of times my attorney has told me that if I had him look at something sooner, it would’ve saved me money is… Yeah. I’ve learned that lesson more times than I should have learned that lesson, but this was definitely the biggest learning of that lesson.

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 investing podcast in the world, here today with my stellar co-host, sidekick, and partner in fighting crime, Rob Abasolo. Rob, how are you today?

Rob:
You know what? Feeling extra chipper because I think after being sick for 16 days, David, I think I beat it. I think I beat this. I think I’m back to my usual self.

David:
Let’s talk about the things I’ve seen you overcome in the short period of time that I’ve known you and we’ve been hosting a podcast. You got into fitness and then destroyed your lower back and spent months basically as an invalid. You had 75ccs of puss pumped out of your throat in what was probably the most painful throat condition ever. We’ve recorded a podcast where you really couldn’t talk and you use one of those voice synthesizers that people hold to their neck just to be able to say something at all. People had no idea.

Rob:
The stair bruise?

David:
Yes, the worst bruise I’ve ever seen in my life, which is saying something with my sports and law enforcement background. Your butt looked like a version of a different galaxy with all of the intricacies therein. Never have I seen a bruise like that and somehow, you survive that too.

Rob:
Well, you know I love Interstellar. Sony, Galaxy, I can get going. I’m always a fan of. But yeah, man, that was probably the worst one. Lesson learned here for everybody. Don’t walk down wooden stairs when it’s raining wearing Crocs, because I did that and I slipped and I was angry at myself because I was like, that hurt. That’s going to leave a mark. Then the next day, everybody was like, “Oh, my, you need to go to the doctor.” I was like, “It’s fine. I’ll probably be okay.” A month later, it finally cleared up. Then we also can’t forget, David, when I became the co-host of the BiggerPockets podcast, I had COVID. By the first audition, the first show I ever did, I think it was with Kendra Hall, I had COVID and everybody was like, “Can you do this?” I was like, “Oh, yeah, I feel great,” and then inside, I was dying.

David:
So we’ve still never seen the full strength Abasolo. World, you’re put on notice. It’s coming. So wooden stairs, rain, and Crocs became an intersection of a perfect storm that led to you receiving the worst butt bruise in the history of humanity. That is a good segue into today’s show because in today’s show, we interview David Pere who pulls back the curtains and shows the warts of a deal gone wrong that you rarely ever get to hear, but this is BiggerPockets and we bring you more value than everyone else. David shares some of the examples of how a perfect storm hit a deal that he had that was a lease option, which you’ll learn more about what that is in the show, all the things that went wrong, but most importantly, how he countered them, bounced back and built a portfolio much bigger than he had before this happened.
This is a rare, one of a kind opportunity to see what happens in real estate that isn’t the good news that everyone shares. Now part of that’s because the last eight years, there’s been nothing but good news as the whole market has just exploded. Even if you made a million mistakes, the rising rents and the rising cost of the asset could cover them. But a lot of that’s starting to change and you’re going to be hearing more and more and more of stories like this one of deals gone wrong and money that was lost, because you can lose money investing just like you can make money, and it is even more important to not lose money than it is to make money in real estate. So you’re going to get that today. Rob, what were some of your favorite parts of today’s show?

Rob:
Well, I would say this is a really interesting deal specifically because he checked all the boxes. It seemed like he ran his due diligence. The deal looked and really penciled out to be a good deal, but there was just other circumstances that led to the wheels falling off the bus, if you will. I think stick around until the very end because we get into some of the lessons that David learned that could have possibly have helped him avoid this. I really just appreciate the honesty. He’s a rockstar, so it is really nice to hear rock stars be vulnerable and then put it all out there. For any of you that have ever made a mistake in real estate, I think this episode will make you feel better and think, hey, it’s okay. Sometimes we’ll make mistakes, but we’re going to be better from it.

David:
That’s right. And if you appreciate listening to a podcast that shows you the bad and the ugly and not just the good, you don’t have to set up a GoFundMe and send money directly to David Greene. All we need is for you to leave us a five-star review in whatever app you listen to this podcast. Before we get into it, today’s quick tip is when you’re evaluating a deal, remember, it’s more than just a deal. There’s a person on the other end, and when you’re using creative financing, off the market opportunities, a lot of the techniques that are being talked about right now, you are absolutely increasing your risk for what can go wrong. In order to counter that risk, consider bringing in a lawyer, a property manager, other people to look at the deal and not doing it yourself and then handing it over and saying, “Okay, guys, here’s the deal. Go make it work.” Dave’s story talks a lot about how certain things that were going wrong would’ve been caught earlier if he had brought in backup to look the deal over.
So consider who your team’s going to be and get them involved early. Get them involved often. Don’t be a solo hero. All right, let’s bring in Dave. Today’s guest is a friend of BiggerPockets as well as myself and many other BiggerPockets personalities. He has 115 units across 15 properties including single family, multifamily, and an RV park. As a fun fact, David was homeschooled and still considers networking to be his superpower. So for all of you other homeschoolers out there, there is hope. Here today to talk us through a deep dive of one of his biggest investing mistakes and the red flags he missed along the way, allow me to welcome David Pere. David, welcome to the show.

David:
Thanks for having me, brother. It’s good to finally be here.

David:
Yeah. It’s nice to have you back. Now, I believe you and Rob were just getting acclimated. The two of you have not met yet, is that correct?

David:
I was, I guess you could call it a temp guest on one of the unaired interview trial runs when Rob was testing, but it was never aired, so it is unofficial. That is the only conversation Rob and I have ever had.

Rob:
No, that’s not true. First of all, that hurts because we talked at BPCON. I said, “Military millionaire,” and you’re like, “Yeah.” Wow. So first of all, dagger to the heart, but second of all, welcome back in an official capacity.

David:
Well, I appreciate it and I apologize.

David:
No apologies needed.

Rob:
All good, man.

David:
David has hung out with Brandon and I in Hawaii several times. In fact, I think that’s where we got to know you. You’re a well-known personality amongst the BP ecosystem, but I realized like, oh, Rob is somewhat new here. He’s like the kid that just transferred into school and jumping in in sixth grade and we’ve all known each other since second grade. So I wanted to get you guys introduced here. Anyway, Dave, you have a very interesting story that we are going to dig into today. There is a property that you bought. It has created enough drama that you could write a book about it someday and maybe that’s already in the works. I was lucky enough that I was there at its conception when you were first starting to look at this deal and you ran it by me and there were some things that you were thinking could go wrong and then many more that you probably didn’t see that could go wrong and then just twists and turns that no one could have expected from a seller that was less than scrupulous.
So we are going to get into all the juicy tea, as the young kids are saying today, green tea, if you-

Rob:
Well, they say that you spill the tea. We’re going to spill the tea.

David:
Did I just sound like an old guy that doesn’t know?

Rob:
A little bit.

David:
Yeah.

Rob:
Let’s get into the tea, fellow kid.

David:
Well, if you spill it, I suppose you got to get into it when you’re cleaning it up. I could probably try to defend that, but we’re just going to move on.

David:
We’re all entirely too old to try to figure out what the actual phrase is. We bring in my stepson here real quick and he’ll straighten this all up.

David:
Maybe it was give me the juice. Give me the juice and spill the tea. They’re both beverages and that’s why I got them mixed up. Someone in the comments on YouTube, please differentiate for us how this is supposed to be done and do it kindly. All right, Dave, let’s hear when you first found this deal, tell us what it was and what made it look so dang good?

David:
Yeah. I guess I should probably frame that this would’ve been my third real big investing transaction. At this point, I had house hacked a duplex. I had bought some raw land that was next to my primary, but I don’t really consider that an investment deal. I owned a 10-unit, which is actually the best deal I’ve ever done to date. I believe I bought that thing crazy terms, like 85% bank, 10% seller carry, whatever. It was a great deal. This was transaction three. The reason that I got into this, and I think this is important to note for people is, I had gotten sucked into the whole 10 extra goals, doors, buy more, go, go, go, go, go mentality that you hear a lot of investors get into. So I had decided I’m going to buy three doors and then oh, well, I should 10X that. Let me buy 30 doors this year. Then in this year, I had already purchased 10 and so I’m looking for another 20.
This thing, my agent brought this to my attention. It was like 35 with another potential five in construction, but it was a mixed-use building. It’s 64,000 square feet. It’s four stories. It’s 20 current residential with five in construction permits pulled being turned into Airbnbs internally and another 15 mixed-use and this is in for anyone who’s familiar with the area, Branson, Missouri, which I kindly refer to as old people Vegas. If you took Vegas and you took all the gambling and inappropriate adult stuff out and made it just shows and musicals and stuff. So there’s a murder mystery theater in this building and a wedding venue and a escape room and a thing called the Johnson Strings, which is a family of seven that played string instruments and had a little mini amphitheater in it. At one point, it had three commercial kitchens. So the history on this building is that it was a steakhouse. It was the majestic, it was the largest steakhouse in the state.
The bottom floor was 20 residential apartments for employees and then the floor above it was all supplies and the top two floors was three commercial kitchens and seating. Then it went out of business five, 10 years before this. Changed hands a little bit and at this point, it had one remaining commercial kitchen and a bunch of tenants, various commercial tenants, 20 residential units and some space on the ground floor that was either rented or in the works of being rented by various tenants like a Coldwell Banker was signing a lease or had signed a lease, various tenants like that. That’s the backstory. As I’m looking for more doors, more deals, this thing gets brought to me by my real estate agent. It’s off market. The gentleman is looking to do a lease option transaction. Purchase price, 2.795. He was asking for $200,000 down. We talked back and forth to $150,000 down and just went back and forth on terms. So lease option for anyone not familiar, basically you are purchasing the right to execute a purchase at that purchase price.
So I would be saying, “Hey, we’ll give you 150 in the next three to four years,” and I believe this was a three-year option, sorry, it was a three-year option. We have three years to purchase the building at 2.795. Should we come up with the mortgage, we close at that price, and if we don’t, then we can just walk away without our option fee in that timeline. That’s the premise leading up to this thing.

David:
So that lease option is pretty cool. We don’t see this happening a lot because the market’s been so hot. Sellers haven’t had to do that type of thing. But now as things slow down, we’re starting to see them pop up more. Basically, what you’re saying here is you agree to buy the property for a certain price several years down the road. You paid money for the right to be able to do that, which was your lease option fee. If you choose not to buy the property, the seller keeps the money. If you choose to buy the property, the money goes towards the purchase price or whatever. You just buy it at the terms you have. These were very popular in the past, but I think a lot of the reason that they stopped being so popular was inflation became so rampant. Sellers wouldn’t want to wait to sell your property in three years at today’s price. It used to be. Real estate was normal and it just slowly appreciated or didn’t appreciate, so you could do this.
Before we move on to hear more about this deal, I want to get Rob’s perspective. Because I’m trying to put us in Dave’s position as he’s hearing this deal. Rather than the benefit of hindsight, as you’re in the moment and you’re okay, you’re being posed with this multiuse lease option, you got to feel good about the lease option. That tends to benefit the buyer here. So Rob, what would you be thinking when you heard about the multiuse aspect of this property?

Rob:
Mine would be racing as it was as David told us about this because I’ve always wanted that. I have shiny object syndrome and so for this, it seems like you can execute so many creative things under one roof. I guess the other thing that sounds really appealing to it is that obviously from a valuation standpoint, the more money you make, the more valuable the cap rate is on this building. So that would be something that plays into it, which is, what are all the different types of businesses and income streams that I could create from one building to ultimately increase the overall valuation of it?

David:
I knew you were going to say that and that is just the difference between Rob and me right there. Because you hear that and your mind explodes with opportunity and creative options and I could make it worth more. I hear that and I’m like that is not a well-traveled path. That sounds like a lot of work to have to figure it out. That’s going to take away money from all the other things that I’m trying to do. I don’t like multiuse options because there’s a higher ceiling but there’s a lower floor. I tend to be drawn towards a well-traveled path that I can buy this thing, set it on its way, there’s a very established trade route, I know exactly where it’s going to go. I can forget that I own it and I’m good.
But this is important to bring up because as, especially newer investors are out there looking for deals, looking for something creative, trying to put this together, analyzing everything they can get their hands on, we know what it’s like when you get that RE bug and just the world’s your oyster, it can be misleading to look at an opportunity which is multiuse or value add or something and only see the benefit of it. You only see the upside. You don’t see what could go wrong. I remember, Dave, we had a conversation about this because you had some of those initial thoughts in your head. Before we get to that, I want to ask you what did you love about the deal and then let me know what do you remember about our conversation and what were your concerns about the deal.

David:
Yeah. Absolutely. And there’s a few more, Rob, because it sounds like you think the way I do. The gross stated current monthly rents was 34,000, so over 1% rule right off the bat. There were still several commercial spaces not rented. The five residential spaces were under construction. So four were going to be Airbnb with a fifth one that they hadn’t actually identified as whether it was they were thinking Airbnb or office, but it was a space big enough to put a studio. So nothing crazy but a space. Then there were some other things, option, potential. But as the numbers were presented to me, at least broke even, but should have cash flowed about $7,000 a month or actually should have been a little bit more than that. I’ll get to the 7,000 number, how I came to that. What happened is as we’re talking through this, I’m fact-checking a lot of this.
This gentleman was also out of state and very mom-and-pop numbers, his accountant, just a lot of typical mom-and-pop things that you encounter where as you’re digging into stuff, you’re like, well, that’s actually off by a little bit. Let me tweak this. Let me tweak that. And I came back to them and I was basically like, “Hey. It looks like these two leases are actually projected leases. Perform a typical stuff. These are not current, these are potential or signed, but they haven’t started yet. So can you give me the no joke, current rent roll, who paid this month, accurate,” whatever. And they came back and it was about, I think it was 27. So the net on that would’ve been about seven and that’s where it was. This is when David and I, I think I reached out to him and there were three other people. For David’s reference here, he never saw the numbers. This isn’t like a, here’s all of this stuff, please. I never did that to anyone and I wouldn’t recommend anyone do that.

David:
Yeah.

David:
What I would do to people or do with people if I was ever going to somebody for a fact-check was like, “Hey, I ran all of this and here’s what I came up with. I have one or two minor concerns or I’m at this point. Do you see any major, absolute stopping red flags?” Maybe there’s a couple concerns, but unless everybody I talk to is absolutely no, then it’s okay. There’s a couple concerns here, but this isn’t just off the rails, I’m an idiot type of deal.

David:
No, not at all. And that’s a good point you bring up. We should highlight this. When you are going to someone for advice, the wrong way is to just info dump every single thing you have on them in a big, long email or a message or hold them hostage to make them hear about this. I would never go to Rob and say, “Hey, here’s everything that I’m doing. Tell me if I should buy this deal.”

Rob:
Hey, but you can though, just so you know.

David:
I appreciate that.

Rob:
You can always vent to me.

David:
You can always do that one time and then they’ll never take a call.

David:
I would imagine that is an invitation to David to do that, not the audience. I’m saving you right now, Rob. I’m saving you.

David:
Yes, yes, yes. Yeah. So what you do want to do is go to someone else and say, is there something I’m missing? Because it’s never what we knew could go wrong that hurts you. It’s what you don’t know that could go wrong that can hurt you, as well as, is the way I’m looking at this correct? When I’m analyzing this, am I using the right set of data? Is this the right formula? It’s something like that because if you have the wrong formula, even with the right inputs, you get something incorrect. If you have the wrong formula or the other way around, the wrong inputs with the right formula, you can also mess it up. So that’s the stuff we’re looking at. What I want to ask Dave is as you’re looking at this deal, I remember you being super excited about it. It was almost like a game changer. If this thing works, because you weren’t quite sure, this could propel me to a completely different place in life, and that always adds some extra juice.
When it’s not just the deal of being a [inaudible 00:20:03] merit, when you’re thinking about the change it can make in your life, I’m not saying that’s wrong, I’m saying it gets more complicated. If you’re looking at a deal and you know if I buy this, I can quit my job, if I buy this, it’s generational wealth, if I buy this, it gets me out of X problem that I have, different stuff starts creeping into your decision-making process that’s rooting for this to happen. The Real Estate Radio Guys, we had them on and they told a story about how they would buy properties just solely for the tax benefits. They weren’t cash-flowing, they weren’t good deals, but they were saving money in taxes and that was influencing their decision-making and ultimately, they went bankrupt. They lost all those properties from that. So tell me what’s going on in your life at this moment that’s affecting your framework as you’re analyzing this opportunity?

David:
Yeah. I’m in the Marine Corps and I’m getting promoted.

David:
Rich.

David:
Yeah, I’m not rich. I’m getting promoted, which is great, but for anyone who’s been in the military, the more you get promoted, the less fun you have, the more office you do. There’s not a way to say this part without sounding, I don’t know that this ever comes out the right way, but the war ended, and so I’m not like a sit on the couch, twiddle my thumbs bum type. Not to say there’s anything wrong with that, I suppose, but for me, as the type of marine that most or a lot of marines are, as you get promoted and wars end, the Marine Corps is not as much fun as when you’re young and [inaudible 00:21:39].

David:
You don’t have the same purpose.

David:
Yeah. Afghanistan and combat and training and the purpose and the adventure and the excitement was a whole lot more appealing than training where you’re not going anywhere.

David:
You wanted Call of Duty, not office duty basically.

David:
I can always count on you. See? Look at that. This is why you got that Dundie award all those years ago.

David:
So what you’re saying is that your mind is going to a place of I don’t like where I’m at. The walls are closing in on me. That’s funny. David did send me a Dundie award. It was for best [inaudible 00:22:13] book or something, which is funny because it’s the only [inaudible 00:22:15] book that was written other than the impostor books, and that’s a Office reference. So you don’t like where you’re at in your job. The walls are closing in. You can see this is not a path that I’m going to be happy to stay in. Of course, our mind starts looking for alternative options here. Then this deal crosses your desk in that moment, right?

David:
Yeah.

David:
Okay, so as you’re considering it, tell me what you’re thinking.

David:
Yeah. And I guess one other piece that I didn’t mention yet in this, because we did say not rich, I didn’t have 150,000 put down. So I brought a partner in which I will not mention who or what relation said partner is to me because he remained… Well, the LLC was set up. He managed to remain anonymous through a four-year lawsuit including a in-person trial where he was not even in the state for, so success. But he was a two-third, I was a one-third. He brought 100, I brought 50 and my 50 came out of a HELOC. That was how I was able to put this in without being “rich.” So just throw that out for context so people aren’t like, “Wow, he said he is a broke, young, enlisted marine, but he put 150 down.” No, not quite. I was creative. But yeah, so that’s the frame to that.
My logic on a lot of this is, and for the record, has worked out well way more often than it has failed me, which is the whole point of this logic. I think Nassim calls it the barbell method, but what is the risk of ruin? If this goes absolutely wrong, what’s the worst case scenario? In this, the worst case scenario was essentially, we lose our lease option, maybe a little bit extra, but that’s pretty much it. The best case is magnitudes more and the building ends up being worth five million or it cash flows $20,000, $30,000 a month. As we were running all the math and all the numbers, as long as what we had been presented after I’d gone back and corrected some stuff and he came back and this, that and the other and I’d walk the building, as long as what we had been led to believe and what the inspection and what the numbers and the rent roll and the accounting and everything was accurate, then this really didn’t seem like a big risk.
You take over the building. You could control the asset as long as you don’t royally mess everything up. Then in the negotiation and in the contract, we negotiated a lot of things like foreseen issues. We negotiated like, hey, you got 45 days to finish those four Airbnb units or you owe me $16,000 or I think we dropped it to like 8,000 or something like that. You got 90 days to replace the commercial roof or you owe me 100,000. You’ve got two weeks to crane two HVAC units onto the roof after the commercial roof is finished or after we close to get the top floor HVAC-ready so that we can rent the top floor out or you owe me this much. Most of the things that were risks that were identified were put into the contract as, hey, within the first 90 days, seller is going to do X, Y, Z, and if he does not, he’s going to owe the buyer 8,000, 100,000, 10,000, whatever.
I think a lot of that was actually from conversations with you and other people where it was like, “Cool. Well, this might come up. Here’s how you can mitigate. Make sure that it’s in the contract that they will pay you X if they don’t do Y so that it happens one way or the other.” Because if they’re not going to do it, then you have the cash to take it down yourself.

David:
So it sounds like you were pretty aware of what could go wrong and had a contingency plan in place like every good marine would for if A happens we’re going to do B.

David:
So we thought.

Rob:
Right. Okay. David, I have a couple of questions on this option, on the lease option, because you said you put $150,000 down. The way we talked about it earlier on the podcast is typically with the lease option you say to the seller, you’re like, “Hey, I’m going to pay you this amount to reserve the right to buy it at this price in three years from now.” So $150,000 was the down payment. How much of that was the fee associated with the lease option?

David:
Actually, I guess realistically, he just counted the entire thing as both the down and the fee, so the whole thing went towards equity, was the way that it had been drafted. The note was almost drafted, and this is part of what came up in the lawsuit was how poorly all of this was drafted. It was drafted almost as if it was a seller carry. It read much more like a seller carry with a down payment and a interest rate and a monthly payment than a lease option except for the fact that we had the option to just walk. So it was almost as if it was a seller carry with a three-year balloon except that we had the option to walk away from the lease.

David:
So if I’m hearing you right, are you saying it looked less like a lease option and more like you put a deposit down on a property and you could forfeit your original deposit if you chose not to complete the purchase in three years versus a lease option? They’re very similar in the execution. Is that what you’re getting at?

David:
Yeah. It is not that that was what we discussed so much as that it was very poorly written and executed and I was not savvy enough with this stuff to know the difference. He drafted all the contracts on his end. Because he and I had negotiated everything verbally and he sent it over and I was like, “Yeah, those are the terms we talked about,” I just was like, “Yeah, cool,” and it turns out he wasn’t as savvy as I thought, which ultimately worked out for me when we got into court stuff because the judge is like, well, this doesn’t look like what you’re saying it’s supposed to say and you drafted it so you can’t say it doesn’t mean that because you wrote it.

Rob:
Right. That happens too. A lot of times you negotiate terms, they sound good, but no one ever actually sits down and pencils it out in a model or in a spreadsheet and so they don’t actually know logistically or tangibly what those numbers work out to. Then once they see that after the fact, there’s a little bit of panicking and wait, that’s not what we talked about. It’s like, well, it is, you just didn’t do your due diligence beforehand. The other question I have about this, because that sounds like a lot of logistics to just deal with the seller and negotiating… Sounds like they’re collaborative, they’re playing ball and so not really a big deal there, but on the flip side of this, you’re really taking on a really big business. We talked about it’s creative, so many ways that you can make money in cash flow. Did you give any thought to the actual property management of this overall business?
It’s not just a property manager that you’re going to hire for it. It’s not like a commercial property manager. It’s not an Airbnb property manager. Who was the one that was actually going to run this operation?

David:
There was a onsite property manager who had been working with this gentleman and she had offered to stay on as a full-time manager and she had a maintenance guy and she was full-time there. When I went and looked through the property, I walked through and I met with her and she showed me everything and she seemed awesome. She knew everything about the place. When we get into lessons learned, one of the things that I will talk into is that I should have immediately brought my actual property manager and my team through with me instead of going with her. I can either confirm nor deny because there’s no proof and this didn’t come up in court, however, from my understanding, there was a under the table agreement on a maybe or maybe not consulting fee for that property manager if she helped sell the building.
So she was incentivized to make things look really good when I walked through with her. When we took over, the property manager that I thought I was getting was not the property manager that I got. It was within the first two or three weeks that I fired her and brought my team in. Should’ve, would’ve could’ve, I guess. I should have brought my team in immediately. But it’s a bummer because that was part of the issue. I don’t know how much we want to get into that part right now, but there were literally tenants in the residential side that when my property manager walked through said, “Oh, yeah, we don’t pay rent.” She was like, “Says you’re on a lease and you’re paying rent.” They were like, “Well, yeah, we were just told that if we said we were paying rent that we could just stay here for a while for free until the new owner took over and eventually would evict us whenever that timeline took place.”

Rob:
Wow. Oh, wow.

David:
That’s cool.

Rob:
Okay. It sounds like this is about the time wheels start falling off the bus here. I want to get into that, but just to summarize where we’re at, what deal is this in your pipeline? How many deals had you done before this?

David:
Three legit investments and then some raw land and some other stuff. This is not-

Rob:
Four-ish?

David:
… super far along. Yeah.

Rob:
Okay, cool. Then the purchase price for this was a total of how much?

David:
By the time we would’ve closed, 2.795.

Rob:
Okay, 2.795. You put down 150,000. You brought in 50,000. You had another partner that brought in 100,000 and this was a 20-unit mixed residential use property in which we were still waiting for four short-term rentals to be completed. Is that right?

David:
20 residential side and another 20 to 25 once the construction was done, and then another 15 potential commercial space, so like 40 total, 35.

Rob:
Great. Then you worked out with that seller timelines and milestones of when things had to be completed, otherwise they would owe you money overall?

David:
Yeah.

Rob:
Great. Okay, so let’s dive into when the cracks in the foundation start appearing. Can you tell us a little bit about that?

David:
Yeah. Month one. Some of the big red flags came right out the gate. Ironically, I’m still stationed out in Hawaii, so the first major red flags are happening while I’m on a one-week cruise that you can book while you’re in O’ahu and it goes to all the islands. I’m on this cruise ship and I’m trying to enjoy this cruise while I’m firing a property manager and getting calls from commercial tenants and we’re two and a half, three weeks into this thing. I’m like, what in the world is going on? None of this is making any sense. There’s no way this is realistic. Text messages and things that I’m getting, I’m hearing are just insane. What’s happening is to summarize, the amount of money we collected, well, I didn’t get the prorated rents for the first month from the seller, which was in the contract. Then he was like, “Oh, yeah, no. We agreed to something different. We must have messed that up with the contract.” I’m like, “The contract says otherwise and we didn’t agree to that, so I need that” and I never got it.
So that was red flag number one. There’s $17,000 coming to me and you want my first month’s monthly payment, but you’re not giving me the prorated. That’s a very significant chunk of money to not give me at this point. Then on the first, the rent collected was to the tune of $7,000 or $8,000 less than what the stated rent roll for the previous month had been. I’m like, okay, something’s off. That’s a huge number. It’s because one of the “current” commercial tenants that was $4,500 isn’t paying. So I get ahold of them and they’re like, “We don’t have a lease there. We broke our lease. Did he not tell you? That was last month or whatever.” There’s a lot of weird things that I’m starting to like, hang on. No, I did not get told that. This number clearly states that you were a current tenant that paid last month. The bank account shows that money hit the account. That doesn’t add up at all.
Then my property manager starts going through and the rents that were told to us aren’t accurate. Not all the tenants are paying and they were told they will say they were paying, some of that issues. So overall, it was $7,000 or $8,000 gross less came in. Then the seller is making decisions, talking to tenants, having people do things like having the lady that I fired do repairs in the property even though I’m telling him, “Hey, I fired her. I want her out of the building. I don’t want her in the building. What are you doing? I signed this lease option. I have control of the building. I don’t want you to touch anything. I don’t want you to talk to anybody. This is my asset for the time being. That’s why we paid you $150,000 so that I could take control of the asset.” It was just this weird transition period of like, okay, something’s off. Numbers don’t add up.
He owes me this money right off the bat that he’s not giving me and he’s hiring these people that I fired to do work that doesn’t need to be done on a building that he no longer has control of. He’s telling me he’s helping me, but every time he hires them for something, it hurts me somehow. That was where alarm bells start going off. I’m on this cruise. I’m going to Maui. I’m going to see Brandon this next day. I’m like, yeah, it’s a mess.

Rob:
Man, so you are really putting out fires really quite immediately. As soon as you close on this thing, you’re super excited. You’re finding out that all this stuff that you heard about is either untrue or inaccurate or you don’t have all the information. How are you holding it together at this point? Because I think at this moment, most people would probably be freaking out.

David:
I don’t know, lots of Marine Corps dealing with crap.

Rob:
Yeah. That’s probably a lot less substantial than some of the stuff you’ve seen.

David:
Yeah. What can you do? Losing it doesn’t really solve anything, so you just try to figure it out. And also, I think part of it is that I don’t know that I really believed that it was happening. I’m just like, there’s no way that this is legitimately what’s going on. He can’t actually be meaning to do X, Y, Z. Surely, this isn’t the real deal. Yeah, the flash-to-bang on this bad boy was real quick. As we get through the timeline on this, the closing date to date I file a lawsuit is less than four and a half months apart.

David:
So at this initial step though, Dave, you have to be feeling some betrayal, some confusion. Your brain’s trying to make sense of what’s happening. So either it is as bad as you’re thinking it is, in which case you’ve been betrayed, you cannot trust this person, they have some motive you didn’t know about like a side deal with the property manager or side deals with contractors, and then your brain’s like, well now I got to dig it and figure that out, or you’re just misinterpreting the whole thing and if you give it some time, it’ll work itself out. So you’re in that stage where you don’t know, have I been had or am I just being paranoid right now? Is that more or less what you’re dealing with?

David:
Yeah, and I’m trying to get my property manager in to like “Jerry, get in there and please [inaudible 00:38:58].”

David:
And Jerry’s confused. He’s like, “You’re dropping me into hostile territory here,” or is it hostile territory? I don’t really know.

David:
Yeah. Jerry’s a female, but yeah, she’s running in there and guns are blazing. What are we getting into? Then she starts calling me and telling me that-

David:
Okay. That’s what I was getting at. So Jerry is what helped you figure out which of these two roads it was. She went in there objectively, looked through everything and then she reports back and she’s like, “All right, boss, I got some intel.” What do you guys call that, a sitrep? So tell us what was Jerry’s report to you?

David:
Uh-huh. Jerry was basically like, “Why didn’t you bring me in sooner?”

David:
Yeah.

David:
So Jerry starts talking to the commercial tenants and I figure out that the former property manager,-

David:
God bless Jerrys, by the way. Can we just take a brief moment to just say, thank you so much out there? Because you’ll just probably still be trying to wade through this and so would I if we didn’t have people like that in our life.

David:
Jerry showed up at the trial four years later for me, sat outside for four and a half hours, came in and testified for 40 minutes with no reason to other than she’s still my property manager to this day. Yeah, so.

David:
Awesome. Okay, so she goes directly to the tenant. She’s like, “I’m not dealing with the previous owner. I’m not dealing with the current people. It’s all corrupt. I’m going right to the source and I’m going to talk to the locals on the ground. I’m going to figure out what’s real.” I’m using all these military analogies as we’re getting into this thing. So she goes and she gets the brass tacks and what did she find out?

David:
Well, a couple of very interesting things. The murder mystery theater is still actually there as a tenant and awesome. I won’t name them, but they’re great and so they were giving us a lot of inside scoop. One of the things is that the former property manager and the seller, their relationship is much more intertwined through things than I had been led on to believe. I knew that there was a lease signed for a paintball place to be built in the back part of the park. This place, it’s five acres. It’s a massive parking lot. In the back corner of the parking lot there, was going to be an outdoor paintball place put up. That was a lease that was future dated for March. We closed on this in September. Starting in March, they were going to begin construction and be opening and begin paying in March. I knew that. That was signed. That was executed. That was whatever.
What I did not know until we got Jerry in to talk to this other lady is that the paintball lease was in fact the property manager’s company and that it had been funded by the seller and that there were actually two leases like that in the mix of all of this that were property manager’s LLC funded by seller that were just like, oh, great. No wonder they keep meddling with things because they still have a vested interest in this building in ways that I was never made aware of. No wonder this lease was written to where they can start building their paintball place immediately, but don’t have to pay rent until March. So now I’m dealing with a tenant who’s starting to block off sections of the parking lot even though the lease clearly says that I have to approve the plans before they can do anything. She’s like, “Well, I’m talking to the owner” and I’m like, “He doesn’t own it. He has no control of this building anymore. I do.” That’s a whole another piece.
That whole paintball thing, we could go way rabbit trail, but I’ll just sidebar as former property manager called my property manager, called the police on her twice over the timeline of me basically telling the city I haven’t approved her plans. Do not give her a permit. Then she spray-painted on the door of a closet inside the building, property of paintball such and such, District 9 Paintball. I’m like, “The closet’s not part of your lease. What are you doing in the building?” So there was all kinds of weird deal. She started construction on a space inside the building that she didn’t pull permits for because she thought it was part of a lease that she had that… Yeah.

David:
Okay, Dave. So reality hits, things come to light. Jerry is your boots on the ground that helps you get to the bottom of it. You realize that there are falsified numbers, falsified leases, this rent-to-own situation and lease to buy became commingled and confused. The property manager was fired. I understand they flooded the property and then they cut electrical wires to sabotage what was going on. Any other details there?

David:
Yeah. A whole bunch of things along with all that other sabotage stuff that just wasn’t ever really brought to light in the court case, but things that were just really weird going on that never brought in. The biggest things that, as far as “sabotage” or whatever that really played into this is that all those things I mentioned at the beginning in the contract were never done and were never paid. So a hundred days into this thing, the units aren’t done, the roof’s not done, the HVAC’s not done, and these things are causing tenants to leave or space is not to be able to be rented or roof to leak or whatever, and this guy owes me $110,000, $120,000 for the things that aren’t done in the contract and hasn’t sent the money, hasn’t done anything with it, won’t sign an addendum to change anything in the agreement, won’t waive the monthly rent to or payment to himself in lieu of that.
I’m just at a point where clearly, this dude is just trying to basically tank this deal to keep my lease option fee and move on, get me to move on so he can do it again.

David:
Which is a clear breach of contract, but luckily these things were in the contract.

David:
Yes.

David:
So you did what you had to do and you brought this to court four months in. When did you finally settle? What was that court process like?

David:
Four years and some change later, we finally settled. We filed, well, I guess four years from the purchase. So I guess three and a half years after filing, it settled, four years after purchase. The reason for that is just COVID. We started and then we had a court date or a deposition date, trial date in 2020. There were a lot of missed deadlines. I don’t know that the other party actually hit a single deadline throughout the entire trial. In fact, the other party missed a deposition and the judge actually made them pay for my attorney’s time, which my attorney said he’s never seen happen, that the judge actually grants that since he’s been an attorney. So that puts in perspective how many deadlines they were missing and for what kind of excuses. Then because of that and how backed up things got in the court system with all the pandemic and in-person, out of person judge type of rules and things, we just kept getting pushed because we just weren’t the most important thing on the docket.

David:
So four years of this, which is a great lesson to be learned that even when you cover yourself in the contract, that doesn’t necessarily mean you’re good to go. There still are consequences and a price to pay when you get caught up in a bad deal or a good deal gone bad or however you want to describe this. So what were some of the lessons that you learned from this?

David:
Four years and about 40,000-ish in legal fees throughout that which we recouped, but you still got to fork it until you recoup it.

David:
And you got to hope you’re recouping it. It’s not guaranteed.

David:
Yeah. That’s valid. So you got to know you’re in the right. Your gut’s got to be in the right place. A lot of lessons, tons, but big one, always have your attorney look over anything that’s unusual or I would say most things, but especially any unusual contracts that you’re dealing with. If it’s not something that you deal with on a very regular basis, have your attorney look over it. The number of times my attorney has told me that if I had him look at something sooner, it would’ve saved me money is… Yeah. I’ve learned that lesson more times than I should have learned that lesson, but this was definitely the biggest learning of that lesson.
Let’s see. Setting unit goals. I think going big just because you can, setting a unit goal, I don’t want to say that’s an ego thing because I think that it’s good to have goals, but I don’t think you should get caught up in goals just because the number sounds cool. Set a passive income goal. Set a financial freedom goal. Set a net worth goal. Set a personal goal. But I think the doors and units thing turns into a bragging match online and people get wrapped up into it. I got sucked into it and just it is what it is. I had no business buying this building at that point in my investing trajectory. I would say the other piece of this is don’t pull your punches when you get hit in the mouth.
We haven’t told this, but through this four-year process, when I purchased this, I only had 12 doors, two other properties, and by the time this lawsuit closed, I’m out of the military, million-dollar net worth, financially free, not taking another job, over a hundred doors. Again, not that doors matter, but the point being, I stayed consistent. I kept investing. I didn’t let it deter me from everything else, but I stayed simple. I pulled back and I started going back to the basics. Always have your team walk through deals, the tried and true team. Always have them walk through everything with you. Don’t just take the other person’s word. Have your property manager come in. Have your team go through. Then I think this is the biggest one, and David, you already alluded to this, or maybe it was Rob, we already talked about this briefly, but document verbal agreements immediately after making them.
There were a lot of things that we negotiated through this process and we would have a phone call because we were long distance. We’d have a phone call. We’d negotiate all this stuff. What I failed to do was immediately follow that phone call with an email saying, “Hey, great call today. We talked about X, Y, Z. Please reply confirming that this is what we agreed to.” So when we got into all this mess, there are still things that I wasn’t able to bring up because I never got a written confirmation that we had agreed to it.

David:
Such a good point. This comes up all the time with real estate sales where the agents will have a conversation. One agent will say something. The other one tells the client. It never gets put in the contract. It doesn’t even get put in an email. It turns out that one side doesn’t want that to be the case and they conveniently forget it being said or claim it wasn’t said and now people are scrounging through text messages or making character assassination attempts because they’re mad. It just does not matter what is said. It matters what is recorded. If it is not written down, it doesn’t exist. I’m glad you learned that lesson early in your career and that you can share it with everyone else because I know the vast majority of people were just naive. We’re like, they said it, it goes recorded in my brain as a term that we’ve agreed on. You move forward as if it’s the case and then when the other side realizes they don’t like how this is going, they claim it wasn’t said and there’s nothing you can do.

Rob:
Yeah. I would also say, David Pere, you said that you had no business buying this deal. I don’t know if I believe that, honestly. If you had three under your belt and you were ready and excited to take on… I think that real estate should scare you a bit and it should cause us to get into uncomfortable situations. Obviously, this one did not work out the way that it was supposed to, the way it was intended, but there are a lot of other scenarios where it would’ve worked out and the fact that it didn’t, I would never want you to feel like you made the mistake that you shouldn’t have believed in yourself. Ultimately, I think you have a lot of good lessons from this. You’ve obviously bounced back. You’re crushing it now. Honestly, probably the reason that you’re crushing it now is from all the stuff that you learned from this deal. So there is always a little silver lining there, in my opinion.

David:
That’s a valid point. Because had this not ended up the way that it ended up, it very well might have been. Had it been the deal that was actually set in front of me and not as we’re about to get to what the court case says it was, then yeah.

David:
Yeah. It is very easy to look at these and say, see, that’s why you shouldn’t do real estate because things can go wrong. You couldn’t be more wrong with it. You just have to accept in any endeavor you go in. If it’s snowboarding, you’re going to fall on the snowboard. If it’s weightlifting, you’re going to pull a muscle. If it’s a sport, at a time, you’re going to make a turnover. That does not mean you shouldn’t play the sport. This means you learn from how you made the mistake. You get better and you go forward and the points that you score in the future are much better than if you never played at all. So thank you, Rob, for pointing that out. So yeah, how did this lawsuit end up working out?

David:
Yeah, I was going to say. We only have an hour, so obviously, this story’s way crazier than we were able to get into. If anybody really wants to dig into the details, I told the producer, and I think they are going to link to the case notes down below, which is where you can pull the full public record of the court case, because I am totally cool with that being out there because it’s public record, so why not? We won, hands down. Basically, we got made whole. We got our money back, close interest over the time period, which is a win except for the whole four years of stress and headaches, but basically a free education in legal. We won. There were four counts that we sued for and we won three of them and the fourth one was basically… So here’s how it broke out.
We won breach of contract. It was awarded to us. Fraudulent misrepresentation was awarded to us. Negligent misrepresentation was awarded to us. Then the fourth count would’ve been unjust enrichment, but that was barred from being included in the trial because it was deemed that there was a contractual agreement. If we hadn’t won the breach of contract because it was deemed there was no contract, then we would’ve gotten into that count. Ultimately, basically played out as, and you can read through the contract and read through all the comments from the judge and everything, and it gets pretty crazy, but basically, it reads out as we did what we were supposed to, they didn’t, so we were made whole.

David:
Really good lessons there.

Rob:
Glad to hear it, man. I’m glad that you came out. You were made whole. In all of this, was there more compensation? I know you said that your lawyer’s time was compensated for, but did you at least come out on top for maybe just a little ahead or not? Is that not really how any-

David:
There was an interest amount accrued over the time period. Whether that keeps up with inflation or not, who knows? I haven’t done the math.

Rob:
It’s something.

David:
There’s something I’ve been saying a lot of lately in different formats and mediums. Money can be taken from you. You can make every single decision to the best of your ability and things can still go wrong. In this case, an unscrupulous seller sabotaged your deal. We analyze deals, we don’t analyze people. It’s very difficult to get to the point where you could have seen that coming. There’s lots of other cases where mistakes happen that just cannot be avoided, sometimes just from raw luck and sometimes from inexperience. You can lose money. What you learn going through these experiences will stick with you forever, and those can be converted into much more money in the future, which is why I tell people to focus on learning over earning. But the knowledge that you gained through going with this deal will give you confidence, skills, approaches, put systems in place.
You’re never going to not bring Jerry in on a deal earlier. You’re never going to not bring lawyers in on a deal like this again. It’s going to allow you to have confidence to scale to a bunch of bigger deals, which it has in the future, and that’s the lesson that I would like everyone to take from this. I also want to thank you for just pulling back your shirt and sharing the warts because we always hear about the good deals. We don’t always hear about the rough ones. Now, before you go, because I do want to have you back to get your full investing story in a different time, I want to call out that this property is still a line item on your property tracking spreadsheet. There are no numbers on that line item, but there are some words. Can you tell us why you keep it the even though it’s totally off your books now?

David:
Are you looking at that line item right now by chance?

David:
I may or may not have means and resources. I wasn’t a marine, but I’ve got other mediums of use here.

David:
Oh, if it’s in front of you, you’d be able to read it because I don’t have it pulled up.

David:
Oh, I can read, yes, but I’d like you read it and then I’d like you to tell us why.

David:
Let me pull it up so I can read it, make sure that I actually say the words right. Otherwise, it doesn’t have the-

David:
I’ll read the words for you if you like, and you could interpret it.

David:
Okay. This is on my property tracker that’s on my net worth tracker that I update every month, the most important metric to track in my opinion. It says, “No longer in existence. Just left it here as a memory of the lawsuit won and lessons learned.” That’s exactly why it’s there, because I want that to always sit on my property tracker. It’s in a different color than every other property that is highlighted on my tracker so that every time I pull up my deal and I’m doing equity and debt and tracking my properties and yada yada, it’s just always a reminder.

Rob:
I love that, dude. Thank you. I genuinely thank you because you’re obviously crushing it. You’re a seasoned person. You’re a friend of the BP family, and so I know it’s really hard to come in and tell these types of stories, but believe me when I say this has helped so many people out there who have made mistakes and won’t forgive themselves for it. You have clearly moved on from this and learned from it and I think a lot of people can really just realize that sometimes we make mistakes. It’s cool. We get better from it. We remember them. We learn from those lessons and we get better.

David:
All right. Well, thank you, Dave. We went a little long, so we’re going to get you out of here. Any last words before we let you go? How can people find out more about you?

David:
Yeah. I actually just created this. This is the first time this is ever going to be done, so I’m excited. I love BiggerPockets. This is actually from a mutual friend of ours gave me this idea for this URL. I don’t know. I never know what to say here when I talk podcast. I wanted to give away a free copy of my book. I wrote a book, No B.S. Guide to Military Life for service members or vet. So if you’re a service member or a vet and you’re listening to this, when I come back on sometime, we’ll talk more about all the military stuff, but I just want to give it away. If you want a free copy of the book or you know a service member or a vet and you want a free copy of the book, the best way to get ahold of me and this page has all my social media stuff is to go to, and this is what I’m excited about, thebestpodcastguest.com, and you will be able to download that free book.

David:
That’s funny. That’s really good. Rob, how about you? How can people find out more about you and that beautiful, creative, wonderful mind of yours?

Rob:
You can find me over on YouTube @Robuilt, Instagram @robuilt and that’s it. What about you?

David:
I’m @davidgreene24 just about everywhere, including YouTube. I also have a new website coming out pretty much when this airs, I think, davidgreene24.com. All right, we’re going to let you get out of here, Dave. Appreciate your time. Thank you for sharing this story. We’ll have you back on in the future. This is David Greene for Rob, putting the dues paid in due diligence, Abasolo signing off.

Warren Pies, 3Fourteen Research co-founder, joins ‘Closing Bell: Overtime’ to discuss the housing market and how it impacts the economy.