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David:
This is the BiggerPockets Podcast, show 732. I don’t want you to ever compromise on excellence. I do want you to think about where excellence is being applied within the goals of your life. You can continue to do the work yourself and run a great business and get a lot of dopamine, but as you recognize, if you want to scale, if you want to build wealth bigger, you need to be excellent at different things, and this is the struggle many of us get into. Once we get good at something, we don’t want to let it go.
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with a Seeing Green episode. You’ve never been to one of these. They’re pretty cool. We bring in listeners just like you to ask questions, sometimes verbal and sometimes on video about struggles they’re having with real estate, knowledge they want to gain, or what they can do to make more money as a whole, and I’m passionate about helping y’all make some more money. So let’s get into it.
Today’s show is fantastic. We had really, really good questions. We talk about picking a market and the order of operations, like what should you look for when choosing a market. We talk about when it’s better to pursue equity and turn it into cash flow and when it’s better to just start with cash flow. We talk about insecurities, when they show up, why they show up, and how to deal with them for different parts of real estate. And we talk about how to make a BRRRR work in this market or an individual market where it just doesn’t seem like they’re making sense. So we get into some brilliant advice from me if I do say so myself. If you’ve been a BRRRR investor and you’re being frustrated, you might like where we go with this one. Want to thank you guys so much for being here. I know you’re going to like this episode. I’m excited to get into it.
Before we get to our first question, today’s quick tip is BiggerPockets is a website, not just a podcast. And on this website there are many things that you can do, one of which is how the website was started. We call it the forums. You go to the forums and you will find more investors than you could possibly imagine, asking really good questions that you’ve probably thought of yourself. You also can ask questions of your own and you’ll probably be amazed at how many members jump in and answer them. And this is all for free. Highly recommend you getting a membership set up with BiggerPockets and checking out the forums because there’s so much you can do. Calculators, networking, finding real estate agents, learning more about me. You can look up my profile on BiggerPockets and send me a message. All right, hope that happens and let’s get to our first question.

Johnathan:
Hey David, thank you for taking my question and appreciate what you do for the BiggerPockets communities with the Seeing Green. My question is what real estate side business should I start based on my background, my strengths and the current market? I just bought my first duplex in the Raleigh Durham area as a house hack living in one side, and I’m currently working as a railway design engineer and I’m also a United States Air Force Reserve as a aircraft mechanic. I was considering doing home inspections as I think I have a skillset that would be work towards attention to detail as well as following standards, but I’m curious about what you would recommend in this market with you having multiple businesses in the real estate industry. Appreciate you.

David:
Hey there, Johnathan. That’s a pretty cool question. I appreciate you asking that. I would probably like to have a little more info on what your skillset is. You mentioned you’re aircraft mechanic, so obviously you have mechanical aptitude. I do think a home inspector would be something you could pick up pretty quick. That’s a cool side hustle. I don’t know what’s super lucrative. So if that’s something you enjoy doing and you’re just looking to make a little extra coin, I do think that’s actually a great idea. It might have been one of the things that I would’ve recommended. You may also, it sounds like you’re a pretty intelligent guy. It may be worth looking into architecture, maybe becoming an architect or some form of engineering within real estate if you were designing plans for homes.
I know one problem that I’m having right now is submitting plans to the city and they’re frequently saying, “You need to have an architect draw this up. You need to have an architect draw this up.” And it’s very hard to find architects. So I think that there is a need for that, especially if you were able to do it remotely. If you could find a person that you could send to the site of different states and have that person go take measurements for you and then bring it back, put that into a software and draw that up. Not sure if that’s something that you have experience with, but that could be a pretty cool side hustle also.
And then if you’re also good at being a handyman, I think that there’s money to be made in being a handyman. Every investor I know is always looking for someone that can show up and fix things. The people that manage properties are always looking for someone that can show up and fix things. Most of the time we don’t want to pay a licensed contractor to go and tighten a pipe or fix a door that’s hanging wrong or repair some dry rot or even put down flooring. So if that’s something that you’re skilled at and you very well likely could be from the job that you have right now, I think that that is another opportunity you could get into.
But yeah, you mentioned you’re a roadway engineer. I think that if you could look into real estate engineering, that would end up much more lucrative for you than just becoming a home inspector. Although being a home inspector might still have some value if you really like real estate, I think it’s a cool thing to pursue. But I think if you’re looking for a new career, becoming an engineer within real estate would probably be more fulfilling and you’d make more money.
Thank you for this question, Johnathan. Be sure you follow up and let us know what you ended up deciding. This is cool stuff.
All right. Our next question comes from Alan in Indianapolis. Alan says, “I understand that most people get into real estate investing as a way to build wealth and get out of the rat race. I have a lot of liquidity available and I want to find a better place to invest it. I don’t qualify as an accredited investor, but I’m fast approaching those qualifications. My high-earning W-2 will make it difficult at this point in time to replace it with REI. So I want to get some direction on what is a good place to get started. I have over $400,000 in a 401(k) that can be rolled into an SDIRA. I also have about 30K in cash and expecting another 40 to 50K in performance bonus coming. If I can grow efficiently, I would entertain the idea of leaving the W-2 in the future. Where should a mid-career high-earning W-2 person with liquidity get started in real estate?”
All right, this is cool. We got a little puzzle to put together here. Thank you very much, Alan.
First off, with the way the economy’s looking, I would not be in a huge rush to get out of your W-2 job. We don’t know what the economy’s going to do, but it very well could get worse before it gets better. And so, one of the things I learned when I was a police officer working overtime in the last recession, not only was I able to stay employed during a recession, but I was able to make more money than other people. So making more money than other people is always going to be great, but it’s extra great in a recession when everybody else is making less because you have access to opportunities and deals that other people don’t. So I really like the idea of keeping a high-earning W-2 when we’re going into a bad economy. I’m more open to the idea of leaving it and starting a business or quitting and getting full-time into real estate, whatever that might be when the economy is doing amazing because you catch some of those tailwinds that are going to kind of propel you forward.
As far as what are some ways that someone with good money could get into real estate investing if you wanted to quit your job, it would depend on what your skillset is. I’m very big in not saying real estate itself will sustain you, but what do you do within real estate? Are you incredibly analytically sound? Are you someone that could start a fund and you could start looking for commercial or multifamily property to buy? Do you have a really strong construction background? Could you literally start a business in construction doing rehabs of properties?
I really think you and other people need to look at what is your skillset, what are you good at? And then ask, how would that work within real estate, as opposed to saying, “I want to quit my job and I want to replace it with real estate.” If you have a lot of money, you could consider private lending, but you probably wouldn’t have to quit your job just to do that. You could do that while working the job, but again, you don’t want to get into it if you’re not good at analysis, if you’re not good at underwriting, if you can’t look at the risk associated with private lending and make sure it’s something that you want to take on.
The other obvious answer could be home flipping or wholesaling. So if you’re good at sales and that’s why you’re making so much money, which is a possibility because you mentioned a performance bonus that’s often associated with sales, you could start a business of sending out letters, making phone calls, getting the word out, getting motivated sellers putting properties in contract and either flipping them, holding them, or assigning the contract to other people as a wholesaler.
So congratulations on the position you’re in a financial strength, that’s awesome. I think you got some opportunities that should be coming in the future. If you can, write us back again or send us a video and let us know what your skills are and I will dive deeper into the advice I give you on what different positions you could take to get out of your W-2 job.
Oh, one last thing I’ll say. Not everybody gets into real estate investing as a way to get out of the rat race. I got out of a rat race, but I’m in a different race right now. I’m not working as a law enforcement officer. Now I’m working as a business owner, but I’m still working. And I don’t know that real estate investing is intended to get you to never work, especially because you often need to get approved for loans based off income that you have and because things go wrong. You have problems, things break that you weren’t expecting, you get vacancies that you weren’t expecting. Unexpected expenses pop up all the time. It actually works better when you’re still making income. I look at real estate investing more as a way to grow wealth that you’ve already created and to prepare for retirement not to immediately replace income that you’re currently making. Like some people do; I’m just saying my perspective is a little bit different, and today we are Seeing Green, so I’m going to give you the green perspective.
Our next video clip comes from Ryan Spearman in New Zealand.

Ryan:
Hey David, thanks for taking my question. Thanks for all the education over the years. It’s been amazing. I live and invest in New Zealand on the other side of the world from you guys. I’ve got a portfolio of small multifamily properties which I’m looking to expand upon. I want to try and increase my cash flow, so I’m looking to invest in the states. I’m in a unique position of not being tied anywhere so I can invest anywhere, which takes me to my question.
You have always sold the idea of starting first by finding the market that suits you, working your way down, finding a team, and then finding the property. What I want to know is how do I find the market? How do I do that research? I’d love a systematic approach to look at all the markets and figure out which one suits me best before I drill down and find myself a team and then find myself a deal to get some more larger multi-families and exchange some of the equity I’ve built up for slightly more cash flow. Any information or advice, I’d love to hear it. I listen to it all and like I say, it really helped me and my family and our journey towards financial freedom. Thanks. See you.

David:
All right, Ryan, another great question. You guys are crushing it today, asking really good questions. So looks like I see my book, Long Distance Real Estate Investing, I think it’s right there behind your left ear. You have some other books on your shelf that I have too. Extreme Ownership, The Millionaire Real Estate Investor, some Cal Newport works there. So good that I can’t ignore. He’s one of my favorites. So well done.
All right, let’s talk about choosing a market because that’s what your question is here. The first thing that I advise everyone to do that I do myself is I look into the strengths of different markets. So if someone said, “Should I invest in Miami or Dallas or the Bay Area, California?” Each of those markets has a strategy that will work good in that market. The thing that I want you to start with is just asking, “What am I looking for?”
Now, you mentioned something else that’s worth highlighting that you’ve built up equity. Now you’re looking to exchange that for cash flow. My opinion that is generally a superior approach to building cash flow than just focusing on cash flow right away. And I’m actually writing a book right now and I’m giving an example about this. It’ll be called Pillars I believe, and in that book I talk about how there’s one example of a person that chased after a Midwest turnkey property and they make $600 a month, so that turns into $7,200 a year. It’s a 12% return and they’re really excited. The other person goes and buys a property in South Florida and he sees above average growth and he does a value add on the property and he gets it below market value and he uses a lot of different strategies, builds up about $350,000 worth of equity, exchanges that for only a 6% return, even if he can’t get the 12% return and still makes three times as much as the person that chase cash flow in the beginning.
The goal is definitely cash flow, but the order of operations can be different. And you have more control over building equity than you do over actually building cash flow because cash flow only increases when rents go up and we don’t control that. So good on you for getting to this point where you’ve got that equity and you’re looking to invest it.
You’re probably going to be looking for either a cash flow heavy market with a lot of opportunities for cash flow, or maybe you’re looking for another equity run. You’re going to invest that money into a market that gets more cash flow than you have now, but still has a lot of growth. And what I’m getting at here is every market has their own strengths. If you’re going to go invest in South Florida right now, you’re probably going to see continued growth over time and continued rent growth, but you might not be crushing it in year one on the cash flow. Conversely, if you want to go invest into the Midwest, there’s probably a lot of places where you can still get cash flow, but you’re probably not going to see nearly as much growth. That’s one thing to look at. Is this market more likely to experience very solid cash flow in the beginning or above average growth over the long term? And if the answer is neither one, probably not a market to invest in.
Another thing that you want to look at is how much competition is in this market? So you want to go buy properties in Malibu, California. They’re probably guaranteed to do well over a period of time, but you’re going to be fighting with a lot of other people to get those properties. It’s very difficult. On the other side, you can go invest into Indiana where there’s tons of properties everywhere and it’s super easy to get them and they’re not very expensive, but they don’t have as much upside potential. So you want to be looking at competition within a market. Am I okay with a lot of competition if the upside is better, or do I want to avoid competition and just have an easier way to enter into that market?
What you’re telling me is you’re pretty experienced at investing. So I would be looking for markets that were a hybrid market. Dave Meyer and I talked about this on an episode we recently released on our State of the Market Podcast. Dave defines hybrid markets as markets that will cash flow but are also likely to have higher growth than normal. Denver, Colorado was one example of that. When you’re looking to pick a market, the first question that I think you should be asking is where are people moving to? Where are the populations going and where are they leaving? Okay, so San Francisco was red-hot. There was a point in my career a couple years ago, you couldn’t get somebody a property in San Francisco. It was impossible. Couldn’t happen.
Well, COVID came, everything shut down in San Francisco. People started leaving San Francisco and all of the demand that was in SF moved into the East Bay. At that point. It was very easy to get anything you wanted in San Francisco, but it became almost impossible to get any of these bigger single family homes in the East Bay where everybody wanted to move to. Same is true of New York. New York had red-hot real estate for a very long time. It’s been struggling since COVID. Political decisions, the weather and then the overall value that that location offers have decreased because there’s not as many people that want to live there. There’s not as many thriving businesses and a lot of the Wall Street opportunities that drove people to New York in the first place have moved where? South Florida. That’s why that market’s exploding and it’s becoming harder and harder to buy real estate.
So if you wanted to get ahead and buy in these markets that were going to go up before they went up, you got to look at where people are moving and then you got to look into why. So it’s not so much as doing research and just trying to find the website that’s going to predict where things are going to go. It’s more looking at the news overall.
Did you know that Hollywood has been slowly moving into Atlanta, Georgia for the last eight, nine years? You’re seeing a ton of movie production that moves there. I believe that the Entourage was filmed in Atlanta. All that stuff used to be done in Hollywood, not the case anymore. If you knew that, you would not have been surprised that Atlanta real estate prices soared. And if you’re paying attention in the last five to six years, they soared. Atlanta became every investor’s dream. Everybody was putting money into there, and many cities have had their runs. Memphis, Tennessee had a run for a long time that everybody was buying there. Birmingham, Alabama was the flavor of month for a little bit. Also, what happened with Austin, Seattle, San Francisco? They had huge runs. Now they’re cooling off. Phoenix and Las Vegas have their ups and downs too.
So what I want you to do is to start pay attention to where are people moving in the states? What states are they leaving? What states are they going to? Once you identify where people are headed, ask yourself, what is the strength of that market? How do you make money there? Is this a long-term buy and hold for rent increases? Is this a long-term buy and hold for the value of the asset increasing? Is this an area that has a lot of homes that I can add value to? Is there a big discrepancy in the sale prices? Do an ugly home sell for 600,000, but a gorgeous home sells for a million where you can go in there, do some construction and add a lot of value to the property? Or is every house somewhere between 120 and $140,000? That would be much harder to add value to, but it might be easier to find more cash flow.
Last, ask yourself what type of people are moving here? Just because humans are moving there doesn’t mean it’s automatically good. You’re hoping that humans are moving there to experience higher wages. If industry is moving into an area that pays more than other areas around it, you can be sure that rents will eventually increase. So if you’re looking for cash flow right away, you’re going to look for a different market than if you’re looking for cash flow over the next five years.
In general, my strategy is always to delay gratification. If I have an opportunity between a place that will pay pretty good right now or a place that will pay really good in the future, I always push it down the road and I take that gain in the future and I’ve never regretted. I’ve made much more money in my real estate that I made less money on the first couple years, but did way better on later than the people that took the opposite approach, which was like the tortoise and the hare, where they got cash flow right out the gate year one, but then they stayed there forever and eventually that tortoise passed them up. So hopefully this advice helps you to pick some different markets. I’d love to see you continue to delay gratification as well. Buy into areas with the population moving into, buy into areas with rising wage growth, and start looking at real estate from a deeper overall level as opposed to just an individual property that you’re running through a calculator a hundred times in a row hoping that you end up striking gold. It usually doesn’t work like that.
Thank you very much for your question, Ryan. Loved it.
At this part of the show, I would like to go over some comments from previous shows we pull off YouTube. Now, if you do me a favor, pull us up on YouTube yourself and like, comment, and subscribe to this show so other people can find out more about it. I want your comments because I want to read one on a future show. So if you could do me a favor and pull us up on YouTube, you’ll find BiggerPockets has a lot more to offer than just the podcast. There’s lots of other podcasts and there’s lots of videos that we air on BiggerPockets YouTube, many of them from yours truly that you won’t hear on the podcast.
Our first comment comes from Veronica O., right out of episode 714. “Hi David. You are so good at explaining complicated things. It would be nice to have a full episode on micro and macroeconomics explaining the correlation between the prime rate, stocks and bonds, unemployment, recession, inflation, and its effect on the real estate market.” That would be fun. I will take a note there that maybe we should put another episode together that talks about those kinds of things and how they affect the market as a whole. Because Veronica, you’re pretty smart. Everyone looks for the individual property they think is going to make them rich. It’s much more about understanding the bigger factors that determine whether real estate goes up or down as a sound financial strategy.
Kimberly Smith says, “David is my favorite. I’m buying my first duplex next month reading his BRRRR book on the daily.” Thank you for that, Kim, and I’m glad I’m your favorite. It’s pretty cool. Congrats on that duplex. I will keep an eye out for you to see how it went.
From episode 690, TJ says, “I always look forward to Seeing Green episodes. I like the format of having different personalities answering questions. This is a great episode. I learned a lot. Thanks.” Well, thank you TJ for that comment.
Derek and Melinda Decken say, “The bar has been raised in this video. I want to hear more commentary from special guest star Batman.” That’s kind of funny. All right, you guys got to go check out episode 690 to see what Derek and Melinda are talking about there. You will not regret it.
And our last comment comes from episode 690. “Respect to you, David, for still going strong on the podcast. I’ve been listening for four years now.” Well, I didn’t realize it had been four years, but I did just have a birthday yesterday and I am getting older. That is for sure. So thank you very much for acknowledging that and for the respect that you’re showing me. I’m thrilled to be a part of BiggerPockets ever since Brandon Turner first brought me on and I vowed to never ever, ever let him regret that decision. I’ve done my best and I’m glad to hear that you guys like it, so thank you for that.
We love and we appreciate the engagement all of you give on our YouTube comment, so please go in there and leave another comment. Tell us what you like. Tell us what you don’t like. Say something funny. I thought that Batman reference was really good, and tell us what you want to see more of on the shows and we will make those shows for you. Our next video clip going back to our questions comes from Wade Kulesa in South Dakota.

Wade:
Hey, David, Wade Kulesa here from Sioux Falls, South Dakota. I am a contractor here in my local market. I own a few properties and looking to expand this next year. My biggest question is as a contractor, I love doing the work. I like getting my hands dirty. I love seeing new projects being accomplished and that kind of thing, but I know that in order to scale that I kind of have to get past that mindset and handle those things off to other people. Do you have any advice for me as to how do I change my mindset or get past that feeling of giving up control more or less to other people to do some of those lighter construction tasks in order to scale and grow my business? Again, construction is my passion. I love the accomplishment and the feeling I get from flipping in a different property and making it better for people to rent, but need to get over that home. I just need some advice. I appreciate all you do. Thanks

David:
Wade, thank you for your transparency there. My goodness. I can tell you I struggle with the same thing. All right, we’re going to pull back the sleeves. We’re going to get to brass tacks. I’m about to get real everybody, so buckle your seatbelt. This problem you’re experiencing, Wade, is never going to go away. If I understand you correctly, you are a person who’s passionate about doing things the right way and we need that in contractors. Like you see the different ways a contractor can solve something. There’s always corners that can be cut, easy roads that can be taken, things that can be skipped that maybe for the first couple years won’t show up but will absolutely cause problems later for the person whose home that is. And you have a passion against seeing that happen.
You probably had a really good mentor that trained you in the right way and you get that feeling of a job well done, which becomes addicting. It’s literally releasing dopamine in your brain. Now, in the role of home contractor, this is a blessing. This is why you’re good at what you do. I already know you have a thriving business. You’re buying rental properties. People know you do good work because you’ve got this value system in place that makes sure you do good work. You’re now experiencing the problem where your value system is getting in your way as crazy as that is.
I don’t want you to ever compromise on excellence. I do want you to think about where excellence is being applied within the goals of your life. You can continue to do the work yourself and run a great business and get a lot of dopamine, but as you recognize, if you want to scale, if you want to build wealth bigger, you need to be excellent at different things, and this is the struggle many of us get into. Once we get good at something, we don’t want to let it go. You raised a little baby, it’s finally great and it’s time for it to go off to school, and you don’t want to let go. This is normal, but it’s something you’re going to have to deal with.
I can see your problem. Clearly, you’re in a small bubble of excellence within construction and you’ve got a bigger bubble over here of excellence within real estate investing and you know need to leverage off some of the work that you are doing so you can spend more time in this other bubble. The problem is you know the people you’re going to let do the work are not going to do it as good as you and your conscience is screaming at you that that can’t happen. The only ways that I know to overcome that have to do with stepping back and seeing a big picture. If you’re giving people lesser jobs to do, and I wish I knew more about construction to give you better examples with this.
Let’s assume that maybe the siding on a home is not as important as the framing of a home. I hope I’m not wrong. And every contractor out there screaming it’s the other way around, please just give me some grace here. For the purpose of this assumption, you want to make sure your best guys are doing the framing and your new guys are doing the sighting. If mistakes are going to be made, you want it to be on the stuff that’s not as important. And as those mistakes get made, your job as the business owner is to increase the standard that you expect from every person so that they do not continue to make mistakes. Like it’s going to happen; you just don’t want to see the same mistakes continue to happen. So there are strategic things you can do like putting your new people on the less important jobs with the goal not being a job as good as you would do it, the goal being a job better than they did it before. That’s what you’re trying to do.
When you become a business owner, this is a position I’m at, you stop doing the work and you start putting the same energy towards creating the standard. You have to hold them all to the standard and you got to know they’re not going to hit it. They’re going to fail Just like at one point you failed, they’re going to fail maybe more than you did because they don’t have your level of drive, ambition or talent, but you still have to keep pushing that standard higher and making them rise to it. Now as you see that maybe they don’t do it as good as you, but they did it better than they did before, you will notice progress and that will help break the chains of your enslavement to doing the job yourself. When you see their progress, it will help a lot. That’s half of it.
The other half is getting over into this other bubble that we talked about that has to do with getting excellent at real estate investing. And in that bubble, you will start to realize excellence within construction is not really relevant. I don’t do any construction and I still built up a really big portfolio of stuff myself. When you get deeper into investing in real estate, the dopamine connection, the emotional relationship you have with the work you’re doing in construction hands on yourself will be weakened, as you replace it with dopamine that comes from doing a good job within being an investor. Negotiating deals, closing on deals, finding the better deals, coming up with the plan for the property, improving upon the results you thought outperforming what you thought was going to happen will start to feel good and it will make it much easier to let go of the bad feelings of seeing the work not getting done.
If you wait for other people to do the job as good as you, it’s never going to happen. You’re never going to get out of that bubble of being a contractor. I think that you recognize that. So don’t make them do it as good as you make them do it better than they were before. And at the same time it will be easier to relate to those people screwing up when you step over into this other bubble because guess what? You’re screwing up. You don’t know how that bubble goes.
I talk about the three dimensions of leadership. The first one is learn. You’ve learned how to be a good contractor and now you have to step aside because you went from zero to a hundred. You’re at a hundred, you have to step out of that. The new guy’s starting closer to zero, he’s not as good as you, and that’s where the struggle is because you have to let go of doing the job yourself. Now you’re in leverage, you’re in the second dimension. You’re going up instead of left to right. And in the leverage, you’re starting off close to zero also, you suck at that. Or maybe you’re stepping out of learning into learning a new category, which is actually real estate investing and it will help a lot how humbled you get when you make mistakes. You will have more patience and show more grace to the other people that are showing mistakes. It will make you connect with them better and it will make this journey much easier to do than you’re imagining right now.
Your problem is you’re trying to step from a hundred percent skill level into a new area of 0% skill level at the same time that you are trusting your work to people that also have low skill levels. When you are doing something new with a low-skill level and you’re supervising people with low-skill levels, it will be much less frustrating than when you’re operating as a black belt trying to work with a bunch of white belts.
Thank you for the question. Keep us apprised of how this goes and my thoughts are with you and your success in this endeavor.
All right, our next question comes from Cali in Missouri. “How can I make the BRRRR method work in my area? My husband and I have been looking to use the money from our first flip to purchase one or two more homes that we want to BRRRR. The problem is that within our area, red values are too low for us to cash flow after we refi. Most of the homes we analyze seem to negative cash flow. How can we make this work? Do we need to look to different areas?”
Great question, and I haven’t talked about BRRRR in a while, so I’m glad that you asked it. All right. Your problem as weird as this sounds is not a BRRRR problem, it’s an area problem. I think that your subconscious had diagnosed this for you.
One of the first things you should look at when doing a BRRRR is acknowledging it’s going to be a buy and hold cash flowing property, which means before you look at how much of my capital can I get back out, how do I add value to it? You have to look at do the rent support the price at the end?
Now, if you’re operating in a market that doesn’t support the cash flow, it doesn’t work to look for a BRRRR because you wouldn’t be looking for a long-term traditional buy and hold rental there. If it’s nowhere near the 1% rule and you know that that area doesn’t cash flow for that type of asset class, it’s even harder to make it cash flow on a BRRRR. So right off the bat, if you’re operating in an area that’s not good cash flow, but known for equity growth, the BRRRR method is not the best place to work there. I don’t do it very often in the high-growth areas. In fact, I only do it in high-growth areas if I’m doing something unique. I’m adding a lot of units to the property. I’m transitioning the property out of a long-term rental into a mid or a short-term rental that’s going to make more income. You got to do something creative here. That’s the first thing I would say.
So yes, you look for a different area. You start with an area that I call in the BRRRR book, a target rich environment. You want an area that has a lot of homes that are close to the 1% rule. That does not mean they have to be the 1% rule. Please, everybody calm down. I know that nothing’s hitting that right now. What about 0.7 or 0.8? That’s close enough that you can actually look at the deals. When you find the area that does have them work or you find the asset within the area, maybe triplexes work, maybe short-term rentals work, but not long-term rentals, whatever it is. You find the pattern of what properties will cash flow in that area, then you only look at those properties as potential BRRRRs. You don’t even bother looking at stuff that’s like right out the gate ready to go. And you don’t bother looking at fixed upper properties if you know they’re not going to cash flow in that area after you buy them.
So before you worry about the rehab and the value add of a BRRRR, you worry about the end result. You start with the end in mind. So yes, you start with the area, you find the area, you find the asset class within the area. Then you start individually analyzing the individual properties to see which ones could work as a BRRRR. You’re asking the right questions there, Cali. Congrats on that and good luck in finding your next deal.
Our next question comes from Casey Christensen in Utah. Casey says, “Hi David. Thank you for the awesome content you put out each week. It’s motivational and uplifting. I currently own three duplexes. I had four and I just sold one that I closed on last week. Currently have the funds held at a qualified intermediary with the intent of doing a 1031 exchange. However, I’ve recently been thinking about not doing a 1031 and instead using the money to get into a syndication or coaching mentorship program. My tax bill would be about 10 grand if I didn’t do the exchange. I started buying about two years ago and I’ve realized that building a portfolio this way will get me to the point where I can leave my W-2, is going to be a long and arduous road.”
Side note, this is not coming from Casey. That’s what a lot of people realize and it’s what I talk about all the time. You’re probably only going to hear that here. “I’ve always wanted to get into the syndication route, but I felt I had to go smaller first. Do you feel it’d be a mistake to take the tax hit and invest in a mentorship program? I’ve also hesitated to go to the coaching route because of an insecurity that I will fail in the program and find myself worse off for having thrown 20 to 40,000 at a program that got me nowhere. Do you also have suggestions on how to deal with such insecurity? Thank you again for all you do.” Wow, Casey, this is really good.
All right, let’s break it up into little pieces. First piece, I don’t think paying $10,000 in taxes is the end of the world. I might not do a 1031 to save 10 grand just because they can be stressful. So if you’re worried about the 10 grand, I don’t know that I would say you have to do a 1031 to save 10,000 in taxes. You might put the money into a bad deal that you lose more than 10 grand, so it doesn’t actually help you. 1031s are not foolproof.
Now about the coaching program, I don’t know that that’s the best use of your money either; and about your insecurity, that’s a third issue that we’ll talk about next. So here’s the thing with coaching programs. They can be good, but I think people look at them the wrong way. How do I want to say this? I’m trying to be sensitive because I know a lot of people that run coaching programs, some of them are good, some of them are not, but even good ones, I don’t know if it matters. Let’s say that I have a personal training program. You’ve been watching me. You’re like, “Oh, David’s starting to look a little better. He’s hitting the weights. I wonder what he’s doing.” And I’m like, “Hey, I’ll show you what I’m doing. I’ll show you what I’m eating. I’ll show you what my workout is. I will even check out with you once a week to see how it’s going.”
People sign up for programs because they want the result. They want the body or they want the weight loss or they want the improved gains in whatever they’re trying to lift, but the program is not a guarantee of the result. This is where it gets tricky. It’s a guarantee that they will give you the information, and I guess it’s not a guarantee because they might be bad, but if it’s a good coaching program, all that it can guarantee is the information. I can tell you what I’m lifting. I can tell you what I’m eating. I can check in with you every week, but I can’t make you go to the gym. And when you go to the gym, I can’t make you lift hard. And if you think you’re lifting hard, I can’t convince you that you actually could be lifting harder. I’m going to stick with this weightlifting analogy because I think it’s working out here.
I’m a little bit older now, so working out is harder, but I still recognize there’s a difference between going to the gym and getting through my workout and going to the gym and giving it everything I have. I finally got to the point where I can start lifting heavy again, and what I’ve noticed is that it’s freaking hard. Like to get through my set of six or eight or whatever I’m trying to do, I’m focusing, I’m really focused. Sometimes I’m praying, “God, help me get through this because it is so hard I don’t know that I can.” That is the only way that I’ve guaranteed that I will get stronger. It’s that level of effort. Now, it’s not complicated. You grab a weight and you move it from here to here, only moving these muscles, but just because it’s not complicated doesn’t mean it’s easy. It’s still difficult. Coaching programs are the same way.
Paying 20 or $40,000 for a coaching program could do amazing if you’re going to go in the gym and work out incredibly difficult or maybe you already have a baseline and work it out, you’re just trying to get back into it. Maybe you already have a pretty good understanding of real estate and you just need a little bit of information to get you over the hump that then you might earn a lot more money than that coaching program is going to cost. However, if you join the program thinking that you’re going to get information that’s going to make you wealthy, it’s like signing up for a fitness program thinking that information is going to make you fit. It’s not. The information is a guideline. Your effort is going to make you fit and then other genetic factors and other things you have going on.
Now, you might start a fitness program and be in terrible shape. You’ll eventually get fit, but it will take you longer. Same as you have a coaching program. It might take you a lot longer to figure out the stuff that some of the other students learn quicker. That is how life works. But I want to caution anybody against starting a coaching program because they’re wanting a result. You’re not buying a result. You’re buying the information and the result will be determined on what you do with that information.
Now, the last piece of it has to do with your insecurity, and I’m hoping that my answer to the second piece also answered your questions about the third. Insecurity is an interesting thing, isn’t it? We all don’t like it, but it definitely serves a purpose. When we’re feeling insecure, it’s our subconscious telling us something. You might have the feeling inside that you’re not ready to take action that they’re going to tell you to do, and so the insecurity is just your subconscious saying, “Don’t sign up for this because you’re not going to do it.”
If you know hate lifting weights and you know don’t like sweating and you’re not really, really hungry to get in better shape, it’s dumb to sign up for a personal trainer that’s going to teach you to lift weights. If what you really love is running, but you’re trying to get bigger and put on bulk, so you sign up for a personal trainer but you’re not going to listen to them, you’re going to feel insecure about that. It’s not going to sound like a good idea. Don’t do it. If you know that the only thing you’re going to do is run, then run and just let go of the expectation that you need to get bulkier. And if you know that you don’t like working out but you’re still committed doing it, okay, that would be a reason that you should sign up for the personal trainer.
I want you to be honest with yourself about why you’re insecure about this. You could easily throw 20 to $40,000 at a program and it will get you nowhere. If you’re not good at the stuff they’re teaching you, you don’t pick up the skills, you don’t have the opportunities, you don’t have the money, you’re not driven, it’s not going to help. So that’s my advice. You had three questions there. Gave you all three of those. I want you to really do some deep thinking. And for everyone else who’s listening to this who’s in a similar position, please remember that information does not get you a result. Actions get you results.
All right, everybody, that little motivational line from me will wrap up our show. I don’t really get to answer questions like that very often. That was pretty cool. You guys have some great questions. I got to say, from when I started Seeing Green to now, the questions are consistently getting better and you deserve all the credit from that in the BiggerPockets community. If you would like to be featured on the show, I’d love for you to be, please go to biggerpockets.com/david and ask your question. Now if you’re someone that I know, even cooler. Fricking show up in this thing when I’m recording the episode, I’d love to see that. So if we’ve met at a conference or you’re a friend of mine, I’d love to have you go to biggerpockets.com/david and submit your question. And even if not, if you’ve ever been driving in your car and thinking, “Why don’t they ever ask about this, or why does no one ever talk about that?” This is your chance to get it talked about.
Thank you so much for paying attention. If you would, please give us a five-star review on Apple Podcasts, Spotify, Stitcher, wherever it is that you listen to your podcast. Means a lot and it helps us out a ton. I would really appreciate that. And if you’d like to follow me, you could do so on Social Media @DavidGreene24. I do live YouTubes every Friday night where you can come and ask questions. Those are youtube.com/@DavidGreene24.
That’s our show for today. Please send us more questions. We’d love to do another one. If you have a minute, listen to another BiggerPockets video. And if not, I’ll see you on the next one. Don’t forget, in the meantime, you can go to biggerpockets.com and check out the forums where people are asking questions all the time, where you get to learn for free. See you guys.

There’s nothing a politician likes better than a mantra – a phrase that can be repeated again and again until, possibly, thought becomes reality.

And one of the latest mantras to trip off the tongues of U.K. government ministers is “science superpower.” It’s been around for a while. In 2021, former Prime Minister, Boris Johnson said his government’s aim was to restore Britain’s place as a scientific superpower. More recently – at the end of 2023, to be precise – Finance Minister, Jeremy Hunt told members of parliament that his goal was to ensure the U.K. could rival Silicon Valley. This year, the Prime Minister reorganized the machinery of government and set up a Ministry for Science, Innovation and Technology. Naturally enough, startups and scaleups are expected to play a vital role in a flowering of commercially exploitable science.

So how skeptical should we be? It’s tempting to think of the science superpower agenda as a kind of figleaf for a government at a time when the wider economy isn’t looking particularly healthy.

That would be overly cynical. For one thing, the U.K. tech sector is performing pretty well. It continues to attract high levels of foreign and domestic VC cash. In the first half of 2022, £14.7.7 billion of VC capital flowed into Britain. And although investment dropped sharply to £8 billion between July and December, the U.K. tech sector is still a magnetfor capital. Perhaps more importantly, it’s important economically for the U.K. to ensure that it is not left behind in the commercial development of key technologies. So no one should argue with the ambition.

But as Science Minister George Freeman has acknowledged, Britain is not yet a science superpower but rather – in his words – a “science powerhouse.” Achieving the former status would involve becoming an “innovation nation.” Essentially what he meant was creating an environment in which scientific research could be successfully industrialized.

How can that be achieved? I spoke to two scaleup CEOs at the heart of the science and technology sector to get their take on the measures required to support their industries.

Scott White is CEO of Pragmatic Semiconductor. Founded twelve years ago, it has developed a microchip technology that doesn’t require silicon. Today, it produces low-cost and flexible chips that can be used in multiple contexts. Its business model revolves around manufacturing – with a facility in the North East of England – but also plans to offer compact manufacturing equipment to customers. In addition, it designs its own RFID chips for tracking goods in transit.

Pragmatic has just commissioned a poll of 250 technology business leaders. When asked whether the government could meet its objective of being a science superpower by 2030, a healthy 68 per cent yes but only 40 per cent thought enough government support was on offer.

Unbalanced Investment

As White sees it, the UK’s cash-rich ecosystem remains unbalanced, with much of the funding going to early-stage businesses, rather than scaleups. Most of the capital that is invested at later stages comes from overseas. “We did a Series C in 2021, 2022- that was for $125 million. Eighty per cent of the investment came from outside of the UK,” he says.

So in that respect, there is a need for capital that will allow tech businesses to remain in the UK in terms of both location and control as they grow.

But what can the government actually do? Well, one way forward is to make it easier for institutions to invest. White welcomes changes to insurance industry regulation that will allow pension funds in particular to allocate money to tech.

He also acknowledges the progress made in providing public funding through the British Business Bank and its venture arm, British Patient Capital. In addition to investing alongside VCs, the organization has created Future Fund: Breakthrough, with £375 million earmarked for deep tech ventures. “That’s good but the scale needs to be much bigger,” says White.

Mostafa ElSayed agrees. He is CEO and co-founder of Automata, a company that provides automation technology for laboratories, mainly in the life sciences sector. The company’s products are designed to speed process such as diagnostics and clinical trials while cutting down on human error. He argues that some sectors are better served with others when capital is allocated by VCs, with deep tech having a particular problem. “We all talk about the importance of deep tech, but access to funding in the deep tech sector is hard.”

And the UK may be falling behind its European competitors. “The biggest backer of deep tech is BPIFrance (a sovereign wealth fund), after that its Germany and then Scandinavia,” says ElSayed.

ElSayed says change could be coming. He cites comments from the new head of the British Business Bank who recently floated the idea of creating a sovereign growth fund to support innovation.

Relatively small changes could also deliver benefits. White points to existing programs, such as the Enterprise Investment Scheme(EIS) and Venture Capital Trusts. By offering tax breaks to those who back eligible companies, these vehicles have encouraged investors to back startups. However, once companies get to a certain size, the tax breaks fall away, meaning the schemes don’t benefit scaleups.

Boosting Demand

It’s not all about the money. “There is also a need to support domestic demand,” says White. “For instance, you can use government procurement to drive adoption.”

Indeed, in some sectors, the government has a huge amount of power to make things happen. ElSayed, uses the example of clinical trials. The U.K. has a hugely important resource in the form of a National Health Service that serves more or less the whole population and can gather data accordingly.Potentially, this makes Britain one of the best countries in the world to carry out clinical trials. However, although a national service, much of the decision-making is at the level of local health trusts. “There needs to be a national strategy,” says ElSayed. There is a precedent in that Britain already has a national strategy for genomics research.

Another important piece of the jigsaw is visa policy. ElSayed stresses the need for a regime that allows science-based businesses to recruit quickly. “When a company is moving at our pace, you struggle to find people who have the right to work in the UK,” he says.

Scott White says Britain has the potential to become a science superpower, but clarity is required around what that actually means. In terms of government support, the pieces of the jigsaw are not all in place.

Ashley:
This is Real Estate Rookie, episode 264.

Tony:
But oftentimes if you do a new build in 2023 versus a rehabbed house that was built in 2005, the value of that property, especially if you’re looking at it as a short-term rental, which is what we do, is typically higher. We can rehab a house that was built in 2005 to the nines, but the construction style, the aesthetic of a house built in 2023 is going to be more modern than a house that was built in 2005 even if it was rehabbed really nicely.

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

Tony:
And welcome to the Real Estate Rookie podcast, where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. I want to start today’s episode by shouting out someone by the username of lukster8891. Lukster left us a five star review on Apple podcast that says, “Encouraging podcast. Tony and Ashley, their podcast is extremely informative and encouraging. Thank you for creating a space to give people like me the knowledge and extra nudge to feel confident about investing in real estate.”
I like the way you phrased that, Lukster, “for giving and creating a space to give people like me that space to feel confident.” That’s really what the Real Estate Rookie podcast is about. There’s obviously a ton of information out there about investing in real estate, but sometimes it can feel overwhelming, sometimes it can feel, I don’t know, just too much to try like drinking from a fire hose. The purpose of the Rookie podcast is to give every single listener digestible, usable pieces of information and stories to really help move them along in their journey. So if you all are listening and you haven’t yet left us an honest rating and review, please do. The more reviews we get, more folks we can help, and helping folks is always our goal. Ashley, how’re you doing today?

Ashley:
Good, good. Well, first of all, if we haven’t said it enough, thank you guys so much for those of you that have left reviews. We love reading what you like about the podcast and how it’s benefited you and especially when you guys leave us your wins, what you have accomplished. So when you leave a review, makes sure you share that with us what you have learned from the podcast from one of our guests. Who was your favorite guest? Who do you love, or maybe who do you want to come onto the show too? We’ve been having a lot of production meetings as to who are some of the bus guests we can bring on for you guys that will bring the most value. Believe it or not, it’s just not boring banter, we actually do try and plan things out and really strategic about how we operate the podcast. Yeah, so Tony, what rehab, what are you working on, anything?

Tony:
Yeah, we got some big plans for 2023. I know we had our goal setting episode a few weeks ago, but a big focus for me is I still do want to close on my first big commercial property this year. We’re looking at hotels, boutique motels around the country. We learned a lot last summer with that deal that we had on our contract but didn’t end up being able to close on. And really it was the purchase price. We had raised a couple million bucks, we needed a couple million more. And it’s like, “Well, man, how many deals could I have bought with the two something million that we had already raised?” There’s a lot of properties out there that we could have bought. So I think we’re going to go back and probably just reduce our purchase price a little bit and try and find something that makes a little bit more sense in that price range.
And then another big goal for me is launching our property management company on the short-term rental space as well as our short-term rental cleaning company. So trying to find the right COOs to run point on those ventures for us, but I think those are two big gaps in the short-term rental marketplace. There is no nationally known brand in the cleaning space for short-term rentals. There definitely are property management companies that are big, but I feel like we’re in a unique position where we’ve built a portfolio of our own first. We’re host first and property manager second, so we have a different perspective from a lot of these other companies that have been around for a while.

Ashley:
Are you going to start out with just offering it in the markets that you operate in now? What is your plan to grow and scale it? Will it be more of a franchise model eventually, or is it something that you want to continue to oversee the markets and you’ll select which markets you’re going into and continue to grow yourself?

Tony:
Yeah, that’s a great question. We haven’t really decided yet. The franchise model is something that I think might work, but I also do the idea of really retaining control over certain aspects of the brand. But I think initially we just want proof of concept. We already have the infrastructure, so we have the operations team to do all the guest communication and working with the maintenance crew and the cleaning staff. So really we do feel like we can take that infrastructure into any market, we just need to find the right cleaners and handymen in those markets to support us. I think our biggest focus is just finding the right properties and the right owners to work with and then we’ll let the markets take care of themselves.

Ashley:
For me, I’m taking back my property management we’ve used for the past three years, property management company. And now what I’m doing is just building out a property management company again, where last time when I first started, I was self-managing, so I was the property manager, I was the leasing agent, everything. And now this time I’m hiring a property manager. I think she’s actually going to be signing her contract this week, which is super exciting. And then I’m just going to oversee everything and basically just have it done the way that I want it. But we’re not taking on any clients, it’s just my properties and the properties of my business partners. That is one thing, I don’t want to have to deal with owners. Tenants can cause issues and things, but sometimes the owners are worse than the… And I know this because of other owners talking about how they interact with their property management company.
Me as an owner to my property management company, I don’t want to deal with that. I always think of teachers an example, having to deal with the students in their class but then having to deal with the parents and sometimes the parents are worse than. So part of my big vision and goal for 2023 is figuring out what are the things that I don’t want to deal with that feel heavy to me, and one of those things is being responsible to other owners. I’m very confident that I could start this property management company and right away I already know that I have these owners that would come in that I can share overhead with, but I just don’t want that responsibility of there’s something that’s happening and going on, okay, it’s my cash flow, it’s me saying, “To take care of this problem, I’m just going to spend this amount of money to have it taken care of.” Where if it’s an owner, it’s somebody else’s property, I can’t just, say, go and spend this money and take care of it because that’s their cash flow that’s decreasing, that’s their issue.
So I like having control over making the decision that is going to impact me and my properties and not that it’s going to impact an owner and not having to really worry about that I guess.

Tony:
That definitely is a concern for us as well is that as you scale, there’s a lot of personalities that you have to deal with. But I also think that’s why we want to be pretty selective with the owners that we work with. If that person is… I don’t want to say a pain because I think that’s an unfair representation. But if that person maybe is looking for a level of involvement in the day-to-day operation that is not in line with the kind of involvement that we want from our owners that maybe it’s not a good fit. I think that’s what we’re trying to scale up pretty slowly to make sure that… We want people to trust us and that are coming to us for our expertise and not people who feel like, “Hey, I can do a better job than you can,” and trying to teach us how to be short-term rental operator. So there’s a fine line there.

Ashley:
You just described me as an…

Tony:
And that’s a good point-

Ashley:
[inaudible 00:08:29].

Tony:
Because I think you were in a position where you honestly could do a better job than-

Ashley:
Yeah, and I would.

Tony:
… that property manager that you have.

Ashley:
Yeah. And I [inaudible 00:08:36] that experience. I think in your situation you’re vetting the owners too. You’re not just going to grow and scale so fast that you’re taking on anybody just to maximize your client base and maximize your revenue, that you are going to be selective. And that also gives you that exclusivity too, as to you want to be an owner… and not to use the word train, but as you take on new investors, new owners as setting those expectations as to, “This is what we expect of you, and this is what you expect of us. If either of us vary from that, that’s where we have a situation as to how do we work around that.” Or maybe the partnership isn’t working because really it is a partnership. Especially when it’s your investment property, you’re no longer in control of the day-to-day operations of that property and maximizing cash flow and things like that, you’re trusting your partner, the property management company, to oversee all of that and really maximize the performance of your property. And that’s one thing I didn’t understand when I hired a property management company, is I should have asked a lot more questions.
One example is, okay, the water bill. It goes into their billing department, their payables. Somebody’s there scanning in the bills. They go ahead and pay it and then it’s taken care of. Great, I don’t have to pay bills, things like that. But there’s also no one going and saying, “Wait, the water bill was $100 last month. Why is it all of a sudden $250? Is the toilet running? Is there something going on?” Just because it’s going into a general department that doesn’t know your property, things like that. I feel like I’m getting way off on a tangent.

Tony:
No, but that’s such a good point. It’s like how do you set those expectations up correctly at the onset or not even at the onset, before the relationship even really begins? There’s a great book that I just read, and it’s called Never Lose a Customer Again. The book really focuses more so on larger companies, but it’s like, when you are looking for customers, how can you have conversations at the beginning and then how can you structure those first 100 days of that relationship so that, A, your customer has a really amazing experience and they stay a customer for a long time, but, B, that the expectations that you have of them and that they have of you are super clear on both ends, that way both of how to operate effectively within that partnership. So Never Lose a Customer Again, I can’t recall who the author was, but it was a great book that I really enjoyed.

Ashley:
I think that would’ve helped me work with the property management company better, is if we both had expectations of each other and had set that ahead of time. I’m sure they do a great job, they’ve grown and scaled so much over the past couple years that obviously they have a successful business model in place, but it was just different than what I expected, and we should have had those clearer expectations up front.
Okay, so our first question is from Annie Johnson, and this is through the Real Estate Rookie Facebook page. If you haven’t already, make sure you guys join the Facebook group. There are over, I think, 60,000 members in it right now. It’s a great way to ask questions, get information, or to even share your own advice and wisdom. Okay, so Annie’s question is, “Has anyone partnered in an LLC for out-of-state investing? Did you use an attorney in your state or the state you were investing? Does it matter? Any insight on this subject is helpful. This will be our first partnership and LLC. We decided we do not want to do a legally-documented partnership agreement.”
Okay, so I’m wondering why as to that last question because when you create an LLC, you have to create an operating agreement, which is the terms of your partnership anyways. So I think that if you do, no matter what, if you create your LLC, for it to be a legal LLC to function the way you want it, have to do the operating agreement, which is basically a partnership agreement in itself.

Tony:
Really quick, I just want to shout out to Annie who’s asking this question. This is actually Annie Hatch Johnson who was a guest on episode 46. I recognize the face and the name there. Shout out to Annie. I think last we talked to her she was somewhere here, I can’t remember, in the Midwest somewhere, but she actually ended up moving to Alaska. Her and husband were doing some short-term rental stuff out in Alaska, so shout out to Annie.

Ashley:
So Tony, do you want to actually answer this because you’ve done this a lot more? I think you actually do joint ventures, but the only out-of-state investing I did was with James [inaudible 00:13:32], and we did a joint venture agreement where we had our own separate LLCs and they came together in the joint venture agreement. So we had my New York LLC and then his Washington State LLC, and then did the joint venture agreement through that. And we had the whole operating agreement documented as to how the partnership worked for that one deal.

Tony:
Yeah, it’s a great question. The majority of our partnerships are through joint venture agreements, not necessarily new LLCs that we set up either. But Annie, I’ll give you a little bit of insight based on the conversations I’ve had with my attorneys and different SEC attorneys and things like that. Every state is different. The information that I was given, and again, I’m not an attorney so please consult with an attorney to make sure that this information is accurate, but for us, we were looking to purchase property that was in California using a new LLC. Your question around is it in your state or the state where you’re investing, there are some limitations. For example, there’s better tax treatment in states other than California obviously. But say I wanted to create an LLC in Delaware but, say, I was in California, the partners in California, and the property’s in California, I can’t create a Delaware entity to hold title and collect rents on that property in California.
So depending on what state you live in and what state the property’s in, there are some laws you have to follow around where to create that entity. So my first piece of advice, Annie, would be to ask an attorney in your state or in the state where the property is located to get their advice on where you should structure that entity and what state it should be focused in. Have you seen anything different on that front, Ash?

Ashley:
No, no, I really haven’t. I also haven’t looked into it that much though, but that’s kind of what I’ve heard, I guess.

Tony:
I mean, so yeah, that’s the first thing, is talk to your attorney to identify what state it is in. I think the second question, this kind of goes back to Ashley’s piece, is you said, “We decided we do not want to do a partnership agreement.” I’m assuming when you say that, Annie, is that you don’t want to go the route where we went of just having a joint venture agreement, you actually want this entity to be in place. But to Ashley’s point, I think you still want to go through all of the same thought processes or exercises that you would if you’re doing that partnership agreement to make sure that if, for whatever reason, there’s not tension, but every partnership’s going to have its bumps and maybe disagreements, and the more time you spend upfront answering those questions, the better.
There is a fantastic book that I read last year called The Partnership Charter by someone named David Gage, and it was one of the best books I’ve read on partnerships. It’s not specifically geared towards real estate, but it is a business partnership book, and it is just chock-full of questions that you and your partner should be asking one another before you really enter into this partnership to make sure that there’s clarity around how you are going to handle certain problems in that partnership. So read that book, talk to an attorney, I think those are my first two pieces of advice.

Ashley:
Okay, so onto our next question, and this one is from Sia, “Has anybody bought a land and built a house instead of a rehab? Really having a hard time finding a deal because people are overpaying. How is it getting a refi on a newly built house?” I think maybe the market might be changing a little bit where you’re not going to see so many people overpaying, so hopefully you can have a better chance at finding deals. But I’m in this real estate text message thread, and one of the investors sent on a message that quarter four of 2022, he’s a house flipper and he was having property sit for sale for over 60 days. Soon as January 1st hit, he saw a huge increase in showings. I think he said they tripled, the amount of showings he was getting tripled, and he had four go under contract just in the first two weeks in January that he’s seeing just this huge uptick since the first of the year. So maybe people are going to start overpaying and overbuying again.
So with doing this building a house, I’ve built my personal residence, but I’ve never went and bought an investment property or built an investment property doing it from the ground up. The first thing I think that you should really do is your research on what that property is going to appraise for when you are done doing the build of it. Is it going to appraise for what you put into it or even more so you can pull all of your cash back out? The second thing is how are you going to fund that? Are you going to do cash? Are you going to get a construction loan? So if you’re paying cash, one thing you’ll have to do is you’ll have to look and talk to banks, and we answered this on another rookie reply, I think it was the one that aired last week as to the seasoning period. Because if you’re paying cash to have this house built and then you’re going to the bank to refinance it, they may say, “You know what? You haven’t owned this house for a year, and we’re not going to refinance you for a year to do that cash-out refinance.” So those are some of the things you should definitely look into before you actually go through the build process.

Tony:
A couple of points from my side. Just like Ashley, I’ve never done new construction myself on the investment side. We have purchased quite a bit of new construction, but it was from the builder who did the work to identify the parcel, they got all the permits, they managed the ground of construction, and we were essentially purchasing a finished product from that builder. I just want to talk about the pros and cons of that approach and why we decided to go that route. The first pro that we saw was that we were able to get a superior product. Oftentimes, and it depends on the level of the rehab, but oftentimes if you do a new build in 2023 versus a rehabbed house that was built in 2005, the value of that property, especially if you’re looking at it as a short-term rental, which is what we do, is typically higher.
We can rehab a house that was built in 2005 to the nines, but the construction style, the aesthetic of a house built in 2023 is going to be more modern than a house that was built in 2005 even if it was rehabbed really nicely. And that’s what we’ve seen a lot, is that our new constructions tend to do better than our rehabbed homes even though the quality is just as nice, but it’s just that frame of the home is a little bit more dated with that older stuff. That was one big pro for us.
The second reason why we went with a lot of the new construction from this builder was that he had already identified and permitted multiple parcels in this city that we were looking to invest in. So for us, it allowed us to scale exceptionally quickly because he had already done the hard work of… The permits take almost longer than building the house in California. So the fact that he had already done that hard work on multiple parcels meant that we could build this machine to just start acquiring these properties as soon as he was done. And for us, we were in a really strong growth phase, that was a big goal of ours, was to scale quickly, and having that relationship allowed us to do just that. So those were the two big pros: we got a really superior product and we were able to acquire those units relatively quickly, much faster than if we had tried to do it ourselves.
The cons to that approach is that we were definitely paying more for the finished product than if we had done the work ourselves of identifying the land, pulling the permits, and building that property out ourselves. There’s no question about it. He wouldn’t be selling us those homes if he was selling it at a loss every single time. He was selling it to us because he was making a healthy profit. We knew that we were, not overpaying because it was still market value, but we know that we were spending more than had we done it ourselves. I think those are the two things you have to weigh. Do you have the skillset to do ground-up construction, because it is definitely different than doing a rehab. Those are similar skillsets but still different. And then the second piece is do you have the time to really manage something like that as well? So the ability and the time are two things to look at.

Ashley:
Yeah, that price that you’re paying extra is really the project management fee, is like the general contractor fee is like them taking the administrative role, the management of the whole project is what you’re paying. So even if you were not to go with the builder and you did it yourself, you still may be paying a general contractor a little buffer percentage because they’re going to be the one getting the subs in and things like that to actually take care of the project too. But if you’re going to act as the general contractor and you’re going to manage the whole project and you’re going to hire individually each contractor that needs to come in, then, yeah, that’s where you’re going to save a lot of money. But like Tony said, do you have the time and the knowledge of doing that too? If you are going to try it and you don’t have the knowledge or experience and you just want to learn, it may end up costing you more than it would’ve to actually build it.

Tony:
Just buy it from them.

Ashley:
Yeah, just to buy it from the builder. So that’s definitely something to consider.

Tony:
I just want to share some of the headaches that come along with trying to do the ground-up construction yourself. We’re good friends with this builder now because we’ve purchased I think 13 houses from him at this point. We were out of the site one day and I was just asking about the permitting process. Typically what he does is he’ll submit plans for multiple parcels at the same time, same exact floor plan, same exact floor plan, just different parcels, and he’ll submit them to the county. Each plan, remember they’re identical plans, get submitted to four different… Gosh, who are the people review the plans in the county?

Ashley:
The code enforcement officer?

Tony:
Yeah, I can’t remember the name of the folks that are looking at the plans or whatever it is, it escapes me right now. But anyway, it goes to four different people, all the same job, just four different individuals. Each person will look at the same exact set of plans and come back with different notes. Person A will say, “Hey, you need to fix this thing.” The second person won’t see what the first person saw, but they’ll call out something different. So it is the same exact thing, but four different people have a different interpretation of what needs to be fixed. So he’ll get those plans back and then he has to make four separate sets of changes, some of them back to four different sets of people, so it is definitely a very arduous and sometimes frustrating process to go through the whole new construction thing on your own.

Ashley:
Or you can just live out in the country in rural areas where you get to know the one code enforcement officer, the one building inspector, and yeah, that’s it, that’s all you have to deal with is one person. And then the planning board, I guess.

Tony:
What’s even crazier, Ash, is we were looking at some places in Arkansas, and there are certain counties in Arkansas where there is no approval process. It’s like you can pretty much just build whatever you want to build. So depending on what city or county you’re going into, the ability to build something new is probably easier in some places.

Ashley:
Yeah, we definitely got remote areas like that. I haven’t invested in one yet, but it’s like you can put up whatever. There’s no approval process or anything like that, no permits to put in.

Tony:
Your land, you do what you want with it, right?

Ashley:
Here’s a story that’s going to frustrate some people is, on the building that my liquor store is in, it needed a new roof. So Daryl went out and he got somebody who’s going to do the roof, we got the bid, everything, and he is like, “I can start tomorrow.” And so I said to Daryl, I was like, “Well, we don’t have a building permit. Did he get in?” He texted the guy and the guy’s like, “No, I didn’t get one, but I can start tomorrow.” So we drive… It’s 15 minutes away drive to the town hall and like, “We need to get a building permit, we want to get this done.” She was like, “Okay, fill out this form,” and it was a hundred dollars and did it. She’s like, “Okay, we’ll have it ready for you tomorrow. Just come and have the contractor pick it up and we’ll put it in the window.”

Tony:
Wow. Let me tell you a story on the opposite end of the spectrum. We have hot tubs we began installing at most of our short-term rentals in Joshua Tree. It was a very similar process where you have to submit plans for the hot tub like where’s it located in respect to the house. You have to get an electrical permit inspection done to make sure that it’s all done the right way. And then there’s certain safety features you have to add to the hot tub. It was a very similar process where they would send out a different inspector every time.
So the first inspector goes out, he gives us a list of things we need to fix, and we fix 1, 2, 3, and four. The second inspector comes out to validate that the first four things were done, but then he calls out other things that the first inspector missed. Then a third inspector comes out and he calls out something totally… So it was just like this game of musical chairs trying to fill all these boxes for these different inspectors, and it took months for us to get some of these hot tubs permits, so it’s definitely frustrating.

Ashley:
Oh my gosh.

Tony:
Anyway, we got off topic, but hopefully see that that was helpful for you. I think long story short is think about the pros and cons and your own skillset in terms of rehabbing a home versus the new construction phase. And then to Ashley’s point on the refinance, just make sure you’re talking to banks on the front end so that way you have a good idea of what the seasoning period is and what other maybe hoops you might have to jump through if you do go the new construction route to get that refinance done and complete it on the back end.

Ashley:
Yeah, one last thing I’ll add to that as an example. Not in my market, a different market, but this friend that I have, they built patio homes, like small apartment complex, just one story. They paid cash for the whole thing, built it ground up, did all this site work, everything. And when they were done, they rented it out, and it actually didn’t appraise for even what they put into the deal. I think they had to leave in maybe 40% of what they paid for it because the bank was only going to lend them 70% of the appraised value. Actually, it was more than that, it was more than 40% that they left in it. I don’t know the exact numbers, but that’s something to be very cautious about, is making sure that it’s going to appraise for what you want because you could be stuck with leaving hundreds of thousands of dollars into a deal that you didn’t expect to do especially if you were are borrowing money from a private money-lender, a hard money-lender to fund that deal and then it doesn’t go and appraise for what you want.
With this investor, fortunately, he was in this situation where he set up a contract with the builder where he was making payments to the builder for some of that gap. So he was able to mitigate that and then just use the cash flow. And it all worked out where it’s still a cash flowing property even after having these two loan payments. So make sure you have multiple exit strategies and different ways to fund a deal.
Okay, so our next question is from Joey Stout, “How does rental income get taxed as opposed to a W-2 salary? Thanks, Joe S.” Well, Joe, your W-2 income is going to be earned income, and it’s going to be based off of what tax bracket you are in, so how much money you have made. Let’s go ahead and let’s pull up the tax brackets for 2022. Okay, so if you are… Let’s look at here. If you make zero to $10,000, you’re paying 10% taxable income, and then 12% for 10,000 to 41,000. 22% is going to be what your income is taxed at from 41,000 to 89,000. Your tax rate is going to be 24% from 89,000 to 170,000, and so on. So the more you make of earned income, your W-2 income, the higher your tax rate gets. So you jump up to over half a million, you’re going to be paying 37% in income taxes.
You look at that and be like, “So I want to stay under 539,000 because then I’m going to pay 2% more in taxes,” and really having to figure out where’s that threshold where it makes more sense. So if you’re right on the border of one, so let’s say 24% to 32%, okay, that’s quite a big jump, that’s 8%. And if you make $170,050, you’re at 24%. But say you go and you make 180,000, you’re getting pushed up to the 32% tax bracket. Is it even worth taking that extra 10 grand because now that whole chunk of money is going to be taxed at 32%? So something everybody should be cautious of with their income.
Those are just some examples of the brackets and they go up. When you’re in a bracket, so say 170,000 that’s taxed at 24%, that 170,000 is going to be taxed at that 24%. But then if you make another 10 grand more, that 10 grand is going to be at the next tax bracket, that 32%.

Tony:
So it’s just your income that falls into that bracket that’s taxed at that percentage, right? So if you make $500,000, that entire 500,000 won’t be taxed at 37%. The first 10,275 will be at 10% and then up to 41,000 you’ll be at 12%. And then each one of those different falls into those different buckets. That’s why taxes are so confusing, which is why everyone should definitely get a really good CPA to help you navigate all those different nuances.
But you made the statement earlier, Ash, that your W-2 salary is earned income, and earned income gets the worst tax treatment out of all income. You’re going to be taxed the highest based on your earned income. Rental income gets one of the more preferential tax treatments. We actually had Amanda Han back on episode 255, and right at the end of that episode, she even within the world of real estate investing categorized which strategies get the best tax treatment, which strategies get the worst tax treatment. Flipping was at the bottom of that tax preference treatment because that is still active earned income. And then things like short-term rentals and long-term rentals were at the top because that’s more considered passive income.

Ashley:
One thing to note I think with earned income is that like, okay, you’re going to work so much hours, but if you’re right on the edge of one of those brackets, is it worth working those extra hours and then now you’re going to have those hours tax at 37%? And so $37 of that $100 you’re going to work extra for is gone. But you guys can pull up if you actually want to look at what tax bracket you’re in. Some of the examples we use for first single filer, but they changed for married filing jointly, filing separately, head of household. So go and take a look at those, and you can actually figure out what your income is going to be. It’ll show, like, okay, if you made $95,376, your taxable income is going to be $16,290 on that. Then anything over that would be that 24%. So it’s like the sliding scale I think is the best way to put it. As you move up to each bracket, that income going higher is going to be taxed at those different rates.
I think there’s a huge advantage to passive income because of that and then also being able to do a 1031 exchange where you can actually defer the income from your rental property if you do go ahead and sell it.

Tony:
So long story short, Joey, you want most of your income to be passive from your rentals and the smallest amount to be active and earned income if you want to be able to really maximize your taxes. Now, there’s so many different strategies out there, Joey, to help reduce your tax liability even from your W-2 job. Again, I’ll mention episode 255 again because Amanda talks about this, but there are ways that you can use passive losses from your real estate portfolio to offset your W-2 income. Most people achieve this by using short-term rentals. It’s significantly harder to do it with long-term rentals, but there are ways to say, “Hey, I have a $100,000 paper loss on my rentals, and I’m going to apply that to my $100,000 salary in my W-2 job since you have zero tax liabilities.” And I have friends that are paying zero on taxes using that exact same strategy.

Ashley:
I am not one of those friends.

Tony:
I haven’t matched with that yet either. I definitely had a tax bill last couple of years, but when you get a good CPA, hopefully you can start putting those pieces in place. We had a mad scramble at the end of 2022, the year that just ended, to purchase a property to try and get to more cost aggregation benefits as well.

Ashley:
Yeah, you know what’s also something that’s pretty good tax advantage is a farm too, is getting good tax advantages on that. Farmers don’t have to pay estimated taxes, they can wait until your tax return is due and pay your estimated taxes April 15th because when you’re making those estimated tax payments and having to prepay basically every quarter you’re paying as you go along, that’s money the government is getting interest free. So that’s a huge advantage. You get to keep that money until the actual tax time and pay it at the last minute. But yeah, there’s just a lot of write-offs you can do. And even property taxes, you can get an exemption on your property taxes to have them decreased if it used for agricultural uses and things like that too.

Tony:
There’s some weird things about farms. I have a buddy, his name’s Kai Andrew, he bought a farm, a lavender farm, and he bought it because of what you mentioned there, some tax benefits. But also, the zoning requirements, the zoning restrictions on farms are significantly lower or less restrictive than what you see on residential properties or even some other commercial properties. He was able to build multiple short-term rentals on this farm because of what the zoning allowed for in that market. There are so many little nuances to try and really get creative with it. But yeah, I think long story short, look for opportunities to really reduce your taxable income, and usually that happens by going the passive route versus the earned route.

Ashley:
One more thing to add too is a lot of farmers are tax-exempt too. So buying a truck for your farm tax-exempt, that’s huge sales tax that you’re saving on purchasing a vehicle. So lots of different little things like that.

Tony:
And so, buy a dairy farm is the more of the story. Before we move off of this question, so I mentioned Kay Andrew, but if you want to go back to listen to his episode, it was episode 107. We talked about land hacking, so 10 different ways to create income streams with one property. And Kai’s the master at that strategy and the whole buying a lavender farm was just one of the ways that he land hacked his way to success. So episode 1 0 7, if you want to hear more from Kai.

Ashley:
Okay. Today’s last question is from Hayes Holland, “If you sell your primary home after one year of residency, am I excluded from the capital gains exemption rule requiring two years, or is there any way around that?” Okay, so first of all, I think there’s a little misconception here is that you are only exempt from the capital gains rule if it is your primary residence. If it is an investment property, you have to pay capital gains on it unless you do a 1031 exchange. That’s the only exemption there. But if you’re just going out and selling, you’re keeping the money, you’re not doing that 10 31 exchange, you’re going to be taxed on that capital gain for an investment property no matter how long you hold the property. But if it’s your primary residence, you have to live there for two years, but it can be two of the last five years. So it could be any two years during that five year period. So it’s not just that you have to live in the property for two years and then sell it. You can hold onto it for another three as an investment property and then sell it at the fifth year and you’ll still be able to have that as tax-free income.
There’s an investor friend who has done this multiple times, I don’t even know how many times, but every two years he buys a new primary residence and takes this money tax-free. I think the rule is you can only take up to half a million tax-free off of it. I’m not sure exactly what that rule is, but there is a max amount. You can’t go and sell your house for $5 million more and get $5 million tax-free. It might even be a million if you’re a married couple, but you guys will have to look that up. Use Google because I don’t know it offhand.
So every two years he buys a property that needs rehab, him and his family live in it and slowly do the renovations over the two years, and then they go ahead and sell it and move to a new property. So yeah, definitely a good way to make income that is tax-free by doing that, as long as your family doesn’t mind up and moving every two years. But if you were to make half a million dollars in two years and all you have to do is move-

Tony:
Move.

Ashley:
… you’re not too bad. So it really depends on what market you’re in. Where I live, it’s hard enough to find a house for half a million dollars let alone to sell one that’s going to appreciate to half a million in two years.

Tony:
Same for me. In the neighborhood that I live in, it’s all a brand new neighborhood. Everything was built 2017 at the latest, so trying to go in and really find a lot of those opportunities are probably scarce as well. But the question does, and we talked about it a little bit already, but we should maybe elaborate on it, but on the investment side, you can defer your capital gains taxes by using what’s called the 1031 exchange. We did our first 1031 not last summer, but the summer before. We were able to tap into equity from one of our homes, and we took that and we used the proceeds tax-free to buy two different properties.
I have a friend who sold multiple of his single family residences in the Midwest and used that to buy… I think he’s at seven short-term rentals right now that he purchased with that. The 1031 exchange is a fantastic way to defer paying taxes, use all of your gains from a sale towards a purchase of another property. There are some restrictions around what you can do and there’s some pretty strict timelines around when you need to identify and close in that property, but this one strategy, some people call it swap till you drop, is what a lot of real estate investors do to continue to scale their portfolio up without paying any capital gains taxes during their lifetime.

Ashley:
So while Tony was talking, I went ahead and did the work for you, guys, for those of you that were driving and you couldn’t Google immediately, the rule is that a single homeowner, single filers can get up to 250,000 tax rate for the sale of their primary and then couples filing together up to 500,000. So that’s the profit based on it. I mean, not too bad over two years, half a million dollars tax-free.

Tony:
Yeah.

Ashley:
I mean you could do that as a full-time job.

Tony:
Totally, right? And you do that a couple of times a year. It also reminds me, we had the one guest, gosh, I wish I could remember what episode that was, but he was purchasing new construction. I think he was in Texas somewhere. He would buy phase one of the new construction and then two years later it’d be like phase 18 or whatever, and all of those floor plans had appreciated significantly and he was just selling those properties once they got to the last phase and he was just recycling that capital into the next one. So you buy a new construction, live there for two years, sell it, buy another new construction, live there for two years, sell it. I think he had done it like three times for the time he came on the podcast.

Ashley:
I think he was doing it in Austin, maybe Austin, Texas.

Tony:
Yeah, it was definitely somewhere in Texas.

Ashley:
Yeah, I do remember that. Yeah. Well, thank you, guys, so much for joining us on this week’s rookie reply. If you guys have a question that you want answered on the show, you can call us at 188-5ROOKIE and leave us a voicemail. Or you can leave a question in the Real Estate Rookie Facebook group where you will most likely get multiple responses and answers from everybody in the group, but also we may play it on the show and you can hear our response to it.
Thank you, guys, so much for joining us. I’m Ashley at Wealth from Rentals, and he’s Tony at Tony J. Robinson, and we will see you guys on Wednesday with a guest.
(singing)

Unlike the popular, and heavily hyped, assumption that unicorns would not be possible without VC and that getting VC means unicorn success, the reality is that most unicorn-entrepreneurs takeoff without VC interference because the VC portfolio has lots of flops, and very few flips and unicorns.

· The Flop: These are VC failures. Some never live up to the hope, while others, like WeWork, Theranos and FTX, don’t live up to the hype. The VCs may have been hoping for a Unicorn or a Fast Flip but ended up with a Fast Flop.

· The Flip: These are VC-Successes that are sold in a “fast” flip to corporate buyers. There are some successful fast flips like Instagram that was purchased by Facebook for 2x the valuation paid by the VCs one week earlier. The annualized return is mind boggling. Some flips are great for corporations, like Instagram and Facebook. Many, as evidenced by the high proportion of failed corporate acquisitions are not – 70-90% of acquisitions are estimated to fail. Some of these failures are likely to be VC flips.

· The Unicorn: These are VC home runs when the venture lives up to expectations and creates lots and lots of wealth.

Proportion of Flops, Flips, and Unicorns

To evaluate VC and VCs, entrepreneurs need to consider the proportion of flips, flops, and unicorns in the VC’s portfolio (Designing Successful Venture Capital Funds for Area Development: Bridging the Hierarchy & Equity Gaps Dileep Rao, Applied Research in Economic Development, 2006. Volume 3. Number 2). It is rare for VC funds to have unicorns in their portfolio, and when they do, these are mainly in Silicon Valley. VCs outside Silicon Valley mainly have flops and flips in their portfolio:

· Many VCs have no unicorns in their portfolio. According to Marc Andreessen, about 15 investments are said to account for ~97% of VC returns. The home runs and the top VCs are mainly in Silicon Valley

· A normal early-stage VC portfolio has about 80% failures (mainly flops), about 19% are deemed successes (mainly flips), and about 1% are home runs (mainly unicorns). However, although every VC fund has failures, the unicorns are not evenly distributed. That’s why Andy Rachleff, a successful VC, estimates that the top 20 VC funds (about 3%) generate ~95% of the industry’s returns.

· Analysis of a VC portfolio shows that without home runs, VC portfolios have low or negative annual returns (Designing Successful Venture Capital Funds for Area Development: Bridging the Hierarchy & Equity Gap, Applied Research in Economic Development, 2006, Volume 3, No. 2). This means that most VC funds fail, including many formed with good intentions of helping those who would not otherwise get VC.

The key question for you is whether your venture will be a:

· VC-Unicorn with long-term potential and a very profitable exit – about 1% of VC-ventures.

· VC-Flip, which is usually sold to a large corporation or an industry leader for a profitable VC exit.

· VC-Flop, which means that the VCs will quickly lose interest, try to get whatever they can, and move on.

Here are 5 strategies to increase the chances of becoming a unicorn:

· Find the right high-potential, emerging trend. If you are early on a high-potential trend, have kept control of your venture and are following unicorn strategies to find the fulcrum of the emerging trend, you have a shot at the brass ring. If you entered after the trend has taken off and the leaders have built a strong position, you may still be able to dominate a niche market and flip the venture.

· Takeoff without VC interference. Doing so allows you to keep control of the venture and decide whether your chances of success are better with VC as rocket fuel. If you do not have control of the venture, and if you have to pivot to find your growth strategy, you may have a flop because the VCs may not hang around. That’s why 94% of billion-dollar entrepreneurs delayed VC or avoided it to keep control (The Truth about VC).

· Focus on the business model, not product innovation. Entrepreneurs like Sam Walton, Bill Gates, Brian Chesky, Jeff Bezos, and others did not succeed by coming up with a “better” product. They came up with a better business strategy for the emerging trend. In fact, about 9 out of 10 first-movers fail to smart movers.

· Pray for good timing. Watch out for the phase of the stock-market cycle. If you are in the middle of a hyped-up market, when pigs can fly, you may be able to sell a mediocre company as a highflyer and have a flip or unicorn on your hand. If you are in a down market, watch out below.

· Prove your potential. Can you prove that you can dominate the prime segment of an emerging trend? VCs want proof of potential – not promises in pitches. Get the skills to prove potential. Wait until you prove your leadership potential for your venture and you to keep control of your venture and of the wealth you create.

MY TAKE: If you need VC to grow and want to avoid becoming a flop, wait until you take off and prove that you have the potential and the skills to dominate. Then your chances of building a flip or a unicorn are higher. But, even after Aha, make sure that you get VC from a fund that has a track record of building unicorns. Very few funds build unicorns. Lastly, keep control if you want to improve your odds of creating wealth and keeping more of it. Get unicorn skills, like Michael Dell.

TechCrunchWhy Angel Investors Don’t Make Money … And Advice For People Who Are Going To Become Angels Anyway
NytimesVenture Capital Firms, Once Discreet, Learn the Promotional Game (Published 2012)
Harvard Business ReviewM&A: The One Thing You Need to Get Right

Dave:
Hey, everyone. Welcome to On The Market. I’m your host, Dave Meyer, and today I’m going to be joined by two esteemed economists from Moody’s Analytics to talk about rent and housing affordability and multifamily.
We going to have a really fascinating conversation and I think, if you are a rental property investor, a commercial investor, you’re definitely going to want to listen to this because Lu and Tom, who are our two guests today, are really experts in rent growth and rent declines and recessions, and they have a really fascinating and expert opinion on what might be going on with rent growth over the next couple of years.
I’m not going to lead into it much more than that because it’s a fascinating conversation and I want to get into it. I’ll just tell you who these people are quickly.
First guest is Tom LaSalvia, who’s a senior economist in commercial real estate, emerging trends, housing sector specialty at Moody’s Analytics. He specializes in all sorts of things, but he told me before the show that multifamily is his love, and so he offers that expert opinion.
We also have Lu Chen. Lu is a senior economist at Moody’s Analytics commercial real estate division. She has deep knowledge of urban economics and credit risk with special interest in senior housing and urban migration.
We’re going to take a quick break and then we’re going to bring on Tom and Lu to talk about the multifamily market, rent growth and all sorts of other fascinating topics having to do with commercial real estate.
Lu Chen and Tom LaSalvia, welcome to On The Market. Thank you so much for being here.

Lu:
Thank you for having us.

Thomas:
An absolute pleasure.

Dave:
All right. Lu, you recently released an article called Key Takeaways from the 4th Quarter Housing Affordability Update, and this was at least for people like me, a fascinating read. I think our listeners would really like it as well.
Can you tell us a little bit more about your research into housing affordability and what it has shown of late?

Lu:
Absolutely, Dave. So this is really dear and near to our heart. As a CRE researcher at Moody’s Analytics, we care deeply on the housing affordability, which is on many American residents’ mind. We really started tracking this from over a year ago when we had seen a rapid increase in the market rent across the board.
And as we look back into the time series, as we look back into the data points, the most recent update has really shown a burning issue across the board. As we found out, the US is now rent-burdened for the first time nationwide since over 20 years ago, we start tracking this.
Usually when we, say, I gave them metros or the US is rent-burdened and that measurement we use is the rental income ratio. So essentially we measure how much rent each individual renter household is paying for a year, as compared to their median household income. So if the rental income ratio ever reach 30% or above, we call the renter household, rent-burdened.
And US as a whole in a fourth quarter of 2022 for the first time has reached that 30% threshold, and that was over one percentage point from a year ago and it has been increasing for the past year or so, and it only recently has been moderating, but it’s still an upper trending and that 30% is really that symbolic threshold that we care and which also in love with many of the policymaking which has been trying to tackle with this affordability issue.

Dave:
Oh, great. Thank you. I have so many questions about that, but at one of them you just touched on, which was, why 30%? You just said it’s symbolic. Is that all it is or is there some economic reason why having a rent-to-income ratio above 30% is particularly important?

Lu:
Absolutely. Just think about that 30% as a individual person. If I rent a house and have to pay 30% of my annual income on my rental is pretty burdensome, but there are, I mean academic and social evidence supporting that 30%. So Tom, correct me if I’m wrong.
I think HUD is using that 30% from about half a century ago. And Harvard, University has also been backing up, and so quoting a 30%, of course we have a 50%, which is even an severely burdensome threshold, but that 30% is high for average household overall. Tom?

Thomas:
Ultimately, this 30% was decided on when looking in particular at middle to lower income households and ultimately what they may have to sacrifice if they have to pay that 30% or 35% or 40%. So it’s not as though you go from 29.9% to 30% and all of a sudden everything changes.
So getting back to what Lu was saying about a bit of a milestone or symbolic in nature, but that 30% or around that 30% is important, especially in an inflationary environment because the price of everything’s been going up including necessities. So then choices have to be made by the household.
And households need their shelter. They need a place to live, and we often say, “Rent eats first.” And what that means is we’re going to try to keep our kids in our apartment as long as possible without having to upend their lives and move to a different school district or a smaller house, et cetera. And unfortunately, we might have to sacrifice in other areas. And I think that’s the significance of being around that level.

Lu:
And Dave, I’m not sure if you have heard a recent debate on the Federal Reserve bringing back the inflation to the 2% target, and people have been questioning, “Why it is 2%? Why can’t we raise that to 4%?” Because how much different is from annualized growth from two to four percentage point? Probably you don’t feel a dent if you are a little more the average.
But ultimately as turned out of those the two earlier, we have to stick to some kind of a threshold, even if that doesn’t mean too much difference if you are looking at 29 percentage point versus 31. You just have to have something to stick to. And it just turned out that 30% is a consensus where academia, policymaker and society agreed upon that 30%, is that line we want to stick to.

Dave:
Okay. Well, great. That’s super helpful. And just to recap for everyone, we’re talking about the rent-to-income ratio, which compares how much a family has to pay in rent compared to their household income. And it is now, for the first time in the US, surpassed this threshold of 30%, meaning that the US on a national scale is now a, quote, unquote, “rent-burdened nation.”
Lu, you had mentioned earlier that this is the first time this has ever happened. Has there been other periods in the US where rent has been close to this unaffordable or is this a relatively recent phenomenon?

Lu:
We have been very close to the 30% threshold for some time, but I have to emphasize we didn’t get to this point a decade ago or two decades ago. So we first started tracking the national average rental income ratio. We started off at 22.5% and that was back in 1999.
So if you think about that, that was less of one fourth, one quarter of the average, the media income households budget, and now we are close to one third of the budget. And there are period where you can see the rate has been moderating and there are period you have been seeing the rate has been picking up. And I have to say the second half of 2021 up until now is where we see that rapid increase of the rent-burdened across average American household.

Thomas:
Yeah. And I’ll add to this, in that over the last two decades, the general trajectory has been upwards, as Lu mentioned. And what that is telling us is that there is somewhat of a mismatch between the development side of the industry and the demand side.
Population continues to grow, income continues to grow, but in an unequal manner. And when that’s happening, we’re using scarce resources to build certain types of housing or other types of real estate within the country or infrastructure within the country. And unfortunately, little by little over the last two decades, it’s become more and more expensive to afford more shelter.
Now of course, there’s nuance in, and I don’t think we want to lose that in this discussion because you as a household still have a bit of a choice of where you live. Whether which metro you live in or within that metro, which neighborhood you choose, or within that neighborhood, which building and which square footage you choose.
So we’re not saying that every single household is facing this burden, but what we are saying, is that the level of income generally being spent on shelter continues to rise. And that’s true at the multifamily side of things. That’s true at the single-family side of things. And little by little there, again, there needs to be trade-offs, particularly at that middle to lower income side of the income spectrum.

Dave:
That’s super helpful to know and it just seems like we’re seeing this across the board, multiple asset classes, a lot of different markets, which I do want to get into. But I’m curious just a little bit more, to talk a little bit more about why this has been happening more recently?
You talked a little bit Tom about this. It seems like an imbalance in supply and demand in some markets or some places in housing. Not necessarily in rental housing. We’ve talked about that sort of stemming from a lack of construction during post-Great Recession.
Is that sort of what happened in the rental market as well? And also curious, like you said, it’s been close to 30% for a while, but we only recently hit it. Why now? What has happened during the pandemic that caused it to really sort of reach this breaking point?

Thomas:
I’ll start with the former question of-

Dave:
Sorry, that was like a six part question.

Thomas:
No, no, no, no. All related.
The supply side story is quite interesting because there has been a good deal of multifamily construction over the last couple of decades. It’s gone up and down given the different parts of the economic cycles that we’re in. But the point is where the money’s been spent, that I think is really interesting and it really highlights why rent levels are increasing at the rate that they have been in relation to wages.
If you look over those last two decades we keep talking about, somewhere between 80 and 90% of development within multifamily, has been to class A type properties. Not B, C. Not the, quote, unquote, “workforce housing” that’s getting a lot of buzz recently. So I’m leaving outside the whole LIHTC side of things in public side, when I’m saying that 80 to 90% number. But it’s still really telling, right?
Again, these are scarce resources. We know labor is scarce, we know materials are scarce, and when so much of this capital is being devoted towards that type of housing, and rightfully so from the market’s perspective, because they can lease that up still, right?

Dave:
That’s it.

Thomas:
But it those are going to be higher rent places and ultimately it’s going to cause the market to be tighter in the workforce side of things. And we see that in our data very clearly. Class A, a vacancy rates trend around 6%. Class B, C vacancy rates trend around three, three and a half percent. And that just shows you that difference of what’s happening here.
And so you’re really getting this ecosystem effect of housing, where so much of the construction and supply has been in one particular area and that by itself is causing rents to rise in that area, but then it’s causing rents to rise for B and C as well. And it is again, going back to who is this hurting the most? It’s hurting the middle to lower income households the most.
So I think I answered at least some of your first question as to why the supply story is the way it is. But Lu, if you want to add to that and maybe then jump onto that second part of the question.

Lu:
I don’t have much to add on the supply side, but I’ll also continue on the demand side of the story. So if I can represent the millennials, I have to say the demand has remained really strong, as millennials are forming and had a new households in recent years in particular.
So if you think about when the demand side is ballooning, if you have more household entering into the new rental market and housing market in general, and then we have this COVID period which has that shock, which allows people to move around from metros to metros.
I do want to bring a little metro level nuances, because when we say the US national average is reaching that 30% threshold, I’m not trying to say everywhere is hitting that 30%. So there are places which are well above that 30% rental burden, but there are also places where although it’s below that 30% threshold, but you are seeing this increasing trend for the certain metros. And the metros, and if I just call on a few metros, Las Vegas, metros in Texas and Miami, Fort Lauderdale, Palm Beach in Florida.
So all these places in the Sun Belt, they have been seeing the positive in migration coming from people who really enjoy sunshine, enjoying the beach, enjoying more spacious spaces. And when COVID happened, when remote working becomes trendy, become a possibility, become a necessity. And you see people voluntarily moving from California over to places where they have less COVID restriction, lower taxes, cheaper houses. So that migration flow is bringing a lot of metros to a faster track on their rent-burden.
So that demand side is really adding that pressure to this already very tight market. So if we recall what Tom said about the B and C, all those places for the workforce population, and we already having a very tight market and having this shock from the demand side is not helping the situation very well.
So that’s why we are seeing this increasing burden and fast increasing burden, which really started off by the end of 2021, continue on the majority part of 2022, and only recently we started seeing that moderating a little bit.

Dave:
That makes total sense. I’m curious if you see the opposite effect in some of the metros that are losing population. Are we seeing an increase in supply and then a subsequent, some downward pressure on rent growth?

Lu:
Tom, may I start it off with San Francisco?

Thomas:
Hey, you live there, so go for it.

Lu:
Absolutely. So San Francisco was one of the metros we are still seeing, its market rent was 1.6% behind, nearly 2% behind its pre-COVID level. So that’s after we struggle for three years and trying to make up just as everybody else, and we are still having that little gap. Believe it or not.
The reason was, everybody was staying in San Francisco was a really tight market. You have only this little space to build and why we are having this problem, is really driven by the demand. So the shift of demand, people getting pressed out and people got so fed up by the wildfire and people who has luxury of working anywhere. So they left San Francisco, they left the Bay Area, they brought the demand away, and that is creating that much bigger hole to fail.
So on the other hand, not only we are seeing the rent decline, although for many other places we like to say the rent growth has been moderating, but for San Francisco, it was really just we haven’t been able to catch up. That’s one side of the story. And on the other side, if you track the median household income has been increasing and increasing rapidly by people who’s really earning a lot from the tech boom, especially in the first two years of the COVID period.
So declining rent combined with increasing income is really alleviating, at least on the paper. The rent burden for San Franciscoers. So we used to be, if you track the history of the top 10 rent-burdened metros for the past two decades. So San Francisco has been in and out of the picture for quite a bit. So there has been a lot of variation because metros like San Francisco, like Washington, DC. So all these very well established tech metros is very cyclical.
So whatever there is a recession and the tech sector is much more volatile than many other traditional sectors. And you see it’s driving that demand, driving the income growth for the metros. And that’s why San Francisco has been about 30% for some time and then when dot-com bubble hit, it dropped off the list, and then it climbed up again reaching above and beyond 30% and back to below.
So there has been variations, but it’s interesting to see how a metro like San Francisco can be affected by both supply and demand, and in certain cases can be significantly driven by the renter household and their decision.

Thomas:
Yeah. I’ll jump in here and just somewhat not counter what Lu is saying, but I want to bring up the fact that if this is happening in San Francisco, why wouldn’t it happen in Boston, in New York? Some of the other cities that have been known to be very high rent cities. And so it’s a very interesting situation here where we saw all this migration early on in the pandemic towards the Sun Belt and we had all of these Sun Belt darlings of Phoenix and Austin and Miami and Jacksonville and Tampa, et cetera, et cetera.
Little by little over the last, I would say 18 months, we are seeing maybe some of those folks return to some of these northeast expensive cities, possibly as the office comes back a bit. But there’s another part of this demand story for cities like that, and I still think San Francisco is going to have a bit of this. And these are lifestyle cities that are unique in their own right.
And so while one might expect a lot less demand side pressure for a New York or Boston, what we really saw is household formation pick up dramatically in these areas, and leasing activity pick up dramatically in these areas in the last year to year and a half. And what that’s telling us is that there is this quality.
If people really are choosing lifestyle moves, it doesn’t mean it’s all to the Sun Belt and it doesn’t mean that all of the affordability issues are the Sun Belt, because we’re seeing incredibly high rent-to-income ratios in some of the traditionally expensive cities. And Lu, I think you can back me up on that with some of the data that these areas have come back and there is no rent relief for even these traditional northern cold weather cities.

Dave:
Were you saying, you’re saying that there’s household formation, is that possible that it’s these people were remaining in a roommate situation or living together because things were so expensive and now that there maybe is a little bit less competition.
I know rents in Manhattan have exploded, but do you think there’s some reason why household formation is picking up right now?

Thomas:
There is a timeline here that I think is appropriate. Early in the pandemic, we didn’t want to be around other people. We were scared and we also didn’t have to go to the office. So a lot of the younger generation that often, are the ones that populate New York City.
Many of them moved back with mom and dad and slept in their old room or on their couch or whatever that hobby room became or whatever it is. And so we saw this kind of pullback and activity and that’s when all of those huge discounts in Manhattan were being talked about and how if anybody wants to go back to the city, there’s a great opportunity to get a huge discount.
And then a year after that, when everyone had to renew, well all of those kids, all of those people who were on mom and dad’s couch came right back. They’re not the ones that chose Florida, especially that young and hungry group. There’s still value in New York, there’s still value in Boston, there’s still value even in San Francisco I think ultimately, for that type of the population.
And so once things opened up a little bit, once a little bit of a return to the office, that’s when you saw a tremendous amount of activity. And many of those people at that point were still at least a little hesitant to get roommates.

Dave:
That’s it.

Thomas:
And so think about it. Now you have extra households looking for more studio apartments or one bedroom or at least you’re not bunking up, maybe even illegally, which I’m not saying happens, but it may happen in places like New York. Where you’re actually having too many residents within that particular apartment and you’re living in a broom closet, I always say.
So I think there’s this timeline of a pullback and then this kind of back to the city mentality, but back to the city maybe without a roommate at first. I have a feeling that’s going to change, is changing right now. It’s going to continue to change in 2023 as the economy softens a little bit.

Dave:
Okay, great. I do want to get to talking about what happens from here and where you think rent is going to go. But Tom, you mentioned something that I want to sort of go back to, which is that in the market, multifamily market, the supply side. We’re seeing that over the last couple of years, development has been focused on class A properties.
This isn’t a podcast for real estate and primarily real estate investors. When I think about that, that tells me that the risk reward profile for class B, class C construction and development is just not there because these markets tend to be efficient. Do you have any idea why? Why is it not attractive or why are developers not building class C and class B properties at the same rate?

Thomas:
It’s a fabulous question and I have spoken to a good amount of developers about this. And consistently I’m told that B and C just hasn’t been able to pencil in the last 10, 20 years, meaning that the math doesn’t work nearly as well as the math works for class A.
The land costs the same amount of money regardless of what you’re going to put on that land. A lot of the structural development costs the same amount of money. A lot of the red tape is exactly the same that you have to deal with. So I slap on a few more amenities, maybe add a little extra space and a little better lighting and I can up that rent considerably.
And so developers continue to say, “Well, if class A vacancy rates are going to stay around 6%, if I can lease up those properties pretty quickly and efficiently, then I’m going to go that route. I don’t need to build workforce housing because the profitability is more within class A.” At least it has been, I would say in the last 10, 20 years.

Lu:
Or on the other spectrum, if the developers are not building class B and C multifamily, it’s probably better to start thinking or even investing in affordable housing. So there is a term which I started hearing a lot, it’s called the missing middle because if you start constructing affordable housing, there is a bigger collaboration between the public and private sector.
So we have tax benefits, we have government sponsorship, and we have policy which are designated for supporting the building of affordable housing. And then we have this economic incentive to build class A, which left majority of the middle of the renter household be missed out on the market opportunities, because they can’t qualify for affordable housing and they cannot afford class A.
What are they going to do? So Tom, I recently did a very interesting exercise. So there is a kind of a threshold, if we say 50% of the media income household, income is considered as the low income. But if you put 70, 80% of that media income as moderate but still low income, and if you plug that number into our rental income calculation and many more metros will jump up at me, because they all of a sudden become even more rent-burdened.
Because that’s where we are seeing a lot of the missing middles and they couldn’t afford the market rate apartment on the market. And I think that goes back to where I live in California and we have a lot of policies not just for affordable housing, but also to build out additional units such as ADU. Not sure Dave, if you are familiar with that term, it’s Accessory Dwelling Units, which can be attached or detached to a single-family housing unit to hopefully increase the supply for the missing middles.
And there has been a lot of conversions from existing vacant commercial properties and they work with the planning department to rezone a little bit and convert that into a multifamily and hopefully allocating certain units into affordable. So there has been a lot of innovative ways, creative ways of solving and at least trying to address this shortage in supply.

Dave:
Yeah. We talk about ADUs and upzoning a bit on the show because it is a good idea. I’m just curious if it’s enough? Right? Because I know a lot of real estate developers, if it was profitable to build class B or class C, they’d do it. And I don’t know how many homeowners want to build an ADU. Who are willing to put up the cash.

Lu:
I’ll build a ADU.

Dave:
Nice! That’s awesome. There you go. Good for you. It’s a great business, but I’m just curious, are enough home buyer, it just seems more efficient to me to figure out a way to incentivize the people who are professional apartment builders to build the right housing units rather than only relying on homeowners to become real estate investors.

Thomas:
And Dave, I think that’s where we’re headed. I think public-private partnerships incentivizing the private developers to find a way to build this missing middle.
It’s already being discussed at the federal level, state levels, municipality levels, and I think we’re going to just constantly hear about it, whether it’s an expansion of LIHTC in terms of the-

Dave:
What is LIHTC? Sorry.

Thomas:
Oh. No, sorry. So Low-Income Housing Tax Credit.

Dave:
Okay.

Thomas:
L-I-H-T-C. Low-Income Housing Tax Credit. And it basically incentivizes developers if they put a certain amount of units that are at a certain threshold of the area median income, in that building they can get certain relief. And we’ve heard the Biden administration talk about expanding that. We’ve heard even the word MIHTC being thrown around, which would be Middle-Income Housing Tax Credit. And so I think that’s part of the solution.
I think another part of the solution will be we’re finally at an era where zoning laws are going to be relaxed a bit. And I think that’s going to be huge for development not only in the housing sector, but I think all across commercial real estate.
The one maybe a silver lining out of this rapid rise in affordability issues is that it finally has told local leaders that they have to think about what has been working and what hasn’t been working and having very segmented zoning while it’s going to be maybe tough to relax those in particular areas, given nimbyism, it’s going to be needed in a lot of areas and I think it is going to be granted in a lot of areas moving forward.

Dave:
Yeah. I mean ultimately there are so many proposed solutions. Maybe this is just my opinion is that until the supply side issue is adequately solved, they’re all going to be band-aids and maybe they’ll help in the short-term, but it just seems like getting developers to build more or allowing developers to build more of this missing middle housing class could be really helpful.
I do want to ask you though, I’m sure everyone on the show listening, wants to know what you both think about where rent is going now. So Lu, you’ve done a great job explaining how and why rent has skyrocketed. We’re seeing this big rent burdened. What happens from here?

Lu:
There is light at the end of the tunnel. So I want to start it off with a positive note and hopefully also end with a positive note. So 2023, we are projecting there would be a historic amount of new construction coming online on the multifamily front. And there are a couple of reasons.
A lot of the construction, which takes months and up to over a year to finish. And they started off as early as 2021. So that’s where we still have a little bit of the cons, supply side of the issue, the bottleneck on the supply chain, but it really penciled out for the developers.
So the rent was growing rapidly, the interest rate thinking of when federal reserves started rising interest rate in early 2022. So at that point, a few months before that, the interest rate was still relatively low, the margin was high, the cost was relatively manageable, and which inspired that construction to start or existing construction to continue.
And the supply side, we are looking positively, we are going to see an increase in the volume and on the other hand, the demand will stabilize because we are already seeing the softening, the stabilization towards the end of 2022. So this affordability issue, this fear of recession, this hesitation of moving back into the single-family housing market will retain a lot of the rental household to stay in the multifamily market for some time. Fingers crossed, nothing goes south from there. And that’ll help stabilize the rent growth.
So we might already be seeing the peak of the rent-burden across the nation. So 30% might be around the peak that we are seeing. And I did have a sneak peek of file 2023 projection on the rental income ratio. I know Tom going to be laughing at me because we do update on a quarterly basis, but at this point, based on the latest vantage data we are seeing by the end of 2023, the national level rental income ratio should be slide off that 30% peak, not by much. Again, this is a symbolic number, but we should see the moderation of this burden little bit.

Dave:
Okay. That’s really interesting because I think as investors we often, I’ve been saying to people, “I don’t think rent is going to grow for a long time.” Not, I don’t know a long time, but at least for another year or two during this economic uncertainty we’re in.
Are you saying that the rent-to-income ratio is going to fall because rents are going to fall or are they going to sort of stabilize and income is going to keep rising?

Lu:
Just for the record, we are not projecting one way or the other. So we are seeing the moderation of the speed because it really goes down to the metro level nuances. So at the national level, we are seeing the rent growth, going back to where we likely to see the long run average. So it’ll be moderating to a three percentage range, but at the metro level there are places where we might see, start seeing rent decline, but there are also places where we might still see the rent is relatively more stable than many other places.
So we have to realize, it’s not just about the supply and demand, but also on the other hand, the rental market, the rent is quite a key figure. So many renter household, they only renew the rent after at least a year. So that’s their biggest term. So that’s why when you look into the shelter inflation in the CPI report, and even based on the latest reading, it’s still sticky high somewhere in the seven percentage range. And on the other hand, Dave, you probably already seeing in certain places there has been decline in the new visas.
So that is where you see that disparity of divergence, where the CPI data is tracking a combination of the existing rent and also the new rent and which is showing that stickiness. But on the other hand, some of the new leases are showing the discount. So Tom, I know you want to say something.

Thomas:
I think you said it beautifully. I will add not only new leases, but particularly in some of the newest construction when those property owners are trying to lease up those properties, we’re seeing concessions grow a little bit. But I would like to say again, that we are not predicting a widespread level of rent declines based off of what Lu had already said about the stickiness.
But I’ll throw in there from the Moody’s perspective, we don’t at this moment expect a recession. We do expect softening of the labor market, but historically to get rent declines or at least a consistent amount of rent declines over a one to two quarter time span, it requires some stress in that labor market. It requires an increase in unemployment. And right now, I mean goodness, look at the employment situation report from not that long ago, 500,000 jobs at it. So we’re at a two to one ratio of job openings to the mount that are unemployed.
So unless we see dramatic changes to the labor market, and by the way, we are fully expecting a softening, but unless we see dramatic changes, we can’t predict widespread rent declines because people are still having jobs and they still feel relatively confident that they’ll have those. I think part of this still goes with the expectation story, but it is an employment story. So if you want to know what’s going to happen with rent, watch that labor market closely.

Dave:
That’s super helpful. And I do want to unpack a couple of things there before we get out of here. Just to summarize for everyone listening, one of the reasons rent is so sticky like Lu said, is because when you look at rents, there’s different things you have to consider.
There’s what people who are staying in the same apartment is paying and what people who are moving or signing a new lease are paying. And those are sometimes tracked differently and different rent data companies have different methodologies. The CPI has sort of this famously lagging methodology, and so there’s different ways to think about that.
And so I just want to make sure I heard it correctly, is that you think that there could be, or there is evidence so far that people who are renewing or are looking for new leases, there is some signs that rents are softening there, but as a whole, rents are remaining pretty stable right now. Is that right?

Lu:
That’s a fair statement.

Dave:
Okay, great. And then I was just curious, Tom, you just said about historically what it takes for rent to grow down. I mean, I can’t remember off the top of my head, but I do think we did see some rent declines in the 2008 era, not nearly as much as home price declines. I mean a fraction of it. But can you tell us the depth and scope of what happened with rent prices surrounding the financial crisis?

Thomas:
Yeah. We saw a bit of a decline. Lu, if you can help me with the exact numbers, I want to say it’s just one to 2% over a couple of years. But think about that situation from an economic point of view.
Unemployment was around 10% and it stayed there for a little while and this situation’s dramatically different. We saw a vacancy rates increase, well above five, six, 7%. I think we copped out around 8% in the multifamily perspective. And so you have to loosen the market again before you get dramatic rent declines.
So I hope that you as an investor or a lender did not put 7, 8, 9, 10% rent growth on your proforma when you were getting that deal done a year or two ago when rents were growing there. But if you did put the long run averages, there might be a little bit of a hiccup this year here or there. But I think overall that’s where we’re trending back to, going forward. And Lu, do you have those exact numbers?

Lu:
Thank you for buying that time for me to look into the exact numbers. Really appreciate it.
Last summer, summer of 2022 is when Tom and I was really interested. That’s when everybody was sheer giddy into a recession and they saw two quarters of GDP, negative GDP growth, and they were like, “Are we there yet?” So when everybody was talking, and of course Tom and I were interested and we compare and contrast every single recession from the late 1970s, early 1980s when we call it a Volcker period up until the 2020 COVID recession.
So interestingly, if you look at the single-family housing and multifamily housing markets, they play that rhythm very well. So usually you start seeing the single-family housing press getting a slap slashes at the beginning of the recession. It really just signaling we are in the recession and at the same time, multifamily, if you look at every single recession, it’s almost consistently it doesn’t get hit right away.
When will multifamily housing, multifamily rent get a hit? Is where we are almost out of the recession. Why? Because that’s when people are seeking the opportunity in the single-family housing market. So they boosted the single-family housing price to roll, and at the same time, because they played that rhythm really well and multifamily, that demand was shifted and you start seeing, the rent changes, having that bigger impact.
So looking at the Great Recession, just to put the number in there, so we have an idea where we are. So during the Great Recession from 2007 to 2009, the single-family housing price, if you compare the peak with the trough, declined 15% at the national level. And that is CPI adjusted, by the way. And at the same time, multifamily rent growth, which had a declined after 2009, only declined 1.6%. Less than 2% if you compare the peak and trough. So it gave us the idea of the timing and the scale.

Dave:
That’s so interesting. So you’re saying that basically people wait or the decline in home prices sucks demand out of the multifamily market because people want to buy homes while they’re cheap. Is that, did I understand that correct?

Lu:
So when you start seeing the single-family housing market momentum picking up, that’s where you’ll start seeing the demand being subtly shift from the multifamily housing units over to the single-family housing market. And that also, I would hope that could be a leading indicator when we start seeing a massive rent decline across the board, maybe that’s a signal we’re out of this doom.

Dave:
So the multifamily decline is actually a signal that a recession might be ending.

Lu:
I hope. So we still have to run statistical test if that’s a hundred percent signal, but usually that happens along that timeline.

Dave:
Okay. That’s super cool.

Lu:
And if you look at the past recession, so sometimes the NBER will define the recession to end even prior to seeing the multifamily housing then declines.

Dave:
Okay. Interesting.

Lu:
So the timing goes along the timeline of the recession, but it wouldn’t necessarily be prior, if I have made that…

Dave:
No, no, but that totally makes sense. That’s really interesting. It lags the rest of the economy and the home prices a little bit.

Lu:
And also because of the stickiness.

Dave:
Yeah. Interesting. All right.
Well, thank you both so much for being here. This has been fascinating. I have learned a ton today. I really, really enjoyed learning from you both. If people want to connect with you, Lu, where should they do that?

Lu:
I’m happy to share my email.

Dave:
Great.

Lu:
So it’s [email protected]

Dave:
All right. Great. And Tom, what about you?

Thomas:
Analogous to that, [email protected], or you could check out our Moody’s CRE webpage, which has a lot of our insights, and we’ll be able to maybe Dave, we could attach that somehow.

Dave:
Sure, yeah, we will link to that in the show description for sure.

Thomas:
Great.

Dave:
All right. Great.
Well, Lu Chen and Tom LaSalvia, thank you so much for joining us On The Market.

Lu:
Thank you for having us Dave.

Thomas:
A true joy, thank you.

Dave:
Big thanks to Tom and Lu, again for joining us for this episode of On The Market. They are both from Moody’s Analytics. If you want to check out their work, you can do that. They have a great website, all sorts of information about the real estate market, commercial real estate and all that.
I genuinely learned a lot about that. I think that the takeaways here for me, the big ones at the end were that, we say this a lot on the show, but I’m glad to have two economists back me up, that rent is particularly sticky. And although we might see some headlines that rent is going down, it was very likely to be a very modest decline in rents right now.
But I just wanted to reinforce what I’ve been saying for a little while here, that if I were you and buying real estate and underwriting real estate, I would assume very modest rent growth for the next 12 to 24 months. As Lu and Tom’s research indicates, we’ve sort of reached this threshold where people might not be willing to pay any more than they have right now, and we saw this rapid increase in rent and it sort of makes sense to me that the market is going to cool.
I think the other thing I found just super interesting personally was just about that missing middle and how there’s just a lack of building in class B, in class C, multifamily. It’ll be interesting to see if there are more public-private partnerships or better zoning opportunities because it just seems like something that the market needs, that there’s going to be demand for this type of housing and there is a lack of it.
So that’s something I’m definitely going to keep an eye on. Would love to hear what you all learned from this episode. You can find me on the BiggerPockets forums. There is an On The Market podcast if you want to talk about anything you learned or ask any questions, you can find me there or you can find me on Instagram where I’m @thedatadeli. Thank you all for listening. We’ll see you next time.
On The Market is created by me, Dave Meyer and Kailyn Bennett. Produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media, researched by Puja Gendal, and a big thanks to the entire BiggerPockets team.
The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

CNBC’s Hugh Son breaks down the housing market as U.S. mortgage rates jump to their highest levels since November.

The biggest mistake people make with their intellectual property has nothing to do with protection. It’s not knowing whether anyone else is going to benefit from their brilliant idea. It’s not knowing whether there is demand for it in the marketplace.

A lot of us get ahead of ourselves. We file non-provisional patent applications, build expensive prototypes, raise money, and start businesses — and then, after all that, find out whether anyone really wants our product. This process is extremely expensive, time-consuming, and, when our assumptions are wrong, painful.

The risk of spending a lot of time and money on an idea that no one wants exists at every level of the innovation ecosystem, including inventors, startups, small businesses, and corporates. For example, the U.S. National Science Foundation awards over $200 million each year to advance the development of new ideas through its Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs. The startup companies are funded to do technical research, which is inherently risky — but it’s more often the market-based risks that cause them to fail.

“The biggest risk is that they build something that no one actually cares about,” stressed program director Ben Schrag during an Inventors Groups of America meeting.

When deciding which startups and small businesses to award, the NSF considers how common market-based risks are being managed, and provides training to all awardees on how to better understand their market and customers. NSF also launched a program in 2011, Innovation Corps or I-Corps, that’s devoted to teaching researchers how to test the market before starting a business.

“This is so that [the company] doesn’t spend a bunch of money on R&D to reduce the technical risk, and then realize too late that it was actually a different issue – lack of a customer pain point – that was the most important threat the whole time,” Schrag said.

Test the Market For Your Invention Idea in 4 Steps

There is a simple solution! You need to test the market to determine whether anyone truly wants your imagined product or service first. Is the benefit of your product or service great enough for potential customers to actually purchase it?

There are many benefits to testing for market demand. You can leverage market demand to get other parties to come to the table. It gives you a paper trail of protection. In my experience, potential licensees are less likely to try to work around you when you have evidence of market demand. You can file better intellectual property based on the input you receive by aligning your patent claims with your business objectives.

You must account for the risk that you’re developing an idea that no one wants before spending a lot of time and money. That’s the big benefit of the strategy outline below. It’s an effective way of testing the benefit of your idea before building and protecting it. It allows you to refine or redesign your product, and protect it accordingly, based on the input you receive. Ultimately, it helps you move forward in the right direction by providing critically useful information.

Let the market help you determine when to file a non-provisional patent application.

Here is a simple four-step process inventors and startups can rely on.

Step 1: Learn the most efficient way of manufacturing your product idea and what it’s going to cost.

You will hear these two questions over and over again from interested parties. How do we make it? What does it cost? Prepare to answer these questions.

Step 2: Protect your idea by filing a provisional patent application (PPA).

This allows you to describe your invention as “patent pending” for one year. Filing a provisional patent application with the U.S. Patent & Trademark Office is both affordable and easy to do.

Step 3: Create high-quality marketing material that highlights the benefit of your idea.

Sometimes, all you really need to test the market is a 3-D computer generated model. Virtual prototypes, which are easily made, are very affordable.

Step 4: Reach out to industry experts to get their opinion.

Focus on connecting with a buyer at a major retailer or another end-user. LinkedIn has made it easier than ever to reach out to industry experts, including buyers. Start by identifying the department that your idea would sell in. Then, search for buyers and send a request to connect. Do not pitch your idea right away. Instead, tell them that you are launching a product that you would love to get their input on and ask them if you may send them more information. Make sure to only disclose the benefit of your idea, not your intellectual property itself.

Do you need to make changes to your idea so that it will sell at retail? They’ll let you know. This strategy works with retailers as large as Walgreens, Walmart, and, in the U.K., Tesco.

There are other things you can do to test the market, including reaching out to potential licensees. It’s important that you reach out to the correct person and that you take the time to understand their business. Acknowledge the company’s mission, describe that you’re working on something proprietary, and then be concise and direct with your ask.

“The way to cut through the clutter is by showing you’ve done your homework and you have something to offer,” explained LifeScan Chief Marketing Officer Lisa Rose in an interview.

Don’t get me wrong. Protecting intellectual property is extremely important. Patents, trademarks, and copyrights — the tools provided by the USPTO to protect our intellectual property — are fantastic. But they’re also just one piece of the puzzle. Are you sure you’re using them correctly? The question for entrepreneurs isn’t whether we should use them, but when.

When there is market demand, money is spent — meaning people actually start working on commercializing your product idea. I’ve experienced this firsthand. I couldn’t get any traction with my big idea for the packaging industry until I had a customer that wanted 50 million units.

Everyone cares a little less about intellectual property when there’s sincere market demand. With market demand, everything seems to fall into place. So, yes, while intellectual property is important, it’s not as important as you may be thinking. Make finding a customer for your idea your primary objective.

David:
This is the BiggerPockets Podcast show 731.

Brent:
I think a lot of people just hold on to leads too much because they’re like, “Oh, it’s a lead. I love this lead. I’m going to coddle it and I’m going to keep it here and I’m not going to push them too hard and I’m going to be really nice and I’m going to bring them sweets and I’m going to stop by and I’m not going to pre-qualify them too much. When they’re ready, they’ll tell me their price and we’ll make a deal.” And that never happens. You need to have a conversation of what is the condition, timeline, motivation, price, and the timeline is the most important thing in that because if they’ve made the decision that they’re going to sell that property, that’s who you really get in front of.

David:
What’s going on everyone? This is David Green, your host of the BiggerPockets Real Estate Podcast, the best, the biggest, and the baddest real estate investing podcast in the world. Here today with my co-host, Henry Washington, where we bring you another amazing interview today with Brent Daniels. Brent runs a wholesaling business that is very successful, talks to a lot of people, and frequently puts deals together that other people would let die. And in today’s show, we hear about his rags to riches story and a lot of other information. Henry, first off, good morning and second, what were some of your favorite parts of today’s interview?

Henry:
Hey, man, good morning. Happy to be here. Man, what an incredible story. I think we all love to hear a rags to riches story, because it shows us all what we’re capable of, what’s possible. And what I love about Brent’s story is, man, he went through some lows, didn’t he? And so it’s a wonderful story about how to prepare yourself for what could be the unknown, how to pivot your business if you need to, and then how not to give up but rebuild in a smarter way and leveraging all of the skills. Because all Brett did was leverage the skills that he had built prior to everything falling apart. He just leveraged them in a different way to rebuild himself bigger and better than ever.

David:
Yeah, that’s exactly right. And if you’re following what’s going on in the economy, then you should recognize it’s very likely, I don’t know we’ll see it to the scale of what we saw in ’08 through 2010, but it’s very likely we’re going to see similar things happening to what happened to Brent. So, you better start preparing yourself now for what to do when they happen and how to play those cards, because there’s a lot of people that could be going through very similar circumstances to what today’s guest went through himself. Also, you want to make sure you listen all the way to the end in this one, because you will get to see what a marriage between Henry and I would look like in an alternative universe. Today’s quick tip is brought to you by Henry Washington.

Henry:
Yes, today’s quick tip is to remember to stay grounded. We talk about in this episode, epiphany points, epiphany moments. And you may have already had your epiphany moment when you’re listening to this. It may be why you’re listening to this. Difficult times happen, challenges will happen, but if you can remember back to that moment when you knew you had to make a change, or you knew you were at your lowest and you can see that you’re not there anymore and you may not be where you want to be, but you’re not where you were when you had that epiphany moment, it will help you realize that things are better than you think they are, and you’re moving in the right direction. So, make sure you write down those epiphany moments. Make sure you reference them often.

David:
Great point, Henry. Thank you for that. Let’s bring in Brent. Today’s guest on the podcast is Brent Daniels. Brent is a wholesaler who runs a wholesaling business. He’s been grossing over a million dollars for the last six years, has hacked cold calling, and is here to tell you how you can too. And as a fun fact, he was a Hall of Fame football player at his college, and I thought he was a professional wrestler. Brent, welcome to the show.

Brent:
Well, I am excited. Listen, this is the greatest business of all time, this is the greatest real estate podcast of all time, so I think we’re going to have a lot of fun. I love you, David. I love Henry. I’m honored to be here and excited to share my story and hopefully give some tactics for people that are listening.

David:
Yeah, I appreciate you saying that. One of my favorite parts about your story that I’ve heard so far is the rags to riches element of it. I mean, you went from the lowest of low’s. No offense, it just sounds like horrible, horrible situation, and just fought your way out of that thing to be at a point where so many people are trying to get to right now. And I love these stories, because when you get from a point you don’t want to be to a point you do, breadcrumbs get left, and then other people can follow that path.
And as more people make it out of the bottom and get to the top, it makes the path that much more clear for everyone who’s coming behind. So, we’re going to do our best to try to identify those breadcrumbs today so our listeners can follow your journey. Before we get into it, is there anything specific about how you had it and you lost it and you got it back that you would say sort of highlights what your journey has been like? Any lesson or element or motto that you took or was formed during those times?

Brent:
Yeah, I remember I was driving and my son was maybe 16 months old, this is 2013, and he was crying. He had his fifth ear infection, and those are just horrible, horrible. And so I was trying to listen to the Audible of Dale Carnegie, the guy that wrote Think and Grow Rich. He had another book called How to Stop Worrying and Start Living. And I’m listening to this book, I’ve got a crying baby, and I’m like I’ve reflected a lot, I’ve done a lot of self-work. So, I need to go out and do something. I need to go out and find some way to turn this whole thing around.
And I think it was that moment right there that was like, “Okay, I need to just go out and I need to go into the streets. I need to find property owners that have these older rundown beat up houses and I need to talk to them.” And that’s what changed everything for me. And up until that point, it was just a disaster. I mean I screwed up everything that I could financially and emotionally I think. It’s this walnut size thing in my brain that I go back to whenever I think I’m really cool, or I’ve made a bunch, or I try to get over my skis a little bit, I go back to that day listening to that Audible book and be like, “What? Oh my gosh, life is so much better now.”

Henry:
That’s funny, man, because for me their epiphany moments. I had a very similar epiphany moment in my life. Mine unfortunately was a panic attack, but it’s a panic attack that changed my life. And I always look back at that as this kind of place marker in my life where everything started to turn around. And so I love that you share that. You said this was about 2013?

Brent:
Yeah.

Henry:
And you had never done a deal then?

Brent:
No, I had been in real estate since 2004, so I had read Rich Dad Poor Dad in 2003, and I was like, that was it, right? I mean I feel like there’s two paths there. You read it and you’re like, “Oh, real estate’s going to be my life.” Or you read it and you’re like, “I don’t care about this.” I really think that. And so I got a real estate license. There wasn’t YouTube, there wasn’t podcasts, there wasn’t BiggerPockets, there wasn’t anything out there to really give me direction. So, I didn’t know the vocabulary, I didn’t know what was going on. All I knew was that I had to learn about real estate and there was real estate school, so I’ll just go to that and get a license. So, I did that and it was great. It was great. It was 2004, you know what I mean?
The market was going bananas. Everything was exciting. I was learning how to help people buy and sell, and I have a lot of family here in Phoenix. And so they wanted to move and take advantage of their appreciation. So, when you’re 22, 23 years old and you make $100,000 hundred, you’re like, “I’m the greatest real estate entrepreneur of all time. The good times are going to go on forever. This is going to be incredible.” And I started the natural progression, that is I wanted to open up a brokerage that would be an investment/real estate brokerage. And I was told, “Well, you could buy properties and these loans, I mean, you don’t even have to put much down. And they start at 1% or 2%, and they stay there that way for a while. And when they adjust,” and I had no idea what adjustable rate mortgages were, “when they adjust, you just sell the properties and life’s good.”
And that’s what I did. And in 2007/’08, I bought five properties in 2009, 10. Lost them all. Had a really nice Mercedes, had a really nice Range Rover. Those got repoed. Nothing is crazier than seeing some burly dude with flashing yellow lights, pull your car that you put all your pride and ego into, from your driveway and just leave. So, that was really rough. That was tough, but the tougher part was right before it changed in January of 2008, I signed an office lease for 10 years with a personal guarantee for 9,000 square feet for this brokerage that I was building. And October of 2008, economic world melted, no deals would sell traditionally on the market, short sales still couldn’t be negotiated. And in Phoenix, we dropped 67% in value.

Henry:
Wow, man. That’s intense, because it sounds like what you did was you learned about real estate, decided this was going to be your life, you went all in, you had some success, and then you built this team. A brokerage is a big deal. It’s not something small. Talk to us a little bit about what that brokerage looked like. How many people did you have? What did you put in to build that?

Brent:
Yeah, we had 80 people and I had four other partners. We had office staff and we had everything. And when income is not coming in and you’ve got huge expenses, it goes down fast. And everybody looked to me and the other owners as leaders, and we’re scrambling. We’re 29 years old, we’re 28 years old, I don’t know what’s going on. I’ve never gone through anything like this. So, that was the hardest thing. That was the hardest thing, Henry, was looking people in the eye and telling them, “We can’t keep you around anymore,” and having to let everybody go. And that’s really influenced my business principles to this day. Big time.

Henry:
I mean that’s a big, for lack of a better term, that’s a big gut punch, right? Not just to your personal, seeing your cars get taken out of your driveway, but we talked a little bit about this a week ago. What was it like or what the most painful part? You had to let how many people go? And then what was the turning point in that downturn that made you go, “Okay, this isn’t the end for me?”

Brent:
Yeah, that took a long time. There was a big hangover after that experience, but we had five staff members full-time and we had 70 agents at the time that all had to scatter to other brokerages or get out of the business. And that office lease that I signed as a personal guarantee, the interesting thing is, in case anybody didn’t know this, but if you don’t pay that, they sue you. So, here I am, I’ve never been near a lawsuit before and the attorneys coming and saying, “You owe $742,000 to this property owner.” And I was like, “There’s nothing I can do.”
And then my business partners left, went to California, took the books, so I couldn’t file taxes on time, so I couldn’t do a bankruptcy. So, this thing dragged out and it was like a weight on my shoulders. And one, it was hugely embarrassing because you build up a reputation in the real estate business. It’s not a huge community. And so that all went down and losing all the investment properties and having nothing in the accounts. And then my wife at the time was like, “This is bananas. You’ve got an anchor around your neck. I’m out of here.” So, you throw a divorce in on top of that, and it turned real ugly internally. Really, really, really ugly.

David:
Yeah, that’s something I think we should take a moment to highlight, because that happened to you, but it doesn’t sound like you made any huge mistakes. It wasn’t like you made an obvious bad decision. You didn’t get into drugs, you didn’t go buy completely stupid things. I mean you did what most people do when they’re making decent money. It’s very easy, very easy to do this, and it’s easy for this to happen to anybody. That’s the first point I just want to highlight for everybody listening. The second is that’s why pivoting is so important. You’ve got to be okay building it, losing it, and building it again, because you don’t know what’s going to happen in the environment around you. You don’t know what the government’s going to do. You don’t know what macroeconomic policies are going to do. We don’t know if we’re going to be going to war.
These things happened quick. No one knew that COVID was coming. Nobody knew when September 11th was going to hit. Something could happen the day that this podcast drops. We don’t know. It’s this ability to be able to look at the information and adapt that makes you successful, versus just give me a blueprint, tell me what to do. I just want to take four steps and I want to build up some money. So, as you’re in this situation where things are very ugly internally as well as your personal life, I mean to now have your partner leaving you at your lowest, I can’t only imagine what that’s like.
You already feel like crap. Your self-esteem is taking a hit. You turn to the person who’s supposed to be in the trenches with you and there’s nothing there. They’re like, “Peace. I’m looking for greener pastures somewhere else.” It’s just you. What kind of thoughts were going through your mind? When you would wake up in the day, what was your day like?

Brent:
I was paralyzed, I’ll be honest with you. It’s not like I was like, “Oh, you know what? I read this book and I met this person and everything just turned around and I got back on the saddle and I was riding.” It was like five years of just figuring out how to get by. A good friend of mine, Dustin Monger, who’s an incredible real estate investor, he let me stay. He had a rental property that he was in, and it was just him and his dog. So, he let me stay in his room there. It wasn’t a couch. It’s not that couch story that seems so popular. But I moved all my stuff out of my 4,000 square foot house and I was left with just a few boxes and my bed and I moved in there.
And I was able to get an opportunity with a Remax brokerage that was selling all the REOs, the bank owned properties, and the market went way down in Phoenix and these properties were like 40,000, 50,000. And I was the guy that was answering the sign calls. So, people would call up just on the streets, “Hey, I want to see this house.” And so all day, every day I’d have to drive around town in this beat up old Lexus that my dad gave me a 2000 ES 300 Lexus that was like sand colored, you know what I mean? That had just had terrible hail damage. And I’m riding around in this thing and showing properties and making maybe like 500 bucks, 1,000 bucks after splits trying to do that.
And then as soon as I’d get my head above water a little bit, I’d get a call from the guy’s attorney and they’d be like, “Okay, we’re going to do a financial review. Come in and give us whatever excess that you have.” And it felt like I was going nowhere. And then that’s where it led up to 2013 where I’m listening to How to Stop Worrying and Start Living. I still have it on my Audible. I mean I haven’t listened to it since then. And I decided, you know what, I’m going to just go out and I’m going to knock doors. I’m going to just go out. I know there’s areas, I know this pocket here of properties there’s a lot of fixing and flippers that love this area. It’s still really popular.
So, I’m going to just go see if I can find some opportunities and hope that if I bring it to an investor, they’ll give me a 3% commission. And that’s what I started doing. And that’s how I found my first deal was I knocked on a house and Margie answered. She didn’t want to sell her house, but Carol, the gal down the street, she was a caretaker for it, it was a vacant property and they lived in New York and it was filled with stuff and they didn’t know what they wanted to do. And she gave me an name. She goes, “Let me call her and get the permission for you to call her.” And I said, “Okay.”
She gave me a name, address and phone number. I put that deal together and earned the commission on that. And I realized at that moment, if you give me a name, address and phone number of somebody that owns an ugly house or is in an ugly situation, I can get myself out of this thing. I could do anything. I could really build a successful business. This business and wholesaling and having conversations with property owners that don’t have their properties on the market changed my life. I mean absolutely changed my life. Now we’ve done almost $10 million in income from that, a lot of which I’ve kept because I didn’t build a huge team. Again, I kept it really small.

David:
You went the jet ski model there, but a powerful jet ski it sounds like. So, once you got exposed to wholesaling and you saw what the profit margins look like and how you could do this without all of the baggage that comes from running a traditional brokerage, what were your next steps for picking up steam and building momentum in that business?

Brent:
So, I realized that door knocking in Phoenix was great for my tan and for my waistline, but I was melting out there. It was really hot. Door knocking in August in Arizona is brutal. And I was like, “I need to find air conditioning. I need to be able to get the phone numbers.” And the brokerage that I had joined after Remax had skip tracing. They had this account called LexusNexus. And so we could just put in addresses and they’d give us the phone numbers and then we’d just call them up.
And so I would just drive around town and find the ugliest properties and write down their address. I would just write them down on a pad of paper and a pen, and I’d go back and I’d pull their phone number and I’d just call them and fumble and stumble in the beginning and then kind of figured out a good script that was effective to make people not too afraid to talk to a stranger. And then that’s what really led to the success, because it didn’t cost me anything.

Henry:
No, man, I think that’s phenomenal, because I literally have this same conversation with people about all of real estate is that what you learned is that this isn’t a real estate business, it is a people business. It wasn’t that you were going out and you were finding houses, you were going out and you were finding situations that were attached to houses and then figuring out how to solve those problems. But what’s super cool is that you didn’t have this formal training, you didn’t have some grand plan laid out. You just went and knocked on doors and talked to people. And that seems extremely intimidating for a lot of people for a lot of reasons.
So, what gave you the confidence to just go knock on a door and have those conversations? And then talk to us a little bit about some of the myths that you’ve discovered about knocking on a door and having a conversation about this and how you overcome? Because you said you developed the script, but I’m sure you developed that script because you knocked on a lot of doors and talked to a lot of people. So, what did that process look like of you going from knocking on a door and fumbling a conversation, to developing a script and understanding how to have these conversations with people?

Brent:
Yeah, I love it. They say rock bottom is incredible because it’s a strong foundation. I mean it truly is. What I learned is there’s only a certain amount of distressed property owners in a market. And I talked to Steve Trang about this, and I’ve looked at some of the census and it says 6% to 10% of the real estate market is in distress at all times. So, I didn’t focus on the 94%, I focused on the 6% that were either in distress because of the condition of the property, emotional or financial distress. Those are the three kind of buckets. And so in the beginning, I just looked for ugly houses, just basic, just not even thinking, just looked for ugly houses and eventually they have to sell to somebody. They’re just not financeable for the most part because they’re just in rough condition.
So, they need to take a cash as is offer. And so what I learned first was really laser focus on properties that are in distress. That was number one, because you can waste a lot of time trying to convince somebody that has a beautiful house to sell their property at a discount. It is a waste of time. You’re never going to convince anybody to do anything, and you’re going to go through a lot of heartache having conversations that don’t really go anywhere because people should sell them retail. So, that’s not what I’m talking about. So, you have to filter that down.
The second thing that I found out was in a distressed situation, they’re on Hell Island, and they want to get to Heaven Island, and there’s certain bridges to cross to be able to get there. And I had to go through all those bridges and break down those bridges before it came to my offer. “So, why don’t you list this property?” “Well, I hate realtors and I’m embarrassed and my dogs will bite them and things will happen, and I don’t want to list my property.” “Right. Okay, well, why don’t you rent it out?” “Well, I don’t like tenants.” “Why don’t you fix it up yourself?” “I don’t have money.” “Why doesn’t the family use this as a family rental?” “Well, all the family hates each other and we don’t want to do it.”
So, you go through all these different bridges that would cross them over to getting rid of this distress, until you get to that cash as is offer that we offer as a wholesale offer.

Henry:
I love that. Because what you’re doing, essentially, when you’re having those types of conversations, it’s not just that you’re showing them that your option is a good option for them, but you’re building trust along the way. Because every option you’re showing them actually involves somebody other than you making money in that transaction. Would you say that part of your ability to be able to build trust with the sellers in distress situations had anything to do with the fact that you may have gone through some distress situations back when you had the repossessions and a lot of the issues you were having?

Brent:
100%. And listen, if there’s a better option for them, I want them to go with that better option, because they’re going to do it anyway, right? I mean somebody’s going to talk to them, they’re going to talk to a friend or an attorney or an agent or somebody that’s going to give them a better option to make more. You know what I mean? So, yes, it is, because I went through that and I understand and can have empathy from a real life, real experience, but there’s no trickery in this business. You know what I mean? It has to be the best option for them, or they’re going to cancel the deal, or they’re just not going to sign the deed to transfer title to somebody. So, when I look at it, and what I discovered is there’s three things. There’s speed, convenience, and price.
And the sellers only get to pick two of them. So, if they want speed and convenience, then they have to come down on that price because that’s how you do it. That’s how do inspections and don’t do appraisals and buy it as is and there’s not any repairs. So, when we’re talking to people, talking to these property owners, we go, “Okay, listen, do you want to trade potential equity in this property for speed and convenience? If not, go list the property. Go list it. Go rent it out again, go do whatever else you want.” And it shocks people, that people go, “No, nobody would ever do that.”
It happens every single second of every minute of every hour of every day in the real estate business, is somebody is trading potential equity for speed and convenience.

David:
That is a brilliant strategy when talking to the seller. And I know a lot of people would be afraid to bring it up because their thoughts would be, “Well, I don’t want to tempt them with the idea that they could take this to a real estate agent, because then they’re going to.” The reality is they know that that’s an option. There’s this unspoken battle going on when there’s a negotiation, there’s always unspoken things. Now what the person with the property is thinking is, “I want all three. I want speed, I want convenience, and I want price.”
And they’re trying to navigate this relationship with you or whoever the person is they’re negotiating with, into getting all three things and they’re naive. It’s not going to happen. You understand, well, there’s three things here, and this rule of three, whatever that is, it comes up all the time. It’s like that with contractors. It’s like that with lenders. Is this something that you learned from someone else or is this something that just thousands of repetitions of these conversations led you to realizing this is the way to get to the conclusion?

Brent:
First of all, I learned that from Todd Toback and Tom Krol, and they’re fantastic. I mean when they told me that, it totally made sense. So, it’s not original at all, but from a scaffolding of any conversation with a property owner, if anybody’s nervous because they haven’t talked to a lot of them and they just don’t feel like they know the right questions to ask, it really comes down to pre-qualifying based on the four pillars, which is what’s the condition of the property? What’s their timeline to sell this property? What’s the motivation? And what price do they want? So, the more that I can ask questions around those four things and pull those out of this property owner, the more qualified lead I have. And the more qualified lead I have, the more that I can focus on these people that actually have potential of doing business with me.
And if they don’t have potential of doing business with me, I get rid of them. I move on with my life. But because you talk to so many people out there when you’re being proactive, you get all of these unbelievable people that filter through, and those are the deals that you actually do. So, I think a lot of people just hold on to leads too much because they’re like, “Oh, it’s a lead. I love this lead. I’m going to coddle it and I’m going to keep it here, and I’m not going to push them too hard and I’m going to be really nice and I’m going to bring them sweets and I’m going to stop by and I’m not going to pre-qualify them too much. When they’re ready, they’ll tell me their price and we’ll make a deal. And that never happens.
You need to have the conversation of what is the condition, timeline, motivation, price, and the timeline is the most important thing in that, because if they’ve made the decision that they’re going to sell that property, that’s who you really get in front of. That’s who you really dig in and find out what their situation is and how you can help solve whatever problem that they have. And then that keeps you really focused on the hottest leads that you have in your business. And that’s how you get the consistency to close these deals and get really big deals.

Henry:
Awesome. So, it sounds like you discovered wholesaling when you did a deal. You realized that finding distress, talking to people, is helping you find these deals. You found the people who were going to take the deals off of your hands, generate the income. And so like any good business at this point, it then becomes a question of scale, repeatability. How do I find a way to repeat this? And then really kind of get back to where you were prior to ’08, which is building a business and a team around it. So, you’ve absolutely done that. So talk to us about that transition. What does your business look like today? How did you go from where you were at this point and scale to where you are? And then talk to us a little bit about some of these numbers. What is it that this business is producing for you and how is it different from your business in ’08?

Brent:
I love it. So, once I did that first deal, I’m going to dedicate my professional life to this, honestly, and so from nine to noon every single day, I would just call homeowners. Nine to noon every single day and try to have as many conversations as possible and find as many opportunities as possible. And then that led to doing a bunch of deals, which actually I was able to have a healthy bank account. Actually, BiggerPockets was a huge part of this, because there was a BiggerPockets meetup group at Dave & Buster’s at Tempe Marketplace that I went to. And I invited everybody to come to a Super Saturday, because I was tired of people just kind of being around and just getting theory and staying in an education mode. I was like, “Guys, I want to invite everybody to my office to make calls with me on Saturday morning and we’ll just have a great time.”
And that led to me hiring my first acquisition manager, Billy Bell, because he was doing a part-time and he came in and his third call, he got a $12,000 deal. And I was like, “Okay, this is going to be…” And by the way, that is not common. It takes a while. That’s just a timing thing there. But he was able to get it, and so I started building my business. The best return on investment that I had was making calls and hiring really great callers to make calls when I could afford really great callers. And then that really sped up the process of growing the business. And 1.7 million was the highest that we’ve done, and that was with four people.
And that was with a operator, a lead manager, Jackie, she’s phenomenal. Two acquisition managers, Ryan and Chad. They’re absolute savages. And Jeremy, who is my disposition manager. And now I work two hours in the business a week.

Henry:
So, I’m trying to zoom out here in my mental brain and get the timeline. So, prior to ’08, rockstar, doing it big, brokerage, 80 people. ’08, down to nothing, right? Downhill. Five years passed. 2013, you’re in the car listening to self-help books, boom, epiphany, talk to people. You go start talking to people, you do your first deal 2013. Where is it from 2013 to where you’re hiring these first couple employees. What year is that where you’re having your meetings?

Brent:
Yeah, 2016 was the big year.

Henry:
So, you just did deals on your own for three years, knocking it out of the park and then said, “All right, time to scale this thing.”

David:
So, if you were to give us a rundown of how many properties you have, how much they’re making in a year, what your net worth has grown to, what would you say?

Brent:
So, I have a different strategy rate. I buy my properties cash because I foreclosed on them. So, I’ve got two rental properties, and this is not going to sound amazing, but I’ve got two rental properties. I’ve got a amazing office commercial space here in Phoenix. I’ve got a cabin in the woods in Flagstaff, I’ve got my house. I invested 260,000 into ATM machines, which is a really interesting tax saving strategy. Not like I’m going out putting ATM machines. It’s a fund. You guys had an interviewed Andrew Abernathy who builds Class A storage. I’m an investor in that. Invelo is a partner with BiggerPockets, an incredible technology that I’m an investor in that. And I’ve got my coaching and training businesses and all that. Not to make it a pitch, but I’m at like $8 million in net worth at this point.

David:
I don’t think there’s anything wrong with that at all. It makes perfect sense to me, because you experience the bitter taste of owning a bunch of rental properties, watching how quickly that gets turned upside down and sinks, and recognizing, “I love real estate. I don’t necessarily love the exposure and the mortgages and this side.” And you just decided for you, it’s kind of like food poisoning. You don’t just stop eating food, but you stop eating that food. You don’t want to get involved in that.
You don’t want to eat oysters anymore after you have some bad oysters. So, you’re like, “I’m just going to get into chicken and into steak. And so now you’re investing in other people’s companies, you’re letting them take on the headache of that. You’re taking all the knowledge that you’ve accumulated and your business sense and your love of real estate, and you’re just making money through it. And then not to mention, how well is your wholesaling business doing?

Brent:
Well, that’s it. I mean, guys, I work two to three hours in the business, and that’s mostly on team meetings on Friday. And I get 40 to 60,000 depending on the month and the season and the year passively essentially. And so I think it’s just a different way to look at this industry and a different way to understand that you could build a real business that goes out there and solves the problems of distressed property owners and brings investment into some of these areas and streets. Henry had a conversation the other day about the feel good about solving somebody’s problem. The other feel good is the six S’s that are increased with property taxes when you bring investors onto a street or into a community, right? You’re talking streets and safety and sanitation, schools, services and spaces. It’s wildly rewarding. It is wildly rewarding.

David:
The problem as I see it, is there’s too many people that are operating off of a blueprint that was sold 10 years ago. “Buy four duplexes and retire and live on the beach and have your best life because you worked hard for a year and a half.” And they’re trying to squeeze that round peg into the square hole of what we have right now, and they’re getting frustrated. And it spills over into the comments where they’re pissed off or discouragement or it turns into shame. Like, “That person could do it, but I couldn’t do it. I’m just not good enough.” And there’s this host of negative emotions that’s associated with a strategy that worked when no one knew about real estate. There wasn’t a lot of podcasts, there weren’t books being written. If you didn’t know the old man in town that owned all the deals, that’s was going to show you the way, you just thought real estate investing was impossible.
When everyone in the world thought that every loan was 20% down, those strategies worked. The cat’s out of the bag, it is complicated now. And I’m constantly telling people it doesn’t have to be work a job you hate or buy enough properties to have passive income to retire. There is a spectrum of options in the middle. And Brent, you have highlighted very clearly how you can combine a little bit of business, a little bit of talking, a little bit of a service-based approach, a little bit of commitment and a little bit of real estate together. I just love that you’re giving an example of how you can make it work for you. Henry, you have anything you want to say about that?

Henry:
Absolutely, man. I think that there are a million ways to make a million dollars and even more so within real estate. And what I love that you’ve highlighted, Brent, is that it’s not just about making the money, but it’s about how you protect yourself. And so I appreciate that you’re sharing a story that may not be as traditional in the real estate space, but as far as business and learning and being proactive with how you build a business, I think that you’ve given us some phenomenal information.

Brent:
Thank you. Can I say something controversial? I think you should you have a license to buy rental properties, and to get that license, you have to talk to 1,000 property owners. One, you’ll be able to find unbelievable deals, unbelievable deals, no doubt about it. But two, you’re going to understand what strategy is going to work for you. How are you going to be able to look at all of the different situations that these people have gone through because you’ve had conversations with them, and know what to avoid in your specific marketplace. And I think if you do that, it’s going to save you a ton of the, “I had it all and lost at all,” stories. You know what I mean? Because if it can be avoided, I really hope that it is. But I think that you should talk to 1,00 people before you buy a rental property. And I think that you should consider wholesaling a property before you do a fix and flip, for sure.

David:
All right. That’s fantastic. We’re going to move on to the next segment of our show, and this is a unique segment. We’re going to call this, Don’t Let the Deal Die. In this segment, Brent and I are going to role play. I am going to be a seller here, and Brent is going to try to talk with me to get this deal across the line. In this example, I’m going to be someone who wants to move out of state and I have to sell my primary residence, and it’s going to be Brent’s job to figure out my motivation and my pain point and keep this deal alive. So, I guess, Brent, we could just start it off with you doing the typical ring ring. Yep.

Brent:
Ring ring.

David:
Hello.

Brent:
Hi, I’m looking for David.

David:
This is David Cass, who’s calling?

Brent:
Yeah. Hi David. My name is Brent Daniels. I know that this is completely random, but I was actually calling about a property that I believe you own on 1212 Banana Street.

David:
Oh yeah. How did you know that I own that?

Brent:
Yeah, I’m looking to buy a property in that area, so I just put it on the internet and it came back with your name and number, and sometimes I get lucky and I’m able to talk to you.

David:
Oh, that’s interesting.

Brent:
Have you thought about selling that property?

David:
I don’t know how you heard, but I actually have been thinking about selling, as a matter of fact. It’s so crazy that you called.

Brent:
That’s amazing. And just to let you know, the way that we purchase properties is we buy them completely cash. It’s as is, so you don’t have to put another dime into the property. There’s no real estate agents, any costs there. We pay the title and escrow fees. So, it’s just a clean net offer to you. So, for an offer like that, did you have a price in mind?

David:
Well, I’ve been looking on Zillow and I’ve been kind of thinking about talking to a real estate agent also. I don’t want to give it away, but at the same time, I need to get it sold. I want to leave. This property’s been kind of hanging over my head. You know Banana Street, it’s kind of hit or miss. I’m not really sure. What do you think it’s worth?

Brent:
The condition plays a huge role, and I want to make sure that I can give you as much for your property as possible. So, can you tell me, have you done any remodeling to your kitchen and bathrooms in the last five years?

David:
Well, I have a pretty extensive sense of taste. I’ve got a large collection of roosters that I keep throughout the kitchen. Some are on the fridge, some are on the countertops. I’m not sure if I’m going to include those in the sale yet. It kind of depends on if I want to carry them with me or not. And then also my fridge has been decorated with different magnets I’ve accumulated throughout the years. But I mean, other than that, if I’m just being honest with you, Brent, you seem like an honest guy. It hasn’t been remodeled since we bought it, but it’s got to got that classic feel to it.

Brent:
Sure. And I’m looking at this, it looks like it was built in 1974. It’s about 1,500 square feet, is that right?

David:
Yeah, that’s right. My wife and I frequently talked about making some additions. We were going to add on to it. We never actually did that. So, it’s in its original state.

Brent:
Any issues mechanically? Everything’s working fine. Any issues that I would need to know? Plumbing, electrical, roof, furnace?

Henry:
David, tell him about the air conditioner. You never let me put the air conditioner below 60.

David:
Shh, Henry. Give me a minute. We’re talking business over here.

Brent:
Well, hello, Mrs. David, how are you?

Henry:
Oh, I’m fine. I’m just listening in.

Brent:
Well, that’s great. I’m glad that I have both you guys on the line. I’m going to give you the best cash offer that I can for your property, because I really want to invest in your neighborhood. Typically, we can close these deals, just to give you an idea of timeline, we can close these deals in two weeks to 30 days. Do you think that that’ll be enough for you guys to be able to pack everything up and move?

David:
Wow, two weeks to 30? That sounds really fast. I mean we were expecting it to take about 90 days or so on the market. And what I think that we had wanted to go look at houses out of state, but we were going to sell this one first. What do you think, Brent? Do you think it’s better to sell your house first, or do you think it’s better to start looking for the next one?

Brent:
It’s always great to have a plan on where you’re going to go next so that you’re really comfortable with the decision that you make and the timing in which you make that decision. So, I think that’s a great idea. If you were to sell this, where are you going to move to next?

David:
Well, we’re in Phoenix right now, but it gets really hot in the summertime, and as you heard, I don’t like my wife touching the thermostat. It’s causing some problems in our marriage. We’re fighting about it all the time. The grandkids come over and they’re sweating inside the house. I think it’s good for them because it builds character, but my wife won’t get off my back about it. We really need to move somewhere where air conditioning’s not needed. So, we’re thinking about Fargo probably. We think our money’s going to go a little bit further there is kind of what we had in mind. Did you want to just write us an offer and we’ll kind of talk about it and see what we think?

Brent:
You can buy a mansion in Fargo. That’s going to be really exciting. I mean it’s a big change, but that’s really, really, really exciting. Yeah, I absolutely can put together an offer. I just need to know where you guys are at in price?

David:
Well, Zillow has it at about 350,000. So, we were thinking about listing it at maybe like 345. We’ve heard that the market’s turning around. I heard some talk about interest rates being up, so we don’t want to be greedy, but I was kind of thinking about listing in at 345 and then seeing where it goes. But if you make me an offer, I might take a little bit less.

Brent:
Sure. That’s fantastic. I’m on my computer right now. I’m looking at properties in your area in similar condition that are similar size, and they’re actually going for around 220,000. Is that something that you would consider?

David:
Oh, I don’t think I realized that. That’s a little bit to stomach here. Let’s see. Well, the stuff in Fargo’s only about 150,000, so I suppose that’s not really the end of the world. Well, what are you going to want me to do to the house? Or you don’t want us to upgrade it? Do you need me to fix that jiggly handle in the toilet that we told you about?

Brent:
That’s the best part, David. We take it completely as is. I’ve got my crews ready. They’re going to come in and they’re going to make that house look absolutely incredible and just update it. I’m sure it already looks incredible, but just update it and put it up to 2023 standards. But if we can be around 220,000, that would be a net offer in your pocket. There’s nothing coming out of that. So, I’m not going to come back to you and hit you with a bunch of inspection items.

Henry:
David, we could have 220,000 in two weeks?

David:
Well, hang on a second, hun. Well, let me ask you, Brent, are you pre-approved? Because I’ve been told to only deal with pre-approved serious buyers.

Brent:
And that is really smart advice. But listen, you don’t need pre-approval when you’re buying it cash. This is cash in the bank ready to give it to you. I’m ready to give it to you as soon as you guys are ready to make the decision to when you want to close, when you want to get your money. So, I think it sounds to me that you’ve got some plan to move. You got to find a new place, you’ve got to pack up your stuff. Why don’t we set this for 30 days? We can close in 30 days at a price of 220,000 and then you guys can just be off to Fargo and enjoying that beautiful brisk weather.

David:
We were actually thinking about taking a trip out there pretty soon. Is there any chance that you might be able to close in 21 days, so if we find another property we like, we can use your money to buy it?

Brent:
Absolutely. Absolutely. I’ll tell you what, I am going to be in your neighborhood this afternoon at three o’clock. Why don’t I come by and I can go over the agreement, make sure that you guys are comfortable with every part of the process, and we can move forward and we can open up escrow and get this as done as smooth as possible.

David:
Okay. Wait one second, Brent. Hun, can you make sure that you get the Lysol out and clean down the chickens and the roosters that are on the fridge? We’re going to have company.

Henry:
Not my chickens.

David:
Yeah, just get them in them glistening. We want to make a good impression here. All right, Brett, I do think that that can work. If you could be here at three, we’ll be happy to meet you.

Brent:
Excellent. And so when I come out, is there anything that would prevent you guys from moving forward when I come out? If everything, the price and the terms, and you guys like working with me, if everything is in line there, is there anything stopping you guys from moving forward today?

David:
Well, we don’t want to make any repairs. This is something we just want to be done with.

Brent:
As is.

David:
We want to move on. Yeah. So, if we don’t have to do anything and you can put $220,000 in our bank account in 21 days, I think this makes sense for us and it’s probably a blessing.

Brent:
Fantastic. I am so excited to meet you, Mr. And Mrs. David. This is going to be great. I’ll see you at three o’clock.

David:
Okay. Thanks for calling.

Brent:
All right. See you.

Henry:
Awesome, Brent, that was so much fun. Thank you so much. And you know what? He’s so good at this. I don’t think people realized a lot of the intention behind the tone you had and the questions that you asked. One that stuck out to me as a really big deal is the question you asked at the end. Is there anything stopping you from getting this deal done essentially at the end? That’s something I have not done a good job of doing. And as soon as you said it, I was like, “Oh, that’s a great idea.” Right? So, I love that you were speaking with the end in mind.
Essentially you were saying, “I am coming to get this deal signed. If there’s anything that’s going to stop this thing from getting it signed, let me know what that is now so that I can try to remove that roadblock up front.” Man, I thought that was a phenomenal, phenomenal question. What other intentional questions do you ask? And obviously you changed the words up for the situation, but it seemed like there were some very intentional questions you were asking.

Brent:
Well, first of all, thank you, David. Obviously on most role plays, people go really, really, really brutal. And it’s like in real life, if somebody’s going real brutal, I just move on. Somebody’s not going to do business with you, you move on. So, that was really cool that we could unfold this. But there’s seven parts to the perfect call. The first four we talked about already is condition, timeline, motivation, price. So, that’s what I was asking about. What was the condition? What remodeling have you done to your kitchen and the bathrooms, anything mechanical? And I do that as number one, because people are comfortable talking about their property before their situation or their emotions. And what typically happens, and it happened in this conversation, is once you get the condition and the timeline, they usually, if you do it right, they give you the motivation.
“We want to move, we don’t want to do anything. Fixing up things is a big issue for us. We don’t want to do that.” And then on the price, what I do is I look around and I don’t give you the offer of 220,000. What I said was, “It looks like your neighbors in similar condition, in similar size, are selling for 220,000.” And that’s like the anchor. That’s saying, well, that’s what other people are selling it for is that’s something that they would consider. And at that point they’re like, “No, I would never sell for that. I need at least this price.” And then you could go on to different conversations there. So, we did the condition, timeline, motivation, price. It’s the first four. The next three to really be great on the phone is confirm and approve everything. Oh, roosters fantastic. Oh, magnets, yes.
Oh, you want that price? Great. Fantastic. Don’t cause friction in the conversation by telling them they’re wrong. The other one is to actively listen. And it was kind of tough to do here, because we’re on screen, but it’s like, “Uh-huh. Yeah, sure. Oh, great. That’s great. Uh-huh.” Don’t just be silent when you ask a question because it sounds like an interrogation instead of a conversation. And then the last one is whenever they ask a question, answer the question and then ask a question. Just don’t do that old 80 sales tactic where they’re like, “Well, how much will you give me?”
“Well, how much do you want?” You know what I mean? Don’t just answer a question with a question. That’s old school and people are really annoyed with that. So, answer the question, ask a question. So, that’s really the seven steps, is the four prequel, confirm and approve, active listening, and answer question and ask a question.

Henry:
Another thing that you did well that I think is something to be highlighted is when I chimed in as the wife, you immediately stopped and acknowledged that the wife was there. A lot of the times people just want to talk to the decision maker. They just want to talk to whoever answered the phone. They don’t acknowledge somebody else, but you taking the time to show the respect, to acknowledge the seller’s wife and say, “Hey, I hear you, and I also want to consider your thoughts, opinions, and feelings,” which is essentially what we are doing by doing that, also helps you build that trust. And that trust helps you get deals done.

David:
That’s a very good point. Many times as a real estate agent, I’ve sold one party in the marriage that I’ve been talking to and thought I had a deal, and then the other one wasn’t acknowledged or didn’t get their objections handled or didn’t feel like they were included, and they get in the ear of their spouse and they blow it up. And I’ve learned that lesson that you always have to figure out who are the other decision makers there. And I think Brent, you were getting at that when you’re like, “Let me come to the house and meet both of you.” Build rapport with both of you so I don’t end up with one person who’s an undercover saboteur. That does happen in these deals a lot of the time.

Brent:
And you get advanced agreements before you go on the appointment so you can pull… I would rather know what I’m up against before I go out there, than getting surprised. If they’ve already confirmed that they want this and they don’t want to make repairs and they want to move quick, then that’s the perfect match, and you go and you get that deal.

David:
All right. Well, Brent, thank you very much. That was fun. Thanks for showing us what it looks like in action as well as sharing the story. It’s a fantastic story. I loved hearing it. For people that want to find out more about you, where can they go?

Brent:
My YouTube channel is just Brent Daniels. You can definitely check that out. We put a lot of time and attention and love into that. And wholesalinginc.com. Wholesalinginc.com. We have a ton of downloads and incredible things that you can get there. And those are the two best ways.

David:
Awesome. How about you, Henry?

Henry:
Yeah, as always, man, best place to reach me is Instagram. I’m @TheHenryWashington on Instagram.

David:
There you go. I’m on Instagram as well, and everywhere else on social media @DavidGreen24. You can find me on YouTube as well at youtube.com/@DavidGreen24. Brent, thanks again for being here. This is fantastic. I highly encourage everybody to go learn more about sales, real estate, business and psychology by following Brent. Brent, we’ll have to have you on again in the future. Thanks again, man.

Brent:
It’s an honor. Thank you guys.

David:
This is David Green for Henry my boo Washington, signing off.