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David:
This is the BiggerPockets Podcast show 724.
If you don’t learn lead, you never get to scale. You will always be managing the people that you have leveraged. You will have a high paying enterprise that is probably doing very well financially, but you are still very much involved in. When you get to leadership, you actually are able to influence large amounts of people over shorter amounts of time. You can scale to something like what Chick-fil-A has or you can scale to something like what Ken McElroy has with his real estate portfolio. You can get really good at whatever it is you’re doing and do it and mass if you can learn the skill of leadership.
What’s going on everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here with a special episode for you today where I get to talk more. In today’s episode, Rob is actually interviewing me about scaling a business. Rob, I’m going to hand it over to you.

Rob:
That’s right. We interview you, thy David Greene, the titular host of the BiggerPockets podcast. Man, I’m excited. Like I said, the roles are reverse. I got this pseudo power, I had all this pressure to succeed. But I’m excited, dude. This was a really good episode where I feel this is a masterclass on scaling. We talk about so many good things for people that are really at that level where I guess they can’t get to that next level, they can’t expand their portfolio and we really dig through a lot of the concepts that might help people do that, right? We talk about your three dimensions of success, which break down to learning how to do your job, leveraging other people and leading. This is really, to me, the golden nugget of the day. So I’m excited for people’s mind to be unlocked on air today. What was some of your favorite parts?

David:
Well, everyone listening to a podcast like this, you and I, because we listen to our own shows, the goal is to make more money, have more success, have a better life than what we have right now. It’s very simple. A lot of us have that drive to get there, but we don’t have a direction of understanding how to do it. Or what’s even worse, we don’t understand the factors that are working against us in trying to accomplish it, which just leads to frustration and shame and guilt and this feeling like you could be doing more. So in today’s show, we’re really trying to get deeper into what stops people from having more success as well as layout a clearer path of step one, step two, step three, what it takes to start learning something and then what the next step is and then the next step is. Some of my favorite parts was your commentary. I thought you were very funny today and you did a very good job getting stuff out of me that other people don’t.

Rob:
That’s right, man. Well, it’s always really fun to get into your mind because I’m always exposing how unorganized and not where I want to be. So this is a very inspirational episode. So we’ll get into it here, but before we do, today’s quick, quick, quick tip is brought to you by David Greene.

David:
Today’s quick tip is, if you’re having a hard time figuring out why you’re not making more progress in real estate investing, in business, in anything, it might be because you’re taking the wrong path. Start asking yourself the question of what feels heavy and what feels light. Typically the things in life that we are good at, that we have skills, that fate has blessed us with doing feel light, we don’t mind doing them. And the stuff that we are not good at that we should be leveraging out to other people feels heavy and we can’t stand it. I noticed this is often the case with very seemingly insignificant tasks that I just put off forever because I hate them. Those are the first things that should be leveraged out. Rob, what do you think?

Rob:
I got a bonus quick, quick, quick tip, and that is to pre-order your newest book, David, SCALE. If you pre-order it before February 16th, you’ll actually be entered to win one of 10 seats on a coaching call with you, David Greene, right?

David:
That is right. And a little bonus there, if you order all three of your books and the Top-Producing Agent’s series SOLD, SKILL, and SCALE on the BiggerPockets bookstore, you’ll also get a free month of your exclusive Wealth building Mastermind, which is just like the craziest deal of all times. So if you guys want to be entered in to get all those good bonuses, head over to biggerpockets.com/scale right now and use code SCALE724 for 10% off of checkout. Remember, that’s SCALE724. And if you stick it around until the very end of the episode, you’ll understand why we chose that promo code.
Very good. Rob, you’re getting much better at these intros.

Rob:
It’s called a callback. I read it on Wikipedia. I think it’s supposed to be important.

David:
All right, well let’s get into it.

Rob:
David Greene, you have written five books with nearly 500,000 copies sold. That’s a lot of investors and agents here helping. You’re also the titular host of the BiggerPockets podcast, the biggest real estate podcast in the world. We know you, but David, who are you and why are you here today?

David:
Well, that’s the first time I’ve ever been called titular, I can say that. Well done.

Rob:
I’m pretty sure I used that correctly. I honestly don’t know.

David:
I mean it sounded intriguing at least. People are Googling right now, like how do you spell that and what does that mean. We should let you host more often. You’re going to come out big words like this.

Rob:
That’s my SAT word of the day right there.

David:
Who am I? I am much more like our average listener than I am like your average influencer. So I was a blue collar guy. I started working in restaurants when I was young. I went to college, didn’t know what I wanted to do, got a psychology degree. My very last year in college, I switched to a criminal justice minor, ended up getting into law enforcement. Did that for a while. Kind of saw how negative the relationship between law enforcement and the public was going. Realized I didn’t want to do that until I was 50. Started investing in real estate.
I had just been really good at saving money for a long time and then I started learning how to invest that money. Caught a wave of inflation that really helped with rising rents and increasing property values. Learned strategies like the BRRRR method and long distance real estate investing. Built myself some wealth, became a millionaire through real estate and didn’t even know it until I was around like 30 years old when I actually started to track my net worth and then said, “Okay, this was really hard to figure all this out. Let me start writing books for other people to teach them how to do it.” So I got out of law enforcement, became a real estate agent, learned the hard way how to just make money being an agent at all. Then I became a top producing agent. So I was the top in the office and I was one of the top in the country. And then I built a team to take over the agent business I had called the David Greene team and I wrote three books for BiggerPockets on those.
So I’ve written SOLD, SKILL, and now this newest book, SCALE, which is teaching real estate agents how to be good at their job. And then we mentioned the BRRRR book and Long-Distance Real Estate Investing.

Rob:
I’m glad you clarified that because initially we were talking about I thought this book SCALE was about how to scale a fish and turns out not that I was like, “Wow, that’s a big pivot, David.”

David:
You know what’s funny, a big part of the SCALE format is comparing fish, catching the fish, cleaning actually within business. That is an analogy I rely on heavily in the book. So it’s funny that you came up with that.

Rob:
So I’m not completely off. We’ll, we’ll get to that analogy a little bit later because I’ve heard you talk about it. That’s always a really good one. But tell us, how does it fit in with your other two books? Because you have written a couple of books here. Is this sort of the final one? Is there more in the series? Is this the culmination of your grand catalog of books?

David:
Not of books, but for the top producer series with BiggerPockets that was written for real estate agents it is. So the dirty secret in my opinion, subjectively speaking in real estate sales, is that most agents are terrible. I don’t think it’s that big of a secret because you hardly ever find a person who says, “My agent crushed it.” Even the best agents, you’re frustrated the whole time. Just it’s hard to be good at it. People don’t understand what the industry is like as a real estate agent. It’s not really architected or engineered to be beneficial for both parties. So it turns into a much more adversarial relationship with the investors or the clients and the real estate agents that it should be.
So the book SOLD was written just to teach agents what I wish that when I had had a broker that would’ve told me. No one tells you how to start a business, how to work a database, what scripts to use, what your job is. They don’t tell you how to use the MLS, they don’t explain anything. Let me tell you how to open a lockbox, you got to figure it all out. So SOLD is written just for the new agents who aren’t making money and don’t know why. That’s just to get you profitable.
SKILL was written for the agent who knows how to be an agent but wants to become elite. They want to be a top producer, they want to make good money. No one becomes an agent to just make average money. You just keep your W2 job if that was the case. So SKILL is all about excelling at your job, delivering a really good listing presentation, having a buyer’s presentation, how to talk to clients, understanding what I call the sales funnel, which is the five steps of taking a person and leading them down a process of becoming a lead and then a client, and then an escrow and then a closing, and the actual work you’re doing in between every step to just give some direction and doing really well.
And then SCALE was written for the person who wants to take a job they’ve become very good at and turn it into a business. And at that point, you can either turn it into semi passive income, much like owning investment property. You own a business and other people are doing the work and you are managing that business. Or, scale it huge. Now that I’m not having to actually write the contracts and talk on the phone to the buyers, I can open up expansion teams in different parts of the country. That was probably the most fun book to write because the principles in this apply to not just real estate agents, but to business owners everywhere including real estate investors.

Rob:
Yeah, I’m excited. We’re going to dive into your writing process a little bit and actually ask you a little bit of the nuts and bolts of what it’s like to be such a prolific writer. But before we get into all that, I do want to ask, I know that you are a man of many businesses. You’re a renaissance man of real estate, you got a brokerage, you’ve got an agent team. The book may seem like it’s framed for agents, but knowing you and how you are so prolific with your metaphors, I just wanted to ask, how are we going to tie this to investors who don’t care about scaling their agent business? There are other people that this applies to, I’d imagine, right?

David:
Yes, it’s absolutely true. The reality here is I only learned how to create a real estate agent team out of a job using the principles that I had done with my portfolio. So long before I had ever created a real estate agent business, I had created an investment portfolio that is a form of owning a business. Being a real estate investor is being a business person. You are gaining assets that produce income. You’re trying to control expenses. Instead of looking for clients, you’re looking for properties. You’re constantly leveraging the workout and trying to find a better team. You’re looking for better property managers. You’re looking for better lenders, you’re looking for better loan opportunities. You’re looking for better locations to invest in, for better agents to help you, for better handymen.
So much of our lives, like for you, focusing in short term rentals is controlling expenses and controlling the customer experience and trying to systemize the things that come up a lot without handing complete control over to another human being that can run it into the ground without you seeing it. You could call it a game, you could call it a challenge. There’s different words to use there, but it’s a pattern that pops up in any form of business. If you’re Alex Hormozi and you’re starting gyms, if you’re Rob Abasolo and you’re buying short-term rental properties or running courses to teach people how to do it, or you’re David Greene starting a mortgage company or buying my own rental properties, these patterns reappear over and over and over, and the books are written to help the people who are just starting to get into this to recognize the pattern when it first comes and get a head start on creating a process to systemize these challenges that come up so that you can run a profitable business.

Rob:
Business. Yeah, I think one of the things I’ve learned over the past couple years is that without systems, scaling is effectively impossible. Or I guess, scaling efficiently cannot be done without systems, right?

David:
That’s absolutely true. If you don’t understand how to implement systems, and then the next step is actually make the step forward to fail at it. No one starts a system and immediately has the perfect system on the first try. Nothing in life works that way, but yet that stops a lot of people from doing it because they know they can do it better themselves and if they do it with someone else. If you don’t do that, you never get to the point where you can own more than a handful of rental properties.
So take you as a short-term rental investor, I’m a short-term rental investor. Actually, this is a really good analogy. If you’re someone who starts off like you did Rob and you’re managing them yourself, full-time, you quit your job, you don’t have a family, the ideal situation, how many of those suckers can you effectively manage at one time in a portfolio?

Rob:
Five to 15.

David:
Right? There you go. Depending on the area.

Rob:
How good you are.

David:
Depending the guest is and how good you are, right?

Rob:
Yeah.

David:
But even then, if it’s just you, even 15, if you have no help, no admin help, you just have software and you, it’d be very difficult to manage 15 short-term rentals, coordinating all the cleaners yourself, not having any form of administrative support. To do a good job, you’ll probably capped somewhere at that, like five. A stud could maybe do 15, right? So you cannot scale if you do things yourself.
When I bought mine, I had watched the process that you were going through and that other people had went through, and I just said, “I’m never going to manage these. I’m going to hire a property manager right off the bat to deal with this type of stuff.” And I put a strategy together to accumulate them in a way that I could rely on property management to run it effectively. You can’t just leverage any property to a property manager and trust they’re going to do a good job. The location, the asset type, the type of tenant that’s going to be visiting the property manager themselves, they all go into this.
So I was able to buy about… I have 12 functioning short-term rentals right now that I forget exists most of the time unless I’m talking to the bookkeeper and looking at the numbers right out the gate versus the process that someone else who doesn’t understand business scaling would have to go through. It would maybe take years of managing it themselves, trying to get someone else involved, failing, trying again, buying too many, selling a couple off. It’s this very slow process to get to the point where what they want is financial freedom in a big portfolio.

Rob:
Yeah. Yeah. Well, let’s just dive into a system really fast because I think we say this word a lot. We say systems, processes, and automations quite a bit on the podcast. I think a lot of people probably just who… There’s like two types of people, right? The really organized type A person and then there’s like the creative, everything floats in the ether kind of thing. So for me, when I hear system I freeze up because I’m like, “Ugh.” But it’s really not that complicated of a concept, right? So what exactly is a system as you define it?

David:
A system is made up of two pieces, and I talk about this in SCALE. Everyone gets the first one and then they mess up on the second piece. This is why people have a hard time with systems. The first thing that makes up a system is an order of tasks or a checklist of things that need to be done. It’s that simple. So if I’m selling a house, a system would be a list of all the tasks involved in getting a listing. First I guess it would start with getting the listing presentation ready for the client. And then once the listing agreement is signed, there’s a process of getting the house ready for the market. And then once it’s on the market, there’s a series of tasks for keeping the seller updated and marketing the property to buyers. And then when it goes into escrow, there is a series of tasks involved with completing all the paperwork, negotiating and bringing it to close.
Okay. So there’s like four steps to the system of selling a house. Every single thing in business has a series of repeatable steps. If you owned a restaurant, I could outline for you the system involved with what the cooks are doing to cook the food, who’s ordering the food, the waiters have a process of how they’re supposed to put the order in and make sure it goes to the table and bring the customer their check. It’s a series of tasks that are repeated all the time.
The second piece to a system is what everyone gets wrong. Most of us understand we need to write out all the tasks that are involved in the job. The second part is having a person that can execute it with skill. What I see is people make the task and they hand it to an admin who doesn’t have skill in that area and it all falls apart and they say, “Yeah, systems don’t work.” When you’re the person doing it, you’re usually doing it well, which is why if you have a series of tasks and you then follow them, you’re your own system. In order to scale, you have to take those two pieces and you have to bring other people in to do the job. And that’s what I found the challenge in business has been.
I’m very good at outlying a series of operations that need to be done. I’m very good at anticipating where things will go wrong and even putting training in place to prepare, but it doesn’t matter if I don’t find a person who’s good at accomplishing those tasks. You actually still have to be good at things in life if you want to be successful. And that’s the second part of a system.

Rob:
Yeah, man, you really nailed that on the head. I mean, it’s two things, right? It’s delegation of this kind of written out system you talked about, but it’s also some level of management is still needed to that person because a lot of the times people tend to empower employees too much at the very beginning and they sort of leave. They come back and then they get mad that the employee failed, but there was no oversight to make sure that the system was perfected.

David:
Yeah, and that the person who was working through the system understood the importance of it. So let’s say for you, you own an Airbnb, you’re managing it yourself and you get a customer who’s unhappy because the hot water isn’t coming out of the shower, okay? You are not just thinking your job is to get the hot water turned on. That’s how a person who’s not taking responsibility thinks.
A person who is taking responsibility thinks, “My job is to make the client happy so they leave a good review when they come back. And a part of that is getting the hot water turned on, but that my responsibility is to not just solve a problem or check a box, it is to achieve a result.” And that’s the best way I can describe what responsibility within business looks like. If you take the approach of, “My job is to accomplish a result, to find a cash flowing property, to add equity to a property, to keep a guest happy, to increase rents,” you take a much different approach than when you’re just working off a series of checklists where the client calls and says the hot water’s not working.
Well, you call the handyman, they go out there, they fix a thing, you check the box, you pat yourself on the back and you say, “Hey, I did my job.” But you don’t ever talk to the client, you don’t apologize, you don’t see how they’re feeling, you don’t dig in. And then they leave a one-star review and the employee says, “Well, not my fault. Not my problem. It’s not my house. I did my job.” That is what’s hard about scaling, is you have to have, it’s funny, a system in place to check the people that are working your system, and you have to make sure that their heart is in the right place so that they are perceiving their responsibilities with the same level of responsibility that you as the owner would have.

Rob:
Yeah, so effectively you’re basically saying you want your employees to not look at things so binary, so black and white. There has to be a little bit of, I guess compassion or empathy for the employer or for the owner of that business to make sure, I don’t know, that your vision is being executed correctly, right?

David:
Yeah, they have to care. They have to give a crap would be another way to put it, because the person visiting your Airbnb isn’t going to think, “Well, this was an amazing experience except for the hot water. That’s only chalked up due to one employee that works at the company. I’m not going to punish the owner by leaving a one-star review because of one bad apple.” All they know is they’re not happy and they want to let everybody else know, “Don’t stay in this place because you might have a similar experience.”
A lot of the advice I’m writing about in books like SCALE is for the person working in a company that wants to get ahead, that wants to own their own business someday, or wants to make more money within that business and they don’t understand the power of responsibility. Every business owner out there has given us a hallelujah amen as they’re listening to this, right? Every person who’s an employee might be baffled or confused. So many human beings have come under this delusion that avoiding responsibility is winning. I don’t know that our industry as real estate investors has done much to help. There might have even been… It might hurt it because a lot of the time real estate investing gets sold as the alternative to hard work, the alternative to working for the man and being a slave for someone else. It paints this picture that if you get out of that world and you come into this one, you just buy a couple houses and you’re done, you can do whatever you want. It’s actually the opposite.
Responsibility increases when you take over the asset that you’ve invested your money into. It is more pressure that is on you to perform better at this job. And the best way that people can prepare for making more wealth themselves is to take on additional responsibility where they’re at. It’s kind of like adding more weight to the bar when you’re working out. Building up your strength, learning how the systems work, not just what your job is to do, but why your boss put that system in place, what problem they’re trying to solve. Understanding that will equip you way better when you start building your own portfolio, you start buying your own houses, you got to take the call from the unhappy guest and you realize, “Oh, there’s more to this than just getting that water turned back on.”

Rob:
Sure. Yeah. Well, I think that begs a really important question, right? Obviously knowing your strengths are important, but knowing your weaknesses is probably even more important. So how do you evaluate that as someone that’s looking to scale in the real estate business?

David:
Understanding your weaknesses is the biggest thing. So your weaknesses not only will… We tend to look at that and think, “Well, that’s where I’m going to make mistakes.” That is true, but that’s not the most dangerous thing in a weakness. Your subconscious is very aware of your weaknesses even if your conscious isn’t. And so what happens is we will avoid putting ourselves in situations that we know will expose a weakness even if putting ourself in that situation might be very profitable.
So if you’re a human being who knows I haven’t really done enough research on this topic like I should have and you’re invited to speak at a meetup, that might be very beneficial to your business, you’re going to get all the eyeballs on you. You’re going to opportunity to teach the people what you do. Let’s say that you’re a loan officer, that’s a chance you could pick up some clients that you could close loans for and make money. But you’re not paying attention to what’s going on in the market. You’re just checking boxes for someone else working a system they made and you’re not actually making an effort to learn how the whole process works. You will have an insecurity that comes from your weakness of not having enough knowledge. And what will happen is you’ll decline the invitations to speak at the meetup and you won’t ever realize how much money you lost by not taking action.
We always notice the money that we lose that was already ours. Something goes wrong, you got to fork over a guest another five grand. It sucks. You hate that. But you never realize the money that you could have made had you taken more action or been more decisive or had more confidence. That’s where your weaknesses are really hurting you. So understanding what they are, being honest with yourself, and then finding other people or other software or other systems to accommodate those will sort of allow you to take the steps that you need to take to scale and make more money.

Rob:
Yeah, that makes sense. So one of the big, I guess, pillars or one of the big topics and fundamental philosophies of SCALE is the purpose of leverage. I know that that’s obviously important, right? If you want to scale, if you want to get to millions of dollars in real estate in your portfolio, leverage is going to be a very necessary thing. So talk about a little bit. What does that mean? What is leverage? And how does leverage fit into the grand scheme of real estate?

David:
Well, if you think about just using a lever to pry something open, it’s really a… What’s the word I’m looking for? Like a physics type of a concept. You take a really long bar and that can be used to generate more energy than if you just try to use your hand to pry it open. If you think about the Pirates of the Caribbean quote with Johnny Depp, that, “Leverage! Leverage!” And they use it to do things that normally one person couldn’t do. There’s different ways that you can utilize that same concept in your business. The one we talk about all the time kind of become synonymous with the word leverage is money. I’m going to buy a $500,000 property, but I’m only going to use $100,000 of my money or my strength. I’m going to use $400,000 of the bank’s money or the bank’s strength. And there the leverage of the bank allows me to buy a property five times bigger than what I could have bought on my own.
The same thing is true of human capital. You get administrative assistance, you get property managers, you get real estate agents that are working with you and growing your business. You get handyman, you do contractors. If you had to do every single thing involved in buying real estate just on its own, no one would ever buy a house. We’d have to learn how to read title reports. We’d have to learn how to secure financing on our own. We’d have to know all the rules and regulations and paperwork involved in a transaction. We would have to be able to inspect a house on our own. You see where I’m going? No one could ever buy a property if you had to do everything yourself. So you’re already using leverage when you buy. When you become a business owner and when you’re scaling, you are getting intentional about learning how to be better at using other people, other software, or other money to do things you could not have done on your own.

Rob:
Okay, so it sounds like the way you’re breaking it down is leverage is two things effectively, right? There’s leveraging money, which is like you said, taking $100,000 and using that to get a $500,000 loan with the bank. You’re using other people’s money to help you scale your portfolio that way. And on the second part, what it sounds like is you’re really leveraging time, right? That’s what it comes down to. You as a single operator cannot physically do everything that it takes to run a 5, 10 unit portfolio, but you can leverage other people’s time to help you leverage sort of an infinite amount, right?

David:
You can use other people’s competence to help you do things. So if I use a home inspector, I’m not just getting the time back of inspecting a home. I’m saving years and years and years of experience that I would need to be able to do what that person does. You can leverage other people’s skillset, right? I might have you have a phone call for me instead of me because you can get to the end result faster. You can leverage other people’s knowledge. That’s what we’re doing on this podcast. People are listening to us and learning things that they would normally have had to lose money to learn. But by listening to us, they’re saving themselves the money, the pay and the time, the heartache of having to do it themselves. So we are all leveraging all the time. It’s nonstop, right? I’m leveraging the convenience that Google creates and allowing me to search for things quicker or store things in the Google Drive. Scaling is just about recognizing we’re already doing it and becoming better and more purposeful about ways you can do it more efficiently.

Rob:
So it kind of goes back to the strengths and weakness thing, right? Because you understand what you’re good at, so what you’re good at is going to give you the most leverage whenever you’re using your strengths to, I guess, run towards your goal. And if you’re really weak at something, if your weaknesses are, let’s say like you said, your skillset may not be needed on the phone call but you bring someone else’s skillset on there to get you to that end goal, then you know that it’s important to leverage someone’s competence. So really it seems like strengths and weakness identification is a pretty pivotal moment for you, right?

David:
Yes, that’s a great point. Some of the tools I use for that that I talk about in the book and in other places are the DiSC profile. So that’s a personality assessment trait that will help you identify what people tend to value in communication. Because what I found is what you communicate is what you value, and it’s almost always your strength. We don’t communicate in areas of our weakness, we communicate in areas of strength. So when I can identify somebody else’s mental makeup via the use of a tool like DiSC, I give myself a huge advantage in knowing what area of my business they would be better in. There’s certain profiles that work better for sales or for management or for analysis or for driving a project forward. That’s just a tool that can be used as you’re trying to understand what strengths and weaknesses are with different people. And the wise investors out there that are trying to grow a big portfolio, they’re already doing this even if they don’t recognize it.

Rob:
Yeah, definitely. So it sounds effectively like systems, identifying weaknesses and strengths, leverage, they all sort of tie into the end result that we’re all trying to get to, which is success. I know that one of the big things you talk about in the book is that there’s three dimensions of success, right? So walk us through that concept and what does that mean for the everyday investor?

David:
So this was something I had to learn the hard way. I became a real estate agent and my immediate frustration was there’s no one to teach me how to do this job. I actually had my license, went to the office, met with people, came in and had a question on how do you run a, we call it a comparative market analysis, just like how do you look at what the act of pending and sold properties are, nobody would help me. And I was so disenfranchised I spent six to eight months after that never going in the office again. I was just pissed. Like, “This is no point. My broker sucks. Nobody’s supporting me here.”
I finally had a cop friend who came to me and said, “Hey, do you want to sell my house?” And I had told him I would. I almost felt obligated to go take this listing, which as an agent is the best thing ever. We fight mad to get listings. That’s, “Anyone listening, please come to me if you want to sell your house.” So I had to call a friend and have him show me how to use the MLS to even run a CMA to figure out what I should sell his house for. It was not a good experience for me. And then once I learned that, now I had to learn how to negotiate.
I remember on that first deal I made this really big mistake where I got the buyers to waive their appraisal contingency, but they still had an inspection contingency. And then the appraisal came in low. I was really new, and so I just thought like, “Well, they have to pay what they said they were going to pay for. They don’t have an appraisal contingency.” But the agent made something up about poop in the backyard from the dog as the reason they were backing out of the deal, but then told me, “Hey buddy, you don’t know what you’re doing. We have an inspection contingency, we’re going to use that to back out.” And I was like, “Oh, that’s evil. You’re lying,” right? But I just was naive. I didn’t understand how the game got played. So I went through this process of having to learn a lot of things the hard way.
I first started reaching out to my database of people in my life that I hadn’t talked to for six or seven years and my first conversation was, “Hey, I’m a real estate agent now.” Bad mistake That’s like when your friend that you haven’t seen since high school wants to talk with you about a multi-level marketing opportunity, you’re immediately just like, “Ugh, I don’t want to talk to you. I don’t like you anymore.”
So I went through this process of learning. This is the first dimension of success. If you just consider a spectrum with zero on one end and 100 on the other with 100 symbolizing perfection, all of us are in some capacity learning how to be good at our job. It’s knowledge and the execution of that knowledge. So learning how to be a good basketball player, learning how to be a good snowboarder, learning jiu-jitsu, learning how to be a good barista, whatever it is you’re doing, there’s people that go to work every day and give a half-hearted effort and don’t really move along that spectrum very far so they don’t make more money. And there’s people that go to work every single day and push it as far as they can trying to get to 100.
So for you, Rob, I don’t know because we’ve never talked about it, but I would be willing to bet when you were a copywriter or you were in advertising, you showed up every day trying to learn from the people that were good at it, trying to gain as much knowledge as you could from the mentors that crushed it there, really giving your best effort. If you’re in the gym, you’re working out to failure every single day because you want to get stronger and you got better and better and better and better at the job and gain more skills. The first dimension of success is just committing to the process of being good at what you do.

Rob:
Yeah, it seems like there’s also a little bit of… It’s sort of like this funny juxtaposition of success is learning how to do your job. But a really big part of learning how to do your job is failure, right? It is the failures that make us successful. So that was a big part of my advertising career where I would always see the rock stars at the agency and I would go and sit next to them and, “Hey, what’s up? What are you guys talking about? You guys got any ideas? Can I share my ideas?” And they always say in advertising to fail big, right? So it is a very awkward and very uncomfortable thing to walk into a room and present a really crazy idea that you know will never get accepted, but you still do it anyways just to gain a little respect with the peers in the room that you put it out there. And it’s through that that you kind of get better.

David:
Yeah, through failing you get feedback, which is something in the next book I’m writing about, I talk about the feedback learning cycle, where the quicker that you put something into process or you start something, there’s a process, then you get feedback on how it went. The quicker you can get to feedback, the quicker you can adjust the first two steps. And you actually improve how quickly you can learn by proactively putting yourself in a position like you just mentioned, right? So these are all stuff I read about in books that are about, “Hey, you want to be better and get more money? It starts by getting better at your job.”
Money doesn’t just come to you, you’re not owed it. No one’s going to go find a great deal and hand it to you because they feel bad for you. That’s not the way the world works. You want to get better at learning. Well, what I realized as an agent was I got to a point where I was selling probably 40 houses a year and I could not do anymore. It was barely hanging on to be able to sell 40 houses a year. And I realized I had to get other people to help me, but I didn’t realize that that was a completely new process where I would be starting over at zero.
So I talk about the second dimension of success is leverage. Leverage is all about developing the skill of creating systems and managing other people to get them accomplished. I knew I needed to use people. What I didn’t understand is I had hit the hypothetical 100 on the learned dimension, so now I have to go in a new dimension. I’m going up. If you imagine Mario running across the screen left to right, that’s the first dimension. Now he can jump, that’s the second one. But no one told me I’d be starting at zero, that I would hire people and fail, and hire people and fail, and hire people and pour and pour and pour into them and continue to fail.
It’d be similar to if you were running a rental property and you were managing it yourself and you got to the five short-term rentals and you couldn’t do anymore. And so you just hired someone and said, “Hey, here’s what you do,” and they ran it into the ground and you just thought, “Oh, leverage doesn’t work.” It’s because you don’t understand that there is a skill to leverage also. You start at zero and you have to build up to 100 on this new dimension. Nobody tells you that. So a lot of people get to that point and they quit. They’re like, “Well, I tried it. It didn’t work. Not for me. I’m just going to quit.” But you didn’t quit when you were learning. You made tons of mistakes when you were learning. You just expected that that was part of the process of moving along that dimension. You have to go and humble yourself from being at 100 to starting over at zero and making a lot of mistakes as you learn the skills of leverage, the second dimension.

Rob:
Now you mentioned that you capped out at 40 properties as an agent, right? Understandable, right? We only have a finite amount of time. But as an investor, is there a cap there as well on how many properties you could buy? Is there any kind of bottleneck on that end as well?

David:
There is, and that’s why the government created the 1031 kind exchange because I had a similar thing happen to me in my investing portfolio. I was using the BRRRR method in northern Florida and I was acquiring properties sometimes at the point of four to five a month. I was able to get that done with the construction crew I had and the agent that was finding me the deals. I had a bank in place that I had a line of credit where I could fund these and I knew how to analyze the deal to make and buy them so that I was pulling 100% of my equity pretty much out of these deals. I had a property management company to manage them, but when I hit about 50 single family rentals, there came a point of diminishing returns. Every day it was some email of something that went wrong with one of these 50 properties or several of them.
The cash flow on single family houses is not what you hear people talk about. It’s maybe 300 a month, 350 a month on most of these, but then it just takes one bad tenant having to be evicted, that two years of cash flow can immediately be gone. So you’re not making nearly as every time you think you’re getting ahead, something goes wrong and breaks and it comes back and I realize, “I’m not getting the cash flow that I want out of this.” The properties are not appreciating as much as they would be in other parts of the country. It’s not fun because every day I’m coming in, I got to solve some new problem. Property managers can take some of the sting out of maybe 10 or 15, but when you get to 50, you’re still making decisions and following up and all of a sudden now I didn’t want to own the portfolio.
So I sold those homes and I reinvested. I probably sold half of my portfolio, reinvested it into half as much real estate that costs four times as much. That’s a great example of using leverage and capital as well as leverage in business to get out of a situation that was not able to scale any further and into a new one, these short-term rentals that I mentioned earlier, that are much easier to manage.

Rob:
Yeah, well it is kind of funny you’re talking about leverage or I guess your bottleneck here on the real estate side. Capital is a part of it, but there’s also just the actual organization and operations that can really cap you out too.

David:
Yeah. And so at a certain point, I’ll probably keep scaling up on short term rentals. Maybe when I get 50 of those, then I’m going to sell on 1031 into some mega properties or an apartment complex. But yes, you hit this ceiling. Whether you’re investing, whether you’re a real estate agent, whether you have a pool cleaning business or an auto repair shop, there is a limit to every single person where you hit a ceiling and you can’t go any further. The principle that repeats over and over and over is you now need to learn a new skill. You cannot keep doing the same thing you’ve been doing and keep getting good at fixing cars or repairing them or cleaning pools. You have to learn a new skill in leverage to get into the second dimension. The people that do that get ridiculously, exponentially better returns. You make a lot more money when you can have six or seven people out there doing the work that you were only able to do yourself as you manage them, but there is a ceiling that you hit and leverage as well.

Rob:
Yeah, leverage is hard. This is a tough one. I finally unlocked it for myself. But I think where the trap that people tend to get into is with leverage, you’re talking about leveraging other people a lot of the time, right? And so what it means to have other people on your team is one really big thing. You got to pay for them. You got to pay for their time. You got to employ them. And that means when you’re first getting ready to scale and you’re turning that corner like I am right now, you are going to make less money by hiring those people. But as soon as those systems are in place and everything starts churning, you’ll actually make a lot more money in the long run because they will be able to effectively do everything that you could never do by yourself, right?

David:
Yeah. But the point I just want to highlight, that’s how we tell people, that is how it works when it works. The process of getting there is not as simple as we made it sound describing it. And it never is. We tell people, “Here’s how you analyze a property” and they’re like, “Cool, I got the calculator. I got the information. Let me just go out there and analyze properties.” And they do it for three months and they can’t find a cash flow property. Well, that’s the reality, is it’s hard to execute on the information that’s being given unless you figure out a skill. You learn an area where properties are more likely to work. You figure out how to add value to a property, add rental units to it that will make a duplex into maybe three or four units instead of two.
Now, that’s a skill that you figure out that now opens up doors and allows you to scale faster. So leverage is the key, but you’re going to start over at zero. It’s okay. You just have to have humility and know just like I sucked when I was learning how to do it, I’m going to suck at leveraging how to do it as well, but if I stick with it, I will learn this just like I learned how to do it myself.

Rob:
Yeah, yeah. Okay. That’s a very beautiful way to put it. I think it is important to say easier said than done. You got to sort of fail at this, right? You got to learn the job of leveraging to do that well as well, right? So it all kind of ties together. So we’ve got learn how to do your job, leverage, which is maxing out and sort of using other people to help you scale your operations, and then we’ve got the last one here, which is lead. Tell us about that.

David:
Lead is the third dimension that you have to learn if you want to scale a business. So if you look at learn is running left to right on a spectrum on a plane, and then leverage is going up and down, lead would be going further out. It’s literally the third dimension of a cube. Leading is probably even harder than leverage. It’s the hardest of all of them because leaders have to anticipate things where other people can just respond or react to something going wrong. Leaders have to literally influence the emotions and the psychological state of the people that are working for them. That becomes their job.
So you know what this is like Rob. You’ll have a person who’s very good, they’re trained in what you need them to do. You’ve learned leverage, you’ve executed it. You have a person on your team that’s handling let’s say all the customer complaints or they’re analyzing the deals that you might want to buy. You’ve gone through all the growing pains of teaching them how to do it. You finally hit a rhythm and now they say, “Hey, I think I want to go start my own business. Hey, I think that I want to start a family. Hey, I just don’t feel like my heart’s not in this. I was listening to Simon Sinek and he was telling me that there’s more to life than just a job, and now I want to know what are you offering me to give me purpose in life.”
That’s the type of thing leaders have to now deal with. Or when I’ve got several different people that are all doing the same thing, but this one’s doing it better and making more money and this one isn’t making as much money but they don’t think that they’re not as good, how do I keep everyone happy and working on what they’re doing? It’s very difficult. You need to learn psychological skills. You’re going to be taking on problems that no one in the company wants. So the only problems that make it to the leader are the ones that every single other person has looked at and said, “Nope, I don’t want any part of that. I’m passing that one along, okay?”
If you’re a UFC fighter, you are only fighting the toughest people in the world. You don’t get easy ones anymore. And leadership is a dimension a lot of people never get into because they’ve already started over after learn, they’ve gotten leverage down and now they got to do it again. That third dimension is huge, and so they just don’t want to. The problem is if you don’t learn lead, you never get to scale. You will always be managing the people that you have leveraged. You will have a high paying enterprise that is probably doing very well financially, but you are still very much involved in. When you get to leadership, you actually are able to influence large amounts of people over shorter amounts of time. You can scale to something like what Chick-fil-A has, or you can scale to something like what Ken McElroy has with his real estate portfolio. You can get really good at whatever it is you’re doing and do it and mass if you can learn the skill of leadership.

Rob:
David, you make me a better man, my friend. I love this. I really, really, really do because it’s three things, the three dimensions of success. Learn how to do your job, leverage, lead. It’s so simple, but as you explain it, it’s so funny how I can see all the fundamental cracks of my business. I’m like, “Oh, that.” It’s because I’m trying to do it all at once, but it really is starting over from the top. And I think the reason it’s hard to ascend to that next dimension or getting to lead is exactly what you said, which is humility, which is like, “Why do I need to start over? I’ve already cut my teeth on this. I’ve already perfected my skills. Why do I have to go back to the very beginning and sort of suck again?” right? So I really appreciate that. This makes a lot of sense. So help us contextualize this because I can see how this makes sense from a practical business standpoint, but what would it look like for a wholesaler to implement the three dimensions of success?

David:
So the first thing they have to do is learn, “How do I find motivated sellers?” Because you’re not going to get a wholesale deal in a contract if you don’t have a seller that needs a quick sale or they’re willing to sell for less than market value because there’s so many people involved in needing a profit that the margin has to be really big for there to be enough to go around. Once you finally find out how to get the sellers, now you got to learn a new skill. You got to learn how to talk to them. You got to have a really good mouthpiece. Pace Morby well-known for this. We just interviewed Brent Daniels, Jamil Damji. You’ll notice all three of those guys got a silver tongue. They know how to make you feel good. They are very, very, very skilled communicators, okay? The typical wholesaler that’s like, “I have no money, so this is the strategy I’m going to use,” doesn’t have communication skills, they’re not going to do well in the business. So that’s a thing that has to be learned.
Once you’ve got those two things, now you have to learn how to create a funnel where deals keep coming in and you keep putting them in contract and you find an end buyer to give them to. So you have to have the skill of building up a buyer’s list. You’re probably going to need to be able to explain to your buyers what the ARV is and you’re probably going to have to solve some of their problems. You’re going to need construction, handyman crews, different referrals, lenders that will work on properties that don’t qualify for conventional financing. You probably have to accumulate all these pieces to hand to your end buyers so that they’re going to be willing to work with you to close the deal.
Then you got to learn how much money to spend on whatever your marketing efforts are and how to read a P&L to make sure that you are selling for more than you’re spending, okay? That’s a lot of crap that a person has to get good at to just be a good wholesaler. The leverage side would come in where now you are teaching other people how to have the conversation with the sellers at close to 80% of as good as you did, which is hard. It was hard to learn how to talk to sellers. Now you got to convince an employee who doesn’t have an ownership in the business and maybe just wants a job, they don’t want a business like you, how to be good at doing that to effective.
Now you got to teach other people the marketing techniques that you’ve used and hold them accountable to making sure they’re getting the phone ringing as much, okay? You have to leverage off the pieces of that business that you got good at. You got to train a bunch of other people to be as close to as good of it as you were. But if you can do that, you can probably be wholesaling a couple hundred deals a year instead of 10 to 12.
And then the last piece would be leadership. For a wholesaler that wants to get into leadership, they now can franchise their model and say, “I’m going to teach…” Like this is a… What was that? We Buy Ugly Homes. I think that’s one of those, right? They turned their model of marketing and getting properties under contract that were ugly into something that you could now pay them to be a part of this group and they get a chunk of your profits, but they can do this across the country. Or you can take your whole selling technique that works in Houston, Texas where you’ve crushed it, and you can go to Miami, Florida or New York or Southern California and you can use the same systems but adapt them to another market so you can have five wholesaling enterprises all with a bunch of leverage in each one. That’s like a practical application of how these three dimensions would work in a normal business.

Rob:
Love it, dude. I want to ask you how it applies to a flipper because it’s really cool to just hear you break it down so quickly like that. But I know we’re getting to the end of time. Not the end of all time, the end of the time on the podcast. Anyways, before we end here, I actually did want to ask you about your fish cleaning versus fish catching analogy, because I remember when you told me this, you kind of melted my mind a little bit about it because it’s just kind of a really cool way to sum up what business is and basically how one scales, right? So walk us through that and how it applies to scaling your business.

David:
So this is a mystery to people that just have had jobs, they’ve never owned a business, because to them all tasks are the same, okay? Like getting a sale, completing the sale, administrative work, sweeping the floor. It’s all just stuff that has to get done and they go through it with varying degrees of enthusiasm. But when you own a business, you start to see very clearly, “Oh, there’s actually two completely different parts here.” There is a component of catching a fish, getting it out of the water and into the boat that involves a set of skills, knowing what lures to use. This is sales and this is marketing, okay? The skill of setting the hook, that’s sales, like being able to close. Then once it’s closed, the ability to reel it in and get it in the boat without the hook coming out or the line breaking. That’s like your follow up once you’ve got a verbal commitment. And then getting it out of the boat and into the live well. Okay, now like the money’s in the bank.
Once you’ve done that… Or maybe not the money’s in the bank, but the contract has been signed, right? Now, you have to go clean this fish and turn it into a filet that can be sold on the open market because nobody wants to just go buy raw fish, okay? They want a dinner, they don’t want to buy a fish. So when you own the business and it’s just you doing the job, you’re doing all of that. You’re gassing up the boat, you’re spending your capital to buy the boat, you’re launching it, you’re trying to figure out where the fish are. You’re figuring out your own bait. You’re trying to get the fish to bite. You’re setting the hook, you’re getting it in the boat. You catch a couple of them. Now you stop fishing. You got to go all the way back to the dock, launch your boat, get out, clean these four fish, figure out some way to get them to market, get your money for the fish, and then go all the way back and start catching fish again.
The key to business is understanding there are certain tasks that you do that are inherently more valuable than others. So if you look at this fishing example, catching a fish is by far the most lucrative thing you can do. Cleaning the fish, gassing up the boat, sending the fish off to the market, that is something that is easier to leverage because it’s less valuable. So if you had a fish cleaning business, the goal would be to learn how to be as good of a fisherman as you could to where you’re catching so many fish that you couldn’t keep up with it.
The first position you hire for is fish cleaning, which is what I call operations. You split it into sales and operations. Sales is getting a fish in the boat. Operations is getting that fish cleaned and turned into revenue. Your first hires are on the administrative side, they’re on operations for any business. It doesn’t matter what it is, you hire people to do the easier task and they get paid less money because those tasks are less challenging and don’t require as much skill. As your fish cleaner has so many fish to clean, they can’t keep up, maybe you hire a second one and you give them two different tasks. “Okay. Your job is to cut off the head and the tail, your job is to filet.” And you sort of create this assembly line, which is what Henry Ford figured out on the operation side to be efficient.
And then you also simultaneously want to scale out your sales side. So there’s you fishing, but what if you brought another fisherman with you and they fished on the back of the boat and you fished on the front of the boat and you could theoretically catch twice as much fish and you gave them maybe 25% of the total catch or something, right? So they have some incentive here to try to be good at catching fish also, but that person’s going to make more than the fish cleaner.
There’s a couple lessons there. If you’re trying to get really good at operations and fish cleaning, don’t expect to be really wealthy. It doesn’t mean that it’s bad. Not everybody in the world cares about wealth. We need fish cleaners in the world. But if you’re listening to this podcast, you’re trying to figure out, “How do I get out of the place I’m at? How do I get more money?” It’s learning how to catch the fish. It’s learning how to find the deal. It’s learning how to put it in contract and own it. It’s not learning how to be a good manager or a good bookkeeper or a really good… I don’t know. I can’t think of another example of what happens in real estate, but not all jobs are the same. But you do create an org chart as you get better and better at catching fish. And then the more people that come in, the more specific those jobs actually become.

Rob:
Yeah, there’s a reason that sales and the people that bring in the money to the organization tend to make really the most, right? They tend to be the most compensated, right? Because they’re the ones catching the big fish. So thanks for breaking that down. And that ultimately brings us back to the very reason that you titled the book SCALE for fish scales.

David:
That’s it.

Rob:
I knew. I knew. I knew there was a reason, man. Well, before we go, I want to do a very fast author deep dive. I’m going to ask you three questions, fire round style, and I just want you to answer them very quickly for everybody at home. Is that cool?

David:
Yes.

Rob:
Okay. Starting with question number one, who are your book heroes?

David:
Jay Papasan, Gary Keller, Cal Newport, and John Eldredge. They all write so succinct and so solid that every time I read my old books I’m like, “You suck because you’re not nearly as good as them.” With each book I write, I become a little better at being succinct and clear. I think my writing style now is remarkably better than when I wrote long distance investing in BRRRR. But I compare myself to the best of the best of the best that I can find to always be trying to grow in my… On the learn scale, I’m still learning how to be a better author.

Rob:
Well, if it helps, when I read your books, I actually do feel like it’s you narrating the words. So you’ve got that down. I think that’s the most important trait right there.

David:
So you’re saying I’m just as long-winded when I talk as I am when I write?

Rob:
That’s what you said. You’re extrapolating that from what I said.

David:
I appreciate that.

Rob:
Go clean a fish. What is your favorite writing food or beverage?

David:
All right, so writing is actually incredibly difficult. It’s easy to write a book, it’s very hard to write a good book. And so it is very important to be caffeinated for me when I’m writing if I want to maintain the levels of focus that you have to continue to try to articulate points in a clean way that is persuasive and actually conveys nutrients or knowledge. So I started drinking, these are much better than just a normal energy drink, they’re these Sparkling Ice+Caffeine. Of course, the people that are health nuts out there are going to be screaming, “That’s still not healthy!” I know. It’s not, but I can’t stop and go to Starbucks in the middle of writing. That’s like an hour of time wasted. I have to have something in the fridge here in my office.
So I’ll drink those to stay. I’ll just kind of sip on them all throughout the day. I don’t hammer it all at one time. I will often eat corn nuts. I’ve got these right here because there’s not too much sugar and not too many calories in those things. But if I have to stop writing to go get food, it is very hard to get back into it. It’s kind of like when you stop running to tie your shoe and the last thing you want to do is start running again.

Rob:
All right. Or whenever there’s like a stop light and you have to stop, and so you just jog in place just waiting for it to turn green.

David:
Yes, it’s the work, right?

Rob:
And everyone’s just like, “We get it, bro. You run. Just chill.” All right. Lastly, what is your process? Run? Write? Cry? Repeat?

David:
Yeah, something similar to that, man. My writing process, I’ve done this enough times now that I’ve created a system for it, right? And now I am much faster at writing most books. This one I’m working on after SCALE has just been a humdinger. It’s a very difficult book to write, but I think it’s going to be the best book I’ve ever. It’s going to help more people than anything. I’m really excited about it.
But the process is basically I brain dump every single thing that I think should be in the book onto a Google document. So for SCALE, I’m thinking about everything that a person would need to turn a job into a business, and then everything that a realtor estate agent would need to know to do that well. And a lot of it is not just the information what they should do. It’s actually highlighting the enemies that are going to make it hard to do it. Because telling people what to do is not hard. You could tell someone how to go get a short-term rental. It’s very simple. The execution of getting it is completely different because there’s things that pop up over and over and over that prevent us from succeeding. It’s not hard to know how to have a six pack, it’s hard to eat the right food. That stuff is what you’re really trying to master when you’re trying to get good. So I will dump all of it out.
I will then go through this big old list of stuff and I will group it into categories like, “Okay, all these concepts are kind of the same. Let’s create that.” And I create these buckets or categories that are all somewhat related. I then take those and I turn them into chapters. I then look at all the chapters I have and say, “Is anything missing?” Once I decide there’s nothing missing, I put them in the order that I think will have the strongest emotional impact. So you don’t want to start the book off right away telling people how to set the hook on a fish. You got to have them understand the idea is that there’s fish catching and that there’s fish cleaning is the difference.
Once I’ve got the chapters in place, I then break it into all the subpoints that I want to make in that chapter. I’m actually pretty, pretty thorough with my outline. And by the time I have an outline, I basically have a book. It’s then very easy to just go through my outline. I don’t hit writer’s block if I’ve done it well and I just turn every little subpoint into a paragraph or two.

Rob:
Wow. Well, a peek behind the green curtain. As a reminder everybody, if you go to biggerpockets.com/scale, you can pre-order the book right now and use promo code SCALE724 for 10% off at checkout. Remember, that’s SCALE724. And that is the amount of scales that are on a fish. That’s how we got to that promo, SCALE724.

David:
That’s pretty funny. And if you have a real estate agent in your life that you want to help, these books can be a lifesaver for them because they’re struggling and they just don’t know it. It’s very frustrating turning the job. There’s a lack of mentors. There’s a lack of direction. These books are written to be the mentor I didn’t have, as well as all the information I’ve used teaching David Greene team agents how to do their jobs accumulated for other agents. If you buy all three of the books in this series, we’re also offering a one month free membership into my Wealth Building Mastermind. So that is worth way more than the cost of the three books.

Rob:
That’s a crazy deal. That’s a crazy good deal. So go over to biggerpockets.com/scale and use promo code SCALE724. David, before we get you out of here, where can people find out about you on the internet? Where can people connect and do all that good stuff?

David:
They can find me @davidgreene24. Also, if you’re kind of on the fence about the book, I would recommend that you just go to Amazon and read some of the reviews of my other book, see what people think about other things. Or they can follow me on YouTube, also at youtube.com/davidgreene24. You’ve got me much deeper into the YouTube world, Rob, and I appreciate you for that.

Rob:
Hey. Hey, happy to be here.

David:
Where can people find out about you?

Rob:
Oh, you can find me @robuilt on YouTube or on Instagram. But honestly, I think if you heard this podcast today and you were like me where you were sort of your mind was melting and you’re like, have a more clear understanding of how to scale, do me a big favor. Go leave us a five-star review on Apple Podcasts or wherever you download your podcasts so that our podcast can be served up to millions more people to help them scale their real estate businesses. Do that for me and it would mean the world to me and Dave.

David:
Amen.

Rob:
Well, awesome. Well, I’m not even going to try the call sign. So do you have a call sign? Can you close this out? I know I’ll fail miserably.

David:
All right. This is David Greene for Rob, my favorite fish, Abasolo, I’m glad I caught you brother, signing off.

Anders Danielsson, CEO of the construction and development company, says that also applies to the commercial development market, but infrastructure is expected to be stable for most of Europe.

By Tonika Bruce, CEO of Lead Nicely, who helps startups, nonprofits and leaders WIN with unique & innovative marketing and business strategies!

The success of any business venture depends on two factors: the goals and metrics for defining that success. One of the goals is customer success, which starts with understanding why and how customer success is critical for growth.

Customer success goals might be straightforward, but the real deal lies in metrics. For entrepreneurs already on top of one or more of these CS metrics, monitoring business success will be easy.

Here are five customer-focused metrics that reflect the performance and true health of a business:

Customer Loyalty

Once the business gets off the ground and starts attracting clients, loyalty is arguably one of the most important objectives to focus on. Customer loyalty is reflected in the retention rate. Tracking retention rate will indicate the number of customers that consistently use a company’s product or service over a specified period and—in the case of merchandise—repeat purchases.

The actual number of loyal customers can be calculated with this formula: Retention Rate = [Number of customers at the end of a specified period] – [Number of new customers in the period] ÷ [Number of customers at the start of the period] x 100.

In other words, the retention Rate is the number of retained customers divided by the number of customers at the start of the period x 100. The last step will give you the percentage, which you can use to easily track improvement.

Net Retention Rate And Average Rate Per Customer

Closely related to customer loyalty is the net retention rate. While customer loyalty measures the number of clients that stay with the company, the net retention rate tells of their purchasing power.

Customer loyalty is an excellent foundational customer success metric for a new business to track. However, net retention must be considered down the line as it is more comprehensive. For instance, net retention will tell you how many customers have upgraded or downgraded their product use. These factors can indicate when a customer is about to stop using a product.

In addition to the net retention rate, the average rate per customer speaks of the company’s customer value. While the number of customers matter, one business may have high-value customers while another has low-value customers. You want to be in the former category. To gauge the average customer value of the business, divide the total revenue collected from customers by the total number of customers.

Churn Rate

The churn rate is another success indicator when it comes to customers. Simply put, churn rate is the flip side of customer loyalty, showing the number of clients a business has lost over time.

In SaaS, the churn rate is the number of people unsubscribing from the product, considering product or service satisfaction generally drives the churn rate.

Notably, a high churn rate is a critical telltale sign that the business may not be providing value or the retention strategies are not working. Further, these retention strategies may include activities along the customer journey, such as onboarding, customer support and promotions.

As with average rate per customer, churn rate is another excellent way to determine the value each customer brings, helping you to assess the difference between losing a client paying $200 and one paying $1,000.

To get the churn rate, use this formula: Churn Rate = [Number of lost customers] ÷ [Total number of customers at the start of the period] x 100.

Is there an acceptable churn rate? All businesses lose customers at some point, even the most popular and robust ones. The big question is how many losses can you incur before you enter the red zone. According to Hubspot, an acceptable churn rate is below 8%.

User Statistics

User statistics or analytics indicate customer success in using the product or service. A business can determine its user cohorts (i.e., groups of users with shared traits) by analyzing the user data inside the website or product.

Analytics show the company’s health at a finer scale by revealing how customers adopt, interact and engage with the key product features or, in the case of goods, the types and categories of goods. Entrepreneurs using tools like customer relationship management technology understand how vital this metric is to the growth of the business and customer success in the long term.

Customer 360: Tying It All Together

At the core of customer success is the customer. That’s why gauging the health of a business takes interacting with metrics around the customers. With that said, a Customer 360 touches on all of these metrics and more trackable data and solutions that give businesses information about the customer’s interaction with the business at any point—past, present and even future.

While it takes sophisticated tools to gather consistent, accurate data, a Customer 360 is the single source of comprehensive insight into all the relevant information, which includes but is not limited to:

• Product usage history

• Purchasing history

• Transaction history

• Length of time as a customer

• Survey history

• Inquiry history

• Next purchase or renewal

• Contract value

The goal of customer success is revenue growth, but it is also worth noting that customer success is customer-focused. From these metrics, the business owner can tell whether that’s the case for their business.

Dave:
Hey everyone. Welcome to On The Market. I’m your host, Dave Meyer, joined by Seahawks super fan James Dainard. What’s going on James?

James:
I’m just, I woke up so early and I was excited for the day. This is a good day.

Dave:
You’re just a kid in the candy store today. Could you tell everyone why you’re so excited?

James:
Well, we have two awesome people coming on. We got Devon Kennard, and then we have Cliff Avril, which I’m a huge fan of. I actually think Cliff’s one of the most underrated pass rushers that played during that era. He was dominating before he went out of the league, and I’m just a massive Seahawk fan. The only thing we got to get on, we have to get Kam Chancellor on. That’s, I did reach out, so you never know.

Dave:
Maybe now, at once we’ve done this, we can send him a link to the episode and be like, “This could be you.” I don’t know if that would inspire him, but maybe we can show him that other people and his former teammates are doing it too.

James:
Yeah. Big hits, that Kam is known for big hits, but yeah, I’m stoked. This is it. It was a fun, great show and I’m just, anytime we bring on athletes, I sign up, put me in. Put me in coach.

Dave:
Yeah. It’s awesome. I mean, the conversation is so good. They really have some applicable lessons and they’re obviously athletes that come from the world of professional sports, but everything they say really applies to general investing and people, a lot about being a member of a team that I really thought was really interesting about how knowing your role on the team and building a team around, what you’re good at and augmenting and supplementing your skills.
So I think it’s super interesting. They’re really great investors and it seems like they’re doing some incredible stuff right now. So we talk about all sorts of stuff, everything, how to get started, how to vet syndicators, what they’re doing in today’s current market. So I think you’re going to really enjoy the show. Was there anything in particular you think people should listen out for?

James:
No, I agree. Just building that team and then sticking to what you know, and I did also like how they’re going over their performance and how they know that they’re responsible to evaluate that asset and to punch as many holes in as possible in it. So just saying it doesn’t matter who you are, we’re all following the same rules and the same basics.

Dave:
Absolutely. All right, well let’s get into it. But first we’re going to take a quick break.
Cliff Avril and Devon Kennard, welcome to On The Market. Thank you both so much for being here.

Cliff:
Thanks for having us. Thanks for having us, and I’m looking forward to this conversation.

Devon:
Absolutely. It’s a pleasure man. Thank you for having us.

Dave:
All right, well for those of our listeners who don’t know you, could each just introduce yourself and give us a little background with both with football and with real estate. Cliff, let’s start with you.

Cliff:
Oh wow. 10 year NFL vet, pro bowler, Super Bowl champ, beat some of the y’all Broncos and I’ve been retired for five years now and I’m living the dream through real estate and some of the things that I’ve learned through the NFL and in applying it to the real estate game.

Dave:
Awesome. Well thanks for being here. What about you, Devon?

Devon:
My name is Devon Kennard. This is my 9th year in the NFL going into 10 next year. I’ve been investing in real estate since my first year in the NFL. I own 22 properties and I’m also a limited partner in a number of syndications. So I love real estate, I love playing football and I’ve had my fair share of dubs in the 12 land too. So I see James with Kam Chancellor jersey. I remember those days. I got some dubs that way.

James:
Well, you going to get dubs on us there, did you?

Devon:
No. When I was in New York they got us there, but-

James:
Oh, I was there for that game.

Devon:
Yeah. It was one of my first years in the league. Actually, a funny story, I remember Marshawn Lynch ran over our bit of linebackers and I was right outside with my fam running smooth over.

Cliff:
Welcome to the NFL.

Devon:
[inaudible 00:04:16] over my first, it was my rookie season and I’m like, “Oh my goodness. Yeah, I’m here now.”

Cliff:
Was that Super Bowl year? Was that Super Bowl year? I think that was Super Bowl year. Huh?

Devon:
I think it was, bro. I’m turning the playback with my right shoulder in the middle linebacker having clean in the hole, Marshawn runs them smooth over. I just remember Quinn did, that was one of my first big memories. I was like, “Yeah, you got to lower your pants on Marshawn.

Dave:
All right. So I’d love to just start with learning about how you both got started in real estate. It sounds like you both have built impressive portfolios. Cliff, I’m curious, were you investing while you were still in the NFL or has this sort of been since you retired?

Cliff:
No. Yeah, so I was an investor in real estate throughout my career while I was in the league through different syndications and funds and different things like that. And that was my first taste of getting into the real estate game from an investor standpoint.
I had purchased some homes, actually one of my best investments was my very first home that I purchased from my mom. That’s pretty much doubled in price that we still own. But yeah, I was an investor while I played and then I decided once I retired, to dive deeper into it and start building my own portfolio, because once you read in between the lines of those syndications and docs, you start seeing all the fees that are associated with it and kind of change your mind a little bit and say, “Hey, let me see what I can do myself and see how I can keep some of those returns for myself.”

Dave:
And what about you, Devon? You’re still in the NFL. What inspired you to get started when you obviously have a full-time job?

Devon:
Yeah. I think for me, it started actually when I was in college, coming into college I was a top five-star recruit, top defensive end, outside linebacker in the country, and I had a lot of injuries while I was in college and it made reality set in. So where I was like, “What am I going to do if football didn’t work out for me?” So I started to have mentors and connect with different people and real estate stood out for me.
So after my rookie season in the NFL, I started to get into syndications. I got into my first syndication, but I always wanted to balance the two. I thought syndications were a good way to build passive income, but I also wanted to build my own personal portfolio.
So I started going to different meet ups in the off-season after my first year and I bought a single family property in Indianapolis from a turnkey provider. And that was kind of the first property that got me rolling and I’ve just kind of kept stacking from there.

James:
How did you, because real estates, I mean it is definitely what I invest only in, I’m kind of a one-dimensional investor. But as where a lot of athletes go to the NFL, they get these bigger contracts or contracts and then they sit down with these financial planners and there’s so many different investment platforms out there.
I mean, we’ve seen just investing across with a financial planner or crypto’s been really big the last two years. We’ve seen a lot of in athletes kind of endorse that.
How did you guys select? Why real estate with all the different platforms out there? What made you zone in on real estate? I know for me, it was about why I wanted to own, what I was investing in and that’s what got me into my first deal at 19. But why did you guys zone in on it?

Cliff:
For me, being out here in Seattle, I’ve been fortunate and blessed to meet quite a few individuals that are very successful. Whether you’re talking about the CEO of obviously, CEO of Zillow and all these different individuals and you meet them all. And one thing was common, they all own real estate. They might have not been in the business of real estate, but they all owned a lot of real estate.
And I would always ask questions and obviously the tax benefits, the cash flow, all these different things. I’m like, “Man, if the wealthy people are doing that…” Because out here I joke around all the time and say, “It’s athletes, if you’re in some of these smaller markets, you might be the top earner in those cities, but here in Seattle you might not come top 3000, 4000.” You know what I mean?
So being around all those folks that are doing better than you, it exposed me to the real estate game and just understanding that how valuable it can be. As you know, taxes are always going to be probably some of our biggest expense. So if you can mitigate them through different ways of investing and making money, why not? So that was my approach and how I got into it.

Devon:
Yeah. I would say I definitely agree with that for myself as well. But when I first got into the league, I had a financial advisor and it was mostly a traditional guide who was trying to get me into stocks and all that and do what everybody else was doing. And I was looking at it and I came into the NFL with a vision of like, “I wanted to create enough income to where when I’m done playing, I can sustain my life off of the income that I have generated.”
And all the investments I was recommended and getting me into the stock market seemed was speculative. It was going up, it was going down. I wasn’t pocketing anything. And I was like, “This isn’t helping solve the problem.” That I feel like we have as professional athletes, you played for a certain amount of time, you get out of the NFL, what income do you have coming in? And the stock market didn’t seem to solve that problem for me.
So that’s where I started to look outside of my financial advisor, listen to other mentors, listen to BiggerPockets and read books and I’m like, “Real estate was kind of the solution.” And I kind of had to teach myself because I didn’t know a lot of people in my position who was really building out primarily real estate portfolios to build their portfolio and create their wealth. So it was kind of trial and error to be honest.

Cliff:
Trial and error works in this business as long as you take steps. That’s huge though, I would agree. Trial and error, it just taking the steps, going back to what Devon was just saying, as far as for all of us athletes when we first get into the NFL, NBA, everyone’s pushing the financial advisors, and I have one and I’ve been with him for 15 years now.
And what I appreciate about my financial advisor, which I’ve come to realize is very different from a lot of other ones, are one, he teaches you what you’re investing in. Two, he’s not like… Most financial advisors don’t want you investing outside of them because obviously they don’t get paid with the capital that you deploy in other assets, but my guy is very much behind that.
He’s very much behind helping me understand from a tax perspective being a CPA as well, helping me understand the value of investing in real estate, how to capitalize and making sure that you’re being efficient in how your business is running. So for me, my experience has been a little bit different from a financial advisor standpoint, but I do hear a lot of stories of financial advisors kind of pushing you away from real estate and diversifying your portfolio.

Dave:
It’s so funny you say that. I have been looking for a financial advisor myself and spent honestly months just looking for anyone who could have this kind of conversation with me about real estate. Just like a casual, you know what I’m talking about, the difference between a syndication and a house flip. And I found five of them in the entire country, they just don’t exist.

Cliff:
It’s hard man.

Dave:
And it’s so weird, right? Because honestly stocks and bonds, it doesn’t vary that much and there’s this whole industry that help you customize your portfolio, and what are you really customizing? You’re buying index funds, whereas real estate is actually hard and you need to customize it a lot, but there’s not a lot of people out there to teach you how to do it. But I guess that keeps James and I on a job, so that’s pretty good.

Cliff:
But it goes back to what I was saying though, right? They’re not compensated for things outside of what they present to you. So most won’t do that. That’s not a great business plan for them if you think about it. You know what I mean? Most of them won’t even try to learn that aspect of it because it’s kind of taking money out of their pockets.

Devon:
I think that’s very key because as I had gone through different financial advisors earlier in my career trying to find a good fit. That became a rule of thumb for me, is if I bring some of the deals that I’m doing and I’ve evaluated them and I know they’re pretty sound deals and all of this and I’ve presented to them and they’re telling me I shouldn’t do that or I should only do what they have, that is automatic red flag because you’re not giving me unbiased advice anymore.
You’re slowing me towards everything that you have, and if it’s not from you and your group and your fund, whatever, then you’re kind of telling me it’s no good. And that’s just not the case many, many other times. So finding somebody who’s going to be open and transparent, and I think that’s the long game.
So my financial advisor now, his mind says more so like, “I’ll help you evaluate things you’re doing outside of me because if it’s successful, it’s going to increase your revenue, increase your net worth, which is then going to have more money to that I can potentially invest for you down the line.”
So having someone who has that long horizon in mind and isn’t just trying to get the immediate win with just do what I tell you type of deal, I think that’s really important.

James:
Yeah. The overall big picture of the client, right? Because we work in the client side of the business for real estate. It’s, well I mean what people should be doing is diversifying and investing in all different asset classes. That’s the safest way to do it. I don’t do that because I seem to lose money every time I put it in anything but real estate. But I think that’s called the sell away, right? In a lot of these big firms, when you sign up as a broker, you’re not allowed, you’ve signed a sell away agreement, you’re not allowed to offer other investments from what I understand, maybe I’m wrong there.
And so as you guys started getting into real estate and you’re talking to financial planners and then you chose real estate, it sounded like both of you invested in a syndication deal first or so you’re investing in someone else’s processes, which is kind of a scary thing for a lot of investors when they’re making that first step. I know even for me, I did some passive investing the last couple years, where I invested in other operators, which I’ve never done before and it was kind of nervous.
So as with you guys getting new into real estate and you were just learning, how did you make that first selection of which operator you were going to put the money into? How did you vet that person? Because there is a lot of, you hear stories, I think there was one out a couple months ago where it was an athlete suing an operator, an investment advisor because they gave him bad advice and there’s a lot of bad advice and there can be bad deals out there and you got to be kind of cautious. How did you guys take those steps and vet through that?

Cliff:
For me, I’ve kind of just over time created criterias of why or who I’m going to invest with, because at the end of the day you’re investing in the jockey. I do some private equity investing as well and different things like that. You’re investing in the jockey, you’re investing in the operator, but in knowing that, now you got to do your due diligence of what their resume is. And I’m going to always be able to go back to football as analogy and it’s no different.
You get this first round draft pick that you just, you’re going to look at his film from previous years to see why you’re going to draft this guy. So it’s no different with individuals that I work with. I need to see your resume just like I assume and I hope that you’re going to do the same with me as far as for what I know in the real estate game if you’re going to invest with me.
And so for me as I was going it was referrals, it was references from different individuals. Okay. Do you work with solely athletes or do you work with other individuals? That plays a big role for me too. If you only work with athletes, I don’t want to work with you. You know what I mean? Because there must be a niche there and there must be some kind of ignorance or something. I don’t know what it might be. So I need to know all the different individuals that you’re working with as well.
So for me, it’s just I have a criteria of different things that I look for. Also, again, my financial advisor are very involved with that as well. They’ll go to meetings with me and poke holes through some of the pitch decks and different things that people might have for us and we kind of come collectively as a team and figure out if this makes sense to invest or not.

Devon:
Very similar for me as well. I always say all stars hanging around all stars and it’s relevant in football and I think it’s relevant in business. So when I meet someone and I have a mentor or someone that I have some type of business relationship, “Who are you dealing or doing deals with?” They usually have the best recommendations.
The guys who they’ve made the most money with, the guys, they’ve had the track record. So I typically start there and then I start to evaluate and ask questions, “What are you looking for in this deal? Why is this a good deal?” And then I start to get various deals with myself and I bring it to one of my mentors, my financial advisor, and I usually have two or three people, especially early on when I didn’t know what I was doing and I send them the decks and I’m like, “What do you see? Is this a deal that’s similar to the deals that you’re doing? What’s different?”
So when it comes to syndications, I started to get an understanding of what… People always talking about high fees, what’s a high fee? What’s a fair fee? What’s over speculative? Are they factoring in repairing maintenance? Are they hiking up REITs way higher than is realistic?
I start to gauge these things based on conversations you have and what other people are looking at. And then you build that and it’s like, “Okay, now you kind of have an idea of what to look for and you have people who can come to help you vet it.” And that doing that meticulously over and over again, you start to get in a good rhythm and can really see there’s trends on good deals and there’s trends on bad deals and you can decide pretty quickly the good from the bad.

Dave:
That’s super good advice. I think that a lot of people when they start investing in syndications, I was like this, “Err.” A little, I was overwhelmed and I sort of just took people at their word at first because I was like, “Man, they know so much more than me.” And I was a little bit afraid to ask questions or to try and poke holes in their business plan, but you should do that.
And James, you’re an operator. I assume as an operator you want investors who understand what they’re getting into and want to ask those types of questions and make sure that they’re a hundred percent on board with your business plan and know what they’re getting themselves into.

James:
Oh yeah. That’s a big red flag for me. If someone just comes and says, “Hey, I want to give you money.” Because they have heard stories about us or seen us grow. We slow everyone down, because not only do you have to punch holes, I mean every investment has holes in it, no matter what it is. It could be the greatest deal in the world, but there’s holes there and you have to look for those, and then not only that, when I’m talking to operators or when we’re as operators, we know what those holes are already and we try to address those immediately.
Because as operators it’s really important to explain the risk, because you know what? How it’s put to me is you want people when… Everyone’s happy when things are going great, right? When 2020 to 2022 is going on, everybody’s happy. The problem is with investing their cycles, they lay go up and down and when you have to get in a foxhole because you’re in a bad cycle, you want those like-minded people in that foxhole with you, because the worst thing you can do is jump out of that foxhole and then the whole thing collapses, and the whole ship goes down. And so you want to make sure that you have like-minded people in these investments.
So as operators, we’re also interviewing our investors. If all of a sudden they freak out, then that’s not good for the whole ship and we can’t have that thing sink. So you have to be like-minded because also other operators offer different things. Some are short-term high yield investment guys and that’s great for what maybe an investor’s trying to do because they don’t want to be in a deal for five to 10 years.
There’s guys that are only in deals for five and 10 years. The syndication deal I invested in, they said they plan on never selling it. It’s like, “Hey, just be under the pretense. We’re never selling this one.” And I was okay with that because we’re still going to be able to get our money back out after we refi. So just making sure everyone’s on a like-mind is really important.

Dave:
So one question I get a lot about syndications and then we’ll move on to some other stuff, but it’s how to get deal flow? Especially when you first started, how do you find syndications? So I know you both are probably higher profile than the average On The Market listener, but I’m just curious, how did you start getting deal flow in syndicators and finding people that you ultimately did trust and decide to invest with?

Devon:
Well, I’ll start. I mean I’ll say on that you would think, guys are getting tons of syndication opportunities, but there’s not too many guys I know who invest in a ton of real estate syndications to be honest. They get a lot of exposure to REITs and different things like that from their financial advisors, but pride meets syndication, they’re not a ton of guys in the locker room that I’ve been who are in the kind of deals that I am in. So that’s one to start.
So for me, when I first started getting into them, I was looking around like am I doing something wrong because I’m asking people and talking to guys in the locker room and not a lot of people are in these kind of deals. So that that’s my experience. And how I started to finally deal was again, goes to all stars, no, all stars.
Who’s investing in these kind of deals? And who are the syndicators that you’re working with? What kind of deals? And then you start to create trees of different people you’re networking with, that are investing in syndications. What deals are they getting into? Who are the main people running these deals? And you build relationships with these different syndicators and it grows from there.
So I feel like there’s a really organic way that you should go about it and asking people who are doing it, what deals are you doing, what syndicators are you working with, how successful have they been for you? And then going from there.

Cliff:
I would agree as far as for the locker room most times and not guys aren’t thinking about investing or guys aren’t thinking about real estate syndications and different things like that. One, guys are young, they’re not processing it like that. But I was fortunate enough to, when I got to Seattle in particular, I was fortunate enough to be around guys like Marshawn, Michael Bennett, Richard Sherman, all these different guys that were like-minded when it came to investing in what we’re going to do with our money.
Marshawn say, “Man, you got to count your chickens.” That was a thing in the NFL. In our locker room as the veteran player, for me, when I used to walk into the locker room, we had 6:00 AM workouts and stuff. Myself and Michael Bennett, we controlled the speakers in the locker room and the first thing we’re doing, we’re playing Rich Dad, Poor Dad. We’re playing different books and audio books or whatever, making sure that guys understand, like “This is extremely important too because this ride can end immediately.”
So as far as for being exposed to different syndications, it’s all about just having the conversations with one another. “Oh man, Marshawn, you’re in real estate man. Who’s, how are you doing it? What are you doing? Who’s bringing you these deals?” “Oh man, I’ll put you in contact with such and such.” “Oh man, Richard, what you got going on?” “Cliff, man, I know you’re into real estate. What you got going on?” And then, “Okay, you meet this individual.” Next thing you know, you’re meeting other people that are doing it and then you start hearing more and more deals start coming your way.
Now, it’s on you to vet through those deals to make sure that you’re not getting guy or it’s the right situation for you. So it just boils down to having a conversation. But networking, money and investing is like religion and everything else at the dinner table. No one really wants to talk about it in the locker room, you know what I mean? And for us, it was completely different.
We wanted to talk about it because we wanted all of us to be a part of being able to obviously capitalize off the money we’ve been able to earn on the field. And honestly, I think that’s why we were so good, is because we were truly a brotherhood. We were truly friends that wanted to talk about all the different things that we had going on and no envy or anything like that came about. And so that allowed us to grow in whatever avenue we decided we want to go in.

James:
Yeah. And I think that’s a good, do you think you guys were so passionate about that? Because that’s what it’s about, right? That networking and vetting people through referrals and those, I mean that the best deals I’ve ever done or best people I’ve ever met is usually through a personal referral.
Do you think that your locker room was so into investing? Because of how many players when they leave the NFL or leave any kind of professional sport, there was some stat that came out or it was that Sports Illustrated said 78% of NFL players go broke after the first two years of their retirement. And that’s it, that’s a scary stat. That’s not a high test rate.

Cliff:
No doubt. But now, I also want to talk about that stat too, just in general, right? Because you got to think about it, the average is less than three years in the NFL, right? So in that three-year span, have you accumulated enough money to actually be good for the rest of your life? 99% of the time, no you haven’t.
Now, have you made some decent money? Yes. But you’re also 22, 23, 24 years old, haven’t bought a house. You know what I mean? You’re still training and different things like that. So I can understand how some guys may be broke, but also guys haven’t really earned that much money to be financially set for the rest of their lives. Usually that’s your second contract, usually that’s when you’re 27, 28 years old.
But knowing that stat, for me in particular, I started thinking about that. I started thinking about, “Okay, well if the average is less than this, all right, I need to start putting money away, I need to start putting money away in the 401(k) plan that they have in the NFL.” Which is pretty solid. I know some people don’t necessarily believe in it, but again, I’m all about diversifying and putting money in different places.
But the conversations of just talking about what we’re investing in, you’re starting to see athletes are thinking more about investing in where to put their money, because you see Kevin Durant, Steph Curry, all these guys are making big boy moves. And if you’re not where they’re at financially, but you’re thinking that way, you’re getting that right mindset and it’s all about just not wanting to be part of the statistics as well. So you start to have these conversations with one another and guys tend to be on the same page.

Dave:
Cliff, that’s an awesome statistical analysis. I love that being a data nerd. But it’s also true if you compare that to how many 24-year-olds just go broke, just in general probably, I think most of us were there at some point being broke. But I love what you’re saying about just normalizing the conversation about money and investing.
I feel like that’s just so important and people don’t want to talk about it. It doesn’t make any sense. It’s exciting. And personally I think it’s kind of fun. I guess itself and I have a podcast about it, but I mean I think it’s just so important if you’re of that mindset to try and teach other people that it’s okay to talk about it and it’s fun to talk about and it’s actually going to really benefit you.

Devon:
One thing I’m passionate about within that is I’ve been in a lot of locker rooms and guys have the assumption that it has to be the star player. And it’s that guy who’s doing, who’s making all the moves, who’s doing all of that, and then all the other guys, it’s this kind of unsaid thing where you got to football, better be your life, you got to be locked in if you want to keep making it, if you want to do this, and being a person who, I feel like I’ve been kind of in the middle, I’m never been a pro bowler. I’m not going to be a Hall of Famer one day, I haven’t won a Super Bowl, but I’ve been blessed enough to have a very long and successful career.
So I can relate to some of these guys who’ve in the years, 3, 4, 5, 6 years, but maybe didn’t sign a mega deal. No, it’s even, it’s just as important if not more for you to start to build out in investments to look at things differently. But a lot of those guys, which is majority of the locker room, are so locked in on just trying to survive as long as they can in the NFL, that they don’t revert any of their attention to what they need to be doing outside of football.
So in the locker rooms I’m in, I have a lot of conversations with those guys because, I was just with Arizona and it’s like, it is not just Kyler Murray and J.J Watt and AJ Green and those guys who need to be making moves in our locker room. It’s the guy who’s in year three who is hoping to get another deal.
Like, “What are you doing with the money you’ve accumulated? And even if you don’t have enough to sustain you the rest of your life, how can you use the money you’ve made to propel you into the next thing?” And helping guys think that way I think is really important and the difference in the locker room.

Cliff:
But the goal also, to add onto that as well, I think it’s a confidence thing. And I’m not just even talking about athletes, we’re talking about money in general. It’s not something that’s taught in school. Financial literacy is not something that’s taught across America. So people aren’t confident talking about something they don’t really know much about.
Now, when you bring the athlete’s perspective into it as well, it’s the same thing. “Now, I got a couple of dollars, I still don’t know what to do with it.” “TV tells me I should go buy this Rolls-Royce.” And that’s probably the dumbest thing to go do. So it’s the confidence thing in understanding financial literacy.
So as we know better, as athlete people, as we understand money and we got to give the game back to the youth so they can do a little bit better as they come through the ranks as well. But I think it’s more of a confidence thing and just know you’re not confident because you don’t know understand it or you don’t know it.

Dave:
That’s such a good point. I mean, you wouldn’t want to go talk to someone about something you don’t feel comfortable with. It always feels like you kind of want to go home and learn a little bit by yourself so that you’re at least literate enough in financial terms to be able to have those conversations, but which is great. Why I guess, why you’re putting Robert Kiyosaki and Rich Dad, Poor Dad on the workout playlist.
I mean, I thought I learned, listened to some pretty nerdy things while I work out, but that’s another level right there. But it’s helpful, I think to just give people that background knowledge so that you can start having those conversations.

James:
And Devon’s going to have to start bumping the OTM. On The Market. Devon, I want everybody here [inaudible 00:31:18].

Devon:
Everyone here On The Market.

James:
Every what podcast. So you guys have both been actually fairly active investors, passively actively for the last five to eight years and it’s been a little bit of a different market. We’ve seen the ramp up, 2012 it’s kind of when the market started really turning a corner again, at least in the Seattle market it did, I’d say 11, 12. And then we saw the craziest market I’ve ever seen in 2020, 2022 where there were some really massive gains going on.
And how was you guys, in going through… Because this is going to be your guys’ kind of first SAR cycle. I know when I was really young, I was in real estate and how I got started was in door knocking and wholesaling. And then 2008 happened and I learned a lot of major lessons at that point.
And we’re not going into the same thing as that, but we’re going through a different dip in the cycle and I know, what have you guys been doing to change with the market or as passive investors, what are you guys looking for or as projects that you’re getting involved in, have you guys gotten more cautious, go on the deals you’re looking at, or are you guys in the middle of deals right now that you’re having some issues in? Because that’s always that learning curve.
The markets are good and then they’re not good and then they can level back out and it’s just those constant waves that you got to ride as an investor. What kind of lessons have you guys learned, or what has been happening with your projects in the last nine months?

Cliff:
For me, I think it’s all about being creative. Getting creative. I just closed on apartment building about two months ago and we did seller financing. The terms made sense, the interest rates and everything else made sense so we pulled the trigger on it. So I think it’s just all about being creative and how you’re financing because money’s getting more expensive.
The rents have been at was crazy for the longest. Now they’re kind of starting to soften up a little bit. So you just adjust and your performance. For me in particular, I’m very, very conservative in my approach with performance and different things like that. So I never want to be in a situation where I’m upside down because I was thinking REITs were going to be $2,400 and right now they’re freaking 1500 bucks. Let’s just put it at 16 or 1700 bucks or whatever the case may be. So I’m extremely conservative when it comes down to that type of stuff, but I’m still looking for deals.
The one quote that sticks with me is Warren Buffett’s quote, “Be fearful when everybody’s greedy and be greedy when everybody’s fearful.” I feel like we’re about to be in that process right now. We’re about to be in a space where everybody’s kind of being fearful. So I think opportunities will present themselves and now it’s all about just getting creative on how to acquire these assets. And I’ve been fortunate enough to find different ways of doing so.

James:
The apartments have gotten better in Seattle, the deals are there, that I mean, because it was hard to lock down anything decent sized the last 24 months. Now it’s, they’re actually, there’s really good opportunities out there right now.

Cliff:
No. Seattle’s a different beast, man. I don’t buy any of my multi-family stuff in Seattle just because it’s, one, too expensive, a lot of money chasing a lot of the same deals and so I kind of stay away from that.
But in Seattle in particular, we build spec homes and I’m on the east side in Bellevue, so you being from this area, you understand it’s a different ballgame as far as for what homes are going for and it has softened up a little bit. But we built some spec homes here and then I take those proceeds and I go buy stuff in the Midwest. I go buy stuff in the southeast region for cash flow and some appreciation as well.

James:
Yeah. Good news is this, actually Bellevue’s picking up. The last two weeks right out the gate, the transactions are moving again. It was in stall mode for three to four months and I think it might have just been a lot of seasonal change too. It’s the momentums picking back up. We sold seven, eight homes in the first two weeks of the year.

Cliff:
Yeah. I just closed on a property. We pre-sold it. And it’s funny because we pre-sold it early part of, or the end of 2021 and everyone’s like, “What are you doing? You’re crazy. Why would you pre-sell that? You’re leaving so much money on the table.” And just like my football days, I’m all about guaranteed money. I don’t care how big your contract is, how much money’s guaranteed because if I blow my knee out, I know that’s all I’m leaving with.
So it’s the same exact thing. The same exact approach with some of our spec homes is, if somebody brings us something that makes sense, we sold it, we pre-sold it and then at the end of the day, we just closed on it about a week and a half ago and people were like, “Oh my gosh, you’re a genius for pre-selling stuff.” You know what I mean? I’m like, “Yeah, because I’m going with that for sure thing.” You know what I mean? I’m not chasing the extra couple hundred thousand just to lose a few hundred on the back, dude.

Devon:
I would say on my end a big shift I’ve made is because I’ve been playing in the NFL when I first started investing, I was doing a lot of turnkey properties or close to because I didn’t have the time and I didn’t feel comfortable enough overseeing rehab jobs, big projects essentially. And now, I’m kind of to the point where I transitioned and I’ve identified certain markets where I can get things off market for way below market value and add more value to them through renovation and then refinanced the whole birth strategy essentially.
And I’ve had a lot of success in the last couple of months and even right now I’m, going to be closing on a 6 plex in Tampa, Florida and I’m essentially borrowed off market from a wholesaling team that I’ve built a good relationship with and I’m buying it cash. So been able to get a really great deal on it, going to put a little more cash in it to do it up, do it really nice.
And once again like Avril said, my assumptions are very conservative. I think I’m going to be able to get 2K plus in rents. I’m assuming I’m going to be able to get 1600 and I feel like I’m leaving a lot of room to be successful in planning for worst case or rents not to go up.
I’ve also started to say, in a lot of markets I’ve seen rents either stay the same or go down. So I’m keeping my projections as the same for the next couple of years where it’s, I don’t think that’s actually going to happen, but I don’t want to be like, “Oh, in two years I’m going to be able to get 2200 on this.” I don’t want to make those assumptions right now. I’m keeping it conservative and if that happens I’m going to be even happier.
So those are the kind of things and how I’ve transitioned because of my understanding of real estate, the relationships I have and the deals that I’m able to get by using capital and getting it back out once I refinance as opposed to what I did when I first started getting into real estate and buying turnkey or closer to turnkey style properties.

Dave:
I love that advice about being really conservative, especially right now given the economic climate with rent increases. The last couple years, it was safe to assume that rent was going to go up and now it’s really flat and you’re seeing a decline.
And when people ask me about how to underwrite deals, like you said Devon, I love putting myself in a position where it’s great if I’m wrong, I like to believe that I’m right and like, “Yeah, it’ll be flat, but if I’m wrong, that’s even better.” So it’s just a win-win situation. So I think that’s great advice for this type of market.
If you’re going to underwrite a deal, assume the worst because it is really uncertain right now, and if it still works and things aren’t as bad as they could be, then you’ll probably benefit.
One thing you both seem to do is invest in multiple locations and markets across the country. So I’m just curious, Cliff, we’ll start with you. How did you pick those markets? What type of analysis and research do you do?

Cliff:
Oh man. So in the Midwest in particular, I went to Purdue. So I invest in Chicago in particular because one, my best friend, he was in my wedding and everything I met at Purdue, he’s a GC. So as you all know, real estate is the ultimate team sport and football is the ultimate team sport. So I understand that you have to have the right pieces in place to be able to have some success. So I picked Chicago because I had a GC, I had a property manager that I’ve known for years that is crushing it out there. So that’s why I picked the Chicago market.
Now, obviously there’s tenant laws and different things that you have to deal with a little bit out there, but that was okay because of the cash flow that I knew I was going to be able to get. And come to find out, the Midwest actually has been one of the more stable markets in the country during this little downturn.
But a couple, about a year and a half ago, people would’ve been saying, “Why would you even invest in the Midwest?” And then I’m in the southeast region as well. I’m in Huntsville, Alabama, growing market, great market, a lot going on out there. And my business partner actually put me into that market.
She owned a lot of real estate out there. There was a property that presented itself that was actually right next door to her property and they couldn’t take the deal down by themselves. And she brought it to me and she already had the infrastructure, she had a property managed, she had the GC, she had contractors and different things like that already in place. So it was really just buying into her infrastructure and we were able to stabilize and we actually just cash-out refinance a few months ago on that deal in particular, but I’m a big team player.
I understand that you need teammates and how I judge all these things is, “Hey, I’m the general manager, my asset managers, the doggone quarterback and our contractors and everybody else is the old line.” That’s how we move. That’s how we’re going to make this thing happen. And again, there’s a lot of football analogies, but that’s definitely how I’m moving and things have been working out so far.

James:
So as a GM, have you made any bad picks? Is there any of that?

Cliff:
There’s always bad picks. There’s always bad picks, right? There’s always going to be a few bad picks, but I’ve been, knock on a wood, I’ve been fortunate enough that it hasn’t been any bad picks to the point where we’ve lost money.
The deal might not have worked. I might had to sell it early and get out of it, but we didn’t necessarily lose any money. We lost a little bit of time on that property, but we didn’t lose anything. So I’m very appreciative of that so far and hopefully we keep that trend going.

James:
Definitely the trend you want to stay on.

Devon:
For sure. And to answer your question for me, I would agree, I just say it a little differently. I look at the markets where I can find my core four. Here, people talk about the core four a lot, and where can I find a real estate agent? Where can I find the proper lending contracting team and property management? And then what I look at outside of that, is it a growing, is in an area that’s growing? It just scale there.
I don’t want to go somewhere where I’m only going to buy one property because a lot of the stuff I look at is single family and smaller multi right now. So where’s a market that I have the core four and there’s opportunity to scale and when I identify those markets, then I’m willing to invest there. So those are the main things that I kind of consider. And it’s usually through referrals.
Maybe someone knows great real estate agent or broker in, that’s how it happened for me in Tampa, actually through Kathy. Met a great real estate agent and team Kathy, Peggy, shout out. That’s my girl. But I met through her and then I built a team out in Tampa through networking and that’s why I’m investing in Tampa right now. So if you can get your core four and you believe you can scale, then I invest in that market.

Cliff:
And I agree exactly. I mean you have to have those that core four for sure, and any and every market that you go into and of course you got your market analysis. You got to see population growth, you got to see job growth, you got to see all these different things as well in these markets.
And these are all things that I know I’m privy to and that I look at before I go into any market, but having some individuals that you can trust, I think goes a little bit further than just even some of the market analysis. Just having teammates that you can trust that they’re not going to screw you over as well, right?

Devon:
Absolutely.

Dave:
It’s such good advice. And so many people I think obsessed, especially if you’re investing passively or out of state, they obsessed about what market to invest in. And I recognize that some of that is my fault because I regularly published lists of best markets to invest in.
But so much of it is about just developing the right team and like you said, it’s a team sport. The difference between investing in Tampa and Jacksonville, just picking two random cities, it’s probably not that much on average. And if you have a good team, I think you could either one could be better depending on how good your team is, it’s not really about the city. There’s so much more to it. So I think that’s really good advice

Devon:
Yeah. To add to that for instance, in Ohio, I love the Midwest too and I know Cliff was mentioning the Midwest, but I don’t really like my team in Ohio right now. So I’m probably getting out of some of the stuff I have in Ohio.
It’s cash flow great for me but my property management, I add a lot of issues. The city of Cleveland’s giving me a lot of issues. I’m just kind of over it. As opposed to another market, I’m doing a lot of stuff in Tampa right now. My team seems to be clicking and it’s great.
So it’s like I know people making a ton of money in Cleveland and in Ohio in general, but it’s been a bad experience. I don’t really like the team I have and I’ve been trying to fix it and it’s just, I’m kind of over it at this point. So I think that’s a good testament right there.

Cliff:
Well sometimes you got to fire the coach. You got to fire the coach.

Devon:
That just happen in Denver, is it Dave?

Dave:
I’m not really a Broncos fan. Actually, Devon I’m a Giants fan, so I remember when you went in Seattle. I just lived in Denver so I sort of like the Broncos.

Devon:
Don’t be surprised when the Giants beat Philly, I’m calling it right now. Ain’t got nothing to lose. And Philly ain’t hot right now.

Dave:
Dude, this is what the Giants do. They sneak into the playoffs and every five to seven years they somehow take that miraculous run through the playoffs and win despite all odds and other teams being better than them. So we have a track record of being successful like this. I think it’s our year.

Cliff:
But y’all have Manning back there.

Dave:
I know, I know.

Cliff:
They got some Hart.

Dave:
Anyway, well the last question I wanted to ask you guys before we get out of here is Cliff, you made a comment about this at the beginning that you’ve, there’s some things you’ve learned in the NFL and as an athlete that you applied to your real estate investing career and I was curious what those lessons are.

Cliff:
Yeah. No, I mean I feel like this is any space as far as for any profession, I feel like there’s just a few different things that honestly separates people from having, quote, unquote, “success” in their profession, and it honestly, it’s going to be the hard work, it’s going to be consistency and you got to be all in, right? You got to be all in with the NFL in particular.
Part of the problem we talked about guys going broke and not investing and different things like that is because they’re all in, they’re not even worried about their money right now. They’re all into this particular space right now because they just want to get playing time. They want to get to the new deal, but they’re not thinking about, “Okay, what’s going on with their money?” Now, I’m not giving them an excuse or anything, I just know firsthand, you know what I mean? And so it’s no different with the real estate game. I truly like this.
Before I got on call with you guys, I’m running through Buildium and I’m looking through making the who’s delinquent? Who hasn’t paid? Man, we got three vacancies. Every single day that’s my life right now and I really like it, so applying those things.
And then I talked about earlier being the GM, having the quarterback as the property manager, having your contractors as the old line, really putting that, those analogies but that’s really how I construct my business and how I’m moving in this space. So that’s kind of how and what I’ve learned and I’m trying to apply those same things in the real estate game and also my business.

Dave:
What about you Devon? Is there anything you’ve learned that from being an athlete that translates to your investing career?

Devon:
I would kind of relate in, it’s about building the team around me that fits what I need. Being on a football team my whole life, I play a certain role on my team. I have a certain skillset and making sure I surround myself with the individuals I need that’s going to get the best out of me and it’s going to allow me to focus on what I’m best at. And I think that’s no different in real estate.
So on football I’m an edge setter. I’ve always played the run really well. I’m going to make sure that I’m in a position where that’s, I’m able to always do my strong, what I’m best at. What helps me do that, film study, recognizing formations, all of these different things. What’s something that I’ve never been known for necessarily? I haven’t had a double digit sack season in my career. So I need to work on pass rushing. What do I do in the off-season? How dare a pass rush coach? I really put emphasis on my pass rushing. So I approach real estate the same way.
What I’m naturally good at? I think one of my strong suits is networking, building relationships, kind of big picture seeing it. But I need people to help me with the specifics. I’ve never put hammer to nail. I need a good contractor and good property management so I can understand it, but also who’s going to be overseeing those kind of things. And that’s really pivotal.
So understanding my strong suits and knowing where I need really strong teammates and players, that’s going to help me get to where I’m trying to go. So I think we can relate football to real estate in those ways, it’s allowed me to scale faster and build the people around me that I really need.

James:
Devon, I really like that. It’s sticking to what you know and you do. We do really well as investors in Seattle because we stick to what we know. We’re not like we go after heavy value add where we can structure the deal. We have that construction background and it’s the best way as you’re going through a transition in market to mitigate risks too.
If you know what you’re like right now, my buy-backs is sticking to what I’m really good at. Whatever my teams are ready to go with, that’s what I’m buying. It’s not, has nothing to do with liquidity. It’s how well can we execute that plan. And I think that’s really important for today’s market.
And then as you’re learning things, like he was saying, he’s on the off-season, he’s working on his pass rush and he’s working on his edge setting. Those are things that you can take the step into but as we’re in that transitionary market right now, stick to what you’re really good at.
And if you’re really good at it, there’s less people competing with you too. So that buy opportunities are better in addition to how to maximize that deal, and that’s where the spreads are. When people are a little bit freaked out right now, if you stick to what you’re good at, you’re going to get the best possible deal at what you’re really good at.

Cliff:
To elaborate on that too, I also think with real estate in particular, there’s so many different ways of making money in real estate. You can be a wholesaler, you can buy a whole development, all these different things. So the hard part about real estate is the shiny object syndrome and trying to spread yourself thin, but correlating that with sports in general, it’s only been a few players that can play two sports and be a pro at them. There’s not that many guys that can do that.
So, know what you’re good at, stick to it, focus, be all in on that and be great at that. Be great at pass rushing. That was my thing. I was a pass rusher. I set the edge with nothing I need to, but I’m getting after your quarterback. That was my, so I know who I am and that’s the lane I’m going to stay in.
And it is the same thing with real estate. I want to buy multi-family properties. I want to buy value add multi-family properties, and I’m going to hold onto them. I’m going to cash flow the mess out of them. And then, like I said, I do spec homes here on the east side of Seattle and that’s what I know what goes into that and I use those funds to go buy those assets that I’m talking about. But that’s my niche, that’s my lane and I want to grow in that space and get better at it and hopefully become a pro bowler and a Super Bowl champion.

Dave:
That was a great way to exit. That was a quick walk off line. So now we got to end the podcast.
Well, we are out of time, so I just wanted, thank you both for being here, but just wanted to ask you, Devon, where can people connect with you if they want to learn more about what you’re doing or follow your progress?

Devon:
You can find me on all social media @devonkennard, and then also my website www.devonkennard. I also have a book coming out in April, so it’s all about financial literacy in real estate investing. So check that out. You’re going to be able to pre-order here soon, so make sure you follow me on social media and stay tune in there.

Dave:
Awesome. That’s great. Well, congratulations on the book.

Devon:
Thank you.

Dave:
What about you, Cliff? Where can people connect with you?

Cliff:
Yes, all my real estate stuff is on TikTok @cliffavril, A-V-R-I-L. All my real estate stuff is on TikTok, but I’m also on Instagram as well. So you can follow me there and get snippets of some of the stuff that I post on TikTok.
And before we leave as well, I want to let you guys know I’m a big fan of the show On The Market. I kid you not, I listen to every single episode whenever they drop. Like this morning, I kid you not like, all I listen to is real estate podcast in general, but On The Market with you guys when you guys do the panel and everything else. I love it, man. Keep up the good work.

Dave:
That’s awesome. Thank you so much. We appreciate that.
All right, well, Devon Kennard and Cliff Avril, thank you guys so much for joining us. We really appreciate your time.

James:
Thanks guys.

Devon:
Thanks for having us, Meyer.

Cliff:
Thanks for having us. Appreciate you guys.

Dave:
Was that just a dream come true for you?

James:
It really was. Just anytime that we can bring on a Seahawk player or any athletes, I’m all in on that show. I’m just permanently requesting a panel spot for those shows.

Dave:
Oh yeah. Well, so after we finished recording the interview, we were just saying goodbye to Devon and Cliff and before, right before we were recording this and Cliff revealed that he is actually a fan of On The Market and listens to this show. And wait, was that actually, was that when we were recording?

James:
I don’t know if it was when we were recording, but I just had an idea we should get him a Seahawk jersey that says On The Market on the back. I’m totally getting this.

Dave:
For either way, we should do that, but either way, I just wanted to know what it felt like for you as a diehard Seahawk fan to have a Seahawk legend tell you that he was a fan of what you’re doing.

James:
I’m not going to lie, I was having flashbacks of when they won the Super Bowl against the Broncos, it was like I felt almost that good.

Dave:
Oh my God. Yeah. I can imagine that. That’s pretty cool experience. Well, that was super fun. Fanboying and all, that was really insightful. I think that they both have really good perspectives and it’s really just interesting to hear a little bit about how different people get involved in real estate even while they’re in their career.
Because obviously being a real estate, excuse me, being an NFL player, this high profile thing, but I think what they were saying really applies to anyone, regardless of what career you have, it’s about talking to your friends and your colleagues, normalizing discussions about money and investment and trying to help each other, building out your team. These aren’t things that are necessarily just restricted to NFL athletes. It’s for anyone who’s trying to build a portfolio while they’re in a full-time job.

James:
Yeah. It’s all the basics, and their stories matched up with how we all got started. Cliff was saying he bought properties because he had a general contractor in that market that he knew really well and trusted. I mean, I did the same thing when I first bought my first big project, I hired a friend of mine because I trusted them and it says the same beginning steps and it was really cool to see that, because a lot of times too, sometimes it’s like, “Oh, these athletes, they have a lot of money. They just put the money to work with these managers.”
But they’re doing the day-to-day stuff that we all do, making sure rents are collected. Going through the, they’re going through their own performance and maybe checking them out. They’re not just going off of people’s words, but it’s that same day repetitive stuff that we do as investors and they’re doing it and doing well.

Dave:
Yeah, absolutely. I thought it was great and learned a lot. We were joking about making a show where James goes knocks on doors with NFL players and maybe we’ll, that will be our OTM spinoff sometimes too.

James:
You know, I’ll feel pretty safe if I’m at a bad house with a big 300 pound lineman behind me.

Dave:
Yeah. Yeah, absolutely. Oh dude, the other thing I forgot about that I thought was so funny was Cliff said something. He was like, “Yeah, all those financial advisors tell you to buy a Rolls-Royce. That’s the stupidest thing you could do.” Jamil just bought a Rolls-Royce.

James:
Oh my God. I was dying. Whatever it was, the coconut or whatever. I was absolutely dying.

Dave:
It’s so funny. I don’t think Jamil would argue that it’s a good financial decision though, but it’s probably fun.

James:
No. I don’t understand that. Yeah, you can buy a truck too. That’s also a write off and cost a third as much.

Dave:
Yeah. Yeah, for sure. All right, well that was a lot of fun. Appreciate you being here, James. Just know everyone who knows who you are, but if they haven’t connected with you in a while, where should they reach out to you?

James:
Good place to find us is on Instagram’s an easy place, jdainflips or at jamesdainard.com. You can get more information from us and more tips on investing.

Dave:
Awesome. Great. And I am @thedatadeli on Instagram where you can find me. If you have any feedback about these shows, have any questions, hit up either James or I.
And if you like this show, please make sure to give us a five-star review on either Apple or Spotify. We really appreciate those reviews. If you’ve been listening to the show, haven’t done it yet, please go do it now. It will be a great help to us. Thanks again for everyone who’s listening out there. We’ll see you next time for On The Market.

James:
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.

Dave:
The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.

By Dalip Jaggi, co-founder of Revive Real Estate, a PropTech with a goal to democratize house flipping.

Attending a startup mixer and meeting other founders and entrepreneurs is energizing. When attending these events, I find that most people are young and hyped up. And even though everyone is secretly exhausted, you wouldn’t know it, as they’re having the time of their lives. As an entrepreneur and founder of several startups, I find these events invigorating.

However, during a recent meeting in Vegas, the most common theme I heard was of startups distracted by “shiny object syndrome.” Many of these companies have only been around for 12 to 18 months or so and are building products from the top down while also building out new offices with all the employee perks and high-end amenities.

They’re spending a ton of their VC funds on big hires, extravagant campaigns and events designed to capture “mindshare” instead of building a business that plays the long game: capturing market share. That’s not necessarily a bad thing, but is it the best thing?

My favorite question to ask at these events is, “How do you like running a business?” Unfortunately, much of the time, the focus is almost singularly on product development instead of business management.

Know That You’re Going To Plateau

Having built and sold a few startups, I can personally attest to the fact that the growth cycle is almost universally the same. You create business momentum, often hit a hockey-stick growth spurt—and then plateau.

Smart businesses find a way to break out of the plateau, enjoy another hockey-stick jump, and then flatten again. It’s a rinse-and-repeat cycle.

The problem for many startups is that they don’t have the patience to go through these cycles. They want glamorous offices—now. They make big hires way too early. Many rank-and-file team members are brought on too quickly.

When my latest venture was in its infancy, my first instinct was to hire an executive assistant. I needed one, right? But I realized that I didn’t. A better business decision was to take on those administrative tasks myself. We were at a stage where every expense or hire needed to generate an immediate ROI.

The Plague Of Over-Systemization

Now, this may go against startup conventional wisdom, but way too much time is spent systemizing processes in a startup. When you’re a brand-new company, one of the first decisions you may make is deciding whether you want to automate the marketing funnel. The problem is that you are focused on building rather than doing. There’s a big difference between these two things.

One of the greatest weaknesses common among startups is rarely discussed: spending too much time on building. When you’re starting out, you need to figure out how to make the phone ring—today. It’s not sexy, and it’s not a fancy funnel. It’s your own actions, like picking up the phone, creating a connection and making the deal happen.

When we first hire someone, they often come to me, and the first thing they want to do is to try and automate whatever task they are assigned. Don’t start with automation. If you do, you will spend the next four weeks automating instead of just doing the task today. Right now, you probably don’t need automation to get good work done.

Knowing When Not To Automate

Today, in the startup world, it feels like we want to automate everything. But I worry that this approach is where we can lose quality. A better way is first to show that it works with a manual process. Yes, it is more tedious. Yeah, you must spend many days doing it. But if it works, you can focus on efficiency afterward instead of beforehand.

We have a theme at our company: We build technology from the bottom up, not the other way around.

I’ve learned the importance of doing this the hard way and have made several mistakes in my entrepreneurial journey. Building is the easy part. Building a new app, creating a new website and developing a new marketing campaign are all easier than the execution it requires to make these offerings a real business. It may feel to you like you’re moving the needle of the company, but to me, it feels like busy work—unless you’ve proved its worth. Then it’s time to find those efficiencies.

Investing In The Right Stuff

Good spending decisions have two sides: being mindful and being purposeful. Finding the right balance is the key. While you need to be acutely aware of how you spend, by the same token, don’t be afraid to invest in things that can make an impact.

For example, startups often spend heavily on industry trade shows, like on huge exhibits and top sponsorships. But how closely are you tracking the ROI?

If you have one dollar and you’re building a business, I believe most of that dollar should go to the sales department, hands-down. Sales is the backbone of any business.

The Danger Of Growing Too Fast

If you have been part of a startup, you have probably tried to serve too many markets too quickly in an attempt to accelerate your growth. It often begins with a feeling that you are racing against the clock and trying to beat competitors to the punch.

We all know that “more” doesn’t mean “better.” Focusing on quantity versus quality is often an Achilles’ heel of startups. But building out slowly and methodically to lock down quality is better than racing to create impact with a quantity-based strategy.

It’s much sexier to expand and grow your reach, but profitability can be far more elusive if you do this rather than hunkering down and putting quality before quantity. Once you’ve nailed quality, then it’s time to expand. Let’s not forget that we’re building a business for a profit at the end of the day.

That’s why one of the biggest lessons most startups need to learn is to avoid shiny object syndrome. Building a business takes patience. Be patient.

David:
This is the BiggerPockets Podcast show 723. What I’m basically getting at here is we got to all stop trying to hit a home run with one pitch. Quit falling for that. That’s what gurus are selling. This is what the online media presence influencers are hyping. It is not realistic. I’ve been investing real estate for a long time. I’m not finding those deals. I’m not. I don’t think they’re out there because if they were out there, someone would even buy it before you find it. Okay. Let’s all take our goal of financial freedom. Let’s chop it up into little tiny pieces and let’s just take one piece at a time.
What’s up everyone? This is David Greene, your host of the BiggerPockets Real Estate Podcast here today with a Seeing Greene episode for you and it does not disappoint. Today’s episode is fantastic as we get into many of the raw and real struggles of what’s going on in today’s real estate market during this recession. That’s a lot of R words that I just threw at you.
In today’s show, we talk about what to do when you’re trying to house hack in a hot market and you just can’t find anything that cash flows. We talk about the angel decision of should I quit a job that I don’t hate to jump into making more money as a business person, and if so, what is the best way to do it? We get into when you should hire an asset manager and what the difference between an asset manager and a property manager is, as well as if you should take on more leverage or pay down some of the debt you already have and build your reserves. All that and more on today’s show.
Now, if you haven’t heard one of these shows before, I take questions from people like you, our listeners, and I answer them for everybody to be able to hear. So some of these are written questions, most of them are video questions, but either way you get to hear questions that other people in the BP community has and have me answer them in person, like the forums but 3D. Before we get into our first question today’s quick tip is remember during times like this where it’s more difficult to make money and much easier to lose money, that the one thing that nobody can take from you are your skills. Focusing on building up yourself, improving your skills, improving your knowledge is the best investment you can take because you can lose money, you could lose properties, you can lose time, but you cannot lose skills. So continue to build up your skills, continue to build up your value that you bring to the marketplace, and you will always find yourself in a position of financial strength that makes investing in real estate much, much easier. All right. Let’s get to today’s first question.

William:
Hey David. Thanks for answering my question. Any insight that you have for me is great. My name is William. I’m a 31 year old vet and I’m living just outside of the Washington DC area. It’s a tough market. I have a good realtor on board with me. I have a good local lender on board with me. I’ve already been approved for a loan. All that’s good to go. So I’m starting to build somewhat of a team around me the best that I can and trying to learn as much as I can. But in the area that I’m looking in, which is pretty much all outside of Washington DC, I’m trying to stay out of the actual city itself, so the surrounding area. It’s been real tough to find something that’s available. There’s a little to no multi-family, which is something that I originally wanted to get into.
There’s a few single family homes and there’s a lot of condos and a lot of townhouses that are available, but I’ve already been pretty approved for a loan for a decent amount, but I’m not trying to blow all that money on a condo or even a single family home. I’m trying to buy pretty modestly and be smart with this first investment the best that I can. My thought process so far is getting a single family home to try to build a little bit more equity and some appreciation since condos, So so, talent homes are the same way. It’s looking that I might have to go that way, but every number that I run man is like negative cash flow, bad cash on cash returns, the cap rate’s real low. So I’m having an issue here and I’m looking like mid threes, like all under four, and I’m still running into really bad numbers.
So my question to you is, man, if you had to start from ground one in my market area, what would be the best investment property that you’d have to go into and knowing that with the VA loan, I have to live in the property for at least a year, and that was my goal, was live there for a year, come back out, try to reinvest or refinance into another property and keep the ball rolling the next couple years to help build some financial freedom for myself. So thank you for any insight that you have, David. I appreciate the answer. Thank you.

David:
All right. William, thank you very much for your question and for your transparency and the struggle that you’re having. I got some good news and some bad news. I’m just going to give it all to you. Let’s start off with just acknowledging your situation is indicative of the market as a whole. I think this is what everybody in America is struggling with right now. We want to invest in real estate. We know that real estate is probably the most solid asset class as far as long-term returns we could get, but so does everybody else. There’s a lot of competition right now to get these assets, and this has been the case even though rates have increased. I don’t want to get into a long diet tribe of macroeconomic trends in the way that our government is trying to combat the inflation that they created, but it’s not going to work.
So your struggle is the same that I’m having and the same that all of our listeners are having. We’re all on this struggle bus together, so to speak, and maybe I’m driving it right now. So you guys are going to listen to my take on what’s going on. The first thing that I’ve had to do as I’m in your shoes is I’ve had to lower my expectations and I’ve had to widen my time horizon. So what that means is when I first got in real estate investing, almost everything that we were looking at was going to give you a positive cash return, but that’s because no one wanted to buy real estate. So the questions I would ask is, “Well, this one’s going to give me a 8% return. This one’s going to give you a 12, this one’s a 15. Should I go for the 15 or is it going to be too much work? The eight would be the least work. The 15 would be the most work. I’m going to go for the 12. It’s right down there in the middle.”
That was the way that we approach real estate. It wasn’t will it cash flow, everything cash flowed. Fast forward to where we are today, very little cash flows. In fact, if you’re in the same situation as William here and you’re having a hard time finding cash flowing properties, it doesn’t mean you’re a bad investor. Maybe that’s the first thing I should say. You’re not doing something wrong because you can’t find cash flow. The market is freaking competitive and as much as we hear people talk about a recession coming, there is still a lot of money floating around. Now, you may not have all that money. Okay. You’re trying to get into real estate because you want to get some of that money, but it is there, and that money is going after these asset classes that people like us all want. This is even more impactful in appreciating markets. Washington DC is one of those.
Washington DC has seen increasing prices significantly over time as well as rents for a long period of time. It’s one of the hotter markets. South Florida’s one of those hotter markets. Southern California is one of those hotter markets. There’s a lot of different places right now where it is very difficult to find cash and most of them are the healthiest markets. As weird as that sounds like the place you’re going to make the most money is also the hardest to get into and the hardest to cash flow.
So the good news for you is, do not be discouraged by this. You’re not doing anything wrong. This is the way the game is played right now, and I know a lot of people don’t want to hear this, but my opinion is this is probably a healthier way for real estate to work. It’s supposed to look more like this than what it’s looked the last eight years. It’s not normal to buy a property. It immediately cash flows. The rents go up a ton every year. You get 20 tenants for every vacancy that you have. It goes up 10 to 20% in value. We’ve had an incredible run that was mostly based off of foolish government stimulus that we created, but then we start to think that’s normal. That’s how real estate’s supposed to work.
We hear about somebody else making a hundred grand in a year and we’re like, “I want to get in on that.” So everyone floods into real estate and when they get here and they see that it, you’re not making a hundred grand in the first year. In fact, maybe you’re barely making any cash flow or you’re losing a little bit of money, immediately we get sour and we say, “I don’t want to do this,” or we say, “There’s something wrong with me. I don’t know how to find their deals so I shouldn’t invest in real estate.”
And I’m giving you this advice because I can hear the discouragement in your voice. You’re a man that has clearly been through hard times before. You’re a veteran. Thank you for your service. I appreciate that you did that. I don’t want you internalizing why real estate is hard for you right now. It’s not your fault. This is what we have. In order to stop ridiculously fast home prices rising from all the money that we made, we’ve had to bump interest rates up to a point that properties don’t cash flow and we’re stuck in a standoff. That’s all this is.
So the second part of my answer has to do with your time horizon. We’ve already talked about adjusting your expectations. Now I’m going to talk about the time horizon effect. You will still make money in real estate. You might have to wait longer than what you hoped. You might have to wait longer than what the gurus that sell courses are telling you to get you to sign up for their course. And when you follow the people on Instagram or YouTube that are like, “I made all this much money on my homes.” It’s what they’re not telling you that changes everything. They’re not telling you that’s because they bought it four years ago or even two years ago. The people that bought their short term rentals in 2019 are crushing it. It’s probably doubled in value since they bought it and the renter significantly higher.
If you bought a property today at half of the price and half of the rate of what you could buy for today, you’d be crushing it too. But those opportunities aren’t here. And when people are selling courses, they’re not explaining that. They’re not telling you, honestly, “Yeah, I have eight properties and I retire.” They’re not telling you they bought them between 2017 and 2020. So you’re just out here expecting that’s how real estate works and getting skunked and feeling like that must mean that something’s wrong with you.
The approach I’ve taken, the approach I’m advising other people to take is not popular. It’s not what people want to hear. I’m going to tell it to you straight though because I know in a couple years when my strategy worked at other, you’re going to come back and listen to this podcast because I was honest with you. I didn’t tell you, you wanted to hear to get 10 grand out of you to sign up for a course. It is taking a long-term position and it is not expecting real estate to be the magic pill. You still got to have a job right now.
There’s always a handful of people that can pull it off as a full-time investor if that’s you, don’t be discouraged. But if you’re the normal person, you still got to be working. You’re going to house sack and you’re not going to cash flow, that’s okay. If your rent would’ve been 2,500 and you’re only paying five or 600 a month, that’s a huge win. It’s a $2,000 a month win for you, plus every year it’s going to get better. Your rent would’ve gone up if you weren’t house sacking and instead your rent does go up because you are, you’re winning on both sides. Over time, this turns into big money, but what I’m preaching is delayed gratification. You cannot walk into this thing expecting that you’re going to just step in and crush it like we could at other periods of time.
Now, I don’t know how things are going to go down, but one very likely scenario that I don’t want to say I’m betting on, but I’m planning for is that the property’s not buying right now. I don’t love them. I don’t love the returns. I’m not super excited. I’m basically buying in the best areas in order to decrease the risk that I’m taken on by buying in a market that might not be at the bottom, but when rates go down at a certain point, I’m going to look like a brilliant genius. I’ll be the guy that could say if I wanted, “My property is making all this money and I don’t have to work anymore,” but I’m not going to be telling people it’s because well, I would be telling.
But I would have the option of not telling you, “Well, I bought it in 2022 when rates were 8%, but now I refinanced it into 3%, so my mortgage is significantly less than what it used to be.” And those people that are trying to buy at the 3% rate are going to be paying way more for the property than I did, and they’re going to be in the same boat as you that doesn’t cash flow. I don’t know, but I predict you’re not going to see cash flow in real estate for a very long time. There’s too much competition for people that want it, and when I say cash flow real estate, I mean strong cash flowing right out the gate.
The people that are going to make money in real estate now are the people that take a longer time horizon. They look three years out, they look five years out, they continue to save money, they continue to earn more at their job. They continue to push themselves and challenge themselves and their ability to earn income and bring value to the marketplace. They’re not the millennials that want to buy a couple houses and retire and run a blog or run a TikTok and say, “This is my life now.” I don’t think those people are going to be the ones that make it through the recession.
So my advice to you if I was starting over, find a property in the best neighborhoods you can with as many bedrooms as you can. Take a little piece of humble pie and buy a four bedroom house that you can add a fifth bedroom too, live in one bedroom, rent out the other bedrooms. Yes, this is not ideal. Yes, it’s going to be a little bit of a pain. Yes, there’s more comfortable ways to live. If you want to make money, that’s what you’re going to do. Okay.
So we got to all stop comparing where the market is now to where it was a couple years ago when it was like you could have missed. That is not where we are right now. The strategies are going to work right now are going to be more difficult, and when I say difficult, they mean less comfortable. That’s honestly what I would do, and I’d live in that property for a year renting out the room. I would learn the fundamentals of managing stuff. I’d rent it out to either other veterans or other people that you like. I’d make sure it has enough parking at a minimum of three bathrooms, and after a year, if the market still look like it does right now, I’d do it again.
I’d go buy another property, try to get five bedrooms, rent out the bedrooms. You’ll probably cash flow a little bit or come close to breaking even, but as long as you’re buying in the best neighborhoods, the best locations, the best literal real estate, over time, you’re going to do really well. And when you’ve got four or five of these things and you feel like this is too much work to manage five properties with five bedrooms each, sell the one that has the most equity, maybe sell the two that have the most equity, take that money, 1031 it into a multi-family building in another area where it actually works. Keep three of them and manage those three plus the two multi-families. Okay.
What I’m basically getting at here is we got to all stop trying to hit a home run with one pitch. Quit falling for that. That’s what gurus are selling. This is what the online media presence influencers are hyping. It is not realistic. I’ve been investing real estate for a long time. I’m not finding those deals. I’m not. I don’t think they’re out there because if they were out there, someone would even buy it before you find it. Okay. Let’s all take our goal of financial freedom. Let’s chop it up into little tiny pieces and let’s just take one piece at a time. Okay. One little goal. Get on base, get a walk, get to second base, get a sacrifice flag. Get to third base. Wait for that loose ball from the pitcher that comes at it.
If it doesn’t happen, maybe someone bunch you in. Okay. It’s not going to be the big glamorous sports center highlights that you guys are seeing, all the influencer posting to take your money. I don’t know anybody making money in real estate right now. I know a lot of people losing money in real estate right now, but they know over the long term they’re going to get it back. So to survive the difficult time we’re at right now, continue working, continue bringing value into the marketplace, continue improving your skills, which is something that all of us have control over and make wise decisions in real estate over a longer period of time. And when the market does turn around, you’re going to look really smart.
All right. Our next question comes from Joseph in Scottsdale. Love that area. Hey David, I really enjoy this show format and I hope you continue to provide this weekly podcast. My question for you is regarding my primary home in Scottsdale, Arizona and starting my investment journey. Purchase my home for 425K in 2017, it’s now worth a million. There’s a great example. This person looks like a genius because in five years they’ve made a million dollars through real estate and most of it could be tax free if they’re married, however they bought it in 2017, we all look like geniuses when we talk about stuff from five years ago.
I know you’re familiar with this market, and my question to you would be, if it’s the right time to sell or rent my home. Long-term, my home would likely rent for 5,000 a month or somewhere around $10,000 a month as a short-term rental. My mortgage is only 2000 a month and that is a very comfortable payment for me. With this type of cashflow, would you recommend keeping the property, or should I get out soon due the potential loss of equity? Either way, you’ll contribute to my long-term real estate investing journey.
All right. This is a good question. Now, again, I don’t have all of your financial background, Joe, so as far as giving you advice, but I will answer it based off what I would do if I was in whatever I imagine you’re in your life right now. I don’t think that the $2,000 a month, which is obviously a very comfortable payment for you is as important as if you could make some more money off this property. I don’t think Scottsdale is going to be one of the areas that gets hammered in value. I don’t think you’re going to lose a ton of equity. The reason being the demographics in Scottsdale are so solid that even when the rest of the country goes into recession, areas like that, weather the storm very, very well.
So I would not be worried about selling because of equity. I probably wouldn’t manage it as a short-term rental myself, unless you have the time to do that. I would probably think if it could make 10 grand a month and you could pay a management company 20% to manage it, you could keep eight grand a month, and that means that with your $2,000 payment, you could be cashing $6,000, which would be more than enough to cover your rent if you went and got a property somewhere else or your house act. So yeah, I would say turn it into a short term rental. If you can have someone else manage it, make five to $6,000 a month, then go buy another property somewhere else and house hack it, like I told to our last guest, William, who came in with their question.
If you’re an experienced investor, find a deal that doesn’t take a lot of work. If you’re you’re inexperienced, just buy another property in Scottsdale and live in the back unit and rent out the house or rent out the bedrooms. I’d find something and I’d put a lower down payment on it so that I kept somebody aside in case the market gets worse. But you’re actually in a position, you have so many options because you made a good decision in 2017. It’s very hard for you to screw this thing up, but you should do something because if you bought it for 425, it’s worth a million and you’ve got over half a million of equity in this thing and it’s not making you any money. The only benefit it brings you is a low mortgage.
The way I would compare this is I’d say, “Well, I could rent a house somewhere else for four grand,” so by only paying two grand, that half a million is really only saving me the difference between two grand I’m paying and four grand I would be paying. So it’s saving you $2,000 a month. That’s more than the cash you could get if you just rented it out normally. You could be making three grand a month if you just rented it out normally and potentially six grand a month if you rented it out as a short term rental and even more if you manage it yourself.
So the options there financially are clearly you’re better off to get out of that thing and turn it into a revenue generating machine and find another place to live. So all things being equal, you’re in a great position to do it. And what I like for everyone else to recognize is any property you buy right now in five years, you’re probably going to be in a similar situation to old Joseph here. And that’s what I’d like to see more people doing is to quit expecting, to have unlimited options when as soon as they buy their property and instead plan for the future. And when it does turn around that your property’s gained a lot of equity or the rents have gone up a lot, then you’re in the position that Joseph is in to make several different moves that could all be good. So thanks for sharing that, Joseph. Our next clip is a video clip from Mike Fernandez in Arabi, Louisiana.

Mike:
Hey David. Love your content and it was great meeting you at PB Con in San Diego. My name’s Mike Fernandez. I’m in a small suburb just outside of New Orleans. My question is one you’ve probably gotten a couple times before, but with I guess a little bit different context, I’m wondering should I quit my job? So in addition to my W2 income, I’m a realtor, I’ll probably do around 80 to 85 in GCI this year. We flip one or two houses a year, me and my business partner, and then I also have a few long-term rentals that we get some income from. So the data points to that we have the savings and we have the income to be able to make that jump successful. My concern is with this changing market, I could foresee a scenario where multiple of those income streams could lessen or could run dry.
And for context, my W2 job is with a big accounting firm. I really don’t hate my job and I’ve been able to negotiate down to 20 hours a week. So I have tons of flexibility. I work from home, but at the same time, I feel like I’m strapped for time and I think that, that lack of time is having an impact on the income that I could be making in real estate. So considering jumping full-time, but also a little bit weary of the market. So I would love to get your thoughts, input and any advice that you might have. So thanks again, really appreciate this.

David:
Hey, thank you for that, Mike, and thank you, Eric, our shows producer for picking a kick butt question. This is awesome. I love, love questions like this because they’re real life. We’re often like, “Do I buy the duplex or do I buy the triplex?” And that’s not how real life works out. This is a real life question. Do I quit my job or do I wait and not quit my job? Couple things, I’m probably the only person that I know in the BP community, in the real estate investing community, any community that tells people, don’t quit your job.
Now, that doesn’t mean never quit your job. I quit my job. I’m not being a hypocrite here. I was a cop. A lot of people know that, worked that for a long time. Left it to become an agent. Then I left being an agent to start a team as an agent. Turn that job into a business. Then I started other businesses, but I’m still working. I haven’t completely quit. So the question here is, “Should I quit this steady job that I don’t hate just to have more time to make money as a realtor?” Well, the first obvious metric to look at is if you got back to 40 hours a week you’re spending at your job, would you make more than you’re making at that job as a realtor, and I’ll throw this in there, you need to make considerably more than you would be making.
So I don’t know if you mentioned how much you’re making at your normal job, the accounting, I believe you said. Let’s assume you’re making 80 grand a year and then you’re making another 80 grand a year as a realtor. If you quit the guaranteed income of 80 grand a year from that job to make 80 grand a year as a realtor, you still lost. And the reason is that 80 grand at a realtor is not guaranteed, and there’s a value that we can place on knowing that paycheck’s coming in. So $80,000 guaranteed versus $80,000 not guaranteed, the 80,000 guaranteed has less risk and therefore has more value.
So if you’re going to give up 80 grand, you better be making at least 100, 120 grand with that same time. Does that make sense? It’s not all completely even because when you go take the leap into entrepreneurial ventures, you’re getting rid of the ceiling that stops you from making more, but you’re also losing the floor that protects you from dropping. Now at a time when the economy is just ripping and roaring like it has been, the floor is not as valuable because it’s easier to ascend. But as we’re going into a recession, I now put more value on the floor because it’s harder to get to the point of the ceiling, like the actual economic environment you’re stepping into starts to make a difference here, and it’s likely going to get worse before it gets better, which is not the ideal time to quit your job.
Now, the benefit you get when you get out of the guaranteed money and you get into the entrepreneurial money is that even though you lost some safety and security, you gained skill building and potential upside. So the longer that you struggle in the 1099 world, which is I’ve been calling the entrepreneurial world, for you this is being an agent, the more your upside starts to steamroll or snowball and the higher it can get. So even if you left 80 grand a month and you made 60 grand a month as a realtor, there is some additional benefit in that next year as a realtor you got better skills. So now maybe you make 80 grand, then you make 100, you make 120.
So to sum all this up, the W W2 jobs value is in its security. The 1099 jobs value is in the skills that you can build. Now, I think you’re a smart enough guy just listening. You already know everything I’m getting at here. So here’s what I would say, you’re going to be time crunched. You cannot avoid that. That’s okay. Right now is not the time for any of us to be saying, “I want all my time back. I only want to work four hours a week.”
Man, the people that talk about doing that, they usually have some advantage you don’t have. They are famous. They get tons of ad revenue coming in from YouTube so they can afford to take time off. Like Joe Rogan can say, he only works four hours a week if he wants, but unless you got a podcast like Joe Rogans, that’s not an option for most people. It’s not realistic to think that, especially when the economy is hard, none of us should be working. It just leads to unmet expectations, disappointment, and ultimately people feel bad about themselves because they weren’t able to do what the four hour work week person who’s been bragging about it on their social media was able to do.
I’d like to see you keep that job, continue selling homes and focus on adding more people into your database and getting more clients that you can market to in the future. And if you catch yourself running out of time, now you got to stretch yourself in a way that is more difficult for you, less comfortable, but doesn’t take more time, and that’s leverage. Now you got to make a relationship with someone in your real estate office to show homes for you when you can’t do it or get your listing ready for the market when you can’t do it.
It’s easier for all of us to do things ourselves. This is the reality. It is easier for all of us to say, “I’m just going to go do it.” So we do that, but what we don’t realize is we’re also being lazy when we just do it ourselves. It feels like hard work. It’s really not. We’re avoiding having to train and teach and pour into and mentor anybody else. I’d rather see your skills as a business person grow by keeping your job and being forced to go find somebody else in the office to do some of the work that slows you down as a realtor so you could double your production but not put any more time into it.
Now, that doesn’t come without a cost. The cost is the frustration, the headache, the sweat, the blood, the tears of trading a new person. But I’d rather see you put your effort into that than into doing it yourself and having to quit your job. Because if you end up quitting the job to double down as a realtor and you sell twice as many homes, you may end up in the exact same financial position you were at, but just more stressed with less security. So you can hold onto the security, you can hold onto the money, you can hold onto your ability to continue to get loans to buy more real estate, and you can sell more houses if you can learn how to leverage.
Now, I’ve written books that talk about this. I talk about it in my book Skill in the top producing series that I published with BiggerPockets, and I have a new book coming out very soon called Scale. So if you go to biggerpockets.com/scale, I talk about how you take your job of being an agent and you turn it into a business of running a team or a company just like what I did.
So the whole Top Producer series is designed to say, “Here’s how you learn how to make money as an agent selling homes. Here’s how you crush it as an agent being a top producer, and now here is how you take the business that you created, crushing it, and you turn it into a business that you basically run somewhat passively.” I’d rather see you on that path.
Now, I could also tell because I did some snooping in your video that you got some Keller Waves books behind you, which makes me think you’re a Gary K.W guy. So you’re probably hearing Gary Keller give very similar advice to you that I am right now. I learned a lot of this from Gary and I think you could do it, so I’d love to see that. I’d love for you to buy the books. Let me know what you think of them and overall, if you got a job that you don’t hate and it pays good, I don’t think right now is the time to let it go. Just work twice as hard as what you’re doing before and make sure you’re building your skills twice as much.
Okay. This is the section of our show where I read the YouTube comments. These are going to come from episode 702, the last time that we did as Seeing Greene. I love this part of the show because I get to share what our audience thinks of what we’re doing. I actually got this from Nate Bargatze’s podcast. He’s a comedian that I think is funny, and I was listening to him and he reads comments from his shows and I said, “Hey, we should start doing the same.” Now, you guys can help me make this part of the show better by leaving more funny comments than what you always do. So go on there, leave some funny insight, say if you like my haircut, say if my eyebrows look good today, say something that you enjoyed that I said, or something that you notice I say all the time that I might not even know that I’m doing anything that lets us know you’re paying attention to the show. I’d love to hear it and increase our engagement.
Our first comment comes from the Hillbilly Millionaire. Excellent episode, David. I love all the answers this week. It’s a good time to get creative on renting and buying or selling. Thank you for that Hillbilly. Next comes from Homes With Me Glad. As a fellow agent, I love the question about the seller covering the buyer’s lease after the sale. What a great idea for clients stuck in a lease. I wouldn’t have previously thought to do that, and I’m glad to hear this. Thank you for that.
When I give advice like that, it’s very unique. Most people don’t think that way, and it’s not that I’m smarter than everyone else, it’s that I see more angles of real estate. So if you took this microphone right here, there’s clearly an angle that I can see it here, but there’s another angle that the camera’s going to see looking at it here. Another one that my TV on the wall is going to see, and another one that the figurine of Brandon and I that’s on this side is going to see.
I have an angle as an agent, as a mortgage company owner and a loan officer, as a podcast host, as a real estate investor, as a short-term real estate investor, as a triple net investor, as a person that meets a bunch of other people that are in this space. As an author, as a business owner of other real estate agents, I have so many different angles of the same stuff you guys hear that… Insight comes to me that wouldn’t come to someone else because all they do is one thing. They only do creative finance. They only flip houses. They only have their specialty. So my commitment is to continue to push myself in ways that frankly would make me want to pull my hair out sometimes if I hadn’t already lost it, in order to gain that perspective so I can share it with you because it’s that important to me that you guys all build wealth through real estate and that I stay the top educator when it comes to teaching other people how to make money through real estate.
So I often come up with ways to structure contracts, make offers, psychological hacks that you can use to give yourself an edge when you’re negotiating. And I love it when you guys ask me questions where I get to share that stuff because I’ve spent years helping clients buy and sell homes, and I’m just going to tell you guys the secret, it is not the easiest part of real estate is trying to work as an agent, but I learned so much. So if you guys have a house you’d like to help sell or you want us to help represent buying a house, reach out to me and then make sure you ask questions about that stuff so I can share some of the advice I’ve given to the clients I’ve represented that my team represents that we’ve used to get them a better deal.
All right. Our last comment comes from Florian Wu from the investing in 2023 webinar that we did. So timely, this is one of my 2023 goals to become an active real estate investor. 2022 is my year of passive real estate investing. Thank you so much, Florian. Yeah, I wish you good luck on becoming an active investor. I’m going to be putting together a retreat where we’re going to be working as a group to set goals, and that’s going to be in Scottsdale at the property that I bought with Rob out there. So if you guys would like, go to davidgreene24.com/retreat and you can see, and maybe it’s retreats, try both. Try a retreat and then if that doesn’t work, add the S on the end, you could get signed up for that goal setting retreat with me and you guys can see how I set goals and I can work on helping you set goals to make 2023 your best year ever.
No matter what you do, I promise listening to this podcast needs to be on your list of things to do for 2023. So do me a favor, if you’re enjoyed the show, please go leave us a five star review wherever you listen to podcasts. That could be Apple Podcast, Spotify, Stitcher, whatever your flavor is. Go there and let everyone know how much you liked the show and I hope I get to see you at the retreat. All right. That was our Clement section. Again, guys, go on there and leave something extra funny or extra insightful. I’d love to read your comment on the next show. Getting back to our questions. The next is a video question from Darek Drake in Old Jacksonville.

Darek:
Hey, David. I wanted to send you a question regarding the episode with Rob Deer Dick. He was talking about how he had a trainer friend that made millions and then lost it all because he over leveraged. I’m just starting into my real estate empire business. Little quick background. I have a three bedroom, two bathroom in Tampa, Florida that I bought as my primary residence. I recently moved to Jacksonville and now I’m turned that home into a midterm rental.
In my personal finances, I’m already highly leveraged. I’m not quite living paycheck to paycheck, but I do have a massive amount of student loan debt. I have a mortgage on my home, and the question I have for you is, I’m thinking about putting in a HELOC and using that money to go buy my next property, but given what Rob Judeck was talking about, it did highlight a point that is a concern. I don’t want to get in a situation where I’m over leveraged and then be upside down or have to sell off my assets and be back to zero. So was wondering if you had any markers or flags that I should look out for when taking this approach. I appreciate your time and I hope you have a great day.

David:
All right. Derek, this is a really good question and is something that’s near and dear to my heart. I’m actually starting a group called Spartan League where we are going to be teaching the members to function like Spartan warriors in protecting their wealth. This is something very, very important, especially as we’re coming into what is likely a recession, and even if it’s not, is a tough real estate market to be in. I think you’re asking the right questions. I think you’re thinking the right way. Now is not the time to extend yourself. This may sound contradictory to people that have been listening to me for the last five to six years where I’ve been like, go, go, go. There are times to go, go, go, and the last five to six years was artificially skewed towards go, go, go, because I was watching how much money the government was printing.
Now that I’m watching how much the government is trying to slow the economy down by pushing rates up, I’m not saying don’t buy it real estate, but I’m saying don’t buy it. There’s not as much urgency to buy it right now. There’s more opportunity to get better deals. There’s more opportunity. Homes have been sitting on the market for longer. I don’t like you getting in the position of being super leveraged. I’d rather see you keep that HELOC as a potential reserves to make payments if something goes wrong with your real estate. Now, I don’t know what the actual debt is on your student debt. If it’s 2%, I’m not going to tell you that you should be paying that off. If it’s 10%, it might be a position where you want to start paying down some of that debt and giving yourself some breathing room before you go buy more real estate.
Now, I recognize this is a real estate podcast. People might be surprised to hear me say this. I’ve always been more conservative. I got into the less conservative approach because I was watching how much money was being created, and that’s the only way you’re going to win. You fall behind as inflation eats up your capital when we’re creating inflation, but it’s been slowed down some. I think in the future it’s absolutely going to be coming back. We’re not getting rid of this thing. But right now, the risk versus reward does not benefit you to try to go buy more real estate when the prices and values are not going up as quickly as they were, and it’s harder to get rid of if something goes down, if you’re already saddled with a lot of debt. I’d rather see you take the energy that you would’ve put into finding the next deal, putting it under contract, getting it ready, managing it, learning. That’s a lot of energy.
I’d rather see you put that energy right now into improving at your job, into making more money at that job into growing in skills, into growing an influence into impressing your boss or getting a better job. That does not mean I’m saying don’t buy real estate. Everybody always goes way too far and jumps to conclusions. You should still be investing in real estate. Just don’t put 100% of your energy into it like maybe before. Put 40% of your energy into it. Put 60% of your energy into other things you could do to prove your financial picture.
If there’s one thing I’ve learned being an investor for a long period of time, it’s that while the majority of my wealth came from investing in real estate, the majority of the safety that I had to invest in real estate came from making money in other areas, and you can’t forget defense. You cannot forget safety. We haven’t been focused on it as much because it’s been so easy to score. Well, now the rules have shifted a little bit, it’s harder to score, and defense is becoming more important.
So don’t feel urgency. Don’t feel like, “Everybody else has buy real estate. I have to go be able to buy some too. I just heard somebody else bought a deal. I haven’t bought a deal.” That isn’t the case right now. You can really pick and choose your spots. I like house hacking because you could put three and a half percent down, you could put 5% down. You can keep a lot of your capital reserves to cover those payments. I’d rather see you sleep well at night than have this sense of urgency that you don’t need to have right now to go buy real estate. That doesn’t make a lot of sense.
So if you have a little voice inside that’s saying, “Hey, maybe you need to get your house in order, listen to it.” That’s a very healthy voice. Don’t get caught up in the hype of people telling you that you have to go by because you see other people buying. There’s a lot of people that have pulled back right now and in the markets that we’re the hottest, we’re seeing prices continue to come down. There’s a couple cabins I was looking at in Tennessee that were brand new build construction. I wrote less than asking price. The builder said, “No,” they didn’t want it. They’re coming down less than what I offered.
Now, of course, I wrote those offers when rates were a lot better, so it would still be more money even though I got them at a lower price if I bought them today, but I’m seeing stuff is sitting there for a lot longer that used to be flying off the shelves. I don’t think that there’s any like, “I got to buy right now.” If you’re not in a strong financial position, hang tight, improve that. Make more money, pay off some debt. Keep some money in reserves, and when you’ve got a healthy amount of money in reserves that you know will help you to sleep well at night, then you can consider buying the next property. Thank you for the question.
All right. Our next question comes from Blake Z in Minnetonka, Minnesota. Hey, David. I love this show. I’ve been listening for about six months now and just recently finished How to Invest in Real Estate by Brandon Turner. The more I read or listen on the subject, the more excited I get and the more I’m thinking of what opportunities are available, whether that be now or in the near future. One opportunity that I cannot get off my mind is our family Cabin in Hayward, Wisconsin.
Side note, guys, am I the only one that is just now realizing how many different states share the names of cities? I think I’ve told the story before where there was a wholesaler that sold me a cabin in Nashville, and I was super excited about it, and I put it under contract, and after I put it under contract, I realized that it was in Nashville, Indiana, that it was not in Nashville, Tennessee, and it just looked exactly like it, and the numbers actually still worked on it, so I was still going to go forward to buying it until the appraisal came in way lower than the appraisal they originally had, so I had to back out. But there’s a Hayward in California that I go to all the time. There’s an awesome restaurant there called the Red Chili that I love, and now there’s a Hayward in Wisconsin. Is Hayward that popular of a name that every state out there wants their version of it?
And I’m seeing this like all the time. There’s all these different cities that different states have that you would assume is the main one that we’ve all heard of, and then you find out, “No, Wisconsin has their own version of this city.” Okay. Back to the question off of my rant. It’s been in the family for about 30 years now. While it could use a little work and as one of the best views on the lake, it has never been rented this day and my dad is nearing retirement. He has about 230,000 left on the mortgage and the cabinet’s worth roughly 650,000 in its current state. With talk of retirement, eliminating a monthly expense of $2,400, it’s becoming very enticing to him. Nothing would hurt me more than seeing that place that is most important to me go, but it is a real possibility the next few years if we don’t come up with a plan. My dream for the property be to take down the short-term rental route through Airbnb or Vrbo.
I put together an Excel sheet outlining all the costs, showing the comps in the area, and outline the annual yield that he could have at various occupancy rates. My end goal in this would be to set it up so that rather than selling it, I could help manage and work on this so that I can earn equity and hopefully purchase it from him myself. Do you think this is a realistic scenario and a good idea for something that could help me build my portfolio in the future? Thank you in advance.
All right, Blake Z. Here’s what I’m thinking. Let’s assume you can manage this thing. I would like to see you go that route. Now, your dad may want to sell it, but the first question is what does he need the money for? He’s got roughly 400,000 in equity in this thing. Does he need that cash? Maybe not. Let’s assume he doesn’t need the cash. He also doesn’t want that $2,400 a month of expenses just sitting there as he goes into retirement and his own income is going to drop.
So here’s a potential strategy that could work for all of you. You tell your dad, “I want a lease option to buy this house at whatever price you think if you think.” It’s worth 650, maybe you get a lease option to buy at 550. Maybe he hooks you up a little bit because you’re his son. Now that means you have the option to buy the house for this price in a certain period of time, but it doesn’t solve your dad’s problem of that $2,400 a month mortgage that he doesn’t want to have. While you have the option to buy that house, you’re actually going to gain control over it, meaning you can use it for purposes that you want to use it for. That doesn’t mean you have to live in it. Least options usually work with someone living in the house and paying rent.
But what you could do is take over the property, pay the $2,400 a month for your dad, so that solves the first problem he has of not wanting that money. And then you rent it out like you’re saying. And if you can manage this thing profitably, he gets $2,400 a month so he doesn’t have a payment anymore, you get some cash flow for managing the property and maybe you kick your dad some extra money because you’re managing it for him. So now he’s not in any hurry to get rid of that property. You also have a lease option to buy it for less than what you think it’s worth, but you’re not obligated to buy it, so you’re not in any distress, so you don’t take on any risk because if you don’t want to buy it for the 550, you don’t.
Your dad’s not taking on any risk because he’s getting that mortgage paid and some extra money coming his way from you. You’re also building up the skills of managing a property and your dad gets to feel good that he’s hooking you up, not giving it away to some stranger. I think that this would work for all parties involved. The keys you want to make sure you’re good at is you can manage this thing. If you don’t know how to manage a short-term rental, then this plan is going to fall apart and your dad doesn’t need the 400 grand for something else. If he needs that money for something else, the strategy is probably not a good idea.
But I like how you’re thinking. You’re approaching this the right way. I think this is something you could do and something needs to be done because if this cabin is just sitting there earning zero income for all of these years, and your dad’s just bleeding 2,400 a month for the right to have a vacation home that your family would go use. You could still use it, just don’t let it sit there and be useless in the meantime. Make that sucker generate some revenue, and if your family wants to use it, just don’t book it for those times. Nothing will change from your dad’s perspective other than he gets the right to use the cabin and doesn’t have to pay the 2,400 a month and you get to be the good son that makes money for yourself and money for him. All right. Our last question comes from Nick Anthony in Santa Monica.

Nick:
Hey David. My name is Nick Anthony coming to you live from beautiful Santa Monica, California. And my question for you is regarding asset management. I started a new gig, overseeing a portfolio of about 30 multi-family properties ranging from like six to 20 units here in Los Angeles. And I come from a long history of property management and leasing of these apartment spaces. So my question for you is pretty broad, but basic what your day-to-day roles were for your asset manager.
I assume you know, have properties throughout the country, but does she or they just focus on one area? What are the day-to-day things that they do for you and the things that you have your management team do for you? What are the differences between your property managers and your asset managers? And I don’t want to step on any toes with the management teams, but at the same time, I want to help out the principal as much as I can. Thank you so much for your time, and I hope this question makes sense. Thanks a lot.

David:
All right, Nick, this is a really good question. I like you asking it now. The person that was running my properties is my asset manager. Had another job. They were supposed to leave that job and come work for me. They got a raise at that job. They decided they didn’t want to do it, so they’re actually not managing my properties in that sense. I don’t have an asset manager. My personal assistant Krista is taking over that role of communicating with property managers. But I will still answer the question for you about how you want them to be working and then give you some advice of how this can go wrong.
First thing, say, when you advertise that you want an asset manager, a lot of people will say, “I want the job. I want the job,” because they love the title of asset manager. They love the fact that they get to say they do this, but there also is this understanding that it’s going to be less work because there’s already property managers in place. You have to be very careful with this because it can become a job where somebody makes a good income but doesn’t have to do a lot of work. And if you’re not careful, not only will they not do a lot of work, but they will not actively work to save you money. They will actively work to make their job as easy as possible. This is a frequent problem whenever you start to delegate stuff like this.
So in my experience, the people that I’ve hired to do roles like an asset manager, they were not often always an asset manager, could have been a chief operating officer for a company. Anybody that manages other humans can easily say, “Hey, this happened boss, this happened boss, this happened boss, what do you want to do?” And you say, “I want to do this.” And then they go, “Okay.” And then they tell people what you said and then they come back and say, “This happened.” And that’s not a job. This is just a person getting paid to be a notification system that an email could have served. You want a person that is actively working to save you or make you money in that business and that the salary you pay them is less than the money that they make or save you with their presence. That is the key.
So to define terms here, a property manager is the person that deals with the property directly and the problems that occur in it. So this would be a person managing a short-term rental, a medium-term rental, a long-term rental. I have a property management company for a lot of my regular rental properties that find the tenants that collect the rent, that tell me when something goes wrong and go find a person to go out there to fix it. That let me know when there’s a vacancy and if there’s an issue like an eviction or late rent, they handle it and tell me what happened. They’re actually doing work, and so they get a cut of the rent for that. All right.
An asset manager is a person that manages those people. So rather than your property manager coming to you and say, “Hey, here’s what happened.” They go to the asset manager and the asset manager makes the decisions. In addition to managing the property managers, your asset managers should be looking for ways to help you acquire more properties and run those properties more profitably. So let’s say you have a lot of short-term rentals, your asset manager should be looking at things like, “If we reinvested this much money in the backyard, we can increase our return by this much money and our investment would be paid back over a two year period of time.” Or if we sold this property and we reinvested the money into a property over here, we could increase our revenue by 50% because the return on equity would be much higher.
That is how an asset manager should be thinking. They should be looking at like, let’s say I have a triple net property that is a commercial deal, and so we have to review leases for that property when the tenant leaves or when we have a new person that wants to rent the space. You don’t want an asset manager that says, “Hey Nick. What do you want to do? This is what they’re offering.” You want an asset manager that goes and negotiates for you to get the rent as high as you can get it, or does the due diligence on the tenant to say, “Let’s skip this one, or Let’s go with this one.” They need to be actively looking for ways to save you money. That’s the key that I want to highlight to everybody here.
It is so easy when you hire an employee for that employee to get all of… I get a name tag on my desk. I get to say I’m the chief operating officer. I am the asset manager of so-and-so. I’m a big deal. But when you actually look at what they do all day, they’re not saving you money. They’re not actively looking to make you money. They’re actually just trying to collect the paycheck you give them and do as little work as possible. That’s what you want to avoid. The right asset manager will save you or make you more money than what their salary is.
So on the other side of this coin, if you’re listening to this and you’re thinking, “Well, I’d like to be an asset manager for somebody,” that’s your challenge. Can you figure out a way to know enough about real estate to know enough strategy to be savvy and smart enough to save somebody else more money than what it costs to hire you? Now, everyone will go out there and say, “Well, I can save you time. Hire me, and you won’t have to check your email inbox.” Well, that’s true, but how much is that really worth? Is that worth 100 grand a year to have someone that can monitor my emails and come say, “Hey David. This thing went wrong. What do you want to do?” No, I can have a personal assistant do that. And right now that is what’s happening is Krista comes to me and says… In fact, we just got out of our meeting right before we started recording this.
“Here’s all the things going wrong. There’s been a lot of storms in California. Here’s all the trees that fell over on the properties. What do you want to do?” And I say, “Go get quotes from these tree companies to get it cleared.” And she goes and makes notes and puts it in her CRM and she does that. “Hey David. We got the bid back for the home theater that you want to put in this cabinet. It’s going to be $6,600. Okay. Give me an itemized bid from the contractor that says what I’m going to be getting for the $6,600. Okay. I’m on it boss, and she comes back.” I don’t need an asset manager for that. I just need the person to keep it organized. You might not need an asset manager, you might just need a personal assistant and you might not even need them for 40 hours a week. It might be someone you could pay 10 or 15 hours a week to just keep you in the loop of what’s going on and you make the decisions.
When you hire the asset manager, you are paying them for their decision-making ability and the fact that they know more about real estate than you do. It typically doesn’t happen until you’re managing like big apartment complexes and you want to go hire someone that understands the balloon payment structure of financing and how to increase the NOI so that when you have to renew the mortgage, you’re going to get approved to do another deal. You want to have someone that understands value add and dealing with contractors and can save you money and increase rents, not someone that just says, “Tell me what you want me to do.”
So again, you want to increase your income, you want to climb the ladder, and you want to get to the position of asset manager. Don’t worry about saving people time, worry about saving people money. Thank you, Nick for that question. I hope it answered what you were looking for, and I also hope I help you avoid some red flags or bad hires in the future because they’re very easy to make even when you have the best of intentions.
All right, guys. That wraps up another Seeing Greene episode, and that one was pretty fun. We got to talk a lot of real life stuff. Asset managers, having a hard time finding properties in a hot market, when a job should be quit, when time should be put towards entrepreneurial ventures versus the W2 world. All that and more. I want to thank you guys for being here. If you’d like to learn more about me, you could find me @DavidGreene24 all over social media. There’s a E at the end of Greene. You could also go to davidgreene24.com, which is a website I’m having made at probably around this time this airs, it should be up and running, talk about more of what I could do to help you.
I also have a library of books that I’ve written with BiggerPockets publishing. You could check those out at biggerpockets.com/store. And most importantly, please make sure you leave us a comment on this YouTube channel. If you’re listening or leave us a five star review wherever you listen to podcasts. I’d love you guys for that because I working very hard to keep this the top real estate investing podcast in the world.
Thank you very much for being here. I know that you could give your time and your attention to anybody, so it means a lot that you’re here with me. I hope I help you make some money and save some of that money that you’ve already made, and I hope you get one step closer to the financial freedom that we all desire. Thank you guys. If you have a minute, watch another video, and if not, I will see you next week.

Entrepreneurship is a long, complicated road, often littered with unforeseen landmines and fires that need to be put out. It’s not a lifestyle for the timid, and its fast-paced nature rarely presents opportunities for contemplative reflection. As 2023 unfolds, however, it’s important to take a step back and look at areas where your business may need more attention in order to achieve your goals.

We interviewed prominent leaders at three companies and asked them why they thinking taking a step back to review company processes is a necessary task. Where should they begin?

“Entrepreneurs start their companies to pursue their dreams,” says Greg Alexander, CEO at Collective 54, the first mastermind community for boutique professional services firms. “Yet, in pursuit of these dreams, life gets in the way. Between emails, Zoom calls, and client meetings, it’s important to step back from time to time to sift through the noise and remember why you’re in business to begin with.”

Harshith Ramesh, co-CEO of Episource, a leading provider of risk adjustment services, software, and solutions for health plans and medical groups, said he tries to look at tasks in terms of the “Eisenhower Matrix,” a 2×2 table grouping tasks by how important and urgent they are.

“When you’re building a business — and especially in the early stages when you’re in high-growth mode — you end up spending all your time in the ‘important and urgent’ bucket,” he says. “In the early days, it’s okay; you’re doing everything you can to get and keep customers. You’re trying to survive and just get it done. However, you have to keep in mind that you start racking up organizational debt while doing so.”

What if ‘what if’ happens?

Larry Clarke, CEO at NanoGuard Technologies, which leverages the power of technology to prevent food and feed waste and aid food recovery efforts, understands the pressures of a startup lifestyle all-too-well. When asked how he’s doing, he answers matter-of-factly that he’s spinning like a top.

“While it is true, it is also seen as a badge of honor. In reality, my answer should be ‘I am quietly reflecting on the long-term business strategy and direction.’ Doesn’t have the same pizzazz, does it?”

While a startup requires that everyone be willing to step up and do a little bit of everything, a CEO needs to be able to look back and evaluate what’s working in order to sow the seeds of future success.

“That means allotting specific time to step back and review the greater marketplace, the long-term goals of the business, and how to articulate these to myself and stakeholders,” Clarke says. “Someone must always be thinking about the ‘what if.’ What if the technology doesn’t work? What if the markets change? What if someone else bring along a better, more disruptive mousetrap? Someone needs to be considering Plan B and C. And even D.”

Startups, by their very nature, run the risk of needing to pivot on a dime. But when they focus to the point of obsession, they can’t accomplish that easily and may miss out on prime opportunities.

“Taking time to let your mind wander is a good thing,” says Clarke.

Going from doer to thinker

The leaders of small companies are scrappy and prefer to get things done, so going from a “doer” to a “thinker” is not an easy transition. To force the issue, Clarke believes that blocking off a set period in the day for “big-picture” thinking is key.

“Making the time is time well-spent because it is the effort, that over time, creates value. I take time out at some point in each day to just think,” said Clarke. That structure—and the right tools—are helpful to get into that contemplative mindset.

“I like a whiteboard,” says Clarke. “Also, thinking out loud helps me. Having someone to listen and question your thoughts in a broad way, not trying to direct you, but creating an open dialogue to help the process along.”

Ramesh said he makes it a point to block off some time on his calendar on a weekly basis to address these “Important & Not Urgent” issues.

“Historically, our company ran pretty lean,” he said. “However, over the last few years, we’ve over-invested in our organization, hiring executives and managers in key positions in which one of their primary responsibilities is to focus on where the business most needs attention. We ask that our executives and managers dedicate around 20-30% of their time to these issues and how they can optimize the business. Thus, it’s important that entrepreneurs and business leaders take some time to step back and address what’s in the bucket of ‘Important & Not Urgent.’”

Asking the right questions

As you think about your business processes and procedures, here are a few guiding questions that you can consider:

● Are we properly investing in all areas of the business (finance, legal, compliance, IT, sales, etc.)?

● Do we have a strong people program and culture? Are we developing leaders? Do we have a strong hiring and training process? Do we have competitive compensation and performance management?

● What does our three-year plan look like?

● What are the biggest risks to the business? Do we have plans in place to mitigate those risks?

● Could we improve our consultants, advisors, and/or board of directors?

In Ramesh’s experience, a business can’t — and shouldn’t — be overly dogmatic about sustainability and scalability.

“In the early stages of growing a business, it’s especially critical to understand your clients, build solutions to solve their needs, and generate revenue,” says Ramesh. “If you consciously make the decision to move fast in the business’s infancy, know that down the line you’ll need to refocus your energies and strike a new balance to create a scalable, long-term business.”

While you’re looking forward, take the time to look backward, too. Twice per year, Alexander reviews the original business plan he wrote before launching his firm in 2019.

“A lot has changed since then. Many of my assumptions were wrong, and some were correct. But, what has not changed is the mission, vision, values, and goals I set forth pre-launch,” Alexander says. “I remind myself of these and screen the current reality against them. If we are not living the mission, vision, values, and goals, we recalibrate. These are the North Star, and they never change. But the business tactics change all the time.

“It takes 15 years to become an overnight success. As much as things change, the truly important items change very little.”

Ashley:
This is Real Estate Rookie episode 258. So one of the first ways that you can look at a property for free and get some information on it is going to your county’s GIS mapping system. So if you know what county this property is that you just drove by, you’re going to Google Erie County GIS mapping system. It’ll take you to the county website where there’s a link to their mapping system where you can put in the address of the property. You can kind of zoom in on a map on the property and it’s going to give you some generic details about the property. 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. And today I want to shout out Chad and Emily who left us a five-star review on Apple Podcast. They say, “Longtime VP listener, but I love the way the host keep it simple and actionable. If you’re just beginning and don’t need deeper understanding of the nuances in real estate, this is where to start. Using this podcast and other VP content, we have purchased an investment tri-plus last year, even during these hots market conditions and now have the lot next door in our contract with seller financing. This show really works.”
Chad and Emily, congrats to you guys on all that success, and thank you for that five-star review. And if you’re listening and haven’t yet love to say five-star review, please take just a few minutes out of your day, do that small favorite for us. The more reviews we get, the more folks we can reach, more folks we can reach, more folks we can help. Ashley Kehr, how you doing?

Ashley:
So once again, we are live in Phoenix. This is what, probably the-

Tony:
Episode 333 that we’ve done here.

Ashley:
But they’re all in different orders that we did, but for a while we’re going to be doing some live recordings. So let us know how you guys ended up liking these episodes in person. I feel like it’s a lot more fun to get to talk-

Tony:
Actually sitting here with me.

Ashley:
And actually for this episode, this is the last one we’re recording before we head to the airport. My actually flight just got delayed, so we’ll see if I actually make it home.

Tony:
I don’t know if you guys know this about Ashley, but she probably has the worst travel luck out of anyone I’ve ever, literally ever met. She went to Florida and it hurricaned in Florida when she was there last time. It’s like everywhere you go.

Ashley:
Yeah. And then I went back to New York, so Florida was a state of emergency. I went to New York, they had a big snowstorm state of emergency.

Tony:
And right now she gets a flight saying blizzard warning for her layover in Denver.

Ashley:
And that’s not even the flight that’s delayed. I’m delayed to Denver, so I’m sure if I do make it to Denver then [inaudible 00:02:35]-

Tony:
It’ll be even longer. So anyway, the lesson to take away from this is if you find yourself on a flight with Ashley, get off.

Ashley:
So we decided for our last episode here together for this one, we are actually going to have a drink. I think that probably during the episode we were talking so much we each only took one sip maybe, or two.

Tony:
[inaudible 00:02:59].

Ashley:
So if you’re listening to the show, feel free to have a drink with us.

Tony:
Well, you know it’s bad luck to cheers and not drink.

Ashley:
I’m focused on the cheers.

Tony:
[inaudible 00:03:08].

Ashley:
So Tony, what was your favorite part about being in Phoenix and the meetup?

Tony:
First, if you guys came out to the meet up, we appreciate you guys. If you missed it, please do go to the Real Estate Rookie Facebook group, we’re the BiggerPockets forums. Let us know where you guys want to see us next. We really do want to take the show on the road and meet more people from the rookie audience.
I think my favorite part of being here was hearing the stories. I met so many amazing people. I met a kid who was 19 years old already thinking about investing in real estate. Met another guy that was 20 years old already door knocking, trying to find deals. I met someone who flew all the way from Ohio. I met people who, just so many different stories and so many different achievements and so many different successes. And that’s what makes this role that we have as podcast hosts so incredibly …

Ashley:
Yeah. I mean, I’m on East coast time right now, so I was up pretty early, but I have to see the energy in that room yesterday motivated me to get to work right away this morning.

Tony:
People always tell us, they come up to us and say, “Tony, Ashley, thank you guys so much for everything you do on the podcast.” And I heard a little bit of that last night as well. And what always tell people is that, really, all we do is we answer the …

Ashley:
We facilitate it.

Tony:
Right, we facilitate the conversation, but the people that really bring the value are the guests for sharing their stories. And then really, it’s all the listeners who take those stories and turn them into action. Because we could put out this podcast, people could listen and do nothing with it and no one would really care. But it’s the fact that people are hearing these stories and doing something with it that makes all the difference. So kudos to you guys for taking action.

Ashley:
So if you guys want to find out more about meetups and events that BiggerPockets is doing, you can go to biggerpockets.com/events.

Tony:
All right, so we’ll get into the first question. Today’s question number one comes from Sam Ecmillian, and Sam, I hope I got your last name right there. But Sam’s question is, what is the best way to find the name and the number of a property owner? On the way home, I see this one home that’s been what appears to be abandoned for over a year, and I would like to get in touch with the owners to buy it. Any help is greatly appreciated. So Ashley, as you’re driving through Western New York and you see those houses that you want to buy, what steps are you taking to find those property owners?

Ashley:
This is why I don’t like to drive so that I can take action right away and actually look up the property.

Tony:
You have other people drive you.

Ashley:
Yeah, so-

Tony:
Wait, let me ask a question. Can that be a business write-off then? Say that you hire someone to drive you around-

Ashley:
Oh, definitely.

Tony:
… just so that you can look at deals.

Ashley:
Or even just so that I can do work-

Tony:
Work.

Ashley:
… in the backseat.

Tony:
Man.

Ashley:
Actually, we were talking today about how I put in a reservation for the Ford Lightning, the electric Ford. And part of the features of it was it actually had a desk tabletop that would flip out from the [inaudible 00:05:52] console. That was one of the selling points, like I can actually use it.

Tony:
So a new tax strategies unlocked here on the Rookie podcast.

Ashley:
So one of the first ways that you can look at a property for free and get some information on it is going to your county’s GIS mapping system. So if you know what county this property is that you just drove by, we’re going to Google Erie County GIS mapping system and it’ll take you to the county website where there’s a link to their mapping system where you can put in the address of the property. You can kind of zoom in on a map on the property and it’s going to give you some generic details about the property.
So you’ll have the address, you’ll have the current owner, sometimes it will include the sales history of the property, what the county property taxes are, and then also a mailing address for the owner. So that’s the address that is actually on the tax record where the property taxes are mailed.
So you can get an idea of, if the mailing address shows out-of-state, it’s probably an out-of-state owner. If the property taxes aren’t mailed to that property and appears to be vacant, well then that’s kind of a dead end because if you mail the property, mail to that property, you’re not really going to get anyone if you do know that it’s vacant or maybe it’s just really distressed and it’s really not vacant. So that would be the starting point is going on there.
You could also go to the town website and pull up the property taxes. Almost all municipalities have the property taxes online that you can go and you just put in the address and it’ll pull up the property tax record showing the mailing address and the current property owner. And then there’s paid services like PropStream where you can pay $99 per month to get access to information like that. And then also Invelo is a new partner with BiggerPockets where you can pull information like that too. So if you’re a pro member that is free.

Tony:
Yeah, I’ve used the paid software a lot to source all of our off-market deals and it’s super cool. 30 seconds or less, you find the property, plug the address in, skip trace the owner and you got some contact information.

Ashley:
Do you want to talk more about skip tracing because I touched on the mailing address if you’re mailing them letters.

Tony:
Yeah, so it’s a lot of times, these property softwares, they will give you as part of your initial subscription, the property owner’s name and address. But if you want a phone number, typically you have to skip trace. And skip trace comes from, I don’t know where it comes from, but anyway, the process of skip tracing is, I don’t know what it does in the backend, but it takes this person’s information, their name, their addresses, and it looks for some kind of records online that have phone numbers associated with that person’s information. And then it spits out a phone number for that person.
Typically, you’re going to get several phone numbers and you don’t know which one is the right one. You could get up to 10 phone numbers back for one person and you got to work through each one of those 10 to find the right phone number. And sometimes you’ll call, say you’re calling for Ashley and maybe you find Ashley’s brother and, “This is not Ashley Kehr, this is …” Ashley, what’s your brother’s name?

Ashley:
Chad.

Tony:
“This is Chad Kehr. What are you calling for?”

Ashley:
Malloy.

Tony:
Oh yeah, Malloy. But anyway, sometimes you have to work through some of those dead leads. Some of the other issues that I run into sometimes with some of these paid software is that when you look up the owner, sometimes it’s an LLC, and with an LLC it doesn’t really show what an owner’s name is. Sometimes it’s a PO Box, so it’s hard to figure out where to mail that stuff.
So what I typically do when it’s an LLC or some kind of entity is I look that up on the state, the Secretary of State website. So every state has an SOS website, Secretary of State, and if you plug in that entity’s name, so 123 Main Street LLC, and then it shows who the registered agent is, sometimes a mailing address. And then there’s one step further you can take to try and find that person’s contact information.

Ashley:
And if you remember when you were a toddler and you went to somebody’s house and they didn’t have a booster seat, they give you that big old phone book to sit on as a booster seat. So you can go online these days and go to the whitepages.com and you can even search the person’s name on there too by state. So if you do get their mailing address, you might even be able to get a phone number off of the white pages too.

Tony:
Have you used that with success before, the Whitepages?

Ashley:
Yeah.

Tony:
I know that it’s around, but I’ve never actually used it, but that you’ve actually had success with it.

Ashley:
Yeah. And also another way too is if you have the person’s name, so if it’s a personal name and maybe you have their mailing address so you know that they’re from the Buffalo, New York and you go on to Facebook and search their name on Facebook too and see if anybody comes up, that it shows that Tony Robinson from Buffalo, New York, he has it in his profile, comes up, you can take that risk and message the person, “Hey, are you the owner of this property?”

Tony:
That’s like some next level type sleuthing there. Have you seen You on Netflix?

Ashley:
Yeah.

Tony:
That’s like some Joe type activity. So for all my You fans out there, you know what I’m talking about. Cool. All right, let’s jump into the next question here. So question number two today comes from Will Harrington and Will says, “For those of you who do direct mail, do you list your offer price and terms in the letter or is the goal to get them on the phone first?”
That’s a great question, Will, and I’ll kind of share what steps I take in this. So when you send direct mail, think about it almost like dating. And you like the dating analogy with partnerships, but it works well for this as well. When you date someone, when you first meet them, you don’t say, “I love you and I want to marry you.” You say, “Hi, my name is Tony, what’s your name?”
And when you’re going off market, it’s very much the same process. Two reasons that I would recommend you don’t give the offer up front. First, it could turn that person off if the offer is way too low, they might not even take the time to respond to you and maybe they would’ve taken that offer had you really built some rapport with them first and communicated the value you can provide to them and all those other things. But they just see the number first. If it’s lower than what they want, they may not even take the time to communicate with you.
And on the flip side, if your number’s super high and they respond right away and say, “Yes, take my home,” it’s probably a sign that you could have gotten it for a lower price. So I think the purpose of that direct mail is just to express your interest in purchasing that property and then it’s the phone to phone or the face-to-face or on the phone conversations where you build that relationship and provide the value to get it at the right price.

Ashley:
The person that I want to refer you guys to is Nate Robbins. So on Instagram he’s N8, the number eight, Robins, and I have him onto every bootcamp session I do to talk about direct mail and cold calling.
So what he does is I agree, not putting the terms because you haven’t even seen the inside of the property yet most likely. So you don’t actually know what you can really offer the person, but when he actually sends out the letter and then maybe they call him or he’s just doing a cold call or door knocking, he likes to let the person know. And within the first 30 seconds, the reason for the call is, because there’s that kind of you’re getting a call from somebody unknown or you’re calling someone and letting them know, “I’m interested in purchasing your property.” And then that’s where you kind of lead into, “Let’s discuss more about it.”
And he tries to get as much information as he can and if they ask for an offer, “Well, what do you want me to sell it for? What are you going to pay for it? What’s your purchase price, what’s your offer?” And he goes on to say, “To give you a fair, reasonable price, I would really need to come and see the property. I don’t want to waste your time by giving you some number that I’m throwing out without actually seeing the property itself. I’m available to tomorrow, I can come out to the property, I can take a look at it and I can give you an exact number instead of a ballpark number as to what I would offer for.”
And really explains that it’s to the seller’s benefit that they’re going to take him through the property and show him instead of him just throwing out some random number because he is letting them know it wouldn’t be a number he could commit to without seeing the property anyways. So what would be the point?

Tony:
Yeah, that’s a great point. And there really is a framework you can apply to direct to seller conversations. And Nate Robbins is a great resource. Brit Daniels, he’s got a bunch of free stuff on YouTube where he breaks down his scripts with folks. Another guy by the name of Max Maxwell who’s also been on, I think on one of the BP podcasts before. He’s got a great kind of framework around how he speaks to people. So do a little YouTube university, you guys can find some great resources on how to communicate with those people when you got them on the phone.

Ashley:
Our next question is from Iva Forton. “Newbie here, what are the reasons a house wouldn’t qualify for a mortgage?”

Tony:
That’s a great question. Have you ever applied for a loan and it not gotten approved because of the condition of the home?

Ashley:
No.

Tony:
I haven’t either. But I think it’s because I have purchased homes that I think have been in pretty terrible shape.

Ashley:
You didn’t try to get the loan.

Tony:
I didn’t try to get a traditional loan. We went with private money are hard money. So I don’t know. What would your advice be to Iva?

Ashley:
So part of the reasons is that it’s inhabitable. So especially if you’re going for an FHA loan or maybe even a BA loan where it’s meant to be your primary residence and they want you living in the property pretty quickly after closing. So they will actually go through and FHA does their own inspection. This is separate than you hiring an inspector, they’re mostly going through to making sure that the property is habitable, all the mechanics are functioning, that it’s also up to code.
So I remember when my cousin bought a house with an FHA loan, they had to have handrails installed on the stairway because it wasn’t up to code without those handrails, and they couldn’t close on their FHA loan until that was done on the property. So there’s things like that.
But then if you’re going the conventional route where there is no FHA inspection, it’s more flexible, but also the bank may not go onto the property if it doesn’t have running water, things like that. Bank sometimes will require that you have a well and a septic inspection. So if those are not operating, that needs to be corrected. But that can get pretty expensive too to do.

Tony:
Yeah, and what we talked about so far is the physical nature of the home, but it’s also the nature of the contract you have. So another reason that a home wouldn’t qualify for a mortgage is if the amount that you have it under contract for is higher than what the property’s actually appraised for.
So say you’re trying to buy a house for half a million bucks, but the bank only thinks it’s worth 400,000, they’re not going to give you a loan for that $500,000. They’re going to give you a loan for the $400,000 and now you as a borrower are responsible for that $100,000 difference. So that’s the only other scenario I can really think of outside of the condition.

Ashley:
Actually, that made me think of one more, and it would be if you cannot get title insurance on the property. So a bank will not give you a loan on a property if they can’t get title insurance. And that’s basically saying when the title company went and did the title work to show that yes, the person’s selling it is the owner and you are now the buyer going on title and there’s no liens, there’s no judgments, nobody else owns it, you’re getting title insurance in case they made a mistake so that you’re able to, the insurance will pay out, you can pay off your loan and pay damages from having this corrected or you lose the house to the person was actually the owner, but the bank will not lend on it if you can’t get that title insurance. So I’ve come up with this in two circumstances.
One was a campground where it was actually sold at the county auction for back taxes. The bank actually that had the mortgage on it is the one who bought it from the county at the sales auction. During that time period, there was no title insurance put on the property to show those two transactions. So it going from the owner that defaulted to the county and then the sale from the county to the bank.
So a title insurance would not put title insurance onto that property for so many years, like a time period had to pass. And if nobody claimed ownership or called out an issue in the title, then they would go ahead and reinstate that. But that means that there was no bank that was going to lend on it, and that’s coming up with cash to hold that property in cash until it was bank financing.
The second time I ran into it as a lake property where they had a separate parcel that was included into the sale, but the separate parcel was actually where the driveway was, so it needed to be included with that house. The Lake Association had actually sold that piece of property to the current owners.
Well, it had actually been an abandoned piece of property and we couldn’t get title insurance on it because there was no record of any previous owner. And later on we actually did some digging and the sellers actually found a letter of abandonment. So with that letter then we were able to get title insurance, but if there wasn’t that letter then we wouldn’t be able to get title insurance and the bank wasn’t going to finance at that point.

Tony:
We should probably bring a title insurance expert onto the show.

Ashley:
Yeah, that’d be really cool.

Tony:
Just to talk about the purpose of title insurance, different claims that people have filed because title insurance for a lot of us is just something, like a box we check when we’re closing that your lenders typically make you get, but it’s not something that I think a lot of people understand in detail around what is it actually for? When can I use it? And what are the risks of not having title insurance?

Ashley:
Yeah, I actually did, last spring it was, I did a hard money loan and the closing was actually at the attorney’s office of the hard money lender and there was some issues with the title work there and they actually had a title attorney at the closing who was trying to figure out the situation. But it was a three-hour-long closing and we ended up not even figuring it out.
It was a Friday and we ended up having to wait until Monday to close. But we sat there and we literally just picked this title attorney’s brain going after all these scenarios and things and it was really interesting. I did ask him if he would like to come on the podcast and stuff. He’s like, “I do so many speaking events and things like that.” Here I am thinking here’s an opportunity, come, get some more clients, come to the podcast. He’s like, “Oh, I do so many speaking engagements, I’m really kind of burnt out.” I’m like, “Oh, okay.”

Tony:
You win some, you lose some. All right, so our next question here comes from Nathaniel Munier and Nathaniel’s question is, I have the opportunity to purchase four single family rentals from my wife’s relatives. They’re very upfront and honest about the houses. Would you do a title search on each of these properties or save the $1,000? This will save me some out-of-pocket costs, but it would be the property I’ve purchased without a title search. We kind of just touched on this, right?

Ashley:
Yeah, I would say no because they could not even know of the issue.

Tony:
Just because they think it’s clean doesn’t mean there wasn’t something happened before they owned. So I don’t think we need to spend too much time on this one because …

Ashley:
And usually it’s typically the seller that is paying for the title work because usually they should have the title search already or the abstract of title and give it to the title company and then it gets sent to your attorney and then you’re updating it from there.

Tony:
I think we pay for our title work.

Ashley:
Well, I think it’s split because it goes on both sides of it, but you can usually have the seller cover all of it, but there’s work that needs to be done on both ends. So there was actually a property I was selling that somehow we misplaced the title of abstract, the title search, so we had to pay for a new title search. So I’m thinking at the cost of that, that they probably don’t have the title search anymore, that being that it would cost $1,000 because usually it’s not that much to just update a title.

Tony:
And I was going to say, I’m not even sure what we pay for our title reports because it’s just something that’s rolled into our closing costs. So if you ask me what we pay, I can’t even tell you.

Ashley:
Yeah, my attorney, we usually pay around $1,200 per closing and she fronts the closing costs of doing the title work. So I know that she’s not making only $200 on it. So another thing that goes along with the title insurance is a survey. Sometimes a seller will ask you to accept the survey that they have.
So I actually just closed on a property last year where I accepted a survey from 1986. It was my attorney talked to the surveyors who had done it. The property was still went and staked out where the survey lines were and we accepted it as is. But that is something to also be cautious of if lot lines have changed and the survey has been different.
So there’s also been properties where we went to … the seller went to go have it surveyed and issues came up from the last time they had it surveyed until now, and they had to resolve those issues with the neighboring property owner before we could actually close onto the property. So that’s another thing to not skimp on if you’re not sure of the whole picture of the parcel.

Tony:
Yeah, I mean, I think for me, just the spirit of the question I think is what are some ways I can save money, but I think if you are making this several hundred thousand dollars investment into a property, spending that extra $1,000 to protect yourself is so worth that small investment because imagine if there was an issue with the title or the survey or whatever it was, that’s going to come back and potentially cost you way more headache, more cost and more time than the [inaudible 00:23:48] cost a thousand bucks or so.

Ashley:
And do people actually go and not do the title search? They must be just doing a quick claim deed and then updating the title, not actually going back and doing the title search.

Tony:
I’ve never not had a title report run, so I’m not even sure what the process is if you don’t. I literally couldn’t even tell you.

Ashley:
Yeah, because you’ll still have to pay a fee to have the title updated to show that you are now the deed, hold the deed on the property. Another thing to add on to that too is so within the last couple years, the market’s really hot. People are waiving inspections, everything like that, and you couldn’t have any kind of contingency on a property. But now that is kind of changing and also with this example where it’s your family, so I doubt that you’re competing against a ton of other buyers too.
So I think it would be perfectly acceptable to ask for these things. And even for anyone listening, if you’re putting in offers, now is not the time to skip an inspection. You’re at an advantage now that you can put an inspection into your property and it’s not going to be completely out of the bidding process, I guess.

Tony:
Yeah, I think in the last few years to be competitive, a lot of people were doing that, but for our rookies, I think it is a slippery slope because if you get into a property, there are some things this family, they might not even know that something’s wrong with the property. When’s the last time they scoped the sewer line or they check the HVAC or if there’s a septic tank, did they have the septic tank inspected? There’s so many things that are kind of behind closed doors that you can’t see unless you open up and do an inspection.

Ashley:
Or one thing may be okay to you or be okay to your father-in-law but not be okay to you like, “Oh yeah, every year I got to go in there and jiggle this thing.”

Tony:
It’s fine. It’s no big deal.

Ashley:
Yeah, no worries. The hot water tank, it maybe starts making noise, just give it a couple kicks.

Tony:
Everything’s good.

Ashley:
Because I think it’s way better to just go ahead with the inspection now and just be honest with them too and say, “You know what? I completely understand your honesty, but I would still like to do an inspection on all these things in case there’s things you guys don’t know about the property.” So if they’re rental properties and maybe it’s a septic or a sewer and you want to do a sewer scope is to, one of the tenants could’ve shoved something down there and it’s about to crack the pipe or something like that.

Tony:
Or even sometimes little things change in the code and what’s safe 30 years ago might not be safe today. We have a property where it was something about the wall in between the garage, the wall in between your home and the garage, there wasn’t enough fire protection in that wall. So it’s like there’s certain little things that pop up that you never know unless you actually do that inspection.
All right, so our next question comes from Emily P and Emily’s question is, does anyone know that if the housing market crashes, if you can buy a house for investment purposes if your primary residence is underwater? If I’m still making payments, but suddenly it’s value dropped by $200,000 and I owe more than it’s worth. So this is a great question, Emily, and just to paint a picture for the rookies in case that wasn’t clear.
What Emily’s question is, is say you have a primary residence that you bought for $500,000, that’s the amount of the mortgage that you have on that property. Your loan balance is $500,000, because the market shifts, say your appraised value to what your property would sell for today goes from 500,000 down to 200,000. Some big difference. So now you’re underwater on that property.
Emily’s question is, does the fact that I have negative equity, the loan balance on my house is higher than what the appraised value is, will that stop me from buying an investment property? The short answer is no, it shouldn’t. Typically when you’re going to apply for a new loan, what they are looking at to approve you for that mortgage is your debt to income ratio and your credit score. They want to know what is your profile as a borrower. As long as you are current on your mortgage, and as long as your credit score is still strong, you have the ability to get approved for that new mortgage with your debt to income ratio, typically they’re going to approve you for that loan.
What they won’t look at, and I don’t think you’ve ever had this happen before either, when you apply for a home, typically they are not going to go back and appraise all of the other properties that you own to make sure that they’re underwater or not underwater.

Ashley:
Yeah. The only reason they would do an appraisal on your primary residence is if you’re going to use that house as collateral for the loan. So if you’re getting a line of credit or refinancing your mortgage, or maybe you’re doing a portfolio loan where you’re including a rental property in your primary residence, but if you are not using that property as collateral, they’ll never go and ask.
And if they do ask what the value of that house is, you can tell them, I purchased the property for $500,000 in 2021 or whatever it is, and give them the purchase price of that property. Plus maybe if you did any improvements on it to show the value of the property.

Tony:
Yeah, I’m trying to think if there’s any risks associated with that happening where your primary residence goes underwater and as long as you’re like on long-term fixed debt and you have the ability to keep making those payments, I mean, hopefully eventually your house value’s going to rebound. Maybe the only time you get in trouble is if you’re on some kind of like adjustable rate mortgage or some kind of short term debt where the payment is one number today, but a year from now it’s going to adjust up to some higher number. Now you’ve got a mortgage that was 2,000, now it’s 5,000 or some other crazy high number, and now you don’t have the ability to carry both of those mortgages.

Ashley:
And that could happen even if your property has appreciated value, where that happens, where your payment changes, if you are on a variable, you switch to a variable interest rate. But the problem here is if you are underwater and you can’t afford what that new mortgage payment is, you can’t go and sell that property very easily without probably putting some money into the deal to pay it off or taking a big loss on it too.
Thank you guys so much for listening. I’m Ashley, @wealthfromrentals. And he’s Tony, @TonyJRobinson, and we will see you guys for the next episode.